[00:03:50] Joseph Hogue: Right? That’s not what you see over the long term. For housing you know, for residential real estate because it follows a pretty, a pretty predictable path as far as supply and demand, right? You’ve got the supply where construction is building new homes regularly, but they’re also bringing some homes off the market as homes are being replaced and, and converted, and then you’ve got that pretty predictable.

[00:04:10] Joseph Hogue: Demand from new home buyers. So it’s generally you can generally follow the, the path of home price growth over decades. And you just don’t see that 20 or 30 or 40% increase year over year. So it’s a lot of what we saw in the run up to that housing bubble, but we’re not necessarily so over leveraged like we were.

[00:04:29] Joseph Hogue: We don’t, we haven’t extended those kinds of mortgages to people with no income, no jobs, those kinds of things. Those no mortgages that we saw back in the housing bubble. And people aren’t quite. Extended, you know, in their own debts and that. So while we might see 10, 15% decrease in housing prices at the most, really probably over the next year or two, we’re nowhere near that level that we saw in the housing bubble.

[00:04:51] Joseph Hogue: The real big driver here is the, though the interest rates, right, the interest rates and how much house prices have increased over the last couple of years, it’s really pricing out a lot of people out of market. And something else that a lot of people aren’t talking about is the fact that interest rates have increased so much now.

[00:05:07] Joseph Hogue: A lot of people. Almost locked into their homes. I know about half of the mortgages out there in the US anyway are at mortgage rates below what they are currently, right? So you get to the question of how do you sell your home if your only alternative is going to be to buy another home at a much higher mortgage interest rate?

[00:05:24] Joseph Hogue: So a lot of people are kind of locked in place there, and that’s really having a, a deciding factor on supply as well. 

[00:05:31] Rebecca Hotsko: So the supply piece is super interesting because as interest rates are this high, you would expect kind of a natural pressure downwards on home prices. But in Canada, we have very little supply compared to usual, and especially in certain regions in like hot markets like Toronto and Vancouver, it’s a bit different.

[00:05:50] Rebecca Hotsko: But it’s interesting to see how tight supply is. So we might not see a decrease in price as much as maybe we would expect. Is that the same [00:06:00] case in the US or is it a different story? 

[00:06:03] Joseph Hogue: Sure. That’s what we’re seeing. And what I’ve found really interesting is, yeah, some of the differences between the international differences.

[00:06:08] Joseph Hogue: I know some areas in Canada, the prices have started to come down quite a bit. New Zealand housing prices have started crashing actually, and in the US we are, we’re not seeing lower prices just yet. We are seeing slower growth. So we’re, as last year home prices increased maybe 18% on a year-over-year basis.

[00:06:23] Joseph Hogue: This year, so far it’s only a growing maybe 7% or 6%. And possibly, you know, over the next year they’ll, they will start to come down a little. But you’re right, it’s that supplier. Really that is the big picture here. And one is just the construction. You know, after the 2008 crash, then a lot of home builders just slammed their foot on the brake, right?

[00:06:41] Joseph Hogue: They were not building the, the same number of apartments, same number of single family homes because they did get so burned so badly in the housing bubble crash. So we haven’t, over the last 10 years, we really haven’t had the cons. Of a single-family real estate or, or residential real estate that we needed to fulfill that at demand.

[00:06:59] Joseph Hogue: Just that natural increase in demand that you see every year from, from new home buyers. So there is that part of the supply. The other part of supply is that people just, as I said, people just aren’t putting their house homes up for sale. A lot of people are locked into their interest rate. They don’t want to move, they don’t want to sell their home and, and move if they’re going to have to take out a new mortgage that is at an interest rate that they can’t afford. So you’ve got a much lower. And of course, that is affecting that supply-demand balance, and keeping prices pretty well stable. 

[00:07:28] Rebecca Hotsko: I live in one of the, it’s probably the third expensive place to live in Canada, right, by Vancouver. And I know a lot of people were selling their homes because they were at the highest prices, but then they couldn’t find any place to rent after.

[00:07:43] Rebecca Hotsko: And so it’s that weird situation where you sell at the top of the market, but then rent has also gone up so much, which we’ll get into. So yeah, it’s just a really interesting market right now. 

[00:07:56] Joseph Hogue: It is, it is, and it’s, it will be interesting to see how it plays out. Like I said, a lot of people are just being priced outta the market almost an entire generation for the next couple of years being priced out of the market.

[00:08:06] Joseph Hogue: If you take the median home price of about $440,000 here in the United. And just the change in interest rates. Interest rates have more than doubled over the last year. They started the year 2022 out, right around 3% for a 30-year fixed mortgage. And now they’re, now they’re close to 7%.

