Transcript
Speaker: Wait for interest rates to drop. You need to put 20% down on your house. Pay off your mortgage as fast as possible. And renting is just throwing money away. These are all pieces of advice that are viral online when it comes to real estate. But are they true?
Speaker: Welcome to the Future of Finance podcast, where we break down investment strategies to help you live a better financial future. I'm your host, Marissa Wood, financial advisor and one of the owners of Union Financial Services. And today I'm joined by real estate agent, James Boardman, to dive into this viral real estate advice and give you some tips to buying a house in today's market. So welcome James, AKA the one and only Jimmy B. That's right.
Speaker: I'm happy be here. Yeah, you have a podcast of your own as well. I do. The Closing Time Podcast with Jimmy B and Annie O. Absolutely. We'll have to put a link to that in the description below so everyone can check it out. So you are a partner of ours. I'm a client of yours. We've worked together for the past couple years in the past, and I've always had a great experience. So tell me a little bit more about how you got into real estate and what makes you an amazing realtor.
Speaker: How I got into real estate is more of an interesting story. um When I first moved in with a prior, ah we'll just say partner, she had her mortgage license and she was a loan processor and when I found out she had her real estate license, At the time I was watching House Hunters and I was, you know, HGTV and it's like, oh, that looks really easy. so I was like, oh, well I can go make a million dollars, sit on the beach and sit margaritas all day. Well, I learned quickly that that was not the case at all. But I just rolled with it.
Speaker: It was very tough the first couple of years, but then I finally got in a stride. I joined a team, got a mentor. learned everything I needed to learn. So now and I'm 15 years in now and I feel like I pretty much know everything but I'm constantly learning every day.
Speaker: What I would say so sets me apart from most agents is i actually care and I know what I'm doing. I'm not just out for a commission check. I'm always out to help buyers and sellers really just to get to whatever their end goal is. And I use all of my experience being on teams, running teams, being a part of some things with Zillow to just make that all happen. So it's just really that I know the industry inside out and I know what works and what doesn't. Yeah, I mean, last year we worked together to sell my first home and then buy what I consider my dream home. And it was a great experience. It was stressful just because i am a type A high-strung person. And it's nerve-wracking when you're thinking about this is one of your largest assets and you could be buying something that's very expensive that you hope to be in for many, many years. so you don't want to make a mistake. But having you... be there as a sounding board and and communicating the process throughout, it was about a month or two in all, um really did help me feel more confident in my decision. joke around a little bit yeah in the real estate world when people say, oh, you know, what what do you actually do? Because they don't know what we do. And I usually respond saying, I'm a therapist. Yeah.
Speaker: you really are you really are and i feel the same way about my business sometimes especially when working with couples a lot of the time you're just being there to help them through a challenging time and to be the person that says you can't spend that much every month rather than the husband having to tell the wife i'm gonna tell her or vice versa um so it's good to have that third party a neutral third party i would say in the mix um So obviously the real estate market changes constantly, and that's why so many people are fascinated by your industry, because you can make a lot of money, you can lose a lot of money, you can have an amazing house, you can get stuck trying to sell a really hard to sell house. And i think every quarter and especially every year, the world is changing around us. and yeah Just from COVID to now, what have you seen with the real estate market?
Speaker: The COVID market was absolutely insane. We saw prices inflate by almost nearly double in certain areas. But during that market, interest rates were very low. So because rates were low, people wanted to buy homes left and right. The problem was there wasn't enough inventory. So it drove the prices way beyond what they should have been. So what we're seeing today is rates are much higher given everything that's going on in the world.
Speaker: But people are still buying and selling real estate because they have to. You know, you have so many different situations, you know, death, divorce, upsizing and downsizing. So people are still making moves. But it's a very, very different market than it was back in 2021 through about early Yeah, and that's kind of going to bring us to our first viral tip that we're seeing everywhere online. And I think people are feeling like they need to wait for rates to drop. Wait for rates to drop and then make a move with real estate. How do you feel about that piece of advice?
