How to Use Your First Home to Fast-Track Wealth

Mindy:
Welcome to the BiggerPockets Money Podcast where we interview Jay Papasan and talk about the many paths to home ownership and how to make the most in this market. Hello, hello, hello, my name is Mindy Jensen. And with me, as always, is my multi-home owning co-host, Scott Trench.

Scott:
Thank you, Mindy. That intro really landed.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business or buy your first home, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.

Mindy:
Scott, today we’re talking to the Jay Papasan, the author of The One Thing, the author of Your First Home: The Proven Path to Home Ownership. And I’m so excited because he is such a delight. And if you are thinking about buying a house, if you know somebody who’s thinking about buying a house, they have to listen to this episode because he just drops hit after hit about things that you need to think about before you make your next house purchase.

Scott:
Yeah. We are also honored and delighted to be able to partner with Jay Papasan, author of The One Thing, and Gary Keller, founder of Keller Williams, the huge real estate company that we all know on a First Time Home Buyer book bundle. You can find that at kellerink.com. That’s kellerink.com. And you can get both Your First Home by Gary and Jay and First Time Home Buyer by Mindy… And I’m really struggling to remember who the co-author-

Mindy:
I can’t remember his name either.

Scott:
But you can get both of those books over at kellerink.com. And if you use the coupon BPKeller, you’ll get $10 off that bundle. You’ll get both books for $22. And we think they’re both fantastic.

Mindy:
Yes, we do.

Scott:
Go recommend that to anybody that you know that is looking to buy their first home. That $22 investment will save you thousands, tens of thousands, hundreds of thousands, or maybe millions over the course of a lifetime.

Mindy:
All right, Scott, we have a new segment on the show called Money Moments where we share a money hack, tip or trick to help you on your financial journey. Today’s money moment is did you know that you can make money by storing other people’s stuff or junk? Do you have an unused driveway, garage, space for storage? Then make an ad or use a website like Neighbor and post about the space. Charge a monthly fee, and there you go, passive income.
All right, before we bring in Jay, let’s take a quick break. And we’re back. Jay Papasan is a best-selling author and vice president and executive editor at Keller Williams Realty, Inc., the world’s largest real estate company. He is the author of The One Thing and Your First Home: The Proven Path to Home Ownership. Jay, welcome to the BiggerPockets Money Podcast. I’m so excited to talk to you today.

Jay:
I am so excited to be here. Thank you so much for having me. Yay. We’re both rubbing our hands together. Ready to go.

Mindy:
Let’s get going, let’s get going. Okay, Jay, let’s start off with you telling us a little bit about yourself and how you grew your wealth through real estate.

Jay:
Okay, so I moved here to Austin, Texas from New York City. And in New York City, nobody talks about home ownership. Let’s just be really clear. That’s something that your boss talks about. And even then, a boss had made a lot of money. And so we moved here in 2000. We rented an apartment, like everyone else does in their late 20s, early 30s. And I started working for a little real estate company called Keller Williams.
Back then, there were about 6,700 agents. Today there’s 180,000 so it’s a different story. But it really changed my thinking within I guess a month or two of joining the company, someone handed me Rich Dad, Poor Dad. And the pivotal moment for me, our vice chairman… Or CEO at the time, vice chairman today, Mill Anderson, was teaching a class on how to read a balance sheet, which a lot of us would recognize on this journey as a net worth sheet. But we had to do that for our franchisees.
I show up, I’m the only student that has to take the class that day. And the CEO, I thought she’s going to cancel. This is a waste of her time to teach an hour long class to one person. And she slapped her hands together, and she goes, “Well, this doesn’t have to be trading, it could be one-on-one coaching.” And I think my blood ran cold. I was like, “Uh oh, I’m about to be exposed.” But the net of that is I understood assets and liabilities for the first time in my life. No one had ever talked to me that way.
I went home, my wife and I did our first net worth sheet. And I remember we very generously valued our lives at about $2,000. And a lot of that was a Toyota Tercel that, within 12 months, was going to completely die. I remember asking could we put our new Target furniture on our net worth sheet? Because I wasn’t sure because we just paid $400 for it. So that’s just where we were. Luckily, we were positive but negative. But that exercise, I was like, “Wow, every month we’re spending X on Red. We really should buy a home.” And we bought one. We immediately started saving, and we bought one within the next eight months.
That’s like me coming out of the gate. There’s a 23 year history with me on the journey to being an investor and everything else that that journey to buying our first house started with the balance sheet conversation around wealth. And we bought the cheapest house in the best neighborhood we could afford.

Scott:
Love it. And so this is your aha moment is this one-on-one class, if you will. What else changed about your approach to personal finance coming out of that session? Besides the intent to buy the house right after that.

Jay:
Well, my dad was an executive, and a very successful one in Memphis. And I always thought you went into business and you worked your way up the ladder, like everybody else. And I just thought someday I’ll be an executive. At one point, I thought I’d be an attorney. I hadn’t yet even thought of the idea of being an author because I had been an editor before, salary job.
And suddenly, my eyes were opened, there is a P and L for my life, my budget where I’ve tracked my income and my expenses. And I had been measuring everything on how well we did on our expenses and how much income we could earn, but now there’s this whole other… More than 50% of the equation had been hidden from me, and it was about assets and liabilities. And that really changed my thinking about everything. Over the next years, my wife and I would become investors, we would launch businesses because we realized that businesses are not just income producing, they’re assets as well. It just completely changed my thinking.
I’m still a W2 employee, unlike my wife, so I still have to worry about my job income. But it’s also I’m thinking I’m playing a much bigger game. It’s just so weird. It’s like no one talks about this stuff. And how did I wait 30 years to get introduced to it? I wish someone had taught me this when I was 18, before I got my first credit card.

