How to Build Wealth With a Mortgage | Real Estate Leverage, HELOCs & Home Equity

Sean Herrero (00:00)

So if we were gonna start a business and I said, Dylan, I want to start a business with you, I’m gonna put up 97% of the upfront capital. you’re like, okay, well, then you’re gonna keep 97% of the profits, I’m like, no, no, want you to have 100% of the profits. Just pay me a monthly fee, just like you’re doing right now with your rent. That’s a mortgage, You can put up as little as 3% down as a first time buyer.

Dylan Silver (01:49)

Hey folks, welcome back to the show. Today we’re joined by Sean Herrero, a mortgage advisor with CrossCountry Mortgage in Danville, California. Sean, thanks for taking the time here today.

Sean Herrero (02:00)

for having me,

Dylan Silver (02:02)

What types of deals are coming across your desk these days?

Sean Herrero (02:05)

for me, most of my clients are first time home buyers. do a lot of move up buyers as well. basically just anyone that might have misconceptions of how home ownership works for them long term is really who I try to help. do investment deals, but not as not as much as I help initial buyers.

Dylan Silver (02:19)

Like to dive in on that first time buyer. I’m a realtor in in Texas and I like working with first time buyers, I often feel like it’s an underserved niche because it feels like people want to graduate from the first time buyer. Part of me doesn’t like that. you’re working with first-time buyers, do you see any common or routine misconceptions that people may have?

Sean Herrero (02:40)

Yeah, that’s really what the kind of thesis of my business has been built upon is you’ve never heard the media say it’s a good time to buy a house, In twenty twenty and twenty twenty one, you shouldn’t buy a house because values are going up too fast. in twenty twenty two, you shouldn’t buy a house because values are going down too fast. if it’s so when am I supposed to buy, And you look at all the articles that people put out and they’re making what I think used to be the American dream something that’s either pointless or unattainable, I see articles that say,

You should rent and just invest in stocks. a house is more than just an investment, You can’t live in your stocks. And why can’t you do both? a lot of what I talk to people about is overcoming these misconceptions. I’m helping somebody right now. he’s been waiting for the market to crash for 18 years. I’m like, how’s that worked out for you? like and he’s buying a house now, but we had a conversation, said, Look, think people are looking at this wrong. If the market goes up five percent a year for four years.

there’s a 10 10% correction in year five. you lose 10% or did you gain 10%? and it’s just the perspective is missing or the perception, is skewed because what we see on social media and from the mainstream media, it’s a fear. We don’t want we don’t want to make a mistake. I’ll just keep doing this rent thing because it’s comfortable. And my goal is to really provide a lot of data and education to help people overcome, those preconceived notions.

And to truly get excited about home ownership again.

Dylan Silver (03:51)

I wanna definitely pause here and dive into that, but I had a thought, which is a lot of folks are looking at home ownership as this big risk because what happens if I can’t make the monthly payment? But if I throw on my investor hat, if I’m able to make those payments for some time, I’m gonna have equity, And at some point my home can become like a bank for me with HELOCs and HELONs and

cash out refi and so forth. And so that’s another side of this game that folks, especially, first time buyers, may not be thinking about at all. They may view it as risky, but a home can also be an investment and not just a place that you reside.

Sean Herrero (04:25)

Yeah. So the here’s how I look at mortgage. I think leverage and mortgage is one of the most powerful things that we have at our disposal.

if we were gonna start a business and I said, Dylan, I want to start a business with you, I’m gonna put up 97% of the upfront capital. you’re like, okay, well, then you’re gonna keep 97% of the profits, I’m like, no, no, want you to have 100% of the profits. Just pay me a monthly fee, just like you’re doing right now with your rent. That’s a mortgage, You can put up as little as 3% down as a first time buyer.

a business partner we’ll call it right your mortgage puts up the difference they let you keep all the money that’s made through that property. All you’re doing is making a monthly payment just like you do with your rent. Like everyone would say that’s the dumbest businessman on the planet. Like who would ever do that? But that’s ultimately what a mortgage does. it gives you the ability to build wealth over time without even thinking about it. Because you can’t lose. Like long term you will not lose with real estate. It’s impossible.

