Episode Transcript
[00:00:01] Speaker A: The Michael Hatfield Remax team presents real Estate and more 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. Now here's your host, Michael Hatfield.
[00:00:20] Speaker B: Good morning. My guest this morning can best be introduced as an experienced television and radio talk show host, a financial planner of some 30 years, an author of a book that he did regarding financial planning, and an experienced world traveler. I've asked him and his bride before they left on this recent trip when they visited India, Dubai, Turkey, Greece and its islands, Italy and Africa, to come back with some ideas regarding housing and how it fits into the retirement industry. That's what exactly he's done, and we're going to talk a bit about that today. There's no possibility anybody knows any more about retirement and great ideas and places to retire than our guest, Mr. Pat Vitucci. Welcome.
[00:01:05] Speaker A: PAt ViTucci Michael, thank you so much for having me today.
[00:01:09] Speaker B: It's my pleasure. In fact, it's a little bit different. Usually. I've been on your show and now turning around and you're on this fledgling guy show coming out trying to make things happen. But our focus today is on places that people could go to retire and how it connects to real estate and how important real estate actually can be. We're going to start with the Bay Area and go from there. So many folks at retirement age contemplate moving to other states, perhaps other countries, for financial reasons, taxes, cost of living, politics and sense of community, and a host of other reasons. The last I heard, more than 300,000 folks annually are moving out of California elsewhere to elsewhere locations. And state taxes are just one reason. What states are you aware of that have no state taxes? Pat?
[00:02:05] Speaker A: Well, it's interesting when I've been consulting with soon to be retired couples or already retired couples, and certainly we know living in the Bay Area, a large preponderance of somebody's net worth is locked into their home. Those expensive two X fours we bought for $69,000.30 years ago is now a million, 269 or whatever that number is. It's a big number, so it represents kind of an inordinate percentage of somebody's net worth. And so the question is, have you been diligent in funding 401 IRAs along with the growth of the value of your real estate? As we know through our 30 and 40 year work career, lots of issues come up that will compromise your ability to keep pounding away at your retirement monies. So depending upon your trail that you've left behind and kids and health care and all the other issues, and maybe taking care of your parents, you wake up and you're 65 or 67 or 70 years old, and you say, okay, here's my financial net worth picture. And you've got some 401, some IRAs, maybe some annuities, and then you've got real estate. And so you've got to now conclude, what do I do next? And so a whole collection of issues comes into play about your decision, whether you stay in the Bay Area or whether you move elsewhere. Certainly your interest. Are you a golfer? Are you a fisherman?
Do you like to go to the library? Do you like to watch soap operas? All those issues are what I define as, what are your interest levels for you and, or if you're married, what about weather? Do you like the weather you're living in in the Bay Area, or would you prefer something warmer, colder, whatever? Certainly a big issue. One of the, probably the biggest issues is health care. We all know health care is important, and America does have the best health care system on the planet. People come from many other countries to utilize our health care system. Politics. Are you okay with the political climate of where you live?
That can sometimes be very annoying or sometimes very comfortable. And the cost of living? We know California is very expensive. We know that. So how does that tie in to your net worth and your cash flow sense of community and your family connections? If you left the area, would you leave your family behind? And would you leave your community behind, all your friends?
So all those things, Michael, kind of ties into kind of the basic rudiments of the geography. What about the geography of where you want to be? And you've been in real estate for many years, and, you know, the Bay Area is hard to beat in terms of climate, in terms of health care. Right.
[00:05:42] Speaker B: The first one that I think you mentioned is that in the Bay Area, we have this opportunity to make money while we sleep. And I think that that is something over time. And I can't actually quantify the time, but let's just say within a four to ten year period, no matter where the values of homes have been, they're going to improve and increase. And while you sleep, home appreciation is what will put money into your retirement package. And generally speaking, that's usually come out a pretty big number. I would think so. The Bay Area has it. Many other areas do not. We can talk about other states, such as Nevada and Texas and Florida, with no state income taxes. They do have that benefit, but yet at the same time, to find that level of appreciation that we have here, the money while we sleep, a factor, you just don't have it.
[00:06:36] Speaker A: Now, I have a college. Budy went to Indiana State and married a local gal there.
[00:06:45] Speaker B: Didn't know you had any friends.
[00:06:46] Speaker A: Well, I've got a couple. I don't like to brag about the couple that I have.
In any event, he bought his house about 30 years ago for $200,000. And I talked to him recently. It's now worth $325,000. So that's kind of emblematic of what we see outside of California. We just don't understand. He said, you've got California dollars, I've got Indiana dollars, and they're dramatically different. I mean, I bought my house 30 years ago for a modest number, and it's worth a whole lot more today. As we all know, California real estate has appreciated, as you've just said, appreciably, more than almost anywhere on the planet. Right.
