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Hey, everyone. It's Stephanie, host

0:17

of Money confidential. This week, we

0:19

are re sharing one of our favorite episodes

0:21

from earlier in the season. Enjoy.

0:24

It was a

0:25

brand new house, but, like, the roof was leaking.

0:27

But then also, the pipes burst in the

0:29

winter. And, like, the guy that came to patch, it

0:31

wasn't good. And every weekend

0:33

there is something to do to maintain this

0:35

house and it is a year old.

0:38

This is money confidential. A

0:40

pod guests from real simple about our

0:42

money stories, struggles, and

0:44

secrets. I'm your host, Stephanie

0:46

O'Connell Rodriguez, and today our guest

0:49

is a thirty eight year living in Queens,

0:51

New York, who wear calling Jordan, not

0:53

his real name.

0:54

I own my first

0:56

condo at the age of twenty four.

0:58

I probably would have loved continue with the narrative.

1:01

had just maybe one more room, but

1:03

the time was ready for us to move. When

1:05

Jordan and his wife found out they were going

1:07

to have a baby, they decided it was time

1:09

to sell the one bedroom condo and look

1:11

for a home with more space to accommodate

1:13

their growing family. We were

1:15

in a bit of a bind because

1:17

the baby was coming. And so I

1:20

said to my wife 1 night, maybe we

1:22

should look for two family home. Make

1:24

some income from having a secondary

1:26

home be rented out and have the

1:28

house and the investment sort of work for

1:31

us while we live in it, I had no

1:33

idea really when I was getting myself into.

1:35

Long story short, we ended up finding a

1:37

two family home that we ended

1:40

up really falling in love with.

1:41

So when you move to the

1:43

new location, what were

1:46

some of the surprises when

1:48

you were actually living there?

1:50

Oh, wow. Lot of things. For the

1:52

most part, the inspection went off fine. But

1:54

there was one huge issue that

1:57

think trickled into a lot of other

1:59

issues. The major issue was that they

2:01

had a boiler in the house that

2:04

for some reason or another, And this

2:06

was literally the inspector's comment

2:08

was there's low levels of carbon monoxide

2:11

spilling into the area. And I

2:13

said, well, that that's not good. You know?

2:15

We certainly we certainly can't have that,

2:17

especially with the new board and all that other

2:19

stuff. So we call the other real

2:21

estate agent who's represented the

2:23

seller. And we said, hey, this

2:25

is what the inspector said. Is there any

2:27

way we can fix it? And we came to realize

2:29

that the seller was a developer. So

2:32

they bought this flipped it,

2:34

and didn't do the best

2:37

work when it came to flipping it, probably

2:39

trying to find cheap labor and chain materials

2:41

to get things done. So we're like, alright.

2:43

Well, maybe we'll swap that out. We'll

2:45

put in tankless water, heater,

2:48

and able to save everybody. No

2:50

worries about gas. But as

2:52

that unfolded,

2:53

we wanted to get the schematics of

2:55

the blueprint of the house because we

2:57

were 1, like, Well, why was that built

2:59

there to begin with? So we

3:01

started to have all these red flags before

3:04

we even closed. Ultimately,

3:07

we decided to continue pressing forward.

3:09

We negotiated things. We got to a

3:11

place. And we thought

3:13

that the biggest issue was really gonna be that

3:15

water tank, and that was it. Literally,

3:18

the first week that we were there,

3:20

we had people working on the water

3:22

tank and taking care of all that we

3:24

had another guy come in to patch

3:27

up the job and after the plumbers

3:29

and everybody did what they had to do. So

3:31

as they're there and we're using the

3:33

shower, my wife is in the shower

3:35

and I hear, like, water dripping.

3:37

And I said, uh-oh, like,

3:40

where is that coming from? And now there's this

3:42

huge hole in my living room,

3:44

in my brand new house 1 was supposedly completely

3:47

renovated to the nines and all that.

3:49

And so we were like,

3:51

well, what the hell is this? And why

3:53

is this happening?

3:55

And the next thing I knew,

3:57

we

3:57

realized it's obviously coming from the shower.

4:00

Because the way they built it, they didn't

4:02

put a waterproof sealant underneath, and

4:05

they just put cement and tile on

4:07

top of cement. To get that done.

4:09

It took us two tries to figure out what

4:11

the problem was. So

4:14

that was probably one of the biggest

4:16

headaches. In addition to those major

4:19

repairs to the water tank and primary

4:21

bathroom, Jordan and his wife found

4:23

themselves dealing with a host of other

4:25

major repairs in their supposedly newly

4:28

renovated home, including a

4:30

total replacement of their heating and cooling

4:32

systems as well as pipes that had started

4:34

to leak into the part of the house they'd

4:36

converted into a rental unit.

