Today we are talking all about real estate investing. Are you thinking about investing in a rental property or VRBO?
Well, my friends, I wanted to have a conversation with one of my dear friends and fellow professionals in the industry, Carrie Guarrero.
Carrie is an executive vice president for Fairway Mortgage, and she has an extensive career in real estate and mortgage.
She, herself, is a real estate investor, and she's going to share some of her personal experiences, as well as some of her industry knowledge. She'll talk about important differences between long-term renters and vacation renters, and the mindset you need to adopt if you're going to invest in real estate. So if you've been thinking about real estate investing, this episode is for you!
So listen and please share this episode with friends.
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Hello, everybody. Welcome to the Thrive Forward podcast. We are excited to have you here with us today for a great topic. We are talking all about investment, real estate. So many people have these buzzwords about, oh, you know what, it's probably cool if I got an air b&b, or maybe I'll have our rental property, what should I be doing to create passive income? Well, my friends, I wanted to have a conversation with one of my dear friends and fellow professionals in the industry, Carrie Guerrero, who is an executive vice president for fairway mortgage, she has an extensive career in real estate and mortgage, she is a real estate investor herself, she's going to share with you some of her personal experiences, as well as some of her experienced industry knowledge through those life lessons she's learned with her clients and herself. So if you've been thinking about real estate investing, Airbnb is or how do you make this a part of your financial picture? Tune in to today's episode. And as always, we would love for you to share on your social and tag us when you do. Carrie, welcome to the Thrive Forward podcast, I could not think of somebody more fun to have this conversation with because you and I have it on a pretty regular basis. We're talking all about real estate investing. Carrie is a professional with many, many, many, many, many, many, many, many years of experience in the mortgage industry. I won't say that many, many because I feel like maybe
that makes me feel really like
a full LD. LD.
It has been what's aged, I feel like it's like a gray line. I've gotten better with age. Right. But well, I've
always thought you're good. So I don't know,
five years, 25 years. Hey, Pretty exciting.
Well carry you. The thing that I love about Carrie is that rather than saying she is a mortgage professional, she's mortgage advisor. And she actually leads teams and a company. So like she's leading teams and guiding people to have these conversations and really making exponential waves and an industry that has focused for so long on transactions rather than the people behind them. And I think we, as the general public can find ourselves getting deeply involved in I just recorded a podcast on Keeping Up with the Joneses and comparison from a financial standpoint, that we feel like we need to follow everything that the internet tells us from an advice standpoint.
That's the truth. I think that we see that every day on the homeownership journey. So I'm very, very familiar with that.
For sure. Well, in a lot of people from a financial planning status, I get this a lot of times Shannon, well, what if I diversify my portfolio, and I get an investment property? Or a second home or I turned a property into an Airbnb in Florida somewhere? Because I want to be somewhere nicer a couple months out of the year? What do we what are the things that we should be thinking about before we even start to go down an element of qualifying?
Well, to do that's a really, really big question, right? So I think about this and the 25 years in the business. And that's meant a lot of market cycles. And I think in a cycle like the one that we've most recently been in, that's an appreciation and a rapid appreciation cycle. A lot of people get attuned to that. Because what they're thinking in their mind is what everybody thinks this is a get rich, quick kind of a thing like I can get in, and I am going to make oodles and bucket loads of money by buying an investment property. And fortunately, I guess I'll look at it as a fortunate lesson that I've learned going through 2007 to 2009. In particular, if I look at that blip in time, the 10 years prior and was a rapid appreciation cycle. We saw it. We saw it every single year. I mean, in the early 2000s Same kind of environment from an appreciation perspective and a sales perspective, as we're seeing today. Right homes just flew off the market. You couldn't even put a sign in the yard before they were sold. We'd walk into our office on a Monday morning and have 10 Purchase Agreements sitting there on the fax machine. That then, but um, I, I think the markets are very different. I want to make sure that I express that the markets are very different from a mortgage perspective for a variety of different reasons. And that's not the question you asked. But as an investor, the mentality, I think, is kind of the same. I'm seeing some of the same conversations and seeing some of the same questions come up. And I think it's largely because a lot of those people that are coming into that market today really didn't experience that, then they, they didn't have their finger on the pulse of that. So, um, it's not a get rich, quick deal. I mean, I'm a rough investor, you know that.
