Renting against buying when you move every three years
Why the ordinary rent-versus-buy advice fails on a military timeline, how to compute the break-even including transaction costs, what the VA loan does and does not change, and the accidental-landlord outcome nobody plans for.
14 min read
Questions this article answers
- Should I buy a house at my next duty station?
- How long do I need to own a home to break even?
- Is the VA loan a good deal?
- Should I keep my house and rent it out when I PCS?
- Does BAH cover a mortgage?
“Renting is throwing money away” is the most repeated piece of housing advice in existence, and on a three-year assignment cycle it is frequently wrong. Not controversially wrong — arithmetically wrong, by an amount large enough to matter.
The reason is transaction costs. Buying and selling a house costs a substantial percentage of its value, most of it on the way out, and that cost is fixed regardless of how long you own. Spread across twenty years it is trivial. Spread across thirty months it is not.
The break-even, honestly
- Buying costs
- Loan origination, appraisal, inspection, title, recording, and the VA funding fee where it applies.
- Selling costs
- Agent commission, seller-paid closing costs, repairs demanded by the buyer's inspection. Usually the larger half.
- Annual cost of ownership
- Mortgage interest, property tax, insurance, HOA, and maintenance — everything that is NOT principal.Principal is excluded because it is savings, not cost
Does not includeAppreciation, which is a forecast rather than a figure and cuts both ways · The mortgage interest deduction, which many members cannot use because the standard deduction is larger · The opportunity cost of the down payment, which would otherwise be invested · The risk of being unable to sell on your timeline, which is the real risk and is not a cost until it happens
Principal is deliberately outside the cost figure: paying down a loan converts cash into equity rather than spending it. Interest, tax, insurance and maintenance are what ownership actually costs, and those are what rent must be compared against.
Given
- Purchase price$350,000
- Buying costsAbout 2% — $7,000
- Selling costsAbout 8% — $28,000
- Comparable rent$2,300 / month
- Ownership cost, excluding principal$2,050 / month
Working
Total transaction costs, both ends
7,000 + 28,000$35,000
The selling side dominates, and it is the side people leave out when estimating.
Annual advantage of owning over renting
(2,300 − 2,050) × 12$3,000 / year
Years to recover the transaction costs
35,000 ÷ 3,000About 11.7 years
With zero appreciation. This is the honest starting point, not the answer.
With 3% annual appreciation, at year 3
350,000 × (1.03³ − 1) = about $32,500 gained, against $35,000 spentStill slightly behind
Three years of solid appreciation roughly covers the transaction costs and no more.
On a three-year tour, buying breaks even only if the market appreciates steadily — and loses money if it does not. Renting is not the reckless choice here; it is the one that does not depend on a forecast.
This figure does not account forlocal market conditions, which vary enormously; whether you can sell on your timeline at all; property tax and insurance differences by state; the cost of maintenance, which is lumpy and always higher than budgeted; or the possibility of keeping the property as a rental.
What the VA loan actually does
It is a genuinely valuable benefit and it is routinely mischaracterised in both directions.
What it does. No down payment required, so a member can buy without years of saving. No private mortgage insurance, which on a conventional low-down-payment loan is a substantial monthly cost. Competitive rates, because the loan is guaranteed. Limits on what closing costs the buyer may be charged. And it can be reused, and in some circumstances held on more than one property at once.
What it does not do. It does not make a house affordable that is not. It does not eliminate the transaction costs above. And it charges a funding fee — a percentage of the loan, higher on subsequent uses, which is waived for veterans receiving compensation for a service-connected disability.
What goes wrong
Buying at every duty station because the VA loan requires no down payment, treating 'no money down' as evidence that the purchase is financially sound.
What right looks like
Running the break-even against your realistic tour length first, and using the loan when the purchase makes sense on its own terms. The absence of a down payment changes what you can afford to buy, not whether you should.
WhyA no-down-payment loan starts you at zero equity, so the first years of payments go overwhelmingly to interest. Sell within three years having put nothing down, and the equity built may not cover the 8% selling cost — meaning you write a cheque to leave a house you owned. That is the specific mechanism by which 'no money down' becomes negative.
Still fixableIf you are already in this position and orders have arrived, the choices are to sell and absorb the shortfall, to bring cash to closing, or to rent the property out. Each is viable and the third has consequences most people do not plan for — see below.
Becoming a landlord by accident
The most common unplanned outcome is this one: orders arrive, the market has not moved, selling would mean bringing money to closing, and so the member rents the house out instead. It is a reasonable decision made under pressure, and it has consequences worth knowing in advance.
You are running a business from a distance. Repairs, tenant selection, vacancy, non-payment and eviction all become your problem from another time zone. Professional management costs a share of rent and does not eliminate the exposure.
The rent may not cover the cost. A property bought at the top of your budget with no down payment frequently rents for less than its mortgage, tax and insurance. Negative monthly cash flow across a three-year tour is a substantial commitment.
The tax treatment changes, in both directions. Rental income is taxable and expenses are deductible; depreciation must be taken and is recaptured on sale whether or not it was claimed. Meanwhile the capital gains exclusion on a primary residence requires having lived in the home for a qualifying period within the years before sale — and military members can suspend that clock during qualifying duty, which is a genuine advantage but has limits and conditions.
You may become an out-of-state taxpayer, with a filing obligation in the property’s state.
None of this makes it a bad decision. Many military families build real wealth this way. It is a decision to make deliberately, ideally before buying, rather than one to back into on the way to the next assignment.
The allowance is not a budget
One habit worth breaking: treating the housing allowance as the amount you should spend.
The allowance is a rate set for a location, grade and dependency status. It is not a recommendation, and a member who spends less keeps the difference — which is one of the few genuinely free financial wins available in military service.
Two related facts follow. Rate protection keeps your allowance from falling while you remain in the same location and grade, but it does not survive a move — so a purchase underwritten by a high allowance at one station is exposed at the next. And the with-dependents rate is a rate, not a headcount: a second and third child add nothing to it while adding a great deal to household costs, so a purchase sized to the allowance in a two-person household can be uncomfortable in a four-person one.
The question to actually ask
Not “should I buy or rent”, which has no general answer, but: how long would I have to stay for this to work, and how confident am I of staying that long?
Compute the break-even with realistic transaction costs and no appreciation. Compare it against your actual expected tour length, discounted for the fact that military timelines change. If the break-even is comfortably shorter than your tour, buying is defensible on its own terms. If it is longer, buying is a bet on the market — which you are allowed to make, provided you know that is what you are doing.
Related subjects
- What you are actually paid, and what a civilian job would have to offerBasic pay, the untaxed allowances, and how to compute the taxable-equivalent salary that makes a military package comparable to a civilian offer — a figure that appears on no document you are given.
Sources
The authorities themselves, not summaries of them. Every figure in this domain changes, and these are where to confirm one before you act on it.
Estimates and explanation only. Not financial, legal, tax or VA advice. Rates in this domain change annually; confirm any figure against its source before acting.