Podcast Episode - Ask KT & Suze Anything: Is It Too Late to Buy a Home?

On this edition of Ask KT and Suze Anything, Suze answers questions about buying and cashing in bonds, choosing an ETF home buying, plus a “Should I Do It?”  quizzy and so much more!

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Podcast Transcript:

Suze: May 23rd, 2024. Welcome everybody to the Women and Money podcast. Don't make me laugh, KT

KT: And everyone's smart enough to listen.

Suze: This is the ask KT and

KT: Suze,

Suze: you got that pickup, right? Good KT. Anything addition. This is where you write in to ask Suze podcast at gmail.com.

Suze: You ask a question. Can you please keep them short? Just short? All right. Don't give me your entire financial history.

KT: I won't pick it.

Suze: It won't happen. All right, peeps. Anyway. So this is where you can write in a question and if KT chooses it, it will be on this podcast and you never know when I will answer it directly.

Suze: Obviously, we have recorded this before we left for Africa, but let's see on today. Where would we be? KT?

KT: I think we're in Soweto and we're gonna try to visit the Regina Mundi church where you spoke. How many years ago was that?

Suze: 2002, to 5,000 women.

KT: I'm gonna cry when I walk in.

Suze: It was the most incredible thing, everybody. 5,000 women came to hear me speak for four hours on financial freedom is your birthright. Extraordinary. And I just want Sophia and Travis and Barb and Don our little pod. I want them to see where their Aunt Suze in her own way, really made history in South Africa. Anyway. So I hope we're having a good time, don't you?

KT: We will.

Suze: All right. So shall we begin? Is there anything else we want to remind people of?

KT: Yea, the quiz. Oh, my goodness. Wait, wait, wait, this is really important. Suze's birthday is June 5th. I believe that is the end of an opportunity for all of you listening to do something so simple. Go to my alliant.com. Take a quiz. There's five questions. There's easy, easy, easy. I get them right.

KT: You can't get them wrong. They're just asking you simple questions, put your email in and you will be entered into a lucky draw on June 5th, Suze's birthday.

Suze: Well, it's the end of the thing and then after they'll pick it, but one of you will win how much?

KT: Suze, they can win $5,000 and it's so easy. Just do this. People go to myaliant.com. Look for Suze, look for the little quizzy. It takes a few seconds done. All right.

Suze: And nothing to buy. Nothing to sign up for nothing. Just so, you know. All right,

KT: I'm ready. I've got a bunch of great questions here. Are you ready? Ok. Hey, Suze and KT, I love the podcast. I'm 35 years old and have about $300,000 saved for retirement.

Suze: Who is this... that is so...

KT: This is Alex and I'm so proud of him. But wait, listen to this, save for retirement split between an IRA and a 401k. All of it is invested in low cost index funds. The Fidelity website tells me that I'm too aggressively invested for my age. Wait, I understand the logic of shifting towards bonds when you approach retirement, but starting to do this at 35 seems crazy to me.

KT: I'm not planning on touching this money for 30 years. Call me cynical, but it seems like they just want me to invest in their target date funds with a higher expense ratio. I should go ding ding, ding, ding. He's probably right.

KT: Am I missing something here? Is there a good reason for me to start shifting from stocks to bonds at age 35?

Suze: So I could make a case just so you know that if the feds start to lower interest rates, Alex and you are invested especially in long term bonds that as interest rates go down, the value of bonds will go up. So you could make a nice little sum of money with bonds, but I wouldn't be doing it through a target date mutual fund. I would be doing it through buying individual long term treasuries at Fidelity however, who knows if interest rates are going to come down or not, who knows how long that will take. If I were you, I would just continue to do exactly what you are doing because at 35 and you already have $300,000 saved.

Suze: I think you're doing just fine. And if the markets happen to really crash, they go down, just keep doing it, buy more of great quality stocks, ETFs, whatever it is that you may invest in over time and later on, you'll be so happy that you did. I think there's more money to be made doing it the way you're doing it. All right.

KT: Good for you, Alex, this is from Kim.

KT: Hi KT and Suze. I listen to you all the time and deeply appreciate all that you both share. My question is a simple one, which criteria is most important when choosing a high dividend ETF? For example, Vanguard International ETF shows 0.22% expense ratio, but a dividend rate of 4.94%.

KT: The Schwab US Dividend Equity shows a 0.06 expense ratio but a dividend of 3.48. What is most important?

KT: So I picked this because I don't know the answer. And I'm really curious.