4:38

To

4:38

be completely transparent between

4:41

the new piping, the French drain, and

4:44

new heating units, we

4:46

in two months' time had a bill

4:48

of over forty five thousand dollars.

4:50

We were just completely

4:53

like Shell shocked. This couldn't come at a

4:55

worse time. It's the holidays. It's

4:58

literally the most stressful time of the

5:00

year with everything going on in the world. And

5:02

we now have to shell up forty

5:04

five thousand dollars to get all of this

5:06

done because we had to get it done. And everybody

5:08

says, these are just the joys and pains of owning

5:10

a home. It was a bit of a struggle

5:12

the first year with a lot of unexpected

5:15

things coming up. When you buy a

5:17

house that you expect it to be brand

5:19

new, renovated, and nobody has

5:21

lived here in this condition before,

5:24

and it has not turned me off from ever

5:26

buying a house or any type of thing that is

5:28

considered brand new under construction.

5:32

A lot of what we've spend money on

5:34

is not seen. It's very much

5:36

foundational. We're very much getting

5:38

the house functioning. I wish

5:40

I could say that we spend our money on building

5:42

a new kitchen or a brand new

5:44

room or something I can visually see and be

5:46

like, oh, this is amazing.

5:48

So how did you

5:50

deal with financing all of these huge

5:52

costs. A lot

5:53

of them had

5:54

payment options, a lot of zero interest,

5:56

five year plans, obviously

5:58

negotiating to kinda make things work.

6:01

It's not like I wanna shell out forty five

6:03

thousand dollars, but we did very

6:05

fortunately have this money in our bank if we

6:07

really had no other option as much as all

6:09

the headaches that we've gone through and trust me, there's

6:11

been more headaches than I'd like to

6:13

talk about. The house did

6:15

what we we're looking forward to

6:17

do from an investment perspective. But

6:19

in hindsight, I probably

6:21

would have looked at life a little bit more

6:24

eighty fatherhood, better scenario

6:26

for the child than us living in a peaceful

6:28

scenario. Twenty percent investment

6:31

versus probably was more ninety

6:33

percent investment, ten percent

6:35

1 just lived here and let's make it work in

6:38

this scenario.

6:39

I think I was checking off boxes

6:41

to convince

6:41

myself, lifestyle choices

6:44

were still okay. But as

6:46

I've been in here, I had to

6:48

come to look in the mirror and say, you really

6:50

were only looking at it from a financial perspective,

6:52

you know, and not really looking at this

6:54

completely through. It's

6:56

been about two years since Jordan

6:59

and his wife bought their current home.

7:01

And while they hadn't initially planned to

7:03

sell for at least five years,

7:05

The realities of living there plus

7:07

all of the renovations and repairs they've

7:09

had to undertake combined with COVID

7:11

lockdowns during that time have

7:13

them reconsidering.

7:14

When we bought this house, we knew that

7:17

this wasn't gonna be what they typically

7:19

call it forever home. But as

7:21

I started see all of the investment

7:23

we've already put into the house. I was

7:25

getting nervous that we weren't going to

7:27

get the return that

7:29

we were really hoping for But at

7:31

this point in our life, I think

7:33

that peace of mind in the place where you live

7:35

is better than all that other

7:37

stuff we will look for a house that

7:39

we can manage financially, but

7:42

I certainly don't wanna be a landlord again.

7:44

I certainly don't want to buy from

7:46

a new developer or any type of new

7:48

construction. I wanna know that someone lived

7:50

there and whatever growing pains they

7:52

had living in there is something that I'm willing

7:54

take on. I

7:56

was fortunate that we had the reserves

7:59

to be able to take care of all of these

8:01

unexpected things. We know

8:03

that if we buy another house, the chances

8:05

are it's not gonna come

8:07

as, quote unquote, pretty as this brand

8:09

new renovation. So we're probably

8:11

gonna have to do some renovations now the things

8:13

that you can visually see that are a little

8:15

bit more appealing and hopefully over

8:17

time will help from an investment standpoint,

8:20

make its money back once you sell it.

8:22

I am worried about all of the money

8:24

we've already put into this property in

8:26

such a short amount of time Knowing that this

8:28

was never gonna be something we were gonna stay

8:30

for the long tenure, we also

8:32

have a little one to think about. She's

8:34

gonna be going to school soon, so we

8:36

still have put a lot of that money of the service towards his

8:38

schooling and education first

8:40

before any other luxury

8:42

items. With

8:43

all the lessons learned from

8:46

buying, renovating and repairing his current

8:48

home these last two years, Jordan and

8:50

his wife are thinking really carefully

8:52

about how to move forward with a

8:54

potential move and what to look for in

8:56

a new property, especially when it

8:58

comes to potential repairs and

9:00

renovations. So after the

9:02

break, we'll talk to a real estate investor

9:04

for

9:04

answers.

