Seeking Feedback: Use VA Loan to buy quadplex in SF?

6 Replies

Hi, I'm relatively new to REI and am considering purchasing a quadplex in SF which I would occupy. It isn't cash flowing, but I wonder if it's a good opportunity given that:

1)  I'm paying $2600 rent each month anyway

2) I could use my VA loan for a 0 down payment purchase of a ~$1.25M quadplex in SF

3) Area is up-and coming w/ new Whole Foods, etc; chance for appreciation

4) Long-term tenants in high demand area, no concern of vacancy

5) The units are below-market rent (could likely increase at least $1500 total)

Would greatly appreciate any feedback (please note, numbers below are approximate). I wonder if I should factor in mortgage interest tax deduction as well though perhaps too small to matter. Another part of me thinks I should wait a bit and continue renting until the market cools down to use my VA loan, though who knows when that will be...

PURCHASE PRICE1250000
MONTHLY RENT
4 Units Total5500

MONTHLY EXPENSES
Mortgage5526
Insurance1000
Taxes900
Repairs950
Monthly Total8376

Hello, Jon, and welcome to REI. I will start by saying I have not purchased any properties myself; however, I have analyzed many properties and I have a decent idea of how to do that.

My first question is how the rent is only going to be 1500 if you are currently paying 2600 I'm rent. If that's the case why would you not be in a place that should only 1500 right now? Just a finance question to start the process.

As for the numbers, you're out to want to look at the property as if you're not going to live in one of the units if for no other reason than I'm guessing, judging by your profile pic, you will not be staying there for ever being in the military. Immediately off the bat it looks like you are losing 2800/month but after plugging in some numbers (you're provided numbers which I am assuming you already researched) it looks more like you're losing 3400. I say this with the below numbers:

Rent Income: $5,500

Expenses:

Mortgage: 5526

Property Management: 385 (7%. Even though you may do it yourself, again, act like you won't be there forever.)

Taxes: 900

Insurance: 1000

Repairs: 275 (I'm changing this a bit to 5% of rent)

Capex: 550 (large expenses calculated at 10%. Things like roofs, appliances, etc.)

Total income: $5,500

Total expenses: $8,911

Now keep in mind, this implies each occupant will be pay their own utilities, trash, etc. I would say this is certainly not a deal you would want to endeavor into. Perhaps you can look for a multi family that needs some repairs and rather than use a VA loan try and get a 203k FHA loan in which you can put rehab costs into it. Just some quick thoughts from me. I hope that helps a little bit.

Also, take a look in the documents and you can find some various excel files that can help you analyze properties.

Thanks Adam appreciate the honest feedback!

To answer your questions:

1) My first question is how the rent is only going to be 1500 if you are currently paying 2600 I'm rent. If that's the case why would you not be in a place that should only 1500 right now? Just a finance question to start the process.

--> Not sure where the 1500 in rent you mention is from. I do think I could raise rents from 5500 by 1500 to 7000 total.

2) I actually just separated from the military, so I plan to live there at least for the next few years, but I can see why adding in the property mgmt fee would help with analysis. 

I will definitely take a look at the docs on the site; thanks again!!

My apologies, @Jon Li  I misread the sentence in parenthesis as an increase TO 1500 which seemed really low and odd but that was my mistake for sure. That fixes that and also changes the numbers. You're looking at about a 2500/month loss which is about what you pay in rent right now anyways. That's including the property management, vacancy, repairs, and capex (2100 total) and 7426 PTI. All in all that's not too bad with the better rent numbers. But if you're getting 7k that's a out 2300 a month for rent so if you keep that number when you move out you'll be getting a 10,300/month income which comes out to a loss of 216/month. That being said, you'll need to increase the rent again before you exit to help make up the gap. If you drop the PM from 10% to 8% then you'll only be down 10/month. Lots of options to make it work. 

Best of luck!!! 

Questions. How come your mortgage payment is so low on 1.25 M? At 3.5% the 30 year payment is 5.6k, is your interest rate lower?

Second since you have zero equity and are cash flow negative you could be wiped out if things go south. So make sure you have a great plan B.

On the other hand, 1.25M with 0 down is almost too good to pass ...

So as long as you are willing to do this for a while you should come out fine.

@Jon Li how much have you studied the VA loan process? Seeing that you just separated from the military it may be very hard to get approved for a loan of that amount. Many lenders will not count your GI Bill towards your income. Also, the VA is gonna want to see some continuity from your military job to your civilian job.

@Jon Li A few points.

  • VA standard loan in your area is $636,150. You have to put 25% down on the different. So you would do a down payment of $153,462.50 and the VA loan will fund the rest.
  • As long as you have a regular W-2 job, there is no issue with "seasoning" of your civilian job.
  • GI bill income can't be counted toward any mortgage qualification.

Hope this helps you figure out the right solution for you.