Why You Should Stop Renting

Christian: [0:00] Hello, hello, and welcome to another episode of the Awesome in Seattle podcast. This is your host, Christian Nossum, of the Awesome Nossum Group at Wilson Realty Exchange, Inc. And we're really excited to bring you this podcast and drill down into the core reasons of why you should stop renting. We wanna give our listeners and potential home buyers clarity on the current climate and how a fluctuating market may have less impact on the stability of housing and home ownership than you're led to believe in the nightly news Even though we've touched on some of these concepts in the past year, we're pulling all this critical information into one podcast today, and we have a special guest appearance from our friend, mortgage advisor Dan Keller on here in the second half. Uh, but before we dive into that, I really gotta introduce my co-hosts, the awesome agents of the Awesome Nossum Group. Today, I am joined by the one, the only, Melanie Ghadami. Mel G.

Melanie: [0:52] Hello. Hello.

Christian: [0:54] Thank you for joining. We also have the data guru, Mr. Jason Saldarriaga.

Jason: [0:58] You do?

Christian: [1:00] Apparently. Uh, before we get into some of the challenges of the current Seattle rental market, I'm going to hand it off to Mel to discuss why it's often a great idea to buy a home instead of renting. So Mel, what are kinda the top five reasons to stop renting and to buy?

Melanie: [1:19] Yeah. Thanks, Christian. We have the same conversation with a lot of potential home buyers. Renting can become very comfortable, but there are so many reasons that buying a home makes sense. I'm gonna touch on those five reasons. Number one being tax benefits. So let's tackle the money first. Sure, it seems like it costs more to own a home, but the government actually encourages home ownership through the tax code. We cover this whole subject in detail on episode 58, so I encourage you to check that episode out for more details. Number two being appreciation and wealth building. Again, more financial benefits are at the top of this list. I'm sure more renters have heard what I'm about to say, but that's because it's true. If you're going to pay to have a roof over your head, you might as well get the added bonus of the property being worth more over the years. Seattle home buyers have appreciated a ton over the last five years. The median home price five years ago was 700,000, versus today it's almost a million. So real estate is a great wealth builder. Number three being you get to make it your own. If you've had landlords gracious enough to let you paint the walls in your rental home, I would say you're pretty lucky.

Jason: [2:38] Yeah.

Melanie: [2:38] Yep.

Jason: [2:39] Unless they let you paint them, and then they, at the end of the day, they're like, "Oh, you owe me, like- Yeah … your entire security deposit." Right. It's like, what?

Melanie: [2:46] Yeah. Exactly. Or

Christian: [2:47] you have to paint it back the way it was when you moved in.

Jason: [2:49] Yeah.

Melanie: [2:50] Right, which defeats the whole purpose. Yep. Many tenants can't even do the slightest upgrades in their home, let alone taking out a wall to open up the space in a room. Or renovating a bathroom or a kitchen.

Jason: [3:03] Well, and nor would you want to because you don't own the place, right?

Christian: [3:06] Mm-hmm.

Melanie: [3:07] Sure.

Christian: [3:07] You know, why would you wanna- Yeah … you know, spend all that money and effort into upgrading someone else's house that you don't get the benefit of, other than getting to use it for that short time that you lease it out?

Melanie: [3:16] Exactly. All right, moving along to number four, which is your monthly payments can't increase. If you're on a fixed rate mortgage, the amount you pay each month is calculated from the very beginning and will remain the same as long as you own the home.

Christian: [3:30] Yeah, and the only thing that could potentially change is, you know, your property taxes or property insurance, homeowners insurance. Those could increase slightly, but that's not gonna make a gigantic difference every single year in your monthly payment.

Jason: [3:45] Yeah, and keep in mind, when you're renting, not to be the third wheel here and tag along. But, uh, if you're renting, those expenses, the, uh, insurance and, and taxes, those are gonna be passed on to you regardless. So- Mm-hmm … that's, you know, you, there really is no way to escape that.

