Active Duty seeking advice

[Gregory Hunter]

I have been reading through this site for days basic guides, searching, etc. I have learned a ton from this site. But I have not made a decision so I figured I would post all this up and see what the experts say. So here goes.

I am active duty in the Navy, and my wife and I are playing with the idea of purchasing a house at my next duty station. The main reason is because the rent in the area would put us in a tighter monthly budget than we are used to since rent is high compared to my housing allowance. The low housing market and interest rates are a plus too. I will be going to the Dayton area to be a local recruiter, and I have been looking at the Huber Heights and Vandalia areas. The only thing that is holding me back is that I will be moving in 3 years and if I can not sell the house I will have to rent it out, or leave my family and go by myself to my next station.

My current scenario is using a VA backed loan financing between $110,000-$130,000 for a monthly payment between $650-$780 with estimated taxes and insurance. Before the housing market downturn houses in this neighborhood were going for $140k-$180k. Rent in the neighborhood is currently $1,000-$1,800, which is a big range IMO. I would try to rent for $1,100-$1,200 based on current market. So that is about 35%-40% to set aside for repairs, vacancies, etc. I will need to use a property manager if I need to rent it out. I have no idea what that costs yet, I am guessing 10% of monthly rent then a fee to place tenants.

There is so much more info e.g. what shape the house is in etc but I am trying to keep this short.

So to all the experts out there how am I really sitting in regards to selling after 3 years and my possible renting scenario. If rent goes up in the area after 3 years I should be sitting nice on that end since I am basing everything off renting right now.

[Aaron Mazzrillo]

"Before the housing market downturn houses in this neighborhood were going for $140k-$180k."

This is essentially useless historical data that has no bearing on values today. Don't get caught up in the "it used to be worth" way of thinking. I like to tell sellers that pull that crap on me that Google stock used to be $100, but those days are long gone. I can usually get a laugh out of them and they get the picture about their 'used to be' negotiation strategy.

I think buying a house at your next duty station, if you know you'll be there for 3 years, is a good idea. I served 6 years in the Navy and knew one guy that purchased properties in each place he was assigned. When I met him, he was on his 15th year and had a nice portfolio of income producing assets.

Just make sure you budget for typical expenses associated with owning property and having a management company handling it for you. I'm not going to delve into those numbers. You can read about those specifics in other posts. If there is one thing I know you have lots of, that is time on your hands. I've stood my fair share of mid watches and I wish we had phones with internet back then.

[Gregory Hunter]

Originally posted by Aaron Mazzrillo:

This is essentially useless historical data that has no bearing on values today. Don't get caught up in the "it used to be worth" way of thinking. I like to tell sellers that pull that crap on me that Google stock used to be $100, but those days are long gone. I can usually get a laugh out of them and they get the picture about their 'used to be' negotiation strategy.

I had a feeling when I typed the previous selling prices I would get it. I am trying to base everything off today's market. Which is about impossible since I can only find 1 house sold for all of 2013. But I threw those figures in there to show how much of a hit this market took from the recent events.

[Brandon Turner]

Hey Gregory Hunter welcome to BP and thanks for your service to our country.

I think I'm with Aaron - I'd probably do it. I'd really aim to buy the best house possible though (in other words, cheapest house for the highest potential rent.) You really gotta buy smart - and I think it's a solid plan.

Feel free to check out this article for some help on finding good deals: http://www.biggerpockets.com/renewsblog/2013/02/27/buy-smart/

Good luck! (and don't forget a photo!)

[Lance Carpenter]

Hey Gregory,
I'm with Aaron and Josh...buy. I'm retired USCG and wish I had kept several of the houses we have owned over the years. You have a couple of advantages going for you. The VA loan is a great benefit so use it. You have a potential "built-in" tenant...the sailor who relieves you when you transfer! This doesn't always work out, but it's worth considering, especially if the numbers allow you to get by with the local VHA rate as your rent. Remember to factor in the costs for property management, maintenance, etc. as you determine your price range. Good luck!

[Karen Margrave]

Gregory Hunter Welcome to BP! And... a BIG THANK YOU for your service to our country! I just wanted to suggest to you to fill out the keyword alert if you haven't already. Maybe you can put Virginia Beach, military, etc. and be notified when those things and other words you choose are discussed in the forums. In addition, maybe James Vermillion can point you in a direction, he's retired military. There are many active military, and retired military on BP. Good luck!

[James Vermillion]

Thanks for the tag Karen Margrave. Unfortunately I am not retired, but I did just separate active duty last summer. Thanks so much for your service Gregory Hunter! With the information you have given I would agree that you should consider doing it, in fact, I have recommended several people moving to Wright-Patterson AFB to consider buying in that area, as the property price to rent is quite attractive.

They key to this, is to look at it as an investment, and purchase accordingly. That means understanding how to analyze current market value, estimate repairs if the property needs them, be sure of the rent the property will bring in, and understand expenses. By royally goofing any of these steps you can find yourself stuck with a not so great property at the end of your three years.

Having said that, none of those steps are overly difficult, especially if you seek assistance when needed.

[David Krulac]

Gregory Hunter

Thank you for your service. Just went to boot camp graduation at Great Lakes a couple weeks ago. 900 new recruits every Friday, quite a ceremony.

If you can swing it, buying a house at every duty station, then keeping the house and renting when the orders come, makes a nice supplemental retirement plan.

I know several military that have houses scattered across the country.

One year I was at Wright Pat in November, and it was the coldest Nov I can remember. I think it was zero degrees and I swear I saw tumble weed blowing around.

