All Forum Posts by: Dusty Hulet

@Alex Olson thanks for weighing in––the 1031 exchange is definitely interesting, especially with the delayed closing that the prospective buyer suggested. A new avenue that I hadn't been privy to prior to these last couple weeks.

@John Underwood I appreciate the input––thanks for taking time to have a look! I'd definitely prefer to hang onto the property if I can. Never done a HELOC so I'm in the process of sussing out how that can work to roll some of the bad debt into better debt, then pay it down from there.

@Michael Baum it's a great question––in the area where I'm working, price increases have slowed down, but they're still high. To recreate what I've built would take some time in terms of forcing the appreciation. The area being a ski resort town with an adjacent national park means that things certainly cash flow as short term rentals, but to insulate against market fluctuation, the addition of an ADU is the best way to boost the revenue streams/hedge the bets. So, there's real opportunity loss in the short run for me transitioning to a different property, in terms of the loss of $75K+ coming in during the interim.

@Greg R.Thanks for weighing in. Definitely something to consider––finding the next deal is certainly the trick there.

@Nathan Gesner Thanks for your candor. I do believe that the extensive overhaul of the property that has changed it from one door to three has contributed to my equity position, but I hear what you're saying about the possibility of a correction. Working through the best way to tackle the debt, or roll it into better debt, do you have a dog in the fight as to a most strategic path forward?

@Jaron Walling Just so I understand, your purpose in pointing out that there's next to nothing down is that there's vulnerability less runway headed into being upside down in the event of a market correction?

@Joshua Messinger thanks for your input––am I understanding correctly that you think the better strategy for managing the debit is a HELOC?

@Travis Timmons thanks for weighing in. "For the love of everything," the contractors have been paid ;) Just waiting on the last invoice from the electrician now. National Park season went great. The unit that's been up for over a year (upper studio) did closer to $30K in after-management revenue, so we're above the conservative estimate. The other two spaces have been up for a month and a half and two weeks respectively, and both are performing well at discounted rates, as we work to get the reviews stacked up. Making the ground floor unit pet friendly created a significant boost in demand, even in the absence of reviews. The property is in a ski town 12 miles from a medium-sized ski resort that saw significant expansion this summer, so winter is expected to be strong.
Meanwhile, got any insights on if there's a way to tap into some of the forced and market appreciation to roll some of the bad debt into better debt? Between my 9-5 and the property's income, I can ride it out and pay it down over the coming months without too much stress––just looking to understand options in case there's a better way to shuffle things around now.

@Jon Martin I appreciate you taking the time to have a look at this. I'm really interested to know more about your take on the $75K in after-management-fees revenue being low compared with the $500K sticker price of the property? That's $75K is a conservative estimate, and could be closer to $90K based on this past year of my first unit being up and running, but I didn't think $75K was so bad, especially when I'm not dealing with cleaners, messaging guests, etc.. Mind expanding on that for a newbie? And perhaps sharing which markets you're seeing the higher rates of return as they compare to sticker price? And thanks for the compliment on the stove--literally every guest and contractor who walks into the space comments on it, so it was worth going a bit wild with it for the increased curb appeal.

If you've got the stomach for a complicated story problem from a newbie, I'd sure appreciate the insights of more experienced investors on my next move. The gist of my question: How do I best maximize the opportunity I've generated, upping my return on equity, when debts from the property's improvements stand in the way.

THE PROPERTY
After years of trying, I finally bought a house near a national park, took possession in July 2021, and began working on prepping it for short term rental. A little over a year later, I just finished the remodel. Though the whole property shares the same utilities (not an official duplex/triplex), there are essentially three units on the property:
 
1. The upstairs of the original home is a spacious loft/studio apartment with lots of unique woodwork.

2. The ground floor is a newly remodeled two-bedroom apartment with a brand new kitchenette.

3. I added a studio cabin to property. Skirted, on stacks of cinder blocks, like a mobile home––not on wheels, permitted, but not on a permanent foundation.

Though there is seasonal ebb and flow, historical data from friends' properties in the area appears to be matching up with what my property is generating––an expected $25K in after-management-fees revenue from each unit is reasonable, with more possible. So, if reviews increase, and sailing stays smooth, $75K in after-management revenue annually.

