The Basic Allowance for Housing: Helping Military Members Afford a Home
Published on - May 30th, 2011 (Modified on - May 31st, 2011) (by J.D. Roth) Today is Memorial Day in the United States, a federal holiday to commemorate U.S. soldiers who died while in military service. This is a guest post from Chris Birk, a recovering journalist and the director of content and communications for Veterans United Home Loans, the nation’s leading dedicated VA-approved lender. Birk writes about mortgages and military home buying for a variety of sites and publications, from the Huffington Post and About.com to Mortgage News Daily and Our Broker.
An ex-Marine friend recently told me about his father, who served our nation for more than two decades before returning to civilian life. Given the lack of on-base housing during most of his career, my friend’s father earned a small fortune in BAH — or Basic Allowance for Housing, a monthly stipend to cover shelter costs — but never took a step toward purchasing a home.
He’s now spending his golden years in a small apartment financed by his son.
Scores of service members have access to BAH, but a surprising number don’t have a solid understanding of just how powerful it can be. Military members constantly on the move often fail to think of themselves as likely candidates for homeownership.
But these tax-free payments make buying a home and building wealth possible for a deserving demographic that can easily feel left out. The key is ensuring that service members and their families understand the unique tool at their disposal.
The Basic Allowance for Housing is available to qualified service members when government quarters aren’t provided. BAH payments vary depending on a service member’s rank, dependent status and location. For example, a married E-4 with dependents stationed at Fort Bragg, N.C., currently receives $990 per month in BAH. At Fort Bragg, Calif., the BAH rate for that same soldier rises to $1,161, a reflection of the higher cost of living.
Rates can change annually and are designed to ensure military members can keep up with real estate costs in the civilian world. For many service members, the phrase “real estate costs” simply winds up meaning “rent payments.” That certainly makes sense for some, but the reality is that BAH payments can serve as a significant springboard to homeownership and building wealth.
Over the course of a military career — be it four years or 40 years — service members can accrue a significant chunk of change to purchase and even pay off a home. What’s more, using BAH to cover housing costs frees up income and other military pay for other needs, from debt repayment to investment.
Here’s an example to help explain. In this scenario, let’s assume a married service member with a child enlists, leaves boot camp as an E-2 and retires after 25 years as an E-8:
Service members are often stunned to see that bottom line.
That’s more than half a million dollars tax free over the course of a career. Even those who aren’t considering a life-long hitch still reap more than $90,000 in BAH after just four years in this scenario.
Homeownership rates remain strong in military circles, but many service members still worry that the process is out of reach financially. There’s also concern about how long they’ll be at any one duty station.
Military life is a transient one, and service members would certainly expect to move multiple times during the course of a career. But the Basic Allowance for Housing can help carve a clearer path to homeownership at each of those stops, especially when coupled with the flexibility of low- and no-down payment mortgage programs.
Service members and their families can learn more about Basic Allowance for Housing, watch an animated video explaining the program, and check out a BAH calculator at the Department of Defense Center for Travel Excellence.
GRS is committed to helping our readers save and achieve your financial goals.Savings interest rates may be low, but that’s all the more reason to shop for the best rate.Find the highest savings interest rate from Ally Bank, Capital One 360, Everbank, and more.
This article is about House and Home, Money Hacks, Odds and Ends
Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.
Discover is a paid advertiser of this site. Reasonable efforts are made to maintain accurate information. See the Discover online credit card application for full terms and conditions on offers and rewards.
SEARCH FOR RECENT ARTICLES
Neat article. I’m from a military family, and we have always rented. My dad’s family was military too, and they also always rented, so that may be why. I know that their early careers were full of moving frequently (sometimes every year) until we were in elementary school (then it slowed down to every two or three years). Perhaps they just got comfortable with a renting mentality, since it made more sense earlier on.
My understanding from the few times I’ve talked to my parents about BAH is that they preferred to find places to rent for under the BAH amount and then invest the rest (primarily in our college educations). They haven’t always been successful at this – one tour in Northern Virginia required paying well above the BAH amount to rent.
Of course, this always-rent mentality can lead to some wasted money down the line. When my family moved to their current location, my mom retired after 2 years, and 6 years later, they’re still in that same house paying rent! So, pluses and minuses, but it’s hard to predict that kind of stuff when you’re active duty.
loading....
This article hits on something I know a little of since I am currently in the military, so this is my first comment after being a reader of getrichslowly for many years.
Overall, I think this article would be beneficial to anyone who is relatively new to the military…seeing how much money there is in housing payments and the potential for saving some of that money over the course of a career.
One point that was not covered and one that is crucial to this subject are the disadvantages of moving an average of every 3-5 years with respect to home ownership.
For one, there are many transaction costs associated with buying and selling real estate and and for another it is very difficult to anticipate how long you will be at a duty station in order to plan for home ownership.
Combine these two factors and it is almost always most responsible for the service member to rent….unless they are mentally and physically ready to become a landlord when they move to their next duty station. Being forced to sell your home in this market is not something that many people would look forward to…especially if the home was purchased 3-5 years ago.
These are just some points that I feel should be added to this article to paint a better picture of the reality of military life.
loading....
My brother used his BAH to buy a house when he was living in the area. Once he had to move, he started renting that house out to another service member and bought another house. He owns three houses now and rents all of them out because he’s been deploying and moving around so much recently. So, renting out your house is a possibility, especially if you live in an area without a lot of rental properties.
loading....
I also have purchased many homes while in the military. At one time I owned 4 different homes and I was renting out 3 of them. And I currently own 2 in the U.S. while living in Japan. I’m not saying it can’t be done, it can, but land-lording is not something that everyone wants to do and it is definitely not something that most people sign up for when they buy a home…
It sounds like your brother put some thought into his plan and has made it work, like I have, but it is hard work.
Taking into account that the author of the article represents an organization that makes money from the fees and interest involved in issuing home loans, I thought it would be more responsible of the author to illustrate some of the potential pitfalls as well as the bonuses of home ownership while in the military.
loading....
Wow that was eye opener, an appropriate memorial day post! Thanks for sharing this, I had no clue about BAH.
loading....
