Podcast Episode - Ask Suze & KT Anything: Real Estate Mixed Bag


Investing, Podcast, Saving, Saving Money, Savings Account


July 28, 2022

Listen to Podcast Episode:

While Suze and KT are on their way back from KT’s birthday fishing trip, this episode contains questions from this past year, all about real estate.


Podcast Transcript:

00:00:22

Music: Music In.

00:00:33

Robert: July 28, 2022. Hi everybody, it's Robert. Suze's producer here.

00:00:40

Robert: So, Suze and KT are on their way back from KT's birthday fishing trip in British Columbia. And I gotta tell you from the text that I've received, they had an absolute blast and they really can't wait to tell you all about it.

00:00:53

Robert: Now. While they're in transit this morning

00:00:56

Robert: we put together a very special Ask Suze and KT Anything

00:01:01

Robert: real estate, mixed bag.  

00:01:04

Robert: What does that mean Robert? Well, using real estate as a theme,

00:01:08

Robert: you're gonna hear some great questions and answers from episodes that ran this past year. In fact, you get to hear the debut of the Can I Afford It? quizzie

00:01:21

Robert: We hope you enjoy:

00:01:22

KT: The first question Suze I selected is from Marianela,

00:01:27

KT: do you remember I worked with a great, great girl named Marianela in San Francisco, she was so much fun.

00:01:35

Suze: What did you do with her?

00:01:36

KT: She was a secretary in an office that I was consulting a design firm and she was the most fun ever. You remember her? Oh my God, she lived in Oakland California. She and every Sunday she would have these

00:01:53

KT: incredible Mexican family gatherings. Always invited us all the time. We never went. Yeah, we never went because we never wanted to go over the bridge. She was so much fun. So much fun.

00:02:06

KT: Anyway, Marianela. Suze's answering your question but you remind me of such a great, great experience I had with my Marianela back in the day in San Francisco. So here's the question. Suze, 00:02:20

KT: our Marianela from Boulder Colorado is 58 years old. She's recently divorced and she wrote sadly. So she obviously didn't want this divorce, but she has some money for a down payment on a new home. She has about $100,000

00:02:37

KT: and she works, she makes about 75,000 a year, which is a very nice salary. She said the rents are skyrocketing in Boulder and she's paying $1,999 a month. But a townhouse

00:02:53

KT: that is selling for 473,000 is a remodel and available.

00:03:00

KT: so she said without buying a new home, she has about 500,000 saved for her retirement, which she wants to use when she's 65. She has no debt,

00:03:11

KT: and she wants your your help, Suze on deciding what should she do. Should she buy this town house or rent,

00:03:20

KT: continue renting?

00:03:21

Suze: What would you tell her KT?

00:03:22

KT: Definitely buy the home.

00:03:24

KT: She's gonna make her feel great, she's gonna own something. You know, she can afford to put a down payment on still have money for her retirement and she has a home

00:03:35

KT: that she owns.

00:03:38

KT: What would you tell her? Suze?

00:03:40

Suze: I wouldn't tell her that. We'll figure out the money. I think it's going to cost the same. Listen to me everybody,

00:03:47

Suze: There was one word KT

00:03:50

Suze: and Marianela one word in this email

00:03:54

Suze: which says to me you can't do anything yet and it's not about the money, it's not about the money, it's sadly right. Right. You said you were recently divorced sadly.

00:04:07

Suze: And what is my rule of thumb KT? don't do anything until you for six months to one year after suffering the loss of a loved one

00:04:17

Suze: and the loss of a loved one comes in the form of death.

00:04:21

Suze: But very interestingly enough,

00:04:24

Suze: the loss of a loved one sometimes is even harder in divorce because they're still there. You maybe see them with their new person that they're with what it can be equally, if not harder

00:04:38

Suze: when it's divorced that you don't want

00:04:41

Suze: and actually death KT. So

00:04:45

Suze: It is for that reason Marianela that I don't want you to do anything right here and right now. Also,

00:04:53

Suze: You're 58, you want to retire

00:04:57

Suze: In essentially seven years from now.

00:05:00

Suze: You know when you're 65,

00:05:02

Suze: seven years is not a very long time.

00:05:05

Suze: So in seven years from now you will no longer have $75,000 a year of income.

00:05:13

Suze: And you would not be that deep into this mortgage because even if it was a 30 year

00:05:20

Suze: mortgage, fixed rate mortgage

00:05:23

Suze: interest rates now are up.

00:05:25

Suze: So it would be about a 4% rate to get a 30-year fixed rate at this point in time.

00:05:30

Suze: Your monthly payments on that mortgage would be about $1830 a month, close to what she pays in rent. But it's not just rent.

