Can I Afford an Investment Property?
As military members with a transient lifestyle, you may not be able to purchase a home and live there until the mortgage is paid for. Over the course of a career, you may live in dozens of homes. But frequent relocation doesn’t have to mean opting out of making homeownership work for you. In fact, owning an investment property may be one way to grow your financial portfolio.
Big Picture Considerations:
Before delving into the monetary risks and rewards of being an investment property owner, it’s a good idea to take into account your own comfort level with the idea. Are you okay with managing and maintaining a residence from a distance? Will you periodically visit the area to put eyes on your property? Will you rely solely on a property manager to help with vacancies and repairs?
How will owning investment property impact your ability to purchase a primary residence when the military moves you again? Will you utilize your VA Loan benefits and do you understand the fine print of how this product works with secondary home loans?
A home mortgage is likely one of the biggest purchases a person will make. Taking on an investment property ups the ante even more. It’s wise to be sure you are willing to take on the potential risks of being financially responsible for a secondary property.
Are there any hidden problems with the home? How would you deal with potentially bad tenants who are irregular with their payments or leave the property damaged? Can you cash flow repairs and upkeep? Are you willing to take a loss on the property for an undetermined amount of time? Do you have the proper tax, insurance, and legal coverages? And how might owning a rental property impact the overall liquidity of your net worth?
While it may seem like there are too many hurdles to cross to add “investment property owner” to your list, don’t write it off just yet. For many people, owning an income-generating asset can
be both personally and financially rewarding. Being a landlord has many advantages. It can provide a source of passive income.
It offers flexibility in timing the real estate market for better monetary outcomes, particularly if you haven’t lived in a home long enough to build equity or recoup real estate fees at the time of sale. Being a landlord offers the chance to diversify your short and long term financial investments. Owning a secondary residence can give you a place to move back to for retirement or should the military send you to a previous duty assignment.
Do The Math:
If you think you may be ready to take on an investment property, there is actually a simple mathematical formula that will help you to determine if you can afford it or not. Take your total gross monthly income, then subtract your monthly debts (vehicle loans, credit card payments, and current mortgage). Take that number and multiply it by 45 percent. The total monthly payment of your investment property should not exceed this amount.
As an example. If your total monthly income is $5000 and you subtract $800 for a mortgage payment, $300 for a car payment, and $200 for a credit card payment, that number is $3700. Multiply that by 45%. Your total monthly payment on an investment property should not exceed $1665.
If you are a military service family that is PCSing soon and has a home to sell, don’t overlook the potential to become an investment property owner. It may be easier and more attainable than you think! While you are investing in the freedoms of our country…put your house to work for you and enjoy the many benefits this arrangement can offer.