A Rising Tide: Economic Growth and the Port of Savannah

The perpetual bears among us have been forecasting an imminent recession and corresponding crash in the housing market since about 2015. Those bears have missed out on considerable asset appreciation since then, but eventually the bears have got to be right — right?

No, at least not in Savannah, and not for quite a while — and the biggest reason why Savannah’s real estate market is still in the third inning is those big, beautiful cranes that we see just upriver of the bridge.

What’s in a Port?

A port is more than just the terminals where ships take on and offload cargo. There’s warehouses and yards to temporarily store goods, and planes, trains, and automobiles (and other boats) to move goods closer to the end user. All this infrastructure and equipment must also be built, maintained, and fueled constantly. Most of this work is done by human beings, who must also be fed, housed, clothed, cared for, and entertained. The dockworkers themselves are just the tip of the spear: truckers, train conductors, boat pilots, tug boat crews, dredgers, engineers, road crews, maintainers, and construction workers also have a part to play, and these people in turn support local retail, housing, food, hospitality, entertainment, and healthcare industries.

A port clearly has a large role to play in any community, but exactly how large of a role does the port of Savannah play here?

Savannah’s Port Today

The Port’s current impact on our community: By The Numbers

Port Stats:

  • Throughput of 4.5 million twenty-foot equivalent units (TEUs) and 650,000 auto and machinery units in FY 2019.
    • The port moved 1.5 million TEUs in FY 2003 and 2.3 million TEUs in FY 2007, making it the fastest growing port in the nation.
  • The port includes:
    • nine deepwater berths
    • two class I railroads on-terminal (CSX and Norfolk Southern)
    • more than 3 million square feet of warehouse space within 30 miles
    • immediate access to I-16 and I-95

Economic Impact:

  • In FY 2017, the ports of Savannah and Brunswick were responsible for the employment of 439,220 in Georgia, or 1 of 11 Georgia jobs. This figure was only 275,968 in 2003 — indicating that increase in TEUs moved through Georgia ports is directly proportional to job growth.
  • Chatham County’s share of this employment is 39,025 out of a total population of 290,000.
  • Personal income derived from port-supported jobs in 2017 was $25B.

In comparison: How does our port stack up?

  • Savannah is the 23rd busiest port in the nation by tonnage and the 37th largest container port in the world measured by TEUs
  • Fourth busiest container port in the nation with 36 weekly port calls; busiest container port on the east coast
  • Savannah’s major limiting factor is it’s relatively shallow draft (42′) and air draft (185′)
    • For compariason, Miami is 50’/unlimited, LA is 52’/unlimited, and NY/NJ is 50’/228′

Savannah’s Port in the Future

The bottom line up front is this: plans are in motion that will double the yearly volume of TEUs moved through the port over the next ten years. Here’s how:

  • Dredging is under way which will deepen the harbor to 47′ and allow the larger class of new panamax ships access to the port. This dredging will be complete in 2020.
    • The Panamal canal used to be limited to ships with a 40′ draft. Expansion of the canal allows ships with a 49′ draft passage. The Savannah river will be dredged to 47′ at mean low tide, which will allow this larger class of ships passage.
  • The port currently has 26 ship-to-shore cranes, and plans to add 20 more over the next ten years.
  • Construction of a new mega-rail terminal is underway. This terminal will feature 18 tracks and will allow for 10,000 ft trains to be loaded.
  • Talks between the GA ports authority and South Carolina’s ports authority are under way to open a jointly operated Jasper terminal downriver from Savannah, which will have a draft of 55′ and feature ten births, with an annual capacity of 7 million TEUs

Hedge your bets: what if it all goes wrong?

Look, I’m a real estate agent and my job is to sell you on Savannah real estate, but any investor must be mindful of downside risk. What can go wrong here?

