The VA Loan
We hear the term “Triple Zero Down” quite a bit in reference to a VA loan. Regular citizens wish in envy of entering a house with no money out of pocket. Is this VA loan everything it’s made out to be? Today, we’ll take a closer look at the loan program sponsored by the Veteran Affairs office.
Residential – Single Family Home
First, let’s define what a VA loan is:
1. 0% Down Payment
2. No Private Mortgage Insurance
3. Closing costs can be paid by seller
This is where the traditional “Triple Zero Down” comes in. If a person has a VA loan, they can literally walk into a house with no money out of pocket and little to no money in their bank account. Awesome, right? Let’s talk about why this can be a bad thing.
While it is quite amazing you can purchase a single family home with bringing nothing to the table, you should be careful about primarily two things: What does your future look like? What do your payments look like?
It may take a couple years to get some equity in the home you just purchased, unless you got a screaming deal. If you decide to move, or have to PCS, selling can become a nightmare if you don’t have a solid $20,000-$30,000 depending on the purchase price. You may be stuck renting it out, and being a distant landlord (not ideal).
Also, without putting anything down, payments will be generally higher than using a conventional loan. Not necessarily a bad thing, just make sure you feel comfortable with the amount you’re paying in your mortgage every month.
Residential – Multi-Family Home
This is where the VA loan can truly shine. With a VA loan, you can acquire up to a four-unit property (fourplex, 4-plex or four-flat depending on where you’re from). This means a duplex, triplex or fourplex is within your grasp.
Why is that so amazing? We’re glad you asked! We are passionate about real estate investing, and who better than to share the amazing possibilities of investing in real estate than our beloved men and women of the armed forces!
Please note that with a triplex and fourplex, you do have to have additional reserves in your bank account (click here to read more about what you need). Also, you must owner occupy your property for at least one year (unless you PCS or have other extreme life circumstances that prevent you from doing so).
Getting back to the amazingness of it, this is one of the only times in life where a person can take ZERO dollars, invest it into real estate, and get unlimited return. When investing, we often talk about your ROI (Return On Investment) or cash on cash return, or upfront rate of return. With a VA, you invest ZERO dollars, and if you ride out the length of the term, not only will you have hundreds of thousands of dollars in equity, you will have been cash flowing money along the way.
Why not have some one else help pay your mortgage for you and build bigger, quicker equity while you’re at it? That’s what we’re doing here folks!
A fourplex and triplex will always cash flow better than a duplex, and being a landlord isn’t for everyone. So please consider the pros and cons of getting into a multi-family investment property.
When using a VA, it is important to consider all your options and have clear understanding of where and what you’re doing. It is an amazing loan program for amazing people and it should be used accordingly!
Comments and questions are always welcomed!