‘Big Short’ traders Danny Moses, Steve Eisman, Vincent Daniel and Porter Collins join ‘Fast Money’ to talk their portrayal in the movie, Big Tech, real estate, the Federal Reserve and more.

David:
This is the BiggerPockets Podcast show 882. What’s going on everyone? Guess what? We got a green light special for you. If you haven’t seen one of these shows before you’re in for a treat. Today we have a Seeing Greene show where I take questions from you, our listener base, and I answer them for everybody else to hear so we can all build well together. Today’s show is awesome. What to do with $20,000 if you’re in college and looking to start investing? How to get started later in life in a market where finding cash flow is harder than ever? And more in today’s Seeing Greene.
And if you’re new to the show I’m David Greene. I’m a former law enforcement officer who saved up a bunch of money working overtime and working in restaurants, bought some rental properties, then bought a bunch more, learned how to use the Burr method, bought out of state, built a pretty big portfolio, got a real estate license, got a brokers license, run real estate teams, run mortgage companies. I’ve basically been immersed in all things real estate. And my guess is you have to and that’s why you’re here. In these shows, I take my experience in real estate and I share it answering the questions that people have where they’re stuck in their journey or they want to accelerate their success. Our first question comes from Tomi, a frequent question asker, who wants to know about valuing a lower mortgage rate when purchasing a property subject to.

Tomi:
Hey, David, this is Tomi in San Antonio. I was wondering, when do you think it’s a good time to go with the builder’s contract in order to get their incentives on a new build considering our high interest rate environment? I would love your info. Thanks again for all the knowledge. Following you has been awesome. Take care.