  • President Trump isn’t exactly a globalist, and globalism is the driving force behind the growth in our port. Trump’s policies have had a direct impact on the growth of the port already — remember those ship to shore cranes I mentioned? They come from China, and the President slapped a 30% tariff on those cranes a few months back. From what I read, it seems like Georgia’s senators managed to talk him out of that for the time being, but President Trump’s mercurial decision making leaves a bit to be desired if you’re an investor who likes predictability.
  • The prevalence of rock-bottom interest rates have driven corporate debt through the roof as companies take on debt to buy back shares of stock, among other things. If there were more hours in the day I’d take a look at the balance sheets of companies like CSX, Norfolk Southern, Maersk, IKEA, Hyundai, and others who are heavy hitters at the port — but I still have to make my living showing houses and writing contracts so I’ll leave that research to you, if you’re so inclined.
  • Climate change is a thing whether you believe in it or not. My take on climate change is this: if it gets bad enough in my lifetime to shut down the port, I’ll have bigger problems to worry about than the value of my real estate assets. Perhaps I should be hedging my bets with canned beans and bullets?

So What?

The port has doubled in size since 2003. The port will double again in the next ten years. Think of how much real estate around here cost in 2003 compared to what it costs now. If you agree with me that a large force behind that appreciation in both asset values and market rent was the port, then call me up and let’s invest in Savannah together.

Works Cited:


Savannah 2033: Urban Planning Done Right

A society grows great when old men plant trees whose shade they know they shall never sit in.

Greek Proverb (probably)

Anyone involved in real estate should keep his or her finger on the pulse of future development, and I’m downright excited about the plan for development leading to our city’s 300 year anniversary in 2033. I could write ten posts about this plan and I will write a few more as I parse through the plan, but for now here’s a quick summary from my notes from the September 17th community meeting the city held about the plan. Anyone who is serious about investing in Savannah should probably just go read it though. I’d like to note that I may drop by to revise some parts of this write up as I go through with reading the full plan, and I invite anyone who disagrees with something I stated to let me know in the comments. Here goes:

There are five design priorities in this plan:

  • Expand downtown in a logical, connected fashion to the east and the west.
  • Inject Savannah’s signature, beautiful public space design into more neighborhoods.
  • Connect it all with active transportation.
  • Prioritize quality of life over commuting time.
  • Legalize Savannah’s historic building types.

What do these priorities mean in plain English?

  • Right now, MLK and East Broad are kind of the hard borders of “downtown.” The 15 year plan aims to expand what we know and think of as “downtown” west out to the the canal district and east out to the Truman Parkway.
  • You know how many squares and how much green there is “downtown”? How easy it is to walk around? That’s what they want to do everywhere else north of 52nd street – kind of.
  • They want to make Savannah more bike and walk friendly, even as far out as the mall and southside Savannah.
  • It’ll take you longer to get from I-16 to the Truman (if you’re north of 52nd st), but it’ll be nicer to live in the neighborhoods you have to cut through to make that commute. Parking is also a lower priority than quality of life in the neighborhoods; planners hope to encourage more commuters to park near I-16 and Truman off-ramps and take shuttles (like the DOT shuttle) into downtown.
  • Change the zoning ordinances to make it easy to develop residential and mixed use in the multi-family space. That is, more duplexes, mixed use residential/commercial, quads, townhomes, etc. This is already pretty much complete with the new zoning that went into effect this September.
The overall 2033 master plan. Notice the large public spaces in the east and west, the bike trails that will run along the railroad (cutting diagonally across the map) and along Truman Parkway. Also, the MLK ramp will be removed, allowing for another walkable/driveable connection to West Savannah.

West Downtown Expansion

A picture’s worth a thousand words, see below for the 2033 plans out west. Of note, the I-16 ramp over MLK will go away, as will the civic center. These will be turned into green public spaces and allow for the canal district to be more easily connected to the city center. The Kayton/Frazier area will also be improved much like at Savannah Gardens.

East Savannah Expansion

Again, check out the diagram. Notice that the low-lying areas will be turned into a kind of undeveloped park. East broad will go two-way and main thoroughfares here will be made to be more like Oglethorpe and Liberty are downtown. Atlantic Ave will become more pedestrian friendly, and the plan calls for more public spaces along Waters, like a proposed Saturday market at the city-owned parking lot at Waters and 37th.


