The real estate market is a popular one and this week Josh & Austin discuss the pros and cons of investing in it. They share what real estate is and how to get exposure to it, plus other good information like headwinds and tailwinds, timing, and how to invest in it if it’s right for you. Listen in now to learn more!
Main Talking Points
[0:44] – What is Real Estate?
[1:42] – Exposure in Portfolio
[3:03] – Investments within Real Estate
[6:51] – Headwinds in Real Estate
[9:28] – Tailwinds in Real Estate
[11:51] – Home Pricing Comparatively
[16:00] – Timing to Invest in Real Estate
[19:21] – Dad Joke of the Week
[21:08] – How to Invest in Real Estate
[25:09] – Ending Discussion
Links & Resources
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Social Media
Full Transcript
Intro:
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right. Hey, welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. Today, Josh, we are going to be talking about real estate.
Josh Robb:
Yes. That’s the opposite of fake estate.
Austin Wilson:
Well, I guess it is real and it could be in your estate plan. But I’ve never really thought of it that way, but for real.
Josh Robb:
Yes.
[0:44] – What is Real Estate?
Austin Wilson:
Get it? We are talking about investing in real estate. So, how can we define real estate?
Josh Robb:
Yeah. So, let’s start with the most reliable source on the internet, Investopedia which is all those PDFs where people can put their own data in. So take it for what it is. But they do have a good definition. Essentially real estate is land combined with the permanent fixtures on the land, whether natural or manmade. So, already it sounds really awesome.
Austin Wilson:
So, like land plus-
Josh Robb:
So, water trees, minerals, buildings, homes, fences bridges, in a sense, the asset class is real assets like a property kind of like a property.
Austin Wilson:
It’s an essentially, it’s something that’s there.
Josh Robb:
Yeah. It’s different than personal property, which are not permanently attached to a car, jewelry. The things that you could put into your house, but the house itself and the land, the house sits on. That’s when we talk real estate, what we’re talking about it. Could be a building, could be a business building, could be a skyscraper. It could be a farm.
Austin Wilson:
Right.
Josh Robb:
It doesn’t have to have a building on it. The land is in itself value as well.
[1:42] – Exposure in Portfolio
Austin Wilson:
So, I guess the natural question to go from there is why would someone want exposure in their overall financial picture to this asset class?
Josh Robb:
There’s a lot of reasons, but it boils down to diversification.
Austin Wilson:
Right.
Josh Robb:
Because stocks, they move based on reactions to what’s going on in the market and the economy. Bonds, they’re usually inverse. They react a little differently to the stock. So, there’s diversification there. Well, real estate’s the same way in that. It doesn’t always react the exact same way as those other two classes. And so it’s diversification in that it’s doing something different than the other things that you own.
Austin Wilson:
And specifically, if you want a farm, then you can insert eggs in a basket pond, and you have your eggs in different baskets.
Josh Robb:
Yes. You’re not counting all your eggs in one basket.
Austin Wilson:
But yeah, you’re exactly right. It’s all about diversification in an ideal overall asset allocation for a human. Not saying any one person, but general human XYZ. You want some things to go up during the same time as some things going down and some things going sideways or, they should-
Josh Robb:
Lose your return.
Austin Wilson:
… Not all things should go to minimize volatility in the same direction all the time.
Josh Robb:
And I was thinking about that, if I am going to own real estate, it’s probably a farm in Texas. So, that’s always in a bull market.
Austin Wilson:
I see what you did there.
Josh Robb:
They’re the Longhorns.
Austin Wilson:
You’re going to have some good ones, some doozies, I think in this one.
Josh Robb:
That’s real estate.
[3:03] – Investments within Real Estate
Austin Wilson:
So, let’s kind of break that down a little bit further. So, obviously real estate, we know what that is. We know why you would invest in that, but there are multiple kinds of investments within real estate as a blanket.
Josh Robb:
Yeah. So like stocks.
Austin Wilson:
Yeah.
Josh Robb:
There’s all different types, right? There’s large cap, small cap. There’s different sectors. Stocks have a lot of stuff. Real estate’s the big umbrella that a lot of things fall in.
