AI vs Steve | Questions you should ask potential buyers | Real Estate Revolution Podcast Episode 18

All right, on this episode, let's have some fun. I decided to ask AI what are some questions that I could ask people that are considering buying a home. And so it gave me a pretty good group of questions. I have not read them yet. So we're just going to go off the cuff and see what we get. So here's what AI has suggested. Can you afford the costs associated with homeownership, including mortgage payments, property taxes, insurance, maintenance? Okay, I think that's a great question, right, that people should ask. And I think the better question is what do they need to be prepared for when they do buy a house? Because there's other expenses that come with it, right? There's maintenance and repairs, there's things that are going to break. Do you have a little bit of reserves so that you can afford it? Now, I also believe, like when I was 20, I was stretching to buy that house. And I think some of us do stretch homeownership, and I think it's important that we kind of stretch it. But we don't want to be house poor, house broke either. Right? And so I think that that's a really important part, is that do I have some reserves? Do I have the ability. Next question. Do you have a stable income and job security? Well, I think that's a great question. Right. Here's what I do know right now. If you're considering buying a home and you have a good year of W2 income with a good employer, those things, you can qualify to buy a home. Now, if you're worried about what happens if I lose my job yet, that's always something we're going to be concerned about. But I think it's more important. It's one of the things I do agree with Dave Ramsey on is like, we should have some reserves. We should have some safety net when we do go into this, just in case, right. I think a good rule of thumb is to have like three months worth of mortgages in the bank so that if something happens, you have the ability to shift on the fly without it making you worry. So for some of you, if you remember back to Pandemic, there were a lot of real estate business, a lot of businesses in general, a lot of people that freaked out when all that stuff shut down. And the reason they did that is because there was no reserve. And see, when you do have a reserve, it allows you to respond to situations rather than react. And what happened in 2019 was there was a lot of people that reacted. They had knee jerk reactions because they didn't have money in savings, they didn't have money to cover their mortgage and they had to knee jerk. Rather than if you do have some reserves, you, you're able to respond rather than react. A's got some good ones. Are you planning on staying in the same location for the foreseeable future? Me personally, I don't think that really matters. I think that, you know, life changes, jobs change, kids change, marriage change, divorce change, death changes, all that stuff. So you can't plan for the future. And I also think if you're looking at buying something, it's kind of like, well, what is the plan, right? Is it a two, two year house, a three year house? Because if it is one of those, you probably want to think about is it going to be a good rental property? If you're out and you're like, hey, we're going to buy a million dollar home and we're only going to be here for two years, that may not be the best purchase. Maybe you should dumb the purchase down because it's short term or you know, hey, if it's only gonna be two years and then you're relocating, is it going to be a good idea to keep as a rental? And we may buy based on that timing. So I think that's really important to know. Oh, let's see here. Have you considered your long term financial goals and how homeownership fits into them? That's a really good question. It's one of my favorite questions that I love to talk to people about, which is what is your long term plan? Have you thought about keeping this as a rental? Have you thought about turning it into an assisted living facility? Like what are some of those goals that you have with your financial future? Or is it just, hey, we're going to live here for five to seven years. Some people might live in it for 30 because they don't ever want to move. So those are some things to consider. You know, the long term financial goal of that property. Because some of that is going to determine how much am I going to put down? What's the next plan? How much money does the house need to be put into it for repairs? So you do want to think about all these pieces before you, you pull that trigger. One of the most important people in your real estate transaction, whether you're investing or purchasing, is going to be your lender. That is one of the reasons that we use Kelly Zitlow and the Zitlo team at Cornerstone Home Lending. You will want to absolutely have a conversation with her before you choose anybody else in your home loan process. And they are a great business partner for Valentine Group. All the things that we do here, and we absolutely love Kelly and her team and how she handles our clients and their future. So if you're looking for somebody in the lending side that is also going to give you strategies, just as I will on the real estate side, reach out to Kelly and her team. And let's get back to the show. Do you have a good credit score and history to qualify for a mortgage loan? Well, this