Why pay rent when you can build equity?
You’ve probably been thinking about the cost of your child’s future education for years. Now it’s hear and you may be finding the costs to be staggering. Renting student housing at UBCO is a major expense. The University of British Columbia Okanagan is now home to just shy of 10,000 students but there is currently space for less than 1,700 of them to live in on-campus student residence. This means that 83% of students will have to find housing off-campus. Couple this incredibly high demand with a City with one a rental vacancy rate among the lowest in Canada and you have the perfect conditions for steadily increasing rents. While the development of University District Kelowna has provided excellent off-campus housing within walking distance to the UBCO campus, many students must still seek accommodation in other parts of the city.
1-bedroom apartments now rent for between $1,700 - $1,900 per month.
Do the math! Renting a 1-bedroom apartment at University District Kelowna will cost $20-23,000 per year or between $80-90,000 over the 4-year span of a typical undergraduate degree. That’s a serious amount of rent. Most of the residences in the neighbourhood’s buildings are actually 2-bedroom and 3-bedroom apartments where students often live with another or two other roommates. Even in this scenario, a room typically rents for between $1,000 and $1,200 per month. That’s as much as $14,400 per year or $57,600 over the 4-years a student is away at university.
Paying for housing while your child attends UBCO is inevitable.
Yes, it’s true but you don’t have to be funding someone else’s retirement at the same time. You owe it to yourself to give some serious consideration to owning at UBCO and building equity in a solid real estate investment for you and your family instead. Even if you don’t think you have saved the required downpayment or don’t think you have a high enough credit score to arrange a mortgage, you can’t afford not to explore this option. To help you get started, have a look at the three sample scenarios below.
1-Bedroom
Apartment
RENTING:
$81,600 PAID IN RENT
vs.
PURCHASE:
$17,000 IN EQUITY
AFTER 4 YEARS
The estimated total carrying cost of this sample purchase calculation would be $90,720 over 4 years. You will have paid a little more than $9,000 more than had you rented to the lowest-cost 1-bedroom and about breakeven on the top-end. However, you will have also amassed $17,000 in equity by paying down a mortgage.
If after 4-years you decided to sell, you would likely be in a position to cover most if not all real estate fees with your cash proceeds but are not likely to take a further return unless the property has appreciated in value substantially.
With a 1-bedroom purchase you are investing primarily in the convenience and benefit of securing a private suite for the duration of your ownership.
Historically, parents who bought condo residences at University District Kelowna have also seen substantial returns from appreciation of value.
Purchase Details
Estimated Sale Price: $350,000
Strata Fees: $120/month
Property Taxes: $1,600-$1,800/annually
Owner’s Insurance: $75-95/month
Mortgage Payment: $1,543/month
Carrying Cost: $1,890/month
2-Bedroom
Apartment
RENTING:
$115,400 PAID IN RENT
vs.
PURCHASE:
$22,000 IN EQUITY
AFTER 4 YEAR
The estimated total carrying cost of this sample purchase calculation would be $119,712 over 4 years.
If you rent out the 2nd bedroom you can offset your carrying costs by $12,000 - $14,400 per year. This means you could end up with bringing in a total of $57,600 over those same 4 years — covering nearly half (48%) of your total carrying costs. You’ll still be paying $1,294 every month out of pocket but a large portion of that is going directly to principal repayment. After 4 years you will have $22,000 in equity before any potential appreciation.
If after 4-years you decided to sell, you would likely be in a position to walk away away with cash proceeds great enough to pay all real estate fees associated with the disposition and return some of the equity in addition to your down payment. Holding the property for another year and renting it out will further offset your capital costs.
Historically, parents who bought condo residences at University District Kelowna have also seen substantial returns from appreciation of value.
Purchase Details
Estimated Sale Price: $450,000
Strata Fees: $220-250/month
Property Taxes: $2,100-$2,500 annually
Owner’s Insurance: $75-95/month
Mortgage Payment: $1,984/month
Carrying Cost: $2,494/month
3-Bedroom
Apartment
RENTING A ROOM:
$144,000 PAID IN RENT
($1,000/MONTH/ROOM)
vs.
PURCHASE AND RENT 2 ROOMS:
ONLY $42,480 PAID
+ $27,000 IN EQUITY
AFTER 4 YEARS
In other words, you only pay $885/month out of pocket every month, saving at least $115/month compared to renting a room, however, you are simultaneously building $562/month in equity!
The estimated total carrying cost of this sample purchase calculation would be $146,640 over 4 years. However, in exchange for your entrepreneurial approach and associated investment risk, you would cover less than 29% of that out of pocket - paying only $42,480 for your child’s “rent” over 4-years!
All operating expenses and 84% of your cost of borrowing are completely covered by roommates. Two-thirds of your contribution goes solely to principal repayment.
If after 4-years you decided to sell, you are likely to walk away with cash proceeds great enough to pay for all real estate fees associated with the disposition and return a portion of the equity in addition to your down payment. Holding the property for another year and renting it out will further offset your capital costs.
Historically, parents who bought condo residences at University District Kelowna have also seen substantial returns from appreciation of value.
Purchase Details
Estimated Sale Price: $550,000
Strata Fees: $280-350/month
Property Taxes: $2,500-$3,000 annually
Owner’s Insurance: $75-95/month
Mortgage Payment: $2,425/month
Carrying Cost: ~ $3,055/month
* The above sample scenarios are examples only intended to illustrate the opportunity to a broad spectrum of potential purchasers. Actual purchase price varies. Rental incomes are not guaranteed. Strata fees and property taxes are estimates only as they vary depending on the building and the exact residence purchased. The following examples do not take into consideration applicable Property Transfer Tax or other applicable taxes, nor do they include other closing costs, utility costs (most rentals do not include utilities in advertised rate) or unforeseeable expenses associated with ownership. Sample mortgage calculations are based on 20% down payment, 5.29% interest rate, and 30-year term.
The Reality of On-Campus Living
More than half of the on-campus student residence accommodations are in connected single rooms with a shared bathroom and shared common areas. There are options for private studio and 1-bedroom living as well as family living; however, these are very limited.
Living on-campus in student residence can be a great experience, especially for new students. It offers accommodation that is central to student life and makes it easy to make new friends. However, spaces are incredibly limited with only 17% of students being accepted. Only first-year students are guaranteed a spot in on campus student residence and that guarantee is subject to various conditions. The majority of on-campus accommodation is in either 4-bedroom suites or single room dormitories. Many students prefer the privacy of living on their own or with only one other student but there are less than 100 private studio or 1-bedroom apartments available.
Lastly, students living in the Cassiar, Nicola, Purcell, Kalamalka, Valhalla and Similkameen Place residences are required to purchase a meal plan. Yes, it’s mandatory! While having a meal plan comes with several advantages such as eating together with other students and saving preparation and clean-up time, it is not necessarily what every student wants and can be quite the added expense.
For students that don’t get accepted into on campus student residence or students simply looking for accommodation that is a better fit for their lifestyle and preferences, off-campus living is the solution. The University District is home to several hundred apartment style condominium residences built with students in mind.
For more information on on-campus student residence visit the UBC Okanagan Student Housing website.