Misinformation bias – I’ve run into it in various circles: social events, in my career search, my last job, and I’ve heard stories from fellow veterans concerning their encounters with it.  I’m amazed at how often I hear intelligent people making ignorant comments about the military and the men and women who wear the uniform.  Strikingly, the view that seems most common is that the military is full of robots who blindly follow orders while running around with guns and yelling all day.  While most will not admit to this, it is apparent in what they do and say, especially in the context of job hiring decisions. Translation of military experience is one of the largest hurdles the veteran must overcome, and poorly formed biases make this even more difficult.

Contributing Factors

In examining this bias, I’ve determined the roots are multi-faceted, but there are two primary factors:

  1. A general lack of knowledge about the military, what it does, how it operates, and who fills the ranks
  2. Hollywood misrepresentations

Given the lack of knowledge on the topic, assumptions are made to fill the void.  And therein lies the problem: assumptions are shortcuts the brain makes based on previous experience.  When an individual lacks that experience, the brain sub-consciously connects the dots with the impressions of movies, conversations, and anything related.  Since movies are designed to feel real and immerse the viewer in the experience, it’s not surprising we make assumptions based on what we see on the screen.

“Prudence demands we challenge our assumptions.” – GFMiller

A Harvard Business Review article, 9 Habits That Lead to Terrible Decisions, cites the number one factor in poor decision making as laziness: the “failure to check facts, to take initiative, and confirm assumptions, or to gather additional input.”  Prudence demands we challenge our assumptions in order to make good decisions.

4 Myths About The Military

1. Service members mindlessly follow orders and don’t think critically

The thought that military members are drones and “just do what they are told” is such a gross fallacy, it undermines basic rules of human nature.  If we review human behavior and understand that people are emotional and logical creatures who want to be trusted and challenged, then we know that any social contract between a leader and a follower would crumble under that arrangement.  Just as in the private sector, the best military teams function in a collaborative manner exercising trust and respect; leaders empower their followers, who are the subject matter experts that often devise the most creative solutions.  In this way, the cumulative value of the team can be greater than the sum of the parts.

Some will be quick to point out that military members are bound by law and must obey the orders of those who are appointed over them.  This is true, technically, but back to human behavior – in any environment, if a human is forced to complete a task, he or she will do it begrudgingly and in the most inefficient and time consuming manner possible; the end result will fall short of any reasonable standard.  If both the means and the outcome are poor, then we have an inefficient and ineffective team member.  Compounding this with many other people begrudgingly doing their work equals disastrous outcomes for any team, especially one where life itself can hang in the balance.  Military leaders understand this, and contrary to popular belief, they empower their team members and challenge them to step up to the plate.  In Hollywood movies we often see the execution phase of an operation, but we rarely see the collaborative planning sessions or the operations briefs where the leader explains the who, what, when, where, and why; the mission & desired end-state.

In his book, Level Three Leadership, James G. Clawson defines the “Leadership Point of View” as:

  • Seeing what needs to be done
  • Understanding all the underlying forces at play in a situation
  • Having the courage to initiate action to make things better

From day one, military members of all ranks are taught to take action to solve problems.  Clawson’s “Leadership Point of View” accurately depicts what the service strives to ingrain into its members.  Due to the hostile operating environments where situations change rapidly and resources are not always stable, the military utilizes a de-centralized form of command and control.  This means the leaders closest to the situation have the authority to make decisions which can have a strategic impact.

