[00:00:08] Speaker A: Well, welcome back to the real estate and more show. I'm your host, Michael Hatfield, today Investments. And your real estate is a very special show. So accordingly, we have a very special guest. All has heard his name, his radio and television shows, a known radio host of don't invest and forget, a financial advisor, retired, by the way, for more than 30 years. A good friend. I have frequent guest Pat Vitucci on the show, and he is just amazing and a person ready to share his knowledge and wealth on financial investments and real estate. Welcome back to the show, Pat.
[00:00:46] Speaker B: Michael, thanks so much for having me. It's always fun being on your show.
[00:00:50] Speaker A: Pat, if we were to go back 40 years in the Bay Area, what would you have changed regarding your real estate investments?
[00:00:58] Speaker B: Well, I was in the fourth grade 40 years ago, so let me think about that.
Seriously.
It's all about having a plan. And if you have a plan, certainly making adjustments to it over the years because life throws you curves. As, you know, children come and grandchildren come and your career goes left, it goes right, it goes down, it goes up. So lots of surprises, some good, some not so good.
But I think having a plan and recalibrating it as you go through all the hoopla and, of course, diversification, that's always real important. Real estate is certainly kind of the foundation that you build as a young family.
It's really a place to create your life, your family.
But guess what? It's also an investment that historically has had a fantastic return. Never can guarantee that tomorrow.
Markets go up, markets go down, but generally speaking, particularly here in California, it's been a superlative market for my whole lifetime. I've been here on the west coast for 40 years, having grown up on the east coast. But life in California still is a pretty cool spot. Yeah, we've got problems. We've got issues. Name one part of the country that doesn't.
So we're blessed with, first of all, being in the USA and secondarily, being in an area where the weather and the culture is still pretty cool spot, don't you think?
[00:02:45] Speaker A: I do. Going back, if I were to say 40 years ago, I would have probably done a better job at my investing, real estate wise as well as plan wise. Having a plan is absolutely essential. And even if it goes sideways, at least you can develop another plan. But having real estate and looking back, gosh, if we would have put in all of our nickels and pennies and dimes into real estate back in 40 years ago, we would be extremely wealthy, or I would be anyway.
[00:03:17] Speaker B: I bought a home. Why didn't I buy two homes? Yeah, right. Because then your net worth would have been essentially doubled, because who would have thought the prices we're looking at today. I mean, I talk to friends who live in Indiana, and they look at our housing prices, and my friend's got a four bedroom, three bath on an acre of land, and on a good day, it's worth 450,000. And he just scratches head when I tell him that size house here in the Bay area is a whole lot more money. So our currency in California, Michael, is like the superdollar. It's not the dollar. It's not the american dollar that the Indiana friend has, but that's just the way it is. And we're blessed with Silicon Valley. We're blessed with a lot of great industry, and it's been kind of the epicenter for the world, certainly for computers and the whole high tech world.
[00:04:22] Speaker A: Pat, you've sold your business and you're happy in retirement. You're actually looking at the fruits of your labor over decades of executing the plan that you had. And you spent a lot of years advising people how to set up their financial plan, whether or not they be young people or whether or not they be people that are already in retirement. And we have essentially homebuyers that are young people, which you would make a plan for, especially involving real estate as well as other investments. And then you also have the retired people that are out there that are potential sellers. So what would you think now to make a plan for each one of these, the homebuyers that are young, as opposed to a plan for the home buyer sellers that are older?
[00:05:13] Speaker B: Yeah, I had a great career. I loved the whole financial planning process. I was blessed with lots of wonderful clients that stayed with me for 30 plus years.
So that young couple you mentioned, young people are in kind of the contribution phase. They're adding to their 401K. They're buying their first house, maybe they're moving up to their second house, and they're paying out tuition bills and maybe heavy mortgage payments, maybe a car payment. So that's when they're contributing and they're building their net worth. The other couple you cited, the soon to be retiree or a return person, they begin to start their distribution phase. So they're taking money out of their 401K instead of putting money.
[00:06:04] Speaker A: Provided they have some.
[00:06:05] Speaker B: Provided they have some. That's always nice. Maybe they decided on a reverse mortgage. Maybe they're going to sell the big house and move to the small house.
Does that couple, retired couple, need to live in the expensive bay area, or can they move 100 miles away and buy twice the house for half the price?
[00:06:26] Speaker A: Gosh, I can't tell you. But as a financial advisor, it would seem to be a real challenge to work with the young folks and develop their plan for them so that they can execute on it. At the same time, working with people that are already in retirement and they're trying to maintain what they have to move forward with it, it just seems like it would be a really good challenge, don't you think?
