Rent or own while active duty

[Murphys law]

Being in the military, I initially thought I would not buy a house until I got out. After researching the topic, I found some articles about some great success stories of people retiring from the military, owning 4+ houses, and a net worth of over 1,000,000. Of course, there are always people who loose money in this situation as well. I know some people that won't rent because they say they are throwing money away.

Does anyone want to share some experience or advice about buying a home in the military.

 

[W2R]

During my years as a Navy wife, my ex and I rented. We had to move so frequently that I think it only made sense for us to rent. It was hard enough just to get our security deposits back on our various apartments from 1000 miles away, and selling would have been so much more difficult for us. Renting made our moves much less stressful, IMO.

As soon as he left the Navy, we bought our first home and never looked back.

I'm sure there are many different opinions on this.

 

[samclem]

Unless you are in one of those rare situations (e.g a very narrow career field with only a couple of likely duty stations for an entire career, few PCS schools, etc), I'd recommend renting. I know it's tempting to buy and "own something," I know the prospect of "owning" (the mortgage on) several little "money machines" at the end of a career is enticing, but it generally does not work out well.

We had a good discussion of this issue in this thread.

As I mentioned there, it is a giant relief to just give notice to your landlord when you receive your PCS orders rather than having to sell a house as well as do a PCS move. And being a long-distance landlord puts you at a big disadvantage to those who live locally and can manage their properties personally. Trying to buy-and-sell homes is even dicier: You'll be at considerable disadvantage because you'll have zero flexibility on when to buy and sell (you're at the mercy of your assignments office--talk to some folks who bought in CA or FL and had to sell their overpriced homes after the crash) and you'll be plopping into each new market cold while bidding against folks who know the areas well (including the "vector" of the neighborhoods, how to find out about the best opportunities before they go public, etc)

Anyway, I've done both and renting was much better in our case. You're not throwing away your money, instead you are just paying for what you need: a place for your family to live on a temporary basis.

 

[braumeister]

Anyway, I've done both and renting was much better in our case.

+1
I owned three different houses during my military career, and I consider myself lucky that I pretty much broke even when selling them. All the rest of the time I rented, either because I didn't expect to be in the assignment more than a couple of years, or because I simply couldn't afford to buy.

If I had it to do over again, I'd skip those home purchases; they weren't worth the aggravation.

I also had a commander who lost over $100K when he had to sell his house in the middle of an extreme housing bust (southern California in the early 80s, when that was big money). Some things just aren't very predictable.

 

[Gumby]

In my five years in the Navy, I only ever rented. It was much easier given the short and unpredictable move cycle (seven transfers in five years). I would hate to have needed to transfer and try to deal with selling a house on the other side of the country.

 

[ziggy29]

I'm not in the military, but now that my wife is a minister and moving from call to call can almost be like being stationed in the military, I think we've bought our last home until we retire.

I guess a special and motivated person can manage a few properties scattered all over the country (with some help), but after paying for the help you'll need, will the effort be worth the return? I'm not sure.

 

[Happyrick]

Renting or government quarters was always the desire. When the wife and 3 kids came along we ended up buying 5 homes over 20 plus years. The number one criteria was always the ability to resale the house when needed. Lots of good real estate help and a significant other that made it a priority to learn everything possible about marketing a house made it happen without too much pain.

We held one house as a rental for over ten years when we could not sell it on short notice. The rest we sold when we needed to. Overall renting would have been my preference but the reality of finding quality family rentals was not always as hoped. Most military communities have strong real estate markets but the risk is always there that the base will close or the market will tank. Staying informed and ready to sale with a house that we did not overpay for worked for us. YMMV.

 

[ziggy29]

ROverall renting would have been my preference but the reality of finding quality family rentals was not always as hoped.

Pets? That would be one possible complicating factor. If you are in a strong rental market where owners aren't desperate to get their rent checks, they can be more stringent about a "no pets" policy which can be a tough thing for a family with pets on the move to deal with. That could force the issue if the rental market were tight enough.

 

[Nords]

Being in the military, I initially thought I would not buy a house until I got out. After researching the topic, I found some articles about some great success stories of people retiring from the military, owning 4+ houses, and a net worth of over 1,000,000. Of course, there are always people who loose money in this situation as well. I know some people that won't rent because they say they are throwing money away.

Those great successes might reflect survivor bias & confirmation bias. You hardly ever read about servicemembers who lost money on their homes, but the stories are out there.

In 1989 we bought a Hawaii property for $277K. A year of sweat equity later, we put it on the market for $425K and had a contract at $385K. We couldn't swing the financing on the home we were buying so we canceled our sale contract. A year later the market was down to $300K. By 2000 the home was appraised at $230K. Today it's assessed at about $550K, which almost precisely mirrors the last 20+ years of inflation. We're still landlords, and right now life is good, but it can turn nasty in one phone call. It was a lot nastier when we were landlording from 2500 miles away, but even five miles can be a hassle.

The financial aspect of rent vs own is difficult to analyze. Do you throw away money every month on mortgage interest (while building some equity) or on carefree "wasted" rent? Do you forego greater returns in the stock market while saving your down-payment fund in CDs or a bond fund? Do you lose money every month as a long-distance landlord, or do you lose it all at once as a distressed seller who has to move while the market is down?

I usually try to discourage servicemembers who want to buy a home on active duty, because the risk of financial loss is so high. However there are a few hardwired born-to-be-landlords out there who'll buy a home at every duty station and insist that they'll make a profit over the next couple decades. It can be done, and you'll work for every penny of it. For the vast majority of servicemembers, though, I think the hassles of landlording far outweigh the benefits.

