Buy or rent as part of job move

[TexasHusker]

Most of the things I’ve accomplished financially can ultimately be traced back to my principal residence. The equity I built in the home through payments and appreciation is the ancestor to my entire portfolio today. Of course, that’s because I ultimately leveraged that equity to take risks.

[LivingAlmostLarge]

Those are some seriously nice homes. Why can't you buy and hold in the military every single home you buy? I mean keep it as a rental and use it to build wealth? Wouldn't that make the most sense as you move to keep old homes and rent them out? Why didn't you do that corn? Any other military can weigh in on why it is great or stupid. Or both? Or it depends.

That being said I think owning is what causes wealth. It certainly caused ours. We got way ahead of most people our income and age and education by far because we bought early. We outstriped pretty much everyone. The only other person on here who probably did the same is MonkeyMama as us. We bought a small condo and parlayed that into a bigger place.

What it really did is built equity for us without doing anything. I believe that you can lose your shirt easily in trying to build a real estate empire if you don't know what you are doing.

But buying and holding onto homes and just building equity, hedging against rent inflation leads to wealth. Even in places where RE isn't returning huge annual % gains.

Our $15k investment in a condo has paid back in spades. We put down 10% and turned that into $120k in a couple of years and turned around and bought a townhouse. Then turned that around after buying at the peak and made it into $400k selling and buying something else. Now is that the only wealth we have? Who knows what will happen to it. But in 1 year we've paid down $18k in equity on our mortgage. In 10 years we'll have paid off $180k plus any appreciation in 10 years.

No. Nor is it the bulk of our money. But seriously we didn't have to really save a penny during our poverty years and we managed to land into a home with equity because we just lived there. We paid our mortgage and socked away cash into other investments. So I think it lead to wealth because we had the freedom to invest.

That being said I'd still rent for 3 years. We rented for 2 and good thing we did. We'd have bought in the wrong neighborhood otherwise.

[corn18]

Those are some seriously nice homes. Why can't you buy and hold in the military every single home you buy? I mean keep it as a rental and use it to build wealth? Wouldn't that make the most sense as you move to keep old homes and rent them out? Why didn't you do that corn? Any other military can weigh in on why it is great or stupid. Or both? Or it depends.

Some military folks have done that. The issue for me was deployments and managing a rental business. And it must be viewed as a business. Even with a property manager, issues will come up and will need to be managed. I could not do that from an aircraft carrier in the Persian Gulf. And my wife was busy being a single mom raising 2 kids alone (while I was gone, which was a LOT). So I made the decision early on to not be a landlord.

I'd say net net I broke even on the capital side. My total transaction costs were offset by the net appreciation. But DS hit the nail on the head. Orders come in and I have to sell, move and buy in 30-60 days. What a PITA that was. The one time I rented, I just moved out and moved on. One time I lived on base housing and that was great, too.

[TexasHusker]

One of the biggest wealth killers with real estate is realtor fees - ranging from 3 to 7% of the transaction price, and are completely unnecessary.

I have always sold my homes by owner, and if I am buying, I tend to seek out homes by owner. In my experience, realtors just muddy the water.

Selling a house is EASY.

[~bs]

Some military folks have done that. The issue for me was deployments and managing a rental business. And it must be viewed as a business. Even with a property manager, issues will come up and will need to be managed. I could not do that from an aircraft carrier in the Persian Gulf. And my wife was busy being a single mom raising 2 kids alone (while I was gone, which was a LOT). So I made the decision early on to not be a landlord.

I'd say net net I broke even on the capital side. My total transaction costs were offset by the net appreciation. But DS hit the nail on the head. Orders come in and I have to sell, move and buy in 30-60 days. What a PITA that was. The one time I rented, I just moved out and moved on. One time I lived on base housing and that was great, too.

that actually really makes sense. the other alternative would be to give the property manager wide lattitude as far as managing the property. And just notify you certain things are happening or getting repaired after the fact.

