YFP Real Estate Investing 132: Rent vs Buy: Does Buy Still Make Sense?

Tim Ulbrich, YFP CEO talks with Nate Hedrick, PharmD and David Bright, PharmD as they break down the rent vs. buy dilemma in today’s market, tackling equity, flexibility, financial strategy, and key market insights.

Episode Summary

Tim Ulbrich talks with real estate investors Nate Hedrick, PharmD and David Bright, PharmD as they dive into the rent vs. buy decision in today’s housing market, offering practical insights and real-life experiences. They explore the financial benefits of both options, the role of equity, and the flexibility renting provides. Their discussion highlights the importance of understanding local market dynamics, strategic use of home equity, and aligning decisions with personal and financial goals

Key Points from the Episode

• [00:00] Introduction to Rent vs. Buy Discussion
• [05:00] Market Perspectives: Optimism vs. Pessimism
• [09:58] Analyzing the Rent vs. Buy Decision
• [14:48] Benefits of Renting: Flexibility and Cost
• [20:09] Understanding Equity in Homeownership
• [25:02] Leveraging Equity: HELOC and Financial Strategies
• [24:30] The Stability of Homeownership
• [27:16] Navigating the First-Time Homebuyer Dilemma
• [30:19] Starter Homes vs. Forever Homes
• [32:13] Understanding Micro Market Dynamics
• [34:44] Defining Your Vision for Homeownership

Episode Highlights

“ If you were buying in 2020, 2021, you looked like a genius if you sold the house a year later because the property values were just skyrocketing so quickly. That is not going to be the case anymore.” -Nate Hedrick [8:50]

“ We have to remember that not any decision should be one that we look at in a silo. So we can run the numbers on a rent versus buy and maybe we have a clear answer. But then when we zoom out, things might change.” -Tim Ulbrich [11:34] 

“ There’s a big chunk of cash right there that we’re then locking up right into that home. And that could be very valuable, but also there’s an opportunity cost that we have to consider where those dollars could be used elsewhere in the plan.” -Tim Ulbrich [18:03]

“ You can’t paint an index fund to make it worth more, but you could paint your house to make it worth more, right?” -David Bright [26:06]

“ Renting is not always bad. And if we’ve been told that story, like. I think we need to unwind that a bit.” -Tim Ulbrich [35:34]

“ Take your time to assess what you want and then assess it for yourself. Like, don’t listen to what your best friend is saying, or the guy at work who is frustrated with his rental properties. Figure out what you want to do. Figure out what works for your local market, investor or buyer and then make a decision based on that information.” -Nate Hedrick [37:43]

Links Mentioned in Today’s Episode

• YFP Real Estate Investing 131: Revisiting Our 2024 Projections and Looking Ahead to 2025
• NY Post Article “Here’s how much more a single-family home costs to buy than rent”
• Real Estate RPh Concierge Service
• NYT Rent vs Buy Calculator
• YFP YouTube Channel
• Subscribe to the YFP Newsletter
• YFP Disclaimer
• YFP Real Estate Investing Facebook Group
• Nate Hedrick on Instagram
• David Bright on Instagram
• YFP Real Estate Investing Website
• David Bright on LinkedIn
• Nate Hedrick on LinkedIn
• Tim Ulbrich on LinkedIn
• YFP on Instagram
• YFP Facebook Group

Episode Transcript

Tim Ulbrich: David and Nate, welcome to the show. Hey, always good to be here. Thank you. I should have said welcome to your show, uh, as, as I’m having a chance to, uh, take the mic and, and pick your guys brain on an important topic, rent versus buy. And really excited to talk about this since it’s a topic we’ve talked about at length before in various shows, but today’s market adds a, as a whole new wrinkle to how we think about the rent versus buy decision.

Your last episode, 131, we’ll link to that in the show notes, revisiting your 2024 projections, looking ahead to 2025. Now that we’re two weeks into the new year, anything you guys feel the need to correct on your projections, or you still feel good on what you’re thinking for 2025? 

David Bright: I guess I’ll throw out there, I’m, [00:01:00] I’m cautiously optimistic, uh, and I would say, I, I can’t be a pharmacist to not be cautious, right?

So that’s just how we roll. So I’m cautiously optimistic that there’s opportunity out there. But I think one of the things we, we talked about in the last podcast is just really knowing your numbers, really being intentional, just double checking your math. And that’s something that pharmacists are good at.

So if you can be disciplined in doing that work, I think there’s still good opportunity here in 2025. 

Nate Hedrick: Well, I’ll take the flip side. I’m cautiously pessimistic at the moment. I just ran numbers on like 20 deals just this past week and none of them worked. And I just, I’m in a funk right now. So I’m going to, I’m going to play the bad guy card.

I I’m sure it’ll, it’ll figure itself out. But I was like, I was bummed last week. I was looking at just dough van. It was like, I got to find something here and nothing worked. But that’s, that’s just how it goes sometimes. 

Tim Ulbrich: We caught Nate on the back end of running some numbers that didn’t work out. Didn’t work out, 

Nate Hedrick: but that’s all right.

You got to run like a hundred deals before you have like two or three you can offer on it. Just how it goes. So I had [00:02:00] a bad week. That’s okay. 

