Episode 4: Know Real Estate

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Buying a home can seem impossible, but Professor Cope is here to help! He breaks down everything you should know about credit, and helps make sense of the complicated process that is real estate.

Would you believe me if I told you that the majority of the money you earned over your ENTIRE life would be signed away with a few signatures in a single transaction? 

That one purchase could make or break your entire financial future?

Welcome to KNOW MONEY! I’m Brandon Copeland AKA – Professor Cope, class is now in session.

The American Dream has been forever tied to REAL ESTATE. Close your eyes and picture it. 

The classic vision of the American Dream. A nice family (they’re usually white), 

  • a wife, 
  • 2.5 kids, 
  • maybe even a dog. 
  • A beautiful home with a white picket fence, in a beautiful neighborhood.

And I guarantee – if I moved in next door, they’d make that fence 10 feet taller and install a new security system the very next day.

Owning a home can create wealth that benefits your family for GENERATIONS. It also creates more stability in your life, and can protect you from rising rent prices.

In 1960, the median rent in the United States was $71. Median rent 2022? Almost $1,400. The average 1 bedroom apartment in:

Atlanta costs $1,620 to rent

  • In Chicago? That same 1 bedroom costs 1,800
  • Scottsdale, Arizona? 1,900
  • Los Angeles? 2,430
  • Miami? 2,660
  • And If you want to move to the Big Apple, you better have big bank. The average rent for a 1 bedroom apartment in New York city is $3,790.

For so many of us, The American Dream seems like an American Nightmare…especially to young people.

Between 1960 and 2017, young adult home ownership dropped 10 percent, from 44% to 34%. And that’s NOT because people would prefer to rent! Two thirds of renters say they would buy a home IF they had the financial resources to do so.  

So… Look…Buying a home may seem IMPOSSIBLE, but it’s not. 

If you’re smart about your money – set attainable goals – and follow your gameplan, it’s very possible that you can live your own version of the American Dream.

That said, buying a home is incredibly complicated. And it’s likely gonna be the biggest financial decision of your life. So…No pressure! Luckily, you’ve come to the right place. If you want to buy a home, you’re likely going to need to take out a specific type of loan called a mortgage. 

And if you want a mortgage, you’re going to need to have good CREDIT. 

So what is credit? We hear about it all the time, but what does it actually mean?

Let’s say my man up here in the front row asks me to borrow $20. He’s a little short on cash right now and he knows I got a few dollars. So I’m willing to lend it to you. BUT, first, I’m gonna have to interview your neighbors about your character. 

If your neighbors like you, and tell me good things, and reassure me that I’m getting my $20 back, then the cash is yours. If not… Well… I’m gonna be saying I left my wallet at home and you’re walking away empty handed.

THAT’S credit. It’s basically your financial reputation represented in a 3 digit number. Asking your neighbors about your character and integrity may seem like a lot for $20… But that’s actually how it used to work. That’s how American bankers in the 1700s would determine whether they could make a loan to an individual or not.

Imagine how much pressure you’d feel to be good to your neighbors if you knew your ability to borrow money was on the line. I wonder what Jeffrey Dahmer’s credit score would be? 

If you wanted to, you could really mess with that neighbor who plays music too loud, and whose dog always takes a dump on your lawn and doesn’t pick it up, and who parks in front of your driveway…. Actually, now that I think about it, maybe we should bring this system back…. I’m getting off topic. 

In 1841, merchant Lewis Tappan evolved credit by systemizing the opinions of others into summarized reports – that were then distributed into massive ledgers in New York City. But these reports were subjective, and included gender, class, and racial bias.

I’m happy we did away with this one. Do you think I could get a loan in 1841? Me? Yeah. I didn’t think so. It wasn’t until 1864 when Lewis’s Mercantile Agency finalized a simpler, more objective, alphanumeric system that would be used for the foreseeable future.

Now, I still don’t think I’d be able to get a loan in 1864, but it was a step in the right direction…It took many more experiments over time to simplify and remove as much bias as possible. 

Fast forward to the 21st century, and we now have this 3 digit number that encapsulates our entire financial identity called a credit score.

Simply put, it’s your entire financial résumé in the form of a 3 digit number.

Your credit score is one of the most important numbers in your life. 

But do people even KNOW their credit score? We sent ‘Know Money’ correspondent Austin Hankwitz out to the streets of Nashville to find out.

There are 5 main factors that determine your credit score. It’s time for a crash course.

The first factor is your PAYMENT HISTORY.

This one’s simple enough. Do you pay your debts back? Do you pay them back on time? Cause if you had trouble paying someone else back, why would you have an easier time paying ME back? Why the hell would I loan you money?

The next factor is CREDIT UTILIZATION.

You’re given a certain amount of credit. But how much of it are you actually using? Imagine you loaned someone $100 bucks, and the very next day, you find out they spent every single dollar of it. That would set off some red flags, right? Like damn, you really needed ALL that money, huh? If you spend every single dollar you’re allowed to spend, that’s going to send a bad signal to financial institutions.

It’s like when you like a girl. You can’t be texting her, hitting her up on instagram, snapchatting her, liking all her pics all at once…. Emailing her…. Standing outside her home waiting until she pulls up…. That makes you look desperate. And seems illegal. You gotta play it smooth. 

Text her every now and then, but make sure she has some space. Keep that same mentality with your credit. Don’t hit the max amount on your credit cards just because you can. Give her and your credit some space.

The third factor is your CREDIT HISTORY LENGTH.

