Started, what next?

[Kyle Press]

Hello all,

I've been a BiggerPockets member for quite some time now, and on SEP 30 marks my one year anniversary of being a homeowner. For all intents and purposes you can call me a "military investor". I am a Submariner based in Washington state, and I am enlisted. I am small time but I am looking to change that. Here is the story so far: When I made E5 I promised myself I would do what a buddy of mine was doing which was house hacking. He bought a beautiful home back in the the golden age of 2 percent interest rates, and it had 3K square feet and a number of tenants. He told me about the book "The Book on Rental Property Investing" by Brandon Turner. I read it, and was immediately infatuated with the idea, especially about using a VA loan. So that is exactly what I did. I bought a 5 bedroom, 2 bath house and set out. I rent all 5 rooms out to other Sailors, and I have invested into the basement, currently in the process of finishing it, I live down there as well. I keep all of my Basic Housing Allowance (BAH) AND my rental income cashflows after all of my operational costs are covered. I'd like to think I offer a great deal to Sailors too so everything is peachy-cream. The story right now: The property has been extremely lucrative, and I intend on refinancing somewhere down the line to re-up on my VA loan, and try to secure a lower interest rate as well. The point of finishing the basement (and now paying down principal as well) is to have that 20% equity I need to get out of my contract. I'm reading "Rich Dad Poor Dad" by Robert Kiyosaki. I'm also studying and learning about how to start building my tiny empire and achieve financial freedom. I am not trying to get rich quick, nor am I operating under the fallacy that I can make this happen quick. However, I do hear stories of people buying properties once a year, and expanding rather quickly. So far my plan is to refinance, re-up the VA, buy a quadriplex with it, repeat this process, and then move onto multi-family properties if possible. My question to you guys is: What advice would you have for me? How do I make it so that my properties are under LLC's that provide safety from liabilities, and how do I expand in a financially stable manner? What would you do if you were in my shoes? Mistakes you've made that I can learn from? How do I get more financing for conventional loans, and do you know any good loan officers? Would you advise using a FHA loan as well? Anything really. I am getting out in 2 years, and intend on going to California Maritime Academy, or SUNY Maritime to pursue a license to drive ships and eventually become a Captain. I figure that is the perfect time to invest and house hack, as well as get a good job so that I bolster my income. Thanks for reading my novel! Have a good day!

[Erik Browning]

Quote from @Kyle Press:

Hello all,

I've been a BiggerPockets member for quite some time now, and on SEP 30 marks my one year anniversary of being a homeowner. For all intents and purposes you can call me a "military investor". I am a Submariner based in Washington state, and I am enlisted. I am small time but I am looking to change that. Here is the story so far: When I made E5 I promised myself I would do what a buddy of mine was doing which was house hacking. He bought a beautiful home back in the the golden age of 2 percent interest rates, and it had 3K square feet and a number of tenants. He told me about the book "The Book on Rental Property Investing" by Brandon Turner. I read it, and was immediately infatuated with the idea, especially about using a VA loan. So that is exactly what I did. I bought a 5 bedroom, 2 bath house and set out. I rent all 5 rooms out to other Sailors, and I have invested into the basement, currently in the process of finishing it, I live down there as well. I keep all of my Basic Housing Allowance (BAH) AND my rental income cashflows after all of my operational costs are covered. I'd like to think I offer a great deal to Sailors too so everything is peachy-cream. The story right now: The property has been extremely lucrative, and I intend on refinancing somewhere down the line to re-up on my VA loan, and try to secure a lower interest rate as well. The point of finishing the basement (and now paying down principal as well) is to have that 20% equity I need to get out of my contract. I'm reading "Rich Dad Poor Dad" by Robert Kiyosaki. I'm also studying and learning about how to start building my tiny empire and achieve financial freedom. I am not trying to get rich quick, nor am I operating under the fallacy that I can make this happen quick. However, I do hear stories of people buying properties once a year, and expanding rather quickly. So far my plan is to refinance, re-up the VA, buy a quadriplex with it, repeat this process, and then move onto multi-family properties if possible. My question to you guys is: What advice would you have for me? How do I make it so that my properties are under LLC's that provide safety from liabilities, and how do I expand in a financially stable manner? What would you do if you were in my shoes? Mistakes you've made that I can learn from? How do I get more financing for conventional loans, and do you know any good loan officers? Would you advise using a FHA loan as well? Anything really. I am getting out in 2 years, and intend on going to California Maritime Academy, or SUNY Maritime to pursue a license to drive ships and eventually become a Captain. I figure that is the perfect time to invest and house hack, as well as get a good job so that I bolster my income. Thanks for reading my novel! Have a good day!

Really excellent post and as a former military veteran myself, you are doing exactly what you need to be doing. I also got started using my VA loan and made some mistakes along the way, but learned to correct them. There is a way to optimize your VA loan benefit, but it does appear you have a couple things that you need clarification on. You are not 100% accurate in your plan and I'm going to save you some time and money – please read below.