00:05:42

Suze: When you buy a home, you have property taxes, you have insurance and you have maintenance.

00:05:50

Suze: So I always say that you have to add at least 30-40% above your mortgage payment

00:05:58

Suze: for you to really figure out exactly what this would be. So you're looking at an additional 4, 500 a month. So you're looking at about $2200 a month, $2300 a month.

00:06:12

Suze: Which is

00:06:14

Suze: higher than what you're paying right now. Now obviously you'll get a tax write off for the beginning years and everything,

00:06:21

Suze: but not right now, girlfriend.

00:06:23

Suze: The house is old. You said it's 1983.

00:06:26

Suze: That means it can need a new roof. It can need new water heaters. It can continue renting as your advice for now continue renting. Yes. Let her life unfold. Let's see what happens, sweetheart. You never know what God has in store for you. Yeah, that's true, Marienella.

00:06:45

KT: Hi Suze and KT,

00:06:47

KT: my husband refinanced our house and added me to the mortgage and deed last year in January 2021. We're planning to sell our home this year and will make 300,000 in gains

00:07:01

KT: because of the housing market. This is after all the money we put in for improvements. We file our taxes jointly. So here's her question.

00:07:10

KT: I have only been on the deed for one year but lived in the residence for the past six years with him. Am I eligible for the 250,000 tax exemption,

00:07:22

KT: or do I have to be on the deed for two years as well? This is Rebecca.

00:07:28

Suze: Can I turn that into your quizzie?

00:07:30

KT: I don't know the answer to that. I was I didn't know that

00:07:34

KT: you have to stay on the deed for two years maybe. I don't know.

00:07:38

Suze: I love when you say you don't know. I thought this was a pretty good question. It says help capital gains home sales. So my dear Rebecca,

00:07:50

Suze: in order to take advantage of the $250,000 exemption, and what that means everybody is simply this. You own a home you purchased it,

00:08:01

Suze: it is your primary residency. It's not a rental. It is a primary residency. Everybody on that deed 00:08:10

Suze: gets a $250,000 exemption above your purchase price. So but to get that your name has to be on the deed number one, not on the mortgage, but on the deed.

00:08:25

Suze: And you have to have lived in that house for two out of the past five years as your primary residency. If you have not done that, you are not entitled to that $250,000 exemption. So

00:08:41

Suze: no, you're not entitled.

00:08:43

KT: Mm.

00:08:44

Suze: Yeah. And and it doesn't matter if you're married, KT or whatever. It doesn't matter. It's like, let's say you and I weren't married. No, I'm so sad. I can't even stand it. So we're not married. Let's say we bought a house for a million dollars and now it's worth 1.5 million. We each get a $250,000 exemption if we were both on title for two

00:09:05

Suze: of the past five years and lived in it as a primary residency. We sell it, we don't have to pay any capital gains. However, I just want to say one last thing to Rebecca. Rebecca, you're only having $300,000 of gains if you sell it.

00:09:20

Suze: So $250,000 of that will be exempt.

00:09:24

Suze: It is also possible that maybe over the years you've done, you know, $50,000 of renovations or something like that or after your real estate commission, it won't quite be 300,000

00:09:38

Suze: dollars and gains totally. So I would not not sell it right now in real estate. Is that it's high just to wait another year just to save you know, capital gains tax on $50,000. Okay. Got that? Alright, gon on.

00:09:51

KT: Okay. This next question is from Cindy.

00:09:55

KT: So here's my question. She said Suze, I sold a rental, thinking about using the money to pay off our house

00:10:03

KT: with the $300,000 proceed.

00:10:06

KT: But the interest is only 3%. I'm about 12 years to retiring,

00:10:12

KT: my husband about nine years. We have no other debt.

00:10:16

KT: Our home is worth 590,000. We owe about 218. We have 12 months emergency fund. What are your thoughts on paying off the house or investing this money?

00:10:32

Suze: Well, let's see. How do you feel about the stock market right now Cindy?

00:10:35

Suze: How do you feel if your money was in the stock market?

00:10:38

Suze: Let's just say you took this money and you invested it in the stock market and now you're down 10, 20, 30. Some stocks are down 40, 50, 80%,

00:10:49

Suze: versus you having your home paid off.

00:10:53

Suze: What is the goal of money?

00:10:57

Suze: Answer Miss Travis.

00:10:59

KT: To be secure. To be secure.

00:11:04

Suze: So my answer is dependent on you.

00:11:06

Suze: What would make you feel more secure?

00:11:11

Suze: Would you feel more secure if you own your home outright that way? You know, no matter what happens over these next 12 or nine years until you retire, you own your home outright.

