Investing in real estate can be a great way to earn extra income and build your wealth. If you’re a military member or veteran, you may even be able to purchase those investment properties using your VA loan entitlement.
There are limits, though — and the property must meet certain requirements before getting approved. Here’s what to know about using a VA loan to purchase an investment property.
Key points:
- You can’t use a VA loan to buy an investment property outright.
- It is possible to buy multi-unit properties and rent some units out, as long as you live in one unit.
- You may also be able to turn your home into an investment property after one year of living there.
- The VA also allows you to buy mixed-use properties in certain circumstances.
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VA Loans and Multifamily Properties
VA loans are meant to be used on primary residences, but there are ways to turn a primary residence into an investment property under the program. For example, you can use a VA loan to buy a duplex, triplex, or quadplex, and then live in one of the units while you rent out the others. In this case, the one unit would be your primary residence while the others serve as sources of income. Some people refer to this as “house hacking.”
You can also live in the home or unit for 12 months to meet the VA’s primary residence rule, and then rent the full property out after that. Just keep in mind the property will also need to be an eligible property type and meet the minimum property requirements set out by the VA.
What about Commercial Properties?
Since VA loans are intended for primary residences, there’s no way to use a VA loan to purchase a straight-up commercial property. You can only purchase a property you intend to live in for at least 12 months.
Mixed-Use Properties and VA Loans
You can, however, purchase a mixed-use property that’s zoned for both residential and commercial use.
To do this, there are a few requirements you must meet:
- You’ll need to live in the residential portion of the property.
- The property can’t have more than four units.
- The commercial portion of the property can’t account for more than 25% of the total square footage.
Again, the property must still meet the VA’s minimum property requirements.
Rental Income
While some loan programs allow you to use a property’s future rental income to qualify, this is much more challenging with a VA loan. Not many lenders allow this, so you likely need to qualify for the loan using your current income and assets only.
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Reduced Entitlement
When you use your VA entitlement to buy an investment property, it will reduce your entitlement significantly. This could make it challenging to buy another property with a VA loan down the line. You’ll likely need to sell the investment property and replenish your entitlement before you can buy another home.
Alternatives to using VA Loan to Purchase Investment Property
Using your VA loan entitlement isn’t the only way to get in on real estate investing. You can also explore:
- Conventional loans: These allow you to purchase investment properties without having to occupy them. You’ll typically need good credit and a large down payment to qualify.
- Assume a VA loan: If you can find a seller who has a VA loan and has already fulfilled the VA’s occupancy rules, you may be able to assume the loan and turn the home into an investment property.
- Rent out your current home: You may be able to rent out all or part of your current home or list it on Airbnb.
Talk to a loan officer if you need help deciding what mortgage option is best for your investing goals. They can point you in the right direction.
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