By Sheila O’Hearn, Zoocasa
As an undergraduate, first time from home, my rite of passage was renting with fellow students.
But home ownership is a thought some enterprising college and university students are entertaining or putting into action. Is one method better than the other?
Some sources suggest that young people today seek the “good life”, with their heightened sense of civic and economic savvy. I’ve observed that living for the moment – a creed that was more readily embraced by preceding generations – has shifted to living with a plan.
One point is certain: the decision to buy or rent as a student is dependent on three major factors: what your budget allows you to do with the least amount of stress, vision, and lifestyle choices.
Here are two examples of students with foresight: The first is an entrepreneurial homebuyer on a mission, and the second is a pragmatic-thinking student who chooses to rent. Neither individual depended on parents to foot the bill; both figured out how to live within their means.
A student homeowner’s story:
Canadian student Arthur Churchyard was a rural planning Master’s student at the University of Guelph. He used his scholarship money to combine his studies (Arthur’s “Onaen” Project) with a house purchase. His goal was to transform the landlord-tenant relationship into a cooperative partnership, by exploring low-cost ideas for “green” rental housing.
In his first year of home-ownership, he made impressive changes to his 1970’s house, aided by his student tenants, who volunteered free labour to the project. He also applied for and received government grants and other incentives, in addition to forging partnerships with Guelph businesses and organizations.
The project proved a success. Tenants benefited by paying lower utility/rental costs and sharing fresh, locally grown food; they also furthered their own studies by gaining first-hand experience with housing retrofits and sustainable budgeting. The community and environment benefited from demonstrated sustainable practices that have grown green housing initiatives. As landlord, Arthur benefited by collecting rents that went towards his mortgage; he made many improvements to the property, adding value; he strengthened his financial portfolio and investment power. As a student, he achieved recognition in his field and secured his future career.
Arthur’s home-ownership experiment is unique, but other enterprising students have also purchased homes with like-minded friends. They pooled their money together for a collective down payment, and then after graduation, sold their piece of real estate.
Oil-rigging student’s rent story:
Some students consciously choose to rent. I interviewed one youth who worked on the well-paying oil rigs for three years, salting away money, intending to put it towards a sizable down payment to buy some Edmonton real estate. He currently attends university, financed through scholarships and school loans.
“I decided to rent, even though I had saved enough money to offer a down payment of 25% on a house,” says the 27-year old. “But I also had deferred school loans. It was bugging me a lot and, looking back, I’d be in real trouble now if I had gone ahead and bought a house. It made more sense to keep the apartment I had and put those funds into paying off my debt.”
The student weighed other considerations, despite tax breaks. He reasoned that he’d still be in school debt, while having to cough up continual cash-flow for the following:
· property taxes
· mortgage interest
· house insurance
· utility bills
· maintenance, repairs, upgrades
· property management
He thought about the idea of living in a home he owned and renting rooms to other students. “But my time and energy for both unpredictable and regular maintenance and repairs stopped me,” he notes. “I need to focus all my energy on school, and I don’t know yet what university I’ll be attending, or what province, after I get my Master’s. I want to be free to pick up and go, so, renting has been the best option for me.”
Buying versus renting:
The debate on buying or renting rages on, and the real-estate landscape has changed significantly. Interest rates are low, but house prices continue to soar, and those fantastic bidding wars are not making the process any easier. Add to these, precarious job markets and job security. Buying a home now may not be in the best interest of many students and young people on budget constraints.
Renting has its pitfalls too. One source argues that gentrification does not serve renting up-and-coming generations. As big businesses and prospective high-income homeowners transform low-cost neighbourhoods, youths are often the first to be ousted.
Nevertheless, students have options either to rent or buy, perhaps more so than any other preceding generation. Let’s take a look at the benefits of either preference:
Benefits of buying a house:
· Pride of home ownership and increased equity
· Opportunity to strengthen financial/investment portfolio
· Option to rent rooms to fellow students, allowing you to offset expenses and some or all of the mortgage; or to buy collectively
· Mortgages will end eventually; renting never ends
· Every good home-improvement project is entirely in your own hands, and every improvement adds value to your home, if you decide to sell in the future
· Young mortgagees are likely to burn their mortgages much earlier in life, freeing them up for other pursuits.
Benefits of renting:
· Considering that living independently may be a new experience for a student, renting alone or with others is a tremendous milestone to increase self-reliance and self-confidence
· Unlike home-owning, renting saves a lot of money that can be applied elsewhere
· Less equity is needed and, therefore, renting is more cost-effective for students
· With proper notice, students are free to move for whatever reason, or to travel to a new job in a new area after graduation
· As a considerate, responsible tenant who has paid rent on time, the ability to rent elsewhere is easier with a great landlord reference
· In some circumstances, include a terrific landlord reference when applying for jobs to showcase your dependability and integrity.
Cut your debt:
Whether looking to buy or rent, you’re wise to eliminate/decrease outstanding debt FIRST, from student loan to credit card. Living without the frills, from a car to electronic devices, and applying those costs to shrink your debt load, will make your life easier to manage, plus you’ll be amazed at how quickly it can decrease. Once hefty arrears are reduced, the time to rent or buy is far less stressful.
Experts agree that your mortgage or your rent should never exceed 30 per cent of your income, and your total debt payment (including regular monthly bills) should not exceed 50 per cent of your income. Decreasing unnecessary debt load becomes even more crucial, in order to meet your goal of successfully living independently.
So, do the math, then decide what works for you: to buy or to rent.
Zoocasa is a real estate brokerage based in Toronto.
Sheila O’Hearn is a freelance and creative writer, and has worn many hats throughout her career, from general staff reporter to magazine editor. She has a keen interest in business entrepreneurship and currently writes for several outlets. Visit her LinkedIn for more info.