Renting to students in Ontario – http://t.co/3zKdnwbG0b – The good, the bad and the ugly #Torontorentals
— Landlord Relief (@LandlordRelief) September 30, 2013
I have been intending to write about this topic for some time. Let me begin with my conclusion.
Renting to students in Ontario can be an excellent way to manage your residential property investment.
It is a little different. It takes a bit of learning. But, it can be very successful!
Okay, now let me explain this a bit more. The first step is to “know your customer”.
If you rent to students you must understand that you are:
– renting to a group of unrelated “young adults”
– who need your property for a fixed period of time (and will probably want to leave at an inconvenient time)
– who will occupy the property with at least as many people as there are bedrooms
– who are NOT overly particular on maintenance and repairs (and may not even tell you if something needs to be fixed)
– who in many cases are living away from home for the first time
– who spend most of their time at school
The Property – Selecting a property that is potentially a good rental property for students
Ideal locations for renting to students
– must be either within walking distance or very easy public transit to a specific university or college. Good student rental properties are good because the student does NOT need a car. Remember that most properties have limited parking. Example: Four students with four cars will cause problems for them and for the neighborhood.
– Be careful of zoning restrictions. In other words: how many unrelated people are able to live in a house together? There have been many instances of landlords renting to students and violating zoning regulations. In some cases, this has led to calls to require landlords to be licensed.
– Be careful of the neighborhood. I would avoid renting to a group of students in a quiet neighborhood of “owner occupied” houses.
The Property Itself – Remember that students are usually “harder on properties”
As you know, you should always buy properties at a price that is “as close to land value” as possible. Any property where too much of the value is based on the “property itself” is NOT a good rental property. You want older, solid, functional properties. In addition, you want properties that are designed with “separate living areas”. You get the idea.
Example: An older, detached largely depreciated, four bedroom home with a usable basement (assuming it is in the right location) is a good candidate for an investment property. This will be harder to find in Toronto than in London, Ontario or Waterloo. Nevertheless, this is what you should be looking for.
Duplexes and triplexes are perfect!
The property needs to be structurally sound! Beyond that it needs to be functional.
Selecting students as tenants
You may want to review: How to find and select tenants in Ontario.
This requires lots of experience. You will get better over time. But you must be very very careful. Here are some thoughts and questions to ask them:
1. Is this the first time they are renting a property?
2. Have this particular group of tenants lived together before. Living with other people is NOT easy. It’s good to know that they have successfully lived together before.
3. What are they studying? Some programs of study inherently require more work than others. Obviously, you want their studies to be their main priority.
4. Is every member of the group a student? If so, are they attending the same school?
You want a “YES answer” to both questions. The reason is that you do NOT want to rent to a group that may not survive as a group. This means that their interests must be aligned. You want them thinking about moving at the same time and arriving at the same time.
5. Are their parents willing to co-sign the lease?
Although not essential, this is helpful. It means that the students are both “reinforced by” and are “accountable to” the parents.
6. A very important one for last – How long until the students graduate?
You want them to stay. Tenant turnover is costly. You are better off renting to students with multiple years remaining in their program. When students graduate they typically leave.
Quiz: All other things being equal, would you rather rent to:
Group A – Arriving in September and graduating in April; or
Group B – Arriving in September and graduating one year from April.
Answer: Group B is the better bet!
Speaking of the Lease – Month to month or one year
The school year starts on September 1 and often ends at the end of April. There are some markets where you can reasonably get a year lease and there are others where you cannot. In a perfect world, the one year lease is better.
A lease creates legal obligations on both sides. A legal obligation does NOT mean that the parties will honor the agreement. If you are asking for a year lease, you must think practically. Where is the incentive to honor the agreement? Will the tenants be there in the summer? Why would they be? How long until they graduate? Where was their last summer job?
Renting to a particular group of students is rarely a “long term” proposition.
Remember that when setting residential rents, your best rent is NOT necessarily the highest rent.
There’s good news and bad news.
The good news is that you can charge higher rents (more people to pay the rent).
The bad news is that you will have greater turnover.
Although rents are always subject to local market conditions, you might approach it in this way:
Step 1: If it were not a student rental, that is you were renting to a family for a number of years, how much could you get per month. Multiply that by 12. For example $1500 per month times 12 = $18000.
Step 2: Imagine that you were able to rent it for only eight months a year. How much would you need to rent it for per money to protect yourself from the vacancy. In this case you would need to divide the $18,000 by eight months. This is $2250 per month. Is this realistic? Maybe yes and maybe no.
You should try to set the rent somewhere between these two extremes. Students expect to pay a premium.
Note also: In order to encourage them to honor the commitment of a one year lease, you might consider offering them one month free at the end.
The terms of the lease
Who is the tenant?
You need to decide whether you are renting to the students as a group or as individual tenants. My advice: rent to them as a group. That way they have a commitment to each other as well as to you. (Getting the parents to guarantee is better.)
How much is the rent?
See the discussion above.
Duration of the lease
See the discussion above.
Should you include the utilities?
My advice is to include the utilities. There are two reasons for this:
1. It will ensure that the utilities are actually paid!
2. Students need to live on a predictable budget.
Remember that in Ontario, tenants have “security of tenure”
As you know, in Ontario, at the end of a lease, tenants automatically move into a “month to month” tenancy.
Here is the difficult and predictable scenario:
Tenants arrive on September 1 and sign a one year lease. At the end of the year they remain, move into a month-to-month situation. They then leave in April of the following year!
Finding student tenants
The good news is that many colleges and universities have sites devoted bringing landlords and student renters together. These sites are very helpful for the following reasons:
1. They allow you to specifically target student tenants
2. They allow you to see what other landlords are charging for rents. Students are price sensitive and will compare properties.
In order to find these sites, contact your local college or university or Google “renting to students” Toronto, London or whatever.
As you can see, renting to students requires a somewhat different mindset. There are people who rent ONLY to students. By the way, students DO pay their rent. I have rarely (if ever) had a student fail to pay. That’s a plus …