The Advantages of Renting to Active Duty Service Members: Why They Make Class-A Tenants

As a former Active Duty Army Officer, I had the opportunity to invest in properties throughout the southeast since 2008.  After reflection, there is one highlight that sticks out since that timeframe, my properties have only experienced one (yes one) month of vacancy.  Understandably, people think I'm crazy when I explain to them that my portfolio exists mainly in areas such as Columbus, Georgia but investing in military towns poses four excellent benefits: low acquisition costs, exceptional cash flows due to above-market rents, and class A tenants (Active Duty Soldiers), oh yeah, and it's recession-proof.  One of my superpowers while investing in real estate is my ability to identify and prepare properties for Active Duty Soldiers because as a former Active Duty Soldier myself, and I appreciate the lifestyle of always moving and deploying. Still, I also understand the background finances and processes, which is all open source.  As a veteran, I'm now making purchases on properties that provide me ROI's anywhere from 9%-15% in military markets.

Why do Active Duty service members make a Class-A tenant:

Basic Housing Allowance (BAH): the US Government allows Soldiers to "house-hack" or live for free on the taxpayers' dime.  Soldiers have BAH or rent added to their paycheck every month.  The Government establishes BAH's price by zip code, which is typically increased annually by Congress, and the website to locate the BAH rates for local zip codes can be found here.  However, to receive this benefit, Soldiers need to be the rank of E-5 (or above) or be married with dependents (children).  If you're an investor in these areas, the BAH provides a solid anchor point for rent prices in your area based on these numbers mentioned above. The incentives to place capital in these areas become even more significant if an investor can charge above-market rates while maintaining the rent under the current rate for BAH because Soldiers are awarded the full amount of BAH in a given zip code no matter what their personal rent/mortgage might be.  Thus, Soldiers typically search for properties to pocket some of the cash from BAH while living in a property they enjoy.

Low vacancy: one pro and con of serving in the armed forces is that you will consistently need to move.  Soldiers typically move every 2-3 years, which during a 20-year career means that a service member will move themselves and their families around six times.  For investors, this highlights why military members typically rent properties versus purchase, and because of a highly transient population, the vacancies in the area remain lower than most markets.

Low-risk rent collection: there is a little known fact that service members, by law, cannot hold bad debt. According to Article 134, the Uniformed Code of Military Justice indicates:

“Any person who borrows a specific sum of money from an alleged person/persons at the alleged time, and dishonorably fails to pay even after the alleged due date, is in violation of the general Article 134 and shall be punished as deemed fit by the military court.”

What this means in English is that if the landlord calls the Commander or First Sergeant of the service member and explains that rent is delinquent,  they hold to power to punish the Soldier accordingly.  The key takeaway here is that you will get your money.

Free background checks: most soldiers above the rank of E-6 have an active Security Clearance, and most likely, a Top Secret clearance.  Receiving a security clearance takes months and is managed by a government case officer who verifies credit reports, background checks, and lifestyle habits with friends, family, and employers.  This process is definitely more intense than the $40 background check that you can find on Zillow.  To receive proof of security clearance is a bit complicated, but if you're passionate about the evidence, you can request a redacted version of the Soldiers Officer/Enlisted Record Brief, showing which type of clearance they have and when it expires.

Accountability: because of the constant need to move, there is innately higher turnover; however, the military instills Soldiers to take care of their possessions from day 1 of basic training.  I literally have never taken deposit funds from one of my renters because of damage.  Besides, military renters rarely call landlords to fix simple problems (i.e., lightbulbs, clogged toilets), which significantly reduces that amount of time managing properties.