Student Rentals in Southern Ontario

[Rayce Vyse]

Hi I have been searching for a new deal my market Brantford is so over priced at the moment I have been looking at other markets and other niches such as student rentals Im interested who ever has experience in this market and your  input good and bad with the student rental market. I also been looking in London and St Catherines Ontario thanks.

[Matt Geerts]

Have a chat with Matt McKee and Dylan McNaughton about London students (sorry, I can't @mention on my phone)

[Thomas S.]

Student rentals have a higher cash flow but require more hands on management than a regular rental. You need to approach it from the perspective that it is a specialty market and requires somewhat different screening, management and operation practices than the norm. Aside from modifying some basic business practices it is a rental as any other.

[Mike McCracken]

Also note that dealing with college vs university students is different.  With college you tend to have a lot more turnover as they are 2-3 year programs vs 3-4 with university.  Here in London, stuff around the university is more costly but demands higher rent than the college.

Having 5 people on a lease is also a challenge.  If you put them together, they try and come to you when there is an issue with one of them.  If not, you have to hit the 'season' to get your place booked.  

If you get helicopter parents and Jimmy\Susie has issues, they can be a real PITA too.

London and I suspect many other cities are very hostile to student rentals.  Do your research.

I would not recommend students from a distance unless you have a really good property manager.

It is definitely good money but its a lot of work.

[Stephen E.]

I have looked into this and my own sense is that the additional management time and turnover are not adequately compensated by increased rent. Also, properties near universities tend to be expensive, and rent to value ratios do not work in your favour. I work and have a bunch of rentals that need to be managed; time is at a premium. Finding new tenants every year, dealing with room mate issues, damages, having to include all utilities and even TV and internet (many student landlords do this) all raise costs. I have looked at the rents you can get for a three bedroom townhouse renting to regular people and then if it is rented by the room to students. From the current rents I can see on kijiji both for renting a house on its own or renting by the room I just don't see a premium in it. Plus, I know what students are capable of. If you got into a niche and rented to graduate students for a two year program or something like that I could see some improvement. But most student landlords are going to take the first type of students that come along. That means new tenants every year, showings, screenings and the rest. For those kinds of properties I prefer working families that get settled in. Less drama and lower overhead.

[Rayce Vyse]

Thanks for all the insight I have been finding the same as to what Stephen is finding that it does not make sense if we have to provide utilities plus cable and internet. I think the only way is if your renting 5-6 rooms in a prime location which will be more expensive to buy. The rent just isn't there if landlord has to provide all the utilities and some basic furniture coupled with the high turn over rate.

[Stephen E.]

The other consideration is that corporate landlords are getting into the student housing market in a big way. There are a variety of corporate buildings aimed solely at students going up in London, for example. There is one that is a condominium building that is being marketed to investors, they guarantee you a tenant for a period of time and offer certain property management services. My sense is that small investors are at real risk of getting burned as supply increases along with vacancy rates for student oriented properties. Add to that the ongoing regulatory sensitivity and interest of council in restricting and regulating student housing and you have a number of significant obstacles. I think people hear 'student rentals' and they think there is a constant supply of tenants and they don't have to do much to look after the property. In fact as supply increases there will likely be a sifting out of tenants. Those properties near universities are expensive and have been bid up by novice investors. What are they going to do when those new buildings keep coming on stream, let alone when interest rates rise?

[Mike McCracken]

I agree with you completely Stephen.  My student rental was on Roehampton, which is right next to the college and what you would consider a prime location.  I saw the new tower coming up and knew it was time to get out (didn't like dealing with the students anyhow).  Talking to the other landlords who are still there and they are seeing the flow get smaller and smaller each year.

And London is definitely going to make much harder going forward.  If it does not cashflow at 3 rooms and as a non-student rental I would not go near it.

[Stephen E.]

@Mike McCracken Your experience confirms what I have seen. The influx of corporate capital to the student landlord market can only be bad news for small student landlords. There will be an excess supply of units and small landlords will be competing against product designed expressly for millenial tastes. I don't see how you can compete effectively without significant investments of cash, and for a declining rate of return. Renting to regular working families, retirees and young professionals makes more sense. They move but they usually don't move every year. And there is less drama. With good screening and some luck you can minimise rental losses, and if you only buy good units in good condition you get a better tenant. That is what I have been doing anyway.

[Mike McCracken]

Quality is the key.  Good quality product in good quality neighborhoods.

The beat up old victorian houses with knob and tube and galvanized plumbing look good when you apply 'normal' operating parameters (and the can be sometimes). My experience is that they are always a money pit on repairs and time if you want to improve the tenant profile or a management nightmare if you grind on them.  

I just bought a place that I paid more than I 'should' have but its 32 years old, purpose built and in a decent hood. I have a day job and I want minimal hassle even if it means getting rich slowly... :)

Before I forget, LAREIC (London Area Real Estate Investment Club) is having its monthly meeting next Wednesday the 25th and @Claude Boiron is going to come down and speak to us. Message me if you want more info.

[Matt McKee]

My experience with student rentals has been different than those of other posters. 

I have 3 student rentals by Fanshawe College, and a fourplex near downtown that sometimes rents to students. 

I've had the 3 Fanshawe properties for 6,5, and 4 years. Student rentals can be management intensive, but like any rental property a lot of it comes down to the screening of tenants.

There are two very different student rental markets in London Ontario. Western and Fanshawe. Fanshawe is all about cashflow, where Western has greater potential for appreciation.

Note: for anyone not familiar with the London Ontario market, we have rental licensing... Unless otherwise stated (grandfathered in) assume a property is only allowed to have 5 bedrooms. If renting an illegal 6 bedroom student rental, you run the risk of fines etc.

