Evan Kaufman – WeVett

Grow Your Passive Income with the VA Loan

Evan Kaufman — Thu, 06 Jun 2024 19:13:41 +0000

You’ve likely heard it said, buy rental properties while in the military, build your passive income and retire to the high life.

What does that actually look like in practice though? Is that a pipe dream or can it actually happen?

Quick answer, YES! It can actually happen, but only if you take the time to understand investment properties, what makes them profitable and what they will require of you to manage them effectively.

Did we mention, this can all be done using the VA loan too? More on that later.

What Makes a Successful Investment Property

Location

The location of your rental property is imperative. Choose areas with strong rental demand and the potential for property value appreciation.

For example, certain areas in Florida, Arizona, and Texas have recently seen a boom in property values and population growth. In these areas, rental demand is high and income is increasing which is good news for property managers.

Take note of major employers, population trends and school districts. If the major employers are stable, the population is trending up and the school districts are desirable, the area is likely going to be a good candidate for a rental property.

Positive Cash Flow

Ensure that the rental income from the property exceeds the expenses (ie. mortgage, taxes, management, maintenance, etc.)

After that, the amount of necessary cash flow depends on your end goal. If the goal is to hold the property long-term for passive income purposes, then you want the property to have substantial monthly cash flow. If your goal is to only hold long enough for price appreciation to kick in, then cash flow just needs to cover expenses.

Property Condition

Lastly, make sure the homes you choose are in good condition or have the potential for renovation to increase value.

Nothing tanks a rental property’s profitability more than unexpected major expenses. Four major items to look out for are roof, siding, HVAC, and windows. Those things can turn into huge costs that cut deep into rental profits.

Analyzing Investment Opportunities

Tactically, what is the best way to analyze an opportunity to see if it’s going to be a good investment?

We suggest using a pro forma analysis. Here is an example of a pro forma that you can use to determine if buying a specific property is a wise investment.

Buying Rentals with the VA Loan

You cannot buy an investment property with the VA loan. There, we said it.

However, you can buy a primary residence that also serves as an investment. The key is you have to plan on living in the property for the VA to approve the loan.

Three ways we see military members use their VA loan to buy rentals:

Single Family Residence: Buy a home and live in it, rent it out when you PCS
House Hacking: Buy a home, rent out the extra bedrooms
Multi-Unit Properties: Buy a 2, 3 or 4-unit property, live in one unit and rent out the others

VA loan benefits still apply in all of the scenarios above, including low or no down payment, competitive interest rates and no private mortgage insurance.

Buying your second property? Keep in mind that loan limits will begin to kick in. So check your eligibility and check those limits prior to making any offers on a home.

If you are going to use the VA loan, you want to work with someone who gets it. Roughly 10% of all home loans out there are VA loans, and even less are active duty members using the loans. Using a reputable and knowledgeable VA lender can make a world of difference!

A side note: If you use a VA loan, you will have the option to refinance your rental at primary residence rates using the VA Interest Rate Reduction Refinance Loan (VA IRRRL). Huge potential for future savings!

Instantly check your VA IRRRL eligibility >

Setting Financial Goals

What is your “why” behind wanting to build long term wealth?

You have to define your financial objectives with your family. Whether it is passive income, wealth building, or retirement planning, establish clear goals for your real estate investments.

If you are a person who does not do well with negative cash flow, think about the properties you are purchasing and what the cash flow looks like over time. Set yourself up for success with things you know you can handle and things that make you comfortable!

Consider your risk tolerance and timelines when selecting investment properties.

Regularly review and adjust your investment strategy as your circumstances and goals evolve. If you are married, make sure you are on the same page with investing. Take the time and work with your spouse.

The best investment strategies come when you work as a team.

Building Your Real Estate Investment Team

When looking at investments, you are going to need a professional team helping you reach your goals. Ideally, you will have a real estate agent, lender, property manager, and contractors who understand your unique needs and constraints as a military member.

