Welcome, everybody, to Modern Financial Wellness. My guest today is a repeat guest. John Donlon from Gold Coast Mortgage in Beverly, Massachusetts, is back on the show. John, it's great to see you again. Thanks for joining me again today, Jim.

I'm honored to be here. Thanks for inviting me back.

Oh, my pleasure. So the big question we're going to be discussing today is to rent or to own. Right. That seems to be a more prevalent topic in the news. Is homeownership still affordable for. Or is it out of reach for a lot of people, the whole idea of the American dream? Right. Home homeownership used to be a big part and a cornerstone of this concept of the American dream. And it just feels like the sentiment is starting to shift.

People are questioning whether or not homeownership is a good idea, with rates to where they are, prices where they've continued to go to. So I was really eager to talk to you today about what you're seeing. What are home buyers dealing with, what their mindset is? What are you seeing in the marketplace as you're working with people, trying to help them attain that goal of buying a home?

I think homeownership is scary. It's an overwhelming payment. It is relentless that it shows up every 30 days and it knocks on your door for 360 payments in a row. And if you get sick or lose your job or have relationship issues, it doesn't care. It still knocks. And you have 15 days to pay it or you incur a late fee. And at day 31, if you don't pay it, they'll bring down the hammer and start like, literally legal proceedings. And the word mortgage in it.

The word mortgage is the word more in it, which is a Latin subroute for death. Like, it just follows you to death and it gets all. Yeah, it's like it's there. It's an instrument that just, like, you virtually never get out from under it.

So that's a fun fact. I never really realized the etymology of the word mortgage, but it's tied to the word death.

Yeah, it just, it follows your most. Most people have it until death. Right. There's like, you know, a few people get out from under a mortgage, but my point is it's a serious obligation and it's heavy and it's real. Not that rent isn't heavy and real, but if you go up a generation or two, when you talk to your parents or grandparents or uncles when they bought their home, it was scary as well. And it was. It was not. It was Never easy.

Even if they bought their home for 30,000, it was still a commitment with the same gravitas that we have now. And so a heavy payment, a payment that takes half of your income right off the top, that's not new. It's been going on for generations. So it seems scary. And when you apply a $1,000,000 purchase price versus a $30,000 purchase price, it would be easy to say this is more expensive. We have it harder than our parents or grandparents had it. But that's not true because my, my father was earning $18,000. That was his highest pay year.

Right. And now a couple could take home combined 180,000. Right? Yeah.

Right.

So it's really scary and it's definitely a challenge. But I don't think that's the new part of it. I don't think, to me, the new part is that we have a competition in the housing market that didn't exist when our parents or grandparents were buying their home. That's a private equity influence. And so private equity has entered the housing market and that's new in the last 10 years. And we're competing with private equity. And you're wondering how is that possible? Well, private equity owns the majority of the rental units in Massachusetts, in New Hampshire or in the country. So renting an apartment is no longer.

There's no landlord, so to speak, it's an entity. And the entity has bought or built a large apartment complex for profit. And they're in the housing game. So rentals compete with homeownership because they both provide a housing solution. And the reason it's driving all the prices up is because private equity maximizes their investment. And so their rent prices are very expensive. And because it's a housing choice, it seems like everything's kind of going up around it.

So I've heard this idea that private equity in big financial institutions like BlackRock in particular, are heavily invested in not only multifamily, you know, 100 plus unit apartment complexes, but they're also buying single family homes. Is that what you're seeing as well, referring to here. So there's outside capital not only owning the apartment buildings, but they're also investing in single family units where. Which some might think that they weren't in that space.

Yeah, so I'm not seeing that as much as I'm hearing about that particular. And so the, the market I know best is New England in Massachusetts and New Hampshire and Maine and in there, BlackRock and companies like that, there are several of them that buy single family Homes. They're not really buying up the single family homes in the areas I work in because the homes are so different. They're not homogenized and kind of track housing. They're not necessarily turnkey for rentals because they're all so different or they may be an antique or on a private road or what have you. So the housing competition to me is the zoning that's allowing companies of that nature to put up four and five story apartment buildings in the towns that also have houses. And it's drawing a fair amount of energy and attention to the town. And the rents are machine driven.