David:
And thank you, Tomi. What a great question. And thank you for always asking such good questions on Seeing Greene, we’ve had you on before, you’re always bringing up such good points. And if you would like your great question answered on Seeing Greene head over to biggerpockets.com/david where you can submit it there. And if you like these shows and you’re excited to hear what we are getting into today, please leave us a comment on YouTube and let us know what you think about Seeing Greene.
All right. So Tomi your question was, how much value should I ascribe to a lower interest rate? And I love the way you’re asking that because I can see what your mind’s doing. You’re trying to transpose the deal terms into something that fits on a spreadsheet. Your mind is looking for some clarity here. You’re like all right, normally a house is worth $500,000, and you’re looking at the interest rate as one of the factors that makes it worth a hypothetical $500,000.
So you’re saying, well, if it’s worth $500,000 at 7% and it’s … If it goes down to 5% it should be worth more because you’d theoretically be getting more cash flow. The problem is real estate values are not as easy to predict as what we would like them to be. I mean, if we’re getting honest here, the whole idea of what a house is worth is actually subjective. No one likes subjectivity. So we’ve created this idea of appraisals or different ways to value real estate like cap rates and NOI for commercial property because we want to have some baseline understanding of what a property is worth, but you want to know what it’s really worth, what somebody’s willing to pay for it. And that’s why marketing is so prevalent within the world of real estate because if you can make somebody want something they will pay more for it.
Now, we still do use a comparable sales approach because banks are going to be lending on properties and they want to make sure that you’re not buying it for significantly more than they could sell it to somebody else. Meaning, they want to make sure you don’t value it significantly more than what the rest of the market might. Now here’s the bad news. You can’t say, “Well, I’d pay this much money more for a lower interest rate.” But what you can do is compare the property with the lower interest rate that you could get in a subject to deal to the other properties that are available for you and the prices they’re at. That’s a much better way of looking at it, okay? I have this option, option A, and then I have all these options over here on the market, options B, C, D, and E.
Does that deal with the lower interest rate cash flow significantly more than the deals that have the higher rates? Is it in a market where you think that the value is going to go up significantly? So is the lower rate going to allow you to hold it longer so that it will be worth more later? Or is it a market where values are not going to be going up much, you’re not going to get much appreciation there? So getting the lower rate is going to get you some more cash flow in the beginning but that’s all you’re ever going to get. These are the questions you’re going to have to ask Tomi. Unfortunately, you’re not going to be able to say, for every 1% it goes down I add 5% to the purchase price of what I’m willing to pay for the house.
Here’s my two cents. I don’t think you should pay more for a house because you’re getting a lower interest rate, I think that that’s a marketing tactic that people use. They go in there and they pay more than what they could sell the house to somebody else for and they say, “Well, it was worth it because I got this lower rate,” and they look at it like they’re buying the rate. The problem is you can’t get rid of the house if something goes wrong. You’re not going to be able to sell it to someone else or you’re going to lose money. It’s also a very shortsighted approach that says, “I’m going to pay X amount of money for cash flow.” So if I’m getting a lower rate I’m buying cash flow. The problem is the mortgage rate affects one of the expenses of your home which would be your principal and your interest.
And even though it seems like the biggest expense because it’s the most consistent, it’s really not. The killers of real estate are rarely ever going to be the interest rate, they’re going to be the maintenance, the capital expenditures, the vacancy, the way that you operate the property. One tenant that trashes your property and leaves, and you keep a $2,000 deposit but you got to spend $6,500 to repaint, do new flooring, fix the drywall, get rid of whatever smells they caused, fix all the landscaping, get rid of all the trash they left there, it could be the equivalent of 15 years of the interest that you think you save getting the better interest rate. So let’s all avoid getting into the starry-eyed rate talk and thinking that that’s the only expense you’re going to have. These are the ways that we need to be analyzing real estate deals and, unfortunately, it doesn’t all fit on a spreadsheet.
However, I love the way you’re thinking, Tomi. Your brain is working like an investors is, you’re on the right journey. Keep asking questions like that and eventually, the algorithm in your mind will develop itself to where you’ll know if it’s a good deal or not. All right, we’re going to take a quick minute to hear a word from today’s show sponsors. But after that, we are going to be getting into a question that is very close to something that I experienced myself. They’ve got a property with $265,000 of equity in Jacksonville, Florida, where I had a pretty sizable portfolio at one point, and they want to know what to do. So stick around because we’re going to be back after this short break where we are going to hear from someone who has a portfolio similar to mine.
And welcome back everybody, I missed you. I’ve been waiting this whole time for you to finally listen to that ad and I’m so glad that you’re back here. Our next question comes from Summer Wheatley in Florida. Wait, no, I got that wrong, it’s actually Summer Berkeley. I don’t know what Summer Wheatley’s up to. If anybody else knows if she ever made it to the dance with Napoleon let me know in the comments how we think that that went. All right. Summer says, “I live near Jacksonville. I have one owner-occupied-single-family home that I’d like to sell with about $265,000 in equity. I want to deploy that equity into a bigger income-producing property. What are your thoughts, David? Would I have any issues getting a commercial loan since it’s usually based on the operating income and my credit is as high as credit can be? Plus I have lots of cash reserves as well as experience in this business?”
Well, first off, Summer, congratulations on being the most popular girl in Napoleon’s high school. And congratulations on having all this cash saved up and a lot of equity in your property. This is a great problem to have and I’m happy to help you here. Summer also mentions that she wants to move from a family-friendly area where she lives now to more of a beach nightlife area as she’s a single person and wants to upgrade her living situation. And that she would like to pay cash for Airbnb-type property or a commercial property, but is also willing to get a loan if that would make more sense.
All right, Summer, so here’s what I would do if I was you. First off, I’d split up the goal of finding a commercial property that I could operate like a hotel or an Airbnb, that you asked about with the lending, and my goal of moving to an area that I want to live. It’s very difficult when you try to combine or stack goals together. For instance, if you say, “I want to buy a property in a high appreciating area that has a ton of equity in it, and I want to buy it below market value, and I want it to be move-in ready, and I want it to cash flow really, really high, and I want it to have a cute kitchen” you’re just going to be looking forever, you’re not going to find that.
Now, if you said, “I want to buy a property that has a lot of equity and I can buy it below market value stop,” you might be able to find one of those. Or I want to find a property that has a cute kitchen that I would like to live in, you might be able to find one of those. Or I want to find a cash flow property. But you’re probably not going to find them all in the same deal. You’re better off to separate those different things and say, “I want to find a property with a lot of equity to flip, then I want to put those profits into a property that cash flows. And then I want to use the cash flow to help supplement the mortgage of a house that I want to live in.” You see what I’m saying? When you try to stack everything into the same deal you end up just staying house single forever. But when you’re willing to say, “Okay, I’m looking for different things and different opportunities,” and then you combine them all into one portfolio, you’re much more likely to be successful.
