Episode 7: Transcription
Kristina:
Welcome to the Open House Podcast where women talk real estate. I don't know why I always want to say "Woman speak real estate." That doesn't make sense.
Steph:
We speak the real estate.
Kristina:
I always pause there. Welcome to the Open House Podcast where women talk real estate. I'm Kristina Modares.
Steph:
I'm Steph Douglass. [crosstalk 00:00:37] We're good. We're rusty. It's been seconds since we record anything, because we've had interviews and then we had Kaneischa's amazing one, so we're back.
Kristina:
That's true. I know, it's been a couple weeks.
Steph:
Yeah. How's it going? How's your weekend?
Kristina:
It's good. I am almost done with my yard project. I got an outdoor couch, and a table, and it's almost done. I have big dirt piles in the rest of my yards that I have to figure out what to do with.
Steph:
It looks so good. I'm very excited to eat something there someday.
Kristina:
Thank you. Yes, very soon. How was your weekend?
Steph:
It was good. My uncle is in town, so we have our family business, right?
Kristina:
I saw-
Steph:
Yeah, where I forced my uncle and my mom into this partnership, not force them, but I was like, "There's real estate opportunities here." We started buying in San Antonio. My uncle lives in San Diego where real estate is not affordable. So he was like, "I don't want to get into this real estate game." He's a mortgage lender, but he doesn't own his home in San Diego, because it's just outrageous there. So he's building wealth through buying in Texas.
Steph:
He's in town and we're doing some project. We, this weekend, did some cleaning up of a lot that we own. This is exciting. I'm excited to keep everybody apprised, but I don't even think I've told you this, because we're going to buy a pre-manufactured tiny home.
Kristina:
Oh, wow.
Steph:
From this company that sells them, and it's really cute. They're like Joanna Gaines-y farmhouse chic. They're cute.
Kristina:
Maybe I should look into that, because we're going to put a shed in our backyard. Maybe I should just get one of those.
Steph:
Yes, dude. It's 50K.
Kristina:
Okay.
Steph:
So, $50,000. You can finance it though.
Kristina:
Okay, that's better.
Steph:
If you keep the wheels on, there's a lot of regulations that don't really apply, but you can put the skirting around the wheels, so it doesn't look like it's on wheels. I don't know, we'll [crosstalk 00:02:59].
Kristina:
Maybe link to that. Because I also am interested in that, because we want something done with my cash-out refi, I want to put a work shop in our backyard, a large one that eventually once the land laws change in Austin that I can just add a bathroom too and it can be a tiny house. For now, we need a work shop, so that might be good.
Steph:
The one we're getting is 399 square feet because the max for a tiny home or an RV, they're calling it an RV, is 400 square feet. This one is 399 square feet. It's got living room, kitchen, bedroom on the bottom floor, and then there's a loft where you could put, we're thinking about potentially putting two twin beds up there.
Kristina:
Oh yeah, is there a bathroom?
Steph:
Yeah, and a bathroom.
Kristina:
What?
Steph:
Yeah, and then all of you have to do is hook it up to plumbing, and you're golden. Isn't that crazy?
Kristina:
I might get one of those. Awesome.
Steph:
Yeah. I know, the people that are selling it, they come, they bring it to you, they help you level it and they hook it up to plumbing and electrical.
Kristina:
That's amazing. I guess that also leads very greatly into our next ... I might just switch up little stuff and start with the ADU question. Today, we're going to go over five common questions that Steph and I get from people just about real estate in general and buying. The first question that we'll go over then is what is an ADU, and the regulations and everything with an ADU at least in Austin. This might be different in other cities.
Steph:
Yeah, it probably will, but at least if you're in a different city, at least you know that you need to look up those regulations. Even in Austin, it's very so much depending on what property you own, what the zoning is, how big your property is, all of that.
Kristina:
Yeah, for sure. What an ADU is it's Accessory Dwelling Unit, essentially tiny house. People call it, "A granny flat." What else do they call it?
Steph:
Yeah, cottage or what is it? I like granny flat. Garden cottage. No, [crosstalk 00:05:16].
Kristina:
Garden cottage.
Steph:
Yeah, you guys get it.
Kristina:
That's different I guess than what you were saying with the square footage, because I know in Austin, you can make it ... It can be no larger than 1,100 square feet or 15% of your lot size.
Steph:
Yeah, exactly. I think the common one is 1,100 square feet. I've [attached 00:05:45] for the next couple years just because of even what we are talking about with [Anhelica 00:05:50] I don't think that this will have come out yet, but she is saying that they're trying to make these laws a little bit less strict and you know that from yours being just barely under [crosstalk 00:06:01].
Kristina:
5,000 square feet lot and the limitation is 5750. So, 750 too small. Just frustrating.
Steph:
To build an than ADU. Yeah.
Kristina:
Yeah.
Steph:
I think that If you're building an ADU and sticking it in the ground and it's a real building, then the maximum that you can build is 1,100 square feet. I was talking about the RV laws, which is something that you can move essentially, but mine I will work with that law and that regulation in leaving the wheels on.
Kristina:
Yes. Yeah, there's ways to get around it. As long as you can move it I've realized, it's fine, but I think for my own backyard I was like, "I know this will change soon." We want to denser Austin so it can stay more affordable, and I know these laws will probably change soon, so I don't want to spend money on getting a ... I was going to get a airstream, and then it was still going to cost money to move the plumbing back there. I was like, "If I just put a shed there for now because we need that anyway, and then I'll add a bathroom later when that becomes legal."
