HISTORICALLY SPEAKING,it’s a great time to buy a home. Although bargain buys, created by the recession a few years back, might be fewer and fur- ther between, interest rates still are incredibly low, builders are back in the game providing buyers more choices, and prices have returned to reasonable levels. Sounds like a no-brainer, right? Truth is, buying a home should be a deliberate decision made with enor- mous emphasis put on your financial circumstances and military status.
Movin’ on up If you anticipate PCSing in the next few years, you need to think twice before committing to a home purchase, as doing so can leave you in a financial mess. To begin with, there’s no telling when you’ll be able to
sell your home, so you might still be making mortgage pay- ments when you need that money for hous- ing costs in your new location.
Second, a home is not a liquid asset, mean- ing it can’t quickly and readily be converted to cash without the risk of taking a financial hit, so generally it’s not a good choice for a short-term investment. The S&P/Case-Shiller National Home Price Index is the go-to index for track- ing changes in residential real estate, and it shows home values nationwide have increased 6.84 per- cent over the past three years and 4.71 percent over the past five and basically have flattened over the past 10 years. It’s fairly safe to say those numbers were negatively affected by the bursting housing bubble, but that’s the point: You can’t predict what the housing market will do. These statistics can swing wildly by location (so study your local market), but it does suggest it’s possible you won’t even recoup your investment because of expenses you’ve incurred to date like closing costs, interest, taxes, and insurance. As with any rule, there’s an exception: If you can
values typically appreciate every year (sans recession), holding onto a home for a longer period of time means a better chance of putting a profit in your pocket. But being a landlord might take time, expertise, and money you don’t have. Be prepared to hire someone you trust to show your house to tenants, respond to any emer- gency and maintenance needs, and help you enforce the terms of the rental agreement. The tax consequences of owning rental property are complex and likely will re- quire professional guidance, and you’ll need someone to handle the bookkeeping. Oftentimes, property-manage- ment companies in the area will handle these tasks for a pre-negotiated rate — typically 10 to 12 percent of the monthly rent. In many areas, rental homes are in demand, so you
might even see some positive cash flow from your rental income. Contact local rental agencies and check the In-
Buying a home should be a deliberate decision made with enormous emphasis put on your financial circumstances and military status.
purchase an undervalued home, you have a much better chance of seeing a profit in the short term. One route that might make sense is renting your home rather than selling it when you move. Because house
ternet to see what similar properties are commanding in rent. Even if you anticipate a net gain every month, take into account the possibility your house might sit empty between tenants, especially if you are PCSing outside of the busy summer season. Can you afford to pay all monthly carrying costs for several months? Do you have the cash reserves for a new air conditioner should it need to be replaced? Researching home warranty companies might be a wise course of action if you think your low cash reserves won’t support hefty bills that come along with replacing or fixing home appliances. If you can answer yes to these questions and are com- fortable handing over the reins to a caretaker, then rent- ing after you vacate might be the justification you need for buying a home.
62 MILITARY OFFICER APRIL 2016
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