VA loan to purchase either ADU or residential multi family

Multi-Family and Apartment Investing
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VA loan to purchase either ADU or residential multi family

Dario Delgado
Member since 2021 · 1 post · 0 votes

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! 

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Trevor Alexander
Lender · Corvallis, OR · Member since 2021 · 93 posts · 54 votes
4y

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!

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  • Steve Smith
    Member since 2020 · 217 posts · 167 votes
    4y

    Interesting ideas. Best to find one with an ADU already built in, or very easily converted, preferably separate entrance and parking. Another option is look in the USF area for a larger home with extra BRs and a rec room and rent to students. A bit more hassle but you'll probably have a better tenant and much easier to collect the rent (semester to semester in advance).

    Live there a year, and buy another one for yourself, and keep the other for income. Buy another the next year... etc.

    Goal would be to get 10 houses free and clear, and get out of living with a tenant asap. 

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  • Trevor Alexander
    Lender · Corvallis, OR · Member since 2021 · 93 posts · 54 votes
    4y

    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!

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    4y
    Originally posted by @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! 

    Different markets have different options.  In my San Diego market there are duplexes to quad that are detached from each other.   In general, you need to know what to look for to realize that each unit is not a separate property.  In my market the way to tell is virtually all of these have a single water meter.  Other than the single water meter, I cannot tell the difference between many detached small multiplexes and separate properties (and these types of properties are my specialty).

    Why do I mention this? FHA has sustainability requirements for triplex and quad that VA does not have. Typically the best cash flow occurs at higher unit count. If you could find a quad where each unit is detached and appears to be its own property (i.e. has their own fenced yard) then 1) you would maximize your return 2) In my market triplex to quad do not meet sustainability requirements. If your market is the same in this respect you eliminate the competition from FHA buyers. 3) It may meet your needs enough that you do not need to move in a year.

    This is one of my detached units that is in fact a triplex. It has its own yard. It is hard to tell that it is not a SFH
    138 S Beech St, Escondido, CA 92025 | Zillow

    Here is a detached unit that instead of side to side is front to rear. The other unit is accessed from an alley. Again this looks like a SFH.
    618 W 7th Ave - Google Maps

    I do not know that you market has these detached units, but I suggest you find out if it does. From your description, I believe the ideal property for you would be a quad with at least one unit detached such that it looks like a SFH.

    Good luck

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  • Khaled Morad
    Lender · Tampa, FL · Member since 2018 · 422 posts · 210 votes
    4y

    Hey Dario,

    Thank you for your service!

    I think you’ll find the single family homes with mother in law suites or “ADUs” are much nicer and larger here in Tampa than most duplexes or triplexes. Plus, they are easier to find at least until your budget increases exponentially. I’d find an agent and lender well versed in investments and multifamily homes. Let me know and I can recommend a few.

    I’d love to chat more on where you are looking and you should check out our local monthly meetup. There are some other veterans attending who have done the same as you!   

    0Reply
  • James Byers
    Tampa, FL · Member since 2021 · 2 posts · 0 votes
    4y

    Hello Dario,

    I'm in the Air Force, stationed here in Tampa, and looking to start investing in a small multi-family homes too! I have a family of 4 so it may be a little bit more difficult for me to live in a unit.  Still trying to figure that piece out.  Hope to link up with you and many others on here.

    Khaled Morad,

    Where and when is the next local monthly meetup?

    0Reply
  • Khaled Morad
    Lender · Tampa, FL · Member since 2018 · 422 posts · 210 votes
    4y

    Hey James,

    I will be posting the next week up today. It will be Jan 25th.

    0Reply
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