Tim Ulbrich: If we get more specific, I’m curious to hear from both of you guys as investors that have experience in several different types of real estate, buy and hold, fix and flip, syndications.

You know, how are you looking ahead to 2025? I know, David, you said cautiously optimistic, Nate, cautiously pessimistic, but is there, is there pockets or things that you’re excited about or things that you’re like, I’m kind of staying away from, from this in 25, David, let’s start, start with you. 

David Bright: Yeah. I, I think that just from, from talking previously on the show, I, I really enjoy the fix and flip and the single family rental.

Like I feel. Most experienced and most comfortable in those two spaces. And so I think that the single family rental still has opportunity. I think there’s some real difficulty with that traditional 1 percent rule where. You, uh, you can generally think of a house as a viable rental if you can make 1 percent of the purchase price of that house as a, as a monthly rent [00:03:00] figure.

And you know, people have debated the 1 percent rule for forever, and some say it should be higher or lower than that. But at least that, that gets you in the ballpark of if it’s time to do. What Nate did in doing the more complex analysis from there to see if it really, really works, but that kind of just quick litmus test might, might be helpful.

And so I was really excited that we found one this morning and then I got beat on the offer. So we, uh, we didn’t get it, but, um, yeah, I think, I think that those opportunities are going to be out there. I think that they’re just, they’re going to be more difficult to find, but I still think that there’s a need, particularly in an overarching housing shortage.

For good, respectable, safe, single family rentals. 

Nate Hedrick: I think you’re right, David. I think the trick is going to be finding those like diamonds in the rough. You kind of have to find something that needs some work. Um, like I said, I was just running numbers and everything that was like even vaguely move in ready, just like the prices were just through the roof and with interest rates where they are.

Uh, we just had a tax increase here in Cuyahoga County. [00:04:00] So they did the, um, every six year, like reassessment. So like property taxes are up for market value. And so I think all those things are kind of running into each other at the same time, and it’s just making the numbers really tight. And so you have to have something where you’re going to be able to put dollars into it, inject value, and then you can get it out on the back end.

Tim Ulbrich: Funny, you mentioned property taxes, Nate here, fresh on my desk. I got our, uh, notice, uh, yesterday and I was reflecting on the increase. And related to our discussion today, right, you know, the, the fixed 30 year mortgage at 3%. Great. I’ll take that all day. Uh, the escalation in property taxes that we’re seeing here, both with our primary home and our commercial property up in New Albany is, is wild.

Um, and you know, I, I think it’s just one of those factors that we think about when we discuss, you know, should I buy or should I rent is. You know, do, do we have some of that margin, right? That we’re going to have these increases in utilities, in property taxes, in upkeep and [00:05:00] maintenance and so forth. And, and I bring that up as a challenge to our community, where I think for many pharmacists, they might, you know, see somewhat of a flattening of that income and those expenses can be felt more over time.

And so we need to constantly be asking ourselves is, Hey, is our income keeping pace with these are hopefully beating, but at least keeping pace with some of these expenses that are going up. Over time. So let’s transition into our discussion for today. Buy versus rent. Again, an age old question with a new wrinkle and that new wrinkle being today’s housing market, the economic environment that we’re in, you know, I often hear David and Nate from pharmacists, especially if I speak to a group of pharmacists that are maybe just coming out of school, you know, where there’s that blanket advice from mom and dad, right?

Which is like always buy rent, destroying money down the drain. You got to build equity. And David, you sent over an article from the New York Post that we’ll link to in the show notes that I think it’s just challenging this question again in today’s environment and in today’s uh, interest rate environment and the housing shortage that we have.

And so before we get [00:06:00] into specifics on the value of buying versus the value of renting, I want to get both of your perspectives. Nate is a realtor, also is an investor, and David is a buy and hold investor. On what you’re seeing out there in the market related to this buy versus hold in today’s And today’s climate, Nate, let’s start with you.

Nate Hedrick: Yeah, so I, again, like you mentioned, I, as a realtor, I’m going to be a little biased on this. Um, but I have some numbers behind my bias, so maybe that’ll back it up. But, but generally speaking, uh, if you’re going to be in a place for, uh, a longer period of time, and I would define that as, as a couple of years or more.

Generally speaking, it’s going to be better to, to buy, right? You’re going to be able to mitigate some of those costs. Um, and of actual purchase price, right? Like the, the loan closing costs and the taxes and things like that. Um, with the appreciation that houses is likely going to see over time. Um, shorter than that, I still think it’s, it’s viable to rent.

I will say like typically if you’re going to be there for a shorter period of time, the renting can be [00:07:00] better because the price can be lower. But what I’m seeing now is that rent prices have gone up so much that even that is starting to fall away. And where you could have a situation where it actually might be better to buy even if you’re only going to be there a year because you can hold on to it, rent it out when you’re done or sell the property later when you’re done and it actually might be a wash at that point.

So that, that timeline for me in, in, in our target market here in, in, you know, Northeast Ohio, um, has really kind of shifted down. I know that’s not the case in higher cost living areas, but rent has just gone up so much that it’s making it, it’s making it harder. 

Tim Ulbrich: Nate, as we see appreciation starting to come back closer to historic norms, right, we had a, uh, massive appreciation, you know, I think about post pandemic and, you know, that changes the decision of, of maybe how long you have to be in a home before you can break even when you think about closing costs, fees, taxes, et cetera, as we see that appreciation level returning more to quote normal, Yeah.

