How to use your VA mortgage benefit to get a head start in real estate investing
The VA mortgage is one of the most generous benefits we as military members receive. Many people are unaware that you can use your VA mortgage while you are active duty. Even fewer people are aware that the VA mortgage offers us all a great opportunity to get a massive head start into long term real estate investing. It's true that the VA mortgage is not intended to be used for investment properties, so it is not the ideal way to purchase a rental property, but with a little bit of research, foresight, hard work, and savvy, any military member can afford to find a home that will cash flow and set you up for long term success.
The first step is to make sure you are qualified for the VA mortgage. You have to have at least 6 months of service to qualify. There are a number of other qualifications, but most military members meet them. They can be researched on the VA website. Once you have 6 months of service, you have the option of up to a $425,000 federally guaranteed loan in most markets, and upwards of $600,000 in some high cost of living markets.
Now, how do you invest using a loan that is intended for your primary residence? You make the home your primary residence. The ideal time to use your VA mortgage is early in your new assignment because you are required to spend at least one year with the home you purchase as your primary residence. But, just because the home you purchase is your primary residence, it doesn't mean you can't start earning money from it almost right away. The VA allows you to buy single-family homes, duplexes, 3-plexes, 4-plexes, or even any combination of those with an attached storefront.
I bought my first property with a VA loan. I found a very undervalued property in a high cost of living area and offered the asking price. I proceeded to find a roommate to live in my extra bedroom. That kept my living costs below what they were when I was renting half a house with a friend while at the same time building equity. After just over 1 year, I put the entire home up for rent that paid for the mortgage, insurance, maintenance costs, and still gave me a couple hundred dollars a month in cash flow. I'm now looking at PCSing and will be switching to completely hands-off with the property when I hire a property manager. This will cut into my cash flow a little bit, but I will still be making money off of the house, I will still be having my tenants paying down my principal, and if I'm lucky the property will continue to appreciate along with inflation.
Here's the catch: You have to live in the house and the VA is going to require that any home you buy meets their relatively stringent standards for livability-in other words, you probably can't buy the run-down, fixer-upper that you hear about for flipping. Instead, you have to buy homes that are already livable. This means you have to be much more careful about finding good deals. Not every house is going to make money. Some can even lose money. You have to do your research and learn your market. But if you find the right property, you can give your Financial Independence numbers a huge boost by investing in real estate with your VA mortgage. Leverage, used intelligently, can be a powerful weapon for building your retirement savings.