Mortgages & Creative Financing

How I Built a $1.2M Portfolio While Active Duty With the Help of VA Loans

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va-loans-active-duty

I proudly served 22 exciting years in the Air Force as a calibration technician and laboratory auditor. It provided some of the best experiences in my life. Still, halfway through my career, real estate became more attractive than my military education and training. I began to purchase homes as I moved through assignments and always enjoyed talking about real estate investments. While I loved my country and was proud of my military service, it was easy to see that I had a second agenda in real estate. The military and real estate investments have provided security for my family, and I hope this article will teach other veterans of the opportunities to provide additional security for their families.  

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Growing Wealth Through VA Loans

After approximately 10 years in the Air Force, I bought my first home with a VA loan and became intrigued by the success and growth of the housing market. After a divorce, I needed financial help and began renting (house hacking) my master bedroom for approximately half of my mortgage. It was a huge financial relief and a learning lesson for the future. I also needed to refinance my VA loan to remove my ex-wife from the loan. I refinanced to a conventional loan and unknowingly restored my VA entitlement to use again.

[Note: For the purpose of this article, I’ll use the word “entitlement.”  The VA loan “entitlement” is actually a loan guaranteed by the Veteran’s Administration. This enables the veteran to purchase without a typical 20% down payment or private mortgage insurance (PMI).]

Within any military service, there’s always a sense of pride and motivation for service members. Members are encouraged to compete for monthly, quarterly, and yearly performance competitions. Winners often get promoted at faster rates, and as we all know, promotions bring more money. It’s easy to see how members could easily become focused on the military career ladder and have little room or desire for anything else. I sometimes felt guilty for pursuing other opportunities while I was on active duty, but in the end, I continued what I loved—learning and pursuing real estate opportunities. While others studied for promotions, I focused on purchasing other investments or completing renovations.

During my military travels, I would often read books about real estate investing. I learned that some people truly hustle to make real estate deals through owner financing, flipping, the BRRRR strategy, and wholesale deals. However, I thought I could not perform such acts while working in the military as a traveling auditor. I could not learn the processes or meet the right people to successfully invest in real estate as other people have. I was far too busy. After a few months, I finally realized I already had the best opportunity of all! I was a veteran, and I could invest with VA loans. Approximately one year after the realization, I purchased a 3,000 square foot duplex with a VA loan. Three months later, I received an assignment and repeated the process to purchase my sixth home.  

MSgt DeChon, proud to serve!

Before I jump into the key points of the VA loan, it’s helpful to understand the VA loan as an entitlement. Currently, the entitlement in most areas is $424,100. However, this entitlement increases in expensive areas. The area with the highest entitlement is $721,050. This means you can have a loan up to the maximum entitlement—or several VA loans up the maximum entitlement. There is no limit to the amount of VA loans a veteran can have.  

Funding Fees for VA Loans

Unfortunately, there are funding fees for VA loans, as seen below.

Funding Fees
Type of Veteran Down Payment First Time Use Subsequent Use for Loans From 1/1/04 to 9/30/2011
Regular Military None

5%-9.99%

10% or more

2.15%

1.50%

1.25%

3.3%

1.50%

1.25%

Reserves/National Guard None

5%-9.99%

10% or more

2.4%

1.75%

1.5%

3.3%

1.75%

1.5%

10 Key Facts to Know About VA Loans

Here are some of the key points to remember for VA loans:

  1. You can have more than one VA loan.
  2. You can buy up to a 4-plex with each purchase.
  3. You can purchase only one additional time using a VA loan if it’s considered an upgrade from the first and if it’s in the same commuting area.
  4. You can purchase again if the purchase is outside the area of the original purchase, and it does not need to be an upgrade.
  5. The entitlement increases in more expensive areas.  
  6. After purchasing with the VA loan, you are required to live in the home for one year (see also #7).
  7. If a new military assignment is received before the one-year live-in period, you can purchase again within a year of the previous purchase at the new assignment location.
  8. These benefits continue for retirees. For example, a retiree can purchase two times in any area—or more outside of the original area—until the entire entitlement is used.
  9. Current loan limits can be found here. When reviewing loan limits, veterans must only use the values that apply for one-unit family homes (even when purchasing a multifamily home).
  10. With every new loan, applicants must have enough money reserved to cover at least six months of mortgage payments for each loan they already have. For example, if you have three loans and each mortgage payment is $1,000, your monthly payments are $3,000. For a six-month reserve, you must have $18,000 ($3,000 x 6) available to apply for a new loan. However, this requirement may change depending on the lender.  