Dylan Silver (05:58)

this is a great analogy, If someone was gonna give you ninety percent of some type of business acquisition and in exchange you you had to pay them a small fee, you would probably jump at that opportunity. You’re not giving away any of the equity as long as you continue to make your payment. one of the things that I wanted to pause on and dive into here is when we look at first time buyers, there’s much confusion happening, Because they don’t know what they don’t know.

They’ll get good advice, they’ll get bad advice. folks are coming to the table with you or having that initial conversation, is there a typical, setup that they have? Do they have, their their six months of reserves? Have they already saved their three and a half percent? What what is their financial situation look like?

Sean Herrero (06:42)

It’s really all over the board. I’d say by and large, the people that I work with do kind of have things sorted out and they have the financial means to take that step immediately if they wanted to. others don’t. Right. And so the way that I look at getting qualified. So a pre-approval is ultimately how you get qualified to see if you can buy a home, whether it’s an investment property, first time buyer, whatever it is. and a lot of people are apprehensive to take that step because they think their credit will be negatively impacted.

So it’s this catch 22. I really want to buy a house, but I don’t want my score to go down. So I’ll never take that step. I explained to people that we just do a soft pull credit report. So there’s no impact your scores in any way. There’s no cost. There’s no obligation. And whether you plan to buy a house tomorrow or two years from now, sooner you start the process of getting qualified, the better, because that’s how we figure out if this is a for now or for later plan. with the people that may not have the three percent down figured out, they may not have the reserves. we’re building them a roadmap of what they can do.

to save more money and make more money. that’s ultimately how you get to where you want to be. Or, if you don’t, if you qualify now for a price point that isn’t in your ideal market, is it worth buying, somewhere else, having a little bit longer commute, something like that? So we’re we’re not just like we’re not order takers, So earlier he’s like, what’s your title? Like loan officer. No, loan officers are order takers. I’m a mortgage advisor. It’s my job to provide you the data data analytics so that you can make the most educated and confident decisions.

So that’s that’s really kind of how you get started. at the same time, don’t think you just when you said it, do they have reserves? And that’s a great question because be just because you can buy a home with little to no money down doesn’t mean you should have no money, I really don’t love the idea of people buying a house when they have nothing left, VA loans. I do a lot of VA loans. You can do 100% financing, sell or cover your closing costs, like.

Pretty typical structure, No money out of pocket whatsoever. I have a lot of people come to me that haven’t saved any money. I tell them I don’t think they should buy a house yet. Even though you can, does doesn’t mean you should. And going back to what you said earlier about monthly payments, And this is a weird thing to me I wanted to come back to is I buy a house, I’m saying, well, what if I can’t make my monthly payment? What happens if you can’t make your rent payment? what’s the difference? You’re gonna get evicted at some point. So what what’s the difference?

If you’re confident enough to have a rent payment, you should be confident enough to have a mortgage payment, in my opinion. and I’ll tell people, look, I I think this is a four later plan. Here’s what you should do to set yourself up to be a successful homeowner. and if they don’t like my answer, I promise you there’s somebody else that’ll let them buy with no money. I just have to sleep, sleep at night.

Dylan Silver (08:55)

I wanna ask you about you you mentioned the process of of approvals or pre-approvals and the impact to people’s scores. When I went through this process myself, when I was looking at buying some homes in the Greater Austin Metro and in San Antonio, Texas, where where I’m licensed, I was surprised that my credit score was hardly impacted at all. Because I think everyone has the experience of going to buy a car, or many people do, and your your score takes a hit. it can be

potentially a dozen or more points, and you’ll see your score go down. So then if you’re working hard and you maybe have a score, in the seven hundreds and you want to keep it there, might think, well, this is going to have a big, big impact. do you know why it seems to be that when lenders even do a hard pull at at times, i it seems to have less impact than some other consumer purchases.

