First-time home buyer? If so, you probably don’t know what to look for when shopping for a primary residence. So many questions rush through your mind. How much do you need for a down payment? Where do you find the right real estate agent? Is it better to just stay renting? Navigating the world of real estate can be tricky, but we’re here to help. On this home buying hacks episode, we’ve got Chris Hutchins from the All the Hacks podcast to help dispel home buying myths and open up new ways to make money with real estate.
Use this episode as your guide on that path to property number one. David, Rob, and Chris will touch on why you should buy in the first place, how to find the right real estate agent, negotiation tactics to score a better price, making an offer, financing, down payments, and what type of home insurance you’ll need. Plus, we’ll go deep into getting out of a bad deal and using inspections to save you from purchasing a problem property.
Don’t wait on the sidelines to buy your first property! This episode will give you EVERYTHING you need to know!
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Read the Transcript Here
This is the BiggerPockets Podcast show, 783.
I will say the purpose or maybe the goal of this conversation is to kind of walk through the home buying process, whether you’re trying to invest, whether you’re just trying to buy your primary residence, whether you’re buying even a vacation home or something. If you’re listening and you’re thinking, “I don’t know if I’m ready for real estate investing,” one, maybe you should be, and two, this is going to be applicable to anyone, no matter what type of home you’re buying.
What’s going on, everyone? It’s David Greene, your host of the BiggerPockets Podcast, here today with my co-host, Rob Abasolo, with a bit of a different episode. Today, Rob and I are sharing the mic with Chris Hutchins, podcast host of All The Hacks, a very cool podcast that teaches people how to hack their way through life, specifically with personal finance. In today’s show, Chris interviews Rob and I getting information that many of you probably never heard about how to save money in real estate through using agents, looking for deals, home inspections, really everything we could possibly think of for those that don’t own a lot of real estate. Rob, how you feeling?
Good, good. Yeah, we broke it down really from start to finish. We talk about agents, listings, due diligence, the financing, getting insurance for the properties that you’re buying. This is going to pertain to everyone that’s looking to buy a primary residence, this is going to pertain to everyone looking to buy investment properties. We really do cover everything, and honestly, for how much I’ve heard you speak on the podcast, David, you still amaze me, my friend. You gave one of the coolest tips about disclosures, and that’s all I’m going to say. That is today’s quick tip is just to listen to the entire episode because the entire episode is quick tips, but once you get to that tip about the disclosures, I was like, “Wow, this man is… He’s done it. He has done it. He has figured it out.” Congratulations and kudos, my friend.
Thank you. This episode’s going to be aired on our podcast and Chris’s podcast, All The Hacks, but it was cool that we were interviewed because we got a chance to share some of the knowledge that we have when normally we’re the person interviewing the guests to get to what they know. I kind of liked the change of pace, and I think you will too. Today’s episode is full of actual advice. It’s probably one you’re going to want to listen to two or maybe three times. Make sure that you are using the note app in your phone, or if you still use a pen and ink and paper, taking some notes because there is stuff that is guaranteed to save you money.
Today’s quick tip is listen to all three parts of this episode. There was so much good info in our conversation with Chris that we broke it into three easy 30-minute segments so you can actually absorb all the good intel instead of just being overwhelmed with one long show. If you’re listening to this on the day it airs, then we will see you back here tomorrow and the next day for parts two and three. All right, let’s bring in Chris.
How the turntables have turned. Chris, welcome to our show, and I’ll just go ahead and welcome myself to your show to save you the time there. We’ve got a cool little crossover event going on here today. For those who are unfamiliar, my name’s David Greene. I’m a former police officer who became a real estate investor and is now a real estate broker. I have a mortgage company called The One Brokerage. I run a real estate team, I buy rentals, I write books, and I host the BiggerPockets Podcast.
Yeah, and I’m Rob Abasolo. I am the co-host of the BiggerPockets Podcast. I have a goofy YouTube channel called Robuilt where I teach people how to invest in real estate, short-term rentals, tiny homes. I’m a former ad man, if you will, just like Mad Men, the TV show is basically me. I was a copywriter and I quit all that, quit all the corporate dreams about two years ago to focus full-time on real estate and documenting the journey.
