waterlooOver the past month or so I’ve gotten a few inquiries about Waterloo student condos, the most recent was District Condos.

I was born and raised in Kitchener and went to University of Waterloo so I figured I write a little more detailed post about it.

Let’s step back first and see what’s all the hype about so you can get an understanding.

Agents love pitching new construction condos to their buyers and the general public.

Why?

It’s a fairly easy sale for them and they don’t do anything.

Most builders will give a 2-4% commission to the agent for bringing a buyer. All the floor plans, marketing material etc is already provided.

The agent really doesn’t have to do anything at all. No inspection, no real paperwork…nothing.

It does take time and effort to build relationships with some builders and these agents do get first access at “platinum or VIP” pricing for their clients and that’s what they’ll use in the sales material. However, the difference in pricing isn’t as substantial as say 10 years ago.

So now specifically onto the student condos as investments.

Take a look at District condos. This is the “VIP Insider Pricing Deal”

  • 2 YEAR RENTAL GUARANTEE
  • 2 YEAR FREE PROPERTY MANAGEMENT
  • FULLY FURNISHED LUXURY SUITES ($8,000 value)
  • $10,000 PRICE UNIT DISCOUNT
  • $10,000 PARKING DISCOUNT and 2 Years parking guarantee at $75 per month.
  • NO ASSIGNMENT FEES

They are great incentives and the agents will pitch this all day long to make the sale.

Some other things to consider..

  • $0.25 per square foot/month
  • Hydro individually metered and paid by tenant
  • Parking Maintenance $44.95/month
  • TAXES: Estimated at 1.156% of net purchase price
  • About 250 condo units, most 2 beds, 2 baths (i.e. at least 500 students when fully occupied)

On the surface, it would look great to any buyer! Discounts, rental guarantees, new construction, great area, low maintenance fees etc.

Does it actually make sense though long term?

Area = good. No doubt about it. A lot of tech start-ups, close to Laurier and Waterloo, LRT planned, etc.

Let’s take a closer look at the numbers.
numberThis isn’t all the units, but just a look at the insider pricing at District. Let’s just look at 2D as an example.

2D (2 year period)
2 year rental guarantee = $45,120 income ($1,880 per month)
2 year parking guarantee = $1,800 income ($75 per month)
2 year property management = $3158 savings (assume 7% fee per month)

Mathematically these are great savings and rental income for 2 years. So short term wise, these seem pretty good!

However, how about year 3 and beyond?

Things to think about…

The guarantees are only there for 2 years. Technically, they’ll pay you out the guarantees even if no one is in the unit and no one is renting the parking space…you’ll still get the money – however, are they actually renting it out for that much?

The average room rental rate around Laurier / Waterloo per room is about $500-$600. Here’s a link to some available units: http://www.domushousing.com/buildings.php

There are 2 bedroom units renting out at the guaranteed rates, not saying it can’t be done. So let’s look at another variable.

Maintenance fees.

Right now it’s $0.25 per square foot/month for that 2D unit or $187 per month.

Remember you have 500+ STUDENTS living in the building.

Remember when you were a student…

How much wear and tear do you think that new construction building is going to have in the after year 2?

Where do you think those maintenance fees will go?

To give you some perspective, general condo fees in Toronto for new construction typically start at $0.35 – $0.50 per square foot.

It’s highly likely that your maintenance fee is going to double by year 5.

A couple other points…

Remember these are new construction condos and delays happen and then piss people off.
http://kitchener.ctvnews.ca/condo-manager-out-of-a-job-after-altercation-with-university-student-1.2592729

And with all the new construction, do you think there’s that many students…?

Currently, there is an oversupply of nearly 1,200 beds, but when new developments that are in the works are included, the surplus increases to 8,321 beds
http://www.therecord.com/news-story/6342400-waterloo-facing-sizable-glut-of-student-housing/

Again, the rental guarantees for 2 years are great…then what? You got a whole lot of vacant rooms…which could be yours.

Personally, I believe they’re offering all these guarantees and discounts so agents have something to sell, and it will entice buyers. If an investment is truly good…why do you need to offer so many discounts and gaurantees?

At the end of the day, do your research before falling to some “sales pitch” from an agent.

The #1 thing to ask that agent if they’re pitching the new construction investment hard…”Did YOU buy any units?”. If they say no, then walk away. My thinking is that if they truly believe it’s a good investment, shouldn’t they be investing it for themselves as well?

I like condo investments, but these Waterloo student condos aren’t my cup of tea. I believe there’s better opportunity out there.