Sean Herrero (10:21)

I think that’s I I’m really glad you asked that because before we were able to do the full soft poll that gives you the same data as a hard pull now, would explain to people a mortgage inquiry does not negatively impact your credit scores way an auto loan or a credit card would. and you can have multiple inquiries from a mortgage lender within 30 days because they want you to have the ability to shop. They don’t want you to feel like I applied with one person and now that I’m with them, can’t can’t look for other options because my score will go down.

They want you to have options. You could pull your credit a hundred times on a hard pull credit report for a mortgage within a 30-day period of the first run with no impact to your scores whatsoever. but it doesn’t have an impact. And I don’t know this to be true, but this is just kind of the logic I’ve applied to it. if homeownership is the American dream, just like I said earlier, they we want people to take that step. If if you’re buying an appreciating asset, why should we?

have a barrier of entry or a fear for them to want to take that step towards home ownership and do a hard pull credit report. a credit card or an auto loan, I think it’s good that scores are negatively impacted because you may be buying something you don’t need, So they want to have you think twice before you take that step. when you look at credit reports online like Experian, myfreecreditreport.com, like any what’s the other one? There’s so many of them now,

Dylan Silver (11:29)

Yeah.

Sean Herrero (11:29)

Yeah,

you see you can check your scores at all these places, Credit Karma, and it’ll show you your credit score. The credit score they’re showing you is the credit score model, So if you’ve ever bought a new car, they run your credit app and they come back. And every time I’ve done like, that’s not what my credit score is, Well, it’s a different model, it’s an auto loan model. There’s a credit score model, there’s a mortgage model. They’re all different. I’ve never had anybody say, I just looked at my credit report on Credit Karma.

And it shows my two bureaus at this score and this score and it matches the credit report that I pull because it’s a the credit cares about different points than the mortgage cares about. to your yeah, you make a great point. The hard pull inquiry does not impact your scores negatively in any way.

Dylan Silver (12:06)

One of the things that I found really interesting, again, going through this myself, was I had some things dispelled to me. So I had always assumed that you kind of needed to have some level of consumer debt because how else are they gonna know who you are? and sure, that can be helpful. But as I was going through this, there were all these different processes where folks could get approved and

non-QM loans and bank statement loans. And I was under the impression that if you didn’t have a credit score, there was no way for you to buy a home. And I’ve now seen that there are ways where people can get qualified. They may have to come with more money down. It may be a lengthier process, maybe a higher rate, where they don’t have to go just based off of your available credit and your credit score.

Sean Herrero (12:45)

There there are, yeah, you’re absolutely right. There are definitely options for that. they kind of just default. You can use like your utilities, your credit card or I’m sorry, your cell phone bills, like what we call alternate trade lines kind of build a credit report. So that process does take more time. I don’t run into that too often. Like, very, very rarely is do I see a case where people don’t have any credit established at all. if you don’t have any credit established at all, I kind of come back to like,

maybe we should understand how that works before we step into home ownership. and it’s really easy to build your credit score up. And because it’s kind of counterintuitive. I have to use a program that takes more time to qualify for, Because we have to build that credit report. and I might not get the best interest rate because I don’t fit the traditional box, So it’s like this doesn’t make any sense.

I don’t need credit. I use cash for everything. I’m very responsible, but because I don’t have a number, don’t have the option that everyone else has. You’re right. But it is what it is, Like there may be logic in that statement, but I can’t change the rules. I just have to play by them. So like my my son just turned 18. Told him, I’m like, You’re you get a credit card, it off every week, He’s a he’s a entrepreneur, pay it off every week, do your thing, let run your and his score is going up, You don’t have to do a lot.

Just having some level of credit history will get you into a better mortgage.

Dylan Silver (13:54)

This is true. and I think one of the things too that that a lot of young people experience is they might see a great score, but still they have a long way to go, Especially when it comes to homeownership. Right. I know for me, even as a realtor, first time going through this myself, I had to realize, okay, score is good, employment history is good, got the bank statements and so forth, tax returns, then little things would come up, like, hey, where’s your reserves?

