In this episode of A Wiser Retirement™ podcast, Casey Smith is joined by Tom Townsend, Realtor with Townsend Realty Group. Tom has been a guest on our podcast many times. They talk about real estate market trends, what to watch for in 2024, interest rates, rental properties, and tips for first-time home buyers.
Podcast Episodes Referenced:
- Ep 133: What Financial Planners Wish You Knew About Buying Your First Home
Other Links:
- Townsend Realty Group
Learn More about Wiser Wealth Management:
- Our website
- Schedule a complimentary consultation (learn more about our services)
- Click here to download one of our free guides that covers financial planning topics like retirement, investing, taxes, divorce, and more!
Connect With Wiser Wealth Management:
- YouTube Channel
- Facebook
- LinkedIn
- Instagram
- Twitter
- Casey Smith's Twitter
- Podcast
- Blog
This podcast was produced by Wiser Wealth Management. Thanks for listening!
In this episode of A Wiser Retirement™ podcast, Casey Smith is joined by Tom Townsend, Realtor with Townsend Realty Group. Tom has been a guest on our podcast many times. They talk about real estate market trends, what to watch for in 2024, interest rates, rental properties, and tips for first-time home buyers.
Podcast Episodes Referenced:
- Ep 133: What Financial Planners Wish You Knew About Buying Your First Home
Other Links:
- Townsend Realty Group
Learn More about Wiser Wealth Management:
- Our website
- Schedule a complimentary consultation (learn more about our services)
- Click here to download one of our free guides that covers financial planning topics like retirement, investing, taxes, divorce, and more!
Connect With Wiser Wealth Management:
- YouTube Channel
- Facebook
- LinkedIn
- Instagram
- Twitter
- Casey Smith's Twitter
- Podcast
- Blog
This podcast was produced by Wiser Wealth Management. Thanks for listening!
Two years ago, people were moving just to move.
Speaker 3:No they needed a new carpeting? Tell you what?
Speaker 1:let's just sell the house and get a new one. How's it going to do?
Speaker 2:We're not doing that anymore. The brakes were out in the car. Let's just go buy a new car. Screw the brakes, yeah.
Speaker 1:Yeah, screw it. Yeah, those you know that's not this market.
Speaker 2:All right, welcome to a wiser retirement podcast. We believe the best financial advice should always be conflict free. I'm your host, casey Smith, guiding you to financial freedom Today's my co-host, tom Townsend. Tom is a realtor with Townsend Realty Group and has been on our show many times.
Speaker 1:Well, thanks for having me, thanks for having me again.
Speaker 2:Yes, I'm excited to be here. You're the wiser real estate guru, all things real estate. We call Tom. I appreciate that Tom's team. I am. You have a big team now.
Speaker 1:Let me have a. Well, I don't know. It depends on what your definition of big is.
Speaker 2:But I think in real estate, more than two. Oh okay, yeah, we're big, we're huge. Well, we have a lot to talk about because, you know, real estate has been crazy the last decade. I feel like, yeah, I mean we were just talking before we started here. I mean I used to think, all right if I'm going to move, because I am here in the city and I have two miles from the office. You know, it's an older home that we keep updating over and over again. In fact, I've lived in it so long we've updated it twice. Sure, but I think if I'm going to move I remember seven, eight years ago, six, fifty was my number from the move I must spend six friends, fifty thousand dollars in the house. Now, now that number is like 1.8. Now, my house has gone up in value, obviously, over the last seven, eight years. I think the dirt has for sure. But man, these are just crazy, crazy times. It seems like it started in the pandemic.
Speaker 1:Well, that added fuel to the fire. Yeah, I mean, we were always. We were already on a climb out of the great recession, so we were already on our way out of that. And then the pandemic hit and all the money came and the Fed tried to slow things down and it had the opposite effect. Yeah, we know it that went on all about that.
Speaker 2:So yeah, it's. So what's happening today in the real estate market? Sure, what's is inventory gotten better, worse?
Speaker 1:Well, it depends on how you look at it, of course, but inventory is very low, and it has been for years, across all segments, across all segments. So well, I mean, let's take a step back. When I say segments, I'm talking about more like price points.
Speaker 2:You're probably thinking commercial.
Speaker 1:Yeah, actually I'm thinking more like location and different niches and such. Yeah, yeah, yeah. So price points kind of harder to really identify. But I'm just, I'm, you know, I always, anytime we do these, I always say I always preface the fact that you have to look at local real estate.
Speaker 2:So a lot of the.
Speaker 1:Yeah, I mean most people. Most news that people get is national and there is no national real estate market. It is very, very, very local.
Speaker 2:I saw, I just saw a stat. You know we have all these economic indicators but I think, like the average home price in the US is like $354,000. Like good luck finding a $354,000 house in Metro Atlanta right now.
