Sell or hold rental in military town

13 Replies

I need some help in figuring out whether to keep renting this house out or sell. Here are the numbers, if I left anything out or you want more information let me know:

Single-family home

Original Mortgage = $114,500 VA Loan @ 4.00% (no PMI)

Mortgage Balance: $104,000

Conservative Market Value = $130,000

Mortgage payment+Insurance+Taxes $756/month

Rent: $1300/month

Property Mgmt = 10%

Vacancy: 15% (military area)

Maintenance: 5% (everything is brand new inside)

Yearly NOI = $3400

A little about this house. I purchased it in 2007 in Watertown, NY as an owner-occupied. I moved away to the Albany area a year later and decided to keep the house as a rental. It is worth mentioning that the Watertown market is heavily dependent on what is happening with the Army at nearby Fort Drum.

At the time of purchase, Fort Drum was rapidly expanding and the entire area had a severe housing shortage. It was so bad that people were living in Syracuse over an hour away because they couldn’t find a place to live nearby. The market has since corrected itself, with the base building thousands of new homes on base and numerous apartments being built off base. Fort Drum has also experienced a reduction in personnel, resulting in less need for housing. Further cuts could happen depending on what Congress decides on, but nothing is official yet.

People rarely stayed for the full lease term because they would get military orders to somewhere else or deploy. Fort Drum was the most deployed division in the Army, so what would happen is most new Soldiers would cycle in to a brigade as they were gearing up for their next deployment to the desert. Soldier deploys, wife/family wouldn’t want to stay in Watertown for a year, so they would go back home. Until last year this wasn’t really a problem, as I would always find a new tenant right away. Then in January of 2014 my tenant moved out. Watertown received over 200 inches of snow last winter and is usually frigid cold, so absolutely nobody moves in that area unless they just got orders to Fort Drum. Even then, most military members move in the summer as well. This tenant was renting the house for $1450.

Then in April 2014, (still vacant) my property manager was showing the home and walked into a waterfall. Apparently a pipe burst in the upstairs bathroom and inside the basement. Still unsure how as the heat was on. Water literally got everywhere; there was over 2 feet of water in the basement as the sump pump went out too. Long story short, insurance paid out and I completely gutted and remodeled the entire house. New kitchen, new bathrooms, new flooring, the works. I also paid almost $5,000 out of pocket for a few other things to be done. The house is almost 100 years old so it made a significant improvement to the home as I opened everything up and made it look more modern.

Now the real fun started. Lease signed on September 2014 for $1350. Yes rent declined $100 after a complete reno. Tenants wife decided the place was too small so they wanted to break the lease. Property manager said no way but you can find a suitable replacement. They did, didn’t pay October rent, so kept security deposit instead. Replacement tenant signed lease for November, pays rent, and never moves in. Literally disappeared off the face of the earth. Did not realize this until I never got paid for December and talked with the neighbor.

As such house is STILL vacant, asking $1300. I would say a bit below market rate but there is a TON of homes and apartments on the rental market. Plus its winter. House is getting showings but everyone complains that its too small, its 1200 sq feet for a 3 bedroom. Complete opposite of just 2 years ago. This is why I am considering selling and getting out of this market all together. Also because I had a significant loss of income last year. However with the market primarily tied to Fort Drum, I don’t think too many people in the military are buying homes since they move frequently. This is really a hard decision to make, so any advice is appreciated.

Thanks

I'd sell.  Long distance landlording is hard and it is even harder in a saturated market.  Add on top of that the weather issues, to me it is time to sell.  

This is not an easy answer, either, but I'd try to sell, and try to rent it simultaneously.  Hopefully then you'll get one or the other. Make money somehow! I had to do this with a house we had one time, and it worked it worked out well for us.  We got paying renters, then a purchase offer from someone else.  Just make sure its a month to month lease, and I'd be up front with any tenants you get that you plan on keeping it on the market, (if you choose to, and I would).  Since potential tenants are frequently moving anyway, and you explain to them that the market is slow there, and it could take years to sell, they may be fine with it, hopefully. I wouldn't let it sit empty, if at all possible. Good luck!

I would most likely get out of it and try to find a different area.  True you had a uniquely bad experience but if the market there will allow you to move, I would do so.  I sympathize being in Virginia Beach, a massive military area.  If you are going to keep it I would look hard at your management company.  They seem to do a poor job screening tenants.

@Steve B.  

Great run down with the details.  

