Parentonomics – Top 5 Reasons Why Pre-construction Condos are the best way to invest in student condos
CONNECT asset management
February 12, 2019
For years REITs, pension funds and other institutional investors have understood that student housing close to colleges and universities provide a consistent high performing investment. The proposition is simple, buy near a major post secondary institution and rent to students who require accommodations. Small landlords have also done well owning homes that they rent to groups of typically 4-6 students.
In the last decade, a new asset class has emerged, “luxury student condos” have given investors a third option for investing in student housing. CONNECT asset management has personally invested in over 30 units and continue to enjoy tremendous appreciation in our overall investments as well as substantial rent increases year over year. Our experience has been that property damage by students has virtually been a non-issue, but the real surprise has been the strong resale market from parents looking at shelling out $1000-$1600 a month in rent or will pay a premium to buy the units outright.
Here are the top 5 reasons we recommend 1 to 2 bedroom pre-construction student condos as the best way to capture the market.
PARENTONOMICS: Initially, in the pre-construction phase, student condos are marketed to investors who are looking for typical investors returns. By the time suites are ready for occupancy, parents looking for a place for their children, will pay a premium above the ROI’s that investors are looking for. Parents often times do not focus on lower price points and are less interested in being landlords. They just want a place for their child and sometimes a roommate to live in. By paying down their investment mortgage instead of someone else’s, parents can dramatically reduce the overall cost of their child’s education.
LIMITED SUPPLY OF 1-2 BEDROOM UNITES: In a market like Waterloo for example, less than 2% of housing inventory is made up of 1 and 2 bedroom units. While there are lots of places for students to live, there are very few options for 1-2 people. IN8 Development’s Sage Platinum I and II, for example, recently completed two buildings almost exclusively of 1 bedroom units and leased them in record time due to high demands.
CONFORMING USE: Houses with six bedrooms for example, were typically not built as student rentals and often do not meet all zoning and code requirements. In many markets they are subject to rooming house licenses and additional regulations. All of this makes houses far less attractive for parents.
EASE OF OWNERSHIP: Like any regular condo, cleaning the halls, taking out the garbage, and shoveling the snow are all taken care of by the condo corporation. There is no need for a property manager or any time commitment on the owner’s part. They are much easier to finance than larger units and houses because banks look at them more favourably. Often sold fully furnished, all the student must do is move in their clothes and personal items. No moving vans or heavy lifting! For investors, property management costs are lower because typically one manager controls the whole building.
DIVERSIFICATION: Typically, sold with full property management and rental guarantees, they offer exposure to different markets. Enrolment often increases in tough economic times because people go back to school to upgrade their skills.
Just remember to make sure you do not have it rented when it is time to sell. Inventory is so low the student will not want to move out if they have a valid lease because there will be no where for them to go. Reach out to us to find out what hot markets could be a potential investment for your future student rental investment.
Canada Real Estate Investing - Weekly Roundup July 15, 2019
Last week we saw vacancy rates in Toronto rise (ever so slightly!), which might mean that rental rates will likely level off (and perhaps even come down… ever so slightly). Hamilton makes headlines again as we see the city becoming more of a metropolitan area with new condos that are very popular for young individuals and first-time buyers looking for low-cost city living when compared to Toronto. And we have great news for variable mortgage holders with Bank of Canada maintaining its interest rate!
You may have heard some of the recent reports stating that a good chunk of Toronto Condos have a negative carry; meaning the inward cash flow on a property—the money received from rent—does not cover the cost of mortgage and condo fees at the end of each month.
If you know what you’re doing, negative carry is hardly a concern.