So it's not a human that's setting the rent based on his response to let's say a Craigslist advertising. It's an algorithm that's comparing rental prices for other apartment communities and then they're actually setting the market prices based on a collaboration. It is illegal in Massachusetts is there's a class action suit against these companies for kind of setting rent prices illegally. And that's in the courts right now. But it's an unfair advantage that a tenant comes up against in terms of renting an apartment where even if like your, your lease is renewing, you could find a cheaper apartment elsewhere, your current rental situation will increase your rent because they know psychologically it's really hard to move from one apartment to the other and that you'd have to give notice or you would have already given notice, you know, 30 or 60 days ago. So you accept the rent increase even though the rents are down. And so it's. So the housing solution through rentals is a very sophisticated game that the tenant doesn't even know they're playing in that game.

But they do know they feel the increase in rent. I'd imagine a lot of the renters who are considering buying are mentioning to you that one of the reasons why they want to get into home ownership is they're continuing to see their rent go up and it feels expensive and it feels like they're writing a check with no, no return. Right. It's just straight cost, straight expense. So are you seeing a lot of folks that are feeling squeezed by this game, whether it's they're aware of it or not? How are they feeling about the rental situation in the areas you're familiar with?

I think the rental situation is a little less scary than homeownership, even if it's a first step. So it represents some ability to move around if you needed to it there's a choice. And maybe you go to a cheaper Apartment if you needed to. So there's usually an aha moment that comes between making the decision to continue as a tenant or graduating into ownership. And it's, believe it or not, it's typically not financial, which sounds crazy. And so logically, ownership sounds like it's, it should be a match because you're building equity and you're contributing. But psychologically, the apartment represents a little bit of freedom that they still have. And so there's a dozen reasons why financially owning would be better.

But the lifestyle choice of having the ability to, to kind of move around, it's. It's somewhat appealing to some of the tenants. And, and that's okay. It's if, if your personality speaks to your. Speaks to being able to have like an exit auction or you can, you can retrieve flexibility.

Right. And being to a location. Right?

Yeah. And that, that suits certain people really well. But there's an example of a tenant that we were talking to that had a young child, and the neighbor below would use the broom handle to bang on the ceiling of their unit when the baby would cry up above in the bedroom above. And so he. Yeah, and so for that type of situation, so it terrified the child to the point it had to get taken out of the bedroom each time it cried. And you know, the, the parents really looked at as an act of aggression, which, which it was, but it was terrorizing. And, but for the, the, the, the tenant below who, you know, didn't have children, they just, they were trying to make the, the noise stop, and they did. So for that type of situation, ownership is much more appealing.

Right.

So that's the aha moment. That's the aha moment for that couple. Like, yeah, we don't need a landlord banging on our, our babies.

Yeah. Or a tenant. Right.

Or Right. Or a tenant. Right. Yeah.

And. And then we. So, so if I, if I look back through the decades and the graduation between tendency to ownership, there's that aha moment. And sometimes it's financial, but usually it isn't. It like the financial is the benefit to it. But the, the aha moment is fill in the blank. There's, there's literally hundreds of reasons the, the tenant could say, hey, this isn't working anymore. Like, I, I can't just let my dogs out.

Right. And the, and. Or we. We're not getting, you know, fill in the blank. And that kind of propels the impetus to begin to look at it. And then the financial benefits are just like icing on the cake.

Right, right, right, right. So you Kind of start off with this, this aha moment and this maybe intuition that it's time for a whole host of reasons. I think I live that personally. When my wife and I, when we had our first baby, we were living in Boston. It was a little two bedroom condo and it was fine and it, and it worked out, but there were just came a time where we both looked at each other and said, it's time for a yard. We were also looking for, you know, community location to schools, you know, all the, the boxes that a lot of younger couples with young kids want to check. We just felt like we were ready to kind of take that on and kind of move on to the next chapter. And it really didn't have anything to do with comparing rent to mortgage, which we can get into kind of the financial aspects of that.

But yeah, I think that's a really good point. That for me it was, I lived that experience as well, that you just start to realize what the important things are to you. Do you have any thoughts or advice for folks that are kind of wrestling with that aha moment? How do you know when the, the reasons are the right reasons, so to speak? So having a tenant below you annoy your baby, that's a great reason, but it might not be the, the only reason. Right? I mean it, it's still, you know, having an untenable renting situation doesn't necessarily mean you have to buy a home, does it? And how do you kind of sort out what the right reasons are, the right aha moments and not kind of a visceral reaction to your environment at the time? If that makes sense.

It does. So maybe we could narrow the decision tree. Instead of talking about the right reasons, talk about the wrong reasons to buy a house.

Okay, Please. Yeah, that'd be great.

And so having played out many homeownership scenarios, I've seen the mistakes. So if you make a mistake and you buy a house and you're not a good match for homeownership, it can derail you financially. It can limit your choices in terms of a job you want to take, but you can't because you own a house. It can affect potential relationships or in your involvement, or it can affect your family. It's so many things it can affect if you buy a house and you're not ready for it. So I've seen people want to buy a house for only financial reasons and that can be a mistake.

