BSE 308 - Where to Live? Housing Decisions and Investments

all right welcome back to bse 308 which is uh career management for engineers and i have with me today scott walker scott is a person who has been part of this class now i think this will be the third time you've presented this is the first time on video like this and he is a local realtor that's right and does a lot of work with housing and has done a great job with our class so scott i'm gonna just kick it over to you and let you introduce yourself and kind of work our way through the slides all right thanks john yeah as john said my name is scott walker i'm walker real estate i have my own brokerage here in town and i've been working in real estate for 21 years now so i'm here to talk to you about plans that you may not be thinking about just yet but um i'm gonna tell you right now it's never too early to start thinking about it um you know as as you'll uh i guess you'll soon discover time does fly and you know you all appreciate the importance of planning when it comes to career and um you're in the you're in the middle of that right now and you might be thinking that decisions about whether or not to buy a home are way down the road but the decisions that you make right now they're going to have long-term consequences or benefits so now is the time to start thinking about that so like in in the next in the past presentations we've done online here i've had a few questions that we're going to kind of bury in here you talked about planning and the importance of developing a plan and that's really kind of a big theme of this class in fact at the end of the semester the students have to turn in a pretty comprehensive long-term professional career plan and look at places like where things like where they're going to live in the future the type of job they'd like to have how they're going to think about health care and those sorts of things why why do you think it is that we don't oftentimes take the time to sit down and develop a plan well i think a lot of people find it to be overwhelming the bigger the decision the more overwhelming it is and the easier it is to put it off and right now as i said people are focused on their career thinking that's the job one priority one and something like purchasing a home that's something that i might not have to do for years down the road but uh what i'd like to stress is the importance of making those plans and figuring things out now so that it doesn't even further delay the decisions that they'd like to make they want to put themselves in a position where they can get the house when they want it so as as we look at this whole notion of planning um i think another thing that happens is people are a little bit insecure they don't want to put a plan down on paper because they say well things are never going to go exactly as i plan them out has that been i mean for me if i had planned my life to be exactly where i'm at today at age 50 58 it would have looked a lot different sure age 20 right which is a lot of what our students are 20 21 22 right but think life happens right yeah that's right and the the sorts of things that we're going to be talking about today um they're not irrevocable uh it's a something that you can easily change as you go along uh the important thing is to get certain principles laid out to start putting down some basic foundations that you can build off of and then if you decide to go in a different direction well then so be it i tell our students it's just like taking a trip you want to know basically where you're going generally and you might map out a route and you might take some little side ventures some of them totally unexpected that's where some of the fun stuff happens but without that original set of goals and a plan you're just aimless right i guess the first question uh that people need to consider is whether or not to own in the first place um you know i'm in real estate and obviously i have a vested interest in getting people to buy but i'm not here to try and persuade people that it's for them um owning a home isn't for everyone and so um if i could live in that parisian chateau style apartment i might choose that over a house myself but there are a lot of considerations that people might look at in deciding whether or not to buy the first one is when you're trying to buy a house you have to save up for it generally speaking you're going to want a healthy down payment and that's one of the first impediments to actually making that move to buy a house you'll need the money for the down payment and for the closing costs whereas if you're renting you don't need any more than the security deposit upfront when you're looking at owning a home you've got monthly payments which are going to exceed what you would normally pay in rent because it includes the mortgage payment property tax interest on the mortgage insurance which is you know usually a decent amount higher than renters insurance and utilities if you're paying for utilities and a rental it typically means the rent would be a little bit lower and then of course you're completely responsible for maintenance and repairs whereas with most rental situations the landlord is responsible for all of the maintenance and repairs um one of the big benefits that i see with owning is that it's forced savings that extra money that you're putting into the home that ends up forming equity you know the amount that exceeds what you owe in the house you know so if you you uh own a home that's worth 200 000 and you owe 150 000 you have 50 000 of equity so that money that you're saving in the home it's of value to you that you can use down the road whereas when you rent you could use that money for something else you could take trips you can buy things with owning a home you have the potential for appreciation now that's not a guarantee because depending upon when you sell and where that home might be located appreciation may be more of a speculative thing but generally speaking um if you own a home for at least seven years here and and further uh you'd likely be