Afford Anything - Ask Paula: Feeling FOMO About Your Home Equity? Here's What to Do

Episode Date: November 1, 2023

#469: Lindy feels like her $300,000 of accumulated equity could be put to better use. But she doesn’t want to buy more real estate right now. What’re her options? Katie wants to become a landlord in her home state but she’s concerned about the effects of redlining. Should she look into Section 8? Claudia lives in Germany and wants to buy an apartment in Manhattan. But she knows nothing about US real estate. Where does she start? I tackle these questions in today’s episode. Enjoy! P.S. Got a question? Leave it at https://affordanything.com/voicemail For more information, visit the show notes at https://affordanything.com/episode469 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, is your house paid in cash? Do you still have a mortgage on it? What's your deal? We have a mortgage, but it's such a low, low, low interest rate. Interest rates were through the floor. So it's two and three quarters. Nice. Do you have a lot of equity in your home? For an interest rate that was that low, we borrowed more. But the answer is a fair amount. Why do you ask, Paula? Well, I'm asking because the first question that we're going to be addressing today is from a woman who has a lot of home equity. and doesn't like the fact that it's just sitting there not making any money. So we're going to answer that plus several more questions. I thought you're just crying. I know, right?

Welcome to the Afford Anything podcast, the show that understands you can afford anything, but not everything. Every choice that you make carries a trade-off, which means the equity that you hold in your home is wealth on your balance sheet that you're not spending elsewhere. So what are the trade-offs that you're willing to make? and how do you execute on those decisions? That is a lifetime practice, and that's what this podcast is here to explore and facilitate.

I'm Paula Pant. I am the host of this podcast. And every other week, my buddy, Joe Sal C-high, the former financial planner, joins me to help answer questions. What's up, Joe? Well, I'm here. I'm reporting for duty, and I'm excited. Fantastic. Let's just dive right in.

Our first question comes from Lindy. Hi, Paula. Hi, Joe. I appreciate all your hard work. My question is I've got a rental house with about $300,000 in equity just sitting there. And I feel like I'm missing out. I'm just frozen. I'm sitting on the sidelines.

I've done fix and flips before, but I'm not excited about buying houses right now. But I feel like I'm missing out on opportunities with this money just sitting there. Is there any ideas that you guys have where I can put this money where it's still building, building assets or ideally creating a little bit of cash flow or is the best option to just like keep letting it sit there. Thank you so much. Lindy, that's a great question. And I think that your question is something that a lot of homeowners are feeling right now. If you purchased your home a few years ago, you may have a lot of accumulated equity. Like, Lindy, you've got 300,000. And that is, as you rightly point out, wealth that is on your balance sheet, but it isn't overtly making any money.

It is in the sense that your equity will rise at the rate of general market appreciation. But beyond that, there is this sense, this fomo that comes from thinking, wait a minute, I could pull that money out and use it to do something else. But should I? You think about, Paul, it's even worse because this is not her primary residence where I could see that, but being a little conservative. I think it's also for Lindy the fact that it's in an investment property. And so the investment property is only going up to your point at the rate of appreciation. And you know what I mean? So if it's an investment that's sitting there in something super conservative, it's even worse than if it's your primary residence.

Right. But then the decision as to whether or not you should pull that money out comes down to, really two things. One is the level of risk that you're willing to take and the other is the arbitrage. And so we'll start with the risk. Lindy, I'm saying this not for you, but just for all people who are listening. If you have a particular property and you don't want to risk losing that property, maybe you have a particular property that has a strong emotional significance for you. So for example, maybe you have a property that's technically a rental property. You're not living in it. You're renting it out.

But it was your grandma's house, right? And it has a lot of emotional significance. And you don't want to risk the possibility of losing it. Then I would say, you know, never put up for collateral, something that you're willing to lose. And when you borrow against a home, when you borrow against the equity in a home, you are putting that home up for collateral. You are securitizing debt with that home. And so if there's a particular property that for emotional reasons you would never want to lose, then don't risk it. But, Lindy, in your case, it sounds like that's not the deal with this property.