Or how old’s your LLC? What’s your source? What how long has that been your primary source of income? And so when folks are going through this process, part of it too that I’ve realized is there sometimes needs to be, in many cases, a kind of continuity of care. That first time where they go to look at getting an approval or pre-approval, they might not end up buying a home that first time. But you ideally want to keep that person, if you’re a mortgage advisor, in your pipeline.

So that when they are, a year, maybe a year and a half, two years, then they’ll come back to you.

Sean Herrero (14:47)

Mm-hmm. absolutely. And that’s why I say, a pre-approval, I’m trying to think of a different term for it because pre-approval means if you just think of that, it’s like a realtor says, hey, if you want to make an offer on this house, I need a pre-approval letter. So a home buyer goes, Okay, hey, mortgage guy, Dylan referred me to you. I need an approval letter so I can make an offer, The most expensive thing we buy the only thing that we go into not knowing how we’re gonna buy it. I’ve never gone to the grocery store and

Hoping that like the debit card goes through, But when we buy something that’s hundreds of thousands of dollars, it’s we’re just kind of frivolous about it, which has always been very interesting to me. and that’s why I think people deserve more than a pre-approval. A pre-approval is such a basic thing. Like a lot of them don’t even show an interest rate or a payment on them anymore, It just says you’re approved. So how am I supposed to make a confident, educated decision if I don’t know how things work? so we

Everything’s data, everything’s a planning tool. And that’s why I don’t love the term pre-approval. want to figure out what else to call it because should start planning for this big milestone, whether it’s an investment property or your first home purchase, because want to know what it’s going to look like. So we build personalized websites for every client that show them exactly what everything looks like. Here’s your total cash to close. Here’s what all the closing costs look like from all the third parties. Here’s your monthly payment with and without your taxes and insurance.

They should know exactly what the money looks like so that they can make a confident offer. and that’s that’s really why it’s it’s we’re gonna figure it out if this is a for now or a for later plan. that you can’t start too early.

Dylan Silver (16:08)

the ability to visualize it in a web format and have it be interactive in some capacities huge. There’s something about this w which is just like far better than a printout or a PowerPoint, And people are probably not using PowerPoint any longer, but what I mean, presentation slides. and I think underutilized in many regards because when you’re looking at something on your your phone, you’re able to interact with it or on a computer versus a printout.

Somehow it does stick with you. So I really like that as a way to keep clients engaged and to help them understand better what this looks like in their life.

Sean Herrero (16:43)

Yeah, and it’s fluid. Like right before this call, a client I’ve been working with, I think for about a year and a half now. said, Hey, Sean, we found a house. We want to make an offer. Will you update? I call it a buyer’s guide site. you update our buyer’s guide site? We want it, don’t want to go in off of old information. They’re going to make their offer knowing exactly what current interest rates are, what current payments will be, what the property tax rate is for that specific property. way they can go in with confidence. doesn’t matter what state you’re in. I’ve noticed that there’s a tale of two markets in every city and state now.

There’s the house that’s going to get multiple offers because it has everything that everybody wants. there’s everything else. There’s like no middle ground. either sells really quick with multiples or it it sits. There’s no middle ground anymore. so this client specifically, they want the house that everybody else wants. I need them to go into con with confidence because we truly have to win. Like we have to fight and beat other people out of that house to get them the house that they want.

You can’t do that you have a PDF of an approval that says you’re approved and you have no idea your cash out of pocket’s going to be or what your monthly payment’s going to be. You’re not going to be, you’re not going to make a confident offer. And sellers, lot of times confidence is more valuable than cash. Like we’ve beaten higher priced offers. We’ve beaten cash offers because way that the client presented their offer showed more confidence to the real estate agent and the seller any of the other offers.

Dylan Silver (17:54)

I wanna dive in there. That’s very interesting. I haven’t talked about this on any other episode. for our investor audience who’s listening, they’ll think about this, well, why would anyone go with a lower offer? if we’ve got a pre-approval letter, that should be worth the same as another pre-approval letter. What does that confidence look like? How does that manifest?

