All Forum Posts by: Sean Hudgins

Interesting story. I want to touch on something that stood out to me in the story first, and then I will give my opinion on the dual agency approach. 

When you got the "Offer accepted," what should have happened was that the offer should have been signed by both parties and ratified. Now, I am in Virginia, and I will not pretend I know exactly how RE transactions are done in NY. But here in VA, an offer is only accepted once it is ratified, i.e. signed by both parties, holding both parties to the terms of the deal. It sounds like you got a word-of-mouth acceptance, and your agent should have pushed hard to get the signed contract completed so that the sellers would be in breach of contract by accepting another offer, and you would have grounds for a lawsuit if they did. To me, this was a big blunder on your agent's part.

Now, Dual Agency is a tricky business. My perspective on this as a buyer and investor is that if you are savvy enough to look out for yourself, then it can be a good way to get on the inside of the deal. Technically (once again in VA), if I represent both parties to a transaction with dual agency, I really no longer represent either party. The agent is only an intermediary between the buyer and seller at that point. Now, plenty of agents out there will see this as a way to double their commission, and they will push to make the deal happen, which is not ethical or legal.

As an agent, I don't like dual agency, and I would rather get a referral fee by sending the buyer to another agent so that I can do my job of representing the seller, which is what they are paying for. I have seen that usually, in a dual agency situation, one party feels like they lost out somehow and it opens up the way too many opportunities for me as the agent to get sued.

#1 piece of advice is to make sure you're both very open about your goals and what is needed from the partnership. It does not sound like you are aligned right now, so you need to make sure you have some very serious conversations about the partnership. 

The simple answer is you use the cash flow from the portfolio to replace income, not the equity, and when the cash flow is pulled out, then you do so equally for both partners. The same is true for equity; if you need to refi property to pull equity out, then that equity should be split 50/50 and allow both parties to use the equity for whatever they please. 

The other option is to restructure the partnership. For this, you should have a discussion with the partner and sit down with a lawyer to draft up a new partnership that clearly lays out what each party is responsible for as well as what compensation each party receives. 

You say the partner is not interested in the equity, so my question is, why are they investing in the portfolio? Do they want the cash flow, or are they in it for the tax shelter? I would find out from your partner why they are investing with you, and I wouldn't make any assumptions.

@Eric Piccione Have you already been quoted the 15% for the management fee? That seems low for STR management, though I am in a beach town, so my prices may be very different.

My advice to you is first to pay down the principle and refi to a point where you will feel more comfortable carrying the payment if you have a slow month as an STR or any vacancy as an LTR. I don't know what that looks like for you, but deciding where you want to be payment-wise is a good starting point.

I think in your situation, starting with it as an STR is a great move. Your revenue is higher, and as you said, it gives you a place to stay when you travel back to the States. The upside to this is that you have a remote job, and if things went terribly, you could always travel back to the US and get your house in order, i.e., furniture in storage or sold, and then either sell the house or rent it long term. Doing the opposite order would likely be more challenging; if you LTR first, then you have a year of tenant wear and tear, and if you wanted to try and STR, you would have to come back and source new furniture.

Investing is always a risk and reward continuum, and if you have the opportunity and the financial ability to weather the storm with the higher risk and reward, then I would do that first with backups in place in the event that it doesn't go to plan. 

It can be listed on the MLS that way and put the situation in the write-up. also, local investor groups and here on BP would all be good places to advertise.

I have had investors who told me to be on the lookout for that type of investment. It's essentially the same thing as inheriting a tenant in a property. I would think that if advertised to investors that way it would be a non issue.

@Kyle Butters Welcome to the community! Virginia Beach is a great place to be, and the Hampton Road area as a whole is a decent place to learn the basics of investing. Now, as @Mike Klarman said, VB is pretty pricy and, depending on what your strategy is, may not be the easiest for a new investor. However, that's the upside of this area. You can go to Norfolk, Suffolk, Hampton, and Newport News and find pretty good cash flow that you couldn't find in VB or Chesapeake.

Your first step is to determine what you want to invest in and come up with your criteria. Even before getting too far into building a team if you are buying STRs, your team is going to look very different than if you are buying Long-term Rentals or Fix and Flips. Then, you build out your team. Obviously, having a solid contractor is a must, but that could look different if you are doing major renovations or if you are doing minor cosmetic stuff. 

Have you done some research into what kind of investing and the type of property you are looking to get into? If so, It would be great for all the people here to help if you lay out some of that, and we can steer you in the right direction.

As for meet-ups, there are a couple of REI Groups here. Here is a good starter https://www.biggerpockets.com/forums/521/topics/1161599-real... This one is an investor social at Big Ugly Brewing in Chesapeake. 1/23/2024 5-8PM.

If you want to connect and talk strategy and getting started feel free to reach out! 

The house hacking strategy is the absolute best way to get started and comes with much lower risk levels than other strategies. If you consider that even if you don't manage to get a deal that. eliminates your housing expenses, you can most likely find a deal that puts your living expenses lower than even renting a cheap apartment. Like @Sean McDowell said, the sooner, the better to get started and build that equity.

Using the VA loan to buy a house hack works pretty much the same way a typical VA loan purchase on a single-family home does. You can get up to 4 units with the VA loan as long as you are occupying one of the units. I suggest you find yourself a great agent who understands house hacking and VA loans and get a good lender. Then, depending on your market, I would try and get as many units as possible up to 4. Then, after a year or 2 of living in the property, I would try and go do it again. Feel free to reach out if you have any questions or need recommendations on lenders or agents!

I am sure you are doing the math right and obviously, I don't have all the details, but this is what im looking at.

Current NOI: 3686

$300k Mortgage @7.5%: $2098 per month

New NOI: $1588

Rental Portfolio Value: $770k

Rental equity Position: $470k

Portfolio Value and Equity Position if you sold: $385k

If you sold, your NOI would be $1843, so $200 more per month than with the cash-out refi. You are right. You would not have the $100k cash to reinvest, but you would cut your portfolio balance in half and create a lot more work to get it back up to the current value. You mentioned you were going to use BRRRR to build the portfolio, which means you are looking to purchase distressed properties. Unless you are a super experienced renovator and have been managing multiple flips at the same time in the past, having the extra $100k is not all that important. You are likely going to start out by purchasing one property at a time, renovating them, and then stabilizing them, and unless you are looking to purchase in the $700k and up range, you have more than enough equity in the primary to use as your bridge financing through the HELOC... now if you are an experienced rehabber and you want to take down multiple projects at once then the $100k could get you one more property and your velocity of money would then probably be a lot higher.

Ultimately, you have to do what is right for your situation and risk tolerance. But in my opinion, removing the property from the portfolio means that you will then have to do months of work to get back that asset value, and if you are doing the BRRRR strategy, you will be mortgaging the new property once its stabilized and your end game after all the work on your first rehab will be pretty much exactly where you would be if you did the cash-out refi.

What are the rentals worth? Even with the high rates right now, if you can Cash Out Refi one or both rentals in lieu of selling one, that would allow you to keep the property, and you can use that to pay off the primary. For example, if each rental was worth $300k, you could cash out 50% on each, and you would likely still cashflow well on both properties. Or better yet, cash out the primary home. You could get a lower rate than you would on the rentals, and you could then still get the HELOC on top of that on the primary.

What is your reasoning for selling your rental? Unless the rental is underperforming(and if it is, why... is it something that can be fixed?), keeping the assets is the best way to build a large portfolio. Do you have to sell the rental in order to pay off the primary loan? you could look at a Refi for the rental or both rentals, trying to optimize the return-to-leverage ratio and use that money to pay off the primary and get your HELOC.