Buying a House at each duty station?!?

[Pcola04/30]

OK...this goes out to anyone with a PCS or two under your belt.

I am really looking foward to buying a house at my "first" duty station. I would like to keep it and rent after /if I leave for another PCS, buying a new house at the next place etc etc. I have heard a bunch of success stories from numerous officers. I was wondering if anyone here had any bad experiences with buying and renting out their homes.

2. What kinda of problems (if any) did you run into with financing your second home. I have heard you need to be able to prove some 'previos landlord/property mgmt experience' in order to get approved for that second mortgage.

3. Any current recommendations on financing companies (individuals by name and areas they cover)

4.Thoughts on 5 year ARMS given the nations current economic outlook and trends in inflation rates/FED reserve actions.

I hope we are able to gather some good info for people to use!

 

[E5B]

Interesting topic. I've also heard of military making it big by buying a home at every duty station. A guy in my class from api and primary did that. I wanted to wait until my first duty station but from here on out we're going to buy at each duty station, unless it's Cali. It'll be interesting to see what info comes out of this thread, I have the same questions.

 

[Brett327]

Interesting topic. I've also heard of military making it big by buying a home at every duty station. A guy in my class from api and primary did that. I wanted to wait until my first duty station but from here on out we're going to buy at each duty station, unless it's Cali. It'll be interesting to see what info comes out of this thread, I have the same questions.

Kind of in that boat. I have been renting my house in Whidbey after leaving that as my last duty station. I'm in SOCAL now, so it's just too expensive to buy another. Renting has been totally hastle free for me. I have a property manager, so they handle everything. They charge 10%, which is pretty much standard, but it is so worth it. You don't have to worry about advertising, finding tennants, doing background checks, maintenance, or any of the normal headaches. All your expenses are deductable, so you recoupe some of that at tax time as well. Nice thing is that when I go back to Whidbey, I can either move back into that house, or get a newer one based on my finances at the time. If I would have known how easy house buying was, I would have started doing this a long time ago.

Good times,

Brett

 

[SteveG75]

There is a Marine Major who work with me. He has 3 or 4 houses that he rents from all his duty stations. Taxes this year, he did nothing fancy. 0.0% tax rate using Turbo-tax. He got every dime back.

Buy it and rent it. Slum lord is the way to go.

 

[Mcaf]

Yeah, I try to tell everyone who wants to buy a house and turn it around, to rent it for a few years first. Why buy a house, fix it up then make $10,000 on it when you can keep it, have your renters pay your mortgage (plus some) and let the house appreciate then make $60,000 (if not more) on it.

BTW, I can get really low rates on mortgages, just PM me if interested. My buddy owns a mortgage brokerage firm (which I work for on the side), and can get insanely lower rates than most banks. This isn't an advertisement as much as a helpful tip, most people don't understand that you can get far lower rates using a broker than using a bank directly. A broker has access to literally thousands of banks but you only have to put in one credit app(the broker does the leg work), so you get the lowest rate possible for your specific situation. Certain banks will give you lower or higher rates depending on the use of the house (ie. your home, rent it, or business). A broker will find the right bank for your specific situation, and will only take about a quarter percent of the cut but you will get most likely get a 1-2% lower rate than you can from your local bank. So you can get a 1.75% percent savings which is huge on a $150,000 house.

 

[Pcola04/30]

check this site out if you are headed to san dog

http://piggington.com/

 

[Brett327]

check this site out if you are headed to san dog

http://piggington.com/

Yeah, even if you have the dough, SOCAL is not the best place to buy right now. I'd be surprised if many first or second tour guys could afford housing here on a single income unless you want to live in National City.

Brett

 

[Jedj]

Great advice from Mcaf, I did exactly that. Five year arm works out really well too. lower interest rates. I bought in lemoore and I could have sold like five months later and broken even (covering fees and everything). It think if you are in the postion to buy then its a good idea. a guy in my squadron did that and he now has like two houses and a condo, the rent he takes in covers most of his mortgate payments.

If you didnt get a VA loan for your first mortgage then you can get one pretty easy for your second, its not the greatest loan, with closing costs but it is relatively competitive rate wise and it can be an no money down loan. Limit is one at a time I believe.

