I recently* received this question from Michele in Norfolk, Virginia:
We also are military. We just received housing on Little Creek NAB [Naval Air Base] in VA. The lease is for 6 months then month to month. During this time we would like to look for a house and possibly buy a home. It would be nice to apply our BAH [Ba$e Allowance for Housing] to something of value. But there are so many 4closures and 4sales it seems crazy to buy. We chose Norfolk b/c we felt we would have a better chance of staying longer in one area. We have been in the Navy now for 12 years and plan to retire at 20 or 24 yrs. What do you think about buying the house while being in the military?? Have you ever lived in the Norfolk area and do you have any recommendations for areas to live?
*Recently, that is, if you consider a month ago as recent. Ahem.
On a whim, I decided to ask my husband to answer this question as well, in his own words. I thought it would be interesting — for you and us! — to see the perspectives from a husband and wife. Sort of a His and Hers, Thang. We did not compare notes before we wrote. (And John paid a little more attention to my word count suggestion than I did. Ahem.)
HIS:
Ok, dude’s perspectivo.
We used to think that “put the BAH into something of value” jazz. But experience has taught us to think a little differently. Consider – you buy a house for $100k (for example), and sell it 4 years later for $105k. You just paid a realtor 6% in fees to essentially rent anyway. That would not even factor in everything that will break or wear out (older house) while you’re living there, and that’s out of your pocket, too. In the end, you’re not getting “value” out of either one if you move in a few years. Buying a house, you probably lose a few bucks.
There are a number of other factors – good and bad – to consider. With so many 4closures and 4sales (sic), it’s not crazy to buy, it’s almost crazy NOT to. After a bubble pops, prices dive like the Titanic and you know the saying – buy low, sell high. Well, now prices are low because the market crashed and is now flooded with homes for sale. Also, interest rates for loans are insanely low. It’s a good time to be a buyer. On the other hand, now the entire country has been burned (unless you already owned your home and never move) by the housing crash, and I don’t personally think prices are going to rebound anytime soon. So if you buy something, be prepared to own it for a long time or sell it at a slight loss. In some places, you can’t sell a house at all because the market is so flooded with homes. I don’t know Norfolk, but sounds like they might have some of that problem from your description.
I don’t really know much about your situation and what affects moves in other branches of the military. I know in the AF, enlisted people can generally stay in one place a lot longer than officers, who have to move every 3-4 years. If you were a LOCK for staying in one place and not moving, I wouldn’t even have to think about it – you should definitely buy a house in the current market. Or if you are totally into renting it out after you move and dealing with that hassle in the hope of one day returning to that home, go for it. (A lot of people do this with varied success. We don’t like the hassle, frankly – or the cost of maintaining a rental. A rental, by the way, that is in a dead market and not gaining any value.) Just bear in mind that people will trash your lovely house because renters generally do, and that it may go un-rented for months at a time – and you pay anyway. Renting is a whole ‘nother discussion. But if there’s any chance you could move in the next few years (4 or so), personally I’d rent.
HERS:
As I got to thinking about Michele’s question, I realized that, based on what I’ve learned both from reading a lot and from our experiences, I could not recommend that they buy a house in their situation.
I do understand that they may be able to buy a foreclosure at a bargain rate and put in some sweat equity during the time they own it so they come out ahead, or at least even, when it comes time to sell.
The thing is, putting a house up for sale doesn’t guarantee that someone will buy it. Even if the list price is fair market value, sweat equity or no. Do they have the savings or cash flow necessary to float a mortgage if it doesn’t sell before they have to move? Or are they prepared to be long-distance landlords in the event they decide to rent it out? Again, do they have the savings or cash flow necessary to allow for the months between tenants when the property is vacant? Would a marketable rent amount even cover the mortgage and other expenses of owning an investment property?
Is home ownership the best place to put their money right now?
Having the money to buy a house is not the same thing as having the money to be homeowners. I think that some people look at buying a home the same way that some look at getting married: They’re only thinking about the wedding; they’re not thinking enough about the life they will be living together.
We have been renters many, many times. We have been homeowners (and still are) of two different homes. (Have I mentioned we’ve moved a lot?) We actually love being homeowners! We love fixing up a place, knowing it’s ours. We love to put our personal touch on things. I love to paint the walls. John loves to curse coax the lawn to a lushly green.
But homeownership comes with many expenses besides a mortgage. (And taxes.) (And insurance.) When there’s a leak, it’s up to you to call — and pay — the plumber. The roof may need replaced. The chimney might catch fire. The garage door may decide not to open one day. Just to throw a few things out there.
In homeowners’ circles, the advice is to factor in 2-5% of the cost of the home into what you need to set aside for maintenance annually. Yes, you may go months without mishap. But someday the AC will go out, or the windows will need replaced. The months you may have gone without needing to put anything into the home can get eaten up rather quickly by one major repair.
