How to create over $100,000 of wealth in 5 years investing in real estate with your VA loan

As a veteran, you have access to a variety of valuable benefits, including the VA loan program. This program, offered by the Department of Veterans Affairs, can help you finance the purchase of a home with favorable terms, including no down payment and no private mortgage insurance.

But did you know that your VA loan could be your most effective tool to build wealth in a short period of time?

Instead of using your VA loan to buy a single-family home, consider investing in a duplex. By living on one side and renting out the other, you can enjoy a number of benefits.

Benefits of owning a duplex

First and foremost, owning a duplex can provide a steady source of rental income. The rent from the other side of the duplex can help offset your mortgage payments, reducing your financial burden. This way you will be able to purchase a property of a much higher value without the high mortgage payments. 

In addition to providing a source of income, owning a duplex can also offer tax advantages. You may be able to deduct certain expenses, such as mortgage interest and property taxes, on your tax return, which can save you money.

Investing in a duplex can be a good way to "test the waters" of property ownership and rental management. If you are new to the world of real estate, owning a duplex can give you a taste of what it's like to be a landlord without the potential risks and responsibilities of owning a larger rental property.

Another benefit of owning a duplex is that it can offer more flexibility than a traditional single-family home. If your living situation changes - for example, if you get married or have children - you can easily move into the other side of the duplex, giving you more space without the need to sell and buy a new property.

Furthermore, owning a duplex can be a smart investment in the long run. As a property owner, you have the potential to see appreciation in the value of your property, which can provide the foundation for your future investments.

The Strategy

Let’s take a look at a real life case study to understand how this investing strategy works.

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Suppose you purchase a new construction duplex in Magnolia Texas for $499,900. With your VA loan you are able to buy this duplex with zero down payment and get a mortgage for $499,900. The builder’s lender has special financing that allows you to finance your purchase at an attractive interest rate of 4.875% fixed for 30 years. 

Now let’s look at your monthly income and expenses. Since you will occupy one of the units as your primary residence, you will be able to rent out the other unit for $1895/mo. Your monthly expenses will be your mortgage payment of $2645.51, property taxes of $1118, insurance of $75 and HOA of $58.

So your total monthly payment net of all income and expenses will be $2001.51

Next, let’s look at how you would build your wealth over the next five years of ownership. After five years of ownership, the loan balance has been paid down to $457,529

  • The conservative scenario: if we assume the property will increase in value by 3% per  year, your duplex would be worth $579,521 in five years. This means you have increased your wealth by $103,992 in five years. ($579,521 minus loan of $457,529)
  • The realistic scenario: if we assume the property will increase in value by 4% per year your duplex would be worth $608,204 in five years. This means you have increased your wealth by $150,675 in five years. ($608,204 minus loan of $457,529)
  • The optimistic scenario: if we assume the property will increase in value by 5% per year, your duplex would be worth $638,013. This means you have increased your wealth by $180,485 in five years. ($579,521 minus loan of $457,529)

To recap, you were able to invest in real estate with none of your own money and create six figures of wealth - just using your VA loan as a tool. Now this newly created wealth can become the capital foundation for any future investments.

Comparing the duplex strategy to a house purchase

Now, I know what you’re probably thinking. How’s this different from purchasing a house with a VA loan and creating wealth that way. Let’s compare the two so we can see the drastic differences. 

First, let’s figure out how much house we can purchase for the same net payment of $2001/mo that you would have on the duplex with one side rented out. Assuming that property taxes on a single family house will be $600/mo, the property insurance of $100/mo and HOA of $80/mo that leaves you with a mortgage payment of $1221/mo. If we assume an interest rate of 5.25% (today’s best available interest rate) that would allow you to purchase a single family home priced at $221,000. This price point will be a challenge in the current housing environment but let's set that point aside for now and look at the performance of the single family home as an investment. After five years of ownership, the loan balance has been paid down to $203,306. 

  • The conservative scenario: if we assume the property will increase in value by 3% per  year, your single family house would be worth $256,199 in five years. This means you have increased your wealth by $52,893 in five years. ($256,199 minus loan of $203,306)
  • The realistic scenario: if we assume the property will increase in value by 4% per year your single family house would be worth $268,880 in five years. This means you have increased your wealth by $65,674 in five years. ($268,880 minus loan of $203,306)
  • The optimistic scenario: if we assume the property will increase in value by 5% per year, your duplex would be worth $282,058. This means you have increased your wealth by $78,752 in five years. ($282,058 minus loan of $203,306)

As the numbers clearly show, the performance of the duplex as an investment is at least twice as good as the single family house. 

In Conclusion

Overall, using your VA loan to invest in a duplex can be a very smart financial decision. It can provide a steady source of income to reduce your overall monthly payment, offer tax advantages, and be a lucrative investment in the long run. 

Would you like to put this strategy to work for you? We have the properties and the expertise to help you execute it perfectly. Contact us today and let’s talk. 

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