A transfer to Washington, D.C. and its pricy housing market can raise a common question for military families: Does it make more sense to buy a house or rent?
Despite rising home costs, a recent report from Trulia says it is still cheaper to buy than rent in the D.C. metro area and will be until interest rates top 9 percent. But Trulia’s calculations assume seven years of ownership. Change that assumption to three years, the average time between military moves, and the cost advantage slips to just 3 percent.
Zillow’s Breakeven Horizon shows it takes a median of 4.2 years before the costs of renting exceed the costs of buying in the metro area. In many zip codes in Alexandria, Arlington, and Northwest D.C., the median is six years or more.
Financial advisors at USAA.com caution that personnel should weigh their ability to pay both upfront and long-term costs as well as their tolerance for the risks of ownership. These include the possibility of declining values, emergency repairs, or unexpected orders to move. Renting typically comes with less risk, but also with no tax advantages or potential to build equity and fewer opportunities to personalize the home.
An Alexandria townhouse near the Pentagon, Fort Belvoir, and Joint Base Anacostia-Bolling appears at first blush to give ownership the financial advantage. The home recently listed on militarybyowner.com for $2,600 a month in rent or a sale price of $425,000, which would cost about $2,507 a month with 0 percent down or $2,362 with 10 percent down. But, the comparison does not account for closing costs or maintenance expenses of owning or its income tax benefits.
The five or six years it takes to recoup closing costs makes expected time in the area a key factor for members of the military, said Michele Watson, director of homeownership programs for the Virginia Housing Development Agency. VHDA educates upwards of 12,000 people a year about buying a home and offers special classes on several military bases.
“If someone is not going to be in the area for that length of time, it may be that buying is not in their best interest,” Watson said.
But that doesn’t mean a cozy home with a yard is off limits. Many Northern Virginia investors who scooped up homes during the economic downturn are leasing them out without much premium over apartment rents, Watson said.
Some landlords also might consider a lease-to-purchase option where the rent might be slightly higher but part of the money is set aside toward a down payment and closing costs on the home.
And, for military families that choose to buy, the area’s robust rental market could make leasing a good option when permanent change of station (PCS) orders come. Professional property management companies experienced in working with military clients can help find renters, collect payments, and oversee maintenance and repairs.
VA offers loans with competitive interest rates and may not require a down payment or private mortgage insurance. In addition, military families who must move due to PCS can typically take exemptions that allow them to rent out their homes for an extended period of time without being subject to capital gains taxes when they sell.
The military also offers free, professional financial counseling in person or via telephone that can help personnel make the best decision for their particular situation.