How Military Members Can Use Real Estate Investing to Fast-Track Their Financial Freedom

Dave:
Happy almost 4th of July, everyone for today’s episode. Before we get started, we just wanted to say thank you to all of our military service members in the BiggerPockets community and beyond on our nation’s birthday. And on today’s episode, we’re gonna hear from a veteran and seasoned real estate investor about how military members can start investing in real estate and what you should know even if you’re not a service member.

Dave:
Hey everyone, welcome to the BiggerPockets Real Estate podcast. I’m your host, Dave Meyer. Today we’re talking with investor and military veteran David Pere. We’ll hear from David about why real estate is a powerful way for service members to build wealth, and why the military specifically puts you in a really good position to start early and take risks early in your investing career, while also go deep into the VA loan, how that could benefit service members. But also we’ll talk about how other investors, non-military members or veterans, can potentially benefit from the VA loan as well. So let’s bring on David. David, welcome back to the BiggerPockets Real Estate Podcast. It’s great to have you here again.

David:
Thanks for having me, brother. I’m excited to do this one. For

Dave:
Those who haven’t heard your previous episodes, can you just give us a little bit of your backstory? From what I understand, you started investing while you were still active duty, is that right?

David:
That’s correct, yeah. I joined the Marine Corps, uh, in, in 2008. ’cause I, you know, basically all the, I didn’t have money for school, didn’t know what I wanted to study for school and, and what better way to leave the great state of Arkansas and see the world than on the government’s dime. And uh, that first seven years I was in the military, I had all the adventures, but I blew all my money on, you know, typical service member stuff, right? Harleys, tattoos, booze, all the, you know, things that you don’t need to spend your money on, but you’re in your twenties and you have money and, uh, so, so you fast forward to like 2015, someone handed me Rich Dead Poor Dad, and I kind of, everything from there changed. And then in about five and a half years, I went from, you might as well just say flat broke, right about a negative negative 5K net worth to, uh, eh, you know, millionaire on paper, but more importantly, financial freedom. And I was able to leave the military at, uh, in 2021 and I haven’t had to take a job since.

Dave:
Wow, good for you. That’s incredible. I’d love to hear just a little bit more about that mental shift because it sounds like you went from, you know, spending, you know, as 20 year olds do, but you know, not really thinking about your financial future to making a hard pivot. What sort of primed you to make such a drastic change?

David:
Yeah, I was a recruiter in the Marine Corps for three years, and anyone who’s ever been a recruiter in the military, it’s uh, well, I tell people that we probably worked 80 hours a week and they all, you know, online, they all call me, you know, and they’re like, oh, bs. And I’m like, no, actually, like I confirmed with all the people I used to work with, I asked all of ’em, Hey, what do you think was the average? I’m like, 80 was everybody’s answer. Um, and so you work like ridiculous hours. It’s a thankless job where every month you’re like, I enlisted three people. Woo. And they’re like, great, what do you have for this month? And uh, I just, I got to a space where I was like, even if I wanted to stop, I, I wouldn’t be able to, like, I would have to go take another job.

David:
And so I was kind of trying to sort out those answers in my head. And a buddy of mine handed me the book, rich Dad, poor Dad and I, I actually told him I don’t read, and he had it on a disc and he was like, you drive a lot, just listen to it. And that was my first audio book. I finished it in like three days, then I went all the way down the, the Purple Library and BiggerPockets and I found all Brandon’s original books. And uh, about four months later I bought a duplex and it was kinda all she wrote that was the hook was in. How

Dave:
Did you pull that off? If you’re working that many crazy hours, what made you have the confidence or even the ability to take on a relatively active investing style like real estate?

David:
Yeah. Uh, ability is definitely a question mark as far as where I was at then, but all

Dave:
Of us start that way. Yeah,

David:
I know. Yeah, it’s just winging it. Um, I had an apartment lease, it was a two bed, one bath for five 50 a month in, in Missouri. And it was coming up, you know, I was either gonna renew it or I was gonna be out by January 1st, and I was, so, I just was like, well, let me, let me see what I can find. And so I, I dug around, I probably looked at like seven properties in a day with a real estate agent, and two of them worked. We wrote offers and we went back and forth with one and we landed it. And so I ended up, I went from like five 50 a month out of pocket on this apartment to owning a duplex that had a two one on each side. And I had a tenant paying 4 75. So I was all, I was probably all in at $110 a month.