So then it becomes very much an arbitrage decision. If you were to borrow against that equity right now, you would be paying a pretty high interest rate for the sake of borrowing against that equity. So is there an investment that you could undertake that would have a high enough return? there would be a big enough spread to justify taking out a high enough interest, such a high interest rate. I don't know how many opportunities there are that would give you a big enough spread. I think it's so difficult. You look at, you look at the usual opportunities, Paul, that you tell people to start off with. And because of the high interest rate, you got to land where Lindy is. I mean, when I go through what seems like just in general what a good use of that money would be,

it's my least favorite options. One of my least favorite options in real estate, which is a flip. But a flip is like buying a job. Right. You know, I mean, you're going to be working full time quickly because you've got to flip that house fast if you're going to make the money work. So to get that working in a higher interest rate environment, a flip becomes your best friend, but there's all the negatives around that. So I'm reticent to tell Lindy, yeah, go to go take that money out and use it to flip a different, ugh. I mean, and not yuck for everybody. You know what I mean?

Not yuck for everybody because there's a certain investor that really likes that. It is a full-time job for them and they enjoy it. And that's great. But, but I can't, you know, you can't paint that broad stroke. You know, in Lindy's case, I think flipping could be a good idea because she's done fix and flips before. So she has the experience. She knows what goes into all the work and the costs that go into doing a fix and flip. And the need to do it fast. Right. Exactly. I think a flip would be probably the use. It would be one of two uses of that money that I can think of. Well, one of three, actually, that I can think of that might have a high enough spread. But I say that for Lindy only because she has experience in the past, and she would have to know going into it that this is going to be,

as you say, Joe, a full-time job. So that's one of three use cases. The second would be on the subject of a full-time job if she runs some type of a business and if that business needs money for, not for day-to-day operational expenses, I'm a proponent that you shouldn't borrow to cover your ongoing operational costs, but if that business needs to borrow in order to buy some CAPEX for a business. example, that could really help it expand. Okay, I can see a case there because any business that you are running as a full-time enterprise, right, that can yield some pretty significant

returns. That would be a second use case. Now, the third case would be if she were to use this money to buy a rental property, and if she were to do that, this is different than simply taking out another mortgage because if she were to do that, she would be still paying her current mortgage on this particular property, but she would also then have a second loan on this property where she's borrowing even more. So she's stacking interest there. That makes this very different than somebody who is brand new to rental property investing. They're buying a property fresh for the first time and they're getting just one loan on one house, right? Taking out two loans, and subjecting your first rental to a bunch of risk because you want that second one to work out,

you're stacking the dominoes in a way that you're not when you're just taking out a loan fresh. That's the reason why borrowing against this property to buy another rental is, for her, it's going to be very different than if she were to just go to a bank and take out a fresh loan for a rental. Those are different risk profiles, different loan scenarios. One of my favorite quotes in investing, Paula, and there's a bunch of them out there, but this one I particularly like, and I'll apologize people that aren't sports fans because it's a baseball reference. But Warren Buffett said that in investing, there's no such thing as a called strike.

And in baseball, what happens is if the pitcher throws the pitch, people who don't know baseball and you don't swing, it can be really bad if you don't swing. right? Because they will call it a strike. The ball goes right down the middle and you don't swing, they will make it really bad for you. So you got to swing the bat. What Warren Buffett's alluding to is you don't have to do anything that is not in your best interest. And here's what I like. You and I don't like to play the crystal ball game. I definitely don't like to predict the future. But I can predict this, Paula, because I know I know these things to be true. I know number one that people have adjustable rate mortgages. And I do know that some of those interest rates are at a low mortgage like mine. Now,

mine's a fixed rate loan, right? That it's a very low interest rate. There are people with adjustable rate mortgages that rolled the dice and they are sitting on these loans that in the next few years are going to have to be redone. Those loans are going to be redone at higher rates. I also know there are constantly people doing stupid things like mortgaging themselves to the Hilt. So I think, like a lot of people think, that there may be opportunity. I don't know if it's going to be a lot of opportunities or only a few opportunities, but I do know that there should be some fairly juicy ones coming where you have motivated sellers who just got to get out of this property before the bank takes it back. I think there's going to be some of that coming down the road. If that is true, and I don't think I'm looking really into the crystal ball as much as I am just thinking through, use the word dominoes earlier. of what happens when interest rates go up. I like having this ready for a potential deal that does make sense. I think what Lindy's got to do first is figure out what the parameters are of what actually

makes sense for her. What does that deal look like to make sense and do that little bit of math so that when it approaches and it actually happens and appears on her radar, she can then move very quickly. I don't mind having this sitting waiting for a better deal. I feel like sometimes we try to create deals where there are none because of our, I don't know if it's FOMO or what. Right. Or we, well, we try to deploy cash as quickly as we can because we don't like cash sitting on the sidelines. But in times of opportunity, those who are sitting on cash are the ones who are able to take advantage of that opportunity.