Steph:
So, so smart and phases.
Kristina:
Yeah, and phases then it'll be cheaper maybe in the beginning.
Steph:
Yeah, totally. Everybody ask us about this, because having an ADU on your property not only adds income, potential income, it could add space just if you need a workshop or a home office, but it also really adds value. People love an ADU or a second unit because of all those things I just said income potential.
Kristina:
Yeah, and we always talk about house hacking, and I think a lot of people think like house hacking only means having a roommate, which it definitely doesn't, and that's another thing we can talk about of we talk about buying a house in phases, especially if you're starting off in your early 20s where maybe you buy a house first and you have a roommate or two. Then as you get a little bit older or just are tired of roommates, then that's when you can look to your house and be like, "Where else can I house hack here?"
Kristina:
A lot of people go to building an ADU in their backyards to have that rental income that way.
Steph:
You mentioned the early 20s thing, and I'll just talk about my own experience, because I've done exactly what you just said. I bought a house when I was 24, lived in it with a roommate for two years, then bought a second house, made that house my rental property, and then seven years after I bought it, went back, renovated the main house, and added an ADU to just totally optimize my income from that property.
Kristina:
Yeah, there's so many different ways to do it. I love doing renovating or switching up your space in phases. It's more affordable, and also you get to figure out what you want. It's hard to know what you're going to want in five years. Honestly, I thought when I bought my house I was like, "Oh, I'm going to live here for a few years, then I'll move." Now, I'm like, "I've switched it up. What if I'm going to stay here? I'm going to buy a second home, because that's what I would rather have now. I'm not going to have kids right now or anything."
Kristina:
That's what I figured like, "Oh, maybe I'll buy a nice house for kids, but I'm not going to have kids now. Why would I buy that house for ..." What was I watching this weekend? Oh my gosh, Queer Eye, where this guy from Jersey, he's this Jersey dude who tans, and works out, and he bought a home for his family that he doesn't have yet. Then he just filled it with dudes. I think he's in his mid-30s and I was like, "Oh, I see why that might not make sense." I don't want to buy a house that I don't need yet, because I don't know. I used to think like that also and I was like, "No, I don't want to do that." I don't really care.
Steph:
I love that you switched it up. I feel like we keep having different strategies like every other week, but same, I feel I was like, "Oh, I want a bigger house in a better location," which is hard for me, because my location is so amazing, but I just want to keep on leveling up, but it's like, "Actually, I should just chill and make this house really awesome."
Kristina:
Yes, we're both nesting. We're staying in our houses and making them really nice and lovable and lovable.
Steph:
I love the idea of a second home or a vacation home.
Kristina:
Yup, that's my next research phase is looking into that.
Steph:
Yes.
Kristina:
I've derailed us completely.
Steph:
Offtrack, so ADU. We are going to have another episode about building a tiny home.
Kristina:
Yes, and we'll link an article that we have about Steph's recent build out about her tiny house as well and you can really get a lot more information that way, but yeah let's move on to the next question maybe.
Steph:
Yeah.
Kristina:
So the next thing that a lot of people ask us especially in Austin is what to do in a competitive market? How do I even compete? Because I know that's really stressful. If I'm looking at homes and like, "There's multiple offers," I get so defeated, and I'm a realtor so I understand from the other side as well.
Steph:
Yeah, and we fight for our clients every day in multiple odd situations since it's so competitive right now, but we win often because we have not tricks, but there's ways to strengthen-
Kristina:
Strategies.
Steph:
Yeah, strategies, strengthen your offer. So we're going to go over each way that we strengthen the contract.
Kristina:
We can go over first of all like what we mean in a competitive market so we can speak specifically to Austin right now what is happening is not as many people are selling their homes, they're probably I would imagine maybe they're just chilling during this COVID figuring out what's going to happen, but then there's a lot of buyers on the market, so there's not enough listings, but there's a lot of buyers. That's how it goes. In the spring and summer it's typically like a lot of people listing their homes, but also just as many buyers looking to buy.
Kristina:
It's always competitive a little bit in the summer and spring, but not as crazy as it's been in Austin this summer, I would say. What do you think?
Steph:
I agree. I think the biggest driver is interest rates. People are like, "This is free money," and basically free money if you're in the 2% and that's really attractive. So when interest rates go down, the amount of buyers goes up. Right now, due to the pandemic, the amount of listings is really, really low, because like you said I think people are uncertain.
Kristina:
They don't want people in their homes also, I would imagine. It's just like where are they going to go? What are they going to do? I would imagine they'd be a little nervous to sell although they could get a pretty high price right now, but I get it. It's comforting just be able to be like, "I have this house." Then I think that's why there's a lot of buyers too because they're in this small downtown condos and they're like, "I need more space."
Steph:
Yes. I think the amount of listings, I'm hoping that they start going up when the pandemic starts to lift, but it's not lifting. The cases are going up, so it's a little scary.
Kristina:
Stay home.
Steph:
I know, seriously. I think the buyers, we are seeing very, very competitive situations in almost every house. I haven't submitted an offer without multiple offers in I don't know, a month and a half. Here's what you do, first of all, in jump in, I think I love having my buyers write a letter. It doesn't always help, but it doesn't hurt at all, so I definitely have buyers do that. The price is usually the main driver, right, wouldn't you say?
Kristina:
Yeah, that's why. It can be a bomber sometimes, because we love working with people who are looking to find a deal or their budget's not the highest, but you always have to just be like, "Okay, we're going in on this knowing that you might lose out on a few deals. Your offer might not get accepted the first few times, but we're going to find you something." It's going to be there. Just know that going in so you're not super discouraged. That's very common, right?
