First duplex VA Loan

[Scott Grover]

Buying our first rental property is becoming a real possibility using a VA Loan. Looking at duplexes in the $320-400k range in south King county and Pierce County WA. As a VA loan I understand it needs to be retail price and good condition (no foreclosures refi's etc). Ex: I felt OK with a $1900 mortgage and $1250/month of income while we live in the other side, for about a 6.5% cap rate (though I wish we would have started a few years ago when a 10% cap rate was more likely).

But yesterday I listened to the latest podcast with Ben Leybovich, Brian Burke, and Serge Shukhat and one of things they all agreed on was that investors should by property below it's intrinsic value. This gave me pause. I recall the phrase that "a lot of investors were over leveraged" which could include people who bought homes with 6-7% cap rates with a no money down VA Loan. I'm thinking that if rents and prices fall, we'll still be better off than if we'd bought a SFR that didn't generate any income.

I'm definitely not afraid of risk, but I also don't want to charge ahead blindly into a pit either.  Is this a fair risk?  Please discuss.

[Max T.]

I think the takeaway from that part of the podcast was a warning not to buy a deal based on future rent increases. If numbers work based on current rents then go for it. Rents won't always go up, but they seldom go down. Even in times of economic hardship rents stay strong. Think about when home values fall: people may lose their homes to foreclosure but that just means more demand for rentals.