Being a tenant can be hard. Being a landlord can be harder.
You try your best to find great tenants. Ones that will look after your property, pay on time and worship the ground you walk on…okay, maybe just the first two. But even that can be a challenge. The approach that a lot of landlords take is to avoid renting to students. Not an unreasonable approach, but there’s an important aspect that often gets ignored.
Let’s assume that you’re a landlord who decides not to rent to students. Luckily, you happen to find a nice family, some young professionals or retirees. They have amazing credit, good references and seem like the perfect tenants looking for a long-term lease. Sounds great! The only problem is that there is a rent increase guideline in Ontario. This limits the amount that a landlord can increase a tenant’s rent each year.
The last 5 rent increase guidelines have been as follows:
2018 – 1.8%
2017 – 1.5%
2016 – 2.0%
2015 – 1.6%
2014 – 0.8%
I’ll use an example to illustrate how this can have a significant impact.
On September 1, 2013, a condo in South Guelph was rented for $1000/month. If these were long-term tenants and the rent was raised each year according to the guideline, the current rent would be $1,060.28/month.
To put this into perspective, an almost identical condo in the same area of South Guelph was leased in October of 2017 for $1,380/month. Those awesome tenants that signed on in 2013 are now paying about $300 less than market rent. And the longer they stay, the less affordable it becomes for them to move. Prices around might rise, but their rent will remain pretty much the same (aside from a very slight increase every year). And sorry, but you can’t get rid of tenants just because you want to charge more. Another concern is resale value. If you’re selling a leased property that’s bringing in far less than market value, investors won’t see it as a viable option.
However, if the tenants in the example were students, this issue would be far less likely to occur. Quite often university students will be living in residence in their first year. Then they search for off-campus housing for the next 3 years while finishing up their degrees. And then they move out! Yes, you may deal with a few more headaches, but they’re far less likely to stay for an extended amount of time.
Also, there is this notion that getting home insurance for student rentals is difficult. I’d have to disagree with this. Although there are some companies that don’t insure student rental properties, finding one that does isn’t really a challenging process. The worst part is that you may need to go with a company other than your current provider…not much of a hassle in my opinion.
I understand a landlord’s hesitation to rent to students, but it’s important to consider every aspect before counting them out. Your property may be a temporary mess and you may have an issue to deal with every now and then, but they likely won’t be a problem in the long run…because they’re not in it for the long run. And for the most part, students are just looking for a quiet place to live and study. Plus, you’ve often got mom and dad footing the bill which is a nice reassurance.
There’s no category of ‘perfect tenants’, but the positives of renting to students far outweigh the negatives. If you’re looking for a stress free, hands-off investment, then real estate may not be your best bet. If you’re looking to have others pay your mortgage and potentially have some positive cash flow, then keep an open mind when it comes to having students as tenants.