September 30, 2022 • 20 mins
Even if you think you can't afford it, there are ways to buy a home and leverage it as an investment. Real Estate prodigy Skylar Brillante drops by to drop some knowledge on me. He explains how investors do things, how to buy a house and what your options are if you already own a home.
Skylar Brillante - IG - @skylarbrillante
Episode Website
https://www.prodigypodcast.com/episodes/house-hacking
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Just a quick disclaimer, I do curse in this episode,
so it may not be appropriate for everyone. Dude that's
living in a big, gass city. Yeah, it's cool because
there's everything around, but I hate driving in it. People
are recklessly swerving around in two ton metal meteors two
(00:24):
miles an hour, like two inches away from each other.
I'm trying to move out, like an hour outside the
city or something. I need some land. I'm trying to
build myself a country castle. But like with fiber internet,
that's really the dream for me. And I kind of
realized that during the very depths of the Great Pandemic,
why don't you start spending all your time where you sleep?
(00:47):
You realize how small it is. But the housing market
was is uh insane. There wasn't as much of a
reason to live in a luxury apartment near your office anymore.
So people wanted to get some larger domiciles for their
puppies in their katies, And at the same time, the
FED dropped interest rates super low to try and slow
(01:10):
an upcoming recession. Demand exploded, but supply didn't, and ship
got crazy. Um. Back in my day, way back before
our parents got on Facebook, we had an epic crash.
It was the best crash. Everyone says so my generation,
which I'll say is anyone, I don't know. We graduated
(01:33):
into it. We were molded by it. Something something about
subprime loans that aren't happening now. I bought a house
eight months before the pandemic started for two k. It's
gone up a hundred and forty since then. Such a
sharp increase in value is like awesome, Yeah, I'm rich,
(01:54):
Except it doesn't feel right, as shelters shouldn't be Like
shit coin crypto. They're pupping the rates up now to
try and throttle back all that inflation, and you can
see demand is slowing. There's still more than supply, but
prices aren't rising quite as fast. The yield curve is inverting.
I'm just kidding. I have no idea what that means.
(02:14):
So if you're one of the boatloads of people who
kind of decided to just chill out during the pandemic
and bunker down throwing a couple of LB's, I wanted
to find out if now was a good time to
buy a residence, or at the very least, a recycled,
vegan friendly tiny home with an edible mushroom garden. I
happened to have a cousin in real estate who lives
just fifteen minutes away. His name is Skyler brilland I
(02:38):
invited over to talk. Here he is assuming that I'm
gonna make him dinner. Well, no, you don't have to. I'
I don't know if that was why you brought the
duck out. Skyler's parents fixed and flipped houses since he
was born, all the way up to the O eight crash.
Then his mom became a general contractor and she's amazing too.
Their houses at Inman Park, that's really cool Atlanta suburb,
and their back deck is built around a tree. It's insane.
(03:00):
I put pictures on the website. Scholar has been an
agent for only three years now. His first year he
was Rookie of the Year for his company. Out of
seventeen offices, he did three point seven million in sales.
This last year he did six million. He's only twenty
four years old. Super nice dude. He's a drummer in
a band and is renovating his first house. He's going
(03:21):
to explain how impossible it is for the housing market
to crash right now. There could be I don't think
anybody can predict whether or not there will be a crash.
At least right now, we're not seeing many signs that
there will be a crash, even though we're in a
market where interest rates arising extremely fast at this point,
and there are signs of buyer demand decreasing and settlers
decreasing the list prices. That doesn't necessarily mean that prices
(03:42):
are going down, even though we see that a lot
in the news right now. It more just means that
a lot of sellers have gotten used to the fact
that prices have gone up so fast over the past
two years, and over the past two years, you know,
before this you know slow down and buyer demand has happened,
Sellers can look at their neighbor's house and say, well,
they sold for this price. The market so crazy. Right now,
I'll price mine above my neighbors comparable house that they
(04:04):
sold for this price, and then I'll expect to get
even more over that over price that I'm that I'm
going to ask for it because the market has been
so crazy for the last years. So sellers are kind
of in that mentality because you get used to it
when it's been happening for so long. So right now
we're seeing a lot of sellers still in that mentality
of testing the market and saying, well, it's been crazy
for the last two years, let's price it way over
(04:25):
our neighbors. And that's where we're seeing a lot of
price decreases and sellers that are a little unrealistic with
where they can expect to get their household for in
this current market. And that's where you're seeing all the
price decreases. So prices are still going up, you know,
on average overall, at least in Atlanta specifically, there are
some areas whe prices are going down. But like to
your point, like if there's going to be a crash
that's happening soon, there could be. But either way, if
(04:47):
a crash happens, that will mean that real estate is cheaper,
but it doesn't mean that real estate will go back
up after that. And if you're planning to buy the
house to live in it for, you know, at these five, seven,
ten years, you want to treat it like an investment
in a sense. This makes me think of the saying
it's not timing the market, it's time in the market.
