\n<\/p>\n
The real estate commission lawsuit<\/strong> that threatened buyer\u2019s agents\u2019 income<\/strong> is coming to an end. The conclusion? There could be even more murkiness ahead<\/strong>, and agent commissions<\/a> are far from future-proofed. This settlement could either have been a cash grab from the get-go or a way to end the \u201cunfair\u201d buyer-seller agent commission split<\/strong>. So, how will this affect buyers and sellers today<\/strong>, and will these lawsuits make a difference on your next home sale or purchase?<\/p>\n We\u2019ve got the hard-hitting housing market headlines you need to hear about on this episode of On the Market<\/em>. First, we\u2019ll talk about RE\/MAX\u2019s settlement and the future for <\/strong>buyer\u2019s agents<\/strong><\/a>. Then, we\u2019ll uncover why exactly housing starts have started<\/strong> (no pun intended) to freeze<\/strong> and why apartment investors could be begging you to take land off their hands<\/strong>. And, if you\u2019ve ever wanted your home to pay you money every month, the new \u201cpassive home<\/strong>\u201d development has just what you\u2019re looking for. But with a high initial purchase price, are the savings\/profits worth the cost?<\/p>\n Finally, if you thought you were smart for house hacking, prepare for an ego-blow because Dave Ramsey<\/strong><\/a> wants YOU to know that subsidizing your mortgage is a move for LOSERS<\/strong>. Sell that investment property, buy your house in cash, and prepare some beans and rice for dinner! All that and more on this episode!<\/p>\n Dave: Henry: Dave: Henry: Dave: Henry: Dave: James: Henry: James: Henry: James: Dave: Kathy: Dave: Henry: Dave: Kathy: Dave: James: Dave: Henry: Dave: Kathy: Dave: Henry: Dave: Henry: Dave: Kathy: Dave: Henry: Dave: Henry: Kathy: Dave: James: Dave: James: Kathy: James: Kathy: James: Henry: Dave: Kathy: Dave: Henry: Dave: Henry: Dave: Kathy: Dave: Kathy: Dave: James: Dave: Henry: Kathy: Henry: Dave: Henry: Kathy: Henry: Kathy: Henry: Kathy: Henry: Kathy: Dave: Kathy: James: Kathy: Dave: Henry: Dave: Kathy: Dave: Kathy: Dave: Henry: Dave: James: Dave: Henry: Dave: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
Hey everyone. Welcome to On the Market. I\u2019m your host, Dave Meyer. Joined today by Kathy Feki, Henry Washington, and James Daner. Good to have all three of you here. Appreciate you joining us. Coming back from some very fun sounding trips that you were all on. Henry, I thought we lost you to Hawaii permanently.<\/p>\n
Yeah, I did. I did I think of taking up permanent residence in Hawaii. But, I would just get Allen fever, man. That flight\u2019s a long flight to get out of there. But, we love being there.<\/p>\n
I feel like there\u2019s this thing with real estate investors, specifically in the BiggerPockets community that they all just wound up in Maui at some point. They all just find themselves there.<\/p>\n
I obviously went to hang out with Brandon. But then, realized Josh Dorkin lived down the street, walking distance. And then, every night, just random real estate investors show up at Brandon\u2019s house, and then just food shows up and people sit around until one in the morning. That\u2019s just a thing there. I had no clue.<\/p>\n
Really?<\/p>\n
Yeah.<\/p>\n
James, is that on your list of places you\u2019re going to move? Maui?<\/p>\n
Absolutely not.<\/p>\n
Why?<\/p>\n
I would go so stir-crazy if I was stuck on an island.<\/p>\n
That makes sense.<\/p>\n
I got to move. I need to be able to move around. But I do enjoy visiting.<\/p>\n
Kathy, did you do the same thing when you were out there? Did you stay up to one in the morning talking to Brandon about real estate?<\/p>\n
Yes. No, probably three in the morning. But yeah, we had a great time.<\/p>\n
I guess, Kathy\u2019s more interesting than you Henry.<\/p>\n
It\u2019s not a surprise.<\/p>\n
Well, we do have a great show for everyone today. We are doing a headline show. We\u2019re going to talk about some of the most important and interesting things happening in real estate today. So, what we\u2019re going to cover today is an update on the major lawsuits that are potentially going to be impacting how agents are compensated and could have all these cascading ripple effects throughout the industry. We have a big update there. We\u2019ll talk about construction trends, which I think, is particularly interesting given how important they are for inventory these days. We\u2019ll also talk about a new type of home called a passive home. And lastly, we will visit our friend, Dave Ramsey, and hear about some advice that he has been giving young landlords, and I want to see if the three of you agree with what advice Dave Ramsey is giving. So, that\u2019s what we\u2019re getting into today. It\u2019s going to be a great conversation. We will take a quick break, and then we\u2019ll jump into it.
