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?
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This post was written by...
Robert – who has written 317 posts on The College Investor.
Robert is the founder and editor of The College Investor, a personal finance site dedicated to young adult and college student finances. You can learn more about him here and connect with him on Twitter or Facebook.
{ 20 comments… read them below or add one }
Thought provoking post Robert! The way I look at it if you can save 20% for a downpayment plus some as emergency funds, you should buy one or else save towards that goal.
Do you think that should be the case no matter what? What if you need to move somewhere due to work after you graduate?
I’m on track to graduate with zero debt and a good amount of savings in the bank. Still, I’m not going to buy a house until probably a couple years after graduation. Even though I won’t have the burden of loan payments, I want to take a couple years to make and save a good amount of money before I start taking on big expenses.
That’s a great plan. The more you save, the more options you will have when it does come time to buying a house.
I couldn’t agree more with what you said. I personally think that it also depends on exposure to risk. How much of a risk are some college kids willing to take? With the economy how it is what are the chances of find good renters and what happens if the graduate can’t find a job or is laid off.
Personally I’m against home ownership until later on in life like you said. My own thoughts are to live with my parents for a couple years and save until I can pay for most of a house with cash. I would rather not be a slave to debt for a good portion of my life.
-Ravi G.
I love the idea of moving back in with the parents, but I don’t know if all parents are good with that idea!
As someone who got out of college in the last 5 years, I understand the desire to buy a house, now that the market is “cheap.” However, many of my friends who did buy houses are now renting them, as they took new jobs or went back to school in different parts of the world.
I agree with you Robert. Rent, travel, and explore. When you put down solid roots, go for the house.
I have a couple friends renting out their houses now as well. However, with rents being so high, it has turned out to be a good investment for them.
Interesting article about something important that we often overlook. I’m 17 years old right now and I don’t wanna own a house when I go to college. It’s a roadblock for me. It’s really a subjective question when asking if a student wants to buy a home or rent. Some will be content living where they are, others will want to move on to bigger and better things. It’s easier to fit rent in a budget as well. What college student wants a mortgage? Not me!
Haha, good point about budgeting. Houses come with all sorts of unexpected expenses. However, although you may not want a house now, you may change your mind as you get closer to graduating.
When my brother was in college, he resided at one of the houses that a student bought. The house was purchased during the housing bubble and the owner was actually losing money even if the rooms are occupied. She has the right idea of trying to make money or having fellow students pay for the mortgage but it was just bought at the wrong time. I believe the house is in foreclosure now.
Yikes! I had a friend do just that setup, but it is very cash flow positive. Maybe since a student bought it, he couldn’t qualify for great loan rates?
I’d like to see a case where a college student actually qualified for a mortgage while going to school (without parents co-signing).
As for a recent grad buying a house right our of school, I say go for it! It’s the best move I made so far, and I’ve been out of college for 4 years now. I bought my first house 3 months after graduating (age 23) and lived there about 3 years. While living there, I also purchased my first rental property (at age 25).
Just this summer my wife and I sold that first house and got something larger and in a better neighborhood.
Owning my own place at an early age taught me to be responsible for a large asset and all that goes into maintaining it. It also got me on the path to building wealth.
I was actually able to afford a house in college, but I also worked full time and had been working since I was 16. I chose not to buy one, and I’m glad I did as the real estate market tanked about a year after I graduated.
I wouldn’t, unless I knew FOR SURE I’ve found the place I want to live for the next 5-10 years, and who knows that right out of college?
If you live in San Francisco or San Diego, you may not be leaving!
“Owning my own place at an early age taught me to be responsible for a large asset and all that goes into maintaining it. It also got me on the path to building wealth.”
same here, still on the fence though… always say I never regretted buying @ 22, but the last few years have been rough, though I have learned SO SO much and renting would have cost just about the same including the renovating I’ve done (a one bedroom or studio that’s not an absolute dive would have run me at least $600 and my mortgage a month is only 250)
It really depends on the person doesn’t it….
Sounds like you made a good choice, but I agree with you on the tough part.
I always think this: if my plumbing backed up or pipe burst and I owned the house, it would be on me to fix. If I rented, I just call my landlord. There are times when renting is just so much more appealing.
I definitely wouldn’t have considered a house in college or immediately after. But then again, I couldn’t afford it when I was in college.
I refuse to purchase a house without 20% down because I won’t pay PMI!
Good point on PMI! I think buying in a college town can be a great investment though, because there will always be a steady influx of people and usually employment.