Real Estate: Be Careful, and Be Realistic

I was reading some real estate investing stuff today, and I ran across a stereotypical story:  Military family buys house at each duty station, and makes a fortune either by holding and renting those properties, or rolling over the profits each time they move. (That’s the short version.)  I’m not going to say it can’t happen, because it has.  It could even happen again in the future.  However, I worry about folks that hear these stories and run out to buy a house, assuming that they will have the same success.  Please don’t!

Real estate investing is a constantly changing thing, and the changes that have occurred over the last ten years make it increasingly difficult for investors to make money.  Add in the uncertainty of military life, and you’re starting out with some serious hurdles to success.

In these real-estate-to-millions success stories, there are usually a few common elements:  a family that started with good control of their personal finances, rapid real estate appreciation, and a strong (often growing) military population to support increasing rents.  While individuals can control the first element, the second and third elements are uncontrollable and no longer favor real estate investment.  Real estate values are not going up quickly, even in areas where they are increasing.  Military populations are shrinking dramatically, decreasing the demand for rental property and preventing rents from climbing in military-dominated markets.

Military families can still make intelligent real estate purchases, but the requirements for successful purchase and ownership have changed.  Military families can not assume that their properties will gain value during a typical 2-3 year posting, which means that they need to have multiple plans for what to do with the house when they PCS away.  One of those post-PCS plans usually include renting the property.  This makes home selection even more critical, insuring not only current affordability but also long-term rentability that does not rely upon the military population.   In addition, purchasers must have healthy cash reserves to cover vacancies and those inevitable big expenses that pop up, always when you least need to be spending the money.

I would never tell a military family not to buy a home.  Heck, we own some houses ourselves.  However, the current economic climate makes home ownership a riskier proposition, particularly for military families.  Prospective buyers need to be absolutely sure that they’ve looked closely at every possible scenario and that they have the resources to prevent homeownership disaster.

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About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.
  • Shari

    I’m so glad to see this. Fifteen years ago, friends all around us were telling us these awesome stories of money made, but we resisted because we just weren’t comfortable. Now here we are about to retire next year with a nice amount in the bank, in spite of the ups & downs, while so many of those same friends are struggling, have had foreclosures, etc. That doesn’t even begin to describe all the horror stories of homes that were trashed, unable to be rented, etc. For us personally, it simply wasn’t worth the stress & uncertainty.

    Like you said, it can – and does – happen, and it could happen again in the future. Still, that’s an awfully big gamble to take with your family’s future.

  • guest

    We are serial property owners, you do have to be careful, but a good property manager and background checks will resolve most tenant problems we’ve learned. In turn we add 3k a month to our net worth through principle payments on our rentals (and another 1400 a month on our primary).

    We only use 15 year mortgages, buy the worst house in the best neighborhood and spend the time we live there doing a lot of sweat equity. We also keep a years worth of mortgage payments for all houses in cash as a “just in case”.

    We use statistical, demographic, and economic analysis each time we move to pinpoint the exact neighborhood to buy in that will give us a decent ROI when we move and rent it out. So far using raw numbers instead of emotion has worked every single time, we’ve never had a rental empty for more then two weeks and because we revamp them we actually charge a premium over other area rentals. It typically takes me a month to gather all of the necessary data from public sources, and build it out by layer so I can do a buffer analysis. If you want to make a profit in renting, buying the house can in no way be an emotional experience.

    The plan is to sell them all when he retires in 8-10 years and buy our “final” dream house, in cash, there should be over a million in equity by that point in time. We plan to fully retire by age 45 (probably earlier) and being mortgage free is a large part of that, this is just a means to an end in our case.

  • John

    I’ve really enjoyed reading these comments. It’s always nice to see pro’s and con’s of dealing with real estate. We currently have a home out near Ft. Bragg, NC where we’ve been renting out since I ETS’d two years ago. I think we’ve been extremely fortunate to have great renters who’ve literally been in there since we physically left. I’m not thrilled that I pay 10% to a property manager, however, in the event of something major, it’s nice to have some assurance that it will be taken care of, and believe this in an integral part of renting.

    In order to avoid unwanted issues, we were able to price the home at a higher price, which ultimately cuts out potential problems. I think this has helped us out tremendously, and gives us a cash reserve each month, to which we just put away into a maintenance/reserve fund for the house. As of now, it seems to be working in in our favor, and hope that this strategy continues for us.