Austin Wilson:
So beyond that, that is one side. So, you’ve got the security side of real estate, which generally when you’re investing in that you’re going to be investing in what’s called a REIT, R-E-I-T. And that stands for real estate investment trust, REIT. So, according to Forbes, this is a good definition I liked which I’ll link it in the show notes, a REIT or real estate investment trust is a company that owns operates or finances real estate, makes sense? Investing in a REIT is an easy way for you to add real estate to your portfolio, providing diversification and access to historically high REIT dividend payments.
Josh Robb:
Okay.
Austin Wilson:
And those dividend payments are why a lot of people like REITs in general and that’s because real estate investment trusts are required by law because of the way they’re incorporated to pay at least 90%, nine zero of their taxable income as shareholder dividends every year, right?
Josh Robb:
Dividends are what you get from a stock. That’s when they pay out to the shareholders.
Austin Wilson:
True.
Josh Robb:
Their dividends are coming from the rent payments they’re getting from the real estate they own.
Austin Wilson:
True.
Josh Robb:
So, when you think about bonds, they pay an interest because you let money out. Real estate is when I buy into a REIT or whatever, I then own a portion because I’m a shareholder in this company. The company then may own 30 properties and each property has tenants and each tenant pays a monthly rent. And so then they accumulate all this cash and they’re required to keep this nice structure of this REIT to say, 90% of whatever I get in here, I have to give out to all these shareholders.
Austin Wilson:
Exactly.
Josh Robb:
So, you see a pretty good yield out of all that.
Austin Wilson:
Yeah. Usually that’s pretty good. The flip side of that. So, that is security side of things. So, you can buy securities and we’ll get into a little bit more about that later, but you can buy in your investment account, you can hold real estate, essentially through those. The other kind of investing in real estate is to physical real estate. So Josh, me-
Josh Robb:
That’d be like owning a gym. That’d be the physical real estate.
Austin Wilson:
It’s like I want to pump you up. But yeah, so we own homes.
Josh Robb:
Yes.
Austin Wilson:
We are investing in real estate through that and more on that later, but that’s one way. So, owning home that is physical real estate rental properties. You can become a landlord. We’ll talk more about that later too. Also some people literally own malls and office buildings-
Josh Robb:
Someone is going to own them.
Austin Wilson:
… Someone has to own them. And if it’s not a company, it’s a person and then they’re collecting rent from that. And they’re running a business that way. So physical real estate, securitized real estate, those are two ways to kind of invest in real estate.
Josh Robb:
And so, REITs, the benefit of that is if I don’t have a couple of $100,000 to buy property, I can buy a REIT, that’s like a stock, maybe $20, $30, depending what the REIT is you’re looking at $100 and I can get into real estate without needing a large capital to get started.
Austin Wilson:
And you can make it only a portion of your own. So, say you don’t have a net worth of a million dollars where you could allocate 20% to be in real estate. And then you can do that, that’s fine. Well, if you don’t have a net worth of a million dollars or whatever, you can have a very small portion through the security side of real estate-
Josh Robb:
And you’re a lot less available to more people.
[6:51] – Headwinds in Real Estate
Austin Wilson:
Exactly. So, let’s talk about some headwinds and tailwinds in the space right now. So, we’re going to look at it from both the commercial side and kind of the personal side. So, headwinds pricing is a big one right now, in case you haven’t noticed, housing not just here in Findlay, Ohio, where we’re sitting in recording this, but around the country is on fire. It is very expensive right now.
Josh Robb:
A lot of expensiveness.
Austin Wilson:
Your price per square foot is jacked up from where it was even a year ago. There’s been a lot of stimulus flowing through the economy and interest rates are really low. So, that is definitely a headwind of getting into this space now as a seller, it’s a great time to be a seller. You can-
Josh Robb:
It’s a sellers market for sure.
Austin Wilson:
It’s a sellers market for sure. But as a headwind of getting into that investment space, that’s one also the labor market in general, not very strong. We’re still having almost 7% unemployment around the country and that could be up or down depending on where you’re at living in the country. And COVID-19, as obviously still a headwind as far as well, it has definitely helped prices go up. It has impacted local labor markets specifically.
