Competitive interest rates. Low closing costs. No annual mortgage insurance, and no down payment*.
It’s easy to see why so many veterans and active-duty military servicemembers take advantage of their VA loan benefit.
Some homeowners wonder if they can also tap the benefits of VA loans for an investment property.
Technically, the answer is no: VA loans can only be used to purchase primary residences, not vacation homes or investment properties.
But with the right strategy and enough patience, you could use VA loans to build a real estate portfolio that generates income and retirement savings.
Can you use a VA loan for an investment property?
Every home — whether it’s a primary residence, a vacation home, or a rental property — is an investment of some kind.
After all, most of us buy our primary residences expecting their value to grow even though we know homes can lose value, too. That’s the very definition of an investment.
But some take a different approach. They see real estate as a way to invest in their future by purchasing properties they can rent out for income or sell for a profit.
You can’t use a VA loan for an investment property in this way, because VA loans may not be used to purchase investment properties. If you already have a primary residence, you can’t use a VA loan to buy another home that you won’t live in but which will earn you money.
But there are ways to use VA loans to build a real estate investment portfolio over time:
- Buy a new primary residence but keep your existing home and convert it into a rental property
- Purchase a home with a VA loan and move out after at least 12 months, converting it into a rental
- Buy a multifamily property with up to four units, live in one unit, and rent out the rest
“The VA does not require you to give up your previous home to acquire your new primary residence,” says Mike Bendebba, a branch manager with Fairway. “So it does allow you to build a portfolio from that point of view.”
“The VA does not require you to give up your previous home to acquire your new primary residence. So it does allow you to build a portfolio from that point of view.”
Mike Bendebba, branch manager with Fairway
Learn more: Absolutely Everything to Know About the VA Home Loan in [loan_year]
VA loans for rental property vs primary residences
If you’re searching for a VA loan for a rental property, you won’t find one. The Department of Veterans Affairs (VA) will only back VA loans if the buyer will live in the home for at least one year.
“But with the VA loan, your eligibility can allow you to buy more than one home,” Bendebba says.
If you are still paying down your first VA loan but you have some entitlement benefit available, you may be able to buy a second home with another zero-down VA loan, as long as it will be your primary residence.
And when you buy a second home with a VA loan, the VA won’t regulate how you use your first home. You could keep your first home and rent it out for income.
“If you got transferred from North Carolina to Maryland, for example, you could keep your home in North Carolina and buy a new home in Maryland,” Bendebba says.
Depending on the value of their homes, some veterans have as many as three VA loans simultaneously, he says. Technically, it’s possible to have even more since the VA doesn’t set a maximum limit for the number of loans you can have at once, as long as you have remaining entitlement.
“So it’s possible to build a string of properties in this way,” Bendebba says.
Even if you have no remaining entitlement, you can refinance your current home into another loan type and get another VA loan on your next home. But this method only works for one additional home: there’s a maximum one-time restoration of your VA loan benefit if you keep the home.
Related reading: National Guard Home Loans: You May Qualify For 0% Down
VA loans for rental property and primary residences
Stringing together VA loans to build a portfolio of single-family homes will take some time for most veterans. Most homebuyers don’t have the budget to pay two or three house payments at the same time.
And there’s another drawback to this approach: Using your VA loan benefits on more than one home at a time will stretch your VA loan entitlement. If you don’t have full entitlement benefit available, your next VA home purchase could be subject to VA loan limits, which cap the amount you can borrow for a home.
If you don’t have remaining entitlement, you’ll have to request a one-time restoration of your VA loan benefit if you pay off the existing VA loan but keep the home.
Because VA loans aren’t designed for veterans to build their real estate portfolios, some veterans prefer a different strategy to use VA loans for investment property: Buying a duplex, a triplex, or a quadplex. The VA does allow you to live in one of the units to satisfy the VA’s primary residence requirement.
With this approach, you could start earning income from rental properties right away, even when you have only one VA loan.
Then, later, you could refinance out of your existing VA loan, and request a one-time restoration to buy another multifamily property. You would move into one of its units while keeping your original multifamily property earning investment income.
This approach allows you to accumulate more “doors,” or units you own that can serve as income-generating properties.
Related reading: How To Buy Your First Investment Property With Little to No Money Down
What are the rules for using VA loans for an investment property?
Here’s the first rule to remember when you’re planning to use VA loans for investment properties: You’ll have to live in the home you’re buying for at least one year before you can buy another home.
Following this rule aligns your new home loan with the VA’s primary mission of helping veterans buy safe and affordable housing at competitive interest rates.
To buy a home with a VA loan, you’ll also need to:
- Qualify for the VA home loan program: VA loans are available to veterans, active-duty servicemembers, and qualifying surviving spouses from all branches of the military, including Reservists and the National Guard
- Qualify with your lender: The VA insures VA loans but private lenders lend the money. You’ll need to match or exceed your lender’s borrowing credentials to get approved
- Buy a qualifying home: Not all homes meet the VA’s minimum property requirements (MPRS). The VA won’t insure your loan if the home you’re buying falls short
- Have enough entitlement: Your VA loan benefits are renewable but only by paying off or selling a home. If you don’t have enough remaining entitlement to insure your next home loan, you may need to make a down payment or choose a less expensive home
- Pay closing costs: Every new home requires closing costs to cover legal fees, lender’s fees, the VA funding fee, and the cost of third-party services such as the VA home appraisal
When you can meet all these requirements, the VA won’t stop you from buying additional homes with your VA loan benefit even if you plan to use your older property as an investment.
