June 22, 2019

Planning to sell your house?

Jason Bramblett Real Estate Show Podcast 

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Jason:  Good morning, Triad.  Hope everybody is doing well today. So kicking off your Saturday with a little bit of real estate radio.  If you need to sell that house, you definitely want to stay tuned.  We got some stuff coming your way.  It should help you get on the right track.  Of course, you can always go to Jason Bramblett dot com.  Shoot us any message you have, and what we do is we share those on the air when we feel that it will benefit the Triad listeners.  So we always have some good questions coming in actually every day.  You guys have some great questions out there.  Just life and stuff and things that are happening.  So it is always a good thing to get information. So before you cut that wall down, give us a call. Before you rip out that bathroom, maybe –

Mikell:  Yikes.

Jason:  You might want to make sure you have got another one you can use. That is always a good idea.

Mikell:  Absolutely.

Jason:  Because taking a bath in the kitchen sink not so much fun.

Mikell:  No.

Jason: Are you frustrated in not getting that house sold? So we are going to talk a little bit about that.  Really there are two reasons most of your homes are not selling, and it has to do with these two things.  It is price war and a beauty contest.  You are not winning one of the two or both of them perhaps.  So we are going to dig into that.  There are lots of other ways in which those things can go, but those are the main two topics that we are going to kind of get into those things, so it is time to get real for some of you folks out there.  It is interesting.  About 20% of the population that own homes actually probably should not. Part of the reason is that they forgot about this word that goes with owning a home.  It is call maintenance. Maintenance. Houses need maintenance. They do not, well, there are certain pieces of them that will last, well, I would say forever, but they will last longer than you will be here.  But there is a lot of pieces and parts to the home that have to be maintained, that have to be taken care of.  This is where a good percentage, about 20% of homeowners fall off the radar on this.  So it really puts you in a backpedaling situation when you go to sell.  So we are going to talk a little bit about that.  The transient owners actually feel this the most. These are the people that move the most often, and when you are moving something quicker, you need to make sure it is more up to speed with what people want.  So if you are going to be in your house for 30 years, it does not really make any difference because whatever is going on today will not be the same in 30 years.

Mikell:  Not at all.

Jason:  No way. If you have got long-term plans and you do not care to keep up with the times, that is fine.  But if you are thinking of selling from a retirement position or a moving up position, and you know you are going to do that in the next 5-7 years, you do not want to wait because these things compound.  So we are going to talk about that today. The best place to start is really you have got to understand ownership and why you even want to do it.  Why do you want to own a home and what is the purpose behind it?  We have been talking about different things with sales and those types of things for the last couple of weeks in a little series that we did, but the real reason to own a house or one of the reasons behind owning a house is it is a forced, horrible savings account.  Right?  It is forced in that you really have almost no chance to not to save money because there is a thing in there called principle.  Right?  You have got principle and interest. So the bank puts in place a way in which you can save money.  It is forced on you.  It is included in your payment.  You are paying down that debt every month.  Now obviously if you did something really, well, I better watch my words. How about this? If you did an interest only loan, then you are not getting anywhere.

Mikell:  Not at all.

Jason:  You are simply just mailing the bank a check.  You are essentially renting the house from the bank at that point.  If you are not putting anything towards principle, you are not even in the situation where it is a good, forced savings account.  You are simply renting from the bank.  We do not see a lot of those loans any longer.  There are not many of them.

Mikell:  They actually kind of phased out.

Jason: Yeah, they did.  Definitely.  Well, it was a high-risk deal for the bank because the whole hoping that is the house actually goes up in value.  Well, we kind of learned from the last crash maybe that is not a bed we want to, because just as all things go up, the saying is what, they must come down. And when they come down and you have no principal saved, it hurts.  You have no equity, or your equity gets sucked up by a market correction. The second reason is to raise a family or just have a place that you enjoy.

Mikell:  Absolutely.

Jason:  Those are the two things.  So it is a really poor savings account, but it is also a place that you can enjoy.  And that is it. There is no other means behind owning a home. Those are the only two goals that it accomplishes.  Shelter and a really horrific savings account. Better than what you are getting in your savings account at most banks, but it is still not great. But at least does force you to put some money aside. I cannot tell you how many hundreds and hundreds of houses we have sold and we meet with the folks, and all the money they have in the entire world is their paid for house.  Had they not had that, they would destitute.  They would be below poverty.

Mikell:  Absolutely.

