Afford Anything - When Disaster Hits Home – Literally

Episode Date: February 11, 2025

#581: Today's question is different. There's something special about it — and you'll understand why in a moment. An 84-year-old listener left us a voicemail about his struggle to break free from mortgage debt. He and his 83-year-old wife need to move from their two-story townhouse because they can’t climb the stairs any longer. They found a single-story ranch house that fits their needs perfectly — except for one detail: it carries a crushing $4,200 monthly mortgage payment. They do have one potential escape route from this debt: selling their Florida condo, a vacation retreat that they haven't visited in years due to mounting chronic health challenges. But Hurricanes Milton and Helene ravaged their building last year. The storms spared their unit but destroyed the lobby and submerged their car in floodwater. The devastation slashed $100,000 from their property's value overnight. Now they face an agonizing decision: Should they accept this massive loss and sell the condo to free themselves from debt? Or would selling now, after such a steep drop in value, mean locking in their losses? Joe and I have answered hundreds of questions from our listeners over the years. But this question is special. It comes from my Dad. __________________________ Here’s the transcript of my father’s full question: Hi Paula and Joe,  My name is Prahlad. I am 84 years old, and my wife is 83. We live in a two-storied townhouse in Atlanta and also own a two-bedroom condo on the beach as a second home in Clearwater, Florida.  Recently, we purchased a one-storied ranch home in Atlanta so that we don’t have to go up and down the staircase at this old age.  Our condo in Clearwater is on the 9th floor of the 14 storied building. We love the condo with views of the Gulf of Mexico and the Bay. However, we have not been able to visit it for a long time due to our underlying health conditions.  We purchased the condo for $400,000 in 2015 and it was estimated to have appreciated to $800,000 in 2022. Since then, the price was estimated to come down to $775,000 in the Spring 0f 2024.   As you know, this area was hit by two major hurricanes Helene and Milton in September and October last year. The lobby of the building was flooded with extensive damage and it is still under construction. The parking area under the roof was also flooded and our car was totaled. Fortunately, our condo did not suffer any damage.  There has not been any significant real estate buy and sell activities in this neighborhood since it was hit by the hurricanes last year. My real estate agent estimates that the current value of the condo is $700,000.  This building has been preparing for a major renovation of the plaza deck for the past few years, and we or the future owner anticipate to be assessed a large amount – maybe $30,000 – for the renovation.  We were hoping that we could sell the condo and pay off the mortgage for the ranch home we recently purchased in Atlanta, and be debt free.  What do you think – should we sell it now or wait until some later time – maybe until next year?  Your advice would be highly appreciated. Thank you both for what you do.   For more information, visit the show notes at https://affordanything.com/episode581 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, have you ever lived in a disaster-prone area? My mom, when I was growing up, called my bedroom a disaster area. But besides that, no, short time, obviously, and well, maybe not obviously, to some people, but I went to college in South Carolina in Charleston for a couple years. Oh, yes, that's very obvious to the average person. Yes, for everybody that's found my Wikipedia page. Yeah, I lived in Charleston, South Carolina, which has been hit by a couple hurricanes. But besides that, no.

We are going to answer a very special question today about what to do, if you own real estate in a disaster-prone area, which is unfortunately an issue that is affecting a larger and larger percentage of people. It's a particularly special episode for reasons that will become clear in a few minutes. Oh, mystery. Welcome to the Afford Anything podcast, the show that understands you can afford anything but not everything. Every choice carries a trade-off. And that applies to your money, time, and focus. This show covers five pillars, financial psychology, increasing your income, investing, real estate and entrepreneurship. It's double eye fire.

I'm your host, Paula Pant. Today's episode features that letter R in the five pillars are for real estate because we're going to spend today unpacking one very special listener question. And to do so, my buddy, the former financial planner, Joe Sal C-high, joins me. What's up, Joe? I am ready to go. I'm buckled in. Let's do this. Let's start with the question, which comes from Pralad.

Hi, Paula and Joe. My name is Pralad. I'm 84 years old, and my wife is 83. We live in a two-story townhouse in Atlanta and also own a two-bedroom condo on the beach as a second home in Clearwater, Florida. Recently, we purchased a one-story ranch home in Atlanta so that we don't have to go up and down the staircase at this old age.