You know, Lindy, a way to reframe it rather than thinking, hey, I've got this equity and it's just sitting there, not making. any money other than market appreciation on the property. The reframe of that is, hey, I have this like bucket of opportunity, right? And I don't have to do anything with it. I can let it sit there. I can wait for as long as it takes. And then when a great opportunity appears, if the opportunity is so good, I can then use it. So fundamentally, that reframe shuffles, I don't want to say cause and effect, but it shuffles the first step in the second, right? Rather than I have money, therefore I should deploy it. You know, take that off the table. Instead, it's if I find a great opportunity, then I know that I have a resource I can tap. But if I don't find a great opportunity,

then I don't have to tap that resource. I can let that resource continue to rise at the rate of market appreciation. I love that because what it also alludes to is we need to, we being And Lindy, I won't be in on that discussion most probably. But she needs to define for herself what great opportunity means. What does that actually mean? So again, beginning with the end of mind, what rate of return does she need to reach her end goal, her end game, whatever that goal is? And then that gives her a structure in which to decide that this truly is a great

opportunity for me. Because an opportunity for you, Paula, that's great, maybe something completely different for me. Right. Right. Right. And, you know, the fact that she has mentioned her history with fix and flips in the past makes me wonder if for Lindy, perhaps the opportunity might come in the form of finding a dilapidated property in a great neighborhood, right? Find the worst house on the block. And, you know, if she has the connections, if she has the experience of flipping, then perhaps she could do a flip. And that's an example of great for her, not great for me. Right. Exactly. Exactly. other good thing about using this money to do a flip is that if she were to take out, let's say, a he lock on this, she would only need to be borrowing against that equity for a very short period

of time. Unlike buying a rental property where you've got a long-term mortgage now, if she took out a helock, she could use it for six months, pay it back. And if she did that once a year, you know, one flip a year, it's a decent use of that capital. But, Lindy, I think the thinking framework isn't, I have money, therefore I should spend it. It's, I search for opportunity and know that I'm capable of capitalizing on that opportunity, if it appears. You allude to something tactical there, too, Paula, which is, you know, we talked about being able to move quickly when the right deal appears, making sure she has that, that, that he lock ready to go. Like, she doesn't want to have to take that out later. She knows that this money is money she's

going to want to deploy. There might be a fee every year to keep the HELOC open and not use it, but certainly for somebody like her who's waiting to deploy it, I would call that a small cost of insurance to be able to write a very quick check to get that stuff moving. Versus I see an opportunity. I go to my bank. You know how long a bank can take. I mean, that can drive you crazy. So I definitely prefer to get that open now and have it ready to go. But more broadly, Joe, when you were a financial planner, when people would come to you, I want to take this conversation away from real estate and kind of open this up, when people would come to you and say, hey, I have a bunch of cash that is, or I have a bunch of, I have assets that are relatively illiquid, but I don't feel as though they're performing as well as they otherwise could be. and I want to make better use of them or I'm feeling phomo at the fact that I'm not making better use of them. What would be your general approach to that?

So the general approach starts with we need to get away from phrasing like not working as well as it could be because that implies that there is a perfect way for those assets to be used. And if we go to what is the perfect use of an asset, we know what the goal is that we're shooting for. we're investing it into an investment that shares a propensity for winning with that timeline, meaning if it's over 15 years, stocks and real estate are fantastic. If it's a one-year goal, then generally not talking about flipping,

which is much more of a job, but more of a passive investment is going to be something, you know, a savings account of money market is a much better place. A CD is a better place where you have a propensity of winning. I start with that. But then I also start with a bias toward behavior versus statistics. So let me explain that.

