3 Awesome VA Loan Hacks to Get You Started in Real Estate

1. The house hacking strategy.

One of the greatest wealth building strategies for Active Duty Soldiers and Veterans alike is the “house hacking” strategy. Bigger Pockets deserves credit for coining the term but savvy homeowners have been using this strategy for many years! The house hacking strategy refers to sharing your living space with another person, or multiple people, and charging them rent. For example, let’s say you purchase a 3 bedroom, 2 bathroom home using your VA loan. You can live in one of those rooms and rent out the other two! Depending on the market you are in, you could potentially cover your mortgage and utilities using the income from renting out these rooms! You could live for free!

You will always have a steady supply of great tenants: you could easily market to fellow budget-conscious Soldiers. They win by saving a portion of their BAH, they get to live in a great home, and they don’t have to worry about home maintenance like they would if they had bought the home themselves. And you win because you gain all the benefits of home ownership, like appreciation and debt pay down/equity buildup, and you essentially get to live for free! Some houses are better than others for the purpose of house hacking. There are plenty of articles and resources to help guide your search if your plan is to buy and use this strategy. Try to connect with someone in your community that has successfully used this strategy before and pick their brain!

There are, of course, some things to consider when jumping into this strategy. It’s always a good idea to protect yourself by having your roommates sign a lease. If, for some reason, they don’t pay or there is a disagreement you can always refer back to the lease. A good lease plans for various contingencies! You can find plenty of templates online or you can use a site like Avail.co, which is a very user-friendly and inexpensive property management software. Another potential downside is that you might find yourself living with someone you don’t know very well. If you’re an extrovert and you love meeting new people, more power to you! However, you have to consider that your personal space may be limited and it can take some getting used to. I always recommend screening potential tenants (and yes, even though they are technically roommates, they should still receive a thorough “tenant” screening). Again, there are lots of great resources online that can help you weed out bad tenants. Brandon Turner’s guide is a great place to start!

This strategy is not for everyone. It may not work as well for someone with an established family that needs the extra bedrooms in their house! However, it could work great for a single Soldier or a couple that wouldn’t mind the extra company. For most people, the housing expense is the biggest single item in their budget. If you can eliminate or minimize this expense, you will be off to a great start towards financial freedom. And for those of you who might say, “well I don’t want to live with some random roommate,” I say to you, suck it up! It’s a small price to pay in the long run! You have to make small, short-term sacrifices if you want to better your financial position. The financial upside far outweighs any discomfort you might feel. Besides, that random roommate might just become a good friend of yours!

2. The Multifamily Property Play

Many people don’t know this but you can actually use your VA loan to purchase a 2-4 unit property. That’s right, you aren’t limited to single family homes! The real estate industry general considers any property with 4 units or less to be "residential" and anything more than 4 units is generally considered commercial property. Although small multifamily properties are a lot harder to come by, you could be in great shape if you can pick one up! Similar to the concept of house hacking, you would live in one unit and rent out the other(s). 

The great thing is that you still have the privacy of your individual unit but you still benefit from the income brought in by your other units! The same rules outlined above regarding tenant screening still apply. You could consider yourself an on-site manager and have your neighbor/tenant pay you rent every month or you could even hire a property manager to keep the transaction “arms-length” if you are worried about any potential personal conflicts. Either way, because you live on-site, you will be able to better ensure that your tenants are taking care of your property. 

Some people like this strategy because it can provide multiple streams of income. However, this strategy is not without potential downsides to consider. Maintenance expenses may be higher on a multifamily property. If you have a triplex for example, you don’t have to worry about 1-2 leaky toilets, you have to worry about 5-6 of them; you don’t have to worry about 1 A/C unit going down in the summer, you have to worry about 3 of them, etc. As with any investment, you should consider potential risks. A conservative budget and various insurance products can help you prevent any major financial disaster. Additionally, when searching for your multifamily property, you may find competition to be fierce. You’re up against other savvy investors who might be able to afford to outbid you. I recommend having a well-connected and investor-friendly realtor on your team to help you navigate this kind of environment and bring you awesome deals!

3. The "buy at every duty station" play.

Another little-known fact is that the VA loan is a lifetime benefit and can be used multiple times! In fact, you can have more than one active VA loan at any given time. There are some minimum qualifications you must meet in order to use the VA loan. To name a few, you must still have enough income to qualify for the property you are going to purchase, the property must be no more than 4 units, you must plan to occupy the property within 60 days of purchase, and you must plan to live in the property for at least one year. I highly recommend reaching out to a local lender that specializes in VA loans for further details and education regarding qualifying for the VA loan. 

So long as you meet the minimum qualifications, you can purchase multiple properties up to the cap on your entitlement. For example, you could purchase 2 homes worth $200,000 each or you could purchase 4 homes worth $100,000 each. So let’s say you arrive at your first duty station. You can use your VA loan to pick up your first house for $0 down. A couple years go by and you PCS to your next duty station. You can immediately pick up your next house there! This is a common strategy for military careerists and offers Soldiers the opportunity to build a substantial portfolio over the life of their career. When you are close to maxing out your entitlement you can refinance your first property into a conventional loan or sell the property to fully restore your entitlement. The ins and outs of “second tier” entitlement and multiple VA loans can get a little complex and you should definitely consult with a VA loan specialist about your long term goals. A combination of mortgage pay-down and appreciation likely means that you would not have to come out of pocket with any money in order to refinance. In fact, there is a good chance that you could pull cash out and still maintain that 20% equity sweet spot on conventional loans. If you play your cards right, you can do this over and over again throughout your career and as you PCS from duty station to duty station! Alternatively, you could sell once you have reached that cap and cash out on the equity to purchase property elsewhere!                  

Combining All Three

And guess what? Nothing is stopping you from combining all three of these strategies! That’s right, you can buy a quad-plex at your next duty station, rent out three units, live in the other unit and even share that unit with roommates! If you buy right, there is a pretty good chance you’ll be living for free at that point! And just like that you will have eliminated your single largest budget expense by turning it into an income-producing asset. By taking advantage of these strategies, the VA Loan becomes a force multiplier in your fight for financial freedom! Take action: it costs $0.00 to begin researching your market and analyzing deals and it costs $0.00 to reach out to real estate agents, lenders, and investors in your area. There is a common misconception that real estate investing is an endeavor for the rich. Nonsense! Perhaps the greatest thing about real estate is the fact that, with some due diligence and determination, your average Joe can break the chains of poverty and build long-term wealth!