As military service families, purchasing a home is a complex decision with various specialized factors due to the nature of the transitional lifestyle. Unlike your civilian counterparts, many military families purchase homes knowing they will only live in them for two or three years.
Depending on the area you live in as well as other real estate market trends, it may be difficult to build significant equity in the home in such a short time. One of the best ways to put your house to work for you is to consider renting out your home when you PCS. Below are five questions to ask yourself to help you weigh your decision:
Counting the Cost
Can You Carry The Financial Burden?
When becoming an investment property owner, there are many costs to consider. There is the potential that the home stays vacant or unrented and without tenant rent coming in, that mortgage payment would fall to you to cover. In addition to potential long term vacancies, do you feel financially confident in your own savings to cover maintenance and repairs on a home you are not living in? If you PCS somewhere far away, are you prepared to spend time and money occasionally visiting your old home to oversee rental transitions or large scale projects on the home?
Will You Self-Manage or Hire a Professional Property Manager?
Speaking of the cost of renting out your house, another significant cost is paying a professional who lives in the area to act on your behalf as a property manager. Most charge a monthly flat fee or percentage of the rent as their base charge. Additional services like annual inspections, change of tenant fees, service calls, paperwork filing fees, and lease enforcement as a la carte expenses on top of their monthly rate. If you opt to do it yourself, will you arrange for service providers to come to do emergency or routine maintenance on the property? Will you have a vetting process in place for tenants?
How Much of Your VA Loan Are You Willing to Tie Up?
If you purchased your primary residence using a VA loan and choose to rent it out when you PCS, it could eat into your allotted total amount available to purchase a second primary residence. You can buy a second primary residence with your VA benefits, potentially with a zero down payment; you just need to have enough entitlement and income to qualify for both houses. According to Lending Tree, “for 2021, the VA loan limits will once again align with the FHFA conforming loan limits. This means that throughout the majority of the U.S., the 2021 maximum VA loan limit for one-unit properties will be $548,250” This is definitely something to consider if you think you may want to use your VA benefits again.
A Great Long-Term Investment and Asset
There Are Significant Tax Advantages
Turning your home into an investment rental property when you PCS can have awesome tax advantages. If you itemize, nearly every cost or expense of owning a home can be deducted: depreciation based on the perceived decrease in the real estate’s value, mortgage interest tax deductions, the cost of management services and fees, the cost of repairs and maintenance, property taxes, and even costs associated with traveling to and from the property for repairs or inspections. Often these costs can total to close to 30% of a home owner’s expenses, making for a very favorable tax position.
Do You Love the Idea of Someone Else is Paying Down Your Mortgage and Creating Equity?
If the idea of holding on to one of your greatest financial assets while allowing renters to come along and pay the mortgage and monthly upkeep expenses, thus reducing your principal and creating equity, then renting out your house when you PCS is certainly something you should strongly investigate.
Not only can this option be a source of passive income, but also it can give you greater flexibility to sell at the right time and diversify your investment portfolio. And you never know–the military could send you back to a previous duty assignment. As a long-term investment, you would have a house to come home to.
