The debate over whether it’s better to rent or own has been around as long as mortgages have existed. Both options offer their own benefits, and the best choice for you will depend on a variety of factors. For most people, we strongly believe it’s best to own when you can. But what about members of the armed services? Should military families rent or own?
Let’s take a look at some of the factors that may influence this life-changing decision.
1. Your Expected Return on Investment (ROI)
Homeownership will always beat renting when it comes to ROI. When you own a home, your monthly payment is continually whittling away at your principal, which increases the amount of money you’ll walk away with when you sell. When you rent a home or apartment, your monthly payment goes to your landlord and is simply gone.
Consider this example: You put down 3 percent on a $400,000 home, which is a $12,000 initial investment. After five years, you sell the house for $460,000. Even after making mortgage payments, this return on investment is often a bigger payoff than the stock market or a savings account.
On top of that, if you take advantage of your VA loan entitlement to purchase your home, you could easily put zero down, which maximizes your ROI. Plus, VA loans have much lower interest rates than conventional loans, which means more of your monthly payment will go directly to your principal. Just think: You get to buy a house and stop the cycle of renting without any money down and at a low interest rate, and the equity you build every year is pure profit. That’s why the VA loan really is the best loan out there.
2. The Rental Market
Across the nation, rent prices are on the upswing, with an average increase of nearly 3 percent in 2017. This puts military families in a difficult position, because they are spending more on rent every year but not getting anything extra in return. In some markets, monthly rental prices are on par with many homeowners’ mortgage payments—but homeowners are building equity with each payment.
3. The Housing Market
While rental prices are increasing, so are home values. That means the sooner you can buy a home, the better. The National Association of Realtors tracks home prices across the country and expects home values to increase 5 to 6 percent—or more—this year. If you already owned a home, that increase would be money in your pocket, but the longer you wait, the more you miss out on the potential gain.
Another factor to consider is interest rates. While home prices are on the rise, so are average interest rates. When homes cost more and interest rates are higher, your purchasing power is diminished. That means it’s important to purchase as soon as you’re ready.
4. Your Future with the Military
Of course, many military families are in a unique position because they need to move often—on average, three times as often as non-military families. Although it can be hard to predict where your career will take you and when, how often you move can be a good indicator of whether you should rent or own.
If you expect to move in less than two years, renting is probably a good option for the time being, because it offers plenty of flexibility. If you are more settled and will likely stay put for five or more years, purchasing a home could be the right move. In that amount of time, you can build equity, and in most parts of the country, see your home value appreciate.
The Verdict
With all of this in mind, we suggest military families should lean towards owning a home. You opportunity to leverage the benefits of a VA loan allows you to maximize your return on investment. Unless you expect to move in the near future, it’s time to stop paying your landlord and become a homeowner. Your future self will be glad you did.