I really enjoyed Heidi’s piece on the Wallpaper Wars: The Trials and Tribulations of Home Ownership, and it was interesting to me that the comments turned into a discussion of whether to buy or not to buy a house.
PCS enough, and the conversation is sure to occur. ”Honey, do you think maybe we should buy a house this time?” There are many things to consider, and there is never a right answer.
I write about military folks and money at The Paycheck Chronicles, I do some financial counseling with the Navy-Marine Corps Relief Society, and I read and research about financial issues constantly. My professional opinion is that it is very risky for military folks to purchase houses. However, we have managed to acquire and retain two houses in the last 19 years. So, you can see I’m a little conflicted on this issue.
Because it is my professional opinion that you should probably NOT buy a house, I’ll start with that:
Eleven Reasons Why You Should Not Buy A House When You Are Military
- Renting can be less expensive outright: Depending on the market trends on your area, you might be able to find a great rental for significantly less than a mortgage payment.
- Houses cost more than they seem: Sure, there is the purchase price of the house — and you’re probably smart enough to calculate insurance and taxes into the total mortgage price. What is hard to calculate are all the other costs: window coverings, and extra insulation, grass seed, new furnaces, decorations, and all the other expenses that come with owning a home. You can say that you’ll skip all that stuff, but you won’t.
- Things break, and housing won’t come fix them: I swear, the universe does its best to teach me this lesson each and every time we move into a house that we own. Twice now we’ve had a sewer backup the first day in our house. (Same house, long story, now I know.) Keeping up with broken stuff can be tiring and expensive. And it is the last thing you need when dealing with extra stressors like deployments.
- Orders are never written in stone: You know it’s true. Those three year orders that actually last six months – not an urban myth. You never, ever know how long you are going to live somewhere. And knowing how long you will live somewhere is an important part of knowing whether a home purchase makes financial sense.
- Sometimes houses don’t rent or sell, even when they should: It is true that you can always find someone to rent or buy your house if the price is low enough. However, usually you are hoping that the price is at least enough to cover your costs. There are no guarantees, even for the most perfect house in the best school district around.
- House prices don’t always go up: I’m thinking that most of you have probably figured that out after the last few years. However, it can still be surprising for a generation who has experienced amazing increases in real estate values. Having an underwater house is a nightmare – you can’t sell it because you owe more than it is worth, and you are stuck. Stuck is bad.
- It is no fun to pay for a house in which you don’t even get to live: Here at my current duty station, there are more than a few people paying for empty houses back in the States. Their budgets are not fun. There’s no eating out, no traveling, no souvenir shopping. Just the prospect of a month or two between tenants makes me nervous; I can’t even imagine dealing with a perpetually empty house.
- Tenants don’t care for your house the way that you would: First, there is the economic side to this. Messed up houses cost money to fix. Then, there are the emotions. If you’ve gotten attached to a house, it can be physically painful to see that someone has not cared for it. And, the truth is, a tenant is almost never going to take as good care of a house as you would.
- You can’t always get leave to go deal with problems, and even if you can, who wants to use their leave dealing with a house? I don’t know about you, but flying 3,000 miles to go sell a house is not my idea of a good vacation. Neither is flying 3,000 miles to put in a new kitchen floor. In theory, a good property manager will make owning a rental property easy. The reality is that sometimes stuff is going to happen and it is going to need your personal attention. Thankfully, we’ve not had any emergencies huge enough to require my husband or I to go, but it could happen at any time. Last hurricane in the DC area, I was prepared to go because I had visions of our huge tree falling smack through the middle of our house. (Did not happen, thankfully.)
- Economic issues are the number one cause of marital problems: You know what? Maintaining a marriage in the military is hard enough. I don’t need the stress of financial problems, too. My marriage is more important than owning a house.
- Security clearances are affected by financial issues: While the security clearance folks have been stressing that a single real-estate related issue should not be enough to affect your security clearance, it sure doesn’t help. If your job in the military requires a security clearance, you have extra incentive to make sure that your financial records stay neat and tidy.
Now, there are obviously good reasons why you SHOULD buy a house:
Seven Reasons Why You Might Want To Buy A House Even Though You Are Military
- It can be less expensive: Again, it depends on the market demographics of the area. In the area my family is probably moving, it is much less expensive to buy a house than to rent. For example, a single listing on Militarybyowner.com shows the same house for rent for $1,850 per month, or for sale for $275,000. A mortgage payment on a 30 year loan for $275,000 would cost roughly $1350 per month, a savings of $500 per month. You can either pocket some serious savings, or get a much bigger house.