Great article in general, but I think your assessment is a little simplistic. When you write the BAH for the hypothetical enlisted service member above, are you taking into consideration the actual take-home pay and cost of living (particularly in San Diego and Honolulu)? Also, because of the transient nature of military life, many live in military housing. In those cases, *all* of your BAH goes to the housing office, regardless of rank. I’m not sure looking at the simple dollar totals is enough.
My husband is active duty military, and at six years in we have moved five times, with another cross-country move coming next year. Owning a home in those kinds of circumstances is crazy. Sell a home? Rent it out? Yikes. We are lucky enough to have found places under BAH everywhere we’ve lived, so as to be able to put aside some money into savings, but only because we have chosen to live in small places. Here in the DC area we live in a two-bedroom apartment with our two kids. It can be done, sure, but it’s not so simple as looking at BAH and saying that over the course of a career we could buy a home.
We have made the decision to rent until my husband retires, with the option in there for buying if it looks like we’ll be “homesteading” somewhere because of his particular career path. There are just too many moves, every two to three years at maximum, and too many market unknowns. And, at least for us, it’s not possible to save 100% of our BAH for purchase of a home somewhere down the line. Even as an officer, my husband doesn’t make THAT much. And certainly not an E-2 based in California or Hawaii making under $25k.
loading....
BAH is supposed to cover utilities, maintenance, etc. as well – it isn’t just your house payment. Keep that in mind.
One thing you don’t consider is how hard it might be to sell the house that you buy with your BAH. I’ve had friends trying to pay 2 mortgages because the house that they were sure would sell didn’t (for a year or more) or the renters they were sure they would always have didn’t materialize, which left them paying 2 mortgages AND a property manager’s fees.
The best thing to do with BAH that I’ve seen is this – rent and save it. Rent the cheapest place you can fit into for the next up to 3 years, and bank the rest. My husband and I (dual military so we get 2 single-rate BAHs; this is the same as a single person having a roommate) managed to live on 1 BAH at our last station and used the other one to pay off debt. This won’t work overseas, but it will in the states. Also, if you’re single (or if you really need to save money), you can get rid of your rental home while you deploy (wife/kids can go live with family if available) and just pay to put all of your stuff into a rental storage space while you’re gone. You have no rent (or house payment), no utilities bills, and you can bank that money in an SDP account (guaranteed 10% interest while you’re deployed) and save it for when you’re out of the military. Seriously, save yourself the trouble of buying and selling houses – it isn’t worth it. Save the extra money from your BAH and buy a house when you aren’t moving every 3 years or even more often (I was at my last station for 23 months…you can’t make any money back off of selling a house after owning it for that little time!).
loading....
We rented the entire time I was in the military. We always tried to find a place that rented under the BAH rate for the area so we could save the difference. The funny thing was though, landlords were very aware of BAH rates and the rental market prices oddly tracked BAH rates, regardless of the condition of the property.
(J.D., It’s been too long since I’ve been in the military now and lived next to an active base, but another military story that would be interesting would be on the topic of predatory lending, and sales directed at young service members. I left the military seven years ago, but I doubt much has changed.)
loading....
Predatory lending aimed at the military would be a really good topic. It’s still a major problem! They aim at low ranking soldiers, who are young and have never had so much money in their lives. That’s a really great idea.
loading....
It’s not as bad in some places as it used to be. I know that in the Navy, all members are given training about predetory lending in Boot Camp and then annually. With the advent of new laws limiting the APR of these “short term loans”, the rates that some of these companies can charge are greatly decreased and it has actually driven them out of of the area in some states. I was showing a few new guys around the area surrounding the base the other day and one asked where the “payday loan sharks” were (his words, not mine) so he could avoid them and I realized that I hadn’t seen any in over a year.
loading....
When I was in Tech School for the Air Force down in Biloxi, Mississippi, there were entire car lots devoted to selling brand-new cars to these 18-year-old kids who thought they were filthy, stinking rich after a few steady paychecks. I’d say about 25% of the students I was with bought brand new cars.
loading....
My father was military, we moved all over and my parents owned 3 houses over his military career – broke even on one, lost money on one and made a profit on one. We also rented twice and lived in base housing 3 times.
What wasn’t said in this article is that the BAF can often be a significant part of a serviceman/woman’s salary.
Using today’s rates, an E-2′s base pay is only 1645 per month, or 19,764 per year. For that E-2 living in San Diego, the BAH is more than his salary! So, that E-2 with family (since you only get BAF if you are “with dependents” and are not assigned base housing) would need to be surviving on less than $20,000 per year or counting on the dependent also working in order to sock away the BAF. Expecting someone to save away more than 50% of your income seems a bit unrealistic.
loading....
Hey all, long time reader, first time commenter. I’m a Navy Chief and have 19+ years in. I’ve been eligible for BAH for more than half that time but I’ve only for the last 4 years. As stated in the article, one of the biggest barriers to ownership is the fact that we military transfer so often. In the submarine force, which I am in, the standard tours are 3-4 years. So for me, if I wasn’t sure of my ability to stay in the area it wasn’t worth the risk of owning and facing the possibility of transferring and not being able to sell. I’ve known several people who have ended up with two houses because of this or who have had to transfer without their family because of being unable to sell. Of course, this has worked out for some, as they have been able to rent their properties.
Additionally, if government housing is available, it sometimes could be more advantageous to utilize that rather than rent or own. The government housing size is based upon number of dependents and availability. You give up your BAH, but your heat, electric and water are included so that can work out in your favor, especially if the member is junior (less BAH) and has a large family.
Also, some people prefer to rent (or housing) because they have a landlord to take care of maintenance. Not all families have have spouses that are handy and in many services the military member is away from home for a large portion of time (tours in the sandbox can be anywhere from 6-24 months depending on the unit and my optempo finds me away from home for 50-75% of the year).
I agree with the author that it is a great benefit, but home ownership is not for everyone in military and I have seen it kill a few careers as well. If the member gets in over their head and has problems (bad loan, can’t sell when transferring, foreclosure) it can affect their security clearance (my clearance is required for my job) and can lead to separation. Just a few other considerations to take into account.
loading....
It is a much better idea to rent cheaper, and bank the BAH. When I deployed I saved all my BAH (single, no kids) because you don’t have to keep paying rent while you’re deployed, if you can do something with your STUFF! I have a pretty solid down payment for a house when I get out of school, but I would NEVER buy a house knowing I would have to get rid of it in 1-4 years, but the exact timeframe is unknown.
