VA loan on a 4plex in Utah... should I?

Question

so I'm delving into my first deal, I just got approved for 220k on a zero down VA loan. I have not looked yet, just starting out, but I have a strong interest in multi family housing, living in one and renting out the rest. I am not sure on what kind of numbers I should be looking for, I have heard about the 2% rule, or is it 10%? Also read that I want the rent to equal 2200 a month if I get something for 220k, which in my area I'm not sure is possible especially if I am residing in one of the units. I'm sure there are existing forums outlining what to look for but I'm on the app right now and was going for help outlining how I should run the numbers or links to threads that do so. I am super excited and can't wait for my first deal, I don't want to suffer analysis paralysis, and don't want to flub up right at the start. Also,  i have only spoke to one real estate agent, and wondering if u should speak to multiple, or find other venues to also look, or if this would be in bad taste. I have a broad area in looking in, all the way from ogden to salt lake city. I have no experience in this area and feal that after my first deal I should localize and become an"expert"in that area. Thanks everyone! And if you have read my posts before, sorry if I'm starting to sound like a broken record.

Micki M. · Answer

There are a lot of "rules" out there but the determining factor is ultimately what numbers work for you?  You can use things like the 1% rule as a quick & dirty approach to eliminate deals that are obvious failures (ie if it costs $300k and rents for $1k).

Would you live in the property for the long term? If so then will the rents cover the whole mortgage, or just reduce your monthly payments? On a duplex you might not cash flow while you live in one side but you definitely should once you move on and rent both sides out.  In a 3 or 4-plex you might actually cash flow while you live in it.

What do you need the property to do for you financially?

Jacob Sampson · Answer

I echo @Jeff Rappaportthose rules and the 100 others you can use are just meant to help quickly sift through deals to see which are worth looking, further, into.

What is your goal?  Cash flow (which I think it always should be), then you will probably need to do better than the 1% rule.  I don't have the stomach to buy based on the 1% rule.  I buy for 60 Xs monthly rent.  So if it rents for $1000 I will pay $60k rehab included.

Just as not all stocks are worth buying, not all areas are worth investing in, at any given period of time.

George Gammon · Answer

Congratulations Jeremy.  This is one of the smartest things a young person can do.  I may go so far is to say it's THE smartest thing a young person can do.  I constantly try to encourage people, even my own family members, to use the strategy of buying a triplex or fourplex, living in one unit and renting out the others to not only cover the mortgage but have some positive cash flow.

As other posters have pointed out, I wouldn't get too fixated on ratios, formulas, rules etc....assuming it's in a A or B area, bottom line is will the rents conservatively cover the expenses?  If you've got a little saved up for unexpected maintenance, I'd pull the trigger.

I'm sure you've done the math but most young people haven't.  Here's why this is a brilliant strategy.

For most Americans their number one expense every month is living expense (rent, mortgage), on average, people spend about $2,000 on housing per month.  What if, at age 25, you could no longer have that expense and you just took the $2,000 a month/$24,000 a year and parlayed that into an investment making a 10% return and did that until you were age 55?

Depending on your math you'd have about $4,000,000.  Even at $1000 a month you'd have $2,000,000.  The beauty of compounding returns.

Above the obvious, what I love so much about this strategy is it doesn't really affect an individuals lifestyle.  You don't have to save and pinch.  Just keep expanding your rental portfolio from the savings of not having a living expense.

Great thinking Jeremy, keep it up.

George

Becca Summers · Answer

Yes VA needs to be pretty close to turn key to qualify. Salt Lake has great rents compared to Ogden. However you'll find cheaper prices in Ogden.

What type of renters do you want and want to live by? Young professionals? Blue collar? That can help narrow down your search area. Then you can check out rent rates. Ksl.com classifieds is a good place to check rent rates here in Utah.

Jeremy Robinson · Answer

thanks for your input, I have a realtor that said he would send mea link to the mls, but it's just their search site so I can't find comps and the search parameters are to broad for my liking. I am starting to think my expectancy might be to high, and I can only get turn key because the va loans are very picky on the state of a property. Starting to think I'm better off getting a cheap place to build equity a little and build up my cash reserves. Trying to avoid a sfh, but Definately not impressed with what I have seen in ogden. Everything seems to be over a century old and out together with spare scrap.

Kameron Ballentine · Answer

I bought a duplex in the Salt Lake City last year.  It wasn't a "deal", but it provided the best rate of return for anything I could find.  I spent 3 months looking and analyzed 50 or 60 properties on the MLS and did extensive research on rent prices in the Salt Lake Valley.  This property provided the best Rate of Return of anything I could find.  The only way I could have found a better deal was to find something that needed extensive renovation, and picked it up cheap.  Or if i had cash I could have found a better deal.

It cost $200,000, and already had 2 tenants in it.  It rents for $1,530 per month.  It needs a new roof, but I can replace that myself this summer.  Other than that, it's in reasonable condition.

I don't know if the market in Ogden is similar to Salt Lake County, but if it is, you'll have a hard time finding a "turnkey" property that meets your 1% rule.  Your best bet is to work with a wholesaler, or find a deal yourself that needs some work, fix it up, then rent it out.  If you can get the property at the right price, and your willing to put some work into it, then you should be able to find something that meets your 1% rule.

Hope this helps.

Jeremy Robinson · Answer

I have already ETS. I did my 8 years and am out, I just moved here from Texas (a market I know) where I did suffer analysis paralysis.

Zach Kidd · Answer

Awesome! You're definitely on the right track.

My first question - are you currently Active Duty, or are you a Veteran? I ask, because AD will eventually PCS, while a Veteran will likely stay put. (Yes, I'm a veteran too.)

Secondly, it's great that you're looking multi-family. A 4-plex has the best potential for cash flow as a residential purchase that meets VA criteria.

You will have to live in one of the units for VA. You do have long-term options in case you TDY, PCS, or ETS.  We can revisit those later.

I'm assuming that you are familiar enough with the Greater Salt Lake area.

You're primary goal is to find an area that makes it worthwhile to invest in. For example, you could, conceivably, buy one near the University. Price point aside, you have to factor in the potential impact of a frat party.

Or, you could look near the airport, find those part-time traveling executive clients. Super-low impact and really solid payments.

Different strategies to consider. Figure them ALL out, write them down, decide which ones you can live with (because you will have to live with it, right?).

Then start smiling and dialing for an agent. Don't stop until you find one that understands VA loan, investing, and that you "click" with.

Then start shopping.

Jeremy Robinson · Answer

basically I'm just trying to cover the mortgage, and have a bit of a cash flow I can put in an account for accidentals, I want to start saving the majority of my income to cycle into other forms of investing, although I do like the buy and hold model. Not really long term, with a VA loan there is a requirement that I reside there for at least a year, at which point I wasn't too try for a second va loan for another property. The va loams cap out at 400k, and I'm going to get to the point where I can cash flow these properties and move on to other forms of lending that do not require me to live there.

VA loan on a 4plex in Utah... should I?

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