Should I buy a house in Nova/DC area?

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samble
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Should I buy a house in Nova/DC area?

Post by samble » Mon Jun 10, 2019 5:38 pm

Hi everyone. Long-time reader, first-time poster.

I'm trying to decide if we should buy a house and could use some outside thinking/analysis.

Background:
I live in Northern Virginia (Fairfax) and work for the federal government. I'll be in this area for another three years and then will have the opportunity to go overseas for three years where we'll live rent free with minimal costs. After that, we might find another position overseas, or we will come back to DC for 2-3 years. NoVA is mostly home to use. We do not want to retire here, but we are tied to this area for my career when we aren't overseas.
I'm married, early 40s, no children. My wife works part-time and for family reasons we don't want her to work full-time right now. We are in the process of adopting a child but expect at least another 1-2 years before we are placed with a child. When we are placed, my wife would ideally be a stay at home mom.
Prior to taking my current position I always made north of $150k, but took a very large pay cut to accept this job. However, it's a dream job and we have excellent benefits including a pension. My salary will only increase as I have a promotion next year and again a few years later.


Finances
-Total household income is $120k: My salary is $90k and hers is $30k.
-Total savings is ~$580k: $230 taxable, $247 tax deferred, $102 Roth IRAs.
-We do not have any debt. Two vehicles, low-medium mileage, paid off.
-We carefully budget each month. We're frugal but not miserly.
-We save about $20,000 toward retirement each year (TSP, FERS, SIMPLE IRA, etc). We don't max our retirement anymore because of the salary cut but still manage to save $20k.
-Current rent is $2100 for a 2 bedroom condo and it's a steal for our area. Similar places in the neighborhood are renting for $2300. Our rent increases 5% each year and is due to increase in January.


Housing
With the increasing rents in the area, we're looking at buying a house. Neither of us have ever owned a home so we're trying to figure out whether we should buy or continue to rent for three years (and then again when we come back to DC). I don't want our mortgage to exceed our rent, so we'd probably be looking at financing $350k. I believe that puts us in the $400-450k price range depending on our down payment. The only decent options we see are in Sterling and Herndon areas, which would be ok. Sterling is the furthest I could go and still maintain a sane commute to the city.

Given what I've provided above, does it make sense to buy? We have a little one on the way with the adoption, but have no idea when it will happen (could be tomorrow, or could be two years). A townhouse would be nice at our age and with our situation (we spend so much on rent). All of our savings up to this point have come from doing it the hard way - dollar by dollar (no inheritance, real estate, etc.). It pains me to take $100k from our taxable, pay the taxes, and then put down $80k+ on a house. Our credit union will give a loan with less than 20% down and no PMI but I'm not sure if that's wise. On the positive side, we save a ton while overseas and can replenish a decent savings or put that money into paying down the house.

One final note, if we buy a house/townhome this summer, we have a family friend who will rent a room for $600. Ideally, it would be a basement renter situation. I don't want to count on that money in our budget, but it would be there for at least the first year and could go directly into a housing fund or paying down the loan.

Thanks for the advice.

randomguy
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Re: Should I buy a house in Nova/DC area?

Post by randomguy » Mon Jun 10, 2019 6:08 pm

I wouldn't buy a house for 3 years. If you keep it as a rental, you are going to have to hire a property management company and I expect you would barely be break even at best. Sell it and transaction costs will kill you.

I am not sure exactly where you are working (DC or fairfax) but the commute from sterling/herndon to either can be pretty brutal if you ever need to go during prime time where you are talking an hour to go 10 miles. And some roads are sort of unafforable (i.e 66 into the city is like 40+ bucks during rush hours). And if you want to live out there, you should price out what rentals are like in that area. You don't want to compare fairfax rental prices to sterling house prices. Keep it apples to apples. I would also be a bit concerned that where you want to live will change a lot in 7 when hopefully jr wants hits the school system. I would put off this choices until time made the options clearer. And I understand how it is hard since most of the math shows buying to be slightly cheaper than renting in most of those areas. And the risk of when you come back that 500k house is now a 600k one.

The plus of buying now is you might find it hard to qualify for the mortgage in the future when the wife isn't working and your income is only 90k.

peseta
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Re: Should I buy a house in Nova/DC area?

