SoFi

Investing in real estate has the potential to build your assets and make you money for years. Turnkey properties are real estate investments that are designed to be “turnkey” — in other words, ready to rent immediately, with little effort needed from an investment owner. If you’re interested in direct ownership, but don’t want the hassle of renovating a property or finding a tenant, you may want to look into turnkey investing. We’ll break down what it is, what to look for, how to finance it, and what alternatives you have for investing in real estate.

Definition of a Turnkey Property

Turnkey properties are rent-ready homes that are typically new construction or fully renovated. They’re often associated with a turnkey company that has completed the renovation and may already have a paying tenant in the rental unit. It might even have property management services in place.

Turnkey rental properties are most common in areas where homes sell at a lower price point but have high rental rates. Outside investors are often targeted for these investments, which can be both a good thing and a bad thing. There are some key considerations you’ll need to make if you decide to invest in one.

Key Characteristics

Some key features of turnkey rental properties include:

•   Newly built or renovated

•   New systems, such as electrical, HVAC, roofing, and plumbing

•   New flooring, paint, countertops, and cabinets

•   Ready to rent or tenant in place

•   Rent is coming in as per the lease agreement

A turnkey property is meant to have no gaps in monthly rent for the investor, which is a major positive when you’re getting started.

The Difference Between Turnkey and Traditional Properties

The major difference between a turnkey property and a traditional property is there’s usually a middleman involved to make sure turnkey homes are truly “turnkey.” The turnkey company’s role is to buy a property, rehabilitate it, get a tenant in place, and then sell the property for a large profit. Some turnkey companies also provide property-management services.

With a traditional property, you would go through the purchase process with a real estate agent and then do a lot of the leg work yourself. You would have to find a property management company, contractor, cleaner, attorney, accountant, and more.

Recommended: The Ultimate Moving Checklist

Types of Turnkey Properties

Turnkey properties come in all shapes and sizes. What’s available depends on what has been renovated by a turnkey investment company. You’ll see a lot of single-family homes, but you’ll also come across some multi-family units and commercial properties that are ready to go.

Turnkey Investment Process

Investing in a turnkey property is a straightforward process, much like buying any other property. The hardest part of the process is in the research. Here’s what you’ll want to investigate:

•  Markets: You’ll want to find an area with high affordability, high rental rates, and a high rental population. You’ll also want to research neighborhoods to ensure you’re buying in an area where people feel safe renting.

•  Turnkey and property management companies: Read reviews or talk to people who have worked with the property management company before.

•  Individual properties: Look for quality renovations, desirable neighborhoods, and numbers that work. No matter what, you’ll want to see it in person.

Once you find a property you like, you’ll make an offer on a home, get a loan, go through escrow, and sign on the dotted line.

What may be different about a turnkey property is it may not be listed by a real estate agent. You might be buying directly from the company that renovated it.

Advantages of Investing in Turnkey Properties

Turnkey real estate has a number of benefits:

•  Immediate rental income: With a turnkey property, they’re either ready to rent or already rented, which provides immediate rental income. It’s also possible rental procedures and management have already been set in place.

•  Minimal effort: You don’t have to find contractors or put in elbow grease to get the property ready to rent. It has already been done for you.

•  New or renovated: Since turnkey rental properties have been recently updated, they probably look pretty great and can easily rent out.

•  Geographical diversification: If you’re priced out of your own market, you might like investing in another area that’s more affordable. A turnkey property can help you invest without needing to live in that area.

It’s also important to look beyond the fully renovated home to possible drawbacks.

Potential Drawbacks of Turnkey Investments

There are considerable drawbacks to turnkey investment properties, not the least of which may be that all the opportunity for profit may have already been squeezed out of the deal. Consider these possible problems:

•  May be overpriced: Turnkey investment companies aim to get top dollar from investors. There’s little headroom for a property to appreciate when it is priced at the top of the market. And if you are paying top dollar for the property, a significant amount of the rental income can go toward covering a mortgage, not to mention keeping up with repairs.

•  Turnkey companies make the majority of the money: In addition to charging top dollar for the property itself, many turnkey companies also serve as property managers and may charge fees for maintaining and renting out the property.

•  May not be in the best neighborhood: When you’re not a local investor, it can be hard to tell if a property is in a desirable area or not.

•  Rental income numbers may be too optimistic: When you buy a turnkey property from a company, its estimate of rental income may not account for vacancies or missed payments. Run your own numbers.

•  Renovation may not be high quality: Companies that complete renovations may not be putting in the highest quality materials, and pictures won’t capture how good (or bad) the renovation might be.

•  May be difficult to sell at a profit: If the property is turnkey and priced at the top price point, it may be difficult to get top dollar again from another buyer.

Recommended: How Much Is My House Worth?

Who Should Consider Turnkey Properties?

Turnkey properties are often lower-priced properties marketed to out-of-state investors who may be priced out of their local market. This can become a problem if the investor doesn’t know the neighborhood or values of homes in the area. Others who might consider a turnkey property:

•   Investors who don’t have time to assemble a team or rehab a property

•   Investors willing to sacrifice some profit margin for the convenience of a turnkey property

•   Investors who don’t want to manage a property

•   Investors who can find a good deal

•   Investors who want to enter a new market

How to Evaluate a Turnkey Property

Not every turnkey property is going to work for you, and quite frankly, not all of them are “turnkey” as the name suggests. You’ll want to look at the following factors in evaluating a turnkey rental property.

•  Location: Is the home in a desirable neighborhood? Ideally, you want your investment to appreciate or generate cash flow (sometimes both). If the neighborhood isn’t one you’d want to live in, or isn’t kept up very well, that will affect your property’s value. If you’re serious, you’ll want to get on a plane and walk the streets where you want to invest.