Suze: This should be your quizzy.

KT: This could be a quizzy. I'm curious to see what you're gonna say.

Suze: So are you gonna listen to me this time?

KT: I'm listening because I'm, I'm very curious like which one is better.

Suze: So first of all, you have to look at what your goals are, Kim, the Vanguard International ETF says to you that they're investing in international stocks, not just here in the United States, but internationally. And normally the rule of thumb is for international investments, the expense ratio is higher than when it's just invested here in the United States.

Suze: Also you have to look at, are you doing this for growth? Are you doing this for income? What are you doing in buying these things? So they're very, very different ETFs so I can't tell you which one is more important because I don't know what your goals are, but please understand the differences in those two funds. Ok, KT.

KT: So I picked this one because it's from Mimi.

KT: Mimi is what um my sister, my twin sister, the kids call her Mimi instead of grandma Mimi. So I'm 71.

Suze: Do you see everybody...

KT: And she's the same age as

Suze: ... how KT chooses which question she's going to ask.

KT: I resonate with some of you.

KT: I'm 71 and have 300,000 plus in a Vanguard Target Retirement Fund 2020. I've had this fund for a long time. It's now down to 40% in stocks and 60% in bonds.

KT: I wake up in night sweats, terrified of investing in stocks or dealing with brokers having been burned big time in the past. The rest of my savings are all in CDs with online banks, like Alliant. Vanguard's going to start charging fees as of July 1. What to do with this retirement fund account? And I know the CD rates are also going down. So I have concerns there as well.

Suze: If you really are waking up with night sweats and obviously at the age of 71 it's not because you're in menopause, but you are in "Moneypause."

KT: Oh! That's good, Suze.

Suze: That was good. Right.

KT: Oh, I like that. I'm writing that one down.

Suze: But what do I mean by that, Mimi, it's, you have pause about what your money is invested in and therefore you are afraid. What is the goal of money? The goal of money is for you to be what KT?

KT: Secure.

Suze: Secure and obviously you are not secure in this number one. Number two.

Suze: Yes, interest rates on CDs and everything seemed to be going down but not going down that much. But if you believe that interest rates are going to continue down and you're scared to death as well about investing in stocks. Therefore, what I would tell you is why not come out of this target date retirement fund.

Suze: First of all, it was for 2020 we're already in 2024. Number one, number two, why not just come out and buy a ladder of treasury bills, bonds notes going out longer term? So that if interest rates do start to go down as you think they may, the value of those bonds will go up.

Suze: If interest rates stay where they are, you're still getting a good interest rate and you've laddered it and it's not gonna really cost you anything. So, if it were me and I was afraid to do anything and risk any of this money, that is what I would do.

KT: I like that Mimi.

Suze: Do you think there's any financial hormone pills to take for that?

KT: I'm writing, I think this is a great idea.

Suze: Like what are you going to do with it? I now I'm afraid.

KT: Ok, this next question is from Sandra. I invested in two I bonds when the rate was 9.62. Yeah, but listen to this as the rates are now lower than the CD rate at Alliant. I would like to cash them out. When is the best time to do so?

Suze: All right. And the reason that is, is that obviously you have been, my dear Sandra, in these bonds for over a year, obviously, interest rates have gone down, but your bond has a 0% fixed interest rate, which is very different than the new I bonds that have been issued, which have like a 1.3% fixed interest rate.

Suze: So, therefore you are only getting a small amount of money in those bonds. You should absolutely redeem them now and do whatever it is that you want with that money. All right.

KT: All right. Fom Nicole. I'm 47. Is it too late to buy a home?

Suze: At what age?

KT: 47.

Suze: Are you kidding me?

KT: Hi, Suze. I'm hoping you answer this question for me.

KT: I'm 47 years old. Not married and I want to own a home. All right. Well, this is a little bit tricky. I live in Staten Island and the average home price is around 700,000, which is more than 50% of my take home pay. This would not include utilities. I earned good money.

KT: So Nicole makes about $195,000 a year and she has about 200,000 in liquid savings. I also have a good amount in retirement. She has a million dollars and a nonretirement investment account 30,000 which she doesn't plan on touching for a long time.

KT: I'm beginning to wonder if I should rent for the next few years. Keep my fixed expenses low, then buy a home in a lower cost state.

KT: Big issue for me is that this would require I move away from my mom who's 75 and my entire family. I don't really want to do that nor do I want to take on an overpriced 30 year mortgage at the age of 47 when I don't plan to be in the same job for 30 more years.

