174. Buying a Second Home BEFORE Your Primary?! Interview with Katie Cline

23:55Yeah. There's a real mindset that block around it. And it's interesting because I've written a few pieces for like Entrepreneur and Business Insider and obviously just posting on my own YouTube channel and everything as well. And the amount of negative comments that I get is way higher than anything with Sweet Success. And the publicist in me tells me that's when you know you're onto something. Because you're really like, you're making people uncomfortable. You're making people question it. And it's just like so sad that we live in such an age where people would rather like spew nastiness at you rather than say like, hmm, let me think about this and see if it works for me or interesting strategy for her.

24:34Not for me, but that's OK. It is really interesting. And to what you said about house hacking, that's something that I would be super interested in to buy a multifamily home in New York City. I'm looking at minimum one point two million dollars. So, yeah, great that I would at least have some income coming in once I acquired it. But the same problem still is there to acquire it in the first place to then be on the hook for that mortgage payment. And I also believe that when people are buying their primary home, if the bank tells you, hey, you're approved for$500 ,000, you are going to stretch to every last cent of that$500 ,000, even if it doesn't make sense to you.

25:15Because you're so much more emotionally invested in this is my home. What does it say about me? I'm going to be there every day. Right. Whereas if you're buying your vacation home, there's going to be some things that you're able to do give and take on. You're also able to purchase in places that potentially are not as expensive as the place that you're currently living. So to me, now that I'm like through the thick of it, I'm like, wait, this actually makes way more sense than buying your primary home for someone who lives in a high cost of living place.

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26:28Natalie Palmer:Just use the link in the show notes and don't forget to enter code BF65NV at checkout. What you just said about like you'll stretch yourself to what you're approved for. I can relate so much because we're adding on to our house. We've got fourth kid on the way. We're building another bedroom. You're pregnant? Yes. Congrats on my chest. I didn't know that. Oh, yeah. I'm due in like seven weeks. No way. Congrats. Oh my gosh. But we're adding on to the house and our architect, like per city plans or whatever, it's like we are allowed to add up to, I want to say 1 ,300 square feet additional or something.

27:09Natalie Palmer:And the plan that I came up with, it's only adding 700 square feet. And literally, like I've had so many friends, our architect, like our contractor, like so many people were like, why don't you just add the full amount? You're going to go through all of this effort. And I'm like, I came up with the perfect square footage. Like I love the plan that we came up with. I don't want to cut into my backyard that much. I don't need this much space. Like I'm a minimalist and I don't just want corners of my house to fill with junk. Like I don't want to pay higher utilities if I don't need to. Like I'm good with this plan, but it is such a like I'm almost like working against like the it's very tempting to just be like oh well we can go up to this amount like our city allows it like why not um but I'm sure like the fifth time someone said it to you you start to be a bit like should I am I am I doing this wrong yeah we are going through all this effort we are going to frame the whole thing and why shouldn't why wouldn't I go bigger but like I know what I want for a house and I think about it of if you know for your primary residence, I think it's like more tempting to fall into that trap.

28:16Natalie Palmer:But if I treat it as an investment, it's about$300 a square foot to build on to what I'm doing. So we're probably going to spend over$200 ,000 to add the$700. And I'm like, okay, that's like good. I don't need to go bigger. But coming at it from like an investment, like a real estate investment mindset has like really helped me just be like, this is the space I'm happy with. It keeps our backyard. I'm in California. we need outdoor living. But I can see like as a primary residence, it's like more tempting to just like, I mean, why not? Let's just add it on, add another 600 because we can. Yeah.

28:50And what you just said, I know what I want. I know what I'm looking for. I think that's where people struggle a lot of times, myself included. Like when I first started in the short-term rental world and I was around and listening to some shows that is about growth and doors and automation, automation, automation, you start to think, oh, that's the way that like it has to be done. And that's the way that it should be done. And with automation, I set up automatic messages and I hated it because I really believe that we as hosts have to put hospitality first. And so in my first message that I send to people when they book, it says something like, what brings you to town?

29:32Have you been here before? Just as an invitation to say, hey, would you like to tell me more? And you know, we can open that dialogue up. They don't have to if they don't want to, of course. And if that message sends to somebody who booked my place in Saratoga for Belmont weekend, which is the biggest tourism driver of the year in that area, and I say, what brings you all to town? I look like a fool. I should be the expert. I know what brings you to town. I know why you're

30:01Natalie Palmer:Yeah, you didn't raise prices specifically for this and now you don't know why we're coming. Exactly. Exactly. And actually that place that we stayed in the Finger Lakes while we were doing our own home as well. It was beautiful. The location was amazing. But we paid quite a premium to stay there for a week. It was fairly expensive and I was willing to stretch because it was the first trip as a family of four and, you know, all these things that we tell ourselves to allow ourselves to feel okay about spending the money. The only messages that I got before arrival were very clearly automatic messages.