Yeah. Yeah. Does that impact how you think about the timeline at all in terms of being at home to [00:08:00] break even? Yeah. 

Nate Hedrick: I mean, absolutely. Right. You have to kind of factor that in. But, uh, I think that, so it’s funny, you mentioned the getting your property tax bill. So like I said, here in Cuyahoga County, we do it every six years where they’ll reassess your home when it, when it transfers.

And then if you’re sitting in that house, they’ll reassess all the houses every six years that have just been kind of sitting there, not selling. And in our market, the lowest. City like municipality increase was 22 percent the highest markets were closer to 70 percent increase in market value 70 percent all coming at once right every six years, right?

So they’re just hitting everybody at one go. And it’s just, I mean, it’s a huge, huge increase that’s taken place. So I think, like you said, that has shifted down, right? We’re not nearly that crazy. I don’t think we’re going to see that level of crazy over the next couple of years. So it does impact that, right?

You can’t just, uh, David and I have talked about this on the podcast in the past, that if you were buying in 2020, 2021, you looked like a genius if you sold the house a year later because the property values were just skyrocketing so quickly. That is not going to be the [00:09:00] case anymore. But even despite that, you’ve got to weigh that with how rent prices have increased because that’s the, that’s the flip side of that, that decision.

And we’ll come back 

Tim Ulbrich: to this in a little bit, but I think it’s important because when we hear things like, Hey, buy a house because you’re going to build equity, certainly when we zoom out over a long period of time, history would tell us that that’s true. And in fact, many people, uh, the data suggests that they’re building their wealth and part of the retirement plan through their home value going up over time.

Now, I don’t think that’s necessarily the case for many of our listeners that are probably saving substantial amounts outside of that. But what we have to remember is there’s a difference between equity and cashflow today. Right. So, you know, I, I’ve seen, uh, we moved into our house in 2018. We bought it for three 45, five, it’s funny how you never forget the numbers, right?

Certain numbers, uh, three, three 45, five. And I think last I checked, you know, Redfin or whoever says, Hey, it should be worth, you know, five, 10 or whatever, whatever the number is. That’s great. But guess what? My property taxes are coming up today. That impacts the budget today. [00:10:00] The equity, unless I’m borrowing against that equity to leverage and use it elsewhere in the financial plan.

I don’t feel that equity. You know, right now, so we have to also consider that in the decision, David, from a buy and hold investor perspective. How are you viewing the rent versus buy debate in today’s market? 

David Bright: Yeah, I think it’s going to be very, very market specific is Nate. You gave some great examples of Cleveland area and what it’s looking like there.

Um, I was talking with someone else in a different market and they were saying that to buy their house would be about 3, 000 a month and to rent their house would be about 2, 000 a month. And that’s just the house payment. So not, not counting the furnace that’s going to go out, the roof that’s going to need replaced the, even if you just want to do paint and flooring, like just paint and flooring can be really expensive in a house too.

So with those kinds of considerations there, when they were describing that they probably only want to be in that house a couple of years while they get to know the area better and find their more forever [00:11:00] home, it started to make a lot of sense to. to rent instead of buy in that, in that market because of that spread on the monthly cost.

And Tim, to your point about the monthly budget, allowing you to save up for that down payment for that eventual, uh, forever home. So I think that it, I think that the market specifics are really going to play into this decision for different people based on what the rent looks like in the area versus what a monthly mortgage payment would look like.

Tim Ulbrich: Yeah. The other thing I would add to this discussion is I think about the work that we do at YFP and looking holistically at the financial plan. We have to remember that not any decision should be one that we look at in a silo. So we can run the numbers on a rent versus buy and maybe we have a clear answer.

But then when we zoom out, things might change. What else do we have going on, right? Are we, you know, looking at student loans and for someone who’s pursuing a loan forgiveness pathway versus an aggressive repayment, two very different strategies and impacts on On a monthly [00:12:00] cashflow. So as we look at the rest of the plan, you know, what else do we need to be saving?

Are we on track for investing in retirement planning and all the other goals that we talk about, how does this home piece and within that, the decision to rent versus buy fit within the broader context of the financial plan. And that’s so important because when we feel this pressure, you know, to buy, and if someone’s telling us, buy, buy, buy, maybe that’s the right move.

Maybe it’s not. Um, but. Are we looking at it in the context of, of everything else that’s going on as well. Let’s talk more about the potential benefits of renting. Nate, we’ve been alluding to the importance of flexibility, um, as we’re having this discussion, especially in today’s market where moving can mean significant transition expenses.

When we talk about the cost of transition, the cost of moving and why that timeline piece is so important. What are we actually referring to here in terms of these costs? 

Nate Hedrick: Yeah, I think, I think you said it perfectly, like flexibility is, is [00:13:00] that, is that piece, right? Because if you buy And you are locking yourself into that home, right?

Like we said, if you want to get value on it, if you want to make a financial decision, you have to be able to, uh, uh, sell it at a certain period, or you have to be able to rent it out and make it viable, or else it’s going to be this, this handcuff that you’re kind of stuck to if you, if you end up having to move.