Yeah. I also say, like, as a part of this, some of these people are listening to people who got in at a point where it was low and have made all of this passive income right now, the same purchase price isn't going to receive the same type of strategy for you going forward? Sure. I
mean, so the number one thing that I would say that I advise people about that, as you go in with the right mindset, that it's a long term strategy, it's not a it's not a get rich, quick kind of thing. Generally speaking, let's, let's have that hat on a bit. It's a long term strategy. The other side of that is cashflow. I mean, you just back then, I can't tell you how many people bought homes, on, you know, betting on the calm, hey, we're going to see this appreciation. And they didn't pay attention to the balance sheet on what it is they were going to be looking I mean, homes, just whether it's your own home, or it's an investment property, there are a couple things that they need every year, what are they maintenance, and repairs? Like never what people don't think about those things, they don't go through and go, all right. It's not just the mortgage payment and the taxes in the insurance, it's the maintenance and repairs, and never forget the tenant that, you know, moves out in the middle of the night, and all of a sudden you're having to deal with that or decides not to pay their rent, and you have to go through the eviction process, or, or or there are a lot of those. And I am the last person who's going to tell somebody, oh no, don't invest in real estate, I 100% believe in investing in real estate. But you got to do it, right. So go in with the mindset number one, that it's not a get rich, quick thing. Number two, make sure that you're actually going to cash flow, and you're really going through all of those expenses thoughtfully. Mm hmm. Third thing, because those I could tell you some stories, oh, could I tell stories, we actually had one of our rentals, and it ended up that a SWAT team tear gas to our rental in the middle of beautiful. So then tenant clearly needs to leave. We actually it was a mixed use property. So it was a commercial space. So then had to vacate the commercial space as well. Tear gas. That's yeah, yeah. No. Oh, loss of rental income, loss of tenant need to find new tenant need to do repairs need to deal with can't even tell you the list of things. But what does all of that take Shannon?
Planning and money?
Money, honey, it's all about the money. If you don't have and, yes, people I can hear people. Well as that. Would you have insurance for you? I'm sure. Oh, sure. Yep, you got insurance. And there are insurance adjusters and there are deductibles and there's time. And anybody got time for that. Like you got to get busy and get the people in there to do the cleanup and you got to get the repairs done. Because it's winter and your windows are all boarded up from six different tear gas cans that went in and broke your windows and you're like, I don't and I get that. That's extreme. But it legitimately happened. Yeah, me. Yeah, I know from personal experience. But you know, floods can happen. Fires can happen things have or the tenant like I said, moves out in the middle of the night and if you don't have cash reserves, in the bank, in some in a space where whether it's an it's an account with you that set up specifically for an investment property that does not get touched unless it is in one of those extreme situations where now I need to tap into that. You know, from a mortgage perspective, we can get somebody approved for something doesn't mean they should do it.
You Can you say that again? Know how much I love that guys.
I know, just because we can approve somebody for something doesn't mean that they should do it. You need to think through it thoroughly and make sure you're prepared for that. But the other thing mentally that you need to be prepared for is truly being a property manager. Yeah, it's not so cash aside, which I believe firmly. A lot of like standard underwriting guidelines would say have six months worth of reserves. So the mortgage industry has that kind of dialed in, like, Hey, you should have six months of reserves on this property set aside so that should anything go wrong, you have the ability to do that, we also take into account what's called a vacancy factor when we're qualifying somebody, so we're like 25% of the time, your property's going to be vacant. So we're gonna utilize that kind of math when we're talking about qualifying. But in a day and age of automated underwriting, you could get approved with less reserves, you could get approved with higher what's called debt to income, the percentage of your income to the amount of debt that you have. And just because you can do that, I mean, even people with perfect debt to income ratios and lots of money in the bank, this thing, having the mindset of being a property manager, it's really important. I know a lot of people who just don't have the mindset for that, and there are a couple options. I mean, you can certainly hire it out. Right. But then that's another road, right? It's another expense that's eroding your cash flow. And, and even though my experience with that has been even though you hire a property management company, guess when you still have to step in, when there are real problems? Yeah. So yeah, they're handling maintenance for you. And, you know, they're the one that somebody is going to call when the toilets overflowing because somebody shoved their Matchbox car in the toilet. But you know, when, when, when the police are going to your property at two o'clock in the morning, they call in you?
you gotta have a mindset for
that. And I think one of the things that has become more popular too, and I hear this very frequently, as well, I'm going to turn a property into like a, I'm going to get a condo, I'm going to turn it into an Airbnb or VRBO. And I'm going to rent it out during certain periods of time, and I'm going to use it as a write off, so that I can vacation. And I can use it as a write off, and then I can rent it to my friends and family or other people. And I try to get around it so that I can have this other place.
