BAH: How Rates Affect Military Members & the Landlords Who Rent to Them
For those of us who rent to military members, Tuesday, December 15, 2015 was a big day. The BAH rates for 2016 came out. To check out your area rates, the official DOD calculator is here. For those of us who are military and/or rent to military, we know that this is very important.
Want more articles like this?
Create an account today to get BiggerPocket's best blog articles delivered to your inboxSign up for free
Before we discuss the importance, let’s explain the BAH for those who don’t typically work with this group.
BAH: What is It?
The official DOD answer is “the Basic Allowance for Housing (BAH) is a U.S. based allowance prescribed by geographic duty location, pay grade, and dependency status. It provides uniformed Service members equitable housing compensation based on housing costs in local civilian housing markets within the United States when government quarters are not provided.”
The simple answer is BAH is the military “allowance” that is tax-free that changes based on the military rank, location and whether the individual has dependents or no dependents. This is the money that military members are given if they do not live in base housing. If they live on base or in base housing, typically all of their allowance is taken. In return, their rent and utilities (some areas now have a cap) are covered.
If you look up your area, you will notice two columns. One is titled “with dependent(s),” and the other is “without dependent(s).” The “with dependent” category applies for those who are legally married, have children, or for those unmarried, have dependent children. The “without dependents” are for single sailors who are not married or have children.
The Importance of BAH
You are probably wondering why you as a landlord should care about this. The simple answer is that the if your tenant demographic is military, the ceiling you’re looking at for rent is usually based on this number. Typically military service members base their rent value on their BAH. While there are always those who will spend over BAH, most people want at least their rent and usually some utilities within their BAH. This especially holds true if living on base is a comparable option.
Therefore, it is important to watch the rate because its increases AND decreases affect you the landlord. As both a military member and landlord, I have noticed both personally and on different forums I frequent that when BAH rates increase, so do rents. At the same time, when they decrease, you will often find rents will decrease or at a minimum stay the same.
This translates into the fact that increases in rates tend to signal increases in rent. Therefore, if you are renewing after an increase, you should closely evaluate the market. Typically one will see rents increasing; therefore, there is usually less of a protest if you raise rents. If you do receive a protest and your tenants move out, the ability to receive the higher rates is possible.
On the other hand, if you see a huge decrease in rates, this would be a good time to sign the tenant at current rates, allowing you to lock in not only your current rate but also no turnover costs.
BAH FAQs for the Military Community
As always, this is an over-generalization. The point is not to tell you that your market will increase or decrease, because everywhere reacts differently and there are many additional variables at play. The point of this conversations is for you to be aware. I have spoken with many landlords who did not understand why their military tenants were moving on base or going to different housing when they raised rent by $100 after BAH rates fell by $400. On the other hand, I know of many landlords who have lost $100-$300 monthly when rates dramatically increased and they didn’t take advantage of the market increase.
For those of you who are not familiar with BAH, here are a few facts that I put together aimed at the military community.
When does the new BAH take place?
The new BAH takes place as of January 1, 2016. Therefore, as long as you have checked into your command by December 31, 2015, you are grandfathered into the previous rate if it decreases. On or after January 1, 2016, you will receive the new rates.
What happens if the rate decreases?
If the rate decreases, you are grandfathered into the current rate. That means that as long as you do not PCS away from the command, you will never receive less BAH than your current amount. If an area has seen substantial decreases in past years, one can find long term service members with much higher rates than incoming service members. This is why it is always important to check the current calculator to prevent making decisions off of an inaccurate rate.
What happens if the service member is promoted and it is less than our grandfathered amount?
You will still receive the higher rate of BAH. The key item to know is you never receive less BAH as long as your service members stay attached to the command.
My friend is located at the same duty station as me. Why did her rate go up when mine decreased?
BAH increases based on rank and dependents or no dependents. The increase or decrease is based on a calculation and therefore does not impact each rank in the same manner. That is why it is important to look up every status, as the rate is very individual.
If I live on base and our BAH increases, who receives the increase: base housing or the service member?
If housing is currently taking all of your BAH, then housing would receive the increased amount. The only time a member would receive the rate is if they are paying a specific amount for housing — and not all of their BAH.
My husband leaves for TDY in December but won’t report to the next duty station until March. Which BAH do we get: the old or the new one?
Unless you are coming from overseas, you always receive your leaving duty station’s BAH until you check into your new command. Therefore, you would not receive the new BAH until March when you check in.
Want to learn even more You can find the entire primer for BAH allowances here. This primer goes in detail regarding the rules and regulations.
Did BAH change in your area? What has been you experience? Does BAH affect your rent rates?
Leave me a comment!