So let’s talk about what you can do in this case to find an area that you want to live in but it doesn’t break the bank. You should house hack. You should look for a property in an area that you want to live where other people also want to live. And you should look for a specific floor plan that would work for you to either rent the rooms out to other people … Maybe there’s a master bedroom on one side of the house that you can stay in, and then there’s other bedrooms on a different floor or a different story where other people could stay in. Maybe you find a house with an ADU that you live in. Or, you live in the main house and you rent out that ADU on Airbnb. A lot of the Airbnb restrictions in areas don’t apply to primary residences so you can get around some of that red tape if you take that road.
So now we’ve solved your first problem. You’re living in an area that you want to live and the cost of it is being supplemented by rental income. That takes a lot of pressure off of you and now you can focus on something that you could find which would be a cash-flowing commercial property. There’s probably going to be more opportunities in this space than almost anywhere else because the commercial markets have been trashed. Interest rates skyrocketing, balloon payments that are going to be due on commercial properties. There’s been a lot, a lot, lot of fluxx within that market. And there’s been a lot of people that have lost a lot of money when they were operating the property well but their note came due or their investors had to be paid off. And at the time they needed to refinance or sell, things didn’t work out.
It’s like musical chairs. When you’re walking around the chairs … If you’re in front of a chair when the music stops you’re good. That’s like having favorable interest rates when your note comes due. But if you happen to catch the bad luck of not being by a chair when the music stops, that would be rates being too high to refinance or sell, you’re stuck. Even if you are playing the game the right way sometimes things work against you when you’re in commercial properties. So I like this as an opportunity for you.
Now, when it comes to getting the loan you’re exactly right, you’re typically going to get approved based off of a little bit of your credit score but it’s going to more be the net operating income of the property which means the lender’s going to want to know well, how much money does the property generate? This is typically figured out by looking at all the leases that are in place and adding them up and that’s your income, and then looking at all the expenses that are going to be in place.
Now when you’re going to get financing for a commercial property, like what you mentioned, it’s usually a little bit trickier than if you’re trying to get it for a residential property because not as many people offer them. So I’m a loan broker. You could come to me and I would say, “Hey, you want to buy a house? Let’s look at all these different lenders we have and find the one with the best rate, the best terms, and the best service.”
But with commercial properties, you can do that it’s just way harder. A lot of these loans are done directly meaning you go to this specific bank and they tell you what they’re willing to offer. And it can be complicated. You’ve got different balloon payments, you’ve got recourse and non-recourse loans, you’ve got interest rates. A lot of these interest rates are adjustable. The minute it becomes adjustable there’s a lot of different ways that they can adjust. It’s not the same as getting a 30-year fixed rate loan like in residential real estate where you don’t have to be an expert. You do have to be an expert if you’re going to be getting into commercial financing, or you have to know an expert that can help you through this.
So while the gist of it is yeah, they’re going to look at the income that the property makes and underwrite it based off of that, and your credit will be involved. If it’s a recourse loan, it’s very easy to not understand the loan documents that the bank is coming up with and they’re not written to protect you. I just want everyone to hear this. When you’re buying a house that’s Fannie Mae or Freddie Mac backed, there are tons of protections built into that because these are insured by the federal government and they want to look after their tax-paying citizens. But that is not the case with these commercial loans that are not insured and you don’t have protections. And many of them have tiny little provisions that you would never see coming where you could technically be in default and they can foreclose on you even if you didn’t realize you did anything wrong.
I’m basically getting at the point that I’d love to see you take the equity that you’ve got and get deeper into investing. But I don’t want you to wander into that territory thinking that commercial works the same as residential, that the financing works the same, or that you’re going to combine your dream of living in an area with great nightlife, and a wonderful location, and great weather with cash flowing opportunity. Maybe 100 years ago, maybe 50 years ago when nobody really knew how real estate worked, and you could go in there and you could buy a commercial property and it’d probably have some residential spot above where you could live in the same building that you just bought. I don’t see very many opportunities out there like that now, and the ones that are often being chased down by big conglomerations, corporations, equity funds. There’s a lot of demand to find these kinds of properties so know who you’re going to be competing with.
All right. Just to sum that up for you there, Summer. Remember, commercials very different than residential. The financing is very different. Make sure you have an experienced person read through the loan paperwork and you understand all the deals if you’re going to get into the commercial property. And don’t try to combine all of your goals in the same property, split them up into different properties and put them all into a portfolio, what I call portfolio architecture, and architect your dream life.
All right, we’re going to be getting into the next segment of Seeing Greene where we share comments from YouTube, from you, our listener base, which I love doing, as well as some of the reviews that you’ve left for the show. Remember, I want to see your comments too and I’d love to have you featured on an episode of Seeing Greene. You can do so by going down if you’re watching this on YouTube right now, and leaving a comment as you listen, or by going to wherever you listen to your podcast and leaving us a review. Those help a ton so please do it.
All right, let’s get into our first comment. This comes from episode 869 from Hellermann Industries. I love affordable housing and high-price markets right now. First-time home buyers are always active and not concerned about leaving their golden rate behind. Pick a strong market with strong fundamentals and appreciation and buy under the median price point. Your flips will have a solid audience. And small multifamily housing makes killer rentals right now because renters are getting priced out of full-sized homes. That’s a pretty insightful comment there, Hellermann, well done. This is the kind of stuff I like to see on Seeing Greene. Apparently, all of you listening to this are smarter than the average bear.
All right, our first Apple Review says, “Five-star values, hosts, and content. I’ve been listening for two and a half years and I’m so thankful for all I’ve learned and the connections I’ve made from this podcast. It’s the perfect blend of inspiring stories, investing fundamentals, real estate strategy, and up-to-date information on the market. I am now an investor myself.” This comes from Courtney Cozens via Apple podcast. And I happen to know Courtney if you weren’t aware. Many of you that are listening to Seeing Greene actually become friends of mine. I recently had Courtney interview me on my Instagram talking about how I became an agent, how I built a team, what my experience was like in law enforcement, working in restaurants. A lot of the stuff that’s in my book, Pillars of Wealth. Go give Courtney Cozens a follow and like her comment.
And our next comment says, “Trailer trash to trailer cash. Been following you guys since the beginning. If I can change my life in this business anyone can. Love this podcast.” From CD Kid Cat. That’s pretty cool. And it rhymed, trailer trash to trailer cash. I wonder how Eminem has never worked that into one of his verses. I haven’t heard that yet but I feel like it’s staring him in the face. If anybody here knows Eminem make sure that you let him know that he has missed a potential goldmine to put on one of his songs.
All right. I appreciate and love all of the engagement that y’all are giving us in the comments. Let me know what you think about today’s show and the advice that I’ve given so far, as well as what you’d like to hear on a Future Seeing Greene show so that we can grab that and throw it into our production process. If you’d like to be featured on the show you can do so by heading to biggerpockets.com/david and submitting your video question. All right. We’re going to take a quick break and then we’re going to be back with a question about what to do with 20K and what to do as an investor stuck in your 50s. All right. Our next question comes from William Warshaw.