Does anyone want to share some experience or advice about buying a home in the military.

Guest post Wednesday: Financial independence on an E-5 paycheck | Military Retirement & Financial Independence (Note that this homeowner was not required to buy flood insurance because "it never floods there".)
If I only knew then what I know now | Military Retirement & Financial Independence
So you want to be a landlord. | Military Retirement & Financial Independence
Real estate: rent or buy? | Military Retirement & Financial Independence

You might also want to e-mail Kate Kashman, who writes the "Paycheck Chronicles" blog for Military.com: http://paycheck-chronicles.military.com/ She's landlording two American properties from Europe. And raising four daughters. And her spouse is on staff duty.

If you must persist in this ambition, then read the landlording references linked in the posts-- especially Gallinelli's blog. Real Estate Investment Blog by RealData | Analysis, technology, resources and more Don't be suckered by the get-rich-quick stories.

 

[bssc]

I think that it depends on the market. My dad was in the State Department so the parents bought a house in Northern Virginia and held on to when they went on their tours overseas, knowing that they would come back to the area and that it was appreciating quickly. 35 years later, they are still happy with it.

And the guy across the street, who was at the Pentagon (and got his briefcase destroyed during 9/11), transferred to the Naval Academy and sold his house. When he transferred back three years later, he found that he could no longer afford his former house and had to settle further out and with a longer commute.

So, it all depends on the market.

 

[Rowdy]

I bought my first house at my first duty station; became a long distance landlord after moving to shore duty. There is nothing more fun than trying to collect from a deadbeat tenant and evicting them when you live 1,000 miles away! Sold the house after 8 years for exactly what I paid for it. So I would say rent or live on base. Have you seen some of the on base housing lately? It's awesome! Much different than the cinder block houses at NAS Cecil Field, FL back in the day!

 

[Greg V]

I have owned, rented and lived on base at different times in my military/civil service career. Each turned out OK and was based on analysis of my financial situation, the local real estate market (cost and ease of sale) and my best estimate of how long I'd remain at that location. In my case, there was no intent to keep property I owned and be a landlord when I departed. I have had several pals who have made great financial gains through the years from "collecting" a rental property at each career stop. As Nords mentioned, they usually work hard for that gain.

From my experience, if you're looking for one answer that makes the most fiscal sense...whether it's making or "not wasting" money...there is no one answer. At each location you live during your military service, your situation, your family's situation and the financial situation will be different. If you're looking for the most convenient option to handle, often on short notice, moves and eliminate the financial risk of losing money on a residence, renting or base housing is the low risk choice. Just my 2 cents...

 

[timwalsh300]

We had a good discussion of this issue in this thread.

For what it's worth, as the OP of the thread referenced by samclem, three years later (I can't believe it's been that long...) my wife and I (we're married now ) are still renting and, in retrospect, I'm glad that we didn't attempt the scheme that I was describing.

I've since learned, as others pointed out, that buying and selling stuff (without losing a bunch of money on the deal) while either up against the clock or thousands of miles away is stressful. The purchase and attempted sale of a cheap used car taught me that. I'm glad I was dealing with a $3,000 used car instead of a $200,000 house.

I've also realized that renting allows us (since we don't yet have any kids) to live in a much smaller place, without worrying about the local school district, which ultimately saves us a heap of money. If we purchased a home with an eye toward selling it a few years later, I think we'd have to pay for multiple bedrooms (that we don't need) as well as a premium to be in a good school district (that we don't use).

So for now I'm very happy to pay less than 50% of my BAH in rent while putting the rest into savings, and I look forward to simply handing over the keys and walking away next year when we PCS again.

Tim

 

[jimnjana]

Generally, I'd recommend renting. Like others on this thread, we were lucky to break even when selling. I'd consider buying if it was your final PCS and the location was where you wanted to stay post military.

 

[deserat]

It depends on where you are in your career - if you are starting out, then renting is probably a good thing - if you are close to retirement and are where you want to retire, then buying may be the best option. As for becoming a rich landlord, I knew of two people who were able to do that - they did not much else outside of landlording and their day job.

I was overseas and owned a house in the states and had a local property manager - I still came back to serious issues due to the way the house was treated by the tenants. It depends on the market - back then, the quality of the tenant I could get for the rent I charged was much lower because at that time prospective tenants who could pay the rent that I desired could go buy a house and pay less monthly. I didn't realize my property manager was advertising to Section 8 qualified applicants....not the best you can get, definitely, That is not the case now - you may end up with some outstanding tenants....as well as have lot of competition for a place you might like yourself.

I'm assuming that since you are posting on this board you are interested in retiring early. One thing you could do is rent for less and save the rest. I don't know if the military will just reimburse you for your rental costs (so then the game is at times to use as much of the allowance as possible to get the best place for that amount possible). In any case, usually as the square footage goes up, the commensurate upkeep and lifestyle costs go up - so keeping that to a minimum and 'acclimatizing' to that over your career, will definitely speed up the financial independence timeframe.

One last thought - if you are stationed overseas, take advantage of that time to live on the economy if you are able. The experience is one of a lifetime that most people don't get and you may end up with friends you can couch-surf with the future in your 'foreign home away from home.' You will also realize how much we take for granted here in the US with regard to our living spaces and amenities and will probably gain a better appreciation of what we have here.