I’m Chris Hutchins. Thanks for having me and thanks for joining me. I host All The Hacks podcast. As people listening from that side know, I’m all about trying to optimize and upgrade every aspect of your life. I want to do it while spending less and saving more, and I want to really dial things in, and so I’m glad we’re here because I’ve gotten lots of questions about just the whole home buying process and I was like, “Who could I find that knows more about this than I do?” And so I thought, “Let’s do this conversation.” You guys are the pros. I’ve listened to your show, I don’t know, countless times, and I thought this could be really fun for everyone on both sides to go through front to back how do you buy a home and optimize every step of the way.
And for all those listening on BiggerPockets but who haven’t heard about Chris, his podcast, All The Hacks is an award-winning podcast that will teach you to upgrade your life, money, and travel, all while spending less and saving more, which we love because the more money that we save, the more real estate we could buy, which is what most of us are addicted to.
So let’s jump in. Someone wants to buy a house. I always tend to ask people before you’re even thinking about this, why are you doing this. I’m curious if you guys have any frameworks you use for thinking about why you would buy a house, what’s important to you. It doesn’t even make sense before we jump into optimizing the entire process.
Well, I mean, there’s a lot of reasons to get into real estate. I don’t think that there’s any one particular reason. Some people get into real estate accidentally where they buy a house and they live in that house, and then one day they decide to buy another house and move into that house, and then they have to decide should they sell or should they buy or should they sell or keep the home, and then they become a landlord and then decide, “Oh hey, the flow from this is great,” and then they buy more houses. Some people buy a house and then house hack and rent out rooms in their home to subsidize their mortgage. And then there are also the other side of it where people work nine to five jobs and maybe they’re not making enough money at that nine to five job and they want to create supplemental income, so they get into real estate to help create monthly cashflow. Or, maybe they just want to eventually replace their nine to five income with real estate.
For me, that was really why I got into it. I had a pretty stable career in advertising, never really felt like I was making enough money, and so my side hustle became real estate, and I just started buying more properties as a way to make more money to supplement what I didn’t feel like I was making at my career. What about you, David? What do you think?
There’s a lot of practical reasons why you want to invest in real estate. Even the casual observer sees home prices getting higher and higher and higher. You watch the HGTV shows that show how people can make money in real estate. It’s kind of understood that it works, but not everyone knows the brass tacks of why you can make money with real estate. A lot of it are tax advantages. The tax code, it’s very forgiving for real estate investors, and the money that you make from real estate, you usually pay much less taxes on than if you made that same money at a job because there’s a little bit of risk that’s going to be involved in it. It’s easy to leverage, meaning I can buy a $500,000 house and put maybe 5% down on the loan, so I’ve only put $25,000 of my money, but when that $500,000 house appreciates by 10%, goes up to 550, my $25,000 just made me $50,000 of equity. It’s like I’ve doubled my money relatively quickly where it’s harder to invest in other assets where you could borrow money quite as easily.
And then there’s lots of ways that real estate makes you money. You could buy it for less than market value. You can’t really do that with a stock. You can’t go get a deal on Tesla stock or Apple stock and find some way to get it cheaper. You can add value to the property, you can make it bigger, you can make it nicer, you can fix it out, you can change its use so that it can be rented to people. It creates actual equity which you can’t do with a stock. There’s nothing I can do if I buy Tesla stock to make that company worth more. And then, like Rob mentioned, it actually generates revenue. You can rent out spaces in that home, and when you do that correctly, you earn more money every month than what it cost to own the real estate, and that differences of what we refer to as cashflow and that can replace active income.
Yeah, for anyone listening from All The Hacks that hasn’t really got into real estate investing, you guys have done a great job. I’m going to throw out an episode that is about getting started with just $10,000, I think it was episode 730 because I tried to take some notes ahead of time, but that was excellent. I will say the purpose or maybe the goal of this conversation is to kind of walk through the home buying process, whether you’re trying to invest, whether you’re just trying to buy your primary residence, whether you’re buying even a vacation home or something. If you’re listening and you’re thinking, “I don’t know if I’m ready for real estate investing,” one, maybe you should be, and two, this is going to be applicable to anyone no matter what type of home you’re buying, hopefully is what we can get to. I don’t know, that’s a little bit of the why.