Josh Robb:
Yeah. And so with that headwind, so you’re talking about the unemployment and last year with the CARES Act and some of the COVID relief bills, they put kind of a moratorium on rent repayment, in that the person who was actually utilizing that space was not required to pay rent for a period of time.
Austin Wilson:
Yeah.
Josh Robb:
And so that’s great for them. They were struggling. That was part of what that was enacted. Well, the owner, like you mentioned somebody who’s got to own that property.
Austin Wilson:
Right.
Josh Robb:
That person that is not receiving their income. So then their business, their source of livelihood is messed up and so, the headwind is like from the whole space, there’s just a lot of disruption.
Austin Wilson:
It’s like a trickle up issue. So like tenant doesn’t pay. So then the landlord doesn’t have the money to pay the mortgage that he probably has on the property. And then he can’t pull an income from his business LLC to put food on the table for his family. It’s been tough. And so like you said, some people have there have been bills and provisions put out that some of the tenant side of things, or even mortgage holders have been given a little bit of flexibility. And I think that President Biden actually signed an executive order early on in the first couple of days of his presidency to extend some of those things again. So that, yeah, like you said, aimed at the people who are needing the help that has certainly helped some, but it’s probably also really put some other people in disruptions.
Josh Robb:
It just disrupts the industry because there’s a lot of unknown is, if I owe on that property and it’s an investment, how long can I let that go and still make it worthwhile for me to hold? At some point, do I just need to cut my losses? And so the unknown, it causes the headwind as well.
[9:28] – Tailwinds in Real Estate
Austin Wilson:
Absolutely. Let’s talk about tailwinds. So, obviously things are favoring real estate in general. Record low interest rates, if you look at mortgage rates, if you look at just anything, borrowing interest is absurdly a low. You can get 15 year mortgages for little north of 2% around the country, which is really good. And not more, not that far above it is a 30 year.
So, that’s obviously helping to fuel the housing market right now, as people can borrow really cheaply so that’s a tailwind. Also like you said, CARES Act last spring. And we had another round of fiscal stimulus in December. And that seems quite likely that there’s more coming that has definitely helped some parts of the economy. There have been certain provisions for certain industries, which to no fault of their own have been essentially shut down and that’s helped them to be able to pay their rent. So, some of the REITs have benefited through all of that. And therefore leaving landlords have been able to benefit from that as well. So, those are some tailwinds going on. But I think it’s probably wise to take a step back and talk, how has real estate historically performed maybe even compared to the S&P or whatever?
Josh Robb:
So, talking about that again, when we’re looking at performance, when I own a stock and I say, Oh, it’s done well, I’m done with this stock. I’m trading it for something else. I’m going to sell it. Or I need some cash. I’m going to sell it, real estate, if I physically own the real estate, that’s not exactly how that investment works. I can’t say, Oh, you know what? I need to get some cash. I’m going to take this corner brick off my house and turn it in for some money. My real estate is not as liquid as other investments.
And so when I physically own real estate, the liquidity, which means the ability to generate cash out of that, to turn it into cash is a little bit different, which is, again, comes back to our REITs when you own that, like a stock, depending what type there’s publicly traded REITs. And then there’s some that are less publicly traded that maybe offer a higher yield, but they have less ability to be liquid. That’s something to keep in mind when we’re talking through this. So when we’re talking about returns, this is how much it’s grown or done, doesn’t mean at any point in time, you could access that right away.
[11:51] – Home Pricing Comparatively
Austin Wilson:
True. Absolutely. So, let’s put some to what we’re talking about here. So home prices, this is just prices. And this is measured according to the S&P CoreLogic Case-Shiller 20-City Home Price Index. So, they’re looking at 20 different cities across the United States and kind of getting an average on prices.
Josh Robb:
That’s one of the longest Index names I’ve ever heard.
Austin Wilson:
It really is so long. So, and that I could get data easily back to March of 2000. So about 20 years.