If you go the rent route, you build in that flexibility. You let yourself be able to make a change much more rapidly. I’ll give you a perfect example from my own real life. My brother lives out in California and bought a house a couple of years ago. Loves it. Great house. Fantastic. Um, but decided this summer like, Hey, I want to take some time.

I can work from anywhere. I work for a tech company. I want to like travel to Europe for a couple of months. And I want to live in Japan for a while. Well, there’s a whole house that he has to like figure out what to do with, right? He has to rent that out, get someone to take care of it, make sure the lawn is cut, make sure that, you know, if there’s a storm, the solar panels haven’t flipped off the house or there’s a lot that goes into that, that just really brings down your flexibility.

So I [00:14:00] think in today’s day and age where people are, are looking for that, where their jobs are more flexible, they’re, they’re changing jobs more frequently. They. Are doing things like a sabbatical, I think buying a house actually locks you into something that makes it just a little trickier to do that.

And so when you’re talking about like, Hey, I might rent just because financially I’m going to lose a couple hundred bucks a year or whatever, but the flexibility is worth my, my peace of mind, like that’s a completely viable option. Yeah, 

Tim Ulbrich: I’m especially thinking about the people that might be in a known state of transition, right?

You know, I’m coming out of a residency or coming out of the fellowship. You know, sometimes we have this idea and, and there’s no judgment here. I remember having these feelings as well, where it’s like, Hey, we’re in an area and we’re going to be here forever. Well, like that changes, right? We thought we’d be in Northeast Ohio, uh, forever.

And then I realized I can’t listen to Brown sports radio anymore. It’s atrocious how depressing it is. So like, we got to move, we got to move to Columbus, right? Um, but that was a move I would, we would have never anticipated. [00:15:00] Now, thankfully we’re in that home long enough that, you know, we mitigated the costs of that transition, but.

Sometimes what we think is known may become unknown, and you know, that flexibility piece is a really important one that we have to consider into the equation. Now, on the flip side of that, we’ll talk about how one of the big values, I think, of having a home is just that sense of stability and community and being in a place that we often can’t put a number to.

Um, and so that, that flip side has to also be considered. David, beyond flexibility, what else comes to mind when you think about the potential benefits of renting? 

David Bright: Yeah, I think the the dollars and cents really ring true like if I put on a fix and flip hat I tend to budget Whatever the sale price is, I’ll walk away with 91 percent of that, that I, I tend to figure 9 percent of the final sale price will go to, uh, realtor fees and transfer tax, closing costs, and some of those things, and that percentage is going to be different at different price points and different [00:16:00] markets, uh, but, but that can give you a ballpark figure to think about, and in addition, when it’s your own house that you’re living in, if you’re going to hire movers, if you’re going to Buy different furniture in a different house.

There’s a, there’s a lot of costs there. So I think that plays into the flexibility piece of if this is a temporary house, then that starts to make me nervous from what those costs are going to be. I think another factor might also be the timing of all that. So if you buy a house and you’re thinking of like Tim, your equity example is fantastic.

Like how much equity has gone up. And then I think a lot of us tend to think, well, that creates great equity as the down payment for the next house. The issue being then you have to sell the first house to unlock that equity. It’s, it’s trapped in that house until it sells. So it creates this timing issue of you sell to access those funds to put down in the next property, or you need to be saving for that as well.

So I think the dollars [00:17:00] and cents bring some, some complexity to that. Yeah. 

Tim Ulbrich: And, and I harped on this a little bit, but I’m going to go back to it because I know so many of our listeners can resonate with this. And it’s something that Jess and I felt in our own journey that they might see their net worth trajectory going in a very positive direction, but they don’t feel that they don’t feel that right.

Because often it’s, it’s, it’s net worth that might be locked up in equity in a home or it’s net worth that’s locked up in a 401k or an IRA. So part of the financial planning process is when we’re making some of these decisions There’s an important liquidity piece as well that if we want to find this balance between growing and building our net worth for the future, yes, it’s important, but living a rich life today also important part of living that rich life today is having some liquidity and flexibility to do things, the things that we want to do, um, and sometimes not always market specific.

Sometimes renting might give us more of that flexibility, um, and allow us, especially when we think about if we use a traditional 20 percent [00:18:00] down on a home. Now, I know a lot of pharmacists may not necessarily do that. There’s a big chunk of cash right there that we’re then locking up right into that home.

And that could be very valuable, but also there’s an opportunity cost that we have to consider of where those dollars could be used elsewhere in the plan, whether it be other goals or experiences or other things that we haven’t touched on. I also think about from, from our experience, we rented a condo.

Uh, I know Nate, you’ll know where this is. Monroe Falls, uh, was our first rental. Um, and there was significant savings on time and money on upkeep and maintenance. Um, you know, someone took care of the property. I think about the amount of time in our current home, whether it’s hiring contractors or dealing with downed trees or, you know, taking care of the lawn and, you know, we can’t grow grass because the kids are playing and whatever it is, like there’s a lot of things that we have to factor and consider that’s both time, mental energy and financial related.

And so that could be one of the other, uh, benefits potentially of, of, of renting that we need to be [00:19:00] thinking about. Let’s turn the page and look further at the benefits of buying. So Nate, the one that typically gets the most attention, we’ve, we’ve mentioned a few times now is building equity, building equity, building equity.

