Links & Resources Mentioned:
https://www.directorsmortgage.com/loan-officer/adrian-schermer
Episode 5 Transcript
SUMMARY KEYWORDS
home, property, equity, home equity line, people, jeff, refinance, short term rentals, rent, Adrian, buy, building, loan, client, investment property, Airbnb, vacation, income, money, rental
SPEAKERS
Rob, Adrian
Adrian
All right, welcome back. Future millionaires. today’s podcast is a little unique. I’m gonna apologize for some of the mud on the wall behind me. I’m in the process of moving to a new spot. I’m here with Rob delavan. And we’re going to do a real short one today. Hi, Rob.
Rob
Yes, and the mud doesn’t bother me. In your background,
Adrian
I appreciate that. Today’s topic of interest is second homes and how you can leverage this unique property type to buy a home that can net you some rental income.
Rob
Yes. And what we were thinking of doing today was build out an avatar of an actual client that Adrian and I working with together, and basically rundown the difference between what happens if you’re trying to buy from a traditional lending standpoint, a 25%, down normal investment property versus this second home product, which is quite unique. And so let’s just let’s just unpack this. So Adrian, we have the client, let’s call him Jeff. Yep. And he’s done loans with you in the past. He’s done real real estate work with me. He has his current home, and you recently refinanced? What does that loan look like?
Adrian
So he did a refinance? Well, first off, he bought about 10 years ago, actually back in 2009. So 12 years ago, bought the house for a hair under 260. It’s worth half a million today. So we could do the math real quickly, he’s gained $240,000 of equity minimum. We were talking about this before Rob, I think we could probably sell for more honestly, but it’s worth at least half a million in today’s market. So he’s doubled his initial investment. And the remaining balance is only about 180k, which was refinance just a year ago to an awesome 2.75 rate. So he’s in this kind of difficult spot where he wants to gain access to the equity in his home. But you don’t want to refinance out of that sweet rate. So what do you do? You’re stuck between a rock and a hard place? Right? And the answer to this question depends on who you ask. If you ask an unscrupulous lender, they’ll say you got to just take the hit up front, go ahead and eat having a three and a half percent, like right now on especially cash out refi. You know, and and get access to the equity in your home.
Rob
Oh, and in doing so that unscrupulous lender is going to get a commission on that new loan at the higher rate.
Adrian
Yes. And the new purchase, a good lender will tell you don’t do that. Get a home equity loan, or a home equity line of credit. These are excellent products that let you tap into the equity of your primary residence. There’s almost no banks out there that do lending with seconds on non primary residences, but as long as this is still your primary home, you can use these as a separate second loan that pulls equity out of the house, a home equity loan is going to be a one and done, you’re going to get access to all that money right away, they’re going to dump it into whatever account you tell them to. And then you can go off and use it for whatever your intended purposes, I love the home equity line of credit because you pull only what you need. So if you need to pull a little bit of money for the down for the second home, you can do that upfront. And then if you need to do some repairs paid for them in a couple months, you might be able to pull that extra 1020 $50,000 that you needed in order to do that, or for the next next home.
Rob
Right. And the nice thing is, is once most of these equity loans and local credit unions are generally the source for this absolutely usually costs like 500 bucks, sometimes they’ll do it even free. Yeah,
Adrian
and you can convert that to an equity loan, which is a fixed rate. And it’s usually amortized over like 20 years. So a few of the products have, they’ll have a lock period, even exactly some of out there where they’ll just say you can, you can secure and even a piece of the home equity line of credit at a certain rate,
Rob
right. And it’s usually a higher rate. I mean, obviously, they’re not going to get 2.75%. But this particular client with 250,000 in equity, keeping below 80% loan to value, be able to withdraw easily $200,000. Now, I don’t think this particular client would need that much for a downpayment on a second home, but they could. So usually you’ll get that equity line or loan up to 80% loan to value which in this case, he has 200,000 available to him as a downpayment. So technically, he wouldn’t have to come up with any extra downpayment on his new purchase.