[00:06:49] Speaker B: We work with some really smart people. Phds and all kinds of fields are very smart. And it's amazing how some money is not easy to understand for a lot of people. Fortunately, Jake gave me job security for 30 years, and here's a couple sitting in front of me with academic records that make my academic record look pathetic. But nevertheless, they were struggling with this thing called money, called real estate. What do I do with my real estate? I have one home, I have two homes, I have three, whatever the case is. So it's not common sense. Michael, you would think, my gosh, if you have a PhD or a master's degree or a bachelor's degree, you'd think, wow, money is certainly an easy thing, but amazingly, you've got to distill it down to that plan that we spoke of and executing on a plan, revisiting the plan and not going too far off the path, because that's when even really smart people get in trouble with money. They start spending 100 and 510% what they make. They start buying all kinds of things. Toys. We're all subject to buying our toys that are expensive. They buy them on credit.
So now, all of a sudden, their monthly nut becomes pretty unmanageable, manageable despite them making a boatload of money.
[00:08:19] Speaker A: An interesting thing about real estate is that there are several elements that allow us to take advantage of it. The first element is you get to live in the home, you get to raise your children, you have a place that they can go to school. It's really nice normally. And then you also get to enjoy something that most people don't think a lot about, and that's tax benefits. The mortgage interest deduction, you would have been paying rent, and that money would have just been flying out the window. With a mortgage interest deduction, of course it has limits on it, but with a mortgage interest deduction, you're talking about being able to displace the money or reallocate the money. You'd be paying for rent over to your taxable income. So my gosh, you're going to pay the same amount. Why not get it as a reduction to your taxable income? That's just one.
What about your depreciation on the structure on your home? 26 and a half years, according to Spiderman CPA that I had on the show a few weeks back, got 26 and a half years. You can take and depreciate, which is a non cash deduction. You've got that great deduction that you can use too to reduce any taxable income that you have that's paying you from one of the big tech companies. When you sell it, you got the gain or the loss feature that you don't have to pay too much on. There's so much to have with owning your home as opposed to not now.
[00:09:53] Speaker B: I think the brilliance of our tax system strikes you very strongly when you go to Europe, when you go to Spain and Italy and France and you see these old couple hundred 300 year old homes.
And so the motivators in Europe do not exist, the ones that you just described in this country. So the brilliance of having that motivation to buy a home because of all the huge tax benefits you get to deduct part of the interest in most cases, generally it appreciates. So it's a pretty brilliant system that's not paralleled, surprisingly, in other countries. Here we are just a 200 and some od year old country compared to Europe, which are 500,000 year old. And the motivation of our systems, of our economic systems, is profoundly different and wonderfully productive because it gets down to what's going to motivate you and your wife to extend yourself in this very scary thing. You buy a house to get a giant mortgage payment, what's the motivation? And when you distill it down to the tax benefits, in many cases, it's a no brainer, right?
[00:11:27] Speaker A: Yeah, absolutely. And just recently they came up with a new law that's regarding auxiliary dwelling units. And this is really kind of amazing because it allows in the state of California, if the city that you live in or the county opts into it, they allow you to build an ADU unit, which is usually 800 to 1000, maybe 1200 property to be used for your in laws that are aging or for a backyard cottage that you could even rent to someone.
It's a heck of a feature. But the real cool part about it is now in law in the state of California, you are actually able to say, this is a condominium. I'm going to sell this condominium as if it's a piece of property separate from my main property.
[00:12:21] Speaker B: Yeah, that's a new feature. That's what, maybe five, seven, eight years old?
[00:12:26] Speaker A: I'm not sure. Eight months old.
[00:12:29] Speaker B: Okay.
[00:12:29] Speaker A: Yeah. It's that new.
[00:12:30] Speaker B: Yeah. And so that puts a whole new opportunity for aging parents, young folks who find buying houses economically not feasible. So you let your son or daughter stay in your ADU for x years and let them build up equity, build up some savings. So it's a nice way to help mom and dad or at the other end of the spectrum, your son or your daughter.
And guess what? They're close by, but far enough away that you can still have some privacy. Right. And so, no, I think it's a nice movement and looks to be a pretty popular one at that.
[00:13:14] Speaker A: Yeah, absolutely. And then there's the other one now that they call Jadus. And that's where it's a small unit, it can be designated within your home itself and works the same way pretty much. It's incredible. And it's normally up to 500 sqft. It's a relatively small unit. But we could put one of those in your front or your room probably.
[00:13:37] Speaker B: Yeah. Thank you. I think I'll pass on that. But for those who are motivated and there's a need right now I don't have a need for it. But no, it satisfies lots of issues. And maybe there's some rent you can charge to help offset your overhead. And if you're about to retire, you can factor that into your income. Maybe it's 1100 a month. Whatever it is, every little bit helps. And if it helps the recipient and it helps the person who went through the hoops to build it, I think there's some real merit there.
