Will the US Army's recent drawdown announcement affect your market?

Question

General Odierno, the Army Chief of Staff, recently announced the deactivation of 10 Brigades (approx. 29,000 soldiers) by 2017.  Additionally the Army is cutting about $400 million in construction projects.

http://www.reuters.com/article/2013/06/25/us-usa-army-idUSBRE95O1IR20130625

These cuts are spread out between 11 bases across the country; Joint Base Lewis-McChord in Washington, Fort Carson in Colorado, Fort Riley in Kansas, Fort Bliss and Fort Hood in Texas, Fort Polk in Louisiana, Fort Stewart in Georgia, Fort Campbell and Fort Knox in Kentucky, Fort Bragg in North Carolina and Fort Drum in New York.

I was stationed at Ft. Bragg, NC when the results of the last BRAC realignment created a massive, unsustainable housing construction boom.  Now the area is saturated with new construction and high average DOM for resale homes.  The rental market seems to still be strong, however I believe these cuts may change that.

Are any investors closely following this (and broader DoD cuts)?  Do you currently invest in any of the affected markets?  If so, any plans to modify your strategy?  Any thoughts as to the wider impact to the local markets?

Tom Goans · Answer

Karen,

In 1969, I moved to a military city that has 5 primary military concerns. While the recent Army announcement had media coverage, planned military reduction across ALL divisions has been in the plans for several years and has already been taking place. What has not been determined  or talked about is the large number of support people who will lose their job. People from from on base to the single mother server at the local restaurant will be affected.

To answer your questions, the military has always been somewhat unpredictable. Soldiers are restationed many times throughout their careers - generally every 3-5 years. This is not new. It is also not new that the Pentagon plans regularly change. Even deploymet plans change. Soldiers are regularly deployed overseas without announcment.

In some markets, the government has become a strong competitor by building new and more residences on base. This too has little media coverage but a great affect on the real estate investment and associated markets.

Andrew K. · Answer

@Alexander Felicethanks for the encouragement.  We'll keep at it!

Do you primarily purchase properties from the MLS?  Or do you have your lead generation pipeline (website, direct mail, etc)?  I've seen a few ads on craigslist from wholesalers.  I may reach out and touch base with them, you never know if they'll have something interesting.

Thanks!

-Andrew

Alexander Felice · Answer

I do t think so unfortunately.  In fact over the last 2 years I believe the price trend has gone up and the market has more buyers than before.  I don't say this to discourage you at all,  just to understand the market and how to overcome. Be diligent,  you don't have to over pay for properties,  but you will have to pay more  than asking price (which are heavily unfervalued) and you have to keep at it.  Talk to wholesalers because they do have deals,  and keep building your network.

Andrew K. · Answer

@Alexander Felicethanks for confirming my suspicions on how competitive the MLS is here.  I take the competition as a good sign.  Do you think the multiple bid scenarios are due to the season?  Meaning, are people like yourself wanting to get projects going now so they're done for peak selling season?

I just need to step my game up with writing offers!

Thanks.

-Andrew

Alexander Felice · Answer

Not hard to find deals. They are on the MLS every day, most of them however are underpriced so you will see a bid scenario on just about every one of them. So go for 10k over asking price (on a 60k home).

There is a lot of competition, I'm putting in multiple offers per week and so are about 15 guys I know personally, and I'm sure there are much more. There are wholesalers in town but haven't found much luck with that yet.

Keep plugging away, most guys I've asked are getting about 8-10% of offers accepted. Then remember that of your 10% offers accepted, the majority of those you won't want to close on. I think the old rule of thumb is you'll close on one of every hundred offers.

Andrew K. · Answer

It's been over 2 years ago when I first posted this and wanted to provide a brief update.

My CO property has seen a good amount of appreciation.  In fact, it's finally valued above what I originally paid for it back in late 2005!  I've heard similar accounts from other military friends that own property in Colorado Springs, they're seeing the positive effects of the strong market.  In fact, one buddy is considering selling and taking advantage of the appreciation.

Unfortunately, my home near Ft. Bragg, NC isn't fairing so well. I bought it near retail price in 2006 and it's steadily decreased in price since.  The small neighborhood has seen a decent amount of foreclosures also.  The house rents well, but I know I could do so much more if I didn't have this goose around my neck.

I am stationed back in the Fayetteville, NC market and am building a REI team to fix & flip houses.  A co-worker, his real estate agent, and I are actively bidding on REOs here.  Unfortunately, we've seen multiple bid scenarios with each property so far--and haven't gotten that first deal.  It's frustrating, but it is making me work towards building a real deal flow/funnel.

Anyone else here in the Fayetteville, NC market having similar challenges to finding deals?  Any suggestions to build a lead funnel?

Thanks and happy investing!

-Andrew

Elizabeth Colegrove · Answer

Honestly as long as they are not closing the base and you have bought a house aimed at the middle group I would not worry too much. A lot of military people will not buy because of the uncertainty. Alot will sell at a reduce price because of the uncertainty. Still many more will simply rent because they want to live off base.

Unless they were closing a base. I wouldn't worry about it. I would treat the bases as the stock market. Buy in down markets sell in up markets. As long as you are cash flowing life is well. If there is less demand. Reduce your price until the supply increases.

Andrew K. · Answer

Russ McKelvey, thanks for that link.  It looks like good times ahead for my CO property.  Unfortunately, my place at Ft. Bragg may not fair so well....

I'd really like to see an equivalent article like this for each of the services.  I'd especially be interested in what the USAF footprint will look like in Colorado Springs.

Thanks again.

Russ McKelvey · Answer

Thank you Tom.

All: This article shows that Fort Carson actually gains 1800 Soldiers the only base to have a gain.

http://www.armytimes.com/article/20130702/NEWS/307020002/The-huge-BCT-overhaul

Tom Goans · Answer

Russ, I failed to thank you and your family for the service to our country and the enormous sacrifices made by your family.

Will the US Army's recent drawdown announcement affect your market?

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