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Should you buy or rent?

Should you Buy or Should you Rent? -- A Military Perspective

The first thing that should be stated up front is that financially, a military family is almost always better off getting into base housing. If you can report to your new duty station and move right into base housing, so much the better. The reason for this is that the Basic Allowance for Housing (BAH) for each community is set so that the military member has to pay some portion of their housing and utility costs. By living in base housing, 100% of these costs are covered by the government.

However, at most military bases, base housing has a backlog and you cannot get into it immediately. To maintain a no waiting list policy would require that there is always empty housing available and such excess housing is expensive to the government. So should the military member forced to live on the economy buy or rent? This article alone cannot give you the answer to that question but hopefully it will raise some questions that, once answered, will lead you to making a better decision.

The biggest financial advantage to buying a house is the tax breaks that are associated with home ownership. The taxes and interest are tax deductible each year that you own your home. In addition, any home improvements that you make can be written off when you sell your home. Furthermore, if you keep your home as a rental when you leave, not only can you deduct repairs and other expenses each year, you can also depreciate your house (take the value of your house-- not the land or the appliances inside-- and divide by 27.5. This number comes off your taxable income). The best part about all of this is that you are buying a house and all of the tax breaks with tax-free money (since your housing allowance is tax-free). If you rent instead, then all of these tax breaks go to your landlord.

There are other financial advantages to home ownership in the military. The first is that you can generally buy a bigger home than you can rent for the same money. This is because you do not need to make a profit while a landlord does. The second advantage is that if you are in a military town that your career will keep bringing you back to, you only have to go through these hassles once.

There are disadvantages with buying a home of course. The first is the up front cost. These are high enough that the general rule of thumb is that you must own a home for two years or more to break even over what it costs to rent. Obviously, if you are on an 18 month assignment at a base you will most likely not be reassigned to, then the advantages of buying a home are not likely to be worth the costs. Even if you are likely to return, there are added risks. If the house doesn’t rent for one or two months, that is cash out of your pocket and you are unable to deduct it from your taxes. You can lessen this risk by using a property manager, but of course they charge money. Other potential costs include the cost of repairs if a tenant damages your property. While these can be recovered, the process can be tedious.

If you will not be keeping your house past your assignment, then you must think about resale value. Obviously your real estate agent can give you the best advice for your particular area, but some general rules are:

(A) Buy what others will want to buy, i.e. a good school district, enough bedrooms and bathrooms (usually no less than 3 bedrooms/2 bathrooms)-- just because you may not have children does not mean the people you try to sell towon’t

(B) Buy the smaller house in a large house area, not vice versa

A risk of special note in military towns is that the future will probably bring more base closings. A base closing in a big city may not impact the local housing market, but in a smaller city or town, the impact on home prices can be devastating. In the past, the military has helped out with some of these costs, but you will not be made whole. Unfortunately for smaller military towns, the whole purpose of closing bases is to eliminate smaller bases. In a larger town, you may be able to mitigate the risk by buying property away from the vicinity of the base.

To recap, the basic questions that you must ask before buying are: 

  • Am I unwilling to wait for base housing to become available? 
  • Do I have the up front money to buy a house? 
  • Can I get the financing to buy a home? 
  • Is this assignment longer than two years? 
  • If this assignment is less than two years, do I anticipate my next assignment will be in this town/area? 
  • If this assignment is less than two years, do I expect to return to the area? 
  • Is this base likely to remain open? (smaller base= more likely to close) 
  • Would this base’s closing have a MINOR impact on the local housing market? 
  • Am I willing to put up with the headaches of being a landlord? 
  • Can I afford a property manager to manage my house as a rental? 
  • Can I pay the mortgage without a tenant for a month or two on my income? 
  • Can I afford to pay for an empty house while repairs are going on? 
  • Can I find the kind of house that will keep its resale value? 
  • Do I have to buy a house to be able to afford the space I need?

The more “NO” answers one gives to the above questions, the more one should try to rent the house or apartment that one needs. Again, this does not mean that these are all of the questions you should consider, but rather this is a general guideline. We should also caution that this article only evaluates the financial aspect of buying versus renting. Indeed, too much is made of home ownership as an “investment” in our society. In the end, it is not an investment, it is your home! The perfect home in the perfect neighborhood is often worth much more than the actual costs of living in it.

Good Luck!


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