Suze: Nicole. I think you've answered your own question. Believe it or not.

Suze: You know how we end every podcast people first, then money, then things obviously more than your desire to want to own a home. Is your desire. If you read this email is your desire to be near your mom to be near your entire family.

Suze: y=You have many, many years left that you can always buy a home. You don't have many, many years left to be near your mom and your family. If you think about it, your mom is 75. So you never know what can happen in the future.

Suze: If I were you, I would not be buying a home right now in your particular situation. This does not hold for everybody who's listening.

Suze: I would wait to see what happens with your job because you know the other thing that none of us ever think about Nicole is all right. We bought a home. We now have a large mortgage payment. Now here we are and we get sick. We're in a car accident, something happens. We lose our job and now we have this huge mortgage to pay huge property taxes, huge insurance bills, huge maintenance costs and we don't have the money to pay for it.

Suze: So you have to think about that as well. Now I get that you have a good amount in liquid savings. But if you're gonna buy a $700,000 home, you're gonna have to put down at least 70,000 to 100 and $40,000 as a down payment. 100 and 40,000 is what would be preferable truthfully that then only leaves you $60,000 in savings, which isn't very much of an emergency fund, even in your non retirement investments at 30,000, it's still, if you combine those two are only $90,000 and once you have a huge mortgage payment and everything along with everything else, it's not enough. 

Suze: So just continue to rent for the next few years, keep your expenses as low as possible. Then when you do decide either you have enough money to buy a home, then or you wanna move to another lower cost state for your own retirement, then you'll be able to buy one outright. So

Suze: I would stay near mama versus staying in a home that's further away from her. All right. Next question, KT.

KT: Well, wait, wait before we do the next question. I'm getting a lot of questions about young people or people, Nicole's age wanting to buy a home. They just think it's impossible and it is expensive. So if she did buy a home in Staten Island and wanted to, you know, pursue her goal, could she, and what would that cost?

Suze: Could she afford it? Is that what you're asking me?

KT: Make this a can I afford it? Question? Can you, can you figure that out for her? So she makes 195 gross. I don't think that's her take on it. Let's assume

Suze: it's not.

Suze: She's in Staten Island, New York. So when somebody says they now write this down, everybody take out your little Suze note books, right? When somebody says they make $195,000 a year, KT, especially in New York, remember from that amount you have to take social security tax, Medicare tax. Let's see, New York City tax, New York State, federal tax, all of those things. And I would imagine  all of those things probably total close to $64,000. So her net really isn't 195,000. It's about $141,000. 

Suze: So then the question becomes, can she on $141,000 net can she afford the house? So $141,000 net is right around, I'd say $12,000 a month. Ok, at $12,000 a month now she's bought this home and her monthly mortgage payment, let's just say at 7% for 30 years for a $700,000 home with 20% down or $140,000 down. Her payment is going to be around $3,700 a month between insurance, property taxes and maintenance she's gonna owe, oh boy, not maybe another 1,000 1,200 whatever it may be a month. That's just estimating because I don't know.

Suze: So let's just say this house is going to cost her $5,000 a month. Let's just say that's true. Forget tax deductions. So

KT: That just leaves her how much at the end of the day?

Suze: That leaves her approximately, I wanna say 6,500 or so in my head to live, to live on which is for her car expenses, her food, her travel, her putting money in savings, medical bill, clothing and everything. So the truth of the matter is Nicole, can you afford this if you can live on about $6,500 a month after taxes still put money away in your retirement and all of that, which would really bring this down quite a bit.

Suze: Only because I'm sure she's putting the max in her retirement account because she says she has 1 million in retirement. So I'm sure she's fully funding it. So that would take away possibly another 3,000 a month from that figure. And so maybe there isn't enough given what she wants to put away in other retirement accounts. But now Nicole, now, you know what it would actually cost you and if it's worth that or not, and if in fact, you can afford it or not, and only, you know, the answer to that question. And somehow I think  when you look at it with what you put towards savings, you're going to say denied, but let us know, write me back, let me know. All right.

KT: All right. Here's the next one is from, I, I have lots of men and women today. I love the mix up.

KT: Hi, Suze father is 78 and is doing well for his age. He owns a home in sunny South Florida and plans on leaving the house to me and my sister. And this is already stated in his will. Even though he remarried after our mom passed, he doesn't have the other must have documents completed yet. I'm gonna work with him on that

KT: In your podcast, I heard you talk about joint tenants with right of survivorship. If he puts me and my sister's name on the title, will we avoid probate when he passes and assume ownership of the house?