•  Property condition: Even with renovated properties, you’ll want to ensure the major systems are in good working condition. It’s easier to get things fixed before you buy the property, so a home inspection is important.

•  Financials: Learn to run your own numbers and analysis to make sure you’re getting a good deal. You don’t want to rely on the number provided to you by the turnkey company. Start with a mortgage calculator with taxes and from there, look at cap rate, ROI, and cash flow.

•  Valuation: Don’t overpay for a property because you are unfamiliar with the market. You can find the fair market value from an appraisal or a BPO (broker’s price opinion).

•  Turnkey company: Thoroughly vet the turnkey company. Talk to people who have used the service. Post questions in online real estate forums and look at reviews online.

•  Management company: Talk to the management company and people who have worked with the management company. You don’t want a company that only does the bare minimum for your property while charging a premium.

Financing Turnkey Properties

Financing turnkey real estate is typically done with traditional home mortgage loans. Financing may be easier to qualify for since properties are in good condition. Typical eligibility requirements for financing include:

•  Credit score: 620 or greater

•  Debt-to-income ratio: No greater than 45%

•  Cash reserves: Three months of cash reserves

•  Mortgage insurance: Required for loans with less than 20% down payment

•  Down payment: At least 15% for one unit, 25% for two or more

•  Maximum loan amount: $766,550 for a single-family home in most areas

Depending on your property, you may need a different loan type, such as a multifamily, portfolio, or apartment loan.

Tax Implications of Turnkey Investments

You get all the tax benefits of ownership with turnkey investments. You’ll be able to deduct certain expenses since you’re paying for them directly. The IRS lists these as:

•   Mortgage interest deduction

•   Property tax (often, property taxes are included in the mortgage)

•   Operating expenses

•   Repairs

•   Depreciation

Comparing Turnkey Properties to Other Real Estate Investments

If you’re interested in real estate investing, but don’t think turnkey homes are right for you, there are other options.

Fix-and-flip

A fix-and-flip property is a property purchased at a discount, renovated, and then sold for a profit. Buying a foreclosed home that needs repairs is a great example of this, but you’ll need to assemble a team to renovate and rent it.

REITs

A REIT is short for “real estate investment trust,” which is a trust that owns income-producing property (often commercial real estate) for the purpose of making a profit for investors. Investors own a share of the trust. It’s considered a passive investment where investors don’t need to make day-to-day decisions. You can buy a REIT on a stock exchange if they’re publicly traded or find the right broker if they’re not publicly traded.

Traditional rentals

You can work with a real estate agent to buy a property to rent out, either residential or commercial. Traditional rentals may need a little work to be ready and you’ll need to find your own team to be able to make it work.

The Takeaway

Turnkey properties sound convenient, but you need to do your homework to make sure the investment is a good one. You’ll also be buying at full retail price, which means there won’t be much room for the property to appreciate. On the flip side, it’s pretty appealing to walk into an investment property without having to fix it up. If you’re looking for direct ownership of real estate without the headaches, turnkey homes might be the way to go.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Are turnkey properties good for first-time real estate investors?

Each investor will need to evaluate the pros and cons for themselves. If you want to be as hands-off as possible, even at the cost of possible profits and upside, turnkey real estate investing might be the right fit. If you want to understand and work in your real estate business, you may want to look at the full range of investment options.

How much do turnkey properties typically cost?

Turnkey properties are typically sold at full market value, if not more. Most real estate investors look for properties below market value to get the benefits of appreciation and cash flow, and turnkey properties have a much smaller upside.

Can I visit a turnkey property before purchasing?

Yes, you can and should visit a turnkey property before purchasing, even if the company selling it is giving you assurances that everything looks good and is in working order.

---

Photo credit: iStock/Vesnaandjic

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOHL-Q424-007

Read more

A blue tape walkthrough is a surface-level inspection of a new home where issues are flagged with blue painter’s tape by the buyer. It’s a normal part of the process for homeowners buying a new-construction home. You’ll complete the final blue tape walkthrough 5 to 7 days before you close on the home, and any issues you draw attention to should be fixed by the builder.

It’s incredibly helpful when you know what to look for. This guide can help you complete the blue tape walkthrough with confidence.

Understanding the Blue Tape Walkthrough

You might hear a blue tape walkthrough called “blue tape inspection,” but it is not, technically speaking, a full home inspection. You’re the one walking through, and you’re not expected to have specialized knowledge. But a blue tape walkthrough is the perfect time to flag cosmetic or functional issues such as paint touch-ups, a door that’s sticking, or tile grout that needs to be cleaned up. Flagged items will be added to the “punch list,” which is a list your builder has of all the items that need to be completed before a homeowner moves into the new construction home.

Taking care of all the punch list items you find is the builder’s job and will make moving into your new home smoother.

Definition and Purpose

The blue tape walkthrough is an opportunity for you to go through the house with your construction manager before you close on your home mortgage loan. You’re ready to get through the closing and focus on your moving checklist — you don’t want to also have to worry about fixing a bunch of things around your new home, so the more you find, the better. After all, you aren’t buying a foreclosed home or a historic home built in the last century. You’re paying for new construction and should make sure you get your money’s worth.

Origin of the Term “Blue Tape”

Blue tape refers to the blue painter’s tape used to visually mark where an issue needs to be addressed. Blue painter’s tape has only been around since 1988, so the origins are fairly recent.

Recommended: Mortgage Calculator with Taxes

Blue Tape Walkthrough Process

The blue tape walkthrough process is pretty straightforward. Here’s when it happens, who does it, what tools are used, and what to expect:

Timing of the Walkthrough

You’re well past the point of making an offer on a home when you take this step. The blue tape walkthrough occurs 5 to 7 days before you’re set to close. It’s not intended as a home inspection. Ideally, that has already been completed. It’s a final walk-through designed to flag minor issues and point out what’s missing or not working.

