VA IRRRL or Refinance?

Question

Hey everyone!

I’m a rookie to real estate investing and I wanted to get some advice on our two properties that we own in Clarksville, TN. We are a military family and we’re trying to figure out how to scale our portfolio/buy our next house. We’re at the point where we are about to exceed the VA loan entitlement and wanted to see what’s the best route for us. Given the information below what would you do if you were us? We also are trying to refinance or utilize the VA IRRRL on our second house. Which one is the better option?

Cash in hand: we have between $50-60K

First House:

4 bedroom, 2 ½ bath, 2080 sqft

Bought in 2021

Interest rate: 2.625%

Loan amount: $322,245

Term: 30 year

Mortgage payment: $1,720.28 (we pay bi-weekly)

Balance on Loan: $293,284.01

Renting: $2,375.00

Summary of this house:

This particular house was hit in the tornado in 2023 and we basically redid the entire house (new drywall, kitchen, appliances, floors, fence, roof, etc). I recently approved our new tenants who are moving at the beginning of April. We did have some issues with our Contractor as they stopped midway of the project and took $45,000 from us and I'm still in the process of fighting their insurance for the work they did but messed up on / addressing the unpaid work. I also have reported them to the BBB and the TN Insurance Board. This house is located close to base but not in a good school district, neighborhood is decent and tons of construction (shops) around our area.

Second House

4 bedroom, 2 ½ bath, 2180 sqft

Bought in 2023

Interest rate: 6.625%

Loan amount: $418,261.00

Term: 30 year

Mortgage payment $2,993.92 (pay once a month)

Balance on Loan: $414,087.83

Renting $2,450.00

Summary of this house:

Recently bought this house and lived in it for a year. I just rented it this past week. My fiance and I did some cosmetic upgrades to the master bathroom (new mirrors, fixtures and updated paint), installed two fans in our two guest bedrooms, updated paint in two of the guest bedrooms and replaced the stairs and upstairs flooring from carpet to laminate flooring. This house is located a bit further from base and a bit closer to Nashville, in a great school district and neighborhood is great!

Please let me know if I'm missing anything above. My initial thought (if needed) is to do a heloc on our first property to keep our rate. For our second house, I'm not sure if doing a VA IRRRL would be a better option now than waiting to refinance if/when interest rates drop or a combination of both (if possible). We are in it for the long run so trying to see what the best option is. We recently moved to GA and are renting since we only have to be here for 6-8 months. After that, we would be stationed in another place for the next 2-3 years which at that point, I would like to buy and fix up as we’re living there. Thank you in advance!

Heather Luu · Answer

We have less than 100K left in entitlement per our last lender but just trying to figure out financing options and how to best go around for our situation. I will look into this more! I feel like we're at a good spot as far as saving for our next deal but just moving cautiously as we're still new to real estate investing! Thank you so much for your response.

John Williams · Answer

Hey Heather,

Thank you for sharing your story! I am glad you were safe from the tornado - that was scary!

The actions you should take will depend a great deal on your goals and your timeline to achieve financial freedom, retirement, etc. For example, knowing the rental market in Clarksville and the area in in which you are describing for your second house, it is likely in an area that tends not to cash flow as much (but may have slightly better appreciation). So, if your goal is immediate cash flow in the short term, it may be better to sell that one. If you are comfortable with little to no cash flow, with the hopes of long-term appreciation, it may be better to keep it.

In my opinion, sometimes real estate is best when you "set it and forget it." Perhaps you should put these two properties on the back burner of your mind and not do anything with them. I like that your first has cash flow and probably wouldn't recommend taking out a HELOC because that would hurt cash flow (unless you are using the HELOC for flips / quick projects).

Because you are a good saver, I would recommend setting your sights on your next deal and letting your current portfolio remain as is (or sell the 2nd house). Think about your long term goals and what you want your portfolio to look like (and where). Should you continue to invest in Clarksville? Should invest at your new duty station? Both?

You could use your savings for a down payment on a new-build (which is a great buy in Clarksville right now). Some of the new builds are going for less than $300k and the builders are offering great incentives. I think they make great starter rentals.

In addition, you could just go the FHA / conventional owner-occupant route at your next duty station and put 3-10% down and possibly pick up a multifamily with that.

I hope that helps!

I'd love to chat with you further!

-John, Property Manager, Real Estate Investment Broker

Clarksville, TN

Jason Wray · Answer

Heather,

When you have two VA loans your entitlement is pretty much maxed out and you need to refinance both of them into a Conventional or DSCR loan.  That will allow you to use your full entitlement if you do not need the full entitlement you can refinance one loan with a VA IRRRL and the other into a Conv, or DSCR.

Taking out a Heloc on an investment property limits your LTV to 65% to 70% in most cases since banks/lenders do not go above 75% CLTV.  I would suggest doing a cash out refinance if you need cash but you need to refinance those VA loans into either Conventional or DSCR in order to free up your entitlement.

Your rate is great on the one property but you could go DSCR and elect an I/O Interest only rate to increase/maximize cash flow.  You can also use some equity to buy the rate down as well as I/O for Max cash flow.  If you have $40K-$50K that’s enough to buy another investment property so you have a good head start.

I would consider looking into a 2-4 unit multifamily for an rental so that you can increase your doors and passive income.

VA IRRRL or Refinance?

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