Melanie: [4:01] Exactly. So however, if you are renting, you can definitely expect rent increases year over year. In Seattle, probably 9% each year, but we'll talk more about that later in this episode.

Christian: [4:14] Yep.

Melanie: [4:14] Right, so moving on to number five, an opportunity to build your community. When you put down roots as a homeowner, you'll probably feel a greater sense of belonging and a stronger motivation to build your community. When you own a property, local amenities like schools, parks, libraries, shops, and restaurants, and corner stores, those all start to matter more.

Christian: [4:35] Yeah, and those are all really good, like, five tips right there. Those are great reasons why owning makes sense. Uh, and again, if you want more info on, like, the tax benefits, just listen to episode 58. People think home ownership is really more expensive than renting, but there are many ways that home ownership can actually save you some money. So let's shift gears a little. Jason, let's talk about what's going on in the Seattle rental market. It can be pretty tough out there right now.

Jason: [5:01] Yeah. Yeah, it's pretty bleak. Uh, one of the main reasons renting isn't a great idea in Seattle is- The city just lost thousands of rental units in the last year. Mm-hmm. And that's a trend that's been going on. We, we built some up, but it's been an evolution over time, for sure. Yep. The writing's been on the wall. A recent data from the Rental Housing Association of Washington shows that Seattle lost more than 3,400 properties in 2021, rental properties. That's equivalent to 11,500 plus units. That's a lot.

Christian: [5:40] Yeah.

Jason: [5:40] Now, roughly 2,500 of those, so about 75%, were single family homes, which are typically owned by small landlords. This is also something that's changing over time unless, uh, we make some, some changes to, to some policies. It, it's a thing to pay attention to, I think. So this is pretty surprising. Since May of last year, May 2021, so like a year ago, in the last year only 27 rental units were added to our inventory as a city. So right now the city is down roughly 11,500 rental units. This is just pretty incredible for a city the size of Seattle Uh, we're losing that amount in a year. Hopefully this trend reverses. As a result, rents are going up, no surprise there. And based on both a historically low supply and demand still remaining very strong, rent's gonna keep going up for the foreseeable future. Basically, there are a few places to rent, and they cost more than ever. Supply and demand, baby.

Christian: [6:43] Yep.

Jason: [6:43] Mm-hmm. This is just another reason to get out of being a renter and into home ownership.

Christian: [6:50] Yeah, I mean, a personal example from me right now, uh, just this last week we put one of our two bedroom rentals, it's a duplex in Wallingford, um, so the two bedroom side of the duplex. We haven't rented it out in years, like years and years, um, because we had the same tenant in there forever. And we were kind of curious trying to figure out, like how do we price this? Where do we price this at? We, you know, did our research. We figured out comps, like comparable rents, and we were like, "Okay, well, we think this is a fair amount, maybe even slightly high." We were just like, "We're gonna test it and go a little bit higher than we think just to see if that's right or not." We had people blowing us up like non-stop begging to let us show them the house like minutes after we posted it. They would tell us their whole life story, why they're the best tenant in the world, all of these things just to get us to show them the place first so that they could have a shot at it.

Jason: [7:52] Wow.