Maybe JD can do an article on the GI Bill and the differences in it aswell.
loading....
My parents bought in at least 3 places because there wasn’t good rental options or whatever…. it worked out but they came very close to having an unsellable house when the last base we were on got put on the closing list (later taken off and is still open almost twenty years later) – its a chance that has to be taken – I doubt we will see as many closings at once as in the mid90s but its still always a possibility and with todays market I really wouldn’t suggest military buy if they can help it unless they’re like in something odd where they might actually spend more than 2 or 3 years somewhere…
loading....
I have to disagree with this article. While just looking at the BAH rates alone, it looks like a lot of money. But what about looking at the actual salary of that E-2 to E-8? The reason you get BAH is because your salary is barely enough to cover basic living expenses. We were in the military for 6 years and never lived in an area where our BAH would have allowed us to buy a house, and trust me, we looked. Add children into the mix and the constant moves (we lived in 6 places in 5 years) buying is just not feasible. However, we did live in rentals that cost less than our BAH and used the remainder for saving and such. I think this article is misleading and needs to tell the whole story.
loading....
Is the article really suggesting that a person still in the service buy a house? I read it as saying that if you could live under your means, via this allowance, you could have enough for a nice downpayment/nest egg at the end.
I don’t think it’s talking about buying and selling houses every couple of years. That would seem not only odd, but contradictory to the recent postings about how JD would likely rent rather than own if he had it to do over again!
loading....
Yes this article is really telling people in the military to use their BAH to buy a house. The author of this article pushes mortgages on military personal for a living. Which is what makes this article on Get Rich Slowly most disappointing, because it’s another place where people are assuming that the military is full of idiots, and push service members to spend all their money on something that most likely doesn’t pertain to their situation, and put them in debt. Although what this article is pushing isn’t what JD intended, what he intended and what came out of it are 2 very different things.
loading....
We were both in the mililtary for 20+ yrs. We were able to take advantage of the BAH and purchase homes. But we incur a great deal of risk in doing so. In 3.5 yrs we had orders to the other coast and either had to sell the house or rent it. We absolutely could not stay in that home. We became landlords for a few yrs, but were lucky the 3rd set of renters bought the house, making 100K before the housing market crashed. Another tax advantage is that we did not have to pay capital gains on the profit. We bought 2 more homes, taking advantage of the BAH. The key is to wait until the end of our careers when we knew we could stay in the same city and decrease our risk of having to relocate.
loading....
First, not everyone is entitled to receive BAH. It’s only guaranteed to those who are married or have children that live with them. Lower ranking singles usually do not receive BAH payments and cannot move off base.
Second, as stated by many others, military life is very transient, and most people should not be in the position of dealing with real estate when they have to move every few years.
Third, military members, especially females, have a higher divorce rate than civilians. I’ve known many who have had to deal with a property they could not afford or maintain on their own once their marriage dissolved.
Fourth, you may end up in an area with severely low rates that are DECREASING annually, such as in Nevada where I was once stationed. (Note: BAH won’t decrease for you once you are stationed somewhere, but will decrease for incoming members.)
I agree that BAH is a great source of income, but most should rent at a lower rate and bank the money, or own a home somewhere for your family and live on your own elsewhere. (That never sounded appealing to me, but many live that way.)
loading....
My husband was in the AF for 4 years and spent all of that time at the same base, minus a few TDYs and longer deployments. After renting for a while and realizing that in our area, even the ‘cheap rentals’ are pretty much tied to military BAH (so it was impossible to bank the extra), my hubby decided to buy himself a starter home. Utilizing his VA loan, he was able to get a 1000 sq ft house on a half acre lot, which was perfect for his needs and since he owned the home he was building equity for himself instead of his landlord. After we married and had our son, we eventually moved 20 miles away to a nicer area in an actual neighborhood. Since our home is a starter home, its perfect for small families or single military guys wanting to share a place with roommates. We were lucky that I happened to have a military guy friend looking for a place with his buddy, and they moved into our house. When one PCSd, another would move in and so on, so the home my hubby purchased has been occupied for going on 3 years.
I would say that being a landlord has worked out for us because my hubby still works at the same base (but as a contractor now) and we only live 20 miles away, so we can stop in to check on things or make repairs as needed. Plus, the home is within 5 miles of base, so it is perfect for people wanting to save gas and not have a long commute. Another reason we have had success as landlords is because my hubby bought just enough house to fit his needs and wasn’t concerned with maxing out his VA loan or buying a McMansion. Young airmen and new families don’t want McMansions, they want something they can afford, and that is precisely what our home is.
loading....
1) There is no such thing as an ex marine, only former marines.
2) BAH is an allowance. Although it is for housing, you can use it for anything you want. For that reason, I think you should separate the factors in buying a house (your personal situation, the local markets, etc…) with the BAH.
loading....
Interesting article, but it does not accurately portray the whole picture as many people here have addressed.
Cost of living in contrast to base pay for soldiers is a huge issue. BAH assists in that. Additionally service members with families rely on the income to get by especially when a spouse is a stay at home spouse.
A better article would have been any of the following money saving plans for service members which include NO risk (unlike purchasing a house):
1. Thrift savings plan vs. Roth IRA retirement
2. SDP (Savings Deployment Plan) which provides up to $10,000 that can be invested tax free for a 10% APY compounded quarterly during your deployment and for up to 90 days after
3. BAH and how soldiers can / should put the difference towards their IRA, CD’s, or some other form of savings
4. Opportunities to purchase a home and list it with the military for rent(military acts as the landlord, will upkeep it and put soldiers and their families directly into the home for renting purposes)
Etc.
To just tell a service member that you make BAH so you should just buy a home instead of rent is looking at the problem too simply. When a service member is ordered to a new duty station, if they cannot sell the old home, they will not get bah to cover the old and the new. They will likely bring their family into further debt.
In contrast, by renting they are able to accrue a profit from BAH (albeit small), and invest that amount towards their future while having no risk. That seems like a better article!
loading....
