Financial Freedom Through House Hacking

OK, so let’s put our real estate investment hat on for a few moments. House Hacking. You might’ve heard this term thrown around while talking with your investor buddies or on a podcast. Or maybe you’re a investor and know exactly what this terms means. If you have no earthly idea what I am talking about, read on…. my hope is you can learn something here as I have had multiple clients employ this strategy with favorable results.

So the typical residential real estate investor will purchase a property and either lease it or flip it. Either way, the investor rarely lives in the home for any substantial period of time and usually not at all. Conversely, the typical real estate buyer plans to live in the house. These are your Bob & Nancy Smith’s of the world buying a home on the open market. The real difference here is occupancy. However, what if there was a hybrid option? Someone was to buy an investment and decide to make it their home. How does that work? If they live in the house, then how is it an investment?

Welcome to the Wonderful World of House Hacking. Usually, this investor lives in one part and either rents out bedrooms and/or other units (if it’s a multi-family…duplex, triplex, quadplex). What’s the advantage? Financial and leverage!

If you’re mortgage is $1200 but can rent the other two bedrooms for $500 a month, then your housing costs just dropped to $200 a month. Yes, you read that right. That is far cheaper than any housing expense you could get otherwise. Essentially, the tenants pay your debt and you can live virtually mortgage free if you set it up the right way and make the numbers work for you. I have several clients who have done this or looking for this scenario currently because it makes a ton of financial sense.

The drawback of course is you have to deal with tenants and someone else living with you, but with a little luck you can find terrific people who just need a bedroom. If it’s just one house, you would share common spaces so it’s important the setup is appropriate. But always remember you’re the owner, roommate AND landlord!

If this idea excites you, note there are cases where the owner MAKES money every month because the tenant’s rent covers the mortgage and then some. Put another way, the tenants pay you to live in your own house! Who with a mortgage hasn’t wondered about how their financial situation would change without a housing payment? For the creative and flexible people out there, financial freedom through real estate can be had which frees up your cash to go invest in the stock market, go on vacations, save for college, pay down other debts or …wait for it… buy MORE real estate!

The 3 Promises I Make to All My Clients

Solid Real Estate Advice – There are a lot of realtors out there and a lot of terrific ones. However, like any occupation you have your bad apples. Now this isn’t to say “bad apples” is referring to unethical or criminal types. It simply means there are certain realtor who know more than others. Some have a tendency to wade into areas of real estate their not familiar with and this can be problematic on the counsel they provide their clients. I am not only insanely curious, but I have a very real desire to learn as much as I can when challenges arise. I read constantly, ask a ton of questions and don’t speak out of turn when things get a little murky. Everyone has to start somewhere and am thankful I have good habits and a sponge-like desire of learning…

That being said, there are areas where I will defer until I do get enough knowledge to guide my clients or will forever do so.. For example, I recently referred to another agent a land deal involving a family member and potential development scenarios. While I was excited to tackle this, I knew the best way to fulfill the needs of my client was to give the business to someone who had more experience. I am happy to be a conduit or open up an avenue if needed if it means my client can achieve their real estate goals in the shortest amount of time with the least amount of effort.

Constant Contact – A real criticism of agents in this day and age is the notion of being “forgotten”. Whether they’re selling or buying, the communication style is sporadic at best. As someone who wishes to be “kept in the loop” when dealing with others, I bring this philosophy to real estate. Buying or selling your home is big deal, right? Agents should be in constant communication with their client even if there is nothing new to report. Just a check in or a “no news yet” email is a good idea. I cringe whenever I hear someone say, “I signed the paperwork and then never heard from them. Ugh…

No Pressure – Conversely, one of the tenets of my business is not to be too pushy. Real estate is often a longer process than you see on HGTV. (seriously…those shows are silly at times with how easy they make everything look.) I told my wife when I got into this business that I wanted to have enough where I never have to push people to do something before they’re truly ready. This means if I have to wait another month to list a home (which is another month until I get paid a commission), then so be it. My experience is that the agents who have less going on in terms of sales volume are the ones who are on the pushier side…and I get that, but it simply isn’t the way I operate.

So there you have it… my three main promises. What else are you looking for from a realtor?

