Using your VA Home Loan for Investment Property

 Yes!  You can become a real estate investor using your VA Home Loan Benefit.  In some circumstances, this can be accomplished where you can effectively end up living rent free!  Let me explain.  First, you will need to find a two, three, or four unit property (known as a “4-plex” consisting of four units in one building.)  When your VA offer is accepted, simply choose your favorite unit to live in and rent out the other three units.   If the economics work out correctly, you can use your tenants’ rent to pay your mortgage, property tax, insurance and other expenses.  If their rents cover all of that, then you can live rent free, with some other significant advantages and benefits as well.

Let’s plug some numbers into this concept and see how the ideal transaction might look on paper:

Even if the numbers aren’t perfect, and you have to pay part of the mortgage on your 4-plex out of your own pocket, our recommendation is to seriously consider it.  This piece of property can be part of a growing investment portfolio.  And as rents typically go up over time, the rental income on just the three units could eventually cover your entire mortgage payment at some point in time.  And if you ever decide to live somewhere else, the cash flow could be very attractive!  And if the property appreciates…well that’s a home run!!!  That’s investing!

From the example above, it would be an intelligent decision to pay as much as $1000/month out of your own pocket to cover your mortgage, your taxes, and your insurance.  That would equal the rent you would pay anyway.  Your tenants are covering the remaining expenses, and you still get the tax benefits and potential appreciation benefits!  This is your money and your VA benefit working for you, and you’ve probably got the best unit in the property, perhaps even rent free.

 To qualify for a $3000/month mortgage payment, typically you are going to have to earn $8000-$10,000 a month.  But here is the best part!  Because the three rental units generate rental income, current VA underwriting guidelines allow you use 75% of that rental income to off-set the mortgage payments, even without any previous real estate investment experience.  This is a big deal because conventional underwriting guidelines don’t allow you to do that unless you already have real estate investment experience demonstrated by a Schedule E on your tax returns.  In general, even though your income might not be large, you could buy a more expensive property because you are using the rental income from the units you’re not living in to qualify for the mortgage.  This allows you to build wealth using your VA Home Loan Benefit!

Again, with a small income that is used to qualify, you can control a relatively large asset, benefitting from the property’s appreciation.  It is really a great wealth building tool, where you might only qualify for a $200,000 single family home but you can also qualify for a $500,000 four-plex.  Both are going to appreciate in a similar manner.  If property appreciates by 10% you are going to be up $50K on the 4-plex but only $20K on your house.  That’s “leverage!”  Leverage is the concept of controlling a large asset with borrowed money.  In this example, your asset is “100% leveraged.”  You’ve acquired and controlled it with entirely borrowed money.  This is how the wealthy made their money before software, the internet and social media start-ups…they bought stocks and real estate!

For assistance in becoming a real estate investor using your VA loan, let So Cal VA Homes help.  Call us at 949-268-7742.