Participants Involved

The blue tape walkthrough is completed with the new homeowner and a representative from the builder, such as a construction supervisor or community superintendent. The buyer’s real estate agent can also accompany the buyer, as can any other professional the buyer invites.

Tools Used

You don’t need specialized tools to complete a blue tape walkthrough, but you’ll likely want the following:

•  Blue painter’s tape. You’ll likely be given this by the builder, but you can bring your own. You’ll tear off a piece when you find something that needs to be addressed.

•  Measuring tape. If something doesn’t feel quite right or looks off-center, you can use a measuring tape to check.

•  Level. A level can help you check alignment if your eye tells you something seems off.

•  Flashlight. For those hard-to-see areas.

•  Camera. Take pictures of the defects you find. Make sure anything you asked to be fixed previously has been fixed.

•  Notepad. You’ll want to take notes, either on paper or on your device.

Recommended: How Much Is My House Worth?

Common Issues Identified During a Blue Tape Walkthrough

Don’t know what to look for? Unless you have experience, you won’t really know what to look for. It’s helpful to walk through with someone who has construction experience (builder, architect, or designer). Even after an inspection and blue tape walkthrough, it’s normal to miss things.

Hopefully, a home inspection has taken care of the major issues for you, and you’ll be looking for more minor, common issues on your own. Here’s a blue tape walkthrough checklist of what to look for in the interior and exterior spaces of the home.

Cosmetic Defects

You’ll likely see some cosmetic defects, including:

☐  Cleaning. Note areas that need cleaning, especially in the front yard and entrance after construction has been completed. Look for stains in the carpet or scratches on appliances or countertops.

☐  Chipped paint. Mark spots that may have a different sheen or need some paint touch-up.

☐  Drywall. Check for uneven surfaces, gaps, nail holes, or inconsistent texture.

☐  Missing or bad caulk job. Caulk smooths over a lot of edges. There are likely a few places where the builder missed, including sealing in new doors, windows, trim, tubs, toilets, sinks, and more.

☐  Paint overspray. You might see tiny splatters on tile, cabinets, or flooring.

☐  Gaps or visible seams. Mark any gaps you don’t like, such as transitions from one floor to another, a window to a wall, or visible seams along trim work.

☐  Dead grass. If landscape is included in your package, have the dead spots of grass addressed.

☐  Fence damage. Check for broken slats, areas where pests can enter, and uneven installation.

☐  Poor workmanship. Bad tile jobs, sloppy window installation, messy caulk, etc.

Functional Problems

Functional problems are those where something isn’t working the way it should. You may want to check the following:

☐  Working hardware. Check knobs and locks for functionality.

☐  Electrical fixtures. Outdoor lighting and interior lights should be installed and working. Ceiling fans should be installed securely and working.

☐  Drawers and cabinets. Make sure drawers run smoothly and cabinet doors lay even. They may need an adjustment or need hardware installed. Make sure the shelves are there.

☐  Windows. Test all the windows and make sure they open and close properly and smoothly. Make sure they lock securely.

☐  Doors. Both interior and exterior doors need to function properly. If they stick, they may need a slight adjustment. If you can see light through the sides of an exterior door, it may be missing weather stripping or need an adjustment.

☐  Plumbing. Run every faucet in the home and look for leaks. Make sure you have hot water. Flush all the toilets. Make sure you have water pressure. Make sure everything drains properly. Make sure you can find the water shut off.

☐  HVAC. Turn on heating and cooling mechanicals. Does your thermostat work? Take a look at the filter on the cold air return as it likely needs to be changed after construction has ended.

☐  Appliances. Make sure appliances that were included in your home purchases are installed properly. The dishwasher is often installed incorrectly. Use the oven or cooktop and make sure each burner works. Run the microwave for a bit.

☐  Garage door. Check to see if the garage door is operational.

☐  Grading. Make sure there’s a proper grade away from the house so water doesn’t settle around the foundation.

☐  Sprinkler system. Check the sprinkler system for leaks and errant spray.

Missing Features

The blue tape walkthrough checklist is longer still. Next step: Make a note of any feature that was promised, but has not yet been installed. Common issues might include:

•   Dishwasher, washer and dryer, or stove vent hood.

•   Dryer vent not installed.

•   Wiring for a TV or other electronics.

•   Upgrades you paid for.

•   Safety features, such as a fire alarm, carbon monoxide detector, or safety rails.

Importance of the Blue Tape Walkthrough

A blue tape walkthrough can help with quality assurance, help protect your investment, and ensure accountability on the part of the builder.

But perhaps what’s most important about a blue tape walkthrough is it helps take care of issues before you move in. When something comes up after you move, it’s much more of a hassle to fix than if it had been caught during an inspection or blue tape walkthrough.

Preparing for Your Blue Tape Walkthrough

If you’re working closely with your home builder, it’s likely you’ll have more than one blue tape walkthrough. You might be visiting the site all along and have noted issues that needed to be addressed when you saw them.

If this is your first blue tape walkthrough, here are a few tips to prepare:

•  Visit the home frequently (where possible). You may notice and flag issues that can be fixed before your last blue tape walkthrough with the builder.

•  Communicate with your construction manager. A good construction manager will likely flag issues better than you can. Good communication can help ensure issues are fixed in a timely manner.

•  Print out a checklist and take it with you. When you’re going through the house, you may forget what to look for. Take a checklist with you.

•  Ask for advice from experts. It’s hard to know what to look for, but you may have people in your network that are willing to help prepare you for a blue tape walkthrough.

•  Create your own punch list. You’ll want to be sure you have your own punch list to help the builder follow through.