Speaker: I understand where most buyers are coming from with that mentality. you know Lower rate means lower payment, more house I can afford. The thing to really consider though for waiting for rates to drop is so is everybody else. So what generally will happen is when we see rates drop, you're gonna see buyers flood the market.
Speaker: And then inventory currently in some pockets is already very low. So what will end up happening is you have all these buyers now that are coming to the market. There's only so much inventory because the rates dropped. You know, all these buyers are like, I want to buy a house now. I can afford it. But now there's not as many options and there's so much more competition. So what we usually see when that happens is prices get driven up again. So at that point, you're competing with potentially, i mean, the COVID market, there was about 20 to 40 offers on a property. I don't see that happening again.
Speaker: But when rates do drop, depending on how much they drop, I do see an influx of buyers coming in. I do see a lot of competition. Buyers are going to have to be in multiple offer situations. Prices are going to go up and they're just going to have less options to choose from. so It's kind of a catch-22 in that regard, but I would say don't let the rate dictate you know your purchase decision. It's all based off of you know what your situation is. like What is your goal? What do you need to do? And how can we get you there? There's multiple ways to get rates to come down. We can ask for seller concessions, which they are giving currently, that may change when rates drop. And there's more buyer demand. yeah I mean, that COVID market was so insane. That was when I bought my first house. I was still living in New Jersey at the time. I hadn't moved to Florida yet. And I will never forget, I had a specific neighborhood in mind. As you know, we're still in that neighborhood. I had a specific type of house in mind. And when it popped up, I literally think it was midnight. It was my husband's birthday. We had been at a party and it popped up and I'm like, here's the house, here's the house, we have to make an offer. I think I was texting my realtor at the time in the middle of the night, which is so awful, I can't believe I was doing that, but I was like. I won't comment on that. We have to make an offer it was over asking price, that offer that we had to make
Speaker: we had to waive all kinds of deadlines it had to be a super short closing we didn't even see the house in person that's how insane it was i believe it not even in the same state and we ended up getting the house thank god but that was not normal to be in that kind of environment where you can't even see the house and you're listing or you're putting in a price over list price and you're waiving inspection periods and you're paying cash and ah you know you're cutting off your right arm to get the house and that's not a good way for real estate to be I mean I guess it was good for you guys but that had to be really stressful
Speaker: It was, i mean, I would say it was good because there was a lot of real estate moving, but it was not easy. It was very, very difficult. Like I said, there was a lot of buyers who were in multiple offer situations. And I know some buyers with some agents that we were coaching and training that would write eight offers on a house before, or eight eight eight offers on eight different and houses before they would get one accepted. wow If not more, it was tough. Yeah, so that interest rate environment of 2%, 3%, that is not normal. no And we're probably not going to get there again anytime soon. And there's something interesting I read online that i I'd like to hear your thoughts on. And it it was in that same...
Speaker: conversation of wait for rates to drop. And it went back to 1971. Interest rates were at an average of 7.3%, which today we would call very high. Right. Really wasn't.
Speaker: And it said, if in 1971 you waited for rates to drop before buying that house, you you wouldn't have bought a house until 1993 and you would have spent 22 years renting while the real estate market quadrupled in that time so was that a good decision no what's your thoughts on that Oh, I mean, I agree wholeheartedly. um like Like we said earlier, i I feel that you really shouldn't dictate your purchase based off of the rate, but more so your situation, because there's definitely creative ways to get the rate down.
Speaker: Yeah, procrastination helps no one. Not it doesn't. It's just sometimes it's hard to get buyers to see that. And one thing you know we always say in real estate is it's never too late. Sometimes you may learn the hard way, but it's always a good time to buy because homes will traditionally always appreciate in value. True.
