All Forum Posts by: Brendan M.

Welcome to BP, @Julie Santosuosso! Sounds like you and I have pretty similar goals - I just started investing in small multifamily in Co Springs earlier this year. Feel free to reach out if you have any questions!

It starts before you find your home. Your best bet is to establish a relationship with at least 2 mortgage brokers in your area. Get prequalified and let them know you plan to have a place under contract in the near future. Then when you find a place you like, put in your offer with a request for seller concessions. VA allows up to 4% of the purchase price in seller concessions, so shoot for that (but don't go over, or it reverts back to the seller).

If you want to minimize your upfront expenses, try increasing your purchase price offer and increasing what you're asking for in concessions. For example, if the seller is willing to take a 200k offer on a home, instead of offering him 200k with 0 seller concessions, try offering 208k with 8k in seller concessions. In the end it's more or less the same for the seller, but it works out better at the closing table for you. Don't mention to the seller why you want to maximize concessions - chances are they aren't going to like the thought of paying off your car or credit card bills with their concessions. They don't need to know your financial specifics.

Once the home is contracted, you'll want to work quickly with your mortgage brokers to get their fee sheets that approximate their closing costs and rates. Compare them and don't be afraid to ask them if they can do any better. When you get their best offers, take their best one and bring it to the other and ask if they can beat it. Depending on how competitive your brokers are, they may or may not be able to match or beat the other's offer. Don't string them out too long and squeeze blood from a stone - once you get something that works for you, make up your mind and go for it.

In the end, hopefully you now have a home contracted with concessions that are significantly higher than your closing cost estimates, which can now be disbursed against your existing debts. However, it's extremely important to note that you CANNOT take the extra concessions as cash. The intent is debt relief - you can apply it to car loans, credit card debt, or existing mortgages, but you will not be able to just get a personal check at closing. Be prepared to verify your debt if you want to go down this avenue.

Hopefully that helps. If you want details on a specific case, check out my blog post, and feel free to let me know if you have any questions.

I'm not super familiar with how the VA/lender will consider your rental income, but I'm fairly positive it is able to be considered as income for qualification purposes, but there may be an asterisk there. I know my lender wanted me to report it when I purchased my multis using the VA, but I was prequalified for $X amount without the rental income.

As for your own sake, my advice is get a really solid idea of what your vacancy rates are like in your area and what market rents are. You shouldn't be doing any guessing at all here. By running your numbers with confidence and establishing an appropriate reserve to weather the worst case scenario and then some, you can make an informed decision if this is right for you.

@Giovanny Martinez,

If you have prior service, the VA loan is an incredibly easy way to get started investing. It makes it incredibly easy to pick up a 2-4 unit for 0% down, turning you into an overnight investor. Better still, the benefits can be used over and over again, with some limitations. If you have any questions please don't hesitate to reach out.

@James Haffner Congrats on your first contract! It sounds like you found a solid first deal.

Other than the rent rolls etc, just off the top of my head I would think you'll want to get tenant estoppel statements. Also trust nothing the seller gives you. Rent rolls etc are great but do your own analysis of how much each unit SHOULD be renting for based on comps, and don't be afraid to be conservative. This number may be higher or lower than what it's actually currently rented for. 

If the tenants are month to month that's no big deal, but as the new owner/manager of this property you'll have the responsibility of maximizing income and month-to-month leases add extra risk of unexpected vacancy. I would recommend talking to the tenants once you take over and giving them the option to lease up under your terms or move out. Them being month to month is also a great opportunity to adjust rents to market or add a lease clause to bill them back for their share of utilities. They probably won't like it but it can have a big impact on your bottom line.

I don't have my HUD in front of me but if I remember correctly, that's a broker instituted fee to process the loan. I believe on my first loan my broker waived this and on my second one I paid it. Unless someone with more experience chime in otherwise, I would treat it as negotiable.

I definitely learned a ton through reading BP and real estate investing books for a few months leading up to my purchase, but all of it was just a mess of ideas and motivational quotes and "someone else's advice" until I finally went under contract on my first home. It was a pivotal moment - before that point, I was just preparing to learn. Honestly, a lot of investing concepts and advice just didn't click until I got started and had my own nucleus of experience which I could then expand through other investors' advice.

Great point. I have started factoring in the expansion of my emergency fund to my performance metric calculations (e.g. cash-on-cash). As far as I'm concerned, that's money that the deal dictates I need to set aside and ideally will never touch again, so I just add it in to my up front cost. That said, I'm not sure this is an optimal long-term strategy for scaling a business, but I believe it is necessary to stay solvent as a new investor.

I also used the VA loan benefits to get started. By working with my mortgage broker and requesting seller concessions, I was able to not only get started with 0% down, but get paid a few thousand at closing. I wrote a detailed blog post about my experience (including numbers), which you can find here. This wasn't through some special circumstance (other than VA) or amazing deal. It was a combination of preparation and knowing when it was time to stop preparing and just go for it and see what happens.

It has been cash flowing very well so far, as it was projected moderately well at purchase and rents in the area have only risen since then. But honestly I hardly think strong cash flow is the most important thing about the first deal. To me, the first purchase is all about action. It's about shifting from wisher, wanter, and planner to becoming a doer.

Obviously ending up underwater or with negative cash flow would be suboptimal. But even if you lose a few thousand, it's all the price of your education. Plenty of us spent tens of thousands on college education and learned very little that will ever be practically applicable to building wealth.

Getting too wrapped around the axle about finding the ideal first deal is a good way to miss the game because you were too busy sitting on the sidelines wondering when to enter.

Short answer, yes. It's going to be less of an issue than conventional since VA mandates certain costs can't be paid by the buyer, meaning overall costs to you are less, but you can still save yourself several thousand dollars. If you contract enough in seller concessions you can actually get "paid" at closing for the difference between actual closing cost (negotiated between you and your mortgage broker) and contracted seller concessions (negotiated between you and the seller with your offer), provided the latter is greater than the former. That was my experience on my first home, I got several thousand dollars back in the form of debt relief and paid off my car.