6 Reasons Sellers Are Forced to Move, Even When They Don’t Want To

I was recently asked what happens if people in the US just stop moving…like completely. Would that ever happen? This is a great question…is it possible that there would ever be an event which would make housing come to a total stop? Well, I would argue we just had a pretty good test with Covid and the answer is a resounding “NO!”. Last year while everyone was in lockdown and masked up, my team and I sold dozens of homes. This particular question fails to understand the fundamental nature of housing and why a lot people move. Contrary to what you see on HGTV, many people are moving not due to preference, but rather circumstance.

The fact is that sellers will ALWAYS need to sell (short of a zombie apocalypse) and below are the 6 inevitable reasons why:

Death – This one is fairly obvious. When people die, there’s no longer a need for the home unless there are people left behind. But even when there is, often times the remaining party is unable or unwilling to maintain the property either from a maintenance or financial standpoint. If the home is vacant, it’s usually left in a will and the beneficiaries don’t want the home either; forcing a sale.

Divorce – They say over 50% of marriages end in divorce. That’s a lot of homeowners! Much like above, the motivation to sell here is logistical AND financial. The problem is that most married couples buy a home together, but when there is a divorce, one needs to move out. Sometimes, there is a compromise reached between spouses in the spirit of keeping the kids in the home (or school district). This is obviously the most optimal outcome given the circumstances but a home sale (or at least a strong consideration of one) is usually in the mix in these scenarios.

Job Relocation – This scenario brings a lot of homes to market depending on your area due to employees coming and going. Outside of Philadelphia where I am, there are numerous industries including pharma, tech, financial etc, which have people being transferred constantly. If someone is transferred, it is rare they will want to retain the home unless they know it is temporary and will be transferred back at some point. In that case, it can be prudent to rent the home and keep it, but this is a rarity. Even in the cases where they will be moving back, they may just allow the employer sort out all their housing via a relocation company.

Job Loss – Somewhat the same as above, but different because this is almost a purely financial motivator. No job means no income which means no ability to pay that hefty mortgage and deal with the associated costs of owning a home. More people than you might imagine will stay put and default or try to muddle through on credit because if they have no job, their options are fairly limited. They can’t get a loan and they won’t be able to assure a landlord (rental) they can pay for a lease. Another avenue for this homeowner is to attempt a loan modification through their lender.

Medical – Life throws all kinds of things at you. Financial hardship, disability, family issues, substance abuse…you name it I’ve dealt with it. I’ve had people sell their home to put their kid through rehab…someone became paralyzed and need one story living… parents succumb to dementia… These are the unexpected things, but they move real estate and that’s part of the gig of being a realtor.

Babies – This is the only one where it is by choice (hopefully). Babies mean homeowners eventually need more room, a different style of home or eventually have to evaluate their current school districts. A young couple with no children can live in that hi-rise condo in the city, no problem. But once the kiddos arrive, the idea of strollers, groceries and parking becomes the things of nightmares. LOL. Let’s face it, babies change everything, including housing.

So there you have it. For the buyers out there wondering if there would ever be effectively zero homes on the market, take heart that there will always be inventory to some extent.

Radon: The Threat You Barely Know Anything About

Radon. Ring a bell? Think back to when you bought your house. Do you remember paying for a radon inspection? No? OK, let me give you a refresher.

I try not to be an alarmist or use hyperbole when it comes to issues of real estate, but radon is no joke. It is literally the second leading cause of lung cancer behind cigarettes. It’s odorless, tasteless and completely invisible in every way. It doesn’t leave a trail… it’s simply… radon.

What is radon you ask? Well, Websters has it as “a heavy radioactive gaseous element of the group of inert gases formed by disintegration of radium”. Translation? It’s rocks under your house which produce radioactive gases that go into your home and then you and your family (and pets) subsequently breathe it in.

Sounds pretty dire doesn’t it? Well, there is good news which I love giving you since you could be quaking in your boots or rooting through your home office for the radon test you performed when you bought your home.

Radon mitigation (reduction) systems are fairly affordable to install. They go into your basement and below is a handy dandy infographic to show how they are configured.