Looking at Fanshawe first: there are a few different neighbourhoods that cater to Fanshawe students. 

1. Thurman/Fleming/Prosperity&Farnsborough (Roehampton could be included in this as well). These are newer properties (all but Roehampton are around/under 30 years old - not sure on age of Roehampton). These properties usually sell for 35K-55K a bedroom (Though I'd suggest if buying, you want to buy under 50K/bedroom). These neighbourhoods are almost exclusively houses that are used as student rentals. (5 or 6 bedrooms). The rents for a bedroom are 375-525/mo. In addition to the R1 Building (Residence on Frist - purpose built apartment building for students, that's directly across the street from Fanshawe) These are the first tier properties. Easy walking distance, newer buildings etc. 

The R1 building (purpose built student rental) has created significant competition for Fanshawe rentals. However it is priced at the higher end of the spectrum (all rooms are above 575/mo and I believe go upto 650 each). They have onsite security/front desk and have a feeling very similar to living in a residence. A significant portion of students find that restrictiveness undesirable. (They want to be able to have parties, smoke quasi legal substances, they want to have bbqs and a backyard to call their own etc) Also believe it or not some are still price sensitive (if they don't have an unlimited student loan or bank of mom&dad).

My 3 Fanshawe rentals are all in this neighbourhood. Renting for 435-495/mo on average. So far I've had no problems finding students to rent my properties.

2. The secondary area/tier I consider to be the Hartlet/Dale/Hansuld st's as well as the homes north of cheapside (ie Mark,Micheal,Beckworth) These houses are likely older and have more deferred maintenance and our likely smaller homes. Most do still have 5-6 bedrooms. These home often rent for between 350-475/mo. Again these homes sell in that 40k a bedroom room range. I believe these homes have been harder hit as tier 1 started attracting tier 2's normal target market.

3. The fringe area, this is homes west of Highbury or near Dundas/Huron/Quebec st. These are the neighbourhoods I'd be most concerned about owning. These homes traditionally rent in the 300-400/mo and sell for 30-40K a bedroom usually.

What I call the fringe area - is where I think the highest risk is. You're no longer easy walking distance, neighbours may/may not be student rentals. Those properties closer to the school can always cut their rent prices to match yours to ensure they fill. In these fringe area's you may need to resort to operating as a (illegal) rooming house where you're taking non students to fill your vacancies. (Note I'm aware of several properties/owners that do this, but it does run afoul of the city's bylaws etc) and I think you end up with significant tenant management issues.

Western University has a similar structure (Just with higher per bedroom prices for purchasing and same rent per room - which is offset by potential for more appreciation), however counterbalancing it is the fact that if you're close to the downtown you can also attract new grads/young professionals (which creates a more resilient rental property).

Hopefully the above helps give you a better idea of student rentals in London. I think (and my experience supports) that student rentals can be very profitable if managed correctly.

From my experience/perspective, the most important thing about student rentals, is keeping them rented. You need to have your tenants/students commit to 12 month leases (I strongly suggest May-April), there is also significant scales of efficiency by owning multiple student rentals. I would not suggest buying one, if you're intention is to only ever own one. My partner and I have been discussing how we likely need to acquire a couple more or consider selling to make our operations more efficient.

Another key to student rentals is advertising them early. If you're looking in late March/April to rent out your student rentals for May 1st. You're too late and will be sitting with a vacancy for May-Aug or end up with sub-par students.

I've always managed my properties myself. I do know of student landlords with 20+ units that have been able to implement effective management systems so that they can be as hands off as they wish. To do so with one property though, again I don't think is as effective/practical.

If you're patient, you can even just wait for the next 'riot' and buy then when student rentals go on sale. It's been a few years and seems like we're likely over do. (I'm only half kidding with that comment)

TL:DR

I'd say if you're going to be hands on with management (at least until you get scale of operations), and plan to acquire multiple properties, student rentals can be a great way to generate income, assuming you purchase in high demand areas and know you're numbers and make filling them you're number 1 priority.

[Michael Rosehart]

Matt - as an owner of student rentals in the Western area I can confirm your analysis/opinion. You are spot on.
Keeping a property rented is key. Vacancy spells death to cash flow. There are certain areas that have near 0 vacancy rates though - specifically in North/West London, downtown or tier 1 fanshawe. In my opinion buying a tier 1 property is a major key to this - or fixing up a property to this level. The A level properties rent for top dollar, have the best tenants, and are never vacant. Often the extra 5-10k you put into higher end finishes/repairs will pay you back 2-3 fold in only a few years. IMO anyway.

[Kyle Van der Zyden]

I just found this site and find it extremely useful. I am looking at purchasing a student rental in St. Catherines, as the prices seem much more reasonable than other university areas. One big concern I had was around the lease term automatically switching to month to month after the initial 1 year term. This concern relates primarily to student rentals, as the time frame to find solid tenants is relatively narrow. In the event that a student is month to month and decides to leave in the middle of the school year, I imagine it would be difficult to find a good replacement tenant. As I understand, there is really no way to avoid the month to month scenario, unless the tenants agree to it. 

I've read that you are unable to agree to end the tenancy on a certain date as a condition of signing the lease, so you can't simply agree to terminate at the end of the 1 year before signing the lease. I've heard about landlords signing an agreement to terminate one day after the lease is signed, although the tenants could just refuse to sign the termination agreement and occupy the property based on the lease that was signed. 

Has anyone come up with a way to mitigate this risk? Additionally, if any experienced landlords have come across any other risks associated with student tenants I'm all ears!