Buying a home in the military

Stephanie2167 · October 2015

Hi MM! My husband and are in getting ready to put in our picks for our fourth military move. We've always been renters and aren't opposed to continuing to rent until he retires and we settle somewhere. Our #1 pick would be in the state we believe we want to retire (Washington). We're originally from Southern California. The location of his unit and where I would be working would require us to live in an area that is more than the military allocates to us for housing so we would pay money out of pocket (to rent or buy). Otherwise I would have to take a ferry to work everyday, which is doable but not what I prefer to do since the kids would be in daycare/school at least an hour away if they'd need me for something (sick, accident, etc.) Hope that makes sense.

I know it isn't the best choice to buy a house when you wont be there longer than 3-4 years (We should have one more transfer after this location). But from my research, our rent would run about the same as a mortgage. I'm also wondering if their are any military families here with experience paying for rent OVER housing allowance? We currently pay $400 under what we get so paying possibly $400 over what we get makes me a bit antsy. But then again I'd be working too.

I sure hope this makes sense? Transfer season is so stressful. And with three little ones I'm so ready to settle down NOW and it's hard knowing that we still have about 7 years for that to happen.

brij2006 · October 2015

I personally would not buy at the next location. It sounds like you won't be there for longer than the usual terms anyways, and where you are wanting to buy may not be the house or neighborhood you would want to buy in later if/when you return to the area. So I would rent.

As far as the allowance portion. My BFF is a military wife, and they rented a place $500 over their allowance at their last place. It was a beautiful huge home with plenty of acreage. She wished she wouldn't have done that. The higher rent also meant higher utilities as well, and more expensive commute for her and her H. They're stationed in San Diego now and they rent a modest home in a family friendly neighborhood for $400 less than what their housing covers. She wished they would have done that all those other years as well.
They also own a home in Ohio from when they were stationed there. Originally they were supposed to be there for a minimum of 3 years. Things changed, and they were sent to VA after just 1.5 years. She hates owning a home halfway across the country. They also have to pay a management company to handle the renters, and someone for all of the maintenance. It was cheaper to own when they lived there, but now that they do not, they are actually forking over $200-300 a month on that property after paying for all of the expenses and the mortgage.

Bottom line, just rent. There will be plenty of opportunities later to buy.

short+sassy · October 2015

brij2006 said:

I personally would not buy at the next location. It sounds like you won't be there for longer than the usual terms anyways, and where you are wanting to buy may not be the house or neighborhood you would want to buy in later if/when you return to the area. So I would rent.

As far as the allowance portion. My BFF is a military wife, and they rented a place $500 over their allowance at their last place. It was a beautiful huge home with plenty of acreage. She wished she wouldn't have done that. The higher rent also meant higher utilities as well, and more expensive commute for her and her H. They're stationed in San Diego now and they rent a modest home in a family friendly neighborhood for $400 less than what their housing covers. She wished they would have done that all those other years as well.
They also own a home in Ohio from when they were stationed there. Originally they were supposed to be there for a minimum of 3 years. Things changed, and they were sent to VA after just 1.5 years. She hates owning a home halfway across the country. They also have to pay a management company to handle the renters, and someone for all of the maintenance. It was cheaper to own when they lived there, but now that they do not, they are actually forking over $200-300 a month on that property after paying for all of the expenses and the mortgage.
Bottom line, just rent. There will be plenty of opportunities later to buy.

Actually this is a common strategy for a lot of military families to supplement their income and retirement. They will buy a house where they are stationed and then rent it out when they leave. Of course, it has to be a financially advantageous buy to begin with so the property will rent out for at least $100/month more than ALL the expenses (including property management, estimated maintenance, and estimated vacancy).

However, if renting a house out when you leave for a different post does not interest you, then unfortunately it will usually be a waste of money to buy a house you are just going to sell in a few years anyway.

One exception to that would be if you don't mind buying a fixer-upper and, between the home purchase and repairs, you add a lot more equity to the house than what you put in. Making a good choice on the buying end could end up putting money in your pocket selling it after a few years, even after accounting for closing costs and realtor fees.

simplyelise · October 2015

Typically you still come out behind with the 3-4 year timeline just because of the closing costs of buying and selling in a short time and not enough time for the market to grow. But depending on your real estate market at this next location, it might work out. I'd try and get in touch with some real estate agents there and tell them your situation to see if this is a fast and growing market.

You definitely don't want to be stuck trying to sell a house after you've moved. But I know your last rental situation was less than ideal and totally understand the desire to feel settled.

Stephanie2167 · October 2015

Thanks everyone. This station would be the FIRST where housing allowance doesn't even come close to what we would pay to live on the economy (and we don't want to live on base). We aren't opposed to keeping a house (especially one in the state and near where we plan to retire). We almost bought here in Texas with the intentions on renting it out later. I think for us it's the fear of the unknown. Since we've never bought before. We'd be looking at rent at around $1600-$2000 and a mortgage at around $2000. If this was a place I didn't expect us to come back to I wouldn't even consider it.

My sister just bought a home in our hometown and I cringe at their mortgage payment.

brij2006 · October 2015

There are so many more risks associated with being a long distance landlord though. You have no clue how the tenants are treating the home, if the lawn is being mowed, if there's a broken window, if they're changing the oil of their Harley in the living room. So many "if's" to it. It's risky. Very risky. Even if it's going to cost you a bit more to rent, at least then you don't have to worry about getting orders 1 year from now and quickly finding someone to live in the home because you need to make the mortgage payment.

