Podcast Episode - Avoid These Home Ownership Disasters

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Are you doing the right things to protect your home? Are you taking disastrous short-cuts if you want to leave your home to your children? Today's Suze School will absolutely set you straight.

Podcast Transcript:

February 20, 2022. All right, everybody welcome to Suze School. Yes, yes. On Sundays I really try to have a podcast that teaches you what I really think you need to know to keep yourself out of financial trouble. But before I go into Suze's school here, I just want to give you a brief update about my thoughts about the stock market because so many of you are writing the markets are going up, the markets are going down, then the markets go up again and you feel so good on the days that it goes up 400 points, you have a stock that has recovered somewhat of what you've lost. And then the next day it goes all the way back down again. We have so many things that we have to take into consideration when it comes to the stock market, we have to take into consideration inflation which is at 7.5%,, we have to take in the price of oil and where oil is going and what that does to the cost of goods we have to take into consideration still the unknowns of COVID, is it going to come back? Is it not? What's going to happen there? We have to take into consideration Ukraine and Russia and what is going to happen there? So, there are so many unknowns. It's not even funny. And the markets for many reasons are overreacting a company comes out and it reports earnings, that means how well did they do? And if they just even miss it a little bit. The stock goes down 10%, 20 points, it goes down big again, the rules of investing you are only to be invested in these markets if you have at least three or five years or preferably longer until you need the money that is invested in the stock market. The true ways to make wealth really is not the market goes down, you sellout, you can't take it anymore. And one of the reasons that I'm talking about this and I think that we should probably have a relatively good market between now and April is how many of you have been writing me saying to me, that's it. I've had it, I'm out or you write me, and you tell me how angry you are with your financial advisor. As if a good Financial Advisor would have known to get you out before the market went down. Can we just get realistic with everything here? There isn't a financial advisor in the world including me That would have been able to say to you, you know January was going to go down. Some of these stocks were going to get hit by 20% or so, nobody could have possibly known that nobody or else I would have sold out my entire portfolio and possibly I would, if I had known that I would have sold out my entire IRA and retirement accounts that don't have a tax, you know, ramification on it for January and then I would have brought back in but you just don't know those things. But I will tell you what I do know I know that when you have really great quality stocks that makes something maybe that even give you a dividend yield. So as the markets are going down, you're being paid to be in that company in the long run, you will make money now if it's not a good company, it's not under management, who knows why you bought it? Okay, that's another story. But if you are diversified and you have time on your side, good quality exchange traded funds, mutual funds stocks, I'm telling you just hold tight. Now one of the reasons that you always want liquid cash is that when certain things go down, you really maybe want to buy more. So, I've always done this thing when it comes to stocks and it's this let's just say you own 100 shares of X,Y,Z stock and let's say X,Y,Z stock currently is selling at $50 a share. Let's just say that's true. If you didn't own X,Y,Z stock, let's just say that's true, you didn't own it. Would you buy it again right here and right now, if the answer to that question is yes then you hold it. If the answer to that is no, I would not buy it here. Then the chances are you probably should sell it or if your answer is, I don't know what I would do sell half. What do you care? Obviously always look at the tax ramifications when you're doing something. I have stocks that are down considerably. I told you about one of those stocks that I love that is down big from where I purchased it originally but it's been going down and as it goes down I buy more and as it goes down I buy more recently It went to about 90 some odd dollars a share and now it's back in almost 150 so now it's turning around so now that it's going back up again okay I'm staying exactly what the amount I have and I'm keeping it because I answered that question would I buy it at these prices and every time I said yes I would that meant to me I shouldn't sell it but I should buy more but I was only able to buy more why? Because I had the cash to do so I do think between now and April these markets will go up and down all over the place. We hopefully are at the top of inflation, but nobody knows for sure we'll just have to see, and this will continue. I do think it is probable around the first or second week of April here I go again. I told you a year ago that I thought around April 5th that the markets would take a little bit. Alright I do think that