In this article, you'll learn:
Should I buy or rent a home?
It's one of the top questions military families consider over and over again during the course of an active duty career. Further complicating the decision is the fact that the answer is likely different every time a set of PCS orders arrives.
The only true statement about military members buying and renting real estate is there is no right answer for everyone. Somewhere between the logic of plain math and the emotional comfort of the person paying the bills lies the solution that best fits your needs.
Of course, there are guidelines to help determine your best case scenario, but even if the monetary answer points in a clear direction, if it doesn't meet the contentment factor of the financial stakeholders, the decision often ends up regrettable.
Start with a Rent vs. Buy Calculator
Not everyone is a math whiz, which is why reputable online calculators are a solid way to start your comparison shopping to determine if renting or buying a home makes more sense for you. They’ll prompt you to input figures such as location, purchase or rent price, and length of stay in the city.
Early in the research process, you may not know exactly what your finances can afford each month for housing. Applying an affordability predictor (often found within a Rent vs. Buy Calculator) is a crucial first step to determine if homeownership or rental life is the best solution.
There are many calculators online; it's recommended to try at least three because each is nuanced in how they present their findings and estimates. Here are three to begin investigating possibilities:
Although these tools are a good start to pursue a home search, they certainly do not take the place of a real estate professional who is deeply knowledgeable about the area you are considering for a home town. Agents and mortgage lenders track the local housing trends and have a solid education on how the buyer and rental markets typically behave.
What Military Members Should Know Before Buying a Home
You’re likely familiar with many of the traditional reasons homeownership in America is one of the top financial goals of military and non-military families alike: tax deductions, equity, predictable mortgage payments (unless using an adjustable loan) the likely increased value over time, and finally, the safety of outright ownership of a home after 15, 20, or 30 years. These are tried and true reasons to buy a home and should be examined if your overall financial goals are tightly tied to investment in real estate.
There are costs involved with buying a home that are often overlooked, however, especially for first time buyers. The buying process begins expensively; upfront fees tally well into thousands of dollars. Down payments, closing costs, and various insurance premiums are due before the keys are dropped into your hands.
Later, homeowners encounter property taxes, maintenance and repair investments, and HOA membership, as well as the potential for decreased home values. These are all out of pocket costs for homeowners.
The expenses aren’t a deterrent for everyone. Those who’ve carefully planned for the future take advantage of homeownership. Look at active duty and veteran home buying statistics compiled by the Urban Institute in 2017.
You’ll notice active duty members buy a home less frequently due to the military’s mobile lifestyle, thereby putting more stress on the rental home market. In post active duty life, however, the percentage of military homeowners greatly increases.
- 43% of active duty servicemembers were homeowners, which is a lower number against both veterans and the total population of homeowners in the U.S.
- 78% of veteran households were homeowners, 14% higher than the total population of homeowners in the U.S. Access to the VA loan is a large contributor to the percentage of home purchases.
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How Military Homebuyers Are Unique
The VA Loan
Compared to the civilian population, military members have unique and cost effective real estate perks, specifically, access to the VA loan. Veteran’s United Home Loans, an industry leader in processing VA loans, reports that nationally, 624,540 total loans were granted in 2019. First-time home buyers accounted for 159,714 of the loans provided.
With zero down payment and zero private mortgage insurance required, the VA Loan is often the front runner as the most affordable loan available with the least stringent financial benchmarks, such as credit score. Funding fees are also waived for servicemembers who meet disability requirements.
The VA Loan is an amazing home buyer resource. Read more about your benefits in What is a VA Loan?
It's hard to ignore the affordability and access of the VA loan. It's traditionally been a huge asset for potential military homebuyers. But, there are few drawbacks to consider.
Not every mortgage lender is proficient working within the constraints of the federal government. The details are endless, and inexperienced lenders can create problems throughout the process. Military members who are considering buying a home in a region without a prominent military population often find it difficult to find real estate agents and lenders who can work easily on their behalf.
VA loans are by nature, cumbersome. From inspections to appraisals, homebuyers are often frustrated with the pace of progress. In housing markets where competition is strong and fast moving, these deterrents sometimes exclude buyers who prefer to use their VA benefits.