But a pandemic made it seem like maybe this was
a time to time. The market you want to think
(05:09):
about is the long term game. So even though you
might get lesser property now, I don't know. For me,
buying a house is really driven by finding somewhere I
want to live, and higher prices mean less happy. I'm
going to be with what I can get, sure, But
what that property can get you long term is equity.
That you're talking about where you bought this house that
you're living in right al lol. For So, I bought
this sweet little three to in two thousand nineteen in
(05:31):
the south part of the Decatur. I needed a place
to live after a breakup. She's very sweet and set
me up with the realtor she used, Mike Townsend. Now,
Mike was a man. Well is a man that uses
his bountiful beard and bold beautiful baldness as his brand
and his logo is literally his head. Also a super
(05:51):
nice dude. We geeked out on drone stuff. His website
is in the show notes. So Mike took me out
to see a few houses. I think this was like
the second house I saw. I'd seen other stuff before
and it always looked worse in person. This one looked better.
I walked in and I said, let's make an offer.
So we closed for two d and I think I
ended up paying just about six grand for a thirty
(06:14):
year conventional loan at three point seven five interest. Now
it's listed at three thirty. In those three years, I
paid off about seventeen k off the loan down to three,
but the market value increased a hundred and thirty thousand,
so my equity gained was about fifty k per year.
And now you're in a position where you could sell
that and upside to a better house, you know, where
(06:35):
you could pull out equity from this and take out
a you know, a loan based on how much your
your properties appreciated and use that for other things that could,
you know, make the house nice, so you can improve
on the property that you're currently living. And so getting
started allows you those opportunities further down the road that
you can kind of used your advantage to level up,
you know, Whereas if you just sit out on the
(06:55):
sidelines the whole time during that five years, you know,
prices could have continued going up that whole time, and
now you don't really have an asset that you can
leverage to get you the thing that you really want,
So I think it's about taking baby steps. Even though
it's a big purchase, it's still about taking baby steps
and not thinking that you need that perfect house the
first time you buy or something like that. So most everyone,
myself included, understandably have some trouble stacking paper with everything
(07:19):
being so goddamn expensive. So that's curious what options exist
for ship being expensive, Like if you don't have ten
k plus set emergency fund sitting in some sort of
rath et F crypto mutual bond. There's always loan programs
out there for anybody's scenario, even if you have less
than ten thousands saved up, even if you have a
low credit score, even if you don't have great income,
(07:40):
or maybe the way that you're paid likes a t
ninty nine situation. There's always situations out there for people
that are not going to qualify for like a conforming
or a conventional loan the way that most people get
mortgages on a property, or federally backed loans, so they're
backed by Fannie and Freddie Mack, which is the government essentially,
so they ensure it, which gives them the freedom to
give you such great interest rates which is which are
(08:01):
the interest rates that we know of when we hear
the interest rates in the news. You know, the five
percent that we're seeing right now, the twos, the threes
that we're in, the crazy loans in the in the
middle of the pandemic. Those are federally backed loans. So
you can get loans that are from private you know,
lenders and things like that. Now, granted, you know that's
gonna come with compromising your interest rate. Like I was
pointing out a second ago, the reason that these conventional
(08:22):
loans that you hear about are at such great interest rates,
you know, in the fives, below ten percent and things
like that, it's because they're federally backed. But when you
go through private money, you may have a higher interest rate, um,
you know, or you may have compromised terms in the
way that you pay back the money. So you always
want to be cognizant of what you're signing off on.
I'm not saying to just buy a property just to
buy property and being negligent about the terms of your
(08:43):
loan and things like that and just getting it just
to get it. But if you know how to work
the system and you understand that, maybe you get a
subprime loan right now. But if you're honestly and genuinely
working towards getting qualified for a conventional loan, you know
in the next few years, you can go ahead and
get that subprime loan now. Whatever it may be. However,
the terms are worked up to get you the house
in this current market, So you can banking on the
(09:05):
prices that we're right now, assuming that they'll continue going
up because historically they have, and then the future you
can do what we call like a refinance and refinance
to a conventional a loan, assuming that you know you
actually can qualify for a conventional alone in a few years,
because maybe you adjust your your income scenario or your
financial scenario to allow you to get conventionally approved. All right,
So first time homebuyers probably don't have experience with this process,
(09:28):
and I have the massive experience of doing it once.
How does one get things started? Um, it sounds really basic,
but I mean, you just want to go on Google
and search for lenders in your area. Another great place
to start is with a realtor. You know, if you
already are referred to a realtor or a lender by
friends of yours, if you want to be proactive. Like
I said, you can go ahead and start with the
(09:49):
lender before you even start with a realtor. And like
I said, to search lenders in your area and give
them a call, tell them your situation, what you're trying
to do. Some people are a little bit nervous about
it because it's intimidating or some people also here that
you get your credit ding when you do hard pools.