[00:08:22] Joseph Hogue: They’ve actually hit 7%. Last couple of weeks. They’ve come down a little bit, but just that change in interest rates. As another thousand dollars a month, just an interest alone on that median home price. So that’s that’s really priced a lot of people outta the market. In fact, a personal story about my wife and my, my family, we recently moved from Columbia to Tampa into for Florida, right.

[00:08:42] Joseph Hogue: And we’d been stalking, right, the, the housing market for the last two years waiting to get a visa for our adopted daughter before we could. And just, it’s just been excruciating watching those home prices go up and watching the interest rate go up, you know, what we could have bought back in 2000 and you know, 2020, when we wanted to move [00:09:00], is far, far different from what we can afford now.

[00:09:04] Rebecca Hotsko: Yeah, I’ve also been itching to buy a home for the past year or so now, but it just seems like I am probably going to be waiting a little bit longer just because it does not make economic sense in this environment. Sure. And so I do want to start getting into this. How to think through this decision. And I think a good place to start is the pros and cons.

[00:09:27] Rebecca Hotsko: So can you kind of walk through on a high level some of the pros and cons that we should think about when assessing the rent versus buy decision? 

[00:09:37] Joseph Hogue: Sure. Well, it’s you know, there’s always the numbers that you have to consider. You know, how much is it going to cost to, to rent versus what you, what you buy.

[00:09:44] Joseph Hogue: One of the big pros of renting is of course, that flexibility, right? You can always you know, if you don’t like your neighbors, you can always move. There’s the the cost of maintenance costs as well in renting. And if you’re water heater breaks, then then you just call the landlord and, and it’s their responsibility rather than having to drain your own bank account.

[00:10:01] Joseph Hogue: The pros of buying. Then there, there are some studies that show. That kind of stability. You know staying in, in a single house, in a single neighborhood for, you know, decades, years, or even a decade, is good for families and people that, that own their homes tend to be happier on different measures, whether that’s, you know, a fact, different factors or not nobody’s really been able to stay yet, but, you know, you are building up equity for a lot of people.

[00:10:25] Joseph Hogue: I, find the biggest pro of buying a., and, and this is, this is beyond the numbers, right? Because sometimes you look at the numbers and they make absolutely no sense, right? Which we can get into as far as the, the actual numbers of renting versus buying, but beyond that, so many people just need that forced savings plan, right?

[00:10:42] Joseph Hogue: That is a, a home mortgage. So many people, they, you know, even if you look at the numbers and it makes more sense to just invest that down payment. And pay rent rather than to buy a home. Then so many people, you know, they would just blow the down payment, right? Or make bad investment decisions and things like that.

[00:10:57] Joseph Hogue: So it’s nice to have that forced savings plan where you’re building up that equity over time in a home. Of course the cons to that are you know, you could, you could be buying it exactly the wrong time and see your, your home not appreciate like like it. 

[00:11:11] Rebecca Hotsko: Yeah, I think those are all great points, and to really think about this decision of renting versus buying.

[00:11:19] Rebecca Hotsko: I think sometimes people compare it, the total cost of rent, which is pretty straightforward. So when you think of the total cost of renting, it’s your rent plus utilities if you pay those plus renters insurance, but then. To think about the total cost of buying a home or home ownership, it’s not as straightforward.

[00:11:36] Rebecca Hotsko: Some people might just think of the mortgage costs, property taxes, but what are, I guess, all of the costs that you would consider that would make up the total economic or financial costs that we should consider and compare that to the renting cost? 

[00:11:51] Joseph Hogue: Sure, sure. We’ve got the maintenance cost, which is a big part of owning a home versus renting.

[00:11:56] Joseph Hogue: As I said, you know, if you’re if something breaks in your home, you just call up the in, in your rental, then you call up the landlord and it’s their responsibility. Whereas maintenance costs generally are going to cost you one to 2% a year on the value of a home. And that’s, that doesn’t mean that it’s going to be.

[00:12:10] Joseph Hogue: Relatively smooth each year. You know, you’re going to, I’m not going to have one or 2% each year, but you might have, have almost nothing very, very little for one year to the next. But then you have to replace the roof, then you have to replace you know, have to repair the foundation, things like that. So those big expenses.

[00:12:26] Joseph Hogue: that you have to plan for and you really do need to budget for because, you know, if you don’t have something saved up in your budget for those, when they do come around, they can really push you into some bad financial decisions and bad bad financial scenarios. So you’ve got the maintenance costs, you’ve got the property taxes, you’ve got the interest obviously on the home mortgage.