For me, I’ve never actually dabbled too hard in real estate investing, outside of like index fund REITs, but I’ve gone through the home buying process as a primary residence and I actually own a fractional vacation home. I owned one-eighth of a home through a program called Pacaso where we bought one-eighth of a home up in Napa. It’s kind of interesting because you can kind of invest, it’s kind of a lot better in my opinion than a timeshare or anything like that so that’s been great. So that’s my experience, and I’ve kind of optimized little pieces of it along the way but nothing like what you guys have. So I’m excited.
Curious, Chris, how well have you done? I think you said you bought a primary residence that you live in, right?
Yep. I’ve done that twice now.
And how has that investment, if you just looked at it from a pure investment perspective, outperform some of the other things you’ve invested in?
Yeah, I mean, I would say the first time around, yes, but I had the fortunate luck of buying in the Bay Area at the worst possible, bottom-of-the-worst real estate crap. I got quite lucky by timing, didn’t know it was going to do as well as it did. The most recent one, I don’t think it’s been long enough to see anything major differences yet. But the first one, if you layer in taxes and leverage, yeah, it was a great investment, but it’s hard, it’s hard with an N of one in a market that blew up crazy to feel like I know too much based on one success story.
That’s how it works though, honestly. It really does work like that sometimes for people where, for me, I think every real estate or every real estate, I was going to say real estator, every real estate investor, they all have this big lofty dream of becoming a millionaire, and it’s super achievable because you can buy five properties that appreciate over the course of five, 10 years and you could just have a million dollars in equity. It wasn’t necessarily because you were a genius or because you were the most, kind of had the most, I don’t know, I already said it, genius strategy, but it happens because you just did it and you kept doing it and you keep doing it consistently, and that’s really the secret sauce.
So yeah, maybe it was by luck that you bought that house in the property or in that market, but what a lot of people end up doing is when that happens, they get a taste for it and then they keep just buying and buying and buying and buying. I think if you do that consistently, no matter what, you’ll always look like a genius 30 years from now.
Yeah, but we could have a much longer debate maybe in a future date about debating that strategy, putting it in stock, all these other investments. But I think whether you want to build a portfolio of 20 homes, whether you want to buy multifamily homes, commercial properties, or you just want to buy a primary residence, at the end of the day, you got to find the home, you got to buy the home, you got to decide if it’s a good deal, you got to close on it, you got to fund the purchase, unless you want to buy it with cash which I’m guessing most people don’t. So maybe let’s jump into that process and kick off with just someone who’s like, “I’m not really sure what I’m doing.” You’ve been an agent. Let’s talk a little bit about that process of partnering with someone to help you go through this process instead of just trying to wing it on your own, and when that makes sense or maybe when it doesn’t.
Yeah, and if you’re going to buy a property, you don’t know much about it, you definitely want to use a real estate agent in the beginning. When you’re buying, here’s something people don’t realize, you don’t have to pay your agent. If you’re buying a house off of the MLS, this would be any property you see off Zillow or Redfin, something like that, the seller has already predetermined a certain amount of money they are going to pay the buyer’s agent for bringing you to the property. You have a lot of questions, there’s paperwork you’re not going to understand, you don’t know what the process is, it’s intimidating. You find a real estate agent, and I’ll add they’re not all the same. There’s good agents and bad agents, there’s good lawyers and bad lawyers, good doctors and bad ones. You really want to find somebody who’s good at what they do. They can take a lot of the fear that you have right out of it.
I mean, it’s amazing when you take this scary process and there’s a person like me that does this so often it’s boring to me, like, “Oh, another one of these. I’ve walked this path so many times.” It’s definitely not scary. That’s something that every person who wants to buy a home should know right off the bat. Find a buyer’s agent, they’re going to answer a lot of the questions that you’re going to have and they’re going to protect you in ways you didn’t even know that you needed to be protected. Maybe we can go through what the actual escrow process looks like or the process from start to finish of what to expect would buy in a home if you’d like.
