Transcript:

Announcer:

This is More Knowledge, More Wealth, with your host, Gabriel Shahin. Gabriel is a certified financial planner and a registered investment advisor at Falcon Wealth Planning. This show is not intended to provide personalized investment advice through this broadcast and does not represent that the services or securities discussed, are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast, in the process of making a full informed investment decision. More Knowledge, More Wealth, on AM 590 The Answer. Now here's your host, Gabriel Shahin.

Gabriel Shahin:

Good afternoon. This is Gabriel Shahin, certified financial planner and your host of More Knowledge, More Wealth here on every weekend, talking about all important topics of personal finance. Our goal is to give you the knowledge you need to increase your wealth. Now, to the listener, feel free to reach out to myself or any one of our colleagues here at Falcon Wealth Planning. Our phone number is 855-963-2526, that's 855-96 Falcon like the bird, where you can relate this show to your specific situation. Now you can always reach out to any one of us. We're happy to help because we all are salary based. We don't sell anything and we're all the same. Now I'm a principal of Falcon Wealth Planning, a registered investment advisory firm. We are a fee only financial planning firm that also manages money as well. But since we're all certified financial planners, we really focus on comprehensive planning. That goes over where you are today.

How retirement looks like, goes over investments, insurance, estate, planning, folks anything that involves a dollar sign and our real goal is to help increase your net worth. That's why people hire us. Investment management is the easiest part when you're not commission based, you just find the best investments. So really, if you want to take advantage of that, I highly recommend give us a call. We'll give you one to two hours, one to two meetings of our time at no cost folks. Our phone numbers 855-963-2526 that's 855-96 Falcon like the bird or visit our website at falconwealthplanning.com. That's falconwp.com for short. We'll help put a personal questionnaire assessment for you that we can really help answer the questions that you have. And I get a lot of questions every single week folks. And so today I wanted to focus on real estate.

I get that a lot. Really for a registered investment advisory firm like ourselves, you would think all we do is manage money. And of course that is a big part of what we do. People want to work with firms like us that are comprehensive, especially as tax planners, but really our goal is to help net worth. And a lot of our clients, especially in Southern California and really across the country own real estate. That is a very important piece of the portfolio. And so looking at that, I wanted to discuss today real estate. Okay. This could help a lot of the reals out there get their job easier, loan officers as well, but really the main focus here is you. To making sure you're making the right decision, especially in a rising interest rate environment. By the way, folks, if I too sound a little funny, I am under the weather.

So bear with me folks. I apologize in advance, but the show must go on, especially when you like what you're doing. So I wanted to talk with the rising interest rates. What is that going to do to real estate? Because right now, and I'll speak for Southern California is there is a major supply issue with real estate. When you look two years ago to last year, there was a 50% reduction in inventory. When you look at last year to 2022, there is another 50% reduction in inventory. So that means there was almost 25% of the homes that historically are on the market. 75% less reduction, more of for reduction in homes available. That is part of the reason homes are increasing in price. So that is important to note. And listen nationwide real estate is increased.

Now a lot of the thing that's really been a big focus is COVID people realize they spend more time at home. They want bigger homes. Some people now are working from home, they need at home office. So a lot of people are making a migration move to really making sure they're beefing off their houses. And in addition to that, suburbia has really exploded. Your downtown metropolitan where a lot of people used to work and a lot of companies are, they were having to buy homes closer to metropolitan. Well, now it's actually different, especially in states that were forced to shut the down. We'll use California, New York, a few of these other places.

A lot of these companies now are moving towards satellite offices away from downtown closer to people's homes as well. And it's also cheaper rents for them as well versus a downtown metropolitan rental. So it's less dense. A lot of this has caused suburbia real estate prices to skyrocket. So what does that mean for you? Especially in rising interest rates, because historically as interest rates go up, the prices of home comes down. I want to spend a minute to explain to you that phenomenon. I want to explain to you what that means and how that affects you with a simple logic of, if you were to go buy a home. The example I'm going to use is buying a $500,000 house. Now I know what you're thinking. There is no way my neighbor's house just sold for 825 or my neighbor sold for over a million, whatever it may be.

So listen, if it's sold for a million, good for you, multiply it by two. That's why I'm using 500,000. I'm trying to keep it simple here folks, talking to the masses, all right? By the way folks, if you're just joining us, you're listening to Gabriel, Shahin, certified financial planner and your host of More Knowledge, More Wealth here and every weekend talking about all important topics of personal finance. Today, I wanted to fixate on real estate. And I want to give you a couple examples, with a rising interest rate, where a year ago, you were able to get a 30 year mortgage at two and a half percent, a little over a year ago. Two and a half percent. So on a $500,000 home, assuming you put 20% down putting a hundred thousand dollars down, your mortgage is 400,000 doing a 30 year mortgage on that. You would have a payment of 1,580 a month.