able to sell it and get some appreciation out of it you have a similar opportunity in the rental scenario if you have money that you're setting aside in investments whether it's stocks cds or even your own business you have the potential to grow that money now the big question there is do you have the discipline to do that um i think that's one of the trickiest things people have to have the discipline when they own a home because you have to make your mortgage payments but when it comes to renting it's a whole different type of discipline the the final question about tax deductions that's largely gone away with the recent tax law changes in 2018 when it went into effect the standard deduction was doubled which means that the vast majority of taxpayers will want to take the standard deduction that's important because the only way you get the benefit of the tax deduction for owning a home and that would be deducting the mortgage interest and the property tax is if your itemized deductions are higher than the standard deduction and most people find that that isn't the case anymore right um i think it's really important to know because if these students are going out and they're looking at websites they're thinking about maybe buying a house yeah i think that that difference on the tax deduction and also the prop or the interest deduction and also the property tax deduction is really important it is i know for my wife and i it was awesome to be able to write all of that off and yes and and while we we have a higher standard now we no longer have that sort of luxury i mean we would be just as well off on the tax side if we were renting that's right that's right so um a key question which in many cases even trumps some of the financial questions is lifestyle because obviously there's a big difference between living in a stand-alone home living in a condo and living in an apartment so these are the types of questions that people are going to want to look at when they're trying to make that decision and plan for the future location in the neighborhood you know if you want to be in a neighborhood for the most part you need to own a home an urban setting is what you're likely to get with most rentals although obviously it's possible to rent a home too in fact in the recent two to three years the number of single-family homes that have been rented out has gone up considerably and it's partly because of the increase in the prices of homes that we're finding that okay a lot of people are having trouble affording some of those homes um the the type of situation that you're in obviously having a yard with the possibility of a garden you know a flower having a dog having a dog having that white picket fence a big dog you can have you can still have a dog in an apartment and another thing to consider a lot of places recognize that people want dogs so i'm finding that not only in condos but in apartments as well there are more dogs that are being allowed or more places are allowing dogs and if you intend to start a family that's of course going to be another thing or will the apartment setting be conducive to raising a child and is that urban setting ideal for raising a tile those are questions that the individual needs to if i could just interrupt you for one second so one of the things when i was again 21 or 22 or 23 um i would have never ever thought first of all i never thought about having kids i mean when i met my wife that was an assumption but i hadn't even thought about it schools is like the school considerations for future families a really big deal it is and um i find that if in some of the most popular school districts uh you will need to plan for that as well um you want to make sure that you own a home in that neighborhood in order to be guaranteed to get your child into that school district so um and if you're in a a good school district there's actually a little bit of a premium on the cost of homes in that area yeah that's often the case so you'll have to plan in order to save up to to afford it uh maintenance and repairs that's not only the cost of it but um you know the the fact that you're going to have to do a lot of things you know whether it's cutting the grass shoveling raking the leaves cleaning out the gutters there are a lot of things that are involved with maintaining a home even just arranging for contractors that come out and do work when something goes wrong so whether or not you're interested in taking care of those things another thing that i find is that people that want the freedom to travel a lot they would prefer the the flexibility of renting as opposed to owning a home because if you leave an apartment within a complex it's safer usually than leaving a home because you do need to make certain precautions before leaving the house vacant for a month for example proximity to others is going to be a factor having the shared walls or hallways the noises the cooking smells all sorts of questions like that as well as space i find that you know it's very popular uh need for people to have storage space and that's at a premium in apartments and condos usually but in a home you've got a whole basement to fill at least if you're in the midwest i have a son who is relatively newly married and they decided they wanted to save a ton of money to buy a house so they got a one bedroom they don't have a lot of i'm guessing they may have a couple hundred square feet maybe 300 square feet and the noise and the odors thing is a big deal yeah and the other thing is if you're married if you're both off at school or one's working and one's at school it's easy to it's it's nice to have the space it's nice to be able to be apart a little bit from time to time so as i mentioned earlier is never too early to start planning because it's hard to anticipate all the things that you need and sometimes it's easy to underestimate how long it'll take to do certain things so it never hurts to talk to people and get the information up front so that you can be ready so a question and again we talked a little bit earlier about planning [Music] where