Latest / The Loan Daddy Podcast / 011 - Buying Isn’t for Everyone. Neither Is Renting.

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011 - Buying Isn’t for Everyone. Neither Is Renting. · The Loan Daddy Podcast

• 0:00
  SPEAKER_00: Buying isn't for everyone, but neither is renting.
• 0:03
  SPEAKER_00: The best agents don't pressure clients into a transaction.
• 0:07
  SPEAKER_00: They discuss the trade-offs.
• 0:09
  SPEAKER_00: Welcome to the Lone Daddy Podcast, episode 11.
• 0:13
  SPEAKER_00: One of these questions that is asked in every single type of market.
• 0:18
  SPEAKER_00: It could be a hot market, it could be cold, it could be a buyer's market, a seller's market, it doesn't matter.
• 0:22
  SPEAKER_00: This is one of those questions that gets asked all the time.
• 0:26
  SPEAKER_00: And that question is, should I rent or should I buy?
• 0:28
  SPEAKER_00: We're always going to get that.
• 0:30
  SPEAKER_00: And how we respond to that question is so important.
• 0:34
  SPEAKER_00: And I want to go over a couple objections that come with that question.
• 0:38
  SPEAKER_00: But doing a basic search, you can see how popular this question is.
• 0:42
  SPEAKER_00: I mean, it's everywhere.
• 0:43
  SPEAKER_00: Everyone asks this question when thinking about their own situation, whether they think they're paying too much in rent or they're seeing their friends or family members buy homes.
• 0:55
  SPEAKER_00: This is a question that ultimately people think about all the time.
• 0:58
  SPEAKER_00: And again, it's up to us as professionals to know how to respond to that.
• 1:02
  SPEAKER_00: Now, before I dig into some of the objections that come with this and how to handle them, it's really important to understand that buying really isn't for everyone.
• 1:11
  SPEAKER_00: Sometimes renting is the right decision for them.
• 1:13
  SPEAKER_00: But getting them to that decision and understanding that is what this is all about.
• 1:18
  SPEAKER_00: One of the most common objections is interest rates are too high.
• 1:21
  SPEAKER_00: We certainly hear that all the time.
• 1:23
  SPEAKER_00: Keep in mind, rates were trending downward a few months ago.
• 1:26
  SPEAKER_00: Now they're a little bit elevated because of the war that is going on.
• 1:30
  SPEAKER_00: In any market though, everyone wants a lower rate.
• 1:33
  SPEAKER_00: I remember when rates were in the 3% range and we'd have clients reaching out to us and saying, Do you think it's going to go to 2.5%?
• 1:40
  SPEAKER_00: So they're never low enough.
• 1:42
  SPEAKER_00: But one of these common objections that we're always going to get is interest rates are too high.
• 1:47
  SPEAKER_00: So it's important to ask, should you buy the house or should you finance this home forever?
• 1:54
  SPEAKER_00: You know, it it's it's important to ask that question because these are two different decisions that clients have to face.
• 2:02
  SPEAKER_00: Now, one thing we talk about all the time is it's said all the time and it's probably overused, but that concept of marry the home and date the rate.
• 2:10
  SPEAKER_00: Again, I do believe it's overused, but it's a strategy that works very well.
• 2:16
  SPEAKER_00: It's really important, it's crucial for agents to educate clients on the fact that the rate that they have is most likely not going to be the rate that they have forever.
• 2:25
  SPEAKER_00: Their monthly payment is not going to be that monthly payment forever.
• 2:29
  SPEAKER_00: That mortgage payment, this is probably the highest that it's going to be in the 30-year life of that loan.
• 2:35
  SPEAKER_00: The majority of people will refinance, pay off, or sell every seven and a half years.
• 2:40
  SPEAKER_00: So the odds of them holding on to this same rate for 30 years is slim to none.
• 2:45
  SPEAKER_00: So that's kind of the first thing to think about.
• 2:47
  SPEAKER_00: Second thing is, what if rates drop?
• 2:49
  SPEAKER_00: What if rates go lower?
• 2:51
  SPEAKER_00: You know, all of a sudden when someone's looking to buy a home, they become an expert in the market.
• 2:54
  SPEAKER_00: They're following different articles or listening to Fed members, and sometimes we'll have people come to us and people come to agents and they'll say, I think rates are coming down.
• 3:03
  SPEAKER_00: I think in the next six months rates will be down by half a percent.
• 3:06
  SPEAKER_00: And that's going to save me X amount of dollars per month.
• 3:10
  SPEAKER_00: Look, I've been doing this for 16 years.
• 3:12
  SPEAKER_00: Nobody knows the direction of where rates are going.
• 3:15
  SPEAKER_00: Or I should say, no one knows the timing of when rates are going to get where people think they're going to be.
• 3:20
  SPEAKER_00: It takes time and there are so many different factors that contribute to interest rates that no one really knows where they're going to go.
• 3:26
  SPEAKER_00: But let's just say that they do drop.
• 3:28
  SPEAKER_00: Let's say in that hypothetical situation, someone says that rates are going to fall by X percent.
• 3:34
  SPEAKER_00: I want to wait for that to happen.