Adrian
Right now, if he goes up to 80% of the home’s value, that’s the total loan balance can be 400,000. So if they’ve got a balance of 180, that means he could have a home equity line of about Yeah, $200,000. And one last thing I want to mention too about him, the cool thing is he can pull that money, he can repay it, and then he can pull it again. These usually have withdrawal periods that are 10 years and the ability to refinance them. To reset that period,
Rob
right, so backing up and building out the avatar of Jeff, is, when he bought his house way back in 2009, he was making 60 $70,000, a year between him and his wife. And now they’re in that 150 range. 1012 years later, he’s in a situation where he’s saving a significant portion than general numbers. And we’ll get into this on another episode with a financial planner are 19,500 that you can save in your 401k or individual retirement accounts and so on. He’s doing all of those savings. And now he wants to build a some wealth in real estate, because that is also tax advantage. Without going into into that which we will on another episode with our CPA partners, is he’s in a spot where four to $500,000 would get him a home, that is very nice. That would be a great rental in the 3000 or so monthly rent rate, which is where he would want to be, the other option would be as an Airbnb. So this becomes an investment property for him and a second home for him if he wants to, and he’s talking 30 minutes away, he currently lives in a suburb of Portland, and he was talking like Oregon wine country, which would be 30 minutes away, and it would be a great Airbnb or long term rental.
Adrian
And that’s a perfect fit for a second home. A second home, you’re not going to be able to buy in any area, generally, it has to be a vacation or resort area, which is a little bit flexible. I’ve seen people you know, make the case that even just being around the city is generally a vacation area, because even though lots of people live there as their primary residence, lots of people do go there for vacationing. So Portland is a great example of that you can get second homes in this area. And then you get to get much better terms. The only downside here is that we don’t get to use the potential rental income of the property. investors are looking at this as you’re going to be using this primarily for yourself as a place to vacation, which is often accurate. But then you are allowed to rent it out. And in the modern age where Airbnb is and VR, Bo and various other methodologies of renting short term are out there. There are risks associated with the short term rentals and that’s something that deserves unpacking. So, you know, there’s more research that needs to be done to underneath and each town in each area is going to be different. Beach towns are going to have a different type of wear on a property than mountain towns than a city like wine country with hot tub and people have overindulged, you may want to get that extra stain proofing on the furniture in try to have to maintain furniture. But the income potential is also very high. I mean, there’s a reason that hotels have been doing it for forever, right? Because it works. So as long as you do your homework and you do your due diligence, you can end up in a position where you’re running a rental business, you’re running a little hotel, a little piece of the hotel industry.
Rob
And there’s there’s definitely upside potential in that short term rental market. We’ve seen in this in a similar one country town, with some investors that we worked with, that they make about double, quite often of what a typical rental would be on like an annual lease spaces. So of course, there’s going to be ups and downs, summer months typically are higher, and so on. But the point being is is this becomes a rental property or an income property and an asset over time that this person can also use as a second home. So in in doing this, this, this particular avatar client, Jeff is looking for a wealth building proposition, trying to get current interest rates at in a way that leverages out long term income. And the most important piece here is the rent would cover or the income would cover the monthly expenses, and it’s going to grow over the next decades. By the way, Jeff is 3839 years old, and he wants to be done with most debt in his life and be passive income without working. Generally speaking at 60 give or take. So we’re looking at a 20 year time frame. This is probably not something that somebody would want to do if they’re looking to buy and flip a house. You know, in six months. Yeah. So yeah, something like that.
Adrian
Yeah. And that’s, you know, something that we can build out in another episode too, but because there’s there’s all these different avenues, right. I mean, when you’re in Jeff’s position, you can you can sell that house and you can untap That equity and you can make it a down for something else, or down for a few something else’s. But that requires you to move and a lot of people don’t want to we get that question all the time I like my house, I bought it when I was only making 60,000. But even though I’m making, you know, household income is more than double, almost triple that at this point, we’re still comfortable. So do we have to shovel aside 25% of that next investment property you do if you buy it as an investment property, but this unique little sliver in the middle here of the second home lets you buy with only 10% down, which is obviously significantly less money. And the only caveats really are that a you’ve got to be able to qualify for your primary home payment, and the secondary home payment. Right, that combined plus your other debts has to fit within the debt ratio. These are conventional loans only, there’s no FHA, VA, USDA won’t touch this. So you don’t get to use the rental income against the payment on the new property. And that’s that’s the thing that pushes some people into the investment property, right, I think Jeff is a is you know, lots of people, especially in this stage of their life, if you got to start early in real estate, you don’t necessarily have to tap into all that equity in your old home or sell it or refinance out of a great loan. Right, you can tap just as much equity as you need. turn that into your down payment, and then choose what you want to pay off first choose where you want to write your extra principal payments. and pulling into that home equity line is a great one, because then you can recycle it and use it again, once you’re ready for potentially the next property.