Key Team Members

Real estate agent
Lender
Property manager
Contractors

Leverage your military network to find trusted professionals who have a proven track record with real estate investments. Work smarter and not harder. Let a seasoned professional help you!

As you build your investment portfolio, be sure to keep open and transparent communication with all parties.

Maximizing Returns and Property Value

Be sure to think about value-add strategies to increase rental income and property appreciation.

Renovations

Are there cost-effective renovations that you can do to elevate the property, allowing you to increase rent? Don’t just dive into a renovation because it seems like a good idea. Evaluate the cost of materials, labor and time and compare that to future potential gains before doing a large-scale renovation.

Upgrades

Are there a few minor upgrades you can make to the property to make it more desirable? Landscaping, paint, light fixtures, etc. can all be small improvements that will help your property to rent easier and possibly even at a higher rate.

Reconsider Best-Use

Is your property being used at its highest potential? An example of this would be a single family home that is currently being used at a rental, but would produce a better return if it was sold. If the rental returns don’t cover or barely cover expenses, look instead at selling the home, possibly earning appreciation on the sale, and reinvesting the money in a property that makes better returns as a rental.

Stay proactive with property maintenance and repairs to preserve the property’s value and attract quality tenants.

It is also smart to regularly review rental rates and market conditions to ensure you are charging a competitive amount and maximizing your returns.

Exit Strategies for Real Estate Investments

So what happens when your circumstances change or the rental property just isn’t working out in its current state? Well, you have a few different options.

Sell the Property

Get it listed with a high-quality real estate agent who is well-versed in the type of property you are selling. Ideally, they will help you get the highest price for the home and reduce your headaches in the sales process.

Hopefully you’re in a good market and your home has appreciated. If not though and selling the home will cost you, just remember that it is better to lose money in the short term rather than lose your sanity and drain your funds over an extended period of time. Cut your losses and get out of the rental game or start fresh somewhere else.

Refinance

If a lower monthly mortgage payment will tip your property into profitability, refinance might be a good option here. If you used a VA loan, the VA Interest Rate Reduction Refinance loan is an excellent option for a simple, streamlined refinance.

Transition to a Long-Term Rental

Is your property an Airbnb or VRBO? Did it work well for you when you were physically located in the area, but doesn’t make sense now that you’ve moved? Transitioning it to a long-term rental might be the next step. Long-term rentals are simpler to self-manage or you can hire it out to a property management company.

Transition to a Short-Term Rental

On the other hand, if you are in a market that has a high demand for short-term rentals, transitioning your long-term rental could bring in more cash flow. Research rents, seasonal demand and management companies before making the swap.

Last thing, don’t forget to factor in taxes and capital gains whichever route you choose to go. A tax advisor or financial planner is a great resource to help you examine costs, taxes and other financial implications for your specific situation.

If you are looking for a VA loan or would like more information on anything mentioned above, WeVett will gladly go through resources with you and help build your investment portfolio.

Get started on your VA loan here or visit our education page for additional resources.

VA Loan Minimum Property Requirements

Evan Kaufman — Tue, 30 Apr 2024 15:58:19 +0000

When you purchase a home using the VA Home Loan, the VA uses what they call Minimum Property Requirements (MPR’s) to ensure the home qualifies. It is sometimes also referred to as VA Loan Inspection Requirements.

The VA’s goal by enforcing MPRs is to make sure military and Veterans have safe and functional homes to live in. This decreases the likelihood that a service member will be taken advantage of, especially since many active-duty military may not have the benefit of local real estate knowledge before their purchase.

A VA-assigned appraiser will check the property value and ensure it complies with the laundry list of VA loan appraisal requirements.

We’ve summarized them all for you below!

What is included on the VA Minimum Property Requirements (MPRs) list?