Great article! My husband and I are dual military and bought our first house 5 years ago w/14 yrs in service, expecting this to be out last duty station. Best laid plans…my spouse was promoted, and we now have order to HI – which is AWESOME, but…we have no plans to buy a house in such an expensive place,and have heard so many horror stories abt rental props. We are lucky to live in an area that hasn’t been hit nearly as hard as the rest of the country and are hopeful that we will be able to sell the house for at least enough to cover the note and the realtor fees. We are going to live on base in HI and bank my BAH (single E-7) pay for the three year tour, which will serve as our cash retirement fund as I will punch after this tour. BAH has been a Godsend to us…we have maxed our IRAs since 23 yrs of age, have no debt other than this house, have two fully funded college tutions for our children, have over $25K in emergency funds, maxed out TSP contributions, plus other retirement funds…and do not have to do w/o ANYTHING. We are so lucky!
loading....
BAH is not just for housing; it is an allowance meant to help with the cost of housing, utilities, etc. It’s supposed to be at current cost-of-living rates, but always seems to be a few years behind. Except for the first housing I shared with my husband (i.e. his bachelor pad apartment that he shared with several other officers), we were rarely able to find a place to live that was fully covered by the BAH. Landlords are pretty savvy and it doesn’t take them long to find out what the BAH rates are for the local base and, amazingly, that is exactly the amount they want in monthly rental payment, if not a little more.
Sure, we could have bought a house with a mortgage payment that would have been covered by the BAH, but purchasing a house requires cash. You need a down payment, closing costs, etc. So, you had to have been a frugal saver to begin with and you had to be comfortable with the risk involved. It’s a lot of money to put out for a place you may only live in for two years. Then you’re looking at hoping to sell or renting it out. Renting it would mean hiring a property manager because, chances are, you’re not going to be assigned anywhere close enough to run over and fix a leaky pipe.
If you are assigned overseas, then things get really tricky. You receive BAH, but you have to deal with the always fluctuating exchange rate. Add on to that some countries’ daisy-chains and other things that make purchasing a home more complicated and it is just easier to rent. (We enjoyed renting overseas; it allowed us to spend our time traveling rather than taking care of home repairs, etc.)
And that brings me to another point: ease and low stress. In a culture already fraught with stressors (deployments, remote tours, living hundreds of miles away from family, moving every few years, etc.), the risks of homeownership can be that one extra thing that breaks the camel’s back, so to speak. Relocating is tough on a family and the stress of selling or renting a home when, for example, you only have 3 weeks from receiving an assignment to reporting to the next base, can be very difficult to deal with.
We owned two homes during our years with the military and enjoyed homeownership. We were able to sell our first house at break-even (due to a dismal local market brought on by lack of faith in a city mayor who was more interested in cocaine and prostitutes than standards of living in his city) and we made a fair profit on the second house.
Others we knew bought a modest house/condo at every assignment and held onto the houses, renting them out only to other military families and asking local military friends to act as property managers. This worked for them and they considered these houses their investment for the future.
Most of the time, we opted to live in base housing, taking advantage of all the savings on utilities, gas, etc. and the camaraderie of living in the midst of a military community. We preferred putting our money into the market instead of real estate. It’s what worked for us.
Now, 9 years out of the service, my husband and I own two homes and are relatively happy with our past decisions. We sometimes wish we’d held onto that first house, as the crooked mayor was eventually ousted and real estate in the area skyrocketed. The townhouse we sold for $185K is now valued at $750K. If only we all had crystal balls, right?!
I appreciate Birk’s ideas and know that what he suggests could work for some military members. I just wanted to add my viewpoint as someone who spent close to two decades traveling around thanks to Uncle Sam.
Speaking of the military, Happy Memorial Day! A heartfelt thank you to those who gave so much for the freedoms we sometimes take for granted. God bless America!
loading....
I agree that the writer is pretty typical of a person who deals with the military, but has never really served and is not aware of what BAH is really for.
The article should have been about the advantage to using a VA loan AFTER the service member separates. I don’t know what it is – but there has to be one. Personally, I am not aware of one person who has used a VA loan.
My husband served 20 years in eleven locations. We attempted to rent below BAH- but that was not the norm since we, like a normal couple, wanted our children to go to the “good schools” and live in family friendly neighborhoods. (Go scope out communities near bases.)
On target BAH is new to the military- we often received much less than what a decent place would be. I remember being shown places that were filled with mold and broken windows. Our local general is building as many houses as can fit on our post after meeting up with a new widow stuck in a trailer with two children.
Saving it- lol- my husband did not make enough to be saving BAH since pay is not the same as the civilian world. Only dual military could save- but then they often are separated for years at a time because of duty.
We also had to save about $5-7,000 for every move. Start up costs,even for renting,are very high.
BTW- I do not regret one minute that we had in the military. It was the most interesting career that we could have ventured into together (since I had to change jobs every time we moved). Our military brats are serving now, so they must have picked up our sense of service.
Today I remember our five friends who were killed in Saudi Arabia with the first bin Lauden “present” 11/95 and our dear friend who was killed in the Pentagon 9/11.
I also remember all of those whom we greeted as they arrived “home” to Kansas in draped caskets.
We are still, very much, in the middle of a war where our family members are putting their lives on the line for country and friend.
Please remember them this Memorial Day.
Buy a Poppy and say a prayer for those who have fallen so you may live in a wonderful country today.
loading....
As for the “ex Marine” his father (is he the retired Marine?) probably qualifies for assistance if he did 20 years. He should be receiving his medical care for free and a pension. Something is off in that story. It would be worthwhile to look to the local VFW to help figure it out. Those people know their stuff!
loading....
In the Air Force, pretty much everyone can get BAH. If you live on base you won’t see it, if you move off base you will.
The BAH my husband makes goes straight to base housing to cover the rent on our house and all the utilities. It’s nice because it’s just taken out and we never see it or have to worry about it.
The ones who can make the most bank with BAH are single and move off-base into either a cheap apartment or with roommates. They can easily keep half of their BAH for whatever.
We won’t be buying a house (or probably moving off-base even) anytime soon. For one, we plan on moving around as much as possible, unless we end up in the UK. (Where we would buy property and use BAH and COLA to our advantage.) For two, it’s nice to live in the “gated community” that is essentially base housing. I don’t have to worry that my cars are going to be in the driveway in the morning. (And finding a house with a two car garage minimum is bigger than our BAH before utilities.)