do you start what are some of the general resources um we talked a little bit about why you think people don't get started but what are some of those very early resources to help people getting starting to think about a plan well i think the for me that one of the first people to talk to is a realtor because the realtor is going to be able to answer a lot of the foundational questions about zeroing in on the neighborhoods that you would want to consider uh the types of homes that you would consider to be acceptable or desirable that's going to help narrow things down right there and you can start coming up with a range of possible prices and targets that you need to aim for as well as helping you consider other things like the school district what amenities are nearby and um how likely it is that something is going to be available for you when you're ready then once you have a price range in mind it's good to go and talk to a lender because they're going to start talking to you about some of the specifics about your financial situation and what specific things you need to do to play so where does a person start in terms of finding a realtor um well i like to say you know it's good to talk to people that have actually been out so for the word of mouth word of mouth is a good thing um i personally think reviews are a good way as well so even google reviews uh to find out uh what experiences people have had uh so let me put you on the spot when we bought here in cro i live in cross plains and when we bought across plains we started with we actually rode around for a couple days i think with two different realtors and it's not like we didn't like them but we just didn't they're just we just didn't quite click that's okay right to just to make sure you feel somebody feel that you find somebody you trust and can communicate well with yeah i think that's uh you've hit two really important points there uh and something that i stress to people all the time when i'm talking to somebody about whether or not they'd like to work with me as a realtor i stress the importance of trust because if you can't trust the person you're working with you don't really get the benefit of their experience or their knowledge you want to be able to take what they're saying and run with it so if you don't feel that you can trust them it's probably not a good fit and the other as you said communication um especially in a market like we have right now when things are moving quickly you want somebody uh not only who communicates effectively but who's available to communicate quickly so when you need them you want them to be available and for us it was a matter of finding somebody who sort of understood our needs that was kind of in the same stage of life at that time we had young kids and so that was a part of it as well okay so yeah that all makes sense one of the first things that a lender can help talk through with you in more specificity is establishing a healthy credit score this is enough you know one of those things that you can't do overnight so unless you've actually started borrowing money already students may not have any credit score whatsoever so it's good oddly enough to start a revolving line of credit you don't need to maintain a balance if you pay it off in full every month that's fine you're still establishing credit it's going to be really important to pay your bills on time pay your rent on time and don't apply for too much credit it's fine to have a card or two or maybe three but as you start adding it starts to affect your credit score negatively because the lender realizes that even though you don't have a balance on all of your cards you have the potential to go out in one day and charge them all up you're a potential risk for them yes and so you could get yourself in trouble with the debt to income ratio which you know is another thing that they're going to look at fine you may have a really healthy income but if your debt exceeds a certain percentage of that then they realize well you can't afford as much because you already have debt to service now the chart that you see there for credit scores and whether or not you're you know appealing to a lender is not carved and granted you'll find a variety of ranges out there this gives you a rough idea again it's going to be important to talk to your lender about what targets to shoot for and what kind of interest rates it's going to qualify you for and what kind of mortgages so just a question i'm scott with on the debt to income ratio this is something any student could sit down and calculate right that's right and you would look at whatever your your income is yep yeah and you would also is that would that be your take-home pay or would that be your uh before you take out all your deductions it should be your gross pay your gross payout okay that's the pay before you take out all those deductions right and a simple calculation to look at what that ratio is is that's right something anybody can do yep and it looks like if you're above 30 to 36 percent you might want to start even as a student try to whittle that down that's right as an early goal yep saving for a down payment is obviously one of the things the lender is going to talk to you about um as we mentioned before once you have an idea of what kind of price range you're looking at then you can calculate what that percentage is going to be so if you're looking at a 200 000 well actually that's not realistic in in our market for example it's hard to find anything under uh three hundred thousand uh so let's say three hundred thousand dollars twenty percent sixty thousand dollars so it's gonna take a while for most people to save up 60 000 so it's important to be able to start your planning early with that especially one of the reasons that um percentage that you're putting down is so important is that it affects the interest rate that you're going to get it also will affect what kind of program you might be eligible for and one last thing is that as you're paying less down you'll have to pay mortgage insurance that's basically protecting