[scfr]

Okay - time to pipe up here.

In general, homeowners have higher levels of wealth than renters, the Bureau of the Census statistics are abundantly clear. Median net worth of owners is something like x100 that of renters (link).

I've given this some thought and I think owning a home actually CAUSES higher levels of wealth. Why? Three reasons.

1. Owners are favored under Federal tax law
2. Owners possess appreciating real assets
3. Owners can borrow against their equity

Renters have none of these advantages.

So, all things being equal, it seems to me to be far better to own than rent from a wealth building perspective.

James - It sounds like you are speaking of the long-term effects of home ownership in general. corn18 is talking about a temporary, 3-year, very individualized situation, which is totally different

I believe in homeownership, but have stepped away from home ownership twice and I know those decisions improved our financial situation even though they were not without risk. The first time was so we could reduce expenses to save $ so my husband could quit his salaried job and start his own business. The second time was to ride out the real estate downturn (we sold in early-2006 and bought in mid-2009, relocating to a lower cost of living city in the meantime).

So while homeownership may be a good thing generally speaking and over the long term, it's not always the case ... and what we are talking about here is corn18's individual situation.

[scfr]

corn18, here's my 2-cents:

1. Let your wife take the lead on this decision. You are relocating yet again for YOUR work. She's going along for the ride. Do whatever makes her happiest.

AND/OR

2. Rent and view it as a "retirement living trial." If you've thought that in retirement you'd like to live in a --- (fill in the blanks) --- then try it out and see how you actually like it. If you've thought about living in an urban condo in retirement, try it out. Or if you've thought about moving to a more rural setting with acreage in retirement, try that out. Me, I would see it as a terrific opportunity to test out some different retirement lifestyle scenarios.

AND/OR

3. Rent as cheap as you can stand (it's only for 3 years after all), set the extra savings aside, and use those savings plus what you walk away with from the sale of your current home to pay cash for your retirement home.

And have fun figuring out what to do with the $86K for the next 3 years!

[LivingAlmostLarge]

corn18, here's my 2-cents:

1. Let your wife take the lead on this decision. You are relocating yet again for YOUR work. She's going along for the ride. Do whatever makes her happiest.

AND/OR

2. Rent and view it as a "retirement living trial." If you've thought that in retirement you'd like to live in a --- (fill in the blanks) --- then try it out and see how you actually like it. If you've thought about living in an urban condo in retirement, try it out. Or if you've thought about moving to a more rural setting with acreage in retirement, try that out. Me, I would see it as a terrific opportunity to test out some different retirement lifestyle scenarios.

AND/OR

3. Rent as cheap as you can stand (it's only for 3 years after all), set the extra savings aside, and use those savings plus what you walk away with from the sale of your current home to pay cash for your retirement home.

And have fun figuring out what to do with the $86K for the next 3 years!

This! Are you kid free?

[corn18]

This! Are you kid free?

Affirmative

[LivingAlmostLarge]

can you rent a loft? Or what something in the city without a car? Is that possible where you are moving to? Go where other empty nesters are flocking.

[Gailete]

BJ - I'm 100% convinced owning a home CAUSES wealth.

The differential is just too big and too robust to be accounted for any other way. The census data using something called the Survey of Income and Program Participation (SIPP), its cross sectional, but its about as good as it gets for a cross sectional study.

Look at differential in the graphic below, owners have a median net worth of 199K, renters have a median net worth of just 2k. That means owners are 100 times richer than renters. Some individual differences are probably in play, but the size of the difference also suggests macroeconomic forces, like tax policy and market appreciation at work. So, reasoning from that, what would the tax and market forces be? Well, deductions and appreciation. Hence my thinking its causal.

Interesting chart. Thanks for posting it. Weird when I see where we end up on it! Which tells me that even while homeowners can be 'rich', they can still do more towards there savings!