JASON BRAMBLETT REAL ESTATE SHOW
Jason: Hope everybody is doing well. Market, the market, the market. What is going on? It is crazy out here, Jason. Yeah, it is a little bit. It is that time. We are getting into the peak season, the prime time to sell the property and or buy one. That is the mantra. Of course, statistically, we sell about the same houses every quarter. So it is more of a feeling than it is reality. But that is okay as long as you are feeling like buying a house. Give us a call. It is 553-0796 at the office. So we have been talking about getting the house ready. So whether you are now a seller and want to sell today or you are one, two, or three years out, we have been talking to you in the last couple of weeks in the series on getting the house ready. If you are wanting to sell to achieve the highest potential price, that is what we are really looking at. As I have said before, you do not need anybody to sell it for the lowest price.
Mikell: No, not at all.
Jason: You can do that all on your own.
Jason: I can assure you. So it is about maximizing what you have and maximizing what you have done and or are thinking about doing to the house to get well, potentially the greatest sales price that you can possibly get. And that is what we are looking at. So grab your pen, your paper, and if you do not have that and you are driving now. Do not worry. Hit the website Jason Bramblett dot com. You can listen to the podcast, the show notes, and everything that you would want to see plus a little bit of behind the scenes stuff that we fill in there. Sometimes we run out of time. We just run out of time. Time goes no matter what. Last week’s show, we got a boatload of emails in, but one in particular stood out, so I am going to share that with you as we kickoff the show.
So Sandy writes in. Mr. Bramblett, I will be selling in the next three years, so your show and the topic is perfect timing for us. You mentioned adding a new heating and cooling system will give us a return of about 80% on our money. Is there anything we could do to the house that will return more than 100% of our money? Basically, getting an investment. We want to make money on our home and not lose on everything we invest. Thank you, Sandy.
Mikell: That is an excellent question.
Jason: It is a great question. That is one that we deal with a lot. It is one that if you did not send it in, it is one that you probably were thinking as we go through this stuff. Hey, we have got thousands of people listening, so this is a benefit to everybody. So the answer to her question is not what most people want to hear. The answer to her question is no. To my knowledge, there is absolutely nothing that you can do to your home to improve it that you can get more than 100% return on.
Jason: All things being equal. Now, you can fact check me. Go to your big box store, orange or blue, whichever one you choose, okay, and they actually have some amazing data out there. They have about every product or improvement that you can purchase at one of the big box stores, they give you a synopsis of what the return is of that purchase throughout the entire United States because it does vary based upon where you are. And so what you will quickly notice is there is nothing that is 100% plus percent. It averages anywhere from 30 to about 82% is the highest return.
Jason: So if you put let’s just say $10,000 in an improvement in your house, and we will just make math easy because it is well, it is radio. If we do $10,000 investment in the house, then perhaps you are looking at about an $8000 return on that. So hence, not getting to 100%. Right? And so, here is the thing, guys. It is not really because of the improvement. It is the product. The product is the wrong time. It is the house, not the item. And the reason that nothing is more than 100% return on the product is because it does not generate any income. Okay? It is an expense. No matter what you do, no matter how you look at it, if you are living in the property, even if it is paid for, on a spreadsheet, on your P&L, it is a negative. It is not a positive. So whether you have a paid for house and you are paying taxes and insurance, it is an expense to you, not an income.
Jason: The house, the mortgage, it is an expense. So it is not that updating the property is wrong. It is just the wrong product. Right? And so the product is where you live. An investment is something that other people pay for, not you. That is impossible to do in your own home or unless you turn it in to a boarding house. Most of us choose not to have renters under our same roof. Some of us –
Mikell: That does not sound fun.
Jason: That does not fun. Some of you even worse. You have tenants in your home, and they pay nothing. Actually, they are a double expense. They are called 40-year-old sons that cannot grow up, and they live in the basement. Right? And they play video games or whatever it is they do. Anyway, they need to be introduced to the front door perhaps would be a good place to start. But that is a different show. We do that one on Sundays. You can come out and take a listen. But here is the thing. If you pay, again, radio, so bear with me. You can get the show notes. It makes more sense when you see it in writing. So it is a $250,000 house. All right? You have done some work over the past ten years. Things, you have got to keep the house up or it just turns to shambles. Right? It is interesting. If you look at vacant homes, vacant homes deteriorate faster than homes that are occupied, and the reason being is weather. Stuff happens. Temperature change. All these different things. But a vacant home can actually go down hill really, really quick if not properly checked on weekly, regularly, and somebody is there to look after it.