Josh Robb:
And they’re going to have that long and it’s hard to get stuck on this. It’s just really bothering me if they’re going to have that long and in this, why did they abbreviate Standard and Poor? Just go ahead and write it out. I mean, you already got 400 other letters, just go for it.
Austin Wilson:
Dot dot dot on everyone’s screen. So yes, 20 years going back to this very-
Josh Robb:
20 years just to write that index name.
Austin Wilson:
… It’s very long index name of an average of 20 city home prices, 20 years back almost, house, home prices have increased 131% around that 20 year period.
Josh Robb:
Oh that’s great. That’s like Tesla.
Austin Wilson:
20, 131%. Okay. Think about what 131% over 20 years really is.
Josh Robb:
You’ve got to analyze that.
Austin Wilson:
It’s about 4.15%, which is positive.
Josh Robb:
Not bad.
Austin Wilson:
It’s not bad. It’s certainly not negative.
Josh Robb:
And this is going back 20 years.
Austin Wilson:
Going back about 20 years.
Josh Robb:
And so inflation over that same timeframe was less than that.
Austin Wilson:
Oh yeah. You think you would have had about 2% inflation, 2 1/2?
Josh Robb:
And so, outpacing inflation. You’re winning.
Austin Wilson:
And if you owned a home for 20 years, which most people probably move four times in that 20 years. But if you own that home for 20 years, then you doubled your money more than doubled your money on that purchase, which is pretty cool. And that’s while you’re living there. So, that is home prices. Now compare that and I just spun back around to my computer to get the real numbers. So I compared to that, to the S&P 500, S&P 500 over that same time is up about 175%.
Josh Robb:
Okay.
Austin Wilson:
Which is about 4.75% annually, which actually was surprised it was low to me until I remembered that-
Josh Robb:
There’s some of that happened twice in there. Three times in there now.
Austin Wilson:
Almost three times. So if you look, that’s coming out of the .com bubble. So stocks went down a little bit, going back 20 years.
Josh Robb:
March, 2000. Yeah. It was down.
Austin Wilson:
And then it rose till ’08.
Josh Robb:
Dropped.
Austin Wilson:
And then global financial crisis happened big drop. And then it rose for another 12 years. And then, Oh yeah, COVID happened. And then the stock market was down and now it’s back up at all time highs. So, there’ve been essentially three bear markets in the middle of all that, but 4.75% annualized.
Josh Robb:
Okay. So real estate is not too far off, seems to be more like an equity from that standpoint, then fixed income.
Austin Wilson:
True.
Josh Robb:
And so that’s something just to keep in mind.
Austin Wilson:
Okay. So, real estate investment trusts that we talked about and I’m using the Dow Jones REIT index.
Josh Robb:
Shorter name.
Austin Wilson:
Much shorter name. I mean, and this is an ETF and the ticker is RWR, if you ever want to look at that.
Josh Robb:
RWR.
Austin Wilson:
RWR. So, REITs in general using this index have increased about 120% since 2000 or 4.1%. So, dang close to the home price index. And I was shocked at how close, but really close. So, that’s kind of, yeah. Again, compared to what-
Josh Robb:
For the total return?
Austin Wilson:
I don’t think that those are total returns.
Josh Robb:
Okay.
Austin Wilson:
And I don’t think the S&P numbers total return either because their pricing index. So, there’s dividends in there and if you think stocks in general over that time where most of that time, we’re probably paying more than 2%, 2ish%.
Josh Robb:
REITs for sure.
Austin Wilson:
REITs, for sure. You’re going to get another couple so. Yeah, that’s kind of where we’re at on a historical performance basis. But like you said, home prices in general positive and outpaced inflation, that’s kind of the theme there.
Josh Robb:
It’s not like for instance, a car which we talked about real estate is that those assets that are permanent, car is not. It’s an asset, but it’s depreciating in value. My car’s not worth more now than it was 11 years ago. So that’s yeah.
Austin Wilson:
So yeah. A home is an asset and a car is a grass set.
Josh Robb:
Yes.
Austin Wilson:
I don’t know what that means.
