How to Get a VA Loan

On January 26, 2019

What Exactly is the VA Loan?

The VA Loan is a mortgage that helps veterans finance the purchase of homes with good loan terms and interest rates that are typically better than what you would see on other types of mortgages.

VA home loans aren’t made by the VA itself, but by private lenders such as banks, savings and loans associations, and mortgage companies. VA guarantees the loan if and when the applicant is approved.

People often say the VA guarantees loans, but that’s not accurate. Actually, the VA guarantees a portion of the loan. This still gives lenders a lot more comfort in lending, because if you stop paying, there is a higher chance they won’t lose any money on the deal.

For loans over $144,000, the maximum guarantee amount is 25% of the 2019 VA county loan limit. For most counties in the U.S., this amount is $484,350. For high cost of living areas such as Honolulu or even certain parts of Denver, the amount is $726,525.

What’s the Most I Can Borrow?

There actually is no limit. The issue is, are you trying to avoid a down payment?

In most cases, if you don’t exceed the county loan limit, then you can get that loan with no money down (Yay!).

Once you surpass the county loan limit, the lender will want a down payment from you because the VA will not provide a guarantee for that portion of the money.

Click here for a PDF linking to all the 2019 county loan limits

I want to be clear about this, because it’s confusing.

If you wanted to borrow $800,000 for a house in Honolulu, you might be required to put up a down payment on a VA loan, but it won’t be as big as you think.

You wouldn’t be responsible for the down payment on the entire amount, just for a down payment on the amount exceeding the county loan limit.

$800,000 want to borrow

$726,525 county loan limit

$73,475 amount exceeded county loan limit

The lender may ask you to make a 20% down payment on $73,475, which works out to be about to be $14,695.

That’s way cheaper than paying 20% on $800,000 which is $160,000. Ouch!

So buying a really expensive house (even a 4-plex) in Honolulu or a similar HCOL area with a VA loan may not be possible with no money down, but you might be able to do it with a small down payment.

You CAN, but that doesn’t necessarily mean you SHOULD. There are many factors to consider. Often, expensive rental properties in HCOL areas do not make great rentals, and I recommend against them for military members.

Read my article Real Estate Mistakes Military Members Should Avoid

So bottom line, there is no VA limit to how much you can borrow.

You have to put a down payment on the amount over the county loan limit you want to borrow.

What My Grandmother Taught Me About Real Estate

By Rich

On January 6, 2019

In Real Estate

I have a deep love for real estate that I can’t fully put into words.

I’ve done several podcasts and interviews and been asked on many occasions why I got into real estate.

It took me a while to figure out the real answer.

It’s a deep respect for what real estate meant in my Grandmother’s life.

She’s the first househacker I ever met, although when I heard about her real estate story as a child, I didn’t know that was called househacking.

I just knew it was smart.

As you’ll see, however, her story is so much more than just househacking.

My Grandma grew up poor. Really poor.

She was raised in Los Angeles in a neighborhood known as Watts.

In case you haven’t heard of Watts, it has a reputation for being a low-income, high crime area.

It’s well-known for gang problems and the Watts riots of 1965. Since the 50’s, it’s been a rough neighborhood. It’s still rough today, although improving.

My grandma eventually moved to Glendale, California and married when she was very young.

She had three children with my blood grandfather and adopted a child as well. I’ve never met my Grandfather. Apparently, he wasn’t much of a family man. He wasn’t cut out for family life, and left when my mother was about 8.

So my Grandma was left to raise four children on her own without any help from the father.

Grandma was frugal. She had to be.

She worked at an insurance company in L.A. making about $500 a month. She owned a house that was worth $36,000 and eventually paid it off. (Smart move Grandma!)

Her car was paid off as well.

She ran into a dilemma at work where they wanted to move the insurance offices from Glendale to Costa Mesa, a more expensive area near the beach. (This is all in the vicinity of L.A.)

She got some great advice from her mother-in-law, ironically enough, that she should buy a four-plex close to the new office, live in it, and rent out the other three units.

The Best TSP Investment Strategy Out There

By Rich

On December 22, 2018

In Investing, Military

I’m sharing several options for investing in the TSP.

The Thrift Savings Plan is a defined contribution plan for United States civil service employees and retirees as well as for members of the uniformed services.

It is essentially like a 401K for military and civil service employees.