- You have lots of kids or big dogs and it is near impossible find rental housing or live on base: This one is pretty self-explanatory.
- You really, really want to be absolutely positive that you won’t have to move mid-tour: Even with a long lease, stuff can happen and you can have to move unexpectedly. Owning decreases the possibility to as close to zero as possible.
- You want to paint or plant trees or smoke up a storm: Renting means restrictions on what you can and can not do to and in the house. If you buy, you can pretty much do anything that is legal and isn’t against the covenants of your neighborhood.
- This is your forever home: Whether you are leaving the service or just planning ahead, it is nice to get started paying off your forever home while you are still receiving Basic Allowance for Housing (BAH.)
- It could appreciate in value, and you could make some profit (either in sales profit, or monthly rental income): If the market works in your favor, you could see appreciation in the value of your house, or earn monthly rental income, or both. My husband and I own a house that we bought over 18 years ago, in a growing part of Virginia Beach, and it has seen significant appreciation. We’re also making a little income each month, though it goes right back into maintenance.
- There can be tax benefits: Under the current tax laws, mortgage interest for your primary residence is deductible if you itemize your deductions on a Schedule A. If you then rent the property, you may benefit from the loss created by depreciating the property.
As you can see, there are numerous benefits and costs to buying a house, and many of those issues are created by or increased by the nature of the military lifestyle. It is a huge decision and military families struggle to make the right choice every day. Hopefully, these lists will help you to make the right choice for your family.
About She of the Sea
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This is your forever home: Whether you are leaving the service or just planning ahead, it is nice to get started paying off your forever home while you are still receiving Basic Allowance for Housing (BAH.)
Yes, I would love the get the Army to make some home payments for me! Hmm, that means I need to get married…
We've already bitten the home-buying bullet and we plan on keeping this house as a rental property when we inevitably PCS. What gives me pause is the idea of buying a second house at our next duty station. If it's risky to own one home, I can only imagine that the potential for disaster increases with the addition of another mortgage. Still, there is a part of me that is not thrilled with the idea of going back to being mere tenants after getting used to being the ones with the final gavel-rap on decisions about our living space. It's a tricky issue.
We bought a house (our first) in 09 that was below what we could afford, we will be moving in early 2013. In the past couple of years we have replaced pretty much EVERY major thing you can in a house except the furnace (roof, entire kitchen, shower, sliding doors etc). We bought the cheapest house in the best area.
We planned on doing these repairs and modifications when we bought the house. We purchased this home after EXTENSIVE research into the area, school districts (walking distance to the best school in the area and on a cul de sac), crime rates, permits, socio economic status of the neighborhood, superfund sites, environmental hazards, drinking water pollutants and radon reports in the area. As a result we've actually increased our market value (neighbor is a realtor). We plan on keeping this home for a long time and renting it when we leave but have built up a one year savings account strictly for mortgage expenses in case we can't.
I think one of the most important parts of buying a house, military or not, is doing your research first. There is nothing worse then buying a house and finding out you are in a ghetto or a bad school district, or have polluted well water. Most of the information you need is publicly available, town police departments maintain GIS or mapping databases for crime and meth lab seizures, Zillow (another GIS) maintains recent information on sales prices and taxes, and the county tax accessor will usually have information on permits taken out on the house, current mortgage information, liens on the current owner, and taxes. The EPA, My Neighborhood website is a great resource for finding hidden sources of potential toxins and superfund sites that you might not otherwise be aware about.
I know a lot of people who have purchased homes only to realize they ended up in a high crime or toxic area after the fact. Once that realization sets in, the see why the house was a bargain and usually have a very tough time selling it. Spend a few hours…do the research…it can save you a FORTUNE.
That was a pretty weak argument. For being your 'professional' opinion and representing yourself as a financial expert of sorts, it's a bit light on substance. When talking money it's better to be quantitative than qualitative. Show us some numbers. A good example would be to show how much money/BAH a family in base housing or renting foregoes in the average 3 year (or more tour). After finding that figure, you could calculate how much that family could lose on a home when they move at the end of that tour and still break even compared to what they would have received living on base or renting. There are a lot of factors like deductible interest/taxes, free utilities on base, HOA fees, rate of return when renting and everything else.
Additionally, you should have mentioned the historic or average appreciation rate for real estate and point out how this economic downturn is uncommon and is beginning to turn around. In truth, this ‘downturn’ is one of THE BEST home buying opportunities in the last 50 years with home prices and interest rates at rock bottom prices. If people don’t buy now should they wait until home prices appreciate 30% and interest rates go up to 7%?
