Valdosta, GA · Member since 2017 · 57 posts · 6 votes
I'm looking at purchasing a multifamily home 2-4 units. I'm in the Air Force so I wanted to utilize my VA loan which allows 100% financing but the catch is I have to live in one of the units. In today's market the prices are high, amount of sellers are low, and it's hard to find a property that I can buy under market value especially in an area where there isn't a lot of properties on the market. I almost had two good deals for prices under market value that were cash flowing even though I was living in one of the units. I ended up getting out bid and lost out on it and my question is would it be smart to start offering a number closer to market value as long as the cash flow is good and the property is turn key or Keep trying till I find one under market value for appreciation. Currently I'm at a stand still because there aren't any 2-4 units for sale. HELP PLEASE
Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
7y
I always advocate for under market value purchases. Find a seller in distress who can work with your VA loan. They may be fewer and more far between than people who would accept cash, but I'm sure they are out there.
I know you want to use your VA loan, but explore your options. 100% financing is awesome, but will they fund the purchase of a property that needs substantial work that you can buy below market value? Look into the FHA 203k loan. It allows you to purchase properties in disrepair that the average loan wouldn't finance. They also wrap the cost of rehab into the purchase price. The biggest issue with this loan is that you have to use a HUD approved contractor. You can't do the work yourself. A big pro of this loan is that you will have equity in your property almost instantly (if you buy right).
You should be looking off market. If a seller has no motivation to sell under market value, then they will not sell for under market value. Send some mass mailers out to everyone who owns a small multi family unit explaining what you’re looking for. You might get a hit that way.
Post some Facebook statuses and message all your friends letting them know that you’re looking to buy a small MF unit. You never know who someone knows.
Have a criteria and a price range in mind and stick to it. DO NOT over pay. Some of the best deals are the ones you don’t do. Keep firm and sift through the trash to find a gem.
Lastly, deals are created, not found. If you can help someone solve a problem, you will usually create a deal.
Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
7y
I always advocate for under market value purchases. Find a seller in distress who can work with your VA loan. They may be fewer and more far between than people who would accept cash, but I'm sure they are out there.
I know you want to use your VA loan, but explore your options. 100% financing is awesome, but will they fund the purchase of a property that needs substantial work that you can buy below market value? Look into the FHA 203k loan. It allows you to purchase properties in disrepair that the average loan wouldn't finance. They also wrap the cost of rehab into the purchase price. The biggest issue with this loan is that you have to use a HUD approved contractor. You can't do the work yourself. A big pro of this loan is that you will have equity in your property almost instantly (if you buy right).
You should be looking off market. If a seller has no motivation to sell under market value, then they will not sell for under market value. Send some mass mailers out to everyone who owns a small multi family unit explaining what you’re looking for. You might get a hit that way.
Post some Facebook statuses and message all your friends letting them know that you’re looking to buy a small MF unit. You never know who someone knows.
Have a criteria and a price range in mind and stick to it. DO NOT over pay. Some of the best deals are the ones you don’t do. Keep firm and sift through the trash to find a gem.
Lastly, deals are created, not found. If you can help someone solve a problem, you will usually create a deal.
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
7y
@Allen C Herring I don't know your market but I suspect it is very unlikely that you will find a turn key property under market value. As you mentioned, prices are high and amount of sellers is low which indicates that it is a sellers market, so why would someone sell below market value? You may be able to find a financially distressed seller that is motivated but when homeowners are financially distressed, they usually have not been able to keep the property maintained and have a lot of deferred maintenance and CAP Ex. That's not going to be turn key condition then. You can sometimes find a motivated seller that is not financially distressed but for one reason or another needs a quick sale but they are going to be looking for cash buyers that can close quickly. You need to more clearly define your objective. Is it cash flow or is it equity? If it's cash flow, then it might make sense to buy something turn key at market value as long as the numbers work for you.
Valdosta, GA · Member since 2017 · 57 posts · 6 votes
7y
@Bill Plymouth thank you for the input bill! I personally been feeling that way as well and it’s tricky sometimes when you get out bid multiple times mentally. Thank you for the input and I will go ahead and look harder for properties!