William:
Hey, David, my name is William Warshaw, I’m from Los Angeles, California. I’m 19 years old and I’m in my dorm room so bear with me. I have 20 grand saved up and I just simply need help taking action in LA, Southern California. 20 grand’s not going to get you much. It’s going to be hard even with an FHA loan. Should I go long distance here? It’s, obviously, very scary going long distance. I’m halfway through your book. Or should I do something like Airbnb arbitrage? I know how you guys feel about that but I feel like I could build my capital even though the short-term aspect is a lot more demanding as a college student. What do you guys think I should do here? Give me options. Let me know what you would do in my situation. Big fan of the podcast. Thanks.

David:
All right. Thanks, William, that’s great, man. If you guys weren’t watching this on YouTube you should be. William looks like a combination of Justin Bieber and Shawn Mendez got together and turned their hats backward. If you ever wanted to see the personification of Southern California check out Old William here. All right, William, here’s the first thing I want to say. Congrats on saving up 20 grand. First thing I want you to do, don’t lose it. Don’t go spending it on anything stupid. Don’t go invested into cryptocurrencies that you don’t understand. Don’t go buy an NFT, and don’t go start some online trading corporation or something that you think is going to make you a bunch of money. Second, congratulations on going to college and not just putting all of your efforts into becoming an online influencer, but I need to know a little bit more about what you’re studying in college so I can give you some advice on if I think that that’s a good idea or not.
Third, you’ve got 20 grand, why can’t you get more my man? You’re doing good. When I graduated college, and I’m not trying to compare me to you I’m just saying it’s possible, I graduated with my school paid off, no student debt, my car paid for in cash, and over $100,000 in the bank. I did that by working in restaurants and just staying late every single night. Perfecting my craft of being a waiter working as hard as I possibly could and saving all my money. You’re in school, you’re going to have to finish school. Do you want to finish school with 20 grand or do you want to finish school with 50 grand? Do you want to finish school with 20 grand or do you want to finish school with 100,000 grand? What are you doing for work right now that you can improve?
Remember, wealth building is not just about buying real estate though that is, obviously, an important component to it. It’s also about saving your money and making more money. William, I’d love to see you have the goal of buying a house, your first house hack, that you could rent to other people with as many bedrooms as you could get, maybe even bunk beds so that your friends could be paying you rent, and staying in this property or renting out to other college students that don’t want to live in the dorms, and I want you to make that the carrot that you pursue.
If you want to be a homeowner, and you want to buy your first house, I want to see you working more hours at a good job. If you’re working at some pizza joint, or if you’re doing DoorDash, there’s nothing wrong with it but there’s also nothing right with it. Find a job that challenges you. Find a job that every day you have to go to work and actually pray before you go in there, I hope I don’t make any mistakes because it’s that hard. It’s very good for a young man to be in a position where you’re doing something challenging, and difficult, and having to sharpen your sword of the skills that you’re providing in that workspace and pushing yourself. Too many people think that if you’re a young kid in college you’re not capable of anything but putting pepperoni on a pizza. It’s not true. Again, there’s nothing wrong if that’s what you’re doing, but if your goals are to be a millionaire through real estate there’s also nothing right with it. So push yourself, get a better job.
Now, the goal should be when you get out of college you want to buy a house but the money isn’t going to be your only problem, the financing is going to be a problem too. You’re going to have to show a debt-to-income ratio that a lender is going to be comfortable giving you a loan to. You’re going to have to show a debt-to-income ratio that’s going to satisfy a lender’s requirements which means you’re going to have to keep your debt low, you’re going to have to make more money. You see how making money just keeps working its way into this equation of real estate investing. We talk a lot about finding deals, acquiring deals, and though that is a way to make money it’s much harder. So put some focus towards your career, what you can do to bring value to the marketplace, and how you can build your skills.
And then in the meantime, start analyzing house hacks. Run three-bedroom properties, four-bedroom properties, five-bedroom properties, run duplexes, run triplexes. Find an agent that’s going to work with you, and have them send you deals to look at, and run the numbers of what the expenses would be, and what the income would be and look for patterns. What you’re looking for is a pattern that five-bedroom properties cash flow but you know you need at least three bedrooms, but you know need at least three bathrooms, you want to make sure that there’s plenty of parking. You want to get to the point that you know rent’s too low on this side of town to make it work but over here it could work. That way when you graduate, and you get the job, and you’re pre-approved to buy a house you’ve already got the information that you’re going to need to find the perfect one to start with.
Now, as far as how much money you want to have saved when you get out of college here’s what I would tell you. Look at what the average houses are going to cost that would work for a house hack, let’s say it’s $800,000. Assume you’re going to have to put 5% down on a conventional loan to get that house, that’s 40 grand. You’re going to need $10,000 for closing costs, and another five to $10,000 to improve the property. That’s going to put you right around 55 to $60,000. Now, you’re also going to need some money in the bank for reserves so add another 15 to 20 to that. And ideally, you want to be graduating college with 75 to $80,000 before you think about buying your first property.
With that money, you want to be able to invest it in something that gets you a return but my advice to you is avoid risk. It’s more important that you keep it than that you grow it, okay? So go find yourself a certificate of deposit in a bank, I think I saw one for around 5% the other day, put it in there, collect your 5%, it makes it harder for you to take the money out and spend it on something dumb, and just keep putting the money that you make into that account to earn you some money until you graduate, you’re ready to buy the house.
All right. And our last question of the show comes from Cleven in Las Vegas. “Hi, David, we’ve tried to find rental properties for a year but cannot figure out how to get positive cash flow based on the current mortgage rates. We’re in our mid-50s and we moved to Vegas in 2022 after selling our house in New York where we capitalized on some gains. However, both my wife and my jobs became insecure recently. I don’t know if we should stop looking until the market gets more stable, and so do our jobs, or we should continue looking before the markets get crazy again. Thank you.” Oh boy, Cleven, this is a problem that most people are having right now so first off don’t feel bad.
Largely, cash flow did go away when the mortgage rates went up. The good news was that houses weren’t selling for as much over asking prices as they used to be but there’s always going to be a pick-your-poison element to real estate investing. We complained about the fact that you had to overbid on these properties, even though they cash flowed, now we complain about the fact they don’t cash flow. If something changes we’re going to be complaining about that. Properties will cash flow but under different conditions, you’re going to have to put more money down. So if you’re putting more capital into the deal you’re going to watch your ROI go down even though your cash flow is going to go up.
And my two cents on this is that if you have to stick a lot more capital into a deal to make it cash flow so that it’s safe, you need to have significantly more upside which means you need to be investing in an area that is likely to get more appreciation, or getting a deal that you bought for less than what it’s worth by a significant amount. So it’s one thing to think about there. You can still get cash flow but you’re going to have to put down more than 20%. So if you’re looking to invest in Vegas, my advice would be to find the neighborhoods or the areas that you think are going to appreciate more than their competition. I call this market appreciation equity. It’s the idea that not all markets appreciate at the same level.
The other thing that you could do is look for a different primary residence for you and your wife that has an element of it that could be rented out. Can you find a property that’s got a guest house, that’s got a basement that you guys can live in and rent out the rest of it? I know that’s not ideal, I know it’s not what you want to do. But if cash flow really is impossible to find, the other way that you can build wealth is by saving on your expenses.
Can you eliminate your mortgage or cut it down by a significant amount and save the difference? Remember, $2,000 a month saved off of your mortgage is the same as $2,000 a month in cash flow. It’s actually better because cash flow is taxed while savings are not. It’s very easy as investors to forget that saving money is just as powerful as making money. And you really don’t need to be super focused on cash flow until you’ve already reduced your budget by as much as you possibly can. So those are two things that you can work on while the market is currently in this stalemate.
Now, I just want to remind you, if we do get lower rates and you think you’re getting cash flow again you’re going to have to be ready to jump in fast because all the other investors are going to realize the same thing. And like locust, they’re all going to converge on these markets and bid the prices up to where guess what? They no longer cash flow. Easy cash flow is a thing of the past. I don’t think we’re going to see it again maybe ever. Cash flow is now going to be something that you have to work really hard to find or something that you have to work really hard to create, or something that you have to wait to materialize on its own through rising rents. But remember that there are other ways that you can make money through real estate so focus on those.
All right, that was our last question for today’s Seeing Greene. And I’m so glad you’re here we haven’t done one of these for a while and I’m really glad that we did. Remember, I want to have you featured on this show so head to bigger biggerpockets.com/david and submit your questions there. And comment on YouTube and let us know what you thought of today’s show, what you wish that I would’ve said, and what your favorite part of it was. Thanks, everybody. You can find my information in the show notes if you want to follow me and leave me a message. You can also find my books at biggerpockets.com/store if you want to read those. And leave me a comment there, I’d love you for that also. We will see you on the next one.

Charlene Chu, China macrofinancial senior analyst at Autonomous Research, discusses the Evergrande liquidation order and says “the real question about the winding up petition is to what extent are the mainland authorities going to recognize what was decided in the Hong Kong courts.”

Got kids? Then, eventually, you’ll (most likely) also have college bills. And spoiler alert: They will be big. 

While it’s certainly not a parental requirement, footing the college bill (or any part of it) and allowing your kids to graduate debt-free is an enormous gift—one of the biggest you can give your children. Conventional savings vehicles, like 529s, are amazing tax-free-withdrawal vehicles, but they’re not the only way to get to the finish line. You can also use your real investing superpower to build the college trove, and you don’t need to have started saving in utero (although that always helps)

Here are two ways to fund college with real estate, whether you’re starting early or a little later.

1. Starting Early: Buy a Single-Family Home When They’re Born

Each kid “gets” their own home. Put 20% down, buy something reasonable and steady, and rent it out. This is base-hit, not home run time—you have almost 20 years for the thing to appreciate, after all. 

Then you can do one of two things: squirrel away the yearly cash flow (in a 529 or another tax-deferred vehicle) to pay for school, or keep (reinvest) the cash and, 18 years later, sell the house entirely and likely have more than enough to pay the bills and then some because of your smart focus on appreciation.

Even better (and more generous), use the cash flow you’ve socked away for two decades to fund college, then transfer ownership of the single-family home to your college kid when they graduate. Work with your legal team to buy it initially in a trust or an LLC where your kids are already named so you don’t pay a transfer tax. Now you’ve gifted them their first income stream before they even have their first W2.