• 3:35
  SPEAKER_00: Well, what do you think is going to happen in the market?
• 3:37
  SPEAKER_00: According to the NAR, according to Freddie Mac, and many other sources, every time rates drop by 1%, that deems 5 million people eligible for a mortgage.
• 3:47
  SPEAKER_00: So if you're waiting for rates to drop, so are so many other people, right?
• 3:51
  SPEAKER_00: And when rates drop in most markets, that will cause home prices to increase.
• 3:56
  SPEAKER_00: So thinking about that and framing it in that way to a prospective buyer who says, I want to wait, saying that so many other people want to wait as well is important and will get someone thinking a little bit differently.
• 4:09
  SPEAKER_00: Another objection, renting is cheaper.
• 4:12
  SPEAKER_00: Now, you don't want to argue with someone when they say that.
• 4:14
  SPEAKER_00: You don't want this to be combative, you don't want this to be a sale.
• 4:18
  SPEAKER_00: But the question you can ask is, is it cheaper now or is it cheaper over the next 10 years?
• 4:25
  SPEAKER_00: Are you thinking short term or are you thinking long term?
• 4:28
  SPEAKER_00: That's the way to frame something like this.
• 4:30
  SPEAKER_00: Rent builds your landlord's equity.
• 4:33
  SPEAKER_00: A mortgage builds your equity.
• 4:35
  SPEAKER_00: That's the biggest difference there.
• 4:36
  SPEAKER_00: Also, one thing to keep in mind is, and and we know this firsthand, we do a ton of mortgages for landlords, for those who are buying investment properties.
• 4:46
  SPEAKER_00: And what's the one thing that they care about?
• 4:50
  SPEAKER_00: They want to make a profit.
• 4:52
  SPEAKER_00: So they want the rent that they're charging to be more than their mortgage payment, their maintenance, their taxes, and the insurance.
• 4:59
  SPEAKER_00: So, in the overwhelming majority of cases, rent is going to be more expensive than buying for that reason alone.
• 5:06
  SPEAKER_00: Another objection is what if home prices fall?
• 5:10
  SPEAKER_00: And it's a great question.
• 5:11
  SPEAKER_00: It's something to think about.
• 5:12
  SPEAKER_00: Now, again, no one can predict the future.
• 5:14
  SPEAKER_00: No one knows exactly where things are going.
• 5:17
  SPEAKER_00: One question I love asking is if you bought Apple stock or Tesla or SpaceX or Facebook or Google and that stock dropped by 8%, but you planned on owning it for 15 years, would you sell immediately?
• 5:31
  SPEAKER_00: Of course not.
• 5:31
  SPEAKER_00: You would still hold on to it.
• 5:33
  SPEAKER_00: So real estate can be viewed the exact same way.
• 5:36
  SPEAKER_00: Most homeowners build wealth by staying invested, not by trying to time the market.
• 5:42
  SPEAKER_00: Another objection: buying feels risky.
• 5:45
  SPEAKER_00: In every market, what do we hear?
• 5:47
  SPEAKER_00: That there's uncertainty going on in the market.
• 5:49
  SPEAKER_00: There's geopolitical issues, there's domestic issues, there's always something going on that could prevent someone from taking that step forward and ultimately buying a home.
• 5:59
  SPEAKER_00: But buying isn't the only risk.
• 6:01
  SPEAKER_00: You can ask, is there risk with renting?
• 6:04
  SPEAKER_00: Perspective buyers never really think about that.
• 6:06
  SPEAKER_00: There are rent increases, there are costs with moving every couple of years.
• 6:12
  SPEAKER_00: You're missing out on locking in home costs and future appreciation, the tax benefits as well.
• 6:19
  SPEAKER_00: So there is a risk with renting as much as there is, or as much as people think there is with buying in some cases, and a lot of cases, there's more risk with renting.
• 6:29
  SPEAKER_00: One objection we do here is that I'll buy when the market crashes or there's a recession.
• 6:35
  SPEAKER_00: One thing to understand is that historically, homes appreciate pretty well during recessions.
• 6:41
  SPEAKER_00: Now, 2008, one of the biggest recessions in our country's history, happened because of housing.
• 6:46
  SPEAKER_00: But if it's non-housing related as far as the reason for the recession occurring, real estate holds very, very well.
• 6:53
  SPEAKER_00: So what if that correction in the market doesn't come and you're just missing out?
• 6:57
  SPEAKER_00: Think about we've heard this in 2018, 2019, 2020, 2021, 2022.
• 7:02
  SPEAKER_00: We hear it all the time.
• 7:03
  SPEAKER_00: And for those that missed out on opportunities to purchase in those markets are probably kicking themselves now.
• 7:10
  SPEAKER_00: So waiting also has a cost.
• 7:12
  SPEAKER_00: Another objection is I don't want to be house poor.
• 7:15
  SPEAKER_00: It's a fair thought, but a way to respond to that is what monthly payment would still allow you to afford your lifestyle.
• 7:24
  SPEAKER_00: And they'll look at what their rent is and are they at the maximum of their housing payment that they're comfortable with, or is there some room there?
