Episode Transcript
[00:00:01] Speaker A: The Michael Hatfield remax team presents real estate and more.
[00:00:06] Speaker B: Bay Area real estate is different than all of America. And why? What's up with buyers? What's on sellers'minds? How is the market and much, much more.
[00:00:17] Speaker A: Now here's your host, Michael Hatfield. Welcome to the real estate and more show. Here we have an individual that has been in this financial advisement business for a number of years. I have to tell you, he has recently retired, sold his business, and it's hard to even get him in the studio anymore. We have Pat Vitucci in the studio. I'm calling him Papa Victor because he's more of a grandpa now than anything else and a great guy. So thanks for being on the show, Pat.
[00:00:47] Speaker C: Well, thanks, Michael. It's always fun being on your show. And you were on my show many, many times. And it was always nice to talk about real estate as it relates to the full financial plan that we always were involved in.
[00:01:02] Speaker A: I remember the first time that I was on your show, it had to be at least ten years ago, I have to say, a little apprehensive, a little bit nervous, just more informal now, and a little bit easier to do. Thanks so much for all of the times of having me on. Don't invest and forget.
[00:01:20] Speaker C: Yeah, no, it was always lots of fun and more importantly, very informative, too.
[00:01:27] Speaker A: Tell me about retirement now, Papa Victor.
[00:01:30] Speaker C: Well, retirement is lots of fun. It's been about a year and I'm getting into the swing of it.
My full time grandpa days are filled and we're doing some traveling and loved working, loved being a financial advisor, loved the client interaction, missed it a little bit. But it's a whole new chapter. And I hope God continues to bless all of us with good health and positive outlook. And, yeah, it's a whole new transition, Michael, that's very different.
[00:02:07] Speaker A: You know, a lot of people before they retire, they say, well, real estate is a big component, the home that I live in, my rental properties and so forth, before I check out and go off and find another place to live and to enjoy what I have, what should be done with their house?
[00:02:25] Speaker C: Well, my advice consistently, because I was always in the pre retirement retirement market. So we were talking to folks about what should you do? You've got a year or two left before you retire. And we always would focus in on the real estate, on their house. And so my advice frequently was get the house tricked out now, if you think you're going to sell it, if you're going to redo, update the kitchen, update the bathrooms, paint wallpaper, whatever you want to do. If in fact you either want to stay there because those are all expensive updates, upgrades or if you're going to sell it, it would be a much more saleable property, as you well know, with updated kitchens and bathrooms.
[00:03:12] Speaker A: It's absolutely critical when you go to sell your home to have it in as best of shape as you possibly can do. As Pat mentioned, update your kitchens, make them look really pristine in the bathrooms and then your master, and then go to the rest of the house. But that's where most people look when they walk into the home. They look at that kitchen. That kitchen, is it an area where people can gather, enjoy themselves, maybe have a little glass of pinot grigio or cook a nice meal. They look at that kitchen as the first deal. Then, of course, the bathrooms. And that's what it's going to be.
[00:03:49] Speaker C: Yeah, those are all expensive upgrades. Right. And so while your cash flow is still rich and you're taking in a salary, weekly or monthly, whatever, you want to consider making those expenses during your work life, because that couple hundred thousand dollars potential upgrade is very difficult to consider once that monthly check stops getting deposited into your account.
[00:04:21] Speaker A: Absolutely. Well, and then people say, well, I want to sell my house, but I don't want to spend x amount of thousands of dollars to prepare it. Well, it's simply catching up with the deferred maintenance that one has enjoyed over the number of years and it would be a temporary type financial arrangement. Of course we're looking to get it back and our experience says, hey, do these certain things and each house is different. If you want to upgrade to a kitchen in Palo Alto in its top area or Hillsborough 100 and 5200 thousand, who knows? If you're going to do one in a lesser prestigious area, then maybe you can get away with 30,000. But by the time that you add all of those numbers up, you're going to say, oh, my gosh, this has used up a bit of my retirement. However, in our experience as realtors, for some times it's really been necessary to do these improvements.
