The Pros and Cons of Investing in Military Base Properties

It’s time we address something that has been talked about by a lot of people lately: investing on military bases. While the idea could be brilliant, you also need to carefully dissect each aspect of it before you decide whether you want to give it a go. To help make it easier for you, let us break down the pros and cons.

I’m an active duty Marine, so I may or may not have a little experience living near military bases.

Pros of Investing in Property Near Military Bases

Recession Resistance

Right off the bat, housing in military bases is recession-resistant, which is always a good thing. This is also beneficial because you’d get tax exemptions for members of the service housing.

Now, what do we exactly mean by this? For example, if the tax exemption for a given state is around $30,000 per month, that amount will not decrease so long as you won’t transfer to another state. Otherwise, your monthly tax exemption for housing would change depending on the state that you’re in. With that said, as long as you stay in the same state, the tax exemption is maintained to its original value and it will not decrease.

Payment Security

Another advantage is security in payment. Commanders will step in whenever a service member misses a payment so you can be sure that you will be paid. Furthermore, if a tenant fails to pay for reasons such as debt or bankruptcy, they will be forced to pay through direct deposits. They value their reputation and need to protect their career, as this is what gives them eligibility for top-secret clearance.

It will also work out well for you, as tenants really won’t want to reach a point where the commander gets involved. Again, they want to protect their careers. Just make sure to gather all the information about your tenant should it reach a point where you have to contact the commander.

Cleanliness

If you are concerned about the cleanliness of your real estate, most military tenants are generally clean and organized, so the destruction of your property should not be a problem for the most part. While not all of them may be like that, most of them are, so you really don’t have to worry.

Growth Potential

Military bases can potentially grow, especially during times of conflict. This means that as the number of personnel increases, your potential tenants would also increase. In this market, the more population, the better it will be for your business.

Before investing in military bases, inquire at their local personnel office about the scope of their plan throughout the years and ask about whether they want to grow or cut back in size. Although this information might be prone to change, it can still be a good factor to consider before you start investing.

Cons of Investing in Property Near Military Bases

Short-Term Tenants

One downside to investing near military bases is accepting the reality that the length of your tenants’ stay will be short—usually around two to three years on average. Though there may be tenants who stay longer, it’s really not common. If you’re lucky, some tenants could also stay for more than a decade. But the chances of that happening are usually slim.

This can still work out well for you, as this could mean you’ll be able to welcome new tenants more regularly. On the other end, there’s also a possibility that no new tenants will replace the ones that leave.

Lease Breaking

Another downside is that tenants have the right to break the lease or cut their lease short due to relocation assignments—and they cannot be penalized for it. Usually, they’ll give out a 30-day notice then leave. Sometimes it’s longer, especially in cases where they want to take a vacation prior to leaving or are waiting for the schedule of the movers. Sometimes the leave is also shorter than 30 days, but this happens rarely.

Tenants could also be deployed and would cut their lease short if they’d prefer to send their families home during the time of their deployment, especially if their families don’t have any friends at the base. This is unlikely to occur, however, since we are currently not at war.

There’s nothing you can do when they break the lease, and it would be best for you to not fight the system or make it difficult for your service members. Doing so might get you blacklisted, wasting all your hard work and effort.

Gradual Income Growth

Although military salaries increase over the years, so does inflation, making income growth gradual rather than exponential.

It is also important to note that an increase in population does not always mean more tenants. Housing allowances are usually limited, which means a limited number of tenants.

Shrinkage Potential

Furthermore, you also need to educate yourself about the base and its closure potential to assess where your investment stands should the base shrink or be closed in the future. This is why studying the area in coordination with the personnel office is very important prior to investing.

Should You Invest?

It’s a matter of weighing both the pros and cons when it comes to investing in the military base and coming up with an appropriate strategy for sustaining your real estate business.

It is up to you whether investing in property of this type is the right decision for you or not. Keep in mind that in every market, there will always be as many downsides as there are ups, and it’s a matter of how you use the information handed to you to your advantage.

Are you investing in military bases?

Tell us why or why not in the comments below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.