Speaker: Yeah. if you hold them long enough. um Now, how do you feel about the sentiment that you need to put 20 percent down in order to buy a house? ah you do't You don't at all. There are various loan programs out there if you need financing. If you're a veteran, you can get in a home with 0% down.
Speaker: Now there are you know closing costs, but we can negotiate the closing costs. The most popular loan program is FHA by the Federal Housing Administration. You only have to put down 3.5% for that. And then conventional, you can get it as low as 3% for a first-time homebuyer. And depending on your credit, 5% if you're not a first-time homebuyer. So you know you can definitely get in a home for a lot less than 20%. The thing you have to consider, though, is because you're not going to have a lot of equity up front, I always recommend if you're going to go one of those routes that you plan on keeping the home you know at least for 5 to 10 years so that it makes sense equity-wise. Explain that.
Speaker: Well, if you you know if you put 20% down on a home, you're not going to have to pay private mortgage insurance or PMI, and all that is fine and dandy.
Speaker: And then you can eventually pull equity out. you know and Even if you want to refi it even six months later, if you need the money, you can. The problem is is if you only put down 0% or 3.5% or even 5%, you don't have a ton of equity. So if you need to pull from that for an emergency situation or if you want to use it for investment properties, you're not going to have as much equity built up and you won't be able to pull that money out.
Speaker: Interesting. Now talk to me about PMI. That happens anytime you put less than 20% down? Correct. And how much is that every month? It depends. Is a percentage? Yeah, it depends. I don't know the exact percentage of because it varies on the loan type, but it stands for private mortgage insurance. And basically, if you put less than 20% down, the banks want that kind of as a security. God forbid that they have to foreclose on the property. They have a little bit of extra money saved up from the PMI so that they don't take as big of a hit. Okay, got it. Now, I personally believe if you can't put 20% down on a house, you can't afford the house.
Speaker: That's my personal opinion. Don't buy it at that point. I know that's probably harsh. And there's certain situations, especially with veterans and and first time home, that I know it's they might not have the equity yet to or the assets yet to put down on that house. And they want to start building their future. And they need a place to live. So I know it is situational. But for those that aren't first time home buyers or veterans,
Speaker: I personally believe if you can't afford the 20% down payment, it's probably too much house for you. Because PMI is throwing money away. You never get that back.
Speaker: Correct. I mean, so is renting, but... it It really just depends on your situation and what your goals are. So I would respectfully disagree. Yeah, no, that's good. That's why i'm that one i'm having this conversation. conversation I mean, when it comes to not putting 20% down, you have all these loan types like FHA, which is 3.5% down and... I understand your viewpoint of maybe not being able to afford the house, but you know like you said, it they may need a place to live, but the good news is is even if they only put 3.5% down, long as they stay they plan on staying at the property for a decent amount of time, they're going to build equity. Sure. Now, it's going to be market dependent, but traditionally, real estate appreciates about 3% year over year. So, you know, eventually they can get to the point where they have 20%, you know, into it, and then they can drop the PMI. Okay, that's interesting that you said on average, real estate appreciates about 3% a year. That's, I think, very important for our listeners to hear because everyone is still remembering the COVID market. It wasn't that long ago.
Speaker: And you probably hear it all the time where, well, why didn't the value of my house double in three years? Well, that's not normal. 3% a year is normal. And if you own that house for 10 years, 30% increase is pretty amazing. And that's probably more realistic. Yeah. And to me, it's not as high of a risk as some, you know, depending on what you want to do with stocks and other investments as well. I mean, I've always been told that real estate is the safest investment that you can make.
Speaker: If you hold it long term, if i think I think it probably is very safe. Those that want to buy and flip and sell and move every two years, now you're getting risky. Yeah. um now another piece of advice that A lot of people say on the internet, and I've definitely heard it from neighbors and friends and family members, pay off your mortgage as soon as possible. Once you have a paid off house, you are financially free.
