Student Home Purchase Plan

Tuition costs are climbing, housing costs are climbing, it seems like all the costs for students are climbing these days. Students can afford cost increases less than any other demographic in Canada. Because of this, parents and students alike are looking for new ways to offset the costs of education.

Student loans can be used to defer these costs to some extent, but they need to be repaid after graduation. It's difficult to climb the corporate ladder or get ahead in life when you have $30,000 worth of debt before your first job is even found!

Bursaries, grants, and scholarships are another great source of funding for a student. However, the amount of money available is thinning, and the competition is growing stiffer for this money each year.

The average student, over a 4 year degree, pays over $16,000 in tuition and books. Housing costs approximately $38,000 for a 4 year degree. This is based on rent of $800 per month for 48 months.

This means the total cost of education for a student is over $54,000 before paying for any clothes, food, or recreational expenses. Given that the average student doesn't qualify for more than about $9000/year in student loans, this means an average student needs to find over $18,000 during their 4 year education career to be able to go to school. Not to mention the cost of food and clothes.

So how does a student get ahead in life, avoid massive student loans, and still get an education?

Many parents have been turning to Real Estate as a solution for a solution. Let me explain what they're doing?

When their first child enrolls in university, the parents purchase a small home with easy access to the University. The more bedrooms the better! This opens many possibilities for the parents, as well as the students.

First, the property will likely appreciate in value, presenting the parents with equity that can later be used to repay student loans or their own personal use.

Second, the rent the student would have paid to a landlord or dormitory is being used to repay the mortgage, creating more equity in the property.

Third, being a rental property, the tax benefits of the property are fabulous. Any interest paid on the mortgage is a write-off. Maintenance and improvements, as well as taxes and often utilities, are expenses that can be written off.

Fourth, there is the potential for additional tenants. Suppose you were to purchase a 3 bedroom bungalow for approximately $150,000. The cost of the mortgage would be approximately $900; based on a 5.5% 25 year mortgage with 5% down payment. That's just $100 dollars more than rent on a typical 1 bedroom apartment close to the University of Alberta right now.

Your child finds 2 roommates to share expenses with. They each pay you $600 per month; the tenants are then saving $200 per month over the cost of renting an apartment. A good deal for them!

Your total revenue on the home is $1200 per month. Your child lives for free, and clears $300 per month, which can be put towards living expenses and spending money. Now your child can go to school, not work, and focus on studying.

What if you were to finish the basement with an additional 2 bedrooms? That would essentially double your income, or allow you to "clear" $1500 per month. Your child gets $500 per month for expenses and living, and there's an additional $12000/year ($100/month) to be put towards tuition, books, and other university expenses.

Let's look at this again, using 2 family as examples. The Smith's and the Jones'.

The Smiths send their son, Steve, to university for 4 years. He rents an apartment in residence for $800 per month while going to school. His tuition, including books, is about $4000. Spending money, clothing, and food costs are approximately $500 per month. So Steve's annual costs are approximately $20,000 annually.

Student loans and scholarships (assuming Scott qualifies) cover approximately half of this, leaving him and his parents to cover the rest. Scott has to get a part time job to pay for some of it, and work full time in the summers to help.

The Smiths struggle through, using their savings and hard work to get through a tough 4 years. When Scott graduates, he has to start repaying is $30,000-$35,000 in student loans. He'll be making that payment for the next 10 years?

Now let's look at the Jones'.

The Jones' purchase a home close to the school for their daughter Sally. They make a 5% down payment ($7500) on a home worth $150,000. It has 3+2 bedrooms. Their daughter lives in 1 room, and manages the rest of the tenants in exchange for free rent and a monthly allowance of $500 to cover her living expenses. Each of the additional 4 rooms are rented for $600 per month including utilities and laundry. A great deal for ANY student.

Each month Sally collects the rent from her 4 roommates, totaling $2400. She keeps her $500, and deposits the rest into a bank account dedicated to the property. The mortgage and taxes get paid each month from that same account. Together, these cost $1100 ($900 for the mortgage and $200 for the taxes). That leaves an end-of-the month profit of $800 for the property. That money just sits in the account in case of emergencies, repairs, or other unforeseen expenses.

Remember, the taxes and interest on the mortgage are tax write-offs at the end of the year for Mr. & Mrs. Jones.

At the end of the first year, September to December, there is $3200 worth of cash in the bank account, or roughly 50% of the initial down payment. Sally is happy because they can use that money to pay for Sally's 2nd semester tuition without any student loans, not to mention that she hasn't needed to work a job while going to school.

Mr. And Mrs. Jones are happy because of the great tax write-offs they get from the property, plus Sally has no excuses for not getting good grades.

Over the summer, the house pays for Sally to take some extra curricular courses, or perhaps do some traveling. Maybe she even just lounges around the yard and does nothing. She has options because she doesn't have to work.