After the Blue Tape Walkthrough

After you’ve completed your blue tape walkthrough, there are a few follow-up items to take care of:

•  Share your punch list with the construction manager. While they have their own punch list, just make sure you’re on the same page with what issues need to be addressed.

•  Set a timeline for repairs. On that same note, communicate with your construction manager about when you want repairs to happen. It’s not uncommon for a builder to say they’ll come fix something after your loan is closed, but they might be more inclined to fix something quickly if they haven’t been paid.

•  Follow-up with inspections. You’ll want to visit the property again to ensure the issues have been cleared up.

Blue Tape Walkthrough vs. Final Walkthrough

When you’re comparing a blue tape walkthrough vs. a final walkthrough, the major difference is the purpose. The purpose of a blue tape walkthrough is to flag minor issues the builder needs to address before closing. The purpose of a final walkthrough is intended to ensure the home remains in the same condition as when you wrote the contract and contractual obligations have been met.

The Takeaway

You play an important role in the blue tape walkthrough — don’t be afraid to take the time you need to flip every light switch and run every appliance to ensure that the details of your new home are taken care of before you move in. With a little blue painters tape, you can visually communicate to the builder what needs attention and where it is located.

You don’t need special knowledge, but it can be beneficial to bring along someone who can flag potential issues with you. The more that’s addressed before you move in, the less you have to stress about after you’ve moved into your new, beautiful — and fully functioning — home.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Why do real estate agents use blue tape?

Real estate agents or a home builder’s representative use blue tape, also known as painter’s tape, to mark walls and other areas because this tape is specially made so that it does not damage painted surfaces.

What is a blue tape inspection?

A blue tape inspection is not a true home inspection but rather a buyer’s walkthrough of a newly built home to identify anything that needs to be fixed before the closing. The buyer and a builder’s representative will walk through the home to look for cosmetic issues (such as dents or chipped paint) or functional issues (non-working appliances, for example) that need to be addressed.

---

Photo credit: iStock/Seth Cortright

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOHL-Q424-004

Read more

If you’re into real estate investing, and you’re thinking about expanding your portfolio to include multiple rental properties, you may have seen the acronym BRRRR and wondered what it means.

BRRRR — which stands for Buy, Rehab, Rent, Refinance, Repeat — is kind of like house flipping, but on steroids. Instead of reselling a newly rehabbed home for a one-time profit, a BRRRR investor keeps the property and rents it with the goal of generating income while also building equity to make another purchase, and another, and so on.

Read on to learn more about this complicated investing strategy, how it works, and some pros and cons.

Understanding the BRRRR Method

Don’t let the “cool” and easy-to-remember acronym fool you: Successfully executing each step of the BRRRR method can require time and effort, and knowledge about how to invest in real estate, especially in your local market. Here are some BRRRR real estate basics:

BRRRR Meaning

BRRRR is a strategy real estate investors use to keep adding rental homes to their property portfolio. Each of the five letters stands for a step in the process:

•  B – Buy a property that you expect to gain significant value but that may need a substantial amount of work.

•  R – Rehab that property to gain equity and make it appealing to renters.

•  R – Rent the property to provide an income source.

•  R – Refinance the property with a cash-out refinance to provide money for your next investment property.

•  R – Repeat the process with another property that needs help and keep building your portfolio.

Origin and Evolution of the Strategy

Investors have been following these steps for years in an effort to maximize the profits from their rental properties. But podcaster and blogger Brandon Turner of BiggerPockets.com gets credit for the catchy BRRRR acronym, which is now a common term in the real estate lexicon.

Breaking Down the BRRRR Method

Each step in the BRRRR process presents its own challenges, which may become easier as you develop your own systems and go-to sources. Here’s a look at what to expect.

Buy

Finding the right property to purchase is critical to making the whole strategy work. Many experienced BRRRR investors recommend buying a distressed property that’s in need of renovations, so you can get in cheap and secure the biggest return on your investment. If you have the wherewithal to manage this type of project without getting in over your head, you may be able to quickly add to your equity. And if the property is in a sought-after area, you may find you can charge more for rent.

Rehab

A distressed property may be a good buy, but major repair costs can cut into your profit. And unless you plan to do the work yourself, you’ll need a reliable contractor to help you renovate. Budgeting is a big factor at this stage. It can help to know the market, so you don’t over- or under-improve the property. And since you may be the person who gets the calls when things need to be repaired or replaced, you’ll want to make sure everything is solid and safe.

Rent

Finding the right renter can be difficult — so you may want to hire a trusted property management service to take on this step of the BRRRR strategy. You’ll likely want to check on each applicant’s employment, review their credit score, and perhaps do a criminal background check. Having a reliable renter can cut your overall costs (the place won’t sit empty, you’ll get paid, and you won’t have to worry about damages). And you may need to have a signed lease when you go to do your cash-out refinance. It’s also critical to factor in all your costs and current rent prices for comparable homes in the area when deciding how much to charge.

Refinance

Once you begin collecting rent, you can use it to pay off some of your current costs and prepare for your next purchase. Then, as soon as you have enough equity in the property, you can start the ball rolling on your cash-out refinance. The goal here is to swap your original mortgage for a new loan, preferably with better terms, and to come away with a portion of your equity in cash to put toward your next project. Lenders may have different rules regarding how long you have to own the property, or how much equity you must have to qualify, so it can be helpful to build a relationship with a reliable lender who becomes your go-to source for this step.

Repeat

With the cash from your refinance in hand, it’ll be time to start another property search — or, better yet, to move on a property you’ve already found. If the strategy works, an investor could potentially purchase multiple rental properties and continue making money through rent and equity.

