I'm curious what people's thoughts are on this topic. As an active military member, do you choose to buy or rent when you PCS to an expensive duty station? And why do you choose that option?
Let's use San Diego (since I'm in the Navy) as the example market for discussion.
@Stuart Grazier . I’m active duty Army and have been faced with this question every time I PCS. I use to think renting was throwing money away but now I don’t. After buying an expensive house in upstate NY and not being able to sell when I moved and forced into renting it out to break even, I look to rent in expensive areas. I expect to move every two years, which isn’t enough time to recover closing cost, etc and might have to float the mortgage while finding another place for the family and oh btw my BAH may decrease at my next duty station which further complicates the problem. I don’t look at the home I live in as an investment, and would rather be the one to choose where and when I purchase an investment property and not have the Army decide for me by moving me somewhere. I know people that buy at every duty station and rent when they leave and have multiple rentals all over the country and for them it seems to work. I did that for the first couple of years but didn’t like the constant turnover in tenants around military bases (sometimes less than a couple of months with deployment orders). I recommend working through the math on several different COAs and then putting together a solid exit strategy if you do decide to buy.
I just wrote a blog on this -I've done it both ways - I bought when I lived in Pensacola and I rent now that I live in San Diego. As James said, at first it felt like throwing money away, but in an expensive location if you cannot find a cash flowing property and you purchase, you are essentially banking on appreciation only to turn a profit (unless you flip your residence - that is my one caveat). If you rent it after you move in 3 years, you may have a negative cash flow. If you sell and there isn't any appreciation after 3 years on a 30 year note then the majority of your principal paydown will get eaten up by transaction costs. Your saving grace is appreciation. If there is any price softening during your 3 year window then that's out the window too! You can definitely make more money renting in a location if there are no deals and buying homes in areas that cash flow.
Heres a link to that blog post I mentioned:
@Stuart Grazier . Still active duty here as well and facing same situation. Current market is NAS Lemoore area and going to Ventura or San Diego is a big challenge doing buy and hold. Usual plan is to keep the rent low, keep saving portion of BAH and continue to feel the market at the same time keep looking for opportunities.
@James Polk @David Kramer @Leo A. Sage advice. I agree with you. I made a similar mistake and bought an expensive house in San Diego in 2005 and eventually had to do a short sale in 2012 because I couldn't take the bleeding anymore. I cringe when someone gives the advice of buying a house at every duty station because I think that is a dangerous situation to put yourself in. Plus, most human beings don't buy their personal residence with their "investor goggles" on. They buy are Class A/B property that won't cash flow properly after they are forced to PCS. @David Kramer Great blog post by the way! You should write as a guest blogger on the Military Investor Network.
I'm just curious; is there anyone on this forum that would argue for buying at every duty station, even if it is in an expensive market?
I agree with what others have said on this thread and would add that my husband and I have stopped buying at every duty station b/c we've also found that our interests have been better served by creating relationships w/ a property manager (and lowering our costs through more rentals with that individual), in one or two locations. Although not hugely expensive, its also less costly to only have to file taxes for a couple states rather than potentially the 5 or 6 we would have if we bought everywhere we went. Finally, owning in just a couple locations has also made our bookkeeping easier with limited income statements coming in.
@Stuart Grazier One way I could see the 'buying at every duty station' potentially working is if the investor does a live in flip every time. He/she could buy a fixer-upper property in a great location (after thorough analysis of course) that is still in good enough shape to live in. Then add value through improving the home like a new kitchen/bathrooms or whatever it needs, then selling the home after living in it for a minimum of two years.
Obviously this would be most profitable if the individual is handy and willing to live in a home that is under repair.
@David Kramer I enjoyed your blog post. I also bought in Pensacola in 2016 while on an instructor tour, then moved to SD. I ran the numbers for buying vs renting here in SD and it was a no brainer. My Pensacola property is cash flowing nicely, and I'm enjoying being a renter here in SD and not having to stress about what the market is going to do.
Unless you are likely to stay for at least 5 years or run a flip on your primary residence, appreciation alone probably won’t exceed your buy/sell agent and closing costs.
@Kris L. Great point. @Douglas Spence Yep, I think that is probably the best way to do it if you absolutely feel like you need to buy at every duty station. However, timing the market is a factor when trying to do that and that can get a little risky. I bought in 2005 in San Diego and I thought I was buying a great deal, below market value. Then the crash happened in 2007/2008 and destroyed any equity I thought I had. A lot can happen to a real estate market in the 3 years you are stationed somewhere!
@Stuart Grazier a little older thread but here's my two cents.
I'm active duty Navy and recently licensed realtor in HI. I bought a condo 4 years ago when I first got here and according to my appraisal (for refi) from last week it appreciated just under $100k from my purchase price. As a realtor if I were to sell it, I'd price it at $140K over my purchase price and still be "reasonable".
