Dorm it or own it?
As teens across the country are settling in to university, many, particularly first-years, will have moved into residence. The meal plans and structure of residence life can ease the transition to adulthood -- as well as afford parents peace of mind.
The alternative is to head off campus and rent private housing. But as families increasingly review the finer points of their finances, they may opt to buy a property for the duration of their child's studies so that they may get a return on their investment when Johnny finally goes off to work.
But before starting the research, before inspecting any properties or checking on financing, it is essential to take a very close look at the type of person your child is.
"You've got to make sure that your child is mature enough to handle [home ownership], otherwise you're going to bear the burden of maintaining the house," says John Nardi, a financial advisor at Edward Jones who has a number of clients who have bought property for children at university. "You don't want to handhold them through the entire process ... the child needs to be able to maintain the home. Make sure that they understand it's their place and therefore [they must] treat it as such."
Toronto realtor Julie Kinnear asks, "Are they responsible enough? That's my bottom line. There's a lot of costs involved in buying and selling; you can't take it lightly," and it's not just a financial commitment. "I've had [situations] ... where the student is so rowdy that the other owners in the building don't want them to live there."
Once you are sure your child can handle the rigours of owning and running a home, you must decide whether to invest in a house and perhaps rent out some of the rooms to your child's friends or to buy a condo that may only house your child.
"One of my clients was going to buy a townhouse for her daughter in Kingston, but her daughter said 'OK, well there's six of us living together.' To which the mother replied, 'I'm not running a sorority.' "
A property that is relatively easy to maintain should be a priority, Mr. Nardi says, so that the child does not get overwhelmed with the responsibility and allow studies to suffer.
Another issue to weigh when deciding whether to buy or rent is the length of time you will likely keep the property.
"A four-year university degree, that's a relatively short period of time," says Murray Pituley at Investors Group. "If in that time period, the market goes down, you could be sitting with a house that is worth a lot less than what you purchased it for. That's a risk the parent has to be willing to take."
Of course, when any young person leaves home, things don't always turn out according to plan.
"There are a lot of surprises that could occur. You could buy a house for a child, thinking that child is going to go through university," Mr. Pituley says. "Three months into it, he says, 'Dad, Mum university is not for me ... I'm going to quit.' All of a sudden... you're left holding all the risk, so to speak."
Mr. Nardi says a tax expert can help decide whether to buy the house as an investment property in your own name or to give your child the money to purchase and hold the title. As the owner, expenses can be written off for an investment property, but capital gains tax will be due when the property is sold. However, there are ramifications for the future if the property is in the child's name.
"When the child is ready to buy their next home they cannot take advantage of the first-time home buyers' plan ... because they've already owned a home," Mr. Nardi says.
"I wouldn't advise clients or anybody to focus on return on investment," he adds. "To me, the biggest return on investment is what your kids are going to learn from owning something."