David:
So I was like, okay, at like, my risk exposure on this is minimum because I’m, I’m paying 20% what I was paying to own the building. And then when I moved out, obviously it cash flowed and that was what really solidified. But I, I, uh, oh, the, the real kicker here, this kind of my, my favorite part of the whole story is everyone’s like, well, you had no money. How’d you do this? I’m like, well, uh, I had a Harley and somebody parked on top of it when they were intoxicated at a bar. And uh, the guy had basically had too many insurance claims on his, and he owned a car dealership, so he was like, how much is it worth? I was like, 12 grand. And he cut me a check and was like, here you go. And so that’s the money I used for my down payment and everything else on the property.

Dave:
<laugh>. Wow. He parked on top of it. How does that even

David:
Happen? <laugh>? So he was parked next to it and he just cranked the wheel and floored it outta the parking lot. And his F two 50 just rolled right over the, the top of it and, um, crushed the bike. And, and then funny enough, Harley still gave me like three grand for it. So I basically profited off the original I made, I sold it in pieces for like 1100 more than I purchased it originally. Um, so it worked out, but uh, had it not been for that, I wouldn’t have had the cash to close.

Dave:
Wow. That’s what one of those fortuitous things, and hopefully real estate has now made you enough money that you can go buy a new bike.

David:
I own a Ducati right now. Yeah. And Tesla. Oh,

Dave:
Nice. There you go. So tell me, David, like is this a relatively common thing for folks in the military to do? Or were you sort of out on your own doing this without much guidance on how to make it work?

David:
I think there’s a lot of service members in the military who buy houses. I don’t know that the investing space was that big. It’s, it’s obviously improved a lot. You know, we’ve got a massive online presence now helping people with exactly this. And uh, you know, the, the common, like the wisdom in the military, quote unquote was like, buy a house at every duty station. And I actually don’t really like that advice because it implies that you’re just gonna, like no matter what, if you buy a house, you’re gonna win. Like, well yeah, if you started in oh eight, that’s great advice, but if you started in 2002, that advice wouldn’t have worked out so well for you for a while. And so, you know, I always say, say like, I love the advice as long as you buy it as an investment and not a house. And so, you know, I’m a huge proponent of the house hack ’cause I think it’s a extremely minimal risk way to get into real estate investing, especially with the VA loan where you’re virtually nothing out of pocket.

Dave:
Yeah, that’s a great point. I think just, yeah, just blindly buying houses as, as primary residents, they don’t necessarily make great investments. And so definitely think about the long term plan there, but tell me like, what about specifically being in the military makes real estate investing such an attractive option?

David:
Yeah, there’s a few different reasons and, you know, my, my we we’ll get to the VA loan and obviously that’s like the perfect answer, but the setups for that I think are a few things. One, no matter what in your first four years in the military, you’re gonna move at least twice and most likely you’re gonna move every two to three years that you’re in the military. And so I think that’s a huge perk because, you know, everybody’s got excuses about, well, the market’s too hot here, the market’s too slow here, or the market’s too expensive, or it’s not expensive enough or, you know, it’s never perfect. And I’m like, well, hey, join the military, you’ll get to buy it. You could buy a house in any of those markets that you should choose. Um, but you also get a housing allowance. So the housing allowance is tax exempt.

David:
Um, and you basically, that’s for housing. So it’s like they’re already paying for you to live somewhere. So if you just funnel that into a mortgage payment instead of a tenant payment, like you’re set up to win and that is adjusted by where you live by zip code. And so if you live in San Diego, you’re gonna get three or $4,000 a month for housing and if you live in Missouri, you’ll get 1,015 hundred bucks a month. And so I think it just makes it really easy ’cause it’s like, you know, when you talk about house hacking, the biggest, you know, question mark is how do I do this multiple times? And it’s like, well, in the military you can, because you are going to move and when you move all of the rules about occupancy are met and you can do it again. And so it it just sets people up for success to be able to do, you know, 1, 2, 3 house acts early on and then you’ve gotta a stack of cash to be able to go invest elsewhere.

