Student Rental Housing

Student housing assets in Canada have improved and modernized dramatically in recent decades. Not only have campus based real estate groups used access to land to finance purpose-built new versions of dormitory and staff family housing, but the private sector also has capitalized on the opportunity to house students close to campuses, in appropriately designed and higher quality buildings.

Still, student housing is distinctly for rental tenure only, which puts it in that category of housing assets that are designed and financed – at least to the extent they are developed by private capital – to make money through increasing rents over time.

With operating costs stabilized but room for the rents to grow – especially where the services and amenities keep improving – the investment groups building these assets seek to increase their net cash flow. That adds value and generates capital profit over and above the operating profit from the net cashflows.

The opportunity for profitable real estate investment in this subsector has surely been stimulated by the growth of Canada’s latest export industry – our post-secondary education system, supported by a liberal immigration policy that attracts international students from affluent families all around the world.

Income Expectations

One thing that strikes me about university students these days in relation to the housing market is that they can generally plan to have significantly higher incomes in five years time. This is based on the expectation of achieving their degree and heading out into a career with good employment prospects. This kind of highly educated individual is destined to become a candidate for mortgage financing. That makes them a good candidate for a rent-to-own program that sets them up to enter into home ownership, once that higher income is in place.

Financial Self-sufficiency

If we are to continue to see our middle class enjoy widespread home ownership as a key element in their financial self-sufficiency and security, we’re going to have to be graduating university students who are destined to be homeowners. Maybe it’s time that student housing be designed and marketed for ownership by the students and not just for rental, by them or their family sponsors.

For centuries – as long as we’ve had mortgage financing – tenants have paid the rent that covers the mortgage, while their landlords have reaped the profits; not only from net operational cashflows, but from capital asset value gains that accrue through the parallel trends of rising housing values, and the financial amortization that reduces debt over time. Students that are destined to be renting for another five years, but with a high likelihood of growing their incomes, should ideally be positioned to participate in the investment merits of the real estate they’re occupying.

Income Expectations

One thing that strikes me about university students these days in relation to the housing market is that they can generally plan to have significantly higher incomes in five years time. This is based on the expectation of achieving their degree and heading out into a career with good employment prospects. This kind of highly educated individual is destined to become a candidate for mortgage financing. That makes them a good candidate for a rent-to-own program that sets them up to enter into home ownership, once that higher income is in place.

Financial Self-sufficiency

If we are to continue to see our middle class enjoy widespread home ownership as a key element in their financial self-sufficiency and security, we’re going to have to be graduating university students who are destined to be homeowners. Maybe it’s time that student housing be designed and marketed for ownership by the students and not just for rental, by them or their family sponsors.

For centuries – as long as we’ve had mortgage financing – tenants have paid the rent that covers the mortgage, while their landlords have reaped the profits; not only from net operational cashflows, but from capital asset value gains that accrue through the parallel trends of rising housing values, and the financial amortization that reduces debt over time. Students that are destined to be renting for another five years, but with a high likelihood of growing their incomes, should ideally be positioned to participate in the investment merits of the real estate they’re occupying.

Turning the Tables

Why can’t the tenant be the hero in the real estate investment story? If they take good care of the property and faithfully pay the rent every month, why can’t they participate in the value growth of the asset? Why shouldn’t they have the right to acquire ownership, once they’ve achieved eligibility for that?

Making the Tenant the Hero of the Rental Story

Carpe Diem’s Live to Own™ program is designed to provide responsible tenants with the opportunity to participate as investors in the real estate they occupy. When focused on the university rental market, Live to Own™ illuminates a huge opportunity to finance and build condominium titled housing for our students which carries them through their final years of studying, and makes those their final years of renting.

It sets them up to achieve a university degree and very shortly thereafter, their first real estate investment – an investment in home ownership, of their principle residence. The tax advantage to principal residence ownership in Canada should not need repeating, here.

Some affluent parents buy a child their first car as a graduation gift from high school. Some make loans for down payments on the first home. Many provide all kinds of financial support in various ways. And the Bank of Mom and Dad is now seen to be supporting as much as 50% of first home purchases.

University education doesn’t come easily and it takes dedication and hard work. Perhaps the natural next step in the growth and career of our grads could be their step up into real estate investment, by owning their home.