When contemplating the purchase of a residential rental property there are as many types of properties to buy as there are considerations to take into account.
This article will focus strictly on purchasing student rental property for a member of your family to reside in while attending college or university.
One of your first considerations involves how long you plan on remaining in ownership. Will you hold the property just while your child attends post secondary schooling, 3, 4 or 5 years, or will you continue as an absentee landlord after they have graduated.
If so, who will manage the property, and do the maintenance and repairs for you and how will the added expense of a property manager affect the income generated from the property. If you do decide to sell after your child graduates and the market is not the best for selling can you keep the property until the market turns around?
Secondly, how much are you prepared to put down as your down payment? As an investor (an absentee landlord) you need at least 20 % of the purchase price as a down payment if you require mortgage financing. This will determine your affordability.
If your child is at least 18 years of age the home can be bought in their name so it is their principal residence and therefore when it is sold and there is a profit it will not be taxed as there is no capital gains tax on the profit from the sale of principal residences in Ontario.
Whereas if the deed is in the nonresident's name and it is sold for a profit, the gain is added onto their income and taxed at their tax bracket! Therefore you will need to speak with your accountant and lawyer in advance of viewing properties if this is a consideration.
Thirdly, you need to obtain written preapproval from your banker before getting started. A preapproval letter can save you both time and money and improve your negotiating position tenfold. Don't go shopping without it!
Usually buyers consider the purchase of student income property as a way to offset the costs of their children's education and to make money without as much risk, after all, the landlord lives there! But there is no such thing as a risk free investment!
Will your child stay in this university or college as long as you expect? If not can you or do you wish to still be an investor in a city in which you may not reside? Upkeep is always an issue. Who will do the maintenance that goes along with home ownership?
Even the day to day tasks. Snow removal, lawn maintenance, cleaning and minor repairs? Will you or your child pay the utility bills, cable, Internet access?
Obviously the closer you buy to a college or university, say within walking distance, the higher the rents students are willing to pay. But along with that, the higher the purchase price for the property. Does your child have a car or is willing to take a bus or ride a bike to classes, and are there roommates?
If so, a location farther from campus can be considered. Your initial investment will be less the farther from campus you buy, but so will your rent (income).
Will utilities be included or are they easily dividable? Will you install internet access, cable and phone hookups in each bedroom? Should the lower level or smaller bedrooms be rented for less?
What about adding an extra refrigerator and a washer and dryer to increase your income? Are the bedrooms large and comfortable enough for a desk? Is there one or more common rooms and bathrooms? Some investors provide furniture, tv and microwaves to increase the rental income. Many of these issues require a good Realtor to advise and guide you.
Condo or single family home?
Always an interesting discussion. With a condo the monthly fees cover the snow removal and lawn maintenance issues as well as exterior updates and replacements.
But condo fees usually run between $150 to $200 a month which reduces your income potential. Perhaps you would prefer to hire your own property manager and maintenance person or tackle some of these concerns yourself? Parking can also be extremely limited in a condo, usually to 2 cars plus some visitors' parking.
Also, most condos have 3 to 4 bedrooms maximum and many only one full and one half bath.... all limiting your income potential. Yet prices of condos are generally lower than a single family home.
Once you have decided whether it's condo or single family home, arranged a preapproval letter and spoken to your accountant and lawyer, you should begin your search for a qualified property with a professional Realtor.
Our real estate team specializes in selling residential student income properties. Not only can we provide the information you need, set up your showings to save you time and familiarize you with our marketplace, we can offer you rental applications, lease agreements and advice on all aspects of this specialized area of real estate.
We have information on fire and hydro codes, rental legislation and average rents. We are prepared to assist you with advice on where to advertise for tenants as well as help you review all the issues mentioned here.
Our team can also recommend other experts we work closely with who may be necessary to ensure you make the best investment decision possible.
Student income property is not only an area we specialize in, it is a specialization we enjoy working in!
Should you wish to set up an appointment to discuss your real estate needs please feel free to give us a call through our office at 519-471-8888.