PCS just around the corner....how do I decide between housing, renting off base or buying?

[00:00:00] Alison: Hello. Hello. And welcome back to the show. I thought today we would do an episode on rent versus buy versus live in housing. I feel like, I've been seeing this topic talked about a lot lately in some of the spouse groups that I'm in. And I was like, Hey, maybe we should, maybe we should do talk about it on the show.

[00:00:23] Alison: So which one? is right for you and how do you choose? So when you first find out that you're PCSing, which again for newbies and civilians, PCS stands for permanent change of station or moving. One of the first questions that you start asking is where are we going to live? So I thought that I would walk you through the process that we use when deciding on rent versus buy or housing.

[00:00:52] Alison: We almost always look at off base options first. We've lived in housing twice before and had good experiences both times. But, I think we've all heard the horror stories and know that not all base housing options are ideal. And that the wait list Is unbelievably long, even more so over the last few years with markets going crazy and people just not being able to afford rent.

[00:01:22] Alison: So for example, when we were PCSing from Florida to Washington, we were, I think it was number eight on the list and we were about three months out. from our PCS date when we were put on the list, they called and offered us a house four months after we arrived. So seven months after being on the waitlist is when they offered us a house.

[00:01:45] Alison: I not really sure where they thought we were going to be living for those four months. We had found a rental, but there you have it. And I know that in other places the list is longer and then in other places it's not as big of a deal. So it, I, it honestly just depends on where you're going as far as how long the waitlist might be.

[00:02:07] Alison: The downside is that you cannot be put on a military housing waitlist until you have hard orders. And a lot of us with the continuing resolutions and all the financial crap that's happening in the government. is not there. And when you get hard orders, essentially what that is is it costs money to move you, right?

[00:02:33] Alison: And so when you get hard orders, there's money that has now been earmarked or tagged for you to move you to that location. Which is, is kind of the distinction, but so a lot of people are not getting hard orders until like the 11th hour, which totally sucks. Totally, totally sucks because again, you can't get on the housing wait list.

[00:02:55] Alison: You can't schedule movers. You're kind of just sitting in limbo, which is incredibly stressful. We're going to talk about that in another show, but anyways. Okay. So Living out in town, the first thing you need to know is what your BAH is. BAH stands for Basic Allowance for Housing or your Housing Allowance.

[00:03:18] Alison: And let's just take a quick second, shall we? And dispel a few myths, especially for any of you listening who are civilians. Okay. So the military has base pay, which is just that it's what your salary is, or would be considered in the civilian world. Your BAH, or housing allowance is on top of that salary.

[00:03:41] Alison: The sole benefit of BAH is that it is tax free income, not your whole pay. Only your BAH is tax free. Your housing allowance is tax free. But before you start thinking, Oh wow, must be nice. To have your housing paid for by the government. Let's be really clear here. Okay. If you took any service member and compared their base pay to their civilian counterpart without the housing allowance, I guarantee the civilian is making more money.

[00:04:16] Alison: The housing allowance addition still doesn't even get some pay grades and jobs on level with that in the civilian world. Which in my opinion is part of the reason why so many people are choosing not to stay in you can make more money in The private sector or as a civilian and not have the burden of moving around every few years It's it's just the truth for so many jobs in the military.

[00:04:43] Alison: It's a it's a big problem. It's a big problem So housing allowance is part of your pay And the sole benefit of that housing allowance is that just the housing allowance is not taxable. Okay. So how do they calculate BAH you might ask? That's such a great question and there's not an awesome answer, but I did take a deep dive into this when the the 2024 BAH rates just came out.

[00:05:12] Alison: At like mid December is when the new BAH rates come out and BAH rate at our next duty station went down by 125 from last year. All of the rent is so much more expensive than when we were there three years ago. So I am just like, that was a big blow to my rose colored glasses that I had on for this move.