All of this may sound rather discouraging for anyone contemplating homeownership. But the truth is: It’s worth it — when you’re staying somewhere for the long haul. Someday you will own your home outright! Otherwise… As much as I love our home we’re in right now, if we had to do it all over again? I can’t say I would. It simply doesn’t make sense financially. We have lots of lovely memories here, and I will always cherish them and remember this house fondly. But we will not get a penny back from what we’ve put into this house, even if we sell it for more than we paid for it. (Don’t forget the realtor’s commission!)
How long do you have to stay in a home for it to make financial sense to buy?
Does anyone really know? And if you’re in the military… Do you really know that you’ll be able to stay somewhere a definite amount of time?
The one caveat I might add to the whole situation: If you know that you will be returning to someplace; and you know that this is the house you’ll want to live in when you do; and you know you’ll want to live there indefinitely… Then it might make sense to buy — and to factor in the expense of renting it out accordingly: maintaining it; carrying the mortgage between tenants; etc.
Otherwise? I would save the money I would put into homeownership and max out individual ROTHs, which could help you purchase a home once you’ve settled down. And I would save toward retirement. You can’t get these years back. (Compound interest is the eight wonder of the world, after all.) Owning a home is a wonderful, worthy, rewarding experience. But it is a home, and not a safe investment for the short term.
And that’s my twenty two bits.
*If anyone knows anything about the Norfolk, Virginia area that they’d like to share with Michele, please do so in the comments. That is one area of the country we have not lived in. (Yet.)
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{ 8 comments… read them below or add one }
Military should rent. They move too much to buy a home.
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Hi, Michelle… We are a Navy family and we know Norfolk! It’s been our home for 10 years. So, I have probably too much of an opinion on the area. I’ll share a little. You didn’t mention if you have children. This is a big thing to consider- good schools!! We bought a 1940′s home in Norfolk in 2002. We paid $93,000. Our daughter was 2 when we moved in and I knew (my dad built and sold homes when I was younger and he always said this) all about location location location. I assumed (never do that) that since we were military and my daughter was so young, that we would be getting new orders somewhere else and move by the time we would need to consider schools. WRONG. We kept getting orders to… guess . Norfolk. So, we stayed.
The good-
We have a ton of equity.
We have great neighbors.
We are close to the naval base.
The bad-
The school in our district is not one I’d pick. Our daughter goes to an out of district school.
Norfolk is very hit ‘n miss… or spotty. What I mean is that a lovely, beautiful neighborhood may be right next door to a high crime and poorly maintained neighborhood.
What I regret-
We rushed into buying without really doing our homework and talking to people who really knew the area and the schools.
What I suggest you do before deciding to buy-
Hang out in the neighborhoods that you are drawn to or hear good things about- take a walk or jog in the neighborhood at different times of the day and different times of week, on a Monday night, Saturday morning.. Is it quiet? Do the neighbors seem engaging, friendly? Do THEY seem to be happy in their neighborhood? Do they take pride in their homes?
Also, if you have no money saved, then rent!! A home costs money to keep up and maintain!! Hope that helps and hope you make are able to make a decision you are happy with.
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jolyn Reply:
July 7th, 2010 at 8:40 pm
So… never plan on staying; never plan on moving. Bottom line: never plan! Sounds good. Glad it’s working for you and you were successful in transferring your daughter. Other than the schools, your house and neighborhood sounds wonderful! I love old homes: more character.
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April Reply:
July 7th, 2010 at 10:02 pm
huh? seriously? I honestly hope that’s not what you truly got from my comment. I would never suggest not planning. I think I suggested major planning when I said “do your homework and find out about the neighborhood… if you have no money saved, don’t buy…” Wow. I’m so sorry if that was taken so nonchalantly. I also love older homes, but have learned that an older home in a high crime area does not attract buyers… poor school district… etc. So, do the homework. And I also called in and talked to Dave Ramsey on his radio show… and learned so much from talking with him!! I’m a bit thrown by the “don’t plan to stay… don’t plan to move” bit… was that sarcasm? Hard to tell in typed words.
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jolyn Reply:
July 7th, 2010 at 11:17 pm
April- Yikes, I think a lot was lost in typing. My bad, seriously. I misunderstood the beginning of your comment to be that you liked your location, b/c you had learned from your dad to look for that and you liked your neighbors, etc — the school district was just the downside. I definitely didn’t deduce that the crime was bad, etc. I know nothing about Norfolk. And the “don’t plan ….” bit was definitely sarcasm. I was trying to commiserate with the military lifestyle. I would love to hear more about your talk with DR. I’ll try to do better at clarifying any comments I have next time, too.
April Reply:
July 8th, 2010 at 6:09 pm
Oh.. thank you for clarifying!! I apologize for getting defensive!! Pretty funny now that I look back, I need to work on that… Well, I called Dave really wanting to move, and really regretful and unhappy with where we were (still are there). He said, “No, I would not recommend moving, just because you are not crazy about the neighborhood, you have some wiggle room in your budget and with your husband getting ready to deploy… ” I really wanted him to say, yes!! move… go for it. but I wouldn’t have asked anyone else, he is so honest.
