Active Duty Military Investment Psychology

James Marszalek · 2016-12-13T11:46:46-08:00

Man... If only I knew what I knew now when I was active duty, my life would be a lot different right now. But at the end of the day, you don't know what you don't know! Here's the fact: Active Duty Service Members have a strong competitive advantage in the Real Estate Investment Industry. If you're active duty, I'm going to speak directly to you now. Here are some things for you to consider: - You have access to the VA Home Loan, which can be used for multi-family properties as well as single family. - THE GOVERNMENT PAYS YOUR MORTGAGE (BAH)- You are only required to occupy the property for 1 year before you are eligible to rent it out. (VA)- You are generally a prime candidate for mortgage acceleration tools like simple interest revolving lines of credit. - By the time you PCS or ETS, you can have passive rental income being generated on a monthly basis. - By the time you leave the military, you could have a massive chunk of equity built, and a great monthly income to help you transition to your next path. - A Real Estate Portfolio can be much more powerful than a retirement plan. If I could go back and do it all over again, I would have done things much differently. I would have utilized the tools given to me and purchased a multi-family property at each duty station I went to. After 2 years of receiving that rental income for each property, I can now count that income when I apply for financing on the next one. Not to mention, the mortgage acceleration tools I use now would have allowed me to completely have paid off my first property by the time I ETS'd. The greatest thing about this whole situation is the Army would have paid the majority of the mortgage down. Fort Wainwright and Fort Lewis alike have above average BAH. In most cases, soldiers want to find a property that rents (or get a mortgage payment) for less than what the BAH is, that way they can pocket the excess. I would have snowballed my mortgage acceleration by putting the excess cashflow from BAH into the principal of the mortgage through my line of credit. I could have come out of my 7 year military stretch with an 800+ credit score, and so much passive income I wouldn't have even had to go get a job. Instead, I could have continued to build my portfolio, and pursued my passions. If you are or have served this country, thank you for your service. I take the words "brothers and sisters in arms" very seriously. If I was sent a plane ticket back to the desert, I'd being going in a heart beat to support the operation! Be safe out there, and please learn from my experience! Set yourself up for life while you still have the advantage in your corner! This was taken just South of Kirkuk, Iraq in 06.

Cesar Rebolledo

Flipper/Rehabber · Largo, FL · Member since 2016 · 92 posts · 52 votes

9y

@James Marszalek from one vet to another thank you. I agree with what you said. One thing I always wanted to put together for our troops was a financial plan/goals course that is a little bit more in-depth than the boot/basic "this is what TSP is... now sign here and here". Keep up the awesome post brother, and thank you for your service.

3 Reply

Travis Callihan

New to Real Estate · Plumas Lake, CA · Member since 2016 · 32 posts · 24 votes

9y

@James Marszalek

Thank you for the post and information. I just received orders to my next duty station, Wright-Patterson, Ohio. I am looking at buying my first personal home, and investment home(2 separate properties) when I arrive there.

I would love to know more about the mortgage acceleration tools that you mentioned, since I am using the VA to purchase my personal home.

1 Reply

James Marszalek

OP

Property Manager · Tacoma, WA · Member since 2016 · 197 posts · 112 votes

9y

@Travis Callihan, we have a base in Ohio? I felt the same way when they told me I was going to Fort Wainwright Alaska. What the heck is in Alaska you ask? Well, aside from the porch that Sarah Palin can see Russia from, it's just a lot of snow and ice. Good luck with your PCS, brother.

As far as mortgage acceleration, you'll need to get a simple interest revolving line of credit (LOC) from a bank. Not all banks offer that product, but ask around and see who does. Credit unions are usually the best.

Basically, you start with whatever amount you're qualified for. Let's assume for this argument it's $5,000. So you call the bank that holds the note on your mortgage, and tell them you want to make a $5,000 principal payment. If you did this on month 1 of the mortgage, you're effectively jumping the payment schedule from month 1 to month ____, whatever $5,000 gets you. (The actual schedule will be printed out with all of your loan docs). All the interest you would have paid to the bank between month 1 and month _____ is now saved.

Now, you've jumped the mortgage payment, but your still have the $5,000 balance on the LOC. Instead of direct depositing your income checks into your checking account, they now get dumped into the LOC, where you can pay all of your bills from as well. The LOC effectively replaces your checking account. So you've got a scenario where you're affecting the LOC with income twice a month. The credit companies see this as a payment, which boosts your credit, and once the LOC is paid off, you do it all over again, leapfrogging the mortgage payments.

Eventually, the bank will come to you and raise your limit, or you can ask for it every few months. The bigger your LOC limit, the faster you can attack the mortgage. Eventually, you can swallow the entire mortgage into the LOC and your mortgage payment goes from whatever it is (let's say an avg of $1,400) to $200-$300, because a LOC is interest only. It's a genius strategy to significantly reduce the interest you're paying on the property, boost your credit, and pay down the property in 1/3rd the time on avg. And if you're also affecting the LOC with the total BAH, it snowballs even faster.