What are they thinking in that regard? For only financial reasons, that the mortgage cheaper than the rent.

What are they, yeah, they're trying to pick up like a, maybe a tax deduction on the mortgage interest which may or may not even still be available to them. But they've just heard about it and so they think that the financial reasons are kind of the reason they should be in home ownership, but they pursue those financial reasons only and then they get to the other side and their company has relocated out of state and it's their dream job. And so now they're stuck with a house that they, maybe they become accidental landlords by renting it out or they have to sell it and they have to sell it quickly so that it, there's an expense to selling a house and they, they lose, they lose their down payment to pay a listing commission. Right. So the financial piece of it, I think is wonderful that you and I are both in finance and we could speak to that all day and the benefits of it. But it could be the wrong reason. It could be a mistake to just look at the financial part when you're not, when you haven't had that aha moment or you're not ready to do it. Buying prematurely.

So I think it's a hybrid. Right. It needs to be your aha in your why it's coupled with the financial benefits of it. We could certainly show the benefits and there are many. But if you're now isolated with your home in an area where your family can't come to visit you as often, or you buy a house and you wind up with an environmental issue that's over the fence from you, which could be like a toxic neighbor or that there's something going on, you know, behind you that would. We see a lot of things with related to you. Move into an area that you're not, you can't, you can't live in that area because of some inherent conflict you have with the environment. Here's the people or personalities.

Right, right, right. And they're just not equipped to handle that kind of a situation.

Yeah. You can't choose your neighbors. Right.

When you're, you can't choose your neighbors, but you can research them ahead of time. Right. And so in a fast moving environment, people neglect to kind of vet their neighbors. And if you share a fence line with somebody, they're stakeholders in your real estate investment because what they have going on, you can hear, you can smell, you can see, you experience it. If there's a high emotion activity over the fence, you have to absorb some of that emotion, even if you don't want to.

Yeah, yeah. So it's a good caution, I guess. And I'm thinking about somebody having this aha moment where they have the right reasons, they know why they want to buy a home and they know what they're looking for. It does seem to start to speed up at that point where people start to feel like they need to get something done. And that's where you start to incorporate the financial and that scary nature of the financial commitment you're about to make. Do you see kind of a switch in gears where people are, they've made this decision, they're ready to go, and now they're extremely eager to get something done, but faced with a pretty daunting task of, of the financial obligation that comes all along with it.

Right. It's you. You wouldn't want home ownership to be a knee jerk reaction to an aha moment because then you're, you're apt to rush into it and make mistakes, not build the right team. And I think the success of the home ownership journey is dependent upon the amount of time that you give it. And so if you have a, a very short window to transition from tenancy to homeownership, you may get stuck with a property that isn't perfect for you.

And you, on our last conversation you shared, you had broken that down to the amount of hours, I think, that go into a real estate transaction to do it well and give yourself enough time and make sure you're making the right decision. Do you recall what that number is? What if you had to put a number to it? Again, I think you shared it in our last conversation. Yeah, like how much time does it take?

I assure you it's more than dozens of hours. You're getting into hundreds of hours in the hundreds, could be more. And that's a combination of, of course, you know, exiting, but also on the buy side, there's emotional attachment to properties that you won't get to own. So like you, you become emotionally attached to it, but you don't win the bid. And that ties up a fair amount of bandwidth. And that's all a necessary part of homeownership is the failure part of it. So to experience buying the right house, let's say a successful transaction, you do have to experience failure of an at bat and you miss. And I call that a necessary step to homeownership because you're figuring out what wasn't going to work for you.

Right.

And when things fail, they fail for a reason.

Yeah, yeah, we went over that. I'll, I'll link. I should know the episode number but in our prior conversation I'll link to it where we explored kind of the emotional aspects of buying a home. And you know, I've had those failed bids that absolutely were for the better. Right.

For the better. Right.

And I'd be, I'd be the one that was regretting, rushed into it and regretting a big purchasing decision if we had ended up with some of the homes that we or had originally bid on and we're glad that they didn't work out. So if people are interested in kind of the emotional aspect of, of real estate and, and buying a home in the mortgage process, they should check that episode out and we'll, we'll link back to that. But it, overall it's, it's a big deal, takes a lot of time, takes a lot of attention. There's going to be some Mrs. And then there's this. Again, going back to. There's some scary numbers that you start to see when you calculate mortgage payments, down payments, just the, the obligation that you carry with you for a long, long time. What's, what are you seeing now as people are reacting to where interest rates are, where home prices have remained? Are you seeing people trying to thread a needle and you know, get a deal, not being willing to pull the trigger because they think rates are going to go down? I've heard a lot of different things about where real estate is right now and I was just kind of curious your thoughts or what you're seeing.