Rob
Exactly. And what ends up happening for Jeff and any client in a similar situation is, this is one of the stepping stones for being able to purchase a piece of property that is going to be a long term value add for them in a equity position, it’s going to be a wealth builder, it is going to be that piece, one of 234 or five rentals, possibly over the next 20 years. And this is probably the easiest one or the lowest hanging fruit if you can fit into this category with only 10% down. Like you said, Adrian, the alternative is 25% down, which is much harder for folks, although jack could
Adrian
two and a half times the downpayment. Yeah,
Rob
that’s what he did, he would he would have to do it with a cheaper property. And the funny thing about this is that the the reason why he doesn’t want to do a cheaper property in this scenario is a $300,000 townhome versus a $500,000 rental property. Yeah, a $300,000 townhome is only going to rent for 1500 bucks, only 200,000. More, you know, it’s what 40% higher, 66% higher, I guess if you do the math there to go from 300,000 to 500,000, the payment is only going up a minimal amount, because rates are so low. So it’s it’s one of those things where generally speaking, Jeff would rather rent a higher end property, get a little bit more margin 200,000 more in debt makes 3000 and rent. It’s double the rent. So the ratios are right. And at the end of the day, what we’re trying to do with advising Jeff and clients in a similar situation is let them figure out, Okay, what are the stepping stones in building wealth in the real estate world, and doing that over the next one, two years, which is slow. So this is a fun.
Adrian
It’s a good one area, it’s a really good one. I’m big on these vacation homes, vacation areas. Also, Rob, you’ve got much more expertise in this in the me. When we talk about appreciation and gaining of net worth, you know, there’s a finite amount of Oregon coast out there, there’s a finite amount of wealth wine country is a little in the middle because they’re trying to spread that out as far as they can go. But there are these popular spots that are only going to get more popular because there are certain valleys that have certain there’s a reason that their vineyards were there before they were in other places. And a lot of them are geographical they have to do with airflow things that people can’t control. We can’t change what temperature air runs through a valley. But I can tell you that there’s going to be really good grapes grown there.
Rob
Right. So there’s not a limit to that, though, in the sense that I’ve had people talk about in our region in the northwest Mount Hood. So the mountain property right, yeah. mentioned that.
Adrian
Yep. You know, Lake does a lot of protected land up there. Right. You can’t just keep building indefinitely into the hills.
Rob
Exactly. Exactly. Think think where do you want to vacation? I have some folks that own places in Maine, you know, which is where Adrian’s originally from. Yeah. And they use that as a vacation home and income, that sort of thing. We’ve talked about Lake Tahoe or mammoth, think California, Nevada, sometimes it’s, you want to think about these for tax advantages in certain states like Nevada versus California have LOTE state income tax rates. Actually no income tax and For the state purposes, so there’s just a lot of different things that come into something like this. And this was just a fun scenario to just barely unpack. And these are these are the sorts of conversations that we’re having with the clients of, Okay, what tools do we have? what’s available to us? From a property standpoint, from a lending standpoint, from a tax standpoint? How does this fit into your financial planning situation? It really is fun. And it varies. But we tend to have these same conversations, Adrian, just over and over and over again with folks.
