Building Wealth in the Military With Rental Properties

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This post is mostly targeted at junior military officers at the beginning of their career. However, it is applicable to anyone who moves, either due to work or personal choice, around the country for work. Or it could be adapted by a newly promoted Non Commissioned Officer (NCO), or a more senior officer. The military offers an excellent pension plan for those who make it to the 20-year mark. There are many hurdles to overcome to get to that point. There are a series of increasingly more selective promotions, the stress of constant moves and deployments, the loneliness of starting a new life and building a friendship network at each assignment, and the impact to a spouse’s career. However, it can be an extremely rewarding way of life. I did not personally stay in for 20 years on active duty, but this was the plan I wish I had adopted from day 1. I hope this provides value to some out there who are looking for a long game plan. Feel free to reach out with questions or comments!

What I Wish I Had Known as a 2nd LT

When you commission as a second Lieutenant (LT), your first assignment will be at your branch’s Basic Officer Leadership Course (BOLC). Some courses are longer than others are, and some require that you live on base during your training. This will generally be 3-9 months’ worth of school. At some point during this school you will be given you, follow on assignment. You will be stationed there for 3-4 years before you go to the Captain’s Career Course, probably at the same base as your BOLC (some people might be able to attend a different course, or change branches). During those 3-4 years, you might go on a deployment. You will certainly spend a lot of time in the field (in my experience anyway). Here is how I would set up my housing as a brand new LT.

If you master the skills of real estate, and more importantly the discipline to stick to a plan, you could retire from the military and never have to work another day in your life. Your income would continue to increase after you retire, and do so until you die. You will have built multigenerational wealth (if you choose to pass it on). This is a “if I could redo things with what I know now” overview.

Whatever you major in at college, you are not prepared for adult life. High school and college does not teach you basic financial literacy. Pretty much everyone graduates on the same plane of knowledge when it comes to budgeting, rental agreements, mortgages, etc. It is better to get this “adulting education” over with as quickly as possible so you can have a successful life. Some of these basic skills will make your life so much easier. When I graduated college, I did not know how to apply for a loan, generate a realistic budget, or understand how to systematize my bills to make sure they were all paid on time with minimal thought.

BOLC – Year 0-1

Live in the base provided hotel room or in a cheap furnished apartment with a roommate. Many apartment complexes near these bases will rent apartments out by the room because they know about the high turnover rate of the military students. Alternatively, there might be cheap furnished apartments near the base. If you do not have any student loans or a car loan, save up as much money as possible. You only have time to eat, sleep, and study in this apartment so it does not need to be that nice. CAUTION: Do not rent the cheapest apartment right next to the base. I did this and it was cheap for a reason. Lots of drug deals, gang activity, home invasions, etc. I might have saved $100 a month on rent, but it was such a bad neighborhood that I bought my first pistol for personal security (multiple home invasion and visible drug activity in the complex). The pistol and ammunition cost me about $400, so I really only saved $200 and lived in a terrible and cold apartment over an Oklahoma winter. Not fun, or my finest choice.

Take out the Career Starter loan. You will never get a better interest rate on a loan for the rest of your life. When you find out your next duty assignment, start looking for a house to buy. If you have people in your BOLC class going to the same location, evaluate their potential to be a good roommate. Do they drink a lot on the weekends (or during the week)? Is their equipment constantly broken and dirty? This is probably not who you want to live with.

I recommend looking into buying a property, and it’s something I wish I had done as a 2nd LT. Something no one ever told me that is extremely powerful, is that when you pay rent, you are just paying someone else’s mortgage for them. I would rather live somewhere and pay off my own mortgage, or have other people pay it off for me.

First Duty Assignment – Year 1-4

When you graduate BOLC and are getting ready to move to your new assignment, you will be given some time to get to that location. This is your time to pack everything you own and move across the country. You can have the government move everything for you, move it all yourself, or do a combination of the two. There is a lot of information out there on the best ways to do this. Let’s say you have been in a 6 month long BOLC. At a rate of 2.5 leave days per month, you have 15 days of leave saved up. The Army will give you a couple days for free to move. Let’s call it 5 days to get to your new duty location. Once you arrive and go through the paperwork process of joining your new unit, you will be given 10 days of PTDY. Permissive Temporary Duty Yield is basically free days off to find and secure a place to live. The critical piece here is that you cannot take PTDY if you have housing already. If you already had a rental lease or closed on a property, you do not get the 10 days (unless you can argue your case with the Housing Office that you need the time to unpack). I have gotten around this by having a verbal agreement in place, sign the paperwork at the housing office that I need the 10 days, and then immediately sign my lease. Therefore, if you take your 5 days of travel, 15 days of saved up leave, and the 10 days of PTDY, you will have a month of time to find and close on a house. If you did your research during BOLC, you should have found an acceptable place to live. Take those 30 days to buy it and move in. The Army will pay you back for your hotel stay during this time (in my experience). Many realtors near Army bases specialize in helping veterans find houses and close quickly.