Suze: The answer to that is yes. However, nothing's ever simple. As KT and I were talking this morning, right? KT and remember what we were saying, we were talking about the interviewers on TV.

Suze: That are good interviewers because when they're interviewing somebody, they don't just talk and talk and talk and leave five seconds for their in the person they're interviewing to answer. And KT was telling me about who was your favorite interviewer?

KT: Larry King. Bar none the best of the best.

Suze: Because he would ask a question very succinctly and give his guest all this time to answer.

KT: He was the best.

Suze: And then I said to her, I talk too much, don't I? And she said, what did you say to me?

KT: No, I said you don't talk too much sometimes the answers are too long, meaning they're too complex to remember. They're too long. So she just, she just answered yes.

Suze: However, I don't know how long your father has owned the home in sunny South Florida because let's say it's worth $1 million. Maybe even more than that. Who knows? So, Ed, yes, you can avoid probate. But let me just tell you if you do it that way. There are many unintended consequences. 

Suze: The very first one, when you put your name on the title as joint tenants with right of survivorship, it means that your father has gifted you each one third of the home and in gifting it to you, he has also gifted you his cost basis in the home.

Suze: So let's just say he bought the house 25 years ago for $300,000. Let's just say that's true. And today it is worth $1 million.

Suze: If you didn't put your names on as joint tenancy and you inherited it from him via a living revocable trust, which is the best way for you to be doing this the day of his death, you would get a step up in cost basis on that home so that your cost in it would be $1 million. So if you turned around and sold it right then and there you would not owe any taxes on it. What so ever. However, if you put your names on it and now you each own a third of it.

Suze: Your cost basis is $100,000. Your sister's cost basis is $100,000. And your father's cost basis now is $100,000. He dies. So his $100,000 that you are inheriting in that house gets a step up in cost basis to $333,000. One third of the million dollar value that it's at you and your sister retain the $100,000 each cost basis for $200,000. Jointly. Are now your total new cost basis in the house is $523,000. Let's just say you don't want the house and you sell it for a million dollars. Now you have a gain. So you better think about this. That's number one.

Suze: Number two, you now have subjected that house, your father's house to exposure to creditors. If you have any debts, anything like that, your creditors could go after you. And you're thinking I don't owe any money right now. We're fine. We're clear. You're in a car accident, you're sued and now you owe money to somebody, but you don't have the money to pay them legally. You own a home, they could attach it, they could go after that home. There's all kinds of things that could go wrong. I could actually go on and name three or four more. But those are the two biggest ones that you really should think about.

KT: So if he, if his concern was going through probate, if there is a living revocable trust, there's no probate. So just go get the documents done with your dad and you'll be fine.

Suze: Just get yourself a living revocable trust. Or if you want, just go to must have docs.com and that's where you can get the, must have docs which are a revocable living trust. A will, an advance directive and a durable power of attorney for health care and a financial power of attorney. Just do that $99. That's what I would be doing if I were you? All right, KT.

KT: This is from Joe. Hi, Suze and KT, my 90 year old mom and I love your podcast. And many, many years ago she introduced me to your books and TV show. Way to go mom

KT: And like everyone else on planet Earth, we wish we found your podcast earlier. So, here's Joe's question. When my dad passed away five years ago, their bank put his traditional IRA and an IRA for her and they put the money into a five year CD that will come due in a few months at that time. Can she put the money into TIPs or VTIs?

Suze: Yeah.

Suze: So VTI is the ETF, the symbol for the Vanguard Total Stock Market Index Fund ETF. She can do anything she wants because she was a primary beneficiary of your father's IRA.

Suze: It is now her IRA and therefore she has total control over it so she can do anything she wants, just so you know. And I got news for you KT because she listens to the Women and Money podcast. She knows what to do. All right. You know what time it is right now. It's quizzy time. And this is where I asked KT and all of you a question and let's see how you would answer it.

Suze: Hi, Suze and KT. My question is, how do you feel about buying a condo in Arlington, Virginia living in it for a year, but renting it out for several years afterwards? My job is moving me overseas for several years in January of 2026.

Suze: I am expecting an inheritance that will allow me to purchase a one bedroom condo outright. I do not own property. This would be my first home purchase. I am 55 single, no debt, a 793 credit score and I am on track for my retirement and I have a two year emergency fund...or should I just put the inheritance money in CD? 

