Being a Landlord While On Active Duty by Elizabeth Colgrove

Today’s post is by a military spouse I met through FinCon. She provides a unique perspective on what it means to own and rent property while still on active duty. Many thanks to Elizabeth Colgrove for today’s contribution. 

Is Being a Landlord While Active Duty Worth the Stress?

It is almost that time of year- the PCS (Permanent Change of Station) season. For many, that means making the decision to sell or rent their home in an already stressful time and

Ellie Kay’s active duty family moved 18 times in 20 years.

usually with very little notice. This decision is often even more difficult because being military means your next duty station could be hundreds or even thousands of miles away.

While multiple houses can add significant financial stress, it can also result in significant gain (check out our October Income Report). As an ordinary military spouse, I have been able to turn our transient nature into a second income for my family as a real estate investor.

*Note: We got started from very simple beginnings by buying a foreclosure with our VA loan and fixing it up. When we were transferred, we rented it out. We invested the income from my first job into two rentals (two investments under 100k) and then bought a new house at every duty station possible. When my husband deployed, we downsized, saving 60k and allowing us to buy another investment and personal property. The point is not to boast, but to give you the back story.

Over the years, it has felt like the financial strain and tenant stress that is involved in being a landlord has been explored in every way possible, but no one has discussed the blessing that comes from being a landlord. For us, owning houses has given us so many amazing blessings that I couldn’t imagine not owning real estate while my husband is on active duty.

Here are just a few of the positives of being a landlord:

1) You Have a Place Holder For When You Come Back

By keeping a house in a specific area, you can capitalize on the market whether it goes up or down. This way, you are not priced out of an area. For example, the house that we bought in Hanford, California in 2012 for $163,199 is now worth over $215,000. On the other hand, BAH rates have fallen in this area, while rents have increased.

Even if your house is too small for your family to move back into, you can sell it to buy another house, using the equity as a down payment. If you do not want to sell the house, you can use the cash flow from the house’s rental income to finance your next home’s down payment. That is what we have done with great success to allow us to live mortgage free, without having our houses paid off.

2) Someone Else is Paying Down Your Mortgage

The great thing about your tenant is that they are paying down the mortgage. This allows you to continue to build equity in your house even if you are not living there. As you can see, based on our October Income Report, our tenants paid down $1,633.78 over our 6 houses. This is silent pay down, as it is the loan amount that is being paid down and is in addition to the cash flow.

3) Cheaper Than Renting

We got started buying instead of renting because it was cheaper to buy than rent. With our first house in Virginia, our mortgage was $1,415 and rent was $1,700. The same thing was true at our house in California (check out all the numbers here — as you can see, we save $419 a month). This was great, because we saved money while we were living in the house. When we left, we were able to rent it for a profit. Since rent was considerably higher than our mortgage, they made great long term investments.

4) Tax Benefits

Owning a house has great tax benefits; both when you live in the house and when it becomes a rental. The great thing about keeping your house as a rental is that the IRS allows you to deduct many items from your income (rent), such as repairs, improvements, travel expenses, etc. To see a complete list, check out the IRS schedule E publication found here.

Many investors, including myself, have found that, due to the small cash flow they experience, they have a very tiny profit or even a book loss because of the depreciation that IRS allows. Depending on your tax position, this could decrease the amount you owe to taxes. This is one of the reasons that I love rental properties. There are so many awesome legal tax breaks for rental properties that don’t exist in other investment sources

5) Long-Term Asset

At the end of the day, for us, being landlords is a long-term investment. Owning real estate is a marathon, not a sprint. It is not a “get rich quick” scheme. It can (and will be) stressful, and like anything worth it, it involves a lot of ulcer-inducing moments. I love the fact that my tenants are paying off my houses. Especially the ones that I bought with very little to nothing down as investments. At the same time, they are appreciating, earning cash flow and creating tax benefits. I view that as a plus.

A Piece of Advice

Owning real estate is not for everyone, just like being an investor in stocks, bonds and mutual funds. Make no mistake — owning a house is a form of investment and should not be treated lightly. At the same time, it can be a blessing, and being active duty should not be a reason to avoid buying.

Please look at all your options, your exit plans, and your ability and willingness to be a landlord. It is not for everyone, but please do not buy because of the horror stories. While there have been families that have lost everything in real estate, there have been many more that have been successful with being a landlord while active duty.

What has been your experience being a landlord while active duty?