 

2. Military leadership equals yelling and cruel discipline

When most people think of the military they think of drill instructors yelling at recruits; they may flash back to a scene from Full Metal Jacket or recall a story about boot camp from their 2nd cousin Jimmy. First and foremost, realize that the real military is nothing like boot camp.  Second, when yelling is used in the military, it is used as a tool for very specific goals:

  • In boot camp to simulate stress and break you down to your core prior to building you back up. This is the same environment where intense physical training sessions are used as disciplinary tactics.  Once in operating forces, administrative measures are used for discipline much like private industry.
  • On the battlefield to communicate messages in a loud environment.  We see this in the movies continuously, but we never see the collaborative and analytical planning process that took place previous to mission execution.  We also never see the six month pre-deployment training phase where a unit is establishing their internal processes and procedures.
  • To call attention to a behavior that is so egregious an impression must be made on the offender. Self explanatory and occurs in private industry as well.  When you know someone has been trained in the proper way to do something, yet they do it in an unsafe manner that puts undue risk on others…

Generally speaking, military leaders strive to empower their teams at all levels.  The domineering form of power displayed in Hollywood movies as yelling and cruel punishment is rarely used.  Are there abuses of power?  Yes, of course, just as there are in private industry.

 

3. War Veterans are Psychologically unstable and could explode any time

Post Traumatic Stress Disorder (PTSD) is real and should be taken seriously.  Not only does our culture lack understanding and treatment options for those with mental illnesses, but we even go as far as to ostracize them by means of cruel jokes or simple dis-association.   As a culture we have a long way to go.

Most assumptions about PTSD are wrong.  According to the National Institute of Mental Health, symptoms of PTSD include flashbacks, bad dreams, avoidance, depression, or anger.  Additionally, symptoms can make it difficult to “do daily tasks such as, sleeping, eating, or concentrating.”  Notice none of these symptoms include “going postal” or harming others.  Sure anger can be a symptom, but many people in the private sector could be classified as “angry.”  The most common way PTSD plays out is through withdrawal and depression, internal issues that would not affect the safety of others.

That being said, not everyone who has been in a combat situation has PTSD, and not everyone who has been to a combat zone has been in combat.  Remember that the military trains for combat, so it shouldn’t be a surprise that training can help to prepare military members for its psychological rigors.

 

4. The military as an organization does not function like private industry

Although the military does not have Profit & Loss (P&L) responsibility in the private sector traditional sense, there are definitely standards for managing other forms of capital.  U.S. tax dollars fund everything from military paychecks to equipment, training, operations, and maintenance.  Those budgets are managed closely and service members are held accountable for losses, over-spending, and negligence.  Profit is measured in the form of organizational effectiveness; rather than measuring in a currency of dollars, the military measures effectiveness in its ability to meet objectives.  This is achieved through training initiatives which invest in human capital.

The U.S. Military is also one of the world’s largest logistics networks and routinely moves supplies and equipment around the world.  This requires coordination between the various departments of defense, civil agencies, and foreign governments.  For an individual unit to be effective, these resources must  be aligned and optimized.  Private companies have similar needs.  Although not all companies operate on a global scale, employing those who “think globally, act locally” is good for business.  The military is full of these strategy types, and companies who are not utilizing veterans from this arena are missing out on a wealth of experience.

Communication – it is the crux of success and permeates all.   Organizations with communication issues have resultant culture issues which filter down to operating inefficiencies – “bottom line” issues. The military stresses the importance of communication, specifically in a push-model.  Military leaders depend on timely intelligence and rely on information being pushed up the chain of command.  Military members at all levels understand the importance of communication, and this becomes second nature to the average veteran.  This bodes well for his or her civilian employer.

Commonalities of Veterans

There are many soft-skills and personality traits that the military strives to ingrain in its members at all levels.  These are easily transferable to the private sector, but they are often overlooked. They are also difficult to develop in private industry; the lives of others sometimes hang in the balance in the military and provide ample opportunity to exercise such skills and traits.

Common soft-skills veterans posses:

  • Integration – working in a large organization with many resources and various departments, veterans have become expert integrators who can coordinate operations on a global scale.
  • Communication – Various requirements are levied from different levels of command, often requiring the veteran to master communication to executives, managers, and front line operators.  Many have experience developing presentations, reports, correspondence, and SOPs, of a detailed technical nature.
  • Collaboration – Veterans understand the true value of teamwork and vetting solutions to peers and subject matter experts.  From day one, Marines are paired into “buddy pairs” for training.  This continues into operating forces where groups of buddy pairs become a team, squad, platoon, company etc.  The success of all military teams lies in its reliance on teamwork.