Steph:
Yeah, totally. I think I touched on something also, it's a seller's market, it is not a good time to find a deal. If you're looking for if you're wanting to offer under asking, it's probably not the best time for you to do that.
Kristina:
For you to buy.
Steph:
Yeah. It's not going to pan out. I think that we see these times often. I remember in 2016 this happened, and there was a surge, and people were like, "Oh shit, I got to get something in Austin, because Austin is going crazy," and then it evened out.
Kristina:
Yeah, the last two years. I want to push back a little bit on what you said about it might not be the time just because I remember that's when I got my license was when I was really marketing two people who I was like, "Oh yeah, you want to buy a house for 200K? I'll help you." It was so hard, but it was so rewarding. Also, yeah, most of my clients missed out on a lot of things, but they could still find it. I think you just have to go in knowing like you can't ... yeah, exactly, you're not going to be able to negotiate, that doesn't mean you might not find a deal, because look at those people who found homes three years ago in the 200 to 300 range, their homes are now worth 50 to a 100K more.
Steph:
That is such a good point. Yeah, when I say not finding a deal, I'm just meaning you're not going to get under asking. However, that does not mean it's not a smart time to buy.
Kristina:
Yeah.
Steph:
You're so right.
Kristina:
That's the thing with real estate. I'm not saying this is the best time or the worst time. I'm just saying, know your strategy, know your why very hard. Know your why very well.
Steph:
Yes.
Kristina:
Know your why and stick to the why, because when I bought my house in a very competitive market, which was three years ago in Austin, I missed out on three homes, but my big why was I don't want to pay rent, and I want to live where I want to live for the next five to 10 years and I don't want to be priced out. I stuck with that why, and even if I had to raise my budget a little bit, I still got my end goal. Start with that.
Steph:
Yup. I feel like the clients we're working with right now are really persistent and that's amazing, because they're like, "No, I want something." They know they're going to have to go over asking, but they know that that's still ... That doesn't mean it's not a deal. That means it's just not ... The price that people list for does not necessarily mean that's the value of the house.
Kristina:
Of course, you're going to look at a price. That's the main thing. What people also look for at this time and maybe Steph you can say otherwise if you think differently, but if let's say you had saved 15% for down payment, but then you talk to me and stuff and you're like, "Oh, oh my gosh I could actually put 5% down and save that extra money to whatever, for whatever." When a seller is looking at offers, they're also going to be looking at how much money you have, how much money you can put down.
Kristina:
I would say if I was a seller and I was looking at two identical offers, let's say the price point was 400, and I was like, "Oh, I have to pick between these two deals or whatever, two offers, but one was putting 20% down and the other person was putting 5% down, I'm probably going to pick the 20% down." It doesn't mean the seller's going to get more money, it's just in their mind, their agent is probably pushing them to pick that 20% because it shows maybe a more stronger offer or stronger buyer with more cash in case something happens like they're going to have that money, they're not as stressed out about like, "I don't know pinching pennies or whatever." That's the mindset they probably have, doesn't necessarily mean it's true.
Kristina:
Sometimes I tell my buyer if they have the 20% or if they have even the 10%, I'm like, "Let's show that you can put 10% down." Then later on, it might not matter as much if you just want to put less, we can always amend that in the contract. What do you think, Steph?
Steph:
Yes. Same. I think that it's at the beginning you're trying to show how strong you are. So even if you don't plan on putting that 15, 20% down but you have it, putting that on the contract, it's not dishonest. You have it. Then while you're under contract, changing that amount doesn't affect the seller at all, because they're still getting the same amount no matter how much you're putting down.
Kristina:
Exactly.
Steph:
So agree. I think that is a big reason why more down wins offers or wins multiple offer situations is because they have more confidence in that person, but it really doesn't mean as much as sellers make it out to mean, especially when you're running numbers, you're being smart about what you're putting down. A lot of times, the seller, they just want the deal to happen. The person they choose is the one that they feel the most competent can get the deal done.
Kristina:
Exactly. Very, very true. Okay, so yeah we talked about putting more money down or just showing that you can. You can always change that later. Then another thing, I know it's not our favorite, but this is what a lot of sellers in Austin are requiring right now, the appraisal addendum. Do you want to touch more on that, Steph?
Steph:
Yes, it's my least favorite thing in real estate. Appraisal addendum is an appraisal contingency waiver. The appraisal contingency is built into the contract that we use in Texas. The appraisal contingency means that if the house appraises for less than what the contract states, then you have the ability to renegotiate or back out. This is a protection for you just in case it appraises for less. You don't want to pay more than what the house is worth in most cases. So you have the option to lower the price or have the seller lower the price or exit the contract.
Steph:
However, in multiple offer situations or competitive market, people are waiving that contingency. So we have many situations, this is the first time in my career 2020 is the first time in my career that I have seen the use of an appraisal contingency waiver, because of how competitive it is. It helps the confidence of the seller, because the buyer is promising to pay the contract price no matter what the appraisal is.
Steph:
As we've gone over in past podcasts, if you haven't listened, if you're offering to pay, the contract says that you're paying 400,000 and the appraisal comes back at 390, your bank will not allow you to borrow more than what the appraisal says. You have a $10,000 difference between what your contract says and what the appraisal says. If you had an appraisal contingency waiver, you would have to pay that 10,000 in cash.
Kristina:
That goes to the down payment.
Steph:
Yeah.
Kristina:
It's going into the house.