9:10

You know, when

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you're staying at an Airbnb,

9:14

it might

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have crossed your mind. Could might at least

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be an Airbnb?

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earn? That's something

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that Gil in Saint Louis thought too.

9:23

He realized he had an Airbnb when

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his nephew moved out. Now

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Airbnb that extra space helps

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fund this retirement. So you

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9:42

My name

9:43

is Jay Scott, and I

9:45

have spent the last twelve years

9:47

as a full time real estate investor.

9:49

I wonder if you have

9:51

a way of helping people

9:54

figure out what is the

9:56

right kind of property given, like,

9:58

the stage of your life

9:59

for how long you wanna live there or

10:02

your starter home? And how can you kind of

10:04

think about those questions?

10:06

So I'm a big fan of knowing

10:08

the end goal. And so we

10:10

all have to ask ourselves what is the

10:12

purpose, what are we

10:14

planning to do with this particular house or

10:16

this particular home or property? And

10:18

while we certainly can be thinking about it as a

10:20

place to raise our kids and live with our

10:23

spouse and can think about it in

10:25

emotional terms. We should also be thinking

10:27

about it in financial terms.

10:29

And so starting with the end goal

10:31

in mind, is this be a property that I plan to

10:33

hold for the next thirty years as a

10:35

rental property? Am I planning to have kids in the next

10:37

year, but I'm going to buy a condo because

10:39

it's inexpensive. Think

10:41

about why you're purchasing. Think about where

10:43

you're going to be in the next year or two

10:45

or five and think about what you plan

10:47

to do with the property once you're done

10:49

living there. And the big reason for

10:51

this is that we don't know if in a year

10:53

from now home values might

10:55

drop or two years from now or five years from

10:57

now home values might drop. This isn't

10:59

a big deal if we're planning to live in

11:01

the house for the next two or three or five

11:03

years. Eventually, house prices are going

11:05

to return But if you need to be

11:07

able to sell in a year

11:09

or two years, you should approach the

11:11

purchase a lot differently than if this

11:13

is some place that you are willing to live

11:15

in for the next five or ten years. So

11:17

always go in with the lens of what's

11:19

the worst thing that could happen. What

11:21

are my plans for the property and then

11:23

act accordingly.

