Real Estate Investing Strategies For Naval Officers Using VA Loans
PLEASE READ: Nothing I say here constitutes professional financial advice and readers are encouraged to do their own research when making financial decisions. I am not a certified expert on financial matters.
"Buy land, they're not making it anymore." -Mark Twain
Army vs. Navy
Reading through r/militaryfinance, you might have noticed that there are many service members that buy homes using VA loans whenever they move to a new duty stations and talk about how they have built themselves their own real estate empires. There is always a couple of people mentioning "house hacking" and buying a fourplex on these forums.
The overwhelming majority of these people are probably Army. Particularly because the duty stations for Army are in the south where home prices are low which allows them to drawdown on their VA loan entitlement several times. For naval officers that are stationed near the coast like San Diego or Hawaii, hot real estate locations, it will be near impossible to buy multiple decent homes, let alone a fourplex, that won't drown them in monthly payments even with BAH and one that will fall within VA loan entitlements (which I believe is around $1 million for San Diego [this doesn't mean you're actually getting that much when you apply for a VA loan, especially as a junior officer; it just means that is how much you theoretically could borrow.])
So, what gives? Are naval officers just stiffed?
Does Army get to own all the prime pickings while Navy just has rent? I don't think so. In fact, I think naval officers are probably sitting on a literal gold mine given their proximity to coastal, tourism-rich real estate, and high COLA areas.
The following strategies arise from this context:
Buy a property that can be used as an AirBnb rental during deployment
Buy a property and rent out to other junior officers
Buy a property WITH other junior officers and create communal officer housing
Below I'll try to sketch the rough outlines of both strategies. Keep in mind that these strategies require thorough research and serious elbow grease on your part to actually execute successfully. I'm just giving you the ideas, but it's up to your mettle to make it work.
AirBnB Strategy
Brief: Buy a property that can be used as a AirBnb vacation rental during your offshore deployment. Get a full-service co-host to manage your property.
Edit: AirBnB competition has increased post-covid and has decreased rent prices across the board. This does not mean this strategy is no longer viable, but it will be more difficult to execute profitably.
During a 6-8 month deployment on ship, you could rent out your property on top of the BAH you are generating passive income from AirBnb. If you're smart about the entire process and can find the right property, I imagine it would not be impossible to be generating around $11,000 a month while on ship (AirBnb + BAH [San Diego] + Base Pay for O1).
How would I manage my property when I'm on ship?
Let's talk logistics. First off, you would absolutely need an AirBnb co-host. A Co-host is someone that helps you manage your Airbnb rental property, whether that be in bookings, advertising, maintenance, and so forth. You will need someone to do pretty much full service as you will be unable to do anything while on ship.
Full service co-hosting will cost you anywhere from 10-50% of your AirBnB revenue. Sharing your pie with someone else might seem unappealing, but the alternative is you won't be able to monetize your property at all and it will be sitting on shore just eating up all your BAH. I'd say give them a share to at least make something.
If you find a good co-host, they will probably be connected to vetted cleaners, handymen, and handle all the edge cases that can't be covered by general AI tools. So, you really could put your property on autopilot. This is probably your safest bet.
Regulations and Licenses
Some cities have specific licensing you need to get to actually operate a short term rental property so make sure you look up the specific requirements in the area you are based. In San Diego, you need at least a Tier 1 STRO (short term rental ordinance) and a TOT (Transient Occupancy Registration) certificate.
In some cities, like New York, Airbnb is outright banned.
Buy & Rent Out to Officers Strategy
Brief: Buy a property and rent it out to other junior officers in high BAH areas.
This is pretty self-explanatory, tried and true. Buy a home or apartment and share some rooms with other officers. BAH for O1's in San Diego is around $3,800. If you can find a property where it is profitable to charge less than average rent in San Diego (~$2,300) to 1 or more junior officers, you should have a stable source of passive income.
Plus, having people to room with when you're young is a good opportunity to make new friendships. It can be hard to make friends after commissioning and arriving to your first duty stations where officers may be forced to mainly interface with enlisted personnel (not that there is anything wrong with anyone on the E-side; I'm specifically referring to fraternization policies.).
Creating Communal Officer Housing Strategy
Brief: Pool VA Loans with other junior officers to purchase a larger home to be used as a military "frat-house". You'll probably earn less but will have more fun.
(If anyone is interested in doing this, contact me at [email protected]. We can start developing a more in-depth plan.)
This idea is probably the most out-there, and it would require some planning and some expertise to pull off successfully, but I also think it can create the most value for junior officers.
Compared with the other strategies, you aren't really optimizing for financial returns here but more for having fun while you're young while still setting up some wealth-generating asset for your future.
Yes, I know - the idea of creating a frat-house for young naval officers in their early 20s outside the immediate supervision of the government sounds like a recipe for an eventual court martial, but hear me out.
As mentioned before, officers can have very isolated lives. You can do a quick google search of "lonely military officer" and you will several pages of results of single junior officers lamenting their lonely existence. Reading through these reminds me of my first year in undergrad when I lived in a single. I was so fucking lonely every day that I resolved myself to make some new friends and live in a 5-person suite the next year and it was fantastic. Not only did I have people to come back to after classes, but every week I had people to go out drinking and have fun with.
I want to extrapolate the same experience for young officers who just got to their first duty stations. I wager there will also be officers that would be willing to pay a premium for this experience.
Napkin Sketch Plan for Execution
If you could gather 4 officers to agree to become co-borrowers on a Joint VA loan on a single property, you would have access to a theoretical maximum of $4,000,000 in VA Loan entitlement (in San Diego), but let's assume that your bank only approves you for $2,000,000 to keep things conservative.
The monthly payment on a $2,000,000 home in California with an interest rate of around 7% on a 30 year mortgage is around $13,000. BAH on 4 O1s is $16,000, so you would already have your mortgage covered. If you can "house hack" a little bit and manage to fit 2 or 4 more people in that home, the original 4 could pocket some of that money as revenue.
Have fun while you are stationed in a large home with other people who like to have fun, and when you leave, bring someone else from base to fill occupancy.
What if one of the original borrowers wants out and needs to use his VA loan to buy a different home?
If one of the original 4 wants to buy another home, say, he has a family now, you could refinance the frat house with a conventional loan and restore your VA loan entitlement. This will only work once, though.
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