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Buying a rental property in college towns? What property investing could look like this September

Prior to and during the height of COVID-19, investing in a property located near a Canadian university required a hefty investment. According to a report put out by the Real Estate Investment Network in 2020, average house prices in Canada increase by 1% every kilometre closer to a university (REIN). 1 These exponential prices are driven by high student demand to be within 400 metres of campus or at least within a 30-minute transit commute. 2

Now with lockdowns and restrictions being lifted across the country, the table is set for an increased number of students to return to campus life after several semesters of virtual learning being predominate. How does this shift impact property investing in university towns this September? And what’s the best university town to invest in property?

We look at three university regions: Kitchener-Waterloo, Winnipeg, and Calgary. In this student housing market report, we will assess each region based on housing demand and potential for growth—two important things to consider when selecting a university or college town to purchase an investment property in. Whether you are someone buying rental property in college towns, or already own a home near a university, it’s useful to understand key market conditions before choosing whether buying an income property is right for you.  

Canadian Student Housing Report Market Overview  

Over the past decade, there has been steady growth in the number of students enrolling in Canadian universities. According to Statista, 2.15 million students enrolled in Canadian universities in 2019.3 That is compared to 1.34 million in 2000.4 Canada’s international student population has grown six-fold over the past 20 years and has tripled in the last decade alone. 5

Statista 2021 - Number of students enrolled in postsecondary institutions in Canada from 2000 to 2019

It is estimated that in 2020, around 12.5% of all students attending Canadian universities will come from outside of Canada. The sheer amount of domestic and international students has increased demand and lowered supply, and the cost of housing in the regions like Kitchener-Waterloo is increasing every year.

It’s important to note the difference in opportunity and student housing demand between provinces. Ontario attracts close to 50% of total international students (300K+ permit holders) with Alberta and Manitoba netting around 20K and 30K, respectively. 6

Let’s take a closer look at Kitchener-Waterloo, Winnipeg, and Calgary and assess the potential for property investing. 

Kitchener-Waterloo (KW)

Key Stats for Investors

  • Average price for residential properties: $759,115 7
  • Average rental rate: $1,816 8
  • Average vacancy rate: 2.1% 9

If Toronto is the commercial real-estate capital of Canada, then the Kitchener-Waterloo region is the student housing juggernaut. The region of KW is home to a whopping 65,000 post-secondary students and three separate institutions. 10 This factor alone can make it one of the best university towns to invest in property.

According to a report put out by Waterloo Undergraduate Student Association (WUSA) 11

  • 42% of all purpose-built student-specific housing in Canada is in the City of Waterloo
  • 87% of housing survey respondents rent housing and do not live with family members

In addition, according to the Canadian Real Estate Association (CREA) and data sourced through MLS®, there have been more homes sold in KW in the last six months than any other previous six-month period. The biggest challenge for buyers continues to be the limited number of existing homes to purchase.

Source: The Canadian Real Estate Assocation

The figure above displays the limited number of residential homes available in the KW area. There is a clear downward trajectory, with 2021 being some of the lowest supply seen in the last decade. All the data points to restrictions loosing and more international students returning to study, which might make life very difficult for students looking for affordable off-campus housing. 12

What does this mean for investors and renters?

If you already own a rental-ready home in the KW region, it’s likely a great time to get it on the rental market. Supply is low, student demand is about to increase, and you can likely charge a pretty penny to rent your property. KW rental rates were among the fastest growing in Canada, with one of the lowest vacancy rates in the country. This combined with low tenant turnover suggests that KW offers more quality tenants. 13

For those looking to invest, this likely means that prices in KW are going to be at a premium. The closer you get to any university or college, the more expensive it’s going to be. And, as we already know, supply in the region is at an all-time low. This means purchasing properties that are available will likely involve bidding wars and blind offers.

However, the rental prices in the KW region might help offset the increases in initial investment. You would think that with average rent prices dropping an average of 7.1% across the country the KW region would follow suit. But the region is anomaly. A report released in January 2021, displayed that the average monthly rent for a one-bedroom unit went up over 20% year-over-year. 14

Calgary

Key Stats for Investors

  • Average price for residential properties: $348,500 15
  • Average rental rate: $1,445 16
  • Average vacancy rate: 6.6% 17

Calgary may not be at Kitchener-Waterloo level when it comes to the amount of residential student housing, but the area is still ripe for potential real estate investors. First looking at demand, there are over 35,000 students that attend the University of Calgary. There are also another 20,000+ students in the area studying at colleges like Mount Royal or SAIT. 18

According to the CBRE, the investment in commercial and residential real estate is also growing in the area. Despite the lingering hold of the pandemic, Calgary was one of the only markets to return to pre-COVID levels of investment activity in 2021. For example, 2.9B in 2021 marks the largest investment total since 2018 and the third largest in ten years. 19

According to Calgary’s economic report by Statistics Canada, population growth has been driven by international and interprovincial migration. A high number of young people in the area contribute to a competitive student housing market. Students and migrants often rent before purchasing a home, which has driven up the rental demand in Calgary. Referring to Statistics Canada data, 27% of the housing supply in Calgary is rental housing.

In fact, diving deeper into the data, Calgary has the lowest proportion of rental households in Canada.

Rental Rates in Major Canadian Cities

According to Richard Cho, Principal and Analyst for the City of Calgary,

“The rise in rental demand outpaced the elevated number of purpose-built rental units added to the market, pushing vacancy rates down.”