Scott:
Well, let’s zoom in on your first home purchase that you made here. You said you bought the cheapest house in the best neighborhood. Mindy, how do you feel about that?

Mindy:
I’m so excited about that because when you buy a $100,000 house in a $200,000 neighborhood, you can always sell that $100,000 house. People are always looking to buy in a neighborhood they can’t afford. But if you buy a $200,000 house in a $100,000 neighborhood, people who want to live in a $200,000 neighborhood don’t want to live in your $100,000 neighborhood, they want to live in a neighborhood where other houses are. The most expensive house or a house that’s on the higher end is going to be harder to sell in that neighborhood because people who are buying that in that price range are going to look in neighborhoods that feature more houses in that price range.
I do that same thing. I buy the cheapest house in the neighborhood because I’m always thinking of resale. I move a lot. I’m a live-in flipper, so I move in, I make it nice, and then I leave and sell it. It’s always easier to sell the smaller house in the bigger neighborhood because people want to get into that neighborhood. There’s this status of living in that neighborhood. I live in Bob’s Hill, so Bob’s Hill is a great neighborhood. You can always sell a house in Bob’s Hill. Whereas if you’re buying these super expensive houses, you want to be surrounded by people… God, I sound like such a snob. You want to be surrounded by people like you.

Jay:
You’re so bougie, baby.

Scott:
Jay, walk us through this first purchase. First of all, how’d you find your agent? Did you have any connections in that space?

Jay:
Yeah. Okay, so I’ll also just validate, when we were studying the million… writing the Millionaire Real Estate Investor, all of our research concluded that you want to be shopping in the median and below because that’s always where the most demand lives and you never get stuck holding an asset.
And the other advice I got from my mentor, which happens to be Gary Keller, he goes, “You’re not going to buy your dream house first, and so buy it to rent it or buy it to sell it.” And so we did buy the best house in… the worst house in the best neighborhood.
That neighborhood, let’s see, I was working with Peter Dennison, who’s still a realtor in KW. We had met him because he had been working… One of the longest serving at that time agents in the market center that was… The whole [inaudible 00:09:40] Center, the home office for us. We got to know him. I had actually shadowed him as part of my job. It used to be if you were a Keller Williams employee, you had to go spend a day in the field seeing what our clients, our agents do. I liked him a lot.
Found the house. I remember when Wendy sent me the photo. It looked like it had been taken by today… I guess there was still… By then, it’s 2002, someone would’ve had a flip phone, but it looked like a flip phone photo. And it was a solid concrete house that had a chain link fence around the front yard. And it was not attractive at all. And that served us. Whoever was listing the property had done a poor job of marketing it, but it was very close to downtown. It was within a mile of downtown. And that was our criteria; location.
And so we drove up. And I told Wendy it was as far south at that time in Austin as I felt comfortable living because I called it the DMZ. We were right at the edge of where crime was a lot more common, but we were still technically in Zilker, which today is probably the third or fourth most expensive neighborhood in Austin because it’s so close to downtown.
But here’s a solid concrete structure. It was 1,100 square feet. It had a chain link around the front of it for keeping the pit bulls inside. It was just that kind of neighborhood then. And I was like, “But it’s in this neighborhood, and it’s so close to the office, and it’s so close to downtown.” And coming from New York City, we wanted to be close to where the action was happening, so we went in. And it was totally charming. And I was like, “I love this house.” It was a two-one.
In retrospect, I would love a second half bath at least, but I didn’t know that much then. And I’ll give you a little detail. It had a wooden counter, and there was a pot on it because we never moved the pot. Turned out, there was a giant bird on the counter that was hidden. And we didn’t even move anything around. But it was $175,000, and we bought it. And remember, this is right when… It’s 2001, when the tech bubble burst.
And I remember thinking that we were completely screwed. Here we bought $175,000 tiny house in a generally good neighborhood, but we were in the worst part of the good neighborhood. And I was thinking, we’re never getting our money out of that house. But because we still own that property today, long term, the location, the neighborhood allowed us at the bottom to rise the farthest of all the homes. I think even up until the great recession, it averaged 14% year over year appreciation. It’s on point 0.11 acres too, by the way, so it’s tiny, tiny, tiny property. And I think it would be easily valued at around $950,000 mostly for the dirt. People tear down $800,000 houses in this neighborhood to build.

Mindy:
How much did you pay for this again?

Jay:
$175,000. And we thought we got screwed.

Mindy:
Okay, first of all, I love a good lazy listing agent who takes the pictures with their phone, and their finger’s in the way and you can see them in the mirror in the bathroom. Great. I love those pictures. People complain about those in some of my agent Facebook groups. Those are the greatest ones because buyers don’t like those pictures. They don’t want to go see those houses. Those houses sit, and that’s when you can find a deal. You just said something very interesting. You said, “Buy to rent or buy to sell.” And that’s what Scott and I cover in our book, First Time Home Buyer.

Jay:
Lovely book. Your publishing line is so strong. And we have very high standards around here, so great job, you two.

Mindy:
Well, thank you. But that’s something that we wanted to promote. We’re BiggerPockets, we talked about real estate investing, but if you are going to buy a house with the idea, oh, I’ll just rent it down the road, then run the numbers now as a rental, run the numbers now to sell it down the road.

