Mulling over my options, I have my VA benefit sitting there unused. If I use this, I would have to use it on something at retail price, as most all of the wholesale deals need work and would not qualify. Also, I could not close quick enough with a VA loan.
I am considering using it to buy a 4-plex in which I could cash flow about $800 a month after PITI, vacancy and maintenance factored in. It would cost me zero down payment, but there are several other fees associated with this type of loan, most of which, including closing cost can be rolled into the loan itself or be paid for by the seller. I can pretty much get into the property with very little out of pocket. This would a long term hold.
My only issues with this are that I have to live at the property, as they are for owner occupants, not investing. The rules say that I "must intend to occupy", but are not more specific than that. I currently live in a house that I own. Also, it pains me to pay retail for property when there are wholesale deals to be had which would give me instant equity.
I have cash on hand to buy wholesale properties, leveraging my money with hard money and then refi, rent and hold. The VA loan is just another option available to me.
I keep going back and forth in my mind about this, any input to help me make a decision?
@Donald Hendricks In my opinion, the longer you have your VA Loan on the sidelines, the longer you're waiting to "owner occupy" the property for the amount of time you intend to. I would find a multi that you would comfortable living in where the numbers line up and utilize it ASAP. I haven't put my VA Loan to work as of yet and in the time Ive spent dilly dallying around waiting for an amazing deal, I could have already occupied the property, gotten 20% equity, refinanced, and moved on to another multi.
I can relate to Eric with the lost opportunity cost of not buying at all with regards to appreciation, tax benefits, cash flow, and having the tenants amortize down your principal balance.
I assume your cashflow of 800 assumes you rent all units out and yeah perhaps you'll just break even for one year (recommended if you do VA you should file the first year's tax returns at the property so you're documented to be in compliance with VA primary).
After you vacate the property you now have an asset producing income for you even if it's at market value when you bought it.
It's all about managing your cash flows in good and in bad times so it depends on what your contingency plans are in the event a tenant moves out, you're at 75% occupancy, 50% occupancy, RE values drop and your over levered, etc
Unique Dynamics of the VA Offer below:
VA loans also have a:
2.15% upfront financed VA funding fee (VAFF) if you put down 0%
1.5% if you put down 5% or more
1.25% if you put down 10% or more
If its your second use you will have 3.3% VAFF if you put down 0%
1.5 and 1.25% guidelines still apply for second use VAFF
The VA nonallowables are costs that the buyer is not allowed to pay so you'll have to strategically structure your offer so that it will be competitive with other buyers as well otherwise if the seller has to pay the below it may make your offer less attractive - FYI
- escrow fee's or settlement/closing fee's
- loan origination fee's other than points (underwriting, processing, etc)
- doc prep fee's
- application fee's charged up front for loan
- pest inspection fee for your property
- attorney fee's (if for other than title work)
- assignment (if buying a loan or property assignment)
- copying fee or email fee etc (lots more but those are the main ones)
I would encourage you (if your family is on board) to seriously look at using your VA loan on the 4-plex. As a $0 down option, this could pay huge dividends for your investing future. In addition to the $0 down, VA rates are ridiculously low ( I'm at 3.25% on a 30 year from 10 months ago) as compared to 5% or more on a non-owner occupied multiple family with 20% down, additionally the VA loan is pretty easily transferred to a new buyer down the road if you decide to sell. As stated above, you must, MUST, live in this property for a reasonable period of time. If the VA / your lender find out you didn't occupy they will call the loan due. Also, plan on getting a rental agreement in place for your current home, or listing it with a Realtor, as the lender will want to see you transferring your primary residence to another status.
I can help you out with your VA loan. What state are you in?
We bought two houses with the VA loan. The houses were great deals, the first even was a huge fixer uppper. Personally I have found great deals off the mls and been able to my VA. Both house has appreciated 25-30% in the last two years.
The decision you need to make is cheap financing or cheaper house. We have been able to do both. We do as many personal properties as possible due to the cheaper down payment and lower interest rates. Since the houses we would live in is our market for our buy and hold investments. It works out perfectly for us.
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