Let’s not make it sound like it’s the greatest thing ever… Despite the health care, BAH, COLA and any other benefit the military is mostly underpaid for what they do. Especially enlisted.
loading....
To all those serving our country, past and present, “Thanks” from an old sailor.
loading....
I’d like to recommend a book just out by Doug Nordman that details early retirement using a military pension. It goes into detail about finances, saving, investment and emotional and mental transitions. Website for book is http://the-military-guide.com/author/themilitaryguide/
Most of your commenters here are spot on – very few people do well in the landlord role as they usually are moved fairly often and are remote landlords. One’s rank makes a huge difference as well regarding how disposable BAH really is.
I myself am a Reservist who has spent early and mid-career on active duty. Husband is active duty and we currently live overseas – very difficult to manage property from overseas (as I have done).
loading....
Thanks, Deserat!
Here’s the post about “Rent or buy?” with BAH:
http://the-military-guide.com/2010/12/29/real-estate-rent-or-buy/
loading....
I’ve been off active duty and the military has added many quality of life initiatives since then, so my info may be dated. However, here are my thoughts on the article and some comments:
1) As far as this being a “nest egg” to be saved, BAH is only given to those who are currently renting. You had to show your lease/mortgage to get it, and if your payment was less than the BAH amount, you got half the difference. Also, in my day, if you deployed and stopped renting for the deployment, you were supposed to have lost BAH. (Many people failed to report they had stopped renting, I’m sure, but if the military found out, they could make you repay the money as well as subject you to the UCMJ.)
2) Agree with everyone who talked about renting the place out when transferred. We did that for two years, but we knew we were likely going back to that area (Norfolk is pretty easy to get if you’re in the Navy). We had tons of problems with our first renters who thought rent was an optional expense, and the realty company was poor at dealing with them. Also, know the laws for evicting tenants in the state where you are buying – it can be incredibly hard to get someone out who knows how to play the system. I know it’s worked for many, but it’s also been a horror story for many.
3) One thing not mentioned is the problem that comes with the system requiring junior enlisted to be married to get BAH. It’s hard enough to be married in the military even if you make that decision when you’re mature and there are no other enticements. I’ve heard too many young Sailors talk about why they’re getting married and list getting BAH and no longer living on the ship as one of the reasons. The base pay for that E-2 who would get $1941 in BAH is $1467. Even a bad marriage looks a whole lot better when it accompanies a 133% pay raise. Of course, marriages for those reasons are generally a lot more expensive in the long run, but most 19 years olds don’t recognize that.
loading....
JD,
Thanks for asking!
I think Emma, Laura, and Hong make very good points about using BAH as a tax-free savings benefit, not reflexively as a mortgage payment. BAH has improved dramatically over the last decade by rising to cover an “estimated 100% of housing costs” instead of the old 85% standard. However it doesn’t mean that military renters should fear ending up like Mr. Birk’s friend’s father. That’s such a simplistic example that it’s almost alarmist.
While Mr. Birk’s math may be correct it ignores many other housing considerations, both financial & lifestyle. I’d say the most important issue is the high cost of buying/selling homes, especially for military who are moving to new locations every few years. Let’s not even get into the problems with flat or down real estate markets or landlording across multiple time zones. Renting doesn’t build equity, but it doesn’t lose equity (or transaction costs) either. Living on base may deprive service members of the local community’s benefits, but it might make it a lot easier on the family when the service member is deployed. It’s a highly individual decision.
I’m happy to volunteer to write military-specific guest posts for your blog. “The Military Guide” is shipping soon. (All royalties will be donated to military charities.) The book has several pages devoted to the issues of owning vs renting and offbase vs onbase. Take a look at the 100+ posts on the website and let me know how I can help.
loading....
It’s funny how there can be so many discrepancies between different branches of the military and all of the different statuses there are that military members can fall under.
Personally, I work full-time in the Kansas Air National Guard, and as such, I’m almost 100% sure that I’ll never be deployed anywhere against my will. That’s not to say that it couldn’t happen, because it could, but considering this is one of the few places my job can take place, and the fact that my squadron has never deployed in their entire history, I’m fairly safe.
I live in a very cheap apartment off base (single, no kids), and make E-4 pay and BAH. I gotta tell you, this is about the sweetest deal possible. I really don’t even look at my BAH as a separate line item in my budget, just as a part of the whole.
Technically I would be saving at least $100 a month by living on base, with utilities and such being taken care of, but base housing is reserved only for active duty members, which is fine considering $100 a month is trivial for me in exchange for enjoying my own place free from the certain regulations and other stuff that comes with living on base.
I personally wouldn’t take the money I’m making now and buy a house with it, but for someone else in my position, in a squadron that has hardly ever deployed, I can see the opportunity for owning a home.
loading....
My husband is active duty Army, E-4. We have two children.
The tone of this post ticks me off. It seems to suggest that BAH is extra spending money, and that service members are rolling in dough but are too stupid to know it. I’d love more clarification on the following statement made by the author: “…using BAH to cover housing costs frees up income and other military pay for other needs, from debt repayment to investment.”
This statement makes *no sense*. Base pay (what I’m assuming the author means by “income”) is never used to pay housing costs, unless the service member decides to live off base in a situation where the housing costs are more than his BAH.
Living on post accomplishes these very same things for us. While we don’t receive BAH as cash in my husband’s paycheck, we don’t pay any rent, utilities, or maintenance costs. Something breaks? We call housing and they’re out to fix it within 24 hours, within the hour if it’s an emergency (no heat, toilet broken, etc.). The fact is that we can’t rent (unless we’re in the ghetto) in this area for the BAH, especially factoring in utilities and maintenance. We *definitely* can’t qualify for a mortgage in this area on his income.
Another bonus to living on base is that we’re within walking distance of my husband’s job, the commissary, the PX, and my job. This means that we can easily live with one car. Living off post would mean that my husband would have to drive the car to work, leaving me with no car + kids, or “needing” to purchase another car.
The security provided by base housing is worth a pretty penny, too, especially when the service member spends a lot of time TDY or deployed. My husband is better able to focus on his job while he’s away, knowing that we are safe and supported. Being among a community of fellow service members and families is invaluable to us. The support we can give and receive is worth much more than whatever pittance we’d save by scraping by on the least amount of his BAH possible.