Speaker 1:Yeah, exactly that's what I my point. Exactly. It's very local. So you know, we always talk about local markets. So you know I'm talking about the metro Atlanta metro area when we talk about our stats and what's going on here and predictions of 2024. I'm talking about the metro metro area, and then you can segment that out by price point and property type and so on and so forth. The interesting thing that I think that we have looking forward into 2024 is new construction. Okay, there's been a lot of new construction and you don't have to drive around very much to see stuff popping up left and right. It will be interesting. It's very hard to get data on where this new construction is. Is it? Are we starting to get oversaturated or not? I've read that some reports and economists believe that there may be some an influx of new construction that's actually going to hit the market in 2024. And that will change things fairly significantly if that is truly where we're headed.
Speaker 2:But that new construction at least when I drive around and see it, it's every house looks the same. They're butted up against each other.
Speaker 4:Yeah.
Speaker 2:And they want $650,000. Yeah, there, there's no, they're basically starter homes.
Speaker 1:Unless you go up north for their north and out of the city you can start seeing some 350, 325s, but you've got to get.
Speaker 2:I mean, you're talking about Atlanta, you're talking about oh, you're talking to Dairsville, ranger city many Marietta Georgia not, not not downtown Atlanta you got to go far north of Marietta.
Speaker 1:Oh yeah, you're way outside. I mean, you're going to have to go up north.
Speaker 2:Even Rock Bart. I don't know if you'd find that in Rock.
Speaker 1:Yeah. Yeah, we don't do a ton in Rock Mart, but the little bit down there there's not much there.
Speaker 3:Yeah, yeah, okay.
Speaker 2:Well, it's just not a segment.
Speaker 1:We it's just not a geographical area. All right, we do a lot in, but anyways, that new construction it's going to be interesting to see. We're starting to see some of the new construction, the new builders.
Speaker 2:Yeah.
Speaker 1:Provide incentives in order to get buyers. I mean, the last two years there were no incentives to bring a buyer into new construction. Oh yeah, Right. I mean they've been more than happy to cooperate with you and so on, and so forth.
Speaker 2:I remember the financial crisis. People were offering a car.
Speaker 1:You buy my house.
Speaker 2:I'll give you a car, oh yeah, yeah, yeah.
Speaker 1:So all of a sudden we're starting to see builders start to bring those incentives back Incentives to the agents, like bonuses, and then incentives to the buyers. Well, that?
Speaker 2:well, that's very interesting. Are they providing the incentives to get people to obviously to sell? But why didn't they think they need to provide it If the inventory is low? Why are people that's?
Speaker 1:what I'm saying. I think there's more. Some people call it ghost inventory. There's ghost inventory that's hanging out there, okay, and it's hard to find out exactly how much of that is actually coming on the market. There's no stat. There's very hard to get the statistics for that. You can look at new building permits and we look at that.
Speaker 2:So you're talking about a ghost market, meaning a new home that's about to pop up, A builder buys a plot of land, yes, they subdivide it, yeah, and they start improving those.
Speaker 1:Those aren't that record of improvement of that During that construction period. It's all speculative, it doesn't show up anyway. It doesn't show up anywhere. Okay, it doesn't show up until they get a certificate of occupancy.
Speaker 2:So you think that, because we've had low inventory for so long, the builders have been able to acquire the land to be able to start just building mass trackers.
Speaker 1:Yeah, I mean this. You know they acquired that land years ago. Yeah Right, it's not like they went out last month and bought the land and all of a sudden started. I mean that funnel, if you will. It goes way back. So you know, a lot of the stats that we look at are looking backwards months. Okay, that's the one challenging thing that we have in real estate. When you look at inventory and statistics and such, we're always looking back pretty far.
Speaker 2:Yeah, those are we were looking indicators. Yes, not for looking indicators, but for looking indicators you could use permits right.
Speaker 1:Yes, the number of permits being created?
Speaker 2:Correct, I assume each house has its own permit, or maybe a subdivision is one permit. Oh, that's a good question. You know what? That's a good question. How that would pop up, I don't know exactly how that pops up.
Speaker 1:I believe they get a permit for every improved lot that they're planning on building, but a lot of times they won't. They don't submit an application for a permit until they're ready to start construction. So they could have land sitting there Right, but until they're ready to start building and subdivide it and start building. That's when they'll they'll. So how much do you put an application in?
Speaker 2:How much do you think mortgage rates are affecting home purchases?
Speaker 1:Oh, that's it's, yeah a lot.
Speaker 2:Because we're below eight but we're above seven. Correct, so we're sitting there seven to eight percent for the mobile buyer.
Speaker 1:Yeah, rates is another issue or challenge that you we've got to take a look at and affecting the market as a whole. Yeah, yeah.
Speaker 2:I keep seeing these things on Facebook by realtors probably, but they they are Instagram and they they say, well, buying a house for 800,000 at seven and a half percent interest is better than having to buy a house at a million dollars at three percent interest. Yeah, and I actually I'm pretty good math, so I did some of this math in there in their advertisements and I was like, actually, no, it's not because that that that five percent difference is being amatrized over like 30 years. It takes a huge price difference to make up.
Speaker 2:You know that that carried interest for for all that time period. Now, if you're doing like a 10 year, 15 year, it makes it easier because there's a whole lot less interest, right?
Speaker 4:Sure Sure.
Speaker 2:Or even if you just made you know some extra payments a year one extra payment here, that would be great. So there's all these different things. You could get back to where they're coming from, but you don't do it the way that these TikTok people say to do it.