Using your BOLC savings (if any) and the Career Starter Loan, you can put down $20,000 on a house. I think the limit for the loan is $25k, but I would keep $5k in reserve in a money market/ high yield savings account for emergencies and repairs around the house. You can find out the exact requirements and terms for the CSL at www.usaa.com or through one of their representatives. From my research, the loan is between 0.05% to 2.99% (usually on the higher end) for 5 years. This is half the amount of a usual personal loan. Let us say your first assignment is Fort Bliss, TX (my first assignment). In a 5-minute Zillow search, I found a decent looking duplex for $160,000, and a nice looking townhouse duplex for $218,000. I also found a ton of nice single-family houses for under $200,000. Let's make the decision to purchase the nicer duplex. Each side is an 1100 square foot, 3 bed 2.5 bath unit. You live in half with a roommate, and rent out the other half. The fully rented half should go for $900 a month and your roommate pays $450 a month. That means you are bringing in $1350 every month from your home. If you get a VA loan at 5% (reasonable, since you have a limited credit history), your monthly payment will be $1300, plus the Career Starter Loan repayment (probably $450 per month). If you did not take the Career Starter Loan, and put $0 down, the monthly payment would be $1406. I used Nerd Wallet's VA loan calculator for these calculations. Taking the CSL is up to you and your personal situation. I just offer it as one option that many people take but put to poor use, such as buying a brand new Ford Mustang (I saw many newly commissioned 2nd LTs driving these in my BOLC). Better options for this personal loan are paying off credit card debt, paying down student loans, investing in the stock market, or buying your first property.

As a LT I rented a small 2 bedroom, 2 bath apartment with my girlfriend for $800 per month (on average). I paid for half of the rent, so $400. Over 3 years I spent $14,400 ($400 x 12 months x 3 years), and owned nothing to show for it. I spent 9 of those months in the field on training exercises, and was not even in my apartment. If I had been smart and bought this duplex with no money down (I did not take the CSL), I would own a house with 27 years remaining on the mortgage. Additionally, that mortgage would be almost completely paid for by other people. Instead of being $14,400 in the negative, I would have been able to save that amount of money for my next house when I move.

After you get orders to your Captain’s Career Course, find a tenant to either move in with your old roommate (rent by the room), or rent out that half of the duplex to a LT fresh out of BOLC (or some other qualified tenant). At this point, your mortgage has not gone up, but rents in the area will most likely have gone up. Let’s say you rent out each half for $1000. Since you are not in the area, you hire a property manager, who takes 10% of the rent for her services. You now have a property that brings in $1800 ($2000 *0.9) per month in rent, with a mortgage that is $1400. Every month you are generating $400 for future expenses, your reserve fund, or to fund the purchase of your next house. Alternatively, you could pay off the CSL, if you took it. The final option would be to use the extra money to pay down the mortgage. The key here is not to treat that $400 as supplemental income to your military salary. Save it for the future. Trust me it is worth it. This is where the discipline to pursue long-term wealth come in. After 3 years of on time payments, you could probably refinance for a lower interest rate, which could potentially make your cash flow position even better!

CCC – Year 4-5

Unless you can find an excellent deal on a property (with a roommate of course), I would recommend renting a small apartment or house with a roommate. You will only be there for 6 months or so, and I do not think it would be worth it to buy. Just one man’s opinion. Keep saving money for your next house.

Second Duty Assignment – Year 5-7

For your second assignment, I would probably rinse and repeat what you did for your first assignment. Alternatively, you could buy a triplex or quad plex if you like those living situations. By this point, you will be making CPT pay with at least 4 years of experience, so you may not need or want the roommate. The choice is yours. Or you may be married/ engaged by this time.

Let's assume that you are assigned to Ft. Lewis, WA and want to live close to base. You might be a Company Commander in the next few years, and want to have a short commute. The easiest place to live with the shortest commute is Dupont, WA. It is quite an expensive place to live. You find a 1600 square foot 3 bed, 2.5 bath with a sticker price of $330,000. Since you have excellent credit (750+), you can qualify for a better loan. Since you were living almost free in Ft. Bliss, and were able to save up some money at CCC, you have $25,000 for a down payment. Dupont has a Home Owners Association (HOA), which costs $30 per month. You buy it for asking price, and your monthly payment is $1,800 a month. You have a roommate/significant other living with you who pays half of it, so you are paying $900 per month out of pocket. Your reserve account has $10,000+ in it (you doubled what you had in there while you lived in El Paso), so you are ready for any emergency at either house, and will build that fund over the next few years. Use that $900 per month you are saving by living with someone to build your reserve and the down payment for your next house.

