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The $40,000 back-to-school condo question
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The Toronto Star- By Rubina Ahmed Haq
As parents pack up their kids for another year of school, some may wonder with mortgage rates at near historic lows, if it makes more sense to buy than rent. Over the course of four years, they’ll be paying close to $40,000 for accommodation, with nothing to show at the end of it.
The minimum rent, for student accommodation near the University of Toronto downtown campus, is $7,200 a year. That is only for a room and does not include meals.
Staying in residence is also expensive at St. Mike’s College at U of T expect to pay $11,175 at Sorbara Hall for a double room which includes meals 7 days a week. At McGill University’s Royal Victoria Hall, it’s $11,648 for a similar all-in plan.
That was the decision that faced Brampton resident Harry Malhi and his mother when he enrolled at the University of Toronto in 2005. With his mother’s help Malhi bought a $220,000, 2-bedroom condo in Toronto’s Chinatown.
For the next three years he paid himself, instead of a landlord and with the help of roommates paid down the mortgage. When he graduated with a degree in political science in 2008 he sold the condo and pocketed a profit of $70,000.
“If you’re paying rent you might as well be paying mortgage instead,” he says. “In the end it all worked out and was worth it,” Malhi says.
Luckily, Malhi bought his condo in the middle of a strong housing market in Canada’s largest city. It could have gone the other way and he might have ended up either being unable to sell the unit, taking a loss or having to wait for a better time.
There are plenty of pros to buying a condo, including the tax advantages of being a landlord, owning property which can appreciate and ensuring your child has nice a place to stay.
On the other side of the equation, buying a property requires a big commitment from the parent and student. Are you up to it?
Some things to consider:
• Can you afford to buy a unit in an area near a university, or that is attractive to students?
• Can you carry the mortgage, plus taxes and other bills if your child can’t find a roommate?
• If you live in another city, is your child able to find tenants, collect rent, deal with tenant complaints and still be able to concentrate on their studies.
• Do you plan to sell the unit at the end your child’s degree or hang on to it?
• The shorter the time you hold it, the greater the risk you can’t sell for a profit.
• If you hang on, how would you manage renting and maintaining the unit?
Malhi came out financially ahead, but Richard Silver president of the Toronto Real Estate Board, says that isn’t the norm.
“I’m of the opinion you buy for a longer term and you are always going to be safe,” says Silver, a real estate agent.
The big benefit of renting is that it has less risk. You know what you’re going to pay, but not the worry about selling something when university is done.
But, most landlords require a 1-year lease, that often leaves students scrambling to sublet. You can end up paying rent for an apartment they’re not living in.
A landlord can also ask a tenant to leave with 60 days notice, if they’re selling the residence. This could create an awkward situation for a student away from home.
Real Estate lawyer and Moneyville columnist Mark Weisleder says owning can be twice as expensive as renting, but believes with a four year horizon buying is better in the current interest environment.
“If the parents have the money it makes more sense to buy, the kid has a place and he doesn’t have to worry about landlords.” Weisleder says.
Tony Balfour from Calgary could not agree more. The former teacher turned real estate investor owns 35 properties, consisting of single-family homes and condos in Alberta and Saskatewan. When his daughter decided to enrol At the University of Lethbridge, this September, he gave her the $70,000 down payment to buy a property near campus.
“The deal is she will manage all the tenants in the house and in the end it’s her decision to sell.”
Balfour wants to encourage his daughter to hang on to the property. With the average cost of student housing being as high as $8,000 a year in Lethbridge, he believes it’s a money maker.
Barb Sukkau is the President of Ontario Real Estate Association.
She says having your child as a tenant is a bonus. ”If someone is going to make a commitment to be in a town for four years and they are comfortable with the responsibility I think that’s a great investment.”
The best first move for anyone debating what to do is to use a rent vs. buy calculator to make sure you are making a well-informed decision.
Be prepared for a worse case scenario. Don’t ever buy an investment property assuming it will always be rented and have no major maintenance issues.
Many people, who have bought homes in this low interest rate environment, are very happy. But always remember to calculate your affordability at a higher rate. Malhi and Balfour have both been lucky but that may not be the case when mortgage rates start to rise.
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