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Updated over 5 years ago, 04/06/2019
Veteran Real Estate Investors
Hello! I am an active duty service member who has been listening to the bigger pockets podcast for about a year. In 3 months, I am separating from the military and am eager to start investing in real estate. My goal is to move back home and use my VA loan to acquire a small multifamily property as my primary residence while going to school full time. Does anyone here have any experience with using the VA loan? Also, if there are any tips or tricks you would be willing to share that might help me out I would greatly appreciate it!
Thank you!
@Adam M Drozdowski, My wife and I are both active duty and are planning to use the VA loan on our next PCS (2 months). Best of luck with the process, I'm very interested to read the responses on this one.
Hi @Adam M Drozdowski. Great idea! I wish I would have gotten started using the VA loan back when I exited as its a great opportunity for getting into investing at low cost. The requirements for VA loan need to be met for purchasing any property and multifamily is no exception.
Appraisal: The property must pass the appraisal and be liveable, so the following will be important:
- Residential Property - Is it residential? Commercial or business will not pass. 1-4 unit qualifies
- Living Space - Is it big enough to live in?
- Water & Sanitation - Does it have clean water, water heater, etc/
- Heating - Does it have Heating
- Mechanical Infrastructure - All heating, cooling, electric, water must be in good working order
- Property accessibility - Must be accessible from street, aka. not over someone elses property, joint driveway(may or may not qualify), etc.
- Pest inspection - Again, must be livable. No pests, termites, bees, etc.
- (Not all requirements listed here)
So you can't really do a BRRRR with a multifamily unless its a really nice property with minor repairs as it would not be livable when bought most likely. Main thing is it has to be livable. Also, the VA will only qualify the loan for an amount that meets the appraised value, so anything over will be out of your pocket. ie. If you negotiate with seller and agreed price is higher than appraised value when you do appraisal, you will have to pay seller the amount above the VA loan appraised amount.
Intent to Live: the most important part and what is often missed is you have to live in the property or have the intent to live in the property,
Side Tip: You don't necessarily have to live in the property, just have the intent to live in one of the units. You could hypothetically spend 6 months and a day fixing up with contractors the unit you intend to live in, then refinance on the 6 month and a day to a new loan. Also, I know if you are deployed, you are considered to be "temporary duty status" so you could be deployed for 6 months and a day and do the same without ever moving in. This means purchasing a multifamily for 0 down and refinancing to a new loan after said period.
That being said, it is far easier to live in one of the units and manage the other tenants as well cutting the property management costs.
Lender Requirements : Lenders will want to be sure you can cover the mortgage. Some might or might not include the rental income prior to you purchasing the home. So, if the mortgage payment on a duplex is $1400 a month and the property makes $700 in rental income, you might only have to qualify for $700 rental income with regards to your personal income versus proof you can make a $1400 payment. I recommend shopping around VA lenders and looking at their requirements, terms, etc. Some might want 6 months cash reserves as well as prior landlord experience. Some might want long lease terms for renters, so they know rental income is guaranteed for a certain period so do your research.
Hope that helps in some way. Good luck!
@Adam M Drozdowski, fantastic way to start investing! I wish I knew about it at the beginning of my military career. Things would be much different now. Ha ha. I'd be more than happy to help with VA questions and help with investing. That is what I do and I'm always ready to help military members and their families. Let me know what I can do!
@Travis DeForge That's so exciting! Do you have any idea if you're leaning more towards a single family home or small multifamily?
@Chris Levarek Hey Chris! Thank you so much for your very detailed and thoughtful response. I greatly appreciate the information.
As this would be my first investment, I'm not really looking for a property with tons of needed repairs. My goal would be to find something I would potentially be able to house hack while I'm going to school. I've been told that I don't even need to occupy a whole unit, as I can even live in a small basement or extra room. Is this true?
Also, I have also been told that although a VA loan is 0% down, there is still a funding fee that gets added to the total price. Do you have any information about that?
Thanks again for the insight!
@Adam L. Hey Adam! I would greatly appreciate all information about the VA loan. I am aware it is only applicable to small multifamily and single-family homes. Is it true that there is a funding fee associated with the loan? I heard the funding fee gets waivered if the veteran gets any sort of disability from the military.
The lender I spoke to told me that I would be unable to use my BAH to qualify and pay for my VA loan, is this common among VA lenders or should I keep looking?
Thank you again for your response, I have been on your website and am made an account! I look forward to speaking with you.
@Adam M Drozdowski I'm active duty as well. I have two rentals financed under a VA loan ( I lived in each of them before PCSing and converting them to rentals). There is a fee up front if you don't pay a down payment that is rolled into the loan. I was told it is how they get their PMI covered up front (not sure of the validity of that claim).
The VA loan processing is pretty easy if the property meets the criteria listed above.
@Adam M Drozdowski, honestly, that sounds odd to hear that to be honest. BAH is used exactly for that and should be accounted for as part of the income.
Also, the funding fee is waived for a service connected disability. That stays in your record forever once it’s there so it’s a one time process to get that finalized. Should you still need to pay the funding fee, it can be rolled into the loan as well which means no money out of pocket.
Be very careful though. Buy correctly because you can get yourself under water quickly if you pay no money down and the market drops around the time you need to sell. Make sure it’s a smart financial decision and buy for cash flow not appreciation. If it doesn’t cash flow well then don’t buy it!
@Adam M Drozdowski We are going for small multi family. 3-4 units. Househack it. It will only be about a 18mo - 2year assignment and then we will be separated geographically for a year at different bases. So we will each purchase another small multi-family at the bases we are at. Then come back together at another base a year later, buy another small multifamily and house hack one more time.
This will get us + 12-16 units in about 4 years while just using the super low down-payments with VA or FHA loans. Then we'll stop househacking and actually buy a family home.
Since the down payments will be extremely small for each of these we will be able to have a good amount in reserves for any improvements or CAPEX. We'll also have the flexibility of investing in some Single Family Turn Key properties if the locations/numbers make sense.
That's our 5 year plan from the real estate side!
@Travis DeForge That soundsl ike such an amazing plan! Thank you for sharing your goals with me!
I think it's extremely advantageous for you to have your spouse on the same page as you. You are literally able to double your efforts and efficiency. I am extremely excited for you!
@Adam L. It did sound odd to me as well. I honestly think I should talk to a new lender, someone that is more knowledgable and has experience working with veterans.
Do you have any idea how large of a disability one would need to have to be able to waive the funding fee? I heard of a rumor it just needs to be 10%, but I would like clarification.
Thank you so much for your input.
@Adam M Drozdowski, it definitely only needs to be 10%. And I may be able to refer a lender to you if you’d like. Hit me up in a DM if you’re interested.
