We are living in a time where everyone wants everything quickly and easily. But convenience can come at a high cost, especially in the case of real estate.
In addition to being busier than ever, people are looking for ways to dive into real estate and close deals faster, but they may not have all the necessary knowledge. A survey of 1,000 millennial Americans on topics related to real estate reveals that there are many facts about the industry that many people don’t understand.
Too often, people think of real estate as a very complicated process and don’t take the time to learn the basics. The result is unnecessary fees and confusion about the cost of homeownership.
“The survey results highlight that the real estate industry has historically complicated the process, added unnecessary fees, and created confusion about the cost of homeownership,” said the real estate technology company that conducted the survey. Homi said. “Millennials surveyed said they were largely unaware of the many complexities involved in buying and selling real estate, underscoring the need for better transparency and education.”
New buyers don’t understand the real estate process and are unaware of how much money they are leaving on the table. As a teacher and coach to real estate investors, nothing gets me more excited. We all work very hard to throw money around.
You’re busy, and I get it. So let me highlight some simple facts and adjustments that you can make that will give you huge benefits.
learn the basics
Yes, there are details to learn and essential questions to ask. You won’t always be able to anticipate all of them, but you need to be aware of the process and do what is logical for you.
It doesn’t take that long for transparency and education on the basics of how real estate works to find its way. With BiggerPockets and informative free blogs, the information you want is just a click away.
Connected: The Beginner’s Guide to Real Estate Investing
fallacy of commission
A remarkable 65% of Millennials surveyed didn’t know how much commission realtors get when selling a home. The rate is usually 6% of the home’s price, which is split equally between the buyer’s and seller’s agents. The seller pays for all the commissions.
While 6% is standard for a commission, fees can sometimes be negotiated or made up. For example, if you sell the home by owner, you’ll save those fees. You can use Redfin or an agency to pay the fee for listing your home on the MLS only to save on commission fees.
agent advice
You may not need to use a real estate agent at all! However, it may be worth the price if you don’t want to deal with certain processes or need support. The right agent will help you do all the legwork in marketing, negotiating, and selling your home.
It is important to read the fine print on any contract and ask questions. Companies like iBuyers charge 6-14%! While they make the process much easier on a $300,000 home sale, you could end up paying $42,000 at 14% for the service.
Nearly half of those surveyed thought it was free to use a buyer’s agent to buy a home. “This myth has helped keep real estate commissions artificially high because the current system makes it difficult for sellers to negotiate buyer agent commissions (BACs). The fact is that buyer’s money is typically trans- Den used to pay both listing and buyer agents,” Homi explained.
Connected: How to Find an Investor-Friendly Real Estate Agent
Whenever you sell a property with an agent, you (as the seller) are responsible for paying commissions to both the buyer and the seller. If you sell the house for $250,000, 6% of that, or $15,000, goes to paying agents. For sale by owner deals or the absence of an agent often save the buyer on the purchase because the seller does not have to pay agent fees.
While there are many benefits to using a great real estate agent, 16.5% of Millennials incorrectly believe that consumers are legally required to use one in order to buy or sell a home.
Real estate transactions can be complicated, but if you hire an attorney or use an escrow company (depending on state regulations for real estate transactions), you can ensure legal guidelines and protect the deal. Can handle the transaction with proper paperwork and documentation. ,
What’s more, slightly more than 80% of Millennials surveyed were unaware that you can get a real estate license in most states in only a few weeks. Remember, real estate is not brain surgery. It takes very less time to learn and is less expensive than becoming a medical surgeon.
mortgage myth
Only 13% of those surveyed felt confident in the process of buying and selling a home. Understanding your mortgage loan is essential, and there are many myths that I’m going to dispel here.
When you don’t have a 20% down payment, banks charge a fee known as private mortgage insurance (PMI). Yes, it’s never a good idea to pay extra, but if it gets you into a property, it might be worth it.
There are many different ways to qualify and get a loan. You may be eligible for an FHA (with only 3.5% down) or a VA loan (for 0% down). Or perhaps you can be a partner in the deal, and the partner can bring in the down payment so you can avoid PMI. Be sure to explore all your options.
loan rates
Lenders’ loan rates are not necessarily the same. I recently refinanced a home and saved over a quarter point on the loan by buying. The loan officer I worked with on a few other deals was extremely knowledgeable and helpful, but at the end of the day, I couldn’t justify spending the extra $23,000 because I liked the guy. (Yes, that is the amount I saved during the tenure of the loan.)
mortgage payment
The traditional mindset of owning a home is that you must pay it off as quickly as possible in order to be debt free. With interest rates changing all the time, it can make sense to carry a loan as you can use the extra cash to buy more real estate and claim the mortgage interest as a tax deduction. Either can be a good choice depending on what you want to achieve.
If you like the idea of not making mortgage payments, paying off your home loan is a solid idea. If you want to earn more income, then having more assets and mortgage is better for your goal.
If you decide to take out the mortgage and focus on investing in other assets, you need to make sure that you don’t take on so much debt that you run the risk of not being able to make the payments. Make sure you have budgeted repairs and vacancies.
Connected: What’s Better Financially: Paying Off Your Home Mortgage or Investing That Money?
Real estate investing can be unpredictable, and you need reserves to cover unexpected expenses. With COVID-19, I have many assets that have not brought expected returns, some of which I needed to fill from my own pocket. I needed to make sure I had money saved to make my payments.
In a 30-year fixed rate, most of the payments in the first 10 years of the loan go toward interest. If you don’t want to take out your loan for 30 years, you can explore different options to pay it off faster. There is an aggressive strategy on YouTube that talks about getting a HELOC and using it as a checking account to pay off your loan in full within 5-7 years. But if you have the wherewithal to make a 10% return on your money, paying off a 3.5% loan fast may not be worth it.
conclusion
There are many ways to save and make more money in real estate by taking a little time to educate yourself on different real estate topics. While many “done for you” agencies provide quality service, they come with a price tag that isn’t always easy to see. You can save a lot of money by shopping around for the best rate, weighing up your options, and learning how the whole process works.
Convenience comes at a cost, and once you know the price tag, you can decide for yourself whether it’s worth it.
What do you wish you had known when you started in real estate?
Share some lessons in the comments below.
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