We throw that term around a lot. What, what does that even mean? And does it really matter as much as we think it does, especially as we’ve been talking about this question of liquidity? 

Nate Hedrick: Yeah, it’s, it’s actually a good thing to like take a step back on. Right? So, so equity by definition is just the, the, the intrinsic value that’s sort of like left in the house.

Right? So if I buy a hundred thousand dollar house. With 20 percent down, right? I’m putting 20, 000 into it. Uh, and, and 80, 000 loan. Well, over time, I’m paying down that loan, right? I’m paying down the balance and hopefully the property is also going up in value. So, let’s say we’re five years down the road and it’s worth 150, 000 and my loan balance is down to 75, 000.

Well, now I’ve got 75, 000 in equity, meaning if I were to sell the house today, That’s the difference in value that I’ve sort of created for myself. [00:20:00] Uh, some of that is, is the original down payment that you put in. Some of it is appreciation. Some of it’s loan payoff. But all those things are basically increasing the buffer between what you owe and what something might be worth.

Now tapping it is, is there’s lots of ways to do that, right? We could sell the house to get that money back out, to get the equity back out. Like David said, we’re going to lose some of that to fees and things like that. You could also refinance, uh, but you can’t usually tap all of that equity. Just like when you put down 20 percent to purchase a home, when you refinance to get either a HELOC or do like a cash out refinance or something like that, you have to leave some of that equity in the property as collateral for the bank.

So they might do Uh, 90 percent loan to value, meaning that they’ll give you 90 percent of that 150, 000, but you got to leave that other 10 percent locked into the property. So we can tap that equity in multiple ways, or like you said earlier, Tim, if you just kind of sit back, right, and do nothing, uh, that equity is sort of stuck in there, right?

You might see [00:21:00] that on your net worth balance sheet, but you’re not putting it into your pocket if you’re just kind of sitting back. So. So equity is this thing, this kind of elusive thing that you really only see when you go after 

Tim Ulbrich: it. Let’s talk about the leverage of the equity a little bit more, uh, when we think about something like a HELOC.

So what Jess and I have done Pretty conservative, probably overly conservative is we’ve taken out a HELOC and, uh, probably time to increase the HELOC just with what’s happened with appreciation. Um, but we’ve never drawn on it. So I kind of view it as a, as a backup to a backup of an emergency fund, or if, if the right opportunity comes up, whether that be real estate or business or something, uh, where the calculated risk makes sense.

Obviously that calculation has changed just given the interest rates on the HELOC. Then it’s there, right? And we have access to it, uh, when, when we need it, I think both of you, correct me if I’m wrong, have used a HELOC before it actually leveraged that in terms of real estate transactions and kind of getting some of that off the ground.

Can you speak to that a little bit [00:22:00] further? And that may or may not be right for other people, but it’s, it’s something to consider of, Hey, we’ve got this equity building and maybe want to be more conservative. That’s just a tomorrow thing. It’s part of the retirement plan, or maybe there is an opportunity to leverage it today.

Nate Hedrick: Yeah, I’ve done it myself and I’ve had investor clients do it as well where they’re using that HELOC for either, uh, purchasing the, the property itself or doing the rehab. Um, we use ours most recently on a rehab where we actually tapped the HELOC to help fix up a house. Um, and then once we refinanced, they immediately paid that off, right?

The, the advantage years ago was then you HELOC at three and a half percent. It was like free money essentially, right? Now ours is closer to prime. Um, I think ours is most recently a credit score got us down to like prime minus, which is really cool. Um, but it’s still like 7 percent on the HELOC. So, uh, you can tap that money and use it for whatever you want.

It’s, it’s, it’s free cash, but you’re paying 7 percent of that every single year. And so you have to, you have to keep that in mind. So, um, yeah, it’s a completely viable option. But [00:23:00] the, David will tell you this every single day. You have to have a plan for that because if it just sits there. Now, all of a sudden you’re losing money by, by tapping that because you got to make sure you’re, you’re making up the difference in the, in the value that you’re, you’re adding with the money that you’ve taken out.

Tim Ulbrich: It reminds me of one time my dad shared with me, uh, you know, when it comes to a business, line of credit’s a really good thing if you have a plan. Line of credit without a plan, not a good thing. Yeah. Right. I think a VLOC with a plan, because what I hear you saying in that example is, Hey, even if it’s seven, seven and a half percent, whatever it is now.

If you’ve run your numbers, you’re, you’re just factoring that into the equation. And by the way, if something changes, a delay or whatever, you’ve got a backup plan and, and, you know, are able to work through that. So David, what about, what about for you? 

David Bright: Yeah, I, I love the emergency fund philosophy for it also, because I think particularly as you get into real estate investing, emergencies can get bigger.

If something goes wrong. And I think as you are buying a house and making some of these bigger life decisions, emergencies get bigger than what [00:24:00] they may have been prior to that level of complexity in your world. So when you have, uh, kids growing older and multiple cars and, and all kinds of things like that, I think it, it.

Can help me sleep at night as the conservative pharmacist, just knowing that there’s access to that kind of money and that kind of liquidity when necessary. 

Tim Ulbrich: Yeah. And I think in theory, everyone’s risk tolerance was different, but it does open up the door, you know, to take some more calculated risk in other areas.

