The Expert Podcast

Did your rent on your apartment or home rental go up again? Did your landlord jack up your rent payment again this year? But maybe not by $50 or $100—but by several hundred? There’s probably five or ten different reasons why you think you shouldn’t be buying a house right now. Let’s go through and take a look and see if any of those are any good—and what would be a good reason to purchase a house.

Once again, across the country, rents have gone up, and many financial advisors are suggesting that now's the time to buy. And you might think, “Well if I can’t afford my rent, how can I afford to buy a house?” Well, rent went up 13.9% on average. Many markets were 15% to 20%, and a lot of landlords were desperate to get leases signed during the pandemic—but now the rental market looks different, and they have to make up for a lot of their loss of rent. In addition to that, the cost that a landlord has are going to go up even more in the next couple years—taxes, insurance, maintenance—all those costs are being affected by inflation.

And we’ve talked about that in other videos. So if you think your rent is done going up, guess again. Because next year, when the new values of properties are assessed by the tax collector, the taxes will go up again. When insurance companies look at their loss rates because of inflation, insurance rates will go up again. When landlords take a look and see what kind of deferred maintenance may need to be done on their house, they’re going to have to do more maintenance, so they’re going to have to raise their rents again.

So the upside to buying a home is you get locked in a monthly payment that can’t change over time. And mortgage rates—even though they’re bumped up—they’re still at a low historical value. So let’s take a look at what a mortgage would cost. Let’s suppose you found a house for $200,000. And you may think that you can’t find a house for $200,000—we’ll talk about that later in the video. And you can even look at prior videos that have shown we’ve discovered houses at $200,000 in every market—even right outside New York City—that you can buy for $200,000.

And if you get a 30-year mortgage, fixed rate, and I plug in 4.5% interest rate (which is at the top end of the range), you’re going to have a base monthly payment of $960. Plus estimated tax and insurance, you’re still going to be $1100–$1200. I’m sure that’s less than the rent you’re paying now—and this is the house you’ll own. In many cases the obstacle is, “What about my down payment?” Well, if you’re a first-time buyer or you can use any of the FHA or HUD loans, you can get in for about 5% down payment—which would put you $9,000 or $10,000—and we’ll show you how that can be a doable amount, even compared to moving into a new apartment.

One of the big questions that comes up is: are home values going up or down? If I buy a house right now for $200K, am I going to be at risk of the price going down? Well, it’s very unlikely—not impossible—for a $200,000 house to be worth less. Because right now, there are many houses left to vote. Most people are trying to buy in the $300,000 to $400,000 range. The $200K market isn’t yet overheated because most people are looking at a house as an aesthetic. They want something that’s nice. They want something that’s finished—not a fixer-upper—that already has granite countertops, stainless steel appliances.

If you find a house in a nice area that has a nice property, all of the other superficial things you can change later. If the appliances work, that’s all that matters. The roof doesn’t leak—that’s all that matters. It’s got enough space for you—that’s all that matters. Is it a better living arrangement than your apartment?

Housing is probably going to keep getting more and more expensive. According to Axios, a major financial publication, the supply of houses for sale plunged to record lows. And even if you win the bidding war, the cost of mortgage is on the rise. Why it matters: housing prices have surged over the last two years, and it’s not over with yet. We’re going to talk about some of the realities of the building industry—why this is not going to change, especially at the lower end.

In practice, home prices are supply and demand. Right now, there are estimated five million too few houses for the market. And builders are trying to catch up—but they’re not building starter homes. According to Realtor.com, the starter home is like the dinosaur. The smaller, more affordable entry-level houses are not profitable for builders to construct. By the time you pay lot fees, permits, impact fees—even the basic cost of having equipment to build a small house that doesn’t sell for much—the builder can’t really make enough to make it worthwhile. So they have to build larger houses that are more money.

There simply aren’t enough entry-level homes to go around, and the numbers are shrinking. So if anything, a $200,000 house is going to be more valuable at the low end of the market because the supply of starter homes has been slashed by more than half in the past five years. This isn’t just because of the current real estate market—this has gone on for a while.

