Using co-living to purchase several homes and scale?

Question

Hi y'all! I'm an ROTC Cadet in my junior year and will be commissioning as an Army Officer in 2023. I plan on using the VA loan to buy a house and use the co-living/house hacking model to grow my portfolio. Here's the breakdown, let me know if this sounds stupid.

1st home with VA loan (4b/4ba) – $300K @ 3.25% for 15 years.Mortgage payment = $2100/moI use $1000/mo from my Army housing allowance and live in one room, sublease the other 3 rooms for $750/mo each ($3250/mo total).Total monthly cashflow: $3250– $2100 = $1150/mo2nd home with other lender (3b/2b) - $250K @ 3.5% for 15 years.Mortgage payment = $1800/moUse $1150/mo from previous cashflow toward this, and sublease the 3 rooms for $750/mo each ($3400/mo total)Total monthly cashflow: $3400 - $1800 = $1600/moApply for 3rd mortgage, rinse and repeat using the cash flow.

Does this model make sense? Or am I missing something in my naivete? Obviously, these numbers are estimates, but as long as the math makes sense...is it possible to scale a RE portfolio using this strategy? Any legal or financial limits on doing this?

Let me know your thoughts!

Thanks so much,

Kusal

Robert Belz · Answer

Hey @Kusal Kularatne,

First off, good on you for looking into this will you're still in ROTC. You'll thank your future self for getting started this earlier!

I love that you have thought out your future deals. Since I don't know your specific circumstances, here a few nuggets that I think could help.

1. Why look for the 15 year fixed rate mortgage?... 30 year interest rates are also super low, and the your mortgage payment would be much lower, and your cash flow would much more. Additionally, if you really wanted to pay off your mortgage faster, you'd always have the option to pay more towards the principal. If it was a tough month for maintenance on the house,  or life in general, you wouldn't have to pay the additional principal towards the mortgage.

2. Ensure you can handle managing your investment when you sublease rooms... To provide some perspective, I'm currently AD Air Force... and I remember commissioning back more than just a few years ago. :).  After commissioning I was in the training pipeline for years, and constantly moving. I don't know what your MOS will be, but chances are as a 2nd LT you'll be traveling a lot for additional training. Thus, managing your sublet investment property could be a challenge. Ensure the place cashflows with a property manager, and/or having one tenant rent the entire home.

3. The power of leverage... Since your goal is to grow, I think the 30 year fixed is a good way to go. It secures long term debt at a lower mortgage payment when compared to the 15. Very simply put, this will provide you greater cashflow, thus helping you save towards your 3rd, 4th, 5th.... investment. Finally, there is a lot of discussion about the possibility of an increase of inflation in the short and medium term. Securing a long-term fixed debt payment is a great way to hedge against this risk.

I hope this helps! Definitely fire back if you have additional questions, or if something I said doesn't make sense.