Real Estate Investing While Serving in the Military - Pros and Cons

Being a buy and hold real estate investor, while serving in the military, has its unique pros and cons. I will attempt to cover as many as I can below, but please feel free to add any additional ones that you may have. Also, please raise the BS flag on any that I have laid out that you might not completely agree with.

Pros

Job Stability

Although some services have seen personnel cutbacks over the last few years, overall the military has a great record of job stability. Sometimes they won’t even let you out when you want out! This can be a good thing when investing in real estate. In an article titled The Military: An Alternative to the Brutalities of the Modern Economy written in The Atlantic, Scott Beauchamp writes, “In the military, clothing, food, shelter, and medical care are guaranteed. And although it offers less choice about what to wear or where to live than the private sector, there’s a baseline of care for service members that doesn’t exist in the civilian world.”

To lenders, you usually are a reliable person to loan money to because they know that most likely you won’t end up unemployed tomorrow. If you live in base housing they can rest assured your housing will be taken care of and if you live off base you get an allowance specifically to pay for your housing. Lenders know if you or a family member gets sick or injured you have healthcare to take care it. You know you can invest with a piece of mind knowing that you will likely have that stable source of income well into the future. And, although not guaranteed, you can forecast promotions better than a lot of civilian employees. If you can keep your credit score and debit/equity in check, lenders will be lining up to lend you money.

VA Loans

This might be the best pro that we have as military members in the realm of real estate investing. There aren’t many investments you can get into for 0% down and a low repayment APR. While you will pay some fees to get the loan and there are a few more hoops to jump through, the benefit of this type of mortgage compared with a conventional or even an FHA is a big advantage to military members.

FHA loans allow you to put as low as 3.5% down on a house and a conventional mortgage will require at least 20%. While some higher upfront fees are associated with VA loans, you will not have to pay PMI like you would with an FHA loan. Like an FHA loan, however, you must plan on living in the house for at least a year. However, one can get numerous FHA loans but usually, VA loans are limited to only two and the second one has some different rules and limits that apply.

Market Exposure

While this Pro isn’t limited to people in the military, military members are forced to pick up and move cities every 2-4 years. For most of us, especially those with families, this at first seems like nothing but a big headache. However, for the military real estate investor, this allows them to obtain the experience and knowledge of multiple markets throughout his or her career. It also provides them the opportunity to move from a bad market into a good one. Although they may move out of a good one into a bad one, they now hopefully have the knowledge and team built to invest out of state, back into that good market they are familiar with.

Built-in Network

In the military, we have to learn to trust other service members, even those who we may have never met, with our lives. There may come a time where a stranger in another service has your life in their hands, and you have to have faith that they will come through and do what is required to ensure your safety. While this is a circumstance that will unlikely come up in real estate investing, the trust we have for and desire to help out other service members doesn’t disappear when we leave the battlefield. Personally, when I’m on the forums and I see a service member that is looking for assistance in something I’m familiar with, I’m much more likely and happy to help out. What’s more, when I’m on the receiving end of that help, I’m a lot more likely to trust the advice from a stranger that is, or was in, the military. Yes, I know there are untrustworthy people in and out of the military. This does not remove the due diligence everyone must perform; it merely starts the relationship off on a higher level of trust.

Another benefit of the built-in network is the supply of possible tenants. For the properties we buy and hold near military bases, there’s a constant stream of new tenants. The local economy may go up and down, but that stream of rent from BAH will continue to come in. I’ve even had one military tenant find me another military tenant to rent the house, sight unseen, purely by word of mouth. Barring a BRAC at that particular base, you should see a constant stream of renters for years to come.

TSP Loans

Thrift Savings Plan, or TSP, is the military equivalent of a 401K. While most of those serving are not yet able to take advantage of any matches, it does offer similar tax benefit of traditional and Roth IRAs with much higher limits. One benefit of TSP is that members can take out a “loan” from their TSP accounts. I put loan in quotes because it’s not like a traditional loan. You pay yourself back the very low (1.75% today) interest rate. It’s also not really a loan because it doesn’t go on your credit report and if you fail to pay it back within the terms, it merely goes down as a tax penalty instead of the loan going into default.

This TSP “loan” can be a benefit for anyone that may have started a little late in their career. The service member can take out money from his or her TSP for a down payment on an investment property. Please consult all the rules and regulations on the TSP website and speak with your accountant or financial advisor, because this is merely my interpretation of the rules and benefits of TSP “loans”.

Retirement

There aren’t many retirement plans that compare to the one the military offers. After 20 years of service, we can leave with 50% of our base pay for the rest of our lives, and the benefits go up from there the longer we remain in service. Further, unlike many companies, the military retirement is a lot more reliable because the service member’s retirement is not reliant on stocks price or the health of the company in the future.

A lot of the benefits in retirement are the same discussed in the “Job Stability” section above. The major benefit of retirement is the supplementation of cash flow for your real estate investments. For example; if you think you need $60,000 to retire from your job, without retirement this would mean you would have to have enough real estate to provide the entire $60,000 for you. However, if you had $40,000 coming from retirement, you would only need $20,000 coming from your real estate investments. Anything above the amount required to maintain a certain standard of living can be reinvested to eventually increase one’s overall income every year.

Cons

Deployments and TDYs

Although there are plenty of benefits for military members there are few cons that military members need to be aware of. Being out of the country for a long period of time or merely away from home for a few weeks can make it difficult to manage investment properties and acquire new ones. This difficulty is intensified when a service member is on a remote battlefield where the lack of Wi-Fi to manage investment properties is the least of his or her worries. Because of this, it is important to have reliable property managers whom you give a monetary limit in which they can make decisions regarding maintenance in the case you are unavailable. Another good resource may be using the help of spouses, family members, or close friends that can answer questions in your stead.

Inability to Choose Your Location

Let’s be honest, some markets are better than others to invest in real estate. While there are many methods for researching and obtaining properties in other markets, it’s much easier if you live in an area where the numbers work. Civilians often have much more flexibility in choosing where they chose to live, especially those investing in real estate full-time. For the most part, the military puts service members where they need them and only slightly takes into account specific location requests. This is a big reason why I chose turnkey properties to invest in. I can invest in markets with high rent to purchase ratios while living in a different area. While still doing my due diligence in researching the property and the area, if I choose a reputable turnkey company, it can take a load off of investing in out of state (or country) properties.

Constant Moves

Although I mentioned “exposure to many markets” as a benefit to investing in real estate while serving in the military, the constant moves can also be a con. While moving every 2-4 years exposes one to many different markets, it also might remove you from a stable market in which you already have a few investments. Getting to know the area and being able to get out and physically seeing the properties and screen the tenants is invaluable. When you find you are stationed in a good market, it’s important that you start building a good team early and that you treat them well so they will stick around after you move, when you need them the most. Realtors, property managers, maintenance personnel, insurance agents, and lenders are just a few of the people that you will need on your team if you plan on continuing to invest in the market when you are forced to move.

Conclusion

This list of pros and cons isn’t all-inclusive by any means. Every person will find their own pros and cons in each market and every service will have its particulars as well. Bottom line is that being in the military should not stop one from attempting to increase their wealth. On the contrary, there are more reasons to invest in real estate. Please leave comments below if you have anything to add, and check out my other blog about my journey to my first turnkey property.