The American Dream was largely about home ownership. The new American Dream is about personal freedom and flexibility. This ideal is available to every American. However, those most deserving of this are veterans.
I bought my first hotel as a cadet at West Point. The exercise of owning real estate delivers freedom and flexibility. I also believe real estate ownership produces a better service member who can assess risk more effectively.
This Veterans Day, I encourage you to think about where your life is headed and how you are building wealth. For most of us who aren’t coding or involved in the tech industry, real estate remains the most reliable way to build steady wealth.
Building this wealth requires patience and a gradual “crawl, walk, and run” approach to gaining experience and compounding wealth. As you probably know, real estate is a capital-intensive business involving a combination of both debt and equity.
Fortunately, lining up the financing as a veteran or military service member presents you with very unique advantages that a lot of people do not get to utilize.
Crawl: House Hacking With a VA Loan
With house hacking, you can acquire a property with 0% down using a VA loan. You then proceed to rent out either rooms to tenants or buy a duplex where you live in one unit and rent out the other. The end result is that you have your mortgage paid by someone else.
The other aspect of this is that you start to learn how to manage tenants (in all their glory) and what they want in a rental property. This will serve you later as you expand your portfolio.
Walk: Obtain Your First Rental
Now that you are free of paying a mortgage (because your tenants are paying it), you can now start saving $1,000-$2,000 per month. After about 6-12 months, you’ll have hopefully saved up enough cash for a down payment on your first rental property.
In terms of financing, there are a few options such as DSCR, or debt service coverage ratio, which means the rent covers the mortgage payment) or a rental loan from a bank, credit union, or even private lender. While DSCR lenders or loans may not care as much about your income, banks and credit unions will care deeply about it, and having a military income is an excellent signal to a lender that you are a good credit risk. This also means you could get a lower interest rate.
The key aspect of this type of financing is making sure that the rent you can charge from the property covers the debt payments plus the other costs such as insurance, taxes, and repairs.
Run: Flip Or BRRRR Properties
The most fun part of real estate is when you can start doubling or tripling your money in a short period of time. This is also fraught with the most risk. Having a few rental properties under your belt will give you a sense of the value you can potentially deliver on a fix/flip project.
I recommend focusing on particular areas, such as the local area around a military base since they traditionally have a high demand for housing. Military bases, in particular, experience a lot of “churn,” or cycling of people in and out of the area. That dynamic creates a high velocity of deals and supports the demand for real estate. Also, military bases are often in areas that are older, which results in many properties in need of serious repair.
If you can find properties in need of major repairs or rehab work, then flipping or the BRRRR strategy is an excellent way to build wealth relatively quickly. The important thing is that you find the property undervalued enough to justify the rehab and other risks involved. My personal rule of thumb is that you should be able to create at least 30% or more value with this strategy. Meaning if you bought it for $100K and put $20K into repairing or updating the property, then the asset needs to be worth $156K.
Trust me, with there being so many things that could go wrong during a flip, you want a healthy margin of safety in case an unexpected mistake arises.
All this being said, there are few traditional or conventional lenders that will lend on these types of projects. The next best option is a private lender or a hard money lender. These lenders come in all shapes and sizes, and criteria.
These lenders offer a lot of flexibility. For example, my firm, Trophy Point, offers a 100% Loan-to-Cost option (100% of purchase and 100% of rehab work) only to military-affiliated borrowers as long as the total project cost is 70% or lower of the final after-repair value. However, you do pay for this flexibility in the form of higher interest. Most terms are interest only, which is good when you are in the middle of a project.
The good news is that if you have been successful in the previous stages, you should have sufficient cash flow to cover the monthly interest stemming from a private loan while you perform your rehab work. It also helps immensely to have income from the military, where you are less likely to be fired and lose your paycheck within a week as our civilian counterparts are subject to.
A note of caution: there are additional risks in borrowing from a private entity. They are typically unregulated, and there are shady characters out there. Do not pay a large “deposit” to lock in a loan. Also, be sure to distinguish between a “broker” who just connects you to a lender but does not have their own balance sheet or fund. Some brokers would make the argument that they can get you a better rate, and that might be true. The question to ask is what their track record is and what they stand to earn as a fee on your loan.
In my opinion, it’s best to deal directly with a lender that has its own fund. I have found that the conversations are easier to have and even less expensive (partly because there is no broker fee to pay with the loan).
Once you fix up the property, you have two options, you can sell it off for a major profit, or you can put in a renter and use bank financing to refinance out of our private loan. In most cases, you’ll be able to pay your private lender off completely, thus being left with a “free house” where you had little to no direct investment of your own capital!
Through my ownership at Trophy Point, I have gotten to know dozens of military-affiliated folks that acquire/flip/rent 30+ properties within 4-5 years. I know because we’ve funded $50 million and 255 of these types of loans. My final piece of advice is that if you can find a good deal, you’ll be able to line up the financing.
The real estate world is wide and full of opportunities. As a veteran or military person, you have unique advantages in acquiring real estate in a relatively short amount of time. You deserve the opportunity to build wealth and enjoy the same fruits of financial freedom as the rest of the American population.
Find a Lender in Minutes
A great deal doesn’t just sit around. Quickly find a lender who specializes in investor-friendly loans that are right for you and your investment strategy.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.