The first headline today is that RE\/MAX, one of the biggest brokerages in the country has settled in the two lawsuits that have been ongoing and allege that some of the NAR rules and some of the rules instituted by brokers around how, in some ways, or this is what they allege, sellers are forced to pay the buyer\u2019s commission, and how that is not legal or violates antitrust rules. RE\/MAX has decided to settle this lawsuit for 55 million. And if anyone is not familiar with these lawsuits, it does have this huge potential to change the industry. It\u2019s too much for us to get into fully here, but we did do an episode with James Rodriguez on this a couple of weeks ago. It was called New Agent Lawsuits Could Have Profound Effects on Buying and Selling Homes. So you can go check that out On the Market feed if you want to learn more.
But basically, it sounded like, these lawsuits are trying to get agents and brokerages to change the way they do business and not force sellers to pay the broker commission. So I\u2019m a little confused by the settlement here, right? Because, RE\/MAX, it says, they will \u201cchange some of their business practices,\u201d which hopefully they will. But it doesn\u2019t really sound like it\u2019s changing all that much. So, Kathy, let\u2019s start with you. What do you make of this settlement?<\/p>\n
Oh, wow. Well, a settlement is a way of saying, \u201cI don\u2019t really want to go to court on this. And I don\u2019t want a jury to decide, so let\u2019s just settle.\u201d It doesn\u2019t necessarily mean there\u2019s any court order for them to change things. But, the question is, will this affect real estate? I guess, for me, the biggest issue is, it is still the buyer at the end of the day, who\u2019s paying for it, right? What could hurt the buyer is if they can\u2019t finance those fees. So, in other words, if now the seller no longer pays for the buyer\u2019s fee in the price of the home, and the buyer has to come out of pocket, could that still go on the closing cost? Could it still be covered in the loan? Because if they have to come out pocket, that hurts to me, in my opinion, the buyer the most.
Also, changes are happening, right? And technology is changing a lot of things. And I think a lot of people thought that realtors would see their fees go down anyway now that people could go find their own property, and go to the open house, and all they really need is some guidance through the contract process. And, anyway, change is coming. It just is actually surprising to me how long it\u2019s taking.<\/p>\n
Yeah. This seemed like it was going to be one of the more successful, or at least interesting lawsuits or challenges to the status quo. And now, I\u2019m curious if maybe it was overblown and it was just more, yeah, posturing or a cash grab. But, James, you are the most active agent among us, so what do you make of all this?<\/p>\n
I mean, as far as I have felt that these lawsuits and threaten of lawsuits, they have made zero impact. Everybody\u2019s still advertising, at least in the Pacific Northwest, the average commission is 5 to 6%, 3% to the buyer, 3% to the seller, and it\u2019s paid by the seller. What Kathy brought up is a good point. I do think it won\u2019t really matter and the financing would change. But yeah, it could have impact on especially that first time home buyer that\u2019s putting down 3%. Now, all of a sudden, if they have to pay another 3%, that\u2019s 100% more they got to come with on a down payment. But I think, this whole thing, all it does is add another level of complexity to a complex deal in general.
