By Dr. Charles Patterson, WCI Columnist
As a general rule, buying a home while serving on active duty is not a great idea. In previous writings, I’ve argued (vehemently even) that service members are better off renting. I have also, however, laid out the argument favoring a home purchase. In this column, I will expand on these ideas by adding my personal experience as both a renter and homeowner—all while on active duty.
The Early Career Years
The early years were, in retrospect, some of the best. I was a resident, and my new spouse was finishing PA school. We had a net worth that was impressively below zero, and our days were dictated by a rigorous training schedule. While we enjoyed the area of the country where we were living and working, we had no intention of settling roots there. Further, we were all but guaranteed to leave within 3-5 years with no bankable prospect of returning. We were young and just learning to navigate personal finance, medicine, and marriage. We wanted kids, but that venture was left to a universe whose timeline is its own. We had no spare time, let alone money, to spend on a house. Financially, we had a roadmap and a modest income but not much else. So, we rented a small apartment and later a small home, and the arrangement was absolutely adequate. Writing these words, I look back on those times with such fondness (do you?).
An important note here: we had less than nothing to lose, and although the housing market did well in the years we were in training, we probably would have at best “broken even” after transaction costs and the inevitable expenses of ownership. I was risk averse, trying my best to build a foundation for our life and family. While the siren song of home ownership was enticing, it was no time for buying a house. I am glad that I didn’t.
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Our First Duty Station
A few years later, having gained clinical experience (and weight) while losing hairs, our training wheels were coming off. The realities of our first duty station were very different from our active duty residency. My wife and I had welcomed an infant into our world, and we were now certified in our specialties. We had scrimped and saved and clawed our way to a positive net worth, and we were debt free. Further, we were following a budget and a written investment plan, and we were meeting our savings and giving goals while living below our means. Extravagant would be the furthest thing from an accurate description, but comfortable, warm, and fulfilling would suffice. Our newly assigned base was in an area of the country that we really enjoy with a low cost of living (and concomitant low Base Allowance for Housing or BAH). The housing market at the time in 2018 was relatively favorable to buyers, and we could see ourselves staying at that location or coming back to it in the future.
Here’s where the subjective and speculative portions of the decision to buy came in. Thanks to savings and a bittersweet windfall, we put more than 20% down on a conventional loan. My position was in high demand at a base that was not considered “desirable” to the Air Force at large. Given this and the shortage of physicians in my field, I had been told by my commanders that my assignment would be of an indefinite duration and that any move away would be of my choosing. This seemed reasonable, especially considering that no one at the Pentagon was fast-tracking me toward higher leadership (and rightfully so). Of course, life happens and military life happens, and there was no guarantee that they wouldn’t move me early. There was real risk.
Admittedly, I wanted to buy. My wife and I wanted to expand our family and do so in a home that we could call our own. Purchasing a mortgage was not the conservative financial decision—at least on paper—but it was clearly where our American consumerist minds drifted.
Real Estate and Real Risk
Early in the process of buying our first home, I realized that as much as we were buying a house, we were also buying risk. Specifically:
- Risk that we would need to undergo a major, unforeseen, and needed repair (we did, several times)
- Risk that unforeseen costs would emerge (they certainly did)
- Risk that the market would tank
- Risk that tragedy would befall our family
- Risk that our budget needs would drastically change
- Risk that I would lose my income
- Risk that we would get reassigned
- Risk that we didn’t know what we didn’t know
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Risk Mitigation and Planning
My wife and I felt that we had a fairly robust understanding of the risks. Now, we needed to mitigate them and plan for the worst-case scenarios.
When it comes to investing, I’m pretty boring: index funds, bonds, REITs. No crypto, speculation, leverage, individuals, or options. This reflects a long-held aversion to moves that could send our financial life into a nosedive. We applied the same caution to our first home purchase, which I considered a hybrid investment/consumable. To reiterate, unlike my humdrum investments, we acknowledged a personal desire to purchase a home. We, thus, took the largest risks one by one, walking through the contingencies and agreeing that any unacceptable risk would warrant reconsideration of our endeavor.