11:23

Our listener this week was living

11:25

in a one bedroom condo that he owned

11:28

when his wife got pregnant. And he

11:30

had this idea that he's gonna look for a

11:32

two family home so they could rent out the other

11:34

space while they're living in

11:36

the other space. What

11:38

are those considerations that

11:40

somebody needs to make when they're going

11:42

through that kind of decision

11:43

making? As far as I'm concerned, the biggest one

11:45

is is your also onboard. From

11:47

what I've seen, the biggest source

11:50

of stress is

11:52

when the two partners are not

11:54

on the same page. When one

11:56

is thinking, well, this is where I want to

11:58

live and this is where I'm going to have my

11:59

family and raise my kids and the other one is thinking, well,

12:02

let's rent out a room and start

12:04

making income from it and start

12:06

saving up for another house. And

12:08

if both sides aren't on the same

12:10

page, you're going to introduce a lot

12:12

of stress. Owning your own home is going to require

12:14

some additional level of time

12:16

investment than being a renter. You may have

12:18

to cut your lawn. You may have to repair your

12:20

own stuff or in a

12:22

handyman to repair your own stuff. You're gonna have to deal

12:24

with eventually

12:25

replacing the roof and replacing the

12:27

air conditioning system. All the stuff that typically

12:29

a landlord would handle. And

12:31

so

12:31

then you'd

12:32

go to the next level. If you want to become an

12:35

investor, well, there are different levels of

12:37

time investment for invest

12:39

thing. So maybe you're going to rent

12:41

out a home that used to live in, maybe you're going

12:43

to hire a property manager to manage it for you,

12:45

so you don't have to take phone calls in the middle

12:47

of the night maybe you're going to do

12:49

a big renovation. You're going to buy a house that

12:51

was built in the late 1800s and do a

12:53

two hundred thousand dollars renovation and then

12:55

rent it out and manage it yourself. A

12:58

project like that, well, you're gonna spend a lot of time, you're

13:00

gonna spend a lot of money, there's gonna be a lot of

13:02

risk. And at the end of the day, you're gonna be managing it

13:04

yourself, and you're gonna spend a lot of time

13:06

there. So really, it's up to you to

13:08

kind of determine what is the time

13:10

commitment, what is the money commitment,

13:12

what is the risk tolerance

13:14

you're willing to take, and

13:16

then choose the solution from

13:18

that as opposed to going the

13:20

other way and saying, this is

13:22

gonna be my living situation or my investing

13:24

situation. And now just hoping

13:26

that the time commitment and the money commitment and

13:28

the risk tolerance suits whatever you

13:30

happen to pick. Whenever you're looking

13:32

at how whether you're buying it for yourself, you're buying it

13:34

as an investment, you're playing to buy it

13:36

and sell it, there are two

13:38

types of repairs that

13:40

you're going to encounter. One of those

13:42

functional things. Those are the things that an

13:44

inspector is going to find. You

13:46

hire a good qualified inspector three

13:48

hundred, dollars four hundred, dollars and they're going to come in and

13:50

they're going to say, okay, the roof has a

13:52

leak. The HVAC system is

13:54

almost end of life. hot water heater

13:56

is rusted through at the bottom. The

13:58

stove doesn't seem to work on

13:59

this setting. They're gonna find all those

14:02

functional things for you, but

14:04

that's only half the battle. The other half

14:06

is the stuff that the inspector, it's

14:08

not his or her job to

14:09

find. That's the aesthetic stuff. So

14:12

maybe there is old

14:14

outdated countertops. If they're functional, the

14:16

inspector's not going to say, yeah, you really need to

14:18

get upgraded granite countertops. But

14:20

if you look around at all the other houses

14:23

that are similar to yours in your area

14:25

and your goal is

14:27

to bring the value of your house up

14:29

to the other ones or maybe just get the

14:31

value out of your house down the road

14:33

when you decide to resell. All these

14:35

aesthetic things are things that you're gonna have to take into

14:37

account. Maybe you have a good eye and

14:39

you know what you need

14:41

to do. Or maybe you don't and you have to bring in

14:43

somebody that can help you, maybe a real

14:45

estate agent or maybe a designer who can

14:47

come in and say, if you wanna get

14:49

your house in a sale condition,

14:51

assuming you care about this from a

14:53

resale perspective, look at all the other

14:55

things that are in the market and figure out what to do. But

14:57

at the end of the day, anytime you're

14:59

buying a property, you should be thinking about what are the

15:01

functional things I need to address, And

15:03

those are going to be the safety concerns. Those are

15:05

going to be the things that impact your day

15:07

to day living. And what are the aesthetic things

15:09

you need to address? And that's either going to

15:11

impact your resale value. It's also going to

15:13

impact the quality of your life in

15:15

that property. You're going to be a lot

15:17

happier cooking on a nice stove or

15:19

having stone countertops versus old

15:21

plastic laminate countertops. But at the

15:23

end of the day, it's the function on it's

15:25

the aesthetic. In

15:26

this listener story. Something

15:28

came up in the inspection and they negotiated

15:31

upon closing. But then

15:33

all of these other functional

15:35

issues started to happen

15:37

and big issues. And I think

15:39

sometimes there's this assumption that just

15:41

because something is newly built, then

15:44

you're not going to have a lot of

15:46

that major maintenance

15:48

come up immediately. Is

15:50

that a safe assumption? A lot

15:52

of times when we have a property that's

15:54

been fully renovated or maybe

15:56

even almost knocked down

15:58

and rebuilt There are certain warranties

16:00

that much come along with the

16:02

sale of that property. So in

16:04

many states, if you're going to sell something that

16:06

is considered new construction, you're required

16:08

to provide at least a ten

16:10

year labor warranty on all the

16:12

workmanship that was done on the house.

16:14

So if it turns out that the HVAC

16:16

system doesn't work for some period of time

16:18

depending on if labor materials

16:20

that are broken, the seller may need to have to

16:22

fix that. So it's really important to

16:24

understand anytime you

16:26

buy a property, 1, does it come with

16:28

any type of warranty? Two,

16:30

if it's new construction, look

16:32

into the legalities around it and say, should

16:34

it come with a warranty talk to a good

16:36

real estate attorney and say, I'm buying this property.

16:38

It's basically new construction. It's

16:40

fully renovated or it was mostly

16:42

torn down. Legally, do they have to

16:44

provide me a warranty? And that

16:46

upfront. Now assuming

16:48

that they didn't deal with that

16:50

upfront, well, then it boils down

16:52

to is the seller going

16:54

to do the right thing. Oftentimes,

16:57

you can go back to the seller or

16:59

the builder and you can say, hey, look, there

17:01

was some shoddy workmanship or something

17:03

broke. I wasn't expecting it to break. A

17:05

lot of there's going to be warranties that

17:07

were provided to the builder or to

17:09

the seller from the contractors, either for

17:11

the labor or the materials.

17:14

Unfortunately, if it's not new construction

17:16

and there's no legal requirement for

17:18

a warranty. In the real

17:20

estate world, typically, things are

17:22

buyer beware. And so that's why it's

17:24

so important to bring in a really good

17:26

inspector up front and do a thorough

17:28

inspection before you close on the house and

17:30

take possession.

17:30

How do you suggest new

17:32

homeowners' budget for maintenance and

17:35

repairs when they're going through

17:37

that purchase?