Topic Name	Simple Breakdown
Marketable Real Estate	Must be a residential dwelling that would appeal to most buyers
Space Requirements	Must be big enough for occupants to use comfortably and includes all needed facilities
Access	Must be safely accessible year-round by foot or vehicle in all-weather conditions
Encroachments	Any encroachments on property line must be resolved before loan is approved
Drainage & Topography	Waste and water must flow off without ponding, no risk of mudslides, falling rocks, or avalanches
Geological or Soil Instability, Subsidence, and Sinkholes	Must report any potential instability like cracks, sinkholes, foundation damage, or settlement problems
Special Flood Hazard Area	Properties in SFHA must be covered by flood insurance; properties that flood regularly are not eligible
Coastal Barrier Resource System	Properties located in CBRS are not eligible
Non-Residential Use	Home must be used as primary residence and comply with local zoning requirements
Zoning	Must comply with all applicable zoning ordinances
Local Housing & Planning Authority Code Enforcement	If repairs are needed to bring property up to code, appraisal must be made subject to these repairs.
Utilities	Must be safe and move-in ready with access to safe drinking water, sewer, gas, and electricity
Water Supply & Sanitary Facilities	Must have continuous supply of safe water for drinking and hot water for bathing
Individual Water Supply	Must be sufficient and safe for human consumption
Individual Sewage Disposal	Must be adequate and not endanger public health
Shared Wells & Sewage Disposal	Even if shared by 2 or more properties, it must be safe for human consumption and supply all properties equally
Community Water Supply & Sewage Disposal	Must report that property is on community water/sewage and water/sewage must be safe and adequately supply all properties
Hazards	Must be free of hazards that would prevent occupant from enjoying their property
Defective Conditions	Any damage or issue that could affect the property’s value must be remediated before the VA loan is approved
Mechanical Systems	Must be safe and in good working condition
Heating	Must be able to maintain a temperature of at least 50 degrees in all areas with plumbing
Leased Mechanical Systems & Equipment	Any leased equipment such as fuel storage, solar panels, wind systems, etc. must be included in the appraisal report, but will not affect the home value
Alternative Energy Equipment	As long as equipment is not leased, their value and marketability are included in the VA appraisal report
Roof	Must be prevent entrance of moisture with no visible defects from the inside such as noticeable leaks
Attics	If readily accessible, condition must be reported
Crawl Space	Must contain adequate ventilation and an absence of excess moisture.
Basements	Must inspect the basement for any signs of dampness or structural issues that may affect the health and safety of the occupants
Swimming Pool	Must determine its condition and effect on property value. Damages will be subject to repairs.
Burglar Bars	Must be equipped with quick-release mechanisms on at least one window per room unless there is an exterior door from the bedroom
Lead-Based Paint	Any chipping paint on the exterior of the house must be remediated. If built before 1978, lead-based paint guidelines must be followed.
Wood Destroying Insects/Fungus/Dry Rot	Any evidence of issues must be reported and any damage must be fixed; in areas with termites, a termite inspection is required
Radon Gas	Builder must certify that radon-resistant construction techniques were used according to local codes for new construction properties
Potential Environmental Problems	Any possible sources of contamination on the property must follow all local regulations and requirements
Stationary Storage Tanks	Appraiser must report presence of any 1000+ gallon storage tanks containing flammable or explosive material if located within 300-feet of the property and determine possible effect on property value
Mineral, Oil, and Gas Reservations & Leases	Must consider any property rights and adverse influence on neighboring properties
High Voltage Electric Transmission Lines	No part of the residential dwelling may be located within a high-voltage electric transmission line easement
High-Pressure Gas & Liquid Petroleum Pipelines	No part of the residential dwelling may be located within high-pressure gas or liquid petroleum pipeline easement
Properties Near Airport	Appraiser must evaluate the impact of noise and light pollution on the property’s value. Borrower must acknowledge location of the property if in a Clear Zone or accident protection zone

Are you looking for a detailed explanation of the VA’s minimum property requirements? Read the full list of VA MPRs here.

You’re still reading? Good. That list can seem a bit overwhelming. Don’t worry though, the VA appraisal is a good thing – it’s helping you determine whether or not the home will be a blessing in the long-run.

What happens if the home does not meet the VA requirements?

The VA will not approve a loan on a property that does not comply with the VA MPRs.