Speaker: How do you feel about that? Again, it depends on your situation. um i don't necessarily agree with that. um I think you can leverage the debt without paying it all off because as you pay it down, you can have more equity in your home and you can pull from that equity and you can use that equity to make other investments. Now, are those other investments going to yield a higher profit? It's hard to say. It's all going to be a market depending on what's going on in the world at that time, but I don't. Yeah, I think it really is situational and and also depends on what point in life you're at.
Speaker: For someone that's in their 30s and 40s, to have a paid off house, I don't think it's that important. I'd rather have some equity in your house and then if you have extra money every month, depending on what your mortgage rate is, of course, if your rate's around 6%, if we can invest that, the S&P 500 has averaged 9% over the last 30 years.
Speaker: So if you could be making 9%, why would you use that money to pay off a 6% debt? it Math doesn't math. Correct. and And you need liquidity. You need liquid assets for things like vacations, home renovations, buying investment properties. So having all of your money tied up in your house when you're young and you're in that growth phase, ah it might not make sense. No, and then the other part of it too is, a lot of people who don't think about this, is if you have all your money tied up in the house, but let's say you go through a hardship and your credit drops, you're not going to be able to qualify to potentially refinance and pull that money out. So you could have all your money in your house, but...
Speaker: if things happen in your credit jobs you won't be able to pull from it so that would be another reason why probably wouldn't say that paying it off you know initially that quickly is the smartest move that's a great point now different story when you're approaching or in retirement i think it's great to have a paid off house at that point and have low bills low expenses but different time of life different goals so It's not good to just give general advice. Everyone listening, you know take it with a grain of salt when you hear your neighbor say that you need to pay off your mortgage as soon as possible. Yeah, I would say you know that'd be a conversation that they should have with you and see what ah what are their financial goals. And you know does the math, math, like you said, and does it make sense? Yeah. um
Speaker: Now, the last piece of advice that I've heard a million times, and I'm sure you have as well, is that renting is throwing your money away. I agree.
Speaker: yeah Wholeheartedly. i mean, sometimes you have to rent depending on your specific situation if you don't qualify to buy a house. But if you have the option of buying a home now or renting a home, I mean, take the fact that I'm a realtor and that I but help people buy and sell houses and I don't really do rentals. You know, i just...
Speaker: I don't know. It's hard because some people don't want the responsibility of taking care of their yard and all the deferred maintenance and they'd rather rent. But at the end of the day, from a financial perspective, you know as we said earlier, real estate appreciates 3% year over year. If you can qualify to buy a house right now, why not? Mm-hmm.
Speaker: I agree. um Of course, it's situational when you're just getting started in life and you're 18 or 19 or 20 years old. Renting does usually make sense. um And then sometimes at the end of your life when you don't want to have any maintenance and...
Speaker: You just want to live in that condo by the beach and you don't want to bother with a mortgage and everything. But for the majority of of life, I think renting is probably not the best route.
Speaker: Also, considering how high rent is, I mean, what is the average rent in the Tampa Bay area? It depends on the size of the home, but I would say on average, it's probably about $2,500 month. Yes, that's I. Yeah. Just to kind of give you a quick little story here. So Annie and I is daughter Ashley. She just turned 20 last year and she bought her first house. Wow. She was thinking of, you know, should I just get a place to rent?
Speaker: But we checked, you know, she has a good, stable job. She has good credit and she was able to qualify for Wow. So we negotiated a really good deal, got the seller to pay most of the closing costs. And now she's doing what we in the real estate world like to call house hacking. And it's more of an investment strategy. And what she's doing is she has a three-bedroom house, but she's renting the other two rooms.
Speaker: And those renters are actually paying more than what her full mortgage is. So her making that decision to buy, yes, she's going through some trials of being a homeowner and kind of a landlord at the same time.
Speaker: But in the big picture, she understands that financially buying a house at 20, she's going to be set, you know, by the time she's 30. And then she can always build on top of that. So, you know, that's one of the things I would consider if if you're trying to determine if you want to buy or rent. Now, is renting a room, you know, your other rooms for everybody? No, but it is one strategy to get started in investing in real estate without having to output as much money.
