Renting Versus Buying a Property for University Students in Toronto

  McMaster University DeGroote School of Business
  Photography by Peter A. Sellar - www.photoklik.com

Every university student who decides to try off-campus living has to face the same difficult question: “Should I rent or buy?” Toronto is one of the cities where this decision can be particularly challenging, due to low vacancy rates on the real estate market (almost permanently under 2 per cent) and the very short time students have to make their choice. The important thing to remember is not to give in too fast. Make your choice very carefully, and don’t be afraid to shop around a bit. You don’t have to settle for the first low-quality room you find. Remember, the house, apartment, or room you choose will be your place to study, eat, sleep, and relax for at least the next ten months. This article will help you decide if it’s wiser to invest in a property or just rent something temporarily.

Buying Off-Campus Housing

To buy a property, you need to be sure about two things: firstly, that you and your family have enough money to cover the mortgage (of course, if you have enough funds to buy a property without one, even better), and secondly that you’re going to stay at the university at least for a while.

Of course, your plans with the property you buy will depend on the size of the living arrangement you decide to go for. You have more options with a house than you have with a one-bedroom apartment. In the case of a house, you might get inspired by the Capone family, who invested in a house for their daughter in Waterloo. Of course, Waterloo is a very different story compared to Toronto, but some principles stay the same.

Buying a townhouse offers one major advantage. You're able to rent out the rest of the rooms to other students you probably know already, so you won’t even risk having strangers who might destroy the house as tenants. (Unless you’re one of the daredevils of the university community, in which case your parents will probably experience a series of heart attacks throughout your studies.) This way, you can save a lot on house maintenance costs, pay off your mortgage, and save on your own housing costs.

After graduation, you can sell the property. With the current situation and development on the Toronto real estate market, it will probably even bring you some profit. If you fall in love with Toronto and decide to have a family here during your university studies, you might even keep hold of the house. You might decide to stay long-term even if you want to stay a landlord and rent out the house to other students even after you’ve finished your studies. This often happens with houses that become traditional rentals over the years, and students automatically pass on their rooms from generation to generation. However, to achieve this status, you’d need to buy a house in a prime location, close to campus, which is not going to be financially easy at all.

Photography by Peter A. Sellar - www.photoklik.com

Student accommodation takes up a major part of postsecondary costs. According to a 2011 report by TD Economics, part of TD Canada Trust, the total cost of pursuing a degree today in an out-of-town university is about $84,000 — $29,000 more than students who live at home. If parents were to have a child today, TD economics projects a child going to university in 18 years will face a total outlay for a four-year degree of $102,286 for students living at home and $139,380 for students living away from home. Adjusting for inflation, the projected future cost is $68,950 for students living at home and $93,963 for students living away from home. Out of the sum the student pays for university studies, accommodation takes up from $20,000 to $28,000 for four years.

Brian Burlacoff, a Toronto-based financial advisor with Sun Life Financial Inc., says that parents thinking of buying a house for their children going for the university out of town should apply the same criteria as if they were undertaking a regular real estate investment.

Would you purchase this home or building if you were renting it solely to third-party individuals other than your child? It’s important to ask these questions because individuals applying this strategy typically hope to use it as a short-term strategy, where they sell in five to seven years hoping to make a profit,

Burlacoff says.

When buying a property, you also have to think about the taxes — especially those that apply in case you decide to sell the property after you finish your university studies. This little detail might turn out to be your worst nightmare, but it could also be your greatest advantage.

Gary Booth, a Toronto chartered accountant, analyzes for The Globe and Mail.

Buying a property also has great implications taxes-wise. Canadians who sell their principal residence don’t need to pay taxes on any profit, or capital gain, from the sale. But this exemption does not apply to rental properties,

Booth explains.

