Is Buying the Best Option for me?

Question

Hello BiggerPockets members!

My name is Jonah I am 22 years old and in the military. In February of 2021 I will be moving from Virginia to Jacksonville Florida for my next duty station, and I will be in Jacksonville Florida for about 4 years. My current dilemma is do I buy or rent? Some of my biggest fears of taking out a mortgage is debt! I have not had any debt ever and currently have about 30k in savings and 40k in mutual funds/investments. If I take out a mortgage should I put any down (using a VA loan) if I'm most likely going to move in a 4 years. OR should I not put any down and use that money to put it in some type of investment? If I rent it makes me not responsible for anything thats happens with the house/apartment, but I would be throwing away money.

I would love to buy a house, I love projects and home ownership is something I've always wanted to achieve.

Thank you for any advice.

Andrew Pokrzywinski · Answer

@Jonah Bosma If I was in your position and had a VA loan available I would buy a duplex,Triplex or 4-Unit if you could find one. Once you move, your net cashflow should be high enough to where you have money flowing into your account every month and hiring a property manager wont break the bank.

David Pere · Answer

@Jonah Bosma if it was me, I would buy a 2-4 unit property with the VA loan and rent the other units out. The other tenants cover your expenses, and pay your debt off, while you are pocketing your BAH in order to save/invest it aggressively, to build wealth and prepare to buy more cash flowing assets!

Caleb Brown · Answer

House hack a couple properties with a VA loan, rinse and repeat when you move and you'll thank yourself in 10 years

Michael Robbins · Answer

If you are in a strong rental area then I would consider buying a property that needs a bit of work and put improvements via sweat equity over the next four years.  In determining a good rental area it would be good to touch base with a Realtor and Property manager in your local area.  Make sure the current rental rates can cover your mortgage expense. The rental rates will change in the next four years but at least this gives you a starting point.  At the end of the four years you can analyze whether selling or renting your property is best.

Jacob Sampson · Answer

That is fair @Zack Karp, I was mostly responding to the question in the title.  To me, I simplify things.  Good debt earns me money bad debt costs me money.  Meaning, if I take out a loan at a 100% interest rate but I earn all that interest back and more then it is good debt.  If I take out a loan at a .05% interest rate but in the end I spent more on it than I earned, it was bad debt.

And I would say most personal homes are bad debt by my definition.  And I think if people viewed it that way they would be less likely to get in over their heads with their personal mortgages.  I think many people buy too much home and justify it by saying, "well its a lot of debt, but it is good debt."

Interested in your counter.

Zack Karp · Answer

@Jacob Sampson I think you have your wires crossed, you are combining 2 separate concepts.

Debt vs Investment.

The OP asked if he should put money down or not.  Good debt is mid-2%, tax deductible, mortgage interest.  Instead of putting his savings and mutual funds as a down payment, if he can use that money to create a 3%+ ROI with it, he's better off not putting it as a down payment, and using it to invest or rehab to create equity.

Whether or not he should buy and sell in 4 years has to do with the performance of the investment.  Which is why I suggested either a value-add property, or keeping it as a rental.

Jacob Sampson · Answer

I would be hesitant to buy during a hot market if I am, likely, to need to sell in 4 years.  Generally, 4 years isn't even enough to clear the realtor fees you will have to pay when you sell.  I would add a slightly different take on @Zack Karp statement that mortgage debt is good debt.  It might be good debt but you won't know until you sell and it is pretty rare for your personal residence to end up being profitable (good debt).  Especially if you are holding for a short period and purchase into a hot market.

People who think they turned a profit on their personal residence usually think this because they do only the most cursory math.  Meaning they say, as an example, hmm I purchased for $100k and sold for $120k I must have made $20k profit.  The reality is you need to remove all the interest, insurance, maintenance, property taxes, realtor fees, etc you paid during your time spent in the home.  After those are removed it is unlikely you will have turned a profit.  Thus I would consider it bad debt.

Jonah Bosma · Answer

I would be interested in possibly renting it out if I moved away from the Jacksonville area. I would also sell it if that was the best option at the time. I wouldn't want to buy more property unless, I bought another home for me at the next place I move to and kept the property in Jacksonville as a rental.

Andrew Pokrzywinski · Answer

Hey @Jonah Bosma, welcome to the forum. Since it seems like you may be picking up again in 4 years it really depends what your end goal is. Are you wanting to buy more properties? Are you open to hiring a PM in four years to manage your investments? There is quite a few options, but again it all depends on what your trying to accomplish in 4 years.

You could:

1. Rent

2. Buy a home below market value, fix it up, force appreciation and sell in a few years (live in flip)

3. Buy a home below market value, fix it up, force appreciation and rent it out (hire a property manager)4. Buy a home below market value, fix it up, force appreciation and put on Airbnb (hire a STR property manager)

Either option you choose you can get into a property with low or no money and only have to occupy for a certain amount of time before moving.

Zack Karp · Answer

@Jonah Bosma although a mortgage is debt, it is good debt.  And the VA loan is the best kind of debt.  Use your well-deserved benefit and put zero down.  Especially in this low rate environment.  Keep your savings and invest it into rehab, if you love projects then buy something at a lower price that needs a little TLC/updating and have some fun and make some money/equity while you're doing it.

And if you're here, it means you are at least a little curious about real estate investing, perhaps you buy something that you can keep and rent out after your next move.  You could either refinance your loan at that time to a Conventional loan to restore your VA entitlement for another property wherever you move to next, or without refinancing you will still have bonus entitlement to buy another property.  Lots of options.

TYFYS and best of luck!

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