the lender against you going into foreclosure with your loan so you're paying for insurance to protect someone else right and so that's in addition to your monthly mortgage payment you'll be paying for that insurance policy so it's always nice to avoid that so you mentioned um just as an example you used you said 300 000 and if you have to come up with 20 that's 60 000 which is a lot that's really scary for a lot of our students right their first job they might be making between 40 maybe 60 65 000 so it still seems like a ton of money um uh that's kind of dane county right is it true that in other parts of maybe the midwest or even other parts of wisconsin homes could be higher priced than that but they could also be considerably lower priced it is very low it's true um the the median price is right around 280 000 right now which means there are half the homes cheaper is that dane county or is that all that's game count okay yeah and so um yes it's true and and i've had several clients this year alone who want something under 250 000. so it's it is those homes are out there um um some of our students that might be moving to a rural area of wisconsin or minnesota or iowa it might be 200 000 so it's really important that if you're evaluating a lot of these students will be getting job offers as you're evaluating a job offer paying 300 000 for a nice home versus 180 which might be some parts of the midwest it's really important you look at that because it affects your take-home pay sure and i had a client recently who bought a house uh near partyville so that's a little bit north of us by about 45 50 minutes 180 000 for a nice size ranch home plus seven acres wow so yeah very different than the madison market just really crucial that students take a look at all of that before you accept a job offer that's right and again that's where a realtor can help out with that analysis um any realtor in wisconsin can look at data all over the state so they can help you make those determinations ultimately if they think they're going to be getting a job in another area it'd be good to get a local realtor one other question when my wife and i first bought a home this was back in 1990 so almost 30 years ago maybe 91. um we we were able to put down five percent um i think part of that was we both had full-time stable jobs relatively good earning potential what how do you get a five percent down um mortgage is that even possible it is it's certainly possible and um so most lenders are going to have that option for you but again it'll affect what interest rate that you might have available to you um and and you'll have the more and the mortgage um and depending upon what other factors might be in place like um if you're a veteran you would qualify for a va loan you might get an interest rate as low as 3.5

and there are actually some zero percent loans available with rural housing and usda loans so i just don't want people to get too freaked out about the 20 right that there are some options that's right and that again is why it's so important to meet with a lender early on to find out what programs are there which programs they think would be relevant to that person and what's probably going to be around in five years when they might be ready to buy you know obviously realtors are going to be helping to to scout areas getting to know your market that's that's how you set those goals uh we already hit on some of these um you know points earlier finding somebody who's who has the information on that market and who's willing to do the research to find out all of those different things that you're going to want to know about like the neighborhoods the schools the accommodations as well as analyzing specific properties when you get to the point of actually being interested in a property you want somebody who's not just going to try to get you to buy that property but help you understand whether or not it's worth what you're paying for it uh now we we've been talking basically the difference between purchasing a home and and renting an apartment but there are other options for investing in real estate and it's not always just for down the road either it is possible to start with one of these different options as your very first purchase obviously single family homes and condos are probably the most straightforward for people but considering something like a duplex or a fourplex or some other type of rental that's a viable option for new owners because if the property is affordable to them then they could rent out the units and make money to help supplement their income to help defray the cost of the mortgage the fixer-upper is not going to be for everyone obviously people know whether or not they're up for you know remodeling work when people watch uh shows on hg tv it's easy to get an idealized view of what it means to to fix up a house it looks it looks uh pretty glamorous yeah they also i think um are a little bit misleading about the cost of remodeling because i believe um they don't include labor costs in their the numbers that they share on screen so it's important to to make sure that you can do as much of the work as you can and when you are bringing in professionals to get good prices it's also really important if you're doing remodeling or fix up work if you're married or you're in some type of a partnership that you have both both people on board yes uh because there's so much conflict i think there's even movies about that that's conflict that happens that's right yeah the the money pit the money isn't what i was thinking about yeah and i you know i've seen um examples both ways where people got in over their heads and they ended up not being happy with their purchase and then recently i had a client who they purchased a home as a fixer-upper and needed a lot of work and the wife came here for a graduate program and the husband came here as a contractor and so he did all of the work himself did just an amazing job of fixing it up they had a change in their circumstances so they needed to move away in one year normally you don't make money selling