Josh Robb:
Grass set, no. That’s not the right one.
[16:00] – Timing to Invest in Real Estate
Austin Wilson:
Okay. Josh, when is it a good time to invest in real estate?
Josh Robb:
Well, the best time to buy real estate-
Austin Wilson:
Was 30 years ago?
Josh Robb:
No, when is dirt Cheap.
Austin Wilson:
Oh, stop.
Josh Robb:
Yeah.
Austin Wilson:
So in Texas, in the bull market, you’re going to buy some dirt cheap-
Josh Robb:
Longhorns. So, but that’s honestly, when is a good time to buy real estate? Well, physical real estate, I would say most people you ask physical real estate, it’s their home.
Austin Wilson:
Yeah.
Josh Robb:
The best time to buy that is when you need a house. Honestly. But physical real estate, historically speaking early in an economic cycle is good time. Why? Because you’re coming out of depressed prices.
Austin Wilson:
Right.
Josh Robb:
Buying low and letting it recover and you’re going to sell it.
Austin Wilson:
And rates are dodgy.
Josh Robb:
Usually low. I mean, you’re coming out of some sort of reason for things that right now interest rates are at all-time lows because we’re coming out of an economic depression.
Austin Wilson:
Yeah. Supposed that you were one of the people who had a booming job during the global financial crisis. If you went to buy a house when housing crashed 40%, you probably bought a lot of house for a little bit of money with no interest, not no interest, but low rates.
Josh Robb:
Very low.
Austin Wilson:
So, that’s an example of what that would be. So then yeah, compare that to real estate. We’re all talking about real estate. Compare that to real estate investment trust or REITs. So, like physical real estate interest rates do play a role. They have an interconnected relationship there. So, REIT companies so the companies who are managing that, they take advantage of those low interest rates as to expand their business, to invest in themselves and similarly to physical real estate, the timing is similar. So early in an economic cycle, prices are cheap.
They’re buying property up all the time and they’re doing really well at that. I mean, the stuff that they’re buying is cheap. So, that’s really good as well as when they’re coming out of a recession, they are typically only improving their rent collection. So their ability to collect rent from tenants or people, depending on that, what that is that really only goes up coming out of a recession. So, that’s kind of the timing we should probably note that specifically the pricing side of things has absolutely not been the case in 2020 with the recession. We’re technically still in pricing shot through the roof.
Josh Robb:
Yes. And so what we saw, especially with homes, like you mentioned, year over year, home sales have just been crazy. And you would think with everything that went on, people wouldn’t want to be buying a house, but when you force people to stay inside and they’re looking around at wherever they’re living, they may think, “You know what, if I’m forced to be here, long-term this is not where I want to be. I don’t want a 200 square foot apartment. I actually need some space to stretch out and breathe.”
Austin Wilson:
Exactly.
Josh Robb:
So, we’ve seen a lot more. And then again, when you get 2% interest rate, it’s kind of hard not to justify that as an ongoing appreciating asset at a very cheap interest rate.
[19:21] – Dad Joke of the Week
Austin Wilson:
And like we had mentioned before some of the stimulus, a lot of the people, so it was kind of a blanket stimulus, two rounds of checks we’ve seen so far kind of blanket. A lot of the people who received those didn’t necessarily have to use it to pay for groceries. A lot of people did, and that was wonderful, but the people who didn’t, they were able to take that money and put it either in the market or down payment on their house or a house improvement or something like that. So that’s the reason, it really hasn’t been the case this time. But Josh, all this real estate, property values discussion, interest rates discussion, it’s got me a little jacked up. I need to crack one.
Josh Robb:
All right, here we go. You want to joke?
Austin Wilson:
Oh yeah.
Josh Robb:
I got a dad joke for you. All right. So, I like to read and when I’m not reading, investing stuff, I enjoy a good mystery or those type of books. Okay. So here-
Austin Wilson:
What’s the kids’ stories though? Box car kit, box cars-
Josh Robb:
Box car children? Not quite there, but Encyclopedia Brown that’s-
Austin Wilson:
That’s above your reading level.
