Rental Investments for Students: Should You Rent or Buy a Property?
When your child moves away to attend school, it can be an opportunity to invest in rental property. In some cases, buying makes more sense than renting. Here are the factors to consider when deciding whether or not to invest.
Should you rent or buy a home for your college-age child?
Renting an apartment can be a significant expense, especially in large cities where the rental market for small units is tight. That’s why some parents choose to buy an apartment for their child to live in. Depending on the city, it may be more cost-effective to make mortgage payments than to pay rent. It all depends on the local real estate market, the type of property, the budget, the return on investment, and the expected holding period.
High rental demand in the student housing market
The first factor to consider before investing in real estate is location. According to a survey released in May 2024 by LocService, an agency specializing in peer-to-peer rentals, the average rent for a 24-square-meter studio apartment is 550 euros, including utilities. Studio apartments and one-bedroom units are the most sought-after properties (61% of requests), followed by one-bedroom apartments (18%).
The platform calculated rental demand—that is, the ratio between the number of students looking for a rental and the available supply. Lyon ranks first, with a score of 4.86, followed by Rennes (4.17), Bordeaux (3.93), and Paris (3.75). In contrast, medium-sized cities such as Clermont-Ferrand, Grenoble, Saint-Étienne, Pau, Limoges, and Poitiers offer affordable rents and moderate rental demand.
Monthly Payments and Rates of Return: Key Metrics to Watch to Make the Right Choice
Data from FNAIM and the Clameur Rent Observatory shed light on the benefits of buying rather than renting. If we compare the monthly payment for a home purchase with the average rent, we see that the difference is minimal in some municipalities. In Brest, for example, a 25-square-meter studio costs 357 euros per month to rent, compared to 376 euros in monthly mortgage payments for a 20-year loan. In Valenciennes, Limoges, and Saint-Étienne, the mortgage payment may be lower than the rent.
The yield (the ratio of annual rental income to purchase price) is a key metric for evaluating the viability of an investment. Based on the net yield (estimated at 75% of the gross yield), Saint-Étienne tops the rankings (7.5%), ahead of Limoges (6.1%) and Valenciennes (5.8%). Lyon (2.9%) and Paris (2.7%) bring up the rear.
Planning for the Resale of Your Home: Is It Possible to Make a Profit?
The length of your child’s studies is another important factor. Depending on their plans, the property may be paid off before the end of their studies. You have two options: sell the property or keep it to rent it out. If you plan to sell it, you need to be able to estimate the potential for a capital gain on the resale. To do this, base your assessment on trends in the local real estate market and evaluate development prospects (such as the establishment of a school or business, or the opening of a nearby tram or subway stop, etc.). Be sure to factor in all costs associated with the purchase, such as real estate agent and notary fees.