a house after buying it one year later they they had a sixty thousand dollar profit on wow profit so they yeah must have been in a good area and they must have a job it was an up and coming area so it was a unique place where they could still get a good price on a house and then people are willing to pay more once it's all fixed up so um since the neighborhood is up and coming it's becoming more central let me just say because we have a lot of students who are um who are handy they're engineers yeah um a lot of people who really like hands-on kind of work um i also know of a person in i think i can talk about this in new glarus she bought a fixer-upper actually before she bought it she had an inspection done and she found that there were all kinds of wiring issues and code issues there may may or may not have been asbestos but i think the big thing was their electrical system um just talk about that a little bit if you are going to buy an older home you maybe want to save a little bit of money who do you go to for that kind of advice i mean i'm assuming an inspector yes of some sort um it's pretty well expected that if you put in an offer on a property it's it should be contingent on a residential home inspection and the inspector will give you as much detail about all of those different systems in the house the hvac the electrical the plumbing the basic structure of the house they'll look into every nook and cranny that they can they can't see into the walls but right they'll look into the attic and give you an idea of every kind of defect that they're able to identify um so do your homework yes and make sure you have people you trust yes and it's also important to do the follow-up inspections um it's becoming more routine where the home inspector will identify something but they'll say i i know this is not right but i can't give you much detail on it i recommend a follow-up inspection a specialist in this trade and you have that person come out and give you a more accurate estimate that way you can modify the deal with the seller if necessary in order to make sure that you're still getting the right price or maybe have something fixed prior to moving in because you know i have um and then you know i have clients that i have an engineer uh who recently he was about ready to sell a home that i helped him buy earlier uh but he said he wanted a place out in the country so we found a place that was a fixer-upper but he was perfectly comfortable with that he was going to do most of the work himself he said you know with the family members helping and he's an electrical engineer so he's going to do all of the electrical yeah nailed that yeah that's right um so he got a really good price on a place and i i had confidence that he was able to do the work not only did he um you know have the inspection but i could tell as we were just going through the house the first time he was inspecting it himself so he had a real good idea what was going on i had one other question about that last slide we were looking at um the the term condo i've it's always confused me what what designates a condo versus a town home versus an apartment i'm just curious an apartment is something that you don't own okay and so that could take you know a variety of forms you know it could be a large building or it could be uh an upper flat okay uh you know with a condominium it's a form of ownership and it's um in wisconsin now it's not true for every state but in wisconsin there's an actual statute that governs condominiums okay so there needs to be a condominium declaration okay so you can take for example uh what looks like a duplex home and condolize it or even just a single family home and you can you know have an attorney draw up a condo declaration you can make it a condo and you could have uh four houses in a row on a block condolize them and you could you know have a little association interesting yeah so somebody one of the general principles with condos that you know people find to be advantageous is that generally the association arranges for the common areas to be managed and maintained so you're paying a condo fee every month but it gets you lawn service it gets you snow shoveling it gets you siding and roofing all of those things so the idea is to set aside enough money to cover all the routine maintenance and to save up for any capital expenditures like things that need to be repaired or replaced condos can come in the form of you know single family homes or big buildings you know it doesn't matter it's that that it's a form of ownership good yeah yeah so i think um what what to write when people are in a relationship whether it's a marriage or life partner um what advice can you give them on let we talked a little bit about where to live and some of the considerations um any advice on again two people you've got to kind of meet in the middle in many cases on like how to live and how to determine your spending priorities those kinds of things i know this is more on the more personal relationship side of things but just i know you've seen a lot and you've probably ridden around in your car with a lot of couples any any advice or words of wisdom you have on that i guess perhaps you know it's obviously a sticky area i can't tell people how to live but uh i guess the the biggest advice i would have is to be intentional about it um and and that goes back to the planning process not to just bumble along and assume things are going to work out but if you're in a relationship with somebody to sit down and talk about these goals that you have to make sure that you're on the same page and know you know what it is that you're aiming for and how you're going to get it sometimes that planning will help you figure out you know what is acceptable and what isn't um but obviously the spending priorities are really going to be tied into those goals that you're trying to hit it's really important again not all of our students are going to get married or or be in some type of a lifelong partnership but you've got it's really good if you can have those conversations up