So, let’s look at this from a different perspective. Currently, I have three VA loans. Two loans were acquired in single commuting area. My third VA loan was acquired approximately 1,000 miles away, when I received a new assignment. I have no further VA entitlement remaining of the $424k. However, if I moved to an expensive area, I could purchase again with the VA loan program. 

For example, if I used all of my $424k entitlement my current area and moved to San Diego (a more expensive area), I would have approximately $212k remaining on my entitlement. The maximum entitlement in San Diego is $612,950. Therefore, we could strategically move to an area where VA entitlement is higher to make another VA investment. Still, it’s a good idea to always consider your loan options. A conventional may be a better option based on your situation.

Home Loan: Liability or Asset?

Here’s a key point when qualifying for loans: A home loan is considered a liability. You must be able to pay for the all of your liabilities when seeking a new home loan. But if the home is rented and the income is more than the mortgage payment, it’s no longer considered a liability! The rental income contributes to your debt-to-income ratio. You don’t need additional military/job income to qualify for a new loan. Therefore, you must prepare to qualify for a home loan by finding renters before qualifying for a loan. In nearly every home I’ve lived in, I prepared the home to be rented and had renters in place or contracted before I applied for my next loan. This made qualifying a snap! After all, I was in the military, and I knew a move would be coming soon. So it was best to get the house ready to be rented and prepare my finances for the next loan.

It also goes without saying that military life is very hard on families. Divorce is an unfortunate reality for military members, and they often must pay child support or alimony while they defend the country we all love. Little money remains for savings, growth, or retirement. I was in this position! After 15 years of service, I had no savings or 401k, but instead I had tenants paying my mortgages. To my surprise, my net worth and responsibility quickly surpassed those of the of my military coworkers and commanders.

Related: VA Loan Rules: What is a VA Non-Allowable Charge?

Maintaining Houses From Abroad

I’m not the average homeowner, so please understand what I do before you jump in with both feet. Unlike other investors, I have rarely paid for management. First, I paid my son to communicate and check on the properties occasionally. Later, I paid a friend during a two-year period because I was reassigned out of the state. Both managers were not experienced and were paid 50% of what professional managers are paid. For the most part, I managed all repairs and communicated with tenants myself but needed someone to stop by the homes occasionally to give me advice.

In most cases, it’s probably best to leave the management to a professional. Also, it may not be legal to leave an area without hiring a professional property manager. Most owners would not manage properties while living in different states as I do. Therefore, I don’t recommend what we do.  

It’s my opinion that managers are overpaid. Tenants call me directly with problems, and I’m just as capable of calling a repairman or making purchases as a professional manager. We’ve all heard stories about tenants trashing houses and skipping out in the night without paying rent. Tenants are going to do what they do even if professional management is used. In fact, I’d be very disappointed if I paid a manager and learned my house was trashed. Without professional management, I can pass the savings to the tenant, which motivates them to stay longer. In some homes, I’ve purposely kept the rent low, and I’ve had the same tenants for five years in two homes. In these homes, I also have a Homeowner’s Association (HOA). They come to inspect the property every month for weeds or other violations. Half of the management responsibilities are completed by the HOA. For the other homes not managed by a HOA, I take a more active approach by visiting the homes regularly.

I would not purchase homes outside my commuting area; however, I have never shied away from purchasing a home after being reassigned to a new area. I’ve taken every opportunity to buy another home when I’ve had the chance. If renting is not immediately profitable, I gauge at the long-term outlook. For example, if I have to pay $100 out of my pocket every month when renting, I would still get the loan. I might pay $18,000 over the long run, but the equity could be greater than $150,000.