And strategically, Shannon, I know people are doing that. From a mortgage perspective, Airbnb and VRBO is not something that we want to get into talking about right now. I mean, the reality is that's turning it into a Transient property, it's basically a hotel, right? Which then lends to it being a commercial property versus it being a residential property. So just understand that there is a very big difference between an investment property that you're going to buy and rent out to a long term tenant, and an Airbnb or VRBO, that you're going to be turning regularly. And that opens up a variety of different challenges, including, I already mentioned insurance, but that looks different, you know, insurance looks different. Because the liability is greater. I mean, you got a lot of people go in and out of there. It also requires and look, we have one. So I again, I like oh, well, we're, we're converting one. And the reality of that is it can be a good strategy, if you know, I've got a commercial loan on the property, but I've got to go through the county, because it's basically treated as a hotel. Yeah, it's an entirely different, and the costs are entirely different. If you're doing it right, then doing it as an investment property that is a long term rental. So I'm not again, not going to say, hey, you absolutely shouldn't do that. But I think people just instantly think, Oh, this is an easy way again, to make money and or to do this or that. And the fact of the matter is, if you're doing it correctly, it's not quite as easy as one would, would have them believe. Nor is it financially as stable as a long term rental is right. I mean, yeah, lots of people are doing Airbnb and VRBO is and it's going great, but the risk inherent in that is a little bit greater than that of a long term rental renter that you vet out, you're not vetting out every person When it comes to your property every week,
we are going to pause and this great conversation with Carrie, have you started to think about how all of this plays into some of the decisions that you've been making financially? Maybe there's that element that you have thought about this, but maybe not how it all adds up into the big picture of your entire financial life. You've just heard this and seen the buzz phrase phrases out there and wanted in on what is this that everybody else is talking about? Let's see if it actually makes a good choice for you to be doing something like this does it fit in with the rest of your financial plan, you don't have a financial plan? Well, it's time for you to put one together. And we would love to be your partner at forethought planning. So simply go to forethought. planning.com, backslash wealth assessment, to schedule that first step with us today, where you to where you tell us a little bit more about what it is that you want to do, we tell you a little bit more about what we do to complement that and decide if that's a great step forward. From there, we'll define exactly what it looks like for you, in order to achieve the things that you want to be able to achieve, of course, as a part of that plan is understanding that life is going to change and transitions are going to happen. So we need to make sure that we also have a pivot plan. That good old word that was overused in 2020 is coming back, we need to understand what is it that you need to understand if maybe you do decide to have an investment property? And what if you don't have a renter for 25% of the time, like Carrie said, let's look at some of those things. So if it is something that works with the rest of your financial plan, you know how to mitigate some of those things that come up as those what ifs. Now back to some great conversations with Carrie. And I think that it's also like sometimes even like the write off aspect of things, I think a lot of times people think I'm going to get a rental property or you know, an investment property, I'm going to do these things so that I can write off certain pieces of my expenses as both you and I know. And although neither of us are tax preparers because we'll add that caveat, because we're
not giving tax advice,
we are not giving tax advice, that is not necessarily the case. And there are days in which you have to occupy the residence in order for you to be able to actually do those things. And if you occupy a certain time over that threshold, then you actually are not getting the tax preferential treatment that you want on all of this income or lack there of what you're getting. And I would also say this is something that you and I can talk about and do talk about quite frequently, when it comes to qualifying on things you don't want your tax returns to be zero.
That's where I was just I'm like I'm listening to you. And I'm like, yeah, and here's the reality of that. So, you know, what's your what's your big plan? Yeah, what is the long term plan? And are you planning to buy a primary residence? Are you planning what how well do you really qualify because you can actually erode your income by doing that, and writing off these things for your second home. That really isn't your second home. But we can, we can just argue about that later. The reality of that is that if you're in a situation where you've got negative income, then we have to say, Oh, guess what, we have to hit you with that negative income and qualifying and I can't tell you how many times I've been on the opposite side of the conversation with somebody who's done those things, for whatever any number of things, not even property related hobbies. And you know, tax laws changed fairly dramatically over the last few years. But as it pertains to mortgage lending, and qualifying, we got to look at that and say, Oh, you got a $10,000 loss on this property. Guess what? That's $10,000 less than income that you have to qualify for. So maybe that primary residence that you want to buy then next year? We might have an issue on I don't know, but you have to think through those things.
