Deal or No Deal...VA Loan or FHA loan.

[Steven OMahoney]

Hello All,

I am looking at purchasing my first Multi family 4 Plex located in Phoenix and would like a little guidance / mentoring on the specifics and options that I have.

The property and my offering:

Asking Price: $189,000    My offer: $175,000

Gross Rents (4 units): $2485 per month (Plan on raising to $750 across the board)

All 2 bed 2 bath: $595, $620, $620, $650

Expenses:
Taxes: $91.00
Insurance: ~$98.00
Vacancy (10%): $250.00 (estimating 10%) 
Repairs (8%): $205.50
HOA - (22%) $555.00 ($139.00/unit - pays water & trash removal)
PM (7.5%): $189.00

Total: - $1,388.00

Mortgage:

$709 (FHA with 20% down and fixed 4.5%)

$886 (VA 0% down and fixed 4.5%) upside, I keep my $35,000 I have set aside for down payment for either another property down the road or upgrades to this property.

NOI: $2485 - 1388 = $1097

Cash Flow: $1097 - $886 = $211 per month (8.5% ROI) with VA loan

Cash Flow: $1097 - $709 = $388 per month (12.5% ROI) with FHA and 20% down

I feel like the HOA fee alone kills this deal for me but I'm new and motivated and want to get something going in terms of REI. I'm not an overzealous person, but maybe a bit antsy after reading and searching for a few months and wanting to get trigger happy sooner rather than later.

Does one way or the next make this a better deal, other than ROI? Should I be looking at something else that's not mentioned in my post?

Any pair of eyes and thoughts are welcome!

Steven  

[Chris Mason]

Hi @Steven OMahoney,

A VA loan will always, in all cases, have way better interest rate pricing than conventional.

No rule says that you can't make a 20% down payment when using a VA loan. Or a 5.276% down payment. Or whatever you want. Maybe split the difference between your two options: Do VA for the lower interest rate, put 10% down to be less in debt ("less in debt" = BP heresy, I know), and keep 10% in your pocket (for now) to make an equity move fixing the place up a bit (after you own it & are settled in)! If you add >10% in value, then your equity position doing VA 10% down overall will end up better than 20% down.

Your remaining VA entitlement for the next deal, a year from now after you've fulfilled your promise to live there for a year (provided you intend to live in the next house, too), or two years from now when you want to use a VA loan and need to have landlord experience to make the rental income count, is based on your loan amount this time.