Radon Mitigation System

Above appears much uglier than the real thing. Usually they are able to make them seem less obtrusive and streamlined. For about $1000-$1500, your air can be cleared of this radioactivity and levels brought below 4 pCl. (The EPA limit)

Any questions, shoot me an email at asksethanything@gmail.com

So You Wanna Buy A Condo?

Buying a condo is much like any other home purchase. However there are some added features that not all agents are aware of when writing up their agreement of sale. Below are some quick tips and unexpected things that can arise when purchasing one of these homes.

Things to think about…

  1. Know that you will have neighbors and yes it can matter who they are. Condos usually offer more compact living arrangements and you’ll be more susceptible to their noise, but also you’ll have to be more aware of your own.
  2. It might be a good idea to knock on a door or two and ask them about their experience and whether they like living there.
  3. Condos are run by boards of residents and run by property management companies. During a buyer’s due diligence period, they receive what’s called a 3407 Cert which is all the documents for association including rules and regulations, declaration, by-laws, board members, budgets etc. Buyers should carefully review to ensure they understand all of this. In PA, the association has to disclose the current business of the board including special assessments or common (monthly)
  4. Buyers should know that condo associations have fees (usually monthly) to maintain the infrastructure and community as a whole. This will be on top of your mortgage

Things to keep an eye out for…

  1. Is the community embroiled in a lawsuit? Usually the lender or title will discover this if you haven’t received your 3407 cert before. This can give the lender pause because if the condo association is being sued for more than their insurance policy will cover, then they see that as a risk since the board will need to assess the residents for the difference.
  2. Make sure you understand what is covered and what isn’t. Many cover all water, gas, sewer, exterior maintenance and landscaping. But sometimes there are amenities which have added fees such as pool, fitness center, parking etc.
  3. It might be a good idea to knock on a door or two and ask the neighbors about their experience and whether they like living there.

As I said, not terribly different from a regular purchase but there are certain things that may come up. A good agent who has experience in condo sales (including hi-rises) can walk you through it. I happen to know one. 😉

Any questions, you know where to find me!

S.A.V.E.R.S. – An Acronym You’ve Likely Never Heard of

So for a bit of a change of pace from the regularly scheduled real estate banter, this morning I want to talk about something that we all can relate to. Our mornings. What does yours look like? A few years back, I read a book which changed the way I looked at my mornings. More specifically, my morning routine.

In Hal Elrod’s, “The Miracle Morning”, he broke down the 6 components to a great start to your day. Amazon Link —-> Here

They make up the acronym of S.A.V.E.R.S and are as follows: 

S – Silence

A – Affirmations

V – Visualizations

E – Exercise

R – Reading

S – Scribing (Journaling)

He puts forth to all of his readers a “30-Day Challenge”. Now, I know what you’re thinking: “How the hell, do I fit all that in? I barely have time to shower in the morning!” While Hal presents this as a comprehensive program, I have followed him over the years and he has admitted that focusing on a few of these every morning is likely more realistic and I tend to agree.

How many of these things are part of your morning? 

Are there some you wish you did, but don’t? 

Is there something you think is missing that you have found helpful? 

Hal states there is one that is the most important… can you guess which one?

Will You Be My Transactional Licensee?

Most topics covered here at #asksethanything are what I call “front-facing” issues. Mostly using terminology and examples which are relatable and easily to understand. Today’s topic is easy to understand, but odds are you haven’t used your realtor as a “transactional broker”.

Typically, when a realtor assists a consumer with buying or selling a home, they are bound by a fiduciary responsibility. Meaning they have to look out for your best interests, maintain confidentiality and obey your directives. For this (and many other services), brokers are paid a certain commission. However in some corners of the real estate world there is a less dutiful role we realtors play in the consumer’s life: The transactional licensee.

This role is where the realtor essentially facilitates the sale between two parties who have found each other on their own. A “paper pusher”, for lack of a better term. They make sure the necessary steps are accomplished in order to get to settlement. While they’re not bound by confidentiality or loyalty, the transactional licensee is still on the hook for the following:

  • the seller will accept a higher price
  • the buyer will accept a higher price
  • The seller or buyer will agree to financing terms other than those offered.