After 3 years of successful Army jobs at Ft. Lewis, you move to your third assignment. Assuming you had $10,000 in reserve after buying your second house, and you saved the $400 per month from house #1 and $900 a month in savings from house #2, you would have $56,800 in the bank. This does not account for increasing rents or interest accrual. Assuming you keep $25,000 in reserve, you would have $31,800 for the down payment at house #3.

Once you move, let’s assume your house will rent for $2,100. Dupont is a fairly dense rental market so this is probably an accurate assessment. After hiring a property manager, your house generates $90 per month. This is definitely not enough to cover your future expenses, but you could refinance for a lower rate at some point. The rents in your El Paso duplex have also gone up by 5%, so it is bringing in $580 a month. Once you move to your third assignment, you will own two properties that bring in a net income of $670 per month, or $8040 per year. Other people are paying your mortgages, and because you saved up a reserve, any emergencies are easily handled. New roof? Furnace goes out? You can cover it.

Third Assignment – Year 8-10

At this point, you are a CPT at a broadening assignment with 7 year's experience. You have successfully completed Company Command and Battalion S-2, two of the jobs you need for your next promotion. You are married to a wonderful spouse with a decent paying job. You are assigned to the DIA HQ in the DC region, and can expect to be there for 2 years. You do not mind having a bit of a commute, so you buy a house in Takoma Park, MD. Since you do not expect to be working as hard day to day, you buy a three unit and live in one of them. You personally manage the other two units. Each rental unit is 1,000 square feet with 1 bed 1 bath, renting for $1000. You and your wife live in the largest unit, which is 1,500 square feet with 2 bed 1.5 baths. It lists at $600,000 and you put $31,800 (about 5%) down with an FHA loan, since you have exhausted your VA loan limit. Your loan is at 3.5% interest on a 30-year note. Your monthly payment is $3400. Since you are managing both of the rental units, your out of pocket expenses is $1400 a month. Between you and your wife, you each pay $700. You build your emergency reserve fund to $30,000 by saving $700 per month, plus the $609 from rental income. This only takes 4 months at $1309 per month. This $1309 can be saved up for your next down payment or paying down principal on one of your mortgages.

After 2 years of living there, it is time to move again. You have made the list for promotion to MAJ, and are moving to Ft. Leavenworth for ILE. Your El Paso and Dupont rents have gone up by 5%. The rents for your Takoma Park properties have gone up by 5%, and you rent out the unit you lived in for $1500. You once again hire a property manager. This property ends up costing you $70 per month to cover the mortgage, and you have nothing to put into the reserve from this house. However, with $30k in reserve, you do not need to build this anymore. At this point, your properties are generating $609 per month. You were able to save $700 per month (half your residual mortgage cost), plus the rental income ($609 per month for 2 years) for your next down payment. If you saved all the income for your next down payment, you have $31,416 ($1309 x 24 months) for your next property.

ILE – Year 11

You are now at ILE at Ft. Leavenworth, KS. Like other school assignments, you choose to rent instead of buy. You focus on doing well in school and spending time with family and friends. You are here for a year and are not able to put away any extra money because you have a child now (these tend to be expensive). Because of your rentals, you are able to generate $609 a month, however. Over that year you save an additional $7,308. This brings you up to $38,724 for your next down payment. However, all 3 of your properties need new carpet ($3,500 each), roof and gutter cleaning ($750 each), and exterior cleaning ($1,000 each). This costs you $15,750, leaving you $22,974 for your next down payment.

Fourth Assignment – Year 12-14

You and your small family are assigned to the home of the 1st Cavalry Division, Ft Hood, TX. Back in the greatest state in the union! You have been promoted to MAJ, and are expecting to have many job responsibilities that will require your attention. You buy a single family home in Nolanville, TX. It is 15 minutes to base and is in a good elementary school district. You pay sticker price, which is $200,000. You put down $20,000 on a 4.75% loan (rates have gone up). You top off your reserve fund with the remaining $2,974, leaving your reserve balance at $33k+. Your new house is a 4 bed 2 bath 2,000 square foot home. It costs you $1,150 per month. Each spouse is paying $575. You save up your other $575, as well as your rental income. This allows you to save $1,155 per month. Over the 3 years you spend at Ft Hood, you save $41,580. Your duplex in El Paso needs a new Air Conditioner ($3500) and your house in Dupont needs a new roof ($8000).