Jay:
I’ll be honest, I did not think buy to rent it. I was told the advice, but it didn’t sync. I was thinking this is not in our dream house. We’ll live in it for a few years, pay off the mortgage insurance, and then we’ll sell it to get to a house that we ultimately love. We bought a house that we had an opportunity. We were going to do a fixer upper, like you did, Mindy. We ended up repainting it, re-landscaping it. I took all but the gate out of the front yard. And everybody would say, “Oh, that’s the house with the gate and no sense.” And we made it really charming, and we put in new floors. We did all the things. But I was thinking up until we wrote The Millionaire Real Estate Investor that we had bought it to sell it and then take our winnings to the next home. But when I read The Millionaire Real Estate Investor, I was like, “Well, that property could be our first rental.” And that’s what it ended up being, our first rental property.

Mindy:
What did the numbers look like on this first property?

Jay:
We ended up turning it into a rental right before our son, Gus, was born in 2004. Literally, my wife was eight months pregnant when we were moving boxes out of the house. I remember at that time we were able to cash flow it for about $35 a month before tax savings. And so we didn’t buy it with that in mind, so we got a little lucky. I’ll acknowledge that. In Texas, we have very high property taxes. We don’t pay personal income tax here, so they make it all up in the property taxes, so most of any of our cash flow gets eaten up by that. But if you own properties in this part of Texas, you’re probably… I insisted they cash flow a penny, but you’re looking more at the asset appreciation unless you’re getting into multi-family. That was the game we were playing when we got into it, and it’s worked for us. But we’re really just now looking at maybe doing a Reverse 1031. I’m going to be so sad if we sell that property. But the property taxes just make it so hard to make sure that it’s always flow. Renters have paid down our mortgage completely, basically. It’s now free and clear, it’s just the property taxes we’re chasing.

Scott:
I feel like someone listening to this thinks, oh man, if I could have bought in 2001 in Austin, I’d be a millionaire. Literally, that one purchase would put me 90% of the way towards being a millionaire at this point just by amortizing a 30 year note and getting the appreciation you got on there with a 5% down. Is that possible today? How do you talk to somebody at this point? And I also want to tag onto that with one follow up question before you even get going, which is in 2001, did it feel just as scary, do you think, to you as a first time home buyer as it does to somebody here in 2023 with the rising interest rate environment? Or was it different?

Jay:
Well, I remember thinking we got a great interest rate because it was in the low sevens back in 2001. A lot of people talk about, “Oh my gosh, interest rates are so high.” I have a long enough perspective, I’m like, “Well, they’re back to normal.” The 30 year average on a 30 year interest rate is around 7%, a little higher, actually. The 20 year average, which you could argue in the modern era is not that way, is still above 5%. I don’t see us going back to those crazy lows. I’m not going to count on it. I’m going to love the mortgages that I have at those rates today, but I’m going to count on my future acquisitions happening in that somewhere between 5% and 6.5%.
That said, interest rates are what they are. If it’s going to be an investment, I don’t think the math shows… It impacts your cash flow, but not that much. Ultimately, a renter is who’s paying the interest on your principle. And if mortgage rates are high, we’ve seen it, cost of owning goes up. What tends to come up behind that? The cost of rentals. You’re able to command more in that environment ultimately to cover that extra cost as a rental.
As a homeowner, it makes it harder to afford. This is one of the toughest times because we had a wave of appreciation after COVID, and now followed by high interest rates that have combined to make… I think this is the lowest affordability for first time home buyers in close to 40 or 50 years. They need a podcast like this to plan and prepare so they can get in and start building equity.

Scott:
Awesome. Well, let’s get into that. Let’s go straight for some of those tips. What should I be thinking about as a first time home buyer in this environment that wasn’t even maybe on our radar a year or two ago?

Jay:
Well, I think I’ll cap the question. And I think the opportunity’s still there. I think the math just works when ultimately the forced savings that’s inherent in paying down a mortgage has a certain rate of return. Y’all called it out in your book and we call it out in Your First Home. You’re also freezing your cost of shelter. And every year, as everything else goes up at whatever rate, you’ve locked in your cost of shelter, which creates its own savings.
I think in your math, it took, was it… It’s chapter three of your book, you talked about it. At the very least within 10 years, you’re always going to win. When we did our home rent versus own, I see it showing up in favor of homeowners historically within the first three to four years that you’ll get ahead of that unless you have really unexpected repairs that just suck money out of your wallet. Unless you’re unlucky, it’ll play. I still think that opportunity’s there. Just there’s too long of a track record of even modest appreciation on average, the power of the regular savings and debt pay down, so I still believe it’s possible.
I’m going to go out… I’m going to follow Mindy’s advice. I’m going to look for houses that are poorly marketed, and when right now we’re seeing days on market go up, I’m going to look for motivated sellers. And if you’re a first time home buyer, if there’s ever a time in your life that you’re going to put in a little bit more elbow grease, find a great realtor to work for you to help you hunt, maybe even knock on doors in that neighborhood. Maybe someone hasn’t thought of selling because they think the market’s bad, but you’re the face of a buyer for them, and they’ll change their mind. I’m going to look for something that I can put some elbow grease in. Today, I would probably look at duplexes. I know that BiggerPockets, y’all pretty much invented the term house hacking. I did the study, I think in 2014, it first appeared in Lexicon together on the BiggerPockets Podcast. Kudos to y’all.

Scott:
Mr. Brandon Turner. Yeah, we’ll give him the credit.

