Benefits of buying a condo for your university student to live in

Benefits of buying a condo for your university student to live in

If you've got a kid coming to university or college in the GTA, you're probably bracing yourself for a very expensive few years. Tuition isn't exactly cheap…but it's actually living expenses that will make the biggest dent in your wallet. Rentals – especially those within easy walking distance of schools – will take a big chunk out of that RESP. 

But there is a way around that kind of huge outlay. Parents, if you already own one home, using your equity to buy a condo for your kid to live in has some pretty big advantages.

  1. You can buy in a nice building close to school – maybe even one with a concierge and security guards – and know that your child is living somewhere safe.

  2. They can get a roommate who will pay rent and offset your monthly costs. 

  3. Instead of putting all that rent money into someone else's pocket, you'll be putting it back into yours. 

Sales Representative James McNally says parents looking to buy condos for their kids are a big chunk of his business. Now that acceptances are rolling in, many are contacting him to figure out whether they should find a rental or buy something as an investment. 

“People usually start off assuming it's cheaper to rent,” says James. “So I always kick things off with a little math. Right now, average rent for a 1-bedroom downtown is around $2,100. Multiply that by 12 months, and you're looking at $25,000 a year. Multiply that again by 4 years of a typical degree? That's $100,000 – every penny of which is going to a landlord. When people see numbers like that, it gets their attention.” 

So how do the numbers compare if you buy that one-bedroom unit?

You'll have to put 20% down, and your monthly mortgage will probably run you more than rent. But once you subtract closing costs and maintenance fees, every dollar you spend goes towards your equity. You're paying yourself instead of paying down some landlord’s mortgage. (And if there's a roommate, their rent goes to you as well.) 

Plus, however much that property appreciates in the time your child is in school (historical average in Toronto is about 7% a year), that's money that comes back to you. Let’s say you bought a $700,000 condo. 7% of that is $49,000 a year. Multiply that by four years. 
“Appreciation alone will probably cover tuition – and then some,” says James. “And wouldn't free tuition be nice. But even if the condo doesn't go up in value, paying yourself instead of someone else will still have you farther ahead after 4 years because that $100K you would have spent on rent is now equity.”

Another benefit: you can give your child a head start on homeownership

With prices what they are these days, many parents are concerned their kids won't be able to get into the property market. But not everyone wants to hand over a bunch of cash, either. James has the perfect compromise: once they’re done school, take out whatever equity you’ve built up and transfer ownership to your kid. 

“After 4 years, that property will have built up some equity, both from what you paid down on the principal and appreciation over time,” he says. “You can withdraw that equity, and transfer ownership to your (gainfully employed) graduate, who can take over the mortgage without having to come up with a humongous down payment. I've had a number of clients successfully start their kids on the property ladder this way – talk to a real estate lawyer about the details.” 

If your child decides not to stay in the city or can't swing mortgage payments on their first job, you still have a couple of options. You can sell it. Or you can rent it to another student, who will keep paying the mortgage as the property continues to appreciate. 

James says buying is common with families of international students. Many live in places where real estate is just as expensive, or even more so. It happens a lot less with Canadian parents, especially those who live in markets that are less expensive than Toronto. 

“They can’t wrap their heads around spending that kind of money on a small condo, and feel it’s either out of their reach or too high risk,” he says. “But thinking that way means missing out on a great investment opportunity in a market that's been growing consistently for over 30 years.” 

Are you renting or buying for your student? 

See what condos are available around the GTA's universities and colleges on condos.ca – and do your own comparison between renting and buying. If you have any questions or want to book showings, your property.ca agent is just a phone call or email away.

Join over 71,000 subscribers and get market news, insights & expert advice delivered straight to your inbox
Categories