Our condo in Clearwater is on the ninth floor of the 14-storied building. We love the condo with views of the Gulf of Mexico and the Bay. However, we have not been able to visit it for a long time due to our underlying health conditions. We purchased the condo for 400,000 in 2015, and it was estimated to have appreciated. to 800,000 in 2022. Since then the price was estimated to come down to 775,000 in the spring of 2024. As you know, this area was hit by two major hurricanes, Helene and Milton in September and October

last year. The lobby of the building was flooded with extensive damage and it is still under construction. The parking area under the roof was also flooded and our car was totaled. Personally, our condo did not suffer any damage. There has not been any significant real estate buy-and-sell activities in this neighborhood since it was hit by the hurricanes last year. My real estate agent estimates that the current value of the condo is 700,000. The building has been preparing for a major renovation of the Plaza Deck for the past few years, I anticipate that either we or the future owner would be assessed a large amount, maybe $30,000 for the renovation. We were hoping that we could sell the condo and pay off the mortgage for the ranch home

we recently purchased in Atlanta and be debt-free. What do you think? Should we sell it now? or wait until some later time, maybe six months or a year, your advice will be highly appreciated. Thank you both for what you do. Thank you so much for that question. And you know what? I'm super, super happy to hear that they weren't hurt and that their particular condo wasn't hurt because so many people, man. I saw so many photos, Paula, of devastation. So there maybe is a little bit of good news there.

Right, exactly. The silver lining. Yeah. Now, you said this is a special question. Why is this a special question? Well, it's because this question actually comes from my dad. No. It's true. It's true. And I have him sitting next to me right here. Dad say hello. Hi, Joe. Hey, how are you? I'm fine. How are you? Well, I'm great now that we're hanging out answering your question. You must have had lots of devastation. in the area, not just your condo building, but did you see any pictures of the neighborhood? Oh, yes, absolutely. It was a big disaster. Many people lost their homes, not to count cars and other things. There are probably thousands of cars, probably, you know, thousands of, you know, hundreds of homes. Yeah, it was really, really bad. Oh, that's horrible. Well,

we're glad that you're safe. But you said you weren't there at the time and you haven't been there in a number of years? We're not there at that time. No, we're in Atlanta. Yeah. Okay. Well, let's dive in, Paula. How do you want to take this? So the first thing that I want to discuss, and I want to broaden this out for the sake of everyone listening, is the wider discussion of how to handle real estate that is located in a disaster-prone area. I took a look at what tends to happen to home values during disasters. I went back to the 1990s so that we have some benefit of hindsight. We have some historic record. what we saw in the 90s was that following a major natural disaster, home values in those areas,

dropped somewhere between 2.5% to 5% with the most severe impact on homes that suffered direct damage, which in this particular case, even though my dad's particular condo unit did not suffer damage, the building certainly did. The lobby is completely flooded. The elevators were down for many, many days, which when you have a 14-story building, you really don't want the elevators to be down for a week. And when you're in your 80s, you're not looking for that type of a workout. Right, exactly. All the way up to the ninth floor. Exactly. He mentioned that his car was totaled. I saw the photos. The cars in the parking garage, the water just picked up all of the cars and just mixed them around. like mixing bowl. Yeah, exactly, like ingredients in your kitchen mixing bowl. The water just picked up all the cars, moved them around into random locations and then put the cars back down wherever. So it took days for anyone to even find his car because it had been carried away by the floodwaters. And so it comes as no surprise that there would be an adverse impact on property value. after such a major natural disaster. We saw, again, going back to the 1990s,

Hurricane Andrew in 1992. There was the Northridge earthquake in Southern California in 1994. And what we've also seen historically is that it isn't just property values that get hammered after a natural disaster, but also that severe disasters lead to increased out-migration rates,

which is sort of a jargony way of saying people tend to leave the area. And so one study that was done in July of 2020, published in the Journal of Urban Economics, took a look at U.S. federally designated natural disasters from 1920 to 2010, and it found that across that 90-year time span, severe disasters increase outmigration rates at the county level by about 1.5 percentage points. and as I mentioned earlier, it also lowers home values by between two and a half to five percent. Which based on your dad's numbers, he's already seen. Exactly. Which leads me to the question, if he were to sell now, does that mean he's selling at the bottom? Because what we know is that areas prone to natural disasters, such as California and Florida, have also over the long-term seen some of the biggest long-term property value gains,

albeit amidst some steep boom and bust cycles. Sure, because you're mitigating the statistics that you just said, which are for a wider population, with the fact that these are areas that generally people want to move to. I mean, I'm envisioning myself on the ninth floor of this high-rise, looking out over the Gulf of Mexico, And I think, let's go. Let's get there right now.

But then volatility has always been a piece of living in these areas, a little bit more volatile market. And the lingering question, which is unanswerable, is as natural disasters become more frequent, how will that change the economics of living in a given area? Because as I mentioned, this study took a look at 90 years worth of history. 1920 through 2010. And I know that the most dangerous words in investing are this time it's different, but let's look at a couple of factors that are genuinely different. One is that both the frequency and the severity of natural disasters are increasing. The same study in the journal of urban

economics found that hurricanes represent less than 10% of disaster events over this 90-year historical period. But we do know that hurricanes are increasing in both frequency and severity. We also know that the insurance market, as well as the reinsurance market, are truly at the forefront of this. In fact, just a few months before the fires in California, several insurers, including State Farm and Allstate, decided to leave the state and canceled three thousands of home insurance policies, particularly in fire-prone areas like the Pacific Palisades. And that was just a few months before the recent fires happened.