Speaker 1:Well, there's some truth in everything that's kind of stated right. So there's a little bit of truth there's a little bit of truth there.
Speaker 2:but yeah, it was exaggerated in the in the cases that I saw.
Speaker 1:Yeah, Well, I think here and this is real, I think, with the the point of that, maybe what the message that they're trying to get across is currently they're because of the rates are so high, there's not a lot of competition. So let's flash back two years ago. You've got a $400,000 house on the market. You've got 15 people bidding that thing up. I mean, that's the market we were in. So you are ending up paying $50,000, $60,000, probably 10, 12% higher than what even the appraisal would come back at. You were paying over. So what? I think their conversation is right now that's disappeared. So if rates drop, we're going to go right back to that whole scenario. So I think that's probably what they're trying to get to like hey, do you want to pay market value now? Or, if rates drop, do you want to be in this highly competitive market again?
Speaker 1:and pay 15% higher than what the market value at a lower industry.
Speaker 2:Either way, you pay about the same. Yeah, I think that's the message you're trying to get.
Speaker 1:Yes, I can certainly see that there's a lot of different moving parts in that, but how do you think that we've so?
Speaker 2:we had the pandemic and I'm not exactly sure why real estate jumped so much in the pandemic, other than people just moving, realizing what's important to them and moving out of the city.
Speaker 1:Yeah, I mean there was a lot of.
Speaker 2:I understand second homes. I understand lake properties and beach property. I mean I totally get that, yeah. But just like Marietta, georgia, or Decatur, georgia, or Peachtree City, georgia, we all saw these tremendous increases since the pandemic. And what do you think was looking back, what do you think was causing that and how has it changed forever?
Speaker 1:Yeah Well, I you know looking forward. When you say change forever, are you talking about values?
Speaker 2:or just the migration that there's. A case could be made that real estate prices are here to stay. There's not going to be some big fallout that everyone talks about.
Speaker 1:Yeah yeah, we don't really see a big fallout. There's a couple scenarios, and I just mentioned one about the new construction and inventory. If we get a listen, we're way, way, way below inventory levels that what we should have.
Speaker 2:If you look at the stats on the people that are moving to Metro Atlanta, I don't know that they could create enough inventory to yeah, it's not.
Speaker 1:There's no quick fix Right, there's no quick fix so we're not going to.
Speaker 2:Not only that, but you need apartments.
Speaker 1:Yeah, you have. Well, that's the affordability.
Speaker 2:There's a shortage of apartments too.
Speaker 1:Yeah, there's a shortage of all housing. Yeah, Commercials are different issue. So we're not going to talk commercial. We're talking residential, multifamily, residential resale and new construction, but there is a shortage and there's no quick fix to that. So then you layer on top of the affordability issues. So the bottom line is we don't have enough inventory and there's no quick fix for it. We've got this new construction conversation that's happening, like how much new construction is actually out there? And if it's, and if it's as big as some of the folks are talking about and that ends up funneling into the market, then that we may have a different conversation.
Speaker 2:But that that's one little side, it'd have to be a lot.
Speaker 1:It'd have to be a ton and that was my in the right area. That was my question to some of the folks that are actually talking about this ghost inventory. Yeah, as I'm like well, how much is it? How much is out there? I know that builders are providing incentives and they're starting to do a couple of different things to move inventory, but I don't know if that is a result of they have so much in the pipeline that's about ready to hit and they're getting nervous, or if that's just a result of affordability and the rates. I don't know. That's what I'm. I haven't answered that question for myself yet, but overall the inventory is low.
Speaker 1:So I don't we don't see a big drop in values. We don't see a scenario unless there's a black swan event of some sort that we can't predict. But we don't see. We don't see any kind of events that would all of a sudden increase the inventory and have values decrease drastically. Now we're we're settling down. You know we're not at this 15 to 20% value increase per year. Right, you know we're not seeing that. That happened over the last few years, but we are definitely leveling out. I think we're up like 2% 2.5, depending on exactly where you're at the valuation Values. Yeah, you're over a year. So even with the increase in rates, we're still seeing an increase in values over the last. You know, you look at, you know, amortarized over the last year.
Speaker 2:Yeah.
Speaker 1:And that amortarized, that's the wrong word, but the value over the last year prorated over the last year.
Speaker 2:One of the things I'm concerned about as a dad is that eventually my kids are going to graduate college and they're going to move to wherever they're going. I'm sure some of them will stay here in Atlanta, some may end up somewhere else. But buying the first house I remember graduating from from college and we started looking at apartments and I remember I don't remember who it was exactly, but someone says you know.
Speaker 2:I don't really really want you to have to live in an apartment. You let's, let's see if you can find a home that you can, you know. And so we bought a condo town home, a few simple town home. Okay, grandmother gifted me $2,000 toward my down payment, which was very little, I think at the apartment was maybe 115,000, something like that.
Speaker 2:This has been in 2000. Yep, the payment was about the same as a is renting an apartment, maybe a little less actually. Yeah, and to do that for my kids now, I'm pretty sure it'd have to be about $50,000. And that doesn't well in 2000 does not inflate to 50 over that time period.