[00:14:19] Speaker A: That's fantastic. You're listening to real estate and more. And on our show today, we have a very special guest, well known radio host and television personality and financial advisor. Retired. He bothers him a little bit when I say retired because he's such an active guy. Pat Matucci. So we're working real hard here to put out some interesting information about real estate and investment plans. Pat, some of the primary characteristics of home sellers are they, as we mentioned earlier, they're of retirement age.
What would you do to recommend them in the future, just as a friendship kind of base because you don't do it for money. Now, what would you recommend that they do with the limited resources that they have in order to move forward in retirement?
[00:15:11] Speaker B: Well, my speech for 30 years was if you're retired and your portfolio is not as robust as you would have liked because issues came up and supporting mom or dad, kids, grandkids, whatever.
Maybe it's time to trade in your expensive Bay Area two x fours, as I put it, and sell your home and either buy down to a cottage, maybe even rent. What about renting?
You can't let your ego not consider renting. We all like to have home ownership pride. But sometimes renting an apartment or a small condo makes sense. Or moving to a different part of the country, a different part of the world. Costa Rica, Portugal, of course, there's the common ones, Texas and Florida and Washington and Iowa. And coeur d'alene is beautiful, if you don't mind the rough winters. So you've got to be creative and take a step back and say, okay, how can I increase my monthly cash flow without compromising my lifestyle too much? Do I want to be closer to grandkids, or am I okay moving a couple states away? The state of Nevada, a no income tax state. Sometimes that little piece can make your monthly nut much more affordable. So you've got to be creative and look at all the options.
Maybe you're a beach person. Maybe you're a mountain person. Maybe you're fluent in Spanish. So Spain or Portugal looks really attractive. Those are pretty radical steps, but people are doing it. I mean, Costa Rica is a big expat community. Recently I was in Mexico. Lots of Americans, lots of expats in Puerto Vallarta, Cabo, etc. Etc. So there's some really favorable places to live, fun places to live. You're going to trade off your local doctor, you're going to trade off your local hospital, maybe some friends you won't be as close to. Yeah, so it's a collection of trade offs.
[00:17:28] Speaker A: You can retire here, there, or know. You could spend a little bit of time in Hawaii, a little bit of time in Tahoe, a little bit of time in Mexico. You could do the Santiago trail. Reminds me of somebody that I know that did it. But one of our first shows that we ever did when we swapped seats was retire here, there and everywhere. And that is a really good episode to listen to. Folks, if you get a chance, go back and pick that episode up. Pat had some really great advice for those who might be retiring. So just something to think about. So you would sit down with a home seller, potential home seller, that isn't wanting to move right now, and you would say, here's the plan that I suggest for you. Maybe you should sell this, take this money and move to another place of more moderate cash.
[00:18:23] Speaker B: Know, Michael, we're not going to live forever. And we say, okay, our parents live to this age, and my grandparents lived to that age, and that's all. Okay, but lifestyle has a big impact on how long we're going to live. And whether you figure ten years, 20 years, whatever it is, how do you want to spend the rest of your life, and do you want to have the stress of not having enough money? Stress will definitely shorten your life. Historically, stress is not a good factor on our bodies. And so you've got to look at it pragmatically and look at it in totality and what you're giving up and what you're getting. If there's some comfort there, maybe it's time to pull the trigger.
[00:19:14] Speaker A: Well, what about the homebuyers, the people that are working for the tech company? They're usually 26 to 43 years old. We call them millennial generation. They have two Teslas in the garage. They rent at high values. They enjoy their lives. What do you have for a financial plan for those homebuyers that are sitting on the sidelines right now? Because mortgage interest rates are almost 7%, which is, as you and I both know, is not really that extravagant compared to what they could be.
[00:19:47] Speaker B: Well, and we're coming off a period where they were two and 3%. So that was fiction. That wasn't real. That was all contrived. Seven is kind of the 50 year average, right, Mike?
[00:19:59] Speaker A: Yeah, seven. Seven, five, I think it was.
[00:20:02] Speaker B: So you've got to look at, what kind of buy can I have today? Because interest rates are high. Maybe there are less homes selling, and you could always refi. If markets do come back down to four or five, hopefully even three, heaven knows that we'll ever see three again. But you could always refi, but you got to get in the game. You got to get in it. And if homes appreciate two, three, 5%, whatever that number is, you've got to participate in paying rent. You're on the sidelines. You got to get in, put your helmet on, and put the shoulder pads on, and start kicking and hitting, and ten years from now, it'll look like a blip. You won't even know you bought high or you bought low because it'll be smoothed out over the years. Those cycles tend to get smoothed out in the long run.