30:37And I just thought, this doesn't feel good from the guest perspective. I want to know somebody is grateful for my stay, just like I'm grateful to stay at their home. So little things like that, I think really zooming out and giving yourself the permission to say, what is right for me? And all three of the properties that we've purchased, we didn't go on to like one of those lists and say, okay, these are the most investable destinations in the U.S. or anything like that. The first place was because Bolton Landing and Lake George has really big sentimental value to us. It's a place we want to continue to return to.

31:11So that was a no brainer. The second place in Saratoga is a place that we want to move to. And we have decided that we will probably move into that home within the next year or so. So moving to the suburbs and moving that far away from New York City was really scary to me. And it happens to be a very good short-term rental market. And what I saw with our first property is I spent so much time there. I really got to understand the destination that I thought maybe this is a great location for our second because we know it's a great rental market. But while we're renting it, we can actually try it out and make sure it's a fit for us.

31:45And also saw it as a bit of a way to like hold our children's spot in the school system there. And then our third property in the Finger Lakes is because I really love being around the water. I wanted a waterfront home. Waterfront homes are insanely expensive all around the U.S. And yet somehow in the Finger Lakes, they are still affordable a bit. And yet this is an area that has huge tourism demand. The winery scene there, I'm not sure if you've spent any time there yet after the investment, but you'll be blown away, Natalie. Like I come from Long Island originally and we have wineries on Long Island and no offense to Long Island vineyards.

32:24They're not, they're not great. And a lot of like the labels of the bottles look like, you know, the owner's nephew designed it on like, I don't know.

32:34Natalie Palmer:I don't think I've ever seen a Long Island wine like on a restaurant menu. That's because you live in California. They'll tell you where they're from. New Zealand, Napa Valley. I don't think I've ever seen Long Island. You live in California where lovely wines come from. So I'm not surprised that we have not exported it to you. But truly, like in the Finger Lakes, there's really quality vineyards, really quality wines there. There's a huge brewery scene, distillery scene. So as an investor, I liked that too. I'm like, there's multiple reasons that people are going to be coming to this area and I can afford waterfront real estate.

33:06That seems like a win win. So again, like giving people that permission to say, what is it that you want? And like block out the noise. You don't need the extra square footage in your house. You don't need to invest where everybody else is investing because some lists, someplace told you that that's the only place that you should be doing it.

33:25Natalie Palmer:No vacancy listeners. No, I talk shit on those lists all the time. I would not trust those at all. All it tells you is that some other person is making money in that market, but like you don't know how regulation may have changed or how high housing prices may have changed or if it's too saturated. So yeah. It also tells you that now everyone else knows too. So if anything, it's like avoid. Yes. Yeah. If anything, it should be top 10 cities to avoid. Yeah. Okay. Something else you brought up was with your, the second, the Saratoga house, you guys bought that one as a second home, but with the intention of your family moving in there one day, I have a friend who she and her husband currently rent their primary closer to where they both work and commute, but they bought a home that they're using as a short-term rental that they plan to retire in.

34:17Natalie Palmer:And I think they plan to retire in like 15 years. So for right now, it's a short-term rental. It made sense to get in now. Housing has appreciated in that market like crazy. And they were like, maybe in 15 years, we can't even afford this place. Like, let's get it now. And they're cash flowing from it. And so there's another strategy to like your second home first could end up being your one day primary home, but just getting into it beforehand. Exactly. On the podcast, I have three different episode styles. So one is solo episodes, really teaching people tactical deep dives on certain things.

34:51Like a lot of people outside of our short-term rental world don't know about things like AirDNA to figure out how much money your home could make or how to check regulations in a market. So really teaching people how to do that. The second is expert episodes, which you will be one of. I'm so excited. Just teaching people about different things like let's talk to mortgage lenders. Let's talk to co-hosts. Let's talk to fundraising, like understanding what experts can teach us in the space as well. And then the third is real stories and it's people like your friend and it's really fascinating to hear Just as many people who've been on the podcast have had just as many reasons for buying their second home first It's not all let's buy it two hours away upstate so we could use it as a weekend home I have a friend who Bought in myrtle beach because she wants to retire there one day and she works from there every january She spends that's where she's going to be another friend bought her second home first because she was living in brooklyn she thought oh we'll rent it out I'm really excited about that while we live in Brooklyn and then they decided they wanted to red shirt her son which they weren't able to do in Brooklyn which means like not let him start kindergarten they wanted to wait a year until he started kindergarten I believe and so they moved into that house part-time and then they decided actually we love it here and now they're living there full-time so I think that's exactly it it's not like a prescriptive strategy.