Josh Robb:
So here we go. I’ve just changed though. Now, whenever I have a horror novel, I actually read it in braille.
Austin Wilson:
A what?
Josh Robb:
A horror novel. Like a scary book.
Austin Wilson:
That sounds very inappropriate.
Josh Robb:
A horror novel. That’s a scary book.
Austin Wilson:
Oh horror!
Josh Robb:
What did you think I was saying? Like goosebumps.
Austin Wilson:
Okay.
Josh Robb:
Goosebumps, all right. I read it. I know what happened. I haven’t even finished yet. You have to wait until I get done with this joke. You want me to try it again?
Austin Wilson:
No.
Josh Robb:
All right.
Austin Wilson:
This is gold.
Josh Robb:
Okay.
Austin Wilson:
I didn’t think you would say that. Okay, thank you.
Josh Robb:
A horror novel, a scary book like goosebumps, I read those in braille now because when something’s bad about to happen, I can feel it. It’s not even as funny anymore, you messed it all up. Like horror novel.
Austin Wilson:
Horror novel. Can’t take me anywhere. I’m legit crying.
Josh Robb:
Oh man. So, let’s get back on track that last dad joke I’m going to read you out of that book.
Austin Wilson:
I was like, these have to be PGG.
[21:08] – How to Invest in Real Estate
Josh Robb:
They are. Horror novel. I don’t know what you were listening to . I must’ve been mumbling. So investing.
Austin Wilson:
Yeah.
Josh Robb:
What should we do? My answer should be, I mean, it depends. That’s what I’m just ready to answer that right now, but how do you invest? Like what should you do?
Austin Wilson:
Yeah, exactly. Well, you might already be investing in this and you don’t really know it or you hadn’t considered it until we’re talking about it right now. So, if you own your home-
Josh Robb:
Accidentally.
Austin Wilson:
I accidentally owned real estate and I bought a house.
Josh Robb:
I signed 3000 papers on accuracy-
Austin Wilson:
Seriously, so much signing.
Josh Robb:
So much trees.
Austin Wilson:
And some people legit read those.
Josh Robb:
That’s me. Yeah. Mm-hmm (affirmative).
Austin Wilson:
No. I’m like sign here. Okay. I don’t know what I’m signing.
Josh Robb:
Yeah. Read it all.
Austin Wilson:
You might be partaking in this trend already. If you own your home slash have a mortgage on your home, you’re riding the real estate wave. So, your home value goes up and down like the market around it. It can be enhanced or detracted by the work you put into it. So, that’s cool. And if you own any passive large cap mutual funds or ETFs about US stocks, you probably already have some real estate in there.
Josh Robb:
Because like the S&P 500 has a real estate waiting to it.
Austin Wilson:
Yeah. The real estate sector is about 3% of the S&P 500. So, even just holding an S&P 500 index fund or whatever, whatever, how much of that, you’ve got 3% of your portfolio in real estate there. Also, alternatively, if you had a lot of time and money on your hands, you could become a landlord. You could buy a house, you could buy a bunch of houses. You could buy a multifamily units or office buildings or whatever, and you can become a landlord. This has pros and cons. Number one, it’s very… pro. And this is a con, I listed it in the pros.
Josh Robb:
Okay.
Austin Wilson:
Con, maintenance intensive. You are responsible for all the work that your properties need.
Josh Robb:
Yes.
Austin Wilson:
Or you’re responsible to hire someone to do it. Yeah. So, that can be very expensive. You can also just pay someone to manage all your stuff for you, but then you make less money. So like it’s, who knows what the right way to do it is, but that’s definitely a con. Pro is you really have control. A, you can have something close to you that you could understand the market and all that stuff and feel like you have an edge. B, you know what you’re invested in to the property. And the visibility is really attractive to some people, as well as some people actually live in like a duplex.
Josh Robb:
Yeah.
Austin Wilson:
I always thought that was a really cool idea.
Josh Robb:
Rent that part-
Austin Wilson:
… Rent out half, live in half the rent you get from the one half pays for your mortgage on the other half. And you pretty much are just rolling.
Josh Robb:
Yeah.
