Afford Anything - Ask Paula: We Want to Start Househacking in a Duplex. Should We?

Episode Date: February 25, 2019

#179: Should a couple in New Orleans sell their single-family home and use the sale proceeds to househack into a duplex? What do you think about turnkey investments? What tax consequences will someone face if they transfer their property to their parents? How do you handle tough situations related to the way some home renovation contractors treat women? What’s the latest update on your real estate course? I answer these five questions on today’s podcast. For more information, visit the show notes at https://affordanything.com/episode179  Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. Every decision that you make is a trade-off against something else, and that doesn't just apply to your money. It applies to any limited resource in your life, like your time, your focus, your energy. Where you put your mind, when it's on something, it's not on something else. There's an opportunity cost associated with everything, every dollar, every hour, everything. So what matters most? What do you value in your life and how do you act accordingly? That's what this podcast is here to explore.

My name's Paula Pant. I am the host of this podcast every other week. We interview a guest and on the weeks in between, I take questions from you, the audience. Of these episodes in which I answer community questions, half of these episodes, I answer questions about general personal finance. And the other half, I answer questions that are specifically about real estate. So one out of every four episodes is one in which I talk about real estate. And this is that one in four episode. If you are interested in the topic of real estate, keep listening.

If you're not, and I don't expect you to be, because real estate's one of those things. If you're into it, if you're into it, if you're not, you're not. Three out of four of our episodes are not about real estate at all. So browse through our archives, we've got a whole bunch of really great stuff. 75% of what we create is not about real estate. We talk about personal finance, financial independence, early retirement, traditional retirement. We discuss productivity, personal development. We discuss a wide range of topics all around money and lifestyle. So check out the rest of our archives for all of those episodes.

If you want to hear more about real estate, though, stick around because our first question comes from Kim. Hi, Paula. This is Kim from Maryland. I'm wondering about your experiences, if you've had any, with discrimination in real estate investing and or property management. I own a rental property, and I manage it myself. I've done this for 12 years. Recently, I had two window and door contractors refused to give me estimates on replacing a door in my property without my husband present. In the past, I've had my husband do these types of estimates alone. Never has he been told that I had to be there. Have you ever faced such a scenario? I've had to be very choosy over the years regarding my visibility within the management

of our property. I'm trying to increase it. I wonder if others have experiences like this, or if landlords of color have analogous experiences. Thanks for all you do. Oh, we're going there. I don't think I've ever talked about this before. At least, not publicly. Short answer is, yes, I've managed seven kitchen renovations, more than a dozen bathroom remodels. I've converted spaces into other spaces.

I've moved walls around. I mean, not me personally, but I've hired and overseen and project managed all of this. And that involves dealing with a wide variety of contractors and subcontractors. Many of them are wonderful, wonderful people, and those are the ones that I keep around. But there have definitely been a few who are condescending and patronizing and act like my time is worth nothing. And I'll actually, in my own personal experience, I'll separate this into two different camps. I've encountered the camp of contractors who dismiss everything that I tell them, particularly when I'm making high-level design decisions or explaining a scope of work. Because the scope of work that I'm going to create for a rental property is necessarily going to be different.

than the scope of work that an owner-occupant might create for a personal residence. If there are many things that need to be remodeled, the pieces that I'm going to prioritize as a landlord are not the same as what a person would prioritize as a primary occupant homeowner. A good contractor, a contractor who's experienced working with investors, will understand that. A contractor who is not will not, and in and of itself, there is nothing necessarily gendered about that. But the way in which some contractors over the years, and most of them have not, but a few of them, the way in which they have spoken to me, the sheer lack of regard that they have expressed for some of the managerial decisions that I've. for some of the managerial decisions that I've made, the scope of work decisions,

that's extremely frustrating. And that is one of two camps that I have found. The other piece of it that I found, the other experience, are contractors who are perfectly nice, so they're perfectly nice people, but they treat me as, I think, particularly because I'm a home in the middle of the day, and I'm not. dressed like I'm at an office. I'm not dressed like I'm working. I'm wearing yoga pants, usually. And so they treat me as though I am, quote, unquote, just some stay-at-home wife whose time is worth nothing in their eyes. I've had contractors ask me to run errands for them,

