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Pharmacy Residency Podcast: Residency Interviews and Advice

Jul 9, 2018

As you look towards your new home or rental, I use my 20 years of experience in real estate to review some pitfalls new homebuyers might make if they haven't been in the real estate game before. 


Full Transcript:

welcome to the pharmacy leaders podcast
with your host Tony Guerra the pharmacy
leaders podcast is a member of the
pharmacy podcast network with interviews
and advice on building your professional
network brand and a purposeful second
income from students residents and
innovative professionals hey welcome to
the pharmacy leaders podcast and I'm
gonna be doing a number of episodes
myself I want to talk a little bit about
some experiences I have with investing
and I'm specifically going to talk about
real estate investing because I spent
seven years as a real estate agent and
today I'm going to talk about the five
mistakes people make with home buying
with condos and then I'll talk about
townhouses and then I'll talk about
houses but I'll do the other two in a
separate episode so I just want to kind
of talk about condos and how and even if
you're not buying a condo to understand
how it impacts the neighborhood how it
impacts the sell ability of your real
estate and as something that other
people might rent versus your home or
your townhouse or something like that so
the big five first I'm going to give you
some examples of some purchases that I
made I bought four condos in my lifetime
well number four will be on Monday and
I'll talk about those then I'll talk
about financing and how leverage works
and doesn't work and where you should
not where you should but what decisions
I made based on my situation at the time
the third thing I'll talk about is
volatility and rentability condos are
the most volatile of the three the big
three you know the condo the townhouse
and the home and you'll find that out
very quickly as you try to get a loan
for one four are the HOA fees these are
a necessary expense and really
understanding the HOA the value that
you're getting but also how much you're
going to end up spending because it's
not just that monthly there's also other
things if that you might need like
paving the entire condo
complex or something like that and then
there are certain condos that you can't
rent and you might go in thinking okay
I'm going to rent this out after I leave
only to find out that you can't rent it
at all because of certain restrictions
with the HOA and that HOA document is
something that changes because if the
Association decides to make a change you
may not be able to rent it later and
that's why when I bought my duplex
I wanted a duplex or I wanted something
that had no association but this time I
want one with an association and I'll
talk about why so let's start with some
examples the very first home that I
bought actually about five condos sorry
so the very first condo I bought was a
Beach condo I was in Ocean City and I
bought it for my family because it was
kind of a pain in the neck to my parents
and this is a fundamental principle of
real estate that I think we kind of need
to talk about
I understand buy and hold that it's
better to buy it and then hold it for a
lifetime but when I first got out of
school I it's and I have been talking
about this book called the the most
important decade or the deciding decade
that basically says your 20s are the
most volatile time in your life and as
you're making a huge commitment to
something like a home or a condo at that
time it's very difficult to get out of a
home once you've bought it if you've not
been in it for a while if you've not had
time to you know get that mortgage down
such that you would be able to sell it
for a market rate or something like that
so the rule of thumb is that you
probably need somewhere between eight
and ten percent of the value of the home
to move it now there are some exceptions
to this if you sold it yourself and
things like that but most people have to
sell with a realtor and a lot of times
there's a good reason to do that but
just know that when you get into
something how volatile is your current
situation if you were thinking I'm going
live here for the rest of my life great
but if you're thinking I'm just gonna be
here for a couple years that completely
changes everything
I bought because I wanted to be in real
estate but I knew that my life was
completely volatile I had no idea where
I was going to land I was in Arizona for
that first year and I rented because I
just didn't know where I wanted to go
but I still wanted to buy something so I
bought something in a place where I knew
I bought it at the beach where my my
parents had had or about their condo and
the reason that they didn't want it is
that the expenses you know getting a new
air conditioner getting a new HVAC
getting you know paying some HOA fees
it's only rentable really from June to
August because it's a resort town over
the winter you just kind of winterize it
so that we don't have to use the water
but the pipes don't freeze and things
like that so that first condo was a an
investment as something that I want to
be in real estate but that doesn't mean
that my primary home should be something
with a mortgage on it because it was my
life was just too volatile I'm not
saying that I didn't have job security
and things like that I'm just saying I
didn't know what the future held for me
