Real-Estate Investing in the Military

[Megadeth923]

I am new to this forum and am not sure if this is the correct thread.

I recently commissioned as an Officer in the Army this past May, and will begin my career late September. This past summer, I have read a ton of books and listened to hundreds of podcast about real-estate investing, and have grown extremely interested in the topic and would like to begin to invest in rental properties. I am hesitant to begin because I am just starting my career in the Army. I am wondering if any of you have any thoughts or experiences about real-estate investing while in the military?

Thank You for the responses!

[SwordGuy]

Rule #1:  Do not buy a house for yourself to live in with the idea of renting it out when you change postings.

Instead, buy a house to rent out and just happen to live in it before you move.

You buy a house to live in for yourself with one set of criteria.  You buy a house to rent out with a different set of criteria.  Don't confuse the two.

Rule #2:  Plan on using property management.   

Uncle Sam gets first call on your time and energy.   Don't shortchange your customers by providing substandard service because you're not available to deal with things.

Rule  #3: Make sure your state of residence does not have income tax.

I have no idea what that means if you own property in state that does have an income tax, though.   Make sure you find out before you buy. :)
(And let us know!)

Rule #4: If you are stationed someplace that gets lots of fairly short term temp assignments (perhaps a school), consider a room-share rental where multiple TDY folks each rent a room in the same facility.  Especially if there is a long term civilian in charge of helping newly transferred folks get lodging... ;)   

Rule #5:  All the other stuff you've learned.

[SwordGuy]

And if you get posted near Fayetteville, NC, send me a PM...

[NoNonsenseLandlord]

If you intend in staying in the army, focus on the army.  There will be many times you will not be able to focus on a rental due to Army assignments, and it may cause you to lose money.

If you really want a rental, when you get re-stationed, rent out your own home after you move.

[SwordGuy]

I got a private message asking why I advised against renting out a home after being stationed elsewhere.

I guess I wasn't clear, so I'll try again! :)

Here's where people go wrong.  They buy "a wonderful house for us to live in".  Because it's so "wonderful" they pay retail prices for it.  And they typically buy as much house as the bank will let them.

Then, when they try to rent it out, they are losing money from day one because they paid too much for the house compared to what it will rent for.

That's a recipe for disaster.

Rental property is a numbers game.   You buy a rental property because, after you factor in all the costs and what the expected rent will be, you can make money.   Otherwise, you wait until you find a property for which the numbers work.

Now, if you buy a house that would be a great rental at the price you paid for it, that's WONDERFUL.

That's a great way to make money.    But you have to buy a suitable rental property that you decide to live in.  You don't buy a great house to live in and then later hope it will rent for a profit.

Hope that makes it a bit clearer!

[Ensign1999]

I tend to agree with Swordguy: Houses you buy to live in tend to not become good rental properties.  If you are lucky, you can rent them out to cover your mortgage, but they will almost always break the 50% rule.

As with all things, it really depends on what you are asking though.  If you are asking about buying a place at a new duty station, living in, then renting it out after you transfer, then Swordguy's advise is pretty spot on.  If you are asking about just purchasing rental properties to be rental properties and how to go about it while on active duty, then the answer is a bit different and will depend on what your job is, working hours, are you located near your properties or across country?

My advise to a Officer just starting their career:
-Start maxing out your TSP Roth option first.  Put it in a lifecycle fund so it will automatically adjust automatically.  This might put a dent in your take home pay, but it will jump start your road to FI.  TSP has one of the lowest expense ratios (better than Vanguard I believe).
-If are from a state with no income tax great.  If you are not and get stationed in one, become a resident of that state.  Most Naval Aviators are Florida residents for this reason.
-If it looks like you are going to be stationed in one location long enough to justify buying a house vs renting, then keep a keen eye on the houses rent-ability if the market changes and you are not in a position to sell it when you transfer.
-Live close to base if you can.  Commuting sucks up your limited time with your family and costs too much.
-If you are single, and buy a place, rent out the rooms to other single Os in your unit.  At one point we had four pilots and two Philippino ladies living in a place I owned.  It was like a frat house with a couple of house Moms that could make cook some great food.
-If you are married, buy/rent a place that your wife likes and works with her lifestyle.  You are not going to be there enough to have your opinion mater much.
-If you do end up with rental properties scattered all over, get a good CPA to do your taxes as you will end up needing to file in each state you own a property unless that state does not have income tax.  My wife and I are residents of different states, we live in a third, have rental properties in two others.  Unless you are very comfortable with this type of situation then it will pay dividends to create a relationship with a CPA early or as soon as it looks like things might get complicated.