essentially, on their behalf, because I'm home, so they have access to me. And I can see the difference between how they treat me versus how they treat Will with regard to valuing our time, particularly during the middle of the workday. And by the way, this is not just contractors. When I was an Airbnb host, I saw this in some of the guests as well, not all of them, but there was this one Airbnb guest that I had who called me on my cell phone in the middle of the day because she couldn't figure out how to operate the TV remote control. And I spent maybe 15 minutes on the phone with her just trying to explain it. I said, you know what, I think that Will can answer this better than I can. He's more familiar with it. I don't really watch TV. So why don't I have him give you a call? And after she had

spent 15 minutes on the phone with me, when I offered for Will to call her, you know what her response was? She said, oh, I don't want to interrupt him at work. So yes, I mean, you see this type of thing, these gendered double standards, and I think it is a subset, perhaps a microcosm, of the way that some people, certainly not all, but the way that some people view the relative importance of a woman's time and ideas, particularly as they apply to fields such as home renovation that have been traditionally male-dominated fields. But this certainly is not exclusive to real estate. When I write blog posts that really deep dive into investing analysis, for example, my

post about whether to rent versus buy, or some posts that I've written about different types of accounts, 401K versus HSA versus IRAs, those posts, of course, get shared on social media and oftentimes I lurk and look when people are having a conversation with each other, not knowing that I'm a lurker, I look to see what they're saying. And I've noticed on a number of occasions that people will remark about the article and discuss the article's author using the pronoun he. So if I write a post about investing, somebody might say blah, blah, blah. He said that you should get your 401k match and then switch over and put your money into IRA instead. They don't know who the author of the article is,

and because it's an article about a topic that is a traditionally male-dominated field, they make the assumption that the article's author is probably a male. And I'm going to assume that if there are men who are writing about skin care or yoga or vegetarian cooking, people probably assume that the author of those articles are women. And if those men are going to a homeschooling meetup or a meetup for stay-at-home parents because they're the stay-at-home dad,

I would assume they probably get quite a few comments as well. And so really broadly speaking, I think the question is largely, how do you deal with having interests and making money outside of your gender norms in fields that are not traditionally associated with the gender with which you identify. What's helped me is that I surround myself with female investors. Not exclusively, of course. I have a wide variety of friends, but I make sure that I am also friends with many female investors and landlords. I keep them around. I keep them close by as a role model.

Emma Patti, who's been a guest on this show twice, is a perfect example. Investor, landlord, entrepreneur, self-made millionaire, and she's six years younger than me. She and I basically have the same roster of accomplishments, but she did it six years faster. We love each other. I respect her a lot. And we, in theory, try to plan to talk to each other on the phone every Sunday. In reality, it works out like maybe one or two times a month. but in theory, we try to talk on the phone once a week.

I know that's not a perfect answer, but this is one of life's big questions. How do you break social norms in a way that's graceful and confident? That fundamentally is the question. The final thing I'll say is that the majority of contractors whom I've encountered and the majority of people on social media who have read my articles, the vast majority of people I have found to be wonderful. And I think that's also important to keep in mind. And those are the contractors that I hire.

Those are the ones that I bring back. Thank you for asking that question, Kim. Our next question comes from anonymous. Hi, Paula. My husband and I have lived in our house in New Orleans in the 70119 zip code for two years. We bought a single family house for 320. $20,000 owe just under $271,000 and it put about $20,000 into backyard renovations.

Although the neighborhood is seeing more development, we do not want to be here anymore. We want to start investing in real estate and would like to start by selling this house and house hacking a shotgun or duplex. Similar houses in the area have recently sold for about $350,000, making any possibility of a profit marginal. Right now, we are relying on the potential profits from the sale of our current house cover a down payment. My questions are, A, should we hold on to the house for longer to gain more equity and possibly a larger profit later? B, do a 1031 exchange. C, do a 121 exclusion. D, look into a more

affordable market out of state or E, any brilliant idea that you might have. We want to make a smart investment without spending a huge chunk of savings, so any slash all affordable advice is welcome. Thank you. Anonymous, first of all, let's take a look at your current situation. So you bought the house for 320,000, you put 20,000 into it, so you're in it for 340. Similar houses in the area are selling for 350, which means that after accounting for real estate agent fees and closing costs, you're probably going to lose a bit of money on if you sold the house right now for 350. You have good equity in it, so you'll still get cash at the closing.

table, and that's the good news. But if you're in it for 340 and you sell it for 350, well, guess what, a 6% real estate agent commission on the sale of that property, 6% of 350,000 is $21,000. If you as the seller are paying the closing costs plus the agent commission, then that means that your bite of the closing costs could be $25,000. So the money that you spent on the backyard renovations, you're not going to see back. Sorry to be the bearer of bad news. But if you sell at $350, you walk away after transaction costs with $325, and you owe $271 on the property, that means that when you sell the home, you'll still walk away with $54,000 approximately, even after that chunk that gets taken out for agent fees and closing costs. And $50,000 or $54,000 is a fantastic starting point for buying your first rental property. So let's talk about how to do that.