So let’s say you replace the roof for $10,000, and I am just making up numbers because it is radio again. You changed out both the HVACs. That was $10,000. You painted the house at $5,000. You put $5,000 into landscaping, $5,000 into new appliances. And then you decided that well, the kids are gone and the dog is gone, so we will get new carpet or floor coverings and that was another five grand. So you have invested all this over ten years. $40,000. About $4,000 a year. Very within most budgets of what it takes to keep a home updated in today’s world for a $250,000 house. Ten years later you decide to sell. You want to downsize, and you sell that property for $300,000. And most of you would say I win. I did it. I bought this and I made $50,000. Well, however, when you start looking at the math and what you put into the property, well, the difference is actually ten grand, and you are like well, I still won. I got $10,000 more than I put in. But then you forgot one little thing is you have got to sell the house, and it is going to cost money to sell the property. So you have to hire the most awesome real estate company in the world, which would be Jason Bramblett Real Estate.
Jason: And you pay commissions, closing costs, and attorney’s fees and all that, it ends up looking like about $25,000 to sell your $300,000 house. And when you do that math, you end up with $15,000 backwards. Right? Now, some of you will say well, that is crazy. Real estate is easy to sell. I would never hire the greatest real estate company in the world. I would do it myself. And that is a possibility. You are going to put that $25,000 in your pocket because I am a do-it-yourself kind of guy, but in actuality what really happens is only about 3% of the properties sold in America sell at the result of a For Sale By Owner. Not my numbers. Again, you can fact check me. Go to the National Association of Realtors. They are some digit heads out there that put all this together. You can check with them. But then the other thing is, out of the 3%, about 50% of those properties are actually sold to family members.
Mikell: Yeah, that is what I was thinking.
Jason: So it sold to somebody they know, or it is either sold to a family member. That always works perfectly. Right? When you sell to a family because everybody in the family is like hey, I will buy your house and I will pay you top dollar. Not normally. Most of the time –
Mikell: They want a deal.
Jason: -- they want a deal. Hey, you are my mama. I want a deal. Mama needs to get paid. Right? It does work out that way in which most of those sales are actually discounted. This is why the bank actually looks at that. They want to see what they call an arm’s length transaction meaning you do not know this person, and if it is not, then sometimes there are different qualifications in that, and they take those things into consideration. Where you really see it is in the short sale process. Most banks will not allow a family member to buy a short sale. So let’s say if the kids are struggling, and they are behind on the mortgage and Mom and Dad want to buy the house. They make an offer and it is below what is owed. Normally, the bank will not accept that offer because it is not an arm’s length transaction. You know the owners. You will actually sign an affidavit at closing that says you do not know these people, and the reason why is because the banks know most family members are going to work a deal. Right? They want to get the most money for that house. How do you get the most money? You sell it to a stranger. You sell it to somebody. You put it in the free market. Right? You put it out there into the free market where anybody and everybody can buy it, not just your family member. So we have got 3% of sales are by owner. Those are the people that are tempted to sell or save that $25,000. 1 ½% typically sell to family members. Well, we already concluded no deal. Right?
Jason: It is not going to happen. You are not getting anymore money by selling it to the family. So then we really got 1 ½% of those sales that are left, and then what we see is they are still going to have one agent involved most of the time. There is going to be at least a real estate agent typically in those 1 ½% of the sales. Most of the time they are going to have a buyer, somebody representing the buyer in the situation. So even if you are doing it by owner as the owner, most of the time, the buyer will have an agent. So let’s just make it easy and say okay, let’s just split the difference, 50-50. So instead of it costing you $25,000, it is twelve grand. You are still $2,000 less than what you had in the house. Okay? So think about that as you are improving things and you are looking through those. This is math you need to know. This is math that before you make that purchase, you need to think about down the road. Does it make sense to do that? So you see it is not really what you are putting into the house that is the problem. It is actually the house. It is the product. It is just the wrong product. Compare it to a hotel. Most people have stayed in a hotel. This should be a good visual for you on the radio. If I put money into my hotel, restaurant, apartment building, whatever it is, I do this with the full intention and plan of increasing revenue. All right? A remodeled, updated hotel always have a higher room charge than a rundown, dated property. Always.