However, if the Seller agrees to repairs, the home can be appraised again to verify that it now meets requirements. Once the repairs are made, an appraisal can be rescheduled.

Difference between a VA Appraisal and a Home Inspection

Home inspections are not the same as appraisals. An appraisal is verifying value, while an inspection is verifying the condition of the home.

The VA Appraisal IS NOT a replacement for a whole home inspection. Although it is more extensive than a traditional appraisal, it is not in-depth enough to cover all of the issues that a home might contain.

The VA does not require homebuyers to get an inspection, however, the last thing you want is to decline the inspection thinking the appraisal covered it all, only to find out later that a latent or hidden structural issue is going to cost you $50,000+ to fix.

We highly recommend that you don’t skip the inspection, the $300-$500 you spend is worth the extra security blanket.

Short Appraisal Remedies: Tidewater and Reconsideration of Value

One more note on VA appraisals – if the purchase price is in question or the property under appraises, the appraiser has the option to speak to your lender to find support for the home’s value. This is a major benefit that only the VA program offers!

This can be done through two methods:

Tidewater Initiative

Reconsideration of Value

To learn more about both of these, check out our two-part series on VA Short Appraisals.

Still have questions? Let’s discuss! Give us a call at 316-669-5272 or email at loans@wevett.com

3 Ways to Level Up Your VA Loan Offer

Evan Kaufman — Thu, 01 Oct 2020 16:48:16 +0000

You don’t always have to offer the highest price to win a bidding war on a house. Using a few simple tricks, you can turn your offer into the seller’s holy grail.

POV: It’s 2020 – average days on market are going down – this means houses across the nation are selling lightning fast. Buyers are hard-pressed to get homes and competition is high.

To add to this bleak buyer’s landscape, buying with a VA home loan in a competitive market can be like running uphill with an open parachute.

BUT all is not lost.
There are three things you can do to help your offer win out.

1. Write a Letter

Some say the written word is dead, but in the world of real estate, penmanship is making a comeback! Writing a personal letter to the seller will help them to connect with you on a deeper level, making them more willing to choose your offer over others. After all, we as humans typically make decisions based off of who and what we like – so share your story, be likeable!

2. Get Your Lender Involved

Gain another leg up by getting your lender involved. Whether local or national, connect with your mortgage originator and have them personally call the listing agent to reassure them that you are a strong financial candidate for the home. This extra step will verify that you can actually buy the home and show that your lender is willing to get involved and be proactive through-out the process. (Lending delays are a common issue when it comes to closing on a home.)

3. Appraisal Gap Coverage

Many sellers are cautious to accept a VA loan because they are concerned it might appraise differently than a traditional loan. To circumvent this possibility, if your state allows, offer the seller an appraisal gap coverage. This means that even if the home under-appraises, you are willing to make up a portion or all of the gap in price. This gives the seller more surety that the appraisal process won’t kill the deal.

There are many interesting and creative ways to sweeten up your offer, and each situation will require a unique approach. So as always, ask your local agent for their advice when it comes to crafting your offer. They might even throw out better suggestions that will ultimately get your offer the time of day!

If you have additional questions about our trifecta of VA loan offer tricks – contact us! We are always available to shoot the breeze about real estate. And if you are in need of a real estate agent, our sister company, WeVett Realty will research and interview to find you the perfect match – just say the word!

3 Ways to Find a Military Real Estate Agent Russian Roulette-Style

Evan Kaufman — Tue, 01 Oct 2019 05:07:17 +0000

Those of us in the military or in a corporate position who are regularly relocated to different cities across the country have a unique set of needs when it comes to buying or selling a home.

Electronic signature capabilities, WiFi communication, virtual showings and the ability to coordinate power of attorney signatures while out of country, can make a world of a difference.

Overall though, the biggest need is to have someone you can trust during the real estate transaction in order to make the transition smooth. In most cases, that person is your real estate agent.

How do you find the best military real estate agent?

Most typically rely upon Russian roulette, online reviews, a distant friend’s cousin’s recommendation (if we’re lucky) or some combination of the three.

