Real Estate Gone Wild

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[00:00:00] Jack: And welcome to the show today. I am your host, Jack Martin. And today I've got somebody that I think you're going to be interested in here. She is somebody who has both a background in real estate and in taxation and her name is Sharon Palmer and she is a currently a realtor here in Tennessee. So Sharon, welcome to the show today.

Thank 

[00:00:21] Sharon: you, Jack. It's nice to be here. And so 

[00:00:23] Jack: if you could just tell me a little bit about how you became somebody with a background in both those areas.

[00:00:33] Sharon: I was working my way through college when I met somebody. And so I dropped out of college for a while and had two children. When my children went. To school. I decided to go back to school myself and I had changed my focus. I had been doing some accounting work for the accountant down the street, and I decided that I liked it.

And that was what I wanted to go into. [00:01:00] I went back to school, got my degree in accounting and passed the CPA exam. I worked in that field for 30 years. But my eyes had started to give me some trouble. So when we moved to Tennessee from New Hampshire, I did not pursue getting a license in Tennessee. I kept my license in New Hampshire.

I kept my clients in New Hampshire, but when the new tax law came into effect, I decided it was time to retire. It took me a few years to realize that I didn't like retirement and. I decided that I would go into the field of real estate. My father had been doing real estate when I was young and I grew up with it.

And so I took the classes, I took the exam and I've been in that field now for four years. I really enjoy it. I like helping people [00:02:00] and it's. Difficult with our people to comprehend all the laws that have to be followed when you are selling real estate. And you're 

[00:02:10] Jack: also something called a seniors real estate specialist as well.

[00:02:15] Sharon: Yes. I took extra classes to become a seniors real estate specialist. It's more about helping them live, where they want to until the time when perhaps they need to go into assisted living or they're going to move in with their family. I help them with that. I can help them with Decision-making about the houses that they, and the products the, and I did at one point visit a couple of the senior citizens living facilities in Knoxville.

[00:02:57] Jack: Okay. And do seniors have some sort of [00:03:00] special needs compared to other people? 

[00:03:03] Sharon: Oh, yes. Yes, definitely. The needs tend to be emotional. Okay. Because they have lived in this home maybe for years and years their children grew up there. They are torn by having to leave that, that home that has so many memories for them.

And, and you have to help them with that emotional journey to get to the next stage of their life. 

[00:03:35] Jack: Okay. So you've got an unique background, both from the fact that you have both the tax background in the real estate background. And also additionally that you are, has some specialized training and working with seniors.

So that's great background that you've got there. Speaking of the tax background, can you tell me broadly, tell the viewers what's nerves, what the [00:04:00] tax implications are of owning real estate here in the United. 

[00:04:04] Sharon: Well, it used to be that you were almost guaranteed a higher tax deduction by deducting your mortgage interest rather 

[00:04:15] Jack: than the 

[00:04:15] Sharon: standard, just the standard deduction over and above a standard deduction, the mortgage interest and, and the taxes.

However, when the new tax law went into a fact that that the standard deduction is so much. That for a lot of people, they got tax deductions went away. They're not higher than the standard deduction. So there's no sense in trying to itemize, however, you can still deduct interest on a mortgage up to $750,000.

[00:04:51] Jack: Okay. If you. And of course that the interest goes down every year. So at some point it's going to fall off, but if you've just bought a home [00:05:00] and you still paying some high in, and what you're 

talking about there is that with an amortized type mortgage, that the interest is heavily weighted at the front of the mortgage early years and later years you're paying more towards the principal.

[00:05:13] Sharon: Yes, that's correct. So you're not paying as much in interest and ends. Therefore your deduction gets lower and you probably can't use it anymore. That. However, one of the biggest tax deductions says you can get the tax benefit out of owning a home is when you sell it. If you have lived in that home for two out of the last five years, you can deduct up to $500,000 of capital gains.

If you're married, filing jointly and 225, if you're. Okay, now that that is huge. You may have a $300,000 capital gain, and now you [00:06:00] don't have to pay taxes on that. And this 

[00:06:02] Jack: is why I do tell people that real estate is one of the greatest ways in order to accumulate wealth. Here in the United States has been historical.

Continues to be going forward as well. So yes it is. Right. So if you could tell me what's going on with prices right now, because I think people are kind of feeling like they are running into machine guns in terms of the prices. 

[00:06:30] Sharon: Well, they are, 

[00:06:32] Jack: I had to add the the sound effect in there, and I'm going to add a few in more of those in ear as well.