17:37

So there are these big things on

17:39

any property called the capital expenses. And

17:41

these are the big ticket items that

17:43

any homeowner is going to have to deal with, whether it's

17:45

now or twenty years down the road, And

17:48

these are things like a roof,

17:50

a new HVAC system, a new

17:52

hot water heater, updating

17:55

trickle and plumbing and

17:57

repairing, siding, all of

17:57

these things that you may not think about today, you may

17:59

not even think about them ten years

18:02

from now. But if you still own that house in twenty or twenty five years,

18:04

there's a good chance you're gonna have to replace the roof. If you

18:06

own that house in thirty years, there's a good

18:08

chance you're gonna have to do some electrical work or

18:10

some plumbing work. And so what I like tell

18:12

people is think about all of these big

18:14

ticket items and think about them

18:16

in terms of on average

18:19

how much you'd be spending per year

18:22

to replace those

18:22

things even if the expense is far down

18:24

the road. Let's take

18:25

a roof

18:26

for example. Let's say you have a house that you buy and

18:28

you think the roof is good. The inspector tells you that

18:30

the roof is good for the next twenty years. So

18:32

a lot of us just wouldn't even think

18:35

about it. But if you're smart, what you're

18:37

gonna think is, okay, this roof is gonna last

18:39

me twenty years and twenty years, I'm gonna have to pay

18:41

some amount of money to replace the roof. Do some

18:43

investigation, you just find that, okay,

18:45

replacing that roof would cost about ten

18:47

thousand. Dollars So instead of

18:49

thinking, I'm gonna pay ten thousand dollars in

18:51

twenty years, think of it

18:53

in terms of I'm paying five hundred dollars per year

18:55

or you can even say I'm spending forty

18:57

dollars per month to replace

18:59

this roof. And you can do that with each of the

19:01

major components. You can do that with an HVAC

19:04

system that will typically last about twenty years and a

19:06

hot water heater that will typically last

19:08

ten years. you'll find is

19:10

you're probably spending somewhere

19:12

around a hundred dollars a month

19:14

to deal with all of these things. So in

19:16

terms of what you should budget, if

19:18

you don't have a good reserve for the

19:20

biggest ticket items, typically the roof for the

19:22

HVAC system. If you don't have enough money

19:24

to cover that, at

19:27

any point in time, then my

19:29

suggestion is start saving one hundred dollars

19:31

a month today so that

19:33

as those items come due as

19:35

those repairs need to be made, you

19:37

have a reserve account that you can use to pay

19:39

for those things.

19:39

Any suggest on what someone can

19:42

do when one of those big expenses

19:44

hits in year one or two?

19:45

So hopefully, prepared

19:48

for it. The reason why I tell

19:50

people, even if it's twenty years

19:52

from now that you're going to have

19:54

to replace the roof and you're thinking, well, I'm going to sell the

19:56

house in ten years. So I don't need

19:58

to start saving money. Even

19:59

if you're not gonna pay for that roof

20:02

in twenty years, if when you go to sell

20:04

the house in ten years, The house is now ten

20:06

years closer to getting a new roof,

20:08

the new buyers going to

20:09

discount their purchase price. So

20:11

even if you're

20:11

not spending that money, you're gonna lose it when you

20:14

sell the house because the

20:16

house is gonna sell for less. You need to be aware when you're buying

20:18

the house, which of these items are near

20:20

being needed. And factor

20:23

that into your purchase. So if you

20:25

have an inspection

20:26

and the inspector says, yeah, this roof only

20:28

has two years left, Well,

20:30

maybe that's time to if you don't have the

20:32

cash reserves, maybe before you close, you

20:34

need to negotiate with the seller and say,

20:36

hey, I want you to take ten thousand

20:39

dollars want you to put it in escrow.

20:41

I want you to basically pay for the new

20:43

roof. You don't have to pay before I move in because I

20:45

don't expect you to put the money out. But let's put

20:47

it in the contract that I'm going to maybe pay

20:49

you ten thousand more or we're gonna subtract ten

20:51

thousand of the purchase price and we're gonna take ten

20:53

thousand dollars and we're

20:54

gonna put that into escrow

20:56

so that when the roof needs to be replaced in two years,

20:58

I can use that money to pay for it. And

21:01

so the key isn't necessarily to avoid

21:03

those costs, the key isn't to save

21:05

up all the

21:05

money really quickly. The key is to anticipate it

21:07

and have a plan.

21:08

Hiring the right people seems

21:12

like a real challenge. So is

21:14

there some kind of process for finding

21:16

the right plumber electrician

21:18

contractor a series of questions or

21:20

things that you should be on the lookout for.

21:23

It's

21:23

very difficult. And then somebody

21:25

that has renovated hundreds of houses,

21:27

I still struggle with that. Everybody

21:29

struggles with finding good contractors.