Now let all that soak in for a minute. This, more than anything in real estate investing, fires me up so much. This is a tool that's been around for a long time, but people would rather pay out $625,000 for a $300,000 house because they're cool just paying the mortgage over 30 years. I see that as highway robbery. Don't get me wrong, I don't have $300,000 cash to go buy a house, so a mortgage was necessary. But that doesn't mean I can't affect it, keeping hundreds of thousands of dollars in my pocket! Hit me up if you have any other questions!

4 Reply

Demetrius L Spencer

Wholesaler · Tacoma, WA · Member since 2016 · 10 posts · 5 votes

9y

James, this is VERY sound advice. I have purchased all three of my houses using the VA loan and when I PCS'd my first two houses became rental properties. I need to get on that LOC, however, I have debt that I need to paid down first.

As far as the VA loan, I'm thinking that you can refinance your house(s) for a FHA or conventional loan which then opens up the VA loan for another possible purchase. I'll be looking into that soon. The kicker is that MOST lenders will only accept one mortgage loan through the VA. Chase only allows one mortgage through the VA; Wells Fargo two.

1 Reply

Travis Callihan

New to Real Estate · Plumas Lake, CA · Member since 2016 · 32 posts · 24 votes

9y

@James Marszalek Thank you this. It seems like it would save a lot of money, and would not be a lot of extra work on my part. Let's use your scenario as an example. I think I got the numbers correct but I just wanted to make sure. Let's say I get a VA loan with zero money down. So I get a mortgage for $300,000, 30 year fixed rate at 4.5%. I ran it through an amortization schedule calculator. Which I have attached to this post.

If I get approved for a $10,000 line of credit with a 7.99% interest and max out the line I would be paying roughly $72 in interest monthly.

I would pay my first month mortgage payment out of pocket, in order to pay the interest for that month, then in the same month use my $10,000 LOC and apply directly to the principal. So I would pay $1,125 for the first month interest. But then I would get interest free for the next 6 months.

Saving me $6,717 in interest on my mortgage and only paying roughly $432 on my LOC.

Then when my line of credit it paid down to zero, using my BAH each month, I would start the process again. As I pay off my line of credit my limit would be raised and keep repeating the process.

In the end if my limit stayed at $10,000 for the length of my loan and I paid $72 a month on my LOC, for lets say 20 years. I would end up paying $17,280 total and my mortgage would be paid off. As opposed to paying the minimum each month for 30 years and paying $247,000 in interest.

Please tell me I did these numbers correctly. It would be a huge game changer.

1 Reply

Travis Callihan

New to Real Estate · Plumas Lake, CA · Member since 2016 · 32 posts · 24 votes

9y

Here is the amortization schedule link...

http://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx?loanAmount=300000&years=30&terms=360&interestRate=4.500&loanStartDate=16+Dec+2016&show=true&showRt=false&prods=216&monthlyAdditionalAmount=0&yearlyAdditionalAmount=0&yearlyPaymentMonth=+Dec+&oneTimeAdditionalPayment=0&oneTimeAdditionalPaymentInMY=+Jan+2017&ic_id=mtg_amort_calc_amortization_btn

1 Reply

Gilbert Dominguez

Investor · Detroit, MI · Member since 2016 · 211 posts · 144 votes

9y

As a Vietnam Area Vet I support this post 100%. Do not underestimate your military or Veteran benefits. The last two properties I purchased were covered 100% by VA benefits. The first was a duplex I purchase all cash and the second is the 1200 square foot home I currently live in but the VA covered both the purchase and the repair bill for me 100% and all within one year. Now I am saving my VA money to buy a gold mining company which will pay me 5 to 1 on a per year basis. Any active military personnel or Veteran is free to contact me. I have 30 plus years in real estate and would be happy to share my many years of lessons and experience in real estate investing with you free of charge of course.

The earlier you get started in real estate investing the better off you will be and be very, very happy you did it once you reach retirement age like me. I thank god I served and now reaping the rewards. Its about as close to heaven as I could imagine experiencing but you do have to put in some effort and strategize. Effect a life time saving and investment strategy and you won't fail. Include the use of a Roth IRA as well so your investments can grow tax deferred for years and years. You'll be surprised how that $5,000.00 to $6,500.00 you put away each year can grow into a million or even multi million dollar retirement for you.

Its just too bad that life long financial planning is not a part of your basic training but In my mind it should be. Real estate investing in one subject I would recommend evey individual that serves gets exposed to and encouraged to participate in.

2 Reply

Zack KarpPro Member

Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes

9y

Great post! And thank you for your service. I love working with vets and VA loans. There a such a lack of education about the possibilities of VA financing, not only with vets, but also with real estate and mortgage professionals. No money down purchase 1-4 units, 100% cash out refi, no DTI requirements, etc. And in the investment world, yes such a HUGE advantage over us civilians.

Keep educating brother!

