We are coming into a parent investment market that we expect to be very popular.
Parents often purchase condos, townhomes and detached houses for their kids while they attend post-secondary school; it’s a segment of the market that shows no signs of slowing.
But when is the best time to start preparing to sell a student rental? Most leases run from May 1st to the end of April, so the best time to sell is late December through February. You want to start the conversation now.
“The biggest thing with student rentals is location,” says REALTOR® Nick FitzGibbon. “Any direct bus route to the school will be appealing to students. Certain areas are more popular, such as the Gordon Street corridor, for example.”
Students need easy access to the university and nearby amenities. Public transit is key because most students don’t have a car; if they do, you have to pay for parking on campus. If students can be within walking distance, even better.
Many parents will buy a property when their kids first go to school and hold onto it for the four years that they’re there. When their children graduate, it’s time for them to sell.
“It is a great investment to have because there is usually an influx of student tenants,” says FitzGibbon.
Sometimes investors will have good tenants for a number of years and they don’t want to go through the hassle of finding new ones. It’s only when their tenants say they’re going to move out that the investors cash out and sell the property.
Some hold onto their student rentals for the standard four years and then sell, but there’s lots of variation. “Everyone has different investment strategies and different scenarios that work for them,” says FitzGibbon. Some bought their properties brand new—there’s a lot of new development along Gordon Street in certain pockets—so they bought directly from the builder, waited a few years for it to be completed, then kept it until the time was right for them to sell.
This isn’t a new trend, FitzGibbon explains, it has gone on for years.
“I think with the booming housing market, it’s a good excuse for people wanting to get in. It saves you having to pay rent to a landlord—at least you’re paying a mortgage instead of rent. If the market appreciates, you’ve got an appreciating asset that over time can help pay off some of the student debt that accumulates. It certainly is a smart play so long as the numbers make sense and you get yourself a good product,” he says.
People are definitely seeing good returns on these investments.
Sometimes buying a rental for your child is like a foot in the door to becoming a lifelong investor. Property owners get good tenants, hold onto their unit and decide there is no need to sell. Others, once their kids have finished school, keep the unit and hire a property manager to run it.
“It’s a hands-off investment,” says the REALTOR®. “If it’s a cash-flowing property and you don’t need the equity that’s in the home, then there’s really no reason to sell. It’s a great thing to hang onto.”
FitzGibbon is a big proponent of thinking ahead and getting out in front of your next big real estate move. Most tenants, if they’re looking to move, will start their search towards the end of 2021 and early 2022. When first-year students go to the University of Guelph, they attend from September to April—whenever their exams are done. Then they’ll move out from residence into off-campus housing; they need somewhere else to live, so they’ll be looking to sign a new lease.
“Most tenants are out looking at that point in time,” confirms FitzGibbon. “The tenant turnover is a good excuse to sell the place or get new tenants in there.”
Vacant possession vs. tenant-occupied
He also recommends vacant possession, wherever possible. “It can be appealing because it can open up your product to a wider range of buyers,” he says.
When the lease for your current tenants is expiring, you can sell it and provide vacant possession at the end of April. Then new investors can get their own kids in there (or their own tenants) and start afresh.
There can definitely be challenges with selling a tenant-occupied property. If your tenants are in a lease, they have first right to that property. If someone wants to buy it who plans to live in it, they will have to wait until the lease is done before they can actually move in.
“Vacant possession is important because you can capture the parent investors who don’t want to take over tenants; they want to put their own kids in there. Others want to get their own tenants in or live in it themselves.”
With a tenant-occupied property, you’re just taking whatever the current rent rate is. You’d have to run the numbers and determine if the cash flow is right. If it isn’t appealing, you’re only selling that type of product to one person, an investor, says FitzGibbon, narrowing your options.
Student rentals tend to become a hot topic in January. Many think the real estate market slows down or they anticipate the spring market being really hot, but midwinter is definitely investor season. That’s when you’ll see a number of these properties come up for sale.
Before your tenants tell you that they want to resign a lease—making it harder to sell your house in the spring, so you’re more likely to keep it for another year—be prepared. Keep your own plans top of mind.
Wondering where your property fits in? The following areas have a higher density of student rentals in the city of Guelph.
This data is based on properties with in-law suites, accessory apartments, and legal basement apartments, sold and currently listed in the last 180 days.
Old University Area:
- Average price per square foot: $502.15
- Max price per square foot: $915.27
- Min price per square foot: $359.71
- Average price: $956,928
South End Area (Westminster Woods, Kortright Neighbourhoods and Clairfields):
- Average price per square foot: $457.92
- Max price per square foot: $671.60
- Min price per square foot: $320.88
- Average price: $1,050,578
- Average price per square foot: $447.83
- Max price per square foot: $592.36
- Min price per square foot: $301.68
- Average price: $914,500