Hi everyone, as a newbie I've spent a lot of time reading the blogs and forums trying to get a grasp on how to wisely jump into RE. Currently my husband is AD and we have never bought a home due largely to being stationed overseas and in very expensive areas. We are personally comfortable being renters as it suits our frequent moves, but I can't help but feel like we could really optimize certain advantages like BAH, and VA/TSP loans with the right amount of research.
The problem is we don't really have the time or interest to be long-distance landlords, and with very young children (and more on the way) the immediate time suck of rehabbing and the home chaos of living in a place under construction (if we went the BRRRR route) is almost completely out of the question.
We have largely concluded we are just not cut out for RE but I'm hoping some of you can point me to another strategy. Do I just need to suck it up and figure out how to make being a long distance landlord palatable? What would you do in my shoes?
Try a dividend paying REIT EFT which allows you to passively participate in real estate without the hassle of managing property and tenants
When I was in I just did mutual funds. Maybe try RE when your location is stable.
I do high dividend, high turnover mutuals and REITs in retirement accounts like IRAs. Stuff with less taxable distributions like index funds and growth stocks in regular cash accounts.
Thank you guys for your service!
The big thing is to consider your goal. Are you trying to generate cash flow? Yeah, that might mean working hard to find the overlooked properties, then rehab them. I don't have time for that either!
But, for me, I'm trying to find properties that are going to safely build equity but don't need a lot of rehab...because I'm also investing from outside the US. They will still have some cash flow, but my goal is to have properties in B class areas that will attract a tenant for three or more years.
So what can you do? If you decide that military is a long term career, then you can start buying a home whenever you move to a new area -- with the mindset that you will then convert it to a rental when you leave. That gives you two to three years to line up the property manager, maybe even do some rehab to add equity. Plus, you can buy places with much less money down. After ten years, you'll own three to five rentals -- and you can start using home equity loans on them to buy more.
@Julia W. - You could find an experienced investor and help fund some of their deals. You can definitely do real estate without holding the property. Notes might be a good option!
@Julia W. There are tons of ways to be a passive investor and make quite a bit better of a return than just putting money into the stock market. When I was living overseas I was doing private lending for other people that were flipping homes. You can earn really good returns as a private lender. I also purchased mortgage notes and invested in an apartment syndication as a passive partner. All of these strategies are completely passive and will allow your money to work for you. Another option is going the turnkey route, where although you will be a long-distance landlord your level of involvement will still be minimal, as the turnkey company and the property manager handle most of the daily hassles. All that being said, be sure you know and trust the investors that you are working with before you start lending money. If you have questions about these strategies and/or looking for opportunities please let me know. Hope that helps.
@Julia W. If you're not comfortable being a long distance landlord, it's probably not best for you to pursue it. I knew someone if your exact situation trying to manage a rental property overseas. Had a bad renter and property management was not doing their job. Ended up firing the company. But had to find a new property management company overseas! It was a mess.
If you want the returns, inflation hedging benefits and tax benefits then look into investing passively into syndications, REITs, or NNN leases. You could also do hard money lending, buy turnkey or buy notes.
Thank you all for your input. While I do think that REITS sound ideal in most respects, it doesn't seem to be something we can creatively finance using BAH and TSP loans (same for notes). We will have to save the old fashioned way for those I think.
@Stuart Grazier The turnkey route might be worth investigating if we can purchase the home without a renter and live in it for a few years before letting the management company take care of it. Thanks for the suggestion!
Isn't BAH just direct deposited into your account, so find a place and live below your means save the extra. It'll be next to impossible to find a "deal" in the traditional sense using a VA loan. The 0 down will make the payments higher, granted you have the money in the bank still though. TSP loan gets tricky, if I remember right you have time limits and I think it's 50k max (again there's time limit to when that number resets).
In all honesty your best bet is likely finding a below market place to rent, find something with a landlord who's a person vs a company. Look out of state (midwest) and get a solid A/B class asset (think 75-150k, 15-25% down) that'll rent likely for 8-1700 mo. This will be the easiest to mange and handle if it's going to be one of the few you have.
