What is the best way to use BAH while serving a typical 15-20 years? Purchase home and sell each PCS, Purchase home and rent?

CPT Private RallyPoint Member — Fri, 06 Jun 2014 12:13:00 -0400

I am trying to find the best way to limit liability while utilizing my BAH to create future wealth for when I retire.

Response by SFC Private RallyPoint Member made Jun 6 at 2014 12:46 PM

SFC Private RallyPoint Member — Fri, 06 Jun 2014 12:46:40 -0400

Sir, I've always rented. I live underneath my means so that my BAH covers all utilities and everything and usually come out a little on top, putting some of that aside in savings for a future home purchase. I'm not an expert, but a close friend who is a realtor advised me a long time ago that unless you're going to be in a house for 5 years, it's a huge gamble to buy/sell. A lot of people do it and it works for them, but I'm not taking the risks. I just keep saving my money and plan on making my first, and only, home purchase when I retire!

Response by SSgt Gregory Guina made Jun 6 at 2014 1:41 PM

SSgt Gregory Guina — Fri, 06 Jun 2014 13:41:47 -0400

If you want to limit your liabilities then you don't want to buy it then rent it out. If you are unab;e to rent it for a lon period of time that is a liability you will have to cover while you are also paying for a current residence.

Response by SSG Private RallyPoint Member made Jun 6 at 2014 4:57 PM

SSG Private RallyPoint Member — Fri, 06 Jun 2014 16:57:49 -0400

Sir, excellent question. I'm going to guess you are new to the service and not an older "Green to Gold" officer. Not saying the latter is bad, just adding a quantifier to what I'm going to say here.

You are still very young enough in your life and career to be able to explore multiple financial options. Yes, purchasing real estate is a great financial tool but you definitely want to do your research into it.

If you don't want to take any risks then I agree you should just rent. The problem with renting though is you are giving away your money to someone else without any equity.

This is what I propose you do. It's something i wish I would have done early in my career. Look very carefully where you're at and buy a nice, liveable house for you to stay in during your tour. Do not buy anything expensive or anything too cheaply. You want something that will rent out for a fair amount afterwards. Once you PCS to a new duty station, get a good property manager (yes, you need to research this too) to take care of your property. You should be able to make $100-$200 extra if you've planned accordingly. BAM!!! Now, you have property that you have paid into for 3-5 years, got some equity in it and now it's rented out making some passive income for you. Whatever you make in profit, I recommend setting about half aside in a separate account in order to address repairs and the such that are your responsibility as a landlord.

Now, here comes the fun part. Since you have PCSed to a new station, do the same thing there. Buy yourself a decent, reliable liveable house that you can rent out later on. IF you are truly interested and since you have experience with purchasing property and renting, you can buy an additional property to work on, fix up and rent out. Once you PCS from there, you just repeat the steps above.

You go to your third duty station and you now have 2 or 3 pieces of property making some passive income for you. If you do this every time you PCS, and buy 1-2 additional pieces of property (yes, it's VERY possible) then you could end up with 10-15 rentals by the time you retire.

Oh, now since you are going to retire, you can pick 2 or 3 properties that you may not want, sell them, then use the profit made to buy or build the house YOU want.

I wish I had done this when I was younger. Would have been better off now. I'm at the twilight of my career and only have two rentals at the moment.

Response by LTC Paul Labrador made Aug 2 at 2014 3:33 AM

LTC Paul Labrador — Sat, 02 Aug 2014 03:33:40 -0400

It really depends. Are you able to eat the cost of a double house payments of your house can't be sold or rented? Are you buying it as the house you are going to move in to when you get out or as a rental?

While you can get ahead on owning property by buying young, you also incur a lot of risk. My personal rule is I'm not going to buy until I know where I'm going to settle down at. Other than that, I rent.

Response by MAJ Private RallyPoint Member made Aug 2 at 2014 4:42 AM

MAJ Private RallyPoint Member — Sat, 02 Aug 2014 04:42:04 -0400

This is where talking to you consultant comes into play. Unless you own a home for 5 years or more, renting makes more sense. Before I bought my house, I talked with my consultant and got as close to a "guarantee" as possible that I could stick in the same area for at least 2 tours. A bit easier as a biochemist given that so many of our duty stations are in the DC area.