could probably happen again. This coming April, that doesn't mean that you sell. It means if you have cash, if you have cash and you have stocks that you really love, just buy more or if you haven't invested yet in these markets and you have time on your side, use April as a point where you enter the markets, there really isn't a whole lot for people to do other than invest in the stock market. And you know, I found that people in general are really optimistic. They want something to go up, they want to have faith in their companies, they want things to work out that way. So, on some level it's their natural inclination to invest and they're investing in their 401K’s they're investing in their 403 B's. All of those companies have to invest in the markets and there's so many people investing now that I think in the long run stocks will do relatively okay. But with that said, you always have to make sure that you are okay that you are on the path to owning your home outright. If you're going to live in it forever. You are totally out of credit card debt. You own your car outright. You have reduced your expenses as much as you possibly can. You work for as long as you can, you collect social security when it makes sense for you, in your particular situation. But for most of you that will be 70 years of age, you hold onto your money now, you don't start giving it away to your kids and all this stuff unless you're seriously wealthy. You let your kids now provide for themselves and you make sure that you take care of yourselves, if you can afford it, you get a long term care insurance policy, you pay attention to your portfolios. You understand the advantages of a Roth IRA versus a traditional IRA, you understand the rules of converting and when you can get money out of your accounts without having to pay taxes or penalties, you take the time and you understand all of those things and then in the long run it will be okay. Just another few words about Bitcoin here, so many of you, you're so fickle, you're fickle, you love Bitcoin when it's going up and up and up and then it starts to go down and down and down and then you hate it and then you don't know what to do. Bitcoin is still around in the mid-40,000s compared to a year or so ago. Fabulous. So, what if it's down from 69,000, when did you get in? Which is why it's important to dollar cost average, you buy it as it's going up and you buy it when it's coming down and you want dollar cost average in items in stocks or cryptocurrencies that fluctuate tremendously in value. Obviously if something is going to go just straight up and up, you're better to just put your money in all at once. But since you don't know if that's going to happen or not, that's when dollar cost averaging really makes a difference. I want to talk about oil here for a second because oil is extremely high. Do I think oil is going to continue to go up probably through April or May? Absolutely I do. However, there does come a time that you're going to have to look, especially at the oil stocks that I've recommended to you. I recommend it to you way back when um Excel E which is the oil exchange traded fund that has done so well for all of you. So, you're so happy because they've gone up, I recommended Chevron so great because it's gone up and it's paying you a dividend. But you don't want to get yourself in a situation where if things start to turn, then you see these profits go down and down and down that you happen to be participating in right now. Again, you all feel so great when everything goes up and then you turn against it, when it goes down. The other thing is I'll never forget this couple who contacted me and said Suze, and this is when I first recommended Excel E. And Excel E had gone from like about 30 down to 22, it wasn't really moving, even though it was paying a fabulous 12, 13, 14% dividend. Okay. And they said don't you have something that I can make more money in faster that will move faster. And at the time Cathy Woods, Exchange Traded Fund Ark was just skyrocketing, skyrocketing and I said sure if you want to switch from Excel E to the Ark Fund, okay, and yeah Arc went up and up and up and then last year it got hit and went all the way down and now Excel E is all the way up. So, the point of that conversation to all of you is stop being in such a hurry. Do you remember a podcast that I did a little bit ago where I said don't rush to be poor wealth is built little by little time over time and you have to have patience, you have to have patience and you have to stop looking at what you had and look at what you have so many of you don't even know how much money have you made on your investments. All you know is that two months ago at the end of December, maybe you had $400,000, whatever it is in your retirement accounts and now all you have is 250,000 Or maybe 350,000. Have you ever stopped to calculate how much money have you actually put into these investments versus what it is worth right here and right now? And how much are you up from that point? Not how much are you up from the highest it's ever been because you see that as a loss. But it was never your money until you cash out. So, I need you to get a grip. I need you to get a grip and to understand how much you have invested, what is your actual return on those investments every month and see where you