Jason: Completely bankrupt.  So even though it is not a great return, for some folks, it is all that they have in the world because they never saved a dime in their life other than paying off the house forced them to save money.  In some cases, that is all there is, and sometimes that is still a good thing.  As we look through this and why you would own a home, here is why it is not the best investment in the world.  It consumes your revenue.  Right?  You only make X amount of dollars and X amount of dollars goes toward your housing.  It does not pay you anything.  Right?  So this is why in a, it is kind of an oxymoron.  A lot of these big-time bankers and people will say buy a home.  It is an investment.  Well, technically it is not an investment.  It is a savings account.

Mikell:  Okay.

Jason:  Investments pay your money. It is called cashflow. Now if you own a house, a single-family home, and you get a check every month and you live there, come talk to me because you have figured something out. Now you probably have a thing called roommates –

Mikell:  Yes.

Jason: -- and that is okay, but that is not for everybody. Most married couples that have children do not have roommates.

Mikell:  Not at all.

Jason:  And parents, if you figure out a way to get your children to pay rent, then definitely we would like to talk to you there, too, because that is a great strategy.

Mikell:  Absolutely.

Jason:  Not your 50-year-old son living in the basement.  He needs to go away, but I am talking about minor children.  Right?  Okay, so it is not an investment that pays you cash or cashflow.  So when you look at a balance sheet, it is always a negative. Right?  Because it is costing you money to be there.  As we look through homeownership, we have got to decide is it right for me at this time in my life?  For some of you, it is in the fact that you cannot save a dime.

Mikell: I am sorry. That is funny.

Jason:  So you need a forced behavior.

Mikell:  Absolutely.

Jason:  You need a forced way to do that, and owning a house is a forced way to do that.

Mikell:  Absolutely.

Jason:  The money is being saved which is a good thing. That is your equity.  Right?  But just like all investments, there are risks involved in all this.  The property goes down in value.  You are going to lose some, if not all, if your money, and you cannot control that. Your one house, your island that you have does not have, the economy does not revolve around one singular thing.  Even though you own it, it is still, there is still some risk out there.  Now you can destroy the investment, and some of these banks out here love to do that, and they have created this lovely thing called a HELOC, which is a home equity line of credit. Meaning hey, we noticed something.  You paid a lot down on your mortgage.  You have this thing called equity.  You do not want to do that. That is just wasted money.  You could borrow that equity at a really, really tremendous interest rate –

Mikell:  And one thing I would tell you, Jason, is a HELOC quote unquote a second mortgage.  A lot of people get tricked in that name, and so they really do not know what it is.

Jason:  Absolutely.

Mikell:  It is pretty pointless.

Jason:  We will talk about the goods and the bads and all that stuff of these particular tools that are out here.  But the problem is what happens is it wipes out your equity, so everything you just saved, you just borrowed. Okay?  And they put these really amazing interest rates on there, but most Americans use this money for cars and boats and college and vacations, and all these things are depreciating. They get no, there is no return.  Your car is not going to pay you a check every month.  Right? Even if you pay for it.  I have people call the office, and they want to invest within our group we flip houses and buy and hold real estate.  The first thing I ask them is where did the money come from.  And if they borrowed the money against their home, we reject them. We will not let you invest with us with borrowed money.

Mikell:  Wow.

Jason:  And the reason why is it is way too risky for you.  It is really money that you need to keep it where it is at.

Mikell:  It is not yours.

Jason:  Well, right.  And essentially, it has to be paid back and life changes.

Mikell:  Absolutely.

Jason: And when your life changes and you need to get a hold of that money and it is invested in an apartment building, it is difficult to get that out quick. 

Mikell:  Absolutely.

Jason:  Emergencies do not wait on you.  They happen. That is why they are called emergencies. Right?

Mikell:  Absolutely.

Jason: It is one of those situations. We have many, many folks that invest with us.  We have got several millions of dollars that we turn through every month.  But that money is idle money that is not sitting in people’s homes.  It is sitting in their checking accounts, and they are earning 0.00000, I forgot how many zeroes. It is a lot of zeroes, two five.  Right?

Mikell:  Yeah.

Jason:  It is almost nothing.  Those are the people we want to talk to you that get that dead money moving and get them a return on the money.  But we do not work with people that pull money out of their home or borrow money to invest with us.  We do not do that either. It has to be cash.  Cash that you have parked that you do not need that you just like to see something get returned on it.

Mikell:  Absolutely.

Jason:  Now, that is who we like to work with.  Actually, that is the only people that we work with.  Rarely do I see owners using that money to actually grow investments when they do a HELOC. They end up buying things like cars and boats and those types of things.  The set up on the bank’s part is brilliant. That is what they are there for.  You are not going to the bank, a lot of us, they have taught us like it is a big favor that they are doing to loan us money.  Right?