[00:12:42] Joseph Hogue: A lot of that can be deductible on your taxes if you do, you know, itemize your taxes and things like that. So there’s a savings there, but it’s still a, an extra cost onto you know, besides renting on top of that. The insurance, the homeowner’s insurance is typically, well, well over what a renter’s insurance is of course, because you know, with renter’s insurance, you’re just covering your own personal possessions, whereas a homeowner’s insurance, you’re going to have to cover the roof and the whole structure, everything like that. So it’s typically extremely quite a bit more expensive than just renter’s insurance. 

[00:13:12] Rebecca Hotsko: And then one that I think is maybe overlooked by people when thinking about this decision is the opportunity costs of the equity. Because when you think about it, when you are spending upwards of tens of thousands of dollars on a down payment, that’s money that you.

[00:13:29] Rebecca Hotsko: Could have used to invest in your portfolio of stocks or something else. And so there is kind of that opportunity cost to investing in a home, even if it’s for your residential property. It’s not an investment property, but it’s still something that could have generated return elsewhere. And so how do you kind of factor in that decision to rent first Buy?

[00:13:52] Joseph Hogue: Sure. And like I said, that for a lot of people that equity that equity buildup is a great thing, and that forced savings plan where they’re, they’re forced to save each month and build up that equity is something so many people need that wouldn’t otherwise be able to save or, or make those investing decisions.

[00:14:06] Joseph Hogue: What we find through data I mean, we’ve got data back to 1870 through a lot of these indexes, but, you know, it’s, it gets muddied a little bit, I think. Different eras of home buying. I think if you go back 60 60, 50, 60 years, then you find that equity or appreciation for home prices is closer to about 2% when you’re all set and down.

[00:14:26] Joseph Hogue: Really the return on homeownership from not having to pay rent from minus you know, minus the property taxes, minus the maintenance, but then adding back in the home. Price appreciation usually make about five. Return on your investment, right? So that’s the that’s kind of the numerical benefit of owning a home.

[00:14:44] Joseph Hogue: And now, of course, just on the numbers though, you have to compare that against maybe a 7% or even a 9% return on average for the stock market. So, you know, on the numbers, it, it doesn’t necessarily always make sense to, to buy versus just taking that down payment and putting it in the stock market, and then using your, using your money to rent.

[00:15:02] Joseph Hogue: But that’s really where that, that forced savings plan comes in, that I think it’s, it makes sense for a lot of people. 

[00:15:08] Rebecca Hotsko: I definitely agree with you on that. Once we have a goal, it forces us to put more money aside and maybe stick to our plan a bit more. I’ve also heard you talk about the borough rule. Can you talk a bit about that?

[00:15:20] Rebecca Hotsko: How is that kind of different than what we already talked about with the factoring on the all the costs? 

[00:15:26] Joseph Hogue: Sure. Well, I, I think it’s just a great common sense rule for buying versus renting something. And this goes well beyond buying or renting your home, this going go into your car. Transportation. I can go into many things, but it’s basically a borough.

[00:15:39] Joseph Hogue: So buy utility, rent, luxury. And basically what it just means is anything that is just that basic idea, that basic good that you. There’s some, a roof over your head transportation with no frills and no bells on whistles. Then you buy that. You buy. If it’s going to be just a very basic apartment that you need a, you know, the minimum, minimum number of rooms and things that you need not necessarily anything fancy, then that would be a, that would be a good buy decision, right?

[00:16:04] Joseph Hogue: Whereas if it’s a luxury, you know, if it is the pool out back, the extra space that you may never really even use anyway, things like that, then you would. , and like I said, it goes down to your transportation. If you just need that little cheap Toyota Camry to get back and forth to work, then, then that’s something you’d buy.

[00:16:22] Joseph Hogue: If it’s the Lamborghini that you’ve always wanted, then maybe you ought to rent it to see if you really really need something like that, right? So it goes into the idea of if you really need it, if it’s, you know, just basic and cost, cost-effective, then that’s something you buy. If it’s something that you don’t necessarily need, but you, you’ve always.

[00:16:39] Joseph Hogue: Go ahead and you know, rent it for a while to see, see if you really, really get the enjoyment out of it that you thought you would. 

[00:16:46] Rebecca Hotsko: I think that is a great rule of thumb for us to follow. And I was thinking about this. So we talked about all the financial factors, but there are so many non-financial factors and important considerations that we also need to think about that can weigh heavily on this decision.

[00:17:01] Rebecca Hotsko: What are some that you can think of that are most applicable for millennials? 

[00:17:06] Joseph Hogue: Sure. Well, I think the most important idea is, is just to understand that this isn’t a, isn’t a decision you have to make at any one point, right? There are different forces that, that are playing on that buy versus rent decision.