Statistically, having a low interest rate mortgage like I have now is a winning position because I can do all kinds of fun arbitrage tricks, right? I can pay a little bit on that mortgage every month and then I can invest my money elsewhere. That's the game that I'm playing. Generally, I know though, Paula, I try not to play that. game. That rate was just too low for me to not play. A recent study showed that the average retiree is happier if they don't have a mortgage. And people are generally happier if they don't have debt. So my bias is against debt, not because I won't play the arbitrage game,

but because generally people are happier when they don't have it. So if that's the case, I will try to stay away from debt and dead instruments if it all possible. And I think there's a lot to be said for tearing away from the framework of this money could be working harder, which is it's almost as though what you learn as a beginner in the world of personal finance is at odds with what you need to embrace when you're a bit more intermediate or advanced. As a beginner, when people are first coming to the world of personal finance, they've never thought of the notion that your money could be working for you.

you. And so teaching people, hey, you don't just have to trade your own time for money. Your money can also make money. That basic foundational concept is great for beginners. But once you're a bit more advanced in the world of personal finance, you then almost have to not unlearn that, but put some additional nuance on that because it isn't the case that if some is good, more is better. It's more the case that you don't want to take on more risk than you have to in order to get the returns that you are shooting for in order to live the life that you want to live. So, you know, how much risk do you need to take? How much leverage, if any, do you want to take on? How much of your current success do you want to put up as collateral for the sake of,

reaching that next tier. At a certain point, you might say, you know what, the success that I have already achieved, I'm good with it or I'm good with slow rolling it from here on out. And I don't want to put up what I've already built as collateral in order to get to that next tier. That's interesting. This is a little scary to say, but you sound exactly like Kevin O'Lear from Shark Tank, who calls himself Mr. Wonderful. He was talking about Paula. And he used some pretty wild terms. He talked about how, well, you need a cushion of $5 million. Now, that's where he starts. But here this for what it really is. Make sure that that is secure. And after that, then it's very easy to take money out and deploy it into crazy things that are

opportunities that really can can spur you ahead because you know you're going to be okay. So if we back away from his $5 million mark, what is he saying? He's saying really what you're saying, which is have this money that is toward your goals to go where you want to go. And then beyond that, what do I want to do? What creative stuff can I do? Right. Essentially, build the base, secure the foundation, don't risk the foundation. And then anything above and beyond that foundation, that is subject to risk, but not the foundation itself.

So, Lindy, I hope that gives you some additional context for how you should think through, A, whether or not you want to borrow against this equity, and B, if so, what type of opportunities would be worthwhile? So thank you for the question, Lindy. We'll come back to this episode after this word from our sponsors. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and efficient. They're also powered by the latest in payments technology built to evolve with your business. Fifth Third Bank has the big bank muscle to handle payments for businesses of any size. But they also have the fintech hustle that got them named one of America's most innovative companies by Fortune magazine.

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Black Friday. IKEA, bring home to life. Our next question comes from Katie. Hi, Paula and Joe. My name is Katie, and I'm a long-time listener and first-time caller. Thank you so much for your work. My spouse and I have learned a ton over the years because of afford anything. My question is about accepting Section 8 housing vouchers for a rental property.

Specifically, what should my spouse and I be thinking about when considering participating as a landlord in this program? To provide some context, my spouse and I are originally from the U.S., but now live and work overseas with employer-provided housing at no cost to us. We currently don't own any property in the U.S., but plan to retire in my home state in about 18 years. We want to buy a home, rent it out while we live abroad, and likely live in it once we retire. We're also concerned about the impact redlining has had on the city we plan to buy in, and want to ensure we provide a fair, housing opportunity to potential renters. For my research, it seems like one way to do this is through Section 8, but many landlords don't seem to opt into the program. Any insight into pursuing Section 8 or

similar programs is appreciated. Thank you and have a great day. Katie, I love the question. So, first of all, congratulations on having such a clear plan and on caring so much about your community and wanting to make sure that you are doing what is best not only for yourself, but also for your community. So let's talk through both of these concepts. And I'm going to talk about each one separately because the link between, you know, within your question, you ask if there is an established link between the problem of redlining and the potential solution of Section 8. But let's talk about each idea separately. So first of all, many landlords, I know many landlords who participate in Section 8. I even myself considered putting one of my properties, one specific property on