So the actuaries at insurance companies are incredibly accurate at predicting risk. Sure. Well, there's another thing that's going on with these insurance companies, too, which it has to do with state government and the way that the particular policy. see restrictions in California are different than they are in a lot of states. So maybe we will see those companies come back. But your larger point of this wouldn't even be an issue if we didn't see these recurring fires every year somewhere in that region. Right. And so the third element that makes it different, we've talked about both the severity and frequency of disaster.

We've talked about the insurance and reinsurance ramifications, which are, becoming a much bigger piece of this puzzle. And then the third element is that we are now living in an environment in which remote work, at least for knowledge workers, is increasingly viable, meaning that people are not wedded to staying in a particular area, even if their jobs are based there. Now, that affects only a very limited number of knowledge workers, but it also only takes a single-digit percentage of people to create major effects in a housing market. And so those three factors taken together all play into this broader question of,

if you have a home in a disaster-prone area, do you stay or do you go? That's the wider question that I want to address for the entire audience. And of course, for each individual who's listening to this who does have a home in a disaster prone area, a big part of that answer is going to hinge on, is this their primary residence or not? Do they have family in the area or not? Do they have a job that they can remote into or not? Do they have kids in a school district or not? I think there's a couple big considerations here, Paula. And I think that when you're estimating your budget, I think the idea of estimating, and insurance companies have already told us this. I'm not saying anything that surprises anyone. But if you live there,

I think it's a mistake not to assume that your property holding cost are going to be more between your insurance cost and not just deductible management, but maybe upkeep around the property, whatever it might be, you're going to have to just take that into account because if you don't, and we talked about this the last time that I was here, and I feel like every time I'm here, I want to be very conservative in my estimates. Also, if I'm buying a property, I don't think I look at, you know how historically a lot of people, when they look at a property, they're like, oh, what's the cost of your homeowner's insurance? And then they will use that cost to model what they think the projection is going to be going forward. I think it's got to be the cost today that the

homeowner is paying cost plus or cost times some number to give you more accurate reflection of what your carrying cost is going to be on the property. Right. I think for planning purposes, we have to assume that insurance rates in these areas will increase fairly dramatically. And insurance is, you know, I've heard from a number of people that live along the coastlines too. and I've seen this online, people saying, oh, these insurance companies, they're just ripping us off. The answer to that is insurance companies are regulated by the state. And so when they send you notices and when they raise premiums, they'd be really careful about what they do because the regulators are watching every move. And so I feel like these calls of insurance companies ripping us off, are they making sure they make a profit and they stay in business?

Yes, they are. 100% they are. But when they warn you that prices are going up dramatically, which if you live along either, the east coast of the west coast, you know what I'm talking about? If you live in Colorado, if you live in any of the wildfire regions, you know exactly what I'm talking about. You've received these notices where insurance companies making sure they aren't sued and they aren't pursued by these regulators are telling you today that the next two to three years are going to be brutal when it comes to increases in your property, casualty coverage cost. Right. The level of regulation around insurance companies and the degree to which their hands are truly tied, I think would shock the average observer.

Absolutely. They need to stay solvent, right? The last thing that you want is for an insurance company to not have money to be able to pay out on its claims. Which is why when you're shopping insurance companies, you don't want to just shop lowest cost, provider, which is what, 99% of the discussions that I see online are people talking about, how do I lower my cost? Well, the key is, I want to make sure that I get coverage, right? So I want my insurance company to be there when something bad happens. So I want to look at claims payouts. I want to look at the percentage of claims that are denied because an insurance company that denies your claim a ton is going to be very, very combative when you need the most. And you don't

want that. Exactly. And that's something to look at not only when you're shopping for homeowners insurance, but also if you're shopping for health insurance, for those of us who buy health insurance on the open market. Yeah. Our goal is that we don't have to use it. But if we do have to use it, I don't want to be fighting with my insurance company. So I took a look at how long it takes home values to recover after that home value has been impacted by a hurricane. According to research from Science Direct, home price appreciation for hurricane exposed areas typically increases within three years from the date of the hurricane.