Post by peseta » Mon Jun 10, 2019 8:55 pm

Sterling or Herndon may be marginally do-able if you are buying near one of the new Silver Line stations due to open next year. I’m assuming from your post that you would be getting off metro near Foggy Bottom. Long commute but there are others in DC far worse. If you have to drive, though, Herndon or Sterling are too far.

It also looks like your financial numbers work, but others on this board may have better insight into that. This also assumes you keep your house when you go overseas and can rent it out. If you have to sell in 3 years, buying a house is not advisable.

This poster’s situation is different than most in that he will live overseas rent-free. So, assuming he rents DC house out, even if the money from the incoming rent doesn’t quite cover the mortgage, it’s not the end of the world as he’s still far ahead.

Also check the schools. Sterling is in Loudoun County, not Fairfax. Don't go too crazy over the Great Schools ranking, though.

peseta

KlangFool
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Re: Should I buy a house in Nova/DC area?

Post by KlangFool » Mon Jun 10, 2019 9:05 pm

OP,

1) Why do you choose to commute to DC?

For example, you could live in Leesburg and take the express commuter bus to DC.

https://www.loudoun.gov/221/Commuter-Bus

2) Do not buy a house if you are only going to stay for 3 years.

KlangFool

donaldfair71
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Re: Should I buy a house in Nova/DC area?

Post by donaldfair71 » Mon Jun 10, 2019 9:06 pm

Haymarket/Gainesville will get you more bang for the buck. Though I don't know how thrilled you'd be with that bus ride/drive.

stan1
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Re: Should I buy a house in Nova/DC area?

Post by stan1 » Mon Jun 10, 2019 9:34 pm

There are plenty of people who work for military, law enforcement, state department, IMF, World Bank, etc. who have set up a home base in the DC suburbs. They live in their home when they are assigned to DC and rent it out, sometimes to co-workers, when they are assigned overseas or in the field. I think that can be a viable strategy if you want to do that on either side: as the property owner or as someone who rents a co-workers house when they are assigned away from DC. Proximity to express busses can help but routes can change and you can be assigned to a different building that's not convenient to bus lines. Metro stations aren't going to move but its going to be a long haul from Dulles into DC proper.

randomguy
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Re: Should I buy a house in Nova/DC area?

Post by randomguy » Mon Jun 10, 2019 10:47 pm

peseta wrote:
Mon Jun 10, 2019 8:55 pm

This poster’s situation is different than most in that he will live overseas rent-free. So, assuming he rents DC house out, even if the money from the incoming rent doesn’t quite cover the mortgage, it’s not the end of the world as he’s still far ahead.

Also check the schools. Sterling is in Loudoun County, not Fairfax. Don't go too crazy over the Great Schools ranking, though.

peseta
How is that ahead? How is having to spend money to support a rental better than being able to save that money for future uses? If you aren't cash flow positive you are banking on appreciation to make your investment work out. Free rent is just more compensation.

bhsince87
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Re: Should I buy a house in Nova/DC area?

Post by bhsince87 » Mon Jun 10, 2019 11:03 pm

I can't think of how this could possibly be a good idea. Not financially, and certainly not from an emotional or stress standpoint.

Do you really want to be worried about a property when you are thousands of miles away?

And your desires now will probably be different than in 6 years from now.

I'd wait until you come back from your overseas adventure before considering buying a semi-permanent home.
Retirement: When you reach a point where you have enough. Or when you've had enough.

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grabiner
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Re: Should I buy a house in Nova/DC area?

Post by grabiner » Mon Jun 10, 2019 11:39 pm

If you take an overseas position, will the PCS benefits cover the expenses of selling your home? If so, that eliminates one of the main reasons to avoid buying a home for a short period. Renting out your home from overseas is probably not a good deal; selling and then buying a new home when you return (again with benefits) is probably better.

But I still wouldn't recommend it with less than 20% down. If your home declines in value, you may be underwater, and I don't know whether you will be allowed to go overseas and sell your home short.
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cfaboy
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Re: Should I buy a house in Nova/DC area?