[00:17:18] Joseph Hogue: That might mean that it would be better that, yes, in the, in the long run, it’s better to buy versus rent for you, maybe put it off for another year, right? We have seen with that increase in interest rates, buying is actually one and a half times more expensive than renting has been over the you know, over the past 20 or 30 years.

[00:17:35] Joseph Hogue: Just because again, as those interest rates have doubled the mortgage interest over the last year, then it is so much more expensive. Rent has increased on average across the United States and really internationally, but, but not necessarily to keep up with the housing costs. Right. Houses have increased something like 40 to 50% over the last few years in the United States, and rent has only increased maybe at, at about 10% annual pace.

[00:17:58] Joseph Hogue: And a lot of that has to do with those moratoriums, the, you know, the moratoriums of on evictions in the United. Landlords couldn’t evict people for non-payment or rent, so they weren’t going to be, they weren’t going to be increasing the rent if they couldn’t get anything or, or evict tenants. So they increase the rent much more slowly.

[00:18:14] Joseph Hogue: Rent prices haven’t kept up with those home prices, and that’s really thrown that by versus rent decision, the numbers anyway, out of whack. , right? So it is now much more expensive to buy than it is rent. Obviously that’s something that’s going to clear itself out. You know, rent prices will start to increase and, and in fact have already started to increase at a very fast clip for a lot of people.

[00:18:33] Joseph Hogue: So those rent prices will increase. We’ll probably see a little bit of drop in home prices, and that’ll even out again to what we see over history right around, even right around parody. So I think a lot of people. You know, while you make that decision in your mind that, Hey, I want to buy a house that’s good for me, and you think that you have to, you know, go on realtor.com and start looking for houses now, it is something that you can wait for maybe six months and probably get, find a lot better deal out there.

[00:19:00] Rebecca Hotsko: So that rent increase, does it typically just keep up with inflation historically? Is that the more normal level compared to the 10% we saw? 

[00:19:11] Joseph Hogue: Well, rent usually keeps up with house prices a little bit closer than just inflation, right? If rent only kept up with inflation, then it would, you would see, a gap widening between rent and home prices, right?

[00:19:22] Joseph Hogue: Because since home prices dot typically keep up with inflation, plus that extra two or 3%, you know, on top of that for home price appreciation. And then you would see that gap widening between rent and home prices. And that shouldn’t be, that shouldn’t be something that happens if you think about it, right?

[00:19:36] Joseph Hogue: Because anybody that owns a home has two options. They can live. Or they can rent it out. Well, if, you know, if rent prices for any home to fall so far be below, you know, those the, the home prices, then nobody would rent a home. Right. You know, it would just be more economical to buy a house or, and put the, put your money in the, in the stock market because you wouldn’t be getting enough rent, you know, to justify based on those home prices.

[00:19:59] Joseph Hogue: So of course, you know, if nobody was renting houses, then that those prices would go up because that’s a demand and a lower supply. And, and things would tend to tend to even. So what we find is over the long term, yes, those, the rent prices tend to keep up pretty much on par with home prices.

[00:20:14] Joseph Hogue: And since that hasn’t happened in the past few years, then, then there is that imbalance where it’s actually one and a half times more expensive to buy than it is to rent. You know, on those, on that one-to-one basis, 

[00:20:25] Rebecca Hotsko: Yeah. And so with this challenging rising high-interest rate environment, it really kind of muddies that decision.

[00:20:33] Rebecca Hotsko: And for people who maybe have the savings, they have that cash ready, it just still might not make economic sense to pay that high fixed, even if you get a fixed mortgage or a variable, because your betting rates will go down. Still a hard decision. I saw this graph on LinkedIn where it showed a $600,000 house with a 3% interest rate, which was probably close to what it was a couple years ago, was a 2020 $4 payment per month, and then a $590,000 house in 2022, 7% interest rate, now over $3,000 a month, so $1,100 difference.

[00:21:10] Rebecca Hotsko: In a year, and that’s just such a basic example of how yeah, just the rise in interest rate can just massively reduce affordability and it kind of, it’s scary to think that even if interest rates go down now, especially in Canada where we only have three or five-year mortgages, it’s maybe a bit different in the US where it can be 15 to 30.

[00:21:30] Rebecca Hotsko: Those decisions really can make a difference in our affordability. 

[00:21:37] Joseph Hogue: Sure, sure. And, it is scary to think that you’re paying more and given less, you know, in that example, the $600,000 house versus $590,000 house. But you can, you know, you can take all different kinds of examples. You can get the same house, you know, double those interest rates, and you’re still paying about a thousand dollars more just interest alone each month.