First of all, there's absolutely no reason for you to do a 1031 exchange. You're selling your primary residence. And you've lived in this primary residence for the past two years. So the 121 exclusion, which is the home sale gain exclusion, totally applies. And that's way, way easier than a 1031 exchange. You'd want to avoid, I mean, 1031's, I think people over-emphasize them. The reality of a 10-31 is that it's extremely cumbersome. You have to identify the property that you are going to purchase within a very limited time frame.

And if you don't do that within the specified deadlines, you lose the 1031 exchange. And so a lot of people, they think that they're going to 1031 a property. And then what ends up happening is that because the deadlines are so tight, they end up buying a subpar property because they're coming up against the deadline. And they've got to just hurry up and buy something. So I've seen people sell homes thinking that they'll 1031 it. And then due to the reality of the deadlines imposed by the 1031 process, they end up essentially just exchanging one mediocre home for another. So the primary residence exclusion that you're talking about, the 121 exclusion, is way better. And that's going to spare you from having to pay capital gains tax.

But that being said, this whole conversation is kind of moot because you're not going to have any capital gains. You bought the home for 320 and you can sell it for 350 before commissions and fees, which means that at the end of the day, you'll probably end up with, 320 or 325. You're really not going to have capital gains. And that actually leads me to another big picture concept that I want to talk about is I think a lot of people think too much about taxes. There's this over-emphasis on tax planning. If your gains are going to be marginal at best, then you don't need to worry about tax planning for those nominal gains.

that's not the battle that you need a fight. If you sell a home and have a $50,000 gain or a $100,000 gain, yeah, then let's sit down and let's have a conversation about tax planning. But if the gain is going to be a couple thousand bucks, then the question to ask is not how do I tax optimize this, but rather, how do I pick better winners? Now, to that end, I love the idea of house hacking in a duplex or in a shotgun style single-family home. Love, love, love, love that idea. That, I think, is where I want you to focus your energy. That's where you're really on the right track because that line of thinking falls under the umbrella of how do I make this better. How do I make the gains better?

How do I make the profits better? And the benefits to house hacking include the fact that you can buy that home. as a primary residence, which means that you will have access to primary residence mortgages, which are the mortgages that have the lowest interest rates, the greatest flexibility in financing. I mean, as you progress as a rental property investor, if you start financing the purchase of more and more homes, then you'll have to start taking out investor loans or private loans or various other types of loans. And all of those typically have higher.

interest rates, higher down payment requirements, and fewer options than the primary residence mortgage. So house hacking is just a fantastic way to defray the cost of your own personal living expenses, which allows you to rapidly accelerate your savings rate, while simultaneously buying a rental property with a primary residence mortgage in a way that is totally above board and valid. House hacking is the ultimate strategy. So given the fact that you have an interest in and the opportunity to house hack, I would not look for a different market out of state. I'm assuming that there are properties locally, such as duplexes, in which you could house hack

and earn a decent rental return, at least earn enough that it covers your out-of-pocket housing costs. because if you can do that, then the money that you would have spent on your own personal housing out of pocket is now money that you can save. And those are the funds that are going to get you your next down payment. That is a strategy that I would take, and that's the reason why I would take that strategy. Now, you'd asked about possibly holding on to your current primary residence longer in the hope that the neighborhood might appreciate and value more, thus giving you higher equity and larger gains. I would not do that because of the opportunity cost. The longer that you're in that home, the less time or the less soon that you start house hacking and collecting rental income. That's reason number one. Reason number two is that you have no idea,

none of us have any idea, what's going to happen to the value of properties in your neighborhood in the coming one to two years. Maybe it'll go up dramatically. And if it does, then you will listen back to this episode and you'll curse me for telling you to sell. Or maybe home prices will rise, but only modestly, only at the rate of inflation. Such that after a year,

the home, instead of being worth $3.50, it's worth $360 now. That's just an inflationary increase it's not worth sticking around for. And reason number three, and you said this yourself in the voicemail, you don't want to live there. And one of the things that I've learned the hard way,

