There is a great debate among active duty military regarding renting vs. buying a home. Because these military members may be called upon to deploy or change duty stations at any moment, numerous active duty families choose to rent. Still, others have determined that despite an unpredictable lifestyle, it is better to invest in real estate by purchasing a family home.
The decision whether to buy or rent a home following what is called a Permanent Change of Station (PCS) move is highly personal, and numerous factors play into the decision. These factors include financial and career based decisions as well as practical and emotional concerns.
Financial and Career Based Considerations
If you are a military family with PCS orders, consider the following before making the decision to rent or buy your next home:
Cost and Monthly Payment
An obvious consideration for most families will be the cost to rent versus the cost of a monthly mortgage. In many parts of the U.S., especially in the wake of the real estate downturn of 2008-2010, rental costs have increased, while the average home price has declined. This has juxtaposed an extremely reasonable real estate market against a historically expensive rental market.
If your family is moving to a part of the country in which this has occurred, and you have determined that a monthly mortgage will be cheaper than the cost to rent, the temptation to buy may win out. But before you start visiting open houses, read on.
Market Considerations and Pricing
Home buyers must consider numerous factors in addition to the mortgage and down payment, such as the price of the home versus the average price within the local area, the rate of foreclosure, and health of the local market. Other factors to take into account include real estate taxes, home ownership association fees, and the cost of insurance, all of which will increase the monthly cost of your home.
Also consider local area schools, the general location, and specific neighborhood. Understand what’s most important to you and act accordingly. For example, if sending your kids to the very best school is vital, but you can’t afford to buy a home there, see if you can afford to rent one instead.
Don’t forget that when you own a home, you get to deduct the mortgage interest you pay on your loan from your taxes. This effectively decreases your monthly home expenses (which include mortgage payment, real estate taxes, homeowner’s insurance, and any association fees) and should be taken into account to determine the true cost of home ownership.
That said, should you choose to rent out your home upon a subsequent move, you must report and pay income tax on the rent you receive.
Ability to Rent or Sell the Property
Let’s be honest. Most military families are not typically stationed in one location for their entire career. Because of this, they need the ability to move on without substantial, or ideally any, investment loss. Therefore, it is important that a purchased home be one that is very marketable. A home can be marketable for the purposes of selling or renting.
For example, what types of homes are most people buying in the area you’re moving to? Four bedroom, two bath? And what types of homes are they renting? If you’re open to either renting or selling your home, you’ll have more options from which to choose when you buy.
What no homeowner wants, however, is for their home to sit on the real estate or rental market for months or years while they continue to pay the mortgage and live somewhere else. The more your house reflects what people are buying or renting in your area, the easier it will be for you to sell or find tenants.
At the very least, ensure that the home you purchase is near a military base of operations. By doing so, there is a high probability you’ll be able to rent or sell the property to other military personnel moving in.
VA Home Loan Eligibility
If you choose to finance your home using the Department of Veterans Affairs Home Loan, be aware of eligibility requirements and how they may impact a future relocation. VA loans are only permissible for the purchase of your family’s primary residence. Moreover, if you move away from your primary residence without selling it, you will be restricted from using another VA Loan for a subsequent home purchase until the first mortgage is paid off.
However, these considerations will only affect you if you want to take out a no money down, fixed rate VA loan on a subsequent home purchase. If traditional financing will be an option for you instead, you may not run into these difficulties.
Expected Time in Current Duty Station
If you know beforehand that you won’t spend long in your current duty station, you should have a compelling reason to buy instead of rent. Most importantly, are you willing to hold onto the property as a rental after you move? These days, it can take many months, even years, to sell a home. You’ll also want to consider closing costs when you buy and sell, such as mortgage points and commissions, which can effectively increase your monthly mortgage payment by hundreds of dollars over a short period of time and reduce your sales revenue by thousands.
Evaluate the expected costs of purchasing and subsequently selling your home, divide that by the number of months you expect to live there, and then add that to your monthly mortgage payment and other home expenses. This will yield your actual cost of short-term ownership by which to compare area rentals to. Keep in mind that this evaluation only works in an ideal market where you can sell or rent your home immediately after you put it on the market.
Are you giving up something important by taking on a mortgage payment? For example, the money that will go towards your mortgage could be used to invest or save for retirement. You may also need to give up little luxuries, such as family vacations or eating out, if owning is a much more expensive proposition than renting. Make sure that any sacrifices you’ll need to make are well worth what you’ll get out of home ownership.
Retirement Considerations and Plans
If you are lucky enough to be stationed in a location where you may want to retire, consider the state tax rates, treatment of military pay and benefits, and your potential home’s proximity to military healthcare facilities including VA medical facilities. These may not seem that important now, but if you’re on a fixed income during retirement and need regular medical care, they certainly will be.
Practical and Emotional Concerns
Money isn’t everything. Sometimes what makes the most sense in a balance book makes no sense in real life and can ruin the best laid financial plans.
Proximity to Family and Friends
If you’ve always lived near family and friends and are moving away for the first time, seriously consider renting an apartment before you buy. Why? Because your family and friends are your support system. Especially if you have young children or are considering children and would like some help, you probably don’t want to be tied down to a place where you’re all alone. Plus, your family can help a great deal in managing a rental property if you’re relocated.
All other things being equal, some people just aren’t ready to purchase a home. It’s a big step and is much more involved than living in a rental. For example, you can’t just call your landlord if the toilet stops working; you need to handle and pay for that repair yourself. If you aren’t ready for the added responsibility, it’s better to wait until you are than to force it and bite off more than you can chew. There is nothing wrong with renting and waiting for the right time to make the leap into home ownership.
Purchasing a home is an involved decision for anyone, but it is even more complex for active military members. Since it’s likely you may be required to move again, look at a home purchase as an investment. Moreover, especially in this market, buy a home that is extremely marketable and be willing to rent it out when you need to move. Whatever you do, examine your options thoroughly and use the considerations above to make an informed decision that’s right for you and your family.
As an active military member, do you rent or own your home? Has it worked out for you so far?