[00:21:54] Joseph Hogue: $12,000 a year for the same house. Like I said, it’s really priced a lot of people out of the market. They’re no longer able to. Buying a home because the home that they would have to buy and, you know, they, they just wouldn’t be happy in because it would be so much smaller than maybe what they could have bought just a couple of years ago.

[00:22:09] Joseph Hogue: So it, it is forcing really a change and a reassessment of what p people think of when they think of, you know, buying versus rent. And it is interesting the, the difference in mortgage terms between the US and Canada. You know, whether it’s. Three to five years there. The mortgage terms versus the 15 or 30 years that are, that are more common here in the us a lot of people don’t typically hold their mortgages for 15 or 30 years.

[00:22:31] Joseph Hogue: You generally, they’ll, they’ll refinance or, you know, get a, get another loan on those within, you know, five to seven years. So it’s a little bit closer. But generally mortgage interest rates have to come down. I think it’s one and a half percent usually are one and a quarter percent to really make it economically Makes sense.

[00:22:48] Joseph Hogue: To refinance your mortgage, to cover a lot of those mortgage costs and things like that. So, you know, with mortgage interest rates at 7% now, then they would have to come down quite a bit, down to about 6% for, you know, for, to really make a difference for a lot of people that you know, that have those 7% interest rates now.

[00:23:04] Rebecca Hotsko: So one thing I kind of want to touch on with you now is the differences between choosing a variable versus fixed mortgage rate. In the event where someone’s ready to buy a home in the next year or two, how can we think about which makes more sense? We don’t want to be trying to predict where interest rates are going to go, but in a sense, when you’re buying a home, you kind of have to be forward thinking on which makes the most sense for you.

[00:23:28] Rebecca Hotsko: How would you think about the pros and cons of each and think about that decision in today’s environment? 

[00:23:34] Joseph Hogue: Sure, sure. Well, I, I think it’s, it’s important again to say that you know, you don’t have to make a decision immediately if a lot of times with any big decision, if you have to, if you sit there and it causes you stress to make that decision and, and you really don’t know which way to go, then a lot of times that’s kind of points to, you know, the idea that maybe you’ve already made a decision, maybe you don’t want to make that decision.

[00:23:56] Joseph Hogue: because one side is really just not something you want to do, but maybe you feel obligated to do it. I, I know a lot of people feel like, you know, you grow up, you, you go to school, you get married and you buy a home and, and, you know, that’s just a, one of those stepping stones in life that everybody does, and it’s right to do well.

[00:24:11] Joseph Hogue: I, I don’t want people to feel obligated that that should be their life decision or their life path, you know? So if, if that decision is really causing you any kind of a stress, Then I think that that kind of points to the idea that maybe you don’t want to, don’t want to make that decision. Another important thing here is I think, like we said, there’s nothing wrong with waiting six months to see kind of how things settle.

[00:24:30] Joseph Hogue: Obviously, again, we are seeing, you know, the cost of buying a home is so much more expensive relative to, to renting has been over the last couple of decades. Then that has to come back down into a, a more one-to-one basis. We have seen such an increase in home prices over the last couple of years.

[00:24:47] Joseph Hogue: Rent has not kept up with that, so we are going to see, you know, higher rents and lower, lower home prices over the next year, probably, maybe even two or three years, right? These, the the real estate market tends to lag the stock market. So a lot of the crash that we’ve seen in, in stock prices, you know, and eventually maybe a recession next.

[00:25:04] Joseph Hogue: The, the real estate markets generally lags that, so you’ll probably see weakness in home prices, you know, even, even six months to a year after the rest of the economy has rebounded. So I don’t think it’s something where you have to make a decision now. I think the odds really point to a favor of, of waiting, waiting on that decision, renting now, and really you know, buying into the future when, when those prices do come down, when the interest rates come down a little bit.

[00:25:27] Joseph Hogue: But again, it’s also something that, where. You can make an economic decision later on where maybe if you’ve locked in that 7% interest rate on, a loan, then then you can refinance it. If you’re in a long-term loan or if you’re in a three to five-year loan, then of course you know, that’s going to give you the opportunity to change those terms when that loan is up.

[00:25:46] Rebecca Hotsko: I think those are all great points, and I think it is important to maybe remember that the neutral rate for the Fed is 2.5% and for bank account, so that is the goal. They want to get back there so they’re higher now. It’s expected that they’ll come back down. We don’t know when, but those are the targets.

[00:26:03] Rebecca Hotsko: And so I think, like you mentioned, if you give yourself that buffer of 1.5% to 2% down, that might. A better time than right now for most people. And so the other thing that I kind of just wanted to go through with you is deciding between the term length, because we kind of talked about how no one sticks to, or you don’t actually keep your 15 to 30 years.

