Alright BP, I have been developing a plan for almost a year now for my start in real estate investing. I am very excited to share this plan with all of you, expecially those wanting to use verterans benefits to their advantage, and FHA might have some similiar characteristics to this as well.
A little background story:
I am currently serving in the United States Navy, as a Quartermaster, as well as a Search and Rescue Swimmer. I am exiting my military service in August of 2015, but will be going on my terminal leave much earlier, perhaps June of 2015. I will be starting college in the fall semester of 2015 at the University of Houston using my post 9/11 GI BIll, and intend to purchase an invesment property in Houston. I could have selected many places other than Houston, but my reasoning for selecting Houston is mainly due to the fact that the housing there is relatively cheap, but still good quality, and yet high allowance rates for living from the GI Bill program.
For those of you who do not know exactly how the GI Bill program works, It basically gives you an allowance for books once a year, pays tuition up to a certain amount of cost per credit hour (UH is a Yellow Ribbon school, which more or less means I will pay virtually no tuition through my GI Bill.), and also will give a prospective student a Basic Allowance of Housing (BAH) to be able to assist the student in their college endeavors. The BAH Rate in Houston is currently $1700 a month.
I am going to use my VA loan benefit to purchase an investment property, hopefully with 4 units (loan is for residential, so max is 4 units to qualify) with no money down, and ammortize any of my closing costs into the loan as well. This will allows for a smooth and non-financially burdening with up front cash transition from the military, and allow me to acquire an investment property with little upfront invesment.
I am going to live in one of the units and attend school in Houston. I will be renting the other 3 units out. I have done some work on market analysis of Houston and rental rates, and more importantly the gross rent multiplier of the properties that I will be looking into purchasing. I am aiming for the western side of the city, remaining closer to the south-western side of the city so that I am not too far of drive to the college, which is located downtown. That is where I will begin search first. Living in one of the units and renting the other 3 out, I am projecting to come close to breaking even on cash flow, but erring on the side of having about 200-300 in expenses every month. However, remember my BAH benefit from the Gi Bill? It will allow my to capture the full benefits of 1700 dollars every month for my own living costs.
I am a certified Personal Fitness Trainer through the ISSA, so more than likely I will be working as a Personal Trainer while living in Houston, but I have many different avenues that I can take, and I am also looking into working with a Property Management Company for the experience of property management. I have a certificate in professional property management from Allied business Schools. As a part time personal trainer, I will make making approx. 18-24 Dollars per hour, and earning a monthly stipend of around 1500-1600 per month. I am also intending to file a FAFSA for Pell grant Benefits, which cap out at 2500 dollars per semester, and whatever scholarships that I can get. These are great, because since my tuition is payed in full by the GI Bill, that money will go to the school, and then get kicked back to me in cash. So My first semester will start off with a 3500 kicker (2500 for Pell and 1000 for "book" expenses from the VA) and my second semester will start off with a 2500 dollar kicker. My project income from all of these sources of income will be approximately 3500-4000 per month. Not bad for a college goer who isnt paying rent.
I more specifically intend to purchase using a VA EEM mortgage, which allows a payment of 6000 to be taken out of the loan for energy efficient modifcations to the home. I am going to get a LEED certified energy audit on the units to determine what is the best avenue to approach in spending that 6000 dollars the most efficiently for modifying the property for the most value improvement reduction of operating costs in the building itself. I may invest some of my personal capital alongside with that 6000 original, however, it is not necessarily my goal to expend all of my working capital (will be between 8-10,000) on the property right away. These improvements will make the home operate for much cheaper, as well as increase my equity right off of the git-go, which i will need soon down the road.
I am going to more than likely going to manage the property myself when I first get it, using Buildium as my management software, on a desktop computer with an external harddrive backup, as well as an online backup. I have almost a complete set of legally reviewed documents ready to go with the exception of my lease.
After a year or two of owning the property, I would like to refinance with a VA IRRRL. This refinancing will allow me to reduce my interest rate, relinquish my occupancy requirement for having to live in the building, freeing up another unit for rentals, and recognize my equity build-up in conjunction with a new appraisal. After that I intend to use a home equity line of credit/ loan to power play for a down payment on another residential building, with as many units as I may be able to afford (I am thinking around 4-5, but may look into condos/ other investments as well.)
After about 4-5 years of living and investing in Houston, I am wishing to build up enough capital in equity/cash to be able to afford financing on a commercial apartment complex, or possibly condominiums.
I have started searching for my business team in the Houston area, and I would love to get some refferals, as well as some good neighborhood suggestions for looking for investment properties.I haven't found too much yet, but I will get there. I am very excited to start this adventure. I intend on visiting their around this December/early January time frame, and would love to meet up with some investors in the area, or some possible business teammates, to include contractors, realtors, attorneys, accountants, LEED certified Auditors, Lawnkeepers, and the like to start solidifying a relationship between us!
