By Carol Church
It’s a thrilling feeling to be handed the keys to a home you’ve just bought. A house can also be a great investment that will build wealth for generations to come. However, as most of us know, buying a home also has risks and downsides–perhaps especially so for active duty military, who may be relocating every few years. Still, it can be tempting for service members to believe that buying is always cheaper or more financially sound than renting.
So, what might service members want to keep in mind when making this decision, especially when the temptation of homeownership is calling? Here are nine reasons why service members may want to consider renting instead of buying, especially when on active duty:
- You may not be able to live where you want.
Want to live in the best school system, or close to base? Enjoy a walkable area close to shops, or like living in downtown? It may be financially impossible to buy in these desirable areas, or houses may come up for sale only rarely, with major bidding wars. Renting is likely to be far more feasible.
- You’re on the hook for maintenance and repair.
Once you buy a home, every clogged toilet, broken dishwasher, and leaky roof is on you. It’s not that potential homeowners don’t know this—but have they really thought about the costs? Experts advise homeowners to expect to spend from 1 to 4 percent of a home’s value per year on repairs and maintenance, but it can be much more at times. And if you’re on a tight turnaround time to sell the home again, you may not recoup those costs.
- There isn’t always a tax break.
Prospective homeowners are often excited by the idea of getting a tax deduction for mortgage interest. However, to qualify, you have to have a rather sizable mortgage, and you must itemize deductions. Even then, it’s the wealthiest people with the most expensive houses who typically do best here. (Families earning more than $100,000 a year receive the bulk of these tax benefits.)
- Being a landlord is a drag—and expensive.
If you’ve had to move on but your old house has not yet sold, you may end up needing to rent it out in order to afford your mortgage payment. This is either a major investment of your time and skills, or a major investment of your money (to hire a property manager)…and sometimes both! Finding tenants, checking their qualifications, and coping with repairs, complaints, and possible nonpayment can be a real nightmare. And depending on what the housing market is doing, you may still lose money.
- You may be in trouble if your credit is poor.
Renters with poor credit may have trouble finding a landowner who’s willing to take a risk on them, but once that’s out of the way, the problem is over. But buyers with poor credit may have to accept a higher interest rate, meaning that they continue to pay for their mistakes, month after month.
- Houses eat free time.
Being a homeowner can mean spending one’s free time at the hardware store or on fixing, building, mowing, and raking. For some this is fun, but for busy military families without a lot of regular free time, or with one member deployed, it can be tough. Maybe it would be nice to let someone else handle trimming the hedges?
- The additional costs are nothing to sneeze at.
Even with a no-down-payment VA loan without private mortgage insurance, service members still need to have cash on hand for funding fees and closing costs. They’ll also need to pay property taxes and home insurance every year, and these costs may be substantial (and can rise unexpectedly).
- You’re taking a risk, and tying up your money.
Many look at home ownership as a wise financial investment, and it definitely can be–but of course, this isn’t always the case. While the housing market has recovered substantially and continues to rebound, millions of American homeowners are still underwater, owing more than their home is worth. Though this may eventually work out for those who can stay in the home and regain equity, it can be a disaster for those who need to move on. Furthermore, consider what you could have been doing with the money that you put into that home purchase (fees, down payment, maintenance, insurance, monthly payment, etc.) Could it have been invested in a high-yield vehicle that would also have been little to no trouble to maintain, with lower risk?
- You may be rushing into things.
It can be overwhelming to try to buy the right home in a new and unknown city in a short period of time, and sometimes the choice you make is not the financially or practically sound one. This can be a problem for any homebuyer who is relocating, but it may feel especially acute for military families who have a lot to deal with in a short time when PCSing. With renting, the risks are greatly reduced—you won’t be stuck with a “lemon” that you’ll have to unload later.
With all this said, there is, of course, a time and a place to buy a new home. When that time arrives, there are many great resources out there to help. Search MFLN for the “buying a home” tag to read more about the ins and outs of buying a home when in the military.