00:11:23

Suze: Would that make you feel more secure or would you feel more secure? Putting your money in the stock market and now it goes up and it goes down, it goes all around,

00:11:32

Suze: which would make you feel more secure? If it were me,

00:11:36

Suze: if it were Miss Travis, let's say it at the same time, what would we do, pay the hot right? That's right. Pay it off.

00:11:44

KT: That's what we would do.

00:11:46

Suze: We would pay it off and then you would still have $80,000. If you want to take some of that and dollar cost average or do whatever into the stock market or if you want to take that and take advantage of some really

00:12:05

Suze: good quality stocks that are down here right now big time,

00:12:10

Suze: go ahead and do that. But the other thing you could do is if you pay off your mortgage, take your mortgage payment every single month and dollar cost average into these markets. Next question KT.

00:12:24

KT: I'm a longtime listener. I've learned so much from you over the years. I'm now 38 years old and newly married.

00:12:32

KT: My current investments are 80,000. Do you have a prenup? My current investments are 80,000 in the stock market give or take during this tumultuous time.

00:12:44

Suze: Can you say that word?

00:12:46

KT: Toomultuous (laughs)

00:12:47

Suze: You Sound like Colo..

00:12:49

KT: and also about 80,000 in my Roth IRA account.

00:12:53

KT: I also have a 403B Through my employer.

00:12:56

KT: My husband and I have about 20,000 in a shared savings account. So Suze, my question is,

00:13:05

KT: we currently rent and we'd like to buy a home in the next few years. If the real estate market improves,

00:13:12

KT: where should we be putting our money towards saving for a house?

00:13:17

KT: It feels like a waste to put it in a traditional savings account. However, an I Series bond seems to long term since we would need to wait five years to avoid a penalty.

00:13:30

KT: So I read somewhere I should use my Roth IRA as a place to save for a home. Your thoughts?

00:13:37

Suze: No no no your Roth IRA is money that you are putting there for when you retire.

00:13:46

Suze: Don't use it for a home purchase. Now here's the problem.

00:13:51

Suze: I don't know Rachel if this $20,000 is all the money that you have to your name.

00:13:58

Suze: Besides what you said the 80,000 in the stock market and 403B and your Roth.

00:14:04

Suze: Because you need at least an eight month to 12-month emergency fund.

00:14:11

Suze: And somehow I have a feeling

00:14:13

Suze: that $20,000 is not an eight month or 12-month emergency fund for you.

00:14:20

Suze: So what you need before you even buy a home, before you put 20% down or 10% down on a home, is you also need in addition to that in 8 to 12 month emergency fund. So I'm assuming that this is

00:14:38

Suze: all the money that you have

00:14:40

Suze: outside of what you said your investments. Therefore,

00:14:45

Suze: truthfully you should absolutely put it in the Alliant Credit Union.

00:14:51

Suze: So go to myalliant.com, and number one take advantage of

00:14:56

Suze: the interest rate they're currently giving. But if I were you,

00:15:02

Suze: I would each put in like $8800. I would open up two accounts.

00:15:09

Suze: Put in 8800 $9,000 all at once.

00:15:14

Suze: So you're making the interest on that money all at once. Then send in $100 a month, every month for the next 11 months,

00:15:24

Suze: and then you will qualify for what? The $100 bonus.

00:15:31

Suze: So that's a big deal. So you're going to be doing great. But that's how I would do it if I were you.

00:15:38

KT: And then they can have that flexibility if they need the money.

00:15:42

Suze: Yeah. Well that's what an emergency account is for KT.

00:15:45

KT: This is from Ryan, your fellow night owl. Should I ask more about that Suze? Ryan says Suze,  I'm your fellow night owl. Do you have like a little secret

00:15:56

KT: relationship with Ryan at night?

00:15:58

Suze: Well many of you who know that you write in

00:16:02

Suze: to the Ask Suze podcast a lot of times when I answer these is at one

00:16:08

Suze: or two or three or four a.m. in the morning. That's when I normally write. And the truth of the matter is,

00:16:21

Suze: I don't really like to sleep.

00:16:23

Suze: I have so much fun. I love my life so much

00:16:27

Suze: that it's like,

00:16:28

Suze: I don't want to waste

00:16:30

Suze: all this time sleeping. Do you know what I figured out KT when I was younger?

00:16:34

Suze: Want to hear this? That if you sleep

00:16:38

Suze: seven hours a night, I think it was. I think I did something like this and you sleep until seven, whatever you like sleep away 21 years of your life.

00:16:50

KT: Oh I remember you told me that. I wanted more.