Often, these depressed home values are not just a result of outmigration from the area, but also there is correspondingly a temporary decrease in housing supply as properties are repaired or rebuilt, which means that the construction force in the area is spending their time repairing and rebuilding homes rather than building new construction. So labor and materials are being dedicated to renovation rather than new construction. So that decrease in new housing supply actually helps with home values in the disaster-prone area because as demand picks back up again, that lack. of supply helps bolster home prices back up. That's according to a science direct report. There's another

report from the counselors of real estate that demonstrates what they refer to as a recovery over reaction pattern in housing markets after hurricanes, in which home prices and transaction volumes, both in impacted zip codes, tend to dip sharply, specifically in the first two quarters after a hurricane, followed by a positive rebound. So they found, you know, there are three factors that you think of. You think of severity. You think of frequency. You also think of duration. What they found, as compared to Science Direct's findings, was deeper severity, but shorter duration of the economic hit. Their findings echo, another study done by Risk Wire that analyzed the effects of four hurricanes. There was Hurricane Katrina in 2005, Hurricane Harvey in 2017.

Hurricane Ian in 2022, and they went all the way back to 1989 for Hurricane Hugo. So it was really a cross-section of hurricanes that stretched from 1989 to 2022. What they found was that home price appreciation, with the exception of Hurricane Katrina, home price appreciation tended to go back to pre-disaster levels after about a year. Basically, if you look at this cross-section of studies, you see anywhere between one to three years as the recovery period, which does create opportunities for investors who want to buy during those depressed times. Buy into it when people are looking to sell. I'm also fascinated by the fact that there's an exception with Katrina, which makes you do one of two things. Number one, think about why. Why would Katrina be different than the others?

And to my mind, I would think, and I don't have data, so this would be just my working hypothesis until I dug in more, Paula. But I would think because it was such a direct hit on New Orleans, and because of New Orleans is below sea level versus most areas that are not, like there were some really unique challenges for New Orleans versus all those other hurricanes. I think there were so many things that were different about that. And truly, if we go from this bigger focus to a much more narrow focus, definitely a different area than Clearwater, Florida. Right, exactly, because a place like Clearwater, particularly being part of the broader Tampa St. Pete Clearwater triangle has some staying power. Yeah.

It has an economic moat. Up till this point, we've been having a discussion broadly for the entire audience about factors to consider if you own a home in a disaster-prone area. Let's take a brief break to hear from the sponsors who make this show possible. And when we come back, let's dig into an answer for my dad as to what he should do with his clear water condo. He's like, wait, what? You're actually going to answer it? The holidays are right around the corner, and if you're hosting, you're going to need to get prepared.

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And after that, we're closing our doors. So if you want to learn how to purchase and manage homes in a smart way, this is the course for you. If you're looking for that perfect Valentine's gift for yourself, give yourself the gift of real estate love. Exactly. So if you had to afford anything.com slash enroll. That's where you can get all of the details. That's afford anything.com slash enroll. I should have been in marketing, not financial planning. Maybe not. Every person in marketing's like, yeah, Joe, don't call us. We'll call you. All right. So what should, what should my dad do? I mean, it sounds as though, given how recent those two hurricanes were that his condos at the bottom of the market right now. It's taking the, he's in March of 2009 and it's taking the

brunt of the hit. You would think based on the statistics that the correct answer is maybe not to wait a long time. I think I would pay more attention to the month-by-month reports than I normally do, Paula, like see over the short-term what the trend is and is this fulfilling what you're predicting, I think, would be the natural outcome, which is in one to three years we get back to pre-down levels. But if the market's not bearing that out, I don't know that you need to wait that long because this isn't even where I would start. I mean, the place that I always start with is what do you want to do? And then number two is, will that work?

Because then we don't have to do any of the prognostication at all. If it will work and it's what you want to do and somebody else makes a little more money, fine. When it comes to your financial situation, you're going to have the peace of mind knowing that you were able to reach your goals and get where you wanted to go anyway. that said, if there's no threat right now and you can hang on and recoup that amount, and certainly if it's a boomerang right, in this area re-appreciates faster than your average piece of land someplace else in the United States than if I can hang on, then I will. The best place to begin from is do I need to sell right now?

And it sounds like for your dad, he doesn't need to sell right now. In just a moment, I'll bring him on to either verify or contest with the sounds like he doesn't need to sell right now. Confirm or deny? Exactly, to confirm or deny. But before we do that, just a couple of other thoughts on his situation. One is that the lobby of the building, as he mentioned in the voice note, the lobby of the building is still under reconstruction. It was flooded out. It was destroyed.

Any buyer who was coming to tour the building, the first impression that they're going to get is a flood-ravaged, decimated lobby. That's a reason to wait. Exactly. What a first impression. Yeah, it blows me away, by the way, that people can't see beyond that, but they can't. And every study shows that they can't, which is the reason why when you're selling a house,

you make it look like the pottery barn, you know, because people can't see beyond your personal photos. They can't see beyond the weird color that matched your daughter's room, but isn't right for the spare bedroom for somebody that doesn't have a daughter, your daughter's age. I've always been amazed the lack of creativity that the average buyer has. But you need a lot of creativity, I think, to look beyond the ravage lobby and go, when's the next time this is going to happen?