I think HI is an anamoly from the rest of the U.S. in terms of real estate because if there's one thing HI can't import it's land. Then you add the strategic military location on top of being a world famous tourist location and you got a never ending supply of transient population for rentals and high demand for investors or rich retirees. But I digress...
Why did I buy? Because I hate the idea of building someone else's wealth, especially privatized housing companies, when I can build my own wealth and net worth. Buying is the only way to get most if not all of my BAH back and then some, hopefully. If I rented, that money is gone for good with no possibility of financial leveraging for equity loans, cash out refis, or HELOCs.
(If you wanna invest in HI, PM me!)
The other thing is, I despise the idea of paying for someone else's mortgage and building their wealth - especially, privatized housing - when I can build my own wealth and net worth.
@Stuart Grazier For me it comes down to the numbers only. If we can buy a house my family will be happy with, in the best resale area, that we can rent for later and not lose money on (break even or better with all expenses), then we buy.
Now we may not keep the home as a rental, especially if it continues to be a sellers market. But we have the OPTION to rent it out and the let the home pay itself off should the market be unfavorable to sell.
We like the flexibility of owning, the feeling of building equity (we do bi-weekly payments and extra principal so in the long term we’ll pay hundreds of thousands less in interest).
My last reason is for sale by owner. Most of the stuff a real estate agent (I am one) is going to require you to do for a sale, you could do with enough work and knowledge of the market. I'm not saying FSBO is better than an agent, but I AM saying you can successfully sell your own home if you want to recapture the seller's agent commission as your own. We sold our last home a few months ago on MilitaryByOwner in 3 days. I have tips on that on my blog if interested.
Beat of luck to you!
Tough question. I'm stationed around NYC and I'm going 30 to 45 minutes out to invest. And even then it's tough! I get why not buying at every duty station makes sense. Even here you have to get a real feel for the market.
Been searching on and off for a year and put in around 10 offers on 2-4 units with no luck yet.
@Sam Shin Not to be argumentative, but I bet you'd have a different opinion about buying in Hawaii if you had bought in 2006-2008 and were then forced to PCS in 2009, after the crash. You'd be in a very different position than what you speak of now. In my opinion, solely depending on appreciation in a market is incredibly dangerous and not smart investing. If I were you, I'd sell that property in Hawaii before the next downturn and run. Then invest somewhere less expensive where you can actually have positive cash flow.
Just had this buy/rent discussion with my army son as he's relocating to Charlottesville, VA. They decided they'll rent due to property costs vs rental rates.
I’ve got to side with @Sam Shin on this one, HI is a very unique market with an incredible amount of factors favoring homeowners. Beyond limited land, a DoD hub, transient population, and focus of tourism, it is also a desired place to live for US citizens and folks for many Asian countries. Landlord/tenant laws aren’t the best, but the “demand” is always there and growing. As for your challenge about buying in 2005/2006 and then PCSing in 2009, I think you’ll find that Hawaii didn’t take much of a hit from the housing market crash. Sam would have been just fine, and if he held on to the property until now, he would be much better than just fine.
As for the buying at every duty location; that is almost as bad as never buying while you get BAH. Don't do some blanket coverage rule of what you should do. Real estate is local, and your decisions to buy or rent should be based on the market and your end goal. I'm AD USCG and have been in 4 different states, but only purchased a house in 2 of them. My home state where I plan to return after my AD time, and Hawaii which is a contender for my "retirement" state. I am familiar with the Prince William County, VA, and Honolulu County, HI markets. I've spent enough time in both places that I know civilian POC's for various real estate needs (PM, RE Agent, Lender, Inspectors, etc.). Two markets may be a bit much for some, while others can handle 5, 10, 100 markets; gauge that on you're own abilities and end goal. So, if one PCS's somewhere and is not comfortable with the market, rent a house for six months! Become familiar, and make an informed decision. Hawaii is very expensive, and maintenance fees don't help either. But check if your BAH covers the mortgage, utilities, and maintenance fees. If the current rental rate covers those costs and property management, go for it! Would it have negative Cashflow if rented out? How much? And are you willing to accept that when you consider tax write offs, recording depreciation, and the general trend of appreciation.
@Stuart Grazier I would've love to have been stationed in HI back then! Fortunately for me, my job field is geographically limited in that I can't PCS to many places. It just took me a while to get here because I loved being overseas (was single at that time! LOL). I have many friends in the service who have been in Hawaii 10+ years and....they still RENT!
Assuming I stayed within my BAH with up to $500/month buffer and kept the property to now, I would've made out like a bandit today. Especially, because BAH doesn't fluctuate with the real estate market. I'm definitely not one to speculate but Hawaii is... er, Hawaii.
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