Okay I need someone to educate me because clearly my math isn’t mathing. And I want to genuinely learn how this all works.
My husband and I will be PCSing to Oceanside in a few months. We will get $3800 BAH… Now we have been exploring every option possible in terms of living situation. Geobach? Rent? Buy? Even considered buying with a fellow sailor!
The gist of it is they seem to believe that purchasing is low risk because theoretically the $3800 wouldn’t have been ours to pocket anyways. If we rent, we give it away. If we stay in military housing, we also give it away. Purchasing however… it seems that we are putting away $3800 back into our future pockets so to say. Sooo how true is that?
Scenario: We manage to find a place that is $3800-$4300 a month for mortgage, property taxes, HOA. If we are stationed there for 3 years that’s $136,800 – $154,800. If we sell the home for exactly the amount we bought it for, do we technically get back the amount we put in? There’s no way it’s that simple… right?
Purchasing property is low risk?
byu/Dontyellatme_2024 inMilitaryFinance
Posted by Dontyellatme_2024
7 Comments
No, it’s not. If you have a mortgage, most of the money you pay every month goes to the bank for interest. The money that goes to property tax, insurance, HOA, closing costs, and maintenance costs is also not coming back to you. There’s a risk that the value of the house stays the same or even decreases and you sell it for less than what you purchased it for.
There will be costs associated with the transfer (realtor, lenders, title company, VA funding fee) from day one. Your loan amortization will be front loaded with interest, so you won’t be getting that money back out (tax deduction notwithstanding). You’ll need to fix things inevitably. If you sell at the same dollar amount, you’ll definitely be in the hole but perhaps less so than renting. Harder to bear out on a spreadsheet, but you will certainly dedicate more mental energy and time to ensuring all the things get tracked.
Buy a house because you want to be a homeowner. I love all the little projects and figuring out how to make it better. I forget where I read this, but if you live in a house and slowly improve it over the course of 3-5 years, it’s generally one of the best investments you can make. Great ROI with a lot of historical precedent to back that up.
Just my 2 cents
Look up an “amortization calculator”. I like bankrate’s.
For a 30 year loan, after three years of making the minimum payments, you’ve paid off approximately 3% of the loan principal.
It typically costs around 5% in closing costs to but and around 8% to sell. You’d reclaim 3% of the home’s value in principal for a net loss of 10% of the home’s value.
So not only would you be out all of that mortgage money… But without the property value going up, you’d be out another 10% of the home’s value in closing costs.
What happens if you need a new roof? AC goes out? HOA doubles rates?
Renting is not throwing money away, that’s something financially illiterate people say. Renting is paying for a place to live and the ability to call the landlord to fix that broken AC.
When you go to sell there are selling costs. What happens if the value of the house is 20% less?
Buying a house with other people is next level dumb. You’ve eaten too many toxic crayons.
Doesn’t base housing cover utilities? So living off base puts you in the hole.
I only did 5 years. I lived on base. It is one of the main reasons I was able to save as much as I did before I got out. A lot of the the things you are saying are pretty financially uneducated. I suggest you live on base first and go from there.
> If we rent, we give it away.
Common misconception. Yes, the money you pay in rent “goes away”…but in many areas its very easy to rent the minimally suitable space for far cheaper than it would be to buy. This money saved by renting can be invested, and invested money grows more quickly than home appreciation on average.
Home ownership has lost costs too….maintenance/repairs, taxes, etc. So your *mortgage* might be lower than rent, but your rent might be lower than your total home ownership costs throughout the year. I’m heard this mentioned as “renting is the most you’ll pay, mortgage is the least you’ll pay”. Meaning property taxes will go up, maintenance will cost you (both time and money), etc…whereas rent locks you into a flat rate each year.
> Scenario: We manage to find a place that is $3800-$4300 a month for mortgage, property taxes, HOA. If we are stationed there for 3 years that’s $136,800 – $154,800. If we sell the home for exactly the amount we bought it for, do we technically get back the amount we put in? There’s no way it’s that simple… right?
Scenario: You can find a suitable place to rent for $2500 a month (maybe an apartment?). You invest $1300-1800/mo and it grows. You now have *more* money than if you bought and “broke even” on the sale (unless the market dropped, which can happen….but averaging both scenarios out will lead to this one being better than your buy scenario more often than not).
tl;dr – Don’t fall into the trap of “renting is throwing away money”. For many people, renting can allow them to invest much more than they could if buying – and that can make renting the financially superior choice in the long run.
Amortization doesn’t work like that, the bulk of the first few years goes to interest. That doesn’t account for closing costs, fees, repairs etc. the only part of PITI that goes into equity is the principal. Interest, taxes, insurance all goes to the bank/gov/company. HOA on top of that goes to the HOA. You can mess around with mortgage calculators online and see what your principal paid after three years would total- likely not enough to cover closing costs.
If you find houses near Pendleton for only $4000 a month mortgage let me know. Also ownership comes with maintenance costs. With our first house we found mold after less than a month and had to pay more than 10k to remediate. Do the math, make sure you are prepared and don’t end up house poor. VA loan is awesome but have a plan don’t just listen to your husband’s buddy.