In real estate, there\u2019s all these negotiations going on, and now there\u2019s just an extra thing of negotiations where buyers are going to go out, and they\u2019re going to shop, and price out their brokers. And, what it\u2019s going to come down to is the brokers that are going to charge 3%, or what has historically been the average, they\u2019re going to provide a very good service. And the ones that aren\u2019t providing the good service are probably going to need to charge less. And, I mean, I have no problem with that. I just feel like now it\u2019s this open negotiation before you even go into a negotiation. So it\u2019s just another thing that you have to talk to your client about.<\/p>\n
Well, yeah, I think it could end up that way. But just want to be clear that this settlement doesn\u2019t make that necessary. We don\u2019t know yet if that\u2019s going to necessarily happen. But, I at least thought James, that that was the intention of these lawsuits, is that, that\u2019s what the plaintiffs wanted is for you to be able to negotiate more easily.<\/p>\n
They wanted money.<\/p>\n
The plaintiffs, yeah. They just wanted to see if they could get someone to settle.<\/p>\n
And they got it.<\/p>\n
Yeah. Is that all you make of this, Henry? You think it\u2019s going to be over?<\/p>\n
I mean, based on this settlement, I don\u2019t think anything\u2019s going to change. I mean, they don\u2019t have to change anything. Why would they want to? They\u2019re not incentivized to change. I don\u2019t think anything seriously around the laws is going to. Now should it change? I think there should be some change. I think it\u2019s silly that one side pays for both agents commissions. Yes, and I think that could cause a problem for these buyers who have to go out and find their own agents, right? But, down payments are expensive, closing costs are expensive, and because they\u2019re so costly, there have been programs and things that provide assistance for those as well as you\u2019re able to finance some of those things into the loan. I just think this will be another one of those things where some assistance will be provided to those who need it, or will be able to finance it into the loan.
Now, will it hurt some people? I think, yeah. I mean, any law change, there\u2019s going to be people that it benefits and people that it hurts. I think the issue is people think agents are just opening doors and pushing papers, until you get into a situation or a negotiation where that agent actual skillset is truly needed. And then, they are a lifesaver. Right? And then, you\u2019re so glad you got a good agent and the right representation for that deal. Now, what percentage of deals get done or just pushing papers and opening doors versus the percentage of deals where you really need your agent to act like your advocate and rockstar for you? I don\u2019t have those numbers. But I know I\u2019ve been in deals where I sure I was glad that I had the right representation and would\u2019ve gladly paid 3%, 4%, 5%.<\/p>\n
No, totally.<\/p>\n
In that situation. And so, do I think this needs to be looked at and potentially some change needs to happen? I think so. Does it need to happen the way that they\u2019re indicating it needs to happen? I\u2019m not sure. I don\u2019t have the answers for that. But, I do think it\u2019s silly that one side pays for both agents, and I can understand why that\u2019s frustrating.<\/p>\n
Yeah, I tend to agree with you, Henry. I think, it doesn\u2019t seem like an optimized system for anyone. And I totally agree that agents deserve to make a fair commission off of these things. They\u2019re extremely valuable. It does just seem like overly complicated and this strange weird thing, and some re-imagining probably could happen to benefit everyone involved. I just don\u2019t know what that is. But I will say that I doubt anything\u2019s going to change. NAR is a professional lawsuit destroyer, that\u2019s all they do. They just have so much money.<\/p>\n
That\u2019s their expertise.<\/p>\n
Yeah, it\u2019s literally their whole job is just squashing lawsuits. So I think that they are probably going to succeed at squashing this one too.<\/p>\n
And, I advocated for agents. And so now, I\u2019m going to play the other side. I think part of the problem is there\u2019s too many agents, there\u2019s way more agents than there are homes available On the Market for sale. It\u2019s too easy to be a bad agent and make a little bit of money here and there. Right? I think, no matter what rules change, the agents who are good, and are doing the right things, and taking care of their clients in the right ways, and great at showing their value will continue to make money. And those that suck, and are just in there to pick up a commission here or there, and don\u2019t really work that hard, and want to pick up all the easy dollars off the ground.<\/p>\n
Like James.<\/p>\n
They\u2019re going to struggle.<\/p>\n
Yeah, it\u2019s not like one side is paying, it\u2019s the buyer who\u2019s paying. The buyer\u2019s paying for the cost of the sale, right? At the end of the day, it\u2019s in the price of the property. So, it\u2019s not like the seller is coming out of pocket. It\u2019s the buyer at the end of the day who\u2019s paying all the fees and commissions. So, I don\u2019t really care how that\u2019s done. But to me, if it\u2019s lumped into the price of the property, then that\u2019s easier, because it can be financed. But, back to your guys\u2019 point, a good realtor is worth every bit of it. A bad one is a bad one no matter what and is going to screw up your deal.