[00:05:22] Speaker C: And you well know if you do kitchens and bathrooms, the return on that investment is normally more than what you put into it. If you spend 100, maybe the value of your home goes up 150. I don't know.
You're the expert there. How about swimming pools? Do swimming pools get 100% of the value back when you sell?
[00:05:43] Speaker A: It totally depends on the area that the home is located. In some areas, it's hard to sell a home without a really nice pool in the upper end. But if you're talking about in a middle class area, sometimes they'll get a one for $1 for having a pool, other times less. They're not the biggest bang for the buck to make improvements to before you sell. They're not the biggest, usually.
[00:06:11] Speaker C: So if you decide to sell your expensive two x fours in the Bay area and move to a less expensive area with less cost of those two, probably you've seen that many times where people move to either the desert, Palm Springs, they go to the mountains, they maybe move to truckee, they go to the beach, maybe southern California, maybe Hawaii. Lots of those choices depending upon, are you a beach person, a mountain person, or a desert person? Right?
[00:06:43] Speaker A: Absolutely. I know this fellow that has a wife that's a mountain person and he's a beach person. I'm not. No names here, but we know one. One thing that's kind of interesting is that in this last upswing of the market that we've had in the United States, we've had tremendous amount of home appreciation in the Bay Area. In the rest of the country, we've had it also. But we're finding also those values have kind of moved up a little bit as time has went by in the last two to three years. So what do you do? What do you do? Do you move out of here? Do you take your pot of cash that you have from selling your home? Do you go to Portugal? Do you go to Hawai?
What are the factors that we talked about on that? I think it was the first show that we ever did here on KGO and at KSFO.
[00:07:38] Speaker C: Yeah, it's interesting.
A complete financial plan, which we accomplished thousands of times. It's all about cash flow in retirement. It's not how much your net worth is, it's what kind of cash flow does it generate? Does it cover that monthly nut? Does it cover the cost of that barrier home where you may not have to sell?
Maybe you want to sell. That's a whole different kind of equation. But cash flow is something we look at repeatedly when somebody says, can I afford to retire? And the home is always an integral part of it. If there's a mortgage on it, if there's no mortgage on it, what are your taxes?
What's the upkeep your landscape cost, the cost of keeping the pool, all those little nitty gritty things creates a budget, a household budget that will kind of dictate, yeah, I can afford, I'm very comfortable staying here, or, no, I've got to move to Portugal or I've got to move to Costa Rica.
So it's all driven really, by what you've accumulated over the last 30, 40 years working. And how does real estate tie into that equation?
[00:08:55] Speaker A: Not necessarily specific to retirement, but some people are looking to invest in real estate rental investment properties to help them with their income later on. We were talking about that just recently. I had Nance on the show and we were talking about that just recently because you won't get a positive cash flow immediately in the San Francisco Bay Area. I mean, likely anyway, because the houses are more expensive, but if you go elsewhere, you find that you get that cash flow, but you don't get the appreciation that you would in the Bay Area.
[00:09:29] Speaker C: Yeah, a lot of my clients went to Texas and bought apartment buildings, 10, 12, 15 apartment buildings or industrial space, maybe a real estate investment trust, a REIT. They're pretty good in terms of a cash flow, and that's really, really, certainly you're interested in growth in retirement, but that's really the second option. Cash flow becomes clearly the premier issue when deciding on what kind of investment do I want? Yeah, you want to grow and keep up with inflation because hopefully you have 30, 40 years of retirement. So you got to keep up with the madness of inflation. But in the interim, cash flow becomes much more important.
[00:10:17] Speaker A: We're going to take a short break. We'll be right back.
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[00:11:12] Speaker D: Get help with buying or selling a home by calling the Michael Hatfield remax accord team at 1800 857 63. That's 1800 857 63 remax.
[00:11:24] Speaker A: Now back to our show.