Mikell:  It is part of their reward program.

Jason:  Yeah, it is their reward program.  Right? No, it is the only thing they have.  It is their product.  They sell debt.  That is what they do.

Mikell:  Absolutely.

Jason:  You have got to think about who you are going to talk to and what the purpose is behind what they do. Right? They sell debt.  They want you to borrow money. That is how they make their money. They say things like hey, it is your money.  It is your equity.  Why don’t you get that working for you?  And here is what we find out.  Here is typically what happens.  Like I said, it is a great rate.  It is usually below 2%.  It is a teaser rate.  The first 12 months are amazing, then sometimes they escalate after that.  Sometimes they are locked in for five years. Whatever the case may be.  There are lots of different ways that you can skin the cat. But instead of buying something that may be a good idea, maybe it is a rental property that is actually going to give you a return.  We see folks taking way too much risk or buying things that do not make any sense like cars. You do not win by going to the car dealer and saying I am paying cash.  No, you are using the equity from your home in the form of a loan.  That is not cash. Okay?  And the other thing is that car is going to drop like a rock the minute you drive it off the lot.  Right?

Mikell:  Absolutely.

Jason:  So you look at the depreciation on a car in three years it is ridiculous.  I have been fascinated by Tesla mainly just because it is interesting to me. Electric car.  It goes amazingly fast, really, really quick. It does not make any noise.  It is neat.

Mikell:  The design is awesome.

Jason:  It is. But I have been looking at some of them.  You go order one online it is $160,000. You go look at one that is three years old, and it is 70.

Mikell: Wow.

Jason:  It is a pretty substantial amount of depreciation. Most cars are that way as well.  Maybe not quite as significant as something like a Tesla or something that is a novelty or something new.  But it is interesting how fast these things depreciate.  You look at, if you are thinking about buying a new one, go look and see what one that is three years old looks like.  It did not go up. Right?

Mikell: No, not at all.

Jason:  Some of them do.  They have horses on the front of them, and they easily cost $300,000 or more, and they are for a very, very small percentage of people.  The other thing I notice about those cars with horses on them that go up in value, you do not see them driving around too often.

Mikell:  No.

Jason:  Yeah, very low miles, very limited use. Those guys are not driving those things to work every day for a reason.  You put the miles on them they are not worth much anymore.  Anyways think about things before you borrow money.  You have got to think about these, where you can dig yourself, what kind of hole you can get yourself into. So we are going to take a quick break.  When we come back we are going to talk about what happens when you have a HELOC and the boss says we no longer need your services. We will dig into that when we come back.  You are listening to the Jason Bramblett Real Estate Show.

And welcome back to the Jason Bramblett Real Estate Show.  So we were talking about the trap sometimes for some folks of the HELOC and sucking up some of your equity.  There are sometimes when every product is good, but every product does not work for everybody.  And where it does not work is when you make plans and those plans get changed and you had a great amount of equity in your home, and you borrowed it to go whatever it is you want to do with it.  And then you get the call which is the boss saying hey, we are downsizing.  We are no job, no equity.  It is all gone.  Right?  And it is not a good place to be. Or the spouse says hey, I am moving on.  And you went from two incomes to one income to how I am going to pay for this house, and my whole entire world is shook up.  Right?

Mikell: Wow.

Jason:  Just a side note on divorce, too. Ladies, you are getting killed when you keep the house.  Twenty-two years of doing this, some of the most devastating sales I have had is when the wife in particular wins the house in the divorce settlement, and they do a HELOC or they do some type of loan to cash the other spouse. That is not what you want to do. I know it sounds like you are winning because you stuck it to him or her, and you got to keep the house.  I promise you when you go to sell it, it is never, ever is how you think it is. And part of the reason why is because you are basing the number, it is made up.  It is fake.  You get an appraisal done with no buyer, therefore, this appraisal is not market value. It is an opinion of what maybe the bank would loan on the house if there was a buyer.  You need to sell the property and move on.  Then you equally distribute the pain and the equity.  Okay?  I know that is not what a lot of you want to do because everything in your world is upside down.  The home is the safe place.  The kids’ lives are upside down and you think that is going to give them some type of stability.  It does not. They are screwed up.  Okay? Just get over it.  It is the way that it is.  Divorce screws up everything, and you are not, by keeping your home, you are not going to insulate your children from it. Okay?  Because they have their own little safe place room is not going to make any difference.  You need to financially look out for your best interests, which also is probably your children’s best interests, and when you go to sell this home, I will promise you, very rare, like I cannot even think of one time off the top of my head, where this has actually come out good for the spouse that got the house through the divorce settlement. Okay? Just as a side note.  Note to self if it ever happens, sell all the assets.  Split all the money, and then that way, you have equal distribution and not made up equal distribution.