Jason: Same situation. But that money can get more than 100% return on the product because the product helps me increase revenue. If I stay the way that I am, my revenue could actually decrease because I am not keeping up with the times. I am not keeping up with the changes. You will see a lot of hotels typically every ten years do a complete transformation and remodel. Sometimes they even switch complete brands. They may go from a Holiday Inn Express to whatever.
Mikell: A Holiday Inn Suites.
Jason: Yeah, there you go. A suite or switch it to a Hyatt or whatever. They change brands completely. Change the look. It could change ownership. But they update the brand, they update the look. Why? They do not update the look because they got money and they have nothing to do with it. They update the look to increase the revenue. Right?
Jason: And so you simply cannot do that with the home that you live in because it is an expense to you. So no matter what you put in, you are never going to get a higher return because you are the one that is paying in both scenarios. You are paying the mortgage, taxes, and insurance, and you are also the one making the investment. So remember the key to owning a home. First and foremost, it is a place to raise your family and enjoy life, and have a safe, clean environment to live in. And then it is a really, really savings account. And that is owning a house. You buy it for shelter and a great and wonderful place to raise a family or just to live your life. And then secondly, it is a really, really bad savings account. It is not a terrible, it is a terrible return as far as savings go. It is actually not a bad thing. But keeping it in perspective, and that way you have the right understanding when buying a home. So many young people watch a lot of these TV shows. I am going to buy a house. I am going to buy it for 250 and sell it for 300, and I am going to make money. If you did nothing to it, okay, yeah, that math works. But show me any product or any home out here that sits for ten years and nobody has done anything to it, and they have made money. Very rare. Very, very small percentage. Why? Because we like to change stuff. I like to change the colors. Think about it. Go back when you bought your home. Did you leave it the same color? Now some of you painted it yourself, and we have already talked about that. Remember? There is a difference between painting and schmearing. You guys are schmearing, not painting. Okay? Some of you would be better off leaving the paint brushes alone because all you are doing is applying color to the wall, not painting the wall. There is a difference.
Jason: For sure. Believe me. Here is your tip or clue. If you painted, and you have paint on your ceiling from the roller, that is when you should have hired a professional. Okay? Because it does not come out of that popcorn very easy, and when you pick the colors you picked, which is everything under the rainbow, most people like neutral. They do not like whatever that color is that you cooked up.
Mikell: True. And I realize a lot of people let their kids pick the color.
Mikell: And then it really gets creative.
Jason: It does. It does for sure. So over the past ten years, you have made all these payments. You have done everything that you are supposed to do. You made your payments on time. And here is the good thing. You built equity. Savings. That is what that is. That principal payment is basically being set aside for future use down the road. Right? And so think about that as you think about putting money into your home, do it wisely. Let’s do this. We are going to take a quick timeout, go pay some bills. We are going to come back. We are going to go paint some walls. We are going to come back and dig a little bit further. There is a second step to this mathematical equation we will dig into. You are listening to the Jason Bramblett Real Estate Show, and we will be right back.
Mikell: And we are back.
Jason: Welcome back to the Jason Bramblett Real Estate Show. So we are digging into does it make sense to put this money into the house? Sandy sent us a question and said man, I want to put things and invest in my home that are going to get a return. So we walked through that. Which leads to the question is Jason, why in the world would I ever put money into my house? If I cannot get a return, why bother? Right? That is kind of a logical place to go. And there are reasons. Right? There are reasons why we do everything. I talked about the vacant houses you got to keep up with it. Well, one thing is you live there, and most people fix things up because why, we like them. Right?
Jason: It is like why did you buy a new car? I used to give people when they would argue with me, I would help them with their budget and their financing, and they would, or finances, they would say well, we had to get a new car because we have a baby and it has got to be safe. I am like, at that time, I was like well, I drive the safest car they made in 2014, and I did not need to get the 2019 version because the 2014 version worked just fine.
Mikell: Just fine.
Jason: And it was the safest one on the market, and I bought it used and let somebody else take the hit and depreciation on it. Most cars, if you will buy a 3-4 year-old model, most of the depreciation, 30-40% of it has already been hit, has already been got. So you can save yourself quite a bit of money right there. But I know you want to buy the safest car on the market.
