Military bases buy-and-hold strategy

12 Replies

I am doing some research on buying SFRs/2-4 plexes near military bases and listing on military websites.  Here is kind of the baseline for what I would like to capture.  Is this too much, and is there anything I am missing, and can anyone suggest locations across the country that fit this bill? Not opposed to buying in PR, Guam, HI, etc...

-Within 15 minute commute of a military base that are large enough to not be shut down

-Preferrably in a known/recognized community the military folks lived last year, and the year before, etc  (eg. MacDill AFB in Tampa = South Tampa hotspot to buy in - but low cap rate)

-Neighborhood should be 50% rentals or less?

-Class "A"

-Rating on greatschools.org 9 or 10

-Cap Rate at least 8%

-Must have several other large employers in town with strong transient (consultant?) workforce

Any advice is appreciated.  PM me if you offer such services in your local market.

Thanks!

You are looking at military bases because of predictable and stable employment over the long term. I would encourage you to think about State Capitals because they also offer this type of "trickle down" economic boost. I just so happen to operate in one... sorry for the shameless plug. contact me.

Originally posted by @Kyle D. :

-Cap Rate at least 8%

Any advice is appreciated.  PM me if you offer such services in your local market.

Thanks!

How would you know what the market cap rate was for residential properties?

I've been using a military base long term hold plan since starting investing, at first by accident and then on purpose.  We buy houses in neighborhoods favored by military families, and we set our rents at the local cap rate, usually for E-5 and up.  There are not so many O-8s, for example, as there are E-5 and up.  And the lower ranks don't tend to buy.  The military tends to leave enlisted in place for 4 years, where officers tend to move more regularly, so again, that helps our tenant-stay period.  We use property management, largely because we've been overseas for 16 years, and the PM handles marketing, collection of rents, property maintenance, and tenant screening.  On-base housing has quite high standards for keeping a property in "as you found it" condition, and that is what we prep our tenants for, as well.  Feel free to ask any questions that I didn't address.

How do you feel military renters compare to a typical single family tenant in regards to paying on time, care of the property and maintenance issues? Do they typically prefer condos because of the low maintenance or SFH?

We have had tenants who stay for their 3 or 4 year tour, and then move on. Folks are able to break their leases if they get military orders, just so you are aware. As far as the preference for SFR or condo, well, my experience is that apartments are great for folks in tech schools, which are shorter length training periods. I've seen single O-1 or O-2 folks rent out full 3-4 bedroom houses and stay for years; have also seen married folks do the same. Our houses are all 3/2 or 4/2 houses. If a person does not use up their housing cap, they don't get any benefit to it, such as pocketing the difference, so they just get a smaller space at the lower rent. It is to their benefit to get the most property they can get for the rent cap and rank. On the other hand, buying worked out well for us because we could structure it so that our mortgage was under the cap, and we could pocket the difference. I understand the gov't is reducing housing caps in some areas as well as plug up this loophole for buying. But that is another story. This is a link to the current BAH calculator for particular ZIP codes:

http://www.defensetravel.dod.mil/site/bahCalc.cfm

You can look at what various ranks earn just for housing allowance.

Originally posted by @Bob Bowling:
Originally posted by @Kyle Davis:

-Cap Rate at least 8%

Any advice is appreciated.  PM me if you offer such services in your local market.

Thanks!

How would you know what the market cap rate was for residential properties?

I guess I should have said Areas where Market cap rates are atleast 8% ?

cap rates are just a function of NOI / purchase price right? or does it only apply to commercial/multi unit?

Originally posted by @Kerry Baird :

We have had tenants who stay for their 3 or 4 year tour, and then move on. Folks are able to break their leases if they get military orders, just so you are aware. As far as the preference for SFR or condo, well, my experience is that apartments are great for folks in tech schools, which are shorter length training periods. I've seen single O-1 or O-2 folks rent out full 3-4 bedroom houses and stay for years; have also seen married folks do the same. Our houses are all 3/2 or 4/2 houses. If a person does not use up their housing cap, they don't get any benefit to it, such as pocketing the difference, so they just get a smaller space at the lower rent. It is to their benefit to get the most property they can get for the rent cap and rank. On the other hand, buying worked out well for us because we could structure it so that our mortgage was under the cap, and we could pocket the difference. I understand the gov't is reducing housing caps in some areas as well as plug up this loophole for buying. But that is another story. This is a link to the current BAH calculator for particular ZIP codes:

http://www.defensetravel.dod.mil/site/bahCalc.cfm

You can look at what various ranks earn just for housing allowance.

 if the spouse is in the military do they both get the full allowance or is it a percentage? any details would be helpful. or is one person in military per household the 80% rule?

Originally posted by @Kyle D. :
Originally posted by @Bob Bowling:
Originally posted by @Kyle Davis:

-Cap Rate at least 8%

Any advice is appreciated.  PM me if you offer such services in your local market.

Thanks!

How would you know what the market cap rate was for residential properties?