Yeah. So there's an inherent nature in us to try to get a good deal or avoid future buyers remorse. And when we're looking at it, we may think that the same house could be cheaper in the future or the cost of money may be less right after we lock our interest rate. And we don't know that's going to happen. And in fact it probably won't or it may not. But that is potential future buyer's remorse. And I have noticed that people are trying to avoid making a decision because it could be the, they think it could be the wrong one, but in my opinion they're focusing on the wrong decision. It's not so much that could you buy this cheaper in the future because the rates are lower or the house comes down and value, but the, the real decision is do I want to get on this train that's called homeownership and where will it take me? So the folks that are most apprehensive about the future price of real estate are the ones that aren't fully committed to the homeownership journey.

And they, yeah, so they'll, they'll blame it that they think housing prices are going to come down or they think interest rates are going to come down in the future, but really they're having trouble geographically separating from something that they've, they've been attached to for so long or they may realize that this represents a commitment to a relationship that they're not ready to commit to yet. Right. So a couple's been living together for years, but now all of a sudden the homeownership is a blending of, it's a pre marriage commitment. And they'll cite it's too expensive or I think prices are going to come down or there's a, you know, I heard the Fed's going to lower interest rates. And so they say that but really there's something else underlying that we'll never know about. But that's why they're slow walking.

It's, it's an interesting point you bring up. So you think that when people are looking at interest rates and trying to make predictions about where they head in the future or trying to assess the market and predicting that real estate prices are going to cool off or come down in the future, you think that's tied to somebody with some kind of underlying, whether it's conscious or subconscious, something else is going on where they haven't, you know, either verbalized it or even explored, you know, why they're feeling that way. There's something else happening there.

Yeah. And that's the easiest kind of stall tactic to put out there. Like the markets. I'm not, you know, there's going to be a change. And it also makes me or them or anybody who's offering an opinion on the future of these things that we, we have no idea about. It makes us seem like we're important or people are like interested in our opinion and really we, it's a wild guess based on ego and a need for like self approval.

This is a good side note. I wanted to go here and just reiterate what you just said. If anybody is telling you where interest rates go from here or where the market will be in a couple of months in terms of home values, they're guessing. Right.

And we're, they're so guessing. Yeah. At your detriment to too. And any guess or speculation is apt to hurt the buyer. And so even if the buyer's doing it, they're hurting themselves. And so let's talk about interest rates briefly. Interest rates are in the news several times a day. Mortgage rates are in the.

It's clickbait. Yahoo will typically post two to three articles a day about mortgage interest rates because they know everybody's so fascinated with it. And so they'll tie in the Federal Reserve lowering their rate. We're in a meeting, a two day meeting today and there's a press announcement coming tomorrow. Has nothing to do with mortgage rates. They're setting the prime lending rate, they're setting the, the bank overnight rate. But the mortgage rates don't watch the Federal Reserve other than a very small byproduct of what could happen. So the mortgage rates are derived from the Yield on the 10 year treasury product, a traded product, it's sold at auction, it's supply and demand.

And then there's a spread that sits on top of the yield. So it's the yield plus the spread and there's your mortgage rate almost like to clockwork. So let's say that the yield's at four and a half and you've got this approximate 2.5% spread. Your mortgage rates are 7. And that falls pretty closely. Sometimes the spread may vary. So when somebody's asking me as a mortgage professional to predict mortgage rates, it's a very casual question. Where do you see rates going? How are rates going to be in the future? What do you think of rates? The rates, you know, are they going to come down? They're really asking me to predict the yield on the ten year Treasury.

That's really what they're asking. They don't know they're asking that. Now for me to try to predict the yield on the ten year treasury would be negligent. Right. Because there are bond traders out there that make a million dollars a year and they get it wrong probably like 45% of the time. Right. They may be right 55% of the time and they're paid seven figures. So they get it wrong.

And so me with a minor in economics from a state school, how am I supposed to like, you know, make a prediction that you're going to rely on for the, the safety and security of your family, where you're going to live?

Right?

Right. Basically I'm telling you in not so many words if I think rates are going to come down. I'm saying don't get on the train. Right. Don't, don't buy. Right. Because rates are coming down.

