The housing market is out of reach for most American households. However, there are still small pockets of affordable places to live—you just need to find them.
I have been using an affordability technique over the last ten years that has served me well. It uses a combination of Zillow and Military housing calculators to compare rents with the average household.
If you can make these numbers work, you have a good start for performing more due diligence. I will share my technique, give some examples, and tell you my personal experiences with buying homes. Let’s begin.
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Do you need a house? Yes, you will need to buy a house—it’s non-negotiable. So, ask how you can buy a home instead of wondering if you need a place.
I have always been a massive advocate of buying a home in a small city. The numbers make much more sense, especially if you bring in your own passive income, online business, or intend to rent rooms.
But how do you crunch the numbers from a distance to find these hidden gem cities? I will introduce my secret formula.
What is the BAH calculator? Every zip code in America has a housing rate (Basic Allowance for Housing or BAH) that the military pays to its service members.
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As soon as a service member receives orders to a new location, they immediately research housing based on their BAH rate.
They usually go to Zillow to find rentals in that area and try their best to stay under their BAH amount. Sometimes they find good prices; sometimes, they pay out of pocket to afford their home.
We can tap into this combination (Zillow, BAH calculator, Mortgage Calculator) to see if a city or zip code is also affordable for us.
Using the BAH calculator. Most people have never heard of the BAH calculator; therefore, I will explain. By the way, I served in the Marines for 24 years.
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Here is the website for the BAH calculator. You can input the zip code, year, and grade. I use the rank of E-9 as my standard grade.
You can go lower, say E-5, but those prices are more for apartment living. You can be higher, say O-6, but those are senior officers who make great money. I recommend using E-8 or E-9.
Once you input your numbers, you’ll get a window showing the “with dependants” and “without dependants” rate. I use the “with dependants rate.”
Going to Zillow. Once you have your BAH number, it’s time to look up that zip code on Zillow. When searching Zillow to buy a home, you want to look at the Zestimate Rental number, not their quoted mortgage payments.
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That’s the main distinction. Don’t focus on your mortgage price; you want to see how much the house would rent for at the current moment.
Evaluating the numbers. You may have found a hidden gem if the military housing rate is much higher than the rent estimate.
Now, you need to make your mortgage numbers work. The good part is that you know you are buying something that is reasonable for renters.
You may be in trouble if the military rate is far lower than the Zestimate. In my experience, it may take years for the numbers to align as the military slowly closes the gap. However, if the mortgage numbers work in your favor, the place may still be a consideration.
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Starting in Mississippi. I am currently looking to purchase a property in Mississippi if the numbers work in my favor. Let’s run this analysis in Biloxi, Mississippi (zip code 39531).
The BAH number for an E-9 is $1818. I found a place where the rent Zestimate is $1,839. These numbers align well together.
Now we can look at the mortgage numbers. It seems with 20% down; you can get a $1,272 monthly mortgage on a $219,000 home.
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The numbers look great. If you have lived in the home for a couple of years, you should easily have a profitable rental.
From here, you continue your due diligence. Looking at the neighborhoods, growth rate, crime, etc. You don’t want to buy a home in a crappy area just because of the numbers. But things look promising.
My own housing experiences. I love to write about my experiences buying houses. I own three homes and learned a lot from buying these properties.
There is great value in owning a home, but you cannot let emotions or dreams overcome the numbers. You want a house that you can rent for profit at all times. “You make your money when you buy, not when you sell.”
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My first house. I bought my first house in Yuma, Arizona (zip code 85364) in 2008. My numbers were completely out of whack. Our first mortgage payment was $1,800, and the BAH was $1,200.
I don’t know what we were thinking, but the house was a nightmare for over 15 years. It took us until 2021 to get some kind of positive traction from that house. Yikes.
Our second house. We bought house #2 in Pensacola, Florida (zip code 32506) in 2017. The numbers were super-stacked in our favor.
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Our first mortgage payment was $1,000, and the BAH at the time was $1,600. To this day, the numbers are great. Our mortgage is $1,350 (insurance in Florida is crazy), and we rent for $1,800. The E-9 allowance is $2,193.
Our third house. Our final home lined the numbers up perfectly. It is also in Pensacola, Florida. Currently, our mortgage is $1,940, and the E-9 allowance is $2,193.
Our home can rent for $2,500, but again, staying around the BAH numbers almost guarantees you’ll have high-demand rentals.
What have you learned? The BAH/Zillow approach is a good place to start for finding good locations that can be affordable.
The military does a good job of researching their BAH rates, so why not tap into it? Sometimes, cities have crappy areas to them.
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When this happens, their BAH rates stay depressed because part of the military equation comes from the low-end part of the city. Yuma, Arizona, is notorious for having super low BAH rates.
I currently rent my home in Yuma for $2,200/month. The E-9 number for Yuma is $1,941. By the way, I am an E-9 in the Marine Corps. So, after 15 years, I still cannot “afford” my home in Yuma.
Conclusion. These calculations help you get a sense of the rental market and if you should pursue a home.
I know we like to dream that our home will be our “forever” home. That’s what my wife and I thought about our home in Yuma, Arizona, in 2008. We have since bought two more properties.
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I know home-buying can be emotional, but aligning the numbers with your dreams will pay off in the long run.
When we bought house #2, it was purely from a rental standpoint. We had no emotions, knowing the numbers were too good to pass up.
Now we clear $450/month in passive income from this house while our renter pays down our mortgage.
The renters are getting a good deal because they are $200 to $300 below market value. We made our money when we bought it.
Let me know how the numbers align in your city. This formula has helped me find a couple of great deals, and I got burned when I didn’t use it. Give it a try. Good Luck!
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