Mikell: Absolutely.

Jason: All right. So, we have got the boss.  We have got the HELOC. We have got no spouse.  We have got something that it is going on in our life, and now we have no equity.  And this is where the problem comes in.  We cannot do anything.  We cannot move quick because we do not have any equity.  The other thing, too, is a HELOC or a home equity line of credit is very easy to qualify for.  It does not have the same underwriting guidelines as when you purchase a home, and we find that the appraisals are a little bit more liberal on the HELOC side.

Mikell:  They are.

Jason: You could actually be very, very much upside down in your property.  Meaning you could actually borrow more than it is worth, which is not a good place to be. Right?  Because if you need to do something quick, emergency, think about that.  Blue light, red lights, doctors, all that kind of stuff. When you do not have mobility, and you have no money, it is hard to get out of things.  So if you use your equity for your home purchase, you need to make sure it is earning money.  So if you buy a rental house with the home equity, make sure whatever you do with it, it returns capital back to you.  It should return the money you borrowed plus profit.  That is what an investment does. It does not just return your principle. It returns principle and profit. Both.

Mikell:  Now, I did work in banking for a little bit.  I know that some banks would deny if you would do that with a home equity because they are selling debt.

Jason:  Yeah.

Mikell:  So they did not want you to actually buy rental property, so you cannot really say that when you are doing the home equity loan.

Jason:  Yeah, they would much rather you go buy a Tahoe because that is smarter. 

Mikell: Yes.

Jason: Yeah, right exactly.  And to Mikell’s point, if they actually ask the question, which some of them just do not, you get the money, and you go do whatever you want with it. Originally, it was supposed to be for what, home improvements.

Mikell:  Absolutely.  Yes.

Jason:  No question about it. The interesting thing about that is I have sold a lot of homes with a lot of HELOCs, and I did not see a lot of improvement.

Mikell:  No, you do not.

Jason:  It is kind of a, especially for as big as some of those HELOCs are, your house should be amazing. Not so much.  Now I will tell you that the ride in the driveway is looking pretty good, or the boat in the garage. Or at the lake or whatever it is.  There are rules. They are just not enforced well.  We will just put it like that.

Mikell:  Yes.

Jason:  The other thing that we see is you get this money, you buy the depreciating thing, or you start a business.  What we typically see, and this is what we talked about a few weeks ago is no proof of concept. Really what you are doing is you are borrowing money for an idea or a dream or something like that or a hobby.  But you need to make sure it returns the money that you are borrowing.  Right?  Hopefully at a very fast rate. That is what businesses should do. But normally what we see is a hope, a prayer, and whatever. And unless you are inventing the next new iPhone, and you are like 100% sure this thing is going to fly, you may not want to go all in because that is what you are doing.

Mikell:  You were talking about entrepreneurship in our previous episodes.  You will fail in the beginning.

Jason:  That is it.  Absolutely. How I have made it is I have been told no more than anybody else.  How I became successful I took risks when nobody else would do it. I stuck my neck out there further than other people were willing to do.  Right?  I have been told no a lot, and I have made mistakes, and I just kept trudging through. Right? At any one of those times, I could have quit.  It does not even necessarily make you a failure, but it did not work.  Right?

Mikell:  Right.

Jason:  And you would be doing something else.  That is why I said in the previous radio shows it does not take money to start a business.  It does not take money to make money.  It takes courage to do both of those things. If it was just borrow the money, everybody that had a HELOC could go out here and start a business, and I do not know.  Everybody would be selling widgets on every corner.  Right?

Mikell:  That is true.

Jason:  It does not work that way. So it takes courage to go through the pain of whatever it is you are doing to earn that. So just be careful.  Especially in these situations where they are highly emotional.  We see people make the most mistakes in real estate when they act out of emotion.  Unfortunately, that has a lot to do sometimes with divorce and death and different things.  Hopefully, that is what I can bring to the table is a level head, some math, some numbers, take the excitement out of it.  We are going to look at this from a real numbers’ perspective and what is best for you because that is, at the end of the day, the only thing that matters in the whole deal. Sometimes just because it works does not mean it was good.  Right?

Mikell: Right.

Jason:  And we need to make sure we have somebody there that can help us with that. So next week we are going to dig into getting that house ready to sell and what I need to do to win this price war and this beauty contest. You can hit Jason Bramblett dot com any time. All of our homes are there. Send me a question.  We look forward to speaking with you.  You are listening to the Jason Bramblett Real Estate Show.

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