Who do you trust more: Babies or adults? I hope you said adults. Financial institutions feel the same way. They respect the OGs. And they DEFINITELY don’t respect adults who act like babies. If that dude gets approved for a mortgage, we are heading for another financial crisis…

Creditors want to see that you have experience borrowing and paying back money. If you’re new to the money game, it’s hard to tell what you’re gonna do if I loan you a bag. Credit history length includes the age of your oldest credit account, the age of your newest account, and the average age of all your accounts. 

The longer your positive credit history, the higher your credit score will be.

The fourth factor is having a proper MIX OF CREDIT

Let’s say you invite me to a Super Bowl party. I’m salty, because I’m not playing in the game. 

So I’m taking my anger out on your snack table. And when I walk up to that table, I better not just see pretzels. I want to see a wide variety of foods: 

Nachos, chicken wings, chips with the dip. Mmmmm… I’m the credit bureaus, and those snacks are your different lines of credit. They don’t want to see that you have just one credit card. That ain’t impressive. They want to see some variety.

They want to see that you can handle different types of loans. Maybe multiple credit cards, maybe a student loan, a car loan, maybe even throw a mortgage in there. The more variety you can show, the better.

And our final factor is NEW CREDIT. There’s two elements to this. 

When you close up a line of credit, your score takes a hit. And that makes sense based on what we just talked about with your credit history length. All of a sudden, the average length of your credit accounts, and therefore credit history, is lower.

But here’s the tricky part: Your score is hurt almost every time you apply for new credit too, or even ask what your credit score is. 

These are called “Soft and Hard Inquiries”. Too many inquiries into your credit score indicates risk, and unfortunately, your score will get docked as a result. This is like asking your girl if she’s mad at you, and she gets even more mad that you even had to ask that. She expects you to be a mind reader, dawg! And so do credit bureaus.

Having bad credit can be debilitating. Having a bad credit score means your monthly payments on your house are going to be higher than they have to be. 

If you want to make that big purchase, it is ESSENTIAL to make sure your credit is as strong as it possibly can be — to make sure that the monthly payment is as low as possible.

Buying property is cool and all, but some people want you to believe buying property in the Metaverse is even cooler. 

I’m a little skeptical, but our boy Nate Meeker makes it sound pretty compelling. Take a look. That dude would buy a beach house in Idaho.

Regardless of what you buy, whether it’s in the metaverse or the real world, there is a process you should generally follow to ensure you’re happy with your purchase.

Buying a house is a complicated journey with many, many steps. I would love to walk you through every step of the process, but unfortunately, I don’t have the time to do that. I only have this studio rented out for so long. They’re probably gonna kick me out soon. So…For the finer details, especially in your market, you can’t rely on your favorite NFL player who moonlights as a professor. 

You’ll need to find a REALTOR, and make sure they’re a good one too.

You should approach finding a realtor with the same mentality that you use for finding your soul mate. Don’t settle. Mr. Right (/the right person) is out there.

And don’t just settle for the realtor with the flashiest commercial, either. I’m not sure if I want him selling me a house, or flying an F-14 with Tom Cruise in Top Gun 3

Your realtor SHOULD be your guide throughout this process. And if they’re not, you need to find a better one. Ghost their ass and find yourself a 10.

Once you’ve found the property of your dreams, it’s CLOSING TIME. Your realtor will write and negotiate the contract.

Closing or settlement times can vary, but typically contracts are 30-45 days to close. This is longer than most relationships last. So be patient. This 30-45 day window includes an inspection period.

PLEASE do the home inspection. This is when a professional goes into the home and examines it closer than you can just from the eyeball test. Do you trust yourself to find mold in the laundry room? You don’t want to end up like this family. Hopefully they had somebody inspect the RV for mold. You gotta learn from your mistakes.

The inspector is an unbiased set of eyes, and their report will help determine whether you go forward with the purchase of the home.

Have you ever heard someone say “I have equity in my home. It’s an asset!”?

While that CAN be true, it’s also one of the biggest lies ever told.

Let’s say you’re buying a $300,000 house. You may think you’re acquiring an asset worth $300k, but that house is going to cost WAY more than that sticker price over the long run. First – when you purchase a home, you have to understand that there are more costs than just the purchase price. 

Closing costs, Homeowner’s insurance fees, and if you are putting less than 20% down, you’re going to have to pay private mortgage insurance on top of that. So that $300 grand house really costs you $307k, or more, before you’ve even slept in there a night. 

You didn’t even get a chance to break it in yet and it’s already breaking your wallet. But that extra 7k is chump change when you think about how much you’re going to be paying in interest.

What if I told you that $300k house really costs you double?

A $300k loan over 30 years at 5% interest (with 20% down) –  you will pay about $636k in total for the house once you factor in property taxes and homeowner’s insurance. Now this is not to ruin dreams, this is really to make sure we are up on game when it comes to this “asset”. 

We’ve gone over a lot of information today, and not all of it has been cheery and optimistic. The truth of the matter is, in the current economic environment, not everyone sitting in this room will be able to purchase the home of their dreams. That’s just me keeping it real.

Buying real estate can be confusing, overwhelming, and intimidating. But the end of that process is what makes it all worth it.

Because at the end of the day, you’re not just buying a house, you’re buying a home. Where you raise your kids, where you spend your holidays, where you make some of the best memories of your life. A priceless gift you can leave to the next generation. All of that is possible after you close that deal.

Buying real estate will likely be the most important purchase you make in your entire life. Why would it be easy?

I’m Brandon Copeland, AKA Professor Cope – and now you Know REAL ESTATE.

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