Tuition costs are going up, housing costs are going up, it seems like all costs for students are going up these days. Students can afford lower cost increases than any other demographic group in Canada. Because of this, parents and students alike are looking for new ways to offset the costs of education.

Student loans can be used to defer these costs up to a point, but must be repaid after graduation. It’s hard to climb the corporate ladder or get ahead in life when you’re $30,000 in debt before you find your first job!

Scholarships, grants, and fellowships are another great source of funding for a student. However, the amount of money available is shrinking and the competition for this money is getting tougher every year.

The average student, with a 4-year degree, pays more than $16,000 in tuition and books. The house costs approximately $38,000 for a 4-year title. This is based on rent of $800 per month for 48 months.

This means that the total cost of a student’s education exceeds $54,000 before paying for any expenses for clothing, food, or recreation. Since the average student does not qualify for more than $9000/year in student loans, this means that an average student needs to find more than $18,000 during their 4-year educational career in order to go to school. Not to mention the cost of food and clothing.

So how can a student get ahead in life, avoid massive student loans, and still get an education?

Many parents have been turning to Real Estate as a solution for a solution. Let me explain what they are doing…

When their first child enters college, the parents buy a small house with easy access to the University. The more bedrooms, the better! This opens up many possibilities for parents as well as students.

First, the property is likely to appreciate in value, presenting parents with equity that can then be used to pay off student loans or for their own personal use.

Second, the rent the student would have paid to a landlord or dorm room is being used to pay off the mortgage, creating more equity in the property.

Third, being a rental property, the tax benefits of ownership are fabulous. Any interest paid on the mortgage is a write-off. Maintenance and improvements, as well as taxes and often utilities, are write-off expenses.

Fourth, there is the possibility of more tenants. Suppose you were to purchase a 3-bedroom bungalow for approximately $150,000. The cost of the mortgage would be approximately $900; based on a 25-year 5.5% mortgage with a 5% down payment. That’s just $100 more than the rent for a typical 1-bedroom apartment near the University of Alberta right now.

Your son finds 2 roommates to share expenses. They each pay him $600 per month; tenants are saving $200 per month over the cost of renting an apartment. A good deal for them!

Her total household income is $1,200 per month. Her son lives for free and earns $300 a month, which can go toward living expenses and pocket money. Now your child can go to school, not work, and concentrate on studying.

What if you had to finish the basement with 2 additional bedrooms? That would essentially double her income, or allow her to “clean” $1500 per month. Your son receives $500 per month for living expenses and support, and there is an additional $12,000 per year ($100 per month) to pay for tuition, books, and other college expenses.

Let’s look at this again, using 2 families as examples. The Smiths and the Joneses.

The Smiths send their son, Steve, to college for 4 years. He rents a dorm apartment for $800 a month while he goes to school. His tuition including books is about $4000. Expenses for money, clothing and food are about $500 per month. So Steve’s annual costs are approximately $20,000 per year.

Student loans and scholarships (assuming Scott qualifies) cover about half of this, leaving him and his parents to cover the rest. Scott has to get a part-time job to pay for some of it, and work full-time in the summers to help out.

The Smiths struggle, using their savings and hard work to get through 4 tough years. When Scott graduates, he has to start paying off between $30,000 and $35,000 in student loans. He will be making that payment for the next 10 years…

Now let’s take a look at the Joneses.

The Joneses buy a house near the school for their daughter Sally. They make a 5% down payment ($7,500) on a home worth $150,000. It has 3+2 bedrooms. Her daughter lives in 1 room and manages the rest of the tenants in exchange for free rent and a monthly allowance of $500 to cover her living expenses. Each of the 4 additional bedrooms are rented for $600 per month, including utilities and laundry. A great deal for ANY student.

Each month, Sally collects rent from her 4 roommates, for a total of $2,400. She keeps the $500 from her and deposits the rest of it in a bank account dedicated to the property. The mortgage and taxes are paid each month from that same account. Together they cost $1,100 ($900 for the mortgage and $200 for taxes). That leaves a month-end profit of $800 for the property. That money only stays in the account for emergencies, repairs, or other unforeseen expenses.

Remember, taxes and mortgage interest are tax deductions at the end of the year for Mr. and Mrs. Jones.

At the end of the first year, September through December, there is $3,200 cash in the bank account, or about 50% of the down payment. Sally is happy because they can use that money to pay for Sally’s second semester tuition without any student loans, not to mention that she hasn’t had to work while she went to school.

Mr. and Mrs. Jones is happy about the big tax deductions he gets from the property, plus Sally has no excuses for not getting good grades.

During the summer, the house pays Sally to take some extracurricular courses, or maybe to travel. She maybe she even she just lounges in the yard and does nothing. She has options because she doesn’t have to work.

By early September of next year (the start of Sally’s sophomore year in college), the Joneses have collected $6,400 in income from the property. Sally’s tuition for the next semester is paid, as are her books, and she lives free. The cycle continues for the rest of her time in college.

At the end of 4 years, they have made a profit of over $20,000 in cash after all expenses. They have also been paying the mortgage and the property has likely increased in value.

Sally hasn’t worked a single day while in school, has absolutely no student loans, and is fresh and ready for the workforce. She has no debts, so she quickly gets ahead in life.

Sally graduates with honors because she was able to focus on her studies and not worry about earning money for school. The Joneses’ total investment: $7,500 initial deposit plus Sally’s first semester tuition of approx. $2000.

Total benefit; $35,000 in cash and principal. Is it any wonder why we’re all trying to keep up with the Joneses?

But it doesn’t stop there…

The Joneses now have to decide what to do with the property. sell it? Sure. They would get a good profit from the house. Remember, the mortgage has been paid for the last 4 years, as well as the home’s value increases during those 4 years.

But let’s say they keep the house and rent the entire property to the students. Your total income could be as high as $3,000 a month, or $1,900 after mortgages and taxes. And that’s assuming the rental rate hasn’t gone up over the 4 years…

If you were the Joneses, you could go to http://www.mercedes-benz.ca, pick out his and her Mercedes convertibles, and not pay a dime for them. The leases would be covered each month by the $1,900 in income.

For being such great parents and paying for your child’s entire education, you deserve a couple of convertibles, don’t you?

All figures are approximate and are provided as examples only. Some properties may not work as well, while others may work better. To select a good investment property, contact a real estate professional like John Carle. We do not guarantee good grades for your children in school.