Using A VA Loan For An Investment Property

Certified Mortgage Advisor
NMLS 1701021
Published 
August 30, 2019

How to use VA loans for an investment property

So if you're looking at investing in real estate, how can you use your VA loan, the VA benefit that you have to be able to invest in real estate.

Real estate as an investment

First of all, we have to talk about a few caveats here. VA does not like investment language. So we have to separate the line between investment from the dictionary term of how people normally invest in investment properties with investment loans and treat them as investment properties. We're not going to talk about that. We're going to talk about real estate in general, and the acquisition of real estate as an investment.

So purchasing real estate is an investment because you get to gain equity and appreciation and pay down a mortgage and some cash flow. On the other side, we're not going to act like we're investors with a VA loan because VA doesn't like that at all.

VA back and insure lenders

First of all, what is a VA loan to begin with a VA doesn't actually give out any loans? They just back and insure the loans that other lenders give out. So they're basically saying, Hey, we'll ensure that loan in the event that it forecloses we'll pay you back if you lend out this money, but we want it to meet certain requirements.

Veterans primary residence

One of the biggest requirements that the VA has is that it is an owner-occupied purchase. This means that as the buyer, you're going to certify that you're going to live there and it's going to be your primary residence. There's no way to get around this. So you can't go buy an investment property that you don't live in. If you're going to buy with a VA loan, you have to live on the property.

1. Active duty

So let's talk about a couple of ways that you can acquire real estate with a VA loan that's going to help set up your real estate to be the best investment for you in the future. Number one, this is the most common is if you're on active duty and you are on PCS (Permanent Change of Location) to another base or another location. 

So this is super common. I had a buyer a month ago. He was in Nevada. He had a home there with a VA loan. He was looking at moving over to where we're at and he wanted to get another VA loan over here. So what he did is he purchased his first primary residence with a VA loan where he was stationed, which has a great, excellent loan forum, 0% down, and no mortgage insurance monthly.

Then when he got changed with his change of station, he rented out his VA loan here and got a new VA loan somewhere else. So now this was his primary residence and he was collecting rental income from the other VA loan. That is perfectly kosher in VA's book.

Let's avoid mortgage fraud

The one stipulation that they have here is they want you to be on that property for at least a year. You're going to sign over a lot of documents that say that you intend on living on that property. Don't try to get around that. It's mortgage fraud, occupancy fraud. You'll get caught. It's not worth it.

When can you rent out your property?

So you're going to live in that property for a year then you can rent it out. If you have a change of station or you change the location you don't have to be on active duty to do this, but let's say you change states. You can then rent out your other VA loan and have a new purchase.

The reason why it works best for a big change of station or changing states is VA doesn't want you to just purchase a primary residence and then move down the street and rent out this property. To them, that's too close to an investment property and they don't want it to feel like you're using the VA loan as an investment loan.

Second Tier

Something else to note as well with the VA loans is they're going to run into what's called Second Tier. So Second Tier entitlement is when you use your VA loan for the second time. So if you look at your certificate of eligibility, it's going to say somewhere in the middle and some fine print about your second-tier entitlement being a minimum of $144,000, which means that when you purchase a VA loan for the first time, there's normally not really a minimum loan. But when you purchase a second VA loan, you're going to run into a minimum loan amount of $144,000.

Now for most people, it's not a huge problem. If you're in lower purchase price areas, then that might be an issue for you because you have to purchase a home for $144,000 with the loan amount or above. So that's the main way that people use VA loans as an investment of sorts is they buy it, live it for a year, and circumstances, change with them.

And instead of selling that property, they go acquire a new VA residents most likely for their away, with a change of station or they move states or something changed to cause a relocation where they're renting out their passive VA loan and they're able to purchase with a new VA loan. So then most common for most veterans option.

2. Purchase a VA loan with 0% down as a multifamily

Number two, that a lot of people don't realize is you can actually purchase a VA loan with 0% down as multifamily. So you can do two to four units with a VA loan and live in one of those units. Cause that functions very similarly to how people would buy any other, a duplex triplex, quad.

They live in one rent out the others and you still get to take advantage of awesome VA benefits 0% down. No monthly mortgage. Fantastic interest rates since the loan is backed by the government. So this is another common strategy with the VA. This is also very similar to what you can do with an FHA loan and VA loans.

Government wants you to live in the property

You'll notice pretty much all government-backed loans want you to live on the property. Government-backed loans, do not like you to have investment properties. They're just not willing to insure the loan. For that kind of risk. They only want to ensure the loan for the risk of you living in, and they're having a little bit of stake in the game.

Multi-family trick

So really, if you're looking with a VA loan, wanting to go for an investment property of sorts, you're going to have to live in the property, whether you live in it now, and then eventually you rent that out because you have some sort of relocation or you look at a multi-family live in one unit, have the other units collect rental income, and then after a year you can move out of that into something else.

So hope this was helpful in looking at VA loans in a different light. They really are fantastic loans, even if you're using them as just your primary residence and, maybe you just sell it, sell your home in a couple of years, and then restore entitlements to get another VA loan. That's a fantastic option too.

VA is not use to gather properties

Don't try to use the VA loan as a tool to gather a bunch of different properties. It's something that you could do if you were very creative. But it just gets so close on the line of a little bit of occupancy fraud, and there's just, it's just too close that I wouldn't risk it. Use a VA loan for your primary residence. If circumstances change, then look at exploring being able to rent out that property or maybe go with multifamily for the first time that you purchased.

VA loans really are fantastic. Also, you're going to build a lot of wealth just in your primary residence by taking down the equity and gaining appreciation. So hope this helps get a new understanding of VA loans.

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