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One of the most popular strategies to indirectly acquire rental property using a VA loan is through a concept known as “house hacking.” This involves purchasing a multi-unit property (up to four units) and living in one while renting out the others. This can be especially advantageous since VA loans often allow you to buy these properties with zero down payment.
For example, I worked with a client in Florida—100% disabled and earning about $4,000 a month from disability. He purchased a fourplex for $1 million in Miami. Even though his mortgage payment was higher than his income, he was able to qualify because he anticipated earning $2,000 a month from the other rented units, providing sufficient cash flow to make the investment feasible.
This scenario is different from jobs that require frequent travel, where employees stay in one location and are dispatched to various sites across the country. To illustrate, my father maintained a home in Ohio while working as a consultant, traveling to different cities for extended periods. He flew back home every weekend, which is a classic example of intermittent occupancy.
To successfully navigate this process, it’s essential to understand how rental income can be factored into your loan qualification. In our example, the client leveraged existing rental agreements to demonstrate potential income. If you’re a first-time investor, having some rental property management experience or enlisting a property manager is crucial. Property managers usually charge a percentage of the rent but can greatly ease the burden of managing tenants.
Additionally, remember that living on the property can complicate landlord-tenant relationships. Many experienced landlords recommend having a property manager handle rentals to maintain a professional distance.
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When taking on a VA loan for a rental property, lenders often require that you have at least six months of payment reserves in the bank. This guideline ensures you can manage any unexpected costs, such as maintenance or repairs, and helps safeguard against tenant issues that might affect your cash flow.
Another path to consider is purchasing a new primary residence and renting out your former home. However, be cautious; if you’re not careful, the timing can lead to accusations of loan fraud. You must demonstrate intent to occupy the new home as your primary residence for at least one year.
If your circumstances change—such as a job transfer, family issues, or other valid reasons—you can draft a “Change of Circumstances” letter to justify the move. I have seen clients successfully do this during life events like retirements or relocations for family health reasons.
Owning rental property through a VA loan is challenging but possible with the right strategies in place. It’s essential to be informed about the guidelines and prepare financially for such investments.
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I can originate VA mortgage loans anywhere that I’m licensed.
I’m licensed in Alabama, Arkansas, Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, and Wisconsin.
Additionally, our team can originate mortgages in several additional states through our corporate referral program.
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