That kind of thinking is what keeps people broke or at least, prevents them from being wealthy. Of course there is risk, but living life conservatively is a recipe for a mediocre life. Who wants to be the richest guy in the retirement home? I’d much rather build enough wealth to have the option to retire in my 40’s. With shrewd opportunistic investing, that can happen. This recession is an example of those once in a generation opportunities.
I agree that home buying isn’t for everyone, but at least give it a fair shake. As financial professionals we should be educating our readers and showing them how, not scaring them into mediocrity with hollow arguments. There’s a reason why everyone wants to be wealthy but so few are…I promise you it’s not for lack of opportunity.
Just for reference, approximate real estate appreciation is around 4.2% (Census data), 3.7% (NAR) and 3.4% (Case-Schiller) between 1963 and 2008, 1968 and 2009, and 1987 and 2009 respectively. Average inflation is around 2.9% or just under that. Image a fixed 3.9% interest rate on a 30 year mortgage and (if you decide to rent it out) increasing rents. Your property taxes will increase as well as insurance, but those increases aren’t too significant. If it makes sense, do it. If it doesn’t make sense, make plans to do it when it does.
Another tip. Yeah, choose a home you want to live in, but also make some sacrifices and also factor in rentability…chances are the things that you’re looking for, others are looking for too. Think what you’d want if you were renting a home. One more tip, if you primarily plan the real estate as an investment, condos are better for cash flow and are much simpler to maintain.
I mean to be direct and straightforward, not insulting. After all, we both want the same thing: to help Marines and Sailors and I appreciate your writing and the work you do for NMCRS.
Hope this helps.
I appreciate your thoughts, Devil Dog, even though I don't agree with most of them. I feel very strongly that large purchases should be made on careful evaluation of the specific details, not sample math or national averages. And honestly, I do believe that I gave home ownership a fair shake. In addition to stating that I own two houses, I also listed seven good reasons that military families might want to buy.
I do not believe that a general education article, particularly about something as inconsistent as the economics of buying vs. renting, should include quantitative data. Sure, I could "show us some numbers," but those numbers would be meaningless because they would not be based on any reader's real situation and would possible present false evidence to support one side or the other. Each individual's decision to buy or rent needs to be made on very specific individual factors and it would be a disservice to do a "oh, you could make this much, or you could lose this much" type of scenario.
In addition, I find it very frustrating when proponents of real estate purchasing use national averages to support their position, particular when those national averages use figures starting as far back as the 60s. It is unlikely, due to the economic factors that caused the huge appreciation of the 70s, 80s and 90s, that real estate will ever again see that sort of increase in value overall. Heck, the vast majority of active duty folks weren't even born in the 60s, and some of them weren't even born in the 80s!
Not only are the national averages misleading because of the unique time span they represent, but home buying is not a national average exercise. It is very specific to the time, location, and personal details of the buyer. It does absolutely no good to know that "home values are rising" if one is looking at a house in Detroit or Rochester or Las Vegas. While certain areas of the country are seeing home prices level off or start to climb, many other areas are still seeing stagnant sales and softening values. I don't agree that you can generalize that "this economic downturn is uncommon and is beginning to turn around." It is true for some places, not for others.
I agree that "shrewd opportunistic investing" can help military families meet their financial goals and that our current financial climate offers unique opportunities. However, "opportunistic investing" carries a level of risk that many military members are not prepared to bear. My experience tells me that most of our readers have not reached that level of financial sophistication. The most popular issues at my website are "when do I get paid again," "how do I qualify for WIC or food stamps," and "how does dual military BAH work." I will not recommend speculative investing to an individual who is still working on basic budgeting skills.
Thanks for your comments. I'm sure they have given many people much to consider.
I know some people are ready and able to buy homes in their early-mid 20s. My husband and I are not those people. We do want to buy a home while he's in the military since he's going to try to go career and we don't want to wait that long to buy, but we're not in any rush. With the military workforce reductions going on over the next few years we're going to wait and see what happens. I've worked my share in legal offices and going through a foreclosure is NOT something I want to personally experience.
