I was having an interesting discussion the other day about whether a college student or recent graduate buy a house instead of rent. Prices of houses and condos have come down tremendously, and in some markets, the cost of renting may be about equal to the cost of a mortgage and such.
Based on my discussion, I’ve listed some of the pros and cons of a college student or recent graduate buying a house.
Pros of A College Student Buying a House:
- If rent and the cost of ownership are equal, a house builds equity while rent just build’s the landlord’s equity
- The house could appreciate, which would give the student leverage to buy their next home out of college
- If the house has multiple rooms, other rooms could be rented out with the proceeds going toward the mortgage, reducing the college student’s costs even further
Cons of a College Student Buying a House:
- Most college students don’t stay where they went to school, so what will happen with the house?
- What kind of mortgage was required to make the payments equal to rent? Was it an adjustable rate mortgage that will cause problems in a few years?
- Is the cash flow really sufficient once all costs are taken into consideration: mortgage, insurance, property taxes, association fees, maintenance and repairs, etc.
- Is the college student responsible enough to pay the bills, be a landlord if needed, etc.?
- Will the student miss out on other college adventures such as dorm life or fraternity life?
Based on my thoughts and the pros and cons above, I think that college students and recent graduate should really find a cheap place to rent, save their money, and wait to buy something until they have their feet firmly planted in a place they will be a while. Even once a recent graduate lands his first job, he could move to another location or higher position within a year or so. Until life’s major moves have taken place, I think college students and recent grads should wait. Housing prices will not skyrocket overnight, so there is plenty of time to get into the housing market.
Did you buy a house in college or right after, or know someone who did? Do you think they should have?