And then don't, don't believe or trust in your aha moment. Delay that aha moment and leading to that path to homeownership, you'd be saying don't don't trust that. Right. And delay that and, and don't make that commitment in that decision.

Yeah, yeah. It's scary. It's scary because the train's leaving, they're not on it, and then they may have to run to catch that train in two years. And they can't. They simply can't. It's like it's gone. Like it's now pre Covid versus Postco. Like the prices, you know, are up, you know, 50%, let's say.

Like, they're like, I wish you hadn't said don't get on that train. Because if I had gotten on that train, my family would be better off. I'd have a higher net worth. I'd have equity, I'd be involved in a community. And yet, because I implied that interest rates may be coming down, or I knew they're coming down, they never got on the train. They stayed as a tenant and they let private equity company wring the heck out of their budget. It's just continuing to increase the rents.

The other interesting aspect of the rate conversation, when you amortize a quarter percent, a half a percent decrease, and what that means for your, for your payment, your month to month payment over 30 years, it doesn't make a whole heck of a lot of difference when it comes down to it. You're, you're talking a few hundred dollars a month, maybe low thousands a year, which I'm, I'm not trying to discredit. You know, a few thousand dollars is as being meaningless. But if you've had that aho moment and you're trying to find a path to homeownership and you've, you found the home and the community and all the things that you said were important to you, then you know, rate to me almost doesn't matter if it's affordable. Right. Which is kind of the segue into maybe another part of the conversation is affordability. Right. Versus strictly thinking about the rate.

Yeah. Yep. And so in the same vein, sometimes if we're bidding, we know there's a number that we can end the conversation and win the bid. And so I'll talk with clients and we're like, okay, for 10,000 over maybe where we're already over, for an extra $45 a month, we can get on the train and take the extra 10,000 in, you know, in, in the price increase in the mortgage debt, you're probably going to take 8,000 of the 10,000. And it's, it's, that's one, you know, cup of coffee per drive through per week that you just have to cut out of your budget and you've got it. And that's what it, what it comes down to. So yeah, the affordability piece of it is I, let's say a 7% mortgage rate is not expensive in terms of where mortgage interest rates have been historically. So we may be even on the low end of the average interest rate.

And there's a lot of people watching this that are going to contradict me and say that's the, actually 7% is high and it's high compared to the 2.875% that a fair amount of people have. Yes, I agree with that. But if we go up a generation for when our parents were buying their house, they'll remind you of the 14, 15, 16, 17, 18% interest mortgage interest rates. So those were out there because that was a different time. But also if we look at the two threes and fours, those rates don't occur naturally in the wild. They're not mortgage rates that show up on a chart ever unless the government has decided that they need to lower the rates for the overall benefit of society. That was called quantitative easing. So quantitative easing was an artificial period in time where they, they cornered the market with printed money to buy the bonds to depress the interest rate.

They did fueled a frenzy like buying atmosphere where everybody went out and bought and bought handsomely because the money was really cheap. And those people are parked in good rates and they're not turning their inventory back into the marketplace to anytime soon voluntarily. Right, yeah.

And when quantitative easing started, correct me if I'm wrong, but rates were north of 7, correct?

Right, right.

So the government intervened at a rate that is higher than we're at right now, drove them, you know, down into what ended up being the, the two and a half Right in the low end. And now we're back here at seven where it feels like rates are very comfortable kind of hanging around for an extended period of time.

Yeah, yeah, yeah. And you know, if, if we look at the unique circumstances related to the 10 year treasury bond, I've heard it described as a, that there's a cliff of prior bonds renewing coming off the conveyor belt that were issued at lower interest rates and that debt being rewritten now at higher rates and the United States appetite to fund the whole thing based on debt. So there's a huge issuance of debt occurring in 20, 20, 25, the biggest we've ever seen in our lifetime. So we're a debt hungry country. We need debt to survive, literally to fund entitlements and operations. And that debt is issued through the sale of bonds. So there's a fair amount of bond sales coming. And I don't necessarily see people overpaying for the bonds because there's an abundance of them.

Right. So the bonds, the bonds will probably be going off at the auction for somewhat less than reduced. And we don't have a sovereign bond anymore. It's got a couple of scratches and dents on it, as we saw recently. Right, Right.

So I guess I would say again, we're not trying to Predict where the 10 year treasury rates and therefore interest rates on mortgages. We're not trying to predict where that is headed in the future. But the point is, if you've had this moment where you feel like you're ready and you found the place where you want to be for the right reasons, there's no real reason in delaying over some minor changes in rate or a few extra thousand dollars here or there. Right.