Adrian
Absolutely. And this is to me one of the big ones because I get a lot of the aha moments when I do the second homes with people when I help them understand what is available to them there. And I’m hoping that someone will listen to this, and go out and say, Okay, I didn’t realize I only need 10% of that house, I want in bed, right or at the coast, right? Maybe that shifts the ball for me. And I don’t I’m not sure if we touched on this, but you do get to use the house to that’s the coolest thing about these short term rentals. Again, there can be a bit of it’s, it’s a stressor, I don’t want people to think that this is just like, you get a free check every month, and you don’t have to work and you don’t have to think about it. damage will be done to the property wear and tear is higher on short term rentals. There are upsides and downsides sides, but that’s also compensated by the higher rate of rent, the income that you can get on these, as you said, Robert, are often one and a half, two times maybe more, what you’d get renting it monthly. So that part of that rent, you know, you just have to you got to your market, and you got to say I’m gonna buy furniture, you know, on this sort of schedule, I’m gonna have to replace things, I’m gonna have to have little paint work done every single year, like you would if you owned a hotel, you know, you can see they got maintenance guys on there constantly. And sometimes you can work out those agreements with the management companies, they’ve got their own repair people, yes,
Rob
they’ve got their own schedule and plan. It raises overhead, but it makes it makes it more even in terms of profitability. For a professional like Jeff a making $150,000 a year give or take the management company, even if it’s relatively close to the primary home, the management company with a plan with a presence, and proactive, making sure that there’s no deferred maintenance issues, all of those things, that’s all built in,
Adrian
and, and checking the property, right. I mean, you gotta you got to have someone out there who can check the property after every tenant so you don’t get burned. And you still can, people can still do a lot of damage. And you can try to get as much back from them as you can. But then, you know, that’s another reason that you leave a little bit of room on your home equity line in case you have that worst case scenario, you can make backup your ground over the next few months. And then, you know, when you zoom out, this all works out, we’re, we’re part of why you make money on these investments, guys, is that you are taking on risk, you’re getting paid for taking on risk. That’s why banks make money when they lend money to you too. And as long as you understand that upfront, it’s a lot less stressful. When eventually if something goes wrong, you’re prepared for it.
Rob
Exactly.
Adrian
So do your due diligence to prevent those things as much as you can.
Rob
Exactly. So I love this topic. Adrian, let’s continue to explore this more on future episodes. And let’s see, and actually let’s just keep our audience abreast of Jeff’s progress. How about that?
Adrian
We will we will come back around on where Jeff heads next.
Rob
Love it. All right. Thanks for your time today. Adrian, thanks for your time audience.
Adrian
Thank you all have a good one.
Rob
Take care.
SUMMARY KEYWORDS
home, property, equity, home equity line, people, jeff, refinance, short term rentals, rent, Adrian, buy, building, loan, client, investment property, Airbnb, vacation, income, money, rental
SPEAKERS
Rob, Adrian
Adrian
All right, welcome back. Future millionaires. today’s podcast is a little unique. I’m gonna apologize for some of the mud on the wall behind me. I’m in the process of moving to a new spot. I’m here with Rob delavan. And we’re going to do a real short one today. Hi, Rob.
Rob
Yes, and the mud doesn’t bother me. In your background,
Adrian
I appreciate that. Today’s topic of interest is second homes and how you can leverage this unique property type to buy a home that can net you some rental income.
Rob
Yes. And what we were thinking of doing today was build out an avatar of an actual client that Adrian and I working with together, and basically rundown the difference between what happens if you’re trying to buy from a traditional lending standpoint, a 25%, down normal investment property versus this second home product, which is quite unique. And so let’s just let’s just unpack this. So Adrian, we have the client, let’s call him Jeff. Yep. And he’s done loans with you in the past. He’s done real real estate work with me. He has his current home, and you recently refinanced? What does that loan look like?
Adrian
So he did a refinance? Well, first off, he bought about 10 years ago, actually back in 2009. So 12 years ago, bought the house for a hair under 260. It’s worth half a million today. So we could do the math real quickly, he’s gained $240,000 of equity minimum. We were talking about this before Rob, I think we could probably sell for more honestly, but it’s worth at least half a million in today’s market. So he’s doubled his initial investment. And the remaining balance is only about 180k, which was refinance just a year ago to an awesome 2.75 rate. So he’s in this kind of difficult spot where he wants to gain access to the equity in his home. But you don’t want to refinance out of that sweet rate. So what do you do? You’re stuck between a rock and a hard place? Right? And the answer to this question depends on who you ask. If you ask an unscrupulous lender, they’ll say you got to just take the hit up front, go ahead and eat having a three and a half percent, like right now on especially cash out refi. You know, and and get access to the equity in your home.