I ended up keeping two of the four houses I've owned while being active.  One was a good rental investment and one I was not in a position to sell.  I might have done better with the one I consider a good investment had I sold invested the small profit I would have gained at the time.  Here in a couple of years they will both be paid off and have pretty solid cash flow.  The cash flow will be nice boost to my FI, and we kept properties in areas of the country we wouldn't mind living in again so we might go back.

PM me if you have any questions.

[thedayisbrave]

Agreed with all the above.

Check out The Reluctant Landlord blog.  Military wife who I believe is up to 8 investment properties.  www.reluctantlandlord.net

[Regular Guy]

I have a buddy who is on house #5, 4 of them rented out and currently living in the 5th.  He has bought a house at each duty station that he has been at and it has worked out for him for the most part.  He lives frugally with his wife and child and maintains a healthy cash reserve with issues.

I bought a house at my 4th duty station and was PCS'ed less than 2 years later.  My first renters were great, my second not so much.  After about $10k in rehab to get the house back in shape due to the last renters, I am definitely soured on renting out houses.  Luckily my family is back in that house while I am serving in Afghanistan and I will be PCS'ing to that duty station so I can hopefully live there 4 years or so and then sell it.  After that, I don't plan on purchasing another house until I finally retire.

[Nords]

I am new to this forum and am not sure if this is the correct thread.

I recently commissioned as an Officer in the Army this past May, and will begin my career late September. This past summer, I have read a ton of books and listened to hundreds of podcast about real-estate investing, and have grown extremely interested in the topic and would like to begin to invest in rental properties. I am hesitant to begin because I am just starting my career in the Army. I am wondering if any of you have any thoughts or experiences about real-estate investing while in the military?

Thank You for the responses!

Welcome, Megadeth!  It's nice to see a poster who appreciates the classics...

Before you buy your first rental property, make sure you contribute as much as you can to your Roth TSP and your Roth IRA.  You'll pay very little tax in your rank/income-tax bracket, and a high-equity asset allocation will grow faster than inflation.

I hope your reading includes Bigger Pockets and Paula Pant's "Afford Anything" real estate posts.

You'll make your real estate profits from two sources:
1.  Buying at a discount.  If it's not at a discount, don't buy it.
2.  Cash flow from rent paid by well-screened tenants.  It's much more important to focus on the quality of the tenants than it is on the amount of the rent.

Notice that I did not include property appreciation in that list of profit sources.

[EZcurrency]

Megadeath,

Here is what I did ... when I started Active Duty (2003), I knew I was going to be stationed there (Charleston, SC) for 4 years, so right away got my Realtor's license.  That way I could (1) look at properties after work on my own and had MLS access, (2) get a 3% commission when I bought, and (3) be a Realtor for friends at work.

Years ago in 2003, I made a long term plan to accumulate RE, and retire in 2021.  My prior Reserve time points added up to about 2 years towards retirement, so 18 left.

So after I got the RE lisc., I went to work for Prudential part time and started looking for the most run down houses in good school districts / nice areas.  I computed avg sales price/sq. ft, looked at historical appreciation, etc.  Within a few months we bought a home (using VA loan), and moved in.  We fixed it up and saved up money ... about 1 year later put 10% down and bought house #2 and fixed it up then rented out.  We then took equity out of house #2, and about 6 months later bought house #3.  Rinse/repeat (fix up, take out equity), and bought house #4.  So its about time to PCS, so we sold house #1 (it appreciated nicely, and I wanted to free up VA loan), and paid off most of the equity loans on the others.