21:32

Here's the secret. Good

21:34

contractors only associate with other good

21:36

contractors. The good contractor is

21:38

not going to risk their reputation by

21:40

saying, hey, go work with Joe.

21:42

If he knows Joe isn't good because if Joe

21:44

does a bad job, that now reflects poorly

21:47

on him. And so good contractors will only

21:49

recommend other good contractors.

21:51

So the key for you as a homeowner

21:53

or as an investor is to find

21:56

one good contractor. If

21:58

you can find one good contractor, then

22:00

you ask that contractor. Who else that you've worked

22:02

with that you would recommend? Do you have a plumber that you've

22:04

ever worked with? Do you have attrition that you've worked with, a

22:06

roofer that you've worked with, and let them

22:08

recommend one or two people. Then you ask

22:10

those

22:10

people, who have you worked

22:12

with? And

22:13

they'll recommend good people. And from there, you're building up

22:15

a network of contractors that are all likely to

22:17

be very good. What I would say is

22:19

make sure that you're doing things

22:22

to what we call to code. So

22:24

if in your area, it's required

22:26

that you pull a permit to replace

22:28

a water heater. people think, yeah, it's

22:30

just a water heater. Why do I really need a

22:33

permit? Pulling a permit

22:35

is a good way to ensure that the

22:37

contractor that you use is at least licensed and

22:39

insured because in most

22:41

jurisdictions contractors are going to be able to pull

22:43

permits if they're not both licensed and

22:45

insured. And that doesn't guarantee that they're gonna

22:47

do a good job, it certainly does

22:49

give them some incentive to do a good

22:51

job because if they rip you off,

22:53

if they do something incorrect,

22:56

potentially they're putting their license and their

22:58

livelihood

22:58

at risk. Now for

23:00

somebody who was like our listener this

23:02

week who's just pouring more and

23:05

more money into this house that they don't even

23:07

plan to live in forever. Is there a

23:09

tipping point? Is there a tipping point where you're just

23:11

like,

23:11

alright, let's cut

23:12

our losses

23:13

move. So again, this goes

23:16

to the functional versus aesthetic.

23:18

In the aesthetic side,

23:21

renovations don't return what they cost. And

23:23

it's a good rule of thumb that typically whatever

23:25

you pay for a cosmetic renovation

23:28

it's going to hard to get that money back out. Now,

23:30

there's some exceptions. People talk about kitchens and

23:32

bathrooms and that's a good place to put money. But even

23:34

in kitchens and bathrooms, it can be

23:37

difficult if all you're doing

23:39

is purely cosmetic work. But sometimes

23:41

the cosmetic work makes the difference between

23:43

being able to sell your house

23:45

for what it's worth and not being able to sell

23:47

it at all. Here's the problem with

23:50

not doing the work. Legally

23:52

speaking, if you're selling a residential

23:54

home, a home that you live in, you

23:56

are legally required to

23:58

disclose any, what they're called, adverse

24:00

conditions about the house. So if you know there's a

24:02

roof leak or if you know the HVAC

24:04

doesn't work every other Saturday

24:06

or if you know that there's a wiring

24:08

problem with the electrical, you legally

24:10

need to disclose that when you go to sell

24:12

the house. Now, for aesthetic

24:14

stuff, not a big deal. Okay? I see

24:16

that the paint's peeling and and the cabinets are

24:18

old. But with the functional stuff, a lot of

24:20

times if a buyer comes in to buy it,

24:23

let's say the roof is leaking. It's

24:24

not necessarily up to the buyer to

24:26

say,

24:26

well, I don't care that the roof is leaking. I'll pay

24:29

money to fix that. A lot times the

24:31

buyer isn't going to be able to get a loan on the

24:33

property if there are these big functional

24:35

issues. So literally,

24:38

fixing these things can make the difference between

24:40

your ability to sell the house or not sell

24:42

the house. So you at least need to get the

24:44

property in good enough shape

24:45

that it is what's called FHA

24:48

financeable. And

24:48

what that means is it's in at least as good a

24:51

shape as necessary for

24:53

FHA, which is a common first time

24:55

homebuyer lender to be willing to

24:57

finance it. And if you ask a local

24:59

real estate agent or a local mortgage

25:01

lender or mortgage broker, A lot of

25:03

times, they can tell you what the

25:05

requirements are for a house to be

25:07

FHA financeable. And that should

25:09

be the absolute minimum condition that

25:11

you get the house up to because if

25:13

it's not in at least that condition, you may find

25:15

that it's near impossible to

25:16

sell. Well, this listener has done

25:18

all of their repairs. That said, they still

25:20

are looking to sell it, and now they're question

25:23

becomes, do they take all the profit

25:25

from selling this house to

25:27

potentially putting more toward

25:29

a down payment to off

25:31

set a mortgage on a new place? Should they keep more

25:33

in reserve based on what they've just been

25:35

through? Should they just put it in an emergency fund?