Well, most people here don't have 30 to 40 years. We're working into our eighty s. I think a lot of our colleagues that we see they're working on until their 80s. So it's kind of, kind of crazy it's true. Yeah. But one thing that I keep thinking about is that buy a rental property and make sure that you use a real estate professional to do it so that you get the best price and you don't do something that it will hurt your nest egg. And then once you have that property, make sure that you can get a really great tenant in there. Tenants either can make your life lovely or they can make your life not so lovely. We've known both. So that's one of the thoughts that I have. Whether or not you want to move and supplement your income stream with rental investment properties or reits, you used to have some pretty good investments that were used for retirement, people that are beyond my scope of work.
[00:12:30] Speaker C: Yeah, of course. Keep in mind, if you're an absentee owner, if you have property in Texas and you live in the Bay area, you can't keep your eye on it as carefully as you would want to.
Sometimes hiring a good management company is the solution. Sometimes it's not. Sometimes they just consistently spend whatever it takes. If a plumber says it costs $5,000, oh, well, it cost 5000. Instead of getting a second or third opinion. Property managers are busy and they're going to try and expedite a problem and get it solved sooner than later. So it can be an expensive way to attempt to increase cash flow if you're an absentee owner. So that's always a challenge.
[00:13:22] Speaker A: Yeah, I remember when I had grocery stores, this was my second vocation when I was doing the airline thing and I had grocery stores and I had one that was in Los Angeles. And I got to tell you that being absentee at that distance is extremely difficult to maintain a profitable operation. It was devastating to me at the time. I learned that the closer that you can keep your investments, whether or not they're rental investment properties, or whether or not there's supermarkets, it tends to work out so much better that way. To keep them nearby, like your friends, you want to hold them close. Enemies hold them a little closer, maybe. Have you been going to Portugal or anything?
[00:14:06] Speaker C: We've been to Portugal. It's a beautiful city. Lisbon is a lovely place.
Cost of living is ridiculously low. It's always difficult to have a language barrier, though. We kind of take advantage of.
We can relate to each other pretty easily. But you go to Italy or Portugal or Spain or anywhere, and you're not conversant in those languages becomes a real challenge. And it gets frustrating, I'm sure frustrating for the locals that can't understand Americans, you know, what I've been finding, a lot of my clients move to Mexico. I mean, San Miguel Deende just sticks out in my mind as one city. Interesting in Mexico. That's, I think it's got more Americans than Mexicans in there. It's a beautiful little city, and cost of living is low, and Mexicans are very affable, very lovely people.
Mexico, for a variety of reasons. It's close by. It's a couple hour flight, so you can come home and visit grandchildren or friends or whatever. But the more radical ideas are Portugal or Spain or even places like Costa Rica, which is obviously a spanish based country, becomes a little bit of a challenge.
[00:15:34] Speaker A: We had the former NFL guy, Mike Pulaski. He's a great quarterback. He was with Tampa Bay, and he know a big guy with the UC Berkeley golden bears. And he said he spent, I believe it was a month and a half outside Porto in Portugal. And he said it was just an absolute lovely, lovely experience.
[00:15:56] Speaker C: Porto is not only a good wine, but it's a great city way up on the hill. And at Taylor, Porto wines is where we went wine tasting, and it was a really cool spot.
[00:16:10] Speaker A: Didn't you do the Santiago trail? Didn't you walk a piece of it?
[00:16:15] Speaker C: We did the Camino walk. It's a total of 500 miles. But if you walk 100 miles, you get a certificate you can hang on the wall. Mine's probably in the bottom kitchen drawer right now. But great experience. You start in Spain, we went through Portugal, and 100 miles walk is not easy. You do 15 miles a day or so. After six days, you're done, but meet lots of people from all over the world because it's an inspirational kind of a quiet walk, although you do end up chatting a little bit quietly with other folks who are walking the Camino trail.
[00:16:55] Speaker A: So how many miles did you walk of that Camino trail, Mr. V?
[00:16:59] Speaker C: We did 100. We did 106 days, about 15 or so miles a day.