Michele Reply:
July 23rd, 2010 at 8:13 pm
Thank you for the great information, I appreciate your advice! – Michele
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Michelle, if you’re reading this here’s my two cents:
Selfishly I would want to tell you to buy now! But that’s only because we have a house in Hampton Roads that we’ve been trying to sell forever and I’d tell you to buy our house. (Well, not now. We just got renters again.) Hampton Roads is a nice area, but I would just rent if I were you. There are a flood of houses there and since not a lot of military are buying, the market is really difficult. For a buyer it could be good if you’ll be there for a while, but I really think that it’s going to take that area longer to rebound than most.
Having a husband who was in the Navy I know how good of a deal it can seem to be in Norfolk. Odds are you can stay. That’s what we thought too. Then we got sent to Washington. State. Almost as far as you can get from Norfolk (it’s OK, we’re from there…but still. We wanted to stay in Norfolk for a while). We moved away in December of 2007 and have had it sit empty for months, had one set of good tenants and several bad. Unless you’ve got a great savings account and can make payments if you move I wouldn’t do it. Since there is a lot of military, the odds are that you’ll be renting to military if you can’t sell it and their orders can change at a moment’s notice and they can leave without any reprocussions and you’ll be stuck with an empty house.
Property management companies are an option if you have to rent your house out, but it’s hard to find a good one. We’ve been there and dealt with that heartbreak, too.
If I had to do it all over again I would have just rented while we were in Norfolk. You can find really nice houses to rent there for a very reasonable amount. Then when you leave you don’t have to worry about what to do with your property in a very strange and unreliable market.
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jolyn Reply:
June 24th, 2010 at 10:43 pm
I love your insight. And I feel your pain! Our rental in Vegas is currently empty — again. And it also was recently broken into: broken window; stolen washer. Ugh. I wish we could just be rid of the thing.
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We moved from Hampton (just across the bridge and tunnel from Norfolk) two and a half years ago. It is a nice area with many activities. We liked Hampton because it had a smaller town feel. Definitely do some research to neighborhoods, schools etc. there are som troubled areas.
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I grew up in Virginia Beach and met my husband when he was stationed at Little Creek. We moved to Ohio in 1996, but my brother still lives in the area. I can tell you this much as far as the housing market goes. Yes, the prices have dropped from the insane highs they were at about 5 or 6 years ago, but they certainly have not bottomed out like some areas have. If I were to move back to the area right now, I would definitely rent for at least a little while first. One last comment as far as how nice the area is if you do move off base. I would stick more towards Virginia Beach (the city, not specifically right down AT the beach). As a child I lived in a neighborhood off of Great Neck Rd., and when we were first married we lived in a neighborhood near Oceana Naval Air Base. If you have more questions about the area, feel free to e-mail me directly(cmjonesohio@yahoo.com). I’ll answer what I can.
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jolyn Reply:
June 19th, 2010 at 10:33 pm
Thanks, Chris! I hope Michele is reading this!
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Michele Reply:
July 23rd, 2010 at 8:06 pm
Jolyn,
Thanks so much for taking the time to consider my question. I enjoyed reading all the responses and appreciate the advice!
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jolyn Reply:
July 27th, 2010 at 9:32 pm
You’re so welcome! It was fun doing this post! I love these questions!
April Reply:
July 6th, 2010 at 11:56 am
Chris- the only thing about living in Great Neck (awesome neighborhoods, great area!!!) is money. We definitely could not affort to buy a home in Great Neck. I haven’t seen any homes under $300k there…
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It was a great idea to have his and hers perpectives. I know very little about an army lifestyle so this was really interesting. I’m desperate to move to a new house but financially this house is our best choice.
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I think highly of my daughter’s and her husband’s financial skills and don’t hesitate to ask them for advice. So, I offer you their take on buying/renting as a military family right now: RENT.
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First off – we’re in the BRAND NEW housing at Little Creek and it’s gorgeous! Totally worth the BAH.
The Navy moved us here while hubby is doing a GSA (IA) deployment with a promise that we’d be here for a few years after hubby returned (We have a son that is EFM). Uh… not so much. We now have orders to another state and will be moving less than a year after our last PCS. Glad we didn’t buy a house… we’d be screwed.
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JP Reply:
June 19th, 2010 at 3:30 pm
That’s what I’m talkin’ ’bout, Willis! You can count on nothing the military “promises” you these days. We PCS’ed here to Ohio with 4 years right in the paperwork. Three years into it, we’re moving. I asked the personnel people, and the answer is paraphrased best with, “oh well.”
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Michele Reply:
July 23rd, 2010 at 8:00 pm
Katie,
We also live in Navy housing on Little Creek NAB. The homes are new and the neighborhood is quiet. After all the advice it seems like buying is not a good idea. I still drive by areas I think might be nice to live and wish….. Realistically, I know it’s not a good idea. Sometimes I feel like Virginia Beach seems too big a city so I am not sure if we will stay. Thanks for the advice
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