Post by cfaboy » Tue Jun 11, 2019 4:03 am

Totally disagree. Don't get fixated on the temporary aspect, i.e. that you will be in DC area now for just a few years. As mentioned, plenty of people (Foreign Service, military) rent out their houses while they are overseas and do just fine. In fact, I have known some government employees who bought a house each time they came back from overseas to DC: needless to say, they have done quite well over the years. Someone gave me this advice as a young man... wish I had followed it.

peseta
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Re: Should I buy a house in Nova/DC area?

Post by peseta » Tue Jun 11, 2019 6:17 am

randomguy wrote:
Mon Jun 10, 2019 10:47 pm
peseta wrote:
Mon Jun 10, 2019 8:55 pm

This poster’s situation is different than most in that he will live overseas rent-free. So, assuming he rents DC house out, even if the money from the incoming rent doesn’t quite cover the mortgage, it’s not the end of the world as he’s still far ahead.

Also check the schools. Sterling is in Loudoun County, not Fairfax. Don't go too crazy over the Great Schools ranking, though.

peseta
How is that ahead? How is having to spend money to support a rental better than being able to save that money for future uses? If you aren't cash flow positive you are banking on appreciation to make your investment work out. Free rent is just more compensation.
C'mon, I didn't mean literally ahead, which should have been obvious from the context. I meant ahead of almost anyone else who rents out their house. Who else gets to live rent-free and maintain their income while doing so?

Sometimes we get questions on this board where the "standard advice" may not be a good fit. A life as a Foreign Service officer or the like is one of them. It's a career of three-year overseas stints followed by a return home *to the same location and office*.

This is a lifestyle decision as much as it is an investment/personal finance one. Being in something like the Foreign Service is tough. There is a big non-tangible benefit to having somewhere to call "home" so that you are not a perpetual nomad. That's why most folks in the OP's apparent line of work buy homes stateside. BTW, if the OP is in the Foreign Service, he will have a very generous pension and will have to worry about saving far less than most on this board.

It's also why the math is not as bad as some suggest. There are significant transaction costs to finding new housing every time you return stateside. Not to mention the complete lack of stability for kids.

Money isn't everything sometimes.

peseta

ponyboy
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Re: Should I buy a house in Nova/DC area?

Post by ponyboy » Tue Jun 11, 2019 6:18 am

No way would I buy a home in that area for 3 years. Your best bet is to rent a place for that amount of time. YOu can find plenty of 1 bedroom rentals for sub $2k that are nice in the courthouse area. That way, you're already on the red line and only have two stops to foggy...rossyln then foggy.

One of the happiest times of my life was moving out of the DC area. I dont miss that place one single bit. Correction...I did like the fact that we lived directly up the hill from Iwo Jima...could walk down to the cemetery and walk over the bridge to the lincoln. I always liked that walk.

SamB
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Re: Should I buy a house in Nova/DC area?

Post by SamB » Tue Jun 11, 2019 6:57 am

I have lived in Reston since 1986. We built a house there. The Washington DC area is boom and bust, and prior to Reston I owned a row house in Alexandria ( Arlandria area). That was in 1978. Herndon is nice, but three years is a very short period of time. Just to give you an example, a four bedroom colonial on my street sold for $800K just before the 2008 bust. It sells for about $750K now. My home was built for $192K in '86 and might sell for $765K today. It sounds ok, but I have put far more into the house at this point than the initial cost, and as you can see, a real estate blowout can last for a decade and has done just that over the time I have lived in the Northern Virginia area. Also the busts can last for more than a decade. Sometimes the cycle length will exceed your lifetime. I have seen people refusing to accept financial reality, and place a home on the market for several years, and that was in Reston at the other end of my street. No matter what you think your house is only worth what somebody else is willing to pay for it. What you spent on remodeling the kitchen may be irrelevant, or what you paid for the house may be irrelevant.

Don't buy a house for the financial appreciation. It is a big hole into which you throw money and time. Also don't assume the market will always come back. I grew up in Detroit and people may be still waiting. Note that there were periods of excess capacity in the real-estate market in the DC-VA-MD area for long periods of time during the last 40 years. My advice is buying a house will be very risky for you financially, and three years is not nearly long enough.

Note that in my case the money that was thrown down the house hole, or the college funding hole, or even the cruises my wife and I take now all came out of the equity and bond market. And since you are on this forum I don't need to tell you how I did that. The money certainly did not come out of the house.

