New to BP and looking to House Hack with a VA loan

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New to BP and looking to House Hack with a VA loan

Dylan Campo
Earth · Member since 2019 · 3 posts · 1 vote

Hello BP,

A few months ago, my wife and I bought a single family home in San Diego using a VA loan. After discovering BP, I'm hooked on the idea of house hacking and want to rent out my current property and purchase a multi family. Unfortunately I run into some challenges doing so with the VA loan right off the bat.

With the VA loan, it has to be my primary residence so I'd have to refinance my current VA loan into a conventional in order to obtain full eligibility to be able to get another residence in the SoCal market. That being said, I do not have 20% equity in the home so we would get hit with adtl. expenses like PMI (and higher rates I'd assume?) when we refinance.

I'm trying to find a solution where I can keep my current property and rent it out while obtaining a multi family with a VA loan. The only answer I see is to make improvements on my current home to increase the value and sell it off to gain my full VA eligibility back.

Is there a better solution? Is there something I'm not seeing here?

Thanks!

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  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y

    Less than 20% will require PMI but if you refinance it while owner occupied, I do not know if you will get higher rates assuming you can find a refinance loan at higher than 80% LTV (that could be challenging to find at best rates).

    I suspect your unit is likely not to be bad enough to achieve a good return on a rehab value add.  We look for thrashed places with prices that reflect they are thrashed.  These provide the best return on the value add.  A place that has a nice but very outdated kitchen for example does not present enough upside.  I want to see broken doors or missing drawers, a floor that is disgusting, walls with a few holes, maybe a broken window or two.  With a thrashed property, we hope to get at least 100% return on the rehab expenditure.  For example, if we spend $30K on the rehab, we want at least $60K of value increase.  We have always achieved this because we do not do value adds unless there is quite a bit of upside.

    In San Diego, both your existing place and new multiplex will be cash flow negative (assuming purchased at retail). This is especially true for high LTV purchases (higher than 80% LTV, I consider high). Could you handle that many units of negative cash flow? Have you used an RE calculator to estimate the negative cash flow if you rent out your current SFR? I would start there and suspect once you see the number you may decide you really do not want to keep the SFR as a rental.

    My recommendation is you start with a single duplex to quad and sell the SFR. It would provide you the financial means to get started in buy n hold rental. It would limit your negative cash flow to a single property. It would allow you to learn about PM, buy n hold, tenants, etc. Mostly it would provide you a lot of education that could be leveraged for subsequent purchases.

    Good luck

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