The transacational licensee still owes the following to their client:

  • Exercise reasonable professional care
  • Deal honestly and in good faith
  • In a timely fashion communicate all offers and correspondence between parties
  • Comply with Real Estate Disclosure Law
  • Account for escrow monies
  • Disclose all conflicts of interest
  • Provide assistance with documents
  • Advise the client to seek expert advice outside the scope of their expertise
  • Keep the consumer updated about tasks needing completion
  • Disclose all financial interest in services rendered to the consumer

Overall, this can be a great way convey property without the expense of attorneys (In PA, we don’t use them very often unless we get in trouble). We realtors can line up appraisers, municipal inspections, settlement and coordinate the entire transaction. This happens to be fairly popular with landlords who wish to sell to their tenants or a transaction among family members. So if you have a lead and arrange your own real estate transaction with another party, it can be really helpful to bring in a realtor to ensure it goes smoothly. Again, it is at a deeply discounted fee and can save everyone some money.

Why Pre-Approvals Are All the Rage Right Now! No Seriously.

You’ve decided. You want to buy a house. Congrats. That’s awesome. It really is. I’m happy to help you from now until settlement too. But I need something from you mmmk? It’s called a “preapproval”. I once read a poll that said that couples are more reluctant to talk about their finances than their sex lives. Fortunately for anyone reading this, the underlying reasons for this is beyond the scope of this article. LOL.

There’s a few reasons buyers don’t want to get preapproved. One being that they think they’re good and it’s just a formality. Another being they don’t want their credit “dinged” until they find something. (this is especially true with those who have recently rebuilt their credit. Sometimes, people just hate talking about money with others. Below are a few things to consider to overcome this misguided reluctance and on your way to getting the home of your dreams!

Knowing How Much You Can Afford – I’ve have buyers in both situations. One where they think they can afford more, the other where they are sorely mistaken. In all these situations, KNOWLEDGE is POWER! The guidance from the lender ultimately will direct us in the right direction.

Not Wasting Any Time – A real estate purchase can be a lengthy process depending on what your criteria is. Trust me, it’s not that I don’t wanna waste my own time (although that would be preferable), it’s that it is very hard to go through all the excitement of looking for a home, browsing, finding the right one and then being told essentially “You’re not good for it, you’re too high a risk” by the lender. It frankly just pisses everyone off.

Selecting the Right Loan Program – More times than I can count, my lender partners can size up a borrower and find a great loan program for them which alters how we search for a home and write up an offer. Having this information before even finding the home is invaluable.

Discovery of Hidden Lending Issues – This is the one I think most are afraid of. If there’s any doubt in the lender’s mind, this is the one I usually have to work hard to uncover. This behavior originates from the same part of the brain that prevents people from getting regular check ups with their doctor. Often times, I remind my buyers that nothing happens in real estate for borrowers until the money arrives at settlement from the bank. If that can’t happen, there’s no sense in getting all riled up with the other fun (and sometimes stressful) aspects of a real estate transaction. Lenders can do amazing things and justify a ton of things to their underwriters (the people who really approve your loan) to get your loan through.

Overcoming Emotional Hurdles – This is a little more obscure one, but I remind my team all the time that if a buyer won’t get preapproved after they’ve insisted, a siren needs to go off. Not until they get a lender to look at their finances do they exit the “tire kicker” status of our clientele. Something amazing happens though when a preapproval is attained. The buyer has a clearer vision of what they can afford and adopt an “I can do this attitude”. It also ensures your agent that you’re serious about the process which means they are gonna be much more proactive. Hate to say it, but I have countless people who come out of the woodwork every year and never do anything because they’ve never gone through the necessary process to prepare for a home purchase.

Overall, my team and I will work with anyone who is serious and have the lenders to get the job done. Getting preapproved is not commensurate with a colonoscopy either. Any borrower who is somewhat organized can be preapproved in about 24 hours.

Any questions or need an excellent lender for either a purchase or refinance of an existing home, please reach out.

FHA Financing: Is it Right for You?