[00:21:02] Speaker A: You know what's interesting? In the Bay Area right now, we have a severe shortage in homes available for sale. But yet the buyers that we have haven't really pushed it. They haven't been so robust unless there's been a dip in the mortgage rates down to something they consider to be acceptable to them. However, today, just today coming out from the
[email protected], they saying that there is a severe shortage. A severe shortage. In essence, it says the US is in a long term housing shortage with construction of new homes failing to keep pace with a growing population. They say they're 7.2 million homes short. And that means that nearly 18 million households have been formed over the past decade.
18 million. But only 10 million single family homes were constructed during the same period of time. And it could take, if builders produce it, a 50% more increase overall in the country. It would take until 2029 to equalize it out. So again, in the Bay Area, we have a tremendous shortage of property available for sale. And this is why I would like you to convince some sellers to trade in those expensive two by fours in the Bay Area.
[00:22:31] Speaker B: What do you, you know, our home is our castle. And if not being really pushed, we hate to make radical choices.
So we're kind of gluttons for punishment, if you will. We just kind of stick with it because it's easier than it takes a brave soul to make a move, but keep doing the same thing over and over again and expecting different results. You know what that's called? So we've got to really step back. And I would encourage your listeners to meet with a financial planner and get a plan and get a couple of opinions, get two or three opinions. And it's interesting how maybe it'll be a blend of the two or three that you get. That is the plan that you are comfortable. Everybody's different. I interviewed thousands of couples and thousands of individual people, and it always strikes me as interesting that some people are legacy planning driven. They want to leave their children x dollars and sacrificing whatever they need to to make sure that happens. A next couple comes in and they want their last check to bounce so they don't care if their net worth is zero when they eventually pass.
It always is interesting to me that people don't have that succession plan, especially entrepreneurs. They think they're going to die with their boots on and you got to get out of it. And if you don't have a succession plan, especially if you're an entrepreneur or if you don't have a living trust or a will or healthcare director, all those things, all those legal instruments that attorneys create, I think when you go through that kind of trust planning and wills and healthcare directives, it's kind of a wake up call to a lot of people, say, wow, this is where my assets are going, but I want to enjoy them for the next x years while I'm still here. So I think sometimes creating that estate plan is sometimes a motivator to essentially clearly understand I'm not taking it with me. It's lean being left behind. Right?
[00:25:09] Speaker A: That's for sure. So I see that we talk about everybody being different. Well, that's for sure. And one of the things that we think about is that the buyers are just a different group. And of course, they're individuals, but they're a different group. They have different interests than the sellers that we know are of retirement age, and they have their own set of interest before you start looking at each one of those interests. So it's important to get with your financial planner and work through these to where you have a plan. And I have to include myself. Pat, are there any last thoughts that you would like to conclude with today? What a great session. Good to know stuff.
[00:25:47] Speaker B: You always tickle my thought process, and that's always good.
Look, real estate has got to be the foundation you build your net worth on. And everything else is like the Christmas tree. You put it in the stand, okay? Then you start hanging ornaments on it. And your children's education, the estate planning tools that we talked about, all those components, creates that plan that I think is critical that you revisit. You pull it out of your shelf and dust off the COVID and look through it again. So wait a minute. I have to change this and I have to change it? Of course you do, because your successor trustee is no longer your best friend or the person is deceased. So you've got to revisit that plan.
And that's what I think is the important part of kind of anchoring where you want to be in the next three to five years.
[00:26:54] Speaker A: Well, Mr. Vitucci, I have to tell you, I really appreciate you being on the show today. You're always an inspiration to everyone that listens. So as Mr. Vitucci has been in the financial planning side of consulting for more than 30 years, he recognizes the importance of how a family's wealth can be enhanced by savvy investing in real estate. Investing in your home or otherwise, before, during, or even after one's retirement, is important. So if you wish to buy or sell real estate, give my office a call at 925-322-7775 we'd love to help you. I hope you've enjoyed our show today on investments and your real estate. Thank you for being on the show again, Pat. You're a great guy.
[00:27:39] Speaker B: Thanks, Michael. Appreciate it.
[00:27:40] Speaker A: You've been listening to the real estate and more show. I've been your host, Michael Hatfield, and it's been my honor to have been here with you where we talk with great people about important topics and about real estate. Listen to archived real estate and more
[email protected]. Slash Radio the real estate and more show is also podcast on demand on all the major podcast platforms as well. I'm your host, Michael Hatfield. I hope you'll tune in next week. And in the meantime, please have a blessed week. Thanks, Pat.
[00:28:12] Speaker B: Thank you.
[00:28:16] Speaker C: The views and opinions expressed are based on current economic and market conditions and are subject to change. Information on the show provided for illustrator purposes only and does not constitute professional or legal advice. Information from sources deemed reliable but accuracy and completeness not guaranteed. Michael Hatfield and the Michael Hatfield remax team have no liability for information discussed on the show. Consult with qualified professionals prior to taking action.
[00:28:46] Speaker B: Our channel.