When you know, you’ve got that as, as a backstop as well, David, in addition to building equity and, and potentially leveraging that equity, what, what other benefits of buying come to mind for you? 

David Bright: I think one huge thing that’s, that’s hard to put down in dollars and cents is just the stability of that house.

And so if you’re looking for something in a specific school district, in a specific area, part of town, something like that, if you’re renting, depending on the, the laws in that state, once that lease is up, you may need to move [00:25:00] whether you’re ready to or interested in moving or not. So. Uh, that’s, that’s a potential complexity.

So the stability because you own it and you can stay there as long as you reasonably want to is, is something. There’s some predictability in that as well with the, with the payments. I think what we’ve talked about already with property taxes is a really good asterisk on that equation. I think another one that I think is gonna, I think we’re already seeing headlines and I think we’re only going to see more headlines on it is.

Property insurance as well has gone up quite a bit. And as we see things like, uh, like the fires in Los Angeles and things like that, there’s some really significant expenses coming up. And if that continues to drive, uh, property insurance up, then. You know, we need to budget for those kind of increased costs.

So, but at least some predictability on the principal and interest payment on that loan. Um, plus I think that one of the things we’ve, we’ve talked about too, is when your different [00:26:00] investments allow you different opportunities to, to push those yourself and, you know, Maybe what we’ve talked about before is you can’t paint an index fund to make it worth more, but you could paint your house to make it worth more, right?

So there’s some opportunities, whether it’s hiring a painter, whether it’s doing the sweat equity yourself of getting in there and taking a property that’s not all that pretty, but by making it pretty and nice, you can, you can increase the value to even if you’re not, uh, the handiest person on earth.

Tim Ulbrich: Yeah, I love what you said about the predictability, at least on the principal and interest side, assuming it’s a fixed rate mortgage, um, you know, while also recognizing we talked about property taxes. You gave another good example, homeowner insurance. That was one of those bills I got in December. We pay it once a year where I was like, what percent increase, what are we talking about?

Yeah. Right. And we need to remember the way insurance works, right? Natural disasters in Florida or natural disasters in California. Have a far reaching impact from an insurance standpoint beyond just those areas, you know, and I think we’re seeing that happen [00:27:00] in terms of, of premium increases. I want to talk to our first time homebuyers, Nate, and let’s start with you, you know, this is a question I get a lot, which is, hey, we’re looking at buying a home, maybe we’ve been sitting on the sidelines.

We’re wondering, right, do I keep sitting on the sidelines? I was hoping rates would drop in, in 24. Maybe we saw that a little bit. Rates trending back up ish. I think we’re hovering back around 7%. Do I wait? Do I make a move? We’re talking about long term appreciation, you know, obviously there’s a, there’s a shortage of housing.

We’ve got lots of buyers in the market that pent up demand is only going to potentially get worse. What, what, what, what words would you have to share to those first time home buyers? 

Nate Hedrick: Yeah, I get this question all the time. In fact, I just had a brand new pharmacist client that, uh, is going to start looking here in Cleveland.

And the last question she asked me as we were kind of going through like our buyers presentation was, uh, is it, is it actually a good time to buy? Like, should I be doing this right now? Right. And that question comes up all the time. And I think it’s a really hard thing to answer because Baker says it great [00:28:00] on the podcast all the time, right?

Like trying to time the market is really difficult. Time in the market is better than timing the market, right? And so it’s the same with housing. It’s a very difficult thing to say, well, this is the perfect time because prices are blah, blah, blah. And interest rates or whatever. It’s a very difficult thing to get, to get right.

Um, so what I would say is if you are in a market where things continue to appreciate. Right? And most markets are that way right now. Uh, Every month you wait, is more down payment you’re going to have to find, is more house payment you’re going to have to make down the road, right? If things continue to go up.

Now, if things pull back and things, things decrease, like that’s a different story. But what we’re seeing is that as these appreciations continue to go up, people are like, well, I’ll wait because then my payment will be lower when the interest rates are lower. The payment is actually going up because the houses have gone up and the price they have to spend has gone up.

They could always refinance down the road if interest rates come down, uh, but you can’t change the housing costs if, if [00:29:00] appreciation continues. So I would love to say, just sit on the sidelines until all the housing prices come down. Um, but what I’m seeing is that there aren’t a lot of market factors.

There’s a housing shortage right now, right? And so there aren’t a lot of market factors that seem to indicate housing prices are going to come down dramatically. And so waiting doesn’t really seem to be a benefit at this stage. I just, I just, I don’t see the point in that quite honestly. 

Tim Ulbrich: And the number of buyers sitting on the sidelines is compounding now, right?

So, you know, I think we’re, we’re obviously dealing with a competition piece that’s there as well. And, and Nate, I’ll put a plug here because the timing’s good in terms of what you’re doing with the real estate RPH and the home buying concierge service. So if we have folks that are listening and saying, Hey, I’m wondering.

Uh, about, you know, the home buying decision, whether you’re in the mix right now or thinking about on the horizon. Uh, we’ll link to, uh, Nate’s website, real estate RPH on the show notes, but, uh, be a great chance to get connected with Nate and have that conversation and, uh, find an agent that would be a good fit for you.