particularly as I've gotten older, is doing things that you don't want to do just because you think that those decisions make logical sense. Those decisions often backfire. If you're living somewhere that you don't want to be living and you talk yourself into it because you think it makes sense, you will most likely find a way to compel yourself to get out of it. And ultimately the end result will be worse, will be more stressful, will be less efficient

than if you had simply followed your heart in the first place. I know that that's like cheesy and I don't mean follow your heart in the Hallmark greeting card sort of a way. I mean that your intuition processes data at a rate that is faster than what your conscious mind can recognize. And so if your intuition is telling you something, if your gut is telling you something, it makes sense to listen to it. Because even if at a conscious level you try to talk yourself out of it, at a subconscious level, you're going to be listening to it one way or the other. But if you do it subconsciously, it's going to be less efficient. So, to summarize, I would sell your home, walk away with $50,000, use that money to make a down payment on a duplex or a shotgun-style home

that you can house hack into, and that will be your first rental property. While you are living there, house hacking, you most likely will have no out-of-pocket housing costs. So take all of the money that you otherwise would have spent on your own personal housing and put that into a savings account, and that will be the down payment for your second rental property. Based on what you've told me, based on what I know, that is what I believe that I would do in that situation. Thank you Anonymous for asking that question and best of luck with starting your real estate investing journey. We'll come back to this episode after this word from our sponsors.

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need to send an awkward email. They also grow alongside your business, so you have the tools that you need when you need them. Join the 24 million people who have used FreshBooks by trying it for free for 30 days, no catch, and no credit card required. Go to FreshBooks.com slash Paula. And when they ask, how did you hear about us? Type in, Afford Anything. Again, that's Fresh Books, F-R-E-S-H, Books, dot com slash Paula, P-A-U-L-A. For our next question, this is a little bit unusual, but we had two questions that were pretty similar. So I'm going to play these two questions back to back.

The first one is from Chia. Hi, Paula, this is Chia. Just wanted to get your thoughts on Turkey real estate investment companies similar to home union.com or roofstall.com? What are your experience with those guys and whether you're any thought to know? And the second question came in from Leah, who has a very similar question. Hi, Paula. I love your website. I love your podcast. I've learned a lot from you about investing in real estate. I have invested traditionally in a lot of stocks. and bonds. I have been interested in investing in real estate in the past couple of months,

and I'm spending a lot of time trying to understand real estate so I can make a wise investment. My question for you is this. What do you think about roof stock? I'm considering it because it looks like they have a lot of expertise in choosing single-family homes, vetting out clunkers, and then having property managers that they've already vetted as well. Do you think it's wise to go with a company like this? All right, a two-fer. Now, first and foremost, I'm not going to talk about any specific company. I will talk about turnkey investing in general,

but I will not discuss a specific brand or a specific company name. Turnkey investing in general. First and foremost, what's your strategy? Do you want to buy Class B properties that are located in a Class A neighborhood and then renovate them up to a B plus standard? Is that where you think that you'll be able to make the best returns? Do you want to buy Class C properties in a Class B neighborhood? Do you want to buy properties that are being underutilized in terms of like their floor space? Do you want to buy properties that are sold as a two bedroom, for example? and find a way to reconfigure the layout such that it can be used as a three-bedroom, thereby adding value. If you're interested in turnkey companies, you yourself are not bringing anything to the deal other than your money. And to that extent, you're not adding value to a property. You're not bridging the gap between what it is and what it could be. And so your upside potential right away is going to be limited with a turnkey company.

not just because they're taking a cut, but also because you're not actually adding any value. So that is issue number one. And if that were the only issue, then fine, no big deal. But there are some bigger concerns at play. So issue number two, many of these turnkey companies, the way that they make money, the way that they add value is that they'll buy a distressed property and renovate it. And while on the surface that sounds good, what do they mean when they say renovation? To what standard have they renovated the property?

