Buying a house

[Guest baileyf16]

I am about to enter active duty and go to pilot training. I've talked with a lot of people that served in the AF and it seems as though most people rent homes or they purchase a home and sell it when they get transferred a few years later.

If possible, I would like to purchase homes wherever I'm stationed and then rent them when I get transferred and have a property management company take care of it. This way when I get out of the AF I will have built up equity in these home and I would then transfer that equity to the home I would move into.

Does anyone know of people that do this successfully while in the AF active duty? Is it possible to successfully own property throughout the U.S.?

Thanks

[WHAP]

Possible, but you need a good realtor/property management agent in each place. You also have to be careful where you buy houses. You wont make much money if you buy a house and the neighborhood goes to shit.

[Guest SnakeT38]

You had best hope you are ALWAYS stationed somewhere that has the market to support the theory. There are more than a few "horror" stories

out there.

Personally, if the "place" is hot, I would "flip" the house everytime I move and keep rolling the money into another LARGER place. If you never sell

you had best save or "inherit" some money to "buy" the next house, you can only have 1 VA loan on the books at a time AND most of the time

their terms are some of the worst ones out there.

[M2]

Didn't we just recently discuss this? I'm too lazy to go looking for the thread...

Just sold a condo I owned as a lieutenant, made $52K after about 12 years of ownership. Bought a house when we got to San Antonio in 1999. Sold it in 2002 and made $18K. However, you can lose money as easily as you make it. That's the rule with investments. BRAC can hose you big time.

OK, got over my laziness. If you are interested in investing, read this thread or this one. Or just go happy witht he 'search' function.

Cheers! M2

[Guest Vistar1]

I second what Snake said about VA loans. Look into all the other options before going VA. We got hosed on our last house by jumping into VA before we knew there was better stuff out there. VA has a "hidden" funding fee that equates to what a down payment would be. If you know you aren't going to spend 10 years somewhere, look into 5-year ARMs that have a low payment while you are living in it, then you can sell or re-finance after the 5-years are up.

I wouldn't hesitate buying a house every place we go...as long as we thought the area was going to be just as attractive to the next buyer as it was to us. I guess that's the whole gamble of real estate, huh?

Good luck!

V.

[Zippy]

I am a Navy Ensign and, I bought a place outside DC while I was stashed waiting to go to flight school (read "casual status"). Right now, the market there is pretty nuts and is predicted be so for a couple more years until it levels off and returns to a more normal level, so I decided to keep it and rent it out. I definately plan on buying another place at my first duty station.

I agree what Vistar says about ARMs - not a bad choice if you are planning to keep a place for a few years after you leave. I am a little more hesitant about the Interest Only ARMS that they have out there- they may not be a bad choice if you can have the discipline to put the extra money you saved from going I/O toward the principal anyways.

Renting is a gamble- your tenants could be great and really take care of the place, or burn it down because they don't and are stupid... I personally would try to rent to military first, then government employees if possible from people I've talked to, they are a bit better then joe civilian as renter.

No matter who you rent to, make sure you max out on your liability insurance- that way, if something really bad happens, you have a good cushion against lawsuits. Actually, I'd max out anways because you never know.....

Also, make sure your house isn't under insured in a hot market, "replacement cost" coverage will be nowhere near what you paid originally, and the yearly insured value increases won't keep up with the market.

I cannot praise USAA enough when it comes to property insurance and service. They will absolutely hire a good lawyer to battle off any lawsuit that may get thrown your way because of an incident with a renter (my family found this out first hand).

You may want to consider putting any property you own into an Limited Liability Company (LLC) if you are going to rent it out and leave the area for a long period of time.

I don't mean to scare you, but getting sued by a tenant/ visitor to your home is always a possibility, no matter how remote- so just keep that in the back of your mind.

[Guest sharpey11]

I was wondering how feasible it is for a single guy who ends up in an MWS like 17's or 135's for their first assignment to buy a house? Are you almost gone too much to make it worth your time? Are there guys that buy a house and just get some roommates? Pretty workable? Any input would be appreciated.

[ClearedHot]

I bought a house as a 2Lt and it has paid HUGE dividends. I had a roommate and it worked great.

Yes it is a commitment you might not feel ready for.

Yes it is a pain when something breaks and you have to pay for it.

More importantly, Yes it is a huge tax break and if you get lucky like I did, one day you will wake up and realize the 15 year mortgage is almost paid off and the house is suddenly worth $300,000, when you only paid $92,000 in 1991.

[M2]

Might want to consider buying a condo instead. Less hassle and easier when you are gone a lot. I just sold one that I lived in for a while, then used as a rental property for ten years. Made quite a nice little profit from the sale (which Uncle Sam will rape the hell outta me for). Houses are a lot of work, and if you are single and gone a lot they may not be your best option. But investing in property is a good move if you do it smartly. Beats pissing away your BAH on rent...