[00:07:33] Speaker B: And, you know, the reason for that, Pat, is that we have so much to offer here in the San Francisco Bay Area. We have the city for nightlife if we like. We have the Silicon Valley, a couple other great areas such as Monterey, Carmel, Peninsula, beautiful down there. And then you can go up to the wine country and get married if, you know, you can do all kinds of cool things and not to mention Tahoe and the beautiful skiing and things that we have up there. But primarily, we get that appreciation that it's really focused on the business and enterprise that we have here. Other areas that I've noticed that's kind of important is, yeah, you don't have the appreciation in Florida, in Indiana, and this kind of a thing, but you can get cash flow from rental income, probably better there than in a lot of other.
[00:08:24] Speaker A: I mean, where else in the world can you ski in the morning and play golf in the afternoon? I mean, it's a pretty unusual concept. And so that's why the barrier will continue to be a magnet for wealthy people. I just read an article the other day, there are more millionaires in the state of California than any other place on Earth. And I think there's 113 billionaires in the state. So that's a big number, and I think you hit it on the head. Silicon Valley has been the epicenter for driving wealth, not to excuse Hollywood and the whole entertainment business down south.
So we've got some strong industries, and agriculture certainly has been kind of the pillar of just sustainable income year in and year out. We generate more vegetables and fruits, et cetera for the world to enjoy. So it does have the diversification.
[00:09:31] Speaker B: Yeah, just to digress just a moment and talk a little bit more. In the Bay Area, people at the beginning of this year were know, how's the market? And boy, is it going to crash as far as housing goes? And I would say, I don't think so. And the reason is we have seen so scarce of housing inventory for sale that it's just put all of the sellers or potential sellers saying, if I don't get a decent number for my home, I've already refinanced it or paid it off, and I've refinanced it a very low number. Why should I move? And then you got the buyers, which are primarily made up of the new generation, as we call it, or the millennials that are people working in Silicon Valley, and they're driving a Tesla and two kids and a family, and they're looking at things differently. They're more concerned about those interest rates than they are about that aforementioned benefit of housing appreciation. Housing appreciation, making money for you while you sleep, not to mention the tax benefits that you have of owning a residence.
One point before we move on is that I see that people that have a high income pay a lot of taxes out of their paycheck each time they have a paycheck. And if they were to take that money and say, you know what, $750,000 of that can go directly to my mortgage loan. And so I'm trading it from paying taxes to the mortgage loan while I gain the housing appreciation. That's a wonderful thing here in the Bay Area.
[00:11:10] Speaker A: Yeah. So, Michael, in my world, when I coach future retirees, you go from the contribution phase, where you're contributing to 401 Ks and IRAs for hopefully 30 or 40 years to now, the distribution phase, where you're taking money out. So it's a completely different mindset. And now cash flow is very important. So your home is worth, let's pick a number. A million five in the barrier. So do you downsize and go to Rossmore or go to Oakmont in Santa Rosa or the villages in San Jose? And you buy down and you buy something for five, 6700,000, and you take the excess half million or 750,000 and use that as an incremental cash flow option?
Or do you go to somewhere else in the state, some lesser cost area? You don't need to be near Silicon Valley, where all the great paying jobs are. You move to some outer reaches, whether it's Modesto or the desert or the Lake Tahoe area. So there's other lesser cost areas where, again, you can buy something or even rent something. Some of my clients have rented, and they are taking the excess cash and using it as a cash flow that they can supplement, use it as a vacation number, or maybe you've got to help your kids, your grandkids go to school. So you go from the Bay Area to the state. And now, if you're willing to go outside the state, there are lots of other options. Nevada, Texas, Florida are the three states. Michael, we know. We've seen a lot of clients go to those states. Why? Because there are no income tax states. And we know income state income in California, 13.3%, highest in the nation. Right. So that's a real savings. Month to month, you do the arithmetic, and that really ends up in your bank account. And that looks pretty green after a while. Now, if you're willing to go outside of the country, the ones where my clients have moved to are Costa Rica, Portugal, Greece, some parts of Asia.
Wow. Now you're really talking about not only buying a house on the beach or up in the mountains where you ski, but now you've got a gardener and you've got a chef, and you've got lots of other accoutrements that you just don't realize how well you can live in. Even Mexico, you buy something for under 500,000, then you're living like a king or queen.