Steph:
Right. The loan amount goes down. It's not like you're not paying extra, you're not paying more, that is going to come in the form of cash and then your financing amount is less so that the bank isn't concerned with their investment.
Kristina:
Yeah, and that's why having a really good agent is so helpful during this, because you need to look at those comps, because sometimes let's say you make an offer on a house that you're like, "Oh my gosh, they listed this so wrong. It's so cheap. We could go 50K over and we should be okay. Let's double check. Let's look at other homes that have sold in the area." Is there anything that we can find that is sold for this price point that we're going to make an offer for?
Kristina:
Because I know I wrote an offer for a client a couple months ago. We went 40K over, and she also was willing to pay 20K if there was an appraisal issue. She was like, "Whatever, I'll do it." I was a little nervous. I was like I don't know what it's going to lit, going 40 or 40K over, I don't know what it's going to go for, but there were a few homes that I was like, "If the appraiser picks these few homes, I think we're fine."
Kristina:
Luckily, we got under contract. We negotiated it back down like 10K, so a little bit closer to the list price, and then it appraised, it was fine. Just knowing your strategy going into it like, "Can we get it back down, or will it appraise?" Then you'll feel more confident waiving some of your appraisal rights.
Steph:
Right. It's very inside baseball. If you don't understand this, your agent should be able to explain this to you, and I have explained this so many times, and usually clients are like, "I'm so sorry, can you just say it again?"
Kristina:
Re-listen to this a few times. Ask us questions.
Steph:
Yes, email us if you have questions. If this is something that you're facing, because we've just had to go through it so many times. Often, it isn't an issue and that does appraise, because this market is so fast and it's so competitive. There are houses that will support the price, but I did just have one where we offered 321, we had an $11,000 appraisal waiver, appraisal contingency waiver, so you can do it. You can cap it. Like you said, she was able to pay 20,000.
Steph:
This client was able to pay 11,000. Then the appraisal came back at 313. So they actually had to pay 8,000 of that in cash, but their loan amount goes down. They just shifted. They were going to put 10% down, and they shifted that 10% to 3%, and they're putting the rest of the cash. It's essentially a really similar situation, but there's a difference delegation of the cash.
Kristina:
That makes sense.
Steph:
It's definitely risky. You have to have some cash in your pocket for this to work, but it does make your offer more attractive.
Kristina:
Okay, yeah. That's fair. Okay, so we talked about putting down a higher down payment, the appraisal addendum, writing a letter, which writing a letter actually going back to that a little bit, I don't know, the more I think about it, like I like that idea, but I could also see why some people would not want to write a letter. You're just like, "Who is the seller?" What if I'm a Latina woman and this is a white supremacy. I don't know. We don't know who the person is.
Steph:
Totally. Usually, that's only if you have some information, because I love to stalk a seller.
Kristina:
That's true. Same.
Steph:
I mean, on the internet.
Kristina:
Yeah, not in a scary way. That just happened. Me and my sister, we made an offer this summer on a house in Florida that we are really excited about. We did make a much lower offer, but the seller was just like, and we sent a picture so I was like, "No, these are not my buyers." We are so offended by it. I was like, "What do you mean? Isn't that illegal? You can't just say that." Anyway, it was weird, and then they took their house at the market and I was like, "I don't know what to do about that." I feel really, "What?"
Kristina:
Anyway, so after that experience and just hearing about other people's experiences I'm like, "A letter can be good, but yes obviously stuff, we like to know who the seller is before we do that." One more thing maybe before we move on, my favorite strategy with looking in a competitive price point or in a competitive market, which I've helped get a few people houses this way is looking at homes that have been sitting for a while. That way, I can avoid rejection.
Steph:
Yes.
Kristina:
I think it takes a little bit more work sometimes if you have to figure out first of all, "Why is it sitting? Is it a complete mess of the house? Is it a tear down house?" A lot of times, you just want to find the houses that people listed forever go and just listed it way too high. There's still a house down the street for me that they started out at 430 or something for this tiny little shoebox home. My client was like, "We'll do 400." They were like, "No." This was when they first listed it. This was four months ago. This house is still sitting. I'm pretty sure it's listed at 380 or something now and I'm like, "No one's buying you. You should have taken that $400,000 offer," but I bet someone's going to get a great deal on that house, because it's just still sitting there. It's on a great zip code.
Steph:
That's always what I've done as far as my own personal purchases is like, "Oh, this has been sitting. It's quirky. Not everyone wants it." That's a great thing to mention is it's seeing the potential in something, even if you don't want to do a huge renovation, is there something small you can do to make this viable for you?" Then other people will probably see the value of it after and be like, "Oh my gosh, you're so smart." There's houses on the market that get listed and immediately you and I will be like, "Oh, that'll go in 12 hours." It got wide appeal, it staged really nicely. They do all of the stuff to drive interest when a house that maybe wasn't listed as well or the photos weren't as good, or there's no staging.
Kristina:
Oh yeah. Find the house with the agent in the picture taking the photo like that to you. [crosstalk 00:30:31]
Steph:
Yeah, into the mirror. Yeah.
Kristina:
Yeah, you can find that house and be like, "Okay, it's priced a little too high. These pictures are horrible. There's only seven of them. Why am I interested in this house?"
Steph:
Why I mentioned 2016 that I also bought in a crazy competitive time, and it was one of my favorite properties now, but at the time, I almost didn't go see it, because the photos were so bad. I walked in and I was like, "Oh my gosh, this has really, really good potential. Great bones." Now, everybody walks in there like, "Oh my God, this house is so cute." We didn't even put that much.
