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When you're serving in the military, it's normal to move often, so building wealth in a house you’ll have to sell in two to three years can be challenging. That’s why many military members plan to buy a home intending to rent it to tenants in the future—possibly with the help of a property manager.
Rental homes are a wise investment strategy if you’re prepared mentally and financially. Rental homes provide financial stability from passive income and build lucrative equity over time.
So, from the get-go, consider homeownership a worthwhile investment, whether the home buying process ultimately puts a roof over your head or someone else's.
What Military Homebuyers Should Know About Rental Property as an Investment
Rental property investments can be a fantastic way to create passive income for military families. However, equal parts of art and science are included in the process. It requires you to think beyond your family’s specific needs and look more objectively at the property’s functionality and aesthetic.
Thanks in large part to access to the buyer-friendly VA loan, there’s a lot of interest in real estate investing among military members, but you can’t successfully invest without knowing the ultimate goal for the property.
Will the house become your forever home? Will you sell after the home appreciates substantially or after you’ve paid college tuition? The reason why you buy will help you make the right purchase.
Common Ways Military Buyers Invest in Real Estate
Standard Rental Property
One of the most typical ways to generate income through real estate is to purchase properties and become a landlord. You may live in the property first and then convert it into a rental when it's time to PCS. Or, you can buy a property separate from your primary home and later market it to renters as the first occupants.
As a military buyer, it makes sense to consider purchasing properties near military bases because you’ll have a constant pool of potential tenants.
Flip Property
Another strategy for generating real estate income is to fix and flip properties. This process involves purchasing a distressed property, making repairs and renovations, and then selling the property for a profit. While this strategy is more labor-intensive, it offers higher returns in a shorter time. However, be careful; flip projects are complex to manage with a full-time career as a service member, especially if you live long distance.
Long-Term Property
A long-term buy-and-hold strategy includes purchasing a property to keep for an extended time, such as until military retirement. You would rent the property to earn a passive income stream and hold on to it until it appreciates, ultimately selling it for a later profit. This strategy is probably less involved than flipping properties and could offer a more consistent source of passive income over time.
When considering these different strategies, weighing the potential risks and rewards is essential. You should always work with real estate and financial professionals before making any decisions. They’ll help you develop a plan that aligns with your investment goals and risk tolerance.
Learn more about real estate investing: The Two Pillars of Real Estate Investing While Serving in the Military.
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Tips for Buying a Home When You Plan to Rent It Out Later
1. Prepare your family's short list of home needs.
Know the distinction between "needs" and "wants” when it comes to home buying with renting in mind. A three-bedroom home accommodating parents and four children is a legal need (most states only permit two kiddos per room), while quartz countertops are a want. Your casserole will taste just as delicious when served from faux stone countertops! However, needs and wants may merge when they become essential to making your home competitive as a rental property.
When looking for a property, tie your needs as a homeowner to what renters will pay top dollar for in the future. Keep in mind how these features affect your purchase price and rental plans.
Possible upgrades could include:
- Updated primary bedroom suite. Renters and home buyers love a luxurious getaway retreat.
- Additional bedrooms to accommodate family and guests.
- Home office. A dedicated work-from-home space is a must-have for some renters and buyers.
- Garage. From auto maintenance to an in-home gym, a generous garage is a big plus.
- Outdoor living space. Extend your living space outside with a beautiful patio or secure the family and pets with a fenced yard.
2. Do a little homework.
As you begin to home shop, you’ll realize that many of your non-negotiables will overlap with future tenants’ needs. For example, you want your family to live in a safe neighborhood, regardless of how long you live there. Your renters will pay for security, too.
Your research should include police reports about crime and feedback from other military families in the area. Use the incredible military community to network to find the best neighborhood fit.
You and your renters will have a few priorities in common:
- Proximity to base
- School district
- Nearby playgrounds or pools
- Drivability
- Walkable destinations
9 Key Questions to Ask Before Buying a Home will help you choose the best property.
3. Run the numbers.
Now, the biggest question is, "Can you earn money as a rental property?"