so moving on I did end up buying after a
year in Arizona I decided I wanted to be
there I I got a store as it were you
know I was floating some but then got a
store and I only worked 32 hours a week
so I was a little bit limited in how
much I could buy so looking at that I
decided to buy a one-bedroom and I
looking back at it I would never buy a
one-bedroom home ever again there's a
couple reasons for this first if you
only have one toilet then if you rent it
out then anytime the toilet backs up
it's an emergency and when you only have
a one-bedroom it makes it tougher on
other people because even if you have
only one person they still want to have
that other room to kind of move around
they want to have places where they can
put their things and a one
bedroom is something that's relatively
you can only charge a single person so
much or mean maybe a couple rents it but
and then another thing I did was I
bought on the ground floor rather than
the upper floor and you would buy on the
ground floor if you're in an area where
maybe some people that are interested in
a ranch or some place like that where
you know maybe the elderly don't want to
go up a flight of stairs or something
like that but what I did made the
mistake of was not going to see the
place when the occupants from upstairs
were there so after I bought it I found
that the upstairs was very noisy this is
just from walking around I could hear
them walking anytime they went from the
kitchen to the living room to the
bedroom and the that just wasn't a lot
of soundproofing between the upper and
lower floor and that was an easy easy
thing to prevent because if I had known
oh well I just need to go when
somebody's upstairs I could have made
the appointment in the afternoon when
they'd come home from work I would have
heard it and then I would have known
that wasn't such a good idea so I ended
up selling it I took a little bit of a
loss but I learned from my mistake and I
bought a two-bedroom in the exact same
community walking you know just steps
from that place and this one was amazing
it was right over the pool you could see
the planes from Sky Harbor landing and
coming up and then we would get pizza
and beer for the monsoons because in
Arizona it's just a really cool thing
when you can see them so I learned from
that mistake I took a little bit of a
loss and you'll hear over and over in
real estate investing that the first
time is always an experiment and you're
really trying to just be able to get out
of it so I'm trying to give you this
advice ahead of time so I move into the
second place and the second master
wasn't really a bedroom at all it didn't
it had a closet but barely it was so
tiny and it would be very difficult for
two people to live there although there
were times where I had a roommate
and looking back it was great that it
was literally right over the pool but
then when you think about that and you
try to sleep it was right over the pool
so when people are there at night it was
just really really loud so I did end up
getting rid of that one
because I ended up wanting to get
something more like a house something
that had better cash flow and it was
just kind of a pain to work with
something that was so far away but that
was the third condo I'd bought the
fourth condo was happened right at the
height of the real estate boom so this
is right before the bust an apartment
owner they they own this apartment
complex that was on the water in
Baltimore the views from it were
absolutely beautiful you could see
Federal Hill you could see the skyline
these homes were amazing and I want to
say that I bought I tried to buy it I
think it was like two hundred or two
hundred twenty thousand for a
one-bedroom that if you looked out the
window you could see you know the water
but you had to kind of lean over and see
it so it wasn't certainly one of the
ones that was in the front but what was
what I what happened was that was just
so unusual is that I wasn't allowed to
buy it I put in that I wanted to buy it
but they had to get all of the renters
out and done with their leases before
all of us could move in and in that time
the appreciation was astronomical I
think it went up to 280,000 from 220 or
something like that and I never really
wanted the condo in the first place I
wanted to buy a house so I was like wow
you know that that went way up maybe I
should just get rid of it and that's
what I did I'd never lived in it I left
it I think I sold it 45 days later and
come to find out I hadn't looked at it
for a very long time and I saw that the
value had actually gone down to like
closer to 180 and it never recovered
so condo
which I'll talk about in a little bit
are the most volatile and while you can
have a condo that appreciates your gonna
find that in the down markets or in
certain markets where you know people
are moving towards townhouses and houses
that the condo is the one that's going
to take the hit and I'll show you how
this manifest kind of as you're trying
to buy one and then the last one is my
third home that I'm buying now is going
to be a condo it's in Tempe in Arizona
and instead of a two-bedroom I've got a
three-bedroom two-bath that's actually
not even half a mile from where I
originally bought the the first condo is
in Tempe and those places it's just a
lot easier or rent a three-bedroom even
if you're only renting to two people
because if you have three bedroom then
three people could say oh wow