But when I say that, I'm talking about getting preproof
for a loan. If you're gonna approve for a loan,
you know they will often do a hard pool your
credit And assuming most people don't have an issue with
this anymore, it drops a few points, but it goes
(10:11):
right back. You'll see your score fluctuate much more based
on your credit card balance. Anyway, the lender will pre
a preview for a certain amount just based on your
income and debt. They call it a prequel. Super quick
and easy. The other thing you'll need is a real
estate agent. The agent will guide you through the process
of finding the property and negotiating the terms. The lender
(10:31):
will guide you through the process of securing the loan.
The first place that I hear about clients closing on
property and my clients and things like that. You know,
actually getting to their agent is through their friends and families,
So you go to somebody you trust, and if they
had a genuinely good experience with their agent, give them
a shot. You could even interview a couple of different
agents and be transparent about that with the agency speak
with if you wanted to. So what I recommend is
(10:54):
starting with a realtor who will recommend a lender they've
worked with before. If you don't know a realtor, just
a couple of your least dumbest friends who they used.
Most people are dying to tell you how much they
love their realtor. If you feel like the prices are
too high right now and you can't afford a mortgage,
and then maybe think about getting a three bedroom or
four bedroom. Purchasing a three bedroom or four bedroom then
intentionally renting out you know, one or two of the
(11:17):
bedrooms to some of your friends or whoever you know,
if you want to post on that online. So will
your mortgage maybe the same or less than you're paying
in rent. It's probably still a considerable portion of your
income they used to recommend. No more than thirty percent,
I think, but now it's not uncommon to see it
be fifty every time. I recommend that someone get a
roommate in order to offset this cost. I hear, but
(11:38):
I like living alone. Yeah, so do I. But a
roommate will probably cover like half your mortgage. And if
you depleted, most are all of your savings to buy,
and this is a quick way to at least rebuild
your emergency fund. The Trinity terms like house hacking, house hacking.
Maybe that should be the title of this episode. I
have a wicked weakness for awesome alliterations. Use the landlord
(12:00):
also live in the house that you own with the
other tenants, and by doing that, you know you can
qualify for your mortgage based on the expected rental income.
If that's the way you want to do it. If
you really can't afford that priced home, or if you
qualify for that price range but you just personally don't
want to fork up that much in what that monthly
mortgage payment would be, then you could look at having roommates.
(12:21):
Are adding roommates in the scenario when you purchased at
home and having them pay your rent, and then you're
putting that rent towards your mortgage and offsetting your mortgage.
So yeah, I think there's a lot of cool options
with that too. Yes, roommates can suck, but screen them.
The idea of having two roommates and it covering your
entire mortgage is pretty damn cool. So just stop funding
TikTok with your marinated egg lions, main mushroom, compost toast,
(12:42):
and let your guest room be a nice place for
a nice person to live. Otherwise it's going to become
the room for Amazon boxes. Seen it happen a million times. Anyway,
what options are there? If you're a genius real estate
investor and already bought a house, like are you just done? Now?
You can do what we all refinance, which your refinance
is basically just getting a new loan. So what it
(13:04):
looks like is, for example, you currently own your home.
Maybe you've owned your home for five years already, and
so maybe when you bought that home five years ago,
you got a thirty year loan term you you gave
yourself thirty years to pay off your mortgage on this house. Now,
five years into that thirty year loan, you decided to
refinance for one reason or another, than those reasons we
(13:24):
can talk about in a second. But when you go
to refinance, you're actually taking out a new loan, and
that new loan pays off your first loan, essentially, that
loan that you got five years ago. And now you
have a new loan, and let's say you refinance with
a a thirty year term similar to the one that
you got when you first bought the house. Well, now
that refinance that you're doing basically restarts your loan timeline.
(13:46):
So if you've owned your house for five years and
you you're five years into your initial thirty year timeline
when you bought the house without original loan, Now when
you refinance five years later, you actually have started over
your thirty year timeline again if you go and refinance
to get a third year loan again, essentially okay, so
why would I want to restart my loan? And it
seems like a bad deal if maybe the rights have
(14:07):
lowered since when you first bought and now interest rates
or at a better deal, and maybe you want to
refin to get lower interest rate. That's the first case.
That's what we saw a lot during the pandemic was
a surge of people refinancing because maybe when they bought
their house their rates were at four and five and
six and seven percent, and now during the pandemic the
rates were at like mid two's, like two point seven
(14:29):
two point eight um. And then the other reason you
might do it if maybe there's no reason to do
it for interest rates. Yeah, so my interest rate is
three point seven. I guess I could have refinanced during
the pandemic and gotten it down a point. But if so,
I feel like somebody should have told me, let's make
a website that tells you stuff like this. Well, they
probably have them, but I always assume it's spam anyway.
(14:51):
Now rates are higher, so what reason is there for
me to refinance? In that sense? Wouldn't have a reason
to refinance in your situation lower. But another way you
could do it is what we call a cash out refinance.
A cash out refinances based on the equity that you've
gained since you bought, so once again, it's still refinance.
