Mortgages & Creative Financing

3 Strategies We Used to Live-In Flip Our Way to Success with the VA Loan

2 Articles Written

I still hear it all the time: "I'd love to invest in real estate, but I don't have any money!" While the first part of this statement is undoubtedly true (who wouldn’t want to enjoy the awesome benefits of real estate investing?), the last part about not having the needed money is only partially true for some. If you are active duty military or a veteran, you have a huge advantage over everyone else in the world when it comes to investing.

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What is it? You may not have money now, but you have access to money through the power of the VA loan!

Let's explore this concept of growing some working capital by diving into my personal journey after leaving the Armed Forces. It goes a little further than simply taking advantage of my VA loan eligibility.

Disclaimer: there is no need for me to give specific numbers from my experiences. The numbers are irrelevant, as I too started with ZERO dollars out-of-pocket. You can do this same thing in your local market, but you will also need to be agile, flexible, and adaptable during this process. It’s not easy, but it can be simple. I hope this article at least helps you start thinking differently.

If you are single—too easy! Just commit to this process and you’re on your way. But you must be willing to take action! If you are married, make sure your spouse has the same military-specific real estate education (at the very least) and understands the strategy before you begin. If you are married with kids, this process is easiest to execute before they are of school age (or at least in the early years of elementary). As you read this, notice that each of the three strategies my family was able to implement are different. We had to use all our industry knowledge and take some educated risks to accomplish different exit strategies to achieve each desired result.

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

The Process and Results

In 2011, I left a career in 160th Special Operations Aviation Regiment and headed back to the San Francisco Bay Area to pursue a W-2 job near my wife’s family. It was a good job with a great company that paid just enough to get by in the crazy Silicon Valley.

After about a year or so of renting, when my wife was pregnant with our second son, we decided to start looking for a home to buy. Nesting had begun, or so we thought. Now, let me address this right off the bat: Was 2012 a good time to buy? It sure was. So, for those of you who read this and say, “Well, you caught the market at the right time!” Take a look at what’s ahead. A market disruption is coming again, inevitably, so spend the time NOW to prepare. Get educated and execute when the time is good for you. There is no crystal ball. But if you are reading this pre-2020, you are in an amazing position to capitalize on market fluctuations in the coming years. As I said, get prepared, be patient, then GET AFTER IT!

Here are the three strategies, in chronological order, that began our five-year journey live-in flipping our way to success with the VA loan. Pay attention from here!

House #1: Silicon Valley Suburb

House #1: Silicon Valley Suburb (Two-Year Hold, All Market Appreciation)

First, we ended up buying a 4-bed, 3-bath “duet,” which is really just an attached two-story home (kind of like a townhouse-duplex). It was a short-sale. The house was listed at a price we thought we could barely afford, almost the cheapest home on the market at the time. But we also knew the market was appreciating, and it was in a great neighborhood with good schools. For a kid from Iowa, who’d only used a VA loan to buy a $150,000 new-construction house Savannah, Georgia, to this point, I had major, major sticker shock!

Does lumber cost that much more in California? I digress. The cool part about this home was that it didn't need any work. It came with all the bells, whistles, and upgrades. And the last buyer fell through after months of negotiating with the owner and bank. So, we secured a VA loan and offered full asking price the same day we saw it. Now, here's where it gets good. Since there were almost no comps for a duet built in 2008, we ended up getting the home for what it appraised for—which was $50,000 less than the list price and our offer!

With House #1, we ended up using the two-year hold, full market appreciation strategy. This means, since we lived in it for at least two years, we would not have to pay any capital gains tax on net profits. Since this house needed no improvements, we relied on market appreciation alone as the vehicle for making a profit.

After two years, House #1 had appreciated 36 percent, which we then invested directly into House #2.

House #2: Beach House

House #2: Beach House (Less Than One-Year Hold, Forced Appreciation)

As we were in the process of selling the Silicon Valley Suburb house, we happened across an open house in a nearby little beach town on the North end of Monterey Bay. This house was two blocks from a local beach, so the location was great. It was a four-bed, two-bath house, and it was pretty outdated. But it had good bones, and we could see that if we were creative, it had potential to be a major win.

