Am I nuts? (Driving for dollars with VA loan)

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Am I nuts? (Driving for dollars with VA loan)

Kevin M.
Specialist · Missoula, MT · Member since 2016 · 73 posts · 44 votes

Hello BP,

I don't post often because I feel almost every question on here has been answered in some form or another somewhere else. I scanned on this one and couldn't find anything.

OK, first time home buyer (noob for short) 

My question is; Am I nuts if I 'Drive for Dollars' and want to make a purchase with the VA loan?

I am looking for a duplex as it seems that is all I can afford and possibly be in VA condition to get the loan. My philosophy behind this is: Find a duplex with a vacancy and try contacting the owner using this posts techniques https://www.biggerpockets.com/renewsblog/2013/05/0...

But in that post he has the magic words everyone wants to hear = CA$H

And well I can go FHA, FHA203K, and even conventional. I don't want to put down nothin' if I can help it.

It would just cut into my back up.

Any advice?

One last thing is if I do this is there a way to get around using a RE agent? Can't I do this all myself with Me, an Inspector, The Owner, The Lender and the Lenders Lawyer? Can someone point to some good reading material?

Thank you all.

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Leland Barrow
Investor · San Marcos, TX · Member since 2015 · 272 posts · 360 votes
10y
Btw why mess with a duplex? I would get a fourplex. You will have to put very little money in the deal and you can be cash flow positive while living for free. You are short changing yourself two doors. If it is a seasoned rental then that may offset your DTI. Two years later you can FHA another and have 7 income doors on two loans. Find a seller that will work with you and you can have almost no money out of pocket. I purchased a property for 350k and paid 1500 out of pocket. The seller paid 14k of my closing costs and I used the VA process to have him do all kinds of repairs on his dime. Two months later the property is comping at 407k. It was the cheapest house in the neighborhood which supports 900k for a 5/4/3. It is a 4/3/1. So we are doing the adds. If you are going to use a VA loan go big and negotiate hard. The interest rate we got was 2.85. It is hard to get that amount of money cheaper than that. After the add we will sell, cash out and VA another property for either cash flow or equity. While 1038ing the profit from that into other properties. This way you are building assets like tree branches using OPM. When uncle sam is shoving "almost" free money at you, take it for as long as they are willing to do it. Especially when you have no skin in the game. Uncle Sam is always trying to get his, so turnaround is fair game lol.
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  • Chad W.
    Real Estate Broker · Raleigh, NC · Member since 2013 · 51 posts · 24 votes
    10y

    You can drive for dollars with a VA. I know it depends on lenders but it has taken more than 50 days for my most recent VA to close, this Thursday hopefully. That said depending on what kind of deal you are wanting to structure will help determine your options. Just make sure the property will pass the VA inspection, that can be a deal killer.

    I have made purchase both with and without an agent, my recommendation is if it is on the MLS use an agent the payment is already factored in, if it is a private deal make it happen yourself. That being said since this is your first time, find a mentor or use the attorney you choose as a sounding board for things to watch out for or do prior to closing, sometimes it is worth paying for good information it can be cheaper than learning the hard way.

    1Reply
  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    10y

    @Kevin M., you are not any crazier than the rest of us.  Try your method, you have nothing to lose.  If it doesn't work go to plan B.  Do what works for you.

    1Reply
  • Leland Barrow
    Investor · San Marcos, TX · Member since 2015 · 272 posts · 360 votes
    10y
    A VA home will have to pass lender qualifications for inspection. If you are looking for a house that has been vacant then you may have issues. If you are looking for a property in good condition then that would be ok. It would be a difficult process to find a home that needs TLC and use a VA loan. If you want to drive for dollars to find a fourplex that has a for rent sign in the window then that may be worth the effort. You can call up the landlord and see if he/she will sell.
    1Reply
  • Leland Barrow
    Investor · San Marcos, TX · Member since 2015 · 272 posts · 360 votes
    10y
    Btw why mess with a duplex? I would get a fourplex. You will have to put very little money in the deal and you can be cash flow positive while living for free. You are short changing yourself two doors. If it is a seasoned rental then that may offset your DTI. Two years later you can FHA another and have 7 income doors on two loans. Find a seller that will work with you and you can have almost no money out of pocket. I purchased a property for 350k and paid 1500 out of pocket. The seller paid 14k of my closing costs and I used the VA process to have him do all kinds of repairs on his dime. Two months later the property is comping at 407k. It was the cheapest house in the neighborhood which supports 900k for a 5/4/3. It is a 4/3/1. So we are doing the adds. If you are going to use a VA loan go big and negotiate hard. The interest rate we got was 2.85. It is hard to get that amount of money cheaper than that. After the add we will sell, cash out and VA another property for either cash flow or equity. While 1038ing the profit from that into other properties. This way you are building assets like tree branches using OPM. When uncle sam is shoving "almost" free money at you, take it for as long as they are willing to do it. Especially when you have no skin in the game. Uncle Sam is always trying to get his, so turnaround is fair game lol.
    2Reply
  • Kevin M.
    OP
    Specialist · Missoula, MT · Member since 2016 · 73 posts · 44 votes
    10y

    @Chad W. So it isn't a complete waste of time. It's doable. And I should get my own lawyer in addition to the lenders lawyer. Thank you for the feedback.