You're still getting a new loan. You bought this basically
for twood, now it's for three fifty. A cash out
(15:14):
refinance would basically take the equity, so your equity is
the difference between what your house is worth now what
you bought it for. So the difference between three and
two hundred would be a hundred and fifty thousand. That's
your equity. If this is stuff you already know, believe me,
I'm not simplifying this for listeners. I learned this stuff
while I was making the episode. I didn't know crap
about real estate. Now I know a little bit. So
(15:35):
you've got hundred dollars worth of equity and a cash
our refinance basically gives you a new loan for the
current value property. So now you get a new loan
for three fifty thousand dollars. So now you're saying, well,
that doesn't sound good because my original loan was only
for two dollars. Now, with a cash out refinance, I've
got a loan for an even higher price for dollars.
But the reason you do that is because the equity.
(16:00):
They give you that portion of the loan in the
form of just cash in hand. So now you have
a loan for three and fifty dollars. But if your
equity there's a hundred fifty dollars, they'll write to you
and check essentially and say low you can take this
under fifty dollars use it as cash to whatever you
want with it. You're still paying it back monthly because
it's part of the loan. But you can take that
hundred fifty and do whatever you want with it for
(16:21):
you know, reasons other than buying another house. But you
could also use it. Oh, and that's what I should do.
That's what you could do. And that's what with an
investment mentality you want to do. Okay, So instead of
selling my house and becoming a rich homeless person, I
could keep the house, take the equity and buy another
then rent this one out to cover the mortgage. You
(16:42):
could jump start that process of what I just said
by physically adding value to the house, which is what
a lot of investors do when they purchase it. So
they buy a house that needs work, it's a fixer upper.
They buy a house for below market value through the
ways of either getting a good deal and or just
the property is not as nice as the other houses
in the neighborhood. And then after they buy it for
that lower price, they put money into it and they
(17:03):
make it nicer. And then now that they've made it nicer,
it's worth more. In a shorter time span because they
actually manipulated the value of it by making it nicer
instead of just waiting on the market to appreciate and value.
And then they go to refive because now it's worth
more because they fix it up, and they do a
cash out refile, so they take the equity. Maybe they
bought the property for two hundred, maybe after they fix
it up, now it's worth three hundred. Once again, similar
(17:24):
numbers what we're talking about before. Now they cash out
REFI a year later after they fix it up, and
they get a check for a hundred K because that's
the equity that they gained, and they can take that
hunter K check, and even though it's alone, even though
it's something that they're making a monthly payment on, they
can then use that hunter K to put it down
payment towards another house and continue that process. You could
literally rinse and repeat that process. And that's what a
lot of real estate investors do. Okay, now the flippers
(17:46):
make sense. I don't think I'd be good at doing
something like that full time. But what does interest me
is taking the equity and improving my property by converting
the cardboard to another room and bathroom. Then running it
out and buying something else I can live in for
a few years while I slowly improved. That. That's really
my takeaway from this, and it applies to first time
homebuyers as well. Think of buying a home as an
(18:09):
investment that you also live in for a few years.
I always hear that prices and rates shouldn't be a
factor in determining when to buy. If you need a
place to live, then do it. And I never really
wrapped my head around it because after eight I assumed
the market could drop or crash at any time. But
I guess the counter logic is that real estate prices
(18:30):
historically have always gone up. The people who owned this
house before me bought it in two thousand fourteen for
a hundred and twenty thousand. Five years later they sold
over two hundred. So if you're gonna live in the
house for at least a few years, the value is
going to increase. If the payments are going to be
higher than you feel comfortable with, or you want to
buy something bigger, then get a roommate or two. Scholar
(18:52):
is actually helping me look now for that place outside
of town, thinking maybe Birmingham. He's gonna watch Shout for
the Rednecks, but you gotta watch out firm here in
Georgia too, so you know, if you're in the area,
definitely look up Skylar. I'll put his Instagram handle in
the show notes. Oh I'm back, by the way, I
(19:12):
don't work for her anymore, but they're a lovely company
and I still work with them, just at a different company. Um.
They were nice enough to let me keep making episodes,
and I have some really cool ones I'm working on
in my free time. Micro controllers, cyber decks, three D printing,
and my college probably another a d h D episode.
Funny story about that. I met this girl and like
(19:34):
the third time we hung out, I was like, you know,
you have a d h D. Right. It was super
easy to spot because she had all the same quirks
as me. Anytime I have an amazing conversation with somebody,
I'm like, that person has a d h D. She
was like, yeah, I've considered it. I've seen videos on
social media, but I figured that stuff applied to everyone.
I'm like, no, no, it doesn't. And while doctors and
(19:56):
academics would likely scoff at the idea of influence is
giving mental health advice. The d s M five is
very outdated. I mean it was when it was published.