[00:05:41] Alison: And this is something that I want to mention here real quick before we dive into the BAH part of it, is that if you are if you are living out in town and you are getting your BAH and you, your rate, the BAH rates go down, you still get whatever. So like, okay, so if you're living in Washington state and your BAH was 2, 500 and then this year the BAH rates came out and your BAH rate is now 2, 300, you still get the 2, 500.

[00:06:20] Alison: So if you are already at a duty station receiving, X amount of BAH and they lower it, you still get that higher rate because you procured a home at that higher rate. It's not fair for them to for you to move into something that you think you can afford. And then they take your BAH rate down. So you are grandfathered into the if the rate is higher, if the rate goes up, obviously you get more money, but if the rate goes down, you do not lose money.

[00:06:44] Alison: So that is important to know. Okay. So how, Let's dive in. How is BAH calculated? So honestly, on the surface, they seem to make no sense, but they say that they're very carefully researched and based upon facts and formulas. I don't know. I don't know about that. But there's, so there's three main things to understand about BAH.

[00:07:18] Alison: One is what BAH is designed to cover. how cost information is collected and then how the collected information factors into the rates. So BAH is designed to cover a portion of the service members housing costs including both rent and utilities, both rent and utilities. So it is based on, it does not consider mortgage payments or family size.

[00:07:49] Alison: It is based on a table of how much housing is required by a typical service member of a particular pay grade. And then each pay grade is designated an amount that corresponds to a specific housing size or whatever. So for example, an E6 with dependents receives the rate for a three bedroom townhouse.

[00:08:11] Alison: As does an O5 without dependents. E four without dependence receives the rate for a one bedroom apartment and E one with dependence receives the rate for the midpoint between the cost of a two bedroom apartment and a two bedroom townhouse. And 03 with dependence receives the rate for a three bedroom townhouse.

[00:08:33] Alison: So they, they decide what they think your housing size should be. And that's the data that they're collecting on. So the, the designation of how much house is appropriate for each pay grade is. you know, a big subject of a lot of disagreement. You might think it's too much or too little or just right or whatever.

[00:08:57] Alison: But they do have a formula for all of that stuff. So the BAH rate calculations include rental housing costs and utility costs. When they're looking, this is how they do it, which I wanted to share with you guys, because again, If you just look at the BAH rates, you're like, where are they getting this information?

[00:09:19] Alison: And I still have that question. What houses are you looking at? Because they're not the same houses that I'm looking at. But this is what happens. So the Department of Defense hires a contractor to survey approximately 400 rental markets each year. The contractor is looking for median rents and utilities for six different types of properties.

[00:09:42] Alison: One bedroom apartment, two bedroom apartment, two bedroom townhouse, three bedroom townhouse, three bedroom single family home, and four bedroom single family home. Those are the six types that they look at. Data is collected during the summer when housing market is most effective. The, in order to make sure that the collecting data is representative of appropriate quality housing.

[00:10:06] Alison: There's a lot of room for inference there. The contractor looks at the average income in an area when selecting the housing to poll and tries to select neighborhoods whose average income is roughly the same as comparable military members. Huh. Okay. And then it says that the survey excludes any housing deemed substandard, including mobile homes, efficiency, apartments, furnished rentals, income, restricted housing, seasonal housing, and age restricted units.

[00:10:39] Alison: Then in order to verify all of its rental cost data, the survey includes information about available rental units. And it also includes input from local real estate professionals. The housing office installation, housing office and installation leadership, huh? By and then they want to make sure that it doesn't have any unsafe or inappropriate neighborhoods or units.

[00:11:04] Alison: And then once all of that rental cost information is collected and processed, they have on site reviews to of the information that was collected to ensure its accuracy. Huh. And then utility costs. are obtained by using rates from local utility provider, consumption information from American Housing Survey performed by the Bureau of Census and climactic information from NOAA.