    @Jerry W. (my browser is busted) anyway, Well it's good to know the big leagues do it. Yea I have nothing to loose. Until something shows on the MLS.

    @Leland Barrow well my DTI only allows me 250k and duplexes around here close to the city (20 miles) run from $210k+ for OK condition maybe passing VA inspection. I saw a fourplex for $250 but with the mold damage and only 2 usable doors and my lack of connections I had to pass. I might try finding someplace else further away to grab a fourplex. But this close to the ocean I highly doubt it.

    I found plenty of houses (SFH) with no appliances for cheap but VA doesn't like any of that. LOL

    If the driving for dollars caught someones attention I was going to pay for the closing costs and buy it AS-IS? Just so to keep their attention, keep them motivated. Thank you for replying.

    Leland Barrow

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  • Bryan O.
    Specialist · Lakewood, CO · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    @Kevin M. check with a few lenders to see if the VA loan will allow you to use rent as income. I believe you should be able to use 75% of the lease value to show income. That may bump you to a 4-plex, or at very lease a nicer condition duplex.

    Best of luck.

    1Reply
  • Eric Dufault
    Real Estate Agent · Centerville, MA · Member since 2014 · 60 posts · 18 votes
    10y

    1.  Go to town websites to get lists of every address that is zoned for a multi family.

    2. Put this information into a spreadsheet.

    3.  Narrow down the properties to those you can afford off their assessed value(loosely)

    4.  Find the owner's permanent address, phone number, and any other relevant info.

    5.  Call them, write them, FB message them, etc. and explain your situation.

    6.  Save money driving around when you can use the internet.

    1Reply
  • Kevin M.
    OP
    Specialist · Missoula, MT · Member since 2016 · 73 posts · 44 votes
    10y

    @Eric Dufault Thanks Eric I started the spreadsheet and looked on some town tax assessor pages to get some owner info. I have sent out 3 letters so far but that was only because I had a title hook up. Is there another place to get accurate title info without a title hookup? I found an address on a tax assessor site but it was completely wrong compared to the actual title address.

    @Bryan O. I asked 3 of my 4 lenders. I might have to keep asking and find new lenders because they all told me no without one year of landlord experience. The one I didn't ask won't finance any more than a duplex and I am reaching for the stars here. (4)

    Thanks guys for the replies... great info

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  • Jill DeWitPro Member
    Investor · Scottsdale AZ · Member since 2015 · 1k+ posts · 423 votes
    10y

    @Kevin M.

    Kevin, you are on the right path as far as wanting to find sellers FIRST. We all want to get there first. But driving for dollars is not the way. 

    Here's why - you can spend hours/days/weeks of your time searching for what might be potential properties to acquire. 

    OR  - 

    You can spend a few hours on a Sunday afternoon and send letters/offers to the specific sellers in the area you are targeting. I mean selecting the exact criteria for those sellers. Like: no mortgage, X sq ft, X units, X assessed value... to name a few.  

    Then you sit back and let the truly motivated sellers call you. And finally, you review those potential acquisitions and acquire a property.

    And yes, you can do this yourself.

    Hope that helps! Jill

    1Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    10y

    You need to have an FHA or conventional 'back up plan' if it turns out the killer deal property you identify isn't in good enough condition for VA.

    VA loans have the lowest credit/income/asset standards of all types of traditional mortgage financing paired with the best APR available (this is the only time you will read me talk about APR instead of note rate :P ) holding constant credit/income/assets, but the highest property standards.

    Get your lender to see what she or he can qualify you for using FHA and conventional financing, just so you know what your 'back up plan' options are.

    For example, maybe you can go up to $250k using VA, but only $225k using FHA and $200 using conventional (made up, non-representative numbers to convey the concept). Based on that, maybe you only look at really crummy properties that will go for $200k or less, and only entertain $250k properties that are turnkey or near-turnkey.

    Then suppose you find your "kind of crummy but maybe it'll go VA" $195k property. OK, try it VA. If it'll go VA, great! If it won't go VA, switch it up to FHA or conventional.

    Basically what we are doing here is avoiding "putting the financing before the property." You gotta put the property first. A super killer deal on a property is a super killer deal, almost regardless of financing. That's why cap rate doesn't include anything pertaining to financing in the calculation. Financing can change a "super duper double plus awesome" killer deal into just a "super duper awesome" killer deal, but type of financing isn't going to cause the house to burn down or anything. 

    1Reply
  • Eric Dufault
    Real Estate Agent · Centerville, MA · Member since 2014 · 60 posts · 18 votes
    10y

    @Kevin M. normally the town website has the owner's address of record, you can google people's name with the town where the property is and get some clues that way, facebook stalk them and ask them if they do own a property, linkedin sometimes can get you there.  You might also want to look through current advertisements for rentals and ask the landlord if they are interested in selling.

    1Reply
  • Paul Timmins
    Specialist · Rockland, MA · Member since 2010 · 7k+ posts · 2k+ votes
    10y

    @Eric Dufault

    My BP PM does not work you need to EMAIL me directly.

    Paul

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