Section 8. The advantages, as I'm sure you already know, are that you have a certain percentage of your rent that is guaranteed, right? And so you know that you're able to count on that. The disadvantages are that you have to follow the Section 8's guidelines in terms of exactly how much you can charge. You have to follow the Section 8 inspector on precisely the quality and the, you know, the repairs and maintenance of the property. And on the surface, those don't sound like big deals. But, you know, I've heard stories from investors where, for example, they might have a very, very old home with historic windows. But one of those windows has like a tiny little chip in it, the section 8 inspector says, well, you can't have a cracked window, so you need to take out these 100-year-old wood historic windows and put in, right? Yeah. So things like that, where the code is not written in a way that takes into account the nuance or the character of a particular home. You know, and then you're like, taking out these historic wood windows that are on a pulley system, right? Like that, it removes the character from the home. It removes the character. It actually means.

makes the home and, by extension, the neighborhood, a little bit worse, but this is what the program requires me to do. So little things like that I've heard landlords complain about. The bigger thing administratively is that every eye needs to be dotted, every T needs to be crossed. It's a lot of paperwork. So you need to be the type of person who can really be on top of a user-unfriendly, highly bureaucratic, very paperwork-intensive administrative process. The other thing about it, is there are certain areas where you can have Section 8 properties and certain areas where your municipality won't let you have a Section 8 property there. So the home that you are looking for would need to be in a Section 8 zone. And that goes to your, you know, the other piece of

your question, which is about redlining. So Habitat for Humanity has a great page, and I'm going to link to this in the show notes about solutions to advance racial equity in housing. And one of those, it's a very long, I'm going to link to this in the show notes because they have a lot of policy related suggestions. But one of those is reforming zoning to allow for mixed income communities. And that's actually something I feel quite strongly about because that also plays into the housing shortage. The fact that zoning laws often do not allow for mixed-income communities. And often do not allow for multifamily housing in communities where there are a lot of single-family homes that simultaneously contributes to the housing shortage,

because now you can't build multifamily, so you can't have more units, more density, right? So it simultaneously contributes to the housing shortage as well as contributes to redlining. So that rezoning at a policy level is, you know, I think very, very important. important, not just for redlining, but for housing affordability generally. That's the type of thing where, you know, those decisions are made at the local level and you need involvement at the local level to try to push for the type of zoning that would allow that. And maybe I don't, you know, what town you want to invest in. Maybe your town already has zoning that allows for mixed income communities and already has zoning that allows for the construction of multi-unit properties

in single-family neighborhoods, right? If so, that's fantastic. We need more multifamily, and that means more mixed-income communities. Paul, I love where your discussion of this is going, because I always begin with, what are my controllables? What can I do? I recently spoke to a gentleman, Dr. Seth Kaplan, who has a book out called Fragile Neighborhoods. And he talks about how the State Department would go to countries that have very unstable governments or fragile systems, such as one that he points to is Egypt as an example, where it's fairly fragile and new. He said, even though the top layers of government might be fragile neighborhoods that he went

into were often rock, solid. And the U.S. in many ways is the flip of that. We don't talk to our neighbor. We spend all day online. We don't have this neighborhood. And what he talked about when I asked him about many people in the real estate community, what do you do? He focused on intent and working horizontally with people in that neighborhood. And so I don't know that the answer is in Section 8 or non-section 8 because even listening to you talk about that,

that discussion gets well beyond anything that you can truly control. But what you can control is your intent to be a help to the community, which means joining a neighborhood, listening to neighborhood leaders, inserting yourself in this neighborhood, and then using your unique ability to do real estate and make homes for people in that better and to help build the neighborhood as a positive.

and I would begin there before I think about whether Section 8 is going to fit or not fit. I thought his discussion of that of being a part of the neighborhood was wonderful. And if anybody gets the chance to read that book, it's really a really flips a lot of things on their head. I believe after talking to this guy and I'm a guy who's, you know, like you, Paula, we talk to tons of people. I believe that a lot of our ills can be solved if we involve ourselves more in our hyper, local neighborhood. Right, right, exactly. And hyperlocal is where you have the greatest ability to make the biggest impact. So getting involved in those neighborhood associations, getting involved in, you know, it's funny. When we have elections, we talk so much about what's happening at the national level.

We talk very little about what's happening at the hyper local level, right? But hyperlocal is where big, big changes can be made. This guy even talked about election. in fact. Dr. Kaplan told me, he said, you know, Joe, you can take two people diametrically opposed when it comes to politics. And you tell them, you go, okay, let's sit down and let's just talk it out. He said, by the end of half an hour, they're yelling louder than ever, right? But you give them a shovel-ready project to build a community garden together. They're best friends. They are best friends because we're working on something that we both can agree on, which is that garden needs to be in our backyard. Exactly. Or more density. We need a thousand more units of housing within this zip code.

