There are two markets investors focused on student rentals should look at, says Shane Buckingham. But is there enough time to do something more?
Edmonton achieves the mark
Investors seeking a stable market for student rentals, with plenty of cash flow potential, should check out downtown Edmonton. The extensions to the light rail transit (LRT) system in past years have opened up a number of new investment areas in this burgeoning market, while recent softening in real estate activity across the city has provided a number of opportunities to get a deal ahead of the Edmonton’s next energy boom.
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U of A
The University of Alberta, founded in 1908, is a leader in health, science and agriculture. More than 37,500 students attended the university during the 2009/2010 school year, with nearly 4,500 coming from other provinces and more than 5,000 coming from outside of the country.
The key indicator of this market, however, is that roughly 15% of all students enrolled live in off-campus housing. That’s a market with more than 5,600 students.
The university’s Edmonton campus in particular is drawing an increasing number of students with its expanded medical facility, the Edmonton Clinic.
The clinic, which opened in 2008, was part of a more than $900-million joint effort between the university, Alberta Health Services and the province to construct a learning centre for nursing, dentistry and medicine that would increase health-student enrolment by 80%.
In four years, the university has seen the number of medicine and dentistry students steadily rise to more than 1,800 in 2009, up from 1,500 in 2005.
In addition, nearly 1,500 students had enrolled in the university’s nursing program in 2009.
But by far, the most popular area of study at the university is the sciences. Nearly 6,200 students enrolled in science programs during 2009.
The solid reputation of the university should translate into even more growth, which puts investors offering student housing around its campuses in a good position.
The student market
The vacancy rate in the area surrounding the Edmonton campus has been feeling some upward pressure since last year, rising to 2.6% in 2010, up from 2% in 2009. But that trend doesn’t mean demand in the area won’t remain steady, says Brent Davies, a broker at Davies Management and Realty Ltd. in Edmonton.
Neighbourhoods like Garneau, Strathcona, Parkallen and Queen Alexander will always be in demand because of their proximity to the university and Whyte Avenue, he says. “Whyte Ave. in Edmonton is like Yonge Street in Toronto. It’s the trendy area where all of the younger people want to live,” he adds.
Still, the LRT has taken some students farther away from the university in the search for more affordable housing. But that’s not a bad trend for investors, Davies says.
“The development of the LRT has opened up new opportunities for investors in other parts of the city where the housing stock is more affordable. Now they can get properties in Clareview Campus, for instance, for less than $300,000 and still get competitive rents,” he says.
Halifax: makes the grade
Prices in South Halifax may be a little high, but that doesn’t mean a solid investment can’t be made around Dalhousie University. There are plenty of great investment properties in the area, yet there aren’t nearly enough to meet the growing demand for student housing, says Halifax Investor Richard Killeen-Payne.
The chartered accountant, owns a triplex in the Hydrostone neighbourhood near Dalhousie. His investment has been nothing short of stellar. His one-bedroom unit rents for $795 a month, while the other two two-bedroom units, rent for $1,700 each, leaving him with $1,100 a month in cash flow.
The second reason Killeen-Payne touts this investment is the considerable price appreciation it’s experienced since he bought it in October 2008. He purchased his triplex for $475,000, but in just a little more than two years, the property’s value rose to $595,000.
Still, Killeen-Payne, like any student-rental investor, has had to deal with a fair amount of tenant turnover, yet he says he’s never had to deal with any vacancies. “That’s another reason this property is so attractive,” he adds.
The success of Killeen-Payne’s first investment has given him all the incentive he needs to find even more multi-unit properties, which he’ll most likely purchase and manage with joint-venture partners.
Understanding the local market
Killeen-Payne says investors must at least buy duplexes or triplexes to see a good return on their money, since the price point in South Halifax is much higher, with detached homes and duplexes ranging on average from $500,000 to $650,000.
“But don’t discount the area just because of the price,” he says. “It’s very stable in terms of the economy; we don’t experience the peaks and troughs like other provinces, such as Alberta, and Halifax keeps growing.”
Plus, investors have a large market near Dalhousie since most students live off campus. In fact, only 2,200 of the university’s 16,900 students live on campus. The university was unable to provide CRE with a figure pinpointing how many students live specifically in off-campus student housing and how many still live with their parents. But the university did say that nearly 45% of their students are from other provinces, and nearly 11% are from abroad.
That means more than 9,450 students studying at the university come from out of the province. So even if all 2,200 residence units were occupied by students coming from other areas of the country and world, there would still be about 7,250 students who would need housing.
One might think this thriving market for student rentals would be short on supply, but that’s not the case. Killeen-Payne says there’s a good supply of duplexes and triplexes around Dalhousie.
“Recently, we’ve certainly seen more duplexes and triplexes listed than I would have expected for this time of the year. A lot of it, I think as well, is that people are starting to see mortgage rates change a bit and the uncertainly has caused them to want to cash out now, as opposed to hanging onto it for a little bit longer.”
Investing farther out
Steve Ritchie, an associate broker with Keller Williams Realty of Halifax, says that the elevated price levels near the university have some of his investor-clients looking a little farther away from Dalhousie to find value.
“Due to the high average sale prices in the south end of Halifax, we find that investors in these types of property often gravitate to other areas of the Halifax Peninsula that are also reasonably close to the universities,” he says. “The west end of Halifax, for instance, has also seen marked increases in property values over the last few years, and student-rental demand definitely drives the bus a good part of the time.”
The average price of a detached home near the university is about $650,000 and the average per-bedroom rent is typically $600 a month, or $650 a month for a fully furnished bedroom, Ritchie says.
But if investors look in other neighbourhoods on the peninsula outside the south end, or in areas like Armdale, Timberlea, Clayton Park, Rockingham and Fairview, they may be able to find houses listed between $300,000 and $400,000 and still get as much as $600 a month in rent for each bedroom.
“Demand is always strong for rentals in these areas – which is why property values stay higher there. It is also why there are always buyers and investors looking for income properties in these areas. Strong rental demand equals low vacancy rates and higher rental amounts.”
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