Christian: [7:52] Um, it was, yeah. It's, it was kind of crazy. Like it rented out, it was the second group that I showed that took it. So, uh, and we had like 40 other people that we had scheduled over two other days that were supposed to see it that don't even get the shot at it. So yeah, Jason, those are some striking stats, but sadly, it's really not that surprising if you've been paying attention to the housing news in the Seattle area over the last two to three years. As a landlord myself, I am totally in favor of balanced laws that protect both the interests of the landlords and the tenants. However, over the last several years, Seattle's laws have increasingly favored tenants, so much so that small landlords, like mom-and-pop landlords, are just selling and getting out of the city. They are either going to other areas in Washington, or a lot of them are going to completely other states to buy investment properties and reinvest. They just do not want to deal with some of these overarching, somewhat ridiculous Seattle, uh, landlord-tenant laws. Here are some of the reasons that so many mom-and-pop landlords are selling their Seattle rentals and moving. In Seattle, you cannot raise the rent more than ten percent per year, so nine point nine percent is the max you can rent or increase your rent. What that means is, and I faced this firsthand, and I had this conversation with my tenants apologizing for having to do this, but we hadn't raised the rent, especially over COVID, we didn't raise the rent in one of our units for the entire, like, really three-year period of COVID, and this year we had to. Property taxes and inflation have just skyrocketed, as have property insurance, homeowners insurance. All these costs have gone up, plus we still have to maintain the building. But we can't raise the rent more than ten percent, and they were so under-rented because it had been three years that we could not make up that difference with a nine point nine percent increase, which was really too bad. So what this meant and what my land-- or what my tenants realized was Man, that means that every year, Seattle landlords are basically going to increase rent nine point nine percent every single year no matter what. And it's most likely going to be true. That's probably what's gonna happen, which doesn't seem fair for anyone. Like, the landlords don't necessarily want to do that. A lot of them don't, especially mom and pops. But that's kind of what's gonna happen. So unfortunately, tenants, you're gonna be seeing that a lot, every year a nine point nine percent or a nine percent increase. Another reason why that, uh, Seattle landlords are selling is the first come, first serve. Meaning the first applicant that sees and, and is qualified gets the house. That means that the landlord can't, like, pick and choose anyone, even if, like, I own a duplex. Personalities do come into play when you're sharing a building with someone if there's only two units, three units, four units. Well, it doesn't matter how many, but personalities can make a difference, and you're not allowed to choose. It's just, like, whoever comes in gets it. Another thing, you can't do criminal background checks in Seattle. Not at all. Kind of scary if you think about that. As a tenant, kind of scary as well. You can't collect first, last, and deposit up front anymore. Although you can do a payment plan for the last month's rent, as a landlord, you can't get that chunk up front, which really helps to secure the rental and your financial, um, outlook as a landlord, as someone that owns the property and has to upkeep it and worries that the tenant is gonna stop paying the rent. There's nothing there to kind of help you other than your first, last, and deposit. And like I said, that deposit has to be divided over numerous months. And if you don't remember, we just finally wrapped up an extremely long eviction moratorium due to COVID. So a lot of mom-and-pop landlords, like Jason said, there were about twenty-five hundred single-family homes that were owned by small landlords in Seattle that are now off the market. Seattle lost three thousand four hundred and seven properties from May twenty twenty-one to May twenty twenty-two that were rentals. And out of those, twenty-five hundred of them, about, were single-family homes What this shift tells you is those small single-family homes that, you know, normal people own are pretty much going to be extremely hard to come by. They're just not gonna be available anymore in the Seattle area, uh, which is sad because those are great places for people to live. What's happening is the shift is going to big corporations that own large apartment buildings. That's who is going to be the landlord moving forward for most of Seattle, which in my experience, they don't really have much empathy or compassion and, uh, they're just all about the bottom line, whereas, you know, a mom-and-pop landlord might have a little more compassion. So those are the reasons why, in our opinion, you should stop renting and possibly look into buying. But now I'm gonna bring on my friend, Mr. Dan Keller, to talk about the mortgage side of owning real estate. All right, so now I have the one, the only, Mr. Dan Keller. Dan Keller is a local mortgage advisor, and he's gonna talk to us renting might not make the most sense for everyone. So Dan, thank you for joining us.

Dan: [13:32] Oh, it's good to be back.