Rob
Oh, and in doing so that unscrupulous lender is going to get a commission on that new loan at the higher rate.
Adrian
Yes. And the new purchase, a good lender will tell you don’t do that. Get a home equity loan, or a home equity line of credit. These are excellent products that let you tap into the equity of your primary residence. There’s almost no banks out there that do lending with seconds on non primary residences, but as long as this is still your primary home, you can use these as a separate second loan that pulls equity out of the house, a home equity loan is going to be a one and done, you’re going to get access to all that money right away, they’re going to dump it into whatever account you tell them to. And then you can go off and use it for whatever your intended purposes, I love the home equity line of credit because you pull only what you need. So if you need to pull a little bit of money for the down for the second home, you can do that upfront. And then if you need to do some repairs paid for them in a couple months, you might be able to pull that extra 1020 $50,000 that you needed in order to do that, or for the next next home.
Rob
Right. And the nice thing is, is once most of these equity loans and local credit unions are generally the source for this absolutely usually costs like 500 bucks, sometimes they’ll do it even free. Yeah,
Adrian
and you can convert that to an equity loan, which is a fixed rate. And it’s usually amortized over like 20 years. So a few of the products have, they’ll have a lock period, even exactly some of out there where they’ll just say you can, you can secure and even a piece of the home equity line of credit at a certain rate,
Rob
right. And it’s usually a higher rate. I mean, obviously, they’re not going to get 2.75%. But this particular client with 250,000 in equity, keeping below 80% loan to value, be able to withdraw easily $200,000. Now, I don’t think this particular client would need that much for a downpayment on a second home, but they could. So usually you’ll get that equity line or loan up to 80% loan to value which in this case, he has 200,000 available to him as a downpayment. So technically, he wouldn’t have to come up with any extra downpayment on his new purchase.
Adrian
Right now, if he goes up to 80% of the home’s value, that’s the total loan balance can be 400,000. So if they’ve got a balance of 180, that means he could have a home equity line of about Yeah, $200,000. And one last thing I want to mention too about him, the cool thing is he can pull that money, he can repay it, and then he can pull it again. These usually have withdrawal periods that are 10 years and the ability to refinance them. To reset that period,
Rob
right, so backing up and building out the avatar of Jeff, is, when he bought his house way back in 2009, he was making 60 $70,000, a year between him and his wife. And now they’re in that 150 range. 1012 years later, he’s in a situation where he’s saving a significant portion than general numbers. And we’ll get into this on another episode with a financial planner are 19,500 that you can save in your 401k or individual retirement accounts and so on. He’s doing all of those savings. And now he wants to build a some wealth in real estate, because that is also tax advantage. Without going into into that which we will on another episode with our CPA partners, is he’s in a spot where four to $500,000 would get him a home, that is very nice. That would be a great rental in the 3000 or so monthly rent rate, which is where he would want to be, the other option would be as an Airbnb. So this becomes an investment property for him and a second home for him if he wants to, and he’s talking 30 minutes away, he currently lives in a suburb of Portland, and he was talking like Oregon wine country, which would be 30 minutes away, and it would be a great Airbnb or long term rental.
Adrian
And that’s a perfect fit for a second home. A second home, you’re not going to be able to buy in any area, generally, it has to be a vacation or resort area, which is a little bit flexible. I’ve seen people you know, make the case that even just being around the city is generally a vacation area, because even though lots of people live there as their primary residence, lots of people do go there for vacationing. So Portland is a great example of that you can get second homes in this area. And then you get to get much better terms. The only downside here is that we don’t get to use the potential rental income of the property. investors are looking at this as you’re going to be using this primarily for yourself as a place to vacation, which is often accurate. But then you are allowed to rent it out. And in the modern age where Airbnb is and VR, Bo and various other methodologies of renting short term are out there. There are risks associated with the short term rentals and that’s something that deserves unpacking. So, you know, there’s more research that needs to be done to underneath and each town in each area is going to be different. Beach towns are going to have a different type of wear on a property than mountain towns than a city like wine country with hot tub and people have overindulged, you may want to get that extra stain proofing on the furniture in try to have to maintain furniture. But the income potential is also very high. I mean, there’s a reason that hotels have been doing it for forever, right? Because it works. So as long as you do your homework and you do your due diligence, you can end up in a position where you’re running a rental business, you’re running a little hotel, a little piece of the hotel industry.