I’m not here to tell you which TSP recommendation is best, that’s a fool’s errand.

The only way to do that is to go into the future, see how things turn out, and then tell you which TSP asset allocation would have been ideal.

I will, however, give you the tools to make an informed decision.

Most of these TSP investments strategies should work well if you regularly contribute to your thrift savings plan, ensure you are getting matching if it’s offered, and stick with the same strategy over the long term.

I would caution against jumping back and forth between strategies every time you find something bright and shiny. Many people erode their long term returns by “dancing in and out of the market.” (Warren Buffett)

First, it’s important to understand the five core funds inside the TSP and what they consist of. This is important in understanding how they are used in building investment portfolios.

THE FIVE CORE FUNDS PLUS L

The G fund contains short term U.S. Treasury securities with no exposure to the risk of the bond or stock market
The F fund is an index of world-wide government, corporate, and mortgage-backed bonds
The C fund is equivalent to the S&P 500 index.
The S fund is an index of mid and small-cap stocks not included in the S&P 500.
The I fund mimics the MSCI EAFE Index of international stocks in 21 developed markets excluding the United States and Canada.
The L funds are professionally managed investment funds tailored to a specific time horizon.

Now we dive into each one a little more in depth before going into our TSP investment strategies:

The G fund – The Government Security Investment Fund

Pros: No volatility and backed by full faith and credit of the U.S. government

Cons: Can barely match the inflation rate; rate based on prevailing interest rate, which is currently low

This unique investment is only available to TSP investors. It’s rate is equal to 10-year treasuries, but their liquidity and protection from interest rate fluctuations is superior to 3-month T-bills.

The interest rate resets monthly and is based on the average of U.S. treasuries with a duration of 4 year or more.

9 Proven Ways to Boost Your Index Fund Returns (Video)

By Rich

On November 23, 2018

In Investing

I’ll tell you how I’ve invested most of my career.

S&P 500 index fund. That’s it.

But, shouldn’t I be able to do better than that?

This post will show you a data-proven way to boost your index fund returns.

PAUL MERRIMAN

Paul Merriman is a believer in index fund investing. Additionally, he is a nationally recognized authority on mutual funds, index investing, asset allocation, and ran his own investment advisory firm since 1983. Paul has been on Wall Street since the 1960’s.

He’s been preaching something called the ultimate buy-and-hold portfolio for the past 20 years. His ideas aren’t revolutionary. It’s very similar to Larry Swedroe’s research on small value stocks and their superior performance over long periods of time. Moreover, he believes in the work of Dr. Fauna and Dr. French in regards to diversification to increase returns without adding risk.

With the ultimate buy-and-hold portfolio, we are going to keep the S&P 500 index, but only 10% of the portfolio, and then give 10% each to 9 other asset classes.

Most people say nothing outperforms the S&P 500 index over the long term. Well, that’s not exactly true.

Over the long term, 8 of the 9 asset classes we’ll be diversifying with have outperformed the S&P 500. Consequently, the risk is also roughly the same.

So the main ingredient in this portfolio is still the S&P 500 index. According to Merriman’s research, it has compounded at 9.3% between the years of 1970 to 2016.

Personally, that feels a bit high, but we’ll stick with his numbers today. I’m more comfortable claiming a historic 7% rate.

THE ULTIMATE BUY-AND-HOLD PORTFOLIO

Portfolio 1

For the sake of explaining this portfolio, think of the S&P 500 index as Portfolio 1. To start, we will invest $100,000 into our portfolio today between the dates of 1970-2016 to illustrate the growth that would have occurred with each step of diversification over that period.

At 9.3%, $100,000 would have grown to $6.5 million. No way I can live off that! We’ve got to do better!!

Compound return: 9.3%

Growth: $6.5 million

Portfolio 2

Seven Steps to Being a Military Millionaire (Video)

By Rich

On November 14, 2018

In Debt, Investing, Real Estate

It is possible to retire a military millionaire?

It is.

I did it before retirement.

No rich parents, no help, wife didn’t work.

Can the average military member go from being in debt to military millionaire?

We all see websites and books from people who were deep in debt and somehow quickly made millions.

Maybe we should read their books or infomercials and try their methods…

A lot of that stuff is shady.

These gurus get rich off people looking for shortcuts. Most that try the guru route fail miserably.

It often involves going into lots of debt or paying a lot upfront for a product or a course.