What level of workmanship is there? How durable are those upgrades? What exactly was the scope of work? What materials did they use? How good were the contractors? How many times, if any, did the inspector come out? How long did it take for the property to get a certificate of occupancy? Turnkey properties, just like crowds.

sourced properties are not a get out of due diligence free card. You still need to make sure that the renovations that the turnkey company did are up to what you would consider to be an acceptable standard. And that leads to the second problem that I'm describing with turnkey companies is that even in the best case scenario, if you have a turnkey company that is totally honest and above board and they do everything really wonderfully, it still doesn't. might be the case that their vision and your vision are not aligned. So even if you have a turnkey company that is operating with integrity in a fantastic way, it could still be the case that how they define a renovation and the decisions that they make, the materials that they use,

the types of finishes that they choose, the preventative or proactive measures that they make, it might be that their decisions around that are different than your own. So basically, you've got a car with two different drivers. And that, I think, is a real issue with turnkey companies and with crowdsourcing and syndicate deals, is you are outsourcing the vision. You're outsourcing the decision making. And that's the one piece that you, in my view, really should never outsource. You can outsource the work. You can outsource the execution of the work.

You can hire people to be the electrician, to be the plumber, to be the project management. or who oversees everything. You can hire people to do that. But to outsource the decision-making, the critical thinking, the entire thought process around how do I make this property excellent? How do I optimize it? How do I attract high-quality tenants at a strong price and how do I retain them? And likewise, how do I reduce the operating expenses on this property?

If I replace all of the toilets that are now five-gallon flush toilets with 1.5-gallon flush water-sense toilets, and then I replace the showerheads with low-flow shower heads and I put aerators on the sink faucets, what impact will that have on my water bill? Right. Those are the questions that as the owner you need to be asking, because if you can get your water bill from $120 a month down to $60 a month, well, guess what? That's an extra $60 a month in your pocket. and it's better for the environment. But those questions are your responsibility to ask as the owner. So you can't just outsource that to some company because they're not going to care as much about your money as you do. They're not going to care about improving your operating expenses and improving the durability of the finishes.

So even if you do use a tourniqui company, that's still your job. And given the fact that that is still your job, than what's the point of using the turnkey company in the first place? You may as well just buy a property and then get a general contractor or get a property manager who will oversee the scope of work of all the renovations. Finally, you talked about turnkey companies, and this is the third thing,

even if you do buy a property from a turnkey company, never, ever, ever use the property manager or the inspector whom they recommend, especially not the inspector. But don't use the property manager either. Because you don't want the most convenient property manager that somebody else selected. You want the best one, the one who's going to help you attract and retain tenants. If you have a sloppy property manager who's rude to the tenants, and if you, over the course of five years, have even one tenant who decides not to renew and moves out and leaves a two-month,

leaves you with a two-month vacancy. Well, guess what? You've just lost thousands of dollars. A good property manager can provide excellent customer service to your tenants, which increases retention. And that ultimately means lower costs to you. But how are you going to find that property manager? Well, you're not just going to take the first name that some company gave you. Again, you're going to call a bunch of property managers on the phone. You're going to interview them. you're going to talk to at least three or four different candidates, and then you're going to choose the best one. It's like making any hire, right?

You're hiring. If you ran a company and you were hiring for a position in it, you wouldn't just let some random third party outside entity decide who that new hire is going to be. You would interview candidates. Same with a property manager. So if you think that by hiring a turnkey company, everything will be quote unquote done for you,

then you're forgetting about the fact that your job, no matter what, whether you use a turnkey company or not, is due diligence. As an investor, your job is always, always, always, always due diligence. And due diligence involves hiring a team of people who will provide a system of checks and balances that will look after the quality of, and scope of the renovations, as well as the quality of the manager and their processes.

So those are my thoughts about turnkey companies. Long story short, you can, whether or not you use a turnkey company, you can and should outsource the work, but you cannot and should not ever outsource the decision making. And that includes the decision around whom to hire and what they do. I mean that with regard to the contractors, the inspectors, the property manager, all of the people, that whole team that works on the house. Oh, and last thing that I'll say, always run the numbers yourself. There are a lot of turnkey companies that provide numbers for you so they will report what they say is the cap rate or what they say is the cash on cash return. there's an expression that's very common among seasoned real estate investors, which is trust but verify.

I'm not saying be a distrustful person. I'm saying your job is to verify all of those numbers. And that means that before you buy the property, you need to independently double-check every single number that they've told you. Or better yet, don't even look at the numbers that they give you. Run your own calculations, do your own analysis. compare what you've come up with to the numbers that they've reported and see how close they are. Thank you for that question. And I do want to clarify, it's not that I'm against turnkey companies.

It's just that if you're going to use them, you need to be realistic about what you can and cannot outsource. Actions can be outsourced. Decision-making and judgment cannot. We'll return to the show in just a moment. I'm a big supporter of entrepreneur, solopreneur, small businesses. But one problem that entrepreneurs often encounter is that we don't get access to really good rates, like the types of discounts and deals that big companies get. But ShipStation can help solve that problem, and that's one of the reasons that I strongly recommend them.

