What would you do?

Question

I'm currently renting a place due to selling my home while anticipating a job offer, which I found out a few days ago I did not get. Now, I have two options to use my VA loan. The 1st option would allow me to close on a duplex within the next 30 days and reduce my mortgage to $150.00 per month as the other side is currently rented for $1200.00. The 2nd option to use my VA loan is to purchase some land and build a 4-plex as a owner occupant. This process would take about 6 to 8 months for total completion. This option would allow me to live rent free and cash flow about $500.00 per month. During the construction of the 4-plex my expenses would include my current rent and payment for the land. After the completion of the 4-plex I will have about 50% of the total project in equity due to a program I'm using. My thoughts on each option are as follows: the 1st option would allow me to save more money for the next year or two, until I choose to reuse my VA loan and build the 4-plex with my remaining VA entitlement. The 2nd option would increase my monthly expenses until the 4-plex is completed and all units are rented. Also, if I decide to purchase the duplex now and wait a year or two, not sure if funds would be available from this program.

I welcome any and all comments, thanks in advance.

Mindy Jensen · Answer

I would vote for the duplex as well. Many lenders shy away from giving a VA loan to build, what most prefer is to have you get a short term construction loan, then roll the whole amount into a VA mortgage. I would look into that before you commit.

The duplex is an existing entity. Building a property is a huge undertaking, and if you have never done that before, you can be biting off more than you can chew.

Good luck!

Account Closed · Answer

if you can pull off the new construction and have 15% for unexpected overruns that would be the best long term deal but you have to be absolutely sure of the costs and numbers

Jason L. · Answer

@Tyler Flagg Thanks for breaking down the pros and cons, it helps a lot.  I have long term plan to continue to develop the land with multifamily units.

Tyler Flagg · Answer

@Jason L. That's a pretty unique question you have there.

- Duplex pros: Its going to be quicker, cheaper, and save you a small chunk of change immediately due to a lower mortgage. Its going to require less time for management. Overall much easier investment.

- Duplex cons: Smaller margin. Wouldn't necessarily cash flow, it would just provide you with free lodging. Higher maintenance charges since it isn't a new build (not sure how old the building is.)

- Quadplex pros: Significantly higher margin. High amount of equity after building. Lower maintenance expenses and capex due to new build. Cash flow!

- Quadplex cons: Will take a considerably longer time. Higher potential for delays, expenses, and problems to occur. More management. More challenging for someone new.

I'd say that there are two things you need to think about. First off, is this going to be a short-term or long-term play? Secondly, what is your level of risk and cash reserves?

Personally, I think I'd rather go with the quadplex. I like the idea of building using the VA loan. I know a number people who have done it, but they always did a SFH as opposed to a MFH.

Jason L. · Answer

@Mindy Jensen this is very true about finding a lender that will do a VA construction loan but I believe I will have one soon.  After meeting with the builder a few times, this project does seem to be overwhelming for a newbie but I'm also thinking of the possibilities once its completed.  This is tough!!!!!

Jason L. · Answer

@Brie Schmidt  Hey Brie, I have not done a new build but I'm currently in contact with a builder that has been assisting me in my plan.  I know short term the duplex would be great but if I could suck up renting and paying for land until the completion of the 4-plex, this would set me up for future opportunities.  I would have about $150,000 to $200,000 in equity, with this program paying for half of the total cost.

Brie Schmidt · Answer

@Jason L. -  I would buy the duplex.  but that may not be the best advice for you, depending on your experience level.  Have you done a new build or know someone nearby who has?

What would you do?

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