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Thread: Talk To Me About Income Properties!

  1. Senior Member
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    #1

    Talk To Me About Income Properties!

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    Tell me about your experience owning an income property in a military town

    Our lease is up in November with this house and DH and I are looking at buying a house to live in for the next year or 2 and turning it into an income property after that. My mom owns several rental properties so I am going to sit down and have her help me run the numbers for some potential houses but all of the houses she owns are in a pretty affluent area and her houses are always rented out. I don't think any of her houses have ever sat vacant. So its hard to use the same assumptions as her with a completely different market.

    What have yalls experiences been owning an income property in a military town? Pros? Cons? Things you wish you would have done differently? Things you wish you would have known?
    Last edited by RetepDoc; 04-20-2015 at 10:18 PM.
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    #2
    Until this year, ours has been more of an "outgo" property than "income".

    In truth, after writing off all the various expense, and considering the tax implications, we've pretty more or less broken even until this year. Now, we are that the point where the loan is paid off enough that the interest (the portion you can deduct as an expense) is getting lower. That made a huge difference this year.

    You can write off HOA, interest, property taxes, maintenance, property manager fees, depreciation, and any other expense that goes directly toward the property.

    I'd consider the type of military you get and keep that in mind when buying a house. We bought ours 100% not as a rental, so we weren't really thinking about that when house shopping. But we ended up with a place that had 3 full baths, 2 of which were on suite, meaning it is really great for roommates. (That's an unusual set up for a smaller, somewhat cheaper home, which ours is at just under 2000sqft and a townhouse.) Now, we've never actually had it rented by roommates. We've only had 2 renters. One was an couple with no kids (military, but somewhat older). And the other is a single mom with first 2 and now 3 kids.

    Just make sure that if it is a 3 bedroom place, for example, the floor plan is set up so that someone with 2 kids could easily live there. Even if you don't need 2 full baths, for example, most people who live in a 3 bed place are likely to have 2 kids, so one shower won't cut it. Also, I wouldn't get a place without a tub if it is likely to be a family rental. The overall point is that when buying, you have to consider not only your needs and desires, but those of the kind of tenant most likely to want your place.

    If you set the price right, you won't have vacancies. People are crazy about this. No idea what numbers look like in your area, but if a $2000 place sits empty for even one month, that's $167 lost per month over the course of a year lease. So had those people dropped that price $100 and filled the place immediately, the would have come out well ahead. Price it to rent quickly.

    Since you would be living in it first, this probably won't be an issue but remember that in general (not always!!), higher priced properties attract better (more responsible) tenants. So you want something reasonably nice, not at the bottom of the market.

    As a general rule, most income property owners look for the 1% rule, which is that your rent should be *at least* 1% of the purchase price. So a $300,000 home should bring in about $3000 in rent. So as you house shop, look at rents in the area. If you aren't at the 1% rule or better, it's not a great rental home. This rule is written about everywhere, so google can give you more info you are interested in the rationale or anything else.

    That said, in high COLA area, it is very difficult to find that. Ours is more like .5%. lol But we never would have bought this place as just a rental, and thankfully, we've been fortunate that the property appreciation during the time we've rented has been great, so we are well ahead. Of course, there is no guarantee that will continue, and no guarantee the price won't drop again. Appreciation really shouldn't be figured in when you are figuring out if a place makes sense as a rent.
    Science always wins over bullshit. ~Dick Rutkowski
  3. MilitarySOS Jewel
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    #3
    We are looking at the same thing. Fantastic info. Thank you!
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    #4
    Also If your plan is to rent to military, look at the he BAH chart and don't price yourself above expectations.
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  5. Dancing Backwards in High Heels
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    #5
    You have to think about an income property like you would any business and also like buying a home. There will be ups and downs, and you have to be financially secure enough to cover the downs. What if the property isn't rented out for 2-3 months? What if you get a bad tenant who destroys the inside? (yes, you can sue them, but in my experience it's like trying to get blood out of a turnip) What if you get a tenant who refuses to mow the lawn and you get cited for it? On the home buying side of things, are you going to be financially able to repair major items that break down on two places? Finally, if this is something you are set on doing, get an attorney to draft a rental agreement, not just one you download off of the internet. They can advise you on the rental laws in your state and talk about how to protect yourself.
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    #6
    Our income property is not in a military town, it is in a university town. Two things that really benefited us though are 1) hiring a GOOD management company (ours is seriously amazing, we met with about 15 before choosing one) 2) having a substantial emergency fund for repairs/issues that may arise.

    I know some people choose to go without a management company, but we are overseas so it wasn't really and option for us AND even if we weren't, we did not want to deal with finding tenants, collecting rents, scheduling repairs etc.
    ~Sara~

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