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Should military buy or rent?

By
Real Estate Agent with Keller Williams Tampa Properties

I have been "married to" the military for over 20 years... I have asked myself this question many a time over those years and invariably have this discussion with other military members and their spouses.   With the recent volatility of the market and uncertainty of when and how the economy will recover, more military families ask this question.  There are other factors to consider such as the military members financial health and the possibility of a re-tour or even retirement to the area of the base, among others.

It is no news flash that home prices have dropped, along with interest rates, which makes this a time to BUY!   Oddly enough, an interesting phenomenon occurs in a declining market -- whether it is the stock market or real estate market -- the herd mentality sets in and everyone rushes to sell. Those not in the declining market are very reluctant to invest in that market, and begin to search for rentals.  But let's look at a realistic comparison financially of renting vs. buying with some real numbers - after considering the following:

  • Due to the "herd mentality", the inventory of rentals has decreased driving prices higher due to the competition (already high in a military area to begin with).  The inventory of rentals decline, as the inventory of homes for sale increase. The home for sale inventory increases, forcing competition and downward pressure on home sale prices as they become more negotiable. Ultimately, lower home sale prices equate to lower mortgages, which equate to lower monthly payments given a specific interest rate.
  • No one, and I mean no one, can predict with certainty where any market will be two to three years in the future. However, a very safe assumption -- based on the "laws of supply and demand" -- is that despite periodic market fluctuations, real estate prices will continue to increase over time. The simple fact is that there is a finite amount of real estate and a growing population.
  • No investment is without risk.
  • Real estate investments have an inherent tax advantage in comparison to stock market investments. Military families may have an additional capital gains advantage (see Armed Forces Tax Guide Publication 3) due to the unpredictability of transfers. 
  • Hot Tip: Warren Buffet did not get rich by buying at the top of the stock market. He got rich by ignoring the "herd mentality" and buying undervalued stocks that were well positioned for growth.  

So, some real numbers - comparing a $750 per month rent to purchasing a $150,000 home, 30 yr mortgage, 4.5% interest rate (seen some a LOT lower), staying in the home only 3 years (assuming the member will not keep the home to rent out), a property tax rate increase of 1% and an appreciation of only 1%, you will still have saved over $2,000!

http://www.ginniemae.gov/rent_vs_buy/rent_vs_buy_calc.asp?Section=YPTH

This does not take into account that owning your own home also allows for you to REALLY make it your home - sometimes the thing that I appreciated most when being so far away from friends and family.  Adding my own color to my bedroom just because I wanted to or getting rid of the stinky, dust producing carpet - priceless. 

My broker brought up a story about one of his friends that bought his home, took out a 15 year mortgage on it instead and now, at the end of his career and heading into retirement, he is looking at walking into a home already PAID FOR.  That is one benefit I could BUY into!