Getting to the truth about the student rental market

While rental prices gradually increase in most Canadian housing markets, the prices for student rentals remain stagnant, making the property type a challenge to investors, according to some experts.

“The numbers are not conducive now to investing in student rentals,” said Nick Vescio, an investor and founder of The Cavani Group, who specializes in the Hamilton market.

For instance, Vescio has almost 200 tenants, nearly half of which are students. “If I get $450 in monthly rent, that’s the higher limit for me,” he added.

“Areas like Kingston or Kitchener-Waterloo are getting more, but in Guelph, for instance, the cost per rentable room is much more expensive. You’re approaching the $100,000 mark, whereas in Hamilton it’s high $50,000 or low $60,000, depending on the property.”

Joseph Battaglia, a real estate investor and broker at Mortgage Intelligence, has had the same experience in London, Ont., despite the fact that Fanshawe College is growing.

“As far as I’m concerned, student housing is out of reach for most investors, because of the price,” he added. “You can’t get enough rent [to cover the cost].”

One way to avoid the inevitability of lower rents in student markets is to buy in an area where there aren’t any regulations around the number of student rentals per house.

“In some areas, such as Oshawa and Whitby, that number is limited to only four,” said investor Gillian Irving. “In this case, it would indeed be difficult to find student rentals that cash flow.”

Irving’s model for student rental investing is to find houses in locations that can legally and comfortably fit six or seven students. “With six or seven rooms (with rents between $450 and $500 per student), I find that student rentals will actually cash flow much better than single-family homes.”

Tim Collins, another investor who specializes in student rentals, has a similar model. He looks for a price around $300,000 or $350,000, and then rents out six rooms at around $450 or $500 per month.

“The real magic of making student housing work is buying where the market is affordable,” he added. “The rents are going to change massively based on where it is.”

For instance, in Toronto where average house prices are around $700,000, renting a house out to University of Toronto students at a profit will be a real challenge.

“In Ontario, the best markets have traditionally been Hamilton, St Catharines, Kitchener-Waterloo and London,” Collins continued. “In Kitchener-Waterloo and London, the prices are getting higher, up to a point where it is more difficult to make it work.

“But I know people that do really well in Peterborough. You pick up a house for around $250,000 and put six students in, and you’re doing very well.”

Irving added that, if an investor is renting a superior student home, which is well maintained, in a great location relative to campus and/or bus routes, and includes the amenities that students want, such as internet and laundry, there is no reason to charge minimal rents.

“Students, or their parents, will pay above-average rents for properties that stand out above the rest.”

Gillian Irving and Nick Vescio will both be speaking at CREW’s Investor Forum

Find out more and register for the InvestorForum, which will be held at The International Centre in Toronto on March 28 and 29, 2015.

Subscribe to the May/June issue of CREW to learn more about the student rental market