January 23, 2020
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In this real estate podcast of Ask Suze Anything, we hear questions from Women & Money listeners Suzanne, Emily, and Kate.
Hi, everybody, Suze O. here and you are listening to the Women and Money podcast as well as the men smart enough to listen. And today’s podcast is an Ask Suze Anything, and in case you’re new to the podcast, I broadcast twice a week. Usually, on Thursday, we drop what’s called the Ask Suze Anything, and this is where you write in to AskSuzePodcast@gmail.com, that’s S-U-Z-E by the way, in case you don’t know. And you ask a question, and if chosen, I will answer it here on the podcast. On Sundays, well it just depends on my mood, but usually, the Sunday podcast is a theme, something more emotional, or spiritual, or psychological, or motivational to get you moving when it comes to your money and to do the right thing with your money.So, today is Ask Suze Anything, and a lot of you are writing in and you are asking me about real estate. So, for instance, Suzanne wrote in, and here’s what she is saying. Suze, my question is this. On all of the episodes I’ve listened to, I’ve never heard you talk about real estate.Is that possible? On over 100 episodes, I must have talked about real estate once in a while. But, you know how you’re going to know, shortly? Shortly, by the way, our app will be up and running, no more than a month from now, I promise you that one. And you’re going to be able to search by a word, all the podcasts, so you’ll be able to put in the app, “real estate” and up will come all the podcasts that I’ve talked about real estate or whatever it may be.But here is Suzanne’s question. I have a few single-family homes, and I’m looking to buy a multi-family, small apartment building, and more single-family homes for passive income. I’m curious what you think about real estate investing. That’s one question. She then goes on, though, to make a statement. The market is not great right now. It was much better for finding deals after 2007, obviously, but I would like to know your thoughts. And I’ll give you my thoughts in a second, Suzanne.But this is what bothers me. She says I am taking a $300,000 HELOC. HELOC stands for home equity line of credit, and for those of you who don’t know, it’s where you own a home, you have equity money in your home and you take out a line of credit on the equity in your home. I don’t like that just so you know. But she says, I am taking a $300,000 HELOC to get started, but I don’t have to use it right away.That’s true because, in a HELOC, you get a checkbook or however you access the money, and when you want to use it, it’s there for you. You never have to. She then goes on and says, I’d like to know if you think this is a good idea.Here’s the problem, Suzanne, is that first of all, real estate is very, very, very different today than it was in 2007. Remember in 2007, there were people, for instance, in Tampa that bought a home for over $700,000. And then what happened? The markets crashed and a $700,000 home could be sold for $100,000. There were properties here in Delray, Florida, that were going for $150,000 and you could have picked them up, and I did a whole show on this, by the way, on The Suze Orman Show, and you could have picked up these homes in a development called King’s Point, you could have picked them up for $5000 or $6000. Today, those same homes now are still a bargain, but they are at $70,000 or $100,000, they have come back. So again, real estate is very different today than it was in 2007, Suzanne, but again, you already know that. What I don’t like is that you are going to be making the investment with money that you have in your primary residence, and you are going to use it with a HELOC.The goal of money is for you to be secure, and nothing makes a woman, in my opinion, more secure than owning her home outright. Now, you did not tell me how old you are, but remember, you have got to own your home outright by the time you retire. So whether that is 65, 70, whatever, you have got to own it outright. And when you take out a $300,000 HELOC, even though HELOCs are at a low-interest rate currently, maybe about 2%, that interest rate on a HELOC is always attached to the prime rate. And the prime rate can go up very quickly if it needs to, and then all of a sudden, you are stuck paying a higher interest rate on this money. That’s number one.So, I do not like that you have to borrow money to invest money, that means you have to pay back that money, I don’t like it. And here’s the reason I don’t like it. I get very well that you have had success investing in real estate in the past. But as we go on in the future, if the stock market happens to crash, if unemployment starts to go up, if things in the United States of America change financially speaking, and you rent to somebody who can’t afford to pay their rent, and if they can’t afford to pay their rent, how do you pay your loan on this HELOC? I just don’t like it. An investor, in my opinion, should have the money to invest. When you have to borrow to invest, and you have to pay back the money that you have borrowed and you are dependent on the income from what you invested in to pay back that loan, I think you are heading for trouble. So when you asked me if I think this is a good idea, I have to tell you, I do not. And I understand, again, in your email that you just want this money available, you haven’t used it yet. So if real estate happens to go down, you have the money available to buy something. I don’t know, I just don’t like it. Now, if you want to use $10,000 of it, or $20,000, or a small amount of money, OK. But I would not, on any level, use all $300,000 to invest in order to make more money in the future. It could go right, and it could also go terribly wrong. But when it comes to investing in real estate, real estate is different than the stock market. In the stock market what tends to happen is that when the indexes go up, almost all the stocks on the index go up. When the index goes down, almost all the stocks in the index go down. When it comes to real estate, it’s not like that. You have to look at the city and the state and what’s going on around you as to whether you’re going to