Dave:
I had no idea. So basically you can choose to use that stipend towards rent, but if you have the money to put on a down payment, it just seems like an absolute no brainer to do a house hack in that situation.

David:
Absolutely. And you don’t even need a down payment with the VA loan

Dave:
And then you just hire a property manager when you leave, right? Or move, move on. I

David:
Do. Yeah. I’ve, I do not manage my own stuff. If you know anything about me, my personality trait is not the one that needs to be managing anything.

Dave:
All right. We have to take a quick break. What we’ll be back with more from David Pere right after this. Welcome back to the BiggerPockets Real Estate podcast. I’m here with investor and veteran David Pere. Let’s jump back into the conversation. So you mentioned the VA loan as the other big advantage. Can you just share with the audience what that is and why it’s so advantageous?

David:
Yeah, the, the, I mean, the short answer is the VA loan is the best primary residence mortgage in the world because it, it flat out is, I mean, it’s, if you take the FHA loan, you make the inspection a little bit more lenient and you remove the down payment, that’s what you’re working with. And then the VA has, you know, there’s no minimum credit score, there’s no minimum DTI, there’s no limit to your first purchase price. There’s, there’s all of these different things that, um, like I, I’ve seen a vet buy a house with a debt to income, uh, like 78% backend debt to income ratio, whereas an FHA loan would cut you off at 49. So there’s just a lot of cool opportunities with it.

Dave:
And what does every active duty member, every veteran qualify for a V loan? Or what are the actual boxes you need to check?

David:
Yeah, you need to be in service for 90 days. If you’re in the reserves, you have to either do a six year, uh, term in the reserves or have served 90 days on like active duty orders during a time of conflict. And if you are active duty, then basically by the time you get out of bootcamp, you’re qualified. And the only, you know, the, the stipulation I guess there would be, if you’re a young single guy, they, they probably will try to push you in the barracks for a little while and you might have to, it might be two years down the road before you’re, your unit allows you to live off base. Uh, but honestly like that first two years, you’re probably gonna move like four times through different training schools. So you really don’t need to use it anyway, yet you just save money.

Dave:
Okay. So that sounds like pretty broad qualifications. Most people at some point are gonna qualify for it, and as you said, so you could put 0% down on, is that just across the board or is that in certain circumstances?

David:
No, that’s across the board. And better than that, the VA allows for up to 4% of the purchase price to come back as a seller concession for closing costs and fees. So people say zero down, but like realistically, depending on the market, right, if it’s 2021, nobody’s gonna negotiate that as a seller. But right now, all day you can go and say, Hey Mr. Seller, I wanna buy your a hundred thousand dollars house. I want you to credit four grand back towards closing costs and fees and you can walk away from the closing tables, $0 out of

Dave:
Pocket. It’s like a negative 4% down payment, essentially.

David:
Yeah, it’s phenomenal. Yeah, it’s, it’s uh, it’s unbeatable. The people get wrapped around, there’s a funding fee and it’s 2.15% of the purchase price. It gets wrapped into the loan, but that’s instead of MIP and PMI, that’s like how the VA affords to keep the program open. And the math basically works out to where with PMI, you’re looking at somewhere around a hundred, a hundred bucks a month on your payment for every a hundred thousand you borrow. And the funding fee comes out to, I did this the other day at a 7% interest rate. It comes out to about $14 and 30 cents for every a hundred K that you borrow. So it’s, it’s, I mean it’s, you know, it’s what 14% of the, uh, PMI cost. And if you are either a Purple Heart recipient or 10% disability rating leaving the military, it’s waived. And so for a, probably, probably 40 to 60% of service members, they don’t pay it at all.

Dave:
Wow. Okay. So just, I just wanna explain to everyone listening what we’re talking about here. A lot of times when you put less than 20% down, you’ll encounter something called PMI Private mortgage insurance. This is common on an FHA loan. So FHA loans are designed to help people and improve home ownership rates. You can put 10% down, you can put 5% down. That’s great for people who don’t have saved, uh, enough money saved up, but they do increase your payments by adding something called this private mortgage insurance. Usually, like David just said, it’s around 1%. It does vary based on the individual market, how big of a loan you’re getting on, but it could really add some pretty significant numbers. Just as an example, I was actually doing this for another podcast earlier, but for a $400,000 home, which is an average price home right now, it actually will add $450 a month for someone at a 7% mortgage. So that is a very, very hefty fee. It sounds like with the va, you know, roughly that might. Now even with that more expensive 60 bucks a month. So that is a really, really big difference. That’s like five grand a year. So clearly this VA loan, like you said, has has a lot of benefits for it. What about, uh, uh, what about rates? Like are, are the interest rates comparable to FHA or other types of, uh, more conventional mortgages?