25:38

Yeah. And this is a problem that lot of people are struggling

25:41

with these days. A lot of us have

25:43

equity in our houses. We can sell our house

25:45

for as much as we bought it for, maybe a

25:47

whole lot more. Than we

25:49

bought it for, which seems like a great

25:51

thing except that the entire market

25:53

has gone up. So if we do sell our house today, we

25:55

have to find someplace else to live. And

25:57

if somebody's willing to overpay for

25:59

our house

25:59

today, that means we're

26:00

likely going to have to pay a whole lot for another

26:03

house if we move. So I would

26:05

ask that person, are you sure you want

26:07

to move? Are you moving for the right reasons? And

26:09

if the answer is just, I'm so frustrated with

26:11

all the repairs, But now

26:13

they're done with the repairs. Well,

26:15

maybe they just need to take a month or two

26:17

to enjoy the house now that the repairs

26:19

are done. Get past that emotional stress

26:21

that they're feeling dealing with all those

26:23

repairs, and maybe logically they'll

26:25

realize, okay, there's no reason to sell. Because if I

26:27

sell now, 1, I'm gonna

26:29

have to pay for another place that's probably

26:32

overpriced. And two, I'm gonna incur all

26:34

the transaction costs associated

26:36

with both selling and buying.

26:38

There's gonna be closing costs. There's gonna be inspections. There's

26:40

gonna be more appraisals. There's gonna be more loan

26:42

costs. So even if they just sell this place

26:44

and buy another place, it's exactly like

26:47

it. For

26:47

the same price, but doesn't have

26:49

any of the issues that have already been fixed

26:51

anyway. They may find that that's an expensive

26:54

proposition just to trade for another place

26:56

that's I know a lot of people say buying a house is a great

26:58

investment. Well, as a full time

27:00

real estate investor, I would argue

27:02

that buying a house isn't

27:04

a great investor. We could argue all day whether

27:06

buying or renting is better. And

27:08

I could probably provide twenty studies

27:10

and I could do really detailed spreadsheets

27:13

to argue one or the 1. But

27:15

it's close enough that I

27:17

would never tell somebody rent

27:19

for financial reasons or buy for

27:22

financial reasons. So at the end of

27:24

the day, the single best

27:26

reason to buy is

27:28

because that supports something in

27:30

your life where buying is

27:32

important. So good schools, living

27:34

close to your job, living close to

27:36

your family, Those are good reasons to buy. Don't

27:38

buy because it's a good financial decision.

27:40

Now if you need to buy

27:43

the question often becomes, well, should I

27:45

buy now or if the market's so hot,

27:47

should I wait a year? And

27:49

I'm a big fan of saying, it's

27:51

impossible to time the market. I know a

27:53

lot of people who wanted to get into real estate

27:55

investing back in two thousand fifteen and

27:57

said, I'm just gonna wait for prices to

27:59

drop. And two thousand sixteen, they were

28:01

saying in two thousand seventeen, they were saying it.

28:03

They're still saying they're saying, I'm waiting for

28:05

prices to drop, and they wish they would have just

28:07

bought back in twenty fifteen.

28:09

So I'm not saying prices are going to keep going up. I

28:11

don't think any of us knows.

28:13

But at the end of the day, don't try and time

28:15

the market. If buying is the right

28:17

thing for you, buy.

28:18

If buying

28:19

is not the right thing for you, don't

28:21

buy. And if you're

28:23

going to buy, my suggestion is

28:25

typically plan to live in the property for

28:27

at least five years. Or at least hold the

28:29

property if you don't live in it for five years

28:31

because there are a lot of costs associated

28:33

with buying and selling that we don't think about.

28:35

We don't realize that you're going to pay five percent or

28:38

six percent in commissions. 1 mean,

28:40

what state you live in, you might pay a one percent or two

28:42

percent on the purchase and the sale in taxes,

28:45

transfer taxes. Again, you're going to have appraisals

28:47

and you're going to have inspections and you're going to

28:49

have all the closing costs. Even if

28:51

the value of your property goes up ten

28:53

percent over a couple years, you

28:55

can lose money having to sell

28:57

in that time period. So

28:59

again, it goes back to buy for the right

29:01

reasons and financial is generally not

29:03

the right reason to buy. If you're buying something as an

29:05

investment, you're going to look at it through a much

29:07

different lens than if

29:09

you're buying it as something that you

29:11

want to have so that you and your family and

29:13

your friends can use. Because at the

29:15

end of the day, the numbers

29:17

could look very, very different. And

29:19

you need to know what your financial

29:22

position is and situation is

29:24

to know that you can

29:26

support whatever it is. I know a lot of people who

29:28

are saying these days, I want to buy a vacate rental.

