With the regular moves that are an unavoidable part of military life, there is much discussion about whether military families should rent or buy a home. Real estate investments can be a viable way to supplement your income while in the military and long after you retire. Buying a house, on the other hand, is not without danger. Finally, it is a personal decision, and the following questions will help break down your options.
Have you thought about your retirement plans, regardless of where you are in your career? Is this a state or place you're considering?
If you decide to buy and maintain the house, keep in mind that you will have to keep it for several years to make the investment worthwhile as residual income. Although you will almost certainly employ a property manager, you will still want to be within a safe driving distance in case something goes wrong.
For example, if you plan to buy a house in California but retire in Arizona, the logistics can be difficult. You'll need to prepare for emergency travel expenses. If you are unable to physically access your properties on a relatively regular basis, you run the risk of mismanagement, environmental emergencies (fires, floods, etc.), or bad renter conduct.
At the same time, if you live in a state with very sound property tax rules, have access to a quality property manager, and find a house that is easily inexpensive to maintain, you might have found a solid investment opportunity.
If you live in a home, apartment, duplex, or condo, something may break or need maintenance at some point. Housing repairs can cost anything from a few hundred to tens of thousands of dollars per year.
One of the most significant advantages of living in base housing or rental property is that repairs are paid for by someone else. When you're the owner (and the landlord), you're responsible for everything.
According to Zillow.com, you can budget at least 35 percent of the monthly rental income for running expenses and a general rate of at least 1 percent of the property value for maintenance.
These figures exclude costs such as pest control, utilities, and Homeowner's Association fees. Before you decide to buy an investment property, make sure you have a clear understanding of the true cost.
Or, if you plan to rent out the house, are you able to bear the mortgage on your own for at least six months without financial strain?
If you answered no to any of these questions, you may want to give yourself a little more time to save money for that reason before you start signing purchasing agreements.
Life in the military can be very inconsistent and unpredictable. If the military decides it's time for you and your family to relocate after six months, the three-year window you thought you had is suddenly gone. You really have no idea where you will be sent. It might not be possible to make several trips back and forth to prepare the home for sale.
Even if you remain in the same area long enough to feel comfortable renting the land, keep in mind that houses don't always rent, even if the demand indicates that they do.
Home loans from the United States Department of Veterans Affairs (VA) have allowed many servicemembers and their families to become homeowners. However, if you're thinking about using a VA loan to buy an investment property, make sure you're aware of the residency requirements.
VA loans should only be used to buy the family's primary residence. Also, if you leave your home without selling it, you won't be able to get another VA loan until the first one is paid off.
As a result, you may want to consider conventional financing rather than a VA loan. Traditional financing could be a better choice if you have a decent credit score and a down payment for the house.
Before making a home purchase, do your homework on all of your financing choices.
Every state has its own set of landlord-tenant laws that are intended to protect all parties. However, certain states (or cities) clearly prefer one side over the other. In any case, you might be shocked by how many legal hoops you'll have to go through to get rid of a bad tenant.
In terms of bad renters, if things get out of hand, you will most likely need to employ an attorney, which isn’t always an easy task. You would want to include this possibility in your budget as well.
More than likely, you won’t always be able to reside in the same state as your investment property while you are on active duty.
Fortunately, there are several reliable property maintenance firms nowadays that can assist you in looking after your property while you are out of the area. Many of these programs can locate and interview tenants, conduct background checks, prepare lease documents, inspect the house, and make repairs as needed.
Both of these tasks take time, and recruiting a property manager will alleviate a lot of tension associated with maintaining an investment property. Many property managers, on the other hand, charge a percentage of the monthly rent and will bill you for maintenance to your house.
Take the time to consult local property managers, learn about their fees, and decide whether you can afford them while keeping the rest of your budget in check. The faster you start, the more prepared you will be to realize the true cost of owning an investment property.