However you arrive at the decision, whether intentionally or because you’ve been redeployed without time to sell your home, offering your property for rent has some financial advantages—especially as a member of the military. Of course, there are some challenges to overcome as well. Let’s take a look at some key things to consider if you’re thinking of becoming a military landlord.
Financial Advantages
Everyone, regardless of rank or branch of service, can benefit from added income. When you’re renting a property for more than it is costing you in expenses, that’s extra cash you can pocket. Even better, the people to whom you rent will actually cover the mortgage on the property for you.
As that happens, and as the value of the property increases, you will accrue equity—which you can use to purchase other properties. This cash can be accessed through a cash-out refinance. As an added bonus, doing so won’t subject you to the capital gains taxes you would encounter if you sold the property at a profit.
Using VA Loans
The rules governing VA loans prohibit the purchase of rentals for investment purposes. However, purchasing a home, living in it for a while, and then offering it for rent is permissible. Military service people can also use VA loans to purchase multi-family properties of four units or less, as long as you live in one of the units. These approaches enable you to acquire rental properties with no money down.
Practical Concerns
Before we leave you with the impression that generating income from rental properties is a walk in the proverbial park, there are some responsibilities of which to take note. Chief among these is the management of the property. You’ll have to find potential tenants, qualify them, place them in the property, and take care of any maintenance concerns that come into play.
Some military people choose to engage property management companies to handle these tasks. However, this can take an 8- to 12% bite out of your monthly rental income. Some management companies also impose commissions for finding and placing tenants when vacancies occur.
Given that you’re likely to be an absentee landlord from time to time if you’re still on active duty, you’ll probably need to contract a management company to handle all of these issues. Another approach is to handle the marketing and tenant administrative duties on your own and work with a local handyperson to take care of the maintenance.
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Tips For Making This Work
Consider your ultimate goal
Are you looking at the property as a long-term investment? Are you thinking of holding onto it until appreciation makes selling worthwhile? Do you have a specific target amount in mind that you would like the property to generate before you sell? Either way, it’s important to look at it as the business entity it is.
Maintain open lines of communication with your tenants
It’s important to ensure they can reach you, your property manager or your maintenance person any time there’s an emergency.
Set clear expectations
Your rental agreements should always establish who is responsible for what in terms of the property. Who pays for what types of issues? Are you or your tenant responsible for repairs when something gets damaged? Who will be responsible for conducting which types of preventive maintenance?
Inspect the property regularly
Inspections should occur at regular intervals, agreed upon in advance by both you and the tenant. You or your property manager should visit the property at least once a year to ensure everything is in good shape. This can help you catch potential problems before they become prohibitively expensive to correct.
In Summary
This short guide to becoming a military landlord provides a general overview of the considerations you’ll need to make before taking the plunge. You’ll find more detailed advice at the Veteran.com website, as well as at TheMilitaryWallet.com.
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