All Forum Posts by: John Transue

@Jason Wiser

Not a tax advisor or CPA. Believe key item is how much you were planning to use it a investment property vs second home.

Believe The IRS defines a second home as a property you live in for more than 14 days per year or 10% of the total days you rent it to others. If that’s the case you should put it down as investment property and will have potentially higher mortgage rate.

My understanding is that is a common form for mortgages for second homes.

JT

@Zachary Aube

Yes can use VA loan to get started with little to no money out of pocket. You legally sign the loan documents that you are using the VA loan for a primary owner occupied house. Generally speaking, that is taken to mean at least one year. I, and many others, have used the VA loans while in a location, getting BAH at that location, and then rent out when on government orders elsewhere. VA loan can also be used by veterans obviously and a good way to get started but takes planning and could have disadvantages in the fee.

Many don't know but your eligibility is not used up completely with one property if the house didn't use up to the funding limit (not house worth, but the funding limit for PMI- VA website goes I to detail). I've had two houses on my VA eligibility and one on my spouses. Or could refinance into a new loan, Just each time refinance you are either legally signing that it's a primary residence and need to stay at least one year with that added refinance cost or you refinance into an investment property loan which is generally about 1 percentage point higher (and refinance costs) and most lenders will not refinance into investment t loan until 25-30ish percent equity which could take a little while to obtain depending on the area and if you start at 100% loan plus the funding fee so really 105% loan to value and actual negative equity.

Be careful of the fees as it’s actually quite expensive with the fees but generally get wrapped into the loan so not out of pocket.

I used a VA loan to finance all 3 of my now rentals as I moved around the country on PCS orders- all 3 rentals with $1 down and first 3ish years having BAH pay me to live there and then rent out. However depending on rents vs price with 100% VA funding with added fee, the initial cash flow will probably be very limited to non-existent (area dependent, my properties not in crazy expensive areas) but ROI based on $1 (plus maint, vacancy, property management etc.) will eventually be hilarious. When I do my ROI sheet now it's pretty funny.

Good luck!

JT

Might also want to check the 2nd home vs investment loan. Believe if you’re planning to use it to rent out, it should be an investment loan. Lenders will ask what the use is.

He was upfront about the move. He could have just as easily signed an extension and then cancelled on the orders. I say for that if nothing else do the month to month and work towards getting the new tenant.

Good evening,

It’s a good method. Purchasing as primary residence while living there and then renting out rather than selling when receiving government orders.

Still renting out a house around Fort Hood, Fort Gordon, and Fort Knox.

We chose the property to live in and then rent to those at the BAH for senior enlisted/ junior officer.

Generally the target audience are excellent tenants and if buying at a good price that can rent at an amount to have limited vacancies. We’ve never had a house go more than 3 weeks between tenants. Also. Ed to factor in a good property manager as you will most likely be moving farther away.

Make sure for plenty of reserves and if using a va loan turned into rental, will probably not have much equity at first. Good long term value and cash/cash return once the equity builds up and the rents increase over time.

JT

Hi, timely question as I've been wondering something similar.

Even with a positive cashflow, for the 38% ratio, do they use the rent added to the income and then the PITI added to the debt? or just the final cashflow added either to income or debt?

If rent to income and piti to debt, I'm coming closer to 38% myself. IE, rent is 1500, PITI 1150, cashflow $150. Does the $150 get added to the income or do they add the $1500 to income and add $1150 to debt? A few of those and will be at 38% dti pretty quick. I expect how people are getting multiple properties while having mortgages is that the formula just adds or subtracts the final number as the rent coming in and the PITI is probably more than 38%.

Thank you

In this case the reserves is important. In the case with the 160k mortgage, no where near enough reserves for the mortgage or maintenance and thousand things wrong. Future borrowing also hurt as not seeing 3-6 months expenses.

200k mortgage still has ample reserves- pay some down if you want. In either case, probably not much cash flow so also depends on which is more important.

I did similar when starting. As I was in the military, did VA loans and lived in property while assigned there and then rented them out after I moved. Essentially a leverage of 90-95% when I turned from primary to rental. Took a while for the balance to go down and rent to go up, but now the annual returns on my $1 down and maintenance throughout the years is pretty good....

JT

Assuming it’s a lifetime payment, and truly passive, I’d take the 10K a month for 120k a year risk free passive income for 30-40 years.

120k*.04 safe withdrawal rate is $3M.

As I think some others said, if one really wanted to, sell that 10K “annuity” for 2.5M to 3M and then do the strategy of buying assets etc, the others are saying, but now with 3M instead of 1M.

In doing comparison, I don’t think as many are factoring the risk and truly passive. Now risk for the payment, is it federal pension, insurance company, something else? Might want to factor that source of the payment in also. Is it pegged to inflation?

Perhaps I think of the 10K as similar to my military pension I’ll be receiving shortly where I’ll be getting 86k a year with cost of living increase. Sell that for 86K income for 1M? Heck no. It’s worth 2.15M and 120K is worth 3M.

Take the risk free 10K unless worried that will not last because of the source.

JT

Thank you! Yes, we really like the area and have been in and out since 2008. I've also noticed the limited number of quads/multifamily, but will keep an eye out. As I exchange my out of state property in, at first it might just be SFR. I'm quite familiar with the growth around grovetown as I get to drive that most days! A lot of growth over on your side in north augusta too. Definitely a fan of the area with the medical, cyber, and continued growth potential.

Thanks!  JT

Very interesting discussion.  My wife and I were thinking of doing a similar route in the future, and good items to consider!  We love Hilton Head.

JT