Second investment: should I or shouldn't I

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Second investment: should I or shouldn't I

Johnathan Kwon
Member since 2021 · 6 posts · 1 vote

Hi everyone, 

I am strongly considering my second investment to be a VA loan for a multifamily home in or around Seattle. I've been approved for an 800K loan, which would put me at a 45% debt to income ratio. Zero down, so mortgage would range from 3500-4200/month on homes ranging from 650K to 800K. Rental comps vary but are relatively high given the location.

I am looking for a 3 to 4 plex that will pay for itself. I am not looking for an income generating property since I have to live in one unit. Minimal out of pocket costs for renovations or turnkey properties. Is this a rookie move? 

I am okay with paying the closing cost fees etc to get the property as well.

I am okay to pay up to 500/month on the property for additional fees: cap ex, management fees etc. My perspective is that paying 500$ a month for a 650K+ property is a decent investment; I pay close to 500$ a month in rent right now anyways. If I move to Seattle area, the previous rent would go away and id be paying directly into owning a property. 

Question I have for myself:

--Im strongly based about using this benefit and is it clouding my judgement. Is it causing me to fumble future profits because I want to use the loan and move to Washington? I want to use it because I want to reuse VA loan benefits for future homes as I move around.

--Using a VA backed loan to get a property that will essentially pay for itself... is this a newbie move or is it feasible and a logical investment?

--Will this hurt future loan applications cause it will pretty much max out my debt income ratio when applying for loans?

Are there any other questions I should be asking myself?

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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
Originally posted by @Johnathan Kwon:

Are there any other questions I should be asking myself?

This may just be me (but I doubt it).......Why do you want to start doing business in a state that is so tenant friendly and landlord unfriendly? We get people here on the forums, on an almost daily basis, that are getting screwed as landlords by owning in these states.

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    4y

    You're mentioning a lot of numbers to justify buying this property...none of which matter without the most important number of all.  What will the cash flow be after purchase?

    1Reply
  • Johnathan Kwon
    OP
    Member since 2021 · 6 posts · 1 vote
    4y

    Hey Joe, Thanks for the reply. The numbers are simply to give an idea. In summary, I am finding a property that will essentially generate no profits with the idea that in 30 years I will have property that mostly paid for itself. I calculate cash flow for each property I am looking into, but my question focuses on whether using VA benefits for a zero-down loan is a decent investment to consider.

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    4y

    It should pay for itself if you aren't living there and some may still cash flow if you are living there.  You should be saving on living expenses compared to where you are living now (assuming the living situation is the same and you are in the same area).  Buying with no money down will affect your payments and cash flow because you have a larger loan.  You need to run the numbers for the specific units and see what they look like with you living in one unit and you living elsewhere.

    There is nothing wrong with buying a place that does not need major renos.  Ask for closing costs in the offer, the worst they will say is no.  Then counter and ask for 50%.  With any offer remember to get security deposits, copies of the lease and prorated rent.  Also if you are moving in, specify that one unit must be vacant upon possession and pick the unit.  Do a walk through before closing to make sure that unit is empty.

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  • Johnathan Kwon
    OP
    Member since 2021 · 6 posts · 1 vote
    4y

    @Theresa Harris Wow, thanks for the input. I didn't even consider requesting those things upon buying a multifamily. 

    living expenses will be the same considering that I'll be moving from Southern California. I am running the numbers on all the properties that I'm interested in, for sure. Im pretty much asking if "house hacking" has more worth than risks or if it's just some YouTube fad.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    4y

    Buying a multifamily and living in one unit is not a bad idea as you can usually lower your living expenses.  As for renting out rooms in a house, that is a whole other thing since you are literally sharing your living space with other people.  You can live for free, but it depends on your comfort level and other things.  As a grad student, I rented out a second room in my apartment, but I wouldn't do that now as I want my privacy.

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  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Originally posted by @Johnathan Kwon:

    Are there any other questions I should be asking myself?

    This may just be me (but I doubt it).......Why do you want to start doing business in a state that is so tenant friendly and landlord unfriendly? We get people here on the forums, on an almost daily basis, that are getting screwed as landlords by owning in these states.

    1Reply
  • Johnathan Kwon
    OP
    Member since 2021 · 6 posts · 1 vote
    4y

    @Theresa Harris Oh I understand completely about the values of privacy. I did that when I was in my 30s and had feral college students living with me. The bastards would even steal my pots and pans when they left lol.

    For more clarity, I move around a lot for work. I will actually live in this space probably less than 30 days out of the year. However, the Pacific North West is where I want to call home. These 'room renter' will essentially have the whole place to themselves, and I'll have my room empty for most of the year. 

    @Bruce Woodruff I understand completely that this state is not ideal for landlords, but this will be my only investment property because I essentially want to live there. This multifamily will be my home. I am invest in other states that provide more protection to landlords. I will browse around the forums and read more about these nightmares to see if it changes my mind, but to me it is worth higher risk because my goal is to get my 'forever home' for a discount. 

    The kicker is I will use the zero down VA loan, so I have to live on the property. I am simply using that benefit to buy my 'forever home'. Would you still suggest not doing this still? Forgive me, this is my first day on these forums.

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  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    4y

    Johnathan - thank you for the  outline and posts 

    --Using a VA  loan is this a good move move as this will be  the only option that allows  zero down  payment 

    --A  future future loan application for a new  primary home will likely be  affected  ...depending on  when you  buy the next property - any lender  will likely use your  schedule E  from tax returns to determine the  negative or  positive  rental income  you  will use for  qualifying purposes  ....also if you move out of one of the  4 units , you will  have  some additional income from this  unit that may be  counted 

    - what are the  projected  rental income per unit  you are using in your estimations  ?

    - in order to use your VA loan eligibility again - you will need to refinance this first loan to a conventional loan

    - with a  800K target - you will likely not  find  many  2-4  properties  close to Seattle    ..maybe in  the more outlying  neighborhoods 

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  • Sherief Elbassuoni
    Realtor · Bellevue, WA · Member since 2019 · 882 posts · 1k+ votes
    4y

    @Johnathan Kwon, using a VA loan is not a newbie strategy. Some of my clients are using that all the time. They buy with the VA loan, then they refinance to a conventional loan and free it up to buy another one. You just need to tighten your criteria a little bit. For the price range of $650K-$800K, most probably you are looking at either pierce county of Snohomish county. King county may not be easy.

    Feel free to reach out to discuss more

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