Avoid the sub 50k turnkey that promises you something like 8-1k mo in rents, this will not be a good investment for someone just starting out. You'll lose your money to turn over, repairs, and increase your risk of getting taking advantage of.
@Matt K. Yes, we hope to eventually be stationed somewhere we can live below BAH or else my husband will have to accept a much longer commute.
I understand that depending on the situation the VA loan may/may not be ideal, but I think borrowing against the TSP the payback rules are relaxed when it's for a primary residence (between 5 and 15 years for payback). Unless we take money out of the TSP we don't have enough for a traditional down payment, which makes investing out of state difficult.
If you have concluded you are not cut out for real estate, it's probably not wise to do it. The reason I say that is because a lot of folks never think about the things that play into real estate that have nothing to do with real estate. It does require a little bit of passion at least. If real estate was easy and for everybody, it wouldn't be lucrative for those of us who do it.
Too many people have bad experiences because they just think "Hey, real estate should make me money, let me try that". Then they lay awake at night when they can't get a property rented, have unrealistic expectations at the start, and think everyone who told them real estate was where the real money is, lied to them. They also aren't properly educated and have no idea what they're doing. Then they are turned off forever and become one of those people bad mouthing investing in real estate because it cost them a lot of money. Nothing is a good idea if you aren't educated, passionate, and willing to put in the effort. I'm not saying any of those things are you, just referring to how NOT to invest in real estate.
For most of us, real estate takes work, passion, time, energy, effort, etc. If you think you aren't ready to do what it takes to invest, then I'd wait and invest when the time is right. It's not a bad thing. You could have just as well been asking about 100 different things. For me, I could literally write your post myself if I subbed real estate out for cars. I'm not willing to put my time and energy into something I'm not passionate about. That's why I invest in real estate and not cars for example.
@Julia W. Short Answer:
"If you don't think it's for you, it's not for you!"
Longer Answer: If you do want to give it a shot you'll likely end up buying a "yield play" in flyover country and using a property manager. I don't know what geography might be appealing to you so it's hard to know the price dynamics, ROI, etc. But if you buy something that was built after 2010 you might still have a long life left on many cap-ex items (maybe not HVAC!) If you don't buy in a crummy area then you'll probably have you pick of a couple of PMs. You can ask the community here for advice or recommendations. But "yield plays" won't give you massive ROIs or bragging rights around the forums. They're very unsexy and you probably can't bump the rents 20% when you take over. And you won't have a fun BRRRRRRRRRRRRRRR story.
Longer Answer Caveat: Out-of-state investing is horrible for the first property. Your cash-flow will get eaten up (in all likelihood) by flying out to visit the property. If you just want a single rental to take advantage of a loan program, don't do it. If a loan program gets you Property 1 and you'd love to grow it to 10 properties in an area, then that's great. Which is why it's important (in my opinion) to pick a market you like over a property that you like.
But, hey, just one opinion here :-)
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I am an E-4 in the USAF and my wife and I are closing on our first rental later this month. It’s 2 properties on one lot. We will live in the smaller one and rent the other. If we get the rent I predict, we will still make $120 a month and pay $0 for housing. Saving and re-investing our BAH. Try looking for a multi family and live in one. The VA supports that.
@Julia W. I'm getting ready to do my first TSP loan to finance an out of state deal. There are ways it works, especially considering the TSP loan is just paying yourself back with 2.5% interest over 5 years.
I'm a military spouse as well. So, I understand wanting to utilize the VA loan opportunity. It worked out well for us as we just bought a turnkey, house-hacked, then rented out the home. The main thing with the VA loan is that they do want you to live in the home for a certain amount of time before renting it out. So, be prepared to do some house-hacking first.
With that being said, it may not be that active Real Estate investing isn't for you, but that you would want to start off more "behind the scenes" until y'all feel ready.
I recommend reading David Greene’s book on long distance real estate investing. It is first class!
Hi Julia, as others have pointed out there are other ways to be a passive RE investor. I have written an article in my BP blog Three Key Routes for Passive Real Estate Investing that might give you some ideas.