It also requires no common sense

Secrets to Finding a Mentor in Real Estate Investing (Video)

By Rich

On November 11, 2018

In Real Estate

Finding a mentor to further your real estate investing goals is an important step.

This advice is written in most books and blogs on the subject.

There isn’t, however, usually a very good explanation of how one should go about finding a mentor.

This would probably explain why most people screw this step up so badly.

I’ll tell you what I’ve seen since having my blog.

Image Source

WHAT NOT TO DO

I’m not even a very popular blogger or real estate investor (yet), but I’ve received hundreds of unsolicited emails that roughly read the same:

Hey, I love your blog. I loved your podcast, it really spoke to me. You might be surprised to hear this, but I’ve been thinking about investing in Alabama! Isn’t that where your houses are? What are the chances?

Will you be my mentor? Can I use your management company? Who’s your realtor? Thank you so much for your time.

Freeloader Bob

No, that’s not his actual name.

I will tell you that the success rate so far of this approach, and this may surprise you, is 0%.

What a greedy bastard! He doesn’t give back at all!

To be fair, a couple of my blog posts, including my Complete Guide to Real Estate Investing, talk about how important it is to find a mentor to guide you on your journey.

Also, on my blog, I tell the story of how I found my mentor and I just kind of casually asked him if he would show me how to do what he’s doing. I probably made it look pretty easy.

That is what I will illustrate in today’s post. The proper way to go about getting a mentor. I’ll also talk about the wrong way. The email above is a good example of that.

DON’T USE THE “M” WORD

Should I Buy a Turnkey Property? (Video)

By Rich

On November 4, 2018

In Real Estate

There are lots of turnkey property companies out there, and some are more reputable than others. This question deserves a fair shake. I’ll try to give it one, but I have some strong opinions about this.

WHAT IS A TURNKEY PROPERTY – DEFINITION

A turnkey property is a fully renovated home that is purchased by an investor. It can either be rented out immediately by the investor, or more commonly, comes already rented out with a property management company in place.

In essence, it’s answering one of the most common real estate needs out there:

I live in an expensive area, and I can’t invest here, but I want to invest somewhere, what should I do?

Use a turnkey property company!!!

Actual Turnkey Property Salesman

It’s a potential solution to long distance investing. Turnkey property providers usually buy distressed properties in good rental markets (not high cost of living areas). They buy at a discounted price, and then rehab the property so it’s move-in ready.

At this point, they can either sell it to an investor, or go a step further. They’ll find a local management company, get a tenant placed, and sell the property to investors with tenants and property management in place.

It’s supposed to be a win-win. The turnkey property company flips the property to the investor for a mark-up, but there is still supposed to be enough “meat on the bone” for a decent return on investment (ROI) for the investor as well.

Typically, these companies will estimate an ROI of 7-12%, although that’s if nothing ever goes wrong (stuff always goes wrong).

Let’s show the numbers on what a turnkey property might do:

TURNKEY PROPERTY NUMBERS

They buy a house for $35,000 that needs lots of work.

They fix it up for $15,000

They sell it to you for $100,000

It rents out for $1000 a month.

As you can see, they profited $50,000 on the flip to you, but you still got a house that rents for $1000 a month. Doing some very simple math, you could estimate this ROI to be about 6%.

5 Best Places to Save Your Down Payment (Video)

By Rich

On October 26, 2018

In Investing, Real Estate

Where should you save your down payment for a house?

There are tons of articles and blogs trying to answer this question. I’m not happy with any of them.

I’ll try to answer this my way.

The Rich on Money way.

There are two main factors that will influence where you should invest your downpayment for a house.

The first is how certain you are in what timeframe you will need that money. Are you for sure using it within the next year? Not much of a reason to put it at risk.

Are you unsure if you will purchase something in the next several years, but want the option?

Maybe you should consider putting some of that money at risk instead of just letting it sit there not working for you.

The next factor is your risk tolerance.

Some people understand that by putting their down payment in the stock market or a mutual fund, they run the risk of either having it grow quickly, or the opposite, losing half or more of its value quickly.

Could you live with that tradeoff?

If not, go with the less risky options, even if you are not sure when you will purchase a house.

Also, there’s what I ended up doing in my life.

I’ll explain which one of these methods I ended up using for my money.

It’s one that could have backfired on me big-time, but luckily didn’t.

Let’s look at the least risky options first.