A d h D looks different than the textbooks, especially
in non white males, so there's all these undiagnosed people,
particularly women, walking around. She had really bad imposter syndrome,
(20:19):
so I convinced her to get tested, and the doctor
tells her it's the most severe case of a d
h D he's ever seen. It shouldn't be funny, but
it is a little bit. But thanks for listening, and
I'll be back pretty soon with another episode of Prodigy.
Just a quick disclaimer, I do curse in this episode,
so it may not be appropriate for everyone. Dude that's
living in a big, gass city. Yeah, it's cool because
there's everything around, but I hate driving in it. People
are recklessly swerving around in two ton metal meteors two
(00:24):
miles an hour, like two inches away from each other.
I'm trying to move out, like an hour outside the
city or something. I need some land. I'm trying to
build myself a country castle. But like with fiber internet,
that's really the dream for me. And I kind of
realized that during the very depths of the Great Pandemic,
why don't you start spending all your time where you sleep?
(00:47):
You realize how small it is. But the housing market
was is uh insane. There wasn't as much of a
reason to live in a luxury apartment near your office anymore.
So people wanted to get some larger domiciles for their
puppies in their katies, And at the same time, the
FED dropped interest rates super low to try and slow
(01:10):
an upcoming recession. Demand exploded, but supply didn't, and ship
got crazy. Um. Back in my day, way back before
our parents got on Facebook, we had an epic crash.
It was the best crash. Everyone says so my generation,
which I'll say is anyone, I don't know. We graduated
(01:33):
into it. We were molded by it. Something something about
subprime loans that aren't happening now. I bought a house
eight months before the pandemic started for two k. It's
gone up a hundred and forty since then. Such a
sharp increase in value is like awesome, Yeah, I'm rich,
(01:54):
Except it doesn't feel right, as shelters shouldn't be Like
shit coin crypto. They're pupping the rates up now to
try and throttle back all that inflation, and you can
see demand is slowing. There's still more than supply, but
prices aren't rising quite as fast. The yield curve is inverting.
I'm just kidding. I have no idea what that means.
(02:14):
So if you're one of the boatloads of people who
kind of decided to just chill out during the pandemic
and bunker down throwing a couple of LB's, I wanted
to find out if now was a good time to
buy a residence, or at the very least, a recycled,
vegan friendly tiny home with an edible mushroom garden. I
happened to have a cousin in real estate who lives
just fifteen minutes away. His name is Skyler brilland I
(02:38):
invited over to talk. Here he is assuming that I'm
gonna make him dinner. Well, no, you don't have to. I'
I don't know if that was why you brought the
duck out. Skyler's parents fixed and flipped houses since he
was born, all the way up to the O eight crash.
Then his mom became a general contractor and she's amazing too.
Their houses at Inman Park, that's really cool Atlanta suburb,
and their back deck is built around a tree. It's insane.
(03:00):
I put pictures on the website. Scholar has been an
agent for only three years now. His first year he
was Rookie of the Year for his company. Out of
seventeen offices, he did three point seven million in sales.
This last year he did six million. He's only twenty
four years old. Super nice dude. He's a drummer in
a band and is renovating his first house. He's going
(03:21):
to explain how impossible it is for the housing market
to crash right now. There could be I don't think
anybody can predict whether or not there will be a crash.
At least right now, we're not seeing many signs that
there will be a crash, even though we're in a
market where interest rates arising extremely fast at this point,
and there are signs of buyer demand decreasing and settlers
decreasing the list prices. That doesn't necessarily mean that prices
(03:42):
are going down, even though we see that a lot
in the news right now. It more just means that
a lot of sellers have gotten used to the fact
that prices have gone up so fast over the past
two years, and over the past two years, you know,
before this you know slow down and buyer demand has happened,
Sellers can look at their neighbor's house and say, well,
they sold for this price. The market so crazy. Right now,
I'll price mine above my neighbors comparable house that they
(04:04):
sold for this price, and then I'll expect to get
even more over that over price that I'm that I'm
going to ask for it because the market has been
so crazy for the last years. So sellers are kind
of in that mentality because you get used to it
when it's been happening for so long. So right now
we're seeing a lot of sellers still in that mentality
of testing the market and saying, well, it's been crazy
for the last two years, let's price it way over
(04:25):
our neighbors. And that's where we're seeing a lot of
price decreases and sellers that are a little unrealistic with
where they can expect to get their household for in
this current market. And that's where you're seeing all the
price decreases. So prices are still going up, you know,
on average overall, at least in Atlanta specifically, there are
some areas whe prices are going down. But like to
your point, like if there's going to be a crash
that's happening soon, there could be. But either way, if
(04:47):
a crash happens, that will mean that real estate is cheaper,
but it doesn't mean that real estate will go back
up after that. And if you're planning to buy the
house to live in it for, you know, at these five, seven,
ten years, you want to treat it like an investment
in a sense. This makes me think of the saying
it's not timing the market, it's time in the market.
But a pandemic made it seem like maybe this was
a time to time. The market you want to think
(05:09):
about is the long term game. So even though you
might get lesser property now, I don't know. For me,
buying a house is really driven by finding somewhere I
want to live, and higher prices mean less happy. I'm
going to be with what I can get, sure, But
what that property can get you long term is equity.