The area from 37th south to 52nd is also slated for revitalization. Included in the plans are a cross-town bike trail parallel to the train tracks, improvements to Bull Street, and “Victory Park”, which will require re-routing of Victory Drive and 43rd Street between MLK and Bull St.

Active Transportation Network

The 2033 plan is heavy on active transportation – bikes and walking. The plan proposes a city-wide active transportation network and will require conversion of some streets that are currently heavily trafficked (like Anderson). See below:

New Zoning

The city’s new zoning ordinance went into effect on September 1st, 2019 and is a big step towards the final goal of the 2033 plan. The 2033 plan calls for “legalizing Savannah’s historic buildings.” Many of the old multi-family structures and town homes violated the old zoning because of things like max occupancy, parking space regulations, and units per acre. The 2033 plan calls for more mixed use and more multi-family development. The plan also calls for easier permitting and more experimentation in land use outside of the historic district (Starland yard could be an example of the kind of experimentation that the plan wishes to encourage, but it seems experimentation in residential development is also on the table.) The mixed use theme is big too — the planners here want neighborhoods to include shops, public spaces, and gathering places all within walking distance. I’ll have a new post at some point going over the new zoning in much more detail.

Bottom Line

First of all, the city council hasn’t officially adopted this plan — that vote is scheduled for later this month. Assuming they do (which appears likely), they don’t even have to stick to the plan. I believe they will though because this plan was developed with cooperation and input from various stakeholders in the community and seems to be beneficial to pretty much everyone except folks who have to drive through town. This plan will definitely be a boon to real estate investors, homeowners, the city’s budget, and even most renters who will benefit from more livable neighborhoods and new development which will keep rents in check by increasing supply (in theory.)

How much do the city planners behind 2033 think their design recommendations will increase property valuations (and by association tax revenue to the city)?

…50% is on the very low end of what is possible. In fact, it’s more likely that in 2017 dollars values would be 150-200% higher if the Plan is followed

Downtown Savannah 2033, page 22.

That’s huge, and that’s exactly why I and so many investors I know are zeroed in on buying run-down buildings east and west of downtown and renovating them now. If this plan is put into action, I believe property in places like Benjamin Van Clark, Cann Park, Live Oak, and parts of West Savannah to double in value much like property in Starland and the blocks east and west of Forsyth have done in the last decade. Keep your eye out for follow-up posts here on the blog, and as always, if you have any questions or comments leave one below or find me on Facebook.


Financial Crisis part Deux? Why the next recession won’t look like the last.

“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”

Warren Buffett

Trade wars, slowing growth, inverted treasury yields — do these portend a looming recession or are they merely bumps in the road to continued growth?  Many investors I know and work with have become increasingly concerned about recession and the pain of 2007 is still raw. I can’t tell what the future holds for Savannah real estate and real estate investing in general, but I do know a few things:

  1. Real estate is a local market
  2. Credit has not been extended recklessly like it was in the early 2000s
  3. Cash is good for providing safety and peace of mind, but it remains a terrible investment
  4. If you follow sound investing principles, you will not be led astray
  5. Time in the market beats trying to time the market

Over the next couple weeks I will explore some of these points.  For now, let’s focus on the first one:

Real Estate is a Local Market

Home prices have been going through the roof in places like Seattle, in part due to rich Chinese citizens buying up west coast real estate to shield their assets from the Chinese communist party (CCP) — and now the west coast markets are beginning to soften as the CCP tightens restrictions on the flow of money out of China.  That investing drove up the average American home price, but what does that mean for Savannah?

Absolutely nothing, because Chinese money hasn’t been coming here. Let’s focus on the market we do know and disregard what’s happening in Seattle, Denver, Detroit, New York, or Miami. What’s happening in Savannah and how does it affect me?

