First Multi-Family w/VA Loan - Am I missing something?

Question

Hi all. I've been approved for $700K at a projected 2.75% (I know this can change) with my VA loan benefits (no funding fee) and I have my sights set on a fourplex in a decent area of Houston. The property itself is older, built in the '40s and the land itself is what is super valuable. No central heating, windows units, kitchens and exterior/yard all renovated. There is a unit available for me to live in, two currently rented and the status of the 4th unit unknown. When my agent and I went to view the unit, it seemed to be bolted from the inside (more to come there, but I want to furnish and put that unit on short term leases).

Anyway, I have ran preliminary/rough numbers inclusive of PITI w/my broker's assistance. I will have to bring about $30K to closing and nothing down with the VA loan. I do meet the landlord and reserve requirements. Though my thought process behind pursuing a multifamily was to houseback to have a large portion of my living expenses covered while "kick-starting" my real estate investment journey, I feel I may be missing something (or just scared). The $0 down payment is very attractive to me as I wish to keep as much money as I can in my pocket, but I can't help but to think that putting nothing down on this fourplex is not a good idea. If this goes through, I plan to live in it for a year (or more if necessary) and do it again or find a nice SFH home.

Erickson Sainval · Answer

It is 10% now.

If your able to live rent free and cashflow positively, even if it was only a dollar, still a good deal.

Jessica Young · Answer

Thank you for the tidbit on checking the tenant payment history. I'm really hoping they are on year-long leases as well. Can you share with me what your definition of the numbers working? Right now, rents would not cover the entire estimated mortgage. For me, my out of pocket costs for my "share" of the mortgage is reasonable since this is the area I wish to be in coupled with the fact that I can gain control of this valuable asset that I am projecting to appreciate. Does that make sense? Is that off base? As far as the closing costs of $30K, I am not 100% sure. I did ask my broker earlier, so I'm sure she will shoot that information to me in the morning at open. They deal with a high volume of VA loans, so I can't say if the fees are high due to the type of loan.

Landon Bleau · Answer

@Jessica Young when I run house hack numbers, I run it as if I'm not in the property, and if it meet my criteria ($150/door/month) then I'd purse. So for instance if it's a 4plex and the units all rent for $1,000/month, I'd run the numbers based on $4,000/month for the property, and if there's enough cash flow to meet my $150/door/month minimum, I'd put in an offer. Obviously since it's a househack you'll be living there so income will only be $3,000/month, but that's only for 1 year. Make sure you're setting aside money for vacancy, CapEx, Maintenance, and Property Management if you're planning on using it.  I typically do 5% vacancy, 8% CapEx, 8% Maintenance, and I don't use PM.  As for appreciation, I would say it's more than likely going to appreciate over time as you continue to hold it and manage it well, however, never bank on appreciation. In my opinion, a property should always cash flow, appreciation is just the icing on top.

Mike Lorence · Answer

One other thing to consider...the VA Loan funding fee.  I'm a disabled vet from the Marine Corps and used my VA loan privileges before. If you're more than 50% disabled [I'm 70% disabled], you get to have the VA funding fee waived, which, if I remember, is substantial.

Michael Haynes · Answer

Hello Jessica Young, what area in Houston is "decent?" Everywhere around Houston is a Flood Plain that empties into the River. And you get hit by the Hurricanes every single year, like New Orleans and Mississippi. You say there is no Central Heat and Air in a 4 Plex? You don't sound like a structural contractor type and you definitely need one to find out what is in the locked room and what type of bones this building has and in what condition. Did you look for termites? Here in Tampa area there are lots of big, old, houses made out of wood and they are full of termite damage and aesbestos shingles and lead paint and hazardous material replacement and disposal is very expensive in order to be approved for a Loan. You say the Land is the Value...??? Then, you could make an offer based on the land value and just do the deal with the idea of it being a tear down later on. Don't fall in love with a 1940's heartache that could be a fixer upper that will turn into a Florida Gator property. With your kind of Loan amount you could study a little more and maybe get a partner or join a group and buy 20, 30 or more Doors and be done with Real Estate Investing. One thing that BP does not make apparent is that Real Estate Investments should make up one part of your Wealth Creation Plan.

Jason Moomaw · Answer

@Erickson Sainval. I am sort of in the same boat, will either retire in Tampa area in three years or retire next spring in FL some where and plan on using VA again. Why is your closing cost not rolled into your VA loan? I used my VA loan once around ten years ago and I didn't put anything down. It was a new built construction home.

Even though I am new, I have read a lot of books and listened to a lot of pod casts, they have all pretty much said not to invest in a property based of appreciation, it will never make you money. It's called an alligator house.

My advice, keep looking, deals are hard to find but they are out there. If it's not cash flowing when you move out in a year, keep looking.

Landon Bleau · Answer

Jessica, as long as the numbers work, close! $0 down is a great benefit to have and as long as the property is cash flowing, you'll be able to whether a recession.  The only way you'd be in trouble is if the tenants stopped paying, so make sure you check their payment history.  Just curious what makes up the bulk of that $30K you're bringing to close?  Are the lenders fees that high since it's a VA loan?

First Multi-Family w/VA Loan - Am I missing something?

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