Valdosta, GA · Member since 2017 · 57 posts · 6 votes
7y
@Mike D'Arrigo I see what you’re saying mike. I guess I was trying to get both and like you said, in this market it’s going to be hard to do just that. Thanks for your advice.
Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
7y
@Allen C Herring driving for dollars is one way to do it. Looking at your county’s tax records may show some properties that are about to go to auction that are small MF properties.
The MLS that I use allows me to search public records based on building type(SF or MF) and wether or not the owner lives in the property of not. Team up with a real estate agent and see if the MLS they use allows them to do that.
You could also use white pages to look up phone numbers if you want to follow up with a phone call. $25 for 200 phone number searches.
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
7y
The delta between value add and ARV has reduced significantly since about 2017.
I brokered 10 million in 2-4 units last year so have a lot of experience in niche. For your first deal would recommend focusing on properties that need light value add these are deals the experienced big rehabbers pass on as too small project. For example just doing 1) paint 2) new countertop/tile backdrops 3) adding in unit laundry. For price I always tell people find a deal in bottom 25% of prices for comps. I have had one or two clients insist on finding "under market" and they both ended up doing mailings, cold calls, etc. Neither ever bought and now properties are even more expensive then when they were originally looking. By just buying low end of comps and doing a light value add + raising rents you are creating forced appreciation on a milder level but it works and is scalable when you want to do a second house hack in a year repeat.
VA loans can be an awesome tool for zero down but be sure to note they are strict on inspection and if this property needs work and owner won't make repairs it will not pass underwriter. I have had VA flag very minor things before that even FHA doesn't normally care about.
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
7y
Look at what similar for example 3 units around same SQ footage in a .5 mile radius sold for in last 6 months. You can do this on redfin, zillow or just have your realtor pull comps from MLS data.
Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
7y
@Allen C Herring it's a high time to buy, so MLS purchases are not going to get you a steal in most cases. If you're hell bent on getting a 2-4 unit to live in that's in good shape, you should play around with a small, very specific marketing list to the assets you like in the neighborhoods you want to live in.
Don't send them the dinky postcards everyone else does- reach out in a more personal way and you'll get some leads that are willing to sell to you. It might take a while if you're looking for something at a solid discount.
Real Estate Agent · Allentown, PA · Member since 2016 · 70 posts · 86 votes
7y
I bought a 2 unit at the height in 2006 at full market value. I put 5% down.
I lived in 1unit. The rental income covered more than my mortgage payment allowing me to save a bunch of money. It's now fully rented and cash flows about 200/door.
It wasn't a great deal at all, but it was a deal and I got my foot in the door. I didn't know much about real estate at the time, but I needed a place to live no matter what and it was a better option than renting. Long term it's worked out great.
Real Estate Agent · Chagrin Falls, OH · Member since 2017 · 33 posts · 25 votes
7y
Can you find something just outside Valdosta? Is there any seasonality to the real estate cycle? Are you willing to move on short notice - if not make yourself ready so you can take advantage of an opportunity. Where I live I find properties on Facebook which still amazes me. Join swap groups and post what you are looking for, there are people who know they need to do something but dread making the first step. FB is a non-threatening place that makes it easy for them to PM you to ask questions. Contact real estate property managers, accountants, insurance people and mortgage officers. The right ones know people who are in the flow of off-market deals. The most interesting thing that I learned this week is how many police officers own rental property. Not sure why. I ran into 3 officers this week randomly who all have been long time landlords.
Valdosta, GA · Member since 2017 · 57 posts · 6 votes
7y
@Shelby Ek Thanks for that advice and I am looking to keep this property long term and it does suck that I let this property slip through my grips but it’s a learning process and I definitely learned!
Rental Property Investor · Martinsburg, WV · Member since 2017 · 111 posts · 81 votes
7y
@Allen C Herring at this stage in your life, personally, I'd be looking for a multi-unit close to turnkey and around market value. If you can do better than that, great. If not, you'll have 1-3 other units paying down a significant amount of your mortgage regardless. The remainder, ideally, would be paid from your BAH. You're young and your out of pocket expenses will be manageable due to how the VA loan works. Buy what your BAH can afford, monthly payment-wise.