So. What's happening as far as the prices here in the United States and locally, 

[00:06:45] Sharon: well, of course prices are escalating rapidly. I even told one of my clients that I said, I want to put your house on the market at a certain price. And she said, but just two months ago, you told me it was going to be at [00:07:00] such and such price.

And I said, but that was them. But think about the houses we have been looking at and the price. Increase in those houses right over the last two months. So according to core logic home prices have increased year over year by 20%. That's in the United States. That's in the United States. Okay. And what about ongoing 

tennessee is . One of the top 10 markets in the country. In fact, we're now number three. Okay. So in Tennessee, the year over year increase has been 26%, a little over 26%. Amazing. It is amazing 

[00:07:39] Jack: and disturbing because Tennessee has always been one of the more affordable markets in the United States.

And we kind of have that. Attitude here in Tennessee that, you know, we are a place that's affordable to live. And right now it seems like it's moving in a different direction. Well, is there some that you can [00:08:00] kind of, 

is there something you can attribute all these price increases to

[00:08:04] Sharon: the lower interest rates mortgage interest rates were at. Historic glow. And of course, everybody wanted to try and buy a house while those interest rates were at that low and it increased the demand. And a lot of people think it's slow inventory. It's not. Actually, the sales in 2021 were much higher than they were in 2020.

And in 2019, in terms of volume, in terms of volume, there were more sales. So it wasn't a lack of inventory. It was the demand there's 

[00:08:41] Jack: also the issue of people migrating away from the cities during the pandemic.

Correct. And that added to some of the demand issues as well. 

[00:08:50] Sharon: It may have to add it to some of the demand issues, but of course they are leaving a home if they had one. So that would have [00:09:00] still left a house for sale. Right. So that would have evened out. But rent prices have increased so much that many people began to realize that they would be just as well off to own a home and be paying a mortgage as to be paying 

rent.

And I want to point out something also to our listeners, which is that, you know, I want to put things in historical context for you as well. The interest rates. If you look at the chart of interest rates here in the United States, interest rates have been declining on a fairly steady basis 

going back through. I believe it's 1981. When they peaked if you will get a mortgage interest rates back then, I think it was somewhere around 16%, 18%. I was going to say 16, 18%. Yes. It's one of the reasons that when you look at a a chart of price increases, you see an inverse relationship there.

 Because the two are things [00:10:00] are correlated. When you, you can afford more home when interest rates are lower. So just putting that in a historical context as well. So we've seen these price increases at this point. Are you expecting them to continue to. 

I'm expecting prices to continue to rise. And is that when you say at a slower pace than that?

Okay. Yes. Yes. 

[00:10:26] Jack: And you're saying a slower pace and what are the reasons that it's going to soil 

[00:10:29] Sharon: because of the increase in the mortgage interest rates, they have risen dramatically, right. And every percentage point makes your mortgage. And then a lot of people don't qualify any longer. And so you're saying that they drop out of the housing 

[00:10:49] Jack: market, right?

So people budget based on their monthly payment and for the same price house, if the interest rates go up, your monthly payment also goes up. [00:11:00] Yes, that's what you're getting at 

[00:11:00] Sharon: as RN. Okay. And lenders prefer that your housing only be 25% of your. 

[00:11:08] Jack: Okay. That's kind of their rule of thumb when they're trying to see what people qualify for as well.

And I'll, I will also add onto that what the lenders say you do or do not qualify for. Something different, it's a different subject than what is necessarily best for you. And that's something that you're going to want to talk to your financial professionals about as well, and with your family to see, does this payment fit into our lifestyle?

Can we afford this or are we going to be overextended on it? So I'm just kind of adding that caveat in there as well. 

[00:11:42] Sharon: So, well, that's because you're a financial planner. So you think that way, 

[00:11:46] Jack: right? So. In this current market tell me, aside from the price increases, what are you seeing on both the buyer side and the seller side?

What's it like buying or selling a house at this point?

[00:11:59] Sharon: [00:12:00] For the past year, if you're selling a house. You the only mistake you can make us overpricing it, because if you under-price, it it's going to be bit up. I was talking to someone 

[00:12:18] Jack: in a multiple offer 

[00:12:19] Sharon: environment at this point. Oh yes. Yes. And not even that it's I talked to another realtor about a house I wanted to show to my client and he said it was already sold already pending.

He said, I priced it above what I thought it would sell for. And it's sold for more than that. I still went for more. I still went for that. Now that may slow down, but sometimes sellers were overwhelmed by the number of offers they received. 

[00:12:49] Jack: That sounds like a good problem to have from a seller's perspective.