Speaker 3:It doesn't inflate to that.
Speaker 2:Maybe my first car cost me $400. I tried to inflate that, saying okay, I'll give the same amount that my dad gave to me. It came out to like $1,600 or something. I was like, okay, that's not gonna work, or do something different for cars.
Speaker 1:But when you said $2,000 on a $150,000 property right.
Speaker 2:Yeah, 115,000. I think we only had to put down maybe 5%.
Speaker 1:Okay, that's what I was going to ask. Yeah, what was the total percentage it? Was probably about 5%, those are still there.
Speaker 2:Those loans are still there. So for the first time home buyer you can. You could pick up a home with 5% down right now.
Speaker 1:You could. Yeah, fha is actually 3.2, 3.2 or 3.5. I'd have to look at it. Okay, but you can get into a house for as little as 3.5. Now you've got to qualify for it.
Speaker 2:Yeah, you have good credit You've got to have good credit.
Speaker 1:Yeah, Absolutely. You've got to have a stable job, and you know all those other factors that.
Speaker 2:So it's not like subprime days.
Speaker 1:No, subprime days are gone. They will never return.
Speaker 2:That shouldn't, they shouldn't, which is a great thing for everyone, so it's nice and healthy. So who are these first time home buyers? Give me a profile. Are they under 30?
Speaker 1:Oh, yeah, okay, 30. Well, actually a lot of the first time home buyers are in their 30s, they could be 30 to 35. High 20s coming out of college, maybe working for a couple of years, yeah, so that's that segment.
Speaker 2:Okay.
Speaker 1:You know anywhere from.
Speaker 2:Anybody.
Speaker 1:25, 27 by 26 and not very, not a lot, not a ton. Okay, but they're there, not as many, but yeah, 28 to 35 years old.
Speaker 2:Are they getting family assistance in those purposes?
Speaker 1:A lot of them are getting family assistance, which has always been there. Yeah, true, that's always been there, yeah no, no, I get that yeah yeah, but they're there, and but they're. You know, the challenge is just the affordability of it. Yeah, so we always look at the affordability of some decks.
Speaker 2:What's a good starter home, not a problem home, or a fixer up, or maybe that's a better term. But you know what is it? 400?
Speaker 1:Oh, at least. Yeah, Now we're talking once again.
Speaker 2:Metro area Marietta, Close to the job.
Speaker 1:Yes, you're talking about like northern southern.
Speaker 2:So five 5, 600 is probably more than you would say yeah, you are, you're a starter home.
Speaker 1:Yep, sure For a good home.
Speaker 2:like you said, a good home, not something that you're going to have to spend every minute of your extra time working on and fixing up and when I drive to Cartersville and they used to be mostly little farms and it's all being turned into subdivisions.
Speaker 1:Yep, everywhere. Yeah, that's that ghost inventory. We're all worried. All right, right, how many houses you guys got in here?
Speaker 2:But that's a commute and we don't have the interstate system for that, so that's a whole other issue.
Speaker 1:That's a whole other issue Traffic.
Speaker 2:Traffic. Not that the government said ever subsidize homes, but my point is that there's a problem. People have to live further away from their jobs. I know you don't do much in downtown Atlanta, but I assume people are still leaving downtown.
Speaker 1:You know I don't do a lot inside the perimeter me personally. Yeah, I don't know what the growth rate is Just when.
Speaker 2:I searched, just like on Zillow. I feel not. I wouldn't say just inside the perimeter, I'd say the heart of Atlanta. There seem to be some good quote air quotes here value down that side. No, not Buckhead, not binding, it's not not your normal hotspots, but but I take that as a sign that maybe people don't want to be there. Yeah, I know.
Speaker 1:Once again. I've been so removed. Years ago I did a lot of work inside of Atlanta, and it will. The market then, and I'm sure it hasn't changed yeah, I am sure it hasn't changed a whole heck of a lot. I just don't know where these lines are anymore. But it would change street to street. Oh wow, I mean it would. It's a drastic change. Like you would have a massive renovation, regeneration, if you will, of a street going on and like two or three street block it takes one or two people to start changing the street.
Speaker 1:It takes investors going in and they'll buy like four or five houses and they'll flip all of them and all of a sudden they create a little market and then that grows, and grows, and then it. But man, I tell you once again, one street over and it's like whoo.
Speaker 2:You know, I noticed that. So my, my daughter and her horse riding, we go to Aiken. So I'm going to line up quite a bit and yeah, there's like a row of homes that are so beautiful and then a street over it just looks like a bomb went off.
Speaker 1:Yes.
Speaker 3:Yeah, yeah.
Speaker 2:And I have one lot that's still saved in my Zillow and it's $9,500 for this little tiny lot in downtown Aiken. You can walk to downtown and but if it's like two streets over from the desirable houses and the other one looks like it's terrible so, but no, it's not moving so so we need a bunch of people to acquire on this one street.
Speaker 1:Well, it's funny because years ago, and I don't know if it's still like this or not, but East Lake, east Lake, golf course, oh yes, absolutely yeah, you know, you get this beautiful golf course right there and then, but you go one block over and you're like wow, yeah.