Sean Herrero (18:12)

Yeah, no, great question. So I really like that one too, especially coming from an investor perspective. Because if it’s an investor that is doing a flip, let’s say, So now we’re looking at from the other side, the psychology of the seller. I’m an investor, I don’t have an emotional tie, Like if it was my house and I raised my kids in it and I lived there for 30 years, and now I would care more about emotionally who’s going to fill this void. And that might be like having a young, great family or whatever somebody wants, that might be.

more important to them than money. for an investor, it’s not, so again, confidence. If if you have an approval letter, if every approval letter was equal, real estate agents wouldn’t care about cash offers. True. And you’re a real estate agent, why do you prefer a cash offer over a financed offer?

Dylan Silver (18:51)

‘Cause they don’t have to worry about dealing with a lender.

Sean Herrero (18:53)

And why why why would be dealing with the lender be a bad thing?

Dylan Silver (18:56)

So many things go wrong before closing, right?

Sean Herrero (18:58)

The lender is the biggest variable in the transaction, The reason real estate agents like cash offers is because lenders screw up all the time. They don’t have confidence that the loan’s going to close, means every approval letter isn’t equal, Just because it says they’re approved doesn’t mean it’s actually going to go through. If you guys had that confidence, you wouldn’t care about cash. So I know that I’m considered the biggest variable in the transaction. And it’s my job to overcome that. So if you get, just use two offers and you’re an investor, let’s use even numbers, million dollars,

20% down, with 10 day contingencies and a 30 day close. you get an offer from my client that has no contingencies because they are confident that they can move forward. They’re gonna close in 10 days it’s at 980. Which one you want? What the nine eighty is a guaranteed nine eighty, The million, what I tell clients is if we can get your offer accepted at a higher price with contingencies in place, we’re just gonna negotiate down later.

And so when we make offers, I explain that to listing agents. I go, look, if well, we have three offers, do they have contingencies? Yeah, well, two do, yours doesn’t. Okay, so just so like I hate to say this to you, but if I was the lender on the one with the contingencies, I would say offer whatever price you want and we’ll negotiate it down through inspections later. I wanted to plant seeds of doubt as much as I hate to say it in the listing agent with the other offers so that I can get my clients in because we are as good as cash. Close in 10 days, no loan contingencies.

Appraisal contingency is up to them, but most times they waive that these days too. Our offer looks as good as a cash offer.

Dylan Silver (20:18)

This is very interesting because I had not thought about this recently. But but yes, when you look at any type of offer you’re making, part of the negotiation is also the lender, So even the person who’s making the offer might not be aware of this, but the lender can come in and say, Well, we had said this, but there were some contingencies. We’re gonna walk that back a little bit here.

Sean Herrero (20:37)

Yep, what I would do. That’s my job. I always say that I’m not in sales, I’m in service. I I’m not, there’s nothing for me to sell a home buyer, Rates are rates, basically a commodity these days. All the fees for the most part are third party. So it’s not going to matter which lender you choose. So that piece is a service. Like I need you to see me as being the most valuable thing you can use to buy a home. Who I am selling is the listing agent. I need the listing agent to go present in a multiple offer situation and go, look, these offers look good.

I talked to this guy, he sent me a video. Here’s the video. You can watch it so you can see how confident he is in their financing. This is the one. That’s how I want listing agents to feel when my clients offer on their properties.

Dylan Silver (21:13)

I wanna pivot a bit here, Sean. there’s some other asset classes that I hear are maybe becoming more popular in in California. And I don’t know exactly how this looks, but I’ve heard accessory dwelling units are becoming more and more popular, ADUs, I’ve heard that there’s so many different, approaches that people are trying to take to find affordable housing and to create affordable housing.

I also don’t really know the new construction situation out there. Is there a lot of new construction and subdivisions happening out there?

