Student Housing: Do You Have the Right Perspective?
For many potential and active rental property investors, the first words I invariably hear when the topic of student housing comes up is "Screw that!" Allow me to preface the article by saying that while there are legitimate reasons for investors not to include this segment of the market in their portfolio, sometimes misconceptions are the culprit. Student housing may be too easily dismissed. Investors have made a lot of money in student housing, and so they should be well advised to consider the potential. As with many things in life that need to be examined, to invest in student rental housing requires that each city, school and property be treated as unique and analyzed to understand a property's strengths and weaknesses. In this article and future ones, I'm going to explore the risks and rewards of renting to students, and the opportunities that exist for higher returns that can be realized by the sophisticated investor.
If you use Youtube as a potential sources of ideas for rental real estate, you might have stumbled on to this video: https://www.youtube.com/watch?v=RQHVNqyIoHo. The video is a promotion for the University of Waterloo. The upbeat and energizing message could leave you thinking that buying a rental property for students is a great idea. Who would not want to have these happy and positive future professionals as renters? It seems like it would be even easier to rent to students than other demographics. If you rent in one university town, then why not another? You could manage the properties from out of town.
On many days, this scenario is the case. But on other days, you might feel otherwise. Take a read through the following article on Waterloo's St. Patrick's day at https://www.therecord.com/news-story/8334900-st-patrick-s-day-crowd-significantly-larger-than-last-year-police/. To provide a more complete perspective of what you will be dealing with renting to university students in Waterloo watch this video at https://www.youtube.com/watch?v=fm_PqvFkbxY. This video was shot on a street where I use to rent and manage a number of properties. Some of the "joyful" experiences during this day I experienced include:
- a renter falling through a porch
- a deck, elevated ten feet up, swaying due to strain
- a girl leaving her house getting urinated on
- numerous window screens, window panes, and cars damaged
- torn up lawns and gardens
- thousands of pieces of glass and garbage needing cleaning up the next day
The issues for the porch and the deck were caused by the combined weight of the partiers who were jumping/dancing and putting such a strain on the structure that collapse was imminent. Unfortunately, it appears that it doesn't matter how many years you've spent in university studying engineering, apparently by quaffing enough beer you tend to forget what you've learned.
The costs to the property owners were in the tens of thousands. Police and by-law provide limited assistance. Landlords have the option of contracting security guards, but this is costly and often fails to prevent property damage.
It's not just Waterloo. Every university town has its challenges. You can get another feel for this by reading about what homecoming at Dalhousie is like here: https://atlantic.ctvnews.ca/homecoming-hangover-dalhousie-does-damage-control-after-wild-weekend-of-partying-1.3635009.
From attending networking events and talking with people who are making decisions about where to invest in Canada, some people have suggested to me that these "special event days" like St. Patrick's Day and Oktoberfest can be avoided by avoiding university towns where these special days take place. To that I caution¾be wary! A house in even the quietest of towns can still host a rave. The city fathers and mothers might then regard student housing as the next boogeyman to be legislated out of existence or a cash cow due to arcane regulation.
I can hear it now. "Hold on, Adam," you might be saying. "A little property damage doesn't scare me. I've had that happen before and still made money." I know: cash flow isn't the only way to make a good go of things. From watching the first video, who wouldn't want to buy a property near the university of Waterloo? Even better than the rental income, I would own a rental property in a city with a terrific future. With two highly regarded universities and colleges in the Waterloo area, the student population will likely increase over time. Graduates might end up taking jobs in the Kitchener-Waterloo-Cambridge area, also positively impacting rental demand while they save money for a down payment. Eventually these former students will become purchasers and help to further increase real estate values in the city.
Now you might be saying, "Adam, you know what? You have a point. What do I need to do diligence-wise to consider investing in student housing?" I suggest you research and consider:
- provincial code compliance
- municipal by-laws as certain areas have a rental licensing regime
- having advanced lease-up needed to maximize revenue (in other words, market your properties well in advance of a new term so you don't risk vacancies)
- avoiding properties with awkward unit layouts
- the price-return equation for properties with four or more bedrooms per unit (more students in a property equals higher rents, but can this offset the higher costs associated with purchase price and management?)
- risks of new builds in an area that might saturate the market
- more frequent renter change-overs
- additional marketing costs
- higher property management fees
- additional time that must be scheduled for property management if you do it yourself, or to liaise with your property manager
- insurance and financing, which may be harder to obtain and potentially more costly
So, if the cautionary tales in this article have not deterred you, why would you consider investing in student housing in Ontario? There are many good reasons:
- a significantly higher rent-to-purchase ratio
- reduced landlord and tenant board stress and costs
- a more positive renter interaction experience when self-managing. Lower chance of material damage. (Yes, you did read that right.)
- inter-unit conflict and/or character concerns, leading to vacancy or harder future renting, are unlikely
- with proactive management there is a much higher chance of getting closer to 100% occupancy and rent collected for your portfolio
I'm happy to let you know that should you choose to, with a bit of planning, driving and time, you can net more money by self-managing your rental property. In future articles I will explain what to be aware of in acquiring student rental properties and managing them; how to maximum your income and minimize your expenses; and provide tips on how to get the most out of third-party management if you choose that route.
Adam Hoffman is a salesperson with Re/Max Realtron Realty Brokerage Inc. and president of Hoffaco Property Management. He would appreciate your feedback on this column. Please text or call him at 647-822-1620 or email at email@example.com with any questions. Property managers, potential and current property owners, and everyone else are all welcome to get in contact. He is here to help. Not intended to solicit buyers or sellers currently under a contract with a real estate brokerage.. His hobbies include talking about student housing, rental marketing and property management procedure.
You can view additional columns through www.hoffaco.com/blog and www.yongelife.com/blog Prior to any purchase, please undertake proper due diligence with your respective professionals. Toronto real estate agent Adam Hoffman also has extensive knowledge of, and can also provide you help in finding houses in Waterloo Region and investment properties in the greater Toronto area.