Speaker 2:East Lake has done a lot to try to revive that.
Speaker 1:I'm sure they have. So it's very different now. So that was years and years ago.
Speaker 2:Yeah, it's very different now.
Speaker 1:Still some of that, but Back when I was working that whole area it was like wow.
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Speaker 2:So that I guess, going back to the first time home buyer, I just you know you think about, we talk a lot about legacy and you know financial success and and you know that that's something that we have to think about is, and then there's a couple of mentalities Some people I think go hey, I had to do this when I was growing up and and a young person and they'll have to do that too when other families have more of a sense of, you know, I did that and I've gotten to this point, this status in life, and so I don't want my kids to have to do that. They're going to give them a head start and get them that down payment for that home to get, to get them moving Right. So I don't know, I just feel like that that it's almost like it's needed at this point for for people who who need to be in in Metro Atlanta.
Speaker 1:Yeah, I mean once again. You know families have always helped their kids get started, so that's never gone away. We are we still see that awful lot with first time home buyers.
Speaker 2:So it just takes a lot. So much more money now.
Speaker 1:It is a lot more it is. It is yeah, so in the and and incomes are increasing, but they're always have lagged behind inflation. Yeah, they've always lagged. So it's going to take a little bit of time for those incomes to kind of catch up and narrow that affordability gap again, because the affordability gap is pretty wide right now. Right, it's gotten really out of whack, I think, and it needs to narrow down, and that's going to take either prices coming down, which we are not predicting, so incomes have got to increase.
Speaker 2:So nationally, again, I think the national data you can look at, but you it's hard to find exact trends because real estate, like you said earlier, is local. But nationally the gap between renting versus owning is the largest it's ever been. Meaning the cost, okay, yeah, so it's cost. You know the mortgages can have to be so high, but the rent is is cheaper, right. But then I look at some of these, some of these apartments, and we have people living in one bedroom apartment is paying $2,200 a month, which is which is to me insane, it is my mortgage is not even $2,200.
Speaker 1:I just went through this with my daughter and I kept on looking at her going you need to find you a home, and we looked and, looked and looked for her, but we couldn't find anything that she could afford because her income has not caught up yet, right, and she just, it is what it is, right. But she wanted to be out of the house and so she, she's running a one bedroom, one bath apartment and it kills me. I mean, I'm in this industry and it's just brutal so shifting gears again, you think about rental properties.
Speaker 2:So so many people who don't look at any of this data will sit down in front of us and say, yeah, I'm thinking about taking 200,000, I'm gonna buy some rental properties. Does that even exist anymore? Yeah, because here's how I think about it. You have 200,000, you're gonna put it into real estate. Well, good luck trying to get multiple properties. That'd be a down payment.
Speaker 2:You take on a mortgage, which is not horrible, but if you buy a property that's safe for $350,000 and you're gonna rent it out, you're gonna yes, you can get a little higher rent, but the yield is gonna be so much lower than historically what you had. Well, you should be yielding probably what 8, 9, 10% a year.
Speaker 1:Sure, I mean, that's a cap rate we always look at. We always look at capitalization rates. When it talks to internal rate of return.
Speaker 2:Are those deals still out there?
Speaker 1:They're out there, they're hard to find and investors today really have to crunch their numbers. You know, two years ago, three years ago, with low interest rates, you could borrow money from basically nothing, I decided I'd seen almost yeah exactly so. But you've gotta be a really savvy and a really good deal in order, I think, to make a wise investment in today's market. So we have three rivers of revenue on an investment property you have the appreciation. You're over your appreciation on an investment property, which is speculative.
Speaker 2:Which you're.
Speaker 1:realistically you should budget three to 4%, probably Correct yeah, so you know it was budget 4% the last couple of years. Anybody that bought three or four years ago is loving it Because we saw a major increase.
Speaker 2:So investors over the last three or four years, but that's not gonna continue.
Speaker 1:No, it's not sustainable. So, on average, the line of you know the baseline is 4%. That's what we see year over year. And then you have the cash flow. A lot of investments have not been cash flowing over the last couple of years and investors will sacrifice some cash flow. In other words, every month they feed the alligator. That's in term that.
Speaker 2:Oh, wow, yeah.
Speaker 1:Because the appreciation was so high. And then you have the tax advantages.
Speaker 2:Yeah.
Speaker 1:Which you know is obscure, and it depends on what your situation is.
Speaker 2:That's a good point. I'll sidestep that first. I get so many people think that, oh, I need to buy a rental property so I can lower my taxes. That's not how that works.
Speaker 1:Yeah.
Speaker 2:You don't buy a rental property and then your W2 income gets tax less. No, not how that works. So how it actually works is you buy a property, you have income from that property. You get to deduct 100% of the interest on the mortgage versus the income, right, because it's its own silo. Yep, you have the depreciation of the property, which is over 29 years, and so the chances are you're not making any money on paper owning that home. Now, let's say you don't have a mortgage anymore. You're still depreciating the property, so most likely you still don't have any income on the portfolio. But you received cash, yeah, so you're getting some cash flow coming in, but not having to pay income on the cash flow. Plus, you're deducting all your maintenance items, your taxes 100%, not on your W2 income from your job, correct? You're deducting it off the income that that property generates.