Also, rent has been increasing, so I don’t worry about any immediate losses. It may be too risky for some, but it’s been working for us. Many people aren’t willing to look at the long-term, and they often get scared. I believe the fear and short-term outlook greatly contributed to the housing bubble bursting in 2007. Even through the housing bubble, I’ve never sold a house or foreclosed, despite when the odds were against me. I urge everyone to stick it out and make it work when fear begins to build. See the many opportunities houses can bring (such as renting, AirBnB, or house-hacking) and maximize the investment for you!  

A Little Bit About My Process

I typically perform live-in flips as I move from house to house. I did not intend to work on houses, but I’m always willing to perform repairs and upgrades as opportunities present themselves. This makes for a reliable home and reduces my management effort. It also boosts property value and rent, attracts better tenants, and enables tax deductions through depreciation.  

When you’re living in your home, always have a plan to move out of it. At one location, I was especially concerned about the low rents and a high 15-year mortgage payment. Therefore, I worked especially hard to make the home perfect—and it worked! I had the highest rent in the area and prevented losses. Prospective tenants were knocking down my door. After only three years, the house has $40k of equity and great tenants. With new tile floor, granite countertops, and beautiful bathrooms, it was rated as the number one rental house in the area (according to Zillow). Therefore, I always recommend caring for your home and your investment. Performing the work yourself is not necessary, but it certainly helps to keep costs down.  

Related: Military Members: Yes, You Can Use Your VA Loan More Than Once. Here’s How.

The Trashed House We Restored During Christmas Vacation

During one Christmas break, we learned that tenants moved out unexpectedly. We needed to act fast to get new tenants, but the house was trashed. We decided to drive 1,000 miles to perform all repairs ourselves. After all, there was no chance of finding help during the Christmas vacation, and we had the means to do it ourselves. After the long drive, we cleaned and painted the entire house and installed tile floor in the master bath and kitchen. We also upgraded the wiring in the master bath for better lighting and had the carpets professionally steam cleaned. It was a tough way to spend our Christmas vacation, but we were extremely proud of ourselves afterwards. We drove home with a newly signed lease agreement, and all was well. I was ready for duty after my “vacation.” This lifestyle may be tough or unapproachable for busy military members, and  I don’t expect for others to repeat my process. This is why I’ve always considered myself to be a hard working person who will soon have his money work for him.

Here are a few renovation pictures.

Before Renovation

Before: large window in tub, no light switch on wall, no fan, bad subfloor.

Before: dark and outdated.

After Renovation

After: reduced window size, everything is new!

After: painted cabinets, new microwave and fridge. New lighting and tile floor, new sink and faucet.

After: new tile floor, switches, knobs, and lights. Accented orange wall brightens the room.

After: small bathrooms have full features—tile floor, new toilet, new vanity and faucet, full length mirror, and double lighting fixture.

After: painted brick, concrete, and wood beams. New tile and painted red door. Resurfaced wood floor.

During my travels, I have influenced many veterans to make multiple real estate purchases, and I have absolutely loved hearing their success stories. Often, veterans would invite me to the homes or show me pictures after my advice changed their lives and financial futures. So, I thank all veterans for serving and sacrificing, and I urge them to take full advantage of the opportunities given to them. At the time of my retirement, I owned six rentals in three states. Within one year after military retirement, I purchased three more homes without help from the VA program. With a portfolio of $1.2M, I consider myself retired, but I love what I do! My next step is to purchase a multifamily property (approximately 25 units) while renovating it. I’m hopeful I’ll be able to use the equity from previous purchases as a down payment and perform a 1031 exchange.  

Thank you to all who have served and given so much for the defense of our country. I hope with this information, you’re able to care for yourself and your family to the best of your ability. I salute you and thank you for your service! Grow and live the lifestyle you deserve.

For more information about VA loans, click here.

[Editor’s Note: We are republishing this article to help out our newer readers.]