Before we start the journey of finding the best real estate agent for military relocation, let’s first dive into understanding the three methods most commonly used to find a real estate agent.

Top Ways People Find a Military Real Estate Agent

1. Russian Roulette:

While the details are a little varied, this method is essentially a game of chance.

You simply call the first relevant real estate agent that appears in a search result or the agent whose name appears on a home listing.

From an initial time investment perspective, this is by far the quickest method to find an agent. However, don’t be surprised if your real estate experience ends in confusion, frustration, or worse, complacency.

Truth be told, when playing roulette, an ‘okay’ experience (not taking the bullet!) is more dangerous than a ‘bad’ experience because it promotes a second spinning of the gun for your next move. (After all, it worked out ‘okay’ the first time!)

The problem with real estate Russian roulette is there is more than one bullet in the chamber.

You could feasibly end up with one okay experience and then three consecutive bad experiences (if you PCS and are purchasing/selling more than once.)

The odds of a happy ending next time around are not in your favor. In fact, due to the incredible number of real estate agents in the industry (including part time agents, weekend workers, brand new licensees, etc.), the odds are probably against you.

There are many military buyers and sellers who have relocated several times and experienced vast differences in the quality of real estate agent each time.

This can not only result in frustration for you, but can also majorly impact the success of your real estate transaction.

2. Online Reviews:

There are numerous websites out there that provide you with reviews or objective quantitative data – both claim to find you the best agent.

Taking this approach is better than going in blind; however, just because an agent has a 5-star review for someone else doesn’t mean they can operate at a 5-star level for you as a relocating client.

Think of the last time someone recommended you their favorite restaurant.

For me, it was a 5-star recommendation from a friend for the supposed best restaurant in town. Unfortunately, the restaurant happened to be Indian cuisine, and I’m not a fan of curry. I would rate the experience 3-stars (although the dessert was pretty good!)

The same thing happens in real estate. You might see a 5-star review for an agent that specializes in selling, but what if you happen to be buying a home?

You might even find a glowing 5-star review given by a local (who had a great face-to-face interaction with the agent), but what if you can’t meet your agent in person until the day you carry your boxes through the door of your new home?

You need someone who understands the hectic travel, temporary duty (TDY) or deployment schedules that riddle your months leading up to closing.

Trusting one of your biggest investments, in terms of both time and money, solely to a 5-star review is akin to Russian roulette, but now you’re lucky enough to at least know the ‘make’ of the gun.

3. Friend Recommendations:

This final method of finding your military real estate agent can be more reliable than the other two, but you have to recognize and understand any differences between your friend’s situation and your own.

Like the review method, friend recommendations can fall victim to bias.

Because your friend knows you personally, they will ideally be able to provide you with more personalized and relevant information about the agent than a review would, however, they will typically be biased towards their needs, not necessarily yours.

You can’t fault them for their bias, of course, because they are drawing on their own experience. Just be well aware of your differences if you rely upon a friend or family member’s recommendation.

Looking back to my curry example, the person who recommended their top restaurant to me was one of my best friends. I assumed that he knew I did not like Indian food, but even he can’t know everything.

Your friends and family might know you well, but that doesn’t necessarily make them qualified to provide the best real estate agent specifically for you.

These methods commonly used to vet agents might seem comical or rudimentary, but aren’t far off for many people.

How did you find your last real estate agent? How did your friends and family find theirs?

After years of helping military PCS and relocate all over the country, our sister company, WeVett Realty has developed a system of steps that helps to minimize the chance of error in finding a good real estate agent when relocating from one city to another. Check out our 5 Steps to Vet an Agent to learn more.

The steps are quite simple, but the key comes down to creating the right combination of questions to ask and taking the time to execute.

In all honesty, that’s the hardest part about truly vetting real estate agents—taking the time to do it and having the experience to understand what the agent is saying.

WeVett Realty was created specifically for this purpose! If you’d like a streamlined, no commitment way to find a military real estate agent, get started with WeVett Realty here or call 937-907-0150.