First thoughts for a May '23 soon to be Aviation Ensign purchasing a duplex in Pensacola FL? DS and his commissioning class are quite caffeinated after getting mentorship guidance to buy vs rent and build equity/ rent out both halves after training to build equity via a mostly passive revenue stream for the years ahead. Any recommendations on this model (has it worked for you/ are you planning on the same, even in a current approx. 7% borrower interest rate market)? Duplex vs condo or house? Any specific Pensacola neighborhoods if known, or general guidance on renting vs buying as a new officer? All feedback welcome. Thanks.
There are many who manage to successfully buy a strategically-located rental property and rent it out over their careers, but much proactive strategizing and clear-eyed financial assessment is involved.
- While they are stationed 3 time zones away or deployed, it will be very difficult to be the on-call landlord to get things fixed, show the property, do due diligence on renters, assess damage, chase after renters, check property after move-outs, etc. Factor in a property management cost. Everyone I know who did the rental property thing eventually resorted to hiring a property manager, worth the money.
- Did they take the USAA or NFCU loan career starter loan? Have any other loans that may impact ability to qualify for a mortgage, even the VA mortgage?
- I THINK you can only have 1 VA mortgage at a time. Think though a scenario where the rental property owner might be out of the military, ready to buy a house with spouse with kid on way, and find themselves dealing with ramifications of past choices.
- How is the historic re-sale market for these types of properties if they find themselves having to sell?
- Get an estimate on homeowners’ insurance, the kind rental property owners need to carry. In a PML (probable maximum loss) state like hurricane-bedeviled FL, this is a major factor to consider. Many years ago, USAA stopped insuring rental properties there, only insuring the primary residence of the AD member in FL these days (some retirees are grandfathered). This is a major budget element. Related: Is the property up to code on hurricane damage prevention requirements?
- Run a trial budget. If anything about the budget involves stopping or decreasing long-haul retirement growth money being smartly tucked away in IRA and TSP or similar, re-assess. If it means not keeping a sufficient emergency fund, re-assess. If it means living too close to the bone on a monthly basis re-assess when it comes to needs, and to a lesser extent wants.
- The trial budget should also address what kind of emergency cash reserves need to be set aside to compensate for up to X months of vacancy, to make the mortgage payment. What are the historical vacancy rates for the property and others in the area? Now, if the Bank of Mom & Dad is the private mortgage lender, that’s different.
- if the member separates and is using the GI Bill for a full-time graduate degree, will there be cash flow to cover both rental property and own lodging needs?
Full-360 degree analysis is recommended, plus projections into the future what-if scenarios.
We had a sponsor daughter go Marine ground out of USNA, PCS to Jacksonville, NC. Bought a small house using VA loan not far from base in a neighborhood where many military families rented. Did a lot of DIY with her dad on the house, choosing quality, well-warrantied fixtures, etc,. Thought things through. After she PCS’ed 3 years later, she used a local real estate firm owned by a USNA grad as her property manager. She made several deployments to Iraq and Afghanistan, and said she had other things on her mind than responding to a renter about a leaking toilet tank, and happily forked over a portion of the rental stream. In between tenants, she “hired” her dad to come over and supervise projects such as a new deck, or other improvements she could deduct as a non-resident owner. After 14 years, she sold it at a good time, making a tidy profit, allowing her and her spouse to buy a nice house for their growing family in the place they chose after departing the Marine Corps.
Paging one of our resident fiduciaries,
@AROTC-dad