By the start of September of the next year (beginning of Sally's 2nd year at university), the Jones' have collected $6400 in revenue from the property. Sally's tuition for the next semester is paid, so are her books and she's living for free. The cycle continues for the rest of her time at university.

At the end of the 4 years, they have profited over $20,000 in cash after all expenses. They have also been paying down the mortgage and the property has likely increased in value.

Sally hasn't worked a single day while at school, she has absolutely no student loans, and is fresh and ready for the work force. She's carrying no debt, so she quickly gets ahead in life.

Sally graduates with honors because she could focus on her studies and not worry about making money for school. Total investment from the Jones': $7500 in the initial deposit plus Sally's first semester tuition of approx. $2000.

Total profits; $35,000 in cash and equity. Is it any wonder why we're all trying to keep up with the Jones'!

But it doesn't stop there?

The Jones' now have to figure out what to do with the property. Sell it? Sure. They would net a tidy profit from the home. Remember, the mortgage has been paid down for the last 4 years, as well as the value increases of the home over those 4 years.

But let's say they keep the home and rent out the entire property to students. Their total revenue could be as high as $3000 per month, or $1900 after mortgages and taxes. And that's assuming that the rental rate hasn't gone up over the 4 years?

If you were the Jones', you could go to www.mercedesbenz.ca, pick out his and hers Mercedes convertibles, and not pay a dime for them. The leases would be covered every month by the $1900 in revenue.

For being such great parents, and paying for your child's entire education, you deserve a couple of convertibles don't you?!?

All figures are approximate, and provided as examples only. Some properties may not perform as well, while some may perform better. To select a good investment property, contact a real estate professional like John Carle and Sharon Gregresh. We do not guarantee good grades for your children at school.

About The Author

John Carle & Sharon Gregresh are Realtors with Royal LePage - ArTeam in St. Albert, AB. They pride themselves on providing more than just real estate sales and listings. Their clients benefit from a much larger spectrum or real estate services. Contact them any time at information@workingtogether.ca or through their website at www.workingtogether.ca. They can be reached by phone at (780) 458-5595

---

Seniors Can Use a Reverse Mortgage to Fund Annuities, Investments, and Insurance Policies

For many seniors in or entering retirement, the prospect of... Read More

Be Prepared With Your Home Equity Loan Checklist

A home equity loan can be an excellent way to... Read More

Using a Calculator to Assess Your Loan

Buying a house is a very important step in your... Read More

Shopping for a Mortgage, Avoid Three Common Mistakes

Buying a home or refinancing one is perhaps the largest... Read More

Mortgage Prepayment Penalties - Just Say No

One of the most common terms found in a new... Read More

Online Mortgages in 5 Easy Steps!

We're all entitled to the opportunities and benefits of home... Read More

Secured Loans ? Making the Most of Your Home as Collateral

My visit to the lender was interrupted with my wife... Read More

Option ARM ? The World?s Most Dangerous Mortgage

Home prices have reached record levels, and in many parts... Read More

Getting a Home Improvement Loan: What Your Bank Needs

The popularity of stores like Home Depot and Lowe's show... Read More

Mortgage Terms Explained

When you are hunting for a mortgage, you will find... Read More

A Simple Way to Save Thousands on Your Mortgage Charges

How many times do you check you restaurant bill? If... Read More

Stopping Foreclosures

If you as an investor understand the process, you will... Read More

How to Save Money by Using an Independent Commercial Mortgage Broker

Being a creature of habit can cost you plenty when... Read More

Sell Your Home and Invest at the Same Time

I continue to see the same For Sale signs in... Read More

How to Use a Home Equity Line of Credit Calculator

Most home owners know that the lower the interest rate,... Read More

Buy to Let Mortgages

Finding the right buy to let mortgage is crucial to... Read More

Reverse Mortgage ? Be Sure You Need It Before Applying For One

Reverse mortgages used to be considered the last resort of... Read More

Home Equity Line of Credit ? Great Idea for Rainy Day Emergencies

Most Americans tend to live on a paycheck-to-paycheck basis, and... Read More

Online Mortgage Brokers - What You Might Not Know About Home Loans & The Internet

You may think that applying online for a mortgage is... Read More

6 Helpful Mortgage Tips

Here are some mortgage tips that can help you obtain... Read More

Getting the Best Homeowner Loan for Your Money

With so many lenders out there, it can be hard... Read More

Home Mortgage Loan Refinancing Online - 3 Tips on Refinancing Your Home

When refinancing your home, it's helpful to know a few... Read More

Cash Out Refinance Mortgage Loans ? Home Equity, 2nd Mortgage or Cash Out Refinance Loan

There are some definite benefits to doing a cash out... Read More

Why Choose a Home Owner Loan?

Most people choose a home owner loan as it can... Read More

Thought You Can Go All Alone In Mortgages! Mortgage Advice Beneficial In All Important Decisions

Mortgages are easy as long as you understand them well.... Read More