Of course, you’ll teach them how to handle this revenue—how to save it or reinvest it—so your gift pays massive dividends. Do this for each kid, and you’ll set them up for massive success.

2. Starting Later: House Hack in Their College Town

You may need to rely on your 529 or other savings with this strategy to fund the first year of college since you probably won’t be able to predict where they’ll enroll in advance, but once they decide, turn on the house hack engine. 

Sometime during your kid’s first year, buy a duplex or house with multiple bedrooms in their college town. Make sure it’s someplace that college kids actually want to live, close to campus and amenities. (Your kid can help advise on this.) 

Then, when your kid is allowed to move out of the dorms, move them—and their (respectful, well-behaved) friends into the rental—one bedroom per kid. Collect reasonable rent from the friends and/or from the tenants in the other half of the duplex and enjoy free room and board for your kid while using the proceeds to pay the rest of those college bills.

Is your kid good at finding roommates and keeping an eye on repairs? Offer to provide them with a little spending money in exchange for basic property management. Some universities will eventually allow you to declare in-state residency after a bit (if they’re going to college out of state), which will save you even more on bills. Four years later, decide whether you want to keep the original college house or rinse and repeat wherever they’ve decided to go to graduate school.

What did we miss? How are you planning to use real estate specifically to fund your kids’ college education?

2024 Live Virtual Summit

Struggling to invest or feeling unsure about the 2024 real estate market? Our first-ever BiggerPockets Live Virtual Summit was created just for you! Led by your favorite experts, dive into four mind-blowing nights of pure real estate inspiration and make 2024 your year for real estate success.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Dave:
Hey, what’s up everyone? Welcome to On the Market. My name is Dave Meyer, your host. And today we’re going to be talking to one of the most well-respected and knowledgeable housing economist in the country. His name is Doug Duncan. He’s the senior vice president and chief economist at Fannie Mae. You’re probably aware Fannie Mae, one of the biggest government-backed entities that provides mortgages to the entire country. And so Doug and his team are really up on what’s going on with the housing market.
And today there are a couple things that I’m really excited to talk to him about. First and foremost, his team collects information and consumer sentiment, not just consumers, but home buyer sentiment. And so we’re going to talk about how people are feeling about the market, and not just how they’re feeling, but how their opinions of the market actually go on to influence behavior and actual results in the marketplace. And then, Doug has one of the most nuanced and most specific understandings and predictions about mortgage rates that you are likely to hear. So if you’re curious about where mortgage rates are heading this year and well beyond where you can expect mortgage rates to live over the next couple of years, you’re definitely going to want to stick around for this episode. So we are going to take a quick break and then we’ll bring on Doug Duncan from Fannie Mae.
Doug, thanks so much for joining us today.

Doug:
Happy to be here. Good to see you again.

Dave:
Likewise. Recently, Fannie Mae released an economic outlook and a national housing survey. So before we get into the outlook, I’m just curious a little bit about the sentiment. How are American consumers feeling about the housing market according to the data you’re collecting?

Doug:
Not very good. There’s been a little bit of an uptick recently in toward the positive direction as interest rates have started to come down a little bit, but in general, people don’t view it as a very good time to buy or frankly even to sell because affordability is really challenged. The pace at which prices rose in the 2020 to ’22 time period was very dramatic, much stronger than history would suggest. And then, even though interest rates were very low, which was one of the reasons for the price appreciation as people took advantage of those low interest rates, once interest rates rose, then the combination of high house prices and high interest rates really socked affordability significantly. It’s probably the worst it’s been for three decades or thereabouts, and people not very happy about that.

Dave:
Well, I appreciate your candor just saying not very good. That’s very blunt and appreciate it. How dramatic is it? Is it significantly worse than it’s been even after the ’08, ’09 era?

Doug:
Well, this is very different causes for the perspective. In the ’08, ’09 area, there was very weak or poor underwriting decisions made about credit qualifications and many loans made to people that really were realistically unable to sustain them. And as economic conditions changed, that proved out. There were huge levels of foreclosures. And so house price declines. Even with low interest rates during that time period did not lead to very happy consumers. And so we had to work through those foreclosures caused by that weak underwriting and the decline in the economy.
Today’s the basis for dissatisfaction is much more on the affordability side. Loan quality is very good. The number of delinquencies in the mortgage space are at very low levels, close to the lowest in history for Fannie Mae. And in part, that’s because in that 2020 to 2022 time period, a lot of people who already had mortgages refinanced them down to interest rates that are lifetime… It’ll be a once in a lifetime opportunity to lock in a 3% mortgage rate for a 30-year time period. So that side of things is very positive.
Our CEO called it a tail of two housing markets. If you’re in the market already and an owner, it was a great time to improve your position. You’ve seen that price decline, add equity to your household balance sheet. You’re in a really solid position. The problem is if you’re on the outside looking in trying to buy for the first time, high home prices and high interest rates are a toxic mix for you. In our sentiment survey, you do see a difference between current owners and those who are renters, and the owners are in a better position than the renters are.

Dave:
That makes sense. And what does this mean to you? Obviously, it’s interesting to see sentiment, but does it tell you anything about the housing market in the near future?

Doug:
Well, it says it’s going to be a gradual improvement, a slog, if you will, to get better. Our forecast is for home sales in 2024 to be around 4% higher than in 2023, but 2023 was a very low year historically. So it’s an improvement, but it’s certainly no gangbusters’ improvement. House prices are still, in our view, going to appreciate just because there’s such a lack of supply in the market and there’s still strong demand out there. Every increment that interest rates come down is going to put some pressure on activating that demand against that low level of supply and create upside risks in the house price area. And it’s really on the back of the builders to improve supply. But that’s going to take time.

Dave:
I guess one of the questions I’m continuously wondering and have been asking people is, as you said, lower rates and every time they tick down increases demand. But is there any chance that it will also increase supply because it improves those buying conditions for people who might now be willing to sell to buy into a slightly more favorable buying market?