Jay:
That’s right. I love that. You look up. And could I rent one of the units if it’s a duplex? Could I rent one of the bedrooms if it’s a single family home? But at that time that we’re a first time home buyer, we’re not far removed from roommates, and it’s such an effective way to make that home more affordable.
A lot of people don’t know, when you have a signed lease agreement for one of those bedrooms, that qualifies towards how much you qualify for in terms of your… It’s qualifying income now. And so you can buy a little bit more, and it can shave a ton off of your cost of ownership. House hacking is definitely going to be there.

Scott:
I have a tactical question on that. When I was buying my first property in 2014 following the original Brandon Turner house hack thing there, I was not able to use the rent from the other side to qualify for the mortgage. But when I bought my second property, I was because I had a year of tax return history. I will admit I’m a little out of touch on this one. Has that changed? Are we able to do that now in today’s environment?

Jay:
My understanding, and everybody should check with the realtor, because it could be a very local thing depending on state to state licensing rules and all of that, if you have a signed lease. Saying I’m going to rent it out, doesn’t count.

Scott:
There we go. Yeah, mine was vacant. That’s why that was. Okay.

Jay:
Now you’ve got a legal document that says, “This is the income I can expect for the year from this,” and they’ll qualify you on that income. It’s not a lot. It’s much more impactful if you’re renting out the master suite and you’re living in the upstairs bedrooms and they’re paying more than half of your mortgage. I’ve literally seen people, young people, one that worked for me named Heather E. Russo. If you’re listening, Heather, hope you’re doing great. She rented three bedrooms in a four bedroom house and she made money on her first home. She had a net positive cash flow. And she goes, “I had the master bedroom. I still had to deal with roommates in the kitchen.” But she was a reader, not a TV watcher, and she was okay with it for three years. And then she turned it into a rental and left.

Mindy:
I love that. And you made a comment about now is the time to throw a little elbow grease in there. Elbow grease doesn’t have to mean tearing your house down to the studs and ripping out everything People don’t like ugly. Buyers don’t like ugly, so those ugly houses are going to sit. You know what covers up ugly? Paint. And paint is like $35 to $50 a gallon, and it’s a couple of hours per room. Grab your friends, especially if you’re on the younger side and maybe you can’t afford a whole lot and you see this house that’s got purple walls and green carpet, rip out the carpet, learn how to install LVP, which is super easy to do. I’ve got a video on it myself. Learn how to paint; super easy to do. Have a painting party, go all neutral, and then your whole house looks way better in a weekend.

Jay:
My niece bought her first… She lived in a condo, and they just bought their first single family home. They pulled up the green carpets, literally green carpets circa probably ’78 or something. And they were beautiful hardwood floors underneath. Now you might find a really wonderful surprise. I did the whole laminate. We had a concrete under the carpets, and we just put in a really highly durable laminate because I was by then thinking, well, we’re not going to live here forever. I want something really durable for when the renters are clopping through the house kind of thing.

Mindy:
If you’re looking at a house that was built maybe in the ’70s, the ’60s and ’50s for sure, and it’s got carpet and floor vents, pull the vent cover off and then just peek around the carpet. You can see hardwood if it’s there. You can see plywood if it’s there. And I do this when I’m going through houses with clients, I’ll just go, “Ooh, there might be hardwood under here.” And you peel it up, you’re like, “Yep, there’s hardwood.” I can’t guarantee what shape it’s in. I can’t guarantee that it’s all over. Please, please don’t pull up all the carpet. However, you can get a good idea of what’s underneath the carpet just by peeking.

Jay:
Yep. I will again amplify that. My favorite things to turn from ugly to un-ugly, first and foremost is landscaping. The curb appeal in terms of… Especially if you’re younger, the stuff that we can do and it’s actually fun, the landscaping stuff… My first job was mowing yards, so I can push and mower around, I can pull weeds, I can… If you’re newly married, you can do the first garden bed and… We literally planted my grandmother’s bulbs. There’s still Hollyhocks at that first house from my grandmother’s garden. And so you look up and that’s really inexpensive for the amount of value you just added to the house.
Paint’s probably right after that for me, and flooring. But the countertop. Can I come back to the countertop? For the entire time that we lived there, from 2001 till we started renting it in 2004, we kept that pot on the counter. And then we’re going to make it rental, and I’m like, “Someone’s going to move that pot.” Somebody clearly put a scorching hot cast iron skillet. It was just a dead solid circle bird. And I was like, “Well, maybe we should look and see how much it cost to fix it.” I think it was $65. We got a [inaudible 00:25:40] countertop that was at Home Depot on sale. It was only one stretch. Had someone install it. It was $100. And it was like, “Man, we could have lived with a pretty countertop instead of a weird bowl on the counter of the entire time.”
But those little cosmetic things, putting up new tile in the bathroom, when you’re young, they could be fun. I don’t do that anymore; I want to pay someone to do it. But in the beginning, you’re adding so much value to your future home that you want to sell or rent and building equity that is just priceless. That’s one of the fastest ways in. But I don’t do structural stuff. I don’t even like to do that now when we do real flips. I don’t like anything behind the walls when the inspection report comes back.

Scott:
Let’s dive in a little bit deeper on the high interest rates question. I would love to hear about your opinion on buy downs, refinancing. And I’d also love to hear your opinion on this emerging trend, I think, or theme that’s really exploding popularity around creative financing specifically with assumable or seller financing notes. How applicable do you think any of those strategies, buy downs, refinancing, or creative finance are for first time home buyers?