I guess I should have said Areas where Market cap rates are atleast 8% ?

cap rates are just a function of NOI / purchase price right? or does it only apply to commercial/multi unit?

1. Cap rates just show the market value of a current NOI for a property type in a particular area for a given time. Why would you pick an arbitrary number like 8? If the market is buying at a 5% cap it could be that the market believes that rent or appreciation growth is imminent. OR, it could just be too many people with too much money. If you don't know which it is then you are not a very good investor.

2. You need NOI of sold properties to get market cap rates. Where would you get reliable NOI information for SFR's?

Originally posted by @Bob Bowling:
Originally posted by @Kyle Davis:
Originally posted by @Bob Bowling:
Originally posted by @Kyle Davis:

-Cap Rate at least 8%

Any advice is appreciated.  PM me if you offer such services in your local market.

Thanks!

How would you know what the market cap rate was for residential properties?

I guess I should have said Areas where Market cap rates are atleast 8% ?

cap rates are just a function of NOI / purchase price right? or does it only apply to commercial/multi unit?

1. Cap rates just show the market value of a current NOI for a property type in a particular area for a given time. Why would you pick an arbitrary number like 8? If the market is buying at a 5% cap it could be that the market believes that rent or appreciation growth is imminent. OR, it could just be too many people with too much money. If you don't know which it is then you are not a very good investor.

2. You need NOI of sold properties to get market cap rates. Where would you get reliable NOI information for SFR's?

1) I picked 8% because I want at least an 8% cap rate for my real estate investments

2) Is this suppose to be rhetoric? I am here to learn. I would think NOI for a given "A" property subdivision geared for military is pretty standard (rent is about the same, expenses are about the same, property taxes, etc.) so the only deviation is the purchase price which can fluctuate over the year. Looking at comps you could deduce per per sqft, come up with an appraised value, and then come up with a "Market Cap Rate". I'm sure I am missing something you will remind me of; Maybe this avenue is a dead end, but I like to explore!

Originally posted by @Kyle D. :
Originally posted by @Bob Bowling:
Originally posted by @Kyle Davis:
 

1) I picked 8% because I want at least an 8% cap rate for my real estate investments

Why? That cap rate is only reflected on the day of your purchase. If rents go up or down it changes. If expenses go up or down it changes. If vacancy rates go up or down it changes. Market desirability of the exact same NOI could decrease in half over just a short period of time.

The cap rate is EXACTLY the same for two properties next door to each other but the one that needs a new $20,000 roof next year is NOT going to be as profitable as the one that got a new roof two years ago.  See how a cap rate is NOT a predictor of profitability.  It is not and was never expected to be a measure of profitability.  So, why 8%?

Originally posted by @Bob Bowling:
Originally posted by @Kyle Davis:
Originally posted by @Bob Bowling:
Originally posted by @Kyle Davis:
 

1) I picked 8% because I want at least an 8% cap rate for my real estate investments

Why? That cap rate is only reflected on the day of your purchase. If rents go up or down it changes. If expenses go up or down it changes. If vacancy rates go up or down it changes. Market desirability of the exact same NOI could decrease in half over just a short period of time.

The cap rate is EXACTLY the same for two properties next door to each other but the one that needs a new $20,000 roof next year is NOT going to be as profitable as the one that got a new roof two years ago.  See how a cap rate is NOT a predictor of profitability.  It is not and was never expected to be a measure of profitability.  So, why 8%?

OK, your explanation this time made more sense. I guess I picked cap rate as an "indicator" just like an investor in the stock market uses certain "technicals" in evaluation of a stock. While you can always come up with deviations to the past-performance-analytics ("What if the company's CFO runs away with all the money", "EPA fines for chemical dumping" etc on par with "Sinkhole" or "Need a new roof" ). Can you suggest better "technicals" for the SFR markets? It seems most people refer to the NOI as an apple-to-apple comparison model so that is what I was using. I'm a newb.

Originally posted by @Kyle D. :
   Can you suggest better "technicals" for the SFR markets?    It seems most people refer to the NOI as an apple-to-apple comparison model so that is what I was using.  I'm a newb.

 Sales comparison approach is the best indicator of value for residential AND commercial property. The problem with using this for commercial properties is that identical properties can have vastly different incomes (NOI) because they are generally encumbered with long term leases that can be at/above/below current market rents.

Too many newbies want to ue cap rates because they think it makes them look "professional" when the opposite is true or they are trying to scam other newbies trying to make them think they an compare a 12 cap with a CD rate.  Shame on them.

Now if you have smaller multi families that are no so physically comparable you can use a GRM gross rent multiplier. Basically if a similar buildings sell at 9-10 times rents you can probably figure your similar building will be worth the same. Here you have to be careful that the expenses would also be similar.

1.  Sales comparison best if you have comps.

2. Cap rate is ONLY useful if you have actual NOI information from cap rate comparables.

3. GRM's are good for similar properties that also would have similar expenses.

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