MY FINANCIAL POSITION

I bought at a great time, getting the property for $520K. I used down payment assistance, and claimed the place as home for the past year––slumming it in whichever part of the property is least finished as I've worked on the remodel. So, I bought the house for about $2,500, picking up a second mortgage on the rest of the 3% downpayment (around $11K at 5%) over 10 years. Total mortgage payments are $2,840/month.

Thinking I'd cash-out refi, I ran into two snags: 
1. Increasing interest rates––mine is 3.15%

2. Building materials were at record highs

So... I probably should have pivoted strategies and picked up a HELOC before I went deep on the third unit, but I didn't. Now, I'm sitting on $30K in personal credit card debt, a loan from a family member for another roughly $40K, plus an outstanding $4K in invoices from contractors. In addition to that, looming in the near future is my 2021 tax bill. For simplicity's sake, let's say I'm looking at $120K in outstanding debts.

My credit score reflects some of that load, hovering around 670.

Lastly, I'm a filmmaker––(@dustyhulet)––which historically has meant I ride highs and lows in my income from year-to-year depending on the phases of the projects I'm on. Right now, I'm on an executive on a TV show that allows me to work remotely. I show regular income, and I can claim anywhere as home––that's how I bought this first place near a national park. I'm in a window where I look good to banks, so it behooves me to move aggressively toward my next purchase, in case this gig dries up and the next is slow to come.

Comps would leave me to believe that my property is now worth over $850K––maybe a lot more.

MY NEXT MOVE

A few options sit before me:

1. The HELOC route:

A. Spend the next six months paying down the debts, bit by bit, focusing on the ones that are affecting my credit score first. This would allow me to qualify for the largest HELOC possible with the best terms. I'd then have some runway to use those funds in acquiring my next project, though how best to do that in an expensive market is something I'm still studying up on. This approach would allow me to keep my 3.15% interest rate, show income from the property as a positive contribution to my debt-to-income ratio, and avoid the emotional damage of letting go of the blood, sweat, and tears that have gone into this place.

B. Neglecting my credit score pursuits, I could chase down paying my taxes first, then roll my debts onto a HELOC with less friendly terms. Saves me on the current interest payments, and maybe gets me to a place where I can crawl my way into a downpayment on the next one.

2. I could sell the place. A few ways this goes down:

A. Immediately, a private equity fund has offered to buy my house. A price hasn't been negotiated, but they did suggest that they'd be willing to put up significant earnest money, lease the house for the next 6 months or so, and allow me to time the closing with my finding of my next project(s) so that a 1031 exchange is more likely to be successfully executed. This would be an off-market deal, so getting to that price would be an interesting calculation.

B. If I kept the place as my primary residence (I've got a camper I could crash in) until July of 2023 I could show two years of residency, and I wouldn't be subject to capital gains. An an on-market deal, there's the possibility of price increasing due to limited inventory in the area BUT it's also possible that the sale would find a limited body of qualified buyers depending on a banks perspectives on the permanence of the studio cabin––i.e. does that count as real property if it's not on a fixed foundation. Lenders have been known to go either way in the area on that question of permanence.

NOW WHAT?

Ideally, I'll secure my next property soon––before the end of the year would be best, but into the first month or two of the next year could work. I plan to stay in the market I know, which isn't cheap but provides substantial returns, so if the HELOC will get me into the next property is still an interesting puzzle. Most properties in the area have a steep sticker price, work as STRs, and can REALLY hum after an ADU is added.

OR, I leverage the house to start building a fire lookout/tree house STR that would absolutely slay and be insulated from a lot of market forces, but would be trickier to finance.

Lots of possibilities. Seems silly to throw away a $75K that requires relatively little work at this point in the name of MAYBE pulling off something as sweet on the next level. A bird in the hand, for sure. The interest rates, difficulty of finding labor, and other factors I've encountered on this first one tell me that it'll take some real grit––and another year+–––to pull something off at the next level.

So, what would you do? How do you take down the next property? How do you access a big chunk of equity when a bad debt roadblock sits in the way, and the clock is ticking on your ability to claim something as a residence?

