All Forum Posts by: Sean Hudgins

Quote from @Jermaine Lindsay:

Quote from @Sean Hudgins:

@Jermaine Lindsay, Congrats on the new property! Something to keep in mind while you renovate: I suggest you have multiple strategies planned out and what your outcome would be if you had to pivot for some reason. Obviously, your goal is to utilize the asset to its highest and best use, which is likely the midterm rental route or possibly short-term rental, depending on regulations in Baltimore.

I would run the numbers on long-term renting and have a plan for when you PCS next, what your exit strategy is, or will you continue to hold long-term. 

You are well prepared and have great knowledge as a licensed realtor. It's also brilliant of you to keep that active and build your referral network! I'm in the Norfolk/Virginia Beach Area if you want to connect!

Thank you for sharing this with me as I will think more strategic ways to ensure I have alternate plans. What I gather from this is to have a plan but to be flexible with it as well. 

 Definitely, It's always best to look at your asset from multiple angles and see its best use. And usually, at a minimum, I like to have at least two exit strategies lined up. You never know what the future might hold, and you need to be ready to pivot in the event that an uncontrollable outside force like regulations change or you need to sell the property due to some unforeseen circumstance.

@Jermaine Lindsay, Congrats on the new property! Something to keep in mind while you renovate: I suggest you have multiple strategies planned out and what your outcome would be if you had to pivot for some reason. Obviously, your goal is to utilize the asset to its highest and best use, which is likely the midterm rental route or possibly short-term rental, depending on regulations in Baltimore.

I would run the numbers on long-term renting and have a plan for when you PCS next, what your exit strategy is, or will you continue to hold long-term. 

You are well prepared and have great knowledge as a licensed realtor. It's also brilliant of you to keep that active and build your referral network! I'm in the Norfolk/Virginia Beach Area if you want to connect!

Quote from @V.G Jason:

I have been saying for a while now that Virginia Beach is a hidden market that is due for some major influx. This market is still coastal and affordable with a large steady tenant base. As the home insurance gets more and more out of hand down the east coast Virginia Beach is a much lower risk area simply due to geography and I believe that will eventually lead to more influx from the people who wanted to migrate to FL but have been priced out. We are lacking in high-end luxury to the scale that much of the FL coast has, but I think we are in for a big appreciation as the upper middle class gets priced out of their dream retirement home in FL.

@Hamad Khan, The purpose of passive income is to give you the freedom to pursue your life purpose, whatever that is. You can keep investing and grow bigger or pursue a new venture or both, but the upside is you can do something that fulfills you without worrying about your income. That is the whole reason for financial freedom!

Quote from @Ryan Hicks:

To follow up to part of your response and part of a response from Andrew, many "expert" economists are predicting rates to drop as much as 2 - 2.5% in 2024.  While that intially appears to be incentive to wait to buy until those rates do drop, to Andrew's point, prices will be higher then and competition much more fierce as a result.  Ideally, NOW is the time to buy at relatively lower values, keep just enough cash flow to have a small buffer, then refi when rates do decrease. At that point, at least I already have the asset in hand.

You nailed it with that statement. I am starting to see people get rates under 6% on primary homes right now, and I really believe that if rates continue, which it looks like they will, the spring and especially the summer housing market are going to be really crazy with rates down in the low 5% range. Get the asset now and worry about a Refinance when it makes sense. I have a client with a 6.5% rate on an out-of-state investment property loan right now with around $5,000 buy down on a $260,000 property. That's not a bad rate if you ask me.

@Garrett Borth, I agree with what others have said: Don't give up a place you love to live in and live in a better cashflow market unless you want to live there. Not to mention that those jobs you have may not pay the same in a new location that is more cash flow-heavy. 

You guys are young, and if you don't have children or don't mind making some sacrifices now, I suggest getting a roommate if possible. Reducing your living costs will help you increase your investment capital. If you can do that before you have little ones running around, you will thank yourself. 

As for acquiring new assets, I would look into investing out of state; if there is a market with a lower barrier to entry near you, that would be even better. 

@Ryan Hicks There is nothing wrong with where you are at, but I think the more important question is, where do you want to go? You are 53, so your outlook and investment goals may not align with those of a 20-30 year old. You could probably optimize your holdings a little based on your situation. 

You are currently making 4.6% ROI on your equity and 6% on your invested cash. I don't think I would keep all my cash in there. The question to ask is how much money you need to purchase another property and increase your ROI on your money.

If you purchased similar properties, you would need around 50-60k each to acquire and maybe do some light rehab. So, if you pulled all your money out and were still cash-flowing, you could acquire three more properties. But that's also the approach that I, as a 31-year-old, would take; you may want some more security, or the cash flow may be a little more important to you.

So what if you just pulled out 60k and bought one more property? That would keep your current cash flow healthy and give you another appreciating asset. 

Quote from @Nathan Gesner:

Dave Ramsey gives great advice for personal finance, which differs greatly from real estate investing.