are. Are you still up 15% from what you put in versus you were up 35 and maybe you should be happy with that? So, don't go writing me and say I'm mad at my advisor because I've just lost $27,000. You lost 27,000 maybe of gain. But did you lose principal? Did you lose all of your gain? You have to figure that out. Here's the other thing that I need you to figure out. And this is where we go to Suze's school right now because I actually did not intend to go on and on about whatever that was. I just went on and on about. But it's about home insurance and it's starting to scare me a little about how many of you are writing in and you know what you are saying to me, you are saying to me that Suze, I don't need, you must have documents because I'm simply gifting my home to my child. I know that my child wants this home. Eventually I'm going to stay living in it, but I'm going to give them my home and therefore I don't have to worry about probate because it's already in my kid's name. And I think to myself, what are you an idiot or you're just an idiot? Everybody, this isn't even about avoiding probate. None of that. Alright. Hey, if your kid needs to pay probate on a home, all right, this is about you and the home that you live in. And is it insured if you do something like that? So, remember, listen to me closely, when you buy a home, you own that home, you take out what's called homeowners insurance. Listen to those words, it means that you are an owner of that home. You live in that home and therefore you have insurance that protects that home if you gift your home, even if you sell your home to your child and that child now owns that home. But that child is not living in that home, you are living in that home, it is very probable that if there was a hurricane, if there was a flood, if there was a burglary, If there was anything that happened that your home owner's insurance would deny you coverage, did you just hear what I said to you? You may think that you have insurance, but you only have insurance if the insurance is in the name exactly of the owner of legal title and in addition that person has to live there. Sure you could have all different kinds of insurance, but home owners insurance means that the home owner lives in that home, you know so many times people came to me, even members of my own family who owned a home and they hadn't lived in that home for many, many years and they attempted to get insurance on that home. And the agent tried to tell me Suze Orman that it was fine that this person didn't live in the home anymore. And I was telling this agent that it was in my experience that if the homeowner does not live in the premise is that you can't really get homeowner's insurance because the insurance company won't pay. The agent was telling me, No, no, that's not true. And I knew that the agent was telling me that simply to get a commission. So, you really have to ask yourself and wonder is your home insured or not? Let me give you a few other examples. Let's say your mom moves into an assisted living facility and you just leave her home totally empty. It's empty. Nobody's in it. Is it insured or not? Do you know the answer to that question? Or let's just say, okay you bought a brand-new home and you moved into that new home before you sold your old one, but no one is living in your old home. Is it insured or not? Can you answer that question? Because here's what you need to understand is that if a home is left vacant for 30 to 60 days or more, your homeowner insurance won't provide full coverage. Did you know that? In fact, if you're going away for a month or two, you should absolutely let your insurance agent no, that your house is going to be vacant because maybe what you do is for that period of time you get what's called a vacant home insurance. Now, why is it that the insurance companies do not want to cover you? If the house is vacant because of vacant home is always subject to more damage than a home that is occupied, leaks can happen, A storm can happen. People can break in. All kinds of things can go wrong like I'll never forget. And I guess it was two thanksgivings ago, we were all at the island house, the whole family, maybe it was three thanksgivings ago now. And all of a sudden, KT looked over and there was a big bubble in our kitchen because our roof was leaking, there was a serious storm. And if we hadn't been there, let's say we were gone even for a week, that thing would have broken and so many things would have been ruined. It's not even funny because thank God cola was there, we were able to catch it before that and no damage was done. But think about the damage that could be done if the house was vacant. You know, I have a friend who moved to Austin Texas and she had all this stuff. It was a brand-new home, this incredible stove, everything was in there. The delivery person delivered this stove, that was so expensive, was like $12,000 and they installed it. And then she went back to her other home because she was going to bring all her furniture and the house though was still vacant. Alright. And then what happened was this the person who delivered the stove came back and stole the stove. Now thank God she was smart enough to have a vacant home insurance, otherwise maybe they wouldn't have paid for it. So, it is so very, very important that you understand all of