Moving

We recently got orders to Camp H.M. Smith, Hawaii (woo hoo!). Along with those orders came a decision on what to do with the home we bought near Shaw AFB. We chose to rent out our home due to the low cost and quick turnover.

Weighing the Options

We reviewed three points before making a decision:

1. How much can we sell our home for and how long will it take?

This is the most important factor as it drives the budget you will need to sell your house.

We set up an appointment with our realtor to discuss a likely selling price and average time on market, and found that we would need to bring about $2,000 to closing (at a minimum), and expect to list our home for about 3 months AFTER we move out.

Given our mortgage and utilities we would need to budget $5,000 for those 3 months. So our overall risk in selling the home was about $7,000 just to give it an honest try.

2. How fast can we rent our home?

Shaw AFB recently expanded, adding over a thousand Army personnel to the housing market. Due to this increase, homes were renting fast, and going for reasonable rates.

3. How much will it cost to rent our home?

We planned on renting our home for $1,400 a month. But our expenses came out to:

• $1,120 – Mortgage principal and interest payment
• $158 – Property tax
• $140 – Property management fee of 10% monthly
• $54 – Home insurance
• TOTAL = $1,472

The Benefits of Renting Out a Home

By renting, we were able to immediately cover our mortgage after moving out of our home. We found renters within one month.

We are claiming the interest and expenses incurred to rent the home on our annual taxes, which reduces our tax bill.

Our renters are slowly paying down the mortgage on our home, which gives us room later to sell the home at a reduced price. We can also use the equity as leverage to purchase another home.

Is Being a Landlord Risky Business?

Since we had a very new home, we were less concerned with repairs and damages that may pop up while renting out our home.

If you have an older home you may want to get a home warranty, or set up a reserve fund to pay for costly repairs. As a home owner, you are legally bound to fix anything that breaks in a timely manner!

If you lose your renters you may have to pay out of pocket for your mortgage while looking for another tenant.

Your tenants may damage your home beyond their security deposit.

You can mitigate the odds of this happening by carefully choosing tenants and screening credit scores.

Renting to fellow military is usually a safe way to avoid this, as they will have to pay you for the damage. If you rent to someone with nothing to lose, then the cost of small claims court will likely outweigh the costs to get your money back.

Your best protection against these risks is to save back an emergency fund.

Will you Rent your Home Out?

Let us know how you handled this situation in the comments!

Buying a new home is like buying a new car. You can pick the exact options you want, while not worrying that a previous owner beat the crap out of it.

Beware though – there’s an added price to achieve that “new home” smell (that would be paint).

Pros

1. New homes come with warranties

In the first year the builder should fix anything that breaks. Additionally, your A/C unit, water heater, and appliances should have warranties that last at least 10 years. You should not worry about big repairs for the first 10 years of home ownership.

2. A new home requires less negotiation

While you should not blindly pay list price, you will find that new homes have narrow room for negotiating.

3. You can pick options and customize

If you like tile floors and brown carpet, then go for it. You do not have settle for a previous owner’s orange formica countertops.

4. The builder will probably pay your closing costs

New home programs are built to quickly and easily get you into the home. They will likely cover closing costs as an incentive.

Cons

1. New homes typically do not come with landscaping, blinds, or a refrigerator!

This can easily add $5-10K to the cost of your home. But when you sell the home, stuff like blinds and a fridge are standard equipment. So don’t expect to get all your money back. If you are looking for a home with a fence, sprinklers, and a deck, you will get a much better deal by purchasing an older home.

2. There is less room to negotiate on price

If you’re looking for an amazing deal, then you should avoid new homes. Home owners are more likely to accept a low offer if they need to move on. The builders will wait for a buyer that pays close to the asking price.

3. Home builders may try to up sell you on options

I’ve seen new homes that do not come with light fixtures or painted walls in the garage. If you have to pay for basic items, then look elsewhere. The builder may be selling at affordable prices, but you will immediately need to spend money to make the home livable.

Summary – should you buy a new home?

Due to the start-up costs, your smartest move financially is to purchase an older home.

However, we purchased a new home at our last base and enjoyed the experience. Our home was in pristine condition the entire time we lived in it. We also have peace of mind now that we’ve rented it, knowing that things are less likely to break. Overall I see nothing wrong with purchasing a new home if you can afford it and it makes you happy.

Home owners like military renters. Why? Because they greatly reduce the risk of them losing any money. A home owner is scared that 1) the renter will stop paying rent and it will take months to evict them or 2) the renter will tear up the home and will not be able to cover the repair costs when they move out. Home owners know that military cannot walk away from debts without repercussions. That’s why, as a military renter you should take advantage of this and negotiate a lower rent.

My track record on this is solid, as I’ve rented very nice homes at each base I’ve been to, and have lowered my rent by about $200-$300 every time. I normally look for homes that are slightly out of my price range, then negotiate down to my BAH. Nicer homes have a greater margin for negotiation as many homeowners expect to take a small loss in return for decreased risk.

As a homeowner myself, I recently rented our home for a reduced rate to a military couple because I saw the advantage in having someone stable and accountable in my home.

To aid your negotiations, offer to sign a three year lease. This is appealing to the homeowner, but is also an advantage for you. We move enough… the last thing we want to do is move in between a tour. Locking in your lease for three years gives you fixed rent and less worry that you will be kicked out in between lease periods.

When negotiating your rent, you really have nothing to lose. The worst the home owner can say is no. Before saying no they will likely come back with a counteroffer.

There is only one scenario I can think of where you should not try to negotiate. Certain markets have neighborhoods that are highly desirable. For instance, Mililani in Oahu, HI, is one because it is known for good schools. Many of the homes there will having waiting lists to tour the home when it’s available for rent. If you see a situation like this, then you need to jump on a house when you really like it. However, these neighborhoods are an exception, and will reveal themselves when you start calling around.

In summary, do not underestimate your value as a potential military renter. Get out there and make a deal.