A VA loan is a mortgage backed by the U.S. Department of Veterans Affairs, available to active-duty military, veterans, and eligible surviving spouses. The benefits of a VA loan make purchasing a home easier and more accessible for those serving, or have served, in the U.S. military.
Although VA loans are generally intended for primary residences, many raise the question of “Can I use a VA loan to purchase an investment property?”. While using a VA loan to purchase an investment property is not as straightforward as using a VA loan for a primary residence, it is still possible to do so. As an Orlando property management company, here is your guide to using your VA loan to purchase an Orlando investment rental property.
VA Loan Qualifications
Before exploring VA loan options, it’s essential to understand the qualifications. VA loan qualifications are tailored to those who made significant contributions to the United States through military duty. The VA loan qualifying criteria varies depending on the time period of military service. For example, if you served between August 2, 1990 and the present, to be eligible for a VA loan you must have served:
- At least 24 continuous months, or
- The full period (at least 90 days) for which you were called or ordered to active duty, or
- At least 90 days if you were discharged for a hardship, or a reduction in force, or
- Less than 90 days if you were discharged for a service-connected disability
For specific information on qualifying criteria, you can visit the Department of U.S. Veterans Affairs website.
What Can A VA Loan Be Used For?
While a VA loan can be used to purchase various types of residential properties, including single-family homes, condominiums, apartments, and multifamily complexes, the purchaser must intend to use the unit as their primary residence. This means that while you can buy a multi-family complex, you must live in one of the units to be eligible. In addition, VA loans can be used to improve or add to your home, or refinance your home loan.
What is an Investment Property?
An investment property is a piece of real estate purchased with the intention of generating an income by renting it out. While there are multiple categories of investment properties, including residential, commercial, industrial, and raw land, a VA loan is primarily used for residential properties. Whether it be long-term leases or short-term vacation rentals, income is generated through monthly, weekly, or daily payments.
With the help of a professional property manager, an investment property can easily generate a passive income. This means that your property manager will take over all daily operations, communication with tenants, rent collection, and mitigation, allowing you to earn money passively.
How to Use Your VA Loan Towards an Investment Property
While using your VA loan towards an investment property isn’t as easy as purchasing a single-family home and handing it over to a property manager, there are still options. Using your VA loan to purchase an investment property requires an understanding of the VA loan process and strategic planning. The process is unique in the fact that there are strict guidelines that must be followed regarding occupancy and time limits. Being that a VA loan must be used towards a primary residence of the purchaser, here are two ways to make it work:
1.) Purchase a Multifamily Property
You can purchase a multifamily property of up to four units using a VA Loan. VA loan occupancy requirements state that the purchaser must intend to live in one of the units on the property, however, there are no requirements as to who must occupy the remaining units. Therefore, purchasing a multifamily property is the most beneficial way to purchase an investment property while abiding by the occupancy rules and regulations.
While occupying the property yourself, a multifamily property can also provide a significant rental income at the cost of 0% downpayment and a loan backed by the VA. This rule applies to duplexes, triplexes, and quadplexes; the more units occupied, the more income is generated and the higher your return of investment.
Purchasing a multifamily property and residing in one of the units, also known as house hacking, is the best way to directly purchase an investment property through a VA loan. Multifamily units are highly beneficial and can generate significant income if managed correctly. To get the most out of your multifamily investment property, consider hiring a professional property manager to take over daily management operations allowing you to optimize your income and financial returns.
2.) Rent Out Your Property After One Year of Occupancy
Individuals purchasing a property using a VA loan are expected to live there for at least one year, whether it is a multifamily or single family home. The VA does not have specific occupancy requirements following that one year time period. This means that after one year of living on the property, the purchaser is no longer required to live there and may rent out the property.
Whether the property is a single family residence or multifamily complex, purchasers have the opportunity to turn their home into a rental property following their first year of occupancy. Being that Florida has a high rental demand and steady market conditions, renting out your property can quickly turn into a highly profitable source of income.
Some veterans may plan to turn their VA backed home into a rental property, while other active-duty individuals find the opportunity as a result of a change of assignment or deployment. While this may seem like a hack in the system, it is completely legal and in accordance with VA loan regulations.
Cons of Using a VA Loan Towards an Investment Property:
The benefits of using a VA loan towards an investment property are significant, however, the strict regulations deter many from doing so. The main con is the occupancy requirements that limit investment property options. Being that the purchaser must reside in the property for at least one year, it is impossible to legally purchase a single family home for the sole purpose of renting it out. If one’s goal is to own a single family rental property in Orlando, they must reside there for at least one year prior to renting it out.
Should I Hire a Property Manager for my VA Loan Backed Investment Property?
Orlando multifamily and single family rental properties can be highly lucrative investments. The key to a successful rental property is diligent management—it’s one thing to own a rental property, but it’s another to manage it efficiently and effectively. Property management can become a full time job, and for active-duty military, managing a rental property can be overwhelming and stressful.
Rental properties and tenants can be unpredictable; there are tons of situations that require professional and immediate property management knowledge. To avoid conflict, property damage, or legal implications, I highly recommend hiring a property manager.
At The Listing Real Estate Management, our full-service property management includes services that make owning a rental property a breeze, including:
- Marketing and leasing
- Tenant screening
- Rent collection
- Maintenance and repairs
- Rental property accounting
- Rental management guarantees
We believe rental property owners in Orlando should have a property management company that is local to the area and one that genuinely cares about their success as a rental property owner or investor, and as a member of the U.S. armed forces. At The Listing, we’ve engrained hospitality and best-in-class service into all we do as your trusted property managers. Caring for our people brings the highest returns.
We’ve created the TL experience, which is Orlando property management redefined. Contact us today to learn more about property management for your VA backed rental property. We are proud to support active-duty military and veterans in their rental property journey!
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