FreemanB
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Re: Should I buy a house in Nova/DC area?

Post by FreemanB » Tue Jun 11, 2019 7:48 am

I live in NOVA, and I have friends that have been in similar situations. While I know several who have purchased houses, then rented them out during overseas assignments, I don't think you are in the same situation. They had been living in their homes, usually with children, for several years, and already knew they wanted to return to the same home when they were done. You haven't reached that point yet, and you would be basically speculating on your future needs.

In your case, I wouldn't buy a house simply because you would be guessing what your needs would be 5+years from now. Others have covered the financial arguments, so I won't go into those. Aside from that, too many things can change between now and when you return to try to anticipate where and what size house you would like. You may never actually return, it could be years later than expected, or you could end up working in a different job or location within the DC area. Instead, use the time you are living rent free to save up a large down payment. That way, when the time comes to buy a home, where ever it may be, you'll be better able to afford it. Maybe buy a house with a much easier commute to DC than Sterling.

cherijoh
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Re: Should I buy a house in Nova/DC area?

Post by cherijoh » Tue Jun 11, 2019 8:35 am

FreemanB wrote:
Tue Jun 11, 2019 7:48 am
I live in NOVA, and I have friends that have been in similar situations. While I know several who have purchased houses, then rented them out during overseas assignments, I don't think you are in the same situation. They had been living in their homes, usually with children, for several years, and already knew they wanted to return to the same home when they were done. You haven't reached that point yet, and you would be basically speculating on your future needs.

In your case, I wouldn't buy a house simply because you would be guessing what your needs would be 5+years from now. Others have covered the financial arguments, so I won't go into those. Aside from that, too many things can change between now and when you return to try to anticipate where and what size house you would like. You may never actually return, it could be years later than expected, or you could end up working in a different job or location within the DC area. Instead, use the time you are living rent free to save up a large down payment. That way, when the time comes to buy a home, where ever it may be, you'll be better able to afford it. Maybe buy a house with a much easier commute to DC than Sterling.
+1 Good advice!

It seems to me that the primary motivators for wanting to buy a house are the increasing rents and FOMO (fear of missing out).

But then to find an "affordable" house they would need to move to a location with a bad commute for both of them. The simple (and less permanent) solution is to see if they could move and get a cheaper rent if their current rent really is busting the budget. Otherwise, OP should save a bunch of money while overseas that will give them more options to buy a house when they get back - one that they really want and which will suit their circumstances at the time.

THY4373
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Re: Should I buy a house in Nova/DC area?

Post by THY4373 » Tue Jun 11, 2019 8:41 am

I am guessing you are an FSO. My dad was an FSO and he put off buying a place in DC until he was mid-career (he started a lot earlier than you). He (we) also spent three years just before buying a house in DC posted to Soviet era Moscow. This was a hardship post which meant it paid a bonus out on salary and as might not come as a surprise to anybody there was literally almost nothing to spend you money on. My parents saved up enough to stretch to buying a house in Bethesda where they still live. I was born in DC and my parents rented in my early years. I lived overseas with my parents from age 3-13 before returning to the US and going to junior high school and high school there.

To address some of your questions:

1). I would only buy a place now if it actually made good financial sense to rent it. Google around for how to calculate the math on that. I doubt the numbers will work where you are looking but if they do I might consider buying a place.

2). You definition of sane commute is different from mine. Maybe if near silver line it might be otherwise heck no. Unless you have done that commute before I would probably rent a place out there and see how you like it before buying.

3). Are you really committed to living in Sterling or Herndon long term?

4). If you do rent out don't do any longer term leases. My father was recalled from his last posting to be promoted to a political appointee position at State after serving only 11 months on a three year rotation. Luckily they had only done month to month or a one year lease (I forget which) and we were able to move in the house they bought a year before.
Last edited by THY4373 on Tue Jun 11, 2019 11:32 am, edited 1 time in total.

Zecht
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Re: Should I buy a house in Nova/DC area?