What’s going on? When will it get better? They looked at the data: there were only 300,000 starter homes in the market in September. There are 72 million millennials from 25 to 40. So guess what? The numbers are off. Who is competing for starter homes? Everyone. Retirees, millennials, people downsizing, investors—everybody wants this home. Some of them no longer have starter prices—we talked about that. Used to be in the $159K, now it’s $260K and up. So finding one at the $200K level, right in the middle, would be ideal.

Here’s the kicker: home builders are not putting up starter homes. The reason why is because it’s not profitable. You can’t not only make a profit—you can’t even break even. We have a division that’s a licensed general contractor—we’ve run the numbers on starter homes. It’s almost impossible to build a home that is in the starter market ($250K–$300K) and have any kind of profit—especially with the cost of materials and labor. Inventory of starter homes will remain tight, especially in smaller markets.

There are many barriers, including higher land and labor costs for builders. And this is from Realtor—this is from an industry insider. Builders are happy about the current market, but not because they’re building starter homes. A builder normally purchases land and spends thousands on lumber to put up a house—and the demand is there as long as it’s profitable to build.

According to Quartz, the U.S. home construction boom is excluding a big group of Americans. Guess who? Starter homes. Two types of housing—single-family homes. The surge left one group out in the cold: walkable, semi-urban neighborhoods—missing middle entry-level homes. These buildings, priced on the lower end, offer a more affordable housing option to renters and first-time buyers looking to own a house. It’s missing in construction—it’s impossible to build these houses, and that’s not going to change.

This is validated by Fortune magazine, who looked at the same thing and found that housing inventory remains far below pre-pandemic levels—it’s getting worse. The inventory crunch isn’t just happening in high-priced markets. It’s starting to trickle down into entry-level homes. Sold out of homes, according to one realtor.

Why is the inventory getting worse? Starts with demand is not letting up. We’re still in a five-year window when millennials are starting to buy houses—this is going to continue. We’re just at the early edge of it. Home builders weren’t ready for this demographic and now they’re struggling even to fulfill contracts for the existing homes.

So let’s take a look at how you’re going to come up with this down payment. If you decided that having a fixed monthly payment would be a good move—and you’ve discovered that there are $200,000 houses in your neighborhood or in your area, as you’ve seen in other videos—how are you going to come up with that down payment?

Well, let’s do the math. If you are going to re-rent an apartment and let’s say you have an $1800 rent, well, you’re going to need first payment, you’re going to need last payment, and you’re going to need a security deposit, which is usually rounded up—let’s call it $2500. Well, right there you have $6100. You’re within a few thousand of your down payment.

Now, one of the tricks you can use when you’re purchasing a house and you’re going into escrow is you can do what’s called proration. If you purchase a house at the right time of the month and the time of the year, you’ll get a credit for taxes that have been accrued by the seller but that have not yet been paid because the bill comes at the end of the year. And if you time it right, you can use that accrual to offset—to get closer to the difference between $9828 and the $6100.

Maybe you could sell a couple of items—an old computer, some sports equipment, a jet ski. You don’t need to come up with the difference because what will happen is this: $1158 is $800 or $900 less than what you’re paying on rent right now—and you’ll be able to save that money back very, very quickly.

So take a look at your finances. Do a good proposal of the market. We gave you some good evidence and facts and data about what’s happening with the housing market. Use it to your advantage to put yourself in a position looking ahead three or four years down the road—five years down the road.

Are you better spending another five years throwing rent out the window—which is probably gonna go up again because of inflation—or are you better off saving $700 or $800 a month with a house? Look, this $200,000 house may not be your dream house—I get it—but if you use it as a stepping stone to jump up later, it’ll allow you to put hundreds of thousands of dollars in equity and savings in the bank so you can trade up five, six, seven years down the road and not be still trapped in a rent that by then might be $2500—and houses might be in the $500K to $700K range, even for an entry-level home.