That you're talking about where you bought this house that
you're living in right al lol. For So, I bought
this sweet little three to in two thousand nineteen in
(05:31):
the south part of the Decatur. I needed a place
to live after a breakup. She's very sweet and set
me up with the realtor she used, Mike Townsend. Now,
Mike was a man. Well is a man that uses
his bountiful beard and bold beautiful baldness as his brand
and his logo is literally his head. Also a super
(05:51):
nice dude. We geeked out on drone stuff. His website
is in the show notes. So Mike took me out
to see a few houses. I think this was like
the second house I saw. I'd seen other stuff before
and it always looked worse in person. This one looked better.
I walked in and I said, let's make an offer.
So we closed for two d and I think I
ended up paying just about six grand for a thirty
(06:14):
year conventional loan at three point seven five interest. Now
it's listed at three thirty. In those three years, I
paid off about seventeen k off the loan down to three,
but the market value increased a hundred and thirty thousand,
so my equity gained was about fifty k per year.
And now you're in a position where you could sell
that and upside to a better house, you know, where
(06:35):
you could pull out equity from this and take out
a you know, a loan based on how much your
your properties appreciated and use that for other things that could,
you know, make the house nice, so you can improve
on the property that you're currently living. And so getting
started allows you those opportunities further down the road that
you can kind of used your advantage to level up,
you know, Whereas if you just sit out on the
(06:55):
sidelines the whole time during that five years, you know,
prices could have continued going up that whole time, and
now you don't really have an asset that you can
leverage to get you the thing that you really want,
So I think it's about taking baby steps. Even though
it's a big purchase, it's still about taking baby steps
and not thinking that you need that perfect house the
first time you buy or something like that. So most everyone,
myself included, understandably have some trouble stacking paper with everything
(07:19):
being so goddamn expensive. So that's curious what options exist
for ship being expensive, Like if you don't have ten
k plus set emergency fund sitting in some sort of
rath et F crypto mutual bond. There's always loan programs
out there for anybody's scenario, even if you have less
than ten thousands saved up, even if you have a
low credit score, even if you don't have great income,
(07:40):
or maybe the way that you're paid likes a t
ninty nine situation. There's always situations out there for people
that are not going to qualify for like a conforming
or a conventional loan the way that most people get
mortgages on a property, or federally backed loans, so they're
backed by Fannie and Freddie Mack, which is the government essentially,
so they ensure it, which gives them the freedom to
give you such great interest rates which is which are
(08:01):
the interest rates that we know of when we hear
the interest rates in the news. You know, the five
percent that we're seeing right now, the twos, the threes
that we're in, the crazy loans in the in the
middle of the pandemic. Those are federally backed loans. So
you can get loans that are from private you know,
lenders and things like that. Now, granted, you know that's
gonna come with compromising your interest rate. Like I was
pointing out a second ago, the reason that these conventional
(08:22):
loans that you hear about are at such great interest rates,
you know, in the fives, below ten percent and things
like that, it's because they're federally backed. But when you
go through private money, you may have a higher interest rate, um,
you know, or you may have compromised terms in the
way that you pay back the money. So you always
want to be cognizant of what you're signing off on.
I'm not saying to just buy a property just to
buy property and being negligent about the terms of your
(08:43):
loan and things like that and just getting it just
to get it. But if you know how to work
the system and you understand that, maybe you get a
subprime loan right now. But if you're honestly and genuinely
working towards getting qualified for a conventional loan, you know
in the next few years, you can go ahead and
get that subprime loan now. Whatever it may be. However,
the terms are worked up to get you the house
in this current market, So you can banking on the
(09:05):
prices that we're right now, assuming that they'll continue going
up because historically they have, and then the future you
can do what we call like a refinance and refinance
to a conventional a loan, assuming that you know you
actually can qualify for a conventional alone in a few years,
because maybe you adjust your your income scenario or your
financial scenario to allow you to get conventionally approved. All right,
So first time homebuyers probably don't have experience with this process,
(09:28):
and I have the massive experience of doing it once.
How does one get things started? Um, it sounds really basic,
but I mean, you just want to go on Google
and search for lenders in your area. Another great place
to start is with a realtor. You know, if you
already are referred to a realtor or a lender by
friends of yours, if you want to be proactive. Like
I said, you can go ahead and start with the
(09:49):
lender before you even start with a realtor. And like
I said, to search lenders in your area and give
them a call, tell them your situation, what you're trying
to do. Some people are a little bit nervous about
it because it's intimidating or some people also here that
you get your credit ding when you do hard pools.
But when I say that, I'm talking about getting preproof
for a loan. If you're gonna approve for a loan,
you know they will often do a hard pool your
credit And assuming most people don't have an issue with
this anymore, it drops a few points, but it goes
(10:11):
right back. You'll see your score fluctuate much more based
on your credit card balance. Anyway, the lender will pre
a preview for a certain amount just based on your
income and debt. They call it a prequel. Super quick
and easy. The other thing you'll need is a real
estate agent. The agent will guide you through the process
of finding the property and negotiating the terms. The lender
(10:31):
will guide you through the process of securing the loan.