We ended up putting about $50,000 into a renovation (where I did a fair amount of work) that included removing one full bedroom. Why would anyone ever do that? We realized that the neighborhood was slowly starting to turn over into an area of out-of-town retirees who wanted their retirement dream home. The Beach House had a weird layout, so by removing a centrally-located bedroom (turning it into a 3/2) we gained six feet in the master bathroom and four feet to the main living/dining/kitchen area. Outside, I stained the concrete driveway myself, epoxied the garage floor and installed a really cool copper outdoor shower with beautiful tile work – made rinsing off after a day at the beach a breeze!

So, we owned House #2 for less than one year and capitalized on forced appreciation (the rehab) alone. The exit for this one was a little more complicated because since I owned it for less than 365 days, I was going to have to pay short-term capital gains tax. In California, that would have ended up being close to 34 percent of all net gains! Ultimately, I did get a letter from my W-2 employer requiring me to move over 70 miles away — thus, no capital gains tax needed to be paid. Had I needed to pay taxes, I would have, and it still would have been an amazing profit.

In only nine months, this property had appreciated 29 percent and at an even higher price-point than House #1. Ultimately, we got a full-price cash offer on the Beach House from a couple from San Diego, then took the proceeds and moved on to our next live-in flip project.

House #3: Good Schools Suburb

House #3: Good Schools Suburb (366-Day Hold, Both Forced & Market Appreciation)

Third time’s the charm, right? We sure hoped so. To be honest, every time we moved into any of these homes, we wanted them to be “the one” that we would stay in forever. Since I’m handy and always thinking about real estate, they all ended up as live-in flips. I couldn’t help it, and my wife is a saint!

This East Bay Suburb house was a four-bed, two-bath home with a pool. It backed up to a 40-mile-long bike trail, and it was a block from high-ranked and very desirable school. We ended up putting $30,000 into superficial upgrades (three new garage doors, all new pool equipment, stained concrete, crown molding), plus lots of sweat equity too. For this one, I started thinking, Why don’t I look into selling this one myself? So for $384, several hours of online training, and a trip to Oakland to take the state exam, I got my California Real Estate Salesperson license. After hosting two open houses in a weekend, I found an interested buyer who was not yet represented by an agent. He offered full price. My broker worked up the paperwork (I only had to pay .5 percent) and ended up saving $70,000 on commissions!

Related: VA Loan: The Real Estate Investor’s Guide to Eligibility & Funding

House #3 was sold in 366 days. Why 366? Coincidence? Nope. I knew that at 366 days I would only have to pay long-term capital gains (as opposed to the higher short-term capital gains). So by contractually delaying the closing until that day, I saved about another 15 percent on what otherwise would have been close to 34 percent tax. Once we closed, I had my CPA calculate what taxes I owed Uncle Sam, and I cut a check immediately. Through a combination of forced and market appreciation, House #3, at yet again a higher price point, had appreciated 10 percent in a year.

If you are going to try this strategy, you can reduce some risk by keeping in mind that all of these houses had one thing in common: a great location and/or some desirable feature(s). This always helps with appreciation and attractiveness to sellers and will make your journey a little easier if you keep that in mind.

What’s Next?

OK, working capital is built, now what? I plan to explain in future blog posts. I will remind you that I started with ZERO money at the beginning. I had a supportive family unit that was willing to move and really work for it with me. It was not easy, but I hope this testimony emphasizes to you that the VA loan is a gift — a gift that WE earned.

Have you used the VA loan? Do you have questions about using one?

Share your comments or questions below!