That's $1,580 a month now because rates are now at four and a half percent. Well, your payment is not 1580. It's now 2,025. It's almost $500 more a month as a mortgage payment. That might not seem like a big deal. Even though I know you're saying it is, but that is a one third increase of price. 500 divided by 1500 almost is about 33%. So we'll call it 30% because it's not quite that, but that is a massive increase in price with just the interest rate changes, nothing else. And on top of that, the home prices have increased. That's in, that's crazy. That's madness. That's the reality of the situation. And that's for people that have a hundred thousand in cash laying around to buy for a house. Let's say you're doing one of these FHA loans or some loans that you only meet 3% down.

So let's say you buy a $500,000 place, assuming you could find that, and you put only 25,000 down between fees and whatever. So now you have a loan of 475,000, your payment at two and a half percent back in the day, which was about a year ago was $1,876. Man. Think about that for a second. My earlier example is at 400,000, this is a loan of 470,000 because a loan is two and a half percent. It's 1876. That's a lower than what it was at today at four and a half percent. You get where I'm saying? You almost saved $200 a month by putting 75,000 less down. This is the impact of interest rates. Now, if you're going to have a four and a half percent rate, like what it is now, your payment is over 2,400 a month. Much different, right? And you compare that to where it was earlier.

I mean, that's almost a $600 difference. That is important to note folks because people can afford less. So the person who maybe only max afford a $2,000 a month mortgage now can't afford a $500,000 home and maybe can only afford a 450,000 home. And the crappy part is home prices are higher. Now these are reasons why real estate typically drops when interest rates go up for that simple logic, but we're in a unique situ there is not enough inventory. What does that mean? Real estate is still going up because the economic law of supply and demand, if supply is low demand is high prices go up. Why was it so down real estate in 2008, nine and 10, because so much supply way too many homes on the market. So much banks held onto them, which means demands were low, which is why prices of real estate were so low and they dropped. Economics 101.

Is it going to be like this forever? I don't know. I know I see a lot of home building going on near the house. So inventories is coming up. I know a lot of people are leaving certain states going to other states. I know Arizona's hot, Nevada's hot. Well, we know Arizona's hot, Nevada's hot. But the real estate market is very attractive in Arizona, Nevada, Texas, Florida and so on. California, it seems a little colder, but the issue with supply and demand, there's still not enough homes for sale. I mean, we could argue in 30 years from now when the agent community is no longer here and there could be a hundred million people that are no longer on this planet. And then you have a new generation that some of them don't care to buy homes. We could say maybe home prices may be different.

Home ownership might be different. There could be a too much of a supply of homes in 30 years from now of a generational change and generational attitude of ownership. My point is right now, you have to understand that rising interest rate is affecting home buyers. And I want to explain to the home buyers out there, and those who are thinking about refinancing have the difference of a 30 year mortgage versus a 15 year mortgage. And I'm going to tell you what you should be doing. There's no, well, maybe it depends. I'm going to tell you what relates to over 98% of the people, what you should be doing, not an opinion. And it's absolute fact I'm going to share with you like five to six to seven reasons of why you should always do a 30 year mortgage. Why you should and there's no argument you can give me that I would be wrong on.

And so it's extremely important, assuming of course, you respect money and you like money. You don't live by money. You don't have to control you, but because you like to be in control, I can argue why a 30 year mortgage makes a lot of sense for you. We could talk about the reasons for that. Whether it's a primary resident or an investment property or second home. We could talk about this, how it saves you money and gives you more control as well. We see a lot of people mess up on their finances because they aggressively decide to pay off debt, have no debt and not leverage properly, but I'll give you very key reasons why you should be doing this. Because our goal is to help people's financial situation increase their net worth because that's our focus. That's why I'm recommending the following to you.

And if you need help, especially relating this to your specific situation, assuming you have more than one mortgage, assuming you have a mortgage, assuming you're thinking about refinance, assuming you have a lot of rental properties. Folks, give us a call. This is what we help with. Our phone number is 855-963-2526, that's 855-96 Falcon like the bird. Or visit our website at falconwealthplanning.com. That's falconwp.com for short. We can help put a personal plan, personal assessment for you to help relate this show to your specific situation. Folks, we're going to go on a little break here and we're going to come back and we're going to go into to a detail of why you should be doing a 30 year mortgage versus a 15. Will be right back after a few words.