Speaker: Yeah, that's pretty amazing. I mean, congrats to her and to you guys, because 20 years old, buying a house is almost unheard of these days. So good for her I think she had good realtors. I think so, too. Probably. um Now, moving a little bit over to that investment property world, because this is a financial investment podcast, I want to watch a clip online that speaks to what it takes to buy an investment property and then pick your brain a little bit on that. Sure.
Speaker: This is the strategy that people employ. yeah They buy a property, you fix it up, you rent it out, and then you refinance it and say it's now worth 100 grand more than what you bought it for.
Speaker: You can get a loan for that exact amount, which you then use as a down payment on another property, rinse and repeat. Do I have that right? So let's say the property goes from one to 1.1. They'll give 70 to 80% of that. That extra $100,000, they give you 70 $80,000 that. It's that simple, folks. Hmm.
Speaker: What do you think about that strategy for buying rental properties or investment properties? I like it, and people do it all the time. That's why I said it really just depends on what people's goals are. But truly, that is how most investors will leverage the debt of having a mortgage on the property. Now, most investors I know, they don't really go through the traditional route of a mortgage. They may get what's called a hard money loan, which the best way to describe that is like a loan shark. Scary. But if the numbers work and you have a good plan, then you can keep stacking and buying more and more and more properties. Will you be adding debt you know to the properties you already own? Yes. But if they're cash flowing really well and you have good you know tenants in there, why not?
Speaker: So when buying an investment property, I know that there's two different mindsets on making money from it. There's the cash flow mindset and then there's the long term appreciation. Tell me what's the difference in those two when when you're thinking about buying an investment property? So cash flow is how much money am I going to have left over if I'm renting it out after I pay the mortgage if there is one, you know, taxes, if you're offering any utilities, anything like that, whatever money is left over from what their rental payment is, that's your cash flow. So that's, you know, what you're going to make right now
Speaker: depending on the market, you know, it really varies depending how couple hundred dollars a month, maybe? Yeah, I mean, i would say the average investor in today's market, because there's so many investors wanting to buy properties right now, it's very competitive. If you can cash flow 500 plus a month, you're cash flowing pretty decently. Okay. Appreciation is you may not be cash flowing, you may break even or you may even potentially be losing, let's say 100 or $200 a month by doing it. But you're playing the long game. You like you said, the appreciation we talked earlier, 3% year over year, sometimes it can go higher, you know, sometimes it can go lower, but traditionally, it's always going to go higher. So now you're playing in the long game instead. And then if you know we have another market where prices inflate a little bit over 3%, you're good.
Speaker: you're good If you sell the property, now you're making correct a nice return. Correct. Or you know as you know the property is worth more money, you could potentially pull more money out of it. OK.
Speaker: Now, I think relying on that rent payment to pay your mortgage is a scary position to be in. Because what happens when that house is vacant or your renter doesn't pay?
Speaker: Then what? You either have to find a new renter very, very quickly or hope that you have money saved up so that you can carry that second mortgage until you put another renter in there.
Speaker: The good news is, is on our Tampa Bay market, we've never really had an overabundance of rentals to where homes wouldn't rent. Prices have definitely come down in their rental market since COVID. When I say the average was about 2,500 a month, that probably used to be 3,500 a month. So, you know, that's come down, you know, a little bit.
Speaker: Okay. Yeah, I mean, I'm sure it's it's case by case, but looking at all the numbers first and talking about goals, how long you plan on keeping this, is it a long-term investment for you or is it something to generate some more income monthly? That all goes into the conversation and I'm sure that's how you find them, that right property on what their goal is. Absolutely. Yeah. um Now, this wasn't one of the questions I was going to ask you today, so I'm going to throw you a little bit of a curveball, but it's very top of mind. It's been on the news a lot, and that's the Florida Homestead exemption. And currently it's $50,000 per primary residence. And there's talks that they're going to be putting it on the ballot for November, raising that to $250,000, which would drastically reduce everyone's real estate taxes for their primary residence in Florida. How do you feel about that? Do you think it's going to help the real estate market because people will be able to afford more home at that point? If we're talking specifically just about the real estate market, then I would say 100% yes.