00:16:53

Suze: And I'm like, why would I want to do that? Even though I know sleep is what everybody says keeps you, keeps you healthy,

00:17:01

Suze: so maybe you shouldn’t listen to me. Okay. Alright.

00:17:04

KT: So Ryan's question is, I could really use a loving push in the right direction. I feel like I've been standing at a real estate crossroads for far too long. I purchased my home three years ago and I have 1090,000 remaining on a 15 year fixed at 3.25%.

00:17:26

KT: I'm now entering my late thirties. And thanks to your mantra, Live below your means, I'm debt free with a passion to save. That’s your boy. I currently have enough saved without touching my emergency fund to play pay off my mortgage. But is that the right move for me?

00:17:46

KT: Is it better to refinance my current mortgage to a 10 year at 2.67%, keeping the majority still liquid in my Alliant savings account

00:17:57

KT: to then invest in downturns in the market? Is there a third option? All right, Suze. There's your night owl.

00:18:05

Suze: So, my little night owl, here is my advice. You are 30 years of age.

00:18:13

Suze: Do you wish you were 30 again KT?

00:18:15

KT: No, I didn’t know you when we were 30.

00:18:19

Suze: And you had met me at 30. Oh my God. We would have so much fun.

00:18:24

KT: No, but we always said that we met each other at the right time.

00:18:28

Suze: You were very different at 30 and I was I was a waitress. And I was in the height of my career moving fast forward. You would have loved me as a waitress. I can tell you that was maybe one of my favorite jobs in life. Got off track here.

00:18:49

Suze: This is the time that you want to be taking that money and investing it in the stock market. Taking advantage of downturns, hoping and wishing and praying that the market goes down because you have, 30, 40, hopefully 50 years till you need this money. Are you kidding me?

00:19:10

Suze: That's what you want to do. So no, do not pay off your mortgage number one,

00:19:16

Suze: number two,

00:19:18

Suze: right, should you refinance?

00:19:21

Suze: So let's let's actually try to do the numbers on this. You say that you bought this home three years ago and you have $190,000 left

00:19:31

Suze: on your 15 year fixed at 3.25%.

00:19:35

Suze: That means, and I'm just gonna guess at this that you have that your original mortgage was $193,000

00:19:44

Suze: and that therefore your payments would be about $1422 a month.

00:19:50

Suze: If you refinance now at 190,000 at 2.67%, your payments, if it's for a ten-year fixed rate mortgage, will be about 1872.

00:20:05

Suze: That means it's gonna cost you $450 more a month.

00:20:12

Suze: So that is a lot of money. However,

00:20:16

Suze: even if you can afford it,

00:20:18

Suze: it doesn't make sense for you to do that. Number one, do you have the desire to own this home outright in 10 years?

00:20:28

Suze: Do you?

00:20:29

Suze: Because really at this point,

00:20:33

Suze: given that you had a 15 year mortgage,

00:20:37

Suze: you have 12 years left on it,

00:20:40

Suze: and now you're only going to refinance for what? Another 10 years?

00:20:46

Suze: I'm not sure. It makes sense to do that depending on what your closing costs. Because remember Ryan every time you refinance, maybe you could refinance

00:21:01

Suze: for no closing costs, but usually it is quite a few thousand dollars.

00:21:07

Suze: So then the question also becomes, do you have a better use

00:21:12

Suze: for that $450 extra per month? To be putting it in the market?

00:21:19

Suze: So I don't know,

00:21:21

Suze: but somehow my gut tells me you should leave everything exactly how it is and take all the extra money you can every single month and just keep investing investing, investing. What's the difference? 10 years, 12 years, you'll be 42,

00:21:40

Suze: you know, for two years. I'm not sure it's worth it. Yeah, I wouldn't, I wouldn't do it to for two years. I wouldn't do it. No, I take that extra money and try to make more with it.

00:21:52

KT: I'd invest.

00:21:55

Suze: What time is it, KT?

00:21:56

KT: It's quizzie time!

00:21:58

Suze: Now I'm doing a different kind of a quizzie for you.

00:22:03

Suze: It is and it's one for actually all of you. As you know quizzie time is where one of you have written in. I've read your questions and I choose one

00:22:17

Suze: that I want

00:22:19

Suze: you to be able to answer on your own as well as KT.

00:22:24

Suze: Now for some reason as of late KT,

00:22:28

Suze: hundreds of people have been writing in under the topic can I afford it? And many of you write in and say,

00:22:39

Suze: can you bring back the can I afford it segment?

00:22:42

Suze: So I think bringing it back in in the form of a quizzie

00:22:47

Suze: is interesting as to how would you answer

00:22:51

Suze: this person's question.

