Veteran - House Hack a 3/4-plex then long term rent - strategies

[Austin Cox]

Hello!  I have a couple buckets of questions in regards to house hacking multi-family units that I would love some advice on:

1. The VA loan is a great benefit but comes with described refinancing restrictions. Namely, the restoration of entitlement in regards to keeping units in your portfolio for little initial money down into deals. Does anyone know the legalities around this description, or can connect me with someone knowledgeable on this topic? I have perused these forums but find mixed or non-specific answers.

2. Similarly, I'd love to learn more about ways people have gone from House Hacking with little money down into long term rental ownership. How were you able to creatively finance residential multifamily in your portfolio for the long term? Did you pursue any sort of transfer/sale/other strategy into a LLC/trust/etc. ?

I'm casting the net broader here before dialing into a specific area - so please don't hesitate regardless of where you have knowledge on any of the above! 

Thanks!

[Erik Browning]

Hi @Austin Cox,

1. Like @Andrew Garcia mentioned, your VA benefit has a limit on the amount of entitlement you are able to use, however the "One Time Restoration" is often misunderstood. The best way to fully understand how this works is to walk through an example.

Let's say you are a veteran and want to use your VA Entitlement to purchase your very FIRST home (1-4 units as a primary residence only). And let's also assume you want to buy in Los Angeles County.

- Depending on the county you are purchasing in, the VA Entitlement fluctuates on the amount you have available - I know, a bit confusing, but please read on...
- You can find what your entitlement is by using this calculator: https://whatsmypayment.com/va-...

 - The entitlement is equal to 25% of what the county's "High Balance Loan Limit."

 - In this example for Los Angeles County:

 - The High Balance Loan Limit = $970,800

- Which means your VA Entitlement = $970,800 * 25% = $242,700

- That $242,700 number is not the amount you are allowed to use, it's just that's the max amount the VA will "Guarantee" to the lender you chose to purchase the home. You can still buy beyond the $970,800 purchase price, however you will have "USED UP YOUR ENTITLEMENT."

- When you "use up all of your entitlement," you are unable to purchase another home in the future (let's say you depart and keep this home as a rental) using the VA benefit - you will have to use another loan product to purchase your next home like FHA, DSCR, Conventional, Private.

- Here's the thing that was simplified in the previous post: In the example given above, you can perform what is called a ONE TIME RESTORATION, which gives you the full VA entitlement again BUT THAT IS THE ONLY TIME YOU CAN USE IT. You cannot perform a One Time Restoration over and over again. You can only use the One Time Restoration ONE TIME in your life. Unless you found your forever home, the best way to VA House Hack is to buy with VA and refinance into a conventional investment/DSCR to free up the entitlement.

**There is another wrench to throw in the mix: The VA is SUPPOSED to keep the record of all the VA loans you used to have on your Certificate of Eligability (COE), even if you refinanced out of them. 

Let's do another example:

 - You buy the same house in LA using half of your entitlement, departed and used the remaining entitlement to purchase another home in LA county.

- Let's say now you refinance both homes into conventional investment products and want to use your VA entitlement again. The VA is SUPPOSED to know on your COE that you used your full entitlement to buy both properties and prohibit another purchase. The key word is "SUPPOSED" to. Sometimes the VA slips and does not record the initial purchase after the refinance into a conventional - so there is a chance you have partial or full eligibility at that point. If they do record that the full entitlement was used and both properties were refinanced into conventional products, the only way you are able to re-access your VA entitlement is if you sell all properties that were previously acquired with the VA Loan. I know, disappointing, but this policy is enabled to prohibit veterans from buying and churning the VA loan.

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2. I'm a veteran and used this method to purchase some investment properties that I also find suitable for living. Additionally, I'm a lender that is passionate about VA loans and encourage other vets/active duty to do the same. I bought a SFH in Arizona with my VA loan using about 40% of my entitlement, moved out and bought another one with my remaining entitlement. Established > 25% equity in the first purchase and refinanced into an investment property product. I will refinance the existing VA loan into an investment product when equity/rates dictate it is allowed. From there, we will see how the VA views my entitlement/past VA transactions.

Best of luck!