The first place that I hear about clients closing on
property and my clients and things like that. You know,
actually getting to their agent is through their friends and families,
So you go to somebody you trust, and if they
had a genuinely good experience with their agent, give them
a shot. You could even interview a couple of different
agents and be transparent about that with the agency speak
with if you wanted to. So what I recommend is
(10:54):
starting with a realtor who will recommend a lender they've
worked with before. If you don't know a realtor, just
a couple of your least dumbest friends who they used.
Most people are dying to tell you how much they
love their realtor. If you feel like the prices are
too high right now and you can't afford a mortgage,
and then maybe think about getting a three bedroom or
four bedroom. Purchasing a three bedroom or four bedroom then
intentionally renting out you know, one or two of the
(11:17):
bedrooms to some of your friends or whoever you know,
if you want to post on that online. So will
your mortgage maybe the same or less than you're paying
in rent. It's probably still a considerable portion of your
income they used to recommend. No more than thirty percent,
I think, but now it's not uncommon to see it
be fifty every time. I recommend that someone get a
roommate in order to offset this cost. I hear, but
(11:38):
I like living alone. Yeah, so do I. But a
roommate will probably cover like half your mortgage. And if
you depleted, most are all of your savings to buy,
and this is a quick way to at least rebuild
your emergency fund. The Trinity terms like house hacking, house hacking.
Maybe that should be the title of this episode. I
have a wicked weakness for awesome alliterations. Use the landlord
(12:00):
also live in the house that you own with the
other tenants, and by doing that, you know you can
qualify for your mortgage based on the expected rental income.
If that's the way you want to do it. If
you really can't afford that priced home, or if you
qualify for that price range but you just personally don't
want to fork up that much in what that monthly
mortgage payment would be, then you could look at having roommates.
(12:21):
Are adding roommates in the scenario when you purchased at
home and having them pay your rent, and then you're
putting that rent towards your mortgage and offsetting your mortgage.
So yeah, I think there's a lot of cool options
with that too. Yes, roommates can suck, but screen them.
The idea of having two roommates and it covering your
entire mortgage is pretty damn cool. So just stop funding
TikTok with your marinated egg lions, main mushroom, compost toast,
(12:42):
and let your guest room be a nice place for
a nice person to live. Otherwise it's going to become
the room for Amazon boxes. Seen it happen a million times. Anyway,
what options are there? If you're a genius real estate
investor and already bought a house, like are you just done? Now?
You can do what we all refinance, which your refinance
is basically just getting a new loan. So what it
(13:04):
looks like is, for example, you currently own your home.
Maybe you've owned your home for five years already, and
so maybe when you bought that home five years ago,
you got a thirty year loan term you you gave
yourself thirty years to pay off your mortgage on this house. Now,
five years into that thirty year loan, you decided to
refinance for one reason or another, than those reasons we
(13:24):
can talk about in a second. But when you go
to refinance, you're actually taking out a new loan, and
that new loan pays off your first loan, essentially, that
loan that you got five years ago. And now you
have a new loan, and let's say you refinance with
a a thirty year term similar to the one that
you got when you first bought the house. Well, now
that refinance that you're doing basically restarts your loan timeline.
(13:46):
So if you've owned your house for five years and
you you're five years into your initial thirty year timeline
when you bought the house without original loan, Now when
you refinance five years later, you actually have started over
your thirty year timeline again if you go and refinance
to get a third year loan again, essentially okay, so
why would I want to restart my loan? And it
seems like a bad deal if maybe the rights have
(14:07):
lowered since when you first bought and now interest rates
or at a better deal, and maybe you want to
refin to get lower interest rate. That's the first case.
That's what we saw a lot during the pandemic was
a surge of people refinancing because maybe when they bought
their house their rates were at four and five and
six and seven percent, and now during the pandemic the
rates were at like mid two's, like two point seven
(14:29):
two point eight um. And then the other reason you
might do it if maybe there's no reason to do
it for interest rates. Yeah, so my interest rate is
three point seven. I guess I could have refinanced during
the pandemic and gotten it down a point. But if so,
I feel like somebody should have told me, let's make
a website that tells you stuff like this. Well, they
probably have them, but I always assume it's spam anyway.
(14:51):
Now rates are higher, so what reason is there for
me to refinance? In that sense? Wouldn't have a reason
to refinance in your situation lower. But another way you
could do it is what we call a cash out refinance.
A cash out refinances based on the equity that you've
gained since you bought, so once again, it's still refinance.
