The Two Pillars of Real Estate Investing While Serving in the Military
Do you ever wonder about your life and your financial situation after the military? Have you ever thought to yourself, "I wish I had another stream of income"?
People come up to me all the time and say things like, “Well, you are lucky because you know what you want to do after the military.” Not true. But I’ll tell what I do know: I know that I never want to be scrambling to find a “job” when I start the transition process.
Transitioning from a military career to civilian career is not easy. Even with all the help we get, the process is often not as successful as we dream it up to be. So what’s my solution?
Create as many streams of passive income as I can before I transition from military life to civilian life.
How? Buy and Hold real estate investing with a focus on cash flow.
Two Pillars of Real Estate Investing While in the Military
Cash flow is essentially anything that is left over from your investment property’s monthly gross rent after all expenses are paid.
I like comparing it to the “High-3” retirement system. In 2018, the High-3 will be a thing of the past (except for those who opted to stay with the old system and are grandfathered in) and the Blended Retirement System (BRS) will be the new standard.
Without getting into too much detail, the goal of the High-3 system was to reach at least 20 years in the military and then receive 50% of your base pay (averaged over the previous three years). This military retirement plan has been extremely sought after and has achieved almost mythical status amongst our ranks because it is completely passive income. Everyone realizes that having half of your paycheck continuously dripping into your bank is such a wonderful safety net.
Well, what if you were able to generate a similar paycheck for yourself and not have to wait 20 years? And what if that paycheck had a peculiar quality of increasing every year and also growing your net worth simultaneously? And finally, what if you found yourself paying less taxes overall because of this passive income? Sounds awesome, right? That’s real estate cash flow.
Buy and Hold
If you bought real estate before the 2008 crash or know someone who did, you might actually be scared of real estate investing. It is inherently a risky business. This is why education is crucial and understanding the “Buy and Hold” strategy will boost your confidence.
When implemented correctly, The Buy and Hold strategy helps minimize the risk of your investment property becoming a liability. Remember, we want assets.
The idea behind Buy and Hold is simple: Buy a solid investment property that is very rentable (good school district, size, location, job market, etc.) and never sell it… especially during a market crash. If you treat a property’s value as your only metric of its success as an investment, a market crash will cause you to go crazy. The worst thing you can do during a crash is sell your property at a loss. The best thing you can do is continue renting it out, even if the cash flow is virtually nonexistent (or maybe even slightly in the negatives).
Stay the course; the best is yet to come. Real estate follows an up and down curve with a historical upward trend. During a crash, you should save up as much cash as you can and hold on to your assets. As the market slowly starts to recover, buy more assets (read: investment properties) while everyone else is still recovering.
Rent prices don’t always rise and fall with property values. In New York and L.A., if the real estate market crashes, the rents will most likely follow suit. This, of course, is scary for a Buy and Hold investor because we rely on that rent to pay off our mortgage and expenses. But, if you buy in certain areas around the country with high rent-to-price ratios, you might even see an increase in rent! Why? Because if more and more people default on their mortgages and are forced to rent, the demand for quality rentals--those with stable job markets, good schools, and lower cost of living--will go up!
In summary, you can create passive income streams while in the military if you buy and hold investment properties that produce cash flow.
The most cost effective way to do this is by purchasing a good property at every duty station with a VA loan, refinancing into a conventional loan every year, and then buying yet again. Rinse and repeat. You can do this as many times as you like. All you need to do is either wait a year or get orders to move somewhere else. There are also many ways to accelerate this strategy and really get a jump start towards financial freedom.
One of the best ways to accelerate yourself towards your passive income goals, however, is investing in turn-key real estate. Not every duty station will have smart investment options, and sometimes we are on deployment or stationed overseas. The good news is, it is very possible to buy cash flow investment properties out of state or while OCONUS. If you trust your turn-key providers and you have access to lenders who are experts in working with military investors, you could set yourself up for a significant amount of passive income.
Start the spark in your family.