Keep in mind that the VA loan is intended to fulfill servicemembers' desire to attain the American dream of owning a home. The fact that you don't need a down payment just happens to make it a really powerful investment tool, as the traditional 25% down payment for an investment property is one of the more significant barriers to entry for RE investing. In your shoes, determine what your out of pocket each month would be. Do BAH and rents cover it? If not, are you close? How does it compare with what you'd be paying to rent a similar space?
In my humble opinion, you should ideally be using the VA loan at every duty station, sticking around for two years, refinancing, then PCSing and repeating. I wish I had done that when I was in. Now I'm playing catch up!
Also, get in the habit of using a property manager. You could do it yourself, but you should be budgeting for a manager regardless and right now, your work is too important to be taking calls about plumbing or noise complaints or whatever, plus you'll be changing duty stations so will need one regardless at some point. Pay the 10% of rents per month and don't even tell the tenants that you're the owner, let the manager deal with it.
Investor · USA · Member since 2015 · 325 posts · 447 votes
7y
@Allen C Herring
You have to go with what is a good value in your market. In the Seattle area, I think 2-4 unit properties are the WORST VALUE! The extent of most people’s analysis, “multifamily=good investment”.
Solicit anything. Maybe it is SFR. Getting a good deal should be the key. Not buying MF.
Valdosta, GA · Member since 2017 · 57 posts · 6 votes
7y
@Nathan Hall Keep in mind that the VA loan is intended to fulfill servicemembers' desire to attain the American dream of owning a home. The fact that you don't need a down payment just happens to make it a really powerful investment tool, as the traditional 25% down payment for an investment property is one of the more significant barriers to entry for RE investing. In your shoes, determine what your out of pocket each month would be. Do BAH and rents cover it? If not, are you close? How does it compare with what you'd be paying to rent a similar space?
Nathan, that's exactly why I wanted to use the VA loan to my advantage. Rents and BAH would deff cover my P.I.T.I expenses and more but I wanted to work on not having to use my BAH as a vehicle to save capital at a faster rate. I do see what you're saying and I guess I was trying to get a discounted deal with equity and cash flow. I had a 3-plex that was cash flowing $40 a month with me living in one unit at my finger tips. Also there was much room to raise rents cause they weren't capped out. I got the sellers to cut their price down a lot but the same day they were supposed to sign the contract, someone else came and offered them more. I regret it but at the same time I don't cause I learned from it. That's another pro to it as well, being that right now I'm renting and my monthly rent is going down the drain and not being put into anything returnable. I plan on using VA at every duty station I go to as well to maximize these benefits. Thank you for your support. All of these different points of views surely helped me to come up with what I think I'm going to go with.
Rental Property Investor · Member since 2019 · 8 posts · 5 votes
7y
@Alan C Herring I'm also in the military, and it turns out there is such thing as a VA Renovation Loan. The trick is finding a lender who'll do it. I found a local lender (I'm in Jacksonville, FL) who works for Loan Depot who does them. It's a higher interest rate of course, but it might be worth exploring depending on the amount of work the property needs.
Specialist · St Petersburg, FL · Member since 2017 · 62 posts · 34 votes
7y
@Allen C Herring
I'm looking at purchasing my second deal with the VA.
Here are a few things that I’ve learned.
You can purchase a property that needs repairs as long as the cost of repairs increases the value of the house.
If you put $20k into the house and if the repairs increases the value more than $20k, than you are good to go. However, if the repairs don’t increase more than the cost of repairs than it will be a no go. If the repairs are quoted at $20k and it would only increase the value of the home $10k, it won’t go through.
Another option is to get a hard money lender to fix a place up a MF and refinance it under the VA. This option will require you to put cash down.
Option 3: have you looked at buying land and building a brand new MF? There are VA construction loans. I've only looked at it only once, so I won't go into detail. here is a link to the info I found. This option requires cash to start the build.