VA Home Loan Leveraged for STR

[Yonathan Cabrera]

I am currently a 19 year old looking to simply gain as much financial education, simultaneously saving money for future investments. 

My biggest one would be leveraging my VA home loan in about 3 years. I want to know if it is possible to use this home loan for STR's since I know STR's (Under Tax Code Section 469) is one of the routes any RE investor can take to reach "Real Estate Professional Status," and so use passive losses from my property to offset active, earned income (My W-2 Job in the future).

Basically, does anyone know if this has ever been done? Using a VA home loan for STR conversion?

Thank You. 

[Michael Baum]

Hey @Yonathan Cabrera, it isn't off the table as this article points out:

https://www.rocketmortgage.com/learn/va-loan-for-investment-...

At your age, I might look into buying a 4 plex and live in one and rent the other 3 as long term rentals.

Essentially you have to occupy the property within 60 days, then you can buy another one after a year, rent the last unit and do it all again.

This is where occupancy requirements for VA loan rental properties come
in. You must occupy the residence within 60 days of closing and live in
it as your primary residence for 12 months before renting out other
units.

Do this several times and you will have 3-4 performing (hopefully) 4 plexs (or tri or duplex) and then you can look at doing STRs.

It would create a great base for you to work towards early retirement. 

[John Underwood]

I would recommend buying the 4 plex too at your age. Rinse and repeat a few times and you'll be set. 

A quad plex is still a residential property so easy to qualify for if your living in one unit for a couple of years.

[Yonathan Cabrera]

@Michael Baum

I greatly appreciate your insight on this matter. Just to clarify, I won't be eligible for my VA Home Loan until I am 23 (3 years more).

But what you’re encouraging is that when I am 23, I should use the first 4 or so years just building a portfolio of LTR’s and then when I am 27, look into leveraging STR's to meet the "Real Estate Professional Status" and "Material Participation" the IRS outlines, correct?

[Yonathan Cabrera]

@John Underwood

Thank you so much for reaching out on this for me! 
So, you are simply suggesting get my, "hands dirty," with Long term rentals, rinsing and repeating the "house hacking" strategy before even considering STR's and meeting REPS and Material Participation requirements to maximize tax write-offs on my future W-2, correct?

[John Underwood]

Absolutely gets your hands dirty buying Quadplexes instead of getting your hands dirty with STR'S.

A Quadplex will give you a free place to live, pay the mortgage and cash flow.

Get 3 of these over time and this would be a huge retirement portfolio.

[Yonathan Cabrera]

@John Underwood

Understood, but do you think it should ever cross my mind in the future to dive into the STR realm so I can maximize tax-write offs (Passive losses offsetting active/earned income) from my Job later or just stick with the good, stable, LTR's?

[John Underwood]

Tax write offs are not as good as passive cashflow.

I do STR'S for fun. I have LTR'S for cash flow so that I don't have to work.

[Yonathan Cabrera]

@John Underwood

Insightful, thanks! 
But when it comes to conducting Cost-Segregation studies to “accelerate” the depreciation of a property, can I still “carry over” additional entitlement from, for example, my first tax-year into the following years even if I am not meeting the REPS criteria through STR's?

[Bryan Maddex]

Hey @Yonathan Cabrera!

Congrats at already looking at real estate as an investment vehicle! VA loans can certainly give you an advantage over most investors, $0 down! You can do $0 down on a single family home or multifamily home up to 4 units and still put $0 down. Multi family properties can help you purchase a costlier home that you would qualify on your own with as we can use the rental income from the additional units to help you qualify.

When purchasing a home using your VA benefits, you must occupy the home for the first 12 months. Once you have lived there for 12 months, you can purchase a second property with as little as $0 down. The second property can also be a multi family property up to 4 units. We have to do a calculation to see what your remaining entitlement will be and that will be based on how much your 1st home mortgage balances is as compared to the current Conventional Loan limits in the county that you purchase your second home in. You can only ever have two VA mortgages at a time! After that, you can do an FHA purchase with 3.5% down or conventional loans with as little as 5% down (if you live in those properties). So you could purchase 4 homes in 4 years 0%, 0%, 3.5% then 5% down. All 4 properties could be up to 4 units and you could be looking at as many as 16 "doors" in 4 years if you were to live in each home for only 12 months each.

As far as STR goes, you can house hack the property that you first buy (in a single family home or in your unit of a multifamily property) and potentially do short term rentals in all of the other units or in your exiting property.

STR as a way to invest is getting more challenging currently as supply of new STR inventory has been outpacing the demand for STRs. I would highly encourage you to check out SRO or Single Room Occupancy as a potential alternative or in addition to STR properties.  STRs usually do better when they are at destination locations such as beaches, lake homes, mountain cabins....  I have a couple STRs in metro areas and they do not do nearly as well as the homes on lakes do.  We do a lot of Mid Term Rentals in our metro properties and they do much better as MTRs.  I may convert 1 or 2 of them to SROs. 