While I hold SFH in military areas and use PMs for them, in your situation I would advise to sell. I personally don't like the cold along with the weather issues that come with it. BAH rates are decreasing. While the military is not going away, the vacancy risk will raise. What would you do with the ~$26K from the sale? Another way to look at the situation; you earn about $6,500 per year if all goes well. It would take you about 4 years to earn that much by keeping it fully rented out. What could you do with that money in the next four years? Can you earn a better return? How much time do you have to devote to this? Do you have to travel to sell it?

In the end, I would sell.  I would like to know what you decide, keep us posted.  

it really depends on your goals! My husband is active duty and we own in military areas. How are your schools? It sounds like your issue is you are not appealing to family's that will weather deployments! We self manage and we have been able to keep the rental full but we have lowered the prices as needed. You might need to lower it to 1100 or 1200 and get it to come up in the summer. Is your pm checking orders? We have started to check orders to make sure they are not intentionally signing a lease. 

I think you could probably weather this phase if you want too! The key is to get aggressive! I would never had let that fly! Tenant doesn't pay rent I would serve them notice that they either pay or I go to command! You might need a new pm! While I don't operate in those temps we have a definite moving season and with aggressive marketing it is doable!

If you decide to sell make sure you evaluate your tax costs!

I would sell. I think @Joe G.  gave some great advice here. 

The consensus seems to be to sell, and I am starting to agree as well. @Joe G.  definitely made some good points, I can take the profit from the sale and buy another property in my area, which is a much tighter rental market. One thing is I've been claiming depreciation since 2008, is it worth it to try to do a 1031 when selling? Has anybody been successful in doing so? From what I understand this all has to be facilitated by a 3rd party, which comes with a cost as well.

Also do I wait to sell until the spring or list it now? Any ideas on how to find the best agent to work with?

@Elizabeth Colegrove going to Commanders for military tenants that don't pay rent doesn't work like it used to, they think its a civil matter, and I know others in the area have expressed the same opinion. In this particular case the tenant taking over the lease that ended up disappearing was a Captain, go figure...Deadbeats come in all different ages and income brackets, and if they are military just because they are high ranking doesn't mean they pay their bills and fulfill their contracts.

@Steve B.  

Sorry you experienced that! I know in my husbands community that would not go over well ESPECIALLY as a captain! Sorry that branched didn't care! Good luck!

Just to update I've decided to sell and it will be on the market after next weekend. Good news is all the agents I interviewed said activity has been better this January than years past, almost exclusively from military buyers new to the area.

Sounds like perfect timing!

@Steve B.  

  Good luck .  This  is the main movement windown for Military between now and May / june, so hope you get some bites.  I would also keep it active as a rental.  Think you main issue these days will be competition for dwindling number of renters due to the drawdown, but on hte plus side since deplyments are going down you should, emphasize should, be able to keep renter there 2-3 years for their length of tour at Drum. 

Another update. Listing went live roughly 2 weeks ago and received 2 offers! First offer fell through, the buyer wanted the house for nothing and would't budge on price. Second offer came in yesterday and we are under contract! First goal of the year complete, as long as the deal closes. 

Learned a lot in this as it is my first time selling a house. Lots of factors against me with this one. Number 1 being that Watertown - Ft Drum is a huge buyers market right now. Average DOM is 160 days! The only way to combat that was to set the price below the competition. I won't lie I wish I could have got more for the house but so does everyone else. 

Second factor is the weather. Average lows have been below zero every night with highs lucky to be in the teens. Couple nights ago was -35, no joke. Every single day!! Not to mention there is roughly 4 feet of snow on the ground up there. Brutal winter, even for Northern NY standards. However, there are always people buying houses, no matter the time of year. I paid a neighbor to keep the driveway cleared of snow at all times and kept the heat at 67 degrees. That way people can get in the house easily and will linger inside during showings since its nice and warm.

Lastly and probably most important is do your homework when selecting your listing agent. Not all real estate agents are the same, most honestly are not very good. I spent many hours looking at listings online, picking what I thought were the very best ones, with professional pictures and great descriptions. I then checked agents online presence, googled their listings, see how many websites its on. Bottom line everyone is looking at houses online, if an agent can't market themselves on the internet, don't bother working with them. I then did a phone interview with 3 agents. Not surprisingly through this process I needed up with one of the top producers in the area. Obviously I made the right decision!

For anyone interested in buying rental property in the Watertown/Ft Drum area, I would highly discourage it. Vacancies are at all time highs right now, lots of people offering free months rent, etc. The 2% vacancy days are long gone. The area is over built now with brand new apartments and town homes, with more still going up. Ft Drum is losing people as well with the Army draw down of forces, how many remains to be seen. Not to mention a zero wait list for thousands of brand new housing on base, which is some of the best houses I've seen on a military base. I made my money over the years and glad to be getting out now while I can. On to the next investment! 

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