Eric Upchurch, a former Army Special Operations Aviation Crewmember, is the Investment Chief at Active Duty Passive Income. He has a passion for educating the military community on creating long te...
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    John T. Investor from Tamuning, Guam
    Replied about 2 years ago
    Nice article, Eric. Did the VA give you any issues with using your VA loan so frequently ( buy, sell, buy, sell) within a 3.5 – 4 year period? I’m currently in the process of using my VA loan (first time) to purchase a 4 plex and live in a unit. Anything to look out for? Thanks.
    Jodie Cordell
    Replied about 2 years ago
    Hey John T. I believe that the difference is you must LIVE in your home when you use the VA loan. You have to have intent to live in the home and usually be in it for at least 12 months. You can only have 2 VA loans in play at the same time, but it’s definitely not an issue as long as you’re not committing fraud. With each home, he INTENDED it to be the “forever” home, but his circumstances changed with each move. Purchasing a 4-plex is a great way to add additional income from your property while acquiring a residence. Nice! Good luck to you!
    Eric Upchurch Rental Property Investor from CA
    Replied about 2 years ago
    You need to have the intent to live in the home for at least a year. It should also be noted that I opted not to use the VA loan on the second one (1. I now had the down payment and 2. CA is so tight that a VA loan can look like a negative because of Section 1 inspections and really ANY contingency is frowned upon). My recommendation is to BUY THAT 4PLEX! You should also be able to wrap closing costs and the VA funding fee into the loan – just make sure the numbers look good still. Note: if you get a disability rating later in life, you should be able to recoup the funding fee! Once you buy it, live in one side for free, but TAKE THE CASH FLOW AND PUT IT TOWARDS THE PRINCIPAL. You need to throw everything you’ve got at the principal before you PCS so you are at 80% LTV. Then you can refinance the 4 plex into a conventional loan, move to your next station and REPEAT with a new VA loan.
    Adam Widder Rental Property Investor from Minneapolis, MN
    Replied about 2 years ago
    Great article Eric, Mindy Jensen does this as well just without the VA Loan. My wife and I are starting this as well shortly, looking at a promising property today! I can appreciate how you previced your gains with the market appreciation but also, you put work in man! way to do some digging to find what you need to execute the reno. This builds confidence in me as thie house we’re looking at most likely needs a bathroom and other major rehab, but the bones are good. Where did you find information on moving walls, bathrooms and other renovations to do it by code? Youtube? That’s my only guess but I don’t want to be burned by doing something not by the book for code purposes.
    Eric Upchurch Rental Property Investor from CA
    Replied about 2 years ago
    Funny you ask Adam. I actually took some of the proceeds from House #1 and attended a REALLY expensive “guru” flipping seminar (ahem)…but the best thing I got from it was NETWORKING! I started a great relationship with a custom home builder! He did it all by code with permits and everything. I spent 6 week with his labor crew (to reduce labor costs) banging it out while my wife and kids stayed 45 minutes away with family. As I stated in the article, you have to be smart, agile and willing to do what nobody else will. It was a crazy ride – and not easy – but day by day it was manageable. And I was EAGER to see the next check come in each time. Keep at it! But another part is getting your spouse EDUCATED also so you are on the same page.
    Sai Kopacek Real Estate Agent from Martinez, CA
    Replied about 2 years ago
    Awesome job!! So happy for you and your family, and can’t wait to hear what you are doing right now in this market. I did the exact same thing as you but with Conventional Financing (anywhere from 5-15% down). I will be selling a loft in West Oakland later next year, and then holding the profits to see what the market does.
    Sai Kopacek Real Estate Agent from Martinez, CA
    Replied about 2 years ago
    Awesome job!! So happy for you and your family, and can’t wait to hear what you are doing right now in this market. I did the exact same thing as you but with Conventional Financing (anywhere from 5-15% down). I will be selling a loft in West Oakland later next year, and then holding the profits to see what the market does.
    Eric Upchurch Rental Property Investor from CA
    Replied about 2 years ago