Any questions about VA loans? What has your experience with this form of financing been?

Leave your comments below!

Darrell is a military retiree who maximized VA loan benefits as he moved between assignments. He's currently using the BRRRR strategy on single family homes and seeking 1031-exchange opportunities...
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    Jerry Chamnichanh from Buffalo, New York
    Replied over 2 years ago
    Inspiring story! I like your taste for the renovations.
    Darrell D. Rental Property Investor from Springfield, OH
    Replied over 2 years ago
    Thanks Jerry.
    Jose Siandre Real Estate Investor from West Milford, New Jersey
    Replied over 2 years ago
    I’m so kicking myself in the butt for being so ignorant about this strategy of using the VA loan this way that I’ve been entitled to for so many years! No better time than the present though! We’re in the process of refinancing our current home into our first VA loan. From there I plan on using the strategy you guys are talking about. My question is since we’ve lived in the home now since 2007 does the 1 year limit still apply? Also, has anyone used a VA loan to buy and rehab a bank-owned property? Best, Jose
    Darrell D. Rental Property Investor from Springfield, OH
    Replied over 2 years ago
    Hello Jose. In the discussions above, a few people have noted there is no time limit to living in the home. You must live in the home with a VA loan but according to the discussion, you can leave any time. Quick question… Why refinance into your first VA loan? I’m assuming refinancing with VA will give you a bigger check when seeking the equity in the home you already have (100% financing instead of 80%). Can you refinance without a VA loan and save your entitlement? For example, refinancing with a conventional loan might give you $80k. Refinancing with a VA loan will give you $100k in your pocket. However if you use your VA entitlement, you might be using half of your entitlement ($200k for example). In this example, you’ll be trading an extra $20k for a $200k investment in the future. Am I on the right track? It seems posible to use a VA loan on a bank owned property. I was actually looking at REO properties today but I’ve never purchased in that way. Good luck my friend, Darrell
    Brian Garlington Realtor from Oakland CA investing in Cleveland & Oakland, CA/East Bay Market
    Replied over 2 years ago
    It’s interesting how the VA Loan works….I used it to buy a duplex in 2016 in Oakland, Ca. I get something in the mail at least once a week from different banks offering to re-do my VA Loan, etc. I’m in a position where I would LOVE to refi out of the VA Loan on the place I bought in 2016 without paying PMI (I don’t pay PMI now, so why start?) AND use the VA Loan again to buy another duplex, for zero down and no PMI.
    MJ Barnett Real Estate Agent from Burbank, California
    Replied about 2 years ago
    Thank you for your post. I am ex-military and have still yet to use my VA entitlement. I plan to use it in the next year to start investing.
    Darrell D. Rental Property Investor from Springfield, OH
    Replied about 2 years ago
    Thank you MJ. Good luck on your journey.
    Maryanne Hernandez
    Replied about 1 year ago
    I'm glad you studied and read up on real estate! I am certified broker and hole a degree in RE. I no longer hold a license because I do my own investments now, I used licensed agents and brokers I've networked with to do the license part of the work in real estate. I've been in the real estate industry for over 15 years and I'm glad veterans like you are pursuing in building your own wealth. For those reading this article, I do hope they do due diligence and read up on state laws of buying and selling homes without a license. In states like CA, real estate laws allow for the non-licensed to buy and sell up to six homes on their own without needing to be a licensed agent - GREAT for veterans and their spouses to get into the real estate investment path. After working for two financial advisors, I learned budgeting, life insurance, stocks, mutual funds, etc. However, what I learned in my real estate courses from legal, finance, practice, ethics, etc. is that the best and highest retirement income is rental-income stream. My husband has served 10 years so far and the past five years we lived in our first VA home and just sold it for 385k, making 33% cash profit. We have taken half the proceed and buying a condo in AZ cash; in which, we are currently in escrow for the unit that has a long term tenant of 4 years and plan to remodel the unit (to bring in a market price for rent) like we did with our now sold house. Now that my husband's VA loan benefit has reset, we are also in process of looking for another home in AZ that I will be