these things when it comes to home insurance. These are little things. This isn't complicated. This isn't like, oh my God, this is another five-year Roth rule Suze's school. These are little things that I will bet any amount of money that you did not know. And I will also bet any amount of money that for those of you who are trying to outsmart the system and adding your kid's name on to your deed to your title, even if you are still living in that home. So therefore, homeowner’s insurance applies to you. You are leaving yourself open to so many more risks. It's not even funny Here are some of the dangers when you gift a house to your child, okay? You have a house that you paid $400,000 for. That's what you paid for. That's your cost basis. And now you are changing the title from your name to your child's name. All of it's going to be in your kid's name. You are giving them the cost spaces that you paid as well, which would be $400,000 If the house is worth, let's say today, $1.4 million, That's a $1 million dollar gain. You're living in the house; they own the house. Number one homeowner insurance is not going to apply. But more importantly you die and now they go to sell the house, they’re going to have to pay capital gains tax or income tax. Just depends on $1 million 1.4 million when you die, if however you had kept the house in just your name, you left it to them via a living revocable trust, which I've talked about forever or you just leave it to them. Even in a will. I don't care when you die and they get the house upon death, they also get a step up in cost basis. So now their cost basis will be the value of that house on the day that you died or six months prior to that. So, it's about 1.4 million they turn around and they sell it, they don't pay any income tax whatsoever. That is a big deal. But it's not just that's a big deal. There are so many other things besides that that you have to take into consideration. So let's say you keep the house in your name and you add them as a joint tenant, Do you know that if you have a mortgage on that home, still that many mortgage lenders when you add a second party to the deed, that they may require you to refinance or at least prove that that person could be on the deed. And do you know that if your son or your daughter were to get into trouble, let's say they were behind on their taxes, they claimed bankruptcy, whatever it may be, that a tax lien could be filed against your house, if your kid ran into those tax problems or if your child declared bankruptcy, that maybe your house would have to be sold and that you know, have you ever even considered that you could be sued possibly as a result of if your kid was in an accident, a motorcycle accident and they decide, or a car accident, that they decided to attach that interest in your home and now you really can't do anything and why did you do it? Really? Everybody and what happen if your child were to die before you, let's just say that your child was buried had kids. And maybe you didn't get, you didn't get along with your child's spouse. And you own this where you own half, your child owns half. It's not enjoying tendency with right of survivorship. You own it in tenants in common because you want the half that you've left with your child's name on it to go to his family or her family. And you want your half to go possibly to your other kids, right? But that kid dies before you and now it passes to his spouse and their kids. So now you end up owning this house with your son or daughter in law. And that could be a problem. And what happens if they get divorced, what if your child is married and now, they're divorced? And now this ex-spouse claims the house or at least that portion of the house as part of their marital distribution. And why did you do this? You did it simply to do what avoid probate. You have to understand that it's really important, especially if you have more than one kid because these, this is an email that I'm getting a lot lately. My parents gave the house to my one sister. I however live with my mom and my other brother in the house when mom dies and now the sister owns the whole house, what if she doesn't want to give it to the sister and the brother that's living in the house then What happens? So, you always have to be careful, especially if you have more than one child. You never know what happens after death. The point of this Suze's school, however, is this hardly ever. Should you add a child's name to the deed of your home simply to do what avoid probate? Are you kidding me? If you want to avoid probate, then simply do what create a living revocable trust. It is not that big of a deal. Never should you gift your house to a child, especially if you have a huge gain in that home. In the long run, you're hurting them financially speaking. Never gift your home to a child simply to avoid Medicaid or Medicare. Coming back on you if you spend time in a nursing home, that isn't what you want this money for. You want your money to take care of you when something like that happens. So, you need to know the rules and that's what this Suze school was all about. Alright, everybody. So, until Thursday I want you to only do one thing and it's this, you stay smart, you stay strong and most of all you stay secure. See you then.

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