Ask any successful person what they consider one sure way to build wealth, and most will tell you that it’s through purchasing real estate. But there’s more to it than simply buying. If you can, hang on to that house and then use it as your personal piggy bank. As a veteran or active-duty military service person, you’re eligible to use your VA home loan benefit to get you on the path to wealth building if you know how to strike when the opportunity presents itself.
For instance, let’s say you’re PCSing (Permanent Change of Station) from Hawaii to Valdosta, Georgia (ouch!), and you’ve been living in the home that you bought with a VA loan more than a year ago. You plan to buy another home in Georgia, so you naturally assume that you need to sell your current property to afford the new place. Sure, you could do that. A better option might be to hang on to the island home and rent it out. Work the numbers, and you could find that the rent will offset or even cover your new VA mortgage.
But wait, you’re wondering about that pesky owner-occupancy rule that doesn’t allow you to use a VA loan to purchase income property. Right? Well, it’s true. The Veterans Administration designed VA loans for primary residences, meaning that borrowers are obligated to live in the homes they bought. Thus, occupancy requirements ensure that homeownership and not a second home or income property is the intended outcome.
As with nearly everything else, there are exceptions.
The 12-month rule
Most VA home loan contracts state that you must occupy the property as your primary residence for at least 12 months. However, at the end of that period, you should be able to rent the house, and the tenant doesn’t need to have any military affiliation. Make sure to double-check your loan agreement to see that it states that you only have to live in that home for 12 months before renting it out. And those who have enough entitlement remaining can use the balance of their VA home loan benefit to buy a new house. So, as you can see, if you fulfill the complete list of VA loan requirements, you can purchase a home and eventually rent it out.
It is essential to work with experienced VA loan professionals who can make sure that you have a smooth transition during your change of station. At Aligned Mortgage, our team can answer any questions you might have regarding renting your home backed by a VA loan.
You’ve decided to rent out your home. Now what?
So, you juggled the numbers, and the math came out in favor of renting out your home. Great news. But if your new station takes you across the country, or possibly to the other side of the globe, who’s going to keep an eye on your property and deal with the tenants? That’s where a property manager comes into play.
A property management company is responsible for the day-to-day operations of your rental property – ranging from dealing with calls about broken sprinkler heads and leaky faucets to keeping up with city, state, and federal regulations, and those paramount landlord-tenant laws. Essentially they are protecting your real estate investment and making sure that your passive income remains that way. Even more than that, they market your home and fill vacancies. However, they don’t come cheap. Although rates vary by market, most property management companies charge around 10 percent of the monthly rent. You bleed money each day your property sits without a tenant. Here are some ways a property management company can staunch the flow and prove they’re worth their fees:
- A capable property manager reduces or eliminates loss of revenue by working to renew a current lease or marketing the property when the current tenant gives notice.
- Property managers ensure the home is in move-in condition, including rekeying the locks after each tenant moves out.
- Property managers will conduct in-depth screening assessments to select qualified residents based on their rental history, credit check, criminal background check, and employment verification.
- Your property manager will have a signed rental agreement in place, defining the terms of the rental.
- Property managers are responsible for collecting rent each month and making sure it is paid on time.
- Property managers can also provide you with accounting services to maintain financial records, which will come in handy for tax season.
These services should relieve you of any stress over leaving your home in the hands of strangers, especially if you’re stationed in another state or country. Your property management team should give you peace of mind.
Finding the right property manager
Just as you wouldn’t rent your house without screening the prospective tenant, the same holds true when searching for a property manager. Follow these tips, and you should be fine.
- Get referrals from as many people as possible – friends, colleagues, and Realtors. Don’t take one person’s word. You’ll need more than a single point of view.
- Research online. Not only will you find names of property management companies, but you’ll also find reviews. Don’t overlook their social media platforms, where you could discover negative chatter.
- Make on-site visits if possible. Take a look around properties managed by a company or person you’re considering. Are they tidy or messy? Interview homeowners if they’re available.
- Get specifics when you interview prospective managers. Are they licensed? If so, is that license active? Are they certified with a trade organization? If so, you can search that organization online and verify their credentials.
- A management agreement is a binding contract between you and the property manager. Make sure you understand all its terms before signing, and it wouldn’t hurt to have a lawyer look over the contract to make sure you’re protected.
- You both should carry adequate insurance — errors and omissions coverage, general liability, and property-casualty, at a minimum.
Once you put your home into the hands of a property manager, they now work for you. It is incumbent upon you to do your due diligence and thoroughly vet candidates before hiring a property manager who will be in charge of your home when you’re thousands of miles away.
Have questions? Our lending professionals at Aligned Mortgage are only a phone call away with the answers, (808) 677-5626.