outperform the market, underperform, is real estate a good buy, is it not? It depends on where you live, so it’s really important to see what do the experts think? What did they think? Is it going to go up, is it going to go down? And a little bit ago, I read a study that was done by Zillow, where they literally talked to 100 economists and real estate experts, and they were asked to rate what they thought would happen with home values in 2020, and they asked them to rate it in the 25 largest markets. Now, when you look at what they said overall when they took all of the 25 largest markets, they thought that home values would grow by 2.8%. That’s what they thought. But what was interesting is that if you looked at individual markets, some markets were projected to grow a whole lot more, some less. So to do this, what they did is they assigned a score to these 25 top markets, and when you look at them, you will see that Austin, Atlanta, and Charlotte scored the highest among all these 100 people. 83% of the respondents said they expected Austin, Austin, to outperform. And if you look at all of it, of the 14 markets that received a positive score, 11 of them were in Texas or elsewhere in the Southwest or Southeast. Now, there were three exceptions. Three markets are still expected to outperform: Portland, Minneapolis, and Denver. So those were the only three places that were non-Southern markets to make the list of those expected to outperform. Got that everybody?Let’s talk about the ones that are expected to underperform. In fact, many of these experts feel like the prices in the areas that I’m about to name are actually going to decrease in the year 2020. They expect San Francisco, out of all the 25 top markets, will perform the worst, followed by San Jose and Los Angeles, then Riverside, Sacramento, and San Diego. Going outside of California, they do not like Cincinnati, Columbus, Miami, and Oklahoma City. They expect those to underperform. The one place, one place that they really, really loved was Nashville. They loved Austin, but the one place where 100% of the experts said they do not expect values to fall in 2020 was Nashville. So do you see how it’s all over the place? It’s just all over the place, but it’s just something that you should know.This next one is from Emily, she says, I’ve been teaching in Los Angeles for 10 years. Two years ago, I opened a 403b account. (Thank you, Suze.) I’ve been contributing $200 monthly, but I’m thinking about increasing the amount to $1000. Buying a home is very expensive in California. I’ve almost given up on the idea of buying my home, condominium or house. Suze, should I give up on becoming a homeowner and contribute more to my 403b instead? Which is the smarter choice? I’m single, 37 years old and live at home, but I contribute as much as I can. I also help my parents a lot. I’m still paying off my student loans, I have a little over $18,000 left to pay off. I have $40,000 in savings, other than my 403b, and a Vanguard ETFs, I have no other investments. Thank you very much, Emily.Emily, listen to me. First of all, many 403b’s do not match your contribution. And a match is where you put in a dollar and for every dollar that you put in, usually up to 6% of your base pay, they contribute 50 cents, $1, or some amount of money. So first, I need you to check does your 403b match your contributions? If they do match, you should absolutely contribute at least up to the point of the match. So ask your HR person to help you with that. If they do not match or after the point of the match, you are far better off having a Roth IRA than a 403b that does not match.Even if they offer a Roth 403b, you are still better off having a Roth IRA than a Roth 403b. And why is that? Because any money that you put into a Roth IRA you can withdraw at any time, regardless of your age or how long that money has been in there. You can withdraw your original contributions without taxes or penalties what so ever. It is simply the earnings that your contributions earn have to stay in there until a least 59 a half years of age, and the account has got to have been open for at least five years. So you’re far better off having a Roth IRA than a Roth 403b, especially if the Roth 403b does not match. If you do have a Roth 403b and they do match, make sure your contributions are going into a Roth 403b up to the point of the match. And after the match, you should have a Roth IRA because you can have both.Should you give up on your dream of owning a home? You should never give up on a dream, you should never think that this can’t happen to you. You don’t know what your life is like. Right now, you say you’re single, you’re 37 years old, you’re still living at home. You never know what can happen in life, so don’t give up on that. But with that said, if you just listened to me a little bit ago, you’re in no rush. This is not the time, especially in California, that I would be rushing to buy a home. I would just wait and see what happens.You know, I’ll never forget way back, I think it was in the year 1993, right around there. Real estate back then also went down considerably. I’ll never forget $3 million homes going for $800,000. Not that I could afford, really, any of those, truthfully at that time. But I went to look at them anyway and I thought, whoa, that’s something. Then I watched years later those same homes go for $12 million. So things go up and then go down, do not worry about it. What concerns me, however, is that you say you’re still paying off your student loans. So if you’re still paying off your student loans, that needs to be a number one priority. And you say that you have $18,000 left to pay off your student loans. Here’s what I would do if I were you. You have $40,000 in savings. You live with your parents. I personally would take out $18,000 from my savings right here and right now. Savings that probably is making you .5% or 1%, whatever it may be, that’s taxable. And I would take that money and I would pay off my student loans in full right here and right now. I would then take the amount of money that I was paying every month towards my student loans, and I would put them back in my savings account.So the few things that I would do right now: Check to see about your 