Absolutely. And I think there are lots of books out there. There's lots of podcasts out there. There's a lot of things out there from an aspect of you should have real estate as a part of your portfolio and absolutely you can you can actually have real estate a part of your portfolio without it being hard assets to that's like a whole nother conversation that you don't necessarily have to do this if you want some element of passive income to there are other resources that we can, you know, cultivate in a portfolio for you if you aren't wanting to be a property manager like Karis. Talking about because that is a very real situation, you have to understand. My husband is in real estate. He wants to have properties. And I'm like, I don't want anybody come in to am. No, my car got down the day, the toilet, Matchbox car. No, I don't want to deal with that a SWAT team hell no, I don't want to deal with any of that. Are you kidding me? I like my sleep. And, you know, and sometimes I will also say like, a lot of times in our household the bickering between you know, the the real estate wanting investor and that portfolio manager investor, financial planners, Okay, why don't you, you give me that money? And I'll see how much work with you. Okay. Yeah, and not saying that either one of them is guaranteed, because not either one of them is guaranteed. And everybody has a place for it. But just because somebody else does, it doesn't mean that you have the capacity to do it in a financially smart way. And don't try to like, work around things to try to make it better do it. Like Carrie said, buy the book.
Right? You know, what if ultimately, I had one thing to leave anybody with who is thinking about investing in real estate, it would be really do a thoughtful consultation with somebody who is actually an investor in real estate. Because you can go to just anybody and just get a home loan, right? You can just go get alone. Like I said, you probably qualify, great. But if you work with somebody that actually is an advisor, who's going to help you to strategize, like they're going to actually ask you the questions that are important to ask around your mindset around your long term goals around. I mean, I look at us as being in in a partnership type relationship, even though we're not we're not fiscally tied to one another in any way, shape, or form. But I just know that you're going to ask people the right questions about their investing about what their long range plans are, and not just go, Oh, you want this? Oh, sure, I'll just be an order taker and give you that there are lots of order takers in this world. Connect yourself to people that are going to ask you thought provoking questions to make sure that you're making sustainable choices for your finances.
And it isn't always what we want to hear in terms of the questions that we're getting asked, but you know, that the people who care about you in the long term are the people that are going to ask those questions, and not the people that are just going to be the order takers for you. Amen. So my dear friend, if people want more education around all of this fantastic topics, and more, where can people hang out with you? You've got such a plethora of knowledge that you can offer individuals? Yeah,
well, they can connect with us online at CG home loan.com. Pretty easy CG, as in Carrie Guerrero, home loan calm, and all of our contact information is there find me on social, but all of the usual suspects. So find me on Facebook instead, Twitter, LinkedIn, all those places,
and not to deal with mortgages, right? But Carrie is also a fellow podcaster. And a very inspirational friend of mine. And you did not mention that. But she has a podcast where can everybody listen to the podcast?
Is that discovering whines it's Women In Search of Excellence. So discovering wise.
Yay. Well, thank you for sharing your wisdom with us today. I'm so grateful for your time. Grateful to be with you. Thank you. All right, friends, wasn't that a great conversation with Carrie, she is insightful comes with her own personal experience as well as industry knowledge to share with us. I just love being able to have Carrie on the podcast. And I hope that you enjoyed this too. I think it's always necessary for us to consider how every aspect of our life is impacted by any decision that we make when it especially when it comes to our finances. So make sure that you are fully thinking out each one of these scenarios. And like Carrie said, sitting down and having a conversation with individuals who are knowledgeable on these topics and can help you understand what it is that will actually be producing potentially a profit for you because that's the end goal of having this investment property. That being said, also know that there are other scenarios out there for yourself. But really, it's starting with and creating that solid foundation from a financial planning perspective. Do you understand where you are and where you want to go and how you're going to get there. We have forethought planning would love to be able to help you with that. So As always feel free to schedule your wealth assessment with us simply go to fourth out planning.com backslash wealth assessment. Don't always just listen to the noise make sure that you truly listen to yourself my dear friends because you are worthy of wealth. The views expressed here are those of the participants and not those of forethought planning advisors py or LPL. Financial all investing involves risk including loss of principal no strategy assures success or protects against loss securities are offered through LPL Financial and member of FINRA and SIPC advisory services offered through advisors pride and SEC registered investment advisor LPL Financial Advisors pride for that planning and the guests of the Thrive Forward podcast are separate and unaffiliated parties
Investments in real estate may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Other risks can include, but are not limited to, declines in the value of real estate, potential illiquidity, risks related to general and economic conditions, stage of development, and defaults by borrower.