 

[Mcaf]

5/1 ARM is great and so is the 5/25 Balloon (competetive in today's market), especially for quick turn-around houses or new home buyers. These type of mortgages allow us new Ensigns to buy houses with no down payments and smaller monthly payments just as long as you re-up at the 5 year mark, which is pretty simple.

Get an ARM loan, rent the house for 4-5 years, sell it, make bank.

 

[Brett327]

5/1 ARM is great and so is the 5/25 Balloon (competetive in today's market), especially for quick turn-around houses or new home buyers. These type of mortgages allow us new Ensigns to buy houses with no down payments and smaller monthly payments just as long as you re-up at the 5 year mark, which is pretty simple.

Get an ARM loan, rent the house for 4-5 years, sell it, make bank.

Why plan to sell so soon. If property continues to appreciate in your market, you might as well hold on to it while it does. As long as it's rented, you're getting free equity and appreciation.

Brett

 

[The Chief]

OK...this goes out to anyone with a PCS or two under your belt.

Guess i meet the min quals at about 11 PCS moves.

Opportunities are everywhere. Real Estate is but one. Buying each duty station can work, has worked for me.

25 years ago bought $125,000 house in San Diego area. Paid the going 13% interest rate. House now would fetch $500,000 am told. Cant sell it because taxes would eat me alive. Still renting it. Pay heafty income/property taxes.

20 Years ago bought a house in Pearl City Hawaii for $350,000. Sold it two years later for $398,000. Should have kept it. Cleared only about $20K. Can only guess what it is now worth for a fee simple home.

18 years ago bouth a house in Yokohama Japan for $400,000. Sold it 2 years later for $450,000. Understand it is now worth about $250,000.

15 years ago bought $425,000 house in Great Falls, VA, Just appraised at $1,400,000. Just refinanced at 5.5%, after taxes effective 2%. Purchased tax free Muni at almost 4%. Still my primary residence and have equity ($900K) working to return annual 2% ($18K)tax free income.

8 years ago bought house in Pensacola $198,000. Before Ivan was worth about $198,000. Bubble in real estate now in Pensacola, prices are way way up.

i was lucky but PCS movement it does present a unique opportunity.

My advice is to exercise care, be informed. Am not saying be afraid, rather prudence is the watch word. Do not follow the thundering herd, or you will end up in the dust with manure all around you. Look at the stock market circa 2000. That was a similar "cannot lose, will continue to go up forever" era. Know a bunch of 2001 USNA grads that "invested" their career builder loans in the market. Most took a bath on a "sure thing". Success depends on what happens in the future, not what happend in the past. Crystal ball? For instance: 2005 BRAC closing will impact both the bases that are closing and those that are receiving increased missions.

I have a bias against an ARM unless there is a factual derived benefit from doing that. I have always got the preferred rate for primary residence, as was moving into that new home as a primary residence. Else you pay second home rates or spec rates. Couple of points in most cases.

P.S. Left out my losers, of which i have had a couple.

 

[Mcaf]

Why plan to sell so soon. If property continues to appreciate in your market, you might as well hold on to it while it does. As long as it's rented, you're getting free equity and appreciation.

Brett

I agree with you 100% there. I was just giving one of many options with the ARM. The ARM is a low fixed rate for the first five years but after that it goes to a higher variable rate. The best thing to do is to either sell or refinance (if you get a good rate the refinance would be the preferable option), I was just giving the sell option so I should have clarified.

I say the ARM is good for Ensigns is because it allows a younger person to afford a more expensive home (not so much so one is living out of means). In 5 years most Ensigns will be LTs making quite a bit more money and hopefully have a far better credit rating, this way they can refinace with higher confidence that they will get the lowest rate possible with a "normal" loan.

ARMs and balloons are all tip of the iceberg which is why I mentioned its really beneficial to use a broker rather than going to USAA or Nav Fed and taking what they give you.

 

[ben4prez]

can someone explain how an ARM and balloons work? I'm a lowly ensign interested in future real estate investment...

 

[The Chief]

can someone explain how an ARM and balloons work? [UNQUOTE]

As pointed out, this is the tip of the iceberg. So many types, a broker may even invent a new one tailored to your circumstances. This is basic:


The 30-year fixed rate mortgage

The 15-year fixed rate mortgage

1 year adjustable rate mortgage

3 year adjustable rate mortgage

5 year adjustable rate mortgage

5 year balloon mortgage

7 year balloon mortgage

You will also find some variations of these common types, such as 20-year fixed rate mortgages, 3-1, 5-1 and 7-1 adjustable rate mortgages.