Christian: [13:34] Yes. So Dan and I had a radio show on KKOL 1300 AM radio- … which I'm sure you all listen to. We had that for a few years. Um, Dan, uh, thank you so much for joining. Uh-

Dan: [13:46] Yeah … Speaker: so we are recording this mid-June 2022. What is going on with the mortgage market? I know there's not much going on at all. Oh, wait, never mind. There's a ton going on. So let's give a quick recap of where we're at. It is literally June 16th as we speak, so. Well, yesterday, to timestamp this- Yeah … we taught a home buyer class, right? Yep. Yep. And it happened to be the same day that the Fed, that we had been awaiting the Fed, the Federal Reserve, the Fed chairman, uh, to come out and let, uh, all of us know what they're going to do with the fed rate to combat this inflation that we're all seeing. And it's no secret that we're all paying more at the pump and more at the grocery store, and more for mortgage rates, and stuff like that right now. So the Fed came out and raised the fed rate yesterday 75 basis points, so that's basically .75% of a percent, so almost a full percentage point to the Fed funds rate. Now, that's not directly related to mortgage rates. You need to know that they're separate. But they do kind of work alongside each other. So what the Fed is doing is they're trying to combat inflation by raising the cost of borrowing money, and mortgage-backed securities, mortgage rates are getting bundled up and included in that conversation. So to answer that question, mortgage rates are up. And you guys, I've been in the mortgage industry for almost 15 years. This is the highest that I've seen mortgage rates in my career. In fact, it's probably right there when I got into the mortgage industry in '08 and '09. 30-year fixed rates were in the sixes, and that's where we're at today. So we're at about six and a quarter for a 30-year . It's so hard to say this, 'cause we've come out, out of the last two years in the twos and the threes, right?

Christian: [15:34] Yeah,

Dan: [15:35] yeah. Um, but yeah, we are. We've, we've crested over that 6% mark for 30-year fixed rate mortgages.

Christian: [15:41] Mm-hmm. And where do you see that kinda going in the, like, short term and long term?

Dan: [15:47] Yeah. I mean, that's a really, really good question. Crystal ball, uh, here's my guess at the crystal ball award- Yeah … for this year. Which

Christian: [15:53] clearly is totally a guess 'cause who the hell knows. But let's, let's just go with it.

Dan: [15:57] I think they're gonna go up a little bit more, and then come this fall, winter, you guys, we're gonna catch a break because I think we'll be out of, I think the Fed… You gotta root for the Fed. And this, and, and I'm having conversations with realtors and lenders about this daily. It's not a, this is no longer a political, like, you know, red versus blue, the blue says this. I think that both parties unanimously agree right now that we, that we've gotta do something about the in- inflation. Mm-hmm. And so I think you gotta root for the Fed, and you gotta root for the Fed to raise the Fed rates For now, to get inflation under control. Because once inflation comes under control, mortgage rates will come back down. And the Fed's been crystal clear over the last few months that they have to do something specifically to slow down housing. Like, they felt that housing was out of control, and I do believe, and I know you guys do too, that what we've experienced over the last two to three years is not sustainable. Mm-hmm. Yeah, no. I mean, it's been nice if you could flip a house or sell a house and make a, a large profit, but we need to get back to a more normalized market, and that's what the Fed is going to do by raising the fed funds rate. So I think by fall, I think rates are gonna go up through the summer. Okay? Um, by fall we should catch a break. I think by winter and Q1 of 2023, we'll be back down into the 5's and potentially into the 4's, because we'll be in a full-fledged recession by then, which don't… When you hear the word recession, don't think of that as negatively. Don't think of '08 when you hear recession. Think of opportunity, that, "Hey, finally I can refinance that mortgage that I bought my first house this year, this summer, and my rate was 6.25, but now I can refinance it back down to 4, 4.25 and save, you know, 4, 5, $600 a month."

Jason: [17:42] Mm-hmm. Yep.

Christian: [17:44] So let's talk about real estate as a hedge against inflation. We've, we've all heard that. Um, can you explain that concept?

Dan: [17:52] Absolutely. Yeah, and this is the short, simple, uh, answer to that. So the CPI numbers came out, which aren't, uh, numbers, it's data that supports the inflation rate in the United States year over year. You have to understand inflation is gauged, it's recorded and compared year over year. And so they're saying that right now core inflation is about 8.6%. Mm-hmm. Now, what is non-core is food, gas, services, and we're seeing that in upwards of 20, 30, 40%.

Christian: [18:22] Yeah.