Sean Herrero (21:42)

There are, there are. They’re not gonna be in like in the San Francisco Bay Area where I live, there’s just not a lot of land left to build on. So any new construction is most likely gonna be apartment buildings or I’m sorry, like condos or or townhomes, like high density. like a lot of them. There’s a one down the street from me actually. There was a commercial building, kinda went vacant due to work from home and the cut all the results of coming out of COVID. they tore that building down and they’re building up condos there now,

So there is new construction, but any single family type is going to be a little bit further out to where you can have like vacant land to build on. you’re trading commute. everything to me is lifestyle, So we talk about price points, Google, Apple, Meta, they’re all in Silicon Valley, If you want to have a short commute, you’re going to pay a premium. Like I saw a two million dollar condo.

this is years ago. This is like 2018. a real estate agent I work with sold a condo, two bed the 70s, nothing updated whatsoever. Just a like basically you buy this thing and you gotta redo the whole thing. He sold it for two million dollars, but it was next to Stanford, right downtown Palo Alto. person that buys that lifestyle matters. I don’t want to commute. I don’t want to sit in a car for two hours, So I kind of explained Silicon Valley in San Francisco as being the epicenter of pricing because that’s where all the jobs are.

The further east you move, the shorter the commute, I’m sorry, further east you move, the lower the prices go, but the commute becomes longer. So that’s kind of how you determine where do you want to be what are your lifestyle trade-offs. That’s a that’s just another factor that we go through with our clients of like, hey, you’re approved for this price. Well, I can’t get what I want in the city I’m in. Okay, well, do you want to figure out how to save up more where you can have a comfortable payment in that city?

Or do you wanna look at like what the commute would look like if you moved a little further east, north or south?

Dylan Silver (23:20)

putting you on the spot a little bit here, when folks are looking at that a little bit further commute, is this like an hour commute? Is this forty five minutes? What might that look like?

Sean Herrero (23:28)

All of the above. So it just depends on the further east. So for new construction, a friend of mine’s a home builder and they have homes that they just aren’t selling like they were during during COVID, everything was work from home back then. So you don’t have to worry about a commute, you can move out there. But then when, Apple was the first one to say, Hey, you three days a week in the office or you don’t work anymore, Tesla said the same thing, Well, don’t want to drive two hours to go to work.

So they’re their homes aren’t selling the way they were. It’s supply and demand, just isn’t as much demand to live in that market because the commute’s too long. So, for them, I’m like, you need to find people find companies that are still doing the work from home thing and do like an employee benefit program with them so that you can get more people to buy in that market. those are the trade offs, Is like, where do you want to live and what are you willing to give up? And it and if you’re like, well, look, I’m just gonna rent, cool.

If after going through our process, we analyze the finances, we look at, the opportunities to get the house that is comfortable for you and you don’t like it, you made the most confident educated decision to continue to rent. it becomes, well, maybe do you want to buy an investment property while you rent? Like there’s lots of different things we can do there. So we just keep that conversation going with all of our clients.

Dylan Silver (24:33)

One of the things that you said that’s really piqued my interest is buying an investment property, but not potentially as your residence to start, In in that scenario, could people put that as their homestead if if it’s their only home that they own, even if they’re not living there a hundred percent of the time?

Sean Herrero (24:49)

N so ki depends, So the way you I was gonna say no, but the way you preference that, even if they’re not living there one hundred percent of the time, if you buy a property that’s further away as a primary residence and you have to commute, underwriting’s gonna say, help us understand how you’re gonna do this, And in and in the ca the in our market, the Bay Area, there’s something called a supercommuter. Like sadly, there are people that spend two and a half to three hours a day each way.

In their to go to work. Yeah. don’t want that, but there’s a reason they’ve chosen that, Maybe they only have to go one day a week or two days a week. like firefighters. A lot of firefighters and police officers that work for departments in the Bay Area live in the Sacramento area, Because they’re only coming to work a couple days a week. They only have to do it twice and they just stay there. So it depends on the circumstance. But if it’s, hey, my intention is to buy an investment property, but to put less money down.