TREASURY BILLS

The 10 Cheapest Index Funds to Supercharge your Portfolio

By Rich

On September 8, 2018

In Investing

index fund fees

UPDATE 2: I’m updating this article to reflect new information coming from Fidelity Investments making significant reductions to the costs of their index funds on August 1, 2018 and changes to Vanguard’s fee structure on December 1, 2018.

Index Funds

Let’s have some index fund fun today.

Many in the Financial Independence Retire Early (FIRE) community recommend VTSAX (Vanguard’s Total Stock Market Index) as the investment of choice.

Why is that?

It probably has something to do with the blog www.jlcollinsnh.com or the book The Simple Path to Wealth.

If you are in the Choose FI world, then you’ve heard of the Godfather of FI, Jim Collins.

You may know he is a huge fan of Vanguard as the mutual fund company of choice.

Why?

Does it have the cheapest index fund fees?

Does it have the lowest investment minimums?

It turns out…

It does not.

Then why does he recommend it?

I’ll get to that…

One thing I did the first time I read The Simple Path to Wealth (I ended up reading it about 15 times as his editor on the book) was check all my current investments to find out if I was paying too much in fees.

I’ve always followed the simple advice of Warren Buffett.

Invest in index funds.

I don’t believe investors can or should try to beat the market.

What is a Cap Rate and How to Calculate It

By Rich

On September 3, 2018

In Real Estate

The terms return on investment and capitalization rate get thrown around a lot in fancy-shmancy real estate circles. We’re going to demystify them.

Return on Investment (ROI) is a performance measure used to measure the efficiency of an investment. In other words;

How much money is this house making me?

It is used in many forms of business, but we will focus on how it applies to real estate.

ROI measures the return on an investment compared to the investment’s cost. To calculate this, the return on an investment is divided by its cost. The result is expressed as a percentage.

For real estate, it’s the income from a property minus costs.

There are many things to keep in mind when you see an ROI from a property, such as whether you are paying cash or financing, will you include closing costs, interest, and loan paydown. The ROI can look higher than it is when certain costs are being ignored.

When you see someone bragging about their ROI, take it with a grain of salt. They may not be accounting for all their costs.

Today, we are going to focus on a specific type or measure of ROI called a capitalization rate.

Capitalization Rate (Cap Rate)

If you are calculating the ROI on a real estate deal as if it was being done in cash, you are calculating the capitalization rate, often abbreviated as cap rate.

The reason cap rate is one of the most popular measures used in real estate is it allows you to compare investment opportunities to each other.

Sometimes ROI’s are calculated by using the down payment as part of the formula. This means the ROI can change based on the size of the down payment. This isn’t the case with cap rates. The formula for a cap rate has nothing to do with down payments or mortgages.

How to Get a VA Loan

What Exactly is the VA Loan?

What’s the Most I Can Borrow?

What My Grandmother Taught Me About Real Estate

The Best TSP Investment Strategy Out There

THE FIVE CORE FUNDS PLUS L

The G fund contains short term U.S. Treasury securities with no exposure to the risk of the bond or stock market

The F fund is an index of world-wide government, corporate, and mortgage-backed bonds

The C fund is equivalent to the S&P 500 index.

The S fund is an index of mid and small-cap stocks not included in the S&P 500.

The I fund mimics the MSCI EAFE Index of international stocks in 21 developed markets excluding the United States and Canada.

The L funds are professionally managed investment funds tailored to a specific time horizon.

The G fund – The Government Security Investment Fund

Pros: No volatility and backed by full faith and credit of the U.S. government

Cons: Can barely match the inflation rate; rate based on prevailing interest rate, which is currently low

9 Proven Ways to Boost Your Index Fund Returns (Video)

PAUL MERRIMAN

THE ULTIMATE BUY-AND-HOLD PORTFOLIO

Portfolio 1

Portfolio 2

Seven Steps to Being a Military Millionaire (Video)

Secrets to Finding a Mentor in Real Estate Investing (Video)

WHAT NOT TO DO

DON’T USE THE “M” WORD

Should I Buy a Turnkey Property? (Video)

5 Best Places to Save Your Down Payment (Video)

TREASURY BILLS

The 10 Cheapest Index Funds to Supercharge your Portfolio

Index Funds

What is a Cap Rate and How to Calculate It

My name is Rich. I’m Rich on Money

Rich

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