I just saw that happen recently, where somebody hired their buyer\u2019s agent who\u2019s not from the area, it was just a friend. Please don\u2019t do that. This isn\u2019t a friend industry. Hire someone local who has done a ton of business in your neighborhood, because they\u2019re going to know\u2026 In our case, we\u2019re on septic systems. The person that was representing this guy who lost out on the deal didn\u2019t know anything about septic systems. So if you used a local agent, they would know everything about the soil, about the area, the problems that have existed over the past 10 or 20 years that they\u2019ve been helping people in the market. So, to buyers out there, get someone local and experienced who\u2019s done a ton of deals directly in the area where you\u2019re buying.<\/p>\n
Well, to James\u2019s point, I feel like that\u2019s the fear, is that, if buyers are shopping around for the cheapest available agent, then many of them not knowing the difference between a 1% or a 3% agent will choose the cheaper option, and ultimately, wind up with someone who either doesn\u2019t have their best interest or is not capable of providing the level of service that a home buyer, but particularly, an investor who has their own set of needs is going to need in a transaction.<\/p>\n
We do a lot of transactions in the Pacific Northwest. Typically, we\u2019re doing about 250 to 300 transactions a year. When we have to work with discount brokers, and there\u2019s nothing wrong with a discount broker, but I will say, we have more contract issues with all those files, because they\u2019re not properly explaining the contracts to people. People are going for a discount, they\u2019re looking for their kickback, and they think it\u2019s just simple, and then they come back, and they\u2019re upset about something later. It\u2019s like, \u201cWell, read the contract.\u201d That\u2019s the job of the broker is to properly explain the contract and what the client is getting into. And because there\u2019s discounts out there, they\u2019re not getting explained, and then people are upset at the end. So, I will say, it\u2019s going to get transactions a little bit more messier if we start just cutting costs everywhere. But, I mean, hopefully people realize that a costly mistake will cost them way more than 1% on a purchase.<\/p>\n
Yeah, it\u2019s like the saying, you think a $200 an hour plumber\u2019s expensive, try $20 an hour plumber. You\u2019re better off just paying upfront. But yeah, I digress. All right. Well, we all agree that the importance of agents, if you do want to meet a trusted investor, friendly agent, BiggerPockets can match you with one completely for free. Just go to biggerpockets.com\/agents. You put in a couple of stats, information about yourself, and you can get matched with someone who can help you and represent your best interests. With that, let\u2019s move on to our second headline, which is that U.S. housing starts dropped to the lowest level since June of 2020. Basically, from July to August, construction of new homes fell about 11%, to the point where at an annualized rate it would be about just under 1.3 million. And, that is probably not what people want to hear, given that there is such low inventory right now. James, you\u2019re pretty involved in the construction and you do a little bit of that yourself. What do you make of this, I found it, surprising decline in home starts?<\/p>\n
I\u2019m actually not surprised about the home starts, because right now, [inaudible 00:15:17] call also did references, permits for single family homes rose by 2%. And so, it was back on the rise again. But what happened is when the interest rates really jumped, builders locked up immediately. And rates started increasing, what, about 13, 14 months ago? Builders froze for a minute, at least in the Pacific Northwest, where our transactions on dirt probably went down by 95%. Builders were walking away from sites. They were very nervous that the market was going to crash. And what it did is it created this big lull in the permits. And so, we\u2019re actually seeing more permits starting to roll out of Seattle right now, because there was just this backlog of permitting, in addition to builders, because cost of money\u2019s gone up, and that cost of construction is still elevated and now pricing is more flat. They\u2019re having to buy this land cheaper and it\u2019s taking a minute for the seller\u2019s mindsets to reset on the new basis of what the land can be sold for.
