(We’re republishing some of our articles that were released prior to our format change. This article was originally published December 2006.)

There’s a lot to consider besides location when it comes to your living accommodations. For instance, is it better to buy a home (if you can afford it) and rent out rooms to other students, or rent a place yourself (maybe with roommates, maybe without)? Well, both circumstances have their pros and cons, and both are worth considering before you make the leap from your current living situation into the great unknown.

Owning up to Ownership

The benefits of homeownership are many. Not only do you have a place that’s truly yours, but you can also paint the walls, decorate however you like, and even, depending on where you buy, landscape however you please. First-time home buyers can even invest as little as 3 percent (or less) of the home’s sales price to get in the door.

The Internal Revenue Service also lends a hand to homeowners, because home mortgage interest is deductible on your income taxes (if you itemize). According to alllaw.com, you can deduct the interest on up to $1 million dollars of home mortgage debt, whether it is used to purchase a first or a second home. You can also deduct the interest on up to $100,000 of home equity debt, even if you don’t use the money for home improvements. And real estate taxes are deductible as well.
For those students that have enough money for a down payment, as well as a guaranteed way to make the monthly mortgage payment, owning a home makes fiscal sense, especially for those who aren’t married and / or do not have children (which helps with deductions).

Owning a home also increases your savings by building your net worth, because a portion of the money you pay goes toward building equity. In other words, as you pay off the mortgage, you owe less on the home and “own” more of it. Another advantage is that the equity you build over the years can help you qualify for other loans for things like school and cars.

Being a landlord

If you buy, you may decide to rent out rooms. As with any other decision, you should be sure you know what you’re getting into before you become a landlord. If you will be dependent on rental income to make your mortgage payment each month, you need to be especially careful as to who you decide to let live with you.

Landlords have to screen renters carefully. Most landlords run a credit check, a criminal background check, and even a sex offender check on every applicant (landlords can be sued if they negligently rent to criminals). However, it’s important to note that even someone with a spotless background can suddenly turn into the roommate from hell.

There’s another aspect to homeownership and / or renting to roommates—the constant hassle of managing paperwork, overseeing contractors, paying taxes and collecting rent. If you live by yourself and your toilet clogs, you might be able to go a few days before getting it repaired, but if you have roommates, it will need to be fixed immediately. (The alternative, doing the repairs yourself, is fine if you know what you’re doing. But the time it takes will never be repaid, regardless of the cost savings.)

Renting Rationale

On the flip side, renting a place, either solo or with a roommate, has its own drawbacks and benefits. While you won’t be able to paint the walls and decorate to your heart’s content, you will have peace of mind knowing that if something breaks, help is just a (landlord) call away.

And if you decide to go in with roommates, you may not even have to worry about late rent payments, because both of you can be on lease (thus both of you are held financially responsible for their portion of rent). Although you don’t have to collect the rent (just pay it), you’re also not building any equity for your future and you’re not getting any substantial tax breaks by renting.

In short, the benefits of homeownership (building equity, tax breaks, etc.) compared to the stress-free life of renting is like comparing apples and oranges. In the end, it all boils down to your own financial situation, as well as how hands-on you want to be in your living environment.