[00:12:53] Sharon: No. Well, yes. If you're capable of sorting it all out and coping with it, 

[00:12:59] Jack: [00:13:00] well, I do want to get to that does lead me into another question then. So. Does a seller need a realtor in this market because I do hear, you know, I do hear and read certain people saying in this market, I'm going to try and save the money and sell it on my own.

Know you obviously have a bias here in this regard, but what would you advise a seller at this point? And we'll get to the buyer in a 

[00:13:26] Sharon: moment. I think you need a realtor, traditionally houses sell for more. If they're sold through a realtor, okay. We have the marketing expertise.

It's not just putting a sign up in the yard. . We sell it to other realtors. We sell it on online, not just through. Zillow says it's a Zestimate, but we have priced your property to sell. Okay. We have done research on [00:14:00] it. We have been through your house. We know what it looks like and to help you sort through the multiple offers, of course also.

[00:14:07] Jack: Okay. And I will also add something on to that. Which is that one thing to bear in mind is that you would generally want to be having other outside professionals. If you were still selling a home without a realtor things, swipe, you know, WICO advice now as home prices increase the amount that you're going to be paying a realtor in terms of percentage may also increase.

So. Factor to consider, but I do want sellers to understand that you are going to want to have some advice you know, outside advice, if you decide to go in the direction of not using a realtor.

So on terms of the buyer's side, what are you seeing there on the buyer side 

[00:14:53] Sharon: well, of course, once again, you need a realtor. We have access to the multiple listing service we [00:15:00] have access to what is called a exclusive look that we're allowed by law to show, to just realtors in our country. For 24 hours before we put it on the general market. So before he even goes on the general market, it's already been shown to other realtors, 

[00:15:20] Jack: which does sound like a fairly big advantage here in this market where there's very limited amount of time in order to be able to have an opportunity to buy a house.

[00:15:30] Sharon: Yes. Okay. Yes, also on the seller's side. you may not want to put a sign in your front yard. You're going to have people knocking on your doors at all times since the day and night saying, I would like to look at your house. I want to buy your house. 

[00:15:44] Jack: So what is the experience, the buyer's experience like at this point? Because the seller's experience sounds like it's good. What is the buyer's experience like at this point, because we are still talking a fairly unbalanced market at this point, correct. 

[00:15:59] Sharon: It's [00:16:00] very frustrating.

Okay. 

[00:16:01] Jack: And is that the case here? And that's the case here in Tennessee, apparently as well. 

[00:16:05] Sharon: Well, it's the only market I'm really familiar with, so I have to go buy that. Okay. House goes on the market and you make an offer on it. You do not know what anybody else has making it for an offer

 Okay. But you know that they are making an, an offer and you don't know how much, so you tend to bid it up as much as you can afford, and then you lose it anyway. And so that is very frustrating.

And after having done that for maybe having lost five or six houses buyers tend to get discouraged and just say, well, I think I'll stay where I am for a while. And I can understand that it's very district.

[00:16:51] Jack: So what are the mistakes that buyers are making? What can they do to be able to [00:17:00] get an advantage in this market when they're making it.

Thanks. Frank don't put conditions on the offer would be the one that would come to my mind. 

[00:17:09] Sharon: We used to have contingencies where the seller would pay some of the closing costs. We're not doing that anymore. It is actually even written into the Tennessee form that we will ask for a property inspection, but not ask for repairs. But if the property inspection comes back very bad we reserve the right to walk away. That was not there two years ago, I would not recommend to any of my clients that they buy a home without having a property inspection. Okay. So do they need to know what they're buying 

[00:17:46] Jack: the property inspection, but don't put any other sort of contingencies. Yeah. I put 

[00:17:50] Sharon: in a contingency that it's on the sale of your house. Even if you are going to have to pay a mortgage two mortgages for a month or two.[00:18:00] 

Please do not put in that you are a contingent on the, so 

[00:18:04] Jack: if somebody wants to, if somebody wants to be moving from one home to another, let's say they're moving to the Tennessee area within you, then recommend that they focus on the buy side, finding house, an offer and acceptance, and then sell their house afterwards.

Yes. 

[00:18:21] Sharon: Okay. 

[00:18:21] Jack: Yeah, because in this case, it's just so much easier to be able to sell the home then. 

[00:18:28] Sharon: I mean, I do have a temporary type poise. I do have clients who have moved in with their parents. Okay. So they sold their home then bought another home. Yes. So I do not need to do that, but for most people they need to be prepared that they may be carrying two mortgages for a month or two.

Okay. You can also delay the. And many sellers are very happy with that, because then that gives them more time to find a home of their own. So [00:19:00] if you can delay the close. Instead of the normal 30 days delay it to 60 or 90 days. 