front right like you don't need to have your like whole life planned out but those kinds of big picture priorities can can make a big difference in people's success in a relationship longer term well one thing that um i think may be up and coming seeing a little bit of it already is unrelated parties deciding to rent um so they'll they'll find a house and somebody buys it and then they'll rent out rooms to friends and i think an obvious next step is for two or three or maybe even four friends getting together on the same mortgage yeah so they're each paying a mortgage payment towards this home to allow them to leverage a much bigger investment than they would individually and that would require a lot of planning a lot of planning roommate agreements in addition to a target and in some cases and maybe maybe in all cases getting the help of an you don't need to spend thousands and thousands but some attorneys legal help definitely maybe an accountant who can help that attorney look over things and maybe a realtor as well yeah yeah now is that our last slide yeah oh i did i actually added a couple of final questions here for you okay um do you have any success stories of unfortunately no no no no of young people who kind of like started at this stage and now like they're living their lifestream because of planning that they did well there are a couple that came to mind right away one was a young man who was entering law school he had enough money for a modest down payment so we found him a pretty small house but in nice shape and it was very close to campus so he lived there while he was attending law school and when he graduated he kept the place and rented it out and so he left the state to pursue um employment elsewhere but he kept this and so he had a stream of income from a rental property uh another client um a similar thing it was post-graduate work but it was um you know he got into medical school and it was going to be a postdoc that totaled seven years he bought a property with the help of down payment money from his parents and uh he purchased his timing wasn't the greatest none of us knew it at the time but he pau he bought just about a half a year before the crash and so um you know he bought kind of at the top of the market the good thing is uh we bargained on the price we got the best price we could and he took my advice about which neighborhood to consider as far as the strength of resales the popularity it's about as recession-proof a neighborhood as we could find and as it turns out that held you know it held pretty well and he did two very important things to improve his situation uh he had maintained it very well and he worked hard to um update and upgrade the place where he could doing some remodeling himself and having other improvements done by contractors but doing it on a budget so that at the end of his program when he sold it he sold it for a really good price and quickly he had enough money to pay off his parents and walk away with something oh he has this property yes so um that worked out extremely well just to tie tie together a couple things with our our other speaker who talked about financial management the one thing that happened to me when i first met my wife i was just starting in graduate school and i actually i went to visit her at her home she lived about an hour and a half north of where i was at in west lafayette indiana and i got i went home to her place and i got sick and she was away at work and i remember laying in a bed watching a show and they were talking about mutual funds investing in mutual funds and in particular the stock market side of mutual funds and it's like dog i'm gonna do that i didn't have a lot of money i probably had four or 500 bucks that i'd saved and scrimped away and over time i was kind of cashing and putting 50 bucks a month or whatever per pay period and when we got married and then four or five leaders were in four or five years later we're in champlain minnesota in the twin cities and i look at my mutual fund account and it matched exactly what that first down payment would be and it was all from just little bits and pieces of savings so yeah then it adds up and you do have to be thoughtful and planful about things yeah the time value of money it is something that it's hard to over overstate just how important it is to start early the earlier you start the better because it grows it grows a lot my other question here that i did add to you um or for you i don't know if you've actually seen this but if money for you if money today was not an issue and you could be doing it this is more of a human interest you could be doing anything in the world right now besides being here taping this with me what would you want to be doing i think travel i think that is my the favorite thing to do you know when i have the the time and the money to get out and travel i love seeing the world so um that's something that i intend to do more of it's uh you know i'm at that point in life where i'm still helping the kids out with school both in higher education right now so i don't have the money that's been that's been another theme of both of these presentations on the sort of financial side of things is you need to be frugal you need to save you need to think about the time value of money and the rule of 72's and compound interest and being smart but don't be so smart that you don't get those experiences in your life whether it's travel or time with family and loved ones and hobbies and those kinds of things it takes money to do that right that's right but but don't be so frugal that you don't take the time to enjoy life that's right it's almost part of setting your priorities so scott thank you so much for being here today i really appreciate it thanks for having me um i'm assuming that if students do have questions i can kind of get back to you and try to get a couple of those answered possibly sure and look forward to being able to show this in class and maybe use it for the next couple years to come so thank you for being here oh you're very welcome

2021-02-25 16:56

Other news