And so, we had this six month stalemate in the market between sellers and builders too. And now, what we\u2019re seeing is builders are now transacting a lot more, because the values have just compressed and they can work inside their margins. So, I do think permits are going to increase over the next 6 to 12 months. But, there was this weird lull and anytime builders stop buying, a lot of times, the permits aren\u2019t issued for 6 to 12 months. And so, there\u2019s this delay going on.<\/p>\n
And, in addition to that, when you really dive into the article, the construction pace of single family homes fell by only 4.3%, but it was a apartment building construction that fell by 26%. And that\u2019s obvious with apartments with higher rates, it is so hard for these builders to be able to sell for what they thought they were going to be able to sell for, and they\u2019re just giving up, they\u2019re like, \u201cForget about it.\u201d So there were all these headlines about all this new supply that was going to be coming in with apartments, and a lot of that is slowing down or not going to happen for a while, at least until rates come down. So, that\u2019s part of the issue. Single family falling a little bit because rates are a problem. But single family home builders can buy down the rate. And so, they\u2019re still able to keep it going. But with apartments, not the case. If they\u2019re building to sell, they\u2019re not going to be able to sell for what it\u2019s costing them to build. So they\u2019re just pausing.<\/p>\n
Yeah. And on that new construction apartments, those sites, they take a lot longer to permit typically too.<\/p>\n
Mm-hmm.<\/p>\n
And so, what happened is that these builders, they perform at cheaper money, cheaper bill costs, and now they finally got their permits two to three years later and their costs have exploded. And, we bought in two sites, one recently, when there was a 50 unit permitted apartment building, it took them four years to get them to that completion. He marketed it to try to sell it, no one would buy it, because costs are well out of whack. And we just bought it for\u2026 I think the seller lost about a million dollars after a four-year project. And we are scrapping his whole permit and we\u2019re building 22 town homes there instead. And so, I think, the multifamily, the math won\u2019t work at all. Those permits are going to continue to decline and not be built out right now.<\/p>\n
Yeah, I\u2019m seeing similar here in our local market. I\u2019d say, about two years ago, all you saw was new construction apartment buildings going up everywhere. And now, you\u2019re starting to see that slow down quite a bit. And the ones that are up, man, they\u2019ll change hands two or three times before the project is even complete. People are getting into the project, and then realizing it\u2019s not going to work out, and then they\u2019ll get out of the project and somebody else will get into it. And, even on my own projects, I\u2019ve got a multifamily deal that I was building. We were going to build eight units ground up. And, from when I bought the land to now, when I\u2019m at the point where we\u2019re going to construct, the cost to build has gone up so tremendously, and the cost of money has gone up tremendously. I can\u2019t make the numbers work. I can\u2019t make the numbers work if I want to keep it, if I want to sell it.
And so, that\u2019s why we\u2019re actually just selling the land to a developer who can probably build it deeper than I can build it. And then, they can monetize it differently than I can. A, I\u2019m not built for that. But B, when I bought it, the numbers made great sense. Interest rates were half of what they were now. The cost to build was down, it was less than it is now. And, I don\u2019t see how the numbers are making sense. So, I can understand why multifamily is trending down. But, single family construction around here, crazy. There\u2019s new developments going in all over the place. And A, it\u2019s needed. And B, so I was surprised when I saw this article, and then once I dug into it, I can see how multifamily is doing a little worse.<\/p>\n
Yeah, absolutely. There\u2019s just a huge glut of oversupply in multifamily. No one wants to add on top of that and get into be the last in an already oversupplied market right now. But, single family as everyone knows, undersupplied. So, I think builders are very happy. There\u2019s no inventory. I think we\u2019ve talked about this on the show, but in a typical times, new construction makes up about 10, 11% of all home sales. Now it\u2019s about 30%, just because the existing home market has completely dried up. So, this is an interesting headline. But I think, the more interesting thing is what you all were talking about, keep an eye on single family construction, because I think that is, in my mind, probably going to keep going up.
All right, for our third headline, we are talking about a brand new type of home design. It is called a passive home. It comes from Rode Architects and Passive Home Construction, they created their first passive homes in Boston. Basically, the idea is that these homes are sustainable. They feature airtight designs, I guess, like a spaceship. And they include solar panels and shading to maintain internal temperatures. The idea here is that although it is more expensive to build, they claim 5 to 15% more than a traditional home, that it will save home owners on utility costs in the long run. Henry, I just would love to hear your thoughts about this concept.<\/p>\n
It sounds like you have an opinion.<\/p>\n
I just feel like Henry has something to say here.<\/p>\n
Yes, look, I get it. I understand that you\u2019re saving on utility costs. But, the cost to build these, I think, are drastically more. We talked about these homes and we looked at some of the architecture. And it\u2019s cool, they do really make the homes essentially airtight, so that you don\u2019t have to have a traditional HVAC system that\u2019s running all the time to keep your home temperature regulated. And, that savings along with the seller savings allows you to\u2026 Essentially, these people are making money on their utilities. There was one story of a guy who, he had so much energy store that he was able to give that to his parents and his parents would be able to pay for their utility bills through the savings he was creating through his passive home. And that\u2019s a cool story.