Benefits of the BRRRR Method

As with any investment, there are benefits and risks associated with the BRRRR method. Some of the pros include:

•  You can build equity. If you buy multiple properties, renovate them, hold on to them, and maintain them so they keep their value, you can expect to keep building equity.

•  You can generate a reliable flow of cash. If you buy multiple properties, renovate them, hold on to them, and maintain them so they keep their value, you can expect to keep building equity.

•  You can diversify your investment portfolio Adding real estate investments that provide passive income can further diversify your portfolio, which can help protect you during market fluctuations.

•  You can take advantage of certain tax breaks. As a property owner who earns rental income, you may be able to deduct some of your expenses (mortgage interest, property taxes, repair and management costs, etc.) on your tax return each year.

Challenges and Risks

Some of the drawbacks to the BRRRR strategy can include:

•  You may experience market fluctuations. Although property values and rent prices always seem to be going up, there’s the chance they could slip and (at least temporarily) affect your profit. And if you can’t make your payments, you could lose the property.

•  You may run into renovation overruns. If you’ve ever watched a home renovation show, you know how easy it can be to go over budget. Solid planning, a thorough home inspection, and a contingency fund are must-haves for the rehab stage of this strategy.

•  You may lose rental income if there’s vacancy. Finding reliable tenants can be challenging — and unreliable tenants can mean lost income and/or added costs.

•  You may have trouble refinancing. Depending on the market, lender criteria, and your own creditworthiness, it may be harder than you expected to get a loan, or to get the terms you hoped for when buying or refinancing.

Financial Considerations

Before jumping on the BRRRR bandwagon, there are several financial considerations to keep in mind, including:

Initial Capital Requirements

Unless you’ve saved up a pile of cash to buy your first property, you’ll need to find financing. That could mean:

•  Taking out a mortgage — which can require coming up with a down payment and closing costs.

•  Borrowing against the equity in your own home — which can put your home at risk of foreclosure if your BRRRR business isn’t profitable.

•  Taking out a hard money loan — which is common for this type of real estate investing, but typically comes with high interest rates and short repayment terms — can be risky. Hard money loans are generally offered by individual investors and investment firms that can provide fast funding and usually care more about the value of the asset than the borrower’s creditworthiness.

Rehab Costs

When looking at investment properties — particularly distressed properties — it’s important to calculate the estimated value of the home after renovations and repairs. This is known as the after-repair value (ARV = current property value + value added from renovations). For the BRRRR method, it can be useful to consider how improvements will affect the value of the home for equity and rental income. A common BRRRR rule of thumb is that you should avoid paying more than 70% of the ARV when purchasing the property. So, for example, if a home’s ARV is $400,000, you wouldn’t pay more than $280,000 for the home.

It can also be helpful to carefully prioritize the renovations you plan to make. Making the home safe is critical, but your costs will also include improvements that add value, such as updating appliances, installing new windows, and adding curb appeal.

Cash-Out Refinancing

Cash-out refinancing is a critical part of the BRRRR strategy, since you’ll use the money to buy another property to rehab and rent. You may want to spend a little time researching and comparing lenders to get the best interest rate and other loan terms for your needs and goals. Be prepared: Qualifying for a cash-out refinance and the mortgage refinancing costs (loan fees and other closing costs) can be similar to a home purchase.

Return on Investment Calculations

Calculating return on investment (ROI) can help you make smarter decisions about the properties you own and those you hope to add to your real estate portfolio. Some things to consider when estimating your ROI include:

•  Purchase price and financing terms. If you pay too much for a property or the loan, your returns are likely to disappoint. Negotiating a good deal is a key to making the BRRRR strategy work.

•  Profitable and reliable rental income. Finding the sweet spot between charging competitive rental prices and keeping vacancies low is also essential.

•  Operating expenses. Keeping your property running smoothly can lower your operating costs in the long term. But things like maintenance costs, property management fees, insurance premiums, and the property taxes included in mortgage payments can all directly impact ROI. Again, finding the right balance between efficiency (getting things done) and economy (keeping things affordable) can help you maximize your profit.

•  Property appreciation. Speaking of the long term, a property’s potential to increase in value can also be an important factor when determining ROI.

•  Tax advantages. Investors can reduce their taxable income each year by claiming depreciation, mortgage interest deductions, and other tax benefits related to their rental properties.

Recommended: Mortgage Calculator with Taxes

BRRRR vs Traditional Real Estate Investing

Risk vs. reward is a common theme in all types of investing — and it’s definitely something to look at when comparing the BRRRR method to traditional real estate investing.

While investors using the BRRRR method have the potential to expand their portfolio — and grow their wealth — at a faster clip than traditional real estate investors, they’re also taking on more risk. Which is why choosing between the two approaches can boil down to knowing yourself: How much time and effort do you want to put in? How much do you really know about real estate, renovating, rentals, and the market where you would purchase the home? What is your tolerance for risk (emotionally and financially)?

If you’re relatively new to real estate investing, you may want to seek out some advice from someone who’s a BRRRR veteran. It may make sense to hone your skills and get to know your market better before diving in. Or you may decide that taking a more hands-off approach with REIT investing (investing in a real estate investment trust) is a better fit for you.

Recommended: Real Estate vs. Stocks: Pros and Cons

Tips for Successful BRRRR Implementation

Think you may be ready to tackle the BRRRR method? Here are some planning tips:

•  Use your contacts. If you’ve been investing in real estate for a while, it’s likely you have a go-to group of pros you work with on a regular basis. Tap those folks — real estate professionals, contractors, workers — for advice and assistance as you search for a property to purchase and rehab.

•  Stick to a budget. The key to BRRRR is to keep costs manageable all through the process. That means figuring out your costs before you buy, and sticking to a budget as you renovate, rent, and maintain the property.

