What would you do?? 20%+ or 0% down(VA Loan)?

Question

I am in the military. I have 1 home breaking even rented in NC, with 60,000 equity. I am living in a flip that I bought for 40,000 + another 35,000 in rehabilitation, that apraised for 138,000. I used cash for the purchase and rehab, then did a cash out refinance of 100k. I will move this year and rent out my current home.

my questing is should i use some of my 100k to pay 25%+ down or use a 0% VA lone to buy a 3-4 plex at my next duty station?

my questing is should i use some of my 100k to pay 25%+ down or use a 0% VA lone to buy a 3-4 plex at my next duty station?

Benjie DeVera · Answer

@William Basel  if you're closer to your max pre-approved amount, it just means that you're leveraging more. Depending on your risk appetite, that may or may not be a good thing. Is your goal to eventually have a "free and clear" 4plex? Or is more of leveraging to maximize your returns?

I agree with @Tyler Flagg  I'd go with $400k with 0down, than $200k with 0 down. That matches my personal preference on leveraging, because I'll get even greater tax benefits when I depreciate 75% of the $400k building, than the 200k building. Not to mention the appreciation of 400k vs appreciation of 200k. Here in So Cal, it's an appreciation game, so I would pick the higher amount, for higher appreciation and higher tax benefits, all day.

Good luck with your 4plex! And share your numbers if you don't mind.

Tyler Flagg · Answer

@William Basel I've haven't done a VA loan yet, however I plan on using the VA to purchase a live-in 3 or 4-plex when I move to my next duty station. So take what I say with a grain of salt since I have no practical experience...

When I eventually go through with this, my plan will be to purchase the most expensive 4-plex that I can while still putting 0% down using the VA loan. This way I'll likely get a better property, I'll require fewer repairs, I'll get better tenants, live in a better area, and be able to charge higher rents. Then (after a year or two) use the equity built up from rental income to refinance to a conventional loan and re-use the VA.

Obviously, the actual numbers will be the key determinant. If a cheaper property is the only thing that makes sense and will provide cash flow, then by all means do that. But to me (with all things equal) I just can't see the benefit in buying a 200k 4-plex @ 0% down, when I can buy a 400k 4-plex at 0% down.

I'd love to hear other thoughts though...because I've been wondering about the same issue myself.

William Basel · Answer

Just a follow up.

I have decided to go with the 0 down VA Loan on a 4 plex type property.

Would it we wise to look for a property at the top of my pre approval amount?

If my plan is to live in one rent the other units for the 1st year

I have a good contingency fund.

William Basel · Answer

@Joe G.

I never thought about refinancing a VA after building equity.

thanks

William Basel · Answer

Your goal is my goal. Buy and hold to fund early retirement. 11 years to go.

thanks for your post

Elizabeth Colegrove · Answer

Honestly it depends on what you want to do! We are buy and hold investors who's goal is to fund early retirement based on our cash flow when my husband retires from the navy.

Personally (this is just me) I would have left the money alone in your flip OR I would take that money and reinvest it in more buy and holds. Than I would have bought a 4 plex at 0% down.

Again it depends on your goals. Our's is to grow as rapidly as possible in something that we can sustain.

William Basel · Answer

Thanks,

the return  on investment for the cash is .025 (savings account).

I have no real need for the $$$ as in no upcoming expenses.

I am thinking 0% VA multi family, living in one unit being the PM forth other units.

Then using the $$$ for a down on another property.

Location will be needs of the Army, hopping Ft. Lewis,or Ft. Carson

Joe G. · Answer

@William Basel

I have used the VA Loan several times.  Purchasing a 4 plex is a great idea that I never have done, but always wanted.  What is your current return on investment with the cash?  When would you 'need' to purchase another home using the VA Loan?  Refi'ing out of a VA Loan is easy to do, but you would need the equity.

What else would you need the money for?  Where are you moving to?  What is the cost of living there, i.e. DC area vice small town area?

Just some thoughts, but siding with using the cash for down payment pending what else you may need it for.

Have success and looking forward to hearing what progress you make.

William Basel · Answer

anyone?