You're still getting a new loan. You bought this basically
for twood, now it's for three fifty. A cash out
(15:14):
refinance would basically take the equity, so your equity is
the difference between what your house is worth now what
you bought it for. So the difference between three and
two hundred would be a hundred and fifty thousand. That's
your equity. If this is stuff you already know, believe me,
I'm not simplifying this for listeners. I learned this stuff
while I was making the episode. I didn't know crap
about real estate. Now I know a little bit. So
(15:35):
you've got hundred dollars worth of equity and a cash
our refinance basically gives you a new loan for the
current value property. So now you get a new loan
for three fifty thousand dollars. So now you're saying, well,
that doesn't sound good because my original loan was only
for two dollars. Now, with a cash out refinance, I've
got a loan for an even higher price for dollars.
But the reason you do that is because the equity.
(16:00):
They give you that portion of the loan in the
form of just cash in hand. So now you have
a loan for three and fifty dollars. But if your
equity there's a hundred fifty dollars, they'll write to you
and check essentially and say low you can take this
under fifty dollars use it as cash to whatever you
want with it. You're still paying it back monthly because
it's part of the loan. But you can take that
hundred fifty and do whatever you want with it for
(16:21):
you know, reasons other than buying another house. But you
could also use it. Oh, and that's what I should do.
That's what you could do. And that's what with an
investment mentality you want to do. Okay, So instead of
selling my house and becoming a rich homeless person, I
could keep the house, take the equity and buy another
then rent this one out to cover the mortgage. You
(16:42):
could jump start that process of what I just said
by physically adding value to the house, which is what
a lot of investors do when they purchase it. So
they buy a house that needs work, it's a fixer upper.
They buy a house for below market value through the
ways of either getting a good deal and or just
the property is not as nice as the other houses
in the neighborhood. And then after they buy it for
that lower price, they put money into it and they
(17:03):
make it nicer. And then now that they've made it nicer,
it's worth more. In a shorter time span because they
actually manipulated the value of it by making it nicer
instead of just waiting on the market to appreciate and value.
And then they go to refive because now it's worth
more because they fix it up, and they do a
cash out refile, so they take the equity. Maybe they
bought the property for two hundred, maybe after they fix
it up, now it's worth three hundred. Once again, similar
(17:24):
numbers what we're talking about before. Now they cash out
REFI a year later after they fix it up, and
they get a check for a hundred K because that's
the equity that they gained, and they can take that
hunter K check, and even though it's alone, even though
it's something that they're making a monthly payment on, they
can then use that hunter K to put it down
payment towards another house and continue that process. You could
literally rinse and repeat that process. And that's what a
lot of real estate investors do. Okay, now the flippers
(17:46):
make sense. I don't think I'd be good at doing
something like that full time. But what does interest me
is taking the equity and improving my property by converting
the cardboard to another room and bathroom. Then running it
out and buying something else I can live in for
a few years while I slowly improved. That. That's really
my takeaway from this, and it applies to first time
homebuyers as well. Think of buying a home as an
(18:09):
investment that you also live in for a few years.
I always hear that prices and rates shouldn't be a
factor in determining when to buy. If you need a
place to live, then do it. And I never really
wrapped my head around it because after eight I assumed
the market could drop or crash at any time. But
I guess the counter logic is that real estate prices
(18:30):
historically have always gone up. The people who owned this
house before me bought it in two thousand fourteen for
a hundred and twenty thousand. Five years later they sold
over two hundred. So if you're gonna live in the
house for at least a few years, the value is
going to increase. If the payments are going to be
higher than you feel comfortable with, or you want to
buy something bigger, then get a roommate or two. Scholar
(18:52):
is actually helping me look now for that place outside
of town, thinking maybe Birmingham. He's gonna watch Shout for
the Rednecks, but you gotta watch out firm here in
Georgia too, so you know, if you're in the area,
definitely look up Skylar. I'll put his Instagram handle in
the show notes. Oh I'm back, by the way, I
(19:12):
don't work for her anymore, but they're a lovely company
and I still work with them, just at a different company. Um.
They were nice enough to let me keep making episodes,
and I have some really cool ones I'm working on
in my free time. Micro controllers, cyber decks, three D printing,
and my college probably another a d h D episode.
Funny story about that. I met this girl and like
(19:34):
the third time we hung out, I was like, you know,
you have a d h D. Right. It was super
easy to spot because she had all the same quirks
as me. Anytime I have an amazing conversation with somebody,
I'm like, that person has a d h D. She
was like, yeah, I've considered it. I've seen videos on
social media, but I figured that stuff applied to everyone.
I'm like, no, no, it doesn't. And while doctors and
(19:56):
academics would likely scoff at the idea of influence is
giving mental health advice. The d s M five is
very outdated. I mean it was when it was published.
A d h D looks different than the textbooks, especially
in non white males, so there's all these undiagnosed people,
particularly women, walking around. She had really bad imposter syndrome,
(20:19):
so I convinced her to get tested, and the doctor
tells her it's the most severe case of a d
h D he's ever seen. It shouldn't be funny, but
it is a little bit. But thanks for listening, and
I'll be back pretty soon with another episode of Prodigy.
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