Halifax: Student-rental investment hotspot

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. Killeen-Payne, a 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."

Ensure it's legal

While the multi-unit strategy shines as one of the best, investors must make sure each suite in the property is legal. Killeen-Payne says investors can log on to the Halifax Regional Municipality's (HRM) website to determine the zoning of the property. HRM District 13 Councillor Sue Uteck warns that the municipality actively investigates multi-unit properties it suspects do not meet zoning requirements and has been "very aggressive" in prosecuting landlords with illegal suites.

So before buying any properties, it's first important to look at the home's zoning, but also, Uteck says, it's equally important to check the history of the property. "What we call history could be how many times bylaw enforcement have been at the property or how many times regional police have been there," she says. "The chances are if you want to do something to improve your property or further subdivide it, you won't get any agreement from the neighbours or the city if the property has a bad history."

While the legalities are important, Uteck does not want to give the impression that the HRM is not accommodative to investors. In fact, she says it's one of the best municipalities in the country for accommodating students' housing needs while addressing the interests of the local residents and property investors. For one, the municipality, unlike many Ontario cities and towns, has no specific restrictions on student-rental properties. Landlords must only adhere to the HRM's minimum standards bylaw.

Uteck says investors' freedom to purchase properties in the neighbourhoods surrounding the university has produced an "eclectic mix" of students living alongside average homeowners, unlike universities, such as Queen's and Bishops, where whole neighbourhoods have been taken over by student-rental investors. This diversity has contributed to sustained price levels, making Halifax a prime destination for investors looking to build equity and make cash f low.

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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