36:15It's just to say, if you live in a place where you can get more for your money renting than you can buying, and there's a stat recently that renting is more affordable in all 50 of the top US metros, I mean, all 50, then you might want to think about buying someplace where affordability isn't so much of a problem. Yeah.

36:39Natalie Palmer:Wow. That's the top 50. what was it again that sat the top 50 places to live renting of the top u.s metros like the biggest u.s cities renting is more affordable there than buying i can send you that link as well that was from a bank rate study wow and that's where people those are the top 50 because that's where people have to live to work like that's where the jobs are exactly yeah if you're if you're telling yourself that like oh i have to get my my primary first and there's a certain order to do things um i mean and we can use this for anything right like okay you're supposed to go to college right out of high school but like i know so many people who like took a gap year skipped figure out what they wanted to do worked for years and then decided to go back to complete higher education like you do not have to do things like in this order that's sold to us or even your presentation at level up your listing i still think about it because you were talking about how you almost had all these shoulds around you should be buying properties and the things that you know you should be doing and then you actually shared the breakdown of the money that you were making from entrepreneurship and realizing that that was actually so much more lucrative to you than necessarily investing in real estate right now and then you've obviously found ways to do it through fundraising as well so it's exactly that it's like taking a step back and like what works for you.

38:03My husband and I have to live in New York City right now because of his job and because of proximity to my mom. But we said we don't really want our kids to grow up here. It's not a bad place to grow up. A lot of people grow up here, just not what we are wanting for our family. And when we did a lot of kind of soul searching and research of like, what is it that we want? Saratoga ticked a ton of those boxes. I'm someone who loves to walk everywhere. I hate having to get in the car. So being able to have a great downtown area that I could walk to, to have multiple coffee shops and restaurants and bars, et cetera, that was really appealing to me.

38:39So we had kind of given ourselves that timeline to say, okay, if the right house is here now, that will allow us to try out the area, see if we like it. And then we know by the time she's starting kindergarten, we have a place already ready for us.

38:53Natalie Palmer:So I'm curious, has your dad come around to see your ways. Yeah. When we told him about the third property, I was like bracing myself for it. And he was like, oh, that's really great. And I was like, excuse me? Like I actually said to him, like last time you couldn't make eye contact with me. And he was like, no, clearly like you're smart and you like really know what you're doing. I'm like, dad, I'm 38 years old. And it took you until now to realize that I'm smart. So he has come around. But, you know, everything we're talking about, so much of this societal programming is so deep in all of us.

39:29And so when people have these big reactions, this is actually something that Dr. Brittany talked about too, when we want to like claim rest for ourselves. When people have these big reactions, sometimes we just need to think maybe this is saying more about them and their mindset and where they are right now than it is about what I'm doing. But it's hard. It's hard to be confident that you're sure 700 square feet is right for you when everybody else is saying, you sure you don't want to do 1300? It's tough. Yeah. Yeah.

39:59Natalie Palmer:Yeah. Wow. And you're right. Like, I mean, I don't want to call your dad out. I don't know that. But like, that could very well be something about just like, you know, in his mindset, it's just like the thought that you wouldn't own your own place where you live, but you're going to go invest somewhere else where you're not, you're barely visiting it. And you don't want to block off time during peak season because that's, you know, when you make the most money. Like, right. It just feels so backwards. So yeah, it might have nothing to do with you. He doesn't even know the numbers that you're looking at.

40:27Natalie Palmer:Of course. I didn't see the underwriting spreadsheet. It has nothing to do with any of that. It's just purely just like, why wouldn't you do it in ABC order? Exactly. And these things that are parroted back to us, like renting is just throwing your money away. Well, maybe and maybe that was true at a certain point. But actually, is that true right now? And why? And also, like, renting gives us a lot more flexibility to be able to say, hey, if my husband gets a new job tomorrow, we don't actually have to go move to Saratoga if we don't want to. We could move someplace else. So I think that is also appealing about buying investment properties, buying vacation homes, is they can always stay there.

41:09You don't have to. You can go wherever you want to. And if it's challenging for you to manage it from afar. You can hire a co-host, you can hire a management company, but we manage all of our properties ourselves. And we're at least three hours, if not three and a half to five hours away from all of them.