is where our lenders come into place. You know, Kelly Zitlow at Cornerstone Home Lending does a great job of walking you through what's required. You see, that's such a broad question because there's so many different types of loan programs, different credit scores. Like on FHA, you can have like a 540 or a 580 credit score. Conventional with 20% down, you might need a 780 credit score. There are ways to enter into the home buying process even with, you know, a lower income and lower credit score and lower down payment. And your lender is really going to be the guide to that. Have you saved enough for a down payment and closing costs? You know, the interesting part about that is we have a lot of people that come to us. They're like, we want to buy a house yesterday. But they haven't gone through the planning or the vision process of it. And then they get frustrated when all the pieces don't line up. I think sometimes if you are, let's say you're 20 and you're like, hey, you know what? I'm thinking about buying a home when I'm 21. Well, let's get you in touch with a lender. Let's look at what the current prices are and let's see what is possible for you to potentially purchase in a year and know what you need to save for. Right? If we don't have that target, we can't hit it. So it's like, hey, in one year, you need to save $10,000. You need to save a little less than $1,000 a month in order to get to your down payment. And this is what it looks like so that you have that plan versus where some people come into it. And there's like, well, I want to buy a house. Well, do you know that there's closing costs? Do you know that the interest rates look like this? This is what the payment's going to look like. And people go onto these online calculators and think that's what it's going to be and then their eyes are kind of wide open when all of a sudden they have a conversation with a real estate agent or a family member about well, how about this, right? Did you plan for this? So I do think it's important to have a plan and a strategy and talk through because again, a lot of what I do in the strategy side of things is going to question, you know, are you keeping the house? Do you have family, do you want to keep it as a rental? Because all these things play into it. And what I mean by family is like, are you want to want to relocate your kids multiple times doing the house hack, or are you single and you want to keep the house and have roommates and then move on to the next? Because all those houses are going to be a different type of property that we're going to guide you through. Have you considered the tax benefits that come with homeownership? There are tax benefits that come with it. There's a interest write off for owner occupant. The interest write off is an expense. When you keep it as an investment, you know, owner occupied. You don't get to write off a lot of the repairs. Well, actually none of the repairs things. It's really just the interest you're paying. The homeownership doesn't have a lot of write off capabilities. But when you do convert that owner occupant home into an investment property, that's where some of the tax advantages come to fruition, which is you've got write off of the mortgage, any expenses, you have depreciation, where you're depreciating the asset over time. Right? So you can buy a house on a 30 year mortgage and depreciate it over 27 and a half years. Now let me point this out real quick. You're depreciating that every year, which is saving you money in taxes that you would owe. So when you do go to sell that, you do have to recapture that depreciation and pay taxes on what you didn't pay taxes on over time. This is where we use something like a 1031 tax deferred exchange so that we can move the money or the profit from one property to the next. And you're just, you're kicking the tax liability down the road. So yeah, that is a good question to consider is the tax benefits that come with homeownership. And I think there's way more tax benefits that come with rental properties than there is homeownership, which is one of the reasons you hear some of the gurus talk about, you know, rent, where you live and own what you rent out, right? So basically you go live in a rental property and raise your kids and your family and all that stuff and you own rental properties that other people are renting. Now one of the reasons they say this is because homeownership really is kind of a liability at the end of the day because you don't have any tax benefits from the ownership of it. So when you put a new roof on it, when you put new appliances in, all those things, none of them are write off capabilities. But if that house was a rental property, it absolutely would be a write off because you're improving the property and you can depreciate it. So that is one of the reasons a lot of those guys say that and live by that. Here's my personal opinion on it. Once you get to a stage in life that you do want to own a home because you want your kids settle down, those types of things, that's where I do believe in it. Right. I believe. And even though we've invested a bunch of money into our house and those types of things, we invested into our lifestyle and our family's future and, and that was something that we're very prideful on and we enjoy our home, we also use it for entertaining and the kids are always there and those types of things. So I never