Written by: Angelia "Angie" Michalak, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
It may seem to some of our military members almost impossible to buy a home while on active duty. There are a great number of military members that wouldn’t even dream of buying a home until retirement. I have helped some of these Veterans buy their first home and boy is it as emotional experience for me as the Realtor as it is for the military buyers. As a Realtor, I can’t say that much else touches my heart. It shouldn’t be this way. Our military sacrifice their lives, but should also have to sacrifice their family’s generational wealth with normally comes from real estate?
I purchased my first home on my own as a SSgt in the Air National Guard. It was a small two-bedroom 50K starter home, but it was mine! I was proud that I was able to buy my first home at 23 years old. It never occurred to me at that age that not everyone did this. I just thought of it as a way to get out of paying rent. I did not realize the big picture was that I was setting myself up for future success. It needed some updating. I was very fortunate to have my parents to give me their cabinets that they had just taken out of their kitchen and together we remodeled my kitchen. I learned to bust up tile to have new carpet installed. I was essentially living in my first investment or flip home.
Another truth I didn’t really know was how lucky I was to get assistance as a military member. Now I was in the National Guard so I did not have to move around, I just choose too. I was wowed by big beautiful homes since I was a teen. Each time thereafter that I was going to purchase, I would have a bigger budget which would get me a bigger home. This is definitely one way to accumulate wealth with real estate. The problem with this scenario for active duty is that they never know when they will have to move. With the National Guard, it was my choice when I moved.
So how can an Active-Duty Member acquire wealth with Real Estate before retirement?
As our pensions continue to get smaller, we are left to our own investment strategies to ensure our dollars will be enough to last a lifetime. Real estate has always been a great investment to produce income. Though, you will not have a financial advisor or a base financial counselor discuss this with you as neither are educated in this arena. You will hear about TSP and SBP, maybe you even start an IRA for retirement. I am also a Military Financial Planner so I know all of the military benefits! But nothing hedges inflation like having real estate in your portfolio. When the market is down, it is unwise to take money from your investments. Instead, it would be a great time to rely on income from rental properties. It is also a great way to develop an income for when you retire. Most military are excited to retire after 20 years. However, that 20 years comes and they realize that they still need to work. Often times they have to start from ground zero while they are middle aged. Some members go to school immediately just to get the GI bill payments to cover their mortgage because they have no idea how else to pay their bills. They were not expecting nor prepared for their income to be cut in half. Accumulating investment properties as you begin you career could be the answer to you not working after retirement. On a side note, it would also be beneficial to start an IRA while you are young.
Let’s talk about a strategy that can help you change military patterns of waiting until retirement to become a homeowner. If nothing else changes your mind in this article, just consider the possibility of paying rent for 20 years. Within that time, you will have likely had a family and needed at least at 3 bed/2 bath home. Let’s just say that in today’s dollars you spent an average of 1500/month for 12 months for 20 years. You have already spent 360K in rent. Honestly, that is a low rental rate. In some areas you can double or triple that number. Now think about inflation. Costs double by 10 years. So it would be more like 180K (year 1-10) + (180K+180K)(year 11-20)= $540,000. This is not a loan amount. This is what you would have paid in cash with nothing to show for it. If you haven’t bought because you are worried about interest rates, well renting in the highest interest rate out there!
So let’s try this… of course, this will have to start when you are authorized off base. You will want to save your money until then! Let’s say that once you are authorized off base, you will likely have a lower income early in your career and still developing your credit. You will want a great team. You will need a spectacular Realtor (DM me FB for a referral in your area or search the NAR (National Association of Realtors)and mortgage broker (I use an amazing broker, Kayla Worley at LeaderOne Financial) These two professionals, the Realtor and Mortgage Broker, will work together to ensure you meet the goals you set for yourself or help you to develop a plan that will work for you.
