PCS to Hawaii: Rent or Buy? The Money Talks

Military members moving to Hawaii often weigh the option of renting a home (either on-base or off-base) or buying a home during their tour. There are some lifestyle factors in that decision, as I wrote in an earlier blog article, but any buyer's biggest concern is money. So, let's take a look at the numbers.

The Benefits of Buying vs. Renting

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If you rent on post, privatized housing takes your full BAH as rent, and may or may not include utilities. If you're an E-5 with dependents, your BAH for Honolulu County in 2015 is $2,994 monthly. For the sake of round numbers, we'll estimate about $194 of that is going toward utilities, so $2,800 is rent. At the end of a three year tour, you'll spend $100,800 in rent. Quite a fortune! Why not put that in your own pocket instead?

Benefits to Buying a Home

In the table above, you can see even with the expenses of selling a home and without including the value of a mortgage interest deduction or any home improvements, assuming only the average appreciation rate, the sample family leaves Hawaii with $69,268 to put toward a home at the next duty station. Essentially it cost them $31,532 to live in Hawaii for three years instead of the $100,800 it would have cost to rent.

If you buy a home and keep your monthly payment at $2,800 monthly, you'd pay the same $100,800 over three years, but a few things help you make money back:

1. You're paying some of that money toward the borrowed amount of your mortgage. That means you owe less to the bank at the end of those three years. You've built equity.

2. Your home may also have appreciated in value. No one can guarantee your home's value to be more on the day you sell it than on the day you bought it, but over the past 40 years, Oahu's property values have risen an average of 4.88% per year. In the past 3 years, the average property price has risen 6.56% overall - 6.6% in 2012, 6.7% in 2013, 6.4% in 2014.

3. With some "sweat equity" you have the option to make improvements to your property that can make you money when you sell. Because Oahu's housing stock is old by mainland standards, many properties are ripe for improvement. If you can leave your home in better condition than when you arrived, you have an opportunity to make money. Note: As a homeowner, you'll have some regular maintenance and repairs to do that would only maintain, not raise, the value of your home.

4. There are tax benefits to owning a home. The Mortgage Interest Deduction allows most homeowners to deduct the amount they've paid in interest from their taxable income, so you pay less income tax. Check with your tax professional for the details.

More Information

This blog article is not intended to be an exhaustive review of every benefit or cost of buying vs. selling, but it hits the highlights. Each buyer's personal finances and situation play into the decision to rent or buy, but the factors above are the most common.

If you have questions about your personal situation, please contact me.