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up some other competitors and read what people were saying about him. So it helped me make a more informed decision about whether or not to stay in what I'm currently in. Visit captera.com slash Paula for free today to find the right tools to make 2019 the year for your business. Captera.com slash Paula. Captera, that's C-A-P-E-R-R-A.com slash Paula, P-A-U-L-A. Our next question comes from Julie. Hi, Paula. This is Julie from Jacksonville, Florida. I enjoy listening to your real estate advice on the podcast. I do, however, have one question. I would love some type of reference for the information that you give. Do you have a book that has the information you talk about? For instance, when you talk about tax liens, I would like just to be able to go to the book and re-reference the information. The information you talk about. For instance, when you talk about tax liens, I would like just to be able to go to the book and re-reference the information. information. If you don't have a book, I think you should write one because you're awesome. Thank you so much for letting me ask the question. Julie, thank you so much. So I, for the last,

I can't believe it's been three years, but for the last three years, for as long as I've had this podcast, I have been working on a course, an online premium course about rental property investing. The name of the course is your first rental property. Last September, September 2018, I launched it to a second group of beta testers. So initially years ago, I launched it to the first group of beta testers, but then it took so long to develop each module because I wanted this to be a one-stop shop, everything that you need to know, start to finish, about how to start investing in rental properties. So I had my first group of beta testers at the beginning. They've been with me for years now. In September of 2018, when most of the course material was finished, I launched it to a second group of beta testers. And from September through December,

I went through the course with those beta testers. And then in December, they gave me feedback about improvements that they thought that I should make, new lessons that they believe that I should add, new topics I should cover, more checklist, flowcharts, worksheets, quizzes, fill in the blank forms, new ways to organize the forums,

different ways to alter the auto responder sequence that they receive, different types of formatting that we could put in, like flowcharts. So in December, I collected all of this data about new improvements, new iterations to make to the course. And for the past couple of months, Aaron, Aaron is the course administrator and my chief sanity officer. She and I have been working nonstop getting these improvements into place. We've added new lessons. We've built flowcharts. We've shot new video. Again, we've got the quizzes and handouts and worksheets and checklists and fill in the blank forms. And we are pretty close to launching. The reason that I hesitate to give a precise date, I'll just tell you about the week that I've currently had, right? I'll tell you about this week. My designers, Greg and Hannah, design the platform for the course. I didn't want to outsource to some third-party platform. we decided that the infrastructure for the course itself would be designed and developed in-house. The design is fantastic. Then I hired this developer to make that design come to life. And as it

turns out, he was not so great. And so, okay, so this past week, I hired a different developer. And I asked him to integrate our car, our payment processing software with the course, such that when a person signs up, they get immediate access into the course. And then he's also going to integrate that with our email list as well, so that they then immediately. immediately upon signing up, start receiving the first emails, and get access to the forums, and get the login information that they need. Right? There's all these different pieces of software that need to fit together.

And so anyway, so I hired this new developer, and he went in and he created the code that I need, but in the process of doing so accidentally broke some other code. And so then the current beta testers could no longer log in. And so I've got that fire going on on one side. And then meanwhile, at the end of January, Thursday, January 31st, I showed. shot eight hours of additional video. And I used to shoot these videos in home, but I, that was just too, I was just doing too much myself. And so I found a video studio and I rented out this room in that video studio for the whole day. And we had a team of three or four people who could be there monitoring the video and the audio and the teleprompter. And so I sat there the entire day. I did an eight hour shoot. We gathered all of this. And it was a terabyte. So after that eight hour, shoot, we ended up with a terabyte worth of raw video footage. And then we had all of these problems trying to upload that into the cloud because Dropbox has a 50 gigabyte per file limit.