Check out PadSplit!  Goal for SRO is parking space and no HOAs.  Do you not have to modify a property such as many do with PadSplit homes but you can and it may be a way to increase your revenue per home. You could try doing SRO for Short Term rentals as well, but that seems like it would be way more hands on and you may deal with headaches more often with people coming and going more often.

Last, lets talk about how income works on STR vs Long Term Rentals (LTR). 

Your STR income does not count unit it hits your tax returns. If you move out of your 1st home today while buying a 2nd home, you would need to qualify for that 2nd home with your existing income and no income from your exiting property as we cannot count STR income until it hits your returns. LTR lease could be used on your exiting property right away to help you qualify for your second home purchase.

You could rent out your exiting property with a Master Lease that is a long term lease. You could find a partner to help establish an LLC that rents out your property long term, then subleases on a short term basis (master lease is one that is designed for subleasing, it is a way many people pick up STRs without actually purchasing any property, they just find owners who are okay with them subleasing on a STR basis). After you have this set up and move into your new home, you could purchase part of that LLC to participate in the income from the STR activity. Just be careful as you do not want to do anything that could look like mortgage fraud (fake master lease that just transitions over to you directly would be mortgage fraud and best to stay away from).

Alternatively, you could just move slower and establish the history of STR that hits tax returns so that you can count that income on your next property. Doing just STRs would mean you need to expand your portfolio a little slower as getting that income to qualify is going to take just a bit longer.

My team can help you in PA if you are looking for a good mortgage broker to work with who understands both investors and VA mortgages!

[Michael Baum]

Quote from @Yonathan Cabrera:

@Michael Baum

I greatly appreciate your insight on this matter. Just to clarify, I won't be eligible for my VA Home Loan until I am 23 (3 years more).

But what you’re encouraging is that when I am 23, I should use the first 4 or so years just building a portfolio of LTR’s and then when I am 27, look into leveraging STR's to meet the "Real Estate Professional Status" and "Material Participation" the IRS outlines, correct?

I think so! 23 is just fine to get started. The age really doesn't matter. You can do that for 10 years if you want. Build up a massive portfolio like @John Underwood said. Maybe dabble in STRs or not.

There are literally hundreds of ways to invest in real estate and LTRs are one of the best ways to build long term wealth.

If I was you, this is exactly what I would do.

Now, if you get married and have kids, then the plan gets tougher. You don't want to keep moving kids around from place to place. So do this when you are young and build it up.

Then I would look at other ways. Maybe apartment complex. Or vacation rentals...

[Andrew Steffens]

Agreed with all of the above. VA is intended for owner occupant but I believe you can get up to a quad. You can also eventually refi the unit once 20% equity is achieved and then use the VA loan again. Best of luck! :)

[Meghan Begue]

@Yonathan Cabrera I'm thrilled to see you're making use of the VA loan! It's such an underutilized benefit, especially for those looking to jumpstart their real estate investing. In fact, only around 13% of U.S. veterans have taken advantage of the VA Home Loan, which is surprising given its incredible perks—like the ability to buy multifamily properties, no down payment, competitive interest rates, and lower insurance rates compared to FHA loans. I'm currently working on the same strategy myself and would be happy to share my experiences and resources. Definitely check out Active Duty, Passive Income for more insights!

[Yonathan Cabrera]

Quote from @Meghan Begue:

@Yonathan Cabrera I'm thrilled to see you're making use of the VA loan! It's such an underutilized benefit, especially for those looking to jumpstart their real estate investing. In fact, only around 13% of U.S. veterans have taken advantage of the VA Home Loan, which is surprising given its incredible perks—like the ability to buy multifamily properties, no down payment, competitive interest rates, and lower insurance rates compared to FHA loans. I'm currently working on the same strategy myself and would be happy to share my experiences and resources. Definitely check out Active Duty, Passive Income for more insights!

 Hello Megan! I appreciate the encouragement on this! I concur 100% that it is an underutilized resource with it numerous benefits compared to, “civilian, conventional loans.” 

In regards to sharing your experiences and resources, would you mind if we connected and stayed in touch as I still have approx. 3 yrs before I’m even eligible to leverage it and just collect as much info as possible? 

Thanks! 

[Yonathan Cabrera]

Quote from @Michael Baum:

Quote from @Yonathan Cabrera:

@Michael Baum

I greatly appreciate your insight on this matter. Just to clarify, I won't be eligible for my VA Home Loan until I am 23 (3 years more).

But what you’re encouraging is that when I am 23, I should use the first 4 or so years just building a portfolio of LTR’s and then when I am 27, look into leveraging STR's to meet the "Real Estate Professional Status" and "Material Participation" the IRS outlines, correct?

I think so! 23 is just fine to get started. The age really doesn't matter. You can do that for 10 years if you want. Build up a massive portfolio like @John Underwood said. Maybe dabble in STRs or not.