The average home price in the Savannah area is still below its pre-2007 peak, and since the market’s bottom in 2012 the average home price has grown by 74%, while Savannah’s GDP has grown by 40% from the end of the recession in 2009 until 2017 (the last available data that I found, see sources at the bottom of this post.)  There are five months of housing inventory for sale currently, making this the strongest seller’s market since 2007. What does this mean? 

  • Real estate appreciation has outstripped economic growth, but not to the extent that it did in the early 2000s.  This is a warning signal to avoid some of the overpriced assets currently on the market, but this is not a signal that we should stuff our cash under the mattress.
  • If you’re thinking about selling in Savannah, now might not be a bad time to do it, especially if you own in the historic district or the islands — places where asset appreciation has outstripped increases in market rent. Why not free up some of your equity and invest it in a neighborhood where you can achieve a higher return on investment?
  • If you want to invest in Savannah, it’s tougher to find great deals, but they’re still out there if you know where to look.  This is where a good local agent can be a valuable asset.
  • If you are currently renting in Savannah and aren’t necessarily looking for an investment and/or just want to own your own place to call home, there is still a lot of value to be had.  With interest rates as low as they are, your mortgage payment will almost certainly be lower than your rent, and wouldn’t you rather be paying off your own mortgage than your landlord’s?

Whether you’re looking to invest or become a homeowner, buying real estate is making a statement — you are putting your money where your mouth is when you say: “I believe in the future of Savannah, I believe that in 5, 10, or 30 years, people will still want to call this place home.  I believe that if and when I go to sell this home, I will be able to at least get out of it what I put in.” Do I feel that is the case with Savannah?

Yes, so much so that I’m still buying in Savannah myself.  Here’s why:

  • Savannah is a beautiful city and it’s very walkable.  As a millennial, I know what my people want, and increasingly it’s not a suburban life.  We want trees, green public spaces, and we want to be able to walk to restaurants, bars, and stores.  Savannah checks those boxes.
  • Savannah has a diverse economy including the following major industries/employers: 
    • Fort Stewart/Hunter Army Airfield
    • Gulfstream
    • two major healthcare systems
    • JCB excavators
    • International Paper
    • the rapidly expanding Port of Savannah
    • a total University enrollment of 17,000 students
    • a robust tourism industry
    • a growing movie and television industry
  • These industries are robust. Fort Stewart and the 3rd Infantry Division is home to the only U.S. Army armored assets on the east coast and the only ones within 50 miles of a deep water port — in short, the Department of Defense is not likely to draw down forces here because doing so would hurt it’s ability to project power around the world. Gulfstream is a world-renowned private jet manufacturer. Healthcare is only going to grow as the U.S. population ages. Georgia Southern acquired Armstrong University in Savannah in 2018 and is growing. The Savannah College of Art and Design is one of the best art schools in the world and many of its graduates elect to stay in Savannah and bring this town more good art, good food, and good business — all of which feed into making this town a location of choice for young professionals, tourists, and the growing Georgia movie and TV industry.
  • The port of Savannah is currently undergoing a massive expansion to accommodate the new class of super-panamax cargo ships (basically, as the Panama canal expands, ports on the eastern seaboard must also expand to accommodate the larger ships.) What does this mean for Savannah:
    • The Port of Savannah is one of the fastest growing ports in the country, with an annual growth rate of 7% between the years 2005-2015.  
    • As of 2016, the port was the fourth largest container port in the NAFTA region, behind Los Angeles, Long Beach, and New York.  
    • The port is currently undergoing an expansion to accommodate the expansion of the Panama Canal, and the Georgia Ports Authority has detailed plans to further expand the port in order to bring the port’s capacity from the current 5.5 million twenty-foot container equivalent units (TEUs) to 8 million TEUs by 2028.  
    • The economic benefit is expected to be 8% of Georgia’s GDP and 9% of Georgia’s total employment.

The future for Savannah is bright and there are deals to be had for any buyer, but the days of dirt-cheap investment properties are largely gone – in 2019, it takes knowledge, skill, and a good network to find real estate investments that will yield a high return on investment.