It was a real, really cool experience. Wow. I would highly encourage people to give that some thought.
[00:17:12] Speaker A: Living standard in Portugal, they're all couple.
[00:17:17] Speaker C: Hundred year old homes, and it's very different topography, but very pretty. You walk through all the little towns and all the little villages and all the homes are fairly modest, right? I mean, they're two, three, four or 500 years old, right. So I'm sure they've been upgraded over the years. But we're pretty spoiled here in this country with our giant homes and backyards and swimming pools. And it's a real eye opener to see how some of these european countries, more humble people. More humble, exactly.
[00:17:59] Speaker A: In the United States, we just tear houses down and rebuild over there. They repair and they remodel and they keep the elegant nature of bygone era, the history inside the walls of what they have for their homes.
[00:18:14] Speaker C: No, they're quite homes, and you're exactly right. They're not going to put up some modern thing which probably would not be very appealing to those locals.
[00:18:24] Speaker A: Well, make no mistake, retiring and deciding to retire and where to move, that is a big decision. Are you going to move here? You're going to move there. What about medical, what about living standards? How much of your pot of cash are you going to spend? Where do you go? How do you like the people, the neighbors, the schools? Some folks in retirement have children they're still raising.
[00:18:48] Speaker C: And also you got to think about leaving friends behind, leaving family, your church group, your whole social fabric that you've built for many, many years, immediately leaving it behind.
That non financial issue is really important. I've seen people move away within a year or two, move back because they missed friends and family and their church. So you've got to take all those things into account. Are you really socially prepared to give all those things up?
[00:19:20] Speaker A: You know, our first segment that we did, and it was the first show that I've ever done as a host, it was called retire here, retire there, retire everywhere. And that everywhere thing might be an answer to a lot of people, maybe maintain the home that you have here or downsize into a smaller one, use some of that capital to buy, cross the border or wherever you want to go or cross the ocean and live there, too. At the same time, it just seems like that would be a good possibility for a lot of people to make that retirement decision easier. It took you a long time before you actually said, well, I'm going to sell my business. I'm going to retire.
[00:19:58] Speaker C: Yeah.
[00:19:58] Speaker A: How long did you belabor that?
[00:20:00] Speaker C: Oh, probably three or four years. You go through all those emotional hoops and it's kind of one of your children, it's one of your babies, right. And to sell it off and give it up and something I enjoyed a lot. I mean, it was very fulfilling. I felt like I added value to a lot of people's lives. So giving that up takes a lot of introspection and careful thought.
[00:20:29] Speaker A: Incidentally, we're here with Pat Vitucci. He's now retired financial advisor, a very senior financial advisor. And I don't mean age so much, but he was nice enough to come out of retirement down here to the studio and talk to us for a while about how it is in retirement for him. And I recall Pat going, and once in a while I would be part of your seminars that you would have and you would give it to people. Pat also is a noted author. He wrote, don't invest and forget. And you can buy the book just about anywhere. I think it's even on Amazon. An interesting read.
[00:21:07] Speaker C: It's been a fun ride. I was blessed with lots of years of having some great clients. It was fun writing the book and kind of documenting some of my experiences and a lot of people that I met over the years. We're all a little different. All the financial plans are all a little bit different. All priorities are different. Your priorities are different from mine, as if from somebody else's. And what's important to me is maybe not as important to you, but that's where you've got to create a customized financial plan that fits that couple's needs. What kind of legacy plans? Do they want to leave money behind for their children, or do they want that last check to bounce? So it's all of the dynamics, family structure, legacy planning, cash flow, and how do you want to spend the rest of years of your life?
[00:22:01] Speaker A: One of the things that is good is that you continue to exercise. We had Karen Owak on the show. She had athletes in aprons. She was the author of that. And she was talking about on the back nine. Remember that? On back nine means that we're older than, what, 40 maybe? I don't know, 50, 50, somewhere around in there. But she was talking about that. And it's good that you continue to exercise and try to eat right and do what's necessary to preserve a good lifestyle.