Welcome back folks. This is Gabriel Shahin, certified financial planner, and your host of More Knowledge, More Wealth here on every weekend talking about all important topics of personal finance. Now today, we were talking about real estate and how that affects you and what you should be doing. We talked about 30 year mortgages versus 15 year mortgage and what makes sense for you? We first have to understand that there's something called good debt and bad debt. We have to come to that agreement. We would agree that a credit card debt is bad debt. Now zero interest credit card debt is good. If you use a credit card all the time and pay it off every month, that's even good or that's a word better. Yeah. And so the reason is you're using somebody else's money for free, it's liability protection if somebody uses your card with unauthorized charges.

And in addition to that, you get these free reward points and so on. So we can agree on that. We can agree on a zero interest car loan as well, maybe even 0.9 or 1.9. We could agree that is good as well, but we have to fixate on the mortgage. Obviously who doesn't want debt? Nobody wants debt, but if you can leverage debt, we first have to agree that if you have a 4% loan on your property, even if you don't get a write off for, most people do by the way, which means it's not really 4%, depending on your tax situation, it could be 3% or maybe as low as 1.8%. We have to agree over the 30 years, you have the mortgage let alone of 15 years. That you can earn more than 3% over 30 years if you invest it. This is a ploy for you to invest.

You have a 401k, you have a retirement account, you're putting money away. You see what you're earning on there. Heck 2021 and 2020 which was COVID and 2019, you had an annual return of over 20%. That's a big deal. So I'm not saying that's guaranteed. You're going to get that all the time. And the stock market historically does over 10% a year. My point is, even if you do 30% less of that, you don't get 10% on average, but you get seven. Isn't 7% better than three? Especially if you're saving and now have more money to save into a 401k because of tax savings and so on, you get tax benefits for saving into a 401k. Depending on your tax bracket, you can get 20, 30, 40% back on the dollar.

My point is understanding your tax situation is crucial when a mortgage. In addition to that your house, no matter what with or without a mortgage will grow in value, your house is going to appreciate whether you had a half a million dollar home, whether you had zero mortgage or $500,000 mortgage, that's worth 500,000 so no equity. That home is worth 750,000 today, assuming it appreciated of course by that much. But it is grown by 250,000. You made 250,000 with, or without the mortgage. So what are you really saving? Will I'm saving the mortgage payments. Yes, but part of that mortgage payment is principle buy down. In my earlier example, if you have a mortgage of here it is, $400,000, at two and a half percent, or even if it's at four and a half percent, my point is no matter what that your payment is either 1,580 a month or 2,025 a month.

Roughly 34% of that payment is going towards principle or more. If it on the two and a half percent side, almost half your payment is going towards principle. So what are you really paying down? You're saving on the interest, but you're getting a ride off for the interest.

So really your 4% mortgage, depending on your tax situation, be more like three. So you're really rushing to pay off 3%. Do you think you can earn more than 3% on your retirement accounts? Hell you can make maybe 30% just in tax savings by contributing it to your retirement account at work. That's not including the growth, the compound growth of that in your retirement account for the next 30 years. You have to understand these situations. We're talking about money here, goals to increase your net worth. And if you need help with that, if this sounds like it makes sense, but you don't really know, folks we can run the numbers and show it to you. We do that at no cost. Our goal is to help relate this specific situation, this show to you. And we could show you with your situation, your taxes, your everything, how much you could be saving.

Give us a call. Our phone number is 855-963-2526, that's 855-96 Falcon like the bird. We can help put a personal assessment for you and really answer these questions that you have. It's quite simple for us. We do this every single day. But for you, this is just part of the burden of trying to figure out what is the wisest thing to do. And for us you look at it as simple as this. You have let's say a hundred thousand dollars debt but your home is worth 500,000. You have equity of 400,000. We're not saying we like debt, but what we're saying is if your situation were to double and you don't have a hundred thousand in debt, now you have 200,000 in debt.

So you doubled the debt but then you double the asset. It's 500,000 used to be what it's worth now it's a million? You went from having 400,000 net worth to now 800,000 net worth. Who would you rather be? The person with 400,000 net worth or 800,000 net worth. Obviously you'd rather be the person with 800,000 net worth, which means you can't look at debt as a struggle. You have to look at it as a leverage, as a controlled leverage. And as long as you can own the control, the mortgage payment, it's the best feeling in the world. I'm telling you guys, I'm speaking from experience. When you can pay off the mortgage at any second when you want, you can write the check or take it out of the investment account but you're in control. You're just deciding not to do it because you don't want to do it because you can make money in other ways and folks, that's what institutions are doing.