In the half dozen PCS moves we have made over the past 20 years it was never the "right time" for us to buy a home. It ranged from "I don't want to live in Texas forever" to "the homes/neighborhoods we can afford here I wouldn't move my worst enemy into." And I think over all having lived in on post housing has been the best option for us. Sure, it would have been nice to have a home to call our own, but it never would have been our 'dream home', nor would it have been a place we felt would be easy to get out of when the time came. As it is, we have managed only two years in the past three duty stations my husband has been assigned to. Now finally, at the 20 years mark for my husbands career, we were ready. We have high school children and one grade school child, and have decided to stick it out for the older two to graduate and dh to except that final promotion, which he has to stay in for at least three years. So we are now in our first house, almost our dream house and very happy with our decision. It truly is more expensive then most think. Though our home is only 4 years old we have had to bring it up to our standards, changing counters, removing carpet, replacing lighting fixtures, those little things add up. And if that A/C goes out, we have to replace it. And now we are in the position to do so. We could not have done that 15 years ago. And if we can't sell when the time comes to retire to Florida, well, we know we are in an area we will get top dollar for rent and we can be picky about how rents the house in this area.
We have always lived in base housing. We decided to buy our first house in 2007, did all the research listed in the previous comment, made sure we were in the BEST school zone, bought in a VERY nice quiet, kid friendly neighborhood, kept up with ALL maintenance, have had it under home warranty and termite/pest contract….did everything right. Well, we have since PCS'd…for a YEAR NOW. Our house has been on the market for a year, through 3 different realtors, with NO Buyer. The one thing we didn't count on is jobs being lost and A LOT of houses on the market at the same time as ours :( NO ONE is buying in the city that our house is in. We tried to find renters as well, but no prospects :( This last year has been so hard financially, and has hurt our credit. Lesson learned…we will NOT buy again until retirement. It is really sad because we thought we were doing a good thing and making an investment, but when it is all said and done we will lose A LOT of money and have to live with the aftermath for years to come :'( To all military just be careful….you NEVER know what the market will do.
Oh, Guest, I am sorry. This must be so frustrating and stressful for you. I hope that you can get it sold or rented very soon, or at least get orders back to that area.
Dogs! Yes, that definitely played a part in why we bought this last time…many rentals want no pets or only small ones…not good when we had two big labs! Good thing about us having big dogs is that we won't stress about renters having big dogs. Thanks for reminding me about pet situations. And you are correct in that it really pays to do the research not only on the housing market but also the areas.
I generally agree. I've bought a house, and it's only because of these reasons:
1) By a fluke of fate, I've been assigned to the base in my home town, which is also the location to which I currently plan to retire. (So this is my retirement home).
2) The house is only on the other side of the block from my parent's house, so when I go TDY, deploy, or PCS, they'll be able to see it.
3) The price was INSANELY low for what I'm getting, especially with the amount of land that came with it.
4) When I PCS and I have renters, I have some trusted friends with rental management experience, and my parents are a second set of eyes, so I have people I know and trust who would be watching the property in my absence.
If it wasn't for those four factors (and especially #3), I would still be renting. When I first arrived here, I was renting, and it was nice to have the ability to call the land lord whenever anything broke, even though I did have to give up my aspirations of owning a dog. If this house wasn't such a deal, I'd still be happily renting.
As a spouse of a retiree, and as a Real Estate Broker, I can tell you that as soon as you can afford to buy a home, do it!. We bought one after my Husband had been in the military for 10 years. He retired with 28 years of service…..we only lived in that home for 6 years and two of those years were during his deployment overseas to Viet Nam. The total amount of time that we owned the home was 37 years. By the time we sold it …. it had more than tripled in price. For most of the time we owned it, our renters paid for most of it. Yes, we had to do some upkeep – new roof, a couple of plumbing leaks. Before selling it we had it painted on the inside, replaced carpeting and had the kitchen counters redone. We still ended up making a great profit from it which we used toward another home. With that big down payment on our present home it left a much smaller amount to finance with our payments now at $600 per month including taxes and insurance. This was such a blessing. For us it was the smart thing to do. During the rental of that home we hired a Realtor to take care of it, we didn't try to deal with the renters ourselves.
Sue, I agree that buying a house used to make a lot of sense for military families. However, many things have changed since your husband has retired. As you know, the housing market is nowhere near as stable as it was in the past, and we are unlikely to ever again see the kind of steady appreciation that occurred from the 60s to the 90s. Current housing values are based on an economy that includes many two-income families. Military families should not make housing decisions based upon the expectation of two incomes because the military lifestyle very frequently impacts the career of the non-military spouse.
While home ownership is great for many people, it is often not a good decision for military families. There is much risk involved in the “live in it for a few years, then rent” model. I have seen far too many families who are forced to live apart because they own a house that they can not rent or sell, families struggling with short sales or foreclosures due to PCS moves, and service members whose careers are being threatened by the financial difficulties brought by owning a house.
