Should I buy an apartment for my kids while they are in university?

I have 4 boys, and they all want to go to the University of British Columbia (UBC). The University is too far from home to travel back and forth so they will need to stay on campus. So let’s do a quick search to see what it would cost to rent a 1 bedroom apartment close to UBC:

Woah. Alright, let’s do some simple math. how much is this going to cost us? Before we run the numbers let’s make a simple assumption that each kid will spend 48 months in university (based on this). Also, it turns out that I will have 2 kids in university at a time which makes things easier. The math: 4 kids * ($2,200 per month x 48 months) = $422,400

That can’t be right, can it? I dug into the rental costs a bit deeper and grabbed this right off the UBC website:

OK, that’s better: assuming two kids going at the same time a 2 bedroom should lower the cost to 4 kids * ($1,196.5 per month x 48 months) = $229,728. But in reality, I could not find anything that cheap. So Let’s split the difference and say close to $1,500 per month per kid or $288,000 total cost using the same math as before. Here’s a sample of what 2 bedroom apartments are going for around UBC:

Should I buy an apartment?

Wasting more than a quarter-million dollars renting does not sound like a good idea, what if I just bought an apartment for ~8 years and sold it once the boys are out of university? A quick search shows I could get a 2 bedroom 2 bathroom for $850 – $1 Million.

Let’s run some math on that place on Berton for $998,000 then:

Let’s take two different approaches here. In Canada, you must put 20% of the purchase price as a down payment, Let’s call that scenario 1. For down payments of less than 20%, home buyers are required to purchase mortgage default insurance, commonly referred to as CMHC insurance. let’s call that scenario 2. Here’s what the numbers boil down to assuming a 2.5% interest rate:

OK, so we can see that we are a bit higher than what it costs to rent but not by too much. Let’s look at total cash upfront requirements for both scenarios:

Scenario 1:

And scenario 2:

Now let’s calculate the total cost of having the apartments across the 8 years in all scenarios:

Item	Scenario 1: More upfront	Scenario 2: Minimal upfront	Scenario 3: Just Rent
Upfront Cash	$219,658	$69,958	$0
Maintenance fees	$40,762	$40,762	$0
Total Payments	$343,392	$424,032	$288,000
Grand Total	$603,812	$534,752	$288,000

Phew, so the cost of ownership is almost twice the cost of renting. But, of course, after the 8 years is up we can either sell the apartment or rent it out to other students. Let’s project a couple different scenarios for how much our apartment would appreciate over 8 years: none, 20%, 40% and 60%.

Scenario 1: More upfront

	No Appreciation	20% Appreciation	40% Appreciation	60% Appreciation
Sale Price	$998,000	$1,187,600	$1,397,200	$1,596,800
Mortgage Balance	$593,952	$593,952	$593,952	$593,952
Payments Made	$603,812	$603,812	$603,812	$603,812
Profit	-$199,764	-$10,164	$199,436	$399,036

Scenario 2: Minimum upfront

	No Appreciation	20% Appreciation	40% Appreciation	60% Appreciation
Sale Price	$998,000	$1,187,600	$1,397,200	$1,596,800
Mortgage Balance	$687,267	$687,267	$687,267	$687,267
Payments Made	$534,752	$534,752	$534,752	$534,752
Profit	-$224,019	– $34,419	$175,181	$374,781

My sister-in-law is a realtor and was able to look up the sales history of this apartment. It sold in 2016 for $800,000. If we purchase at a list price of $998,000, the current owner will see an appreciation of 24.5% over 6 years or 4% per year. Assuming the same rate of appreciation over the next 8 years we could sell the apartment for $1,317,360 and realize a total profit of $95,341.

Scenario 3: The Dorm Approach

Another approach (if you can get in) is renting a room in a dorm. A connected single room in orchard commons (a pretty nice place) which is a private bedroom and shared bathroom is $13,298 for the year (you need to include the meal plan). If all 4 boys go this route for 4 years each we are looking at $53,192 per student or $212,768 total. But I hear that students have a tough time living dorm life after the first or second year.

Other Costs

Before you grab your pitchforks: I realize I left out property taxes, apartment insurance, the potential rise in apartment rental fees, and probably a few other things. Property taxes would probably total around $20,000 and insurance around $4000 which is pretty close to the cost of rental fee increases so I decided to cancel them out for the sake of simplicity. If you disagree or think I left anything major out let me know and I’ll update the post.

Summary

So it’s quite clear that even with the insane cost of housing these days owning is better than renting but not nearly as good as I thought it would be. I think what I’m going to do is have the kids use student loans to pay their fair share of the rent, then, each dollar they pay will be a share of the total ownership of the property. This way we all win down the road, either we sell and they pay off their student loans right away or we rent it out and pay them off over the long haul. I’d love to hear your thoughts and what you might do differently.