Cheers! M2

[Bergman]

Buy a house. If you purchase wisely, as the others have mentioned, you can make some good money over the years. Plus, owning your own house is at least 69 times more enjoyable than renting (if you're into landscaping, working around the house, back yard BBQs, etc).

After that, max out your TSP and fully fund a Roth IRA.

If you do those 3 things, you'll be well on your way to a comfortable retirement.

[Guest sharpey11]

Bergman- Regarding TSP...if most of your income as an LT is going to be non-taxable anyway, with no match from our employer is TSP even really worth it? I max my roth, and put away other money into some t. rowe price accounts...think I'd be better off with some of that $$ in TSP?

[Bergman]

Originally posted by GlobeSmasher:

Bergman- Regarding TSP...if most of your income as an LT is going to be non-taxable anyway, with no match from our employer is TSP even really worth it? I max my roth, and put away other money into some t. rowe price accounts...think I'd be better off with some of that $$ in TSP?

I am not a financial analyst, nor did I stay at a Holiday Inn last night, so...I wouldn't panic if you're not doing TSP right now. I'm sure your T Rowe accounts are decent, but I'd make sure you're not paying a lot of up front or 12B-1 fees which end up reducing the net gain significantly (been bit on this one myself as a 2Lt).

As for "most of your income being non-taxable", you are right...as a LT you will probably have 6-9 months a year tax free (although even that's getting more scarce these days...until be bomb Iran)...but EVENTUALLY you will take the dreaded squadron/staff job (right M2, ClearedHot, et al?!) and those tax breaks will be gone. Then TSP starts looking pretty good again. Nothing is set in stone...so you can do what fits now and in 4-5 years switch your investng strategy to what makes sense then.

[Guest CrashCB18]

Too bad that for some bases, a decent house starts at $220,000. That comes out to approx $1,600/$1,800 monthly mortgage. Yeah, with a roommate you'd be paying only $800 a month before utilities, but that still sorta sucks. I'm jealous of people back at Randolph buying decent houses for less than $150,000.

[M2]

Crash

Don't be too jealous, I bought on the northwest side of San Antonio and paid $235K for a nice house. The S.A. market goes up on average 8.7% annually, so based on when you last lived/bought here, the housing market has changed quite a bit. Trust me, I've bought two houses in San Antonio (one in 99 and the other last year), and I was floored by how much houses have gone up here.

Cheers! M2

[LockheedFix]

Is TSP more of a retirement account or can you take money out of it when you need it? I'm looking for a more liquid account where I can store some cash and get it out when I need it but make more than the 2% or whatever it is that my savings account makes. Somebody told me recently that you could do that with TSP, but I had never heard that before.

[Guest Walter_Sobchak]

I bought a house at my first ops assignment (first place I was reasonably certain I'd live in for more than a year). In a town of 40,000 in the only state to lose population last year I'm not planning on seeing any great increase in resale, but it's a good feeling to know that I'm actually getting something for my money as opposed to handing out rent every month. I know a good number of folks who make a decent income just off of renting homes from places they've been instead of selling the places. You've got options, but I'm definately happier as an owner than a renter.

[Rocker]

So am I completely retarded for seriously considering living on base at D-M when we get there? It is f-ing EXPENSIVE to get anything decent in Tucson right now. My wife is applying for all sorts of GS jobs on the base there, and we're both into the idea of having no commute and not paying rent/mortgage/bills and being right around the corner from the BX and commisary, where we like to shop anyway. And running the air conditioner as much as we please when it gets brutal out there. Not to mention being able to drunk home stumble from the O'club on select nights. Obviously there's no investment whatsoever in it, and the effective pay reduction of not receiving BAH will be shocking at first, it just seems like so much less of a hassle. And when I'm gone, I can pretty much count on the wife being in a safe place.

Anybody live on base by choice or am I being weird?

[Bergman]

Originally posted by Rocker:

So am I completely retarded for seriously considering living on base at D-M when we get there? It is f-ing EXPENSIVE to get anything decent in Tucson right now.

A good bud of mine owns a house near D-M...paid $240,000 for it and it has gone up $80,000 in 6 months. The housing market is going ape shit right now. If you can afford it, there are some great neighborhoods (and some pretty bad ones) and you could potentially make some decent money over a 3-4 year tour.

That having been said...there are merits to your argument for living on base...less hassle, safer. The usual on vs. off base arguments apply as well...housing nazis, can't upgrade/modify, etc.