An inventory of housing supply report in Calgary revealed that most of all rental market units are secondary rental units. This means the properties are owned by private landlords and can fluctuate as the market dips and rises. In fact, the cheapest rental rates in Calgary are higher on average that the cheapest rates in other major Canadian cities. 20

What does this mean for investors and renters?

Owning a rental property in Calgary can be a lucrative investment. For those looking to invest, keep in mind that a majority are secondary rental units. In a favourable market, these types of dwellings can be sold or leased very quickly. That could make acquiring a property a lot easier, or a lot tougher depending on how you look at it. In addition, vacancy rates are currently high in the region. But expect those to drop with the students returning full-time to the University of Calgary.

The cheapest rent in Calgary is more expensive that the cheapest rent in other major Canadian cities. That bodes well for investors as the floor for rent is already higher. For those that already own a home but not one well-suited for renting, there is also potential for “move-up” buyers in the current Calgary market. For example, people who have owned a home for several years and have remained financial stable during COVID-19 can take advantage of low interest rates to upsize their current home and perhaps consider a duplex or multi-unit dwelling to incorporate rental opportunities.

Winnipeg

Key Stats for Investors

  • Average price for residential properties: $313,565 21
  • Average rental rate: $1,114 22
  • Average vacancy rate: 3.8% 23

Winnipeg is a smaller sample compared to the Kitchener-Waterloo region and even Calgary. But the data points towards the growth of the city. It’s also important to note the high percentage (8%) of properties that need major repairs with 35% of all housing being built more than 60 years ago. 24 This could provide opportunities for property investors looking for a fix-and-rent property.

The University of Winnipeg is home to around 10,000 students, 1,000 of which are international. 25 The city itself has seen tremendous growth, increasing in size by 90,000 people from 2001 to 2016. 26 The growth of the city is spurred by international immigration, which can bring up to 13,000 new people 27 in every year. The city’s population is expected to grow by about 1.4% each year, approaching a population of 1 million by 2040. 28

However, rental rates were not as resilient in this region as in others over the course of the pandemic. While Winnipeg has seen an increase in vacancy rates since 2019 29, the current rate is not far off from the national average, which means there’s still plenty of opportunity in this area.

What does this mean for investors and renters?

This area good be a hidden investment property gem. Vacancy rates remain reasonable despite the pandemic, coupled with average house prices in Winnipeg being less than half of the national average this might be the perfect time to get into the investment property market.

As restrictions loosen and students, and others alike, return to more regular activity like campus life, we could see a drop in vacancy rates and a rise in rental rates driven by supply and demand.

Final thoughts

If you are looking into buying rental property in college towns, it’s not as easy as 1-2-3. Each region offers different opportunities and challenges you must approach diligently.

So, what’s the best university town to invest in property? Well…What’s the budget? What’s the preferred province? What are your must-haves and nice-to-haves? The best university town will likely vary greatly by investor. But if you’re open to any location and are strictly concentrating on the market figures, then Kitchener-Waterloo, Calgary, and Winnipeg are great options to kickstart your research.

Ready to buy an investment property? Purplebricks does real estate the fair and square way. A Purplebricks REALTOR® will provide you with the latest market data to help you buy or sell at the right price, plus, buyers receive $2,000 cash back* and sellers save thousands in commission! Let us help you reach your real estate goals. Call 1-855-999-9740 to speak to an associate today.

Sources:

[1] REIN: Premium rents, prices and investment potential within 400-m radius from campus, study shows
[2] REIN: Premium rents, prices and investment potential within 400-m radius from campus, study shows
[3] Statista: Enrollment of Postsecondary Students in Canada
[4] Statista: Enrollment of Postsecondary Students in Canada
[5] 642,000 international students: Canada now ranks 3rd globally in foreign student attraction
[6] 642,000 international students: Canada now ranks 3rd globally in foreign student attraction
[7] KW HOUSING MARKET SHOWS LITTLE SIGN OF COOLING
[8] Kitchener ON, Rent Prices
[9] KW Rental Report
[10] Post Secondary Life in Kitchener-Waterloo
[11] WUSA Housing Report, 2021
[12] Canada’s colleges and universities roll out fall pandemic plans
[13] KW Rental Market Report
[14] Kitchener rent continues to soar despite national average decreasing by 7 per cent
[15] CREA – Calgary Median Price
[16] Zumper – Calgary AB, rental prices
[17] CREB – Calgary Rental Market Struggles with High Vacancy…
[18] Post-secondary life in Calgary
[19] CBRE Canada Investment Overview
[20] Housing Affordability In Calgary
[21] CREA - JUNE MARKET ACTIVITY REMAINS BRISK WITH STRONG UPWARD PRICE MOVEMENT
[22] CMHC Rental Market Report
[23] Saskatoon, Winnipeg, Rental Markets Hold Steady
[24] Winnipeg Comprehensive Housing Needs Assessment
[25] UWinnipeg Fast Facts
[26] City of Winnipeg: Population, Housing, and Economic Forecast
[27] City of Winnipeg: Population, Housing, and Economic Forecast
[28] Winnipeg Comprehensive Housing Needs Assessment
[29] Statistics Canada

** Cash back – How the Home Buying Service cash back works: Purplebricks will share with the buyer the commission it receives from the seller’s agent up to a maximum of $2,000 in cash back. No cash back if the commission received is lower than $5,000. Where available.