00:22:54

Suze: So this person's name is Sarah.

00:22:58

Suze: And Sarah says, I am writing to ask if I can afford to buy a home. All of you may want to take out a pencil and paper.

00:23:09

KT: Mhm,

00:23:10

Suze: Sarah has been approved for a $310,000 loan. She currently rents,

00:23:20

Suze: her lease is going to end in four months.

00:23:23

Suze: Her daughter starts high school

00:23:26

Suze: in fall of this year

00:23:28

Suze: and she would like to move closer to her daughter's high school.

00:23:33

Suze: She would like to drive her daughter to school every day.

00:23:36

Suze: So

00:23:37

Suze: even though she says she can move into another rental,

00:23:41

Suze: the current market in her area is such that a two bathroom apartment is renting for 1750.

00:23:50

Suze: So she's wondering if it would be best to invest

00:23:54

Suze: that $1700 into a home.

00:23:59

Suze: Here are her stats, everybody.

00:24:03

Suze: So you

00:24:04

Suze: seriously want to write these down.

00:24:08

Suze: Again, she is 41 years of age.

00:24:14

Suze: All right.

00:24:15

Suze: If she decides to rent, it will be $1750 a month.

00:24:22

Suze: She brings home $4800 a month.

00:24:29

Suze: Her expenses

00:24:32

Suze: are $4800 a month.

00:24:37

Suze: She's been preapproved

00:24:39

Suze: for a $310,000 mortgage.

00:24:45

Suze: Okay. She has $36,000 in savings. That is it.

00:24:51

Suze: She has $4,800 a month in expenses,

00:24:55

Suze: but only $36,000 in savings.

00:25:00

Suze: So just to give all of you a hint,

00:25:02

Suze: just to start, what you would all be doing to figure this out?

00:25:07

Suze: You would first start with the fact that her expenses

00:25:11

Suze: are $4800 a month,

00:25:14

Suze: and I have asked all of you to have a 12-month emergency fund.

00:25:19

Suze: So that would be $57,600

00:25:25

Suze: in an emergency fund. So, she is almost $21,600 short

00:25:32

Suze: of an emergency fund. And that is before her down payment.

00:25:37

Suze: She has $40,000 in a retirement account.

00:25:42

Suze: And the last thing you should know

00:25:45

Suze: is that she filed for Chapter seven bankruptcy with a home foreclosure just six years ago.

00:25:55

KT: Oh ouch. She can't do it. Right. But now she wants to buy a home. She's denied.

00:26:03

Suze: Totally denied?

00:26:05

KT: Well first of all you said she brings home $4800 a month. Her net income. Her expenses are 4800 month. She has 36,000 in savings.

00:26:20

KT: She has 40,000 in retirement. And

00:26:24

KT: I don't understand how she's going to be able to do any of this if she doesn't, there's not even a cushion here.

00:26:31

KT: She's saying that the difference between her mortgage and household expenses and everything is what I would currently pay in rent.

00:26:40

KT: And it would come from what I contribute to savings.

00:26:43

Suze: Is she approved or is she denied?

00:26:48

KT: And she has filed bankruptcy.

00:26:51

Suze: Is she approved or is she denied? Denied. Say it like you mean it girlfriend!

00:26:56

KT: Sarah you're denied honey!

00:26:59

Suze: Sarah with all our love to all of you and to save you from claiming another

00:27:05

Suze: possible bankruptcy,

00:27:08

KT: one day, one day you can do it, cut back on expenses and really just really

00:27:15

KT: just wait. This is not the time right now.

00:27:19

Suze: Right, KT,

00:27:21

Suze: you know what time this is then after quizzie time is what time?

00:27:25

KT: Goodbye. Good, good, good, good. It's not good night because it's still morning for us and it's like okay, whatever.

00:27:36

Suze: Alright everybody until Sunday.

00:27:40

Suze: There's really only one thing that we want you to remember, and that is for you to all be safe,

00:27:46

KT: strong and secure.

00:27:48

Suze: When are you going to get it right?

00:27:50

KT: I got it.

00:27:51

KT: No. You didn't.

00:27:53

KT: Safe strong and secure.

00:27:55

Suze: Strong safe and secure.

00:27:58

KT: I don't think so.

00:27:59

Suze: Oh, she's written it down.

00:28:00

KT: I wrote it down. So everybody I think that I'm right.

00:28:08

Suze: Safe. Strong and secure. All right. She's right. You're right, my love. All right. See you on Sunday for Suze school. Alright. Bye bye bye.

00:28:23

Music: Music Out.


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