Paycheck Chronicles

Real Estate: Be Careful, and Be Realistic

I was reading some real estate investing stuff today, and I ran across a stereotypical story:  Military family buys house at each duty station, and makes a fortune either by holding and renting those properties, or rolling over the profits each time they move. (That's the short version.)  I'm not going to say it can't happen, because it has.  It could even happen again in the future.  However, I worry about folks that hear these stories and run out to buy a house, assuming that they will have the same success.  Please don't!

Real estate investing is a constantly changing thing, and the changes that have occurred over the last ten years make it increasingly difficult for investors to make money.  Add in the uncertainty of military life, and you're starting out with some serious hurdles to success.

In these real-estate-to-millions success stories, there are usually a few common elements:  a family that started with good control of their personal finances, rapid real estate appreciation, and a strong (often growing) military population to support increasing rents.  While individuals can control the first element, the second and third elements are uncontrollable and no longer favor real estate investment.  Real estate values are not going up quickly, even in areas where they are increasing.  Military populations are shrinking dramatically, decreasing the demand for rental property and preventing rents from climbing in military-dominated markets.

Military families can still make intelligent real estate purchases, but the requirements for successful purchase and ownership have changed.  Military families can not assume that their properties will gain value during a typical 2-3 year posting, which means that they need to have multiple plans for what to do with the house when they PCS away.  One of those post-PCS plans usually include renting the property.  This makes home selection even more critical, insuring not only current affordability but also long-term rentability that does not rely upon the military population.   In addition, purchasers must have healthy cash reserves to cover vacancies and those inevitable big expenses that pop up, always when you least need to be spending the money.

I would never tell a military family not to buy a home.  Heck, we own some houses ourselves.  However, the current economic climate makes home ownership a riskier proposition, particularly for military families.  Prospective buyers need to be absolutely sure that they've looked closely at every possible scenario and that they have the resources to prevent homeownership disaster. Create your free online surveys with SurveyMonkey , the world's leading questionnaire tool.

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