    Sai, congrats for DOING IT! Getting after it! I sold the last house in Danville last year in hopes of “timing the market”. I’m writing another article for BP now talking about “next steps” once you cash out and have some working capital. We have invested in a BUNCH of strategies (tax liens, first trust deeds, private lending, syndications, turnkey, BRRRR, etc.) and now that we have the money, deciding what to do has been a looooong conversation in my house. Ultimately, we will do some active and some passive investing, but I think leverage is key. I am currently BRRRRing a single family remotely with a partner, I have turnkey’s also, and I’m looking to buy my first multifamily with some of my Teammates at Active Duty Passive Income. I’ll keep you posted! Thanks for sharing!
    Greg Shpunder Investor from La Fargeville, New York
    Replied about 2 years ago
    Hey Eric! I have had a similar experience. I have been a warrant officer in the US Army for 8 years (16 in service). NSDQ. First off, I was able to do a no money down fixer up 4-plex. Luckily even though it was a fixer upper, just enough was done that it met the strict criteria that the VA applies. I think the biggest benefit of a VA loan is the PMI avoidance, other than that I think you can get a no money conventional? I lived in the front unit for over 2 years and fixed all the apartments mostly myself. I bought a foreclosure up the road for 36K fixed it for very very little and HELOCed that one for 80K used that to purchase another foreclosed 4plex and 11more apartments (preforclosure off the market and approached the bank directly) and recently have 26 under contract. It has all been pretty creative financing and a lot of leave time (all of it) spent renovating. This has all been in preparation for an early retirement and moving on to other things. The up front sacrifice has been large but I think 50 units will treat me well and easily surpass my W2 income within the next few years. Although flying is exciting I am equally excited about the possibilities and success that can be found in multifamily real estate, love my second job.
    Eric Upchurch Rental Property Investor from CA
    Replied about 2 years ago
    Greg! My kind of guy! Learned what to do, what you like and are good at – and now you’re killing it. 50 units is amazing. If you can, try to go to a Rod Khleif multifamily event before you get out. I just went to the one in Los Angeles in April and I’m going AGAIN in a few weeks to Chicago. The education part for three days is great, but the networking alone was worth the $197!! Feel free to join our FB group. Lot’s going on. Our CEO is a Marine Aviator! NSDQ. Above the Best!
    Trevor Soderholm from Richmond, Virginia
    Replied about 2 years ago
    Hey Eric, great post! I recently used my VA eligibility for the first time on a live-in 4/2.5 that was a turnkey suburban split-level. I wanted something move-in ready that I could essentially just fill with roommates until I’m ready to move to a duplex/quad. It should bring in about $500 more than PITI once I move out and rent it in full. The plan is to hold the first one and use my eligibility again for the next one, and then hold that one as well. My question is what is your advice once I’ve used VA twice and still don’t have any capital for a conventional? Will I likely need hard money for house #3? RLTW!!!
    Eric Upchurch Rental Property Investor from CA
    Replied over 1 year ago
    Trevor, you should check out our book (published after this article) called “Military House Hacking”. I would recommend holding them all. You just use the cashflow (and BAH if you are still getting it) to pay down the principal. Then, when you move in a couple years, refinancing to a conventional loan. Then keep repeating. If I could go back, knowing what I know now, I would be Military Hacking 4-plexes all day! Free apartments! Ha! You have the right idea. Love to connect to chat more.
    Marioly Toles
    Replied about 2 years ago
    Wow, great post! This was the inspiration I needed because I’m on a very similar path. I’m in a Comm unit in the PA Air Guard, and I’m in the process of using a second VA loan to get a duplex. I lived in the first one for a little over a year before I rented it out. I’m now looking to close on a 2+2 duplex with the unit downstairs already with long term tenants. It’s rented but for below current, and already covers over half the mortgage though, so I’m pretty happy about that. I’d be occupying the top two floors for less than my current rent, but I’ll charge myself current rate so I can put more aside for cap ex, and NOW towards the principal – thanks for that idea, I hadn’t thought of that. I’m hoping it will be my “forever for a while” home, but in the meantime I’m thinking of turning my first VA into a conventional so I can make use of some equity on hopefully a fourplex. Do you have any suggestions on how to approach this kind of conversion? Like timing or rules to be aware of? Did you run into any particular headaches? Thanks.
    Hugo Diaz
    Replied about 2 months ago
    Hey Eric. Great article! I am currently separated from active duty and was curious if I could give you a call Or email you sometime soon just for some help on how to go about a similar strategy you used. Hope to hear from you soon !