military - buying in the hopes of renting later

[Tim Ward]

hello all, and let me start by saying i know i am probably beating a dead horse here. i've read similar topics but would like a little more specific advice to help with that warm and fuzzy so thank you in advance for sticking with me.

back to the question at hand... i am into my tenth year of service in the military and have always been a renter. i kick myself for not taking the plunge into buying my own home before now but the thought of being a home owner / landlord is very intimidating. but regardless my wife and i have made up our minds its time to invest some of our income and get a return on my BAH.

we are currently in fayetteville nc and have settled on the idea of buying a house around $115,000 putting our mortgage with tax and insurance around $700 a month in an area that rents in the $900-$1000 range.

our plan is to put as much into the mortgage as we are willing to spend on rent ($1200) to help pay it down before we PCS again. when we do then rent it out and use it as an investment property. cash flow would be nice here, but since we want to move into a livable home and i dont have the resources / time to rehab a fixer upper breaking even is okay with us. long term goal here is to sell when i retire to effectively collect on what our renters have put into the house for us.

are we off our rockers here? on a older home, newly refinished inside with a new roof / ac will 200 extra month be enough to reasonably assume it will cover maintenance and PM expenses (i think they run 10% here) or are we buying into a money pit?

thanks in advance here, Tim

[Jason Minnich]

Welcome Tim Ward! As a fellow service member thanks for your service.

As far as your plan, what are you planning on putting down? Are you looking at doing this process every time you PCS? How handy are you and your wife? How much do you have saved up outside of any down payment? When was your last and when do you expect your next PCS to be?

Your plan is similar to mine in I'm trying to build equity and over time cash flow but some things are slightly different. Ideally you want to be able to take advantage of the really low interest rates for as long as possible so I would initially recommend looking into using your VA loan so you have to pay 0% down, but unless you find a very good deal on a move in ready house, and I don't know your market, that might be difficult. Further, if you do go the VA route, consider putting the extra money you would otherwise use for rent into an investment account or something similar so that you have it more liquid funds available for future down payments and expenses. This would serve the added benefit of being able to deduct what little you do pay in interest from your taxes to reduce your future passive income amount.

I'm not an accountant so if you have one I would recommend you talk with them but it sounds like you have a decent direction, your big stepping stones will be determining what to look for in a good deal and a good house. For this I would highly recommend borrowing a couple of property inspection books from the library. Many of the folks here have been doing this sort of thing for a while so they know what to look out for, but if you read a few inspection books (or your wife does), you can look at every house you are shown with a critical eye and verify the good deal before you even consider signing a contract or paying 2-300 for a real property inspector.

Also remember that some of the best rental properties are homes that "you would move into" for just that reason, so consider the homes neighborhood, proximity to shopping, parks, etc, and eventually you will (or already have) a feel for what you are walking into. Don't jump on the first house you look at, as a new investor even if it looks like a sure thing use BP to your advantage and post the deal and your reasoning and get some advice for what other people might do with the house. Because you are more concerned about the eventual equity in the house, you are less worried about meeting a 2%,50% etc rule but finding a place that you can rent for at least 1% of the purchase price is a very easy way to see if you are too far out of the ball park.

Also be honest with your realtor, you are buying this place to ultimately be a rental property, what would he recommend. Further, consider using USAA's homebuying service when looking for a realtor, they pair you up with a preferred realtor and they (and ultimately you) share that realtor's commission in the form of a rebate check, its not much but its kind of nice, and it doesn't lock you down to USAA's banking products either, just gives you more leverage to make sure your realtor is working for you.

Compare the loan products available to you, if you are interested I know a bank that has done great work for me in the past on both VA and conventional loan products and they work with you to get the best deal. I found USAA to be competitive about 4 years ago but since then they have been overly expensive when considering the cost of closing and points for the loans. Search around for a good deal on your insurance, in that regard I have never found USAA to even be the slightest bit competitive, but USAA is very easy to purchase a policy and deal with (so I've been told). Whomever you end up selecting I would recommend that they also have a dwelling/fire policy that is competitively priced so you can rent the house and stay with your same insurance company, just switch policy types (it's a lot easier).

Anyway, that's enough for me, keep us informed!