But you think about it, these people could afford probably more home than they purchased. They\u2019re not looking to save money on energy, they\u2019re buying it because it looks pretty, and it was a unique design, and I\u2019m sure that there was some pride element in that. But, the people who need the energy savings aren\u2019t going to be able to afford to build them. So I don\u2019t know how realistic this is.<\/p>\n
Yeah, I know.<\/p>\n
For the people who really need it, I don\u2019t know how realistic it is for them to be able to get into it.<\/p>\n
This reminds me, I don\u2019t know if you guys have heard, it\u2019s used a lot in the tech industry, this concept of crossing the chasm or jumping the chasm, where it\u2019s just basically, anytime there\u2019s a new technology, the way it gets off the ground is by real enthusiasts, like what you\u2019re saying, Henry, which is people who don\u2019t do it for the cost saving, they do it because they\u2019re interested in sustainability, or they like the architecture, they like the design. Basically, probably people who live in Kathy\u2019s community. I don\u2019t know. But, it\u2019s people who are going to support the industry before the efficiencies of scale come in and make it affordable to everyone else. And I feel like, this is just, that\u2019s where this industry is right now. It\u2019s extremely expensive. It\u2019s a proof of concept stage. But, it\u2019s way too inefficient to actually become cost-effective.<\/p>\n
Yeah, that\u2019s exactly what I was going to say, is I was nominated or I won the award of top 100 most intriguing entrepreneurs by Goldman Sachs in 2012. And, it was a really cool thing. I got to meet Elon Musk.<\/p>\n
Cool.<\/p>\n
Yeah, it was really cool. And, he had just come out with the really expensive Tesla, the first one. And that\u2019s exactly what he said. He way overpriced them intentionally to help cover the cost of the innovation of it. And, those wealthy people who bought them, first of all, got to have the ego about that, to be one of the first to have it. It\u2019s a beautiful car, and it was original, and I knew lots of people\u2026 I mean, yeah, you\u2019re right. I live in an area where everywhere you looked, they had them. And it was a big deal. I remember the doors would go up and the car would dance and all that stuff. So, there\u2019s plenty of people who are willing to pay for that innovation. And the way Elon explained it to us was, \u201cThis is what\u2019s going to allow me to give it to everybody.\u201d And he said, \u201cSomeday, we\u2019re going to be able to come out with the $30,000 one.\u201d Which is the one I bought.
So, when people put up their nose to me that I drive a Tesla. It\u2019s like, \u201cYeah, but I paid less for my Tesla than you might\u2019ve paid for your car because of those people.\u201d So I see it the same way. There\u2019s enough people who don\u2019t blink about it. What they\u2019re really looking at is more of a climate change. It\u2019s more of a passion project, and they\u2019re happy to put down the money. I think it\u2019s really cool. And, we bought a lot years ago that was super cheap, believe it or not, people don\u2019t believe it, but lots in Malibu are actually pretty cheap. This one was $99,000. We saw it. And so, we have had this lot and we been looking at all the different ways to put something on there that would be unique and different. But the key is affordable. And we haven\u2019t been able to find the affordable one yet, but we\u2019re waiting, because maybe like Elon Musk, it will come down in price eventually.<\/p>\n
James, you think you could build this for 5 to 15% over normal build costs?<\/p>\n
Absolutely not. There\u2019s no off on the cost. I mean, just your core things. Your heat system typically is radiant versus HVAC, that costs you three to four times as much. Your installation is triple. Your window package is 5X more expensive. Then you have an airtight house. And not only do you have to spend four times as much on your radiant heat system, then you have to buy an ERV system, which is three times more expensive than an HVAC system to recirculate the air. It is so expensive to build these houses. And your premium you get on the backside is not really there. And then, the buyer who\u2019s paying that premium, it usually takes them 10 to 15 years just to get their energy savings back. And right now, they\u2019re buying it with a 7% rate.