So a lot of those options, Michael, my clients have opted for that. And they've said goodbye to California, and they come back and visit their kids or their families.
[00:14:23] Speaker B: You know, I was talking to a couple the other day, and they were talking that very same thing. Well, I don't have a place to go. The point is that if you sell and you've got a million five value in your home, your home value is a million five. And you sell it, you can put away a half a million to a million dollars into your bank account. You have the ability to go anywhere that you want, do anything you want. So you could retire to a specific destination or to multiple destinations, or you could rent for a while till you determine exactly what you want, just put your stuff in. So, storage. And obviously, you sell your home, and you have that type of proceeds from the sale. You have the funds to pay for the storage without too much pain. And then I'll look around and find out what you would like to do.
[00:15:11] Speaker A: The simple math is, if you sell your house for a million five, and let's assume there's no mortgage, and you buy something for 500,000, you've got a million bucks left over, and you take five, six, 7% income. That's 50, 60, 70,000 a year to supplement your Social Security if you're blessed enough to have a pension and or the proceeds of your IRA or your 401.
Wow. Now, cash flow looks a lot more attractive now that I've cashed in my expensive two X fours in the Bay Area.
[00:15:51] Speaker B: One of the things you keep thinking about this is that health care is extremely important. So you're going to have to find a place that has enough of those attributes that you're going to be happy. Health care, you could move to Scottsdale, you could move to any other area that you would please. But one area that's so important for people and for human beings is the sense of community. Heck, when I retired from the airline business more than 20 years ago, I found I didn't have any friends that were located all the way around the globe, everywhere. They're up in Cincinnati or they're down in Charleston or they're there or whatever. The sense of community is so very important, and it's something that you're going to have to ferret out if you retire and you have the proceeds from your home and you're using that as a pole vault stick to get you into a suitable retirement environment. I got to say, that sense of community is unbelievable. We had one vacation. We went with a friend, a couple of ours, to Italy, and he was born and raised in Italy. And we went to this little village in the back up behind the city of Luca, and the whole village extended themselves to us. They were remarkable because they were so self sufficient. They could grow their own olives, they could grow their own grapes. They made their own wine. They had a master that took care of the pigs in the area. And at the end of the year, they would slaughter the pigs, and they would make the prosciutto and the sausage and everything that they did, and the cheeses just so remarkaBle. And the hospitality there was so grand.
In some places, it's not that suitable for people like me. You know, me, I've only got one friend, that's my wife, and maybe you on occasion.
[00:17:45] Speaker A: It's interesting when you travel and part of my job, I always felt, as a financial advisor, visit other countries so I can better coach my soon to be retired clients. And so we've been blessed with traveling to Dubai and Italy and Greece and Africa, and I always kind of poke my head in a realtor's office. And kind of know, give me an idea of what a three bedroom, one and a half bath house would look like and whether it's on the beach or in the mountains or whatever.
And so I can come back and kind of coach my clients. Well, if you move here, if you move there, your cash flow is going to be amplified. But keep in mind, you're going to leave your family and friends behind. And if you're not outgoing and willing to join clubs and get involved in just what you described, get involved in that little village, you may be unhappy and you find yourself wanting to come back or you miss your grandkids. So all those things becomes the fabric of that decision that has so many moving parts that it's not easy. And I think you hit on it. Maybe you rent for a year. You think you really want to move to Mexico? Well, maybe you rent for a year or six months and see how it feels. If it feels good, then you could always buy. But there are people who have moved to what appear to be Hawaii. Take Hawaii. I think something like 70% of people move to Hawaii after one year leave. They get rock fever. It's a beautiful place. It is paradise. But you're fairly isolated. You're on an island. There's no baseball teams to go see, no football teams, not much theater.
You can't ski too well in Hawaii, so it's limited. If you love the beach, gosh, it's no better place on the planet, but it is limited. And sadly, I think something like 70% of people move back to the mainland. So it's all those things. Maybe you love to go on vacation, and your mindset when you're on vacation is very different from when you live there. So Mexico is a great place to visit, but do you want to live there? And so all those things emotionally have to fit.
[00:20:16] Speaker B: Yeah. One thing that comes to mind with me is that people constantly ask us, hey, how's the market? Well, I have to say it again. There's more than 50,000 markets, housing markets, in the United States, and then there are submarkets, which are by price range. So, for instance, 700 to a million dollars, and then there's another range, from a million to whatever. They move around a bit. But the market is like the ocean, and all of the home values are in that ocean. If the market is robust, like we were predicting back in 2017 when we had our financial crystal balls out and probably didn't know, but we saw something coming. Right now we have a very limited inventory. You put any demand to that housing inventory, the prices are going to go in even higher. So if you're really willing to look at the market today and you're really willing to sell your property today, you're going to get a very reasonable amount of proceeds from it to use in your retirement.