Response by MAJ Private RallyPoint Member made Aug 2 at 2014 4:52 AM

MAJ Private RallyPoint Member — Sat, 02 Aug 2014 04:52:00 -0400

And something else to keep in mind with owning vs renting - the expenses don't stop with your mortgage payment.

Lawn - meaning movers, weed eaters, edgers, leaf blowers, hoses, patio furniture, mulching...

Upgrades - I spent about $1000 replacing my stairs with iron balusters.

Probably another $1000 putting in crown molding.

Spent $600 a few weeks ago for AC repair.

Spent $300 last winter for plumbing after a water pipe broke.

It's a non-stop process.

Response by CMDCM Gene Treants made Aug 2 at 2014 5:05 PM

CMDCM Gene Treants — Sat, 02 Aug 2014 17:05:24 -0400

When I first joined the Navy in the late 60's most ET Chiefs had a home in Great Lakes and another one in either Norfolk or San Diego and managed to go back and fourth for Sea and Shore rotation. That worked until the early 90's as the housing market tightened up some.

I stayed in the Norfolk Area for my last 13 years and Buying was a great deal for me. Unless you are going to be in one place for a long time, your plan may work or may not. Good luck with it.

Response by CPT Private RallyPoint Member made Aug 7 at 2014 1:34 PM

CPT Private RallyPoint Member — Thu, 07 Aug 2014 13:34:12 -0400

It depends when and where you buy as well. I have bought two houses in El Paso that I have had no trouble renting for amounts greater than my 15-year mortgage on each of them, both of which have an interest rate of less than 2.75%. I live with roommates in my current house so I only spend a third of my BAH to live in my own house. Yes, there have been costs because my tenants destroyed the yard of my rental, but they're tiny in comparison to the equity that is being created by them paying my mortgage and the fact that I won't have to pay taxes on it because I'm eligible for the Capital Gains Tax Exclusion. I'm also able to deduct any repairs that I do to the house so that I pay less taxes on the income I make from rent. The IRS defines "repairs" pretty loosely, so it's important to take advantage of repairs to replace damages with upgrades.

Rules of thumb:

- Buy a house of a size that has a 15-year mortgage payment that is less than your BAH. Remember that BAH and rental costs almost always go up, but your mortgage will be the same forever.
- Buy a new construction. While the building may not be of the best quality, you can have them pay your closing costs and you'll probably sell the house before there are any major damages. Also, an extended warranty that covers pretty much anything that will break is relatively inexpensive.
- Look into getting solar panels if it's sunny where you live. The tax credit on them expires in 2016.
- Consider roommates.
- Remember that you have to live in a house 2 out of the last 5 years before you sell (2 out of the last 10 if you're military, or 1 day out of the last 10 if you're military and you get orders to leave) in order to get the capital gains tax exclusion. Basically it allows you to not pay taxes on the profit you realize when you sell your house

Know that every payment you make to an apartment complex or a rental home goes straight down the drain. Even money you "waste" repairing a rental is increasing its value to some extent.

Oh, and what am I going to do during CCC and other short duty stations? Buy an RV. I'd rather use half my BAH to finance a nice vehicle that I can use or sell later than live in an apartment and pay someone else's mortgage.

Response by CPT Vance Walden made Jun 1 at 2015 1:29 AM

CPT Vance Walden — Mon, 01 Jun 2015 01:29:01 -0400

Just saw your post, so please add me to your data base if you are ever in Washington or Tennessee State. I am licensed to provide home loans in those states. My dba is Rally Point Mortgage and will become a broker in the near future. My mission will be to employ vets with disabilities, so that they can realize their ultimate potential with absolutely no obstacles. As a broker, we have access to very aggressive rates and I have been at this for over 10 years. I am an ex ground pounder with my most fun being in Korea when I commanded a light Infantry company with the Rock! I purchased a home as a 2LT in Richmond Hill, GA on a 30 year VA at 7.75% in 78 and it worked out great on a 3 1/2 year rotation. I rented it out when I left and broke even immediately. The key is have a great management team who can put in responsible tenants and have a plan for set aside for minor repairs and make sure you have the right type of insurance.