VA Loan. Estimating Expenses and Cash Flow

10 Replies

Hello everyone,

Preapproved for 200,000 VA loan. I would like to use to fund my first multifamily deal by doing a house hack. The problem is multi family in my area seem to be few and far between and seem to be priced too high to cash flow. I am also looking at and analyzing some SFRs in the event I am unable to find a multi-family nearby due to the intent to occupy requirement.

I am wondering if I am being too conservative in my analysis and estimating too much for expenses which is why nothing I analyze cash flows unless it is close to or below 100,000. Anything around 80,000 or below are typically in questionable shape nd ight have a hard time meeting inspection requirements for the VA to approve the loan. See percentages of rents below that I am using for my calculations.

8% Vacancy

10% Property Management

9% Repairs and expenses

10% CapEx

Taxes: basing on previous year.

Insurance: Quote from my current insurance provider. Do most of you get a quote for every property you analyze or use a percentage? Feel like my agent will get tired of quoting so I can keep analyzing deals.

Can the above estimates be reduced for a property that has been remodeled recently and is going for a higher price? Are they even too conservative for the cheaper properties? I would hate to be force to settle on a cheap property and leave 100-120,000 on the table with a no downpayment loan.

Thank you for taking the time. Looking forward to your expertise and opinions.

Hey Victor! 

I am having a similar issue myself. I live in the olympia-Seattle area and have run into several bumps with VA loan. Every property I have analyzed (12 in detail and many more at a glance) need to be at least $100K cheaper than the listed price to cashflow. The only way I can see to work through this is to try and find a "fixer upper," but the VA loan basically needs a rent-ready place (or so I've heard). An agent I was speaking to even said he had another client who was using his VA loan, but the process couldn't progress until the pool was treated and no longer green.

I wish you the best, and I'll watch your progress with interest because your goals are very similar to mine (VA homeloan a 3-4 plex). If I find out any more details that might help, I'll share!

Victor,

Congrats on the VA loan and thanks for your service. I recently purchased a SF home with the VA loan and house hack between AirBnB and a roommate, which has covered my mortgage for 7 months now (living for free in Alaska). As for your questions:

1. Bottom line it is difficult to see immediate cash flow from a VA loan due to the nature of zero down, VA inspection, and owner occupied regulations. BUT it is an amazing tool to take that first step.

2. The repairs and CapEx rates you laid out are fairly conservative for a remodeled property. Not sure if a 2-3% drop would significantly add to your cash flow though. Better conservative than realizing down the road your property is losing money.

3. You are never leaving money on the table with a VA loan. Depending on your area, you are entitled to around $425,000. Although your lender may only approve for $200 right now, you are still entitled to $425. So if you buy a property now for $200, you still have $225 to buy another property. Technically you could have 4 properties if you buy one every year for $100,000. There are more details, but the VA loan is not a one time use deal.

Hope this helps! Cheers. 

As David mentioned the VA loan is an amazing tool.

My experience, both in using the VA loan and in using conventional loans is that when you offer on a duplex, the seller almost expects you to make an offer BELOW the asking price. Generally speaking,....An SFR usually has an intangible emotional component to it. Duplexes, not so much. I average making about ten offers on duplexes before I ultimately purchase one. I never offer the asking price either.

@Victor Wasson thank you for your service! My comments on your percentages would be:

Vacancy - this is an area dependent statistic and I’m not sure where you are located but this seems high (I estimate 5% for my analyses).

Property management - while you’re occupying the property, you could self manage and save here. If you eventually move out and hire a company usually it’s 6% unless you’re in a lower grade neighborhood. Some companies will charge more in these situations because they’re handling more issues.

Capex and repairs seem alright, and it's good to have those reserves even if you have a newer property because even new construction can have issues.

Having gone through a VA loan home buying process myself, I definitely agree there are more hurdles to jump over but having the right people can make all of the difference. Make sure your lender and agent are both savvy with VA loans and finding investment properties and are working towards your goal of house hacking. Again, depending on where you live, mother in law suites or ADUs could be a great option for you. In my area both of these are very common, and we just had some very pro-ADU laws pass as well.

And if you are able to refinance after a few years, you could get a conventional loan on your property that potentially will then cash flow and then use your VA loan again. That's our plan!

@Andy Reichert thank you also for your service! How extensive of work are you trying to do to a property? My husband and I just bought a house with VA financing and we bought a property with a lot of cosmetic work needed. During our search though, we did put some offers on duplexes that we got beat out but had definitely needed some work!

Thank you all for your responses so far. I have seen some posts where people only had 23% of the rent figured for expenses and I am at 37% not including the taxes and insurance so thats why I thought I might be too high on those. I'll look at adjusting my vacancy percentages and drop the PM percentage a bit too. I do plan on managing myself at first but only plan on living in the property for the required year then renting so I may want to have it managed at that point.

@Andy Reichert ours did end up taking right around a month. We submitted with a three week close, but then did a few extensions. The thing that held us up was the appraisal - the VA has very strict requirements and you have to schedule it through them. But like I mentioned earlier, having a team behind you that's on the ball and ready to go as soon as paperwork comes in really helped.

There's now a new VA form that specifically allows you to back out of an offer if it doesn't appraise so make sure you're aware of that also!