[00:21:22] Speaker A: So then the question is, what's the next chapter of your life look like? What do you do with those proceeds?
And that's the pivotal question that we all come to when we finish our work life and we go into, hopefully, a long retirement life. And, gosh, it's just a whole new wonderful chapter that people move into. And it's the enjoyment years. You've worked hard for many years, and now you get to go out and do what you want to do. And the freedom of having time is incredibly freeing. And what do you do with the financial aspects of your life? And does it tie in emotionally and is it comfortable for you based on those critical decisions that you make? And Michael, you and Nancy have been doing this for a long time, and you've been able to coach a lot of clients that go from the big house to the little house or vice versa. Younger couples who've gone from the small, modest homes to their dream home. So you're in that transition process as well, and you've integrated that coaching beautifully.
[00:22:40] Speaker B: Wow. Thank you so much for that. Now, you just came back from Greece. I know you and I, prior to your departing, we talked about Greece. We talked about Portugal. Awesome countries, I understand. And you can live for like a third of what it cost here.
Tell me about your observations in beautiful Greece and the Greek islands.
[00:22:59] Speaker A: Greece was amazingly beautiful.
Santorini and Mykonos are just incredible little towns.
You can buy a really nice place, ocean front, for $300,000.
It's just ridiculous. Now you've got a different culture. The cost of food is a fraction of what we pay here.
But you're a foreigner, and unless you know the language and are comfortable or can learn it. I'm of Italian descent. I spent a fair amount of time in Italy. I'm really comfortable in Italy. And if you stay out in the Tuscany region and you buy a little ranchette, a little with an acre or maybe some vineyards on, just, it's just incredibly beautiful. But you've left everybody behind, and you've got zero friends in that town, zero family. And if those are important elements of your retirement, you're probably not going to like to go to those you'll visit know. Tuscany's beautiful.
We happened to go to Andre Bocelli's hometown and see him in concert at his theater out, way out in the country. It was just a beautiful experience. Would I want to live there? I'm not sure, but it's a great place to visit and it was great experience.
[00:24:30] Speaker B: So what about the retire everywhere concept, meaning that you like to ride horses, but you don't like the snow. You could get a place up in Idaho and stay up there for four or five months or so, and then you like the desert, or you need to be near healthcare, you go down to the desert and then you can spend some time in Hawaii. What about this retirement everywhere concept that some of my friends have been? I don't have many friends. Some of my clients have been talking about. What about that thought? Isn't that great to think about? Know, you could get a little place here, a little place there.
[00:25:05] Speaker A: It's certainly a lifestyle that a lot of people would envy. And you get a little taste of everything. When the weather turns bad in Idaho, you go down to the desert, and when the desert gets too hot, you go to Hawaii and maybe getting a couple condos in a couple places or renting.
So there's lots of options. And look, we only go around once and we're getting older and we know, we've seen friends and relatives go through difficult health care issues. So you've got to follow your heart. And certainly the money kind of can drive those decisions, but it shouldn't dictate those decisions. And I think the lifestyle you've always dreamt about, now's the time to try it out. I subscribe to International Living. I would encourage you to go on their website and they have a lot of great stories of people who moved, and you name the place, all the places we've been talking about. And the common theme is that they're enjoying every day of their retirement, whether they stay a year, two years, five years or less.
It's your turn to enjoy the fruits of your labor. And how you do that is really dictated by what you and or your spouse have dreamt about for your entire life.
[00:26:32] Speaker B: You know, I find importance when you say what you and your spouse always dreamed of as it draws attention to the incredibly important habit of dreaming. I just like it when people, our clients, our friends talk about their dreams. In some cases, many of us may tend to engage themselves day in and day out in work routine, just putting their head down and working. All too often we do not attend to the joy and the happiness one can receive from simple dreaming. Then, of course, following those dreams as a real estate person, it's incredibly rewarding to help a young family in their quest to own their own home. They look, they search, they plot, they plan, but most of all, you can see that they dream. And when that perfect home is found, it is truly a heartfelt moment when they realize their hopes and their dream has been realized. You have to dream a dream for a dream to come true. People of retirement age can dream, too. It just may be a forgotten endeavor. It is important to dream about what makes one happy, as sometimes as we grow older, we simply forget to dream, dream and go after your dreams while health still allows.
You are listening to real estate and more. We're going to take a short break and we'll be back momentarily for more with our special guest, Pat. That's.