And what if I had lived here during this time? Like, we want to get rid of all those thoughts. Right. The only person who's going to look at a completely flood-ravaged lobby and think, ooh, this is where I want to buy. That's only going to be an investor. Yeah, a developer, right? Another question is, how long is it going to take for that lobby to be restored?

Is there any sort of estimate? Yeah, that is an important question. I mean, not that it matters. You may want to wait it out anyway, but still, I think that's materially relevant. A few other factors that I would think about, I would be looking not only at home values in Clearwater and particularly in that zip code, but I would also be looking at job growth and population growth in the area because, you know, we talked earlier about net out migration. Is that happening or not? Are people leaving the area or given especially the Tampa Clearwater St. Pete, that is one of the most economically robust areas of Florida. our jobs still coming in, is population growing? Because so long as jobs continue to be created there, then population will grow.

People go where the jobs are. And people need homes. And so I would be much more concerned if I looked at population and job statistics in the area and saw a big decline. I would be far more inclined to hold if, by contrast, I saw a big increase. It strikes me that all this data is publicly available. And yet, how often does somebody do this fairly simple analysis that you just did in the last 30 minutes? If you just take 30 minutes to explore some of the questions that would be relevant during this time, you're going to come upon a better decision.

The other thing that's going to happen to, though, Paula, that I see happens a lot. And so do you is you also may get analysis paralysis, which is there's so much data. that you do nothing, which is why I still want all the data. I still want to know the answers to all these questions. But I also want to not lead with that. I want to lead with what do I want to do? I want to know what my bias is first. What's the thing that I'm looking to do? Because then what this is doing then is paving away toward that outcome that you're looking for. I'm not looking for the data to answer the question. I'm looking for the data to help me confirm what my strategy would be. as an example, your dad wants to sell.

So if we look at the lobby, we look at people still coming to the region, let's say, hypothetically, we answer that, people still come to the region. Then we're looking at, okay, 18 months until my listing date. Now you have a plan of 18 months. 18 months allows you to do some things like stage the property, get any repairs, you know, these nagging things that you can live with, but might not go to a showing. get those taken care of, really do a great job maybe of interviewing professionals if you're going to use professionals along the way. 18 months then gives you enough time to do other work. But it's all based on a strategy that's all backed by data, not backed by my finger in the wind,

just wondering what I should do next. Joe, what do you think about the fact that there's also likely going to be a special assessment. He mentioned in his voicemail that they're renovating the plaza deck. There will likely be a special assessment of around $30,000. I'm glad you asked this question because this was on my hit list of questions still to ask because it reeked of there's got to be an assessment coming. Sure. 30,000 bucks. I'm of two minds when it comes to this because the fact that it is already publicly known that this special assessment is coming. The building has announced it. It's on its way. And so this has to be disclosed to the buyer, which means it's going to be baked into the price no matter what.

Like any buyer is going to ask for a concession of $30,000 or whatever the amount of the estimated amount of that special assessment is. So I almost wonder if it's worth waiting until the special assessment happens for the reason of optics, for the reason of buyers generally don't like buying into a place that is about, to have an assessment. When a condo has already had its assessment, their certainty, and the buyer knows that they're not going to be on the hook. When a buyer knows that an assessment is coming up, do they though? Yes, the HOA has already announced it. It's been publicly disclosed. It's in the HOA documents. It's been that way for, this actually predates the hurricanes. Sure. But the reason that I ask that is this is an area where I actually do have some expertise. You're the really

estate expert, but when it comes to assessments, so when we were leaving Detroit, the road that I lived on had not been fixed in 40 years, 40 years. And it was a drive that was a part of just this neighborhood. And so the neighborhood was going to be picking up the cost of the road, the way that the tax has worked in in the community that I lived in. So we were getting a $15,000, a assessment. The HOA had a notice. The city had a notice. It was all over the place. And that was when we were selling our house. And what horrible timing, by the way, to be selling your house, 40 years, the road has sucked the entire two years we live there. And yet the second that we're going to move, they're going to make the road better. What our real estate professional said, because we said,

well, what about the assessment? Because we're going to take it on the chin here for 15,000 bucks. Like, there's no way we don't. He said, our job, is to make sure it's disclosed. And because it's going to be a pawn, I know it's going to be upon. You know it's going to be upon. We will just expect that somebody's going to come in with an offer that that's either covered or part, you know, that's going to be a pawn in the game. So we listed the assessment, Paula, right in the disclosure.

Nobody read the contract on the buyer end. Their professional didn't read the contract. They didn't read the contract. everybody signed it. The professional then later, who if I was her client, I would have been so enraged, even though I think that every contract, especially a big real estate contract, I read every real estate contract from head to toe because I've seen too many games happen. We weren't playing any games, Paula.