Yes. And they can both agree, regardless of who's going to be the next precedent. Right. Right. Exactly. And so then when you're like, all right, how do we get, how do we solve this very specific problem? How do we get a thousand more units of housing in this zip code? The other exciting piece of this, Paula, that I liked was he also pointed out that once neighborhood leaders know you and they trust you and they trust your intent because in many neighborhoods that need help, they've seen so many real estate investors that have just done the wrong thing for the neighborhood and they are part of the problem. Once they know you're part of the solution, you also may get an increased access to deals because the community leaders are bringing,

hey, we need help on this block. We need help with this thing. We need somebody we can trust that can go in and as access to resources, the ability to, in systems to help people get housing where they most need it. Once people trust you, all of a sudden some of these deals that are done in back rooms places, you're a part of them. You are a part of them because the powers that be want to see you succeed because they know you want to see them succeed. Right, right. You know, when some of the most successful single-family residents investors in Atlanta that I saw, their strategy was that they bought as many homes as they could on one particular street. And they just invested everything into making this an amazing street. Right.

So they might have five or six single-family homes on this one particular street, but they're very aware of everything that goes on on that street. that particular street is their expertise, and that particular street is where they put their effort when it comes to improving the community, making it a better, safer, more inclusive, happier place for everybody. And that also became their competitive advantage when the big hedge funds started buying up a bunch of properties, right? When Wall Street algorithms started buying a bunch of properties, the competitive advantage of the local. mom and pop investor of the individual investor is hyper local knowledge. And that is something that no hedge fund that is making algorithm-based decisions could ever have.

It's so exciting. I mean, listen to the pace of the cadence of our discussion once we got into what we can control. And I didn't control it for good. I mean, for good for everybody. It's so exciting. Katie, thank you for asking that question. I'm really looking forward to hearing back from you hopefully to learn about the property that you buy and the neighborhood that you start really involving yourself in. You'll come back to the show in just a second, but first. Hack the holidays with the PC Holiday Insiders Report. Try this PC Porchetta, crackling, craveworthy. You're going to eat that?

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Please feast responsibly. Joe, we have one more question today. Only one? Yes, one more question. It's actually the opposite of hyperlocal investing. This is about international investing. Ooh. This question comes from Claudia.

Hello, Paula. This is Claudia from Hamburg, Germany. I need a little advice because I want to buy an apartment in New York for myself. I'm German. I'm 56 years old. I have two rental properties here in Hamburgs. I'm working as a police officer fraud. I studied law, so I'm a lawyer and working at the police fraud investigations. and I do properties and real estate investing in the second generation and I like to renovate also homes or flats. Now I saw a flat in Manhattan Upper West at Zillow for $160,000, which I can pay.

But the thing is, there are a lot of differences, what it seems to me, between the German rental laws and maybe the property laws. I'm not sure about that. So I need some help and some advice for this specific flat in New York City, Manhattan. Maybe you can help me. That would be too nice. Thank you very much for your work and for all the work in the community. I very much enjoy all your podcasts and the whole community.

Thank you very much. Goodbye from Hamburg, Germany. That's fabulous. Claudia, thank you for the question. I love the question. Joe, I saw you nodding when she talked about how the laws in Germany, laws related to property ownership, taxes, every procedural component of it is very different than it is in the United States.

Well, I was nodding, Claudia, because it's not only different between Germany and Manhattan. I'm in Texarkana, Texas, and I know that Manhattan has very specific rules and rent controls. And so not knowing those, whenever you go not just to a foreign country, but to a local community, are the rules are going to change. As an example, you know, Paula, if you're going to do short-term rentals, you better know what that city says about short-term rentals.

Oh, yeah. Lots of restrictions now on short-term. So you better know those ahead of time. Don't go buy a place thinking you're going to Airbnb it. And Airbnb then is out the window because the city won't let you do it. Right. Yeah, there's a big difference with Airbnb Phoenix versus Dallas.

I mean, massive difference. There are a couple of things. pieces. First of all, Claudia, you said a flat in the Upper West Side for $160,000. I don't think that's right. There's nothing in the Upper West Side for $160,000. That's, I don't know what you I'm laughing. Just to be clear, as I'm laughing at Claudia. Right. Because you can, live in a different spot and not know what conditions are there. I'm laughing because that would be amazing, Claudia, in Manhattan. Right. Right. Either that or it would be really, really crappy.

