Real estate can be an investment that funds the bulk of a person's retirement, but it can also lead to bankruptcy.
Military members often buy homes when they relocate for the many values that home ownership offers, such as peace of mind. For those living in areas with growth, the real estate market has been kind, allowing for them to leave a rental property behind to gain equity, or sell at a profit as the home has appreciated in just a few years.
Those living in areas where bases have closed down have seen the opposite. For this reason, it is not always wise to purchase a home in an area where military bases provide for the bulk of the economy, because when the base goes, so may home values.
For those looking to invest in a rental property, it should be considered if:
- There is solid evidence the base will be there for the next 20 years.
- It is worth it to leave a nice home on base for a modest one out in town.
- The risk is worth the reward.
Camp Lejeune: A Base With Growth
The substantial growth of the military under President Bush that is now being sustained by President Obama has led to a Marine Corps that's recruiting target was 202,000 service members in 2008. The target was met through aggressive, superior recruiting and attractive bonuses for re-enlistment.
As a result of this growth, which also took place in other military branches, the Marine Corps' Camp Lejeune in eastern North Carolina has not only seen a rise in the local population of the surrounding town of Jacksonville, but the town's housing and rental prices have increased as well.
In this simple case of supply and demand, one former marine who requested to remain anonymous noted that he had looked into purchasing a home in Jacksonville in 2004, but balked as he felt housing prices would drop.
He was correct, but not locally. While housing prices in New York, Florida, and California fell significantly, prices in Jacksonville, North Carolina rose. Three years later, he purchased a 3 bed/1.5 bath home for $113,000 that he could have purchased in 2004 for $78,000.
Despite the opportunity cost of not buying in 2004, that marine is currently renting the home at a profit since his relocation to another duty station earlier this year.
Base Housing Offers Big Beautiful Homes, but Service Members Cannot Build Equity in Them
One challenge for service members is that recent updates in base housing have made it less attractive to live out in town.
New construction includes amenities that had not been available before, such as swimming pools with club houses, and regular lawn and home maintenance.
In addition to this, space is not determined by rank, but by need. Larger families can have homes to accommodate them. For example, a couple with three children of the same sex that are four years apart rate a four bedroom home since the age difference of the children require that they should have their own space, whereas children a year apart would be seen as fit to share.
Despite the luxury of living on base, buying a home should be considered, especially if the base is growing. If a trend shows that more barracks and homes are being built, it may be a good time to get in on the housing market so as to capitalize on renting the home later, because BAH (Basic Allowance for Housing) rates are likely to increase as well, resulting in median rent rates going up.
Rather than pay all one's BAH to base housing or a landlord, a home owner can pocket the extra money when BAH increases and the mortgage rate does not. When the home is rented, the rent can be raised to make more money, or it can stay the same to make the home more attractive.
Risk Management While Investing in Real Estate
Buying a home can be risky, especially for investment purposes. Additionally, the purchase of a home with a mortgage is a means of taking on a large debt that will be carried for a long time.
If one is going to buy a home, it should be done with diligence and caution. One way to manage risk with a rental property is to arrange for the home to be its own LLC (Limited Liability Corporation) so that it cannot be lost in a personal lawsuit. Another way to manage risk is to always have cash set aside for periods of vacancy.
Military areas have shown impressive growth over the past eight years. During times of reduction and expansion, many home owners have prospered. If an investor is going to purchase a home in a military town, it should be done with caution and an eye to the future.
* This article was written for informational purposes only. For more information on real estate investing, contact a licensed professional.
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