•  Be picky about tenants. Choosing good tenants can help you avoid problems with vacancies, missed rent payments, maintenance problems, and other issues. Paying a professional service to vet potential renters could end up saving you money later on.

•  Don’t forget the importance of refinancing. Finding the right lender and home mortgage loan terms as you prepare for your cash-out refinance can help you confidently move on to the next property.

•  Learn from your wins and losses. When you hit the “repeat” stage of the BRRRR method, you can use what you learned along the way to keep improving your process and the team of people you work with.

The Takeaway

The BRRRR method of real estate investing can be profitable: Investors who make it work can enjoy passive income from their rentals and build equity in a portfolio of properties. But BRRRR also can be time-consuming and risky. Newer investors may want to wait until they have more experience with traditional real estate investing before they jump into this strategy.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How long does a typical BRRRR cycle take?

A BRRRR cycle can vary based on several factors (property selection and closing, renovation schedule, cash-out refinance timeline), but it generally takes a few months to a year.

What types of properties work best for the BRRRR method?

BRRRR investors typically look for distressed properties that can be purchased for a low price. This allows them to add value faster, and to turn their equity into cash to use for their next purchase.

How does BRRRR affect taxes and depreciation?

BRRRR investors can reduce their taxable income over the long term by claiming mortgage interest deductions as well as deductions for property taxes, operating expenses, repairs and depreciation on their rental properties.

Can BRRRR be used in any real estate market?

Yes, the BRRRR method can be used in any real estate market. But it requires finding the right property at the right price, as well as having a manageable rehab budget and reasonable financing and refinancing terms to make it a success.

---

Photo credit: iStock/Rockaa

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOHL-Q424-010

Read more

If you own one or more rental properties and you’re considering selling this year, it’s important to think about the impact capital gains tax on rental property could have on your profit — and on your future goals for that money.

Planning ahead is key to minimizing the hit to your bottom line. So read on for some capital gains tax basics and a few strategies that can help rental property owners lower the tax burden when they decide to sell.

Capital Gains in Real Estate

When you invest in real estate, the expectation (or hope, at least) is usually that when you sell it, you’ll make a nice profit on the deal. It’s one reason so many people have been investing in single-family rental homes in recent years.

You may already have a plan for how you’ll use that profit — to make another investment, for example, or to put toward your retirement. But if the value of the property has increased substantially during the time you’ve owned it, you should also be prepared to hand over some of your gains to the IRS to cover the capital gains tax.

What Is a Capital Gain?

When you determine how much a house is worth, find a buyer, and sell a capital asset for more than you paid for it, the increase in value is referred to as a capital gain.

Capital gains taxes are the taxes you pay on the profit you made because of that increase in value. The tax isn’t applied while you own the asset — in this case a rental property. It hits only when you profit from the sale.

Short-Term vs. Long-Term Capital Gains

The length of time you owned the property before selling it determines whether your profit is a short-term or long-term capital gain. This distinction can make a significant difference in how, and how much, your gains are taxed.

•  Short-term capital gains: If you sell the property after owning it for a year or less, the profit is considered a short-term capital gain, and you’ll be taxed at your ordinary income tax rate for the year you made the sale. Tax rates are always subject to change, but the maximum you could pay for short-term capital gains on a rental property in 2024 is 37%.

•  Long-term capital gains: If you sell after holding the property for more than a year, the profit is considered a long-term capital gain, which makes it subject to preferential capital gains tax rates. Long-term capital gains tax rates are set at 0%, 15%, and 20%, based on your filing status and income.

How Capital Gains Tax Works on Rental Properties

If you’ve ever sold a home, you’re probably familiar with the “home sale exclusion” that eligible home sellers can use to avoid or reduce the capital gains tax on the sale of their primary residence.

Unfortunately, this exclusion typically doesn’t apply to a property used as a rental. (Though there may be an exception if you lived in the property during part of the time you owned it and rented it part of the time.)

Factors Affecting the Capital Gains Tax You May Pay

Without the home sale exclusion, the primary factors that will go into deciding how much you ultimately could be taxed on your gains include:

•   How long have you owned the property?

•   How much did you pay for the property?

•   How much did you spend on improvements to the property?

•   How much did you claim in depreciation?

•   How much did you sell the property for?

•   What was your filing status and taxable income in the year you made the sale?

Recommended: What Is a Home Inspection?

Calculating Capital Gains on Rental Property Sales

These steps can help you estimate the gain on the sale of a rental property:

1.    Start by determining your cost basis (or adjusted cost basis if you made major improvements). This is the price you originally paid for the property, plus money you spent on major improvements (such as additions and upgrades), minus the amount you claimed for depreciation over the years and/or casualty and theft losses.

2.   Next, calculate the capital gain. To do this, subtract your adjusted cost basis from the net proceeds of the sale. (Net proceeds is the amount the seller walks away with after all the closing costs are paid and any home loan balance is paid off.)

Strategies to Minimize Capital Gains Tax on Sale of Rental Property

There are several strategies that can help sellers avoid paying capital gains tax on real estate, either by legally deferring or minimizing their gains.

1031 Exchange

A 1031 exchange is an effective but complicated strategy that allows the owner of an investment property to defer paying capital gains taxes if the sale’s proceeds are reinvested into a replacement or “like-kind” property.
The IRS has several rules regarding the type of property that can be used in the exchange, the timeline, and other details, so you may want to consult with a tax professional if this strategy appeals to you.

Tax-Loss Harvesting

With tax-loss harvesting, you can sell long-term positions in your investment portfolio that have produced capital losses, replace them with similar (but not identical) investments, and then use the loss to offset the gains from the sale of your rental property.

