Over the next few weeks students will be returning to school. Our colleges and universities will once again be filled to the max with full and part time students, many of which will be living away from home or traveling a good distance in order to attend the school of their choosing.
The cost of a post secondary education is a heavy hit, even more so when coupled with the high cost of student living accommodations. The monthly rates landlords charge for rental housing in proximity to colleges and Universities is exorbitant as they take full advantage of the great demand and limited supply.
Something I advocate to those faced with the prospects of a son or daughter living away from home in order to go to school is why would you make the choice to pay rent for three, two or even one year when it is possible for your budding scholar to live rent free and to even cover some or all of tuition costs by having the prudence to buy?
Scenario one - renting:
Rental costs in Barrie's Georgian College area for just a room in a house will run about $600 to $800 per month. Over three years that comes to roughly $21000 to $29000 spent just on rent.
Scenario two - Buying:
Go to your bank or mortgage broker and arrange a $10,000 secured line of credit against the family home. Put it down on a 4 bedroom home or town home in proximity to the school they will be attending. At todays prices properties can still be had for $225000 to $250000 in the area of Georgian College.
Rent out three of the rooms to students going to school with your own son or daughter. Have the parents on the lease to better insure rents will be paid.
If you rent three rooms for $600 per month that provides you a gross income of $1800 per month, the proceeds of which can be put towards the monthly mortgage payments. ($230000 minus $10000 down equals a $220000 mortgage. At todays variable rate of 4.75% over 35 years your monthly payments will be $1069.09). With that rental income there is enough cash flow to make mortgage payments with still a few hundred dollars left over each month to cover utility costs. Your own son or daughter lives rent free.
At the end of year three the rental income will have paid out about $8000 in principal on the mortgage, provided you $26,000 in addition to the monthly mortgage payments and when added to the increase in property value over that time, you have built yourself a tidy profit while having the assurance that your son or daughter was living in a good home and benefited from the responsibility you entrusted them with to oversee the property. When they move on from school you have the choice to sell or continue on having an investment property.
If you have sons or daughters who will be entering college or University this advice could be the best financial advice you will hear.
If you want to discuss the possibilities this idea could hold in your particular situation call or email me and together we will determine what works best for your needs.
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Food for thought ... and very timely too. Thanks for the insight and information, Mike.