And a lot of the videos that we shot are bigger than 50 gigabytes. So then we tried compressing some of the files, but then there were questions as to if compressing them would diminish the visual quality. So blah, blah, blah, blah, blah. When people ask me like, hey, when is your course going to be ready. This is the reason that I can't give an answer. I know how long roughly it's going to take me to write the transcripts and create the material and put it out there. But there are so many moving pieces to this that I've just come to peace with, it'll be ready when it's ready. And I hope that soon. So if you would like to know when it will be ready and join the club, because so would afford anything.com slash VIP list is where I will first announce it. So afford

anything.com slash VIP list. If you sign up there, it's free. You'll get the sign up to the VIP list is free. And you'll get some emails that will come from me about rental property investing. And you'll also be the first to learn when we finally can officially announce a date for this course launch. This is something that I've been working towards for a very long time. So I will be extremely excited when all of these moving pieces have finally synchronized in harmony together. And we have this awesome premium course that we can release. So thank you so much, Julie, for asking that question. I'm flattered. And there will be something coming out hopefully very, very soon, just to say,

soon as we can uncompress these files and fix the broken code and all of these other death by a thousand paper cuts types of tasks. Thanks again, Julie. I hope to see you on the VIP list. Our next question comes from Ren. Now, Ren called into a previous episode, and he left a voicemail that had two questions. One was a general personal finance question, and the other was a real estate related question. And so this snippet that we're about to play, is the second half of his question. So here's Ren. Hey, Paula.

My brother-in-law, he has a house, and he wants to transfer the home to his parents. What's the best way to go about that? Like, what's the cheapest option? You know, the house is probably worth $200,000 or so. The cost basis was probably like $140, $150. And I know there's a, you know, lifetime gift limit, state limit of like 11.2 million. But beyond that, I really don't know if it makes sense for them

the transfer over the house. Thank you. Ren, that's a great question. So there are a couple of things to talk about. So first is the gift tax and the estate tax exemption. So you're correct. There's a federal estate tax and there's a federal gift tax and both of them share the same lifetime exemption. And that exemption in the year 2019 is 11.4 million. Because they share the same exemption, this is what's known as the unified tax credit. Now, I'm assuming that your brother-in-law is going to move out of his home. And I say that because it is actually relevant whether he continues to live there or not. Assuming that he and his wife move out of the home and then gift it to his parents, then what they can do is first offset that gift by using the $15,000 annual gift tax exclusion.

And that 15,000 is per person. So your brother-in-law can gift 15,000 to each parent, and his wife can gift 15,000 to each of her husband's parents. Then that gift tax exclusion becomes $60,000. It's $15,000 times four. So when your brother-in-law and his wife transfer that property, assuming that they transfer it to both parents, then $60,000 of that, will be counted under the annual gift tax exclusion. The remainder of it will get counted against the unified gift and estate tax exemption. Now, the other thing that your brother-in-law and his parents should be aware of is that if he

transfers the property to his parents, his parents' cost basis in that property will be what the brother-in-law paid for the property rather than the value of the property at the time of transfer, which means that later down the road, if the parents were to sell that property, then the profits that they make on the sale of that property would be subject to capital gains tax based on the value that your brother-in-law paid. Now, that being said, if your brother-in-law's parents live in that property for two out of the last five years prior to making the sale, then unless it's a very, very expensive property, it's totally a moot point because they'll be able to not pay taxes, on the capital gains due to the fact that it was their primary residence for at least two years prior, two of the last five years prior to sale. That's just something that you should keep in mind that

when that gift is made, the cost basis in the property doesn't change. Now, there's one other tax to consider, and that is transfer tax. So some states, but not all, have a real estate transfer tax. And also some states, but not all, that do have a real estate transfer tax, will offer an exemption on that transfer tax if the transfer takes place between family members. So you'll want to check specifically with your state to see if they have a transfer tax and if so, what the rules around it are. That is our show for today. If you have a question about real estate investing, leave a voicemail at affordanything.com

slash voicemail. That's affordanything.com slash voicemail. And again, if you're into this topic and you want to know more about this course that I've been building for a few years, go to afford anything.com slash VIP list so that you will be the first to hear about when this course finally gets released. I also want to make a big picture meta note about a lot of the questions that I often hear because it strikes me having produced a lot of these real estate related episodes and having heard many, many, many questions that have come through. A lot of the questions that I receive center around, and I'm just going to come out and say it, like, really sort of seem to me that they center around fear. The single most popular question that I get is, should I put my properties in an LLC? And what people are really asking when they say that is how do I protect my properties from the threat of lawsuit?