I recently closed a couple deals involving FHA financing and get questions about this loan program all the time. For those of you asking what exactly an FHA loan is, it’s a fair question. Essentially the “FHA” stands for Federal Housing Administration and these loans are a product introduced as part of the New Deal in the 1930s. (Full history here) Historically, this was an offering for lower income borrowers (or more risky) who would otherwise be unable to get financing. In a nutshell: It’s federal assistance. These loans come with some pros and cons and while I won’t unpack all of them here, here are the broader strokes.

PROS

Lower credit limits – As stated above, these loans are designed for those with non-stellar credit and often have other debts. FHA loans are composed in such a way that offsets some of those risks which I will describe in the CONS section

Lower down payment requirements – Often FHA loans only require 3.5% down which is a great way for borrowers to hold on to their cash. Conventional loans usually call for at least 5%+ down payment.

DTI (Debt-to-Income) Requirements – Many conventional loan programs require a mix of overall debts to overall income ratios at a certain level. FHA is able to look the other way in some cases and sneak borrowers in with less the prime ratios.

High Income Borrowers – These people can still qualify for these loans. A reputation associated with FHA is that it is only for poorer borrowers but I have had many clients who make well over $100,000 who have utilized this loan product.

CONS

Higher Mortgage Costs – Borrowers usually are forced to pay what called “MIP” which is mortgage insurance premiums. This is both upfront and an ongoing monthly cost. So while you can get in cheaper on the front end, the higher monthly costs can be prohibitive

Appraiser repairs – FHA appraisals are a bit different in that they can call for certain repairs which are associated with safety. They will make sure there are GFI outlets near water sources, handrails, smoke/CO2 detectors in the home, no peeling paint (on homes built before 1978) etc. FHA does this ensure the property is up to its own standards. Conventional is much less concerned with these items if at all.

Lower loan limits – So currently the loan limit in PA is $431,25 for FHA. This means that if you’re putting down only 3.5% you are gonna be hard pressed to purchase anything much above $450,000. In most markets, that is a sizeable home and keep in mind it varies by location. For example, it is currently $822,375 in Los Angeles County, California.

Unpacking this loan program further is best left to your lender, but these are the bullet points I wanted to highlight. FHA financing can be a great tool for those who really wish to purchase a home, but have had a tough run recently or getting their financial act together. My team and I have a stable of lenders who do these loans all the time and happy to connect you if you think this loan program is right for you.

Is It OK to Use a Part Time Real Estate Agent?

Using part-time agents is not necessarily the worst thing in the world. As a full-time agent, I have had both good and bad experiences with them. This is not an indictment of their character or intentions, but much like any other profession it’s best to employ someone who lives and breathes their work rather than it being a second thought most days. This is likely to ruffle feathers because that seems to be the world we live in, but below are some of the reasons part-timers have less likelihood of truly serving the needs of their clients.

Experience – Part-timers are rarely weather tested like full time agents. This makes sense right? If someone is an agent all day, every day, they are more likely to have learned the tips and tricks of the trade along the way. This can be a major issue during inspections, negotiations, understanding how to write up contracts, etc. There’s no better teacher than experience.

Time – Especially for buyers, using a part-time agent can be less than convenient if they don’t have the flexibility in their schedule to get showings scheduled immediately or get offers drawn up and submitted prior to the deadline. On my team, I usually partner with another agent on all my buyer clients for this very reason. Time right now is of the essence.

Negotiation Skills – Having your head in this business every day allows for an agent to study best practices and truly understand the complexities of this business. When you’re submitting an offer alongside 5+ others, knowing how to stand apart is super important.

Relationships – I have won more than a fair share of bidding wars because of previous relationships with listing agents. Conversely, I will feel more comfortable going under contract with a buyer’s agent (this is ultimately up to the seller which buyer is selected) where we’ve done a deal prior. Again, if 4 offers are exactly the same and the seller asks for a recommendation and I will mention that I know the other agent, it will a lot of times sway that seller in their selection. Part-timers are less likely to be in that group since well… they are part-timers and less likely to have done a deal before with me.

My final statement: I am not saying part-time agents can’t get the job done, but in a market like this, I would highly recommend the use of someone where this is their main occupation.

Got more questions for me or would like more details? Go ahead and #asksethanything. Let’s chat: 610.804.2104 or asksethanything@gmail.com