[00:26:23] Rebecca Hotsko: I read something that said most people keep it 10 years and you said five to seven, so it’s not the full length. But how should someone think about that decision? What are the factors that go into that? 

[00:26:35] Joseph Hogue: Sure, of course. The biggest factor in that is that is what you’re saving on interest, you know, monthly interest as well as interest over the the life of that loan.

[00:26:43] Joseph Hogue: Is that going to save you enough to make up for, you know, the closing costs and all the costs to getting that new loan? Okay. That’s the, that’s obviously the first thing that one needs to be handled. Second is, you know, do you want to, do you want to be locked into that home for that much more time, right? If.

[00:26:57] Joseph Hogue: If you’ve already sat on your loan for 10 years of a 15-year loan and you are you’re going to be refinancing into another 15-year loan, do you want to be locked into that house? You know, for that period of time, are you going to be cashing out or are you going to be, you know, going to be keeping the same amount that you owe on the loan?

[00:27:13] Joseph Hogue: So I think it, it really, it really depends on how much interest rates have changed and, and how that affects your monthly payment, as well as the total interest that you’re 

[00:27:21] Joseph Hogue: going to be saving. By refinancing, but, but again, generally it tends to be, you know, if interest rates have fallen within a percent to a percent and a half, then it usually does make sense to refinance a loan because you’re going to be saving so much more on interest you know, over what you would’ve paid.

[00:27:38] Rebecca Hotsko: One quick question on the interest. Is the total interest expense tax deductible then? 

[00:27:44] Joseph Hogue: It is if you itemize, and it depends on the amount o of your home. I think the tax changes over the last couple of years have changed that to where I think it’s I want to say a $500,000 home or, maybe a million dollars.

[00:27:56] Joseph Hogue: I think there was a cap that they changed just a few years ago where, you know, you can deduct a certain amount of interest. So it that varies, by jurisdiction as well as e even states in some for some state taxes and, and that kind. So going to be wary of where you are as well as, you know, whether you itemize or not.

[00:28:14] Joseph Hogue: You know, with the, with the standard deductions going up for individuals, then a lot of, a lot of people even that own their home and are, you know, paying those interests, they’re still not itemizing their deductions, right? They’re staying taking that standard deduction of, I think it was something like 12,700 each per person, you know, and just, and just using that rather than itemizing different charitable deductions, their interest, property taxes, things like.

[00:28:38] Rebecca Hotsko: Okay. That’s good to know because I mean, we can do more research on it, but I was wondering if the total amount was tax deductible. 

[00:28:45] Joseph Hogue: Well, it is deductible you know, if you are itemizing, you know, your, your deduction. So if your total interest per year is more than I would say you know, seven or 8,000, you know, but plus, plus you’ve got the property taxes and other things, then you’re probably going to be itemizing your [00:29:00] taxes, your deductions on your taxes, and that’s going to save you money rather than just taking the standard deduction.

[00:29:05] Rebecca Hotsko: So I also want to kind of end this video with talking about something fun and investing. One of your videos you recently did where you talked about seven monthly dividend stocks that can help pay your rent. And so I thought that was a perfect way to bring this episode home. Can you talk a bit about those dividend stocks and maybe I think it’s helpful in the context of.

[00:29:28] Rebecca Hotsko: So talk about also how much money you have to invest to get enough money to pay your rent, or the $2,000 that you talk about in the video. 

[00:29:38] Joseph Hogue: Sure. Well, and like you said, it’s a great idea, right? A great theme to think that, you know, you can invest in dividend stocks, whether they’re monthly or quarterly, and use those to pay your bills.

[00:29:47] Joseph Hogue: And it’s there are some pitfalls to it. I think like you alluded to how much you have to have to invest in these, but it’s a great way to build a portfolio, right? So most dividend stocks pay their dividends every three months. It’s a quarterly basis. So you get, those dividends four times a year.

[00:30:03] Joseph Hogue: But, but there are quite a few dividend stocks, a few dozen dividend stocks and ETFs that pay on a monthly basis, right, that pay those, those returns out each month through a dividend check. Now the the yield is going to be different on a lot of those normal dividend stocks. The average yield is right around two to 3%.

[00:30:20] Joseph Hogue: Monthly dividend stocks tend to pay a little bit more because investors are obviously attracted to those stocks because they are dividend and, and frequent dividend payers. So you can find yields of five, six, 7%, even more on a lot of those. So of course if you, if you ever want to know how much, how much you need to invest in a stock to to get a certain amount out of cash, you know, each month or, or each year, then you just take the amount you need divided by the percent, the the dividend yield, right?