If you’re a little bit more experienced, you bought homes before, one thing that people will look at, especially in a competitive market like ours, Chris, we just realized that we’re neighbors, we live pretty close to each other, probably like an hour and some change away, is you can go directly to the listing agent and you can say, “Hey, I will let you represent me on this deal, but I’m going to need some kind of an advantage. I need you to get my offer accepted over the other people, or I’d like a little bit of a discount on the price if you’re getting to represent me here.” So there are people who buy a lot of real estate that has said, “Hey, I don’t think I need my own buyer’s agent necessarily. I still need someone to handle the paperwork,” but they go right to the listing agent and they look for an advantage, and that is pretty popular in the Bay Area where most listings are getting several offers on all of them.
Yeah. Actually, I have bought two homes in the Bay Area and both times I’ve used the seller’s agent. We could talk about that a little bit more because I have some thoughts about it, but maybe rewind a little. You said it’s important, not all agents are the same, you got to pick the right one. Obviously, not everyone lives in the Bay Area, so you’re not going to be the perfect agent for everyone. How does someone find that perfect agent?
First thing to look for, find a person that sells a lot of houses. A lot of agents don’t. In fact, most agents don’t. I’d say 90% of agents sell a couple houses a year or less, and it’s unpopular to say this, the agents get angry because they’re offended right now, like, “Just because I only sell two houses a year doesn’t mean I’m not good.” Okay, I know. However, tell me anything that you do twice a year that you get really, really good at. In general, that’s how life works. If you snowboard twice a year for your whole life, you never really get that good at snowboarding, or it takes you 20 years before you’re as good as somebody that just snowboarded every weekend for the whole first year that they got into it. Repetition really does develop mastery. I talk about that in the BRRRR book that I wrote. So the first thing I look for is an agent that sells a lot of homes, period.
The next thing I want is an agent that owns real estate themselves. At minimum, they got to own their own house, but ideally I want them to own investment property. It gives a completely different perspective when you’ve bought a home and you believe in it and you just get a different set of goggles to look at real estate through. I don’t have any kids. I love kids, we were talking about that before the show, but each of you as a dad, I am sure, sees something different when you look at a kid than I do, right? I don’t immediately freak out when they start putting something in their nose. I haven’t had enough experience of seeing how that could go wrong, right? Rob has seen some of that, so he’s going to have a much different emotional response to that marble or that Play-Doh getting a little bit close to the nostrils.
Real estate agents that own real estate have that sixth sense. They can recognize that’s a bad neighborhood, that’s not the right tenant, that’s not the right floor plan, that’s not the right structure, you really want to go to this house that may not look as pretty in the pictures, but will be a better deal.
The third thing that you want to look for is an agent that understands the financial component of real estate. Many real estate agents are geared to cater to their client’s emotions. They want to be liked. They’re very high on as an eye on the DiSC profile. This is how they make their money by being likable. Most people reach out to the agent who’s the nicest, the friendliest, the warmest. That doesn’t mean they’re the smartest.
So when you’re having conversations, I always want to hear agents that are approaching real estate from a financial perspective. I want to hear them telling me, “This is the part of town that’s being redeveloped. This is the next up and coming area. This is where all the money is going into. This is a property that would function as a rental if you moved out.” Even if that’s not necessarily what you’re looking for, you just want to buy a home. If your agent sees things that way, it is very good to hedge your bets in the future because you never know when you have more kids, need more bedrooms, get a new job, want to move for some reason. You don’t want to be locked into a situation where it’s hard to sell that home or it can’t be used as a rental property if you want to leave it.
David, let me ask you something. Does the requirement of having an agent that owns real estate, is that as important if you’re just buying a primary residence? Do you weight that a lot heavier for people that are looking to buy investment properties?
No, it’s the same for a primary residence. Let me tell you why. The first house I ever bought, my agent did not own any real estate, and I bought this house in the very end of 2009, great time to buy real estate, like you were saying, Chris. My agent did not tell me that the property taxes in that area had special assessments assigned to them and were much higher than the normal property taxes. In fact, they ended up being about $250 a month higher. I was expecting 300, they were 550. Now, I was buying this as a rental property, but even if I had buying it to live in, and you got to remember at the time, the total mortgage was like $1,300 so bumping it from 1,300 to 1,550 was a pretty significant chunk. It’s like a 20% increase almost in my overall payment because they overlooked that property taxes were higher.