Jay:
If you want to know how to sell a house, look at professional sellers. And those are home builders. They’re highly motivated to sell, they’re looking at their bottom line, and they’re going to use every trick in the book. Right now, if you’re cruising a new to construction, they’re on a timetable. They have to sell. There’s a cost of just letting it sit. There are deals to be found. And they were some of the first people to start asking us about our low mortgage rates. They immediately were the first to put those signed writers on.
Let’s do mortgage buy downs, and then let’s talk about maybe some of the other creative stuff because the mortgage buy down, like in any conventional transaction, if they are willing to do concessions, you may be able to negotiated buy down. Let’s just say that you are looking at a mortgage rate of 6.5%. You’d really like to see that be 5.5%. That’s going to fit in your budget. You can go into the negotiations with the seller at that point and say… Your agent would ask, “Would the seller be willing to buy down the mortgage by four points?” A point equals one quarter of an interest rate. To go from 6.5% to 5.5% On the mortgage, that’s four points. The point is roughly going to be 1% of the loan. If you’re buying a house with a $250,000 mortgage, each point would cost $2,500.
If I’m having to come out of pocket for $10 grand to do it, I may not be doing it. But if I can talk the seller into doing it, because they’ve got… Concessions are pretty normal now because there’s not a great market. They’re much more willing to negotiate. Could we get you to do $10,000 to $12,000 in buy downs? And it’s up to whatever the mortgage will allow it. Boom. Think about I can’t do the compounding and all the charts in my head, the amount of interest savings and the monthly savings from buying down a full percentage point on your mortgage over 30 years.
Most agents don’t understand it well enough. You really have to make sure that you’re working with a great agent, and then walk through that and say, “Hey, this is something I want to look for because I can go from a 6.5% to a 5.5%, I want to do that.” And I would rather do that than have them give me the $10,000 to redo the flooring because can you do? That mortgage rate, maybe they never go down. Now you’ve got a really great cost of money; you can save up and put in new flooring. That can happen over time on a first house. But you can’t go back and buy down the mortgage afterwards, that I’m aware of. You would have to go through the whole refinancing process, which has its own cost attach. What did I leave out of that conversation? Or where would you want to go deeper before we go to other techniques?

Scott:
Well, first of all, I want to observe, you made a really good point on the new home construction front. There’s 700,000 or 750,000, something in that number, of new construction, single family residences hitting the market in 2023. This all started last year. And so there’s going to be a lot of competition. We’re actually seeing that it’s less competitive to buy a new home. You might even be able to buy a new home for cheaper than an existing home of the same square footage in many parts of the country right now. And I think people are afraid to negotiate with these folks. I think that that’s an awesome observation.
I’m particularly interested perhaps in the… I’m a seller. I use an FHA or maybe a VA loan on my property. It’s $300,000 left on the note. My property’s worth $450,000. Talk me into letting you assume the mortgage. That’s scary. Should I do that? Is there a consequence to me? Why should I allow Jay to take over my 3% existing mortgage on this deal? Or how do I noodle on that and think through it?

Jay:
Well, I think you have to first find out if your mortgage is assumable, like a lot of, I believe, the VA loans are. And it can be disclosed and negotiated. A lot of people do subject two, which is something I’m not qualified to go deep into, or move it into an entity. I think the biggest danger is if your name is on the credit history and someone else is making the payments, you have to be very careful. Tf the mortgage can be assumed and moved into the buyer’s name, that’s a different story.
But right now, I would rather offer owner financing if I’m a seller and I’ve got 2%. If I can make that work with the lender, I’d rather work out something along those lines and have the arbitrage. Maybe as a first time home buyer, I’m looking more for what are the homes that I can identify, your agent can ask the title company about? I think one in five homes is free and clear. Maybe slightly better average. I think it’s 27% are free and clear. And it’ll also be an older house, most likely. This is someone who’s been in there. This is probably their last home. The odds that they will owner finance it for a period of time are much higher. And with no mortgage, there’s zero issues with your mortgage.
I steer clear on the assumable. You’re getting into the technical side. I’m showing up with my money down. And some of the creative financing stuff, I want to make sure that I’m not… The downside of screwing it up is so high, I’m cautious going in.

Scott:
Okay. Well, several times now you said very casually, “Get your agent to talk to a title company. Get your agent to do these types of things.” The privilege of having you on the show here is your incredible depth of understanding of working with good agents, over 180,000 of them at Keller Williams. In your book, you cover this pretty wind depth as well. I love the little history that you give of why the agent developed because now no longer do we have to fight each other over parcels of land, for example. I thought that was a fun anecdote, but walk us through the process that you have in place for finding a great agent to work with you as a first time home buyer.

Jay:
I’m trying not to disqualify every agent out there, but if I have my druthers, even as a first time home buyer-

Mindy:
I’m an agent. I am going to say, “Go ahead and disqualify some of those.” We’re asking you how can I find a good agent? Because not all agents are good agents. And I am an agent, I’m not a realtor. Realtors cannot talk smack about other agents. I don’t have that limit on my conversation. But there are a lot of agents who are very dangerous out there. I’m sorry to interrupt you, but I want you to share the ways to find a good agent because they’re not all good.