We specifically put it in that there was going to be a $15,000 assessment and we weren't going to pay it. They never came back. They never, they never did anything until it was way too late. In fact, they were getting ready to move in. Everything was done, was long done. And the real estate professional on the other side tried to come back at us and said, whoa, wait a minute, hold on.

There's this assessment coming. You didn't say it. And Brian, our phenomenal realtor, said, no, we were surprised that neither you nor your client said anything because we listed it in big, bold letters. I mean, it was clearly written there and you didn't reply. So we thought you were okay with it. And then the realtor said something like, well, not another petty. There's not going to be any more surprises. Well, no, you're about to move in in a week. How can we throw a surprise at you? We didn't want this to be a surprise. So no bad faith in our part, Paula. But I do think that if you

list it, I wouldn't take it as a sure thing that people are going to be as diligent as the afford anything community and actually read the stuff. That's a good story. That's right. Well, it's good for me. It's horrible for the people on the other side. I truly felt bad. It's a cautionary tale about the importance of reading every word in the contract. Absolutely. So I do think that when it comes to the assessment, I think the assessment is what it is. So I think if your dad lists it and says there's an assessment coming and you're going to be responsible for it, that also then becomes another chip that you can play with, which gets rid of some of the other chips that the person on the other end may decide to play with, right? Because often when people are looking for negotiating levers, they'll look for one or two.

Well, the assessment may be a negotiating lever that keeps them away from potential other levers. I don't know what those would be, but it's already in play, no matter what. So at this point, we've discussed with a wide lens, what anyone listening who has a home in a disaster-prone area should be thinking. thinking about. And we've talked specifically about what my dad should think about as he decides sell now or sell later. We're going to take one more break to hear from the sponsors who make this possible. And when we return, we will bring him onto the show to find out what does he think about all of this and what does he want to do? That's up next. Welcome back. And dad, welcome to the show. Thank you. Well, one thing I should, I would like to bring up,

Well, I missed it in my question, is that about this building, we have 104 units in this building, and 30% of the owners reside there. The remaining 70% are second homeowners from other states. Because being on the beach, so this is a very desirable area. And so a very large percentage of people are coming from out of state, and they are seasonal and they are, you know, it's their second homes. My guess is that if we put this condo in the market, potentially there is a good chance that the buyer would be from other state.

Is Airbnb or verboing the property allowed? No, because you have to have at least three-month lease to rent this place. Okay. Then in terms of short-term rentals, no opportunity there, which makes it less attractive to at least a portion of the investor base. Right. What do you think about the idea of waiting? How does that make you feel when Paul and I debate this idea of waiting to sell it versus selling it now?

What's your preference? I was hoping that because I bought a property here in Atlanta, I was hoping that if I could sell this condo, then I could pay off the mortgage. And do that sooner rather than later, you mean like selling it? it now and not have any mortgage. Exactly. Yeah. So the difficulty is then you're forced to have a mortgage on the new property. Yes. I should add, it's not that the conversation is that we'll never it's can we wait 18 months or even 12 months for the market to rebound. That is the question. When is the lobby finished? Do you know when the lobby is going to be finished? I think so in a few months, yeah.

Okay. I mean, at the very least, I would think waiting. for the lobby to be finished, and then we have a few months more data. Like, if you can hang on until that lobby's finished, that also gives you more data as to what's happened with prices in the area over those few months. Would you use a professional in the area to sell it, or would you sell it by owner? The professional area, actually, I already have identified a person. Perfect. Because that person can then supply you much better statistics than a Zillow or a redfin, which is what most of us will go to that don't have that person, like they're going to be able to give you the comps

so that you can take a look at some pretty good data of the few blocks around your property now. So I would think if you can at least wait for the lobby, that's great. I don't know what that does in terms of your plans for the ranch house, though. How much that hurts cash flow over the short run? Well, it does not hurt, but we still, you know, we know that the money I have to pay mortgage every month.

I guess in that sense, it definitely a loss to me and I consider it as a loss. Sure. So, and that's the question, right? The money that you're going to pay the bank, which is the interest on the loan versus the appreciation on the property in Clearwater by waiting. Yes. And I don't know. It just seems to me, Paul, I don't know about to you, but waiting on the lobby especially.

is that's an easy answer. I would do that in a heartbeat. I'd pay the bank for a few months at a reasonable interest rate to be able to wait on that lobby. No, we're going to do that. Yeah. Yeah, Joe, you're right. Mathematically speaking, if you were to spreadsheet this out, the question, as you said, Joe, is fundamentally, what is the interest that you're going to pay on the mortgage? And how does that compare to the likely appreciation on the condo that is gained by virtue of waiting. That's the mathematical component of the question.

Of course, there's like the psychological, how do you sleep at night with debt? Those are the more behavioral elements. But mathematically, it truly is, what's the interest on the mortgage? How does it compare to the appreciation? Yeah, the mortgage. I mean, the mortgage is such a pain in the ass, especially if we're only dealing with it for a few months. Like it almost feels like you take a fleswater.

