Should We Buy a Student Property for Our Child? - Kerr Financial
Financial Planning
Should We Buy a Student Property for Our Child?
Category: Financial Planning, Investment Management Tags: financial interests, integrated services, Investment, Rent or Buy, University, wealth management strategy

The decision to rent or buy?

It’s an exciting time for the Smith family. Anna, an only child, begins university in the fall, where she will live on her own for the first time. As a first-year student Anna must reside in on-campus housing, at an annual cost of roughly $15,000. For the following years, she has expressed an interest in residing off campus with friends. Anna’s parents will begin researching the cost and availability of near-campus rentals in the coming months, however they also know of families who are following another approach.

3 Key Points to Consider: cash flow, timelines & getting proper advice

Increasingly, parents are purchasing student condos for their children to reside in. Some are even buying properties with extra space and defraying mortgage costs by renting out rooms to other students. The decision to buy is typically based on cash flow comparisons, in that funds spent on rent will go towards an investment instead, with potential gains helping to offset tuition fees. Cash flow is indeed a key financial consideration. Overall will it cost more to rent or buy, and by how much? The answer will differ for every family. Timelines are also critical, as real estate values can fluctuate significantly and Adam’s parents may not be able to count on realizing a profit over a short time period. The Smiths’ first step should be to speak to their financial advisor. They can help assess options by modeling possible scenarios from both a cash flow and overall investment perspective, including tax implications. Other professionals such as realtors, insurance providers and mortgage lenders can also provide valuable financial information, such as housing expectations in the area.

Other Considerations

Along with financial concerns, the Smiths should address key personal considerations. Most revolve around Anna’s maturity and readiness to both maintain a home and possibly function as a landlord for one or more tenants. Preparing a lease agreement for Anna and her roommates can help ensure that everyone respects her parents’ investment. If Anna will participate in paying rent, her parents should ensure she has the means and budget to afford it, otherwise they could be writing more cheques later. Besides, helping Anna establish a lifestyle she cannot support could enable poor financial decision-making down the road.

It is similarly important to reflect on whether Anna (and her roommates) can be relied on to maintain the property. Normal wear and tear happens, but normal can swiftly become excessive. Even if all tenants are willing to take pristine care of the condo, the Smiths should be prepared for repairs and maintenance.

Another non-financial consideration involves the probability of Anna graduating – whether from the school she initially enrolled at or at all. The statistics on this are rather eye-opening. A recent Maclean’s poll of the top 49 Canadian universities reveals that over a seven-year period, 71% of students received a degree, and the remaining 29% (nearly one in three!) either dropped out, switched schools, or had yet to finish. Moreover, if Anna wants to spend a semester or two abroad, are her parents comfortable with subletting to another student? Will all tenants occupy the property during summer months, or will there be vacancies? Who will live in the condo after Anna moves on?

If you would like more information on this subject, please do not hesitate to contact us.


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