Now, agents who own real estate themselves would be familiar with the fact that property tax bills come, there’s more expenses than just your principal and interest on your mortgage. They would see angles like insurance can increase in this area because it’s in a flood zone. I really think she missed it because she had never paid a mortgage on her own. She never had her taxes and her insurance escrowed into her mortgage payment.
The next time I bought a house, it was with an agent that had been selling houses for a very long time and sold a lot and owned a lot of real estate herself, and as we went through the process, she educated me. “You don’t want to buy on that part of town because you’re going to pay extra money to get the better school districts. You don’t want to buy over there because the taxes are higher. You don’t want to buy a house like that because with that kind of a roof, your insurance is going to be a lot higher.” I learned so much about investing in real estate just from the person that was getting paid to help me. It was free advice and free knowledge, and it really gave me a different perspective of what to look for and what to avoid.
I love it. Okay, so I just sent a link to you and I’m… There’s this guy in Northern California, maybe you know him, Stanley Lo, number one agent in Northern California for 10 years. Looks like and is commonly described in San Mateo County as the Asian Elvis of real estate agents. And so when you first said look for someone who sells a lot of houses, I was looking at, I know this guy. I get the flyers in the mail. He sells all the houses, high volume, high throughput, not just low-income property, all kinds of price ranges. Does that mean that if I were looking for a real estate agent, would he be the right guy? Should I consider him even though it might not feel like someone… Someone’s personality, maybe that’s not the personality I would want as my real estate agent, but do the numbers speak more than a personality? How do you think about that? And if anyone’s curious, greenbanker.com is this real estate agent’s website.
I mean, he’s got it down, I will say that. I mean, the marketing, the cowhide blazer and the big circular glasses. I mean, I’m in, personally.
That’s funny because I’d be running the other way the minute I saw this.
He does sell a lot of homes, I’m sure, and so he probably does have some experience. My gut would tell me, as someone who has worked with a lot of clients and knows a lot of realtors, this is probably not someone who’s actually going to be representing you. He’s going to have staff that are going to be handling a lot of it. You’re not going to be talking to Stanley, and he’s going to likely make up for a lack of negotiation ability and focus on saving you money or making you money if it’s a listing with his personality. So he’s a great marketer, and the top producing agents are always the best marketers. This is a problem in our industry. The best agents don’t make the most money. The ones that are best at getting the phone to ring make the most money, but that doesn’t mean that they’re the best when it comes to representing you.
You want someone that sold a lot of houses, but maybe you don’t necessarily want the person who markets themself as the person who sold the most houses.
And so it’s that kind of that sweet spot of maybe like the 60th to 90th percentile, but not the very top.
There’s a lot of things people fall for. I sell the most houses in this neighborhood, realtors will use that as a way of saying I’m the best. Don’t fall for that. It makes sense to our perspective when we’re listing to the home. Oh, you sell all the houses in the neighborhood, you know how to get me top dollar. You just don’t realize until you think about it, the buyers don’t care. The buyers don’t care who’s selling that house. They are never going to look at who the listing agent is when they’re writing their offer. They just care about the house.
The buyer’s agent needs to know the neighborhood. The buyer’s agent needs to know the amenities. When you’re looking to buy somewhere, you want an agent that knows the area very well. When you’re looking to sell, it will never matter how many homes in the area that agent’s sold. In fact, the only reason they sell a lot of homes in the same area is they put their sign in all their yards and then they go, we call it farming, knocking on all the doors and meeting all the people, getting their name out there. They’re just able to utilize a listing to build leverage to get more, but there’s no competitive advantage when it comes to representing a seller if you’ve sold other homes in the area.
I wanted to add one thing to that, well, A, it sounds like if they’re putting signs in everyone’s yards, it sounds like they’re good marketers, which goes back to what you were saying, but I did want to say that one really important piece to agents just from a consumer side and as someone that relies on agents pretty heavily is them having a really thorough Rolodex of vendors that I can use to help me run my properties, whether I’m living in it or not.