But with such a big win, such a big obvious. seeming win, to me at least, that the lobby brings, I think the upside waiting at least that long makes a ton of sense. And then I love the fact that you have a pro that can get you what the data looks like. Because then after that, we're not looking specifically at that building. Then we're looking at comps in the surrounding area, right? To see if the comps in the surrounding area beat the amount you would pay an interest to the bank. And by the way, if it beats it by a little, who cares? Get rid of the property. Because you don't hold on to it, I think, to beat it by a little. I see people that do these marginal gain wins. And I wouldn't waste my time with any of that.

Go for the big win and then go to get your mind share back and not have to pay the mortgage every month. The happiest retirees don't have debt. So I think that's, the quicker that you solve for the get rid of the debt equation, the happier you'll be. Well, my mortgage on the ranch house is $4,200 per month. And of course, all of that doesn't go to interest. Interest is $3,000 something. So, yeah, that amount we will be losing every month. Sure, yeah.

And then there's just a calculation. Does the lobby get you that with the clear one? a resident. Does it recoup that? Well, it probably will in a few months. At least that's what we're hoping. Yeah. Yeah. Well, and I want it to be better than hope, right? I want it to be a reasonable, like I want to use as much data as possible to get to the point that my bet is as small as it can possibly be. Like, it's always going to come down to a bet. But I want that leap of faith to be as small as possible. And I would think that up until the time that lobby's finished, the leap of faith is less after the lobby's finished.

Then we're going with comps on the area. The fact we'll be back in another hurricane season in a few months. And who knows what happens next year, you know? So then we're in a whole different world. Hurricane season begins in June and doesn't end until the end of November. I thought you were going to say until May. Yeah. So if the lobby's done by June, then barring a natural disaster.

in the early days of hurricane season, you're listing it in a few months. Okay. Yeah, that's fine. Actually, what you just said comes very close to my intuition. You know, it was not based on any number or anything, but that my intuition was telling me. Well, you know what it is, though. It's just smart guys stick together. I mean, that's really what's going on here.

One question that I would have for the real estate agent in Clearwater, given that hurricane season is June through November. My question for that agent is, historically speaking, when are the best and worst times in a normal year over the long term? What are the best and worst months to list properties in Clearwater? Yeah. How does Hurricane season affect property listings? You know, and that's a, I mean, anyone who has expertise specifically in the Clearwater real estate market would immediately know the answer to that. we joked about your intuition but to really be serious about that the intuition is where i like to start i like to start there because then i can start questioning like we talked about paula

the last episode that you and i did together we can start questioning what about my intuition might be wrong or might the holes be in my argument and also not just that but why why is this my intuition. Why do I feel this way? Because when we start exploring, a lot of this is just based on kind of back of the envelope math calculations that your brain is doing to get this gut feeling. But it also is very valuable to say, where could we be wrong? And we do know in at least one case where we could be wrong in two ways. The lobby could take longer than expected because of some unforeseen circumstance. That's problem number one. Problem number two is the lobby comes on board that didn't have the big bump that we thought that it would. That's the second flaw we could

have in our logic. The third one is that gets us closer to hurricane season and we, you get hit by another storm. What I love about this discussion is not that we've avoided our Achilles heel, because every strategy is always going to have an Achilles heel. If you think your strategy doesn't have an Achilles heel, you haven't looked hard enough. But it's to know what the Achilles heel is and then to say, like I believe we are right now, go, yeah, okay, I'm comfortable with that bet. That is a comfortable strategy for me. Sometimes the question that came to my mind in the past is, you know, how long is people's memory going to last? When you are hit with a hurricane, major hurricanes like this, two in a row, does the memory last for six months or for one year or two years?

Yeah. Or do they want to wait until the next hurricane season is over? Right, right. We don't know. And then I'm safe for the next six months, right? I just want to have a good six months before the next hurricane hits. You know, it's interesting because of the back-to-back nature of those hurricanes, again, this isn't my field of expertise. But, you know, if I think logically about that, I would think, Paula, didn't you say 18 months to three years is the time frame for property to come back?

depending on the study it's anywhere between one to three years the biggest rebound tends to happen after basically in one year but it could be as between one to three is the short answer I would think that and wouldn't you that because of the back-to-back nature of those hurricanes people are going to be a little bit more wary so it would probably extend that period maybe not make it longer but certainly I would bet more on the three year than the one year because of the back-to-back nature. Yeah, my gut tells me that after the end of this hurricane season, basically the November 2025,

if we can get through this hurricane season without any hurricanes hitting the Gulf Coast, then that's probably when we'll see a pop. Assuming that jobs are continuing to grow in the area. Oh, my goodness, but a third one, another hurricane this year. Oh, then all better. Oh, absolutely. Then it becomes more like the Katrina Outlier, right? Where people, it's going to stay in your memory for a much longer time frame. I didn't even remember any of those other hurricanes, but certainly if you ask me for, you know, what's the name of a hurricane? Katrina is the first name that you're going to think of. I like, though, the fact that for this particular discussion, we've taken the appreciation almost off the table. It's not the appreciation. It's the lobby. The lobby is much more of a known where the appreciation, is not a known. And the fact that you can make this work where you get rid of the mortgage without having to bet on future appreciation of the property makes me more comfortable with this decision.