Suze: So think about it. Everybody think about it. Mhm. She's 55. She is single. She has no debt. She has a high fico score of 793.

Suze: She has two years in an emergency fund of her current expenses. Anyway, she is moving in one year overseas for possibly several years, but she is getting an inheritance that will allow her to purchase a one bedroom condo outright, should she or should she not? And if she doesn't, should she just put that money in CDs?

KT: I have the answer.

Suze: What is it?

KT: Put the money in the CD? Do not, do not buy a condominium.

KT: I don't care if you live in it for one year or two years, but if you intend to rent it out while you're abroad and you have no idea how long you may stay abroad. And I tell you that from personal experience in 1980 I went to visit a friend in Hong Kong. Guess what, everybody... I came back to America in 1998 and almost 20 years in Hong Kong.

KT: So so I never expected to stay, to go and live on the other side of the world for most of my life. You don't know what happens, don't do it. So, Angelique, listen to me the cost of a condominium and I don't care what state you're in a condominium cost and expenses will only go up, not down ever. So who and, and someone can ruin it if you're going to rent it, right?

Suze: So you would say don't do it,

KT: Don't do it, don't do it, don't do it, don't do it.

Suze: So, are you right or you wrong? And I have to tell you, I don't know KT if you're right or if you're wrong because there's a few more questions that we would have to ask to Angelique such as Angelique eventually. Do you plan on coming back to Arlington, Virginia to live for the rest of your life? Is that one of your goals? 

Suze: Number one, I get that you have the money to afford to buy the condo outright, but you also have the income while you are overseas to afford the property taxes on it, the condo fees, all the things that go along with it and the probable assessments that will happen with that condo. Do you have a management company that will manage that condo for you while you are overseas? Because usually rule of thumb is do not rent something out that you own that you're not just 10 or 15 or 20 minutes away where you can check on it. 

Suze: So given that you're going to be overseas, do you have a management company that can manage it for you? Is the area that you are buying this condo in? Is it up and coming? Is it a place where prices have been appreciating? What could possibly happen to this area to make it either decrease in value or increase in value? And if you rent it to a renter who all of a sudden, let's say this is the pandemic. Now, they don't have to pay you rent. They're not giving you anything towards your expenses to keep it. Can you easily afford those expenses without the rent coming in?

Suze: If the answer to all those questions are, yeah, I have more than enough money to do so, even if I don't rent it out, just saying. And yes, when I return, I wanna come back to Arlington, Virginia. And this is the place that I want to live.

Suze: Then I don't have a problem if that's what you want to do and you know, you have enough money to do. So. And KT, she's obviously a saver because she has two years in an emergency fund so she could carry it for quite a while. Given that she's buying it outright. The answer to this question is really up to you if you can afford and answered all those questions with a yes, no problem whatsoever.

Suze: I might go ahead and buy it and rent it out KT.

KT: So, I totally disagree with Suze for one reason. Go overseas and have peace of mind. Who wants to worry about a rent or a condo, collecting the rent, the meetings, everything at the no, go overseas. Have a great time.

KT: Open the door for a new life. You don't need to have anything back here.

Suze: Or KT, she goes overseas, she gets injured, she gets sick, she gets laid off now, she has to come back to the States and she wants a place she wants this place to live in and now she has it and now she lets the renter go and she has a home that has probably increased in value at least 3% a year as well. 

Suze: So the property will probably increase as much as maybe what a CD would increase after taxes. Because remember, interest on a CD is taxable to her. The increase in the value of the condo is not taxable to her as ordinary income. It just increases until she sells it and then she gets a $250,000 write off if she sells it. If she's lived in it for two out of the past five years.

Suze: You still disagree with me?

KT: Who knows what the renters are gonna be like? So you could trash it. Wait, this is a real what if question the answer requires. What ifs, what ifs, what ifs.

Suze: For me, if you answered yes to all of my what ifs, I would go ahead and buy it, KT would say

KT: Go have a free mind, free open opportunity for a new future overseas. You may not want to come back.

Suze: All right. So that's KT you heard Suze's answer? What are you all thinking now, Angelique, the decision is truly up to you.

Suze: All right, KT, that brings us to the end of another ask Suze and KT Anything podcast. So what do you want to tell everybody?

KT: There's only one thing that you all need to remember and that is people first, then money, then things. Now if you all do that, you will live a life that is

Suze: unstoppable. See you soon, everybody. Bye bye.