Even something crappy you couldn't get for 160, right? Well, four square feet, but. Broome closet. Yeah, a friend of mine sent me a listing on 88th Street in the Upper West Side. He just sent me that listing yesterday. And that one, and his comment was he was like, oh, this is cheaper than I expected. And that one was around like $550,000.

So, yes, certainly, Claudia, I'll challenge the thing that you think you found. But beyond that, the bigger conversation is how do you confidently buy property in an area that you don't know a lot about? And the answer really boils down to you talk to the people who own there, you know, talk to the people who live there, talk to people who rent there also, talk to people who work there, talk to people who grew up there, talk to people who grew up there, talk to people who used to live there but moved away. Like you need to talk to a lot of locals in order to get a

really good sense of what the different neighborhoods are like, you know, the characteristics of all of these different places. And that's true whether you're buying it from overseas or whether you are someone who lives in Boston, but you want to buy in Indianapolis, right? What do you do? You talk to locals. This is the reason why many people, when they move to a new area, either internationally or inside of a country will rent for maybe six months first. So they get a feel for the different neighborhoods, for the flow of the city. Is this truly close to the places that I want to frequent? Is it far away?

What are the problems going to be? What are the upsides? So I get a feel for the heartbeat. Right. You know, when I first moved to Atlanta, I actually took that one step further. Rather than sign a one-year lease there right away, the first thing that I did was I found a sublet. I found a three-month sublet because I didn't know.

anything about Atlanta. I didn't know any of the neighborhoods. And I was like, you know what, before I even commit to where I want to be a renter, I first just want to find a sublet and spend three months in the sublet so that I can get to know the city during that time. Well, that's some advice for Claudia then, Paula, if she's able to come and spend an extended period of time, maybe at least a month, if she's able to do that, we don't know her situation. But as she can, that would be wonderful. And, you know, what strikes me is that there's two components to the scuttlebut that Claudia is going to need to do. Part of it is learn about the different neighborhoods in New York and the different price points of different types of real estate here.

But the other piece of it is, and then this is the piece that's specific to buying from overseas, the assumptions, and sometimes they are unconscious assumptions that you're not even aware of, but the assumptions about how contract law works, how taxes work, how finances work, how finance works, how inheritance or property disputes or estate planning, the assumptions that you might have about all of those things get thrown out the window when you're buying in another country. And what's tricky about that are the unknown unknowns, right? It might not occur to you that contract law works differently in the U.S. than it does in Germany. And so what does that actually mean in terms of,

what you need to know, what are the assumptions that you are holding that no longer translate. You don't know what questions to ask. Exactly. That's what makes it so much harder when you're buying in a foreign country. And so again, it comes down to talking to experts. Claudia, what I want you to do is find real estate agents, find real estate attorneys, find experts who specifically specialize in working with people who are based in Germany who want to buy in the United States, right? Because there are people who specialize in working with overseas homebuyers. So those are the ones you'll want to be talking to. Real estate attorneys specifically, you can get a good deal of information. Joe, would you ever have, when you were a financial planner,

would you have clients who were based overseas who wanted to buy in the U.S. before they returned? I experienced a lot of things, worked with many executives, but never, never had had that. I helped one gentleman buy a business when he got here from Turkey. Within weeks, he was ready to buy a business, but never somebody from there. I see that on TV. Actually, it's funny, Claudia, when I heard you, I was thinking about some of the episodes of million-dollar listing New York that I've seen, where you have some Russian oligarch who wants to spend $32 million, you know, buying a place, which was why, you know, my thought was make sure you're also working with good real estate people.

But again, time on the ground is really going to tell you whether you're working with somebody good, good or not. It's so difficult to pull those strings from afar. At the very least, having people you know and trust and who know you in that community ahead of time, I think is not even optional. It's necessary. Right. You know, there must be Facebook groups or online groups of German immigrants who are now living in New York City. And so communicating with some of them and asking them who they recommend when it comes to real estate agents or real estate attorneys or insurance providers or other professionals who are part of the process, getting those recommendations from other Germans who are living here in the U.S., who have done exactly what you're aiming to do. They went through this same process themselves just a few years ago. What are their recommendations? And also, make sure that you ask them, what are the things that they didn't know that they, in hindsight, you know?