Doug:
Well, at the margin, that’s possible. And if you look into the sentiment survey, you can see among the people who currently own a home, that their sentiment suggests it’s not a great time to sell a house because the combination of higher prices and interest rates reduces the group of people who could afford to buy that house. And so they don’t want to sell into a falling price market. So there’s a little bit of a give and take there with the improvement in affordability, and it really all comes back to revolve around supply.
So in order to make things return to more historically common relationship, you got to see one or a combination of up to three things change. One is there has to be some increase in supply. Some people are looking to that to the late life boomers releasing supply back into the market as one possibility. Obviously, the builders’ acceleration among the builders and adding supply to the market. The second thing is a rise in real household incomes. That’s important. If we see growing real household incomes, that helps. And a third thing is reduction in interest rates. So some combination of those three things is going to be required to return affordability to longer term, more average levels. And we don’t see that happening in 2024.
We see the Fed cutting rates four times in 2024. That’s what gets us to that 5.8% mortgage rate, which we think may occur in the fourth quarter of this year. So gradual improvement. We’ll see whether the bond market bears that out in 2025. We actually have another four rate cuts in our forecast, and so we see mortgage rates coming down into the mid-fives range.
When we are asked to think about what should people think of as a go forward mortgage rate, I take a look back at the history of the 30-year pick street mortgage. And from the post-World War II time period after the VA was in operation and employment stabilized shifting from the war footing of the economy, the average 30-year fixed rate mortgage from that time period up to the year 2000 is about 6%. During that time, the economy grew at about 3% annual even including recessions.
So if you think about that relationship and then think about the CBO today projects the potential growth of GDP going forward at about one and three quarters percent annually, and think about what would mortgage rates relative to that look like. What I tell mortgage lenders is I would be doing my planning on a interest rate path across the housing cycle of between four and a half and 6%, four and a half when we come out of recession. And so things are getting started again, the Fed has eased, rates have come down. Then across the expansion, you see rates gradually move up as incomes move up. And prior to Fed tightening on the other end of that expansion, mortgage rates probably hit around 6%. So the middle of that, it’s about five and a quarter percent mortgage.
It might be a little lower, depending on what you think about all of the treasury issuance that has to be done to fund the debt in the United States because that number is going to be bigger this year than last year and even bigger next year. So that underlying treasury issuance may put some up upper pressure on rates that would suggest it wouldn’t go as low as it might given the lower level of economic growth under which the housing market operated.

Dave:
Okay. But it sounds like given what you’re saying about the range, and if the Fed you believe long-term tightens around six, gets back down to four and a half, does that mean you think the reason it’s going to take a few years to get back down to maybe low fives is because we’re going to be in a extended period of slow economic growth or perhaps even a recession?

Doug:
Well, we flipped our forecast in December. We still had a mild recession in the first half of 2024, but we’re just not seeing the weight of change resulting in that at this point in time. We’re still monitoring a series of things that are highly correlated with recession that are still indicating recession. But one of the reasons we felt the recession would be mild was because of the supply demand imbalance within housing. That certainly has played out to be true. That part of the forecast we absolutely got right. But housing now starting to improve would suggest it may actually keep us from going into recession and lead the way to, if not strong growth, at least slow growth. And our forecast does reflect slow growth over the next couple of years. So that slow growth suggests that the Fed will continue to bring rates down and move mortgage rates back to that low to mid-fives range.

Dave:
I want to get back to something you said earlier, Doug, about supply and where it comes from. And it sounds like you’re of the belief that I think is shared by a lot of experts in the housing market that affordability long-term does need to return to more historical averages, but it doesn’t need to happen quickly, and it could happen over the next few years as the combination of variables, you said, take effect. You said basically real wage growth that for our listeners means inflation adjusted wage growth, perhaps more building, lowering interest rates. Is that how you see the housing market operating over the next few years?

Doug:
Yeah, we don’t see the supply problem going away immediately. That’s a longer term challenge, and there’s been a lot of analysts that have run their forecast ship on the ground expecting some sort of a catastrophic decline in house prices because of a demographic shift. We don’t see that.
Most recently, there was an article written about who’s going to buy all these big suburban homes now that the boomers are empty nesters. Well, the shift toward work from home suggests even if you have a smaller family, now you need at least one office and maybe two if you’re a two income household. And so that’s going to absorb some of those extra bedrooms that were considered to be the risk. And so once again, the shift in economics and demographics has suggested there’s not waiting out there some catastrophic decline in house prices. And in fact, gen X population group, depending on the years that you calculate, is actually larger than the boomers, and they’re still a pretty significant group at the tail end of that age group. And the uncertainty is we don’t know how much immigration is going to backfill behind that. So predicting some sort of a dramatic drop-off in house price has been a fraught area to be in, and we’re not in that area.

Dave:
Yeah. Yeah. I’m with you there. The last question, Doug, before we let you go is you mentioned something about construction and that it would take a really long time. This is a question we get a lot here on the show. What would it take for construction to bail us out of the supply problem?

Doug:
Well, you’d have to see a continued acceleration of acquiring resources by builders in order to push that forward. People talk about the three Ls or the five Ls. Land, labor and lumber being the three Ls, and they’re still in the builder community surveys. You will still see that one of the constraints that they recognize is the lack of skilled labor. It’s not basic labor carrying bags of cement or blocks or whatever, but it’s people who are really good at drywall and finishing products and things like… Some of that takes time to build. And if everyone’s trying to expand, it’s reasonable that you would see in their surveys that is a problem for them. If everybody’s trying to hire skilled labor at the same time, there’s going to be, in the surveys, a reflection of that as a challenge for them.
You would say, okay, we’ll just raise their wage rates and you’ll get more. Okay. They still need to make a profit. If you raise the cost of labor, then the question is, what happens to the cost of materials? Well, the cost of material has been going up as well. Okay, well, then what happens with the cost of land? Well, the cost of land has been going up as well. So it’s a gradual process and they expand according to the pace at which real incomes will allow households who would like to buy a new home to be able to purchase it. So there’s a simultaneous change of economic factors that needs to take place, and that will be gradual, not sudden.

Dave:
That’s a very good explanation. Thank you. I think we were all hoping it will happen, but obviously there’s some barriers to that just picking up overnight.

Doug:
Yeah, that’s right.

Dave:
Well, Doug, thank you so much for joining us. We really appreciate your time.

Doug:
You bet. Good to be with you.

