The snow is melting and the sun is staying out longer each day, which means that summer PCS season is fast approaching. During the next few months, many service members and their families will be faced with the decision of where to live at their next duty station. This rite of passage, which occurs nearly every three years, is generally one of the single most remembered aspects of military life. Considering that the majority of time is either spent at work or at home, where one lives can have a significant effect on personal happiness and financial strength.
This article will break down the three major decisions you will make and help to identify the positive and negative aspects to each.
Buying a home is the American dream. Owning property, to include the land around it, gives security for the future. In theory, no matter what happens later on in life, one can always move back to their property and live there. If things get really difficult, property can be sold and the investment will pay off down the road.
For service members in the continental United States, Alaska and Hawaii, the basic allowance for housing (BAH) will pay the average monthly rate in the area. If a service member buys a home, this amount can be used to pay towards the mortgage of the home. This can be a great use of guaranteed income. When a future PCS occurs, if the owner is able to rent out the home, the rent can also be used to pay off the mortgage meaning that at the end of the day, someone else is paying for your property.
Service members with animals will find that home ownership generally comes with yards for the pets to play in. Owners can change a residence as well to include color, style, architecture, additions, or changes to the property without getting permission. Finally, when it is time to leave a location, service members can elect to sell their property and make a profit if possible.
Renting is a safer approach than buying. If to play with finance terms, buying is to playing the stock market where as renting is to purchasing bonds. It is generally a simple process which is rather standardized across the US. Renters are protected by specific federal and state rights and, as long as you pay the rent each month, there are generally few problems.
Renting a location means that during the next PCS notification, leaving is a very simple, hassle free process. Depending on the state, all you generally have to do is make a reasonable effort to clean the place and ensure that there is no negligent damage that has not been repaired. It is not the responsibility of the renter to find the next person, and many states require that a security deposit be returned to the renter within a reasonable time (sometimes as quickly as three business days).
Renting can also mean that the BAH goes towards someone else’s mortgage. On the other hand, the renter is protected from having to pay expenses for non-negligent issues in the residence, such as water damage or electrical problems, which could mean a savings of many thousands of dollars.
For service members with animals, this may mean that there is no yard, or only a small yard available to the pets, so plan accordingly. Often apartments are located near parks and stores to encourage people to move into the neighborhood, so look for walking paths, trails, parks, markets and so on to make life easier with less driving.
Live on Base
The safest possible solution is to live on base. Depending on the type and quality of housing available, this may or may not be available. Sometimes, there is a waiting list which can require temporary housing until space becomes available.
On base housing has many perks, to include zero cost of living. 100% of a service members BAH goes towards their housing. Maintenance is just a phone call away to help resolve issues, just like at the apartment. The on base house is in a safe, gated, guarded community.
Standards are maintained, although they may cause heartache for some individuals. Ensuring that the grass is cut, that animal feces is cleaned up, and that children’s toys are put away may seem excessive, but it is a military base after all; order and discipline is a basic expectation. When it is time to leave, the only requirement is to do a walk through with housing and ensure that all issues have been identified and repaired. On base housing is available for people with or without pets and can help to reduce the stress of an unnecessary commute to and from work.
One misconception is that a house is a “sure thing” investment. A home can be an investment if things work out properly. If the market is buying and the house value increases due to other houses in the area selling at a profit recently, or if new features to the neighborhood improve such as schools, parks, or hospitals, the value will improve and owners may make a profit when it is time to sell. The opposite is absolutely true at the same time. Houses can decrease in value or can sell for less than they were purchased, and then the owner loses.
If the goal of home buying is only to make money, then consider reconsidering. Whereas the value of a home was initially assessed to increase by 5-10% during the three years or so prior to the PCS, the reality is that this is first an estimate, and secondly a potential increase against debt owed.
Consider that most people do not put 20% down on a home anymore. When using the VA home loan, a service member can put down 0%. If the home costs $250,000, then that is $250,000 in debt owed. If the home sells three years later for $262,000, then that $12,000 increase is then paired against any interest owed depending on the loan type.
An average home loan of 3.92% for 30 years for a $250,000 home has a monthly payment of $1,182 with a total mortgage cost of $425,533. So consider the amount of debt interest that is being paid to determine if the 5 – 10% is actually profit.
On the other hand, for a real “sure thing” investment – rent. If BAH in an area is $1,500.00 and a service member rents an apartment for $1,100.00 per month, then that is a gross profit of $400 each month, or $14,400 over three years. This is money that can be invested today, not tomorrow and can be gaining interest without having to pay off debt and interest for debt at the same time.
So consider the purpose for the home and make sure the decision is the right one!
|~6 months of savings||X||X||X|
|Live month to month||+/-||X|
|Want to make money||+/-||X|
|Easy to get up and leave||X||X|
|Want a place to return to||X|
X – good choice
+/- depends on the type
Disclaimer: The content in this article is the opinion of the writer and does not necessarily reflect the policies or opinions of US Patriot Tactical.