If you've made it this far, I sure appreciate your time and mental energy. It's mostly a good pickle to be in––hoping to make the most of the opportunity!

Thanks again,

Dusty

Too slow on pulling the trigger, so now I'm looking to buy one off of someone who cannot attend. Holler if you have an extra ticket! Thanks!!

@Garry C. I'll check with my agent for referrals on brokers. Great idea. Also, congrats on the successful BRRRR of your vacation rental! It's so great to hear people are getting it done!

@Chris Mason Thanks for sharing that! That's good to hear that the big ships are changing their course on short-term rental revenue. And that's great to hear that you've been successful! Sounds like my friend needs to hit the phone a little harder.

@Mike V. Another encouraging example of making it happen with AirBnB! I'm pretty certain he's paid taxes on it, and he's been at it for two years, so what you've shared is encouraging.

@Rob Beardsley That seems to be the consensus here. Need to hit the phones/banks harder! Thanks, man!

@Yolanda Columbus Thanks for the specific reference there! I'll tell him to check out ClearBanc

@Account Closed Thanks! And hopefully we'll have that film in a festival near you this coming year. What made you decide to invest in the Salt Lake market when your'e living in Edmonds? With a sister in Seattle, I just went to the San Juan islands for the first time. That ferry ride is a dream.

HELP?

The following questions are related to the BRRR strategy, but in a market where it makes much more sense to AirBnB than longterm rent.

Any insights would be appreciated, or if you know of another thread that's covered the topic, I'd like very much for you to redirect me that way. I've heard on the podcast and read about a number of examples of the BRRR strategy, but helping out a friend with this particular situation would be the first time for the rubber to hit the road for me. Thanks for any suggestions you might have!

THE STORY

A friend I grew up with is killing it on AirBnB. The banks he's talked to aren't willing to consider the AirBnB income in his attempts to get a a mortgage on another property. 

Managing the property himself on AirBnB, he's grossing $45K this year. He paid around $180K (FHA Loan) for the home about four-ish years ago. As a longterm rental, he'd be earning closer to $18K in his market. As long as he can manage it, it doesn't make sense to longterm rent it.

The property has appreciated with the rebound from the recession, and is now worth over $300K.

THE QUESTIONS

So, if banks don't like the idea of refinancing a property that doesn't have a longterm lease on it, and they're not willing to recognize the AirBnB income, what do you do? Is he talking to the wrong banks? Is he talking to the banks in the wrong way? What specifically should he say to get a bank onboard with refinancing, allowing him to pull out some of the appreciation, while not losing out on the AirBnB victory?

Thanks again for your help, and again, I'm new to the forum, so if you know of a thread that's already been created, please tag me!

Hey @Don Spafford! Thanks for the welcome, and the encouragement. That's very cool that you're up in IF. I just helped my folks sell my childhood home up there, and it was really interesting to see how quickly things are moving in that market. Lots of growth in my little hometown! The folks relocated to Island Park, so perhaps on one of my trips through IF we can grab lunch and compare notes.

Hey Gang,

After binge listening to the podcast for the past few weeks, I've learned that this is the next step.

I'm Dusty Hulet, and I'm a creative director/producer working in film and advertising. I grew up in Idaho Falls, and today I'm based in Salt Lake City, UT. In the world of real estate, I'm working on deals in Jackson Hole and its nearby satellite communities.

I owned a small business in Jackson for a number of years and experienced firsthand how passive income can allow a person to work on meaningful, impactful projects that can make the world a better place. That small business is no more, but I've learned how real estate investing can function similarly, and how it can actually be more scalable than that business ever was. After a year of research, I hope to dive into the right deal shortly, and begin to build and grow that base. 

I also love and miss the Tetons and hope to be working near them once again very soon.

I'm currently finishing up a documentary about bear-human conflict in Durango, Colorado. I've been climbing into bear dens with biologists every winter for the past three years, and I'm finally finishing that film and submitting it to festivals. It's been a long road, but a rewarding one, and as we celebrate the fruits of that labor and try to make it as impactful as possible, I'm simultaneously keeping my pulse on the real estate deals up north.

I guess that's enough for now. Looking forward to meeting more of you!

Thanks!