Are you eligible for a the VA loan program? If so, then you are one of many potential military investors.
San Diego County has thousands of people who can become military investors. Within the greater San Diego area, there are approximately 95,000 uniformed military personnel. In addition, there are more than 77,000 retired military personnel who reside within a 50-mile radius of Camp Pendleton.
First of all: THANK YOU for your service to our country.
And: Do you know that your VA eligibility allows you to become a real estate investor?
Military service members work hard to earn their benefits. The VA loan benefit can help active duty and veterans become wealthy as real estate investors. I enjoy helping VA borrowers buy their own homes. I especially enjoy helping home buyers use the VA benefit to become seasoned military investors.
Military investors enjoy a number of benefits over civilians:
- You can buy with $0 down.
- You pay NO monthly mortgage insurance.
- In 2018, your VA entitlement for properties within San Diego County is $649,750.
Military Investors – Step #1: Buy Your First Home
The VA loan program is for buying a home that you plan to occupy. So the first step is to stop renting, and start buying. Contact me for more information about getting pre-approved to buy your first home.
Military Investors – Step #2: Buy Home #2
After you have lived in the home, you may decide that you want to move. You can convert your existing residence into a rental property, and use 75% of the market rent as qualifying income when applying for your next mortgage. Read more about Converting a Residence to an Investment Property.
For example: If the market rent for your current residence is appraised at $2,000, then your lender can count 75% of that amount, or $1,500, toward your income qualification to buy your next home.
Military Investors – Step #3: Repeat Step #2
So long as you can collect enough rent to qualify for another loan, you can continue to buy primary residences, and keep your other real estate as rental properties.
What About Loan Limits?
In San Diego County, the VA entitlement limit is $649,750. This means that you can borrow up to $649,750 with no money down. If you exceed this amount, then you need to bring a down payment equivalent to 25% of the amount that exceeds the limit.
For example: You bought your first home with no money down, and took out a VA loan of $325,000. Your remaining VA entitlement is:
$649,750 minus $325,000 = $324,750 remaining entitlement
If you want to buy a new home for $400,000, and keep the first home with the original loan, then you need to put a down payment of:
$400,000 minus $324,750 = $75,250 x 25% = $18,812.50 down payment
You may choose to refinance if you want to buy a new primary residence with your VA loan, and your entitlement is already depleted. You can refinance one or more of your existing properties with a conventional loan, which would free up your VA entitlement for your next purchase.
You Can Only Buy Your Primary Residence
Your VA loan benefit is for primary residences only – this means that you can only use the loan when you buy a home that you plan to occupy as your primary residence. Once you have the loan, you may convert that primary residence into a rental, and use your remaining entitlement to buy your next primary residence.
When you buy a home with a VA loan, you do so with the intention of occupying that home as your primary residence for at least one year. If you convert that property from your primary residence to a rental property, you can keep the same VA mortgage on it – you do not need to refinance.
Why Hold Onto Properties as Rentals?
Real estate investors hold onto rental properties to build wealth over time. As your tenants continue to pay you rent, they are paying off your mortgage for you.
Rents in San Diego County increased over 7% in 2017. Rental rates usually go up every year, so as the years pass, you will collect more rent. You will also have more equity in your rental properties as property values increase over the long run.
Let’s say you purchase a new home every 2 years, and instead of selling the previous home, you convert it into a rental, that earns enough rent to pay off that mortgage. Within 10 years, you could own 5 rental properties and 1 primary residence! As the mortgages are paid off, you will enjoy passive income (cashflow from 5 rental properties), and a substantial net worth, as the property values rise.
Consult your tax advisor to discuss tax benefits, such as depreciation and other tax write-offs. The tax code favors landlords, and allows for many tax deductions.
Contact me for more information, and to learn how to analyze real estate for rental income potential. The VA loan program makes it possible, so all you need to do is start planning.
A client recently told me that it sounds too good to be true. The reality is that this is not an overnight plan – this is a long-term investment strategy. You can limit your risks by hiring a strong property manager to properly vet tenants, and by keeping adequate insurance policies on all of your properties.
Most people who are eligible for VA loans will never take full advantage of this benefit. They either don’t know how to begin, or they’re too afraid to begin.
Most of us aren’t taught how to become wealthy, so it’s intimating to get started. Don’t let the past stop you from seeking financial freedom.
Send me questions anytime. Good luck!