How to buy a 4-plex with a VA mortgage
In Everett WA.
Right now you can buy a 4plex with a zero down VA mortgage and have the 3 rents make your full payment. Here’s how it works.
Snohomish County has 11 4plexes priced at or below $375,000 for sale right now. There are another 21 4plexes for sale in King County again priced at or below $375,000. The price is important for several reasons. One is the potential for appreciation when the market finally recovers. And believe me it will recover. I have been in real estate since 1981 and have seen the market go up and down. The demand factors working here will compel prices up as soon as we have a responsible administration in Washington, DC. Another reason is the rental income from 3 units needs to equal or exceed the VA mortgage payment. That put a cap on how much you can pay for the property.
Make sure that the 4plex you buy has all units with at least 2 bedrooms and 1 bath. The more the better for eventual resale and ease of renting in this competitive market.
Here’s how the numbers work. First you need at least a 620 credit score. If you don’t have that contact a good loan officer and see if they can help you get there within a reasonable time frame. Also you will need to have an annual income of at least $42,000. Next, 3 rents should equal ($750 X 3= $2250) enough to cover the full payment. Right now a fixed 30 year VA mortgage is available for around 4%, with an APR of 4.19%. With zero down the full payment (taxes, interest, principle and insurance) works out to around $2150. But that isn’t the whole story. Assuming you are buying an existing 4plex it will have a rental history. If you have a full 2 years on record you can use that to justify up to 95% of the rental income to defer the VA mortgage payment. If you don’t have 2 years then you can only use 75% of the income to cover the mortgage. That is a built in vacancy factor. Even though this is a zero down purchase there will be some out of pocket costs at closing. Assume about $1000 to close.
Find a 4plex that doesn’t need a lot of work. They are out there just look. Deferred maintenance is OK as long as it’s just cosmetic. When you make an offer for any multifamily property expect these conditions: 1) you will not be allowed to inspect the structure until you have a signed around agreement. The tenants have rights that must be respected. 2) When you buy with a VA mortgage you are expected to become an owner occupant. So something will need to be worked out for you to take over one of the apartments. 3) You will need to learn the landlord Tenant law in Washington State. You should also find out if your local city has additional laws concerning the landlord / tenant relationship. 4) You should have a complete structural / pest inspection done by a qualified inspector. Be there when it’s done. Expect minor blemishes no property is without them. If there are major problems you can do one of two things. First is bailout. Or you can negotiate with the sellers to see if they will repair the problems.
A VA mortgage requires a VA appraisal. The VA appraisal can be a major hurdle. The VA is very protective of its buyers. They tend to lowball appraisals. Have your real estate agent do a very through price comparison to determine the market value prior to making the offer. You are responsible for the appraisal so if the property comes in low you will have to pay for it out of pocket.
There is a lot more to this story but I think OJT is appropriate. If you have questions I will be glad to answer them at 425-346-0830. So use that VA mortgage and invest in your future.
Jim Johnson MLO 99405
Broker-Pacific Coast Financial
Broker- Gilmore Real Estate