And to get a better interest rate, I’m going to tell the lender that I’m going to live there. That’s mortgage fraud. Like the application says, Do you intend to occupy this as your primary residence? don’t. if you say yes, we’re going to dig into it, I had one guy call me that brought that up. He owned a property that was about an hour from his current home. His current home was closer to his job. was going to buy another home right next to the one he already owned that was further away. he said, I’m going to move in there.

And I go, like, help me understand why. He goes, my realtor told me that’s your job. like, I’m not helping you commit fraud, bud. Call somebody else. I’m out. I was really direct, kind of a jerk. Like, don’t put up with that. So, so the short answer is if your intention is, okay, gonna live in this house, Friday to Monday, I gotta go to the office Tuesday, Wednesday, Thursday. can stay with a friend or parents or whatever to avoid the commute. Are my intention is to occupy this as a primary residence?

If my intention is to continue to rent in Palo Alto and buy an investment property in San Antonio, Texas, not commuting to work.

Dylan Silver (26:29)

That’s a different situation. Yeah. One of the challenges that I think people must face up there is doing the mental gymnastics of, well, what’s worth it to me and how much is my time worth? And you talk about a two-hour commute. I’ve never done a two-hour commute. It sounds painful. But then if you look at also the flip side of it, well, I can own this home over here versus having to continue to rent over here. you also mentioned should I maybe find an opportunity

Where I won’t have to make that commute. There is a lot that goes into this. And as I’m talking, I’m also hearing, people can also look at a lifestyle inflation, a lifestyle creep that comes with being in Silicon Valley and so forth. Do your conversations with clients and potential clients encompass all of these different talking points?

Sean Herrero (27:15)

Yeah, absolutely. I think all of that’s really important. And sometimes it’s is it worth making a short term lifestyle sacrifice to commute two hours a day to buy a home that you can buy now and let inflation work for you? Inflation is the biggest driver of appreciation. so if and we use real estate report cards to show people what certain markets are doing, really down to the zip code. Have you ever interviewed Barry Habib?

Have you heard of Barry? So Barry is in my eyes the bet the smartest real estate economist in the country. Zillow gives out a crystal ball award for predicting the future. And he’s the only economist that’s won it more than once and he’s won’t won it three times. he was a mentor of mine, and the data that I use to look at these real estate report cards is his data, So if you can buy in this town, and it’s gonna be a two hour commute, which is gonna suck, but

The values are going up 5% per year historically. And it shows a 63 year average. It goes deep. Is it worth it let your money, somebody else’s money, like we talked about earlier, let somebody else’s money earn you that 5% to where you could sell this home and now you have a bigger down payment to move somewhere else where hopefully you’ve made and saved more money over that time frame. Right. then the answer’s up to them. No, that’s not worth it. Cool, but at least we explored it, That’s how I I really look at all of this.

Dylan Silver (28:27)

condo ownership. sometimes folks think that, and there’s some truth to this in many markets, that there’s this huge disparity between owning a home on a plot of land, front yard, backyard, and owning a condo. But I also feel, and maybe I’m off here, that my my gut reaction tells me in Silicon Valley, condo ownership is different because the demand is so high that you maybe will see more appreciation of condo there than in the Sun Belt, for instance.

Sean Herrero (28:52)

Yeah, condos are different now. I think condos ch changed a little bit in desirability during COVID when everyone was stuck in their condo, And just San Francisco comes to mind specifically on that. with SB 326 for the balcony repairs that many, many, many projects still haven’t done, it’s had a big impact on on condos. And I think also the mismanagement of the HOA funds because people are getting these reassessments all the time.