[00:30:47] Joseph Hogue: So if I needed a hundred dollars and the dividend yield was 5% on a stock, now of course, that’s an annual basis, right? So if I need a hundred dollars a month, I would actually. Trying to figure out something for $1,200 total for the year. Right? So 1200 divided by 0.05 would be 120 times two.

[00:31:06] Joseph Hogue: It’d be $240,000, right? Which a lot of people look at that and they kind of shrug in just a minute. I need to pay, I, I need to invest 240 thou, quarter of a million dollars just to get, you know, a hundred dollars a month. And yeah, you know, that’s the tragic reality that you’re not going to get something for nothing.

[00:31:20] Joseph Hogue: But it is something. You know, over 10, 15 years, you can build up very easily by investing in these stocks, reinvesting the dividends, and then eventually when you are up to that $240,000 or, or what have you in that portfolio, then you’re getting, you’re getting hundreds of dollars a month from those dividend stocks and you can use that too, to pay your bills.

[00:31:41] Rebecca Hotsko: I think it’s a great approach and a lot of people like that stable monthly income versus perhaps just relying on capital appreciation over the long term. So I guess what are some of your, maybe you don’t have to name all seven, but maybe your top three dividend stocks that you love or that you invest in that pay a consistent yield and that you’re kind of excited about long-term.

[00:32:04] Joseph Hogue: Well one I guess would be a maybe Stag Industrial. That’s the ticker, S-T-A-G. It is a warehouse operator and owner in the real estate space. It’s not the highest dividend yield. It’s a little bit lower, but it is very consistent and it’s in one of the best growth themes for those, for those dividends, right?

[00:32:22] Joseph Hogue: All that, that the e-commerce, the growth in e-commerce means that all. Those mailed those mailed goods by Amazon and whatnot, have to be stored somewhere. And that’s really filling up warehouse space across the United States and really internationally. So it’s a it’s a great great real estate sector to be in for that.

[00:32:39] Joseph Hogue: Another great dividend stock that I like is a Medical Properties West that’s ticker, M-P-W. They actually own a healthcare facilities and doctor’s offices, hospitals, things like that. It hasn’t been doing very well this year just because of the differences in, you know, just some of the factors. Those hospital, hospital stocks and, and healthcare.

[00:32:59] Joseph Hogue: But it, again, it is a great long-term trend to be in. Right? It actually pays a very high dividend yield of close to almost 10% on the stock. So you can make a high dividend yield. It’s a, it’s a stable long-term trend. Obviously, we are only spending more for healthcare, and they have, they’ve got a great structure with their.

[00:33:15] Joseph Hogue: Their leases, right? They lease their properties out, they own hospitals, they own doctor’s offices, things like that. And then they lease ’em back to the doctors and to the hospital companies on a triple net basis, where it just means that the doctor, the, the hospital pays all the expenses related to that property.

[00:33:28] Joseph Hogue: And then they just send the check of, of what’s left over to Two Medical Properties West, right? So the very low operating cost for the company, and they distribute a lot of cash flow to, to investors. So I like that one. I also like AGNC, that’s AGNC Investment Corporation. That’s actually an an m rate, a mortgage rate.

[00:33:45] Joseph Hogue: So what they do is they sh they borrow on long-term rates. Or borrow short-term rates, very low short-term rates, leverage that up and then buy mortgages from that. So, you know, they are a very, very big and important mortgage buyer in the United States, and they distribute almost all of that cash flow, you know, from the from the mortgage investments that they’ve made onto investors.

[00:34:04] Joseph Hogue: So another, another very strong dividend stock. 

[00:34:07] Rebecca Hotsko: It’s interesting that two of them were REITs. That’s something that I’ve also been wanting to talk about on the show and bring someone on because REITs. Benefit in interest rate environments to an extent, but then there’s maybe that threshold where they don’t perform as well.

[00:34:24] Rebecca Hotsko: Can you talk a little bit about REITs? Are they a good diversifier in this environment, or how do you think about them? 

[00:34:31] Joseph Hogue: Why I love, I love REITS real estate investment trust, just as a way to, to get that exposure to real estate, right? It’s a, an entirely different asset class apart from stocks, apart from bonds, and, and that’s really what’s important in owning those, those real estate stocks, right, is that you do have something.

[00:34:45] Joseph Hogue: That isn’t tied directly to stocks, isn’t tied directly to bonds, you know? Yes. They rates tend to follow the stock market a little closer than, than direct ownership actually buying commercial property. But they do give you that exposure to commercial property prices. So it’s a great, smoother you know, diversifier kind of smooth out the returns on your stock portfolio, but you’re right, it, it can you know, higher interest rates can.

