Ready to purchase first investment property, but not sure which

[Alex Maksimiak]

Hey all, my name is Alex and I am new to this forum.

I have wanted to do real estate investing for a while now and just got pre-approved from the bank for $225,000.

I am currently Active Duty in the U.S. Navy at Naval Station Norfolk so I can utilize my VA Loan with 0 money down. The only catch is that I must live in the property for 1 year.

I was trying to look for duplex/tri-plex's but good ones are hard to come around, and the ones that I am finding tend to be in bad/sketchy neighborhoods with low rents. What I was just thinking to do was buy a SFH, 0 money down

live in 1 room and rent out the rest of the rooms. When looking for a home, should I look for a ran down type of home and take a rehab loan to force equity, or should I just buy one already turnkey and start renting the rooms out to people while making positive cash flow?

Thanks. 

[Hamp Lee III]

I would tell you to do what your budget can handle and not take on additional loans. I would purchase a newer house in a good “military area” with less maintenance and that cashflows without renting the rooms. You want to make sure the home can cashflow as a long-term rental if all other options fail. Check how well homes are appreciating in your desired area as well. 

I'm active duty Air Force and have VA loan homes that are amazing with cashflow, but not appreciation. I'm good with that right now, but you'll need to know your exit strategy on how you will use the property in the future.

You don't have to be a big risk taker starting out. You have time. Plus, with what you'll have left with your VA loan, you can purchase additional homes.

Some might disagree, but I want to share my “dollar and change.”

Welcome to the world of real estate investing!

[Mark Small]

Hey Alex,

I am also new to this Forum and lack any real experience... but it is my understanding that you cannot do any substantial rehab work (forcing equity) when using a VA loan.

If you or anyone else can confirm or correct me on this I would appreciate it!

[Darius Wade]

Having a VA loan will be a big win but as Hamp mentioned you want to know your exit strategy so if the current Multi Family market is not good SFH's are always a quality option and understanding the areas and the appreciating neighborhoods you can put yourself in a quality position.

In terms of quality of the house definitely play it a bit safe to start especially since you will need to live in the property. So, either an already done home that will rent well or a home with some small cosmetic work giving a bump to the value but won't require a second loan or a long and heavy rehab.

[Meghan Freckleton-Hopkins]

@Alex Maksimiak Hey! Welcome to BP. My husband is Active Duty Navy over on the Truman at Norfolk. We also utilized the VA loan and we started with SFH. With VA loan it cant have major renovations, but cosmetic is fine. We are looking to sell one of our single familys and 1031 it into a multi, but like you said they can be hard to make the numbers work here. Let me know if you need any help looking for properties or if you want to connect. Its always great to find like minded people in the area.

[Joel Allen]

@Mark Small, you're on target that standard VA home loans are intended to put military members and veterans into move-in ready homes that don't require significant repairs.

There is a separate loan product called the VA Renovation loan, which essentially packages a home purchase loan and a home improvement loan into a single product. This allow veterans to purchase a home in need of renovation/repairs and fund those renos/repairs as part of the mortgage.

The general eligibility criteria for a VA Renovation Loan mirror the standard VA loan, but it does require extra steps because it involves quotes and work from a contractor registered with the VA.

[Mark Small]

@Joel Allen Thanks for the clarity on that! I was unaware that was an option.
I need to start asking more questions on this platform!

[Nathan Gesner]

Quote from @Alex Maksimiak:

Welcome to the BiggerPockets forums! I retired in 2008 and wish I had known about real estate investing while I was in. Oh, the money I could have made!

There's no right answer. Multi-family is hard to find because so many investors have jumped in the past few years. You may want to start with a single-family in a nice community that you know will rent well to other military families. you can still get a roommate or two and create some cashflow to save up for the next purchase.

[Austin Mitchell]

Hey Alex! I am working with a client/friend right now doing the same exact thing. You are correct with the prices of duplexes and triplexes. We have evaluated all of the properties locally that were worth looking into with the VA loan and this week we are changing tactics to finding a 3 bed/2 bath and renting out each room at $600. This combined with BAH will create great cash flow and we can get a price he can still afford the mortgage if it was vacant.

If you want to talk further, I’m happy to help!

Thank you, @Meghan Freckleton-Hopkins for recommending the meet up! 

[Jared Hottle]

I think living in it and renting out rooms or the house hack is the best way to start. I would either look for something turnkey or one that needs minimal work like paint and flooring, updating light fixtures and small things like that. I think if you go for a full gut rehab, especially with the rehab loan it can take a long time before it is rentable and if you are wanting to buy and be looking it could make it hard.

[Roberto Sembiante]

I have some insight that could help you out. Shoot me a message when you can

[Eliott Elias]

Buy a fourplex and live in it for a year. Best way to use VA loan

[Michael Vittorio]

Alex,

Welcome to the forums!

I invested in the Hampton Roads area a couple years ago. I bought a duplex that is cash-flowing decently now but it took me more than a year to find. It also took a lot of personal work (sweat equity) to make into a presentable rental. The market has been competitive for MFH. It was a grind but as Hamp said, you need to have an exit strategy. If you get into a SFH and the only way it works out is to rent rooms individually then you will find yourself having issues when it comes time to move out. Being active duty Navy you will more than likely need to move at some point in the next couple years.

When I ran the analysis on the properties I was looking at I made sure to include CAPEX and property management, even though I planned on managing the property myself. This was so I would be able to move out of the house and not be cash-flowing negatively.

With all that being said, the SFH room-rental scheme can work for certain circumstances. I had a friend who bought a 6 bedroom house on a lake for ~$400k and rented each room for $700+. That worked out nicely for him but it was a lot of work too. It comes down to what your goal is and making sure you know how you get out. You make your money when you buy not when you sell.

If you want to talk more send me a PM!

[Drew Sygit]

You will be limited on condition due to VA appraisal/inspection requirements.

If you are serious about buying a fixer-upper, look into an FHA 203(k) loan which allows repair costs to be rolled into purchase loan. Only need 3.5% into the total amount.

If you have to go VA, look for fixedr-upper that is habitable and only needs cosmetic repairs.

[Ramandeep Sidhu]

Alex, welcome to the BiggerPockets community! It sounds like you are considering purchasing your first investment property and are weighing the pros and cons of buying a single family home (SFH) to house hack versus a duplex/triplex or rehabbing a property.

There are a few factors to consider when making this decision. One thing to consider is the local real estate market and what types of properties are available in your price range. In a strong market with high demand for rentals, it may be easier to find a turnkey SFH to rent out the extra rooms and generate positive cash flow. On the other hand, if the market is more competitive or if you are looking for a more hands-on investment, a duplex/triplex or a rehab project may be worth considering.

Another thing to consider is your personal preferences and goals for your investment. If you are looking for a more passive investment, a turnkey SFH may be a good option, as it will require less time and effort to manage. On the other hand, if you are interested in a more hands-on investment and have the time and expertise to manage a rehab project or a multi-unit property, those options may be worth considering.

It's also important to carefully review the terms of your VA loan and understand any requirements or restrictions that may apply to your investment. For example, if you are required to live in the property for a year before renting it out, that may impact your decision on what type of property to purchase.

Ultimately, the decision on which property to purchase will depend on your individual circumstances and goals for your investment. I hope this helps, and I wish you the best of luck with your real estate journey!

[Jacob Sloop]

@Alex Maksimiak

Hey alex, I messaged you.  Id be glad to help you out, I've been in the area 37 years ;)