That being said, I still believe in this market, so much so that my wife bought her own duplex in the east-Victorian district just this April. She put 5% down on a Department of Veteran’s Affairs (VA) loan to purchase the property, and now we live in one unit and rent the other for almost $300 more than the total mortgage payment — tell me that isn’t a good deal!

In the coming weeks I will dive deeper into why I believe 2019 is different than 2007, why it’s still a good time to get into the market, and how to avoid the pitfalls that led many reckless investors to financial ruin in the past.




Flood Zones 101

Cryin’ won’t help you prayin’ won’t do you no good
Now cryin’ won’t help you prayin’ won’t do you no good
When the levee breaks mama you got to move

Led Zeppelin, Led Zeppelin IV, adapted from Kansas Joe and Memphis Minnie’s song of the same name

If you’re a fan of classic rock, no doubt you’ve heard Led Zeppelin’s When the Levee Breaks. Did you know it’s actually an adaptation from a late-20s blues song about the great Mississippi flood of 1927? That’s the deep cultural impact of a flood – even a century later we still drive down the highway listening to the soulful, sorrowful sound of a people whose lives were washed away.

If you live in Savannah, no doubt you’ve heard of flood zones. Do you live in one? Is the house you’re interested in buying in a flood zone? Is the spot you want to park your new Challenger likely to flood when a hurricane rolls through?* How can you check? How much is flood insurance? Let’s find out.

*This is a Savannian inside joke circa Hurricane Irma. If you know, you know.

There are two key resources I use when checking if a property is in a flood zone:

  • SAGIS, short for Savannah Area Geographic Information System.
  • Georgia DFIRM

If a property is in Chatham county, I typically just use SAGIS. SAGIS is good because I can also check other data at the same time, like school districts or zoning. Any property outside of Chatham will have to be checked on DFIRM. Also, DFIRM is the official data and will be where the insurance agency goes, but honestly SAGIS is fine when we’re just scouting around for prospect properties. Once we get ready to actually put in an offer on a property is when we’ll go looking for more official data. We’ll just stick to SAGIS for the purposes of this article, please reach out to me directly if you’re interested in learning more about DFIRM.

How can I find out if a property is in a flood zone?

Let’s learn how to use SAGIS to check if we’re in a flood zone. Click on the SAGIS link above, you should see this:

We’ll need to open up the list of layers so we can turn on the flood map layer, click here:

Once the layers box pops up, we’ll want to click the checklist that says “effective flood zones (2018).” The flood zones will then populate on our map.

Here’s a close-up depicting the four zones an owner or buyer needs to be concerned with:

This screenshot is from the intersection of the Islands Expressway and 80. The four zones you’ll typically see are the following:

  • X – Light Green – Areas of minimal flood hazard, determined to be outside the 500 year flood plain.
  • X-500 – Dark Green – Area of moderate flood hazard or 0.2% annual chance of flooding, usually the area between the limits of the 100yearand 500 year floodplains.
  • AE – Light Blue – Areas with a 1% annual chance of flooding and a 26% chance of flooding over the life of a 30 year mortgage. Base flood elevations (BFE) and flood hazard factors are determined.
  • VE – red – Coastal areas with a 1% or greater chance of flooding and an additional hazard associated with storm waves. These areas have a 26% chance of flooding over the life of a 30 year mortgage. Base flood elevations (BFE) derived from detailed analyses are shown at selected intervals within these zones.

Now, take a look at this screenshot below. It’s of a property that appears to be in zone X-500 based on the map, but the detailed information suggests it’s AE. This is why we can’t solely rely on the SAGIS map, or any map for that matter. I use these maps when screening properties, and if I’m serious about making an offer on a property in or near a flood zone I’ll call up the seller’s agent to find out for sure.

The property I’d like to buy is in a flood zone. How much will my flood insurance cost?

Good question, and the answer depends on many different variables. The first step I’ll take is to ask the listing agent how much the owner currently pays, and if his/her policy is transferable. If it’s transferable, then we know exactly how much it will cost.

