There are a lot of good strategies that work well for military families. VA house-hacking is on the top of most people’s lists – and was on mine too. For some people, hacking into a few investments is enough; but many active duty members are driven with a big, burning “why” that leads them into bigger and better investments. [Feel free to comment with your “why” below] In my case, I went from house-hacking to 55-units in Spartanburg, SC, and will soon have many more. Along the way, I hope to highlight some of the benefits of multifamily investments.
I hacked into my first investment property before house-hacking was even a thing. While I was a young devil dog stationed in Okinawa, I read Rich Dad, Poor Dad. I know, cliché, right? I figured it would be difficult to invest from Japan (I now realize this is a limiting belief), so we decided to wait until we were back CONUS. We got PCS orders to San Diego in 2006 and I was absolutely committed to buying a house. Until I got there, that is. We looked at everything available in our price range, but with two kids, we just couldn’t fathom paying $800 per month over my housing allowance for 900 square feet and no yard. We decided to rent and continued looking for an investment property in my hometown. After looking at dozens of homes, my father-in-law offered to sell his home for 10% under the appraised value. Since we had used his address to renew our driver’s licenses, we were able to purchase the home from out-of-state with a VA loan and $3,000 out-of-pocket. It’s been a stable rental ever since. House hacked.
Within a few months, both the economy and the housing market collapsed. Our first house still cash-flowed, so we went shopping in the Great Real Estate Sale of 2008. We bought a house in San Diego that was in pre-foreclosure, a short sale, and a steal at $305k. Lending was a bit tighter, but I borrowed from my TSP for a 3% down-payment using an FHA loan. We lived in that home for a few months before I had PCS orders to North Carolina. House hacked.
We moved to Cherry Point, NC and again searched for an investment property. This time, we hit a snag. After calling several lenders, I was told the same story: with two mortgages and a single income, I was over-extended and could not get a loan to buy a third house. You see, as good as house-hacking is, there is a ceiling to how many personally guaranteed loans you can get. On a captain’s salary in 2010, it was two. End of house hacking for me.
Recently, I deployed on a MEU (a bunch of Marines on Navy ships floating around the ocean). I was getting the real estate itch again, so I began researching. Among the many great books that I read was The Millionaire Real Estate Investor by Gary Keller. His strategy was to use SF homes to buy a million, own a million, receive a million, and give a million. Since I had more time than I knew what to do with, I started spreadsheeting. I modeled purchasing one house per year valued at $150k at a 20% discount. I indexed my numbers for inflation, calculated amortization, and appreciation, and made projections for many years to come.
The results? Starting with a portfolio valued at over $600,000, it would take 3 years to “buy a million”, 8-10 years to “own a million” (become a net worth millionaire), and 20 years to replace my annual income. “Receiving a million” in annual income wasn’t even in sight.
Then I read a book on apartment investing and the light went on. Instead of purchasing one unit at a time, I could make one single purchase and get 8, or 12, or 24, or more. At the next port call, I downloaded just about every multifamily book I could find and read every single one of them. I came home from deployment and discovered podcasts like Apartment Building Investing with Michael Blank, Best Real Estate Investing Advice Ever with Joe Fairless, and Lifetime Cashflow through Real Estate Investing with Rod Khleif. These became my daily commute, my gym time, and even my lunch hour routine. I loved every minute and started planning.
I moved to the DC area last year and now live in Maryland. I signed up for an online course, went to networking events, and then paid for a coaching program. That was 5 months ago. After selling my SF homes to jump-start my MF machine, I now have 55 units under contract in Spartanburg, SC, an offer in on another 104 units in Columbia, and several other opportunities that my team and I are pursuing throughout the Carolinas.
Could I have done it without coaching? Yeah, probably, but not as fast. I had been thinking small and trying to do it alone.
Coaching opened my mind to partnering and provided a forum to do so. Much like ADPI does for active military and veterans.
Now, enough about me. Why multifamily?
Multifamily scales. Buy one, get 100.
Multifamily reduces risk of loss. If one person moves out of a SF home, you have 0% occupancy. If one person moves out of a 24-plex, you have 96% occupancy.
Multifamily acquisitions are about the same as SF purchases. You find something you like, get it under contract, conduct due diligence, get a loan, then close the deal.
Multifamily is recession-resistant. When the market crashed 10 years ago, people who lost their homes moved into apartments. Additionally, multifamily valuation is based largely on its income stream, not on public sentiment or the neighborhood comparables.
Multifamily allows for economy of scale. I’m purchasing two buildings with a combined total of 55 units. I have two roofs and two boilers and two yards and two parking areas. If I were to purchase 55 single-family homes, I would have 55 roofs, 55 HVACS, 55 yards, and 55 driveways.
Multifamily financing is safer. Properties that are 5 units or greater and over $1M qualify for non-recourse, commercial loans. That means, if you default on the loan, the bank can repossess the property, but can’t touch your other stuff.
Multifamily puts you in control. Since multifamily properties are valued based on their income stream, increasing income increases value. New countertops, new laminate flooring, and fresh paint can be done for a few thousand dollars, but the returns are much higher.
Multifamily allows for similar leverage that exists with SF homes. With the above example, if you have 25% down and raise the NOI by 10%, you increase your equity by 40%.
Multifamily has the same tax advantages and what not as single-family homes.
Multifamily is a great way to passively invest in real estate (ask me how).
Hopefully, you’ve begun to think about this asset class. In my next article, I will show how anyone can invest in multifamily. Can’t wait for my next blog? See below on how to contact me.
Brian Briscoe is a LtCol in the Marine Corps, father of five, and husband to Angie for over 20 years. He is an advisor in Michael Blank’s Deal Maker Mastermind and a member of Michael’s Elite Investing Club. He is also an active member of The Church of Jesus Christ of Latter-Day Saints (#becauseofhim). Brian can be found checking in frequently in ADPI’s #StartTheSpark and will sometimes even Facebook. If you have questions about multifamily or want to know how you can passively invest in multifamily, contact him at [email protected]