Kristina:
It was not cute before.
Steph:
Yeah, it was not cute. Then it was just like-
Kristina:
Now it is.
Steph:
Yes. I think that's a great way to buy in a competitive market for people who can see that potential.
Kristina:
Yeah. I think for Eric's house, I helped him find his house, and I just casually texted 10 agents and was like, "Would your client accept this offer?" One of them said yes and that was the house he bought. So, worked out.
Steph:
I think especially for people who are more in that investor mindset or that actually is a great way to get a deal even in the competitive market.
Kristina:
For sure.
Steph:
Then one more thing for increasing or just strengthening your offer in general, there's a couple ... we've also talked about this also, but your earnest and option fees. They're your deposits or your upfront fees, and increasing those can be, we both can see that as really risky, but we are seeing that a lot. People are putting 500 to $1,000 for the option fee and that really strengthens your offer, because that's what you stand to lose if you back out of the deal. That increases the seller's confidence in the fact that you're not going to back out.
Kristina:
Yeah, for sure. Okay, so should we move on to the next one? A lot of times people come to us and they ask the difference between a condo or a house or like, "Should I buy a condo? Should I buy a house?" I think a lot of people think, "Well, my budget's lower, I should just buy a condo." Really quickly let's just go through like okay a house, what would be some of the pros? You're potentially getting a backyard. You're not sharing walls. You can buy a house and there might not be an HOA.
Kristina:
I guess some of the cons might be you have to maintain a yard. Maybe there's some more maintenance that you would have to do, probably more cleaning. What else? I would say yard maintenance, maybe some more expenses.
Steph:
On a house?
Kristina:
Yeah.
Steph:
Yeah.
Kristina:
Then I guess for a condo, so you're going to probably have less maintenance, although we're going to get into HOAs in a second, because that's a whole HOAs like its own little government. You're not going to really have any outdoor upkeep unless you're buying something with a small backyard. Then some of the cons for a condo is HOAs, that's part of your fee, your monthly fee and monthly payment. You typically have some shared walls. Something that I also want to mention is it might be harder to finance a condo if you have less money, right?
Steph:
Yup. People think that condos like the sticker price is really attractive, because you can get condos in Austin in the high 200s, 300s in really good locations. However, a lot of times lenders, lenders don't like lending on condos as much as they like lending on single family houses.
Kristina:
Whenever someone comes to me and they're like, "I found this $80,000 which is weirdly a thing," well, maybe now it would be a hundred, this was two years ago, a $100,000 condo and it's in Southeast Austin and I'm really interested in it, I'm like, "Okay, so we need to talk about a few things. Whenever you are looking in Central Austin, this might be in a lot of cities, and they're really affordable prices, we have to assume that they are non-warrantable."
Kristina:
When you're buying a condo, so you want to buy typically, especially if you're putting less money down, you're looking for something that is a warrantable condo. What that means is, I mean, there's a lot of reason something would be warrantable versus non-warrantable, but the main reason is usually the majority of the owners who own these condos live there, and they're not investors.
Kristina:
If the majority of the condos owned in the complex are owned by investors, then it will probably be a non-warrantable condo. I think it's a riskier loan for the lender probably. Essentially, what non-warrantable will mean is you're going to have to put ... It's going to be different financing. You're going to have to put at least 20% down, and it might not be a standard 30-year loan, and this is we're working with a really good lender helps as well, because there's little things that will come up.
Kristina:
I've had clients by condos and put 5% down, but the lender has to be very on top of things, because even the budget, like they're going to have to look into the budget, the HOA, make sure they're up-to-date with everything, they've paid all their fees, they're not in debt. It's crazy. They look into everything like that. Then last minute, if a lender catches something where there's a budget issue with an HOA, and you're only putting 5% down, they might be like, "Hey, you got to put 10% down now."
Steph:
Yeah, I've had that happen too.
Kristina:
Yes, that happened to a client. Then they couldn't buy it because they're like, "I can't put 10% down." So just being aware that that's the first thing to be aware of when you're buying a condo is making sure you can get good financing and is it a warrantable condo or a non-warrantable condo? You want it to be warrantable typically.
Steph:
Usually, when I have clients interested in condos, every lender has their own specialty. So often, I'll have someone come and like, "You have a lender. They're ready to go." Then we find a condo, and then that lender isn't able to lend on that. So they [crosstalk 00:37:20] going to have to switch and there's preferred lenders for condo complexes, but you don't always want to go with that lender. Yeah, I'm not against a condo, but I liked how you laid out the pros and cons.
Kristina:
Just be aware.
Steph:
Just be aware. I think it's just knowing all your options and making your pros and cons list.
Kristina:
Yes.
Steph:
Some people want a pool, and they want amenities, and I get that. I don't love an HOA. I don't like that I don't have control. A condo is not going to be my first choice as far as what I want to buy, but we have plenty of clients that buy condos and they're happy, and it's lovely and the HOA like, "What is included in the HOA is important too."
Kristina:
Yeah, and also in Austin and maybe other cities, right now, a condo is also ... A big trend in our city right now is builders will buy lots and they're going to split the lot and they're going to build a house in the back and that's going to technically be a condo. A lot of our clients are buying that type of condo. The pros of that is typically they are the HOA. Whoever owns these two properties, they're the HOA. They get to decide the price like if they even want an HOA fee.
