With Terry Story, a 29-year veteran with Keller Williams located in Boca Raton, FL
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Real Estate Cyclicality
On Real Estate Roundup, Steve and Terry have seen the best of times and the worst of times. Real estate boomed in the 2003 – 2004 timeframe and then crashed terribly in 2005 – 2006. It has now come full circle, with real estate prices back up again.
When housing markets were riding a high in the early 2000s, people gave up high-paying jobs to speculate in real estate. And they did so without learning the ins and outs of the business. Then, when markets crashed, neophytes fled the real estate sector in droves.
Steve likens this to investor behavior in the late 1990s, when the stock market was booming. Back then, all you had to do was throw a dart at a few stocks, and you could be virtually certain those stocks would rise. The 1990s bull market encouraged day trading by people who thought they knew what they were doing but really did not.
When real estate crashed in 2008, newer participants fled the market. Then, seasoned and experienced agents rose to the top and reclaimed the lion’s share of the business as buyers valued their expertise.
Real Estate Is Hot Again
Now, in the middle of 2018, real estate prices are back up again. Furthermore, tight inventory has led to bidding wars. This hot real estate market has again attracted under-experienced agents. With more agents chasing fewer deals, agents are way more aggressive in their hustle to compete for business.
In Florida alone, the number of real estate agents has doubled since 2012. An agent does about 2.1 transactions a year, on average. With deals going to seasoned agents, many under-experienced agents struggle to get even a single home sale.
On the flip side, a lot of the low-hanging fruit goes to newbies, and experienced agents lose out on cushy deals.
Online Rental Scams
Switching gears, Steve brings up online scams that are hurting renters.
Here’s the modus operandi: Scammers look for homes listed for sale. They then list the property as a rental on online rental advertising sites, using photographs from the sale listing. Scammers under-price the rent to make it more enticing and attract multiple rental offers.
For instance, a property that should rent for $2,000 might be advertised for $1,850. The low rent is attributed to an urgent need for money from some made-up emergency. Scammers then trick would-be-renters with urgent-sounding stories.
For example, they get renters to wire an advance deposit to them in exchange for the house keys, purportedly payable after the keys are returned.
Protect Yourself From Scams
Here’s how you can protect yourself. Before you go to see a property for sale or rent, do an online search on its owner. If you meet someone at the house, ask the person you’re meeting for a copy of their driver’s license. If they claim to be an agent, ask them for the owner’s name and number. This way, you’ll know if you’re dealing with the owner or a scammer.
If the deal sounds fishy, simply walk away.
IRA Penalties For Down Payment
Can you tap into your IRA to make a down payment on a house?
You can but with caveats. If you’re a first-time home buyer, you can withdraw up to $10,000 from your traditional IRA, penalty-free. You will, however, have to pay taxes on the withdrawal.
For example, if you’re in the 28% tax bracket, you’ll have to withdraw $13,000 to cover the down-payment and taxes owed.
You could also withdraw money from your after-tax Roth IRA and not worry about paying taxes on the withdrawal. But most people won’t know that. So it’s best to speak with your financial advisor on tax-efficient strategies for life’s various cash needs.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 29-year veteran, 29 years, Terry.
Terry Story: Whoo, gosh, I’m getting old.
Steve Pomeranz: We have a Keller Williams, located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: Okay, let’s talk about you.
Terry Story: Me, yay.
Steve Pomeranz: And let’s talk about the real estate agent business. So we’ve been on the air, you and I, for a long time. We’ve been through the great markets of 03 and 04 and then the terrible crash in 05 and 06 and on and on and on.
And now we’ve come full cycle—that has been a long time, okay? So, first of all, how has the business changed? When the markets were riding high in the early 2000s, what was business like?
Terry Story: People were giving up really high-paying jobs to come into the real estate market because we were just nothing but order takers.
That’s what it was perceived to be. And so, gobs of people came running into the marketplace. People becoming real estate agents and then the crash. And when that happened, they went running out of the business.
Steve Pomeranz: If we had the sound effects, we’d have the sound of a toilet flushing. Flushes out all of the weak players.
Terry Story: And the problem is, when they came into the marketplace, really, they were acting like order takers. They did not really learn the business; they didn’t understand the business; they were just going along and-
Steve Pomeranz: We experienced something like that from time to time too, like in the late ‘90s when everything was going up, you threw a dart and you were a genius.
Everybody was day trading; they were coming into the business. And they were order takers, basically, an order taker because the media was driving it, and people thought that they knew what they were doing and they were driving it.
Terry Story: Exactly, same thing here. Then the crash, a lot of them exited and so, for seasoned experienced, good, solid agents like myself, cream rises to the top. We even took larger lion shares of the business.
Steve Pomeranz: But it’s a catch 22 because you get more of the business, but there’s less overall business to be had. People are not able to buy-
Terry Story: True.
Steve Pomeranz: Back then, so the idea is when the cycle turns, now you’re more well-established.
Terry Story: You’re more well-established.
Steve Pomeranz: That’s when you make your big money.
Terry Story: That’s right, and now we’re in that stage where, actually, in the state of Florida we’ve doubled the amount of real estate agents we have from 2012 to today.