[00:11:36] Alison: Climactic information from NOAA. What does that have to do? How is that helping you decide what a proper rate is for utility? Huh. Okay. Anywho, moving on. Okay. So originally, BAH was paid at 80 percent of the calculated housing costs. In 2005, the amount was increased, allowing BAH to cover the full housing costs, 100%.

[00:12:09] Alison: But in 19, 2019, y'all weren't paying attention. BAH payments, our lovely Congress. Put in a little 5 percent reduction. BAH payments were , reduced to 95 percent of calculated housing costs. So 95 percent of your rent and utilities should be covered by your BAH. Here's a poll. Let me know.

[00:12:36] Alison: Have you lived in a home where 95 percent of your BAH covers your rent and utilities? 95 percent of Aha. You know what? How about you just tell me if it, if it does, because I've only ever heard people like, no, it doesn't. So here's the thing in this article that I was reading that, you know, they often hear complaints from military families that BAH for their area doesn't cover their housing costs.

[00:13:07] Alison: And in nearly every case, the family is choosing to live in a house that is larger than the housing used to calculate. the costs. So if you desire to live in a larger home, especially if you have a larger family, it's unfair to claim that rates are too low when you've made the choice to live in a larger house.

[00:13:28] Alison: Every family has the option to choose their size and type of housing. If they spend more than the amount allocated for service members rank. They pay out of pocket. If they spend less than , the amount allocated for the service member's, r then they have money left over. Okay. So that is BAH.

[00:13:47] Alison: It's important I think to note here that you either have dependents or you don't, you're married or you're not. So you can have an E five married with no kids and another E five with five kids. And they get the same amount of BAH. Fair? Not really. But, devil's advocate, you could look at it as that if you get paid per dependent, it might encourage people to have more kids to get more money.

[00:14:15] Alison: I don't know. Just, you know, you gotta look at both sides. Be fair. Okay. So, looking at your BAH, hop on Zillow or whatever housing search engine you like to use and look around. And just to reiterate, BAH is supposed to cover 95 percent of your rent and utilities. My experience, and I know, again, I know I'm not alone is that BAH barely covers rent, let alone utilities as well.

[00:14:42] Alison: And it's really hard to determine, especially if you're renting, if you're purchasing a home, it usually has a spot. Where it'll tell you an average monthly cost for utilities. I don't see that when you're renting. And we were really shocked when we moved to Washington at how expensive our utilities were.

[00:15:01] Alison: So this is where living and housing is a benefit. If you live in housing, you don't see BAH in your paycheck. You set up an allotment when you take possession of the home. And all of your BAH go straight to housing. You don't even see it. In housing, your utilities, they're not zero, but they're very little.

[00:15:24] Alison: You only pay for electricity over what they calculate as the baseline. And I think you pay a small water bill. It's been probably eight or nine years since we've lived in housing. So you know, don't quote me on that. But, and I think they're probably all just a little bit different. But if you do pay utilities and housing, it's very small.

[00:15:46] Alison: compared to that out in town. Again, I was just telling you, for example, when we were in Washington, the house that we rented, there were five utilities. It was bananas. There was water and sewer. They were separate water, sewer, electric gas and trash, five different things all told. It was like, over 400 a month on top of our rent.

[00:16:07] Alison: So, and that doesn't include cable and internet, right? And also know that housing does not cover your cable or your internet either. That's all on top of it. So kind of seems like housing's looking a little more enticing, right? The benefit. of living off base is that you can, if you can find a place under your BAH, you get to pocket the rest.

[00:16:31] Alison: Oh, and in housing, if your BAH rate goes up while you're in there, they automatically take it all. So if you enter into housing, I'd say 2, 000 a month for BAH and you get promoted and now you're making 2, 400 a month in BAH. Yeah, they take it all. Yeah. No, you don't get an upgrade in housing. You just get to pay more for what you already had.

[00:17:02] Alison: I, Oh, I hated that. We were living in housing in DC. Michael got promoted and BAH went up by like. Two or three hundred dollars a month and they just took it and I'm like, are you like, we're still in the same house. How is it okay for me to pay? It just like, it just, it just really bothered. Me mentally, like my brain.