David, what are your thoughts from, from the, uh, investor perspective? 

David Bright: Yeah, I think [00:30:00] that a lot of this discussion depends on what you’re buying. So I know it’s really tempting the brand new grad getting out of school first job with a real paycheck where you can buy like brand name mac and cheese instead of generic mac and cheese.

Let’s go. All those like big life changes. I feel like that’s the point at which a lot of pharmacists want to find their forever house right away. Um, and I think we’ve talked about some of those risks of job changes and life changes and things like that, where that forever house that you think you want it at, you know, 25 may not really be that forever house.

So I think that there’s something in there about, uh, if, if you’re, if you’re looking for more of that starter home, that creates so many more options because it’s probably at a lower price point. It’s probably going to then have a lower down payment, lower monthly payment consideration. And one thing that we’ve.

We’ve kind of hinted at, but we haven’t really said out loud yet, is the opportunity to, to buy that house with the intention of it being a rental and you’re really just thinking of it [00:31:00] as renting from yourself, retaining it as a rental down the line. You may find the best of both worlds though, where you’re thinking of it as, as a rental.

This doesn’t need to be my forever home. This doesn’t need to be the home that I’m truly in love with. But this is as good, if not better than somebody else’s rental. Instead, I can be the landlord and I can have that stability. And then when I’m done with it, it can be a great investment when I go buy my forever home.

So I think depending on what you’re looking at, it could be a, a really good time to jump in. That’s 

Tim Ulbrich: a really interesting perspective, David. And I think just some of the pre planning that would have to be done to go in with that mindset. And then also thinking about certain associations, rental restrictions, other things, making sure you’re buying with that in mind, if that’s the goal and looking accordingly.

One other area we have to talk about is the micro market considerations. We’re talking global trends here. Um, I always think about Ramit Sethi on his podcast. He lives in New York city and he’s like the rent, rent, rent guy, right? [00:32:00] Like. You know, don’t feel the pressure to buy. And he’s obviously come in his perspective of like buying a home in New York city, doesn’t make any sense.

We’re coming from the perspective of the Midwest, the micro market considerations have to be considered because then we start to really look at the numbers and not just talking these generalizations of a buy versus red. Nate, what are your thoughts on, on the micro market? 

Nate Hedrick: I mean, the classic line is that real estate is local.

I mean, you have to know your own market to be able to make that decision. I mean, like you said, everything we’ve been talking about, we’re, you know, we try to keep a global perspective on it, but we are so biased toward the Midwest. I think when you look at a 200, 000 starter home being four bedroom, two bath, like you don’t get that.

Anywhere on the east or west coast, like it’s just not a thing. Um, and we’re used to that as like, it’s a normal, like, Oh yeah, I can get those in this market and that neighborhood and that school district. And like, it’s just very different. And so I think you have to know your local market. Um, and if you don’t know your local market, get somebody on your team that does.

Get a really good local real estate agent to [00:33:00] actually explain this stuff, because you, you have to know it. It makes the decision. It totally changes how you can make that decision. 

Tim Ulbrich: Yeah. And David, we’re not just talking city, right? You know, I think about Columbus. Like Great example, we live south of Grove City here in Orient, probably no one’s heard of Orient, smaller rural town, you know, vastly different in terms of when I think about property taxes, school district quality, other factors versus 15 20 minutes away in Upper Arlington, New Albany, Westerville, etc.

So, David, it’s not just the city, but it’s, it’s the, it’s the micro micro, right, that we need to get, even within neighborhoods, to be frank. 

David Bright: Absolutely. I think, yeah, you, you look at those cities within a city, you look at the school district, you look at the, even down to the area within that. Is that kind of a path of progress?

Is there something going in across the street that’s going to change that neighborhood? Is there a A new development happening, uh, one block 

Tim Ulbrich: to 

David Bright: a next. And, and even, uh, I think the example that a [00:34:00] lot of people overlook when they’re shopping online and looking at beautiful listing photos is. What are the, you know, the neighbor’s houses?

It could be a gorgeous house next to two completely run down, boarded up properties, or it could be a gorgeous house next to more gorgeous houses. And the, those factors on that block could even make up a significant impact into desirability and price points and those kinds of things. 

Tim Ulbrich: I want to wrap up by.

Just giving some global perspective from each one of us on, on really answering the, so what question? What, what do I do with this information to really inform my own decision making whether I’m a first time home buyer, or maybe I’m looking at potentially making a move, or I’m thinking about investing in a property and I’ll kick us off for, for me, it’s really going back to what is the vision?

What is the why? So what, what are we trying to accomplish? And David, I think your example is a really good one. Like if I’m looking at purchasing a property that. Maybe I can start to build as an investment property and, and really be the, the renter and eventually, you know, have [00:35:00] my first investment property.

That’s a very different philosophy than potentially, you know, I’m, I’m in a state of transition or I want to experience different parts of the country, or we’ve got a young family and we’re looking for stability. We’re starting in kindergarten, whatever would be the case, what’s the vision and, and really trying to move away from the generalizations of, Hey.

You know, buying is good. Equity is good. Renting is bad and really layering on what are your goals and desires. And then overlapping that, of course, with what’s happening in the markets in which you’re looking at. And I think just reminding ourselves that every market is different. Renting is not always bad.