If your losses exceed your gains, you can even use the excess to offset up to $3,000 of ordinary income that year, with any remaining losses carried forward to future years. But again, you’ll likely need some professional help to make sure you’re getting the most out of your investments and that you’re following IRS rules.

Installment Payments

If you prefer to spread out your capital gains tax liability over a period of several years, you may want to look at the benefits of receiving installment payments from the buyer instead of a lump sum. With this method, you would pay capital gains tax only on the portion of the gain you receive each year until the property is paid off.

Convert the Rental Property to Your Primary Residence

If you move into the rental property and make it your primary residence before the sale, you may be able to use the home sale exclusion to reduce your capital gains.

Of course there are IRS rules: To qualify, you must own and occupy the property as a principal residence for two of the five years immediately before the sale. But the ownership and occupancy don’t have to be concurrent, so if you’ve lived in the property as your primary residence for at least 24 of the last 60 months, the gains may qualify for the tax exemption.

Reporting Capital Gains on Rental Properties

The IRS has specific rules for reporting the capital gains on a rental property.

You can start by making sure you get a copy of Form 1099-S. Typically, the person who closes the transaction (real estate attorney, lender, real estate broker title company, etc.) is required to file this form in order to report the sale of a business property. Copies go to the seller and the IRS.

You’ll use Form 1099-S along with other records and receipts to report the capital gains from the sale on your tax return. It’s important to have the original closing documents from your purchase, the real estate purchase contract and closing documents from the sale, receipts related to major improvements, records of any depreciation claimed, and any other relevant paperwork related to the property. This way you (or your tax professional) can more accurately complete the appropriate tax forms and schedules when it’s time to file your tax return.

Filling out these forms can be challenging, especially if it’s your first time selling a rental property and dealing with capital gains. You may want to tap a tax attorney or other professional for the job to ensure that you’re fully compliant with IRS rules.

State-Specific Capital Gains Taxes

Depending on where you reside, you also may have to pay taxes on your capital gains to your state. Most states have a capital gains tax rate between 2.9% and 13.3%, although some states (Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming) don’t charge any capital gains tax.

Impact of Capital Gains on Investment Strategy

Smart planning can help investors manage and mitigate the impact of capital gains. Some things to consider include:

•  Timing: If you can put off selling an asset until you’ve held it for at least a year, you can qualify for the lower long-term capital gains tax rate. Delaying also may make sense if you decide to wait until you have investment losses that can offset the profit from the sale of your rental property. Or you could wait for a year when your income is lower so that you’re taxed at a lower rate.

•  Reinvestment opportunities: Reinvesting the profit from your sale into another investment could open up new opportunities to grow your money — and possibly reduce or defer your tax liability (if, for example, you choose to do a 1031 exchange). A financial advisor can help you figure out your next move and what might be a good fit for your goals.

•  Think holistically: How does selling or not selling the rental property fit into your overall investment plan? It might be better to sell for a profit now and pay the taxes than to wait and end up losing money on the sale.

Recommended: Small Business Loans for Rental Property

Common Mistakes to Avoid with Capital Gains Taxes

Ultimately, it’s your responsibility as the seller to make sure your capital gains tax is accurately calculated and paid on time. Getting the amount wrong or failing to pay could result in IRS penalties. Some common mistakes to avoid include:

•  Failing to report capital gains. It’s important to report all capital gains, whether you think you’ll owe taxes on the amount or not.

•  Miscalculating the cost basis. This number is key to determining your gains (or losses) and, therefore, what you’ll owe the IRS.

•  Record keeping errors. Keeping good records can make calculating your capital gains tax easier, and you may need to provide those records and receipts if the IRS asks for documentation.

Working with Tax Professionals

You may have noticed that the word “professional” comes up repeatedly in this guide. That’s because selling a rental property, and the variables that can go into calculating and reporting the gain on your tax return, will be a little different for every seller. There’s no one-size-fits-all process for DIYers to replicate.

And let’s face it, it can be pretty darn difficult to decode the tax code if it isn’t your line of work. If your goal is to legally maximize your tax breaks, it can be helpful to seek out a tax attorney or an experienced tax professional who specializes in real estate issues.

The Takeaway

Understanding how to avoid capital gains on the sale of a rental property, and doing some proactive planning, could make a big difference to your bottom line. And the more money you can keep from the sale, the more you’ll have to put toward your other financial goals — whether they’re personal, for your business, or both.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What are short-term capital gains?

Short-term capital gains are profits from the sale of an asset held for one year or less. (Long-term gains, as you might imagine, are the profits from an asset held longer than a year.)

Can I avoid paying capital gains tax on the sale of a home?

If the home is your primary residence, the IRS allows you to exclude a portion of the capital gain from its sale (up to $250,000, or $500,000 if married filing jointly).

---

Photo credit: iStock/everydayplus

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOHL-Q424-009

Read more

If you purchased your home with a VA loan but are ready to move on, you may be able to benefit from VA loan assumption. VA loan assumption allows someone else to take over your existing VA loan mortgage — and unlike when you originated your VA loan, the new borrower doesn’t necessarily have to be a military servicemember, veteran, or surviving spouse to qualify. However, your eligibility for this program depends on a few factors, including when you took out your VA loan, and has a few caveats to understand. We’ll explain below.

What Is VA Loan Assumption?

VA loan assumption is a process in which a new borrower can “assume,” or take over, an existing VA mortgage loan. As mentioned above, you don’t have to be eligible to take out a VA loan to be eligible to assume one.

In other words, using VA loan assumption, the homebuyer could take over the existing VA loan rather than securing a brand-new mortgage to buy the home (or buying it in cash). A VA loan has some benefits vs. a conventional loan, and assuming the loan may offer the buyer a lower interest rate (as VA loans often have competitive rates). On the seller side, loan assumption could attract more buyers and help a home sell more quickly.