You replenish your reserve with your savings, leaving you with $30,080 for your next down payment. You hire a property manager and rent out this house. It rents for $1400 per month, cash flowing $110. All of your other rents have increased by 5%. After 3 years at Fort Hood you have 14 years in the Army. You have successfully completed being a Battalion XO and S3. You own 4 properties. They generate $1,179 per month, or $14,149 per year.

Fifth Assignment – Year 15-17

In your broadening assignment as a MAJ, you are selected to serve in the 4th Security Forces Assistance Brigade (SFAB). You are stationed at Ft. Carson, CO. You once again look for and purchase a home for your family. You buy a 3 bed 3 bath, 2000 square foot house for $320,000. You are close to base, in a decent school district for the kids, and living in an extremely comfortable home. Your mortgage payment in $1900 per month, of which you pay $950. Your spouse pays the other half. You save your other $950 in addition to the $1,179 per month in rental income.

By the end of your time at Ft. Carson, you have managed to save $75,444. You had to replace the AC at Ft. Hood ($3500), the Roof in Takoma Park ($9000), and the furnace in Dupont ($4000). Each house needed repairs or painting this year ($2000 each), as well as new carpets ($3000 each).After all of this, you still have $43,944 saved for your next down payment.

One of the things about the SFAB units that attracted you to this assignment was the opportunity to deploy. If you have not deployed already, this will be an opportunity to spend some time overseas doing what you have trained to do for the rest of your career. You will be focused on your work, and your spouse will be dealing with raising children on his or her own and with the stress of separation. This is a time when having good property managers is worth all the money in the world. Reducing any additional stress at this point in your life is critical. The deployment may increase your salaried income (hazard pay, tax-free income advantage, etc.), and will decrease your household expenses since you will be away from home (one less mouth to feed).

After you return from deployment, you are selected for promotion to LTC. Your rental properties each increase rents by 5%. Your house in Colorado Springs rents out for $2100, covering all but $10 of the mortgage. Your rental properties now generate $1,723 per month.

CGSC – Year 18

Like every other school you have attended, you rent a house and decide to focus on school and family. Your rental properties generate $20,676 while you attend school. Half of this is set aside as an increase for your reserve fund. You have $54,282 for your next down payment.

Sixth Assignment – Year 19-21

You and your wife decide that this will be your last assignment. You will retire at the end of your 21st year in the Army. You are assigned to the DC region again, and decide to purchase in Virginia. You buy a beautiful old 4 bed 3 bath 2300 square foot house for $350,000. You put down all of your $54,282, and your monthly payment is $1900 per month, including a $60 HOA. You put $20,000 of your reserve into property improvements across all of your properties ($25k in reserve). Your properties are generating $1,723 per month at the start of this tour.

At year 21, you get out of the military as a LTC having had a wonderful and fulfilling career. Your rental properties increase rents by 5%. Your rental properties are cash flowing $2,292 per month, and none of your mortgages are paid off. You have $25k+ in reserve for emergencies, which is easily be built up to $48k in about 7 months. With all of your properties still on a mortgage, this $48k represents about 5 months of mortgage payments if they all went vacant at the same time. That scenario is unrealistic, but could happen. Even with other costs associated with vacant properties, such as maintaining utilities, you have at least 90 days to find and bring in new tenants before you need to start to worry.

A LTC with 21 years you would be making around $4,000 per month in retirement income. All told, as an individual you would be bringing in $6,292 per month. The only work you would need to do is pay your mortgages on your properties, and move money around to cover repairs. You would be 43 years old and never need to work again, making $75,504 per year.

Additional Benefits

Taxes- as you may or may not know, property is a depreciable asset. What that means is the IRS says that each year you own it is loses value over a set schedule. For property, that is 27.5 years. The assumption here is that your asset has a shelf life, and will need to be replaced (like machinery in a factory). The nice thing about real estate is that you get to keep the asset after it is fully depreciated, and houses last much longer than 27.5 years! Therefore, you can reduce your taxable income by 1/27.5th of its value for the first 27.5 years you own the property. This saves you a lot of money in taxes. Let's say you make $100,000 per year. If you had bought a house for $200,000, you could reduce your taxable income to $92,728, meaning you don't pay taxes on $7,272 of your income. Your maintenance and operating expenses (management fees, HOA dues, property taxes, insurance, etc.) for the properties can also be deducted.

