How We House Hacked in San Diego Using the VA Loan

As some of you know, my wife and I are both active-duty military. A few months ago, my wife received orders for a command in Virginia Beach, VA so we started making plans to move to Virginia from San Diego. We told our landlord in San Diego that July would be our last month, and we found a real estate agent in Virginia and started submitting offers on homes. 

Then, the Navy threw us a curveball. 

We found out at the very end of June that we would be staying in San Diego instead of moving to Virginia. Our landlord had already found tenants to take over our condo in Little Italy, so we had to find a place to live in San Diego ASAP! We had also just arrived in Hawaii on vacation to visit family for two weeks, so that made matters even more complicated. Thankfully, I used my network of military real estate investors to find a fantastic mortgage lender, Jon Lallande of Cross Country mortgage and real estate agent Herbert Knox of Sentry Residential, and we aggressively started looking for homes in the San Diego area. Jon Lallande was able to provide a very competitive VA loan product which is usually unheard of: the 17 day close on a VA loan. Most lenders advertise 30-45 days to close a VA loan, and we knew that was too long and would not be competitive enough to get an offer accepted.

Finding a Home in a Competitive, Seller’s Market

We had to be especially aggressive not just because of our short timeline, but also because we had to lock down a house in the hottest seller’s market in U.S. history in one of the hotter markets in the country (Southern California). 

We submitted 5 offers on homes in San Diego from Hawaii, solely based on the video walk-throughs our agent sent us. We relied heavily on his feedback regarding the neighborhood, the layout of the homes, and the overall “feel” of the properties. 

When we were shopping for a new home, many of the homes we encountered were being sold by home flippers. These entrepreneurs had purchased a distressed 3 bed 2 bath single family home, fixed it up to look very nice, and put it on the market at full retail. We were not opposed to a regular single family home, however I knew finding a property with the added benefit of a separate unit to rent out would give us a huge advantage, both in the short-term and long-term. 

Finally, a seller accepted our offer. 

Of all the homes we looked at, this one was my personal favorite. It was far from a perfect home like those flips and it needed a fair amount of cosmetic work, but it had something most of the other homes we looked at didn’t have: a second unit to rent out. My real estate brain was magnetically drawn to this property because I know the best way to use the VA loan is to buy a 2-4 unit property, live in one unit, and rent out the others, also known as a “house hack”.

What is a house hack?

A house hack is when you purchase a 1-4 unit property usually conventional, VA or FHA loan as a primary residence, and rent out the other units, or rent out the extra bedrooms if its a regular single family home. Its considered a “hack” because you are using the extra income from the rent you collect to pay your mortgage. 

This strategy is especially effective using the VA or FHA loan because those lending products require little or no down payment, as opposed to a conventional loan which usually requires a 20% down payment. 

Exterior view of the home. Those stairs on the left go down to the downstairs unit.

Our New (Old) Home!

Let’s talk about the house itself. It’s a two-story, single-family home built in 1956 in La Mesa, CA – a suburb about 9 miles east of downtown San Diego. The larger, main floor of the house is the top floor which may seem odd, but the neighborhood is very hilly, and this home is built on the side of a hill. The driveway comes down steeply from the street, and when you walk in the front door, you’re actually on the second floor of the home. There’s a staircase going down to the bottom floor, which previous owners had drywalled off to create that separate living space on the bottom floor. So, all they needed to do was add a kitchen downstairs and they had their second unit to rent out. 

The home has lots of light and an open floor plan as you can see here. We have since sanded and refinished the hardwood floors.

The previous owners had been renting out the unit to a lady and her two sons who did not take care of the unit. There was no significant damage, it just wasn’t kept clean and there was a lot of minor damage from years of neglect. The owner was charging the tenant $1200 per month for the unit which is nearly half the market value for that unit. So we planned to clean it up a bit, get it painted, and find an excellent tenant to live below us. 

The home we ended up purchasing is definitely not one of those homes fixed up by flippers! It has “good bones” meaning there are no significant structural, foundation, or other major issues but it just needed some basic updates and minor repairs. For example, the seller didn’t know how old the roof was, so we had a roofing professional come out and make some repairs. Also, the home has original hardwood floors that looked weathered and discolored in many locations, so we had a professional flooring company sand and refinish the floors and they look fantastic now! We also had a painter come in and apply a fresh coat to the ceilings, walls, and kitchen cabinets. 

This is the downstairs unit we will rent out to a lucky tenant!

The “No Money Down” VA Loan Myth

Something that surprised me during the VA loan process, was the realization that the VA loan does not cover closing costs! You can include the VA funding fee (2.3% of loan amount) in your loan, but the closing costs must be paid out of pocket. Unless of course, you can negotiate for the seller to pay your closing costs, or have a large enough seller credit to offset these costs. Make sure you consult your lender on this so you don’t get yourself in trouble. The VA loan has strict rules on what you can and can’t do. 

Depending on the price of the home you purchase, your closing costs may only be a couple thousand dollars. Most of the homes I have purchased in the past have been investments and have been $100,000 or less, which means the closing costs have been $1000-2000. However, when you’re buying a primary residence in the San Diego area, you’re paying a lot more than $100,000! So the closing costs were significant to say the least. 

Don’t let this deter you from using your VA entitlement. In my opinion, the VA loan is the best way for military members and veterans to get into real estate. 

We should be getting a tenant in the downstairs unit within a week or so, and we’re continuing to make updates and improvements to the upstairs part of the home where my wife and I live. If you’re already a homeowner, you know that no matter how much work you do, there are always more projects popping up! Thankfully, we found a fantastic handyman that can do all kinds of work for us at a reasonable price. 

If you want to learn more about the house-hacking strategy, Craig Curelop and BiggerPockets published a book about it called The House Hacking Strategy: How to Use Your Home to Achieve Financial Freedom. I have not personally read it yet, but I’ve read many books published by BiggerPockets and they have all been fantastic.

I hope you found value in this article. Please send me a message on Instagram @honorandequity and let me know your thoughts!

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