We moved to Phoenix, AZ and rented for a few month, and looked (through a Realtor, not with my license) and found a 2 bd / 1 ba with room to expand on the lot.  We got permits from the city to expand it to a 3 bd / 2 ba, and subcontracted out the work.  It was about $30k to add the room and bathroom.   Once city approved it all, we took out the door connecting the two and drywalled over it ... so now its is a duplex  We lived in the 2 bd / 1 ba, and rented out the 1/1 in back.  This helped out for the mortgage.

Now a few more years, and its time to PCS again.  We move to Monterey, CA in 2010, and rented (market was crashing at this time, but Monterey is still expensive).  Hindsight I should have bought there ... but didn't.  Anyway, I kept in touch with the realtor in Phoenix, and a great deal came up on a short sale.  It was a 1800 sq ft 3/2 in a nice area and good school district, and the guy owed 220k on it.  The realtor suggested putting in a bid for $60k ... I thought bank would never take it ... but we put in the offer and they did!  We ended up taking out cash advances from credit cards ($50k), and $10k savings to buy it.  Banks wouldn't not loan, since I had 4 mortgages already.  That was 2011, and we have the same renter, and house is now $260k according to Zillow!  So that's house #5

After Monterey, we moved to San Diego (again rented for 3 years).   In 2015, we PCS'ed to Hawaii, rented for 1 year on military housing.  After loving Hawaii and the lifestyle and weather here, we made the decision to retire here (still 5 more years left).   We got a realtor, used the VA loan (high limit in Hawaii), and bought a 5 bd / 3 ba  house in a really nice town and good school district (H.S. is best in the State).  That was August 1st.  House is set up as multi family, so 3/2 in front and 2/1 in back with separate kitchen, laundry, and entrance. 

Once we moved in, we put up drywall between the two units where the door was, and rented out the back.  We put for rent on a military site, and had 1500 views in a week!  We had several people apply so had our choice ... and choose a dual military couple with a small baby. They pay $2100, which is about half the mortgage.

5 Year Plan is to payoff the 5 rentals (once one is paid off, snowball and roll that into the next one), and retire here.  If we have to move (2 more years left on these orders), we will rent on the part of the house we live in now for 3 years, then move back here ... but hopefully can get follow on orders here in Hawaii.

From my calculations, in 5 years 5/6 houses are paid off, and I have $10,500 residual monthly income between rentals and O4 retirement, with a $4300 mortgage.  That leaves $6k monthly for living, which is enough.

So my advice to you as a young Second LT ... think strategically and have a long term plan in place.   Stick to it and you will get to where you want to go.

One more thing ... I prefer RE to the stock market as investments.  You get tax benefits, such as depreciation, writeoffs of taxes, insurance, interest, repairs, travel to properties, etc.  Tax benefits for me are about $500 or more every month.    Stock market does not have tax benefits like this.  ;-)

Regards,
EZ

[Travis]

I am new to this forum and am not sure if this is the correct thread.

I recently commissioned as an Officer in the Army this past May, and will begin my career late September. This past summer, I have read a ton of books and listened to hundreds of podcast about real-estate investing, and have grown extremely interested in the topic and would like to begin to invest in rental properties. I am hesitant to begin because I am just starting my career in the Army. I am wondering if any of you have any thoughts or experiences about real-estate investing while in the military?

Thank You for the responses!

I'm not into real estate yet due to my high OPTEMPO the last few years, but it looks like folks here got the important stuff covered.  The one piece of advice I will offer is: make sure you can afford it.  I don't know anything about you, but nearly every O-1 I've ever come across in my career was young 20s, fresh out of college and finally on their own.  Saving money was the furthest from their minds.  Start your saving/investment habits NOW and make sure you have the cash flow to be successful in real estate.  Last summer I spent a week with some friends on their couch. Both are Majors. They had expensive tastes, had no idea where their investments were, and no idea where their cash went every month, but toyed with getting into real estate because that's what the rest of their fellow field grades were doing.  Don't be them.  This mindset can develop in the military because of our highly predictable salaried careers.  Real estate requires a ton of homework and discipline (especially your personal finances) to do it right or you may find yourself on the hook for expenses you didn't budget for.