It's, it's really, it's really pretty small. I guess My, my point to that last segment was the twos, threes and the fours, they're not coming back. They were, they were artificially subsidized. And if, if you're waiting for those, you're waiting for the wrong reason. Really what you're waiting for is more quantitative easing, which means we get bigger problems.

We've got bigger problems. Right. So I'm envisioning somebody who's doing the math on a property that they really want to own. And it could be for all the right reasons, but it's just not affordable because the rate is 7%. Right. And payment is a function of the amount you borrow, the interest rate and the term. So would you say to folks that are doing the math based on 3% interest rates, at some point in the future it might be time to look in a different neighborhood.

Yes. Right. And so if you're hanging on the return of those subsidized rates, you're, you're really hanging on for another reason. You really are. Right. And so let's just say that that was a historical anomaly, hopefully never comes back because that means we've got a more healthy economy, so no quantitative easing. And so let's dig in on, you know, 7% being the, the functional rate. Right.

That's what we have, we have to deal with. And if you can't afford your property at the 7% rate, okay. You're not going to get a mortgage. Right. So you have to qualify for mortgage. So. So you're out. And if you really want to own, then we have to look at what are the variables that are in your control versus trying to force a variable into.

From a market that you, you can't ask for. Like it's. We can't ask for housing prices to come down, we can't ask for mortgage rates to get lowered. There's a little bit of hopium that the Fed reserve may like lower rates, but again, that doesn't affect the mortgage rates. Right, but that's what people are hanging on to.

Yeah, yeah. Can we talk about affordability? I mean, for people that aren't familiar, I've always said that what the bank will say you can afford is probably a little bit more than you want to pay. But just real quick, do you want to review affordability from the bank's perspective and talk a little bit about debt to income from a high level? You know what, what people are up against there.

Right. So there's the good and the bad on a mortgage. The bad part we talked about, it's unforgiving, it's relentless, it's decades. Right. The good part about it is you lock it in in yesterday's dollars. So if you lock your rate yesterday, you get your mortgage yesterday, there's a contract that says that payment will never change. So it's sealed in a block of ICE and the contract says it'll never change. So if you flash forward in the future and things are more expensive due to inflation or what have you, but your mortgage is exempt from inflation, if that makes sense.

Yeah, absolutely.

Good analogy on that. So related to affordability, there's some faith that you're locking in and you're sealing that expense and you can't seal up your rent expense. Right. That's subject to inflation, but the mortgage isn't. So making a little bit of a stretch in terms of qualification or the reach that our parents and grandparents made, the sacrifices they made to make the mortgage work, it gets easier over time due to inflation. The other aspects of homeownership will go up. Like the hourly rate of a contractor goes up and the taxes and the insurance will go up over time, but the bulk of the mortgage payment is trapped in that ice.

I've actually lived that as well. I went back and tried. I couldn't find the exact apartment, but I found the building that we were living in, which I thought was expensive at the time. The mortgage on our first home was more right. And it was a bit of a stretch and it was really scary. Because I had to figure out where is that extra, you know, where those extra dollars going to come from. But that payment hasn't changed. In fact, it's gone down because we were able to refinance over the last few years as rates have come down and the rent that we were paying is 75% more over a 7, 8 year period of time.

And our mortgage has stayed fixed. So it feels today a whole heck of a lot better than it did when we were staring at the numbers originally, trying to make a decision about whether or not we were going to pull the trigger. So I just wanted to share that I've lived that as well. It does get easier and as everything else gets more expensive, it starts to look better and better. I look a lot more wise. Yeah.

Right. So the pros and the cons of a mortgage contract, right, Unrelenting, it's, it's, it's due, it's, it's, it's payable and, but it also, it's exempt from inflation. So the good and bad and so in terms of qualification making the reach, the reach isn't forever. Right. Because inflation is going to take everything else up around it, hopefully the value of the house over time. Right. It may have some ups and downs, but during your, during your 10, 20, 30 year journey, you'd expect some inflation on the house. Right.

Especially given decades as opposed to just a few years.

Right, Right.

The mortgage payment as it relates to your future income is going to seem quite affordable. The mortgage payment as a function of the cost of an SUV or whatever else is going on in the world, it's going to seem like it's relatively less expensive in the future. That doesn't help you today. Right.

It might make it a little easier to jump on the train. Right. To use the analogy, the train's leaving and it's headed in one direction and there's probably not a better time to jump on than today if you're ready. Right. It all kind of goes back to that idea that you got to start somewhere, you got to get on the train.