Because if we try to make a decision that is, quote, best, we're always going to Monday morning quarterback that decision. We're going to be filled with regret. We're going to go, oh, I should have done the other thing. But when we're doing it for something like to ensure that we don't have a mortgage on a new property, and we know that this is a better use of money for us personally, then frankly, the appreciation doesn't matter. We don't have to make that bet. And then the chance that you're going to regret this decision-making process at all becomes a lot less. When I was a financial planner and people couldn't decide which way they wanted to go, and Paul, I might have talked about this before, but I would flip a coin.

And I'd say, which side of the coin do you want this to be? Do you want it to be heads or tails? And they would say, oh, I definitely wanted it to be tails. And then I put it in my pocket and they go, wait a minute, what was it? And I would say, it doesn't matter because it truly doesn't matter. What matters more is what you want to do. Whenever we tried to bet on an outcome, you know, you're never going to get timing right. You're just not going to get timing right. And there's a hundred percent chance, Paula, that no matter how much we look at the data here, we're going to get the turnaround in the Clearwater, Florida area, the appreciation on property, we're going to get it wrong. And that's not to say that directionally we're not right.

I mean, directionally, we might. But, man, I remember having clients that were like, well, you said you thought it'd be two years and it was three years. Okay. All right. I'm not in Ostradamus. No idea. So, Dad, how are you feeling about that answer? Hold on until the lobby is done and then reassess at that time.

Yeah, that's fine with me. Excellent. The summer will come and that will bring a lot of people. to Clearwater, and they might start seeing the value of buying a condo on the beach. Absolutely. A bunch of potential buyers coming your way. They're going to be mostly, like I said before, mostly from other states. Yeah.

Potentially, yeah. All right. Well, Joe, I think we did it. A very special Q&A episode of the Afford Anything podcast. Absolutely. How about that? Special guest star. We've had a lot of guests, but not a lot of guest stars.

Yeah. And the timing of this could not have been any better because your first rental property, our flagship course on rental property investing, opened for enrollment this week. Yesterday, we opened our doors for enrollment, and our doors are going to be open this week and next week, and then that's it. And then we close the enrollment window, and we bring a cohort of students through the course to learn the A to Z of how to invest in rental properties, whether you are buying out of state, you live in a high-cost area and you want to own property in a low-cost area.

If that's your situation, this course is for you. If you're an accidental landlord, you've got a low-interest mortgage that you've locked in. You don't want to get rid of that low-interest mortgage, but you have to move. Suddenly you're a landlord and you didn't really intend to be. this course is absolutely for you. Or if you want a house hack, this is for you too. Whether you're local, whether you're out of state, or whether you're accidental, in any of those real estate investing situations, we've got you covered.

Afford Anything.com slash enroll. And if you're looking for a ninth floor condominium in Clearwater, Florida, we got you covered there too. Yeah, exactly. I want a commission on that deal, by the way. Yeah, the lobby's not much to look at. But it's not about the lobby. And forget anything we said about an assessment and don't read the paperwork.

I almost forgot. Joe, where can people find you? Well, much like it's a special week here to Ford anything, it's also a special week at the Stacky Benjamin show. We are talking everything Valentine's Day this week, starting with the show yesterday, which is, would you date your wallet? Like, do you have warm, comforting discussions with you? your wallet, do you take it on long walks in the park and speak lovingly to it? Or you always like, bad wallet, look at what you've done to me. Is it a dysfunctional relationship? CFP, Shauna,

game, who's amazing, is going to be diving into that with us yesterday. So come give it a listen. That's a great topic. How romantic. You and your wallet. All right. Well, thank you so much for tuning in. If you enjoyed today's episode, first, go to afford anything.com slash enroll. The most important URL you can type this week and next week and check out all of the information that we have about our rental property investing course. Again, our doors are open this week and next week only. We shut our doors on Friday, February 21st. Second, please make sure you're following us in your favorite podcast playing app. While you're there, please leave us up to a five-star review. Drop a few words. Tell us what you like about this show. Third, share this with all of your

friends and family. Thanks again for tuning in. I'm Paula Pan. I'm Joe Salci. Hi. And we'll meet you in the next episode.