[00:35:07] Joseph Hogue: Those real estate properties and those real estate trusts, because real estate is generally very heavily leveraged, right? You, you only put down maybe 10 or 20%, or even 30% at the most when you buy that commercial space, or, or you buy that home. And so, you know, those, that, that interest rate is the cost of borrowing that money.

[00:35:24] Joseph Hogue: So it gets much more expensive to, to buy and invest in real estate as. Those interest rates go up. So what we typically see is, yes, as interest rates go up, then real estate, you know, in real estate prices is hurt by that. You see a lot of these real estate investment trusts, these REITs the share prices come down and they suffer.

[00:35:41] Joseph Hogue: And we’ve seen about a 20 to 25% decrease the in those REITs this year on the prices, right? But there’s still very strong cash flow. They’re still paying out those high dividends and again, it’s something. You know, as, as interest rates kind of level off and come back down to target rates, then you’re just going to see a bounce back in that.

[00:35:58] Joseph Hogue: So you’re going to see that share price, appreciation as well as the continued dividends on those. So it’s a, you know, it’s a great way to get that exposure into real estate that you know, most people wouldn’t have otherwise. If you don’t have a couple hundred thousand dollars laying around, to buy a commercial property or to buy you know, a portfolio of real estate directly, then you can invest 10, $20 in a share of you know, a real estate investment.

[00:36:22] Rebecca Hotsko: And I guess they also perform well, I think I said high-interest rate environments, but what I meant was high inflation, real estate typically performs better, and then when interest rates rise a bit, the thing I am wondering is the dividend yield on the medical properties one, so 10% that is. Pretty crazy.

[00:36:41] Rebecca Hotsko: But I also see, like you mentioned, that it has depreciated quite a bit from like highs of 21, 22 to now $12. So how much of that dividend yield is just due to that price drop? The, the drop in the denominator versus like increase in the dividend? 

[00:36:59] Joseph Hogue: Sure, sure. And of course, that’s, that’s something you always need to look at when you’re looking at a, a dividend stock, is the dividend yield in relation to the price.

[00:37:06] Joseph Hogue: Typically in the past medical properties trust has paid a, a lower, lower dividend yield, so upwards of 6% or right around there six 7%. So it has, it has increased quite a bit because they are the stock price is significantly lower. Now, a big reason for that stock price, again, is just the overall healthcare.

[00:37:24] Joseph Hogue: you know, what has happened to healthcare you know, healthcare services. We had some of the larger hospital companies like uh, UnitedHealthcare, some of the other large hospital services, kind of worn on a lot of their, their earnings and, and warned that you know, earnings were, were decreasing and the outlook over the next year was, was a little bit lower, right?

[00:37:42] Joseph Hogue: So, so obviously that’s hurt, you know, everyone in the healthcare. But again, you know, these are the overall supply. The long-term supply demand picture for healthcare services, for healthcare real estate is, is very strong. And, you know, and, and it should support, you know, stocks like this and that healthy dividend yield.

[00:37:59] Rebecca Hotsko: I’m glad that you mentioned this one. This one has actually been on my radar for a while, so I think that we will end that here. Thank you so much for coming on again, Joseph, for our listeners that want to watch your videos and learn more about you and your work, where can they go to find you? 

[00:38:16] Joseph Hogue: Sure. Love to see everybody stopping the the YouTube channel.

[00:38:19] Joseph Hogue: Let’s Talk Money. Got a couple great videos on there. You know, one, we, we talked, kind of talked about the buy versus rent video that I had on there. The monthly dividend stocks to pay your rent video, as well as a few just recently that, that I think are going to be really helpful talking about, you know, how to recession proof your finances and how to invest in a recession.

[00:38:38] Joseph Hogue: So stop by. Let’s talk money there on YouTube and love to see. 

[00:38:43] Rebecca Hotsko: That sounds great. I will make sure to link those all in the show notes. Thank you so much, Joseph. 

[00:38:49] Joseph Hogue: My pleasure. Thank you. 

[00:38:51] Rebecca Hotsko: All right. I hope you enjoy today’s episode. Make sure to subscribe to the show on your favorite podcast app so that you never miss a new episode. And if you’ve been enjoying the podcast, I’d really appreciate it if you left us a rating or review. This really helps support us and is the best way to help new people discover the show. And if you haven’t already, be sure to check out our website, theinvestorspodcast.com.

[00:39:22] Rebecca Hotsko: There’s a ton of useful educational resources on there, as well as our TIP finance tool, which is a great tool to help you manage your own stock portfolio. And with that, I will see you again next time.

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