Each transfer presents servicemembers and their families with a difficult choice: rent or buy. What happens to the property you buy at one base if you have to move again? You can save money in the long run by renting out your property instead of selling it after every transfer.
But should you always consider renting out your home? Would your family be better off if you sold your house instead? The benefits (and drawbacks) of becoming a landlord are discussed in detail.
Buying a home: Long-term wealth creation strategy
You may have heard that buying a home is a wise financial decision. Though this is frequently the case, with real estate investment, you need to keep the big picture in mind. If you plan on selling your property after only a few years, you probably won’t make much of a profit. Similarly, you won’t see a significant increase in your monthly cash flow by renting out your house.
After a while, you’ll start making actual money. If you opt to rent out your property, your renters will be responsible for covering your monthly mortgage payments. Your mortgage payment won’t change if the economy improves, but rent in the area might. You can either put that extra money toward paying down your mortgage faster or into savings every month.
If you can keep up with your payments, you can pay off your mortgage early and own your home outright. And you’ve done all this without ever (or hardly ever) dipping into your own savings to cover the mortgage. Yearly growth of several percent is the norm for housing prices. In other words, if you can keep up with your mortgage payments and watch the value of your property rise over the next 15 years, you will have a large chunk of your financial goals accomplished.
Many military families rely on the profits from their rental or sale of investment properties to fund their retirement.
Should we put our house up for rent or sale?
Since military families often relocate, this is a frequent inquiry. Each family is unique, thus there is no universally correct response.
If you’re looking for a way to diversify your income and save money for the future, renting out your property could be a good option to consider. Build equity as home and rental prices rise and fall. When the time comes for retirement, you have the option of selling the property or collecting rent payments for the rest of your life. Each rent payment becomes extra savings once the mortgage is paid off.
On the other hand, being a landlord isn’t without its difficulties. Since you are still the owner, you are responsible for paying any and all costs associated with the home, including maintenance, taxes, and HOA dues. Before the mortgage is paid off, the monthly rent from a rental property is usually not very substantial. Money left over after paying the mortgage might be spent on property management, upkeep, or emergency repairs.
Renting out your home could be a good alternative if you are prepared to deal with the challenges that inevitably arise and have the financial resources to back up your investment. Selling your home could be the best option if you don’t like dealing with tenants and maintenance issues.
Real estate investing basics: 5 steps to financial freedom
Before diving headfirst into the world of property management, it’s a good idea to do some advance planning. Even though there are no guarantees in real estate, you may increase your chances of success by taking certain steps.
Never put in more money than you can afford to lose
It’s important to consider how much money you’ll make each month if you decide to rent out your home. Can you still afford the mortgage if you don’t immediately find tenants? Can you afford BOTH your current mortgage and the mortgage on your rental property? Is there money set aside for emergencies, improvements, and taxes?
Renting out your property may not be a wise choice if you’re already stretching every dollar you make. You should never put your money into a house if it would put too much strain on your finances.
Consider renting out the property you plan to purchase
Take into account your intention to rent out the property in the future while making the original purchase. The typical PCS plan for a military family is to buy a home before their deployment, live there for their tour of duty, and then rent the house out to another family.
Purchase a home that meets your needs, but keep potential renters in mind as well. For example, most tenants will find it challenging to keep up a house on many acres of land. Rental demand could be stunted if you provide amenities that only a select few want, such as a swimming pool. Plus, if you buy a cheaper house, you’ll be able to charge cheaper rent and attract more reliable tenants.
Learn about the tax benefits.
Homeownership comes with a number of tax breaks. Some of these tax breaks, however, are restricted to homeowners who have resided in the same home for at least two years. Consult a real estate tax expert if you want to maximize the profit from your investment property.
Make sure to budget for any surprises.
When you’re a homeowner, you can usually count on a few surprises. Damage to an AC unit is common. The water heater has stopped working. Things break, especially appliances. Yes, there are times when tenants do damage to your property (such as by punching holes in the wall, breaking windows, or littering).
Be sure to include these expenditures in the rental price before you list your home.
Be sure to include expenditures in the rental price before you list your home.
Taking care of the property’s administration should be a priority.
There is no need to hire a management firm if you want to run your home yourself. If you are a military family, though, you may be stationed hundreds or thousands of miles from your rented home. When you hire a property management business, they will be responsible for finding reliable tenants, processing the paperwork, responding to maintenance requests, and dealing with any troublesome tenants.
One common form of payment for property managers is a predetermined share of the monthly income. It’s usually money well spent.
Long-term property owners are often rewarded handsomely for their foresight and responsibility. Members of the armed forces often must relocate frequently, making it difficult to settle down long enough to pay off a mortgage and start building equity. Our only other choice is to start renting out our homes as landlords.
Thank goodness, the military infrastructure is robust and widespread. To fill empty apartments, landlords need to go no farther than the military. If you do a search online, you should be able to find a number of military homeowner sites that specifically cater to military families searching for rental housing.