Kristina:
Sometimes they want it like to have some maintenance or lawn, something, but a lot of times you are the HOA, so you get to create that price point and talk with your neighbors about it and stuff. A lot of our clients who are buying condos are buying those types of condos. Some of our clients are also buying just a typical your stand of a condo, but you also have to know going into it that every HOA is its own government. Like you said, some of them do a lot and some of them do nothing, and you're still going to have to pay a lot. That fee is I wouldn't say I've seen anything lower than 150 or-
Steph:
Yeah, 150 is minimum. So that makes your payment like, "Oh, so you're saying, okay you have a condo for 295, but that means your payment is 295 plus the 150, which is minimum, minimum." Usually, it's 175 to 300 on top of your monthly payment, plus your taxes, plus your insurance.
Kristina:
Yeah. One of my clients bought a downtown condo. His HOA I'm pretty sure is 500 a month. It's crazy.
Steph:
Yeah, it's so crazy. Sometimes in HOAs, so what I try to figure out for clients is okay is it including your water, trash, sewage? If it's including that, that's supplementing your other utilities. So that makes more sense, but a lot of them don't include anything.
Kristina:
No. So going back to those very affordable looking condos downtown, a lot of those are older buildings, and they might have a higher HOA because they are older. What happens is, "Oh no, there is a crack in the foundation and that's going to cost the whole building, it's going to cost this much money and then you're going to get a special assessment. It's going to be tacked onto your HOA monthly payment, and so you might've bought a condo that your HOA was 250 and now it's 350."
Kristina:
That's another thing to be careful about is you really want to look into the HOA a bit, and you will once you go under contract, the title company will help you pull the HOA docs and there's a built-in contingency in there. I think you have five days once you get the documents, the HOA documents, you can back out of the contract and you're fine. At least this is in Texas. Yeah, because sometimes you might say, "Oh, they have no money in their budget and the reserves."
Steph:
Reserves, yeah.
Kristina:
This is an older building. What happens if something happens to the roof or there's something cosmetic outside, they're not going to fix that probably because they have no money to do so.
Steph:
Right. I had, I think it was at an investor meet up, we had someone on who had bought a condo for their first property and it's doing so well. She's cash flowing even with the HOA, but her advice was join the HOA. If you buy a condo with an HOA, get on there. Go so you have some power and you know exactly what's happening so that all those decisions aren't just made for you.
Steph:
Then as far as the maintenance on a single family home goes, there are so many houses that are pretty low maintenance as far as the exterior goes. I know people don't want to mow the lawn. I don't want to mow the lawn, so I pay someone to mow the lawn. I don't know. I think we seem very pro single family.
Kristina:
We are.
Steph:
It's mostly the messages. Just do your research and know what you're getting yourself into.
Kristina:
Again, knowing your why. What's your main reason for buying a condo? Then tell your agent that, because that's a lot of times where I start first. Whenever someone is like, "I want to buy a condo." I first ask them why, because if their reasoning is, "I want it to be more affordable." I don't stir that. I stir them ... Maybe if it's like, "I need it to be affordable, and I also needed to be central." Then I'm like, "Okay, let's look into condos, see what else we can do."
Kristina:
Because I did have a client who is amazing. I think her budget was 220, but she's like, "I need to be by a bus and I needed to be central to get to work." So we did find a condo that made sense for her, and she loves it. It's a two bedroom, and she lives alone, and she can afford it, and it's close to a bus, and it's pretty central. It's by Mueller. Yeah, it can happen. I asked her some qualifying questions and I was like, "Okay. No, this makes sense for you."
Kristina:
Often though, I'll ask people questions and if it's just because it's affordable I'm like, "Well, let's look at this really because you're going to have to tack on this 250 extra a month payment." Houses have HOAs. Some houses have HOAs as well. How many of your clients would you say buy houses with HOAs?
Steph:
Not that many. Not many, just because we have more people who are looking for, how do I say it? Charm or older houses where there weren't as many HOAs, but the newer houses like new developments often have $18 a month HOAs, which is not much.
Kristina:
Yeah, and that's fine.
Steph:
Yeah.
Kristina:
That's true. That's another thing to mention is some housing complexes or some housing neighborhoods, some neighborhoods, there we go, have HOAs but they are much lower. I just had a couple buy in a central-ish but more affordable, new construction neighborhood, and it's so cute. They love it. They have everything they want, and their HOA is not too high. I think it was maybe $80 or $100, but that made sense to them. They got a brand new home where if they were going to buy a fixer upper, it was going to be around the same price. So they went a mile out further and then they bought a newer house with an HOA, and it made sense for them.
Steph:
Good. Hopefully, that helped. If you have questions about condo versus single family, please reach out. If you feel like you need to defend the condo ...
Kristina:
I know. If you feel personally attacked by-
Steph:
Yeah, the owner.
Kristina:
I don't know. Let's just move on. Okay, so the next topic is, oh, we get a lot of questions about credit score.
Steph:
It's one of those taboo topics that people don't talk about, people don't share their credit score, and it's very personal. It's also, in my opinion, a tool of oppression. People aren't taught about your credit score and then you do something as a 22 year old to mess your credit score up, and then you have to rebound. I think it's all very counterintuitive and fucked up.
Kristina:
I'm still scared about my credit score. Every week, I'm scared about it, because I've been screwed over where I've closed out a bank account, and then three months later, I get a credit, something in the mail being like, "You, we're after you for money." I'm like, "What?" It's because I closed out a bank account. Then they were like, "You didn't pay this one thing." I was like, "Why didn't you tell me? How did that ..." I don't know, so all these things that I just get so nervous. Things like that have happened to me where I just like, "Oh now, your score is down 20 points." I'm like, "What happened? What did I do?"