Military Homebuyers Move Frequently
Given that standard PCS schedules can dictate a move about every 2-3 years, military buyers find it challenging to uncover a home that is affordable enough to recoup the initial investment before they receive orders to move again.
It's also common for unexpected orders to arrive. Early or late departures to revised locations are all possibilities. Homeowners are forced to scramble and find solutions to the question, “Do I sell or rent my home?” Either accidentally or purposefully chosen, a rental home business is time consuming and requires plenty of planning to successfully house tenants and remain profitable.
Get more information in the ebook created for military homeowners, PCS Ahead: Should I Sell or Rent My Home?
What Military Members Should Know Before Renting a Home
Perpetual rental life typically gets a bad rap, sometimes with good reason. Each month a military renter sends money to a homeowner or property management company means another month without the money working toward owning the property.
The landlord/tenant relationship is a challenge for those without experience in the business and for those without strong communication skills. Add in the prospect of unexpected rent hikes and the restrictions on customizing the house to your personal preferences, and from the surface, rental life doesn’t seem like a solid solution to a military family’s housing needs.
How to Deal with an Unresponsive Landlord provides strategies for a better relationship with your homeowner or property manager.
Yet, rental home markets remain strong surrounding military bases across the country. This occurs for many reasons, including the aforementioned short timelines for living in a home and the ability to choose a home based on personal priorities including public schools and transportation.
Although renters don’t build equity, many do not view rent as a waste. They are, after all, supplied month after month with the housing solution they’ve chosen, with fewer upfront costs and little to no upkeep and repair fees.
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How Military Home Renters Are Unique
Because military families factor in inevitable PCS moves into their 5- or 10-year plans, renting a home may very well be a purposeful part of their finances. Renting allows for savings that could be turned into a significant down payment or the money needed to cover closing costs and emergency funds for later home buying.
Another reason military members choose to rent is the undeniable unaffordability of real estate near military bases in expensive zip codes. It's widely known BAH doesn’t necessarily stretch enough to cover mortgage or rent payments in high cost locations.
This is in addition to the years-long trend of inflated rental prices across the country due to lack of inventory and increased competition for rental homes due to the fact that home sale prices are unaffordable for so many.
Finally, some military families simply cannot afford the expenses of buying and maintaining a home, whether due to a young age in relation to military experience and pay grade or complicated financial insecurity.
On-Base Military Housing
The option of on-base housing is one of the most unique and beneficial lifestyle factors military life offers. Renters pay their monthly BAH to private companies who contract with the Department of Defense to provide housing.
In 2019, Reuters and the Military Family Advisory Network estimated approximately one-third of U.S. military families (about 700,000 people) live in privatized military housing that is spread over 100 military bases.
Learn more: Off Base or On Base Housing: Which is Right for You?
Many military members and families choose to live on base due to affordability, size of home, lack of housing near base, free maintenance, and built in safety and security measures. These are reasonable factors to consider before renting on base, but unfortunately there are disadvantages.
Quality and safety issues have plagued private military housing across the country for nearly a decade, and solutions are slow to appear. The fixes are mired between congressional oversight and the housing companies who are charged with making the corrections.
Traditional complaints that stem from living in a rental property also appear: little opportunity to customize the interior and exterior of the homes and the lack of privacy due to shared walls or small yard spaces. Although the disadvantages of rental life on a military base are similar to renting a house off base, the convenience factors do weigh in on the overall decision to live there. Short commutes, direct access to food and gas, as well as military only programs certainly provide benefits not typically found off base.
Reconsider Your Buy vs. Rent Formula Before Each Move
With each move, servicemembers have a multitude of facts to consider before deciding to buy or rent a home. The length of time spent in one duty station and health of accessible finances are two of the big considerations. But, planning for unexpected circumstances such as becoming a landlord or expanding your family also drive the decision making process.
Between each family's individual differences and the location change, there is little room to bank on using the Buy Vs. Rent formula that worked previously. This is when using an online calculator can shed light on your particular set of circumstances. This information, coupled with guidance from a real estate agent, will help your family assess a comfort level with buying or renting a home, while taking into account current financial and emotional strengths and weaknesses.
By Dawn M. Smith
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