If there’s no current policy or the current policy isn’t transferable, then we’ll have to ask an insurance agent for a quote. We can get this quote during the due diligence period, and if we’re not satisfied with the answer then we can kill the deal before we go through with the sale – problem solved.

Is it bad to buy in a flood zone?

It depends on your risk tolerance. Would I personally buy in a flood zone? Yes, if I could make enough rental income on the property to offset the risk I’m taking on or if I just really wanted to live there. We also have to be cognizant that the federal government subsidizes the flood insurance market — what happens if they decide to stop? Do you think climate change is happening? If you do (and it is whether you believe in it or not), then you know that the sea level is set to rise over the next few centuries, which is something else to take into account. Like any other big decision, there are risks and rewards that you will have to balance.

Personally, I’m not big on flood zones. Someday I wouldn’t mind having ocean front property, but I don’t quite have the money for that just yet!

I’ve got more questions about flood zones. Where can I find more information?

You could start by sending me a message on Facebook – I’d love to answer your specific questions in detail, even if you aren’t interested in buying or selling real estate in Savannah!

Disclaimer: This article is intended only to give general advice on how to see if a property might be in a flood zone. I’m not your agent, and even if I was, I’m not qualified to make a flood zone determination for you. You’ve been warned!



Investor Education: How I Analyze Rental Properties

Let’s dive into a case study of a single family house I bought in Savannah last summer. This post is a little higher-level, so I’ve included a glossary at the bottom of the post if you don’t understand some of the terms I use. Don’t be afraid to ask me questions in the comments or on my Facebook.

The Property

Key Facts:

  • Location: Largo Drive, near the Lowes/Home Depot/Savannah Toyota
  • Built in: 1960s
  • Construction: Wood frame stick built, brick exterior. One story.
  • Size: 1332 sqft, 3 bed, 2 bath
  • Condition: Fair. Dated, but functional.
  • Neighborhood: Working class / starter homes.
  • Anticipated monthly rent: $1200
  • Listing price: $115,000 (June 2018)

SWOT Analysis:

SWOT stands for strengths, weaknesses, opportunities, threats. It is a framework that I use to quickly screen a deal in order to determine if it deserves more of my attention. I typically exclude wider economic trends from this analysis — I’m interested in one particular property, not the entire Savannah market. The very first criteria I look for in a Savannah buy and hold deal is the rent to purchase price ratio. I typically won’t even look at the pictures on a listing unless I think the monthly rent would be about 1% of purchase price.

I never actually write out a SWOT analysis – it just lives in my head. The day this particular property came on the market, I called up my then-agent (now co-worker) and told him that we had to go see it. We did, and I worked up a SWOT in my head before I hit the spreadsheets. Here’s what it would have looked like had I wrote it down.

  • Strengths:
    • Monthly rent is 1% of purchase price
    • House in good condition – kitchen, floors, bathrooms, HVAC, roof all new or in good condition.
  • Weaknesses:
    • House is on a busy road
    • Evidence of foundation issues – cracks in walls, uneven floors, doors not square
  • Opportunities
    • If updated, house could be sold in the $160k range. Likely cost of updating $25k.
    • Many houses in the neighborhood had been recently renovated and more are in progress renovations — as the adjacent properties are improved the intrinsic value of mine becomes greater.
  • Threats:
    • House near a 500 year flood zone. If zones are updated to include this property, I would have to buy insurance.