The chart provided seems misleading as well. It’s not like the service member in the example would be able to bank that money and suddenly have half a million dollars upon retirement. What happens when the service member has purchased a house but can’t sell it or rent it out upon moving to the next duty station… and base housing isn’t an option? Debt, with the possibility of foreclosure. It’s a financial risk that isn’t worth taking.
The wiser choice would be for service members to make every effort to save up to purchase a house with cash upon retirement.
loading....
JD,
While,the intent of your post is made with good intentions, it is way off kilter. If you look at how much someone just coming into the military makes, you will notice that BAH can potentially be more than their monthly paycheck. So if a new military member purchases a house and has to move and cannot find renters immediately… what are they going to do?
Everything in moderation. It would be more advisable to have a new military rent until they have a substantial savings account and then make the transition into slumlordism.
loading....
The rest of my career I lived on base and was happy to do it.
As others have said, quarters on base include utilities (electric, gas, water, sewer, trash collection, etc) as well as maintenance. When you are assigned to a base, if there are adequate quarters available you may not have the option to collect a housing allowance and live off base, so your ability to buy is limited.
The ability to buy, and then rent while you are transferred elsewhere, is very location dependent. Unless you’re in the seagoing Navy, (Norfolk, San Diego, etc) or an officer in the DC area, it’s not always easy to be able to come back to the location where you bought your home. Being a long-distance (sometime overseas) landlord is not nearly the same as owning a rental property where you live.
The article seems pretty simplistic and oriented to an era of the housing bubble where owning real estate was always a good investment, even for short periods of time. Today I’d caution most people (not just military) against buying a home unless you’re sure that you could carry the cost of the mortgage for at least a year, just to be able to plan for a worst case (losing a job or being transferred).
loading....
what a disappointment to read this clearly slanted post. taking advantage of memorial day as well. color me decidedly unimpressed. anyone who knows what they’re talking about knows how totally unrealistic the tone is here.
by all means, military finances are their own subtopic and absolutely have a place in personal finance discussion. but not cheap pitches like this. i feel slimed.
loading....
loading....
For one thing, BAH isn’t extra “free money.” It’s part of your paycheck, and without it, most people in the military wouldn’t be getting paid NEAR what they are worth. Whether you are living on base for free and not receiving BAH, or paying out of pocket for your own housing with BAH, the rest of your pay (your base pay) is so low that it simply would not cover housing expenses.
The attitude portrayed in this article put many military members in even more serious financial trouble than they otherwise would have been when the housing bubble burst. When the housing situation was good, many military members were used to buying a house when they moved to a new location, and selling it or renting it when they moved again, always at a profit. BUT…when the bubble burst, suddenly there were no buyers and no renters – I once spoke with a Sailor who owned EIGHT homes, most of which were “upsidedown” on their respective mortgages. He was so distraught I referred him to psychological counseling in addition to financial counseling.
The “do I buy or do I rent” rubric that has been discussed in many a getrichslowly article is no different because of BAH. It isn’t magical, free money. It’s part of your paycheck and should be treated as such.
Military members should NEVER think they have an easier path to home ownership because of BAH. In fact, home ownership carries the same risks and rewards that is does for anyone else, with the added risk of knowing they will have to move in 2-3 years and will either become a landlord or be forced to sell the home.
I’m sure that most servicemembers reading this article are smart enough to take it with a grain of salt and not run out and buy a home simply because they have BAH. Still a little scary, though!
loading....
In my opinion, encouraging service members to purchase homes given the current state of the housing market is irresponsible. Houses are not a liquid asset, they are a long term investment. As long as the military considers 4 years a “long time” at a duty station, it is unlikely service members will be able to recoup the investment of the BAH once they go to sell. Arguing that just because you receive BAH you should buy a home is not only shortsighted but completely unrealistic given the current state of the housing market in most areas.
We bought a home at our last duty station back in January 2007. We felt it was a smart decision at the time as it was reasonably priced and the market was doing well. And then the housing bubble burst. And by the time we went to sell our home last fall we were very much underwater on our loan. We were lucky enough to find a realtor experienced in short sales and were able to sell our home within a few months of moving – but that was at a price of $80,000 less than what we owed on the home.
Unfortunately many many other military families at our base were not as lucky as we were and stories of people not being able to sell their homes or using hard-earned money from the recent deployment to write checks to get out of their homes was all too common. While renting may be an option in some areas, with the glut of homes on the market there were many rentals that sat empty after their owners had PCSed. We are now renting a home at our current duty station and while we miss being homeowners we know the stress and financial risk in the current market is simply not worth it.
JD, if you really want to help military service members, find a writer who is a) actually knowledgable about the realities of military life and b) not so obviously pushing a biased agenda.
loading....
Moving every 2-3 years is hard enough.
Adding the stress of looking for a house to buy, then selling or renting out the house 2-3 years later?
No thanks.
I’m an offier in the services, and think it makes a lot more sense to just rent and bank some of the BAH.
Buying a home is so overrated its ridiculous. Bubbles happen and the housing market drops like a rock. Maintenance costs tens of thousands of dollars over the lifetime of the home. Hardly anyone goes for 30 years without refinancing their mortgage, so they increase their monthly payments every few years when they refinance.
The ONLY ways owning a home can be profitable are 1)if there is a bubble and you sell at the top or 2)you get a ridiculous deal (which happens with lots of homework) when you buy.
loading....
Thanks, everyone, for your feedback. Your criticisms are valid. I should have vetted this piece more thoroughly before accepting it. I’ve added a disclaimer to the article.
If any of you want to supply a reader story or guest post with a more pragmatic picture of BAH based on your experience, I’d be happy to host it!
loading....
I would be willing to share our military BAH experience. J.D., I sent you an email with particulars of our situation to see if it’s what you’re looking for.
Thanks for being willing to discuss this issue on the site and the opportunity to further explore it.
loading....
Although this might be getting a bit in the weeds for your site, I would be interested to hear from someone who has carefully tracked their finances while living in base housing without receiving BAH and while living out in town and receiving the BAH.