Now that you are with lending, you are about to find out how lucky you are. Banks and lenders love to loan money to military! Wonderful! Let’s start our plan of attack. Currently, there are several loan programs available. Each one does something a little different. What is so awesome right now is the FHA Down Payment Assistance Program. Not everyone qualifies, but you definitely want to ask about this. This is even better than the VA loan. With the VA loan, you have zero equity in the loan plus you have to pay some hefty fees. This FHA loan offers qualifying buyers a 3.5% down payment needed for the FHA loan. Some buyers even qualify for closing cost money. As long as there are no late payments for 3 years, the 3.5% down payment assistance if forgiven! So, if you can buy a home at your first or second duty station, you have started your portfolio!
You are going to PCS (Permanent Change of Station) likely within 3 to 5 years. You will want to list your home for rent in the local base paper, family programs FB page, or other local FB pages for the base, or AHRN is another great place. You are not likely to have an issue renting your home if it is close to any active-duty base. You could also leave the renting of the place in the hands of a property manager. They will screen the tenants with background and credit checks for you. (I use All County CPM for the customer service and top-notch service). The best part of the property management is you can take a “set it and forget it” approach. The management company will keep up your property for you and make sure the rent is paid.
The property manager is very likely to have the unit leased with a tenant within a matter of weeks. This will allow you to turn in the lease to the mortgage company to increase your debt-to-income ratio for your next purchase. You have your first rental under your belt. Now you are going to shop for your next home.
You should have the ability to use your VA loan benefit now. This will allow you to buy your next home with zero down. Hopefully, you saved up some money at your last duty station. You will need that for closing costs. If you have the ability to contribute a down payment, that will go a long way with your ability to collect a higher income in the future as a rental or keep you from being upside down in a mortgage if there is an unforeseen circumstance that would cause you to have to sell the property outside of your original plan. Let’s hope there are no emergencies that affect our plan and you have a beautiful home to live in during your tour at this duty station. Good things don’t last forever. You are more than likely going to move again.
You will have some options when purchasing that next home. You may be member to member. That would be fantastic. Then you could use your partners VA loan for the next home. But most families are not member to member so “what do we do?” At this point, your mortgage broker will work with you on the best option. If you have saved money since you are a higher-ranking member now, that’s great. You may be able to get a conventional loan with 20% down. That would be ideal. If not, there are many things that the mortgage broker can suggest to get you into your next home. Don’t worry. They have the expertise to give you the best advice on your purchase based on your current situation.
After this purchase, you will now have three homes. You may or may not have any more PCS’s than this. If you do, keep up the pattern of buying and renting when you move. The last home you will buy will be when you retire. At this point you will have three rental properties that you are collecting income on. This will serve you well during your retirement to supplement your income. Or maybe you want to sell the rental homes and use the proceeds to buy your dream home at retirement. Either way, you are in a much better place than you were just renting for all of those years. You are collecting rent instead of paying it. You have write-offs you would never have had before. You are benefiting from appreciation on multiple homes. Your credit is likely to be higher as a homeowner.
Get assistance adding real estate to your financial plan from the start or find out how to begin from your current situation. Wherever you are in your career, Angie can help you.
For more information about Angie and her services relating to Financial Planning, Real Estate, and Financial Education: Click here and here. Or call (904) 616-8361
Angelia "Angie" Michalak, Executive Contributor Brainz Magazine
Angie Michalak, is a leader in the Financial and Real Estate Industry. While Planners are still just learning of the concept of the new branch of financial planning called Integrated Asset Management (IAM). Angie has been licensed in both Financial Planning and Real Estate for 9 years. Her innovative ways to invest in real estate decrease risk and the headaches that investors normally experience while increasing their overall profit and customer satisfaction. Angie received many awards during her time in the USAF, as a Fortune 100 small business owner, and the various companies she has worked for. She was on the cover of Top Agent Magazine 2022 and recognized as the Best of 2022 by the American Inst of RE.
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