January 25, 2010
by Molly Blake

Tracy and Jay Schnelle are expecting orders any day now. And while they are not exactly sure where the Marine Corps will send them, they are certain about this: 

“Wherever we go, we are not buying a house,” Tracy said definitively. “I’m totally okay with not being a home-owner this tour.”

For the Schnelle family, the decision is a no-brainer. They already own a house in Northern Virginia and are ready to take a break from home-ownership woes of even if they have to downsize significantly. 

“Looking at available rentals, we will go from 4,000 square feet to probably around 2,000,” says Schnelle. “But even if it’s smaller, the rent includes things like lawn and pool maintenance and that’s worth it.”

But the choice to rent or buy a house is not always as simple. 

“Asking yourself if you can afford the house is not the only question,” says JJ Montanaro, a Certified Financial Planner with USAA. “Is it the right decision to buy it even if you can afford it?”  Montanaro encourages military families to make a list of pros and cons before deciding whether to rent or buy. For example:

Owning a house has positive financial implications like:
•    Tax write-offs on mortgage interest.
•    Interest rates are at record lows.
•    First-time homebuyer tax credit up to $8,000.
•    A real-estate venture can boost personal investment diversification with relatively, and historically, low volatility.
•    You have a place to live if you PCS back to the area.

While the downsides to renting are:
•    You may not be able to sell the house when you want or at a price where you could at least pay off your mortgage. Many homes are currently selling at much less then the price at which they were bought.
•    The total cost of ownership includes closing costs, repairs, and upgrades which can easily run into the thousands of dollars.
•    A PCS means the home could go un-rented for months while the owner searches for a renter.

Walter Molony, spokesman for the National Association of Realtors, admits that broad affordability conditions are ideal for a buyer who is willing to live in the house for at least three to five years. Long enough, he says, to build enough equity in the home to sell for a profit.  Unfortunately, most military tours are three years or less, not nearly long enough, Molony says, to recover your investment. In that case, Molony says, renting may be the right call.

Pros for renting a home:  
•    Renters are not typically responsible for the cost of repairs and other maintenance issues.
•    The money you would have used for a down payment on a home can instead earn interest in the stock market, bonds or other investments.
•    Renting is a chance to test-drive a community before making a long-term commitment to living there.

Renting can also be an affordable way to live in, say, one of the nation’s best school districts like Fairfax County, Virginia where the average home costs upwards of $700,000. The average rent hovers around $2,500.00 and thanks to a healthy $2,433.00 BAH for an O-3 with dependents, renting there is do-able.

“Look at renting as a step towards eventually owning a home,” says Montanaro. “Save some money and build financial strength.”

The downsides of renting include:
•    Renters are not eligible for any homeowner tax breaks.
•    Renting can be an unstable living arrangement should the homeowners decide to move back in their home.
•    Renting is not an equity investment – meaning you will not get that money back.

Real estate service web sites like Trulia and Zillow are packed with useful information like average sales prices, the number of foreclosures and the price per square foot. There’s even have an iPhone app for listing reductions and new listing alerts. 

One silver lining to the recent real estate bust and economic slump:  “People’s willingness to listen to sound economic advice has changed,” says Montanaro. “We are all making better, more informed decisions about our finances.”