I knew I was going to buy the house before I ever punched numbers into the spreadsheet I use to analyze deals. I knew it would cash flow well, and I liked the fact that I could make a profit flipping it too. It’s a good neighborhood and getting better. But let’s actually run the numbers before we put in an offer:

The Numbers:

  • Inputs:
    • Purchase Price: $115k
    • Points: 2
    • Closing Costs: 2%
    • Downpayment: 20%
    • Loan Term: 30 years
    • Interest rate: 5.125%
    • Gross Rent: $1200/mo
    • Vacancy rate: 8%
    • Property Tax: $1200/yr
    • Insurance: $900/yr
    • Maintenance: $600/yr
    • Capital Expenses: $800/yr
    • Property Management: 0% (self-managed)
    • Other Expenses (HOA, utilities, etc): none
  • Key Outputs:
    • Cash outlay: $27,140
    • Cap Rate: 8.12%
    • Cash flow/ Cash ROI (year one): $3,737 / 13.77%
    • 5-year total ROI: $38,800 / 143%
    • Debt Service Coverage Ratio: 1.62


The Results:

I put in a full price offer and asked for 4% in closing costs that day. They took it, and of course the inspection turned up the foundation issues that we expected. The foundation had been settling, at the sellers had to place piles under the foundation a few years back. This means that the foundation had been stabilized, but you could still tell that it had settled. That didn’t concern me too much (tenants don’t care about that), so I asked the seller’s for some concessions on sale price and they agreed.

I ended up closing the day before I left for my year-long assignment in South Korea, and I had it rented within the week for $1300 — $100 more than my estimate (I always try to estimate revenue low and expenses high.) It’s currently rented at a bit of a discount to great tenants on a two-year lease and I couldn’t be happier about my decision to purchase. Sometime in the next five years I’ll probably completely renovate and sell, but for now I’m happy with the cash flow.


  • ROI = Return on Investment. The ratio of how much money your investment makes you over a set period of time vs. your cash outlay
  • Cash Outlay = This is how much it costs you to buy the asset. In real estate, almost all purchases are financed with a loan, so cash outlay is almost never the same as purchase price. The cash outlay is how much a real estate investor has to shell out when he or she buys, and we use cash outlay when we calculate ROI, not purchase price.
  • Cash ROI = this is your ROI, but only taking into account cash flow. We ignore the pay-down of your mortgage balance and appreciation here.
  • Appreciation = an increase in the value of your asset.
  • Cap rate = capitalization rate. This is basically what your ROI would be if you paid for the house in cash.
  • Debt Service Coverage Ratio (DSCR): this is the ratio of your net income to the loan payment. You generally won’t get a loan if it’s not above 1.25, and I feel most comfortable if it’s over 1.5.

Use what your Uncle Sam Gave Ya

If you’re a veteran, you’ve got a multitude of benefits available to you that you might not even know about. You shouldn’t feel greedy for taking advantage of them.

When I decided to serve my country, I didn’t do it for 10% discounts at Lowe’s, tax free booze at the class six, or any of the other Veterans benefits I have access to, but I’ll be damned if I don’t take advantage of some of those benefits today.

How might some of these benefits help you achieve the American dream? How about the ability to qualify for a loan for no down payment at all? If you haven’t heard of the VA loan, or you’re not sure how it works, keep reading.

The VA loan is a loan that’s guaranteed by the Department of Veterans Affairs (VA). Under this program, a bank will lend money to a veteran to buy a house and will not require the veteran to make any down payment at all. The banks can take this risk because the VA will issue a guarantee to the bank that essentially says: “if this veteran becomes unable to make payments on this loan, we will cover your losses.”

It’s a bit more complicated than that, but that’s the bottom line. What you, the buyer, need to know about a VA loan is this:

  • You must still qualify for this loan (if your credit is trashed because you bought a V6 Camaro after your first deployment and later had it repossessed, you’re probably shit outta luck until you fix your credit.)
  • There are certain service requirements a veteran must meet to qualify. Check if you qualify here
  • You must purchase a house that is move-in ready — fixer-uppers will generally not qualify for this program.
  • You can purchase single family homes, duplexes, even quadplexes with this loan.
  • You must agree to live in the property for at least one year. This requirement is waived if you come down on orders after your purchase.
  • Generally, in order to use your VA loan entitlement again, you must sell your VA financed house or refinance your first VA loan into a non-VA product. This is not always the case, especially if your first VA loan was for a small amount. Consult with your lender if you would like to use a second VA loan.
  • The limit on the amount you can finance with a VA loan varies by county, but in Chatham County, GA, that limit is $484,350.
    • If you want to purchase a property with a VA loan for more than this amount, you can. You just have to make a down payment equal to at least 20% of the cost over this amount. So, if you want to buy a house in Savannah for $484,450, you have to make a $20 down payment.
  • If you go into foreclosure, the VA may negotiate to help you out, but at the end of the day they’re not going to save you. Don’t buy more house than you can afford, and leave some cushion in your monthly payments in case your life situation changes. And don’t finance that new Camaro at 20%.
Was this really worth it?