I’ve always wondered which would be the better option financially, and whether it would make sense to live in base housing if I were ever given the opportunity.
loading....
Becky, it’s tough to make an apples-to-apples comparison because the real estate markets are so different between areas. Even the market around the same base changes from year to year, and BAH rates can change as well with the DoD surveys.
Having said that, living off-base was almost always more expensive because of the maintenance/repair costs (which were “free” on base). It’s also more difficult to find an off-base property of the equivalent quality to on-base housing… landlords understand BAH perfectly well and will attempt to match their rents to it.
I think it’s easier for families to save money on base, and certainly less risky than owning a home. Roommates (or dual-military couples) will do better pooling their BAH to rent off base.
However there are quality-of-life issues that may have a bigger impact than the financial ones: http://the-military-guide.com/2010/12/29/real-estate-rent-or-buy/
loading....
J.D., I’ve sent you an e-mail. Thanks for bringing up this subject!
loading....
You obviously show how much you don’t know about the military. As others have said BAH covers more than just the house payment. It’s meant to cover all expenses related to housing, such as utilities, water, and then you have cable/sat, maint etc.
Sure, in a perfect utopia, you would rent or buy a place far under BAH, but we are living in the real world. Imagine someone who used their BAH back in 2005/2006 to buy a home. Well now they are underwater just like everyone else.
Don’t think of BAH as money to rent or buy a home. Think of BAH as part of your overall pay. Once you think of it that way, you can then just stay within your budget and rent or buy a home that’s within your budget.
As others have stated, some military members don’t get BAH, because they stay on base housing, while others move so much, they barely have time to settle in before they move. They don’t always have time to review and understand the correct area to buy in. On top of that the amount of BAH you receive is different depending on your rank and the area you live in. BAH changes from time to time, depending on a multitude of factors that the government comes up with.
Lastly, just because you receive let’s say $1200 a month in BAH, it’s no guarantee you can find a suitable house with all utilities and other expenses for a house included for that price. There will be houses in that range, but most of the time BAH doesn’t seem to cover anything more than a avg or below avg home, unless you are at the higher end of the ranks for enlisted or an officer.
The bottom line, just think of BAH as part of your overall pay and nothing more. Do a budget based off of that and not what the BAH is you are given. If you can keep the price of the rental or new home purchase below the BAH you are given, then great, but don’t worry about it if you can’t. If your budget can support a rental or purchase over your BAH, then go for it also. It all comes down to budgeting and saving as much money as you can while also enjoying the benefits of life.
Your article is to me is nothing more than something for people to talk about, because it makes people assume one thing, when it reality the real issue is about budgeting, and the reality of what BAH really is. You make it seem like it’s a big pile of cash that people can just horde away. If you see what the people in the military give to this country, you would give more thought before writing such an article.
Member of the military are no different than other members of society. They make the same errors in judgment when it comes the purchase of a house, rather to save or to spend and how to budget their finances.
Make no mistake about it, BAH is great, but unless you have one or more roommates, BAH is just part of someone’s overall pay, and if you live on base you do no receive BAH.
loading....
BAH is not free money. It is a way for the government to pay out less in retirement, since retirement is only a percentage of your basic pay. All the “tax free bonuses” are is a way to bring the military members income somewhat in line with the civilian sector so that military families are not living well below the poverty line, while saving the government money in the long run.
We just got back late last night, after a 12 hour long drive one way, having spent our Memorial day weekend going back to “our house” that we purchased to finish up some yard work and painting that we weren’t able to do in the middle of January in Minnesota when the military decided to move us.
Now, we are living in base housing – so not receiving BAH, but because the house is sitting on the market, empty, we’re still paying the mortgage out of pocket. The lesson we’ve learned is that it is way less of a headache to wait until retirement and we actually SETTLE somewhere to buy/build another house. We could have spent this long weekend, enjoying family time, instead of fixing holes in walls, etc.
We did have some short term renters. They left a mess and took the curtain rods, shower head, and bathroom towel rack right off the wall when they left.
loading....
Ugh! This is our first foray into long distance landlording. Only one snafu so far, a mother in law who had no heat because the kids closed all the vents in the house and the heat from the furnance triggered the auto shut off. So there I was with my tenants on vacation in Hawaii, their inlaws and kids without heat in our rental WA, and I’m in GA at our current duty station. Heating company called, $200 bill for stupidity. Well, after reading your story, I feel lucky.
loading....
BAH is not free money, although it is a nice thing that it is tax free. We have been in the Army for 14 years and the advantage of it depends on the housing market. We rented and bought during that time and watched everyone make money when they bought or everyone lose money when the bought. When we first entered the service, you had to report your rent. That lead to a downward spiral of BAH rates because everyone was trying to rent under BAH and the lower costs of renting (bad) places lowered the BAH. Now they do a survey of each area every several years.
Personally, I feel the only people to really *benefit* on BAH are the ones who are financially savvy anyway. Buying the newest LED tv/gadget will completely negate the financial tax benefit of BAH. I say tax benefit, because that is all there is. If your BAH in Hawaii is $2,500, you are going to need it. Same with the Basic Allowance for Substinence (BAS)….I am really a savvy grocery shopper and I can not possibly spend less, even using the commissary, price book, coupons, sales, gardens when I am in a location long enough to plant them,etc. than $225 per month for a family of four.
loading....
Um, there’s only one problem with trying to save BAH for a downpayment on a house. Basic pay for military members is not enough to cover your current housing costs (depending on rank of course). I was in the Navy for 4 years and I was stationed in Norfolk, VA. where the average rent is about $1000 for a 2 or 3 bedroom townhouse. My basic pay was only $1500. I had to use my BAH to cover the cost of my rent, which is what is is supposed to be used for. A typical family with children, 2 car payments and other regular bills (utilities, etc) don’t have the means to save their BAH. My husband and I were lucky to be able to use most of his pay to pay off our credit card debt. But saving my BAH for a future downpayment on a house would have been impossible while trying to get out of debt. We’ve since bought a home because we no longer have any credit card debt and are down to only one car payment.
loading....