Jason: So you are trying to tell me that they were just putting out a bunch of junk to kill people? No.
Mikell: Those would be recalled by now.
Jason: Yeah, they would be recalled by now. It is the same argument with the car. It is hard to see anymore because money is so cheap, and people do love to buy new cars because they can buy what they want. They look cool driving down the road. But you could go back and you could find a 1990 Honda on the market and on the road. You could probably buy it for probably $1000.
Jason: And it will get you to work. It may be 14 colors.
Mikell: Great starter car.
Jason: Great starter car. It may smell like Cheetos.
Jason: And not your Cheetos, but it will still get you to work.
Jason: It will have another really cool thing that goes along with that. It is called it is paid for.
Mikell: There you go.
Jason: Or you could drive the bank’s car to work. The one that you are making payments on every month.
Jason: You could do that.
Mikell: With high insurance.
Jason: And it will be cleaner, and it will look better, and you will be broker, but that is not a good investment. So let’s get back to houses, but it does work the same for them.
Mikell: One thing that I did want to say, Jason, is I know it did sound crazy earlier like why would I invest in something that I would not get my full return on? But it is like if you think about selling an item, you never sell it for the price you actually paid for it.
Mikell: Do you know what I am saying?
Jason: Unless you manufactured it with your hands.
Mikell: Exactly. It is the same concept where you have to take yourself out of it.
Jason: We have, as a society, tricked ourselves into believing that oh, you buy real estate, you never loose money. Not true. Not true. You definitely can lose money in real estate. And you have got to buy it with the right purpose in mind. And again, the right purpose is to have a great place to live and raise your family or your kids or where you want to be in a safe environment, and it is a really horrible savings account. As long as you have that in perspective, you are going to be fine.
Mikell: One reason I love talking to you is because you give the real advice, and you are really in the field. We see so much things on the internet or how to flip houses or how to make money, and you are basically telling us, it is not, it is not false, but it does not have a lot of truth to it as well.
Jason: There are ways you can make money in real estate, flipping houses, no question.
Jason: But it all comes back to it is really not what you did to the house. It is what you bought it for.
Jason: People are like how do you make money in real estate? You buy it right. Now buying it right does not mean you go in there and you lowball everybody because not everybody is in the business of helping you be an investor. Right?
Jason: You have got to buy it from the right institutions in order for that to happen. You are typically in the foreclosure realm. You cannot get the best deal and sell it at the highest price, and it be the same product. Okay.
Mikell: Not every time.
Jason: Not every time and not in residential. When there is income involved, the game changes. So I could take an apartment building that somebody wants $10 million for, and it is worth $10 million, and I could pay $11 million for it, and I could still make money. What do you mean you still make money? You lost $1 million. You overpaid for the property. No, the X factor is there is income coming in every month.
Jason: If you do that with your house, there is no income.
Mikell: No, not at all.
Jason: Again, it goes back to the product. Wrong product. Are there things that you should be fixing out in your house and do? Sure. You might want to put an AC in. You ever try living in the South without AC? Let me know how that works in July. July 4th we will just rub the fireworks up against your house and they will light up. It is going to be hotter than fire out there. But think about this, and here is where we see this. This is why I say still owning a home is a great thing even with the perspective of it is a really bad savings account because I have sold hundreds, and hundreds, and hundreds, and hundreds of houses over the years, and sometimes we sell them when they are at the end and all the kids are gone and it is Mom and Daddy or Grandma and Grandpa and we sell their house, and they have no money because Americans only save, or they save less than 1% a year. And at least the house forced them to save money. They have got nothing in the world but a very small retirement because they never saved any money. They started too late. They have got under $100,000 cash in the bank. No other investments, but they have a paid-for house. That is still better than nothing. Right?
Jason: So at least when we go to sell the home, it is paid for, and now 100% of that money we have options and things to do. This is why it is still a good deal because if we did not have that, if the payments on your home were interest only, where would you be down the road with no savings? So owning a home is still a great thing to do. Go to Jason Bramblett dot com. We will have more notes up there. Send us your questions as always. You can click on that email icon. Fire it over, and we will share that on the air. We love sharing your stuff. So Jason Bramblett dot com, check us out online, and it is 553-0796 at the office. Have a safe and great weekend, and we will see you back here next week.