Parents hope to profit from children's education - Macleans.ca
 

Parents hope to profit from children’s education

Buying a ‘university home’ is a worthwhile investment


 

Like many parents of university students, Kim Leone desperately wanted to rescue her child from less-than-ideal living conditions during her final years of university. So instead of paying another $6,000 in rent for the school year, she and her husband decided to purchase a second home that could serve as daughter Sarah’s home away from home.

The initial goal was to provide a safe environment that would offset rental payments and perhaps even pay for itself. But with Sarah set to return home next spring, Kim is now hoping to sell the six-bedroom condo townhouse a few kilometres from Ottawa’s Carleton University for a tidy profit. “In the beginning we weren’t looking when we purchased it of making a profit,” she said in an interview from Hamilton, Ont. “But now, in keeping our eye on the real estate market, there I know we’re going to make a profit.”

Purchased two years ago for about $210,000, the unit in the Hogs Back district is being listed for $270,000. The Leone family put five per cent down and spent $15,000 to create two basement bedrooms. With five student renters each paying between $425 and $500 per month, the townhouse fully covered its costs and gave Sarah a less stressful environment to complete her studies and gain her independence. “It’s the best thing you can do for your child,” Kim said.

It’s a feeling echoed by 22-year-old Sarah, who said she’s thankful for the experience of being a landlord, which included collecting rent and finding replacement tenants. She urges parents to consider purchasing after their child experiences the first year living in a university dorm and advises them to do their homework to ensure rental income can cover costs.

A growing number of parents have turned to ownership over the past 20 years as an alternative to student residences or frat-style rentals, industry experts say. Patrick Walchuk of Keller Williams Ottawa Realty, who helped the Leones purchase the townhouse, said he’s seen interest grow as people have looked to real estate as an investment alternative during the stock market weakness. “People want to put money as an investment into real estate and they figure they can kill two birds with one stone and also provide shelter or accommodation for the kid that is going to university.”

With Ottawa’s real estate prices growing about six per cent annually, the nation’s capital presents an opportunity to make profits, he said. University towns, such as those in southwestern Ontario, are also good locations because prices are relatively low and with good resale markets. He urges buyers to be realistic about expectations. Most buyers end up in condo-style arrangements that include maintenance instead of relying on their child.

High cost cities such as Toronto, however, can be more challenging because it’s harder to get high enough rents to cover the costs of ownership, says David Larock, an independent mortgage planner.

He suggests that rental income should be at least 10 to 20 per cent more than the total expenses for the mortgage, property taxes, maintenance and food costs. “Any time the cost of carrying the property as an investor exceeds the rental income that can be earned, the investors are essentially subsidizing the renters so at that point it’s a better deal to rent than to buy,” he said.

Not exclusively the purview of the rich, buying a university home can also make financial sense for middle-class families, especially those with a few kids heading to the same academic institution. “It’s sort of like hand-me downs. You get a hand-me-down house as opposed to hand-me-down pants,” added Larock.

Like all real estate investments, longer time horizons put the owner in a better position to realize a financial gain and offset some of the costs like realty fees and taxes. Larock cautions that buying may not be the right option for everybody, including those parents with children heading to American universities.

Plummeted U.S. housing prices may seem like a great opportunity. But Larock said a high “shadow inventory” of homes may suppress prices and make it harder to sell down the line. “Personally, I would not be buying property in Florida right now, even though prices have come right down.”

Parents should avoid buying a second home if there’s a risk they won’t be able to pay the mortgage and may be forced to sell it with little notice, he added. With classes set to start in about six weeks, time is running out but it’s not too later to buy a home for this year. The choice of tenants may be limited but many students continue to scramble to find accommodations through to October.

The Canadian Press


 

Parents hope to profit from children’s education

  1. My parents can hardly afford their own house, let alone purchase me a university house. I am paying for rent on my own + tutition, with a fulltime job during my fulltime studies.
    I consider you one very lucky person to be born into a family that is able to provide you with opportunities like that.

  2. I agree with Jenny; housing around most post-secondary institutions seems to be on the higher end (more established neighborhoods, larger lots, etc) so most students can’t even afford to rent near their school, let alone ask their parents to buy something for them.

    Come to think of it, many parents these days can’t even afford to help with living expenses and tuition for their children – so this article seems even more out of touch.

    I’ve seen this idea come from developers, anxious to sell off overpriced condos, not from journalists hoping to assist the average student.

    Where’s the by-line on this article…? Is this perhaps an advertorial accidentally dropped into the pot?

  3. Well I’ve heard of a student or two whose parents bought them a house, but I agree that it’s certainly the exception. I think it sounds hilarious though! “oh you’re off on your own now so we’d like to help you out, here’s a house” :D

    Really though, the idea of having to manage a property while studying doesn’t sound appealing to me. Being a landlord can be a burden, there are many bad tennants out there. There are loads of rental properties around the university, full of tenants who don’t always care a lot about a property they know is only temporary… which then empties out for summer. No, I don’t entirely envy landlords. :P

  4. This is for the upper class citizens that can afford it, and so the rich get richer and richer and the poor get stuck with the short term housing that costs more in the long run. This isn’t an option for me, or even my brother who still has five years to plan his education simply because of our family’s income. At the bottom of this idea, it just makes life harder for normal people, and generates spite too.

    RonAnthony,
    My landlords do reference checks and interviews to screen for bad tenants. They check out your criminal record and everything. Living for them was awesome because all my neighbors were great, and I never had (or gave them) a problem. Most landlords don’t, and if they don’t ask you… you may guess that your neighbors (or roommates) are probably going to be shitty.