Wish they knew. Yeah. And talk to a lot of people. Because if you only talk to one or two, you're going to get a small slice of perspective. The more people that you talk to, the wider that lens will expand. And the more people that you talk to, the more you're able to sift and sort through information. and distinguish good advice from bad, good information from bad. Because that's the other piece of it is how do you know enough to have judgment about what you

are hearing? And that largely comes from quantity, right? Being able to discern quality starts with first exposing yourself to high quantity. I think only through high quantity can you also start to sift out biases, which might not be intentional bad advice. Just one or two people will have biases toward, I really like this. didn't like that. Right. Exactly. Yeah, biases, underlying assumptions, things of that nature. So it looks like, Claudia, you have a lot of internet sleuthing, Facebook grouping,

message board messaging. You've got a lot of that ahead of you. And maybe a trip to Manhattan as well. But before you do that, even, Zoom calls, get on FaceTime with people. But I'm excited for you. It's a big adventure. And I think you're going to love New York. It's a wonderful city. So congrats, Claudia. we've done it again. I can't believe it. And what I loved about today's questions, even though they ostensibly were about real estate, they were all really truly, even for a bunch of people that aren't going to invest in real estate, Paula, there are really questions about how do you think about your thinking. Right. Exactly. Exactly. The framework of decision making. And that's

what the show is really about. I like to tell people that this is truly a podcast about how to make better decisions disguised as a money show, right? This is truly a podcast about how to how to be a better thinker, a smarter thinker, a more critical nuanced thinker. You know, this is a podcast about that cloaked in the topic of money. It's also a podcast about Paula and I disagreeing from time. That's what it's about. That's what people seem to enjoy the most. At least that's what I've, that's what I've heard. They enjoy it at our expense. They're trying to break up our friendship, Paula. I'm trying to break it up. Oh, nothing could ever do that, Joe.

They can't do that. It will not happen. Joe, where can people find you if they want to hear more of you? You know, if they want to hear an interview with Dr. Seth Kaplan, just obviously you can tell Paula. How many times Paula and I talk about the guests that we have on our shows quite often with each other, there are a few that really affect us. I remember we spoke with a guest on Afford Anything Ken Honda for a long.

I think we might have spoke for 90 minutes about the Ken Honda appearance. You can see it in the YouTube videos on the Afford Anything channel, how much people enjoy Ken Honda like I did. But Dr. Seth Kaplan talking about fragile neighborhoods. That's on our Stacking Deeds Real Estate show. So come join me and our friend Crystal Hammond over on the Stacking Deeds podcast. Excellent. Excellent. And I want to give a shout out to, I mean, to all of our listeners, but particularly for our listeners on Spotify.

Spotify rolled out this new thing. It's like a Q&A. at the end of every episode that just says, what do you think of this episode? We've been having fun with that. We've actually changed it a little bit. We've put in, we've also put in polls in some of ours. Oh, very cool. Very cool. So if you are listening on Spotify, please drop a note. Let us know it on any given episode. Let us know what you think. And for everyone, if you're on Apple Podcasts, if you're on Spotify, you know, no matter what platform you're on, make sure that you're following the podcast and leave us a review because the reviews

are incredibly helpful in allowing us to build this show and attract fantastic guests. And big thanks to everyone who has already left us a review. Those are awesome. And I know there's people today listening to, Paula, that have friends that need some of the direction we gave if you know somebody who needs that direction and they need better help thinking. Just refer the show to them. Exactly.

And we have show notes. You can subscribe at afford anything.com slash show notes. If there's ever anything that I need to communicate to this. community, but there's just, you know, something I need to say quickly that I can't say in a podcast or that didn't fit the, you know, I'll put it there. So afford anything.com slash show notes for a synopsis of all of our episodes, timestamps, and occasional communication for me about how you can improve your money and your life and be a better thinker, a smarter thinker. Well, thank you so much for tuning in. I'm Paula Pant. I'm Joe Saul-Chi. And we will catch you in the next episode.

So thank you for the question, Lindy. And congrats on the huge equity in your rental property and on your past success as a Flipper. What? Just I'm old enough to think of Flipper is that dolphin that would go save kids that are drowning. I actually, I had that thought pop into my head as soon as I said Flipper too. Congratulations, Lindy. Splash your tail, Lindy.

Go get a flipper.