[LJ Driver]

I would recommend that everyone max out TSP and Roth. The nice thing about the TSP is that they track your tax-free contributions. So if you go to the AOR in January and contribute $500, that money is still untaxed when you withdraw it, though the earnings are still taxed. There are no civilian investments that track that tax-free withdrawal for you. Also, when you go to the AOR you get an extra $225, so pop that in there as well. If you start as an LT, and then increase your amount every January when you get your raise, you never miss it. I did that as a LT and now I am close to the IRS limit of $15,000 a year. It is not as flexible as a civilian investment, but you can take a loan against your TSP account and then pay it back to the account.

[Guest sickels101]

Totally agree with what everybody else has said up to this point, I would just like to add one thing that I considered when buying our first house. You can take the BAH and rent or you can take that money and invest it (ie buy a house). I know some people will argue you are "only renting it from the bank" but this is not true after a few years. If you buy somewhere good, its a great investment, IMHO.

[ClearedHot]

The "renting it from the bank" argument is nonsense. Buying a house offers many benefits (and risks), but paying a mortgage allows you to build equity and claim a large tax deduction.

Hanging on to property as an investment can be beneficial to your taxes as well, but there are a few things to be aware of. As an example, I purchased a house in South Carolina in 1991. I left in 1994 and rented it out. On my taxes I was able to deduct not only the mortgage interest and property taxes, but a depreciation value. By deprecating the house I got another large tax deduction. HOWEVER, there is a catch. If you depreciate you may have to pay capital gains on the profit if you sell the house in the future. The tax code used to say that if you lived in the house two out of the last five years you could recapture the depreciation and not pay capital gains. As I recall the law recently changed and M2 posted about this not to long ago, I think the time period has extended especially for military. It is a bit of a risk, as in my case I have no intention of returning to South Carolina so when I sell the house I will have a large capital gain penalty to pay (a great problem to have).

Bottomline, if you are in a weapon system where you think you might have multiple assignments at the same base, then I would buy a house and rent it while I was away.

Each time you return you will be able to “recapture the depreciation” and basically enjoy an extra tax break each year.

[hindsight2020]

Agree with all the pros about buying a house. Like it has been stated before, at the very least you build equity, and that beats renting every day of the week and twice on Sunday.

The only problem is that this market is insane and 2006 money is so inflated is not even funny. Elaborating from the example that Clearedhot provided, unfortunately a year 2006 $92,000 home is a de facto section 8 housing in most metropolitan areas, and even some medium-size cities. Consequentially, it is most likely located in a neighborhood that won't see any worthwhile appreciation, if any. Albeit speculation, I don't foresee witnessing the same kind of appreciation on my 2006 92K home in the same time period than it took to reach 300K in the 1991 92K home.Real estate investing has subsidized the lives of many of us, hell it helped put me through college, I'm just concerened my generation will not be able to enjoy the same kind of profitability our parents did, and preach about on a daily basis. (I'm in my 20s).

To get a minimum threshold of "liveability" and investment soundness, one has to get into the 150-175s in small metro areas/towns, upper 200's in major metro areas, which is just not very realistic for a first-time home buyer with no previous cash base, unless you stick up grandpa for the down payment or have been saving since high school, which is about the only way to get ahead nowadays with 2006 paychecks.

I concur with the condo and/or townhouse option, they tend to retain value and maintenance hassles are smaller, worthwile to rent as well, if you can find one outside the ghetto for the same price of the single-family home you were basing your budget from.

Also, do not get sucked into the ARM loan crowd. These are the same folks who get anxious because they see the market "blow up" and feel they're missing out on something. Forget the doom and gloomers that say the market's bottom is gonna fall out, that probably won't happen, but a minor cool-off in the local market is enough to stop your chances of selling your property at a profit, and now you're over your head.

[Hotel]

A Reserve bum isn't going to get the BAH right? So, when I'm done with training and doing the bum thing it's not like I can take the BAH and put it towards a house instead of throwing it away on rent.

Or am I wrong on that?

Also, what is "maxing out TSP"? Is that 20% of all base pay and bonus pay? It's all pre-tax as I understand it.

[ 11. February 2006, 13:06: Message edited by: Hotel ]

[Guest medik6]

MDINC

You don't have to hit up Grandpa for the down payment. That is what the VA loan is for. We just bought a house in December, we used our VA loan, and we put in our offer to buy the house that we wanted them to pay our closing costs, which they excepted, and believe it or not we got a check for a little over $800 at closing when we bought our house.

[Bergman]

Medik just reminded me of something...

Use the USAA Mover's Advantage program! They recommend a real estate agent and if you buy a house using that agent, USAA will pay you $200-$1000 based on the price paid for the house ($100k-$250k+). It's just a kickback for using a certain agent, but who really cares...unless you have an aunt who's an agent or something, I could care less who's my agent. They all suck equally (sts), IMHO.