Common traits veterans posses:

  • Integrity – Doing the right thing even when it’s difficult, and doing things right the first time. Excellence is demanded and expected of service members at all levels.
  • Decisiveness – Service members are instilled with a bias for action in the face of uncertainty.  This is framed in the context of the 70% solution; in leadership, you will never have the full picture or the 100% solution.  Choose the BEST option, and make a move.  Learn from your mistakes.
  • Disciplined – The power of positive habits is well understood by most men and women in uniform. Most associate physical fitness to discipline, but that is only one aspect.  Being disciplined is a state of mind and extends to all aspects of life.
  • Forward-Looking – This ties in with the “leadership point of view” discussed earlier.  In short, military members are well accustomed to working in rapidly changing environments.  This forces them to be dynamic and anticipate how situations may unfold.
  • Marine Corps Leadership Traits – these are the official leadership traits that the U.S. Marine Corps strives to imbue into every Marine, regardless of rank.

Functional Specialties of Veterans

In addition to the soft-skills which are difficult to develop, veterans also bring functional expertise to the table.  A veteran’s Military Occupational Specialty (MOS) is his or her functional specialty, and there are as many of them as there are job types in the private sector.  A few examples from the Marine Corps and some very, very rough equivalents:

 

Sample of U.S. Marine Corps MOS and Rough Civilian Equivalents

Marine MOS

Again, acknowledging the principles of human behavior and organizational leadership are universal, you can see how easily a veteran with such a functional skill set could translate his experience to the private sector.  However, there are also many functional skill sets gained which you will not find in an MOS title, for example, project management.

Summary

For those wearing Hiring Manager shoes, consider hiring veterans into your organization and give some real thought and analysis to their military experience.  When properly challenged, veterans not only have the capability to learn quickly and succeed, but will also add tremendous value to the organization. Utilizing the “Leadership Point of View”, veterans are naturally equipped to tackle some of the most demanding problems in a way that fosters teamwork, collaboration, and personnel development.

Bias is the result of our brain’s attempt to “connect the dots” and make a decision.  However, we must carefully consider what experiences (or lack thereof) form the basis for our assumptions.  Where the military is concerned, there is little replacement for direct experience, and Hollywood has provided an array of erroneous replacement material.

Challenge your assumptions, and look beneath the surface!

 

 

 

 

 

 

Monopoly HousesAs a military veteran, perhaps one of the greatest benefits is access to the VA Home Loan program.  Although many veterans are familiar with the concept, few understand the full reach of potential benefits.  While this may be partially to blame on the intricacies of government and difficulties with interpretation, the larger issue is a lack of truly helpful information promoting awareness.  As such, I felt it necessary to share what I recently discovered about qualified types of properties and loan limits.  Did you know that the VA Home Loan can be used to purchase multi-family properties with up to four units, commonly referred to as a fourplex?  Did you know that the VA has a higher loan limit for such a property – up to $801,950.00 in 2015 with zero down payment?  Before we dive into the details on this, we first need to look at some basics on the program.

Major Benefits

  • No down payment required – as long as the sales price does not exceed the appraised price
  • No Primary Mortgage Insurance (PMI) required – saves hundreds of $$ monthly over conventional
  • No penalty for early mortgage payoff
  • Limitations on closing costs
  • The potential for the VA to assist you should you run into financial issues down the road

Also, you should understand that the benefit can be used more than once and you do not have to be a first time home buyer.