David:
Yeah, in a lot of cases they’re better and especially when we talk multifamily residential. So, you know, without, we’ll try to keep this somewhat simple, but there, for anyone who’s listening there are what they call loan level pricing adjustments for mortgages. So what that means is if you have an eight 20 on the credit as a credit score and I have an A seven 60 right off the bat, I’m gonna have a, a higher interest rate. So basically most mortgages, and this varies, but most mortgages will have an adjustment at 7 40, 6 80 and six 40 essentially. And so if you have a 6 41 credit score, you’re gonna have a, you know, probably a half a percent higher interest rate than someone who has like an 800 credit score. We’re all used to that. The VA doesn’t have its first adjustment until six 40. And so a 6 41 credit score will have the same interest rate as an eight 20 credit score with the va. Also on most duplex, triplex fourplex on multifamily, um, for, you know, a conventional an FHA loan, there’s like a generally a half a point half a percent rate hike just for going multifamily. And that doesn’t exist with the VA either. So it’s quite possible that someone buying a fourplex with a VA loan at a 6 41 credit score could have like a full interest percent or a full point higher rate than somebody who’s using an FHA loan, even if they have like an 800 credit

Dave:
Score. Okay, that’s interesting. Very good to know. And I promise everyone listening, we will move on from the FHA loan, but I’m really kind of fascinated by this. So I have two, two more questions for you David. One is, uh, is this just a one and done thing or like when you move, can you keep your VA loan and move on and get another one at your next, uh, your next station?

David:
No, great question. ’cause that’s a huge misconception. In fact, funny story I mentioned I used an FHA on my first duplex. It’s because the lender himself told me, you can only use the VA loan once, don’t waste it on this duplex. He was wrong. You can use the VA loan essentially an infinite number of times. And the way it works is on that very first use, you have full entitlement and you don’t have a cap on how much of a house you can buy. So for example, a buddy of mine who is obviously very well off out of the service, um, was buying a two and a half million dollars house in Dallas and threw one of my articles when he realized that he called me, he’s like, wait, does this mean like I could go zero down? And so he saved a half a million dollar down payment on a house that he was under contract on.

David:
But what happens is once you do that first one, then the loan level or the, the county loan levels come in. And so, you know, right now I think seven 50 is the minimum nationwide. And then, so let’s, let’s call it a million. We’ll make it easy math. If you buy a half a million dollar house and you live in a county where a million’s the limit, then you could buy a second one zero down and you’d be up to that entitlement. But if you bought a million dollar house your first go, then anything after that you’d have to put 25% down on or, um, like anything over the million or what you can do is, there’s two ways you can restore entitlement. The first is you could, you could refinance that first VA loan property into a conventional and then you could do a onetime restoration of benefits and go back to full value.

David:
And that’s only a lot. You’re only allowed to do that one time. And that’s where people get kind of hung up on this because if you sell all the properties on the VA loan, then it’s an infinite restoration. So you could buy a million dollar house, sell it another million dollar house, sell it another million dollar house, sell it. But once you go past that entitlement cap, if you still own the property, whether you or an LLC or whatever, you can only restore entitlement one time. Uh, the most I’ve seen, I had a friend who had four VA loans out at the same time.

Dave:
Wow, okay, cool. So you just have to be a little bit creative about it. Are there, I guess the question is, are there lenders who just sort of specialize in this? Because it sounds like you got some bad advice at the beginning of your career.

