Buying Pensacola duplex after commissioning? Recommended?

Herman_Snerd

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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.
 
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
 
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My oldest son has just purchased his 5th house. The other 4 are at previous duty stations in Texas, Arizona, Florida, and New Mexico. He rents them all out and has been able to pay off two of them and coming close to it on the third one. He has property managers for all of them and they take 9-14% of the rent for full-service management (minor maintenance issues, tenant phone calls, showing and renting during vacancies). He only purchases mid-range newer family friendly houses near base with a targeted rental clientele of O-3/E-5/6 BAH. He has done very well with this model. His tenants stay 2.5-3 years so his turnover is low and predictable. He was blessed with great timing after the 2008 housing crash, so that has helped. Your mileage may vary.

Stealth_81
 
Have your son research both sides of whether or not to buy vs. rent. My daughter weighed whether she wanted to be a passive investor and shove money into index funds or buy a house and make it a rental thus being an active investor where she'd have to do a lot of research and be involved in the investment. She chose the passive route. People on both sides atill make a very good nest egg, and there are arguments and investment temperaments on both sides - but that 7% interest rate would scare me. Here's an article by a very good personal finance columnist about renting v.s buying:

https://www.washingtonpost.com/business/2022/07/13/five-reasons-to-wait-to-buy-a-home/

In the end, tell your son just to stay out of debt and pack away as much as possible in savings and investments. :)
 
My oldest son has just purchased his 5th house. The other 4 are at previous duty stations in Texas, Arizona, Florida, and New Mexico. He rents them all out and has been able to pay off two of them and coming close to it on the third one. He has property managers for all of them and they take 9-14% of the rent for full-service management (minor maintenance issues, tenant phone calls, showing and renting during vacancies). He only purchases mid-range newer family friendly houses near base with a targeted rental clientele of O-3/E-5/6 BAH. He has done very well with this model. His tenants stay 2.5-3 years so his turnover is low and predictable. He was blessed with great timing after the 2008 housing crash, so that has helped. Your mileage may vary.

Stealth_81
That’s the way to do it. Property managers know the laws and requirements, especially about how to get rid of a bad tenant.
 
DW and I did the rental property thing for several years. It was a pain being in different time zones from the property as we were totally reliant on the property management company and they were underwhelming. Things they said were done, such as changing A/C filters twice a year, we’re not done which would result in major repairs… paid by us.
My brother had rental properties and had the same issues, but worse. He had several tenants who had to be evicted for not paying rent. Unfortunately, those properties were in areas that favored the tenant and my brother was forced to pay for mortgages while not get rental income. Not great on a JO’s pay. Then he had to shell out money for repairs as the tenants stripped the houses before they vacated.
I imagine Florida and Pensacola property laws are better, but check before investing.
 
Depends on their financial situation. Can they pay for major repairs or 6-12 months without paying renters in a down market? If not, it's higher risk.

For most JOs, in most markets, I'd probably wait until a second assignment (build up reserves first). Now, if you KNOW the local market is very good and can find a deal...maybe.
 
Definitely Buy and start investing, not the best market right now but better than throwing your money away renting. I regret not supporting my DH idea of buying sooner, we would have built much more real estate investment by now. You can always sell if the rental does not work out for you but you had already built up equity.

You can have more than 1 VA loan at a time, we go by the 2nd tier and as long as there's entitlement left you can buy another house with VA financing. We moved 2 years after buying our 1st house, the equity paid half of the mortgage for the second one because it was a good market. You start building equity now and then generate additional income.

Short term rentals are a huge success right now, you can get 3 times your mortgage in 1 month and have a place to go if you ever go back. We keep our properties in long term rentals under property management, never had a problem, money is always coming in and we do not have to worry about them. In the past 18 years we only had 1 major investment due to switching from swamp coolers to refrigeration air. DM if you have any questions, I may be able to assist.
 
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There is a LOT more pain ahead in the debt and equity markets …. Also, you can be a “Risk-Off Slum Lord” and buy something like a corporate property ETF like Simon Property Group (SPG) paying +7% dividends … but don’t buy until the market fully capitulates … there is more pain ahead.

Fed's Bullard says rate hikes have had only limited effects' on inflation so far … he sees the Fed funds rate possibly hitting 7% … and staying there longer …. The Fed still has 1 or 2 more phases left in the job of reigning in long duration debt and equity valuations.

Right now … it’s best to be as short duration and risk free as possible on all of your investment exposure … think “Prime Money” paying 4% today and soon headed to 5+ % … and possibly headed for 7% or more as the Fed’s Bullard suggests ….

Here is my recommendation before and when the market bottoms sometime early to mid 2023 …

— Have as much Dry powder as possible right now in Prime Money market …. Rates very depending on how much Dry powder you have …. Right now, Fidelity is paying 3.75 no minimum … 4.00 and 4.05 with minimums of $1M and $10M respectively … the No minimum of 3.75 is not bad … and the rate of climb will be just as fast as the other MM funds over the next year

— When the Market bottoms sometime early to mid next year 2023 … take 1/2 of your dry powder and buy an indexed ETF … if you want to be real aggressive … put 1/2 in the SOXX semiconductor ETF and leave it there …. Long Duration bond ETFs (IG corp and Tbonds) will do very well soon …. You can do a large portion there in the LD bond ETFs … some in SOXX and some in QQQ …

… then go buy one of these rolling houses pictured below … you will need a place to crash while you let your investments grow for the next 30 years …

74C9DC7E-1AC0-4D24-A2C7-B7EE35DBB3DB.jpeg
 
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Good thread, I wonder if it is worth it to buy a house for my kid if he gets stationed somewhere for several years. I just got rid of a few rentals in NYC from my family and the freedom is great to not have to deal with issues.
 