You said this: “…and I intend on refinancing somewhere down the line to re-up on my VA loan.”

I started out as a regular W2 employee when I got out of the military and used my VA loan multiple times, in addition to a Renovation VA loan. The home that I did the renovation loan on, I did a cash out refinance and eventually sold. It was life changing money and it allowed me to quit the W2 job. Since then, I became a loan officer so I can show other people how to do this as well. Simply refinancing the property into a conventional will NOT “re-up” your VA entitlement.

The correct term to use here is “restoration of entitlement.”

Think of your entitlement as a 5 gallon bucket with an arbitrary amount of cash in it. Let's say that bucket has $726,200 in it.

Let's also assume that you purchased that five bedroom house in Washington with half of the money in your bucket.

$726,200 / 2 = $363,100 left in your bucket

Your remaining entitlement, as a result, is = $363,100. This is how much you have leftover to purchase another house.

Here is where I think you might be misunderstanding. If you refinance that first half of your bucket into a conventional, it will not fill up the bucket all the way again. You still only have $363,100 remaining in your bucket.

The only way that you can get the entire $726,200 back into your bucket is if you do something that is called a "One Time Restoration" or sell the property: not refinance out of the existing VA loan. The reason it is called a "One Time Restoration" is because you can only perform this action one time in your entire life.

With all of that information above, let's now answer your questions:

Q: What advice would you have for me?

A: Remember that remaining amount in your bucket (entitlement)? Find out how much you have left in your bucket and see if you can purchase another house with that using your VA loan. How do you do that? Your COE and this link: https://whatsmypayment.com/va-entitlement-calculator/?p=1 will help. If you need help interpreting your COE and how to use that link, let me know. Now you have two houses that you put 0% down. After you live in that second house for a year or so, refinance both of those, as long as you continue to cash flow, into conventional loans. From there, now use the “One Time Restoration.” At this point, you now have two homes and another full bucket. Go use that bucket two more times using your VA loan again. Now you have for homes that you purchased for 0% down. While you are doing this, continue to learn more about other types of investing. Seller financing, different asset classes, or whatever interests you. Since you are active duty/veteran and have access to the VA loan, use this tool to your advantage.

Reminder, I've used my VA loan multiple times and advise folks on how to best maximize their VA entitlement. I should brand this method, but I really haven't put any thought into coming up with a fun and exciting name for it

Q: How do I make it so that my properties are under LLC's that provide safety from liabilities, and how do I expand in a financially stable manner?

A: if you followed the method above and refinance into conventional loans or DSCR loans, you have the option to put each property into an LLC (Depends on the lender for conventional, but certainly in a DSCR). You can't put either property into an LLC when you use a VA loan or FHA. There are arguments both for an against LLC's. lol it's like the oldest argument on BP and you'll have to pick your side.

Q: What would you do if you were in my shoes?

A: When people ask this question and they are actually serious, I have a phone call with them and ask what the end goal is. You happen to dictate your end goal of maximizing not only your VA loan, but also pursuing other options like FHA. If I were you, I would use that method that I laid out above and understand the income requirements to make this goal a reality. Once you understand the income requirements and the waiting time necessary to properly account for your income, then began to execute the plan. Again, I would use both the VA and FHA loans as a tool in the tool belt while also learning other types of investing that is different from both VA and FHA. Use what you got.

Q: Mistakes you've made that I can learn from?

A: Before I became a loan officer, I thought that I knew the VA guidelines pretty well. Turns out I had only a fraction of the information. I would have used the renovation loan every single time instead of just buying a turnkey property for two out of the three properties I use VA loans on.

Q: How do I get more financing for conventional loans, and do you know any good loan officers? Would you advise using a FHA loan as well?

A: I think you said something about lowering your rate, rates are not coming down. They will come down eventually, but what we saw in 2020-2021 was an anomaly as a result of the pandemic. Just make sure that however you finance your properties using other than VA loans are making you money (or offsetting) from day one. The interest rates, you and I have zero control over them. As a result, Stress out about them. If the deal does not work, then the deal does not work and move on to the next one. I'm part of a mastermind of military and veteran investors and they are still getting deals both on and off market. Don't fall into the "there are no deals and I'm blaming interest rates" camp. It's just not easy right now. But if it were easy, then everyone would be doing it, like in 2021.

For FHA loans, i'd recommend looking into down payment assistance. The rate is higher, but you don't have to come up with the 3.5% down payment.

I'm a good loan officer.

Q: I am getting out in 2 years, and intend on going to California Maritime Academy, or SUNY Maritime to pursue a license to drive ships and eventually become a Captain.

A: I think you have a really exceptional plan and this sounds like a really cool job. I wish you all the success.