Steph:
It's a barrier for entry, and almost in everything, in renting a house, buying a house, buying a car, anything. I think it's awful. I think I love the idea of teaching people about this, and helping people with this. We'll do an episode on this for sure, because I just went through a very intense credit restoration. For buying a house, there's two different types of loans, conventional and FHA, which we've talked about before. In FHA, you're allowed to have a little bit lower credit score.
Steph:
I believe these are rough numbers for sure. I'm pretty sure the minimum that you can have for FHA is 620. Do you agree? Is that ... ?
Kristina:
We should confirm that. That sounds right.
Steph:
It's in the low 600s for FHA. However, for conventional, the lowest-
Kristina:
I thought it was 580.
Steph:
Oh, maybe 580. I know the lowest for conventional is 680.
Kristina:
Let me click this up really quick. You keep talking.
Steph:
Yeah. So for FHA, I don't love an FHA loan as much, but it is more accessible if you do have a lower credit score. For me, the reason I was doing my credit restoration was because I wanted to refinance properties. So I talked to a lender and I said, "Okay, go ahead and pull my credit. I just need you to tell me what to do, because I don't like just throwing money on stuff without a plan." I basically had them run my credit. When they run your credit, it's a three to five point ding.
Steph:
It is another hard inquiry. However, I thought it was worth it, because I wanted to do the fastest and best job of getting my credit score up. I think it's been a 100 points in the past six months or something just by-
Kristina:
Amazing.
Steph:
... yeah, systematically paying down certain debt, and getting stuff off my credit score or credit report.
Kristina:
It is 580.
Steph:
580. Nice.
Kristina:
I'd bet it depends on other things. They're probably going to look at your debt-to-income and that might affect too as well, right?
Steph:
Yeah, for sure debt-to-income. Your credit score, it definitely has something to do with your interest rates, but it also has to do with approval in general. So 580 for FHA and then 680 for conventional. If you have debts, or if you have a low credit score, just try your very hardest to get it up, and I really recommend if you want to buy a house in the next year, talking to a lender so they can give you a plan.
Kristina:
Yeah, they should be helping you with tools to bring up your score for sure.
Steph:
Yeah. For mine, it was called, I don't remember exactly what it was called, but they sent me this very detailed document that said, "Pay your ... " I pulled out money or I pulled out zero percent interest credit cards to help me with my renovations. I was trying this systematically. I didn't want to pay them all off, because they're zero percent. They said, "Okay, your USAA credit card, you want to pay this much down, and your Capital One, you want to pay that." It was so detailed, so I recommend talking to a lender.
Kristina:
I completely forgot at our little weekly meeting, we have our friends. One of our friends is like, "Y'all, my car broke down and I was trying to buy a new one and get financing for it." They were like, "Your credit card is zero," like actually zero. She was like, "What? How?" It was because she had no debt. She didn't have a score. It wasn't bad or good, it was just a zero. That's so annoying too is if you've never taken on a lot of debt, you just have a low score.
Steph:
Yes. It's like you have to have debts to have a credit score.
Kristina:
So shitty.
Steph:
It's so bad. It's like you have to go take out money you don't have in order to take out any money, or buy anything, or contribute to the economy. It's so insane.
Kristina:
As Kaneischa said, "We're trapped in a capitalist society and we can't escape it."
Steph:
We're trapped.
Kristina:
We are. Okay, last question and then we'll let you all go. Okay, so a lot of people ask us, if I plan to move in five years, should I wait to buy? We're going to probably give you a broad answer, but I'll try to refine it a bit. I would say if you are going to be here for at least five years, you could definitely buy a house. I guess you were going to say stuff like, "If you're moving sooner than that and you don't want to be a landlord, then you probably shouldn't," just because it's going to be a lot of work probably that you don't want to do.
Steph:
Yeah. I feel like if you're planning to move in one or two years and you want to buy a house and then sell it again, I don't think that's a smart idea, which is like I never don't think you should buy a house.
Kristina:
Oh my gosh, Steph said that you shouldn't buy a house. You heard it here first.
Steph:
That's the only time I'll say this, but yeah I think it's not smart. You should just rent if you're planning to move in one to two years and wanting to sell. However, if you're wanting to make a smart investment in the city that you live in, because it's a hot market or it's affordable or whatever, live in it for two years, not pay rent, pay yourself into your mortgage, and then keep that house as a rental when you move to your next city. I think that is a very smart plan.
Kristina:
Your friend Eleanor did that, right? You all bought a house together and it was smart. She moved and you-
Steph:
She never lived here when she bought in Austin. She's just buying from out of town, because she lives in LA.
Kristina:
Got it.
Steph:
Yeah, but she's an out of town landlord.
Kristina:
Yeah, she's an out of town landlord. Oh, this is an example. One of our clients, I met with her, this was like what? Three years ago probably. We met at [Cenote 00:53:20] and talked, and she was like, "I just want to travel. I work in this 9 to 5 job right now and I just want to have some income and I want to travel the world and then still come back and have this house for me." She just didn't think it was possible, and she did y'all. She bought a house, renovated it, and within three months, actually we're going to have her on too. We always say this like, "We're going to have an episode on this."
Steph:
Yeah, I know.
Kristina:
She was able to buy this house for a very affordable price. It has a huge lot as well, so she renovated it and then she rented out part of the land to someone who has, I think it was an RV, and then she also had two roommates, or I guess tenants, and then she was gone for six months. She went to Aruba and worked there with this yoga person. She didn't have to worry about her house, and came back and now she lives there. So a lot of people-
Steph:
She's gone again.
