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Real Estate Deal Analysis & Advice
Account Closed
  • New to Real Estate
  • Paris TX
4
Votes |
4
Posts

Using VA Loan to House hack New Const. with Negative CF

Account Closed
  • New to Real Estate
  • Paris TX
Posted Dec 14 2020, 11:25

I'm looking for thoughts on a house hacking idea with new construction. 

Situation: My partner and I both qualify for VA Loans and both have 6-figure jobs. We are moving to the Las Vegas area and want to start in real estate with the goal of cash flow/equity when we retire. Cash Flow in the present isn't really a concern given the steady salaries as long as it's not a huge negative number.


"Deal": The Las Vegas market has a lot of new construction townhomes being built. My idea was to buy 3 new construction townhomes that together make up a single structure and house hack it as a triplex. I would need the builder to sell the structure as a single deed (a potential sticking point). 

Pros:

  • New construction so builders warranty applies to certain things and very limited maintenance for first 5 years if not 10.
  • Use VA Loan to leverage into a $700k property at no down payment, just closing fees and VA Funding fee(which is wrapped into the loan).
  • Can Self manage the first 3-5 years until new assignment saving that money.
  • Can pick durable materials upfront to eliminate long term maintenance costs.

Cons:

  • Negative cash flow
  • Highly leveraged if market drops(not planning to sell as goal is equity at retirement)
  • Self Manage for a few years

First year Numbers While living in it and self-managing: 

  • $700,000 Loan, 0% down using VA Loan
  • Rent 2 units: $2700, 2/2 -$1200 & 3/2 – $1500
  • P&I – $2876
  • Tax/Ins – $750
  • Vacancy(10%) – $460
  • Maint(~5%) – $200
  • Management(0%) – $0 - Self Manage while living in
  • Cost to Live in remaining 3/2 unit :$1,586

5th year Numbers as a triplex rental

  • Rent 3 units: $4600, 2/2 -$1300 & (2) 3/2 – $1650
  • P&I – $2876
  • Tax/Ins – $750
  • Vacancy(10%) – $460
  • Maint(10%) – $460
  • Management(10%) – $460
  • Cash Flow: $-405

I see the upside of building approx. $20k+/year in equity(depending on appreciation) for essentially $0 money down even with a negative cash flow.  Keeping in mind that the "why" is to have cash flow/equity in 25-30 years when I retire. 

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