Post by Zecht » Tue Jun 11, 2019 9:02 am

While everyone will tell you that buying for a 3 year kick is not a good plan, it really depends where, when, and what the terms are for your overseas assignment. You should look at the individual markets of interest and really consider your long term (5-10 year) plan. The metro area moves very quickly and you will notice that rents regularly go up by $175-300 per year like clockwork. It's even more in the most attractive areas near Arlington, Bethesda, and so forth; point being, at some point you are paying the equivalent of a $450,000 mortgage just for a 2-3 bedroom apartment in rent.

As far as the money goes, you really see a major difference in the regions of Fairfax, so with regards to the property taxes, homeowners insurance, HOA/condo fee schedules, and other similar options are very key points that you'll want to look into before pulling the trigger. Transaction costs on mortgages are higher than you expect, so be sure you are committed to the idea and all it entails.

The short version is that if you are committed to the NoVA area, you should really buy a house sooner rather than later, given the trajectory of rents vs. mortgages. However, this only makes sense if you are willing to hold it in a reasonable, growing area (Vienna, Reston, Alexandria, etc.) vs a stubbornly stagnant one (Woodbridge, Leesburg) for at least 5-10 years depending on how the market moves during that time. Holding for less than 5 years is a pure gamble.

TBillT
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Re: Should I buy a house in Nova/DC area?

Post by TBillT » Tue Jun 11, 2019 9:57 am

On the pro side, interest rates are low for mortgage.
On the con side, strikes me some of the road expansion projects in NoVA, the elected officials want to change the status quo, they want to give preference to long range commuters and reduce local access to highways, so in other words what seems like like a good location today may change.

Bottom line if you had clear vision where you wanted to settle and there was unique opportunity now, I might snatch it up now. I always liked the idea of being by a little water such as Burke Lake or Occoquan.

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Info_Hound
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Re: Should I buy a house in Nova/DC area?

Post by Info_Hound » Tue Jun 11, 2019 10:57 am

First rule of real estate is Location. The second rule is timing.

Having lived all but the last 7 years in the metro area I can speak from experience. The election cycle creates a buyers housing market when there is an election in which there is an administration change. It usually lasts for about a year after the election. This works in your favor (timing) as a window of opportunity when you return from overseas.

As to commuting long distances - don't. It is not only an expensive issue/cost but the time suck of being on the road every day for hours every day can not be over stated. One constant about mega commutes, they never get easier over time, only worse.

LIGuy82
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Re: Should I buy a house in Nova/DC area?

Post by LIGuy82 » Tue Jun 11, 2019 12:16 pm

I am in a similar situation, working for the Federal Government with long stints overseas. I bought a place in DC in anticipation of doing a tour at HQ, but ended up overseas. The renters pay my mortgage and then some; depreciation, condo fees, mortgage interest, and repairs (thankfully minimal) make for nice tax writeoffs. We are currently living rent-free in a very low cost of living city and are able to max out TSP, Roth IRAs, and HSA plus put a nice chunk into taxable every paycheck. We are looking into buying another rental in the DC area in the near future, with the long-term goal of it providing additional income in retirement on top of pension and special SS supplement.

Long story short, buying a home in the DC area given my mobile job was the best financial decision we ever made after committing to save to buy a place. Once it was bought, we retained the saving habits, avoided lifestyle creep, and look forward to an early and comfortable retirement. Best of luck in whatever decision you make. Feel free to DM me if you have specific questions.

protagonist
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Re: Should I buy a house in Nova/DC area?

Post by protagonist » Tue Jun 11, 2019 12:21 pm

samble wrote:
Mon Jun 10, 2019 5:38 pm
Hi everyone. Long-time reader, first-time poster.

I'm trying to decide if we should buy a house and could use some outside thinking/analysis.

Background:
I live in Northern Virginia (Fairfax) and work for the federal government. I'll be in this area for another three years and then will have the opportunity to go overseas for three years where we'll live rent free with minimal costs. After that, we might find another position overseas, or we will come back to DC for 2-3 years. NoVA is mostly home to use. We do not want to retire here, but we are tied to this area for my career when we aren't overseas.
I'm married, early 40s, no children. My wife works part-time and for family reasons we don't want her to work full-time right now. We are in the process of adopting a child but expect at least another 1-2 years before we are placed with a child. When we are placed, my wife would ideally be a stay at home mom.
Prior to taking my current position I always made north of $150k, but took a very large pay cut to accept this job. However, it's a dream job and we have excellent benefits including a pension. My salary will only increase as I have a promotion next year and again a few years later.