Dave:
Another big thanks to Doug for joining us today. I hope you all enjoyed it. I think Doug is one of the most knowledgeable guys out there and really shared some really helpful information. For me, I find the range that he provided about mortgage rates to be one of the more useful tidbits and stats that I’ve heard in a long time because, frankly, people guess where rates are going to be in the end of 2024. But for me as an investor, it is more important to me what the range is going to be going forward because that actually allows me to make more long-term decisions. Like, do I want to do a rate buydown? How much debt do I want to put on? Should I refinance this year? Rates are going to be lower. And I generally think that his analysis of the range of rates is good.
It sounds like we need another year to at least get into that range of six to 4.5%. And I agree with Doug. I personally don’t see it going. I think it will probably stay in the sixes for most of ’24, maybe dip into the fives. But I do think we have a ways to go with mortgage rates. But it’s helpful still to just understand that not likely to get down into 3% again, probably not even into the low fours anytime soon, maybe not even in our lifetimes. And so that will hopefully get people selling when they realize this. And as an investor, that hopefully helps you make decisions about what you’re going to purchase, when you’re going to purchase and your financing strategy.
So hope you learn something. I appreciate you all for listening. If you did learn something and you liked it, share it with a friend or leave us a five star review on whatever platform you’re listening on. Thanks again. We’ll see you next time.
On The Market was created by me, Dave Meyer, and Kailyn Bennett. The show is produced by Kailyn Bennett, with editing by Exodus Media. Copywriting is by Calico Content, and we want to extend a big thank you to everyone at BiggerPockets for making this show possible.

Ankur Jain, Bilt Rewards founder and CEO, and Ken Chenault, General Catalyst chairman and managing director and Bilt Rewards board chairman, join ‘Squawk Box’ to discuss the company’s rewards program, how Bilt partners with real estate owners and allows its users to earn points when paying their rent, and more.

This article is presented by Ignite Funding. Read our editorial guidelines for more information.

As an investor, you have many options when it comes to where you put your money. Day after day, whether you are driving to work or watching your favorite reality TV show, you’ll see advertisements telling you to invest in gold, stocks, digital currency, mutual funds, etc. 

And because of those ads, people have become familiar with those types of investments. But very few people are familiar with trust deed investing, although it’s a form of investing as old as money itself. 

What is Trust Deed Investing?

A trust deed investment is when a lender (you) lends money to a borrower (homebuilder/developer) that is secured/collateralized by real estate. Trust deeds allow investors to get a passive introduction to investing in real estate without the need for large capital outlays. 

Investing in trust deeds means you are loaning your money against collateral. The collateral—real estate/land, in this case—serves to protect the lender’s investment.

This leads us to one of the most important considerations in trust deed investing: the true value of the collateral. It’s especially important that trust deed investors consider the size of the loan they are making in relationship to the real estate collateralizing the loan. This is why a detailed underwriting process is helpful to justify the value of the property, evaluate each piece of collateral at hand, and ensure the borrower is accountable for what they are borrowing. 

Before investing in any trust deed, ensure you are provided the following: 

• Location
• Type of loan
• Terms and funding date
• Interest schedule
• APNs or property address
• Collateral history, if applicable
• Property details
• Borrower use of proceeds

As an investor, you get to choose which projects you invest in, as well as which borrowers your funds are lent to.

Why Trust Deed Investing?

A loan made via a trust deed is similar to a mortgage. The basic difference is that there are three parties in a trust deed: the borrower, the lender, and the trustee. 

The trustee holds the deed while the loan is being paid. Also, there is a signed promissory “note” that defines all the terms of the loan. If the borrower defaults on the loan, the trustee starts the foreclosure process. In a mortgage, the lender has to go to court to get the foreclosure started. 

Trust deed investing is so popular because it pays a comparably high rate of return, and the investments are secured by real estate, while other investments like stocks, bonds, and mutual funds don’t provide investors with collateral. Further, once the loan has been made, the rate of return associated with the trust deed is fixed and does not change throughout the duration of the loan. 

Trust Deed Investment Best Practices and Considerations

Before choosing a company to invest with, always research the company. As with all investments, there are inherent risks. It is highly recommended that consideration and proper due diligence be given to the company you are entrusting with managing your real estate portfolio. 

While trust deeds provide a sense of security through the collateral of the property, they are not entirely risk-free. Economic downturns, changes in real estate values, or defaults can impact the return on investment. 

Trust deed investments also lack liquidity, something most investors have become accustomed to, specifically in the stock market. Selling or exiting a trust deed investment may take more time and effort compared to selling stocks, as the terms and conditions may not allow an investor to prematurely exit the investment without penalty, if at all. 

Defaults are always a possibility for anyone lending or investing in real estate. How the default situation is handled can be detrimental to the return on your initial principal investment. The default process can be overwhelming for investors who have never taken property back through foreclosure, which is why it is important you work with a reputable and experienced loan servicer. 

So when is a good time to invest in trust deeds? The simple answer is now. 

Trust deeds don’t follow the volatility of the stock market. They more or less beat to the sound of their own drum. They also provide investors with instant diversification through different geographic locations and phases of real estate (acquisition, development, and construction). Depending on your investing time horizon and risk tolerance, where you invest your money can make a big difference in your financial future. 

In each example in the chart, if you invested $100,000 over five years with annual compounding in each of these investment vehicles, the results vary significantly based on the potential performance:

Every investor deserves to have a reliable source of passive income in their portfolio. Had you invested a portion of your portfolio in 2023 in trust deeds, you could have made a consistent 10% annualized return on your investment. 

This being said, Trust Deeds are not meant to be the “grand slam” investment of your portfolio. They are meant to provide passive, fixed income that diversifies you from other investment types but still allows you to have control in terms of selecting where you want your funds to be invested. 

If this type of investment intrigues you at all or you would like to speak to someone about questions you may have about getting started, check out the Ignite Funding website or call us at 702-761-0000.

This article is presented by Ignite Funding

Ignite Funding offers real estate investments backed by collateral. More specifically, we provide an alternative investment option that matches quality real estate Borrowers with Investors seeking capital preservation in collateralized turn-key real estate investments while earning a 10% to 12% annualized return. Since 2011, Ignite Funding has funded over $1.5B in loans with Investor capital.

Ignite Funding, LLC | 6700 Via Austi Parkway, Suite 300, Las Vegas, NV 89119 | P 702.739.9053 | T 877.739.9094 | F 702.922.6700 | NVMBL #311 | AZ CMB-0932150 | | Money invested through a mortgage broker is not guaranteed to earn any interest and is not insured. Prior to investing, investors must be provided applicable disclosure documents.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

As part of its goal to increase affordable mortgage access for homebuyers in the United States, Fannie Mae announced in December that it would accept attorney-opinion letters (AOLs) in place of title insurance with more mortgages. While AOLs have been allowed by the government-sponsored enterprise on select mortgages since 2022, the decision expands eligible mortgages to include condo units and properties with homeowners association (HOA) restrictions, potentially assisting more first-time homebuyers with the high costs of homeownership by trimming about $1,000 off their mortgage closing costs. 

The Community Home Lenders of America expressed support for the alternative as a way to tackle homeownership affordability challenges. But the American Land Title Association (ALTA), the nation’s largest title insurance trade organization, has consistently pushed back against attempts to allow title insurance alternatives, citing gaps in protection for homeowners and lenders. 