[00:22:34] Speaker C: Well, now that I'm retired, I have more time to exercise.
At the end of a day, after you're working all day long and you say, I'll exercise tonight, let me just go sit on the sofa for ten minutes. Guess what? You never get up from the sofa of retirement has given me the opportunity to exercise more.
[00:22:54] Speaker A: That's really great. Let's get back to real estate for just a moment. In the Bay area, I've called sellers the red ants, and I call buyers the black ants, and they're all put together in this jar. And I think from about August through just about now, it's been pretty quiet. Nobody's been shaking that ant jar. And when I say the sellers are red ants, it means that people that are potential sellers are primarily made up of people of retirement age and the people that are buyers are, well, a lot of people use the term millennials, 38 to 43 in that particular range, and the market has been somewhat equal. Buyers are there, sellers are there, but not to any extravagant degree. So the prices of our Bay area homes have pretty much stayed the same. One of the interesting things that came out, and I didn't realize how important interest rates in the mind, either through perception or actual affordability for a loan meant to buyers, they tend to look at those numbers and say, okay, well, the interest rate is almost 8%. I'm not going to do anything. In the Bay area, though, you have home appreciation that is far more important by buying in the right location, in the right neighborhood, far more important your tax benefits than the interest rates. So here we are with a limited number of inventory of homes for sale, but yet the buyers are buying them. And we do have multiple offer situations. Still, the important thing, I think, to realize is that you need to buy that home before the price goes up, because I don't see a lot of inventory coming on the market anytime soon, and I see buyers, as the interest rates come down, I see buyers going more and more and more towards it.
[00:24:52] Speaker C: Yeah, interest rates are unfortunately the major topic, and it really probably shouldn't be, because the 100 year average for mortgage rates are probably approaching that pretty darn close right now. We were spoiled for 15 years with two 3% rates, and that just was not a reasonable idea that was going to be consistently around for a long time. But we kind of got misled that this is normal, and it certainly was not. So anytime you can get a home that appreciates, not that you're going to ever guarantee a home appreciating that exceeds the cost of the interest, when you subtract out the tax benefit of that payment, you're probably in positive area in most years, never guaranteeing that. But historically, looking back over the last 2030 years, you pay interest, you get the tax deduction, then you get the appreciation. The net of that equation is normally you're in positive territory in terms of your net worth growing.
[00:26:01] Speaker A: And people don't even really think about the effect of having your mortgage interest deduction. They don't think of the magnitude of that very much.
[00:26:09] Speaker C: That's big.
[00:26:10] Speaker A: Yeah, it's big. And the depreciation, it's what, 27 and a half years that you can depreciate the structure or your building that's on your property. It's big news. And so we try to advise our folks get in, and if the interest rate is 7.8. Just wait because interest rates go up, interest rates go down and refinance. But if you wait until those interest rates come down, more buyers come on the market and shoot the prices higher, then it makes it harder just to get in. Interesting. There was a study that came out that said in order for someone, a family or a person to save 20% down, it takes almost eight years. Well, what happens to the appreciation in eight years, Pat? Wow.
[00:26:57] Speaker C: You can't save fast enough because your inflation is outrunning you.
[00:27:06] Speaker A: Most definitely.
It's been a real pleasure speaking with you today on the show. It's just great to pull Papa Victor out of retirement and take him for a spin around the studio and say, hey, what's happening with you? And to hear all your great viewpoints on real estate as well as everything else. Thank you, Pat.
[00:27:27] Speaker C: It's been a pleasure. Michael, it's always fun chatting with you.
[00:27:31] Speaker A: We talk about interesting topics, great people, and, of course, real estate. You can listen to archived real estate and more shows on Michael hatfieldhomes.com slash radio, or you can go to any of the podcast platforms and find us there. I'm your host, Michael Hatfield. I'm thanking you. And we'll be right back with our next special guest. Stay tuned.
