Tips for buying Student Investment Property

A. The key financial questions:

There are 2 components to real estate investment – capital gains and cash flow.  Capital gains is the profit when you sell which is the most publicised part of real estate investment. Astute investors consider capital gains as the gravy. Their main concern is does the investment makes financial sense in that all my costs, including financing, are covered and there is some money left over for contingencies. 

 Here is a investment model for 5 bedrooms @ $450 per room plus utilities:

 Purchase Price                                          $250,000

 Down Payment (25%)                               63,000

1st Mortgage                                            187,000

 Financial Costs (4.5% P&I)                        1,035

Property Taxes                                              275

Insurance                                                       140      

Total Monthly Cost                                   1,410

Monthly Rents($ 2,250) – Monthly Costs($1,410) = Cash Flow Per Month($840)                               

Note the return on investment should include principal payments (about $200 per month for this size of mortgage).  Therefore the actual return on investment is ($800 + 200) = $1000 per month. Note this does not include management-maintenance costs which can vary according to the condition of the property and whether the owner will be doing the property management.

CAUTION: Often properties can show good cash flows with the information given by the sellers. One must do due diligence to confirm that this correct information and is supported by signed leases and also several years of records are required to make sure the property is not subject to vacancies.

 B. Other key items to consider:

•  How close is it to campus – is there easy access to public transportation?
•  Are the bedrooms a decent size?  Today’s students want large bedrooms to accommodate a double bed, a desk, a computer, hi fi equipment and a T.V.
•  Many of the students are accompanied by their parents when looking for accommodation.  Ask yourself the question “If these were my children would I want them to live in this property?”
•  These are important questions to ask yourself because this will determine whether you have a viable long term investment.

 C. Condition and maintenance issues:

 Poor condition will require repairs and these costs should be added to your analysis in A. In addition to cost of repairs and other maintenance issues you need to factor in how long will the premises be vacant because of repairs. If you miss the start of the academic year you may have to carry a vacant property until May of the following year or longer.

 D. Your Real Estate Agent:

Find a good real estate agent that is knowledgeable about student rentals, zoning and licensing, and also the market you are interested in, UWO or Fanshawe College. These are very different student markets. There are other specialised student markets, for example MBA and graduate student markets.