you know let's say it's 1,200 a month
for rent then three people are looking
at 400 a month versus two people that
are looking at 600 a month and as a
pharmacist now who makes what I do I
guess I just don't look at the
difference between 400 and 600 dollars
there's a lot of money but there are
many people who do look at that as a
difference or a complete difference and
also the flexibility to have that third
bedroom whether you want to use it for
something else to have two levels and
things like that and there are a lot of
things that you know kind of are nice
about it it's gated now the community
and then you know there are no dogs
which means this we're going to be
relatively quiet so I've kind of gone
from okay I bought this beach place
which I could only rent from three
months of the year to a one-bedroom
where I can manage it directly but
unfortunately it's really loud because
the person on top then I went to the
two-bedroom that was right over the pool
and then I went to the the one-bedroom
waterfront when I said I would never buy
one bedroom again but that just made me
nervous and I ended up getting rid of it
and I got lucky I dodged $100,000 drop
and then the last one the fifth one was
the one I'm buying now which is a
three-bedroom two-bath that can rent for
you know a little over what I'm what I'm
paying monthly after you figure the the
mortgage and the HOA fees so I just want
to kind of take you through over my 20
years what what I went through so that
when you look at a condom and say oh
well you know it would just be so much
cheaper to get this one bedroom but if
you look at it and you look at one
bedroom versus two bedroom versus three
bedroom you'll actually find that
there's not a doubling and tripling what
I mean by that is if the one bedroom is
$100,000 the two bedroom is in $200,000
and the three bedroom $300,000 what it
looks like more like is the one bedroom
might be $100,000 the two bedroom is 120
and then the three bedroom would be like
150 or 160 and I know two Californians
and New Yorkers you're you're saying how
can you put a 1 in front of anything
real estate you know it's three hundred
thousand four hundred thousand but I'm
just letting you know that extra rooms
are not that much more expensive and the
more rooms you can get the better so
that's my first thing just give you some
examples of some of the purchases that
I've made that I had now in terms of
financing I just ran into this just last
week or last two weeks where I actually
put 25% down rather than 20 because
owner occupancy is a big deal so what
does that mean
how many what percentage of the people
that are living in a condo complex
actually own it as their primary home
now on the beach obviously that's going
to be very small because they're I think
5,000 people that live in Ocean City
over the winter and 350,000 that are
there during the summer so the numbers
are just not going to be there for
occupancy but what I ran into in Arizona
is that there are actually three not two
ways to occupy a home so there's the
primary residence and I want to say
maybe 30 or 40 our primary residence of
the hundred and eighty that are in this
condo complex but then I thought okay
well the way that I had calculated was I
went online and I looked at the ones
that have registered as rental
and I saw that it was only if there are
rentals so it you know it was about 67
68 % owner-occupied I thought but what I
learned was that just because it's not a
rental doesn't mean it's automatically
their primary home and what I found was
that there there's this middle ground
where people get kind of clever in
Arizona they have snowbirds so a
Snowbird is someone who lives somewhere
house during the summer and then comes
in the winter to their condo for maybe
two or three months maybe longer than
that and what I found was that the
middle group so you've got a third that
are renters pure renters you've got an
eighth know a sixth that are primary and
then the rest are either snowbirds or
they do something really clever which is
they rent to their kids so they're a
parent who owns the home and someone in
the family is in it but they're renting
to their kids because the way that
they've set up their LLC it works out
favorably tax wise or something like
that so in terms of my own you know
thinking like well is this a good place
to be if only 30 of 180 you know homes
are primary what it means is that yeah
only about a third or renting but those
snowbirds are not doing you know using
the place for nine months of the year
that means that there's not a lot of
wear and tear on the complex that means
that there's people that certainly care
about it and that's going to be their
primary home for three or four months of
the year but it's not their primary so
they're gonna care about it like their
own house but they're not necessarily
going to live there year-round but that
was just something I ran into and I
found that you know putting 25% down
gave me a tremendous bump in the rate
getting it down even lower when it comes
to buying a condo if you can buy it as
your primary to start that's a real
advantage because you'll always get the
lowest interest rate when you buy
primary versus vacation home versus
rental so that's kind of part 2 which is
the financing and leverage and kind of
what do you want to put down on
that you'll get the most leverage from
5% down if you can get away with it but
with a condo it would be very difficult
to do because it's very tough to get a