Eligible purchases

  • Buying a residence
  • Building a residence
  • Refinancing a residence
  • Concurrently purchasing & improving a residence
  • Improvement of a residence through installation of energy efficient features
  • Purchasing a manufactured residence or lot

The VA states that “residential property may not consist of more than four family units and one business unit except in the case of certain joint loans.”  This means that you can purchase a duplex, triplex, fourplex, or five-unit building (one designated as a business unit) with the VA Loan because it is considered “residential” property.  Additionally, it is well known in investing circles that multi-family properties with more than four units are considered “commercial” property by the banks.

Veteran Borrower Requirements

  • Suitable Credit – generally a FICO score of 650 or above
  • Sufficient income – with multi-family properties, tenant rents qualify as income (Note 1 @ bottom)
  • Discharge – If you received a Dishonorable discharge, you are not eligible for the program.  If you received any other type of discharge, including Other-Than-Honorable and Bad Conduct, you can utilize the VA Home Loan benefit.
  • Service Duration / Time in Service requirement – varies greatly depending on when you where in the service and whether you were active duty, reserve, or national guard.  This link spells it out – VA Home Loan Eligibility Requirements

Up to this point we’ve established that the VA Home Loan is a powerful tool for purchasing a home and is a no-brainer.  Most Vets use their entitlement to purchase a single-family home where they can raise their family – and that’s great!  However, the majority do not realize they could utilize their benefit as an investment vehicle and potentially create a monthly passive income stream of one or two thousand dollars and/or live mortgage free.  All that is required is making some smart decisions and delaying the gratification of buying that dream home for the family.  Of course, a portion of those “smart decisions” revolve around doing your homework on real estate investing and drawing on the right resources for help – but that is beyond the scope of this post.

How It works

The VA does not issue loans, but instead issues a guarantee to financial institutions which do issue loans.  Generally speaking, this guarantee is 25% of the loan amount up to VA specified limits.  This means in the case of a mortgage default, the VA is responsible to pay 25% of the loan amount to the lender.  This decreases the lender’s risk with the same effect as a 25% down payment.  Hence there is no down payment or primary mortgage insurance requirement levied on the Veteran borrower by the lending institution.  In essence the VA “has your back”.

What are the VA loan limits?  They vary based on the county in which you are purchasing the property.  Click here for the annual limits by county.  Let’s take a look at Denver County, Colorado below:

VA Loan Limits in Denver County, CO
Denver County VA Loan Limits

Note the stair stepped loan limits starting at “one-unit” and going up to “four-units” – these are the maximum loan limits for single-family units, duplexes, triplexes, and fourplexes respectively!  So in Denver County, CO, the VA would guarantee loans up to $424,350.00 for a single-family home, $543,250.00 for a duplex, $656,650.00 for a triplex, and $816,050.00 for a fourplex.  All with ZERO down payment!  If a borrower wishes to exceed the limit, he or she is responsible for 25% of the difference.  For example, a two-unit home in Denver County that costs $550,000.00 would require a down payment of $1,687.50 ( ( $550,000 – $543,250) / 4 ) = $1687.50 ).

Occupancy Stipulation

The main difference between a residential property and an investment property is whether or not you as the owner live in the property, i.e. your primary residence.  If you live in one unit of the property and rent out the remaining one to three units, the property is considered residential; if you hold the note but rent out all units, it’s an investment property.  The VA is not in the business of backing property investors, BUT they don’t mind if you make a few bucks off your personal assets.  Hence an occupancy requirement must be met:

  • You must certify your intent to occupy the property within 60 days of closing.  This means you must move into the property and use it as your primary residence. Occupancy Requirements – VA Lender’s Handbook Ch 3, Sect 5
  • However, there are no duration requirements regarding how long you must live in the property.  If your situation changes (more kids, finances, or just decide you want a change) and you decide to move out a year or two down the road and rent out the final unit, it does not violate VA terms  as long as that was not your intent from the beginning.