David:
Yeah, I’ve done a pretty good job trying to vet people now because of it. So there are companies that say they specialize in it, but the reality is that in almost every one of these mortgage companies, there’s probably five different lenders who either are vets or love vets and they dug through the VA guidelines themselves and they’re amazing. But then the rest of the company doesn’t because what the problem you run into with the VA is it’s got such root loose limits that like most, you know, every lender has their own overlays. ’cause no lender’s gonna give you a million dollar loan with a 300 credit score, but they won’t tell you that the va they’ll say, oh, the VA doesn’t allow, you know, this credit score. They won’t say, well my bank doesn’t go check with that bank. And so vetted VA is like my kind of my buddy who I always go to. ’cause it’s like anyone in that group will at least be honest with you.

Dave:
Yeah, it seems like just like any industry, right, like you just have to find a trust trusted lender who really knows the products that you’re, you’re working with. And this is a very specialized one that obviously has some really, you know, particular, uh, particular requirements and, and details that you need to learn. So it makes a lot of sense. Okay, we have to take one more quick break, but when we come back we’ll talk about how investors who aren’t service members can sometimes assume a VA loan. Stick with us.

Dave:
Welcome back investors. Let’s pick up where we left off. I promise everyone. Last one. But as David said, you know, I didn’t know if it was sort of hyperbole what you said, this is the best loan out there, but you, you are convincing me. And there’s actually another element of this that I’m curious about, which is that VA loans are assumable, which has become a super popular thing over the last couple of years. Interest rates went up. Assume assuming a loan just basically means that when you go to sell a house, you can perhaps, uh, give your mortgage to the buyer, which maybe as a seller means that you could command a higher selling price because you’re giving them something extremely valuable, which might be no down payment or a really low interest rate that you got over the last couple of years. So can you just tell us, you know, is first of all, is that right? And second of all, how do people in the military benefit by having consumable mortgages?

David:
Yeah, that’s absolutely correct. I I should probably just before we move completely on, I should at least say you can also build and do renovation loans with the va. And we, the, those products vary so much lender to lender that it’s not worth really digging into. But people here, it’s not possible. And it is. So, dude,

Dave:
It just keeps getting better. It is just, you keep adding more stuff on here and it just, it, it is sort of the, I mean, as it should be, you know, it, it’s great that this is offered to, to military members, uh, and veterans, but uh, it man, it, it really checks all the boxes.

David:
<laugh>, well, if you want your mind blown, we’ll talk about the EARL for two minutes after we finish the, uh, assumable piece here, but I don’t

Dave:
Even know what that is, but let’s do it. <laugh>.

David:
Um, so it’s assumable and, and realistically the stipulations on it are pretty simple. You, you have to occupy it as a primary residence in order to assume the mortgage. And what’s weird about it is this is the only time with the VA loan that somebody who’s not a qualified, uh, you know, they don’t have entitlement as a veteran can assume a VA loan. Now, there’s no other situation where they can buy, like, if somebody’s not qualified for the VA loan, this is the only way they can get their hands on one. Now the, the stipulation there is if I own a house with a VA loan, you are not a veteran and you want to assume it and live in it. I don’t regain my entitlement until that mortgage is paid off. So that’s kind of the, the one like stipulation there. Um, but if a veteran assumes the loan, they can assume the entitlement and I can move on. So it, that’s not necessarily a bad thing. Like if I’m 75 years old and I’m looking to downside into a apartment or a a home, then I don’t, I don’t care about my remaining entitlement, take it, enjoy the house. Um, but if I’m 25 and planning to move, you know, to Scottsdale and, and buy a house there with the VA loan, then in that situation I would only sell, be interested in letting a veteran assume my mortgage,

Dave:
Right? Yeah. Or just selling it conventionally. Yeah. Okay, cool. Well that, that makes a lot of sense and it’s just another benefit. But I, I’m taking the bait man. What is the Earl?

David:
The Earl this is amazing and especially right now, ’cause you’re a, you’re an economist, so you understand the market and everybody’s like, where are rates going? Who knows? Here’s why you don’t need to care. The EARL stands for interest rate reduction refinance loan. And what it is is a program where after six months of payments or 210 days, you are eligible to refinance the VA loan if it meets two criteria. In order to use this program, you have to recoup the fees of the refinance in 36 months. And it has to be at least a half a percent lower interest rate. The crazy thing about the Earl, you don’t have to live in the house anymore. There’s no income check, there’s no credit verification. So let’s say I bought a fourplex and now I’m stationed in, or I got outta the military. I live halfway across the world for, for all the, the extensive purposes.