Speaker: It can go deeper than that is you know is that. Is them doing that going to cut you know budget and spending in other areas that's not real estate related, that could affect you know the overall population in general? Yes. But for real estate specifically, it'll definitely make homes a lot more affordable.
Speaker: Yeah, I mean, I'm crossing my fingers and hoping that that happens. I am too. Would save everyone a lot of money. Yeah, I mean, the the taxes here in Florida have gone up significantly over the last 10 years. you know, everyone used to complain about New York taxes, California taxes. But truthfully, here in Florida right now, we have one of the highest, you know, property taxes in the country.
Speaker: Plus our appraised values have gone way up since COVID. And I'm part of that. i moved from the Northeast down to here. And I understand that that's what has driven all of these prices up. So we actually also one of the highest states for homeowners insurance as well. yeah So reducing the overall tax liability can definitely increase, you know, a buyer's buying and power for sure, because taxes are definitely taken into consideration when you're qualifying for a mortgage.
Speaker: Yeah, I'm definitely curious to see how that plays out. Yeah, it seems like everything's been going into motion so far. They keep kind of tweaking and changing how they're exactly going to do it. i actually hadn't heard until you just told me about the increasing the exemption from 50 to 250. I just heard that they were going to eliminate all property taxes. But then as they got the conversations going, they're like, well, we probably can do that. Yeah, sounds great. Yeah. um So we'll see. We'll see how that goes. Now, before we close up, what's one piece of real estate advice that almost everyone believes that you think is completely wrong that you would like to give your Jimmy B take on?
Speaker: I would say. that you need great credit to buy a home. a lot of times I'll be talking to prospective buyers and they'll say, well, my credit's not good enough, so I'm just gonna wait.
Speaker: I always follow up with, well, what is your credit score? If they don't know, I just have them pull it on Credit Karma or one of those websites like that. It doesn't really matter because I kind of want a ballpark, but you can get in a home traditionally with a 580 credit score or above. Okay.
Speaker: you can actually get in a home with less than a 580 credit score if you have more money to put down. But I think that's probably the biggest piece of advice that I, the the biggest thing I hear from people is, you know, my credit's not good enough, my credit's not good enough. But when you dive a little deeper, there's plenty of programs out there for people with lower credit.
Speaker: Well, that's uplifting. That's that's good to hear. it might give a lot of people some hope. Now, for anyone that's listening to this, how can they get in touch with you, James? Where is your best place to have that first conversation?
Speaker: Give yourself a little plug here. Sure. So my wife, Annie, and i we have our own little partnership, husband and wife team. um Call it Jimmy B and Annie O, the realtors you need to know. um My direct cell is 813-748-4005. That's probably the best way to get in touch with me. Or if you want, you can also check out our website, which jimmyandannierealestate.com.
Speaker: Awesome. Thank you, James. So everyone watching this, if you have specific questions, whether it's about real estate investing, stock market investing, and you want to schedule a complimentary consultation, all you have to do is go to our website, union-financial.com and click schedule a meeting. It'll take you right to my personal calendar where you can book a phone call, a Zoom call, in-person meeting to get your questions answered. And if you found value in this episode, share it with someone you know that loves real estate.
Speaker: because most of us do love talking about real estate. James, thank you again for coming on today. Real estate is often someone's largest asset, so it's extremely important to be well-informed and work with the best of the best. Absolutely. It was a pleasure to be here. Thank you. For everyone watching, thank you for tuning in to another episode of the Future of Finance podcast. I'm your host, Marissa Wood. We look forward to helping you live a better financial future.
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