“Yes, you have to buy a home as your primary,” Bendebba said. “But you don't have to liquidate your home when you stop using it as a primary residence.”
If you don’t have entitlement benefit available but you still want to use a VA loan, Bendebba says you can qualify if you put up 25% of the loan amount to insure it yourself. But at that point, you might as well use a 20% down payment conventional loan and avoid VA’s upfront funding fee.
“Yes, you have to buy a home as your primary. But you don't have to liquidate your home when you stop using it as a primary residence.”
Mike Bendebba, branch manager with Fairway
Learn more: Where to Find your VA Certificate of Eligibility (COE)
The VA funding fee: How does it factor into investment properties?
Even with no money down, VA loans don’t charge ongoing mortgage insurance premiums. This is one of the biggest perks of VA loans when compared to USDA, FHA, and conventional loans.
However, all VA loans have a funding fee that offsets the costs of running the program and allows the VA to not charge an annual mortgage insurance fee.
The VA funding fee is charged as a percentage of your loan amount and varies based on your down payment amount and how many times you’ve used the VA loan benefit.
VA FUNDING FEES FOR FIRST-TIME BORROWERS
Down paymentFunding fee0%2.30%5-9%1.65%10% or more1.40%
VA FUNDING FEES FOR SUBSEQUENT HOME LOANS
Down paymentFunding fee0%3.60%5-9%1.65%10% or more1.40%
The VA exempts some veterans with service-related disabilities from paying the funding fee. This makes VA loans an even more advantageous way for them to build wealth through real estate.
But most vets pay the fee or finance it into the loan’s amount. Paying the fee doesn’t make the VA loan less of a good deal, though, especially when you consider that USDA and FHA loans require upfront and annual mortgage insurance premiums for the life of the loan.
Pros and cons of using VA loans to build a real estate portfolio
ProsConsNo down payment required if you have full entitlement benefit availableVA loan entitlement limits number of loans you can have at one timeNo ongoing mortgage insuranceIt could take years to build a real estate portfolio with VA loansCompetitive interest ratesYou’d have to move often to satisfy primary residence requirement for each loan
Related reading: VA Loans Help Veterans With Disabilities Claim the American Dream
Alternatives to using VA loans for investment properties
If you don’t plan to purchase a new primary residence with a VA loan in the near future, or you opt not to purchase a multifamily property in which you’ll live, you can apply for a conventional investment loan.
With an investment loan, you don’t need to worry about occupying the property for any amount of time. But you will need a high down payment – up to 25% if you buy a quadplex. You’ll also need at least a 620 credit score, though some lenders may require scores of 680 or above for an investment loan.
Additionally, investment loans have higher interest rates than loans for owner-occupied properties, whereas interest rates for VA loans tend to be among the lowest in the market,
What to consider before you become a landlord
If you choose to turn a property into a rental, you’ll be taking on the responsibility of becoming a landlord.
With that responsibility comes more complex tax returns, as you will have to report rental income and capital gains taxes if you sell an investment property down the road. But you may also be able to deduct expenses related to the marketing and maintenance of your rental homes.**
“My suggestion would be to talk to a tax professional,” Bendebba says.
Along with a more complex tax profile, landlords also have other responsibilities.
As a landlord, you’ll have to:
- Pay property taxes: In most states, local governments levy property taxes based on the tax value of your property. You’ll need to keep annual taxes paid for all your properties
- Keep your homes insured: Homeowners insurance protects your investment in case the worst happens — if a fire destroyed one of your properties, for example
- Find and vet tenants: You’ll need a system for recruiting tenants and looking into their tenant history to see whether they meet your qualifications
- Maintain the properties: Things break at houses. Sometimes it’s just a backed-up toilet; other times the plumbing needs to be replaced. It’s up to you to keep the properties safe and livable
- Collect rents: Yes, you may be able to sell your home for more than you paid some day, but rents provide a more immediate return on your real estate investment. You’ll need a system for collecting them whether it’s PayPal, Cash App, or old-fashioned checks
Even if your portfolio includes only one or two homes, you’ll need a way to deal with these sorts of jobs.
VA loans for investment property FAQs
Are VA loans available for an investment property? No, there is no VA loan product designed specifically to buy an investment property. However, the VA does not regulate the way you use the homes you already own. So you could buy a new primary residence with a VA loan and convert your old primary residence into an investment property. Or, you could buy a multifamily property with up to four units and live in one of the units while renting out the others.
Can I use my VA home loan for a rental property? You couldn’t buy a rental property with a VA loan unless you also live on the property — in one unit of a duplex, triplex, or fourplex, for example. But, you can convert a home you already own into rental property while using a VA loan to buy your next primary residence.
How long do you have to occupy a VA loan home before renting? You’ll need to live in your VA loan-financed home at least one year before converting it into a rental property.
Using the VA loan benefit to build long-term wealth
The VA loan benefit was created to help military servicemembers achieve financial stability and claim their piece of the American dream in honor of their service to the country.
Strategically using VA loans to purchase multiple properties over time can help them establish a home base for themselves and their families, as well as build retirement income and savings and generational wealth.
*A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits. **This article does not constitute tax advice. Please consult a tax advisor regarding your specific situation.
