Military Members & Real Estate: Should You Rent, Buy, or Live on Base?

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Everyone in the service knows a military real-estate mogul. They’re shipmates or other veterans who always seem to be looking at real estate, working on their home, and maybe even renting out a house as landlord or investing in commercial property. They may not care about the cars they drive or the best restaurants, but their eyes light up when they start talking about home improvement or mortgages.

They can tell you the best parts of town for finding a great quality of life, how to buy a good cheap “sweat equity” house, and where to look for property-management opportunities. They can even tell you what parts of the country they want to be stationed in to find good real estate, not just a good life. Real estate is more than a hobby to them– it’s almost a side business and maybe their true avocation.

As you talk with these self-professed enthusiasts you’ll learn that they’re handling assets worth hundreds of thousands of dollars, maybe five or even ten times their annual pay. They’re doing it with leverage. Very few veterans actually own their homes debt-free because it takes years of saving to buy a home outright, and most veterans will move at least a half-dozen times during a 20-year career.

Instead they’re buying homes with a fraction of their own money, perhaps only 5%-20%, and borrowing the rest. They’re paying their mortgage from their salary, housing allowance, a tenant’s rent, or even their own savings.  They’re hoping that when it’s time to sell the value of the home has appreciated enough to give them a profit.

If the real estate market is doing well, then their leverage bet pays off handsomely. It might even fund their retirement! If the real estate market is doing badly, though, then they’ll lose money. You’ll almost never hear people talk about their property failures, either, so the unspoken losses make real estate seem like a guaranteed road to financial success.

Should You Rent, Buy, or Live on Base?

Most veterans confront the same decision with every transfer to a new duty station: live on base, rent, or own a home? Each decision has its own merits, and they’re not always financial. At some billets or overseas duty stations you may be required to live on base, while U.S. locations may have waiting lists of months for base housing. You may prefer to live on base (especially if you’re “on call”) or you may want to live out in the civilian community or near better schools for your kids. If you expect to be at a duty station for a number of years then you may be tempted to buy your own place.

Even worse, the military might influence your decision with a housing allowance. It’s never been a better time to live off-base.   20 years ago the military’s housing allowances barely covered a home payment, let alone utilities and insurance, but today’s allowances cover nearly all of the average homeowner’s expenses. As you’re promoted, your housing allowance rises even if you’re still living in the same place! Given the opportunity, it seems almost criminally wasteful not to put the government’s free (and untaxed) housing allowance to work for you.

Before you grab the money and run to town, though, consider how this spending matches your lifestyle and your values. Is the base housing better or worse than the community? Will you have a better commute, perhaps even bicycling or walking to work, or will you be spending an hour a day sitting in traffic? How much time will you be spending in your house, especially if you’re deploying soon? Where will your kids have better schools?

Living out in town may put you among locals and “real” life, but it may also deprive your family of the special sense of community found among military families living together with shared sacrifices. If you’re deployed for months, it may also deprive them of easy access to repair help and contractors. Are you a “house person” willing to tackle your own projects? Would you rather let a landlord take care of the home you’re renting? Do you want to be responsible for your own maintenance and repairs, or would you rather let contractors fix your base home while you spend your time doing things that you value more?

Once you’ve settled on your values and lifestyle, the challenge becomes using your housing allowance as effectively as possible. You’re not required to spend every penny of it. You might be able to find a place that costs only 90% of the allowance, or even 75%. Maybe it makes more sense to buy a duplex and rent out half of it while living in the other side, effectively gaining two sources of income (your housing allowance and your tenants).

Consider all of the costs of housing, not just the rent or the mortgage payment. “Other” expenses include deposits, down payments, mortgage insurance, financing fees, closing costs, utilities, community association fees, escrow accounts for insurance and property taxes, homeowner’s or renter’s insurance, liability insurance, property taxes, and commuting. These miscellaneous expenses might not seem like much, but they quickly add up to a significant impact when you’ve been paying those bills for a year or two. There are some tax advantages to owning a home, but the expenses can be far more costly.

While real estate (and its leverage) may seem to be the perfect path to military riches and retirement, you might not be able to afford the risk of a loss. Every recession shows millions of unfortunate homeowners that real estate prices can go down as much as they go up, and financial leverage is not a good idea if you’re unemployed or can’t find a rent-paying tenant.

Home builders and mortgage banks love to sell to veterans because they tend to have steady paychecks and subsidized home-buyer’s programs. However, you’re also at risk of moving every few years, and buying/selling a home is a high-cost transaction that can quickly consume any profits. Being a landlord from another time zone (maybe even another country) is begging for trouble, and you may not have enough rent to be able to afford a full-time property manager. Adjustable mortgages, chronic rental vacancies, or selling a home that’s lost its value will wreck a veteran’s investment portfolio faster than almost any other financial decision.

Moving off-base is not a simple decision. Even if it seems to be the right choice for you and your family, then renting or owning is another complex lifestyle/financial decision. Once you’ve decided those questions, then you still have to ensure your housing costs are within your means and that you’re saving the excess. Finally, consider whether you want to add to all your other lifestyle burdens by tackling the responsibility and risk of being a landlord. While it sounds like a no-brainer to buy that duplex and rent out the other side, the actual process is more complex (and financially treacherous) than it may appear.

If you’re reasonably confident you’ll be spending the majority of your career at that location, or at least willing to be a long-term landlord even while you’re stationed somewhere else, then you’ll likely earn a profit. However, depending on local conditions and the economy, you might have more lucrative places to invest your money– and there are certainly easier ways to invest it.

If you’re buying real estate just because it seems like the quickest way to get rich, then you may also learn that leverage is a slippery path to foreclosure and maybe even bankruptcy. Many have succeeded but a minority have failed, so research the costs and invest in the assets that fulfill your values. If you’re absolutely fascinated by the idea of owning a home and willing to devote the extra “sweat equity” to the landlord lifestyle, then you’ll succeed!

Disclosure:  You diehard landlords have probably noted the discouraging tone of this post.  That’s because today I’m writing for the newbie wannabe who thinks they’ll get rich quick with no money down.  The reality is that my spouse and I have been landlords for over 20 years.  We’ve earned 3-4% APY on our equity, even in Hawaii’s expensive market, and we see no reason to sell– yet. 

You landlords already “get it”:  you understand that your profits are proportional to your risk, your shrewd market analysis, and your hard work.  You already understand that there’s no easy way to get rich quick from real estate.  Besides, if I tried to convince you not to invest in real estate then you’d already have way too much self-confidence to pay attention to that advice!  The true prospective landlords who read this post won’t be discouraged by its tone, but these warnings will help the blissfully ignorant to avoid immense pain and financial loss.

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WHAT I DO: I help you reach financial independence. For free. I retired in 2002 after 20 years in the Navy's submarine force. I wrote "The Military Guide to Financial Independence and Retirement" to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

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