I’ve had two clients ask me that question so far this year, and the answer is always the same: “It really depends…”

It depends on a LOT of factors, starting with one thing you don’t want to analyze: your own kid.

I almost bought a student residence once.

In fact, I was basically obsessed with student residences back in 2002.

I went to school at McMaster, but my girlfriend at the time attended Laurier.  Ezra Avenue was home to nothing but student houses, and the more crooked the landlord, the more money they made!  Imagine stuffing SEVEN kids into a 1 1/2 storey house?  A house that was probably only worth $250,000 at the time?  The return was unreal, even if the house was zoned for FOUR kids…

In 2004, when I was VERY unqualified to do so, I attempted to buy a $500,000 property in Waterloo that was essentially a duplex, each unit with five bedrooms.

It was a 10-bedroom property, where each kid was paying $600, and provided a juicy 12% yield whereas most comparable Toronto properties were between 5-6%.

My plan was to have my brother live in the property for his remaining two years of university, and essentially manage the property both from a financial standpoint as well as ensuring that the other nine kids were kept in check.

Pay special attention to that last part, because my personal belief is that the greatest risk when evaluating student residences as an investment has nothing to do with finances; it’s all about the tenants.

I didn’t end up buying that $500,000 property, which is good, because it would have been the biggest mistake of my life, and possibly would have crippled me financially.  I was dreaming, and I almost let my dream become an unreasonable reality.

A few months later, I remember having a “EUREKA” moment outside 18 Ezra Avenue, when it dawned on me that buying a residence and renting to students was an awful idea.  My brother’s (former) friends were video-taping a Jackass type stunt, where one of them was in a shopping cart on the roof, and the other was pushing the cart off into the bushes below.

In that moment, I realized how utterly stupid today’s youth is, and how owning a student residence could be a financial disaster.

I say “could,” because perhaps your children are complete saints.

But the kind of kids that light fire to the couch just for “fun” are rampant across Ontario campuses, and as hard as you might try to avoid renting to them, you never truly know what you’re going to get.

My brother ended up living in a house with four other guys – all math and business majors, and all upstanding, reputable guys.  Sure, they drank and partied like all university students, but their parties were more like mature social gatherings than all-out-ragers.

These are the kind of students you want to rent to.  But how do you ensure you end up getting them?

Many parents are looking at two problems at the same time:
1) The cost of sending a child to university
2) What do do with this cash burning a hole in their pocket that they don’t know what to invest in

As you might assume from my lead, many parents are deciding to combine the two problems into one solution: buy a student residence for their child to live in.

It’s a noble concept, but as I said at the onset – it all comes down to your child!

As I write this, I’m emailing back-and-forth with one of my former baseball kids, who is now 19, and just threw a party in his parents’ Leaside house last weekend that was attended by 175 of his closest friends, and the police.  He’s an upstanding young man, and one of the best kids I know, but even he has to act his age!  I told him flat out, “I can’t lie to you; I did the same stuff when I was your age.  It’s not right, but it builds character, gives you life experience, and you’ll look back on this fondly when you’re my age.  Just don’t do it again!!”

So here is this young man, who was the president of his high school, is working at a major financial institution in a highly sought-after internship position, and who is a born leader and more intelligent than 99% of the kids I’ve coached, and yet he did what all kids his age do: he threw a giant party that got out of hand.  I honestly think that for him to not act accordingly would be somewhat unreasonable.

So I ask all the parents that want to buy a student residence for their children: Are you okay with giant parties being thrown in your “investment property” every weekend, 300 KM away?

Go ahead – tell me your child is different! 🙂

Earlier this year, a family friend called me and said that she wanted to buy a student residence in London for her son to live in and rent out to his friends.  I told her exactly what I’m preaching above, and we weighed the pros and cons.

But let me tell you a little bit about her son.

Her son is, without a doubt, the most impressive kid I’ve ever met.

He dealt with adversity at an early age; he was 10 or 11 years old when his father passed away, and yet he used this to inspire him.

He was one of the best football players in Toronto for a two-year period, but he was not a jock.  In his spare time, he painted, and he won awards, sold paintings, and showed he had as much brains as brawn.

He won academic awards as well – likely with a 95% average in high school, and was part of every extra-curricular club he could get his hands on.

But he wasn’t just some overachiever; he was motivated from within, by something that very few people have.

At seventeen-years-old, when most kids would drink the night before, sleep until 2pm, and mope around the house, this kid would wake up at 5:00am, go for a two-hour run, then come home and clean the kitchen and prepare breakfast for his mother.  Then he would study, paint, read for fun, and spend time with his family and friends.

Would I trust this kid to run an investment property?  Yes, I would.

He and I email a lot about the stock market, real estate, finance, and everything in between.  Oh – and he’s in engineering at school.  But he’s interested in just about any topic he can get his hands on, and when I spoke to his mother about the idea of buying an investment property for him to live in, she said, “It would be a great learning experience for him.”

And you know what?  It would be!

He would have real-world application of all the theory they teach you in school! That was my biggest issue with business school: all theory, no reality!

If this young man were to run an investment property for his mother, think about all that he’d learn in the real world!  He would be a property manager – dealing with taxes, utilities, expenses, and general upkeep of a property.

He would learn people-skills, such as how to deal with renters (especially when they’re your ‘friends,’ however long that lasts…), how to interview perspective tenants, how to interview/hire/over-see the landscaper, plumber, and corrupt roofer.

He would keep a ledger with rents versus expenses, and learn how to calculate capitalization rates for real, while all his friends on campus are learning from a text-book.

And above all, he would mature, and learn about pride of ownership.  How much can you really care about somebody else’s house when you’re living there?  But when it’s your own, suddenly you feel the need to yell at your buddy for making a hole in the living room wall with a golf club, considering you have to pay somebody to come fix it, and it’s another expense in your ledger.

So I’ll ask the parents again: do you trust your son or daughter to run your investment property?

It’s not a question of trust, and trust only.  It’s a big job for an 18 or 19-year-old to take on, and not every child is equipped to do it.

Not every child are like the two I described above, who, despite their different approaches to life and responsibility, could both rise to the challenge of running an investment property.

But perhaps you should think of it this way: would you pay $30,000 for your son or daughter to learn real-world lessons?  If your son or daughter was unsuccessful in running the property, and there was lost rent, damage, and thus lost money along the way – isn’t this a lesson worth paying for?  You pay tens-of-thousands of dollars for tuition for your kids to learn theoretically through text books, so why not pay for real world experience before they graduate and actually enter the real world?

You know your children better than anybody.  Only you can decide…