And what they're really asking when they say that is how do I play a strong defense? How do I protect myself? And similarly, these turnkey questions that we heard in today's episode, this is the third or fourth episode in which somebody has called in with exactly that question. What do you think about turnkey companies? And I don't want to ascribe intention to that question. I don't want to make assumptions about why people are asking it. but I wonder if part of it comes from this feeling of overwhelm, this feeling that there's so much to do and I don't know how to do it

and I'm investing out of state, I really just want somebody to do it for me. And this idea, this turnkey company, it sounds so good. Somebody will just take care of it for me and I don't have to deal with it. If that is the motivation, well, that is not the emotional for it. or the decision-making framework, the thought framework from which you want to be making good decisions. Fear, uncertainty, overwhelm, those are not typically the precursors to good choices. On a recent episode, I answered a question about crowdfunding, real estate syndication. Same idea. The attractiveness of it to many people is somebody will just handle it for me.

So when you take this bundle of questions together, like the L. LLC question, the turnkey question, the crowdsource question. These are some of the most common questions that I get. And when you bundle them all together, the common thread is how do I play defense and how do I get experts to handle it for me? Because what I want is to feel protected and what I want is to feel not so overwhelmed. I think, and again, I don't want to ascribe meaning or intention to any particular individual. A person might ask a question for a whole bunch of reasons, but having been in the space long enough and having seen so many of these questions come through, I think that that is at the root of what people, many people, are asking. The beta testers who went through my course, one of the top things that I heard from them is, hey, I want a roadmap. I want to step by step do this, then do this, then do this, then do this. and I want to know exactly who to call. I want a word-for-word script about what to say. I want to know how long it's going to take.

Give me the recipe. And it was after I heard that, when I heard the beta tester say that, that I started designing flowcharts to show, here's exactly how you're going to move through this. And not everybody's going to have the same path. Some people are going to buy a property off the MLS. Some people are going to buy something at a foreclosure auction. Some people are going to house hack.

But regardless of which path you choose, here's how they all flow and here's how they connect together and here's how to move through this. What I think a lot of people are asking for is confidence. And the thing is, I can show you how to follow the steps. And I can give you a framework for thinking about it and for learning how to learn and thinking about how to think. and figuring out how to figure things out. I see my role very much as doing that, but I cannot wave a magic wand and imbue you with confidence. In my own experience as an investor,

that confidence came as the result and not the precursor of taking action. So take the action first and the confidence will follow. I remember being 27 years old, terrified to talk to my tenants, terrified to enforce a security deposit or to let people know that we were going to charge a fee for pets. Like I was scared to even say those words. And I felt silly when people would ask, are you the owner? Because I was 27. And I had never even owned a house before. And I didn't know what I was doing.

But when you take the action, the feeling will follow. Oftentimes we think that we need to feel something before we do it. When I feel more confident, then I will buy a house. When I feel less overwhelmed, then I will buy a house. You know, it's wonderful to get the education that you need. It's absolutely fantastic to learn what you're doing, to learn how to analyze a property, learn how to hire people, learn how to build a team. run spreadsheets with multiple scenarios.

I offer this in the course as well. And in my own life, whenever I was scared, I took solace in the spreadsheet. A spreadsheet that I was working with at the time was a lot more rudimentary than the ones that were developing now. But still, I would look at the numbers and I would run the numbers over and over and over and over. But it wasn't actually the numbers that I was searching for.

It was comfort and confidence. And for many of you who are listening to this, who have always wanted to own a rental property, but you haven't done it yet, I can give you knowledge, but I can't give you confidence. And that confidence to go forth and to do it, that's going to be the determinant of whether or not you do it. One thing that's, I think, very helpful is forums in which you can interact with other real estate investors. Because when you see other people doing it, when you see example after example, and you have a crowd whom you can bounce ideas off of, although you have to take many of their opinions with a grain of salt, there is a difference between an opinion versus wise counsel or wise advice. But at a minimum, seeing that other people do it and interacting with those people, having those people feel real, that can help send home the message.

Hey, if they're doing it, I can do it too. If you haven't heard it yet, go back and listen to a previous episode in which I interviewed a guy by the name of Rich Carey. Carrie is spelled C-A-R-E-Y. He's in the military. He's stationed in South Korea. Before that, he was stationed in Germany. He owns 20 single-family homes, all of which he purchased, not just from out of state, but from outside of the country. And how does he do it?

It's one house at a time. And when he started, like he like me, neither of us. Nobody knows what they're doing when they get started. But we start. And that's the differentiator. And so that's the final message that I want to leave everybody with today is start. Do something. Take action because action is the antidote to fear.

Thank you so much for tuning in. My name is Paula Pant. I'm the host of the Afford Anything podcast. I'll catch you next week. Thank you.