Austin Wilson:
I never really did that, but it sounds like a great idea.
Josh Robb:
Think about doing that with my kids, have them start charging rent to them. “Hey, you live in here.”
Austin Wilson:
That’s right.
Josh Robb:
“Go get a job.”
Austin Wilson:
You got four kids. You will be making money ahead. So, those are kind of the two main ways, but also you can, like we had talked about, you can buy individual real estate investment trust stocks, a couple that come to mind. DLR is the ticker Digital Realty Trust. They do data centers. Welltower that’s a retirement home sort-
Josh Robb:
That’s close to our area. Correct? There was some up in the Toledo, I think?
Austin Wilson:
I think so. Yeah. That’s kind of exactly what that company does. There’s also one called Crown Castle. They do like towers for cell towers and stuff like that. Castle towers, what? That should be why they named Crown Castle? Alternatively, you could buy an ETF in the space. A couple of one that I mentioned was RWR the Dow Jones REIT ETF. Another one is Cohen & Steers. They do real estate mutual funds ETL as well. They-
Josh Robb:
So different steers.
Austin Wilson:
… They actually, see that’s a really good, I wonder if they have a logo, Cohen & Steers. Maybe they’re headquartered in Texas.
Josh Robb:
That would be nice.
Austin Wilson:
But they’re a huge real estate mutual fund manager, but they’ve launched ETFs as well. One of the ETFs is ICF and that’s their general REIT ETF.
Josh Robb:
Just a reminder. These are all just things out there to get your brain going. No suggestions, not a recommendation on what you should own. Always think about what makes best for you talk to your advisor. But these are just some examples out there to give you a reference.
[25:09] – Ending Discussion
Austin Wilson:
So let’s blanket discussion. We have nothing prepared. This is off the cuff.
Josh Robb:
It says literally I don’t know what to discuss.
Austin Wilson:
Josh, here’s a question.
Josh Robb:
Question. All right.
Austin Wilson:
Should your home be-
Josh Robb:
What type of novel do you not like to read?
Austin Wilson:
I know what kind I don’t like to read. Okay. That was a horrific question.
Josh Robb:
See, you can say horrific, and I can say horror novel.
Austin Wilson:
Should your home be considered an investment?
Josh Robb:
That’s a great question. I think-
Austin Wilson:
Are you going to give me your standard answer?
Josh Robb:
It depends. But I do think I consider a home an investment, but I consider a different investment than most of my other ones. The fact that the depreciation or appreciation in value, I’m blessed, worried about to meet my financial goals or in other words, I’m not painting that as a piece of my financial picture. It’s not a part of that.
Austin Wilson:
Right.
Josh Robb:
And so is it an asset? Yeah. Is it an investment? Yeah. Do I need it for my retirement plan to be successful? No.
Austin Wilson:
Right.
Josh Robb:
And so again, I guess it depends answer . Yeah. Is it considered an investment? I consider it that because of the way it moves in value up and down, what do you think?
Austin Wilson:
Yeah, I actually kind of, I think it’s an investment with a grain of salt because what a lot of people, especially if you’ve never owned a home, you don’t realize is that a home requires a substantial amount of upkeep, constant investment to keep it up to where you want it to be, just to keep it livable. It takes work. It takes money. There are a lot of costs associated to that.
So, while it is an asset, in terms of it is something you own, it is something that moves with the market. It’s also got its own fair share of liabilities, which is something that we really cannot stress enough. And like you, I would say that, I mean, unless you are a real estate investor and that’s what you do, like you said, I would not count on the value of your home to be part of your being able to retire at XYZ age at the equity you can take out of that or whatever that looks like. I think that that puts you in a tough spot because then you’re tying your financial success to the housing market or whatever. So I think, yes, it is an investment with a grain of salt.
Josh Robb:
Yeah. And I don’t want to, if I really like my house have to sell it just-
Austin Wilson:
To retire. Right.
Josh Robb:
… To get there. Yeah. And so I don’t want that to be a decision that I can’t make on my own for my own reasons. I don’t want that to be forced on me. So yeah, that’s why. Is it an investment? Yeah. Do I count it as an investment? No. So, yeah. You’re right.
