Between choosing your major, studying, taking exams and, of course, socializing, it may seem as though you don’t have time for much else in college. You should allow yourself to indulge in the university lifestyle — these are the best four years of your life, after all, and you should remember them accordingly.
However, just because you’re a student doesn’t mean you can’t be a responsible adult, too. This is especially true in the realm of saving and investing. While your classmates are working hard for the weekend, you can be strategically saving — and even buying — in order to set yourself up for a secure financial future.
One of the best ways to do it? Buy a house while you’re in college. That might seem like a big ask for a college student, but it’s possible — and a really smart idea. Here’s why you should consider it and how to do it right.
Why to Buy
There are many great reasons to buy a house, even if you’re a struggling student. Consider these facts:
- You’ll Build Equity
- You Could Make It a Rental Property
- There Are Tax Benefits
- You Can Make the Space Your Own
This is the go-to when one is looking for reasons to buy: Your monthly mortgage payments help you build equity. A percentage of what you pay will go toward your home loan’s interest, but the rest will pay your loan’s principal, the amount you actually borrowed. Each dollar you pay toward the principal is one dollar of equity, or ownership, of the property you bought.
Even better, you can add more equity over time if you make improvements to your property. Down the line, you can also take another loan out based on the equity you’ve built up, though you’ll have to wait until you’ve paid 20 percent of your principal.
You bought a home near your college, but you may not live there forever. However, purchasing a property near a university means you’ll have a robust rental market coming in each year, and you probably won’t have trouble finding tenants year in and year out.
Even while you’re in school — and living in your home — you can make some rental income. If your property has more than one bedroom, find a roommate or roommates to move in and help pay your mortgage.
Renters don’t receive any of the tax breaks that homeowners do, and this is especially true when it comes to tax breaks on owner-occupied properties. The biggest tax breaks for homeowners come from deducting state taxes on your primary residence, as well as the mortgage interest you’ve paid. The latter can equal tens of thousands of dollars per year, which is clearly a huge amount.
Each state’s tax scheme is different as well. Be sure to research the area in which you want to buy to find out if there are any more tax benefits for property owners — chances are, there are plenty.
Renting typically means you have to tread lightly in order to get your deposit back: no painting, no hanging pictures on the wall, no knocking down and replacing an old kitchen or bathroom. These rules tend to be even stricter for university students who rent, since co-eds — and their over-the-top parties — have a notorious reputation for damage to property.
Once you have your own place, though, you can customize it to your taste. You can also host social gatherings without breaking the terms of your lease since you’re your own landlord.
How to Do It Right
Think it’ll be hard to buy a home? Don’t worry — there are ways to do it without busting your budget.
- Save, Save, Save
- Buy a Fixer-Upper
- Don’t Go Too Big
Chances are, you already know you need cash in order to buy a home. The more money you can put down at the start, the better: The higher your down payment is, the lower your monthly mortgage payments will be.
Saving for a house in the midst of your studies will be tough, but create a financial plan for yourself in order to make it a reality. Calculate how much of your income will have to go to rent, transportation, bills, books, etc. Then, promise yourself that whatever’s left over will go into your buy-a-house fund. Put it in a savings account and don’t touch it until you’re ready to use it for your big purchase.
Millenials often overlook the possibility of buying a fixer-upper, but don’t shy away from the challenge of an older or otherwise outdated home. Not only will the home appreciate in value with all your updates, but a completely blank slate will also allow you to customize everything to your tastes, making the space look and feel like home.
Your updates don’t have to be over-the-top expensive, either, if you or someone you know is handy with home updates. Some projects are best left to the professionals, though, so choose wisely. For example, your new home’s garage door might not open and close with a push of the remote control. You could try replacing the remote’s batteries to see if that was the problem. Beyond that, though, a professional could probably assess and fix the problem better.
The biggest mistake today’s young buyers are making is that they’re buying forever homes right off of the bat. Rather than considering more budget-friendly options that may need a little love, most millenials spring for extra-large, top-of-the-line properties. Of course, there’s nothing wrong with buying a home like this if you can afford it, but some buyers fail to explore all options and end up getting a bad deal in the long run.
We already mentioned that a fixer-upper often appreciates in value as you make changes, thus giving you a nice return on investment when you’re ready to move into something larger or more modern. A completely new build with all modern updates will lose value as soon as you move in because it’s already top-of-the-line and in perfect condition. Selling a lived-in property like this means you could lose on your bottom line.
No Matter What, You’re Ahead of the Game
You may only be in college, but one thing is for sure: You’re ahead of the game by even considering the idea of buying your first home while you’re pursuing your degree. If you do end up buying a property, then you’re well on your way to a secure financial future in a place you love now — and will love even more when it starts feeling like home.