mortgage on something like that and it
depends on credit scores and all those
but I don't want to belabor that let's
talk about rent ability so 1-bedroom
versus 2 versus 3 I've moved up to a
three-bedroom because I think that's the
most rentable when you are have a condo
you're not only competing with other
condos for rent you're also competing
with other apartments for rent and
apartments can say ok you get a month
free all right well as a condo owner can
you afford to give a month free can you
afford to give two months free can you
afford to say I'll take a nine month
lease so you don't have to rent in the
summer in a college town like I might
have to so those types of things are the
things that you want to really think
about but my recommendation try to get
as many bedrooms as you possibly can
you'll notice that as you're going up
you're not going to be tripling as much
to get a one-bedroom to a 3 bedroom but
you'll find that not only are the rents
a little bit better for the
three-bedroom but those are the first
ones people are going to look at man I'd
really love to have a three-bedroom over
two bedroom and certainly a
three-bedroom over a 1-bedroom HOA fees
so be careful the HOA you know as a fee
and I think it's 200 a month for the
place that I'm getting and the big thing
to note is that there are also what are
called capital improvements so a capital
improvement would be like we need to
replace the roofs on all of the condos
we need to replace the asphalt on the
entire condo complex and you have to pay
for that as part of your as part of the
Association and that can be a larger
expense four hundred five hundred maybe
a thousand dollars one time but those
come and go from time to time things
like you know the pool gating it I'm
sure would have cost been one of those
kind of expenses so also watch out for
that that there are going to be other
expenses above the HOA fee it's not just
like okay that's going to be it and then
the HOA fee can go up or down so where
I'm going you know to
in a month it seems reasonable we've got
a lot of Units 180 units but down the
street from where I am in Iowa there's a
condo complex that they're building not
a condo but it's actually townhomes and
because they've built the next section
now they have more people in the
Association and they actually lowered
the condo association rate and why would
you do that
well the Association does the best for
their for their you know the people that
are there and if you are on the board
you're obviously going to vote for
having lower association fees if you
don't need to pay as much because it's
easier to take care of or cheaper to
take care of per unit you know a hundred
units than it is to take care of twenty
and so forth so and then the last thing
is rent ability you want to read the
condo Docs just up the street for me
here in Iowa there's a group of condos
that are beautiful and I thought wow you
know I I could buy one of those and be
great if my parents could be here from
time to time and they can have one of
those and then I can rent it out the
rest of the year or something like that
but what I found out is that it must be
95 percent owner occupied what that
means is that only one condo at a time
can be up for rent and that seems pretty
harsh but it's in a relatively it's in
an r1 neighborhood which means that an
r1 means you can have one home per unit
and I think they got a variance for the
particular condo complex because they
put this very high owner occupancy rate
but it basically means that you can't
rent it you have to live in it and that
would be an absolute shock to somebody
who's buying the condo with the hopes of
renting it out as an investment and then
come to find out that all you've done is
just create this additional expense so
there are a lot of things to look at and
one of the things you definitely want to
look at especially with somebody that
knows this stuff are the HOA Doc's so
those five things I've given you some
examples of condos and and purchases
I've given you examples of financing and
leveraging that you may need to put
20-25 percent down to get the best rate
volatility know that the condos are the
most volatile and are the moat have the
most competition for renting because of
the apartments HOA fees can go beyond
HOA fees to capital improvements they
may go up they may go down but if you
can be on the HOA board you definitely
want to that way you always know what's
going on and then you may not be able to
rent it so make sure that if you are
buying a condo to rent it you're not
just taking the word of the agent that's
selling it but you've actually read the
docs you've seen the owner occupancy
requirements and you know that it's the
intention of other people in the
Association to also rent and that it's
not someplace that they're trying to
make into generally primary so this is
the first episode of real estate and
investing and just telling you what I've
gone through next time I'll talk a
little bit about townhomes and the
things that I look for and deciding
whether it's rent or buy where to rent
where to buy and some of those some of
that advice but I think is a pharmacy
leader sometimes it's important to make
sure that you have your financial house
in order so that you can make sure that
you can spend as much time doing the
things that you want to do at work talk
to you guys on Wednesday support for
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