Austin Wilson:
All right. Coloring your curve ball here.
Josh Robb:
All right.
Austin Wilson:
How should you view real estate differently as you go through your phases in your financial life? So from early on, you graduate school, to middle of your life to when you’re in retirement?
Josh Robb:
Yeah. So for me, when I’m talking with people and we’re looking at financial planning, when you’re young, usually you hear the term starter home, right? I’m getting a starter home, meaning I’m probably not going to be there the rest of my life with my family, but it’s something that live in. I would consider that more of an investment than any of the other time periods, because I know I’m probably not going to have this long-term. So I want to find something that’s priced at a point where when I do go to sell it, I’m at least not going to be losing money on that.
Austin Wilson:
Right.
Josh Robb:
So, from that early stage is to me, the most likely and investment of all those phases, but that started home phase is I want to find something I enjoy, but it’s also not going to be a burden on me, either costs, ongoing cost-wise or two, when I need to leave, I can sell it at a reasonable time for a reasonable price. Middle of the time period, when you got your family and you’re going to be probably in a house for a good chunk of time, is I look at that as something I’m probably going to put money into. I’m probably going to make improvements and go through that, make it my own, but also make it better than what I found it probably. And so that piece, it’s not an investment. It’s what does my family need to make my life as easy as possible.
Austin Wilson:
Like you’re getting used out of it. You’re getting your money’s worth out of it.
Josh Robb:
It’s going to be used.
Austin Wilson:
And generally that’s probably a lot more house than you just sold from your starter house. And maybe as you’re getting to probably more house than you may end up with on the other end.
Josh Robb:
Yeah. So, the retirement piece that lasts later stage that’s when I think it flips back to potentially being an asset again for retirement, I don’t want to be lying on it, but if I had a two-story house and now I’m in my 70s and going up and downstairs just isn’t quite as fun as it used to be, that value of that home then I can look at and say, okay, if I’m going to then downsize and get something smaller, I have extra equity in there that can be used for other things. So, it kind of goes in waves. That last piece too, there’s a lot you can do with real estate, if it’s your property and like there’s reverse mortgage and all these crazy things, but from a cash standpoint, when you have equity, there’s home equity lines. I mean, there’s a lot of ways you can access that equity when you’re less worried about those day-to-day things.
When you’re in retirement and your cashflow is good and your plan’s all set there’s a little more flexibility there. So, I think it goes in waves from where you’re at.
Austin Wilson:
I think we should save it for another topic for another day, but having a mortgage in retirement is good discussion.
Josh Robb:
Oh, that’d be a good discussion.
Austin Wilson:
Because, so just keep your ears to everyone. We will revisit that topic. I know we could talk a whole episode about it today because there’s pros and cons to it.
Josh Robb:
Yes.
Austin Wilson:
And maybe we’ll do one of those episodes real soon. So, thanks for being here this week, as always check out our free gift to you as a brief list of eight principles of timeless investing, overarching investment themes, and to keep you on track, to meet your long-term goals. And no, we don’t specifically talk about real estate in that, because like we had mentioned not really something that we’re putting, betting the farm on. See what I did there, for your financial picture there, but it definitely has its purpose. So check it out. It’s free on our website, Josh, how can people help us grow this podcast?
Josh Robb:
Yeah. Make sure you subscribe wherever you listen to us. Subscribing allows you to get the most recent podcast every Thursday, which is great. Leave us a review on Apple Podcasts. If you listen there, it’s great. Helps us rank higher. And that only helps more people find us. And then if you have any cool ideas or topics, or you have a question about real estate, shoot us an email at hello@theinvesteddads.com or check us out on our website. There’s a link there where you can get back to us. And then if you know somebody who’s talking about real estate, thinking about real estate, share this episode with them.
Austin Wilson:
All right, well until next Thursday, have a good week.
Josh Robb:
Talk to you later. Bye.
Outro:
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future, doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode. Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management, all opinions expressed by Josh, Austin or any podcast guests, are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management.
This is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.