[James Vermillion]

Originally posted by David Krulac:

Gregory Hunter

If you can swing it, buying a house at every duty station

Be careful about this. Remember, real estate is local and you need to analyze each market independently. I know quite a few people who got into some trouble by doing just that and ended up with houses in Vegas, Arizona and California right around the market crash. Do your due diligence for each market and decide if that market is a good place to invest.

Also, you do not have to spread out around the country if you are looking to purchase multiple investment properties. Remember, you can always pick a market that you love (anywhere in the country) and focus in on that.

[David Krulac]

James Vermillion

I did say if you can swing it. What the big advantage is, is that you buy the house, probably 100% financed VA, owner occupant, fixed for 30 years. Then you live in the home for probably 3 years, then get orders somewhere else. CONUS, and repeat the process.

And since you are not selling and presumably have positive cashflow, you're not as concerned about market fluctuations. If you are not selling, the value is not a big concern if the property cashflows. And by hold for some years you have a good chance for a recovery of price, like is going on now.

I've know many EM and officiers who have acquired a string of former owner occupied houses around the country, and after doing your 20 years for retirement, have a nice portfolio built up.

[Ryan Logsdon]

Does anyone know if Gregory Hunter could work with the HUD Good Neighbor program, or is that restricted to civilian law enforcement?

[Gregory Hunter]

Wow thank you all for the replies, and the appreciation for what I do. I love what I do and hope to retire from the Navy.

Well it looks like I am diving in then. I told myself that if I get the response to do it and my numbers look good, then I would push aside my nervousness and go for it. I was honestly expecting some people to suggest not doing it because I am military and my life is not the most stable.

I am planing to follow as many rules to investing as I can. I want to try and negotiate the price as close as I can get to the 70% after any rehab I want to do. Of course the 50% rent rule, I can get fairly close if I were to turn around and rent right now. I know these 2 rules are for different goals, but I figured if I try to follow both as close as possible so I have options e.g. if the rental market tanks in 3 years I will hopefully set myself up decent to sell.

James Vermillion I have told myself from day one, that I am looking at this as an investment and I am not looking for my "dream" house as most call it. Also good idea about investing in one or two markets instead of everywhere I go. I had not thought of that, thank you. Hopefully my first attempt will go good and I can do a few more.

Lance Carpenter I thought about the "built in" tenant as well. The only downside is the houses I am currently looking at would rent for $1,100-$1,200 and BAH in the area is $1,050-$1,150 for an E5.

So now I have all other kinds of questions. I have searched this forum and google and the answers are unclear.
-How do I asses current market value? From the information I have gathered I have to compare current selling prices in the area with the same condition house.
-Expenses. I am assuming this is upkeep and maintenance on the house. How should I estimate this?

[William Strong]

Gregory Hunter I don't have much experience but this is what I think:

From what I've learned you need to use the sales price of similar houses, not the asking or list price. Also i just listened to podcast 7. And there is good information in there about appraisals but also what kind of comps you should be using.

As far as expenses i was under the impression that the 50% rule should cover most if not all of your expenses other than loan servicing. So for non-recurring expenses i think you would just build up a contingency fund with the money from your 50% allocated towards expenses.

[Dhyan T.]

Hey Greg welcome to BP,

I was an officer in the Army and my mentor in school who told me to buy a property where ever I get stationed. I took his advice and now I have a small porfolio. It's a leap of faith getting your first property but your situation was very simular to mine ( I got stationed in El Paso at ft Bliss in 2007). I have also learned that before you buying investment properties its best to actually own a home first so you get exposed to many of the nuances associated with homeownership.
During the three years you would be in the property continue to set aside funds in the event it takes some time to get the property rented.
Having other people paying your mortgages and getting extra income is a wonderful thing but it obviously takes a fair amount of planning. Moving in the miltiary has provided me a slow and safe way for me to acquire properties ( in between properties I saved my money and deployments definitely helped).
I agree with you in getting a property manager because going when you go to the field or are deployed the tenant still needs to be taken care of. It has provided me nice peace of mind. Since you will be in the area for a while you have will have plenty of time to interview and find the best property manager in the area.

good luck and keep learning, I know I am!
Dhyan

[Gregory Hunter]

Does anyone look at the percentage of renters to buyers in their areas? I just looked and one possible area has a 72% buy to 28% rent. Another is 66.2% buy and 33.8% rent.

Then for comparison I looked up Norfolk, VA (a huge Navy city) with 45.6% buy and 54.4% rent.

[David Krulac]

Gregory Hunter

Yes, i do look at stats for percentage of renters, but I think few others do. One place near here is over 50% renters, that plus the fact that the housing stock is older and there are signs of neglect, dissuaded me from investing there, despite the low prices. Lots of places around that town look like rentals.

I want to own a rental in a neighborhood that does not lok like a rental neighborhood. On one street where I owned property there were 22 houses. I owned 2 houses the only rentals on the street. Another place I owned 4 houses on a street where there were 20 houses and all the rest were owner occupants.

When I sold the 6 houses mentioned above, the buyers for all 6 were owner occupants. which had another benefit in that the buyers paid retail home owner prices for the properties.

So I bought in neighborhoods that were not rental neighborhoods. While I owned them they did not look like rental properties. One of the above mentioned houses I owned for 13 years and rented to only 1 tenant who wanted the excellent school system there for their kids. When the kids graduated from high school they moved, as the fathers commute to work was 75 miles one way. They moved closer to his work after kids school was no longer an objective.

And then sold to another owner occupant. All of the rental houses that I have owned and sold, except for one, have been sold to owner occupants for the retail price. The buyers did not care about cap rates, the 50% rule or the 2% rules, and probably didn't even know about them.