Dan: [18:22] And, and that will chill out in due time. But let's just focus on core inflation at 8.6%.

Christian: [18:27] Mm-hmm.

Dan: [18:28] How you beat inflation is to invest in things that give a greater return on your money than 8.6% eating away at your money. All right? Mm-hmm. Real estate historically, over the last 30 years in the state of Washington, has shown a return greater than 8%. So real estate's a great hedge. The stock market over the last 30 years has yielded a return greater than 7 or 8%, so the stock market would be a good hedge against inflation. Others are saying, um, you know, like gold and silver, stuff like that. Some people are investing in oil. I don't wanna get too complicated, but real estate is a long-term hedge against inflation. It always has been. Yep. It always will be, because there's only a certain amount of it.

Christian: [19:15] Yeah. That's- And the, the, the way that I think about it too is that you are, with inflation that means that- $1 is worth today than it was yesterday because the cost of everything is going up. Yep. And so you can buy less with that same dollar because a dollar doesn't buy you as much tomorrow.

Dan: [19:34] Correct.

Christian: [19:34] Why real estate is such a good hedge against inflation is that you're getting a loan, a mortgage, for hundreds of thousands of dollars that today is worth, you know, let's just… easy, round numbers, let's just say a $500,000 loan. Today that's worth $500,000, but that same loan tomorrow is worth slightly less than $500,000 with inflation. And in six months when inflation is even more, or when that continue to increase, if it's continued to increase, it's worth even less than that 500. Yep. Plus, you're paying down the balance. Um, so it's, yeah, it's a very interesting, um, way to hedge against inflation, and why real estate is so popular with very big money people Yep as well as just, you know, the normal people out there. Um-

Dan: [20:22] Yeah … Speaker: yeah. It's a great way to, to kinda save your, save your pennies instead of having it sit in a bank in a savings account, um, not, not saving, but you're actually losing money every single day. Yep. You're paying down that mortgage with today's money-

Christian: [20:38] Mm-hmm

Dan: [20:38] that is right now worth less, versus… And then you're getting that return two, three, four years down the road, or whenever you might sell that house, um, you know, or try to cash out on that. So absolutely, you're spot on with that.

Jason: [20:51] Yeah.

Christian: [20:51] All right. So we know that you keep tabs on the stock market and interest rates. Is there anything happening in the financial markets that are gonna indicate where some opportunities lie for, like, home buyers and possibly home owners in the future?

Dan: [21:05] Yeah, I mean, I woke up this morning nauseous because the stock market was down another 800 points this morning. So- Yeah … um, yeah, which we're gonna see that trend for a while, you guys. And so I think, I, again, I look at that as kind of just like with a home- with home values. Whether or not home values go down, it doesn't really matter. Like, like let's, let's, let's just use this as an example. Last year, we all have homes, and we all saw the homes that we own, whether they're owner occupied or investment homes, go way up in value. In fact, some of us were like, "Oh my God," like, "That's amazing."

Christian: [21:40] Oh, and insane at the same time.

Dan: [21:42] And insane. Yeah. But here's the thing. That didn't mean anything- Yeah … unless I cashed out. And I know you're not cashing out of real estate. You're a long-term- Mm-mm … you're a hold. You're an investor. Yep. Same thing with me, you know, on our home. So it was like, yeah, it was nice seeing that big number next to my home value, but unless I cash that thing out, it doesn't really mean anything. So the opposite is true. If home values recede by 5% or 10%, there's no need to panic. Same thing with the stock market. All right? And so the way I'm looking at the stock market different than real estate right now is that the stock market is losing some steam, a lot of steam. I look at that as stocks are going on sale. The stocks that I love- Mm-hmm … I love like Apple and Amazon and Google and Microsoft and, uh, w- you know, Waste Management and FedEx. I mean, these are long ter- Costco, long-term stocks. A lot of these are on sale right now. So there's an opportunity right there if you are in the stock market and you like the stock market, um, you're gonna be able to get in now and even into the future until they find this bottom, to invest, and invest at a lower rate or a lower cost than people have been over the last few years- Mm on this upward run. Um, so one of the ch- one of the strategies I'm using, and anyone can do this, you don't need a financial planner, is just dollar cost average every single week or every single month. Put X number of dollars into five of your favorite stocks that, you know, some of the ones that I just mentioned. It's not financial advice, but stuff like that. Real estate. Opportunities in real estate right now. If you look at crypto, the stock market, and real estate, and then our money, so those four things right now, real estate is the least volatile of all of them.