There is a podcast (not sure which episode 100 something I think) with an AD couple who have become very successful in RE investing. Give it a listen, lots of good info.
@Julia Wheeler There are absolutely plenty of ways for you to still get involved! As @Stuart Grazier mentioned working with an experienced investor in passive apartment syndications can be a great strategy. You'll receive true passive income on a monthly/quarterly basis, receive equity ownership, and still be able to participate in tax savings from depreciation. Hope this helps and I would be happy to chat with you further if you're interested in learning more.
This will be long-winded so bear with me.
I am AD Army and an investor. I am also married with 3 kids, so I know the struggle.
We bought our first house in Texas for 100k when we got married in 2010. We used a VA loan, but after a deployment we put 30k on the principal. We refinanced before we moved and reduced our payment to under $600. It is rented for $900 and hasn't had a vacancy.
A year after we got to Oklahoma, we bought another house there (2014) with a VA loan. Our payment is $1100. At that point we weren't really planning on being investors. Then we found bigger pockets and read about the BRRRR method.
Last year, we bought our first BRRRR, a HUD foreclosure in May. We got it for 39k, put 12k into it. It appraised for 82k. We got orders to move to Kansas in July and got here in August. We refinanced the BRRRR in December and took just the 51k out (could have took out 61k). Our payment is about $350. That house is rented for $695 and our primary that we were in is rented for $1395 (not really any cash flow on that one).
We used the refinance in December to buy a foreclosure on Kansas. We got it for 57k (used a loan up front this time). It is currently being rehabbed with a 33k budget. Our ARV is about 130k, so we can pull our money out again. With a 90k loan, our payment will be under $700, but we are expecting $1200 in rent.
That renovation is almost done and we just got our 5th property under contract this week. This one is an off market deal. I was driving around looking for distressed properties and saw one with a sign on the door saying it was vacant. Turns out its coming up for sheriff's auction on March 13th. We were able to find the owners and talk to them. They tried to save the house from foreclosure but were unable to. They agreed to take loan payoff for the house to avoid foreclosure on their credit. The house is completely renovated and we are getting it for 45k. It is worth 93k. Basically, the day after we buy it with cash, we are putting a mortgage on it for 60k. We could do more but want a lower payment. We are using a local lender to avoid seasoning requirements. It will easily rent for $900 with a payment of around $450. After budgeting for management, repairs and capital expenditures, it will cash flow around $150 per month. The best part is that we are getting PAID $15k to get a house that cash flows. On top of that, because real estate is amazing, it is tax free money since it is "debt" and not income.
This will be our 3rd strictly investment property, all within 12 months. Long story short, you can invest in real estate in the military, it is about what you want to put into it.
I go to my renovation house and work on it from about 4-530 in the morning before PT Monday through Friday to save on rehab costs. I also go on Sundays for about 8 hours and work on it. I bring my 9 year old and 3 year old with me on Sundays.
I don't manage properties though. I hire out property management. 10% of rents is fairly standard for the service. Just make sure you ask people who to use and interview them like they are an applicant for a job, which they are.
Sorry for the lengthy response, let me know if you have any questions or need anything. I love real estate investing now and can talk about it all day.
If you guys use the VA remember to try and put down at least 5% but preferably 10% to avoid the VA funding fees. VA funding fees are basically PMI paid up front or wrapped into your loan. If your short on cash and wanting to do a BRRR then simply use a FHA and pay the PMI until you rehab the entire home, then refi under the VA or conventional to take all your cash out. BRRR are impossible to get under a VA but using the method above it is possible and paying 6 months worth of PMI in order to make deal seems worth it to me.
Long distance landlord and veteran here. Lots of my army friends are investors, some long distance. it's not that difficult actually
What you said though was "we don't really have the time or interest to be long distance landlords". This is an obstacle no one can overcome. You can only good at things you enjoy, you must learn to love this labor.
you could become a passive investor in a REIT or maybe get on someone else's deals, but I think you'll find even less interest in that.
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