living in with our daughter for a year and a half until my husband's next set of orders out of SoCal moves us somewhere else. He is currently stationed on an island which makes up for a schedule that brings him home 10 days out of the month. So for the betterment of our retirement, his schedule is perfect for us to sell our house and use proceeds for a cash only unit and also save 33% (of the 33% profit) as capital tand add to our savings; use VA loan again for another primary residential. I scour the internet for real estate potentials all the time. We have 39 acres in NE Arizona (seller financed for the price 27k) that we plan to retire in when our daughter graduates from HS in 18 years - yup she's only 2 and our sons are 20 and 26, lol. We currently live in our RV in California while we acquire another va home in AZ as we we are setting ourselves up for retiring in the Phoenix area right after he retires, and live in a home for 8 years; in which, then becomes a rental or a sell for multi-unit purchase, depending on the equity at the time. We are hoping for Fort Worth orders to come up this November, we can maximize the leftover VA entitlement and still live a comfortable life with two rental units in AZ and a mortgage we pay for in Fort Worth. And of course, while in FT Worth, I'll have to look into the 'upgrade' you talk about and acquire two more units while living there. Thank you for sharing your journey, I was searching for VA loan and use of its benefits and your article came up. Real estate has always been a passion since I was kid and I'm thankful for my dad's 20 year service and husband's active service that enables me to pursue and enjoy my real estate goals and dream! As a RE professional, I applaud you for maximizing your veteran benefits, thank you for your service and God bless you on your continued real estate knowledge and wisdom.
    Jeffrey L Jerschina New to Real Estate from San Antonio, TX
    Replied 6 months ago
    This may be a 2 year old post but it's been very helpful to me! AD Army in Germany learning about real estate and this has been a very helpful, narrative style post that explained many of the facets of a VA loan. Thanks, Darrell! By the way, I went to school in Cedarville just south of Springfield, OH- worked as an EMT in Springfield, was definitely something of an interesting place with lots of rundown housing neighborhoods.
    Darrell D. Rental Property Investor from Springfield, OH
    Replied 6 months ago
    Thanks Jeffrey. Small world... my son ran track a few times in Cedarville and we ate at the small diners. I was stationed at Wright Patterson AFB and decided to come back to the area after retirement. Corona virus doesn't seem to be slowing anybody down around here. However I do see a lot of procedural changes at local stores. I'm glad you liked the article. The maximums VA loan amounts have been removed but the fees have increased. Still a good deal in my opinion to invest. Spread the word about VA loan opportunities! Take care and stay safe!
    Jonathan Sanchez
    Replied 5 months ago
    Hello! First awesome story and thank you for sharing. I am also a USAF vet and purchasing my first home to start the process like you. I understand to refinance to free your entitlement to purchase another home and so forth. I really hope to be successful and become fully retired before 40. I just turned 34 during the quarantine so that was fun lol. Again thanks for your story. Jonathan
    Darrell D. Rental Property Investor from Springfield, OH
    Replied 5 months ago
    Thank you Jonathan. When restoring the entitlement it is necessary to refinance or sell the first home. However it's not necessary to purchase again with the VA loan. I have three VA loans at the moment.
    Michael Sharp from Utah
    Replied 4 months ago
    I have a 4 Plex I'm disabled vet 90% and retired military. I'm confused. I was told you can only have one va loan at a time. The only way around that is to refinance to convential loan or sale. So, how do people have more than one va loan? I want more than one 4 Plex and trying figure my best next steps. Any help will be appreciated.
    Darrell D. Rental Property Investor from Springfield, OH
    Replied 4 months ago
    Hi Michael. I currently have three VA loans. However I acquired them when I was active duty. The VA allows another purchase if it's needed. For example, I purchased a small home with my VA loan. The I married and we wanted to be closer to work so my old house was no longer adequate for our growing family. So I purchased a duplex with a second VA loan and moved in. A month later I received orders and they allowed me to purchase again. So it's really based on necessity, not investment value. If you need an upgrade or can justify another purchase based on need, you can probably buy again.