Christian: [23:29] Yep.

Dan: [23:29] And so I think there's opportunities in real estate right now. And don't let, and I'll close with this, don't let these high interest rates discourage you. Yeah. Like, this is the opportunity of a lifetime. I actually did a video last week and put it on my YouTube- Mm … where I said, for homebuyers right now, this is a generational type opportunity you'll never have again. And what I mean by that is you can actually go out into the market, um, uh, you can go out into the market right now and buy a house and refinance in six months to eight months- So you got the house without a bunch of competition- Mm-hmm … and you can refinance in six to eight months and lower your interest rate. Yeah. These are opportunities right now that no one's talking about. So that's the big opportunity right now, I think, Christian.

Christian: [24:14] All right, and the opportunities that I'm seeing out there in real estate is, well, it used to be just getting your offer accepted. That was the deal. That was the opportunity, and that's just not the case anymore. Like, we're not having 20 offers, 30 offers on every single house right now like we were having over the last few years. Now we are having, you know, sometimes multiple offers, but sometimes there… the house is sitting for a week or two or three or four or six weeks. We're starting, just, just starting to see that happen, and what that does is that means that the deal, the opportunity could be that you can convince the seller to take a lower offer, a lower priced offer than what they're asking, and maybe we could get them to accept an offer that includes them paying your closing costs. You can get up to 3% of your closing costs paid by the seller. So that's something that you could potentially get. That means that that 2 to 3% that they pay for your closing costs, that cash can stay in your pocket, which you could then reallocate to remodeling your house, putting new floors in, redoing a bathroom, maybe doing part of a kitchen or new appliances. Something like that where you can kind of, you know, get an opportunity to make your house your own. That's the, that's the opportunity that I'm seeing right now. It's, it's a fun time in the market, to be honest. Uh, it sounds scary because rates are going up, but if rates go back down in a few months, which Dan is predicting, like you just said, Dan, uh, then, you know, maybe you can refinance at that point when rates do go down. Now, I also wanna indicate that over the last four or five years when rates have been in the fours, maybe threes, and for a brief minute, 2% interest rates, they… Before that, rates were very commonly in the 5 to 7% range. That is much more normal. That's much more of a standard interest rate. Threes and fours, even twos, that's extremely abnormal. So if you look over the history of mortgage interest rates, being somewhere between 5 and 7% is pretty darn standard. That's pretty common. Much more normal than the 3% that we have been used to and became accustomed to over the last few years. So I just wanna throw that out there that that is, uh, that was an abnormal time. I know that's the most recent future, so that's what's, like, in our, in our brains as that, uh, recency bias that we have. But in history, that's just not the norm. So that's it for my conversation here with you, Dan. I really appreciate you being on. Uh, for our listeners, Dan Keller is a mortgage broker and regional sales manager for New American Funding. His NMLS number is 11349, and I would always say niner when we were on the radio, but I don't think I'm supposed to do that. So uh, you can find him on Instagram at mymortgageguydan or on his met- website, which is also mymortgageguydan.com. That's gonna do it for this episode of the Awesome in Seattle podcast. As always, we at the Awesome Nossum Group would love to hear from you, whether it's related to what we just covered today on the Awesome in Seattle podcast or about the home buying or home selling process in general. You can always reach out to us either on social media, you can go to our website, AwesomeNossumGroup.com, uh, or you can schedule a time to chat with us. All of our contact info is right online. Just Google us, you'll find us, uh, and we hope to hear from you soon. Thanks so much for listening, and we'll see you next time.