David:
I’m unemployed and I don’t have a job and I’m homeless, whatever, right? I don’t live in the property. You can literally call and be like, Hey, I saw interest rates drop 2%, can you refinance? And they go, oh, we see you made the last six months payments. Yes you can. ’cause this will save you more money than our criteria. That’s it. Like, if you can save enough money on it, you don’t need, there’s, there’s no check. It’s a, it’s a refi. They count, there’s a, there’s a half a point, um, you know, fee to do it. But they assume that if you made those payments, then it doesn’t matter if you live in the house or have a job or have the credit for it right now because you’re obviously able to make the higher payment so you can make the lower payment. And that’s incredible. ’cause I tell people now, I’m like, dude, buy the house. ’cause if rates go up, you’ll be glad you locked it in. And if rates go down, you use the earl at virtually no cost and it doesn’t matter if you even live in the house anymore to save on that.

Dave:
Unreal. Uh, it’s amazing. Yeah, it’s what a what an incredible benefit. And uh, yeah, this is exactly why I just really pays to understand the intricacies of your loan. Uh, ’cause clearly there’s some amazing upside here, not just at origination, but in monitoring and optimizing your portfolio over the long run. All right. I promise everyone we’d move on from the VA loan. So David, let’s, let’s move on from owner occupied, because this seems like a no brainer, really great opportunity for service members and veterans. What about other types of real estate strategies? Are there other popular approaches to real estate that military members should consider? Oh,

David:
Of course. I mean, I would venture that at this point it’s pretty much like anybody can succeed, you know, and, and there’s really not a whole lot of variations for service members other than the fact that like if you’re still actively serving, your risk is hedged so well, because you’ve got a career, you’ve got a housing allowance, you’ve got a food allowance, you’ve got medical insurance and dental insurance and all the other benefits. So you can afford to take a slightly riskier approach at an early age without nearly the risk of, you know, failure or, or wipe out. Um, but I mean, yeah, after, after you leave, right? You’ve got the assumable loans, you’ve got the VA loan, you’ve got all that space. It kind of just merges in with what everyone else can do. I think the difference that, or the advantage that a lot of service members have at that point comes down to personality, right?

David:
We are really solid decision makers. There’s discipline there. Um, not afraid to go out and get it, not afraid to work hours in the, I always call it the BMW phase of investing or entrepreneurship, which is below minimum wage, right? Most people get wiped out before they start seeing a return on their investment. And, uh, so vets are uniquely positioned, I think, to kind of overcome all of that and stick it out. And I mean, I think most people and most economic data and most data you can pull anywhere, like kind of the trait that seems to set everyone apart is those who just kept going.

Dave:
Yeah, it’s so true. And I, I love what you were saying one about personality. ’cause that’s true for everyone, right? Real estate, there’s so many different approaches that you can take and picking one that suits you so that you can keep going is so important because if you’ve picked one that’s just not aligned with your goals or your personality, it becomes a lot easier to quit or, or more tempting at least. Whereas if you pick something that you know, you know, that in the long run you could be really good at, then uh, it’s a little bit easier to, to stick with it. So I appreciate that. But I really love what you said too of just about risk because I, I’ve, you know, I continue to work full-time and I think that it really gives you a strong position to invest. Uh, i, I totally respect that. A lot of people want to use real estate as a means to leave their W2 job, totally get that. But the ben there is a real benefit to having that. Uh, you know, the military is sort of this on, on supercharged where it’s not just a salary or healthcare, but like you said, there’s a housing stipend, there’s food stipends, there’s other things that are taken care for you. And you’re often at an age where taking those big swings early can just make a huge, huge difference compounded over the course of your investing career.

David:
As you know, as a data guy that, you know, a dollar invested at 20 is worth two at 30 and four at 40, and you know, eight at 50 and 16 at 60. So the sooner you can get started than any of this, the better.

Dave:
Well said. Well, David, thank you so much for joining us, sharing your story, your insights, your advice for active duty and military members, their families and veterans as well. Thank you for your service. We appreciate you being here. And for anyone who wants to connect with David, we’ll make sure to put all of his contact information, website, everything in the show notes below. Thanks again. Thanks for having

David:
Me.