There are literally hundreds of ways to invest in real estate and LTRs are one of the best ways to build long term wealth.

If I was you, this is exactly what I would do.

Now, if you get married and have kids, then the plan gets tougher. You don't want to keep moving kids around from place to place. So do this when you are young and build it up.

Then I would look at other ways. Maybe apartment complex. Or vacation rentals...

 Yes. The goal is to potentially begin a family once I have established basic seniority at an airline. I’m predicting that to be around 2030-31. 
That gives me between 2026-2030 to to build a foundation of 4 properties using the loan before I’m “settled down.” 

But when I am at this stage, do you believe regular conventional loans will be my alternative option to still scale up to, say, 10 properties without having to, "bounce all around the place," using the VA home loan.

[Chris Watson]

Recently retired AD Chap here. By the 3 more years to qualify it means you are in the guard/reserves. So yes you can use it for a STR after meeting the requirements. Now a big thing is none of us know the status of STRs in 3 yrs, so be ready to pivot strategies. Also, if you get married you might need to pivot. When I retired I used the VA loan (2.75%) to buy a $2M beachfront property. Obviously it was my STR income supporting my DTI ratio and not my military income. A lesson to remember, under the newer VA rules the cap (eligibility remaining) really only kicks in if you want a second property. If your DTI supports a $10M property VA will approve it for the full amount on your first property. After 18 months of living on the beach the kids really wanted trees and a true back yard, so we moved a few miles to the bay and converted the VA loan property to a STR. Wasn't my original intention, but just the direction life haad us go. Like others said it might be better to buy a 4-plex and then use the monthly profits to save up and buy a STR. Also, if you have AD orders for a year to someplace (Eglin/Hickam if AF, Scofield Barracks if Army) then you could use the VA loan to buy a property there which you convert to a LTR/STR when your orders are up.

[Yonathan Cabrera]

Quote from @Chris Watson:

Recently retired AD Chap here. By the 3 more years to qualify it means you are in the guard/reserves. So yes you can use it for a STR after meeting the requirements. Now a big thing is none of us know the status of STRs in 3 yrs, so be ready to pivot strategies. Also, if you get married you might need to pivot. When I retired I used the VA loan (2.75%) to buy a $2M beachfront property. Obviously it was my STR income supporting my DTI ratio and not my military income. A lesson to remember, under the newer VA rules the cap (eligibility remaining) really only kicks in if you want a second property. If your DTI supports a $10M property VA will approve it for the full amount on your first property. After 18 months of living on the beach the kids really wanted trees and a true back yard, so we moved a few miles to the bay and converted the VA loan property to a STR. Wasn't my original intention, but just the direction life haad us go. Like others said it might be better to buy a 4-plex and then use the monthly profits to save up and buy a STR. Also, if you have AD orders for a year to someplace (Eglin/Hickam if AF, Scofield Barracks if Army) then you could use the VA loan to buy a property there which you convert to a LTR/STR when your orders are up.

 Understood! Thanks for the insightful response. And yes, connecting the dots served you well, I am NG, so my first ETS date is in 3 yrs. 

But just to clarify, you had an STR already before purchasing the $2M beachfront property? If so, where? 

My real intention on using STR's is really just because of the tax advantages that can be carried over to my active/earned income when I am finally settled down at an Airline in the future (currently in civilian flight school).

Do you believe I am overthinking using the Tax Code Section 469; "Real Estate Professional Status," and achieving that status with STR's or should I just stick with the proven LTR "House Hacking" strategy and build my RE Portfolio that way?

[Chris Watson]

We have STRs in the Smokies and near Hurlburt/Eglin. Many are finding out STRs are not for them. It is a hospitality business and more time intrusive and usually at the most inconvenient times. I believe LTRs can also bring the tax savings you are looking for. STR are great for cashflow. As you earn seniority you picking up extra legs to fly would provide more per hour of your time vs STR. Some single senior pilots I know are pulling in close to $1M a year.

I believe it is a both/and. Do STR and LTR the question is the order based on your life circumstances at the time. I ran STRs and two construction projects for 9 months from Afghanistan while having a pretty heavy battle rhythm. So all is doable. The question is do you want to deal with other people's problems everyday...if so go STRs, if not LTRs and scale.

[Michael Baum]

Quote from @Yonathan Cabrera:

 Yes. The goal is to potentially begin a family once I have established basic seniority at an airline. I’m predicting that to be around 2030-31. 
That gives me between 2026-2030 to to build a foundation of 4 properties using the loan before I’m “settled down.” 

But when I am at this stage, do you believe regular conventional loans will be my alternative option to still scale up to, say, 10 properties without having to, "bounce all around the place," using the VA home loan.

Well, conventional loans are not as good as VA loans. If you are single, then bouncing around is what I would do. I would maybe wait and save up as much cash I can then start when I am eligible.

Best to sacrifice a bit now to benefit greatly later.