Speaker 2:Here's the good part Is that that property, hopefully over 10 plus years, appreciates in value. It goes up in value. Now, let's say you paid 350 for it. It's now worth 550. You don't have a mortgage on it anymore because someone else paid the mortgage through renting it, right. Then you want to sell it, so then you would pay capital gains rates instead of having to pay income tax. So hopefully for you that's going to be no more than 20%. It could be 10%, but hopefully no more than 20%. Then once you sell, or you can do what they call a 1031 exchange, and you can sell that property and buy another investment property and carry the taxes or the capital gains into that next property. So there's no tax owed, correct, it just has to be improved property. To improve property. You can't buy land and then 1031 exchange it into a rental home.
Speaker 1:It's got to be like kind it's got to be like that Under definition Exactly.
Speaker 2:You could also do stock sale If you're selling your company. You could do a 1031 exchange into real estate from selling your company. So there's lots of different angles and tax advantages. But please don't think that you're going to buy a rental home and you're going to lower your tax bill.
Speaker 1:Correct and here's the other thing that I talked to people about is it takes. If you're just going to buy one rental property and that's your strategy is, just buy one rental property and try and manage it and do all these things, you're kidding yourself. You really do need to have a portfolio of five to really get to a point where you're taking advantages of all the benefits associated with real estate. If you're just your plan is just doing one, two, it's a lot of work and probably not worth your time. Yeah, did you just do one or two? Yeah, right, it's just a lot. I mean, it's a business in itself.
Speaker 3:It's not something you just buy.
Speaker 1:Absolutely. You know, I mean it is there's you just outlined? There's a lot of complexity associated with owning and managing investment property outside of fixing toilets.
Speaker 2:And we meet so many people that don't even place them into LLCs, and so you're just opening yourself up for all kinds of liability. But I think the asset protection, but that's a whole different legal aspect of owning real estate. Another thing you can look at too is vacation property. I think people don't gravitate to that first for some reason, but buy a beach home, buy a mountain home and then put it in an.
Speaker 2:Airbnb or VRBO. Yeah, one of the best things about that is, even with a lower occupancy rate because you know a long-term rental is 100% occupied you get to charge more per night, correct? And if the market shifts, I mean obviously it could shift downward, but if the usually it's a shift upward, you can increase your rent the next week.
Speaker 1:That's right.
Speaker 2:Or if you want more revenue, you can lower your rent, lower your nightly rate in order to take on more people.
Speaker 1:Yeah, so it's a it's a math equation. Yes, and you get all the benefits of owning an investment property. Yeah.
Speaker 2:Just like it's just you get to, you can use it yourself.
Speaker 1:Yeah, it's just. It's a math problem and you know the shorter commitment time you get from a rentor being one day to compared to one year, right that the rate per day is gonna Goes way up.
Speaker 1:It's gonna go way up Because their commitment's only one day or two days or three days. Now your vacancy is gonna increase as well. So a BNB or a rental, I mean depending on where you're at let's say the beach yeah, All right, let's go down to Destin or Gulf Shores or somewhere down in that area. You know your occupancy rates probably about 60%. So 40% of the time it's vacant, yeah, but you're getting a much, much higher rate. So it's just a math.
Speaker 2:It's just a math problem, right, that's it, and typically those properties will not get beat up as bad during recession times.
Speaker 1:Depending on where you're at located. Yeah, if you're not in a beach town, right, or, I'm sorry, a party town, party town, yeah, that's true. And the price point too.
Speaker 2:Yeah.
Speaker 1:So the higher end luxury condos don't get beat up as much as the less you know. So, once again, you need to know what kind of business you're getting into, what kind of market it is and what kind of market. We do the same thing with bringing it back to our area a little bit up in the mountains. You know you can find log cabins and so on and so forth. You get below a certain value or price point. It's a party cabin. Yeah, You've got to take that in consideration. You're going to get a lot of people coming in and using it as a getaway party.
Speaker 3:Yep.
Speaker 1:You get to a certain price point and luxury, you get families relaxing, yes, and then you get a destination, maybe a couple of couples, and they're awesome. So you know, you've got to know what you're getting into.
Speaker 2:Very true. I've always said that a Highlands North Carolina rental is very different than an LAJ rental. Yes, yep, yeah. Two very different people, two very different people, yeah, and of course the LAJ price or the Blue Ridge price point changes that you can get the same people that you get in Highlands but at a different price.
Speaker 1:Yeah.
Speaker 2:At a different price point. But yeah, we have honestly even down in like Hilton Head. We've had clients with places in Hilton Head and they have some horror stories.
Speaker 1:Yeah.
Speaker 2:And you wouldn't think that for Hilton Head.
Speaker 1:Yeah, you wouldn't think so. Even adults misbehave.
Speaker 2:It's not, just it's not just two people or 20s and Panama City. Those are all the worst stories, yeah.
Speaker 3:Yeah, it's.