I am glad that you had a positive experience with owning a rental property as a military family, and I am thankful that it has worked out well for my family (so far.) However, just because you and I were fortunate does not mean that it is smart for everyone.
BENEFITS OF HOME OWNERSHIP
Since I am a Real Estate Broker and worked as an Agent for many years, let me tell you what the "National Association of Realtors" has to say on the subject. They report that home ownership has proven advantages. According to the NAR, the flowing academic achievements are higher in children of home owners than in renters. Reading scores 7% higher, Math scores 9% higher, high school graduation 25% higher and college graduation 16% higher. Home ownership also creates more cohesive communities according to NAR. 28% of homeowners are more likely to repair/improve their home, 15% are more likely to vote, 11% are more likely to know who represents them in congress, 10% are more likely to help solve local problems, 12% are more likely to have a backyard garden, 9% are more likely to know who is on their local school board and most homeowners live in the same neighborhood 4 times as long as renters. Don't want to give you too much at once ……. More to come later.
Thanks for this article! We are a Navy (officer) family that just received orders to an area of the country where it is very inexpensive to buy vs. rent, so this is just the question we are considering at the moment. I just want to say that I'm tired of reading pushy stuff from Real Estate Brokers. Okay, all the statistics cited above may be true, but it seems to imply that home ownership CAUSES all those wonderful things and implies the inverse – that renting discourages voting, gardening, college graduation etc. and that simply turning your average renters into home owners will fix all that. BUT it seems to me that people who are likely to do those things are financially stable enough to become homeowners (and home stayers) in the first place. Considering my husbands career path, the longest we will ever be in one place is 3 years – MAX. We are voters, gardeners, college grads, savers, parents, financially responsible, have no debts,and stable and plan to be homeowners one day when we do not have to risk our financial security to do so. Sometimes the most responsible decision is to buy
; Sometimes it is to rent. These are all great things to consider! But I think those gimmicky statistics are just plain misleading and emotionally charged. The military family faces factors different from the population at large. Make the best decision for you….. you can be a good citizen and rent too :)
My husband and I bought our house is 2009, knowing we will only live in it until April 2012 and we will have to rent it for eight years until my husband retires after 20 years of service. We've put on a new roof and made other necessary improvements that our home inspector recommended. The military recently relocated us from our home in Boise, ID to Erie, PA. I must stay here without him until April in order to keep the $8,000 tax credit. (He left February 1.) Plus, I can keep my job for a couple more months while we pay both rent and mortgage. We know we will lose our homeowners exemption next year, but we are preparing for it. We recently hired a property manager we are confident will take care of our house for the next eight years. The good news is that vacancy rates in Boise are less than 2%, and we are expected to rent our home for close to what we pay in mortgage. We bought it for reason #4: It is our forever home! I think a home is a great long-term investment. It requires sacrifice to both own and rent. It requires good budgeting to make ends meet. It is not a decision to be made lightly. The housing market will go up and down and change, affecting our home and its value. When my husband retires, however, we'll have a good chunk of our home paid off, and we'll be ready to move back into our forever home! It will be waiting for us to begin the next chapter of our lives!
Cool article!! It didn't really sway my decision much, though lol. I just got stationed in Hawaii a couple weeks ago.. I'm doing the math and with bah, basic pay, and cola I'll be making almost $50,000 a year! I'm thinking "surely this is enough to purchase an $85,000 condo!". But, I'm still doing my research… Hopefully I can get it! It's a beautiful condo in Honolulu right on the beach. It should be fairly easy to rent out once I leave. I guess we'll see!
okay i'm going to jump in here! My husband and I lived on base for the last 10 years. When we got orders to FL last year we decided to buy a home. My husband was only a SSgt. We put 60k down on a nice house in a nice neighborhood near good schools. We mad sure that his BAH would cover our payments. I do not work. We then put an addition 30k in landscaping changing out light fixtures, door knobs, you name it. We have done it. Our home is now worth slightly more than what we paid for it. As a homeowner, I can tell you, I HATE IT! I miss base housing and all of it's crappy components. What I miss the most is not having to pay for upkeep! So I know we have a house that I hate, and I cashed out all my investments just for us to get into….. and now I resent the fact that I have a home- and not a nest egg. We have been in this house for less than 2years, and I want to put in on the market and get rid of it. We will have to pay back the 8,000 tax credit if we sell before April of next year. But you know what? I don't really care. My husband is deploying again in may and I will be stuck here because I can't leave my home. THINK really LONG and hard before you buy a home. You might have the money to get into a home, but what do you do after the money is gone? A house is just a house, but I was proud of my investment folder, it meant more to me……..