Ask Money

Heading to the Big Easy

Chris Farrell Jan 19, 2011

Question: Tess and Co. First, I really enjoy listening to you and all of the APM shows. You do such a great job! The style is so uniform but unique to the individual I am amazed! My question, my family and I are moving to the Big Easy! I am in the Navy and we will be there for three years. We are considering buying a home but unsure because of the economy and while New Orleans is doing better it is not growing. We don’t think we will be settling in New Orleans. Would like your thoughts? Cheers Josh, Williamsburg, VA

Answer: It has been years since I have been to New Orleans, well before the tragedy of hurricane Katrina. But I have many fond memories of food, music, and long walks through fascinating neighborhoods from my visits. My Dad was in the Navy (and then merchant shipping) and we moved every two to three years, but we never stationed in New Orleans.

My concern is that time isn’t on your side for buying. The longer you intend to stay in a home the better the financial advantages of ownership.

The old rule of thumb was that if you plan on owning for three years or less renting was always preferable. The costs of buying and the risks of selling were simply too great with such a short time frame. Well, the new rule of thumb is that ownership doesn’t make sense unless you’re confident your time horizon is at least 5 years, and preferably longer.

To be sure, my 5-year rule of thumb is a national guideline. When it comes to judging a particular real estate purchase location does matter. Still, I think the risks are too great.

The way the housing market has evolved you can have many of the same amenities of homeownership as a renter, from a nice kitchen to a good community. Renting often makes financial sense even if the buy vs. rent numbers are close. The key from a financial perspective is to set up an automatic savings program that builds up savings over the years rather than home equity. You can always take that savings and buy when you settle down in a community.

Go Navy!

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