847-387-5513

1 Reply

James Marszalek

OP

Property Manager · Tacoma, WA · Member since 2016 · 197 posts · 112 votes

9y

@Travis Callihan

A few corrections. In an ideal scenario, you aren't just using your BAH for the LOC. You use all cash flow coming in, meaning your bi-monthly checks as well. It's hard to get out of the "checking account" mindset, but I use my LOC like a checking account. It's a revolving account just like a checking account. I can freely put money in and take money out. Thus, any income I recieve gets put into the line of credit. I pay all of my monthly expenses with a credit card, then pay that card off from the line of credit every month. So in your scenario you pull the $10,000, and apply it directly to the principal of the mortgage, then you direct deposit all income into the LOC, affecting the balance of the LOC every month until it's down to 0, then you do it all over again.

1 other note: When you do this, you aren't "skipping" your mortgage payment. You still have a monthly PMI payment due. Remember, the mortgage payment itself rarely changes. What changes is the amount of principal vs. the amount of interest depending on where you land on the amortization schedule. So when you put the $10,000 towards the principal of the loan, you're jumping the schedule ahead, meaning the ratio is shifting in your favor for how much of the payment is going towards principal. By using this method we are attacking the mortgage, not the payment itself (necessarily).

Either way the numbers are insane. Generally it equates to paying off the property in 1/3rd the time, and you pay 1/3rd or less of the total interest that you would of paid to the bank if you just did the minimum for 30 years. Brother, this is a game changer, no question.

0 Reply

Cody Lambson

Real Estate Professional · Phoenix, AZ · Member since 2016 · 6 posts · 2 votes

9y

I like the sound of the LOC idea. But why, besides getting a better credit score, wouldn't you just take the ammount of money you would have spent paying back your LOC loan, and just pay that directly to your principle each month, to avoid the interest rate you pay on the LOC.

Ex: I take a $10000 LOC out and pay that towards the principle. I now have to pay... $400 a month back, at a an interest of 7% until it is paid off. Then wash and repeat.

Or

I set up automatic principle payments with my bank for $400 a month. Then I have a 0% apr because it is my money. That money can come from extra BAH or cash flow, or your just a good saver.

Maybe I just dont fully understand the LOC loan, but I can't think of a reason to choose to pay an apr besides like I said before, to gain credit.

I'd love to start a LOC today if it made a little more since to me, Please let me know which part I'm missing.

2 Reply

Gilbert Dominguez

Investor · Detroit, MI · Member since 2016 · 211 posts · 144 votes

9y

Don't underestimate the power of credit. Using one Strategy yes you can accelerate the payment of your mortgage and reduce the interest you pay. That is good for one property but someday you might consider purchasing a multimillion dollar apartment building. Wouldn't you like to pick that up with only $5,000.00 of your own money? Even if by that might you have one or two properties paid of would you want to keep it rather than have to use their value to get into an apartment building?

Use OPM every chance you can, that's what I say but to each his own.

1 Reply

James Marszalek

OP

Property Manager · Tacoma, WA · Member since 2016 · 197 posts · 112 votes

9y

Originally posted by @Cody Lambson:

I like the sound of the LOC idea. But why, besides getting a better credit score, wouldn't you just take the ammount of money you would have spent paying back your LOC loan, and just pay that directly to your principle each month, to avoid the interest rate you pay on the LOC.

Ex: I take a $10000 LOC out and pay that towards the principle. I now have to pay... $400 a month back, at a an interest of 7% until it is paid off. Then wash and repeat.

Or

I set up automatic principle payments with my bank for $400 a month. Then I have a 0% apr because it is my money. That money can come from extra BAH or cash flow, or your just a good saver.

Maybe I just dont fully understand the LOC loan, but I can't think of a reason to choose to pay an apr besides like I said before, to gain credit.

I'd love to start a LOC today if it made a little more since to me, Please let me know which part I'm missing.
__________________________________________________________________

The reason the LOC is better is because you're affecting the LOC with Income. You aren't just pulling the money out, putting it towards the principal, then not touching the principal of the LOC. Every time you get paid, that money is direct deposited into the LOC, affecting the principal (and the effective APR of the LOC). This allows you to boost your credit, but also minimize interest paid, and minimize time on the note. What does putting your checks into your checking account do for you? Nothing. Using a LOC instead of a checking account is going to affect everything. If you do it this way, the effective interest ends up being 3-3.5%. So it doesn't matter if the interest rate on the LOC is 125%. You're still going to accelerate the mortgage, and your credit in a major way.

0 Reply

Active Duty Military Investment Psychology

Active Duty Military Investment Psychology

Man... If only I knew what I knew now when I was active duty, my life would be a lot different right now. But at the end of the day, you don't know what you don't know!

- You have access to the VA Home Loan, which can be used for multi-family properties as well as single family.

- THE GOVERNMENT PAYS YOUR MORTGAGE (BAH)

- You are only required to occupy the property for 1 year before you are eligible to rent it out. (VA)

- You are generally a prime candidate for mortgage acceleration tools like simple interest revolving lines of credit.

- By the time you PCS or ETS, you can have passive rental income being generated on a monthly basis.

- By the time you leave the military, you could have a massive chunk of equity built, and a great monthly income to help you transition to your next path.

- A Real Estate Portfolio can be much more powerful than a retirement plan.

Most Popular Reply

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