Yeah, yeah. And the, so the affordability issue, sometimes it's self inflicted and sometimes it's, you know, it's just a function of the math, what the salaries are bringing in and the variable piece is the down payment. So no matter what your salary is, you qualify for something, there's a mortgage that you qualify, there'll be a cap and the difference between your cap and the purchase price is the equity that you bring to the table. So we'll take A look at. So there's certain times in your life where a person may need financial help and asking family members or parents or grandparents if a gift is available for the purpose of buying a house. And typically if you don't ask and the grandparent or parent later found out that you didn't do something because you didn't ask for the gift, they would, they may say, why didn't you ask me? Now, not every family has that available, but in some cases there are. So I encourage folks to say, okay, this is a, it's a wholesome exercise. You're trying to kind of fortify a platform to, to, to launch from or be stable in a neighborhood, maybe raise your kids or whatever it is.

It's okay to ask for the gift at that point. It's not like you're asking every week and you're buying a sports car.

Right?

Right. And so you'd be surprised how often that a parent or grandparent may be able to provide a gift which also becomes a gift for them to help. Right. So asking for it, I don't think it's a mistake. If you're asking for the right reasons and wholesome, if it's available, even if it's a long shot, that may help bridge the difference between the purchase price in there. And then you can try to move some pieces around to make that equity component work.

Right.

To get the mortgage payment where you're comfortable with it.

What are your thoughts on not to switch gears, but what are your thoughts on thinking about, Say it's your first primary residence. Right. You're going from renting to owning your first home, and that's where you're going to bring your family and raise your kids. Do you have any thoughts about also thinking about that as an investment.

And.

What are your thoughts along those lines?

I think it would be a mistake not to look at it as an investment. Right. So, yes, it's a house, it's your four walls, it's your safety, your security, where you sleep, where all your activities happen. But if you don't look at the investment side of it, then you're making a mistake. Some properties have the ability to appreciate better than other properties just based on where they're located or their attributes. So, and it, it most likely isn't your forever home too. You may be in it for 10 years and then graduate to another state or what, whatever the the case may be. So if you're not looking at it as an investment, you're just looking at it is housing you're Ignoring some potential benefit or you're turning a blind eye on some of the potential risk.

Right. So a home is an investment by definition because it has equity. And at some point you'll harvest that equity. Even if it's, let's say you're a state that harvests the equity. There is equity there that deserves to come back to whoever put it in. You're kind of expecting it.

So there was an interesting stat that you had sent over or was in one of the articles that I read that said that homeowners are 4,300% more wealthier than their non homeowning counterparts.

Yeah, those, yeah, it's, it's an amazing stat and feeling like what does it speak to? How does it, how does that disparagement get there? Right. Is there more, more to that story? And I, that statistic is commonly published through Kiplinger. And so I, there's probably 10,000 links back to that, how they derived it. And so one of the things is you're part of your mortgage payment. The majority of your mortgage payment is going to be interesting, but there's a component of it that is principal repayment. And as a mortgage progresses in the amortization schedule, that principal component increases every month because the interest is charged. The interest is accrued on a slightly smaller balance next month because you paid it down. So if you looked at it like in a graph format, it's heavy interest.

Well, that's.

That that exact point is kind of where my head was at this idea that even if it is scary and even if the mortgage payment is more than your rent Right. You are investing in this asset that can appreciate over time. And I, I meet people all the time as a financial planner that their biggest asset is their home. That, that is a fairly regular occurrence even in my own situation. We chose to be in a pretty high real estate price tag environment because we wanted to be in a certain community close to schools and check all the boxes that we were looking for. And I, I think about it a lot where I wish I had a little bit more liquid here or there and I, and I would if I lived in a different place. But even myself as a financial planner, I'll exclude the equity that we're building in our home as part of my own thought process on it. Right.

I would have more cash if I didn't live in the house that I live in right now. We could have bought something else somewhere else that didn't check all the boxes. And sometimes I'll beat myself up about that, but then I'll realize I am making an investment in this property and kind of pull that back into the equation. And it makes me feel a lot better that we're doing the right things and we're, we're headed to the right place over time, you know.

Yeah. Yep. Right. The, the home, it'll, it'll get a zero on its value at some point in the future. Right. So it'll be, the homes that are bought for a million dollars will be worth 10 million in the future. It's, it's inflation. Right.

And so if you're in the journey long enough to see that zero which will show up, you probably have your mortgage paid off by then, and that's a full equity position. That's where real estate becomes a good augmentation to building net worth.

Right, Right, right.

