Real estate: is it interesting to rent or buy housing for your child's studies?

Real estate: is it interesting to rent or buy housing for your child’s studies?

Renting or buying property for a student.  What is the best alternative?  (Photo credit: © Vadim Bastoh - stock.adobe.com)

Renting or buying property for a student. What is the best alternative? (Photo credit: © Vadim Bastoh – stock.adobe.com)

The school year is approaching, and with it the question arises of finding housing for students who are leaving the city of their parents. Between buying and renting an apartment, what is the best option?

by MoneyVox

Many students leave the city of their parents’ residence to study in another municipality. So it is necessary for them to find an apartment to live in during this period. Rental investment firm Circuméo has compared two solutions for parents who find themselves in this situation: to rent or buy a property. What is the best alternative?

Buying an apartment to house your student…

Between buying and renting, Circuméo, a start-up company based in Nantes, ran several simulations to determine the best solution for parents of students. This study, reported by Le Figaro Immobilier, was published on August 8, 2022, and highlights the difference in costs between these two options. For this, the company took the example of an old renovated studio of 20 square meters, located in the center of Nantes, whose rent is 550 euros per month.

On purchase, such a property will be found at a price of 110,000 euros, with a contribution of 10,000 euros and a mortgage of 100,000 euros over 20 years. The planned monthly payment is identical to the potential rent, i.e. 550 euros payable each month. At the end of a 5-year period, equivalent to the duration of a Master’s degree, Circuméo is based on a capital gain of 25% or 5% per annum. The number is probably in line with past price trends, Meilleursagents.com has noted a +36.3% increase in property prices over 5 years in the city, with a marked slowdown over the past year, at +0.7%.

Based on this capital gain, the resale price after 5 years is €137,500 for this apartment. Once the monthly loan installments (33,000 Euros), fees (8,750 Euros), capital gains tax (1,000 Euros), capital receivable returned to the bank (78,000 Euros) and the contribution (10,000 Euros) have been deducted, the net profit comes to 6,750 Euros. But what about notary fees? The question remains unanswered, the purchase price of the property (110,000 euros) does not include this data in the Circuméo study.

… or choose to rent an apartment

Another alternative, which is the most popular: rent an apartment to house your child for the duration of his studies. This solution generates a rental cost of 33,000 euros, from which the interest received can be deducted on funds not invested in the real estate purchase project. Thus, a contribution of €10,000 placed on a life insurance contract with a bonus of 2% can bring in €1,040. Ultimately, the total cost of rentals will be €31,960 over 5 years of study.

However, renting has not only drawbacks. Its first advantage is simplicity. No need to go to a notary and get a mortgage. Finding an apartment for rent is easier and faster than buying. An asset that has a great price, since rents are paid with non-refundable money. From a financial point of view, the advantage is to purchase real estate based on the simulation of a Nantes startup, provided that you have sufficient debt capacity to be able to borrow.

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