The association joined lawmakers from both political parties in criticizing an earlier pilot program that may have eliminated the title insurance requirement altogether on select mortgages. Fannie Mae abandoned the pilot program last year based on guidance from the Federal Housing Finance Agency (FHFA). 

Though AOLs will now be an option for lenders originating many government-backed mortgages, critics claim lenders will need to sacrifice essential protections to make the alternative available to borrowers, which may limit the impact of Fannie Mae’s decision. 

What Is Title Insurance?

First, it’s helpful to understand what title insurance is. This type of insurance protects against defects in the title that were present before the home sale but may threaten the buyer’s ownership rights or cause monetary losses in the future. 

The vast majority of mortgage lenders require borrowers to purchase a lender’s title insurance policy with a limit that covers the mortgage principal. This means buyers must pay a sizable one-time premium at closing, which provides coverage until the mortgage is fully paid or the home is sold. 

If issues with the title arise that challenge the buyer’s right to ownership, such as boundary disputes, unpaid real estate taxes, contractor claims, errors in property records, or fraud, these issues could put the lender’s security interest in the property at risk. The lender’s title insurance policy protects the lender against monetary losses in the event a third party successfully claims ownership of the buyer’s home. It does not cover the buyer’s legal fees or protect their home equity. 

That’s why most attorneys recommend that buyers purchase an owner’s title insurance policy as well. These are often sold as a package. The owner’s title insurance policy typically covers the homeowner as long as they own the home. 

Is Title Insurance Necessary?

Title insurance critics contend that attorney-opinion letters, which are now allowed on many mortgages backed by Fannie Mae and, in more limited circumstances, Freddie Mac, provide sufficient protection against title risks.

According to Fannie Mae’s guidance, attorneys issuing the letters must have errors and omissions insurance, which can protect against losses the lender incurs due to attorney negligence during the title examination. For example, SingleSource, which provides services to mortgage originators, now offers an Attorney Conclusion of Title that includes a transactional liability insurance policy that lists the lender as a third-party beneficiary and covers the loan principal for the length of the loan. 

But if the buyer discovers title issues that are not due to attorney negligence, any resulting losses may not be covered. And foreclosure may need to occur before even filing a claim. It’s also not clear whether the buyer’s or lender’s legal fees would be covered in a title dispute or whether an AOL provides any protection against title issues related to fraud, according to ALTA. 

For these reasons, lenders and buyers may opt for title insurance to get access to broader coverage for a wider range of title defects, even if a cheaper alternative is available. Some members of Congress have expressed concern about how AOLs will be marketed to homeowners and have asked the FHFA for clarification on what disclosures will be required to prevent consumer protection violations. Without proper education on the differences between title insurance and AOLs, homebuyers might not understand the protections they’re giving up to save money on closing costs. 

That said, title issues are relatively rare. In fact, of the more than 10,000 AOL-supported mortgages that Fannie Mae has purchased since 2009, none have resulted in losses for the mortgage company. While title defects have caused homeowners to lose their properties in rare cases, mechanics’ liens are more common and not as catastrophic, according to the Urban Institute. 

Reducing Title Insurance Costs

Despite the broad coverage that title insurance policies provide, many people criticize the high costs to consumers and how that money is spent. With most insurance products, providers spend about 70% or more of the premium dollars they collect paying out claims to policyholders. Title insurers, by contrast, only put about 5% of premiums toward covering losses. 

Title insurance agents retain about 70% of buyers’ premiums, according to a report from the U.S. Government Accountability Office (GAO). While the role of the title insurance agent is sometimes labor intensive, in other instances, it can be mostly automated, with the title search and examination taking as little as 60 seconds. 

The Consumer Financial Protection Bureau encourages homebuyers to shop around for a title insurance company since research shows comparison shopping can save consumers as much as $500 on title insurance. However, some people question whether real estate brokers or lenders may be steering homebuyers toward title companies with which they have Affiliate Business Arrangements (ABAs) that provide financial incentives. 

For example, The Denver Post investigated 2,200 home sales for which real estate brokers had profitable partnerships with title companies and found that most homeowners chose the title insurance company that financially benefited their broker. Agents are required to register ABAs with the state of Colorado and disclose those relationships with homebuyers, but the investigation revealed at least three dozen agents with unregistered ABAs. 

And there was evidence to suggest that even some brokers with registered ABAs weren’t giving their clients options. For example, 100% of three brokers’ home sales used their affiliate title insurance company. If brokers had provided homebuyers with three options to compare with each other, as industry protocol suggests, that outcome would be highly unlikely. 

Title insurance typically costs about 0.5% of a home’s purchase price, which is more than $2,000 on a median-priced home. Even in the absence of affordable alternatives that provide sufficient protection for homeowners, the Urban Institute notes there are ways to control excessive costs. Self-insurance by secondary market entities, like the pilot program Fannie Mae dropped after backlash from the title insurance industry, could be one potential strategy. 

State regulations can also make an impact. For example, the state of Iowa, which prohibits the sale of commercial title insurance, operates Iowa Title Guaranty, which provides similar coverage as a commercial title insurance policy to both the lender and the owner at a flat fee of $175 for properties that sell for $750,000 or less. Any surplus profits go toward Iowa’s housing program fund. 

Iowa’s homebuyers are also required to pay for an attorney-abstract opinion, but they still pay far less than the typical title insurance premium in other states. Additionally, Iowa Title Guaranty won’t insure titles that haven’t been thoroughly examined by an attorney. Because this system has been in place for decades, the state is well known for its clean titles. 

The Bottom Line

While $1,000 in savings may seem minor relative to the cost of buying a home, homebuyers today need any edge they can get. Research shows that even an extra mortgage payment’s worth of post-closing reserves can dramatically decrease the risk of default. 

The FHFA requires Fannie Mae to make efforts toward advancing housing finance equity, which is a challenging task given high mortgage rates and high housing prices. Expanded acceptance of AOLs in place of title insurance is one aspect of Fannie Mae’s plan, but in some situations, forgoing title insurance could leave homeowners vulnerable to unaffordable costs down the road. Lawmakers and title industry advocates have been vocal about their concerns, and their criticism may impact lenders’ decision to allow the alternative. 

Real estate investors may also continue to purchase title insurance, even if more affordable alternatives are available, in order to secure the broadest possible protection for their investments. But regardless of the impact of Fannie Mae’s decision, there may be room for further innovation and cost control measures related to title insurance.

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