Speaker 2:Panama City Beautiful beach, but if you're on the low end of the rental market and that's a tough, that is Tough place to be, you don't want to be across the street. Yeah, you want to be on the water, not across the street. So what are you seeing? As far as mortgage rates and I know that you're not selling mortgages, but you're kind of on the forefront of that there's Right now a 70% chance that the Fed lowers interest rates in March of next year. Now, if people believe that, that also means they also believe that there's a recession, some type of recession coming, which they've been claiming for three years now and it hasn't happened. Yeah, and I will say that anytime economists all agree on what's about to happen, there's about a 99.999% chance it doesn't happen that way. So you're saying that. I'm just saying I wouldn't count on a drop in the Fed rate in March of next year.
Speaker 1:Okay.
Speaker 4:All right yeah.
Speaker 2:In 21,. We had a great year in the stock market in 2022. That year was like a chip shot guaranteed 10% at least. Yeah, we're down 18% that year. Everyone agreed that, right, it was good. It just can't pay attention to the short term stuff. But if I was a home buyer, you know, are you holding out hope that that, okay, there's going to. We're going to return to the 3% mortgages in 2024.
Speaker 1:I haven't heard anybody predicting that we're going to be back below four Nobody. I matter of fact, I don't have a lot of people predicting we're going to be below five anytime soon in my lifetime and I'm older, so you know I don't have this long, Not that old.
Speaker 2:No, I'm not.
Speaker 1:Yeah, that's what we're, that's what I'm hearing. Once again, this is all speculative. Who knows what's really going to happen? I just, I'm just going off of everybody that talks to me in a kind of mess and our mortgage partners are talking to us constantly about what they're predicting.
Speaker 2:I mean if they're trying to slow inflation, there's no way they drop or allow them. They don't control mortgage rates, but the Fed doesn't, but they control it indirectly through other things, correctly. So there's there's no way that they're going to drop rates to the point where the mortgage market just, or the housing market just explodes again.
Speaker 1:Yeah, I don't know In a good way I don't. We haven't heard anybody make those predictions. At best we see like it's going to stabilize, yeah Right, around 7.2, 7.5.
Speaker 2:For the foreseeable future, yeah.
Speaker 1:It's going to be that way for a little bit.
Speaker 2:So if you, if you are sitting here and you see the house of your dreams and you're waiting for the mortgage race to fall, You're.
Speaker 1:I don't think that's a good strategy. I really don't. So the so the caveat is this is what we say. We always say marry the house and date the rate. Sounds cute, that's nice, but from a realtor standpoint, that's what we tell potential buyers.
Speaker 2:So in your website or your dreams?
Speaker 1:yeah, buy the house of your dreams, move into it and, if the rates drop, great refinance then, you'll be locked in at a lower rate. So but the reality is, honestly, you know, listen, if the, if your shelter does not fit your requirements for a home, then you know make a move Cost of doing business.
Speaker 1:It is you know you're really going to have to weigh that Now. Your motivation for that is much higher today than it was two years ago. Yeah, again, we were talking before we actually jumped on two years ago. People, you know they need a new car, you know they need a new carpeting, and they were like I wish to sell the house, buy a new one, right?
Speaker 2:That doesn't happen very often anymore.
Speaker 1:So you've got your motivations got to be pretty high. However, if you, if your phase of life or wherever you're at, doesn't meet your accommodation, it doesn't accommodate your dreams and hopes, then then make a move, and it is what it is. If the rates drop great, you refinance. So is that your 2024 advice? Well, that's always been my advice. Does people move because they're not happy with where they're at or they're looking for something new? So it really determines on what is it that you're looking for. Can we find something that fits in that you know that's going to satisfy your desires and let's go? Let's go find it Now. There's a financial piece to that, of course, and we work through that, but everybody's scenario is different.
Speaker 2:Yeah, I think the important part is this is the financial planner speaking here is you know you make the move that you want to make, but the time you retire, you got to get that mortgage paid off. That's that's so important. Retirement is all about cash flow, and if you're not going to have cash flow, you have limited income in retirement. Then it's time to pay off the mortgage, and so I would just be careful. Sometimes it's better to make the renovation than it is to make the move and be stuck with that mortgage for 30 years. Yeah, but you know a lot of our families they're going to pay cash or we have a lot of cash buyers.
Speaker 2:How about this one? The downsizers?
Speaker 1:I'm going to downsize my property and I'm like you're going to downsize the square footage.
Speaker 2:You will not be downsizing your price, exactly. Yeah, no, I'm going to move to one of those 55 plus communities that's going to be at least 650. Yeah, you know what I'm talking about, right.
Speaker 1:Yeah, oh, I know I have this conversation with folks and it's eye opening for folks. They're like what we're supposed to be selling?
Speaker 2:a big house and getting a small house Just because you're 55 doesn't mean yeah. Well, Just because you're 55 and you want to move to a small house doesn't make it cheaper by default.
Speaker 1:Yes, well, there's a couple of things. One is you're usually getting a newer home.
Speaker 2:Yes, right, and you're paying for a lifestyle.
Speaker 1:And you're paying for a lifestyle and we have low inventory. And guess who else is thinking the same?
Speaker 2:thing you are.