[00:17:22] Alison: I'm like, that just doesn't seem right. I was paying this amount previously and it was fine, but now that I have more, you're gonna take more. I don't know that I, I really didn't, I really didn't like that part. But any who, okay, so rent or buy, this is honestly really personal. What we consider is what would your payment be?

[00:17:48] Alison: if you purchased. So an easy website to use to check this is nerd wallet. There's a ton. If you type in mortgage calculator, A lot of them will walk you through the whole thing. Oh, I'm looking for this kind of home and it's going to be this price range, blah, blah, blah. And then before they'll tell you what the payment would be, they want your, your email and phone number.

[00:18:07] Alison: It's just really annoying. Nerd wallet doesn't do that. They've got calculators on there that you can use that you just put in the information, what the loan would be, what the percentage rate is, how much you're going to put down. And then it will tell you what your what your payment would be. You want to make sure that you are looking at rates for your specific state.

[00:18:29] Alison: Okay. So you want to make sure that wherever, whatever state you're in that you denote that I'm good, it's going to be in this state because taxes are different in different states. And then you also want to make sure that you are calculating P I T I K P, which is principal interest taxes and insurance, not just principal and interest.

[00:18:49] Alison: Because I was looking at nerd wallet the other day. And I was like, Oh my gosh, that's really great. And then I realized that the toggle was off for taxes and insurance. And when you added that on, it added like three to 400 to the mortgage every month. So you don't want, you don't want that at the end. Be like, Oh, our mortgage is going to be.

[00:19:06] Alison: You know, $2,200, that's great, we can do that. And then you go to close and it's like, oh, it's gonna be like 25, 26 because you didn't factor in taxes and insurance. So just make sure that it's PITI pro Principal interest, taxes, and insurance. So then looking at those numbers, if you look at homes in your area, calculate the payment, right?

[00:19:26] Alison: Would you be under BAH or close to BAH? If the answer is yes, then buying might be the right option. There's some people too that that. look at their homes as investments. And this is, this, this one is really hard because I feel like you're gonna get You're going to get people from both sides of the camp rent versus buy and if you look at renting and especially with the astronomical amount of what rent is currently If you times that by 12 months times that by two or three years That's a lot of money that you're essentially giving away whereas If you own a home, you're paying down your mortgage.

[00:20:14] Alison: And so then you're, you're really paying yourself. However, in the military we have short timelines, right? So you might be in a duty station for two to three years. It might be less, it might be more. You don't, it's hard to say for some of us, for other people, You might park somewhere and know that you're going to stay there for a while and then it makes sense to buy.

[00:20:40] Alison: But if you're moving around a lot, it might not make sense to buy. But if you're looking at, so for example, when we were moving from Washington D. C. down to Florida, we were going to Cape Canaveral. It made sense to buy because my mortgage was less than what the rentals were. So it just, it didn't make sense not to buy.

[00:21:03] Alison: So that's what we did. But as we're going now to Washington state, I don't think it's a right time to buy. Because well, I think we're all watching the interest rates that are just absolutely cuckoo bananas. And then it's really hard to say what is going to happen with the housing market, right?

[00:21:23] Alison: Because after COVID, everything went out, you know, crazy. And homes were selling, were selling for, you know, over asking and waived. Fees inspections and things like that. Like it was just bananas and there's gotta be a correction somewhere. Right. And so if you are moving to a market and Washington state is one of those markets that went absolutely bananas and the prices are still bananas.

[00:21:54] Alison: I just don't feel like that's a good investment. But you, you, you really, it is an incredibly. Personal decision. You know, I know a lot of not a lot. I know a few military families who choose to purchase homes in each duty station and then they hold on to them and rent them out as a retirement investment.