And so, they\u2019re essentially just financing their savings down the road. It just doesn\u2019t make sense. We tried this when the built green energy started becoming a big trend in 2010, 11, and 12, we started doing four to five star renovations, where we were putting in triple pane windows, upgrading these things, and we thought we were going to get this huge premium. It was a net loss every time. As far as an investment goes, it just doesn\u2019t make sense to build it.<\/p>\n
Yeah, I mean, I think we see this all across real estate. This is clearly one focused on energy reduction. But, you look at 3D printed homes, the idea is that eventually they will be cost-effective. But, right now, they\u2019re not particularly cost-effective. But, I\u2019m all for construction innovation, wherever it comes. I feel like, I wouldn\u2019t buy one of these right now. But, I think, the more innovation we see in the construction industry, the better. It\u2019s still pretty antiquated, low-tech industry. And, the more people taking on these projects, the better in my mind. All right, for our last headline, we\u2019re going to be talking about good old Dave Ramsey. So the headline here is Tired of the Crazy Train, Dave Ramsey tells Frustrated Young Landlord to Ditch the Duplex and go get a House. Basically, what happens is a young Michigan landlord named Joe called into the Ramsey show for advice about what to do with the duplex he no longer cares for.
I should probably explain if anyone doesn\u2019t know who Dave Ramsey is, he is a talk show host, personal finance person who gives advice. It\u2019s a talk radio. Obviously, it\u2019s not just on the radio anymore. But, that\u2019s what it is. But basically, he called into the Dave Ramsey Show with a duplex. He bought it with his girlfriend in the fall of 2020, around 164 grand. Lived in it, basically they house hacked it, did some renovations, think they could sell it for a pretty nice about 20, 30% profit. But he\u2019s tired of having tenants and living underneath his tenants. He\u2019s unsure how to handle his investment. Dave Ramsey responded, \u201cI would sell the crap out of this thing.\u201d So, Dave Ramsey suggested, end the house hack, sell your duplex, and invest in a home yourself. Henry, I know you\u2019re a big house hacking advocate. Is this the advice you would give?<\/p>\n
I would\u2019ve just said, move into the top unit.<\/p>\n
You\u2019re the freaking landlord. Do what you want.<\/p>\n
It\u2019s yours.<\/p>\n
That is a very simple solution. Yeah.<\/p>\n
Don\u2019t live under your tenant then.<\/p>\n
That\u2019s hilarious.<\/p>\n
But, look, yeah, I\u2019m a big advocate of house hacking. I did it. It changed my life. But I will say, it wasn\u2019t comfortable. I don\u2019t know that anybody says it\u2019s supposed to be comfortable. I think there are ways that you can do it that are more comfortable than others. But I think the general gist is it\u2019s going to be uncomfortable. Wealth isn\u2019t built within a comfort zone. That\u2019s not how it works. Nobody wealthy got wealthy by being comfortable. Unless your wealth was inherited, then you got really uncomfortable at some point in order to build wealth.
And so, if the goal for this young person was to house hack their way into building wealth, I think it\u2019s a huge first step. If their goal was just, \u201cI don\u2019t really feel like paying a mortgage for a little while, so I\u2019m going to house hack.\u201d Then, you probably accomplish that, sell it, and move on. It depends on what your goal is. Just because they house hack doesn\u2019t mean they want it to be real estate investors for life. That may not have been their goal. But, for me, house hacking was a way for me to take a giant leap towards financial freedom. And, it was an uncomfortable leap. But, Lord, I\u2019m glad I did it.<\/p>\n
I\u2019m so with you. I\u2019m so with you, Henry.<\/p>\n
I had so many problems in my house hack. It was on a septic system, and the septic system just started backing up sewage into my tenant\u2019s place, and then into my place. And so, we had to deal with that issue. I mean, we had all kinds of issues. It was in no way, shape, form, or fashion comfortable. But, Lord, did it give me a giant leap towards financial freedom. So I think it\u2019s silly advice on a financial show to tell someone to sell something that\u2019s probably going to get them to the financial freedom they\u2019re looking for a lot faster than just the savings route that he\u2019s probably preaching to them to do.<\/p>\n
