Starting out with $30K to invest

[Anthony Stahurski]

If you were starting out today with $30K, you have access to the VA home loan and the FHA Loan. How would you maximize returns and scale a real estate portfolio relatively quickly? What strategies, assest types, or creative approaches would you use to leverage both loans and capital for long-term growth?

For those with experience I like to hear your story and how you scaled your portfolio, what strategy worked best for you, and any important lessons learned in your journey in real estate investing. Thank you and much appreciated any advice given. 

[Jason Wray]

Anthony,

This is a very good question and there is multiple answers to this and each one can be as beneficial as the other. However, When you have access to a Military VA loan and you have not used your DD-214 and you have your full 100% entitlement, it's a No brainer. The best way to approach this would be to use your VA entitlement to buy a Multifamily 2-4 unit home.

Obviously the more units the merrier due to the logic of more doors more income for maximum long game and NOI. First you would buy a (4 unit) as an example one that needs a little TLC or could have a substantial increased ARV by doing some basic renovations/repairs. Then you live in it for 6 months and on the 6th month you apply for a VA to conventional refinance loan.

If you did your homework and the multifamily has been renovated it should have enough equity on the new ARV to refinance and convert to Fannie Mae or Freddie Mac and pull cash out. In some cases you can pull out enough cash to recoup the renovation funds and profit enough to use as a downpayment or more renovation funds on the next REI. If the equity or new ARV is not enough to pull cash out you can still go up to a 90% LTV and convert from VA to Fannie Mae investment program (Under a portfolio program) rate and term.

You can continue to use your VA after this transaction and have the full 100% entitlement so that you do not need to put any money down. This can be done several times but you do need to have the right team meaning seasoned Real estate agent, Seasoned Banker or Loan officer. This is where the agent can help identify the homes preferably 2-4 units and an idea of both common rents, Future ARV, and Max rents based on renovations/repairs.

As a Banker it's what we do on our side to map out the financing, future ARV to run the proposed refinance and to review ARV/LTV and rents to qualify even if you have to use DSCR as an example as a worse case back up. The main goal is making sure cash flow goals are met and also for the DSCR or typical DTI ratios in advance and that's fairly easy.

The good thing about sticking to 2-4 units other than more passive income due to more doors is being able to qualify for a more expensive home since you can use 75% of the other doors income to qualify which gets added to your current income!

FHA is great but it carries the MIP and UFMIP the MIP is for the life of the loan or until you refinance and VA does not have any PMI/MIP. Which is the monthly mortgage insurance that gets added to the payment, which does not benefit the owner it benefits the bank and also reduces cash flow. FHA also has the UFMIP which is painful since its 1.75% of the loan amount financed into the loan increasing the loan amount.

If you ever hit a point where you maximize your VA entitlement due to having (2) or more VA loans and cannot refinance. At that point you would switch to FHA and buy a primary going that route. So it's good to have it as a backup but VA Trumps FHA in most cases just do to the Zero down payment and No MIP/PMI.

VA and FHA also offer construction from the ground up which also covers the cost of the land/lot. They also offer renovation loans to renovate, add rooms or sqft, convert garage to bedroom, New roof, pools, etc. FHA offers the 203K and VA offers simple renovation but VA will offer 100% construction including cost or land/lot and FHA requires 3.5%.

If you ever have any questions feel free to reach out I have over 20 years' experience in both FHA & VA plus enjoy helping BP members and Veteran avoid lost time and money!