Rob
And there’s there’s definitely upside potential in that short term rental market. We’ve seen in this in a similar one country town, with some investors that we worked with, that they make about double, quite often of what a typical rental would be on like an annual lease spaces. So of course, there’s going to be ups and downs, summer months typically are higher, and so on. But the point being is is this becomes a rental property or an income property and an asset over time that this person can also use as a second home. So in in doing this, this, this particular avatar client, Jeff is looking for a wealth building proposition, trying to get current interest rates at in a way that leverages out long term income. And the most important piece here is the rent would cover or the income would cover the monthly expenses, and it’s going to grow over the next decades. By the way, Jeff is 3839 years old, and he wants to be done with most debt in his life and be passive income without working. Generally speaking at 60 give or take. So we’re looking at a 20 year time frame. This is probably not something that somebody would want to do if they’re looking to buy and flip a house. You know, in six months. Yeah. So yeah, something like that.
Adrian
Yeah. And that’s, you know, something that we can build out in another episode too, but because there’s there’s all these different avenues, right. I mean, when you’re in Jeff’s position, you can you can sell that house and you can untap That equity and you can make it a down for something else, or down for a few something else’s. But that requires you to move and a lot of people don’t want to we get that question all the time I like my house, I bought it when I was only making 60,000. But even though I’m making, you know, household income is more than double, almost triple that at this point, we’re still comfortable. So do we have to shovel aside 25% of that next investment property you do if you buy it as an investment property, but this unique little sliver in the middle here of the second home lets you buy with only 10% down, which is obviously significantly less money. And the only caveats really are that a you’ve got to be able to qualify for your primary home payment, and the secondary home payment. Right, that combined plus your other debts has to fit within the debt ratio. These are conventional loans only, there’s no FHA, VA, USDA won’t touch this. So you don’t get to use the rental income against the payment on the new property. And that’s that’s the thing that pushes some people into the investment property, right, I think Jeff is a is you know, lots of people, especially in this stage of their life, if you got to start early in real estate, you don’t necessarily have to tap into all that equity in your old home or sell it or refinance out of a great loan. Right, you can tap just as much equity as you need. turn that into your down payment, and then choose what you want to pay off first choose where you want to write your extra principal payments. and pulling into that home equity line is a great one, because then you can recycle it and use it again, once you’re ready for potentially the next property.
Rob
Exactly. And what ends up happening for Jeff and any client in a similar situation is, this is one of the stepping stones for being able to purchase a piece of property that is going to be a long term value add for them in a equity position, it’s going to be a wealth builder, it is going to be that piece, one of 234 or five rentals, possibly over the next 20 years. And this is probably the easiest one or the lowest hanging fruit if you can fit into this category with only 10% down. Like you said, Adrian, the alternative is 25% down, which is much harder for folks, although jack could
Adrian
two and a half times the downpayment. Yeah,
Rob
that’s what he did, he would he would have to do it with a cheaper property. And the funny thing about this is that the the reason why he doesn’t want to do a cheaper property in this scenario is a $300,000 townhome versus a $500,000 rental property. Yeah, a $300,000 townhome is only going to rent for 1500 bucks, only 200,000. More, you know, it’s what 40% higher, 66% higher, I guess if you do the math there to go from 300,000 to 500,000, the payment is only going up a minimal amount, because rates are so low. So it’s it’s one of those things where generally speaking, Jeff would rather rent a higher end property, get a little bit more margin 200,000 more in debt makes 3000 and rent. It’s double the rent. So the ratios are right. And at the end of the day, what we’re trying to do with advising Jeff and clients in a similar situation is let them figure out, Okay, what are the stepping stones in building wealth in the real estate world, and doing that over the next one, two years, which is slow. So this is a fun.