I ask the biggerpockets community to review my plan for errors or suggestions to help guide me. Your feeback is invaluable to me and is appreciated beyond all measure.
Sounds like a solid plan. The principle of using a $0 down VA loan is a sound leveraged investment. Using the VA loan to purchase a 4-plex, live in one unit and rent out the other three, is the best leverage of a residential property. So far you are maximizing your leverage and minimizing your vacancy risk (better to have 3 tenants than only 1 tenant). As for the energy efficiency upgrades, I don't know enough to give you an opinion on that, but again, if you can use OPM (Other People's Money) to accomplish it, then that's always the better scenario.
The name of the game in investing is all about leverage and risk reduction. You want to leverage your time and money, while shifting as much risk away from you. This is true for any kind of investing, be it real estate, stocks, bonds, precious metals or businesses. It looks like you have a very solid plan.
God Bless You!
Thank you for the feedback! I like how simple you put the concept of leveraging time vs money, while shifting risk away. That makes me think in a new persepective.
A quick read article on VA Energy Efficient Mortgages (EEM) :
One of the problems I can hopefully avoid is that my buying period almost is a must from around february-june of 2015, which seems like plenty of time, but I don't know if something suitable will be on the market at the time. That is a big worry for me.
This time restriction is almost a must because It is much easier to secure financing while I am active duty and consistently getting a paycheck, rather than trying to pick up a solid job that I may have had for one month in the middle of transitioning out. It doesnt look too good to banks.
@Account Closed I don't know what a 4 unit cost in that area but your VA loan limit is $417000. you can buy more than one as your primary residence. I have seen several cases of people buying a house for $180,000 and living in it for a year and buying another house for $200,000. No re-financing required. Just some ideas, obviously your going to get a great rate as a primary residence, build your equity as you live in it and do upgrades and look at buying another one a year or so down the road. Talk to your lender about this option. Good luck and thanks for your service, I just retired this summer.
@Account Closed depending on you lender they should be able to count 75-80 percent of the rental income that the other three units are producing towards your income making it easier to qualify for a loan. Good luck, sounds like you have put a few night out to sea thinking about your future.
Brilliant plan! I work for the Veteran Affairs and have never heard a Veteran talk about using the VA loan this way! Settle for nothing less than a fourplex to maximize the benefit of 0% down. You are well on on your way to success with such a strategic plan ;)
With all the forethought you have put into this I have no doubt it will be successful. We have a VA on our primary and were unaware of the EEM mortgage -but that is a great tip to have learned while reading your post. Good luck to you!
Hi @Account Closed , one thing I would encourage to check carefully into is those grants and scholarships. In general, government scholarships are only allowed to pay for tuition and fees. I don't believe the university would be legally allowed to accept both GI Bill and a Pell Grant to pay for the same tuition and refund you the difference. Sometimes even private scholarships are this way....tuition and fees only. Check with the financial aid office; they'll be able to clarify that for you.
Schools dont care where the money is coming from. All they will see is that you've over paid for the month and refund you the money.
@Leigh Ann Smith I went to UH after I got out of the military and they let me use both Pell Grant money and G.I. Bill money. The extra came to me and I was able to use it as needed. @Account Closed great plan. It looks really solid and I have been looking to use my VA loan and I think I might have to copy your plan. Keep in touch man and thanks for your service!
@Lee Arnold , that's great! I hope it works that way for Blayne, too. Programs run by the government are not known for their efficiency anyway. :-)
That's very true... Lol.
@Account Closed , this is a great and thorough plan, and kudos to you for thinking long-term. I'm also military and just closed on my first home with a VA loan in Hawaii. We're already saving up and planning on our next purchase.
One thing I just have to add is you have many real-estate plans listed, as well as side jobs, but you only have so many hours in your day and days in your week. Don't forget to account for the hours you will need to spend on studying outside of your classes, depending on what your intended major is. Speaking from personal experience (BS, MS, MD...eternal learner, but done with adding letters after my name for now!), I took on more than I could chew during college (side jobs, clubs, varsity sport) and had to repeat some classes. It was a painful experience finding that balance and setting priorities, and my hope is that you don't waste your GI bill and grants because you neglected to take into account of how many hours outside of class your major takes (this definitely applies if you're planning on majors such as engineering). Maybe you're a prodigy who doesn't need to study at all, which in that case, congrats:)! Good luck!
@Account Closed the GI Bill is an awesome tool. I used it to get my degree and came back into the Military as an Officer. I am also Quartermaster Corps with the 82nd Airborne Division. Sounds like you have a good plan and have put much thought into it. Good luck, update us as you progress!