41:25Natalie Palmer:Are you comfortable sharing the purchase price of each of the properties? I know you had mentioned that getting into any real estate in the city would be minimum 1.2. Yeah. And so what's like, what are the prices comparatively to purchase the second homes there? Yeah. So our first home was 500. Our second was, I want to say 545. And then this last one was 400. So all of them, at least half what I would have spent for a much smaller place in the city, a much uglier place, a place that would need a full gut renovation. And the beauty of it is once that property stabilizes, I'm not the one paying for its mortgage every single month, as you well know.

42:08So what we always do is we save, save, save, save, save to get the down payment together. We purchase the home. We open up a new 0 % interest credit card and try to have that 0 % interest for about 18 months. We buy all of our furnishings and everything on that card. And then we start to pay it down with our own money as and when we can. But once the house actually starts generating money, that's when we really try to get that paid off and have always been successful in getting it paid off before that interest rate jumps astronomically as credit cards do. So it's it hurts in the short term and then you see it stabilize and you're like, wow, this is great.

42:47You know, how could I like afford a seven hundred thousand dollar asset with only seventy thousand dollars? You know, how could I afford a five hundred thousand dollar asset with only fifty thousand dollars? It's really. And that's the other thing, too, is what people don't realize is with second home mortgages, you can put as little as 10 % down. So it's not necessarily 20 or 25 % as investment properties are, as long as you intend to personally use it yourself. And again, really the people that I think are most attracted to the second home first podcast and newsletter aren't people who are thinking I'm going to be a real estate investor.

43:21I think there are people like me who will accidentally become one because it is a bit of a gateway drug. Once you have one and you start to see the P &Ls and the numbers and you get to enjoy some amazing family vacations, you're like, wait, should I do this again?

43:37Natalie Palmer:I wanted to ask you about that. How are you borrowing for each of these? Because technically, someone could argue like, yeah, maybe, you know, the$1.4 million purchase price or something in the city. But you could get like an FHA loan at three and a half percent for that. like, you know, just to start out, but second homes, I 10%, right? And then, yeah. And you can, and there's a lot of restrictions. They have to be within a certain distance of each other. So I like across the three properties you purchased, you're basically at 1.4. I mean, you got three for the price of one. But if you think about it, so what you said about 3.5 % down, yes, you can get your down payment lower.

44:21What's that going to do? It's going to raise your monthly drastically.

44:25Natalie Palmer:So I actually don't have insurance PMI on that. Yeah. On the website, buy your second home first. I actually, for anyone who's like type A like me and loves an Excel grid, I broke down the numbers because I was just kind of curious myself. And for my apartment right now that we rent in New York city, we pay about$4 ,000 a month. So it's a little bit less than that because rent is astronomical. And that is going to sound like a crazy amount of money to some people. It's going to sound like a deal of a century to other people who live in New York City. But that is what our rent is. If I wanted to buy a comparable home to this, and even if I put, you know, let's call it 5 % down, I would be looking at paying, I think it was like$7 ,500 a month instead, if I put the lowest down payment.

45:13And I think once you get over the jumbo loan limit, I don't think you can do FHA. I think you'd have to do at least 5%. percent.

45:19Natalie Palmer:If I, but it depends. Talk to your lenders. You'll get different answers depending on which lenders you talk to. So always talk to at least three, but that's exactly it. It's like, okay, great. So let's say I can cobble together the down payment for a$1.2 million home here. I'm then on the hook personally every month for$7 ,500. Personally, I now have no other money to do anything else in my life. I can't save. I can't invest again. Whereas if you take my 4 ,000 and then you take that 3 ,500, let's say, sure, when I first acquire a property, I'm probably going to need that 3 ,500 for that mortgage payment.

46:00But after a few months, once I'm up and being rented, I'm no longer responsible for that mortgage because I have other money that's paying it. Now that 3 ,500 can start saving again. Now I can buy another property again. So it's really like it all comes down to like what works for you. Some people will just say like, I don't want to go back to the same place over and over again. Or I don't know, maybe they just don't believe in real estate as an investment class. And that's totally fine. But for me, someone who loves to like travel, go away. I love the idea of having like an equity revenue generating asset that I can also have free vacations in.

46:37Yeah.

46:38Natalie Palmer:And I think about that$7 ,500, if that was your mortgage, right now, how much of that would be just paying interest? Probably$7 ,000 a month interest. $500 a month going towards your principal. And if you guys don't plan to stay in New York forever, you're going to sell it in five years and all you will have paid in that time was interest. You'll maybe gain some equity if there's some appreciation in the market, but you wouldn't have paid anything down on the principal. And here, if you can actually put down, you know, the 10, 15, 20 % on these second homes and get a more competitive rate and stuff, you're actually able to like own more of that property.