Good thread, I wonder if it is worth it to buy a house for my kid if he gets stationed somewhere for several years. I just got rid of a few rentals in NYC from my family and the freedom is great to not have to deal with issues.
“stationed somewhere for several years” - not likely. For Navy and Marines, it’s a general rotation between operational tours (sea duty for some) and non-operational tours, 2-3 years at s time, depends on the assignment. Sometimes, it works out you are assigned to a ship in a homeport and then roll into shore duty in the same homeport, but you usually don’t have hard orders or are fairly certain you know where you are going until about the 6-month point from detaching from current command. I can’t tell you how many times I drove back and forth between coasts from one Navy assignment to another. In 26 years, 11 permanent change of station moves.

That said, as people get more senior and DC duty becomes more predictable and common, many buy a home with a decent commute to the Pentagon or other DC-area assignments, live in it when back “in town” for DC assignments, and rent it out to other officers coming in for duty when heading out again on another assignment.

As discussed here, for some it is a good choice to buy a strategically located property for rental purposes.

Another friend of mine had her first tour in Hawai’i, scraped together the money and lived close to the bone to rent and then buy a condo a block from the beach in Kailua. Hung onto it and rented it out for 30 years, was never stationed there again, but retired from the Navy and went there to live. Her condo is her nest egg when it’s time to seek senior living arrangements. For military retirees, Hawai’i does not tax military retirement pay, there are military exchange, commissaries and gas stations with no tax and much lower prices, TRICARE Prime healthcare, plenty of great military MWR beaches, cottages, etc.
 
My buddy bought a house in Annapolis when he was stationed in the area.
Everything was fine until he was reassigned to Italy in 2008. The housing market collapsed and he couldn't sell his house for what he owed.

He ended up doing a short-sale which destroyed his credit.

The Navy didn't care. They said that is why we give you a housing allowance so you can rent.
 
Why would the navy care ? If you buy a stock and it goes down would anyone care other than you ? It’s an investment. If you don’t want any risk buy treasury bonds.
 
I don't remember the exact circumstances.

The economy collapsed and he didn't want to be a landlord thousands of miles away. He probably couldn't get enough rent to pay his mortgage either. He bought the house towards the top of the market.

It all worked out in the end. He retired as an O-6 with good credit.
 
Why would the navy care ? If you buy a stock and it goes down would anyone care other than you ? It’s an investment. If you don’t want any risk buy treasury bonds.
The difference is that a stock is a liquid asset, a house is not. There are many reasons a person may not be able to keep a house as an investment. If the rent they can take in does not come close to interest and other expenses they may be able to sit on it.
Also, as a home owner you are an active investor subject to paying any costs associated with owning the house. Mutual funds don’t normally come to you and say “You need to replace the heater. That will be $7000.”
Treasury bonds carry risk as well. Yes, the principal may be “guaranteed”, but that does not mean treasury bonds do not have inflationary risks, interest risks, and opportunity costs. Anyone who purchased low yield treasury bonds is currently taking a beating. If your yield is 1% but inflation is 9%+ you’re losing money, On the flip side, those who borrowed at very low interest rates is probably doing well. Pay off the loans as slowly as possible.
 
Your correct. Investments have all kinds of variable risk unique to each. Your mutual may not make a demand for additional funds however if you purchased a stock on margin you run the risk of a margin call.
The ultimate return on any investment you may make is yours alone, be it positive or negative.
My point is it’s not the navy’s problem, nor should it be.
 
I would say it's up to the individual what they want to do. There will be many "unfun" events and tenants so your child needs to really want to do it. I would pick landlord friendly states, I would be careful about STRs as the local city councils or Hoa's can pass ordinances with very little notice. We owned rental properties as young marrieds and I thought it was good for the kids to see us doing chores at the behest of our tenants. That being said our parents really weren't fans. (Kids' grandparents) for different reasons. My parents didn't like it cause they thought it was a waste of precious time, and perhaps too blue collar for them, my In-laws preferred "clean investments" like stocks and bonds. My FIL said , "you only buy one house" the one you live in.. Back then we could use accelerated depreciation, tax laws aren't as helpful now as years past.

My daughter now has 4 rental houses, including one they aim to retire to, which is in six years.. They bought when they were in an area that was probably undervalued at the time. So they are making money even without using the depreciation. She once made a neighborhood friend who was getting her PhD in Economics. Her friend showed her how to convert her garage to an apt and rent it out on Air Bnb. My daughter was able to learn enough how to manage so she could make her mortgage just on renting out part of her house.. Especially when her husband was deployed , it gave her company.. ( they didn't have a garage) She doesn't have that house anymore but it gave her valuable business experience . I would also say they are amazingly amenable to our help and advice all of a sudden! I tell them I won't be around forever and to learn from my experience, and Im willing to share.!

I've gone out to help with painting, cleaning, yardwork as they needed it. There are some advantages to Real Estate as investment you don't get with securities like ability to do 1031 exchanges. Putting your properties in an LLC so you can gift the allowed amount in % of the property each year to your children. My military daughter has the interest, her husband has been surprisingly supportive. His family is a little taken aback by her ambition. My grandmother bought a small motel in the 50s after her kids were grown, to get off the farm and into town. I think the ambition is a family drive, who knows.

My software developer daughter isnt all that interested, she bought her house, got a good rate on the loan, is happy in her neighborhood and thats good enough for her. Shes happy to be in more of a quiet residential , not multifamily area, thats just about all she's interested in as far as real estate investment. She would prefer securities..

I have a rental house in an area where housing is tight. I have tenants who are essential workers and I'd prefer that to running STRs.
 
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