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).
More information here:
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Lessons Learned
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!
Bought homes twice now on active duty. First time was because I was promised I’d be at the same duty station for the 6 years I owed. Two weeks after we closed I got hauled into a meeting and told no one was allowed to homestead any more and we should all expect to move every 3 years.
To be fair, we wound up at that post for closer to 5 years, wound up selling that house at peak of the market for almost a 50% gain. By then, the family of me, wife, 3 kids, and live in grandma babysitter had become me, wife, 4 kids, and severely disabled grandma. So, when we arrived at our new duty station, we had some very specific housing needs that were not met by any of the available rentals, and only a few of the available purchases. So, we bought again, a little lower (10%-ish) price than we had just sold for. Of course, all of the repairs we had just foisted on our purchasers, karma had ensured were needed here too (yay new roof…)
We shall see what happens in the next year or two…in a spot where I might be able to pull off sticking around an extra 2-3 years, but we know this is not a forever home, it’s going to get sold eventually and sooner than is probably ideal.
Like KFM we bought two houses to live in while on active duty. We won’t count buying my in-laws’ house when we expected to move there (and facilitating their move into their newly built house), renting it out when it turned out that military residency program was no longer in San antonio, and then selling it a year later without much loss afterwards. Like KLM we have special circumstances, not our family makeup but that I wanted to be a hardcore Gardener with acreage, and even wanted livestock though I only had non pet ones the first time around. So we had a cute little farmette at 6 acres and kept sheep on the 3 acres that had a farm tax benefit, and had to carefully argue with the tax folks about why I left it fallow for one year. Still hard to tell how much money we made /lost on it, but I figure it might have cost me a lot more in rent over 4 years to have that exact same house, in fact there was no way possible to get a house/land like that without paying the landlord maybe a hundred thousand dollars to put it back the way most people would want it after I left. And the previous owner, real farmers moving to a bigger place, had set up a lot of the things that I wanted. Came with peach trees instead of me having to plant them.
Next place similar, lucky enough to get out of the army there and had 16 good years. Hellish few months selling it, since we had already moved and pools and Southern houses in the summer and lawns all need maintenance, but selling it for about what we bought it for 15 years earlier since it was a much older house and not where everyone would want to live and getting it off our hands was more important than making a lot of money. Between all the stuff we put in it, omitting interest, and the cost of buying and selling we probably only paid $1,500 a month rent, a bargain even without the acreage. (We did make a slight profit on the three acre adjacent lot we bought a few years later from the same seller.) Our poor home buyers paid 2% more on their mortgage than the rate we got 4 months earlier this year.
Curious, did you consider using a VA guaranteed loan for the home purchase? If not, why not?
If you did consider it, why did you ultimately choose a conventional loan?
In my experience, I have had great VA backed mortgages, and they have allowed me to refinance when rates dropped a couple years back.
I’m no VA loan expert. I know Dave Ramsey always thought they were not a great deal, but I think his main beef was the tiny down payment.
The VA loans have some definite upsides, but there are some drawbacks that made it less palatable if one is putting down 20%+.
The most notable feature is that the VA does a thorough job of vetting (pun intended) the property prior to purchase. This is great if you are a buyer looking to be in the home forever. However, if the market is hyper competitive, sellers might prefer to go with an offer with either cash or a conventional loan as the closing process and funding tends to be more straight forward.
However, again, I think the VA loan is fantastic. While costs *can* be higher, the transferability feature makes it palatable if selling mil-to-mil or if in a highly populated duty location (thinking Va, Tx)