And it's also a, it's a leveraged investment. Right. So if you were fairly confident that certain investments were going to go up given enough time and you were able to buy into them, you'd just be buying one for $1. But if you could get a loan to buy into the investment, you could leverage it. Right. And so with real estate, 4/5 of the acquisition is other people's money. Right? Right. 80%, you know, let's say financed, 20% down payment or even 19/20.

Like if you put 5% down, 19/20 is the other people's money, the bank's money. Right, Right. But you're getting the full asset, which is going to appreciate. Now, of course you got to pay interest on that, but it, it is a, there's not too many investments where you can leverage that kind of power. And real estate's one of them.

Yeah. Yeah. Again, it all comes back to getting on the train at the right time for the right reasons.

Right, Right time for the right reasons that, like, just freeze that. That's. That's really it. It's you. You need the right reasons to get on the train. And when your personal light goes green, you probably want to, like, kick down doors to make it happen.

Yeah. And that's. I, I hope that's the main takeaway for people that are faced with what might feel like a scary endeavor to go from renting to home home ownership or even moving with rates having gone up. But if it's for the right reasons at the right time and you've done the due diligence and it is affordable. Right. I have to say that you wouldn't have more liquid net worth if you didn't take on a bigger mortgage payment. Right.

Yeah.

But if you've done that due diligence and it's for the right reasons, you should still get on the train. It's nothing to be scared of. Right. And it's going to head in the right direction.

It's going to head in the right direction. Well said. Yeah, that sums it up. And I guess related to the affordability, there's going to be personal household sacrifices that need to occur to make the affordability happen. And that period of austerity or savings or frugality, it's not easy and it's painful. And the upper generation reminds me of that often. Right. What we had to do to make this happen.

And so hopefully, you know, to get into the property, folks are willing to make those sacrifices to make the whole project work. Right. You can't have the real estate and also have, you know, five nights a week eating out. Right. So something's got to give and. Right.

Yeah. Anything else, John? Anything else coming to mind? I. I think if, if we've done nothing else but just to encourage people to continue the journey and find the path to homeownership and not to be as scared, not to say that we can ever completely eliminate some of the anxiety around real estate transaction, but anything else coming to mind that you wanted to share with folks before we cut you loose?

Sure. I had a mentor that explained to me that there's always three clocks running in somebody's life. And so you have a market clock related to what you're working in. And so for me, that may be the price of homes or interest rates is that clock and then there's a career clock like where you are in your earnings potential and you also have a personal clock and none of the clocks are the same for any one person. So. So your personal clock in terms of somebody banging the broom handle on the floor, that rings differently than somebody else's clock where their lease is coming up for renewal. So being aware that you have a personal clock and that you can't control the market or the career clocks, those are just going on and then look to sync those up in honor the personal clock. Like don't ignore it.

Don't wait for the industry or the your work clock to coincide with getting a raise, to coincide with low interest rates and then to coincide with what's going on at your apartment. They're never going to line up. Right.

Right. So just, it's never going to be perfect.

Right. So when people speak of timing there's like there's three layers to the timing. Right, right. Or more. Right. And let's, let's look at, at the personal clock. Most importantly in first I'd say honor the personal clock and the other clocks we just have to kind of accept what they're. Where they're at.

Yeah, yeah.

If that makes sense.

Yeah, yeah, absolutely. Yeah. It's never going to be perfect but you know, the personal probably is the most important and if that's timing's right then do your best to of kind of figure it out, go from there. Yeah, yeah. John, I always appreciate your expertise. We could nerd out about rates and 10 year treasuries.

Yeah, yeah, yeah.

And we'll, I'll pick your brain offline to spare people the, the technicalities that. But, but yeah, I always appreciate you coming on and sharing your, your expertise and your insights. What's going on. It's always extremely helpful. Where should people go to check out you and, and Gold Coast?

Yeah. If, if the topic is appealing we have more content written on the. The tendency to homeownership journey than any company on the planet at this point. So we have a webpage that's called the Tenants Lounge and so the tenants can soak up all their information there about the homeownership journey. So goldcoastmortgage.com tenantslounge and we. That's where they can find all the geeky information related to. Yeah.

Awesome.

Yeah.

I encourage people to get into the weeds. It's a great resource. Thanks again John. Look forward to talking to you soon. Thanks everybody for listening or watching the video. We appreciate it. And if you like what you saw. Feel free to head over to modernfinancialwellness.com Sign up for the newsletter and we'll see you next time.

Thanks again.

Thanks, Jim.

Thanks again for listening to this episode. A quick note, although I do hope that the information that we talked about was helpful, in no way is anything discussed on the podcast to be taken as specific financial advice. Please consult your own advisors and do your own research when you're making important financial decisions.