403b, does it match, does it not? Do you have a Roth 403b? What should you do if you have a Roth 403b and also open up a Roth IRA? I personally would open up a Roth IRA at TD Ameritrade, I just love them. I’m not paid to say that, by the way, I just do, I love them. I don’t know why, I love them. And I would continue to live with my parents and help them, there is nothing wrong with that.So since his podcast started off talking about real estate, let’s just have this entire podcast be on real estate. The very next one is from Kate, and Kate says, hi, Suze. My fiancee will inherit his grandparent’s house and 26 acres of land when his mother passes. He is already on the deed, along with his parents. When we get married, should I put my (notice, “I”) put my name on the deed too, or can he just will the house and land to me? We live in North Carolina. Thank you for all the advice through the years. Kate.Kate, the advice that I would give your fiance is the exact same advice I would give you if you were inheriting anything, whether it’s real estate, money, anything from anybody. Here is the advice I would give you. Anything that you inherit, you should never put your spouse’s name or anybody else’s name on the account. If Grandma is going to leave you $500,000, that money should go into a separate account in your name only. If you take that money and you put it in a joint account, that money now is legally not only yours, but it would be whose ever name is on that account as well. And I get that you love your fiancé, you think everything’s going to work out, everything’s going to be great. But again, one out of two couples that get married, they end up in divorce. So you have to want to protect your fiancé. You really love your fiancé, so no, your name should not go on the deed on any level. That is his home, his inheritance, and if your relationship does not work out, it belongs to him, not both of you. Now, you may think that sounds harsh but think about it the other way around. If it was you, Kate, if it was your grandmother who left you something, your parents whose title was on this. And now you are married, and now his name is on it, and now you get divorced and you lose at least 50% of what your parents and grandparents left to you. Heartbreak. It would break your grandparents’ and parents’ heart.So, here is the other thing. His mother is not going to like if your name gets put on something, she’s not going to like it, because this is for her son. And it will, in my opinion, caused friction between you and you should not be thinking about here, can he leave it to me via a will? How do I get this money? I don’t like it, Kate. I don’t even like that you’re thinking about it. You should not be thinking at this point when you’re not even really married to him yet, how you can get something that’s being left to him. You need to be protective of him, so I want you to tell him you don’t want your name on the deed. You don’t even want him to leave it to you yet until you really know how incredible your relationship is and when he gets it. We don’t know how long down the line it will be when his mother passes. He’s on the deed with her, but she may not pass for years and years and years to come. So, do not put the horse before the cart. Do you have that girlfriend?So, today’s podcast was all about real estate and different aspects of it, whether it’s inheriting it, investing in it, dreaming about buying it for your own home, whatever it may be, as well as the projections that Zillow has done on 25 markets. Will they go up, will they stay the same, will they go down? But here’s what I want to say to you.Real estate is a very, very different investment than the stock market. In the stock market, you buy a stock, there’s no cost any more to buy the stock, to keep the stock, to sell the stock. If you buy something and you want to sell it, you can just pick up the phone or online, and it’s sold right away. There are no carrying costs to have that stock, meaning you don’t have to pay insurance, you don’t have to pay taxes, you don’t have to pay maintenance. You don’t have to do anything on it.So a stock is a very, very different investment than a piece of real estate. Real estate, you do have carrying costs. You have costs such as I just mentioned, property taxes, insurance, maintenance, probably the mortgage payment, the interest on the mortgage payment, and you also have besides those costs, you have natural disaster risks. Whether it is a tornado, a hurricane, an earthquake, a flood, whatever it may be. So there is a lot more risk with real estate, in my opinion, than in the stock market. And I understand, again, that many of you feel like true fortunes, true fortunes are built in real estate, and all you own is real estate.And then I understand that there are people out there that think, oh, the stock market is the only way to make money. I personally think a combination of both is smart. But you have to know that if you are going to be investing in real estate, you need to do it with capital that you have, not with borrowed money. If you are finding that you have to take a loan from your 401k in order to purchase a home, I’m not sure you should be purchasing a home at this point in time. If you need to take out equity in your own home to buy another piece of real estate that’s a rental property, I think you really should think twice about it at this point in time.This is the time in the economy that we have, in the economy that we most likely will start to experience either late this year or next year, or sometime, is an economy where you should be totally out of debt. You should have at least an eight-month emergency fund, you should get anything you can do to secure your financial situation. I am not predicting doom and gloom, I am just saying, just make your life one where you absolutely secure your financial situation and have it be your goal that you own your own personal home outright by the time you retire. That’s the Ask Suze Anything podcast for today. In providing answers neither Suze Orman Media nor Suze Orman is acting as a Certified Financial Planner, advisor, a Certified Financial Analyst, an economist, CPA, accountant, or lawyer. 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