Is there anything wrong with this plan?

Question

Hi BP world!

Ok so a newbie at this RE venture and been on BP for a couple months now asking questions to help me find a focal point on where to get started. Id like to toss out an idea and get a thumbs up or ripped apart.

I currently own some property in a different state that does well for me when you look at the numbers. When I bought the property my RE education was low (better now) and all I wanted was to own a multi-family that allowed for me to live rent free. After a few years of owning; I realized that there could be some financial freedom in this game and started trying to educate myself a bit more.

Currently I live in another state and not sure how much longer Ill be in the area; due to the fact that I am active military. So here are my thoughts:

- I would like to try to find a good multi-family deal using my VA loan. The hopes are that the deal may need some fixing up but I get a good enough deal where a small amount of equity already in the home.

- Rehab it then refi the home for close to full value and use money as down payment for another property to repeat on another good deal.

random numbers-

cost of home = $300,000

appraised = $350,000

rehab= $30,000

new appraisal ~ $380,000

refi = $360,000

down payment for new home = $60000

Now I know this sounds very similar to the B-R-R-R-R strategy and it isn't far off from it, but my understanding is that this strategy is done using lenders outside of a bank and paying off the property with cash completely.

-So the question is... is this possible to do with the means that I've detailed?

-Will there be a stoppage in refinancing from the banks at some point early in my venture seeing is that I won't have any property that is owned out right?

-Basically ... what am i missing if anything??

guidance would be greatly appreciated!

~Darren

Bryan O. · Answer

Account Closed, you should probably read through the actual VA regulations. This will tell you the reality of what the VA allows. Once you understand that, then you find out what the lenders require. They use what is called an overlay, which is simply the rules they put in place to make sure they follow the VA rules. They may be more strict, or not allow certain things that the VA allows. It makes it easier for them because it requires less thought, but makes it a little more tough on the vet. Here is the VA rules for Occupancy. It's in Chapter 3, Section 5. It's not a difficult read, though some coffee may be in order ;)

Bryan O. · Answer

@Darren Landerway I missed a good part of your post (sorry, I needed the coffee as well). Using VA to BRRRRRRRRR is fine. In fact, the manner you acquire is pretty much irrelevant to the strategy so long as you refinance when you've reached ARV to get your money out and get another property. Just keep in mind that with a VA loan, you typically buy at full price, which means that prior to refinancing conventional you will have to add 20-30% equity somehow. You can buy right and build in some equity, but you pretty much have to either force appreciation or hope that the market does it for you. Obviously, one of those is a strategy and the other is, well, not.

I like the idea of using VA for a year, FHA for a year, refinance/reuse VA for a year, refinance/use FHA for a year. That gives you a 2 year period where you can buy right, force equity, and (hopefully) the market appreciates. 20-30% in 1 year will be difficult, but in 2 years is easier. Just a thought, not necessarily a good one :)

Darren Landerway · Answer

@Alonzo Ramirez

Hey Alonzo, same goes to you sir! To answer your question I used a FHA loan to finance the property. It allowed for me to have low money down on the purchase and use whatever savings I had to do some fixing up. Of course i had to live in the property for a year but it was something that i intended to do from the start. Knock on wood its still a great cash flowing property now that both sides are being rented!

As for the investment idea and using VA, maybe i used the wrong term "investment", when i think of purchasing property whether its a place to live in for myself a rental property or a flip to me I consider it an investment. But you are correct with the statement. My thoughts are to buy next home (multi-fam) with VA benefit, live in one of the units (house hack) and rent out the others to cover the mortgage and some while I do renovations. Thats where I am at the moment with this plan.

Ive looked into the local REI groups but they are slim to non in this area, I've even looked on here to see if there were any groups in my area but ill keep on the search!

Lastly yes this is an overload of information just take your time and try to weed through the clutter! I just recently read a blog recommended to me by a person on BP called "how to develop a good BS meter"! by Bill Gulley - check it out! Good luck sir

Darren Landerway · Answer

@william

Account Closed thanks for the input and thanks for your service also!

Darren Landerway · Answer

Account Closed

My understanding is that I can use it to purchase a multi- family type home? Maybe the verbiage i used "investment" wasn't the correct term. The idea is to purchase a multi-fan and house hack it while doing renovations on the home. So from this do you still believe its not a viable option?

Darren Landerway · Answer

@bryan

@Bryan Otteson this makes sense because I placed an offer in on a multi family in DC last year and was turned down for what i was told a cash offer, offering less then what I offered. As for finding a way to make the deal sweeter for the seller great idea "no money...sellers terms" kind of concept. Love it.

Bryan O. · Answer

@Darren Landerway an offer on a property with VA financing is not as good for a seller as one with conventional, or cash. The inspections are more difficult and can kill a deal that would have worked with other financing or cash, and much of the time the veteran has $0 to spend, so if it doesn't appraise, there is nothing they can do to keep the deal. Also, off market sellers are usually more motivated by speedy closings, which you cannot offer with a VA loan, so typically you will end up looking at MLS, but don't discount networking around, you never know what you'll find.

While VA loans do not mean you must pay more for a property, in a competitive market you can't do fast closings so you may offer higher than the competition, or find some other way to stand out. In my most recent VA purchase added to the offer that they were welcome to a nice slow closing or could stay after closing since I was in no hurry to move. This worked for them because they were waiting for new construction to complete so by staying an extra couple of weeks they didn't need to buy hotels in another state. While the money amount wasn't better, my offer stood out and fit their needs, so I was the bid accepted.

Is there anything wrong with this plan?

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