wanted to be in a place of, well, great. Every two years the landlord is either going to increase my rent or tell me that they're going to sell it and I have to go find something else. So I didn't want to be inconvenienced with that portion of being a renter where I live. This is always a great question. Have you calculated the potential financial advantages or disadvantages of owning versus renting in your specific circumstances? I think that's a conversation that a lot of people are having right now because it probably is a little bit cheaper to rent than it is to buy the same house because of current interest rates. And that, that is something that you do have to consider. You also have to consider if I don't own the home and I'm renting, and like we've seen in the past couple of decades, when the market shifts, you don't have any upside to homeownership. You also don't have the downside too, right? So if the market goes down, the prices go down. But I think that there is way more upside over time by owning something than by renting. Because here's what happens. Let's say you're saving $300 a month by renting versus owning. Well, that's what, $73,600 a year? Well, if it's a $300,000 house, it only needs to appreciate by 1% to make up that difference. If it goes up 6%, you have a pretty substantial loss by like going, okay, well I'm saving $3600 a year by renting. But what, what about the tax write off of the interest? Because your, your rent isn't a write off. And yes, you don't have to make the repairs and do all those things, but you're missing the upside potential. Now we all have to know and agree that sometimes there isn't an upside potential. But remember that your balance of your mortgage is going down. You do own the property. You can keep it as a rental. You can move things, move pieces around with it. But when you rent, you're subject to what's happening in the current market. The landlord, the landlord's vendors, the property management company. You kind of are, you know, at somebody else's whim when it comes down to being the tenant. And so that's, that's the harder part about being a tenant versus a homeowner. Have you researched and understood local real estate market conditions? Well, AI could probably give you better market conditions than some real estate agents out there, to be honest with you. Now I do think it's really important to talk to your real estate agent, talk to somebody about what the condition is. Talk to them like, what does the rental market look like in this area versus buying a home in this area? You should be up to par on what's happening in the market you are looking at. So I would highly advise, when you're talking to somebody, don't ask them, how's the real estate market? Ask them specifically, hey, what's the market doing in the three to $400,000 in northern Arizona or in Tucson or in Phoenix? Because when you hone that down, it's a very specific question to what you're concerned with. If you ask somebody how the real estate market is doing and the only thing they do is sell commercial vacant land, they might tell you the market's in a shitter because you're not asking a very specific question. So when you're asking how the market is, ask specifically what market you're talking about. Like, hey, how is the apartment market? How is the single family homes in under $500,000 in Peoria? You want to get specific because then you can hone in on the data as to what, what is actually specifically happening in that segment of the market. Kind of think about it like this. If somebody asked you how the retail sector was doing and you work at Target and they work at Sprouts, there's two different types in that market, right. That you can't get the same data because one's a grocery store and one is a retail store. So two different data points. So we want to make sure that we're actually asking for specifically around the market that we're interested in. So it's important to know about this, is that asking very specific questions to your situation, the variables, is really going to give you the right guidance and the answers to make an educated decision. And I say this all the time, is like the better the questions, the better the information, the better the knowledge, the better the decision you can make. But if you're asking general questions about the house buying process, which is kind of what AI did was it gave me general questions, all those questions can go deeper if you start to rephrase them. And that is really important as you're on this journey. And remember, if you're looking somebody to serve you in this journey that has great power partners and our lenders like Kelly and Andrew and our title partner, lawyers, title, and you're looking for somebody to guide you through into what you're looking to accomplish, you can reach out to us. Stevedvalentine.com Go to the real estate section, throw in an inquiry and let's chat about what you're getting ready to do. And keep this in mind as well. We do real estate strategies and there is a lot of different components that come into a strategy. And it doesn't matter what part of the country you're in, if you don't have an agent, you're looking for a strategy. Let's have a conversation so we can talk about the strategy and then I can connect you with somebody inside my network. Thanks for joining us on the Real estate Revolution. I am looking forward to seeing you on the next episode.