[00:22:18] Alison: And you know, that's a strategy. 100 percent strategy. What always made me nervous about it is that I would look at the worst case scenario, right? Could I pay where I was living at the time? My current mortgage or rent and then also pay mortgage on whatever home you own. If more, right. Would you be able to do that for multiple properties at a time for maybe multiple months?

[00:22:45] Alison: If the properties are vacant, that always made me really nervous. So we tended to only purchase one home at a time. But again, there's people that have. You know, it's again, it's a very personal decision. Highly recommend if it's something that you're thinking about finding a real estate agent, we did a show over the summer talking in the PCS series and talked about Millie.

[00:23:13] Alison: The I think their website is go Millie M I L L I E and they offer free, free, it's free. It's a service that vets. real estate agents. So if you're like, Hey, I just got here. I don't know anybody. I'd really like to use a veteran or, you know, embrace our community, use a veteran or a mill spouse, but they're also vetted that they have had time.

[00:23:36] Alison: They're not brand new. They have a track record of success and closing and they know our situations, right? Because that's the other part of when you're, when you're looking at purchasing a home is that we don't have the luxury of timing the market. You have to go when you have to go. If it's in an upswing of the market, great.

[00:23:55] Alison: If it's in the downswing of the market, not so great. And it's the same thing for purchase prices, right? Like if you had to move in 2020 and 2021, when the housing, when the prices are 22, 23, when the prices were just bananas, not ideal, right? But that's a spot that a lot of us were finding ourselves in.

[00:24:15] Alison: Is that, you know, we just don't have the, we just don't have the luxury of timing the market. Something to keep in mind is that you do have the VA loan as an option. If you are active duty military. One of the biggest benefits of the VA loan is that you don't have to put any money down It's hard to find another loan that is no to little money down Most of them want 20 percent and if you're purchasing a 300, 400, 500 thousand dollar home That's a lot of money that you got to put down.

[00:24:45] Alison: So something to think about. All right, so I hope that was helpful that it wasn't that it made some sense where the heck does BH come from and then you know, just kind of chugging through a little bit of BAH versus housing versus purchasing. We didn't really talk on purchasing a whole heck of a lot other than, you know, how you can calculate what your, well, again, what we do, which is, you know, what would our, how, what would our payment be if we were to look at a home that we would want to purchase?

[00:25:14] Alison: What would the mortgage be? And then what are, what is our BAH? And if those two are close together, then we might look at buying and then also taking into account again, How long are you going to be there for? What's your situation going to be? Are you getting ready to retire? Like, so for us, We will be retiring out of Washington and we want to build our forever home.

[00:25:36] Alison: Yeah in Virginia so We buying a home when we want to start building something, you know shortly after we get there It just doesn't really make sense for us But again, it's a really personal decision and so you really have to weigh the pros and the cons really helpful to Have an agent that can kind of walk you through all that stuff.

[00:25:56] Alison: So again Millie is a great place to go to, to find vetted agents. And they, they're kind of like the, the middleman, if you will, where they're, they take your information. Okay. This is when we're moving. This is what we're doing. This is what we're looking for. And then they go through their database of agents that they have.

[00:26:14] Alison: that they have vetted and whatnot. And then they try to match you up with who they, they, I think they give you like three to five agents that they think would be a good fit for you. And then you can interview them and find someone that you like. So that's a great, if, if, if you're like, Oh my gosh, I don't know, who should I, who should I use?

[00:26:30] Alison: That's a great resource there. So, okay. Let me know if you have any other questions. Housing and BAH. And again, if you have been able to, here's the thing from what I've heard from people with, are you able to live off base and cover your BAH? live and live within your housing allowance. And the answers that I found were if you were able to live at or below your BAH, you were either, either compromising the size of home that you were living in or the area.

[00:27:09] Alison: So people were saying we're living 30 to 45 to an hour away from the base so that they could find more affordable housing. So, you know, you gotta look around, weigh the options and all that other happy business. Okay. That's it for today. Until next time.