Speaker 1:Oh, the other baby boomers I'm talking about the baby boomers are doing the same thing, so the competition's pretty high.
Speaker 2:Exactly so. I've seen the backside of this 55 plus communities and the margins are incredible.
Speaker 3:They're huge.
Speaker 1:They're huge. You can take that same house and move it across the street. That's not in 55 and it drops about 200, 250,000 bucks at least. Yeah.
Speaker 2:That's crazy, yeah, and that, to my point, the price difference there is. Maybe it's better just to hire a yard person.
Speaker 1:Yeah, Right. Well, you do get a lot of the communities offer different community, you know you know, I mean, you can do a lot of benefits that they sell in those communities. It's gated. It's usually gated.
Speaker 2:Because when you're 55, the boogie man is coming to get you. When you were 54, you were concerned about it.
Speaker 3:You weren't concerned when you had all the young kids running around right who cares about them.
Speaker 1:That's right, they're fine.
Speaker 2:No, it's a lifestyle. I mean my mom's down in Sun City, which is just outside Hilton Head, and, and we drive into that main gate. It's like I swear they must store gold in that neighborhood somewhere. Like they were the security. People are so uptight about why you're here.
Speaker 1:Yeah, you know where you're here to see it's my mother. What's the purpose of your?
Speaker 2:visit Right Copy of my driver's license. In the meantime I drive. In the meantime I drive to my kid's school and the security guy I don't have a, I don't have a sticker in my car that says I'm supposed to be there, I just haven't put it on. And the security guy I don't have no credentials, he has no, he's just waving at me. I'm like I can't go see mom, but I can. Maybe it goes back to the kid thing, right, they're like please come here, anybody take these kids, yeah.
Speaker 2:Yeah, exactly, oh, that's funny, but no, you're definitely paying a premium for that. But there's also the joy of living. I mean, I think that's where people want to be around other like, like people and having live activities.
Speaker 1:They've had the same life experiences as you yeah.
Speaker 2:And if you pass away. You want your wife to have a or a spouse to have a good sense of community, to do so. I see the positives, and why why?
Speaker 1:does it but.
Speaker 2:I'm telling you there are some quality builders doing it, but a lot of times I see these going up and I'm just like that's like paper mache homes and you're selling the lifestyle for a premium.
Speaker 1:Yeah, that's, you know, that's, that's true in just about any area, any subdivision. But yeah, there's some, very some of these communities that we have is 55 and overs. I mean there's some beautiful homes. Yeah, I mean very well, I mean the craftsmanship and quality builders out there that are doing them high end.
Speaker 2:Yeah, let's finish up with this, tom. What, what do you think our headwinds are in real estate for 24?
Speaker 1:Well, you're going to have continued pressure on the rates. The rates are tough, especially if you're in an existing home and you've got a. You know, 85% of the mortgages right now are below 5% about uh, I think the last stat I saw like 55% or below three and a half. It is very challenging to trade out a three and a half rate for something that's close to eight. Yeah, so we've got that challenge. Hence the reason why the resale inventory is so low. Yep, right, and nobody's putting. You know, you got to have high motivation to be selling your house right now in that segment. So you've got that headwind. The rates are going to be continued. The low inventory is going to continue. The new construction, I think, is something that we're keeping our eye on and finding out just how much inventory there is that's going to be hitting the market in that area. We're continuing to look at unemployment. It's creeping up just a little bit, but not a whole heck of a lot, but we're going to have to see how that goes.
Speaker 1:2024, we've got an election year, so the Fed is going to do everything they possibly can to try and keep things moving good and have good news. Good news, good news, right. So we've got those kinds of things heading our way. So I don't, my prediction is based off all of this. I think it's going to be kind of a plateau year. We're still going to see values holding or maybe a little bit of you know, maybe a little increase, maybe in certain areas even a little dip. I don't see anything major happening with values across the board. We just, we just really don't. So I think that's, I think that kind of wraps up where we see 2024. I'm kind of headed.
Speaker 2:All right, Tom.
Speaker 1:So nothing exciting, no ups and downs. I think it's going to be kind of a blah year, blah year.
Speaker 2:Sorry, we have a podcast episode, episode 133, what financial advisors wish you knew about buying your first home. We've also linked to Tom's website and our show notes towns and reality group. I'd like to learn more about him and what his team can do for you if you're thinking about making the move to 55 plus, or maybe you're going to head for the hills head to the mountains?
Speaker 1:Yeah, we had. We help people, yeah, we help people move.
Speaker 2:But anyway, thanks for listening to today's podcast. For instant learning more about Wiserwealth management or want to schedule a consultation with us and one of our fiduci financial advisors, you can do so by going to wiserinvestorcom. If you're looking for real estate advice, towns and reality group, what's your website?
Speaker 1:It's townrgcom, so T-O-W-N-R is in reality, g is in groupcom. You can get a link to all of our social media sites and anything else from the website All right, cool.
Speaker 2:Thanks, tom, and we'll talk to you guys next time. Thanks for having me.
Speaker 3:Thanks for listening to a Wiser retirement podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review, if you have any questions about anything that was discussed today at the wiserinvestorcom and reach out. This episode was produced and edited by Ken Houtley.
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