I recently retired after 22 years in the Air Force. During that time I received a housing allowance for about 13 years. The Overseas Housing Allowance (OHA) is different from the Basic Allowance for Housing (BAH) in that if you find a place to rent that is below your OHA, you do not get to pocket the extra cash. So for seven of those 13 years, there was not extra housing money. I also spent on year living in base housing, so all my BAH went to the company that was managing the military housing for the area. During the other five years, I bought two houses, one in Tucson and one near Omaha. I purchased the Tucson home in 2002 and sold it for about an $8000 profit in 2004. I bought the Omaha home in 2008 and intended to live there long-term. I retired in 2010 and could not find employment in Omaha. I also refinanced in 2010, so I will have to keep that home until around 2015 in order to break even on the closing costs. I am currently working in the DC area and am lucky enough to be renting my Omaha house out. The rent covers the mortgage and most of the real estate taxes, but I am paying about $175 per month out of my retirement check towards this house. Both times I had expected to be able to stay in the area longer than it turned out. I was in Tucson a little less than three years, and the norm for my co-workers was at least four years. I knew one guy who stayed there for 11 years. I also expected to be able to find a job in Omaha after retirement, but was forced to take a job elsewhere because my E-7 retirement pay was barely enough to cover my mortgage and utilities, so I had to find a job somewhere. Now I am digging out of the debt I incurred during the two plus months I spent after my retirement and before finding a job. I don’t think I would change anything I did in hindsight, but it was quite stressful after retirement and before getting established in DC. I am currently renting a townhouse for more than I am getting in rent for the 4BR house I own in Omaha. Eventually I will buy a house in the DC area, because I can see that in this area a mortgage is cheaper than rent and my family does not like living so close to so many neighbors. I think I will keep the Omaha house as long as I have a renter, but I eventually will have to raise the rent to cover the mortgage and all the taxes, as long as the local market will take it.
loading....
We bought a house in Florida, lived there 3 years (our longest tour) and couldn’t sell it. Now we are unwilling landlords, and underwater at that. Since leaving Florida, we moved 3 times in 33 months. When you move like that, renting is the only reasonable option.
Now we are in a high-income area with rising home prices: Northern Virginia. Our BAH covers the rent, but that’s because it’s a high-cost area. If we bought here, and then moved to another part of the country, our BAH would drop 30% or more. More than a month without a renter could be disastrous. Closing costs eat up any possible profit, that is if you could sell for a profit.
Being a landlord works for some people, but not us. We’ll use the BAH to put a roof over our head, but buying again is out of the question until we can decide where we’ll live, not the Navy.
loading....
I bought a house in 1998 utilizing the VA Loan program and my BAH.
Take into account that in was 1998 around the Fort Sill, Oklahoma area.
Take into account that my house, at the time, was listed at $36,500. (3 bedroom, 1 bath, 1 car garage – decent little starter home)
My mortgage, taxes and insurance on this house was around $300-$400 (depends on the year and how the city decides how much I should pay in taxes)
My base pay, after taxes, was $850 a month.
BAH was $495 a month (if I am remembering correctly)
Without BAH, no, I wouldn’t have been able to buy a house, OR rent a house.
I still have that house, BTW. Rented it for the 2 years I was in Germany and came back to $20 K in damages.
Tried to list it to sell last year – but the market is horrible.
I am in a pretty good position because my mortgage is so low that I can deal with possibly not having a renter here and there. But many are not in that situation.
For instance, my now husband, who bought a house thinking he would be somewhere for at least 4 years – ended up there for only 2 – and the mortgage is $1200 a month. Without the renters, we can’t afford to pay our rent here – $800.
My overall advice (if you have read this far) is that if you don’t have enough $$$ to cover the mortgage payments PLUS rent where you are on your own – then buying a house is way too risky.
loading....
Long time reader, first time poster (I think).
Just came to add mine to the list of people saying this article is way off base. J.D., I like your blog and your guest posts are usually fair, but I am wondering if you checked out this advice.
BAH is not enough to cover housing expenses off post for most members (especially young enlisted service members with children). This is true whether we are talking about renting or a mortgage. Most younger enlisted members are not going to have the great credit scores (yet) to get a decent rate.
The smart thing to do is live on post (if possible) early in your career and then worry about living off post as you gain rank and higher BAH rates. If you keep your same standard of living, eventually you will be able to make a little extra for saving.
loading....
Okay, some quick, very generalized, math here for military members considering buying a home the day they arrive at their new 3 year duty station:
Home value: $150,000
Down payment: 0
Interest rate: 5%
Monthly payment: $1,110
Loan duration: 15 years
Year 1: $13,320 Paid $7,450 Equity Built $2,000 Taxes and Insurance $4,500 Closing Costs
Year 2: $13,320 Paid $7,754 Equity Built $2,000 Taxes and Insurance
Year 3: $13,320 Paid $8,069 Equity Built $2,000 Taxes and Insurance
Total: $39,960 Paid $23,273 Equity Built $6,000 Taxes and Insurance $4,500 Closing Costs
Equity remaining after 3 years: $12,773
Divided over 36 months: #354.81 / month
So, if you buy a house for $150,000 and sell it for $150,000 after 3 years, you will walk away with $12,773 which came from your BAH, assuming you get over $1,110 a month from BAH. So $745/mo of your BAH goes to the bank and taxes, and $355/mo goes to you, assuming you can sell the house for exactly the same amount.
The variables here are:
- Down-payment will lower your interest monthly payments and interest paid, therefore increasing your equity return.
- Lower interest rates mean higher equity return.
- What’s your BAH?
- How much more did it cost you to maintain the home, instead of having a landlord cover it?
- Did you have to pay realtor or advertising fees to buy and/or sell?
If your BAH is over $1,110 a month, you can pocket that money. If its less, then it lowers the value of buying a home.
If your BAH is $1,110/mo and you can rent for $755/mo, then you’d make the same amount of money.
If you can sell your house for more than you purchased it for, you can earn more money.
If you can rent the home afterwards and at least may the mortgage payment + tax + insurance + maintenance costs, then you’ll continue to make money.
If you keep living in this home, obviously the government covered the full cost of your first 3 years of the loan.
This is a lot of information, and my general summary is that its not worth it to buy, if you are only going to be there 3 years. Just rent for less than your BAH and save that money. Much less risky.
loading....
Can you use your BAH towards Roth IRA so you can use that money towards down payment for first home?
loading....