Why should you use your VA loan entitlement? Because you can!

Look, if you like paying your entire BAH check to live in on-post, that’s cool. I’ve lived on post before, sometimes it’s convenient, and if you’ve got a big family it can be the cheapest option. Here’s why I think it’s better to use your VA loan to buy than to live on post or rent off-post:

  • Every time you make a mortgage payment, a portion of that payment goes toward paying down that loan. In 30 years, your loan will be paid off and now your only housing expenses are property taxes and maintenance. If you rent, you’ll just paying off your landlord’s mortgage until the day you die.
  • Your loan payment will generally be less than your BAH. With interest rates as low as they are I could buy a $240,000 house and my payments would equal O-3 BAH.
  • Generally, GENERALLY, housing prices only go up. This obviously didn’t happen from 2006-2011, but check out my previous post on why I don’t think that is likely to happen again here.
  • If you’re into saving for retirement (which you should be), owning real estate is one of the most powerful ways to do that for two reasons:
    • As discussed earlier, having a paid-off house is huge. In Savannah, a 100 thousand dollar house will generally cost $1200 each year in property taxes and $1000/yr in insurance, and maybe $1000/yr in maintenance. Compare that total of $3200/yr to the $12,000/yr or more you would pay to rent a comparable property here.
    • If you are interested in investing in real estate, the VA loan is the best way for a veteran to get started in this game. I currently rent out the first house I ever bought, and make roughly $500 each month in profit on that house. I made no down payment on that house because I used my VA loan – I’m turning a profit every month on an investment that cost me nothing to buy. My wife bought a duplex with her VA loan, and now we live in downtown Savannah and our tenants’ rent covers our entire mortgage payment. You gave Uncle Sam a blank check when you joined the military, why not take advantage of the blank check your deal old Uncle Sam is willing to give you in order to build your wealth?

Here are the steps to using your VA loan:

  • Establish credit. If you’ve never had a loan or a credit card, you don’t have any credit. Open a credit card and use it responsibly! Pay off the entire balance each and every month to avoid unnecessary interest charges. Generally, the more credit cards and loans you have and have had, the better, as long as you make all of your payments on time and maintain a low credit card balance.
  • Check your credit score. A score over 750 is the best, and you generally want to have at least a 580 to buy a house with a VA loan. Start here to check your score. If your score is not where it needs to be, that doesn’t mean you can’t reach out to an agent or a lender — a good one will help you
  • Get pre-qualified for a mortgage. Reach out to a local real estate agent or lender for help with this. Tell them you would like to use your VA loan.
  • Start looking at houses with your agent. Make sure your agent understands your needs and wants and isn’t just trying to earn a paycheck. If he or she doesn’t point out parts of a house that could be problems, he or she probably doesn’t have your best interests at heart — almost every house has something wrong with it. Don’t be afraid to fire your agent if they are not working out for you.
  • Find a house you like and get it under-contract with your agent.
  • Once your house is under contract, you will need to complete inspections, loan paperwork, and appraisals. Your agent and lender should help you every step of the way.
  • Closing day — this is the day you sign the paperwork and officially take possession of your new home. You may have to pay some closing costs, but these will generally be no more than a few thousand dollars for a VA loan. In most cases your seller will pay for the majority of these costs, especially in the Savannah market.

If you have any questions or are interested in using your VA loan to buy a house, please leave a comment or look me up on Facebook!