Using Your Military BAH to Build Your Wealth

Use your military BAH to build a portfolio of income-producing real estate (Shutterstock*)

The military can be a gold-mine, if you choose to dig it. It’s no secret that military members move around the country or world quite frequently, and a lot of them live off base, receiving Basic Allowance for Housing (BAH) while in the continental United States (CONUS). This article is to show military members who receive BAH how they can use it to build a lifelong stream of income for themselves and their families.

Use Your BAH to Buy a House

Use your BAH to buy a house; don’t rent. Renting builds your landlord’s wealth, not yours. When you buy a home, you are building equity with each payment. Equity is the difference between what your house is worth and what you owe on your mortgage. It is yours. When you rent, you aren’t building anything.

A second, good reason to buy instead of rent is that, in most parts of the country around military bases, it is actually cheaper to buy a home than it is to rent in this current market. Now, this certainly isn’t true everywhere, but even in places you wouldn’t expect, one can usually find a home where the monthly payments plus maintenance and taxes are cheaper than the price of rent in the area.

Even if it’s not cheaper, chances are you can find a deal where it’s roughly equal. Remember, you’re building equity when you buy, so “equal” really isn’t “equal.”

Buy a Duplex, Triplex, or Quadplex

Single family homes are wonderful, and buying them certainly beats renting in most cases, but you can enjoy all the same benefits plus many more if you buy a multi-family piece of property. By renting out the other units, you are having tenants subsidize your mortgage, and sometimes even paying you for the privilege of doing so.

Here’s an example. Let’s say you work at Dobbins Air Force Base in Marietta, GA. A commute of just over an hour will land you in Oakwood, which is neighbors with Gainesville, GA. You can buy a four unit house there for around $98,000. The mortgage payments would be approximately $500 per month, and each unit could be rented for around $500 per month.

If you add in taxes, insurance, and maintenance costs, your monthly expenses will be around $1,000. If you (or you and your family) live in one unit and rent the other three, not only will you not be paying anything for shelter, but you will be getting paid $500 per month to live in your house. And, your tenants are building your equity for you.

Buy a Property That You Can Make Improvements To

Robert Kiyosaki, author of “Rich Dad, Poor Dad,” is often asked, “What advice would you give to the average investor?” His reply? “Don’t be average.”

Average real estate investors focus on buying homes and hoping the value of their homes appreciate over time. This is merely sophisticated gambling. A better strategy is to buy properties which you can improve. Buy properties whose values you can make go up.

Certainly the easiest way is to buy properties that need repairs. Repairs can increase the value of a property. So can improvements, i.e. adding an additional unit. But, there are lots of other ways to improve a property, such as re-zoning the property, cutting down the trees in the backyard to make for a better view, changing the street name to a more prestigious name, just to name a few ideas.

Be creative! Or if you’re finding yourself lacking, find homes with a solid foundation that need repairs and repair them. Once your property is nicer, you can charge more for rent. Thus, you will be increasing the value of your home and your equity.

Don’t Fret Over Being a Landlord

Being a landlord takes work. It is a part-time job. But, that being said, after you’re initially set up, it is a very part-time job. Besides, you didn’t think you could build a fortune sitting on the couch watching T.V., did you?

At Your Next Duty Station, Buy Another One

When you PCS (Permanent Change of Station), keep the house you were living in. Rent out the unit you were in, but this time, find a tenant who is willing to manage the property for you in exchange for a heavily discounted rent. You can find somebody new or ask your favorite, most trusted tenant in one of the other units to do this.

At your new duty station, buy another home. Repeat the process outlined above. Keep repeating this the whole time you are in the military. As you can see, with each PCS you are building a permanent income for yourself. By the time you’re ready to retire, you'll probably find that you’re making more money off your properties than you will be off the military retirement check.

You might even be able to retire early off your houses and forgo the military retirement entirely!

Use Your VA Loan

You have a distinct advantage as a military member over others. The VA Loan allows you to buy homes with zero money down, as long as it is your primary residence. Well, four unit homes that you live in do count as your personal residence. So you can get started without having a small fortune saved for a down payment.

All Incomes Are Not Treated Equal

When you are an employee, such as a member of the military, you earn your money, get taxed on what you earn, and you can spend whatever is left. But landlords are investors, and investors have very different tax laws that apply to them. Investors earn their money, spend whatever they can, and get taxed on whatever is left - if there is anything left.

So, if part of your home is an office where you keep track of your properties and tenants, that part is a tax deduction (up to 25%). If you go out to eat and discuss your landlording duties, 50% of the meal is a tax write-off. Your cellphone, the mileage you put on your car when you are doing property-work, and all sorts of things are tax-write offs. As long as it relates to your landlording duties, it is a write-off.

Depreciate Your Homes

The IRS allows you to count depreciation of your home as an expense. For residential homes (four units or less), you can depreciate 1/27.5th of your home each year in what is called “Straight-Line Depreciation.” This is a phantom expense. It is not really an expense that you outlay in terms of cash, but it does count as an expense on your tax return. This means less taxes you have to pay.

The IRS gives investors a tax break for those who buy investment properties and lose money on them. Many people choose to buy properties specifically to lose money so that they get this tax break. Others simply forgo the tax break and buy properties that make money. In some cases, you can make money, but after the depreciation expense is added in, it appears as though you lose money.

So, in cases like these, you would be making money and getting the tax break for losing money at the same time. Consider it your reward for stimulating the economy, investing in the economy, and providing housing for others.

This is Just a Start

There are all kinds of places you can go to from here; this is just a simple guide designed to get you thinking in the right direction. Remember, the military is a gold-mine! Get started digging!

*Housing image via shutterstock