Jay:
The clues are, I think, for me, I would ask interview more than one. The research shows that I think 80% of buyers are going to take the first or second agent they meet. Unlike almost every other area of our life, we’re really not being a shopper, we’re just being a buyer. And so I think doing your due diligence and making sure you get referrals to at least three and interviewing all three.
And a great agent’s going to want to walk out the door without you signing an agreement. That’s just part of the package. And you can set it up. It’s like I’m interviewing three. I’m interviewing April, Scott, and Mindy. And I will let you know within 24 hours. You can set expectations that I’m going to do this. And some won’t even meet with you. And I’m fine with that. You deserve to do your due diligence. I think first off, find someone you believe that can serve you and communicate well with you.
I have a strong bias for transaction history, not volume of dollar sold; an agent that’s had to do a lot of houses. Every transaction is its own puzzle to solve. And the more puzzles they have solved, the more problems they’ve dealt with, the better they’re going to be capable of serving me. My wife has had over 1,000 clients. That’s a lot of times either riding in the driver’s seat or shotgun seat on how a transaction goes right or wrong. And she still works with first time. And a lot of those agents do. We don’t want to say, “Oh, they won’t want to mess around with me. Scott’s works with hundreds of people a year.”
The agents I know, and that’s why they all gave their time for our book, to give us their wisdom, one of their happiest jobs is helping someone buy their first home. Even though the price point is low, they might be creating a client for life. And we just merged our team with the first agent to ever joined Keller Williams, guy named Gary Gentry. He’s literally served over 40 years in some cases four or five generations of buyers. When you catch them early, you could be looking at a lifetime supply of happy clients that aren’t interviewing other people because, “Hey, in our family, we just worked with Mindy,” or whatever that is. And you’ve built that trust. I want that top agent if I can get them. I’m okay working for someone on their team. It doesn’t have to be them personally, I just want them to be supervisory and engaged in the relationship, especially if something goes sideways.
And that can be on you to say, “Hey, Mr. Subagent, I know you worked with Mindy. That’s great. If something goes wrong, how does Mindy help you?” That’s just a question you can ask. On our team, we have a daily huddle. There’s not 24 hours that’s going to pass if something goes sideways where Wendy can’t lend her experience to a newer HM on our team. First off, interview two. If you have to have a bias, have it towards someone who’s got some transaction history.
And I think the third one is is this someone you’re going to want to spend time with and can communicate clearly with you? The generational gap between some of the top agents and first time home buyers may be too big to bridge, which is why you might be working with someone on their team. But I also know some really successful people that are in their third or fourth year, but in their first year they sold 50 houses and in their second the year they sold 75. They’ve got great transaction history, they know that market. And younger realtors that are successful… Again, transaction bias. They’re successful, they’re selling a lot of houses; they also will know the first time home buyer segment really well.

Mindy:
One of the key things that I want to underscore that you said is do you communicate well with this person? As an agent, I have to communicate with other agents. Once we have a house under contract for you, Jay, my buyer, I have to communicate with Scott, the listing agent. If Scott never answers his phone, I still have to communicate with him. But when you are trying to get in touch with me and I never answer my phone, I don’t call you back, I don’t text you back, I don’t email you, however you’re contacting me, that’s hugely frustrating. If you can’t even get me on the phone before we’re under contract, you shouldn’t try to pursue me. You shouldn’t have to pursue me. You should be able to get in touch with me all the time. And when you can’t, that’s a great sign that I’m not the agent for you, and you should move on.

Jay:
I’ll make one thing in there. Anytime, all the time, I’m also okay if they set proper expectations. “Hey, from 8:00 at night to 8:00 in the morning, nothing is going to change about the transaction. If you call me at 8:30, just understand I will be promptly returning your call at 8:15.” If they set expectations for when they have a blackout, I can respect that. But I don’t want to be wondering, did they even get my message? That, again, is part of that clear communication, Mindy, around how are we going to communicate? How are we going to stay in touch? There’s so much anxiety in the first home transaction. I don’t want to be living there for long. Does that seem fair?

Mindy:
Yes, yes, absolutely. I record this podcast and I tell everybody, even the other agent, “I’m unavailable for this set period of time.” But again, it’s all about setting expectations. And that’s after we’ve been able to have a conversation. My number one tip for any agent that’s getting started, pick up your phone when it rings.

Jay:
Can I tell you a funny anecdote? I know Scott is going to ask me the question, and I’m ready now. You look up, and my friend and I were driving in a car. And he was studying the art of cold reading. And this is what literally people in the carnival do and they guess your weight and all that stuff. And it’s called a PT Barnum. And basically, a lot of times when they’re guessing, they’re just using statistical odds. If you’re unhappy with your realtor, the number one reason people fired their realtors is poor communication, Mindy. And so it’s funny, I heard Ben pick up the phone, he’s talking to someone, and he was… Their listing hadn’t sold. This is back during the great recession. And he goes, “Let me guess. The realtor you were working with didn’t communicate very effectively and they worked very good at marketing your home.” Top two complaints for home sellers right there, he just assumed them, and then, “Oh my gosh, how did you know?” The marketing part is not as reflective of the first time home buyer journey, but the communication always is when you’re working with a key fiduciary, they’re there to represent you. They can’t represent you if they aren’t communicating with you.

Scott:
Well, Jay, in Your First Home, you list a couple of great questions to ask an agent in these interviews. What do you think are a couple of the key things that you would key in on an interviewer or coach someone to key in on? And what’s a example of a great answer from one of those agents?