Thanks for all the kudos guys! I appreciate it a lot. I have been working on this plan for some time now, and I hope it all pans out for me. I have a lot of moving parts with this plan and my life in the next year, even aside from investing. And I do only have so many hours in the day. But as Henry Ford said, "It has been my observation that most people get ahead during the times that others waste" I take that to heart.
Got to the Pell Grant and didn't read on, just to post, you may not be qualifying for grants receiving GI benefits as they are income qualifying, there are hooks too if you obtain income later, nice idea to double dip but I doubt you'll go that route, with additional income, you can borrow however. At rates today, on the VA, that will be a good way to go.
Leaving out your maintenance and vacancy. BAH, by grade is for housing and I did the same thing on active duty and going back to school.
Scanned the rest of your plan, you're thinking!
Make your plan and work your plan, basically sounds good. Good luck
@Account Closed suggests - you are thinking, and that's huge! Houston - solid. Moving into 4-plex - Solid again. VA - great. College, work - I like all of it.
You aim high, with a lot of moving parts. You will more than likely fail in some areas, but more than likely achieve more than most...
Blayne Nation you sound like my twin, except I start terminal leave in December from the Marine Corps and start at University of Houston this spring semester. I would love to link up with you when you arrive! Hopefully I get a good fourplex before you show up ;)
Great plan, @Account Closed !
I'm a vet, too. I did 6 years in the Navy as a nuke submariner, and now I'm taking advantage of the Post 9/11 GI Bill like you will shortly :) A few things I'd like to point out (that caught me by surprise at first):
- The textbook stipend of $1000/year pays out based on your school's schedule. My college (California State University, Long Beach) operates on semesters, so I get $500 at the beginning of Fall and Spring semesters. Quarter- and trimester-based schools may do it differently. So, plan for that.
- This one's pretty crucial: BAH is only paid when you're in school. For months you start or complete a semester (or quarter, or trimester, or summer/winter session), the VA will prorate your BAH. Summers suck for me, since I usually finish Spring in very early June and don't start summer school until the last week of June or early July. So, again, plan for that.
- Finally, and this is just lending in general: Talk to a lender now about how you can get pre-approved for the VA loan before you dive into this (and, more specifically, before you separate from active duty). Thanks to the financial crash, there are a lot of hoops to jump through to get a loan approved. I'm an agent and a full-time student, but since I don't have two years of solid income history, I can't get approved for a loan right now (and especially not since Los Angeles is so expensive).
Oh! Thank you for pointing out the VA's IRRRL! I didn't know about it at all, and now I'll use that for when I eventually buy my own home.
We got into real esate investing my buy a personal with the VA loan fixing it up and renting it out when we were transferred (Active duty Navy). We also self manage and have made a cash flow. We have bought single family as they have the same or better returns in a much more "liquid"/"appreciating" currency. I actually create a blog/website all about my model and method. Pretty darn close to everything you are describing. We even use buildium. If you want to connect just let me know.
You guys are great! I appreciate all the support on this and it is great to see more veterans on here and doing similiar plans. Cameron I can't tag you because my cell phone won't allow me, but we will definitely link up and talk investing. I will be in houston around new years as well if you would like to get together then. I was also looking into buildium as far as management software, but I will figure that later on. I absolutely agree with Ben on the idea that I will fail in some areas, and I am expecting, planning, and mitigating that as much as possible, but there are way too many moving parts for everything to go right.
Good plan. My biggest regret before leaving active duty was not buying a piece of real estate. I agree with @Danny Simard that there are a few issues you may find with using the GI Bill. The biggest thing is to ensure you qualify for the loan as soon as possible, because lenders will not count the housing allowance as income. This is a situation I'm facing at the moment. Another point that someone mentioned was being able to use 75-80 % of the property's current rental income to count toward your DTI ratio. My understanding is that you may use 75% toward DTI, with the caveat that you have 2 years property management experience. I currently have a post here on BP asking if anyone knows what evidence a lender will require to qualify the property management experience. Just make sure you do your research, which it seems like you do. Good luck!
You don't really need two full years of employment. Especially if you're a student! Lender may take into consideration that when you're done with school your earning potential will be greater. Let me know if you need a pre-qual.
Alright. I was looking into taking unemployment through UCX for a maximum of 5 months through my transitioning into civilian. It is only an option to make sure I am financially secure with a job in the area if i havent already found one at the time. Will that effect my elligibility?
It's a great plan, but I'm still wondering how you Panhandle boys keep winding up in the Navy!?! ;-)
Seriously, thank you, sincerely, for your service. You'll do great!
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