29:30

Someplace I can stay in for a few

29:32

weeks a year, my friends and my family

29:34

can stay there, but then I want to actually

29:36

have it pay for itself by renting

29:38

it out. It's great to want both of those

29:40

things, but you can't optimize for

29:42

both of those things. If your thought is, I'm

29:44

gonna buy a vacation rental

29:46

and I'll be able to use

29:48

it for part of the year, and it'll pay for itself the rest of

29:50

the year, what happens when the laws change? And

29:52

now suddenly it doesn't pay for itself, and

29:54

now suddenly you're a landlord who's

29:56

losing money every month? Or what

29:59

if you decide, okay, I'm

30:01

gonna move someplace, I'm gonna rent

30:03

out my old house. Well,

30:05

now you have the question of who's gonna

30:07

manage it. And this goes back to time commitment. So are you going to

30:09

manage it yourself? Are you going to hire property

30:11

manager? Are you going to

30:13

pay that ten percent of gross rent every month

30:15

plus some additional fees? Have

30:17

somebody else manage it. So knowing upfront,

30:20

is this something that I'm buying as an

30:22

investment or is this something that I'm buying

30:24

for my personal use? Will

30:26

allow you to think about, do the numbers need to

30:28

work? Or if I make a little bit of

30:30

money, I'm happy, but if I don't make any

30:32

money on it, I would still buy it.

30:33

One of the

30:34

themes that I feel like came up a lot in our discussion

30:36

was the idea that optimizing

30:39

for your home

30:41

as a lifestyle decision is different from optimizing your

30:43

home as an investment decision. Sure. And

30:45

I think

30:45

a lot of it boils down to

30:48

our own personality. My wife and

30:50

I are very different in the sense that I think

30:53

about any property I buy, whether it's going to

30:55

be my personal residence or

30:57

an investment I think about it from a

30:59

financial standpoint. I want my

31:01

personal residence to have equity and know I

31:03

can sell it tomorrow and make

31:05

money. My wife is very From

31:07

her perspective when it comes to the house

31:09

you're living in. It's not about the money

31:11

at all. It's about having a place for your kids

31:13

to grow up and being in a good

31:16

location. And if away and overpaying for the

31:18

house we're gonna live in, that's okay

31:20

because it's more than just

31:22

an investment. So I

31:24

think each person needs to stop and ask

31:26

themselves what is the long

31:28

term goal here? And if

31:30

you're buying a house because you want

31:32

a place for your kids to grow up love and be able to

31:34

go to good schools and be close to their

31:36

grandparents. You don't need to apologize for

31:38

that. You don't need to justify that

31:40

by saying, well, it's also a good investment. It might not be a

31:42

good investment. But if you can afford

31:44

the house, don't apologize. But if

31:47

you're the type that

31:49

wants your house to be an investment,

31:51

you can also do that and you

31:53

can make good decisions when it comes

31:55

to buying and renovating and living in

31:57

your

31:57

house such that when you go to sell it

31:59

or when you

31:59

go to move out, maybe you're gonna rent it, you

32:02

can make money off of it. And

32:04

so you need to

32:06

ask yourself Again, what is

32:08

my ultimate goal by buying this

32:10

house and be true to

32:12

whatever that is? For

32:14

Jordan

32:14

and anyone else in the success

32:16

of purchasing or maintaining a home, especially

32:18

with the expectation or

32:20

experience of undertaking major renovations

32:23

and repairs in the process. Remember,

32:25

is golden rule. Get clear

32:28

about the end goal first.

32:30

Remembering to ask yourself questions

32:32

about the fine financial commitments, the time commitments, the

32:35

lifestyle commitments, and the

32:37

risk you're willing to take along the

32:39

way to better inform

32:41

and optimize your decisions. Instead

32:43

of the other way around. Remembering that

32:45

even when a home purchase or

32:48

renovation isn't necessarily a great

32:50

investment, if it aligns

32:52

with all of your values and the

32:54

financial time and

32:56

lifestyle commitments you're willing to make,

32:58

it can still be a valuable

33:00

and worthwhile expense. This

33:03

has been money confidential from

33:05

real simple. Be sure

33:06

to follow money confidential on Apple

33:09

Podcasts, Spotify, or wherever you listen,

33:11

so you don't miss an episode. And

33:13

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33:13

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33:18

You can also find us online at

33:20

real simple dot com. Money confidential

33:22

is produced by Micky O'Connor, Heather

33:24

Morgan Shock, and me, Stephanie O'Connell

33:27

Rodriguez. Thanks to our production team at pod

33:29

people. Rachel King,

33:30

Matt, SAB, Danielle, Roth, Chris

33:32

Browning, and Trey Boudi.