Eligibility for VA Loan Assumption

Even when a new buyer is taking over a VA assumable loan, the original lender will still want to see proof of the new borrower’s creditworthiness. (After all, repayment of the remainder of the balance will now fall to the new borrower.) Here’s what you need to know about eligibility requirements for VA loan assumption:

For the Assumer

The person taking over the loan still needs to prove their creditworthiness to the lender or VA. The VA doesn’t specify a minimum credit score, but most lenders want to see a score of at least 620.

The assumer’s debt-to-income ratio (DTI) also matters, and should be no higher than 41%. They’ll also need to have sufficient income and be able to pay the VA loan assumption fee, which is 0.5% of the total loan balance — and the difference, if any, between the home’s sale price and the existing loan balance.

For the Seller

Those who took out a VA loan to purchase their home anytime after March 1, 1988, are eligible to sell their home via loan assumption. Be sure to triple-check that your lender will release you from the liability of the loan — otherwise, if the new borrower fails to repay or makes late payments, it could hit your credit score. And once the deal goes through, recheck to be sure your lender has finalized the release. (If you don’t yet have a VA loan but are wondering what is a VA loan and could I get one, briefly: You may be eligible for a VA loan if you are a member of the military, veteran, Reserve or National Guard member, or surviving spouse. You’ll need to get a Certificate of Eligibility from the VA in order to apply for a VA loan.)

Recommended: VA Loan Calculator

Benefits of VA Loan Assumption

As mentioned above, VA loan assumption has benefits on both sides of the table.

For buyers, taking advantage of a VA assumable loan could be very attractive if current mortgage rates are generally higher than the rate on the existing loan. Although creditworthiness still needs to be proven to the lender, if you’re wondering how long does it take to assume a VA loan, rest assured that the underwriting process may be faster since the mortgage is already written.

For sellers, having an assumable loan could expand your pool of potential buyers and help the house sell faster. Transferring a loan may also take less time than going through the process of waiting for the buyer’s new mortgage to pay off your debt.

Risks and Considerations

While there are benefits that can make VA loan assumption worth considering, there are risks and drawbacks to consider, too.

For one thing, while the new borrower doesn’t need to be eligible for a VA loan to take one over, you won’t be able to take out a new VA loan until the loan that’s being assumed is fully paid off. (Normally, you can use a VA loan multiple times to buy a house.) Additionally, you must check with your mortgage lender to ensure you can obtain release of liability for the loan to avoid impacts to your credit score after managing the loan is out of your hands.

On the buyer’s side, assuming a loan may offer better interest rates — but require more cash up front to pay the owner for the equity they’ve stored in the home. Depending on how long the loan has been in place, that total may be higher or lower than a traditional down payment.

VA Loan Assumption Process

If you want to put your home on the market with the option to assume your VA loan, you’ll need to take these steps.

1.    First, reach out to your lender and let them know your intentions. You can also use this opportunity to ask about the release of liability once the loan has been transferred.

2.    In your home sale listing, market the fact that an assumable loan option is available. This may be attractive to many buyers and increase the speed of your sale.

3.    Once you have a prospective buyer, you’ll need to offer full disclosure about the terms of the loan. (If the buyer turns out to be a service member, veteran, or surviving spouse, inquire about a “substitution of entitlement,” which is used when one person who is VA-loan eligible takes over a loan from another.)

4.    At the time of sale, you’ll need to wait for the borrower to be qualified by your lender or the VA to ensure they’re deemed creditworthy enough to take over the loan. Closing will also involve the cash payment to make up the difference to the agreed-upon purchase price.

5.    Once the loan is transferred, ensure you have documentation of your release of liability from the VA or your lender.

VA Funding Fee for Loan Assumption

While VA loans are generally low-cost ways to buy a home, they do come with a funding fee — and assumed loans have one too. However, the fee is only 0.5% in the case of assumed VA loans, which is far lower than the 1.25%-3.3% it might cost to take out such a loan in the first place.

Recommended: VA Loan Buyers Guide

Release of Liability

We’ve said it before, but it bears repeating: As the seller, you’ll want to make sure you have a document stating your liability for the loan has been released once the loan transfer is completed. Otherwise, you may see impacts on your credit score for financial behaviors you have no control over.

Comparison: VA Loan Assumption vs. New VA Loan

Here’s how VA loan assumption vs. new VA loans compare, at a glance.

New VA Loan	VA Loan Assumption
Must be eligible military servicemember, veteran or surviving spouse	Eligibility not required
Funding fee of 1.25%-3.3%	Funding fee of 0.5%
No required down payment	Buyer must pay difference between existing equity and loan balance

The Takeaway

Assuming a VA loan can be a valuable way for borrowers to save money on interest (and enjoy a shorter repayment period) while also allowing veterans to market their home for sale in an attractive way.

SoFi offers VA loans with competitive interest rates, no private mortgage insurance, and down payments as low as 0%. Eligible service members, veterans, and survivors may use the benefit multiple times.

Our Mortgage Loan Officers are ready to guide you through the process step by step.

FAQ

Who can assume a VA loan?

Anyone who can prove their creditworthiness to the lender and afford to pay the difference can assume an available VA loan. However, if that party would not be qualified to take out their own VA loan in the first place, the original lender will not be able to take out a new VA loan until the existing one is paid off by the new borrower.

Does the assumer need to be a veteran?

The assumer of a VA loan does not need to be a veteran. However, if they are not a veteran, the original VA loan borrower will not be able to take out a new VA loan for themselves until the original loan has been paid off.

Can any VA loan be assumed?

Any VA loan issued after March 1, 1988 is eligible for assumption.

---

Photo credit: iStock/SethCortright

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

SOHL-Q424-001

Read more