Adrian
It’s a good one area, it’s a really good one. I’m big on these vacation homes, vacation areas. Also, Rob, you’ve got much more expertise in this in the me. When we talk about appreciation and gaining of net worth, you know, there’s a finite amount of Oregon coast out there, there’s a finite amount of wealth wine country is a little in the middle because they’re trying to spread that out as far as they can go. But there are these popular spots that are only going to get more popular because there are certain valleys that have certain there’s a reason that their vineyards were there before they were in other places. And a lot of them are geographical they have to do with airflow things that people can’t control. We can’t change what temperature air runs through a valley. But I can tell you that there’s going to be really good grapes grown there.
Rob
Right. So there’s not a limit to that, though, in the sense that I’ve had people talk about in our region in the northwest Mount Hood. So the mountain property right, yeah. mentioned that.
Adrian
Yep. You know, Lake does a lot of protected land up there. Right. You can’t just keep building indefinitely into the hills.
Rob
Exactly. Exactly. Think think where do you want to vacation? I have some folks that own places in Maine, you know, which is where Adrian’s originally from. Yeah. And they use that as a vacation home and income, that sort of thing. We’ve talked about Lake Tahoe or mammoth, think California, Nevada, sometimes it’s, you want to think about these for tax advantages in certain states like Nevada versus California have LOTE state income tax rates. Actually no income tax and For the state purposes, so there’s just a lot of different things that come into something like this. And this was just a fun scenario to just barely unpack. And these are these are the sorts of conversations that we’re having with the clients of, Okay, what tools do we have? what’s available to us? From a property standpoint, from a lending standpoint, from a tax standpoint? How does this fit into your financial planning situation? It really is fun. And it varies. But we tend to have these same conversations, Adrian, just over and over and over again with folks.
Adrian
Absolutely. And this is to me one of the big ones because I get a lot of the aha moments when I do the second homes with people when I help them understand what is available to them there. And I’m hoping that someone will listen to this, and go out and say, Okay, I didn’t realize I only need 10% of that house, I want in bed, right or at the coast, right? Maybe that shifts the ball for me. And I don’t I’m not sure if we touched on this, but you do get to use the house to that’s the coolest thing about these short term rentals. Again, there can be a bit of it’s, it’s a stressor, I don’t want people to think that this is just like, you get a free check every month, and you don’t have to work and you don’t have to think about it. damage will be done to the property wear and tear is higher on short term rentals. There are upsides and downsides sides, but that’s also compensated by the higher rate of rent, the income that you can get on these, as you said, Robert, are often one and a half, two times maybe more, what you’d get renting it monthly. So that part of that rent, you know, you just have to you got to your market, and you got to say I’m gonna buy furniture, you know, on this sort of schedule, I’m gonna have to replace things, I’m gonna have to have little paint work done every single year, like you would if you owned a hotel, you know, you can see they got maintenance guys on there constantly. And sometimes you can work out those agreements with the management companies, they’ve got their own repair people, yes,
Rob
they’ve got their own schedule and plan. It raises overhead, but it makes it makes it more even in terms of profitability. For a professional like Jeff a making $150,000 a year give or take the management company, even if it’s relatively close to the primary home, the management company with a plan with a presence, and proactive, making sure that there’s no deferred maintenance issues, all of those things, that’s all built in,
Adrian
and, and checking the property, right. I mean, you gotta you got to have someone out there who can check the property after every tenant so you don’t get burned. And you still can, people can still do a lot of damage. And you can try to get as much back from them as you can. But then, you know, that’s another reason that you leave a little bit of room on your home equity line in case you have that worst case scenario, you can make backup your ground over the next few months. And then, you know, when you zoom out, this all works out, we’re, we’re part of why you make money on these investments, guys, is that you are taking on risk, you’re getting paid for taking on risk. That’s why banks make money when they lend money to you too. And as long as you understand that upfront, it’s a lot less stressful. When eventually if something goes wrong, you’re prepared for it.
Rob
Exactly.
Adrian
So do your due diligence to prevent those things as much as you can.
Rob
Exactly. So I love this topic. Adrian, let’s continue to explore this more on future episodes. And let’s see, and actually let’s just keep our audience abreast of Jeff’s progress. How about that?
Adrian
We will we will come back around on where Jeff heads next.
Rob
Love it. All right. Thanks for your time today. Adrian, thanks for your time audience.
Adrian
Thank you all have a good one.
Rob