2 House Retirement Strategy

Written by Iron Stride

December 17, 2020

The purpose of this blog is to address our most frequently asked question:

“DSR, why do you talk about the VA home loan as a retirement tool when I already have a TSP?”

Due to mainstream media real estate is often viewed as an investment only for immediate cash flow and or Fix and Flip.  It is rarely seen as a true retirement vehicle.

Active Duty Military and Veterans have a very distinct opportunity in comparison to our civilian brothers and sisters.

Every time our Civilian counterparts want to purchase a house outside of an FHA loan they have to save up 5 – 20% for a down payment. In most situations that can be anywhere from 10-100k for every purchase. 

The difference is that with the VA Loan veterans and Active Duty Military bring 0% to the table as a downpayment.

Most Military view purchasing a home as a burden vice an investment vehicle similar to that of their TSP. 

Common objections:

1. I am too young to purchase a house

2. The process is long, and I do not want to have to deal with it

3. I do not plan to live at this duty station for ever

4. I do not want to deal with the responsibility

This further solidifies the point that we as a Military force are completely missing the point.

We are looking at a house as a place to live instead of an investment that can be managed as part of a long term portfolio.

Today I want to talk about adding to your retirement with a small portfolio of 2 houses, paid for by your tenants and managed for 30 years by a property manager.

Retirement goals will vary by individual, however, on Average in retirement our kids will be sufficient, we tend to downgrade houses in order to maximize travel to see family leading to lower overall expenses.

The average person in retirement will need about 50k Passively to live comfortably. That equates to roughly 4200 a month.

Based on the 4% withdrawal rule you will need about 1.25 Million saved between your investment vehicles such as your IRA, TSP or investment account. 

View Graph Below

You would need to invest a little over $600.00 a month for 30 years at an annual return of 10% to achieve this goal.

This means you would need to invest roughly 218k of your own money over a span of 30 years.

What if I told you that utilizing the VA Loan you could achieve the same rate of return with only 5 – 15% of the 218k over a span of 30 years ?

The average BAH across the Military is $1550 a month.

Rental income around any Military base is based upon BAH and inflated $200 at a minimum. IE if BAH is $1550 for a decent place the Military rental market will reflect $1750 in order to rent that same house. 

Why is that?

Military never runs out of funding in regards to basic necessities for personnel such as base pay and BAH. This leads to stability in Military Markets resulting in a higher rental market.

Once again Why?

Military personnel who cannot live in the barracks have only 2 options: rent or purchase.

BAH for the past 9 years has increased on average by 2.57% per year. 

Lets play out this scenario.

This means that after 30 years if the BAH increase holds true then BAH rates would go up from $1550 to over $3000.

However, let’s be more conservative and say BAH only increases to $2100 over the next 30 years. We also know that the rental market is normally over priced by $200 minimum, so let’s say the average rent after 30 years is $2300 per month.

If you purchase 2 properties utilizing the VA Home Loan at 0% down, live in them while you are stationed at that particular duty station and then hand them over to a property manager when you PCS here is what happens:

1. Military Markets with strategic housing has a rental rate of close to 99%. I.E you choose the market average house, 5-15 minutes away from base with nice amenities the house will rent 99% of the time with almost 0 vacancy rates.

2. Someone else pays the mortgage balance for the next 30 years.

3. Because you didn’t invest much money into the house you have an asset that you didn’t pay much for being paid off with someone else’s money.

4. Lastly at the end the tunnel you get the reward to reap the benefits of the reward

AND THAT REWARD IS……………

A supercharged retirement fund. See after 30 years that the mortgage will be gone and the house will be paid for free and clear meaning you own the property without a mortgage.

Now that the house is free and clear instead of paying the mortgage the tenants will be paying you directly.

Let’s Break Down How Retirement Looks 

Thinking back to earlier I mentioned that the average person needs about 50k in retirement to live comfortably which is about $4200 a month.

If you purchased those 2 houses then in retirement you would be receiving $2300 per house which is $4600 total a month for 2 assets that you didn’t pay for.

You will also have the equity in the house to pass down to your children. If you purchased each house at 250k and they only appreciated 100k that is 700k worth of equity that you can pass on to your children or loved ones. 

Now for my naysayers  “well if I had to choose I would still like to go with my TSP.” 

My response is that you’re still missing the point. 

The point that I am trying to make is that you can do BOTH.

NOT ONE BUT BOTH 

The barrier to entry for a VA Home loan is so low you could easily stash away $600 a month into a TSP or IRA  while simultaneously purchasing 2 properties and supercharging your retirement with the best kept secret in the Military and that is the VA Loan.

The common problem is that Military are often afraid of the process and steps involved In purchasing a home due to uncertainty and lack of information.

This stigma led to the creation of Duty Station Relocator which is a professional advising firm that hand walks Military personnel through the entire home buying process as a safe haven and it is completely FREE for Military to Utilize.

Author

Andre M. Truss 

Andre Truss is the CEO of Duty Station Relocator and served honorably as a Captain in the United States Marine Corps  after graduation from the United States Naval Academy.

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