Retirement Locations- Owning properties in Texas, Washington, Virginia, Maryland, and Colorado gives you many easy options for retirement locations. Since you already own these properties, and bought them several years earlier, you do not have to assume a new mortgage if you choose to move back to that state. You just need to wait until your current tenant moves, or figure out the best way to legally get them to move out of the property. Your property manager can probably help you with this. Since different states charge different rates for income and estate taxes, it might be a good idea to examine which of your homes provides you the best option for retirement. For example, WA has no income tax, while VA has a 6% income tax. If you retired to WA instead of VA (all other things being equal), you would be paying $4,530 less in taxes per year. However, VA might provide more in terms of retirement benefits, such as no taxes on prescription drugs. Additionally, the weather is better in Virginia, and the overall crime rate is lower. All of these factors will contribute to where you ultimately decide to retire. Having houses all over the country will give you something that many people do not have: options.

Steady Income- As your mortgages are paid down, your income level will go through the roof. Once each property is paid off, you can aggressively pay down your other mortgages. Without increasing rents, once all your properties are paid off, you will be making almost $12,000 per month. Even if you put 1/3 of that away for future costs/ operating costs, you will be netting $8,000 a month, or $96,000 per year. That does not even include your military retirement income! With military retirement factored in (assuming all properties are paid off), you will be making about $144,000 per year. As you age, medical costs increase and this amount of steady income will provide you the ability to live a relatively stress free and relaxing retirement.

*Note1- all calculations were done using today dollars

*Note 2- property value appreciation was not included in any calculation

*Assumption 1- rents will generally increase 5% every 3 years

*Assumption 2- The reserve money generated no interest

*Assumption 3- no extra principal payments were made

*Assumption 4- mortgage interest rates will remain low

*Assumption 5- your Property Managers are trustworthy

*Assumption 6- Your Property Managers select high quality tenants that do not trash your properties

Visualization

*Blue numbers indicate when you are living in the property paying the mortgage.

Sounds advice!  I see a lot of New muscle cars rolling down the streets of Killeen. Every time I see one I think that payment could be going to a duplex or fourplex that would be buying you a Tesla in ten years. 

Love the detail you put into this post.  As an active military RE investor myself, I don't think many others in the same position realize how our situations can really benefit us for the long term.  

Sparring most of the details, I was at Ft. Lewis for 6 years and didn't maximize my opportunity to begin house-hacking at the minimum!! I was just so excited to be on my own but left thousands on the table which could be supplementing my deals today.

(insert analogy pertaining to the the next best time to plant a tree here)

@David Pere I took your advice and I just purchased a 4plex as my first property with my VA loan. Thank you for the advice. Next, I'll get into smaller apartment complexes.

Very detailed description as to how things can work out when things go right

However, as a former soldier and one that has flipped scores of properties in Ft Hood, I have witness the struggle of soldiers when their rental properties have gone sideways.  Granted the vast majority become landlords by accident as they used 100% financing and when they PCS in a couple of years the property sales price would not cover the loan amount.  Then repairs hit, evictions happen and the soldiers fail to have the reserves to cover the shortfall

When choosing this strategy, reserves are the key as well as a GREAT property manager.  

@Greg H. do you happen to operate still in the Killeen area? I'm curious if there are any active REAs in the area. If there are, would you mind sharing the details on where and when they meet?

@David Pere for sure! I'll PM you the details. 

Originally posted by @Mark Cruse :

Cliff notes...……..

Step 1: Join the military as a commissioned officer.

Step 2: Buy and hold property every place you move for longer than a year.

Step 3: Embrace delayed gratification.

Step 4: Retire from the military after 20+ years with cash flowing rental properties.

Step 5: Profit.

Originally posted by @Greg H. :

Very detailed description as to how things can work out when things go right

However, as a former soldier and one that has flipped scores of properties in Ft Hood, I have witness the struggle of soldiers when their rental properties have gone sideways.  Granted the vast majority become landlords by accident as they used 100% financing and when they PCS in a couple of years the property sales price would not cover the loan amount.  Then repairs hit, evictions happen and the soldiers fail to have the reserves to cover the shortfall

When choosing this strategy, reserves are the key as well as a GREAT property manager.  

 Greg,

Thanks for the insightful comments. I agree that many people focus on the 0% down VA loans, and do not put enough away for the inevitable expenses. This was my example of a better case scenario, without all of the nightmares of bad tenants and inept property managers that you sometimes hear about. That cash reserve is so important. There are many problems in this industry, and life in general, that can be resolved easily with writing a check. Having the funds saved up to do that reduces your stress significantly.

Luke