Is the VA loan good for investing?

Question

Good evening everyone, I was wondering if any of you had experience/advice on using the VA loan for investing in a duplex? Or anything else related to the VA loan. Any comments would be greatly appreciated! Thank you in advance for your help.

Kirk Olson · Answer

Ryan Jackson is mostly right one change is that you couldn't do 4 100k properties.  You're first VA loan you can do at any price I believe, below the max,  but on your second, if you haven't used up your entire eligibility, the  loan amount must be over $144k.  I found this out the long way when I  put too much down on my current primary residence and immediately had to  refinance so the loan was over $144k.  The lender covered all the additional costs since they didn't catch it and claimed to specialize in VA loans.

I used my first VA loan to purchase  a duplex two years ago only paying for closing costs.  I lived in one side for a year and managed the other side until I left the Army and moved.  I used my VA loan again to purchase my current home still keeping the duplex which cash flows nicely and has an interest rate of 2.75%.  If you can find a property that you will live in for a year whether it's a duplex, triplex, quad, or SFH and after analysis you determine that it would cash flow as an investment property there is no reason you should not use a VA loan.  Just know that if/when you move and want to use more of your eligibility the VA may ask why you are moving and various other questions.  I had to send them a letter via my lender of how my new civilian job was like my job in the military.

Ryan Jackson · Answer

I can tell you that I wish I had been knowledgeable enough to use my VA for a multifamily home when I was younger instead of a single family home.

You can buy up to an official 4 unit home as it will still be a conventional home loan. You will have to look up the max amount for a VA loan in your area, being Texas it is probably the baseline which is around $416k. You can still buy a property above that amount but will have to make a down payment on the amount above the baseline. I have seen this referred to as a Jumbo VA loan.

Check on the ins and outs of this but I believe you can also have multiple VA loans for multiple properties working within the baseline amount. Theoretically you could have 4 $100k properties.

Another positive thing about VA loans is that they do not reassess your loan if you refinance it. This allows you to get better terms down the road even if the market goes bad and you have negative equity on paper. Hopefully this will not be an issue in the near future, but it saved my bacon.

When you decide to sell you can have another Vet assume the loan to benefit from the lower rate you have locked in. This could be a huge selling point in the future when rates rise to their equilibrium point without the government establishing a rate ceiling via policy.

If your spouse is a vet you can each use your eligibility individually.

The potentially negative things: You have to live in property for at least a year. They will execute their own due diligence to insure it is not a bad investment and may disagree with your assessment. (This can also benefit you by driving down the price.)

I am sure there are many brokers in the BP community who can give greater detail.

Ross Ellington · Answer

@Benjie DeVera Thanks for the great feedback! I didn't know about either one of those points, thanks for the education. If I come across something I'll def share with you in  heartbeat! Thanks again :)

Benjie DeVera · Answer

@Ross Ellington I've used my VA to purchase a triplex. I lived in one, and rent the other two. Two quick points I've learned:

1. Your lender can usually count the project rental income of the other unit as part of your "qualifying income" to increase the amount of money you can borrow. This is good, if you're wanting to borrow & leverage more.

2. As far as using the VA loan the second time around, the only way it would get approved is if you've moved at least 50 miles away from your first home. This is a challenge for me personally, because I've decided to stay put in LA area, and I don't want to go out too far. In my case, I would be required to have 20% for down payment. Depending on your situation, if you have change of duty station, you can probably end up using it as much as you can. Just check the funding fee schedule if your numbers still make sense.

Good luck, let me know if you find other ways to maximize the VA loan

Ross Ellington · Answer

Thanks @Elizabeth  Colegrove for the input! It looks like it'll be a part of our investment plan as well :)

Elizabeth Colegrove · Answer

The VA loan has been an intregal part of our investment plan. We bought our first personals that we turned into rentals. I love them because you can buy with 0% down :)

Ross Ellington · Answer

@Ryan Jackson Thanks for the heads up on the fee, I did not know about it until now. I assume that's coupled with the rest of the closing costs?

@Kirk Olson Yeah the DTI will play a role in it but the scenario is correct, no? I def. need to talk to a lender and will be doing that soon. A quarter of a percent is not bad, hopefully they still are competitive. Thanks again!

Kirk Olson · Answer

@Ross Ellington I can't say that you would have $216k left because I couldn't qualify for a loan that big based on my income and DTI.  For both loans you will still have to meet DTI requirements to get the loan, they won't give you a $416k loan if you're only making $40k a year.  Your best option is to talk to a lender that is well versed with VA loans and let him know what your intentions are and ask questions.

Yes I did get the 2.75% interest rate with nothing down and the funding fee rolled into the loan, but that was when the prevailing rate was at 3% so a .25% reduction which was nice.

Ryan Jackson · Answer

@Ross Ellington There will be a VA funding fee. You will have to research the current rate, but it is due at closing and does not count as a down payment. That fee can be rolled into the loan.

Ross Ellington · Answer

Wow, excellent feedback guys! Thanks!

@Ryan Jackson  - I'm looking for a multifamily and live in one of the units for more than the year. So I should be fine and it fits in perfectly with what I plan to do. Thanks for your input!

@Kirk Olson  - Thanks for your feedback, but let me ask you: So if I grab a multifamily, say for $200 and my max is $416 like Ryan said I would have $216 left for another investment property? Also just to be clear you got a 2.75 interest rate with nothing down? Thanks again for your help.

@Frankie Woods  - Thanks for your feedback, VA seems like the way to go :)

@ERIK ACHEFF  - I'm gonna take a look at that article today! Thanks for the link and info.

Is the VA loan good for investing?

Most Popular Reply