Real Estate Wealth with the VA Loan: Appreciation

Today we look to change the focus of this site from generic benefit content to how-to manuals and news updates on changes to your benefits as a service member. Expect future posts to include checklists, step-by-step instruction, and video content aimed at ensuring you get the most out of the benefits that you are entitled to.

The focus of today’s post will be the accumulation of wealth from a powerful tool available to you: the VA loan. For details on how to use your VA loan, see our post here. Today’s topic will be understanding how to generate wealth from the loan. There are two ways to do so: cash flow on rental properties (after you’ve moved out) and appreciation. Today we will talk about appreciation.

Appreciation is an increase in the value of the home you purchase over time. For example, if you purchase a home for $120,000 and sell if for $150,000, it has appreciated by $30,000. Bear in mind that there are significant closing costs associated with selling a home so all of that money doesn’t necessarily go to you. You typically expect to pay 5% in fees on the sale. Here’s a 3 step look at how to make money through appreciation with your VA Loan.

Step 1: Choose the right home! If you’re looking to make money from appreciation this step is essential. Certain areas appreciate more than others. Hawaii, for example (where I purchased my first home) tends to appreciate rapidly. Look at historical data for the community to see what drives growth. The Z-Estimate (see Zillow.com) may provide a good tool at predicting prices as well, but given the number of factors that drive house prices, it’s not always accurate.

Other things to consider on this step include the specific neighborhood and the quality of the home. If you’re trying to flip the house, you never want to purchase the nicest house in a bad neighborhood. It’s already been flipped! You also don’t want one that’s already entirely redone. Try to avoid those granite countertops when purchasing a home you intend to add value to. Additionally, look at big projects in the area. Is a new shopping mall going up? Is the city undergoing a huge re-imaging campaign and building new parks and recreational areas? If the answer is yes, that’s a good sign.

Step 2: Renovate! If you’re looking to increase the value of your home, certain upgrades pay off more than others. As a rule of thumb, minor kitchen and bathroom improvements drive up the value of homes, but don’t shoot for anything excessive. Top of the line granite countertops do just about as much as generic granite. The top value producing renovations are listed here. If you’re really looking to generate wealth through appreciation, this can be a powerful step if you purchase older homes, foreclosures, or short sales. In these homes, however, check to ensure that the home is available to purchase with a VA loan first! Also, make the home look good for staging. Prior to selling, consider a new paint job, modern light fixtures, or other small repairs.

Step 3: Timing the sale$ This is probably the hardest step but can significantly impact the sale price of your home. While you need to do what’s right for you, (maybe you’re about to PCS) timing the sale can make thousands of dollars in difference. In certain markets, for example the summer moths cause a boom in housing prices of 2-3%. People like to purchase homes in the summer because their kids are out of school or they’re PCSing to a new location.

If you purchased in that up-and-coming neighborhood, the time to sell might be when 50-75% of the homes in the area have also been renovated or “flipped.” Maybe the new park down the street has been built and you’re ready to sell.

Additionally, consider closing costs and equity you have in the home. If you fully own the home, you’ll have plenty of equity but expect the cost to sell to be significant. A few strategies to save on closing costs are to use real estate agencies such as Redfin who charge lower fees or shopping around for other services involved in closing. Saving money on closing impacts how much you benefit from the appreciation on your home. Doing so can have a significant impact on your bottom line.$

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