[00:19:06] Jack: So you're saying that once you put in the offer, is it in the offer letter that you want a, an extended closing?

Yes. So that, that gives you more time to be able to, for the seller to be able to find a home? Yes. Okay. All right. And that will make it more likely to be accepted. 

[00:19:26] Sharon: Yes, because if they haven't found a home, they're not prepared to carry two mortgages for awhile that gives them enough time presumably to find another home.

Okay. And 

[00:19:38] Jack: that sounds like a good tip and. For first-time home buyers. We already kind of talked about the importance of being able to invest here in real estate, in the United States. Could you with me maybe through the steps for first-time home buyers, what are the basics? Just the very fundamental steps that they [00:20:00] need to understand before they go to try and make their first home purchase.

[00:20:04] Sharon: The first thing. Finding a good realtor. The second thing is getting pre-qualified and what's the most, no seller now will even look at your offer unless a pre-qualification letter goes along with it. Okay. Then once you do that you're going to have to find the home and there are various loan programs.

Okay. And then uh, once you found your home, you're, pre-qualified you get the loan? You're going to have to have the property inspection. Hopefully it comes back with minor repairs. Well, 

[00:20:41] Jack: This is after once you actually find a home you've made an offer it's been accepted, then you have to have the inspection. Yes. Okay. Yeah. And how does somebody go about finding a wonder at this point? What are your recommendations on that? 

[00:20:56] Sharon: Many realtors have lenders that they have worked with in the past.[00:21:00] 

You can try online, but of course you are dealing with somebody who's somewhere else in the country, perhaps not accessible all the time.

I really like a lender where you can walk in and talk to them, but there are a lot of online lenders you can talk to them.

[00:21:21] Jack: Somebody go about finding a realtor.

[00:21:24] Sharon: Most people use word of mouth a referral from a friend. You can also go to the Knoxville area association or the national association. And they have lists of realtors I work for Caldwell banker. We have a referral system where if you are moving someplace else, the person who has selling your home.

I can refer you to the referral. People who will find you a realtor, where you're going to go. Okay.

[00:21:59] Jack: So it covered [00:22:00] quite a bit of ground here, I think today. And if somebody has further questions, how would they go about reaching you? 

[00:22:06] Sharon: My cell phone number is (865) 621-0202. 

[00:22:12] Jack: And are there some online ways to contact you as well? 

[00:22:15] Sharon: My email address is Sharon S H a R O N dot Palmer, P a L M E r2@caldwellbanker.com. It's spelled C O L D w E L L and then bank just as it is. There were three Sharon Palmer. Working for Coldwell banker when I started, who knew, right?

Yeah. So, okay. I ended up with a number two. 

[00:22:40] Jack: Okay. By the way, for the listener, I'm also going to put these in the show notes as well. So you should be able to go to my website, richesrevealed.com. You should be able to see the show notes. There should be on your favorite podcast.

Site as well, but if not go to [00:23:00] richesrevealed.com there, you can also leave me questions and make comments and give us a rating as well. 

Stock and bond question

[00:00:00] Jack: so this will begin our first Q and a segment of the show. And today's Sherry asks, what is the relationship between stocks and bonds and portfolio? So the idea is that they compliment one another in a portfolio, they serve different purposes when the portfolio to achieve the same objective. Achieving your required return as smoothly as possible.

One is the yang once a yang. When is it Zig? And one's a sag. One is for longer term higher returns. And one is for stability. Stocks are where you own a portion of a company, which is subject to the profitability of the company, as well as the vagaries of the markets in which you're buying and selling that stock bonds.

On the other hand are a contractual obligation from company or. To pay the stated of return on your money or stated period of time. Bonds are for the stability so bond funds. I do want to say by the way, are [00:01:00] not the same.

So a bond. They can and may lose money, particularly in a rising interest rate market environment. So they don't have the same risk profile as individual bonds, where if you hold the bond for the entire term, you know, you will have a return of your principal poll, plus the stated return of interest subject to default on the bond by the company.

So traditionally. An investment portfolio will have some ratio of stocks to bonds. And as you become older, the portion attributed to the bonds will increase to provide more. There is some academic debate on this topic with some arguing that people need to hold onto their stocks much longer.

That also is, important to understand in the context of how aggressive you need to be, how much return you need on your portfolio in order to achieve your objectives. So the fundamentals to understand for you today are that stocks are to reach for [00:02:00] returns and bonds are for. The ratio that you choose is based on factors such as your required return to achieve your objective is, and your tolerance for volatility.

So we'll be talking about this topic in the future, but I hope I gave you a general understanding of the relationship between stocks and bonds and portfolio.