Steve Pomeranz: Okay.
Terry Story: So.
Steve Pomeranz: The cycle is repeating.
Terry Story: It’s repeating itself, and people don’t realize your average realtor does 2.1 transactions. So if you’re investing.
Steve Pomeranz: 2.1 transactions a month?
Terry Story: A year.
Steve Pomeranz: A year, really?
Terry Story: A year.
Steve Pomeranz: [LAUGH] Okay, so that means that there’s a lot doing zero.
Terry Story: There’s virtually a lot doing zero. And so, those are the ones that really hurt our industry for a seasoned agent, a lot of times we just have to hijack the file. One of these agents brings it to us because we want to to make sure that the transaction goes smoothly. Saying just get out of my way, give me everything, I’ll take care of it. I’ll give you your check.
Steve Pomeranz: But a lot of the low-hanging fruit goes away from the experienced agent because my Aunt Mary is going to sell their place-
Terry Story: That’s true.
Steve Pomeranz: And then this inexperienced agent can take.
Terry Story: And that’s the part as an experienced agent you hate because those should’ve been your easy gimmes and-
Steve Pomeranz: They’re no longer there.
Terry Story: You don’t necessarily get them.
Steve Pomeranz: Okay, so now we’re part of the cycle where real estate is hot again, right? Prices are rising, ever, ever, ever, ever and more and more real estate agents are entering the market. So now there’s more competition for listings, I suppose?
Terry Story: Correct, well, the listing inventory is tight and so there’s a lot of complaints about robocalling. Agents calling, cold calling, a lot of very aggressive…one of my clients told me, we took the house off temporarily, received 245 phone calls, mailers, people knocking on their door. That’s excessive.
Steve Pomeranz: You think?
Terry Story: And the thing is, we just took it off the market temporarily. I’m putting it back on the market. So he had to keep saying, hey-
Steve Pomeranz: Well, that was your fault. [LAUGH]
Terry Story: Right, it was my fault. And I warned him, I said, when we do this, be prepared.
Steve Pomeranz: Boy, okay. All right, let’s change the subject. Thanks for sharing that, by the way. I want to get to this topic of Craiglist rental scams. Now, we’re going to talk about that, but the problem, initially, the reason I want to discuss it is that it’s just hurting people who are basically desperate.
Terry Story: That’s right.
Steve Pomeranz: So let’s talk about it, tell us about it.
Terry Story: So basically, the deal is the scammer puts out an ad on Craigslist and they will use a property that’s already listed for sale.
Steve Pomeranz: So they’ll take a picture of an existing property that’s not theirs?
Terry Story: That’s not theirs and they’ll say it’s for rent. Say it should be a $2,000 a month rent, they’ll say it’s a 1,850 whatever. So the desperate renter will call and there’s always a story, an urgency. I’m on my way, my mother…what have you, I’m on my way to the hospital, you send me $850, I’ll just send you the keys. Some kind of urgency.
Steve Pomeranz: I’m a nurse, I’ve just been transferred out, I’ve got to go by Thursday and I can’t, I don’t have time to show you the property.
Terry Story: Off site, right.
Steve Pomeranz: Right, but I love this idea, send me the money and I’ll send you keys, and the problem really here is, and they’re saying because it’s an emergency, I’ve discounted it to $850 from $2,000.
Terry Story: And then they will also take it a step further and say, and by the way, don’t call my real estate agent, they kind of scammed me, and I don’t want to get you caught up in that scam. If it doesn’t feel right, it’s not right, and I promise you, there’s that kind of urgency, it’s not right.
Steve Pomeranz: There’s no reason to discount a $2,000 rental unit to 850 and watch out for Craigslist and try to keep your emotions in check. If you can’t afford rentals at a given time, try to find some other way out, but be careful.
Terry Story: Here’s another really important tip: if you go to the house and you meet someone, go online, see who the owner of the house is and ask the person that you’re meeting for a copy of their driver’s license, so that you know that you’re actually dealing with the owner.
Steve Pomeranz: Got you, wow. Okay, so let’s talk about something else now. I need a down payment to buy a house. Can I tap my IRA to buy one?
Terry Story: Yes, you can. Now, the question is, can you do it without an IRS allowed exemption?
Steve Pomeranz: Yeah, the penalty.
Terry Story: Right, which is 10% early withdrawal. Well, if you’re a first-time home buyer, there is that exemption, first time home buyers can take up to 10,000 from their traditional IRA, penalty-free.
Steve Pomeranz: Okay, but you’ll have to pay taxes on it.
Terry Story: Correct.
Steve Pomeranz: So remember that, that’s a pretty important consideration, by the way, because if you’re in a 28% tax bracket, you borrow 10, you’re going to have to take something like 13,000 out and [INAUDIBLE] –
Terry Story: I believe with Roth IRAs, you can take out more.
Steve Pomeranz: Yeah, that’s different, well Roth is not taxable,
Terry Story: There you go.
Steve Pomeranz: Good, my guest as always, Terry Story, a 29-year veteran with Keller Williams, located in Boca Raton, Florida, and she could be found at terrystory.com.
Terry Story: Thanks for having me, Steve.