Re-use of VA Home Loan – Restoration of Entitlement

If you have already used your VA Home Loan benefit and still own the property you have three options if you wish to use the benefit again elsewhere:

  1. Dispose of the property to free up the amount of your entitlement used to cover the property.
  2. Re-finance the property into a non-VA Loan and file for “Restoration of Entitlement” – this can only be done once in a lifetime: Restoration of Entitlement – VA Lender’s Handbook Ch 2, Sect 6
  3. Use your remaining entitlement – If you did not use your full entitlement ($424,350.00 for a single-family home in Denver County) you can use your remaining entitlement for the purchase of a second property.  If your first single-family home cost you $200K, then $425,350 – $200,00 = $225,350 available for your second purchase.  Anything above that would require a down payment of 25% of the difference – so continuing this example, if your second purchase was a $300K house, the VA would guarantee $225,350 of that $300K and you would be responsible for a down payment of $18,662.50 (($300,000 – $225,350)/4).

Real Life Example

Putting all of this together, let’s take a look at an example so we may fully appreciate how this could work in our favor.  I’ve located a property in Westminster, CO which I think would be an ideal multi-family investment property.  For those of you who want to see the details and crunch the numbers for yourself click here: Westminster Fourplex

This $450,000.00 property contains four units, each 2 bed / 1 bath, 977 sq feet, and rent for approximately $944 each.  The property is located in Adams County, CO which as the same limits as Denver County.  Since this is a fourplex we’re authorized up to $816,050.00 for purchase but we won’t come close to those limits.  This reduces our risk since we have less money on the line.  You’ll notice in the property flier above, the cash-on-cash return and the cap rate look pretty good – BUT i’d like to point out that those numbers are computed assuming a 20% down payment of $90K.  However, since we will be using the VA Loan and putting $0 down, we are essentially earning an infinite return on our investment!  Assuming we purchase the property and live in one of the units, here’s what this looks like:

Fourplex By-The-Numbers Breakdown – Purchased As Is

VA MF Purch Scenario 1bb

As you can see in the table, if we lived in the 4th unit we’d be paying $0 out of pocket for housing and we’d be earning a monthly cash flow of $165.73, or $1,988.80 annually – Not Bad!  Would you let someone else pay you $2K a year to live in a 2 bedroom townhouse?  I would!  And when life priorities change and you decide to move out, that fourth unit will get rented out.  Sure, you’d have to pay a mortgage or rent elsewhere, but you’d be cash flowing $1,134.73 a month, or $13,616 annually!

But wait!  There’s More!  Recall that the VA allows the “purchase and improvement” of a property.  What if we took out an additional $50K to do some kitchen improvements (granite counter tops, stainless steel appliances, etc)?  We’d be on the hook for a $500K loan, but we’d be able to increase rents:

Fourplex By-The-Numbers Breakdown – $50K of Improvements

VA MF Purch Scenario 2bb

Now we’re really looking good!  After improvements we were able to raise rents to $1,125.00 a month.  While we’re living in the 4th unit we’re cash flowing $452.58 a month, or $5,431.00 annually.  And when those life priorities change, we move out and rent the fourth unit.  Now we are cash flowing $1,602.58 a month, or $19,231.00 annually….plus equity!

Is this for everyone?

NO!  Do your homework, there IS risk involved!  This is a buy-and-hold strategy; a long term game in which a lot can change over time.  Also, many folks don’t like the idea of land lording as that is a part time job.  In that case, use a property manager.  Otherwise steer clear.  However, for those who do their due diligence, buy smart, and work smart, the benefit can be huge!

Notes

  1. Tenant rents can be used as qualifying income for the loan.  Specifically, the VA will allow you to count 75% of rents as qualifying income.  In the example above, that would be $ 2,124 monthly ($944*3*.75).  There are some stipulations with this such as 6 months cash reserves and land lording experience, but the latter may be negligible with the use of a property manager in the first year.  More information: VA Lender’s Handbook See Ch.4, sect O.