Well, Henry, he missed a huge point, and that is, okay, they paid $164,000 for this duplex. If they put 3% down, what was that? The $5,000 that they put down, and they made 35,000. What is that? A 5X on their money? So, that little part was left out of the comment. If they put 20% down, which they didn\u2019t have to, if it was their first property, then they still doubled their money. So, there\u2019s that.<\/p>\n
Pretty sound financial advice.<\/p>\n
So, I agree. And Henry, when I house hacked, we lived on the top floor, and we had to wear socks, and slide across the floor. So, no, it wasn\u2019t comfortable. But it also helped us build wealth. We took that money we made, and we\u2019re able to buy investment property. So, yeah. You know what? You got to be uncomfortable when you\u2019re starting out. If you\u2019re somebody who has a bunch of money when you\u2019re starting out, then maybe you don\u2019t have to be. But that\u2019s not the case for most of us. Most of us have to house hack your way up. So, anyway, at this point, if they\u2019re wealthy enough, yeah, sure, go buy your own home. But I would still put a ADU on it.<\/p>\n
Or buy a home and just keep the duplex and hire a property manager, and not do the management. There\u2019s plenty of other ways that you could sustain this investment without selling it and going to buy another house.<\/p>\n
Yeah.<\/p>\n
Yeah, I think Dave missed the biggest concept of that whole house hacking first time home buyer program you can use. You can go buy a house, live there for 12 months, and then you can go do it again, and lock it into finance. It\u2019s the best way to grow your portfolio with the least amount of money. And, they just did a great job. They got the right price. Yeah, you shouldn\u2019t have to live there either. Just go find the next one. And then, make sure it\u2019s a side-by-side duplex next time. That also makes it a lot better.<\/p>\n
And they\u2019re probably locked into a really low rate if they bought in 2020. I mean, why would you walk?<\/p>\n
Can I tell you guys a funny story about house hack?<\/p>\n
I would love to hear that.<\/p>\n
So, just this last weekend, I was at a wedding in Portugal. And, it was a friend of mine from Amsterdam, but used to live in Denver where I invest. And, I was talking to this guy. Something came up and I was talking about, \u201cOh, I own this triplex in Cap Hill.\u201d And he was like, \u201cOh, where is it?\u201d And I told him the cross sheets. He\u2019s like, \u201cOh yeah, I used to party around there quite a lot.\u201d And I was like, \u201cOh, where?\u201d And he gave the address. And I was like, \u201cThat\u2019s my house.\u201d And, I was like, \u201cWhen were you partying there?\u201d And he gave me the years. And I was like, \u201cYeah, I lived upstairs above that party house.\u201d Because I lived in the 600 square foot, one bedroom, it was a nice place. But, I gave up. It\u2019s this beautiful five bedroom old Victorian in Denver. And he was like, \u201cOh, man. I feel so bad. We were always just partying until three in the morning. Oh, that\u2019s so terrible.\u201d I was like, \u201cYeah.\u201d
It was mostly fine, except one time, it was 4:30 in the morning and I had something to do and I faked a police call. I called the tenant and I was like, \u201cHey, I\u2019m cool. I don\u2019t mind. But the police just called and said that they had a noise complaint.\u201d But it was completely fake. I just made it up. And they were like, \u201cOh my God, I\u2019m so sorry.\u201d And they wounded up shutting down the party. So, I got to go to sleep. But, they were actually great tenants, but it was so funny, it\u2019s just so random.<\/p>\n
Oh my gosh.<\/p>\n
Yeah.<\/p>\n
Why weren\u2019t you at the party, Dave?<\/p>\n
We used to a little bit. Out in the back porch, we used to all hang out together. But, I tried to keep my distance a little bit. All right. Well, that\u2019s what we got for our show today. Thank you all so much for joining us. As a reminder, let us know where people can find you, Henry. Where should people check you out if they want to learn more?<\/p>\n
Yeah, best place to find me is on Instagram. I\u2019m @thehenrywashington.com. Or you can check me out online at Www.seeyouattheclosingtable.com.<\/p>\n
All right, James.<\/p>\n
Our easiest way is on Instagram @jdaneflips, or you can check it out on jamesdaner.com.<\/p>\n
Kathy?<\/p>\n
Realwealth.com or on Instagram @kathyfeki.<\/p>\n
All right. And I am @thedaviddeli on Instagram. Or, you can always find me on BiggerPockets. I am quite responsive on both platforms. Thank you all so much for listening. We\u2019ll see you for the next episode of On the Market. On the Market was created by me, Dave Meyer, and Kaylin Bennett. The show is produced by Kaylin 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.<\/p>\n