• 7:33
  SPEAKER_00: Understanding that will allow them to see some of the possibilities that will come with home ownership.
• 7:39
  SPEAKER_00: Breaking it up in those terms will have someone think differently.
• 7:42
  SPEAKER_00: People buy the confidence and the possibility that they can do something before they buy the house.
• 7:48
  SPEAKER_00: Another question that I've heard some of the top real estate agents ask when they're getting these types of objections or hearing these types of objections, they'll say something like, Fast forward five years, will you regret buying a home now or not buying a home now?
• 8:03
  SPEAKER_00: What will you regret more?
• 8:04
  SPEAKER_00: Again, get someone thinking a little bit differently.
• 8:06
  SPEAKER_00: People naturally think about today's monthly payment and they neglect to think about the regret that they can have in the future.
• 8:16
  SPEAKER_00: Being in New York City, rents have gotten out of control in many different markets here.
• 8:21
  SPEAKER_00: Asking someone if your rent's at 5,000 now and it goes to 5,500 and then it goes to 6,000, at what point does renting not feel as safe for you?
• 8:32
  SPEAKER_00: Owning a home, we don't want to kid ourselves here, owning a home doesn't eliminate housing costs.
• 8:37
  SPEAKER_00: But what it does is it locks in a fixed payment for a certain amount of years.
• 8:42
  SPEAKER_00: Whereas rent does not do that.
• 8:43
  SPEAKER_00: So when your largest parts of your housing payment, your mortgage payment, now we're putting taxes aside, insurance aside, maintenance, yes, those costs can go up.
• 8:52
  SPEAKER_00: They don't nearly go up as much as rent does, and sometimes those costs can actually go down, but that mortgage payment itself, the biggest component of your housing payment, is locked in.
• 9:02
  SPEAKER_00: It's fixed.
• 9:03
  SPEAKER_00: And that certainty, that predictable payment for so many people is a safer space to be in.
• 9:10
  SPEAKER_00: Again, as I started this, buying isn't for everyone, but neither is renting.
• 9:15
  SPEAKER_00: The best agents don't pressure clients into a transaction.
• 9:19
  SPEAKER_00: They discuss the trade-offs.
• 9:21
  SPEAKER_00: Here are the benefits, here are the costs, do the benefits outweigh the cost?
• 9:24
  SPEAKER_00: But broadly speaking, when you think more long-term, right, people are tend to be very short-sighted.
• 9:31
  SPEAKER_00: They look at what their financial position is right now, can they afford today's payment?
• 9:36
  SPEAKER_00: And that's it.
• 9:37
  SPEAKER_00: And you're not thinking about long-term appreciation, locking in a fixed payment, et cetera, a lot of things that we already discussed.
• 9:44
  SPEAKER_00: Thinking about it in those terms can be so helpful to so many people.
• 9:47
  SPEAKER_00: And I'll end with this.
• 9:48
  SPEAKER_00: It's so much easier to not do something than it is to do something.
• 9:51
  SPEAKER_00: So, as an agent, going through the process and the various steps, one step at a time, and simplifying everything for someone will make things a lot easier for someone and get them thinking a little bit more rationally.
• 10:04
  SPEAKER_00: The idea of climbing Mount Everest is very daunting.
• 10:07
  SPEAKER_00: I need to get in shape, I need to map out my route, I need to have the right equipment, et cetera.
• 10:12
  SPEAKER_00: I mean, I've never done it before, maybe one day, but there's a lot of things you have to plan.
• 10:16
  SPEAKER_00: But if someone came to me and said, you know what, step one, for the next 30 days, you're just gonna walk on a treadmill at this elevation, at this pace, three times a week, that's it.
• 10:26
  SPEAKER_00: And then a month later, I start a diet plan.
• 10:28
  SPEAKER_00: And then a month after that, I get the right equipment.
• 10:31
  SPEAKER_00: But breaking it down in different steps makes something so daunting and scary attainable and achievable.
• 10:39
  SPEAKER_00: And I think it's our job to do that.
• 10:42
  SPEAKER_00: And when we're we're dealing with different AI sources and different websites that are telling people what they should and shouldn't do, it's always this immediate fix.
• 10:51
  SPEAKER_00: Should I do this right now or not?
• 10:52
  SPEAKER_00: It's a life or death.
• 10:54
  SPEAKER_00: It's a binary decision.
• 10:55
  SPEAKER_00: When regarding someone, it's it's a process.
• 10:58
  SPEAKER_00: And whether today makes sense for you to buy a home or not, let's talk about what that path looks like and what you would need to do to be in a position where it would make sense for you to buy.
• 11:09
  SPEAKER_00: And I think those are the types of conversations that I, again, I hear all the time and I see the very top agents having with their buyers and their clients who are on the fence.
• 11:19
  SPEAKER_00: So that's it.
• 11:20
  SPEAKER_00: That's all that I have for today.
• 11:21
  SPEAKER_00: Thank you for joining, and please stay tuned for the next episode.
• 11:25
  SPEAKER_00: Thanks everyone.
• 11:25
  SPEAKER_00: Bye.