47:20Natalie Palmer:Exactly. And when I think people hear profitable, people who aren't probably listening to your show, because I'm sure everyone who listens understands exactly what goes into like the P &Ls behind the scenes, it's not so much that I'm saying like, oh, I have all this extra money every month. Like, let me go shopping with it. Right. You're paying cleaning fees and supplies and restocking. Yeah. But even that extra money, like that pure profit, you can reinvest back into the home, which is going to drive a higher average daily rate for you. It's going to build your equity and make the asset worth more money.

47:51You could pay your principal down faster as well. So something that I'm looking at now is how could I take these 30 year mortgages, find a way to pay down them and let's call it 20 years instead of 30 years. And then when I've gotten to the point where my kids are graduating high school, now I really have freedom because all of a sudden these assets that I have are fully paid. So that, you know, 10 to$20 ,000 a year per property of profit might have just become$50 ,000,$60 ,000 a year in profit. So it just, it opens up that flexibility for people too of being able to say like, I don't need to worry about what's going to happen in retirement.

48:34I don't need to like work longer than my body wants me to or my brain wants me to. I don't need to worry because I've done something to set myself up for the future, but I've done it in a way that I can still enjoy it now.

48:49Natalie Palmer:Do you guys think you want to buy a fourth or do you feel like right now you want to start paying down some of these mortgages or what's the next strategy? I like my pendulum swings every day. I am still on Zillow more than I should be. I just started co-hosting my first property. So I'm, thank you. I'm like so excited to learn all of your brilliance and your ways on that. But I think right now I just want to stabilize like the management of four properties and make sure I'm doing a really good job of that. We are planning to renovate that property in Saratoga before we moved into it. So again, hoping to take some of the profits from three years of renting it and put that into it as well, but then probably invest a bit ourselves and refinance that mortgage.

49:33and really what I'd like to do next, maybe not next, but I'd like to do in the near term is buy a motel. That's where my head has turned to really kind of bringing together everything I've now learned in short-term rentals, all of my background in hotels and doing that in a place like Lake George, like Saratoga, Lake George specifically, I just think is such a special place, such an amazing market. And unfortunately, a lot of the motel stock right now is old, is dated. They're not on the OTAs. To make a reservation, you have to call during office hours and book it over the phone with somebody.

50:10So it's like a lot of like easy wins that could be had there.

50:14Natalie Palmer:Oh my gosh. I like have no doubt you would kill it in the motel space. Your whole background is luxury hotels. Now you're putting that into STRs and to combine that, you're like the perfect person to pull it off. It's just funny because when we first spoke, I would have never even thought that that could be possible. You know, like it was crazy enough to me that I had this one property that I wasn't living in. And I just really encourage people listening or watching to like not hold yourself back. Put yourself in rooms like Love Up Your Listing Summit where, you know, I thought, oh, look at me with my three properties.

50:51And then you meet people who have more properties or hotels or have been doing this for 20 years. And all of a sudden you start to see like, oh, I'm not alone. I'm not crazy. I'm actually crazy for not having done this sooner. And with with motel investing was very similar to like I took a course through Cornell and a lot of the people that were in my class were people who worked for these big hotel chains and were doing this at a large scale. And then some were just independent operators as well and starting to realized, oh, wait, this isn't like a ridiculous thing to think. People do this all the time.

51:25So if they can figure it out, hopefully I can figure it out too.

51:28Natalie Palmer:Okay. You need to get off Zillow because single family homes are a distraction for you now. We're going all in on the motel. So only, yeah. Delete Zillow. You're done. You've hit your three. No, I'm just kidding. If you're finding a deal, go for it. But I see this for you very much. like maybe we can partner on the fundraising okay now I'm now I'm excited episode three coming soon yes Katie it was such a blast having you back and I will wrap it up here because we're about to go record on your podcast now but yeah thank you for sharing I'm I'm just so pumped on your second podcast and like I said when we kicked off literally you're in like my top five most listened to episodes you're one of the favorite speakers at level up people love hearing from you.

52:16Natalie Palmer:So the fact that you have two podcasts now that people can hear from is just more goodness from Katie Klein. Thank you again. And I don't know if this episode will come out first or the one we record on your podcast, but either way, whenever that one drops, I'll link it in the show notes here so you guys can go back to back and get a double dose of Katie. I will do the same. Thank you, Natalie. Always such a pleasure to spend time with you. And with that, it is now checkout time. Thanks for listening and I'll see you back here next week. lastly as Airbnb hosts we all can appreciate a good five-star review so you already know a great review on this podcast would mean so much to me please subscribe review share and connect with me in the show notes below bye

53:17We'll be right back.