Kristina:
Oh, is she gone again?
Steph:
[crosstalk 00:54:31]. Yeah, she left.
Kristina:
What?
Steph:
My mom's helping her Airbnb her house while she's gone.
Kristina:
Oh my gosh, yes. We were talking-
Steph:
She's living the dream.
Kristina:
Yes. That's why she was asking me all these Airbnb questions.
Steph:
Yeah, and that's something else I wanted to touch on, and this is something I heard a lot when I bought my first house was like, "Oh Steph, you're just settling down already." Like, "I'm not ready to settle down. I want to be free, and I want to be ..." I would argue that buying a property has given me way more freedom than ever I could've imagined if I were just continuing to rent. Because now, especially now because I have passive income coming, but I am planning, Kristina and I both were wanting to be geo-liberated eventually, and we have such solid plans in place for that to happen, because when we leave our house, it's still ours. We can create income from it and be earning money while we're gone.
Kristina:
Exactly. We know we're going to leave this house like it's going to be ... It's essentially at least $300,000 that we'll be here whenever I want it.
Steph:
Yeah.
Kristina:
Yeah, whenever I want to sell it, I'll at least get this amount of money, which is insane. So, yeah.
Steph:
Or renting it out monthly. There's so many options. Just you open up the world of options when you buy.
Kristina:
Very true. Just recently, it's so hard for me to bite my tongue sometimes, because I asked someone who's been asked me so many questions about buying a house for the last year. I asked her, "Oh, if you want to do this workshop about a home buying workshop." She was like, "I'm not ready to settle down, and I'm ready to have this noematic life and do that for a year." I was like, "Okay. Well, good luck to you." I wanted to pushback on that, but it's the mindset. You have to start with the mindset, which actually Steph and I just realized, "Ooh, we should be teaching that first of. You got to switch up your mindset, because that's a limiting belief or it's something you've been told your whole life so you just believe it."
Steph:
Yes.
Kristina:
It fits into your narrative and like-
Steph:
It fits into your comfort zone.
Kristina:
Comfort zone, there we go. It fits into your comfortable narrative and especially those people ... I understand if someone has never talked to me about buying a house and then they're like, "I'm living this noematic life." Cool. I know you don't really have that much interest, but for someone who's been talking to me for a while about it and they're interested and then all of a sudden they're like, "Well, I want this noematic life and I'll do that later," that means settling down. I just really want to push back on that and ask a lot more questions. It was an Instagram message, so I didn't do it.
Steph:
Also, when you think about, "Okay, I'm going to live a noematic life or I'm going to travel for a year," just think about that year of equity. If you could buy a house now, rent it out and travel for a year and come back to a whole year of built equity, I think it's just so much smarter. As Beyonce says, I think what did she say? She had said something about paying her an equity and she's just like, that's so smart. Pay me an equity, because cash is one thing, but you're building equity while you're creating passive income. It's not settling down to me.
Kristina:
No, that's very true. Oh yes, it says, "Give me my check, put some respect on my check, or pay me an equity."
Steph:
Yeah. Exactly.
Kristina:
[crosstalk 00:58:26]
Steph:
Yeah. We went on a tangent, but really when I hear people say, "I'm not going to be in Austin forever," or whatever city you're in I think is great. I don't think anyone should stay somewhere where they don't want to be, but I don't think that buying a house means you have to stay somewhere forever.
Kristina:
For sure. I was like, "Girl, same. I'm going to live in Florida half the year or wherever in six months to a year like same."
Steph:
Yeah, I think that's an interesting ... I love the fact that we as a company talk through our personal goals so much, because it has been in my vision to be gone from Austin for three months out of the year for sure July and August because we're sweating.
Kristina:
It's so hot.
Steph:
It's fucking hot.
Kristina:
Yeah.
Steph:
Even at midnight. Alan and I went on a walk last night, it was 93 degrees.
Kristina:
What time are you trapped in your house in Austin?
Steph:
I know.
Kristina:
Going crazy.
Steph:
Yeah, but the vision of yeah, if I travel for July and August, that's totally possible for us. We're building this life where I can rent out, sublet my house for two months and be cash flowing on my properties while I'm gone. It's just very exciting.
Kristina:
Yeah.
Steph:
I want that for everyone. I just want it so much for everyone and I think you're right. It starts with mindset.
Kristina:
Yup, it does. Which is a good eye-opener to us too, because that's how we can capture more people is like, let's start with that and let's talk through your mindset a bit more and what you think about certain things and let's digest that a bit.
Steph:
Right. I love it.
Kristina:
So yeah.
Steph:
We'll keep on digging deeper into this. I think we're just as we unpeel the layers of why we love real estate so much, and why you and I have both been so successful in real estate, we're just going to better be able to serve people and teach people, and bring people into this world of creating wealth, like generational wealth through property ownership. It's all very, Alan told me to stop saying excited. He was like, "Stop saying that you're excited."
Kristina:
Can he give me feedback? What am I saying?
Steph:
I'll tell him. I'll tell him that stuff down. Anyway, those were our five most commonly asked questions. I hope that that was helpful.
Kristina:
Yeah. If you all have any questions, comments, again, you can email us at podcast@openhouseaustin.co and yeah, we'll see you next week.
Steph:
Yay. All right. Bye everybody.
Kristina:
Bye. As Beyonce says, "Give me my check, put some respect on my check or pay me an equity."
Steph:
Yeah. Yeah, that exactly
