Generally, you cannot use a VA home loan to purchase investment property, such as a rental home. However, the VA does allow homebuyers to use a VA loan to purchase a multi-unit property as long as the homebuyer certifies that they will occupy one of the units.
According to the VA, investment real estate is “property that the borrower does not occupy as a primary residence or second home, regardless of whether the property generates income for the borrower.”
The VA loan program is intended for purchasing primary residences. That means that the borrower must live in the property year-round; it is not intended for vacation or rental homes.
The VA does allow for a qualified buyer to purchase a home, live in it as their primary residence and then later look to rent out the home — and in many cases even purchase again with a $0 down VA home loan using their remaining VA loan entitlement.
Does it make sense to use a VA mortgage to buy a duplex, triplex or even a fourplex?
Renting may seem enticing, but a little balance is in order. For instance, renting is not a sure thing. There can be vacancies, damages and repair costs. Rental rates can fall. You need cash in the bank or solid credit to cover costs as they arise. And some communities have rental control regulations that may limit your ability to raise rents and impose other requirements.
If you have a property with two to four units, you’ll live in one and rent out the rest. The tenants then know where to go with problems. This can raise issues of privacy if you don’t like getting a knock on your door at 3 a.m. when the dishwasher floods the kitchen.
And if you don’t like confrontation, then being a landlord may not be for you – you have to collect the rent, and, with renters who are continually late on payments, that can be difficult.
Keep in mind, too, that policies can vary when it comes to counting rental income as effective income or even using it as an offset. You may also need a certain amount of cash reserves for a multiunit purchase.
Many communities – but not all – have a good mix of available housing units, employment and population growth, all the things that you want to create a healthy rental market. It’s important to ask local real estate brokers about local trends and developments such as the construction of new roads or the expansion of local businesses to gauge the area.
Loan officers with Veterans United can tell you more about VA financing and the VA loan requirements for properties with two, three and four units.
Photo courtesy Ben Sykes