There's also a lot more to take into consideration than just the mortgage payment. There's taxes, insurance, home repairs, updates, the furnace breaking, a roof leaking, etc. Keep in mind, more than likely all of this will happen when you're renting it out because that's just how Murphy works. So you will be paying someone to go in and give estimates and check what is going on, while you're trying to manage that from the other side of the country.

Save yourself the stress and just rent. If you end up back in that area again 10 years from now for military retirement, then awesome. At that time your girls will be older and your needs will be different than they are today. At that time you can buy the home you are looking to settle down in, rather than looking at one that maximizes rental opportunities.

short+sassy · October 2015

Stephanie2167 said:

Thanks everyone. This station would be the FIRST where housing allowance doesn't even come close to what we would pay to live on the economy (and we don't want to live on base). We aren't opposed to keeping a house (especially one in the state and near where we plan to retire). We almost bought here in Texas with the intentions on renting it out later. I think for us it's the fear of the unknown. Since we've never bought before. We'd be looking at rent at around $1600-$2000 and a mortgage at around $2000. If this was a place I didn't expect us to come back to I wouldn't even consider it.
My sister just bought a home in our hometown and I cringe at their mortgage payment.

Since you're considering purchasing a home you might rent out later, I suggest you go check out a site called Bigger Pockets. It's all about real estate investing (REI), has a huge forum, and its free to be a member. No spamming at all, either! You can find tons of information about how to analyze a rental property, everything about being a landlord, bank financing...whatever you want to know. And some of the information is great to know just for buying a property, even if it is a personal residence.

One of the regular posters is a woman named Elizabeth Colegrove. I recommend doing a search for her posts. She is a wealth of information, especially in regards to rental house investing while in the military. Her husband is in the Air Force and they initially got the "REI bug" when they bought a house in the first place they were stationed and then rented it out when they left. Now they buy multiple homes in each place they are stationed. Once he has his 20 years in, he's leaving the military and they will just live off his pension and their rental investments. They will only be in their early 40s!

I just want to caution you that buying a place you plan to rent later...but with a negative cash flow...is not a good option. Even if you think that is where you want to go back to. You might change your mind or it could just be a lot of years shelling out money and coming out negative for a house you are not living in.

And a $2,000 mortgage for $2,000 in rent IS a negative cash flow. Because there will be maintenance costs, property management costs, and occasional vacancies.

julieanne912 · October 2015

Just wanted to add the other item to consider... the economy changing. Say you have a $2000 mortgage but can rent it it out for that, or even more. Great...for now. What if the economy in that area changes and you now can only rent it out for $1500/mo? Then it's not such a great investment, is it? You're out $500 for the mortgage, plus whatever else you're paying in maintenance, turnover costs, management fees, etc etc. So, I think unless you find a screaming deal where you would be making money from the beginning (not just breaking even or close to breaking even), then it's not worth it.

Stephanie2167 · October 2015

You ladies are always great. Thank you! I would really like to save more money so that when we do settle somewhere we can buy a house perfect for us at that time.

Thanks for putting up with me.

brij2006 · October 2015

Stephanie2167 said:

You ladies are always great. Thank you! I would really like to save more money so that when we do settle somewhere we can buy a house perfect for us at that time.
Thanks for putting up with me.

****SITB***
No problem, that's what this board is for. It's great to hear the other sides of things, and it helps sometimes to have others point out things we ourselves have overlooked or not thought of.
As far as saving money for when you do settle, put together a budget and figure out where you can save extra and put aside for that "someday" house. If you know that military and moving will be part of your life for the next 10 years (just making assumptions here), then see about putting some money aside each month for a nice big down payment when you do settle down. Or take this opportunity to pay off all non-mortgage debt to set yourselves up for not having any payments for the next 10 years, and having the ability to save even more each month for a large down payment.
Just a hypothetical scenario. But say it takes you 2 years to pay off all non-mortgage debt (cars, student loans, CC, any thing else you may have). Then let's say you have an extra $1,000/month in your budget after no longer having payments. Take that $1,000/month and put it into a savings account earmarked for future house down payment. Do that every month over the course of the 8 more years you rent instead of own while moving around with the military, and you end up with a $96,000 down payment when you go to buy a home.

short+sassy · October 2015

I'm going to add on to @brij2006's advice about paying off debt. "Credit Card Utilization" is a major factor in determining credit score. Basically, if you keep your cc balances below 25% of your credit limit, it is a big plus for your credit score.

In addition, most people don't realize how much impact even just a little bit of monthly debt affects how much they qualify for in regards to a home loan. For example, I unfortunately had my car totaled back when I was actively looking to buy a house. I spoke to my mortgager and he said, as long as my new car payment was not more than my old car payment, it would not affect my preapproval or ability to get a home loan.

As it turns out, the next car I bought had a payment that was $100 LESS than my previous payment. When I gave him the new information, just that $100/month difference raised what I qualified for by $30K.

jtmh2012 · October 2015

It can also affect the interest rate you're offered depending on where your credit score happens to fall. And it only takes a minor change in the interest rate to cost you thousands of dollars over the life of the loan.

Sisugal · October 2015

RENT for less than your housing allowance - and SAVE the difference.

Stephanie2167 · November 2015

Hey ladies! Just thought I would jump back in here and let you know we ended up not getting our #1 pick but we'll be moving to Philadelphia in June. We'll be renting and are really excited to experience the east coast. Thanks so much for your advice

abrewer5 · November 2015

Stephanie2167 said:

Hey ladies! Just thought I would jump back in here and let you know we ended up not getting our #1 pick but we'll be moving to Philadelphia in June. We'll be renting and are really excited to experience the east coast. Thanks so much for your advice

Congrats! The east coast is great, thou I am partial because I live in MD Take a trip to Baltimore once you move in and get an authentic crab cake. They're amazing!

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