Finances
-Total household income is $120k: My salary is $90k and hers is $30k.
-Total savings is ~$580k: $230 taxable, $247 tax deferred, $102 Roth IRAs.
-We do not have any debt. Two vehicles, low-medium mileage, paid off.
-We carefully budget each month. We're frugal but not miserly.
-We save about $20,000 toward retirement each year (TSP, FERS, SIMPLE IRA, etc). We don't max our retirement anymore because of the salary cut but still manage to save $20k.
-Current rent is $2100 for a 2 bedroom condo and it's a steal for our area. Similar places in the neighborhood are renting for $2300. Our rent increases 5% each year and is due to increase in January.


Housing
With the increasing rents in the area, we're looking at buying a house. Neither of us have ever owned a home so we're trying to figure out whether we should buy or continue to rent for three years (and then again when we come back to DC). I don't want our mortgage to exceed our rent, so we'd probably be looking at financing $350k. I believe that puts us in the $400-450k price range depending on our down payment. The only decent options we see are in Sterling and Herndon areas, which would be ok. Sterling is the furthest I could go and still maintain a sane commute to the city.

Given what I've provided above, does it make sense to buy? We have a little one on the way with the adoption, but have no idea when it will happen (could be tomorrow, or could be two years). A townhouse would be nice at our age and with our situation (we spend so much on rent). All of our savings up to this point have come from doing it the hard way - dollar by dollar (no inheritance, real estate, etc.). It pains me to take $100k from our taxable, pay the taxes, and then put down $80k+ on a house. Our credit union will give a loan with less than 20% down and no PMI but I'm not sure if that's wise. On the positive side, we save a ton while overseas and can replenish a decent savings or put that money into paying down the house.

One final note, if we buy a house/townhome this summer, we have a family friend who will rent a room for $600. Ideally, it would be a basement renter situation. I don't want to count on that money in our budget, but it would be there for at least the first year and could go directly into a housing fund or paying down the loan.

Thanks for the advice.
Rent for awhile so that you get to know the area well. Then decide.

feehater
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Re: Should I buy a house in Nova/DC area?

Post by feehater » Tue Jun 11, 2019 1:12 pm

THY4373 wrote:
Tue Jun 11, 2019 8:41 am
4). If you do rent out don't do any longer term leases. My father was recalled from his last posting to be promoted to a political appointee position at State after serving only 11 months on a three year rotation. Luckily they had only done month to month or a one year lease (I forget which) and we were able to move in the house they bought a year before.
I had a friend who rented the house of a State Dept employee. The lease had a clause that if the employee was recalled, my friend had to move out with only a month or two's notice. Unfortunately for my friend, after the election this actually happened, and he had to find a new place to live only a few months after moving in.

AKsuited
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Re: Should I buy a house in Nova/DC area?

Post by AKsuited » Tue Jun 11, 2019 7:15 pm

I would say no to buying a house when you will be an expat. I am a current expat and rent my home in CA and I am debating whether to sell it or continue renting it. And I know I will definitely return back to CA when I'm done with my assignment where you aren't sure where you will settle afterwards. We've haven't hard a lot of issues and we have a good management company but stuff do pop up and you have to pay to fix it. You might like being an expat and sign up for longer than 3 years; lots of unknowns and things can change during this time.

If you are worried about losing out on housing gains; save the rent money and put the money in a CD/TIPS /SP500 and roll with it. You'll have less headaches and less worry than managing a house 1000s of miles away.

yeledbed
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Re: Should I buy a house in Nova/DC area?

Post by yeledbed » Tue Jun 11, 2019 8:00 pm

I'd say that if you plan to own long-term and are comfortable renting out your place from overseas, it might make sense to purchase. That said, why Sterling? Commuting to DC would be awful. Have you considered North Springfield, Annandale, or West Alexandria? Closer in, still affordable, will probably experience more appreciation from Amazon HQ2 than Sterling. Commuting to DC from North Springfield (Braddock Rd) is really easy via express buses to the Pentagon. (I live in North Springfield and love it!)

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