And if we’ve been told that story, like. I think we need to unwind that a little bit. It can depend on the market, um, in terms of what’s happening that year, in terms of the local geography of that market as well. And one more time, making sure we’re zooming out. So, you know, what else is going on in the financial plan?

And when we think about the vision and the why of buying or renting and what that means to us, and [00:36:00] we overlap that with other goals, whether that be paying down student loan debt or other debt, saving and investing, traveling, experiences. What actually moves the needle for you? And where does this home buying decision, where does it rank among these other things?

I think sometimes we can feel these pressures to like buy something. And then I sit down with someone and really what matters most to them maybe is travel or experiences or giving or other things. And as Ramit Sethi, I think often says so well, like let’s spend money on the things we care about and not spend as much money on the things that we don’t care about.

And so. I often use cars as an example, but for people that might be housing, where some people, that sense of community and having your own place. Being able to make it your own, being able to work on projects around the house, that derives significant value and for other people, not as much. And I think just having that honest conversation with ourselves is, is so important to inform this decision.

Nate Hedrick: Nate, 

Tim Ulbrich: what about for 

Nate Hedrick: you? I think your last point was actually just really worth reiterating about like, do what is valuable to you. [00:37:00] Um, I talk to so many people, both investors and buyers, that just like buy a thing. And then six months later, like, why did we buy this house? Like we didn’t actually want this.

We didn’t actually need that. We didn’t realize we couldn’t sell it. We have to hold it. Like, there’s all these things that like, it’s easy to get wrapped up in the, well, this is what I’m supposed to do next thing. And not actually taking a step back of like, what do I actually want to achieve, right? Maybe it’s, I want to take a year to assess if Columbus or Cleveland or Miami is the place I want to live.

And it’s a great idea to rent there for a year while you figure that out, right? Uh, and then decide, okay, well, now that we’ve lived here, we realize we do need an outdoor space, or we absolutely need a basement, or, you know, whatever those things are. Like, take your time to assess what you want and then assess it for yourself.

Like, don’t listen to what your best friend is saying, or the guy at work who is You know, frustrated with his rental properties, like figure out what you want to do. Figure out what works for your local market, investor or [00:38:00] buyer, uh, and then make a decision based on that information. 

Tim Ulbrich: And sometimes to your point Nate, you’re surprised by when you get into the area or get into the home.

Oh, I never really thought about the value of this feature of the home or this aspect of the community. I’ll give a small, maybe what feels like a silly example. But when we moved in our home, currently it had a wood burning fireplace. And I’m like, Oh, that’s cool. Like That’s a deal breaker now if we ever move like I love the wood and like the memories that have come from like for us It’s Sunday night football and we’re throwing you know, wooden the fire and we’re hanging out like That’s the rich life, you know, for us.

And, and I couldn’t have anticipated that. That seems small, but it’s a big 

Nate Hedrick: deal. Super funny that you say that Tim, because that was actually on our must have lists and our realtor at the time, this is again, like 11 years ago now, thought we were bonkers for being like wood burning fireplace is a must have.

He’s like, don’t you mean like 2, 400 square foot and above? And I’m like, no, I mean, wood burning fireplace. So I totally get it. And for other 

Tim Ulbrich: people, they’re like, I don’t want to deal with the hassle of that. [00:39:00] That’s fine. They’re like, can I convert this to gas? And I’m like, stop, 

Nate Hedrick: you can’t. 

David Bright: David, what about for you?

Yeah, I think it’s, it’s a season of really cautious, really honest math and making sure, you know, we, we’ve talked about all the surprises that can come out there, whether it’s property taxes or homeowner’s insurance or moving costs or. Uh, the cost of furnishing and fixing up a house every time you move.

I think just being really honest with that math is, is helpful. Whether that’s, whether you’re thinking as an investor and needing to also think through additional costs like property management and major repairs coming, or whether you’re thinking through as a, as a short term or long term homeowner in that space with what repairs are coming up soon.

And because I think as we do that math, you can, you can start to more objectively identify, well, if the, if the price point. Is really high, but the rent would be much lower. Maybe it does make sense to rent or if, uh, if they’re [00:40:00] really close, maybe we think about one versus the other. I think the math can really help as long as you’re really comprehensive and what that math means.

Tim Ulbrich: Yeah. And speaking of intentional, comprehensive, cautious math, there’s a great rent versus buy calculator tool out there that I often like to reference. I’ll link to that in the show notes. It was published by the New York times. I think it really helps to. Just put numbers and try to make it as apples to apples as we possibly can, right?

We all know the emotional feeling when you’re looking at homes. Nate, you and I have often joked about this on the show before where someone’s, you know, I’m thinking about buying in one or two years and then they start searching and like, we’re buying tomorrow, right? It can happen and, and I think really looking at the numbers and trying for this to be an apples to apples comparison or at least as close to possible and then layering on top of the calculations can be some more of the, the emotional factors that we’ve been talking about throughout the show.

Great stuff guys. Uh, as always, Nate, David, appreciate your expertise. Appreciate your perspective. Thank you for letting me hijack your show, uh, as the [00:41:00] host, uh, for, for this episode and, uh, looking forward to your, your content throughout the year. So thanks so much guys. Appreciate it. Thank you.

[END]

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