Jay:
The two questions that jumped out at me that we haven’t already hit anecdotally. One is tell me about the kinds of things that go wrong and how you would handle them. And the reason I ask that is, one, you’re going to get some sense of how many first time home buyers they’ve worked with. Are their answers appropriate to you and your journey? And I know this in hiring, that’s the kind of question I ask, I want to see how they think. Are they describing how when something went wrong, the first thing they did was call you to let you know? I’m going to find out a lot by them describing their history, and that sometimes people will tell you things and in their mind, they’re the hero of the story, but you know that won’t work for you. To me in general, it’s like you can ask that three times. What’s something else that often goes wrong for first time home buyers? And they’re going to tell you. And how do you handle that? And now you’re getting a sense for how they work, how they communicate, and how they problem solve.
The other big one is the last one, and it’s asking for testimonials and referrals. If they can’t tell you other people they serve that are like you, that would be a little bit of a problem for me. A great salesperson can make it sound like they’re perfect for me, but I’d love to hear it from one of my peers. Today, I can go on Zillow and Google. There are lots of places that I think are… They’re not sending the customers they didn’t serve well to those sites to give reviews, you’re only seeing the upside. But if you actually talk to somebody who’s worked with them, they’ll often tell you warts and all and why they would use them again. Things go wrong in real estate transactions. Let’s just get that right. It’s how they respond to things going wrong. Agents made mistakes, they all do, but how they respond to those mistakes is ultimately what matters.

Scott:
What are some of the craziest horror stories or funny things or things that have gone awry to blow up deals that maybe have made their way through the lexicon of Keller Williams and the 180,000 trans agents with millions and millions of transactions, tens of millions of transactions? What are some of the ones that have stood out over the years as making headlines?

Jay:
There’s lots of people walking in on dead bodies and affairs. Even on our own team, literally have had those things happen. Lots of dog stories that were not listed in the listing remarks. It’s one of the reasons an experienced realtor would crack open the door and yell, “Realtor, just to make sure that a doberman doesn’t come crashing through. Or they might catch someone who didn’t know the house was going to be sold. Those are the majority of them.
And a lot of times, you just hear great stories about how things went wrong and how people salvage the deal. Those are my favorite. I was just chatting with my sister, who’s a realtor in Memphis. It’s really hard, but a certain age of home, I want to say if it’s pre-1970, you could have cast iron pipes. And just learning, I’ve learned the hard way myself. Those cast iron pipes, tree roots can get them, and they can collapse over time. And if you have a pier and beam, it’s not that big of a deal. If you’ve got a slab, I’ve literally seen people jack hammering through a slab that I had recently purchased. Oh yeah, that look of being sick, Mindy, yeah. It was at least $40,000 hit for us because they had the jackhammer through the slab in five different places. And so you just learn the hard lessons.
I like those stories because I would rather learn from someone else’s mistake. Now I’m like, “If you don’t know what a hydrostatic test is, you need to know.” But for just $50, you can ask the plumber during the inspection, if it’s an older home, say, “Would you please run a hydrostatic test?” And that way you’ll know if there’s a leak somewhere versus finding out 10 months later and getting a bill. Hopefully not. It might have been after you just refinished those hardwood floors too, which would be horrible.

Scott:
A year ago, this didn’t matter because you’re paying for it anyways. Nowadays, you could put it on the seller, so all the more important to do exactly what you just said here. Jay, question about some of those examples. And let’s go with a dead body, for example. How does this impact the closing process? You’re a buyer. Do you walk away? What do you, in that particular example?

Jay:
I used to know the technical thing here.

Mindy:
I know the answer to this one because I used to live by Harold. And I didn’t live by Harold very long before he died in his bathtub in the home in August and went undiscovered for 12 days. I sound like such a horrible person on this whole show, but everybody started calling, it was dead Herald’s house. And I looked up when it finally sold, it was a year and a month later. And I’m like, “Well, that’s got to be some sort of timing.” And it turns out that it’s definitely state by state. It depends on the nature of the death. I think the only thing that carries through all 50 states is an HIV related death is not required to be disclosed. If it is a sensational death, in some states they require that, in some states they don’t. California requires a sensational death to be disclosed within three years, and afterwards, it doesn’t have to be. Colorado has no such disclosure requirements because it unfairly stigmatizes the property, which I think is really awful.
If you’re selling a home where somebody died in the home, disclose, because then the seller… or the buyer can’t come back later and say, “You didn’t tell me.” That’s my advice to everybody. Disclose everything, because, Jay, if I tell you something… In writing, disclose in writing because then you can’t come back and sue me. Well, you can try, but the judge is going to throw it out and say, “They told you.” “Well, I didn’t read that.” That’s on you, that’s not on me. I shared it, you didn’t read it. You signed that you read it. I’m clear.

Jay:
If I’m selling Harold’s house, I’m going to disclose it, and I’m going to say, and we redid the bathroom.

Mindy:
Yes. Sunshine Cleaners came.

Scott:
Now also, while we’re on the diatribe here about the state laws concerning these things, if you are in New York, New Jersey, Massachusetts, or Minnesota, you must also disclose if your house is haunted or not, or if there’s a haunting. That’s something to remember. If you’ve seen a ghost, you must put that in the listing.