The greatest life risks were (hopefully) far-fetched. My job and income were stable, and insurance policies were in place to comfortably provide for my family should I become unable through death or disability. We are fortunate to have health insurance through Tricare, which has been adequate for even the most catastrophic medical conditions. As long as I didn’t get fired and we kept housing costs reasonable, our income would be satisfactory regardless of whether my wife chose to work.
By keeping the mortgage “reasonable,” I mean less than twice our annual income. I much preferred to keep this closer to 1-1.5x. With low interest rates, no prepayment penalty, and a budget that accounted for paying off the mortgage in less than 15 years, we were happy with our best-laid plans.
Knowing that, to quote Eisenhower, “Plans are worthless, planning is indispensable,” we continued with our scheme, mindful that home ownership was something that we desired. We were acutely aware that we could convince ourselves that a financially treacherous proposition made sense, even if it didn't. And home buying in the military is treacherous: there is no certainty that one’s orders will execute or that you won’t be moved on short notice. It is not the DoD’s problem when the housing market implodes. But with conditions optimized for a purchase, we proceeded through the exercise of “being stupid, smartly.”
Of course, if we had to move, we would want to sell for a profit. This was Plan A. But assuming pessimistically that our selling price would be at least 10% lower than our purchase price, we comforted ourselves with Plan B: accepting the theoretical loss compounded by transaction costs and projected maintenance. All told, depending on the amount of time we spent in the home, we would spend the same amount or more on rent anyway. Notably, this calculus does not factor in time spent managing the home, time that could otherwise be parried to a landlord.
Should the market completely bottom out, leaving the home worth less than 50% of its purchase price, we would attempt to rent it out. We went so far as to speak with several management companies, anticipating that, in that instance, we could become long-distance landlords. With a hefty equity stake and an understanding that wherever we went after would be unlikely to have a lower BAH, vacancy concerns were assuaged. Not optimal, but knowing that we might like to return to the area, this Plan C was acceptable to us.
Perhaps the greatest and most tangible risk would be that our orders would change prior to checking in at the new duty station. For this reason, it is wise to close on the house after physically arriving and signing in to the new base. This is suboptimal for the move process, but if I had a dollar for every time I heard of orders changing abruptly and in the 11th hour, I would have enough for a nice evening out with my wife (babysitter included).
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As has been written, buying a home in America is a visceral experience, one that does not always equate to financial success and which often leads to the opposite. In most instances, I would still argue that buying a home while on active duty is ill-advised. But to most rules, there are exceptions, and wisely or naively, we convinced ourselves that buying was a good idea.
By all measures, our first home bought while on active duty was a success story. Planning for and accepting the risk we were taking was an exercise in prudence. We didn’t bet the farm, and we comfortably met our financial goals despite burst pipes, a hailed-out roof, and years of upkeep. Our family grew into the little house, and we came to know neighbors who will be friends for life. For our family, the home became a joyful place and a gathering spot for our community.
Could this have been accomplished by renting? I’d wager the answer is “yes,” but I also suspect that it would have felt differently. We were homeowners (OK, mortgage owners). Military families, ours included, grow accustomed to uncertainty: odd hours, deployments, and all manner of fun “surprises.” Owning a home added a sense of stability, the feeling that we had a firmer place in the local community. We contributed to that life with a greater sense of belonging because we owned a small stake in it. Citizenship is more real when you are the one paying the taxes.
As new opportunities opened, the next chapter of our military journey took us away from our beloved first home. We had been in our home for four wonderful years, during which time the housing market strengthened immensely. Fortuitously and through no fault or divination of our own, the house sold within 72 hours and for twice what we paid. But the true wealth gained from the experience was in the fond memories established and the wisdom of lessons learned.
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The views expressed in this article are those of the author and do not reflect any official position of the Department of Defense or the US government. These writings are not authorized, approved, or endorsed by any of the above entities.
Did you buy a home while on active duty? How did it work out for you? Would you do so again, or was it better to rent? Comment below!