And we're trying to train you to be financially and dependent, financially secure. Financially independent does not mean you're debt free. Financially independent means you are in control of your finances. Now folks, if you're just joining us, you're listening to Gabriel, Shahin, certified financial planner, your host of More Knowledge and More Wealth here on every weekend talk about all important topics of personal finance. And today we are talking about real estate. And I want to focus more on real estate and some of the reasons that you should still continue to look at having controlled debt and looking at a 30 year versus a 15. We just talked about principle buy down and you're going to be paying down the principle no matter what. I also wanted to talk about the inflation hedge. If part of the benefit of having a mortgage is that payment is there forever?

Well, imagine if your mortgage payment was 1,800 months a while back. Well, you can't even rent for 1,800 a month and I can speak for multiple states on your property. And as your social securities are increasing, as salaries are increasing, your investments are increasing, as everything is increasing your mortgage stays the same. That's why you hear people say sometimes their last car payment is more than their first home payment.

How nice is it to lock in that mortgage payment for 30 years. Because in 30 years from now, it's going to be like nothing. It's going to be as much as your cell phone bills, how much it may be, especially the way inflation is going. Let alone interest rates are going. You want to be in control. Let me give you another situation is something to take into account.

Let's say you have a $250,000 mortgage and you want to do a 30 year refinance at 4%. Your mortgage payment will be $1,200 a month. Not including insurance taxes and all that stuff. HOA just, there's just the mortgage payment, because you're going to have that stuff with or without the mortgage, right? You're still going to have HOA, property tax and insurance. So just the mortgage is 1,200 a month, assuming a quarter million dollar mortgage at 4%. But let's say no. I want to pay a 15 year mortgage.

Well, because you do a less mortgage, you're less risk to the bank. So what does that mean? You're not going to pay 4%. You're going to pay three and a half percent, right? They give you better rates on a 15 year, but your payment is no longer 1,200 a month. It's 1,800 a month. All right, so I only pay $600 more. I can pay it in half the time. Huh, interesting. Well that makes sense. Paying 50% more roughly and paying off at half the time. Okay.

But let's just say you treated that 30 year mortgage as a 15 year mortgage. Well, Gabriel, what do you mean? Well, you are only supposed to pay 1200 a month, but now you pay 1800 a month to be disciplined, to pay extra on it. When will you pay off the mortgage? Will you pay it off in what is 15 years? 180 months. Will you pay it off in 30 years? What is that? 360 months? Well, it has to be somewhere in between, because you're paying extra. So it can't be 30 but it also can't be 15 years, 180 months. Why? Because it's a higher interest rate of 30 year. When will you pay it all off? Take a guess.

The answer is 188 months. What? So you have to pay eight months more. So you lose eight months, but you gain 30 years of flexibility. Don't you think a lot happens in 30 years, maybe haven't put the kids through college. I'm going to take care of parents. Maybe you lose a job. Maybe somebody passes away. Maybe somebody gets disabled. I mean, wouldn't you want to give yourself 30 years of flexibility only to lose eight months? So you paid off your house in 15 years and eight months whoopy do. But you could turn it off at any time. What if something drastic happens to you and you can can't make that payment. Could you tell the mortgage company, Hey I did a 15 year, but can you just switch it to a 30? No, they're going to underwrite you like crazy. And I've seen some extremely sad situations guys. God forbid, but somebody passes away.

Now your tax bracket doubles. Your income is sometimes cut because of social security. You don't get both social securities. You only get the highest of the two and sadly they can't afford the mortgage. Folks, remember what I said about financial independence, it's for you to be in control. And that's all I'm trying to share with you guys. Being in control. And this happens with your primary residents or investment properties, rental properties, or second homes. I highly recommend it but you have to be disciplined and put that money to work for you or you're going to lose money, safely. Why? Because of inflation. So hopefully these are reasons that could help you increase your financial situation folks. And if you need help relating this to your specific situation, give us a call. We can help. We help people all across the country and we have offices all across the West Coast.

Our phone number is 855-963-2526, that's 855-96 Falcon like the bird. Would love to help you out with a free assessment. Give you one to two hours, one to two meetings of our time at no cost. Folks, that was a fast, fast show. Woo. I could talk about this stuff much, much more but I want to appreciate you joining us this weekend. Folks, you can always reach out to myself or any one of my colleagues at 855-963-2526, that's 855-96 Falcon like the bird. We'd love to help relate this show to your specific situation. Tune in every weekend as we go over all important topics of personal finance and our goal is to give you the knowledge you need to increase your wealth. We want to thank you for listening. We want you enjoy your weekend. Have a great week and God bless.