If you profit from the sale, the taxes amount to 50 per cent of the capital gain. If you end up in a loss, you can use that to your advantage and reduce your tax liability, and you can carry losses forward into future tax years. If you decide to become a landlord and rent out rooms, you can apply for the depreciation write-off, called capital cost allowance. If you, however, profit when selling the property, your allowance claim will be recaptured. In Canada, and in Toronto in particular, investments in properties in order to rent them out during your studies are mostly quite safe, since the market is one of the more stable. However, the real estate market can be very tricky at times. You should definitely consult with both real estate and tax experts before you dive in.

Study at Art Gallery of Ontario 

Photography by Peter A. Sellar - www.photoklik.com

In the second part of our article, we’ll go through the renting experience you can face as a student and some advantages it offers over purchasing a property.

Why Should You Rent?

All the arguments for buying a house sound very convincing, but you really need to factor in all the operating costs of being the owner of the house compared to almost zero costs when you rent. (Of course, you also need to have a good contract that binds the landlord to carry out all the duties of repairing and restoring and that rids you of the responsibility to see to those tasks.) As a homeowner, you aren’t on the hook for paying rent, but operating costs generally far outpace the rent that would apply to the same residence. You need to take care of leaking roofs, loose stairs, frozen pipes, and damaged floors. And on the top of handling those kinds of repairs, you need to pay property taxes and mortgage interests.

You’re far better off with a rented apartment or room. Firstly, you need to find a place that will satisfy all your needs. Naturally, you have to account for higher prices as you move into your dream apartment or room close to the city centre. However, at some point, the price stops depending on the distance from downtown Toronto and starts to depend more on the neighbourhood character. The golden balance is very hard to find. If planning on taking the TTC, you might want to find housing close to a subway or RT station, or near a bus or street car stop. If you're planning on driving to school, you want to look for housing that includes parking.

Room prices vary greatly. However, these figures should give you a general idea of the average prices for different types of housing. (These numbers are based on the housing advertised at the University of Toronto.)

• Shared apartment: Downtown Toronto — $375–$1,200; Scarborough — $350–$735
• Bachelor apartment: Downtown Toronto — $455–$1,650; Scarborough — $600–$800
• 1 bedroom apartment: Downtown Toronto — $695–$1,850; Scarborough — $650–$900
• 2 bedroom apartment: Downtown Toronto — $950–$2,300; Scarborough — $900–$1,300
• 3 bedroom apartment: Downtown Toronto — $1,300–$2,500; Scarborough — $1,300–$1,800

One of the best ways to start your search is using the University of Toronto Housing and Roommate Finder. You can use the service even if you’re not a U of T student. The circulation of free places is really high at the beginning of the year, which is also a great advantage compared to the low number of new listings on the Toronto real estate market when it comes to properties for sale.

Photography by Peter A. Sellar - www.photoklik.com

Some of the biggest causes of potential problems when you're renting are difficult landlords and roommates. Every time you move into a home with students you don’t know, you run the risk of living with somebody who will drive you crazy. That’s why it’s always better to try to find someone you know to live with beforehand.

Problems with lazy and irresponsible landlords can be solved in different ways, but it’s never going to be fast, pleasant, or easy. If a landlord refuses to help when a tenant notifies them of a problem, tenants may obtain assistance or advice from a legal clinic, the Landlord and Tenant Board, or Toronto Public Health if there’s a health-related problem. (If it becomes necessary, Toronto Public Health can issue a Health Protection Order [Section 13] to a landlord or tenant or both under the Health Protection and Promotion Act to ensure clean-up and treatment is completed.) In both cases of renting or buying a house, you should check for bed bug infestation problems in the area. Bed bugs can cause one of the greatest physical and psychological strains if you stumble upon an infested property. Be sure to double-check with your landlord and the Toronto Bedbug Registry.

Conclusion

Both buying and renting a property for the time of your studies offer their perks, but everyone has to admit that renting entails far less of a burden and makes your life a little less hectic for the duration of your studies — perhaps for the last time before you start working full-time. Moreover, McMaster University professor Frank Tristani cautions against buying property as a student.

Over six years, no one has been able to substantiate buying as creating more wealth over the long term,

Tristani says.

Photo Credits

Photography by Peter A. Sellar - www.photoklik.com