VA loan to purchase either ADU or residential multi family

[Dario Delgado]

Hello, I am a service member with a VA loan (0% down payment) I live in tampa Florida (recently hot market and real estate has surged in price). I am trying to make the decision to purchase either a home with an ADU (additional dwelling unit / mother in law suite) or a residential (1-4 units) multi family building. I have to move into this and make it my primary residence for I believe 6 months to a year according to VA regulations. My wife and I would like to purchase a home with an ADU or a single family home and then add an ADU, but adding an ADU is expensive (100k-160k) if we got contractors to do it plus building and having contractors are expensive in this market and everything is taking a lot longer for contractors to get work done during this year…

We would either do one of the following: 

1. move into a single family home with an ADU attached or mother In law suite attached with the VA loan, and rent out the ADU.

2. Purchase a 1-4 unit residential multi family complex with the VA loan and live there for the time limit then move into an single family with an ADU in the future with a different loan (not 0% down) because we want our own property and to have children in the future.

Or a third potential option for anyone who recommends? 

Does anyone have some advice on these options? 
thanks so much! 
Merry Christmas! God Bless! 

[Trevor Alexander]

Hi Dario - great ideas! I agree with you that it would be better to purchase a SFR with an already built ADU then build one yourself with construction prices still being high.

Personally, I think the numbers would look better on a 2-4 unit residence. I would run the numbers on what you think each can rent at, and what the mortgage payment would be, and find out the cash flow to determine your decision.

By the way, something to consider... the VA allows a one-time restoration of full entitlement when Refinancing. So after purchasing the SFR with an ADU or multi-unit with your VA loan, you could Refinance out of the VA loan into a conventional loan and fully restore your VA entitlement to purchase your next owner-occupied residence with a new VA loan.

However, you can't keep doing this since the VA isn't in the business of helping Veterans built an investment portfolio. To full restore entitlement in the future, you will need to sell and dispose of the property.

Lastly, the time-frame is one year that would need to occupy the residence before moving. After 6 months, you may be able to qualify for an exception to move earlier than the one year mark. When Refinancing, the one-yearlong occupancy technically starts over again too.

Hope this helps, Merry Christmas, and good luck!