The fixed rate mortgages are the best when the rates are at historic lows. With a fixed rate mortgage, you pay a fixed percentage interest rate for the life of the loan. You want to lock in a low rate for the years to come and have the comfort of knowing that your mortgage payments will not change from year to year.

The 15 year fixed rate mortgages will tend to have an interest rate that is ½ percent lower than the 30- year fixed rate mortgages, but they are much harder to qualify for (see qualifying information below).

The interest rates for fixed rate mortgages are usually the highest because of the greater "risk margin". If rates rise considerably the lender can be stuck a long time with a mortgage they are losing money on.

If mortgage rates are at historic highs, your best bet is probably an adjustable rate mortgage. With an adjustable rate mortgage, you pay according to an interest rate that changes from time to time. You can expect to get a better initial interest rate on an adjustable than on the fixed rate mortgages, because the adjustable rate mortgages have a lower "risk margin", plus you can ride the rates down without having to incur the expense of refinancing. Adjustable rate mortgages are often offered at a "teaser" rate during the first period of the loan, prior to the first adjustment. Don’t think this is some free lunch or gift of gratitude from the lender. These loans usually come with points that more than make up for the "teaser" discount. One of the real reasons for the teaser rate is to allow one to qualify for a larger mortgage. During economic times when too many of these mortgages are going into default, expect lenders to use the projected cost of the loan in it’s second year to determine the amount of loan you are qualified to take.

The most popular adjustable rate mortgage is the 1-year adjustable, know in the industry as the 1-year ARM. The interest you pay the first year is often a low "teaser" rate. At the end of the first year, the rate is adjusted to become that of some index (typically the 11th District Cost of Funds index or the rate on 1-year U.S. Treasury Bills) plus a margin (some current examples are 2.5% on the COF basis or 2.75% on the 1-year T-Bill basis). Most of these ARMs have an annual maximum amount they are allowed to change, either up or down, (an example is 1% on the COF and 2% on T-Bill basis) and a life of the loan limit as well (an example is 11% on the COF and 5% above the starting rate on a T-Bill basis loan).

The 3 and 5-year adjustable rate mortgages adjust less frequently. Therefore they will have a higher rate because of a greater "risk margin".

Balloon mortgages are mortgages that are based on a fixed rate for the specified period of time. These rates are often lower than the fixed rate mortgages because of a lower risk margin for the lender. At the end of the fixed rate period, the mortgage becomes due. You can generally continue the mortgage beyond the balloon period at whatever the current interest rates are at that time. But be careful. Read the fine print. The balloon mortgage may disallow continuation if you have taken a second mortgage on the property or if you are considered less than a good credit risk at time the balloon expires. Balloon mortgages can be attractive if you expect to move within the balloon period, especially during economic times when other mortgage rates are high.

Lots of homework to do!

 

[Mcaf]

The Chief is all over it! Thats basically what we tell people when they call and are ready to get serious on financing (all the pitfalls of each type of loan). The short of it all is if you buy now you'll get better rates due to the market (economy bad, interest rates good for the consumer, thanks Alan), buy later you may get a house at a lower price as the housing market SHOULD come down but the rates will go up. That's when the ARM "teasers" will be more predominant.

If you are looking to buy a house and keep it for quite a long time,15-30 years, then the fixed are most likely gonna be the type you want. Get locked in now and you're pobably not gonna see better rates for the next 7-8 maybe more years (economic cycle).

Like Chief said, there are too many variables and what ifs. Your best bet is to let a broker figure out what may be best for you depending on what you tell him you'd like to buy. You may get an answer of you can do one of these 5 different things OR you may even get "hey with your credit, blah blah" you really only have one option. Just give one a call, you only get charged when you actually close the deal.

I also should have been more clear too; the bank actually pays the broker. If a bank oks you for 3.00% fixed, the bank will take the 2.75% and give the broker the .25%. Its not like the bank oks 3.00% and your loan is now 3.25%. The banks like brokers too cause it reduces their in-house staff, overhead, etc.