While many Colleges and Universities require that first year student’s stay at campus dorms for the first one or two semesters, I have noticed that a number of individuals are purchasing homes or condos for their University age kids to live in. They believe that the increased value of this purchase will offset the costs they would have paid for rent or dorm fees.

So, how is this possible? And, how much do I need to have for a down payment?

A number of years ago a program was made available through mortgage insurers in Canada for individuals to purchase a secondary residence with as little as 5% down. The mortgage can be amortized for as much as 35 years and the mortgage insurance premium is the same for a primary residence purchase.

Why would I do this?

As we have seen, the housing market in Canada peaked around June of 2007; has had a correction, and now appears to have leveled off and is starting to head back up. The timing would therefore appear to be good. Prior to the wild increases in house prices, homes tended to increase in value by four to eight percent per year.

Let’s consider an example:

You are considering purchasing a home in Lethbridge close to the University. Your son or daughter has been accepted to the University of Lethbridge and will be moving there in September. You have found a home within walking distance to the University that is listed for $350,000. This home is currently rented. The upstairs rents for $1200/month; the basement suite rents for $900/month and the garage rents for $300/month. Total rent of $2400/month.  With 5% down or $17,500, and the Mortgage Insurance Premium, the mortgage will be approximately $343,000. The mortgage payments, fixed over the next four years are $1,490/month and property taxes are approximately $150/mth

You discuss this possibility with your accountant, who suggests that your son or daughter also go on title to this purchase. Your son or daughter would like to live in the upstairs suite, and has a couple of friends who would share for $400/month each.

Once your son or daughter moves into this new home in Lethbridge, you will not receive the upstairs rent anymore, but the two room mates will provide a total of $800/month, combining this with existing rent, the mortgage and property tax payments will be covered. Therefore, your son or daughter is basically living in Lethbridge for free.

Another factor to consider is the potential increase in value of the home when your son or daughter graduates. If we consider an average increase in property value of 4% per year, then in 4 years from now this home could be worth $410,000 and the mortgage will have a balance of $323,000 remaining.

Let’s say you sell your home in four years from now at $410,000. The net proceeds from the sale would be approximately $70,000 after paying off the mortgage and paying the real estate fees. These proceeds should more than cover the cost of four years of university education, and leave a nice little nest egg for your son or daughter who is starting out in a new career.

This article was provided by Steven Crews, TD Bank Mortgage Broker. If you are interested in finding out more about this, if you qualify to do this, please call or email him at: (403) 870-2669 or steven.crews@td.com

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