Read a few books on real estate investing to learn the power of leverage. I like the Unofficial Guide to Real Estate Investing. Here's a fundamental explanation to get your juices flowing:

Assume a house costs $200,000 and rents for $1,500. The market appreciates 3% per year.

Pay cash for one house and rent it for $1,500. After five years you'll have earned $90,000 in rent income and gained $34,000 in appreciation.

Buy four houses with $50,000 down on each. The mortgage payment is $1,000 on each house, so you earn $500 per house or $2,000 monthly. After five years, you'll earn $120,000 in rent income and $136,000 in appreciation. You've earned $132,000 more by splitting your money and leveraging it.

Just said everything I was trying to demonstrate, but in 1/3 of the words. Lol. Guess that comes from experience!

How much cash do you currently have invested in the deal? There is something to be said for every strategy, but the significant advantage that we have in real estate is leverage. You could approach this in a more hybrid manner, one that would make you feel better about saving money on the interest and snowballing into more properties quickly. There is no need to wait for the first property to be paid off before buying the next property, and putting some extra money toward the principal is an excellent option to reduce that interest payment. The thing to be careful of is optimizing your capital and leverage. 

For example, if you pay off your property, what is your ROI on that cash invested? I'm going to assume your property is worth around $110,000 (based on what you are saying), so it fully paid off, making $700-$900 cash flow. Your ROI is 8.7%. Now, on the same property with the leverage you have, assuming 34,000 in the deal currently and $250 cashflow, your ROI is 8.8%, so the same after the cost of debt. 

DISCLAIMER: This is not a super in-depth evaluation of the numbers. I am using a lot of rough numbers and generalities but trying to demonstrate a point.

Option 1 Leverage: We will assume you plan to hold all properties for the next 30 years. Lets assume that you are buying similar properties to the one you have now. I'm going to assume you are able to save up downpayment money for a new property every 24 months, which would leave you with 15 properties over the next 30 years. Now, let's assume a modest 3% appreciation over that period. Your first asset would be worth $267,000, and your total portfolio balance would likely be around $2.5+ Million. Your first house would be paid off, and every two years after, another house would be paid off. You would have needed to bring approx. $500,000 as a down payment, and considering an ROI of 8.8%, you would be bringing in $44,000 per year, and that would grow exponentially as you paid off each house. Your appreciation for year 31 would be on the $2.5 Million, so around $75,000. (Total Portfolio Value: $2,575,000 | Portfolio Debt: $1,470,000 | Portfolio Net Worth $1,030,000) Honestly, the returns are even better than this when you take into account tax benefits, but I'm trying to simplify for an example.

Option 2 Pay Off: In this example, you buy a new property every 4 years after the first is paid off. It's the same 30-year time frame, so you would end up with 7 paid-off properties at the end of 30 years. Your total portfolio would be valued at around $1 Million. Now, assuming you are at the same 8.7% ROI on that you would be bringing in $87,000 in cashflow and your year 31 appreciation would be $30,000. (Total Portfolio Value: $1,030,000 | Portfolio Debt: $0 | Portfolio net worth $1,030,000)

Conclusion: your ROI looks about the same at year 31 one option has a higher portfolio value and is leveraged. The other is cash flow heavy with a lower total value. Now, let's look at year 40 (remember 3% appreciation).

Option 1: Total Portfolio Value $1,384,000 | Portfolio Debt: $0 | Portfolio net worth $1,384,000 

Option 2: Total Portfolio Value $3,359,000 | Portfolio Debt: $550,000 | Portfolio net worth $2,809,000

Ok, this is a super long post with some rough numbers, But I'm mostly trying to demonstrate that leverage helps snowball faster, and the advantage of appreciation on a larger total portfolio balance can be a huge tailwind when investing in real estate. You mentioned that you are less concerned with cash flow right now, and that signals to me that you are probably better off finding the sweet spot for you with leverage.

I would leverage and take on extra risk now while you are young and able to make great money, and maybe 20 years down the line, switch things up and start pushing to pay these properties off early. You could also build up an emergency fund for each property, and then once you have plenty set aside for repairs, put all your extra cash flow toward the principal and pay the properties off faster. For your first property, if you put your cash flow of $250 a month toward principal payments each month, you would pay off 16 years early without hindering your savings effort for more properties.

As far as the Lake Anna market, I don't have any connections at the moment; if you go with that market and find a great agent there, I would love to connect with them. My only experience with Lake Anna was a vacation this past summer with family. We stayed in a great Airbnb and would absolutely go back. I would love to own property out there. One thing I will say about the Vacasa article is that the median price for Lake Anna was in the 400s, but I don't know that I would purchase a property out there if I couldn't be on the lake; I just don't see the demand being as great for non lakefront STRs. And taking that into account, you are back up to the price point around VB unless you can purchase some raw land and build on it, maybe.