Jay:
I think I was asked this by David Green when we were at BP Con. And they said, “As an investor, would you buy a haunted house?” And I’m all over that. I would Airbnb the crap out of a haunted house. I think that’s great. I’m sorry, dead herald’s house, that to me, as an investor, now when I’m thinking buy it to rent it, I think maybe if it’s going to sit on the market longer than normal because of the stigma, that’s an opportunity for me to get a better buy.
One of the investors I interviewed back in 2004, I remember him saying, “Cat pee smells like money to me.” Because you walk into a house that had a bunch of cats, most people just run the other direction. He’s like, “I know exactly the aisle in Home Depot that I buy the product that gets rid of the smell. Worst case, I have to cut a couple of inches off of the drywall, but I know exactly how much it costs to remediate, and I’m going to save 10 times back.”
Sometimes the stigma house is for… I’m a first time home buyer. You should be thinking bargain, not dream home. Let’s maximize this opportunity. The bargains are also the ones that are most likely to be rentable in the future. And I would love it if more people bought it to rent it in the future. Instead of selling their house to buy it, just leave a trail of income behind you or income properties. If I could go back and buy a duplex, I would. Just live in half of it, doll it up, and either have two streams of income when I buy my next house, or if I had to flip it, you can retail a duplex. You’ve got sell it to another first time home buyer and get a little premium versus just the investment price. Anyway, there’s lots of woulda, coulda, shouldas if I could go back in time. I got my education late in life.

Scott:
I think you’re a example of success that lots of people would love to emulate and learn from, so don’t beat yourself up too bad here.

Jay:
We’ve done okay. Being in Austin certainly helped. We own a bunch of Austin property.

Mindy:
Oh, well then you’re doing okay?

Scott:
Yeah, yeah.

Jay:
We’re doing okay.

Mindy:
Austin’s not a bad place to be.

Scott:
All right, Jay, where can people find out more about you?

Jay:
I would direct them to… Right now, the most current website for us is theonething.com. I’ve got my best bio there. I also do a weekly newsletter called The Twenty Percenter. Every week I’m writing about… I did a whole thing on renting and owning and mortgage buy downs. That’s where a lot of this stuff is piling up in my head as my weekly deadline around writing about real estate. Those are the two best places to find me.

Scott:
Awesome. Jay also appeared on the BiggerPockets Podcast, episode one 13, and BiggerPockets Business, which is still available. I believe that was episode number six. Both of those are fantastic to go check out Jay. Jay, have we had you on additional episodes as well?

Jay:
I believe you have me and wife on an episode talking about the goal setting retreat.

Scott:
That’s right, yes.

Jay:
And I want to say it’s 164 or something like that. I used to have it memorized.

Scott:
There’s another one. Lots of Jay. Jay, thank you for all you’ve done for BiggerPockets. They’ve all been great ones. I remember that particular episode, I just didn’t write it down. There. Well, awesome.
And I do want to also plug, we have a partnership with Jay and Gary Keller and Keller Williams team here with their book, Your First Home that Jay and Gary authored and First Time Home Buyer, authored by myself… And I can’t remember who the co-author of that one is. Those two books together are going to be $22 with a discount code that you can use. It’s BPKeller, and you can find that deal at kellerink.com. That’s kellerink.com. And go check that out. Both are fantastic, I think, and we’re really excited to offer them together. I think it’s the ultimate way to prepare yourself for making that first home purchase. And again, that discount code is BPKeller. That’ll last until July 1st of this year, so get it before it expires.

Jay:
Lovely. Happy home morning, y’all. And thank y’all for writing a great book. I really enjoyed reading your book.

Mindy:
Jay, thank you for your time today. This was so much fun.

Jay:
Thank you.

Scott:
All right, well, thank you so much, Jay. We appreciate it. We admire all the success that you’ve had and all of the incredible business that you have helped build over at Keller Williams. What a fantastic operation there. Really appreciate it and have a wonderful rest of your week.

Mindy:
Okay, Scott, that was Jay Papasan. I had such a good time talking to him. I learned a lot. He is such a delight.

Scott:
Yeah. Jay is one of those outstanding individuals you meet, that he just is genuinely interested in helping other people. He’s a polished executive, a seasoned real estate investor, early entrant at Keller Williams Corporate, and has just built a phenomenal business life empire and done it in a very genuine, positive and enthusiastic way. I learn something every time I talk to Jay. And what a privilege to have him on the show today. And what an honor to be partnering with him and associated with him and Gary on in the context of providing books for first time home buyers.

Mindy:
Yes. And let’s give that link again. It’s kellerink.com, kellerink.com. And both of these books are fantastic. They’re $19 each. But with the BPKeller discount code, you can get the bundle for $22 total. That’s the First Time Home Buyer book by Mindy Jensen, who is me, and some bum named Scott. Just kidding. And Scott Trench, who also contributed quite a bit to the book. And Your First Home by Gary Keller and Jay Papasan. Together, these two books give Readers an edge in a competitive market. Again, that’s kellerink.com, Keller I-N-K. And the discount code is BPKeller. If you are buying a first home, if you know somebody who’s getting ready to buy a home, you will benefit greatly, they will benefit greatly by reading these books.

Scott:
Absolutely. Thank you so much everyone for listening. If you like this, we would love to get a review or feedback. You can email [email protected] with any negative feedback, and [email protected] with any positive feedback. Or leave us a rating review on any of your favorite places where you listen to podcasts. Should we get out of here, Mindy.

Mindy:
Scott gave the wrong email address. It’s mindy@imnotlisteningtoyou. No. I love constructive feedback. And yes, I would like to say thank you to Ethan Piani Homan, who sent today’s goodbye. He actually sent me a great big, long list. Thank you, Ethan. That does wrap up this episode of The BiggerPockets Money Podcast. He is Scott Trench and I am Mindy Jensen saying farewell, turtle shell.

Scott:
If you enjoyed today’s episode, please give us a five star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney.

Mindy:
BiggerPockets Money was created by Mindy Jensen and Scott Trench, produced by Kailyn Bennett, editing by Exodus Media, copywriting by Nate Weintraub. Lastly, a big thank you to the BiggerPockets team for making this show possible.