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    Military Homeowner to Investor (Part 2)

    Now we get to the meat and potatoes part of the story (with tips following)!  So we moved to Fort Richardson from Fort Hood as the accidental landlords of two rental properties.  When we first realized that we would not be able to sell our homes for enough to turn even a teeny, tiny profit, I started to consider the idea of renting them.  I was scared.  What if we couldn’t find renters?  What if they didn’t pay the rent?  And the big one… dun, dun, dunnnn… What would happen if they TRASHED our home in the process?  It all boiled down to one bottom line for us; foreclosure was not an option.  We would fight for our homes, clean out our savings, and do whatever it took even from thousand of miles away before we would foreclose.

    We have rented to Majors, to Specialists, to corrections officers, and convenient store workers. We have never had a problem finding renters, and the homes have been empty for no more than 7 days in between renters.  Some have paid rent early, some on time, and some have paid late.  We have had to do minimal work in between renters due to normal wear and tear, or pet damage, but the homes have never been trashed.  We have managed the properties ourselves, and our mortgages have been paid.  There are a few simple steps you can take to ensure that you are prepared to handle those big, scary “What Ifs” that may have you afraid to buy.

    1. Consider your location: Some of the top questions when people are looking for a home are… Is the neighborhood relatively safe?  Is it close to post?  How are the schools rated?  How close is it to shopping, grocery stores, and restaurants?

    In a military community, we are often blessed with a fairly high demand for rental properties.  People like you and like me are afraid to buy because they are afraid of being moved by the military.  You can use this to your advantage by going from Military Homeowner to Investor (Part 1), or you can let it work against you by paying for someone else’s investment.

    2. Select your home with care:  Look for an appealing, low maintenance home.  This may mean sacrificing a little bit of the things you desire for a more marketable home.  Or it may mean carefully analyzing updates (like HVAC, roofing, windows) and how recent they were made, in an older home.  You may want to forego a home with a pool or an extensive garden that a renter may not be able to maintain.  You or your partner may be perfectly capable of replacing the flooring, counter tops, and cabinets, but consider whether that is something that you want to add to your plate in order to get a renter if it comes down to PCS time.

    3. Take an emotional step back:  This can be difficult to do when you are purchasing a home as your primary residence while considering that it may become an investment property in the future.  Home buying is an emotional process.  It is right on up there with having a baby, or getting married.  Breathe, take a step back, and imagine walking into the home as a renter.  Imagine turning your home over to a renter.  If you have a plan for the future, and begin to wrap your mind around the idea in advance, it will be easier to do when the time comes.

    4. Research the neighborhood rental market: What are the neighborhood homes renting for?  Are there many homes for rent, or just a few?  A good rule of thumb is, if you can buy the home for 12 times what you would make annually in rent, then it is a good deal.  If you can pay your mortgage, then put the extra amount from the rent towards your principal loan amount, and can pay the home off in 10 years, it is an even better deal and I will personally jump out of this blog and shake you if you don’t go for it!

    5. Have some reserves saved up: Inevitably, the dishwasher will stop working, the a/c will freeze up, or a pipe might start leaking.  This goes back to #3 and having a plan for the future.  Plan on it, and it will be easier to accept, and less of a shock.  My personal rule is to have 6 months of the mortgage saved for each rental in an account that we do not mix with our personal finances.  These reserves are an absolute necessity, and ensure that you do not become overextended.  They will also be beneficial (sometimes even required) when it comes to getting a second home loan.

    I don’t care if you have to eat beans and rice every night for dinner, put your rental reserves away and do not touch them.  That way when you are broke, it is 10 days until the next payday, and your renter calls and says, “It is 90 degrees in my house and I have a newborn baby”, you will be able to handle business without an emotional breakdown.  You will be proud of your ability to handle the situation, and your renters will be more likely to hang around long term because they will see how great of a landlord you are.

    6. Be involved:  Whether you enlist the services of a property management company or you become an owner-landlord, be involved!  Have the property management company send you the information of potential renters and why they were approved or denied.  Read your contract thoroughly and make sure they are following through with every single responsibility that is detailed.  Make contact with your renters so they know who you are.

    I have made it a practice of sending holiday cards or hand-written thank you notes.  It is a business relationship with the potential for great reward or great cost.  If your renters know who you are and that you are a caring, capable landlord, it will be easier to respect your home as if it were theirs.  If you make periodic contact that is positive versus overbearing, it is one more reason for your renters to hang around longer.

    7. Build a reliable, trustworthy team:  Do you research and begin building a sphere of support.  You will need a Realtor, lender, and possibly an accountant.  Ask for referrals, and choose people that you can communicate with easily.  Do they answer your phone calls, text messages, and emails in a timely manner?  Is conversation easy, and do you feel like you can trust them?

    Begin interviewing home improvement companies, plumbers, HVAC repair companies, and electricians.  Make face to face contact.  Hopefully you will not need your repair team for years to come, but I call it “warding off the evil spirits”.  If your team is in place, and you are prepared, then you won’t need them.  The moment you are unprepared is when you will be caught off guard.

    8.  Don’t wait:  If you have everything in place… If you are ready, willing, and able to buy a home… then don’t wait.  Interest rates are historically low.  Many investors, looking back, kick themselves for not investing sooner.  Interest rates will not be low forever, and don’t waste one more dime of your money paying for someone else’s investment.  If you didn’t have a little bit of fear, I would be worried!  It is totally normal to worry; that is actually the first step to building your plan and being prepared.  And who knows?  As my mom always told me, “Don’t borrow trouble!”  It may work out that you are at your current station for the next 12 years or more.  Do you really want to look back on 12 years, when interest rates are no longer low, and say, “If I had known that we would be here all this time, I would have bought back then.”

    Investing is a gamble.  Life is a gamble.  Somebody can run right into that new car the moment you drive it off the lot.  Your children could take a sharpie to that nice new washer and dryer set you just bought.  The one difference is that items begin to lose value immediately and continue to lose value with age, over time.  Property will always retain its value, and may even increase considerably with time.  Sure, the home might need to be remodeled after 30 years, or you may need to replace a fence here and there, but the property will always be of value.  As I mentioned above, it can offer the potential for great gain, or high cost.  Follow the steps above, put your plan into action, and you will likely succeed!  Happy house-hunting!

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