“For most homeowners who decide to rent their property, one of the biggest questions is how much to charge for rent. Yes, the mortgage has to be covered, but there’s so much more that goes into the formula. Taking into account several factors changes the rent per month payment significantly. Smart owners budget for many circumstances.” - A Guide for the Unexpected Military Landlord
A partial list of costs to calculate:
- Mortgage rate
- Interest costs
- Insurance: Besides your basic homeowner's insurance, insurance payments will most likely increase from converting a homeowner's policy to a rental property.
- HOA fees
- Higher tax rates for investment rentals
- Property management fees
- Maintenance: Roughly one month’s rent is a good place to start.
- Basic Housing Allowance: It’s a good idea to know the area’s average BAH, given that military renters will probably be your market. Use this BAH Calculator.
If, based on your market analysis, you can’t cover rental property costs, then buying a home/rental combo isn't the best option for your military family at this time. Since landlord life isn’t in the cards now, take some time and add to your savings. Then, at your next military assignment in a different real estate market, you’ll feel more prepared to buy a house with rental potential.
However, if you’ve already purchased the property, the situation is dire, and selling the home isn’t possible, strive for the best-case scenario of breaking even, factoring that you’ll pay this property’s expenses plus those of your primary residence after your next PCS.
Our free guide, PCS Ahead: Should I Rent or Sell My Home?, will help guide your decision on whether to rent or sell when the time comes.
4. If your finances are sound, research property managers.
If all your calculations point to prosperous rental property ownership, then read on for more information about how to manage your income property with a property manager’s help.
Imagine if military orders arrive for Norfolk, Virginia, but you own a home in San Diego, California. Immediately, you start to think about what to do with your house—sell or rent. Once you’ve decided to find tenants, you’ll need to make arrangements for help with the property.
Sure, you can probably manage a few issues from afar, but the daily grind of rental property upkeep is often too much for active-duty service members to take on alone. Rather than trying to fix a running toilet from thousands of miles away, a property manager can be the helping hand you’ll most likely need.
If you maintained a relationship with the real estate agent who sold you the house, ask for property manager recommendations. Or, join local military landlord online groups for referrals. You can also check out MilitaryByOwner’s business listings and reviews for property managers in your area.
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5. Select a list of no less than five property managers to contact.
The homeowner/property manager relationship must be unified and strong to successfully manage tenants and the house, so take your time to find a professional who checks all of your boxes.
As you collect names, you might find a property manager who looks ideal, but dive into their business practices for more information. They may not be a good fit for you based on their cost and operational models or because they’re simply not accepting any new clients.
Other challenges you might run into include managers who don’t have sufficient answers to your questions, lack experience and professional contacts like repair people, or don’t match your landlord vibes or philosophies. You should also expect that at least one of the property managers won’t respond to your inquiry.
Remember, you’re planning to entrust one of your greatest assets to this person. If you don’t feel good about it, trust your instinct and move on; you’ll find someone else.
6. Weed through the responses.
How the property manager responds to you directly reflects how they’ll respond to your prospective tenants. Keep an eye out for the following:
- Timeliness: You don’t want your home sitting on the market and losing money because your property manager isn’t efficiently responding to potential tenants.
- Repairs and maintenance: “Some property managers request a reserve fund to use to make necessary repairs or maintenance around the property without consulting you first. The fund is usually somewhere between $250 and $500. Once depleted, the property manager must contact you for additional expenses. You’ll also want to set a maximum amount for one purchase. For example, even if there’s $500 in the fund, the property manager would need to receive your permission to spend it on one item.” — What to Know Before Hiring a Property Manager
- A market analysis: Does the property manager know what types of homes are in the highest demand? Discuss the market, trends, and the renters’ needs. What inquiries do the managers receive, and what regular requests do they find hard to fill?
- Communication skills: As a landlord, you are ripe for lawsuits. So, ensure you have a property manager who communicates firmly and clearly to avoid misunderstandings between you and the tenant.
Investing in real estate can be well worth it if you take the business seriously—some compare it to a part-time job. Invest the time into working with professionals in tune with your financial plans.
If you’re ready to take homeownership to the next level and become a landlord, choose MilitaryByOwner to help you learn the basics and some commonly overlooked homeowner/landlord details.
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