If I’m buying a short-term rental, for example, I know I need a contractor, cleaner, landscaper, pool maintenance person, pest control, and probably a plumber, electrician, and all that type of stuff. So when I’m calling a realtor, and this goes into how many houses have they sold, if they’ve sold a lot of houses over the last five, 10 years, they probably have a pretty thorough Rolodex. I mean, outdated term. If they use the term Rolodex, maybe they’re not with it. But if they have a very big contact list of all these different vendors, that’s what I’m personally looking for in a realtor because a lot of the times I really need a firsthand referral to know that I can successfully either live in a property or execute a rental.
Yeah, that Rolodex is interesting. It’s something I never saw in the contract, but once you close, I was surprised that even though it’s not necessarily required, a good agent will spend so much time helping make sure the process from I closed to I moved in, I got the yard done, I even renovated something, they’ve been super helpful there.
We have a lot to go here, but I do want to touch quickly on that negotiating piece that you mentioned earlier, David. When someone’s trying to get into this, what leverage or room is there for negotiating? I did what you suggested. I went to the seller’s agent and said, “Hey, I don’t want to mess around. I know I want this house. I don’t need to go find another agent. I feel good in negotiating. Will you work with me?” It ended up being a great situation because that agent got more commission and was a little bit more biased towards trying to get my purchase over the finish line, and in one case, rebated 1% of their fee back to me. Are there other rooms for negotiation? Are there other tactics someone can use to get a better price or likelihood of getting accepted?
Well, the first thing you have to do is define a win. In a situation where the house is getting 10 offers, a win is just getting it at all. There are times in the Bay Area or other hot markets with restricted supply and lack of inventory that you’re just not going to get a home, period. It’s incredibly hard to get in contract, you’re competing with so many people. In those situations, you’re not going to get a discount from your listing agent, you’re not going to get a better price on the home. You just have to get it.
Now, in other situations, which is what I try to target my clients into, I show them properties that less people are competing with. The listing photos are ugly. It’s been in contract, it fell out of contract. Now the days on market have ticked up and people aren’t looking at it anymore. I look for opportunities to help them get into a property with much less interest, and then we can get them a discount on the price, we can save them some money there. A mistake a lot of people make is they go to the listing agent of an incredibly hot property, they ask for a discount from the listing agent and they go, “No, there’s like 12 other people that want to buy this house. I can get my client a hundred grand more going with a different offer. I’m not going to discount commission just to help you get it.” That’s a big piece is knowing when you have leverage and when you don’t.
I want to talk about making that offer now, right? Let’s say someone’s gone through this process, they picked their agent, they’ve figured out what they’re doing, and they find a house and they’re trying to decide, is this a good house. Let’s start with that before we get to the offer. It’s like you have a place in mind. You’re looking at this listing. Maybe you do, maybe you don’t have an agent yet, but what are the things that are really important for someone to be paying attention to when they’re looking at a listing, either online or in person?
If you’re also curious about the things smart buyers look for in a listing, keep listening. The next part of this conversation will drop tomorrow. So make sure you’re subscribed into the BiggerPockets Real Estate Podcast and go check out All The Hacks wherever you get your podcast.
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In This Episode We Cover
- How buying real estate will make you wealthy (EVEN if you’re just purchasing a primary residence)
- The HUGE hidden benefits of buying property that most home buyers completely overlook
- Signs of a great real estate agent and the one thing they MUST have
- Home buying hacks for the first-time home buyer so you score a better deal
- Negotiation tactics elite realtors use and why you must know what a “win” is
- Getting ahead in a hot housing market and signs of a desperate seller/agent
- Home inspections and using yours to get seller credits or walk away from a bad deal
- Quick wins you can use at closing for a few hundred (or thousand) dollars in savings
- Debt-to-income requirements and what lenders want to see when you apply for a loan
- Using a mortgage broker vs. direct lender (and which will get you a better deal)
- Home insurance 101 and how to protect your property for less money
- The math behind buying a house (and why it beats renting in the long run)
- And So Much More!
Links from the Show
Connect with Chris
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.