I think there’s just too much variables and perceived variables for a lot of people with condos. I’m not seeing condos be as desirable anywhere in the country as they once were. Because that was kind of an easy stepping. So like the first house I bought, I bought a condo, I sold took the equity from the condo, bought the townhouse, took the equity from the townhouse, bought the single family, I stair stepped my way up. Condos just aren’t having that appreciation that they did. And what we try to show people is what attracted you the condo.

was the price tag. But what you didn’t pay attention to is a $700 HOA fee. If you converted that $700, because it’s the same monthly payment, how much more single family or townhouse could you buy? And we’re showing that we have a calculator that actually that we built for people to use for that. So my ideal payment’s $4,500 a month and the HOA is going to be $650, how much more single family or what price point could I bump to as a single family instead of looking at a condo?

and again, I say townhouse or single family. Condos are just scrutinized more, especially after the balcony repair law that went into place January of 2025, and a lot of developments haven’t finished it yet, meaning they don’t have as many lending options, and that becomes a supply and demand issue. If you don’t have every loan option under the sun within your community, you’re limiting amount of people who can buy there, and that’ll have a decline in values. So condos are touchy right now, and I hope that changes, but.

I think that I just, I’m no, I’m risk adverse and I just one, I don’t want people telling me what to do, I had a an HOA. I’ll never have one again. just don’t like being told what to do. but that’s how I got in. That was my first step, was a condo. Then I bought the townhouse, also had an HOA. Now I don’t.

Dylan Silver (30:45)

How common are small multiple door, small multi unit, duplex, triplex, quadplex out there?

Sean Herrero (30:52)

So they’re common, like Oakland, San Francisco, the more like urban settings have those, but they will have a heavier price tag that come along with them. it’s it’s a little bit more difficult to get them to cash flow. but we do help people with that all the time. you can get into those with five percent down, right? You can use FHA financing for multi-unit up to four units, you can use conventional financing for those as well. So it can be a good investment play, but if we’re trying to

That’s another a whole nother we talk about investments, what type of investment are you looking for? Are you looking for monthly cash flow revenue or are you looking for long term appreciation? are you looking for both? we’re helping people analyze those things as well. it’s a little bit more it it doesn’t pencil as well in the current market.

Dylan Silver (31:31)

But

it is house hacking out there might be a little more challenging than in some of the markets where the price might be more comparable to single family. Not to mention, I’ve had guests recently tell me, which is a good point. when you do do a house hack and you, live in one unit and rent out the other two or the other one or three, what have you, you now are next doors to your tenants. And so you’re, something to consider, right? It it is, of course, a way to facilitate homeownership.

But now you’ve got the people that you manage right next to you. So it’s a little bit of a trickier situation. ahead.

Sean Herrero (32:00)

Well, on that note, like I I’m really glad you brought that up because what I think social media is doing a disservice to all of us with is that term house hack, We’re making real estate all about money. it’s it’s much more than that. Even like if we go back to the single family with the ADU, the accessory dwelling unit, To your point, that’s becoming very common. I don’t want some random tenant walking into my backyard to live in an ADU. It’s just not the lifestyle I want. I want privacy. I want my family together. I want to have people over on the weekends and not worry about someone else being there.

And if I don’t wanna have to evict my neighbor either, So I think when we see these Instagram reels and TikToks about how to house hack, buy a four unit with 5% down and let everyone else pay your mortgage, that is absolutely a true statement that can be done. But what’s the lifestyle choice that comes along with that? Are you going to regret it? We have to look at everything from if it’s a primary residence, if you’re going to live there, do these hacks help you have the lifestyle you want, or is your lifestyle

Costing you mu costing you because you focused on the money.

Dylan Silver (32:55)

And that goes back to the conversation as well. You could tie all this together of, which offer do you accept? Do you accept the offer that’s just gonna be more on paper or the one that’s gonna transact? What kind of lifestyle do you want? Do you want the one that’s gonna bring you in a couple hundred dollars more a month, or do you want the lifestyle that’s gonna give you peace of mind? And what is home ownership at the end of the day,

Sean Herrero (33:14)

Yeah, and one thing I was thinking about, so I I think there’s a lot of stuff on there out or out there, again, discouraging home ownership, saying how easy boomers had it, They my my grandparents bought a house in Cupertino, which is where Apple headquarters is, for seventy no, forty five thousand dollars in nineteen seventy five, Easily worth three million now. Easily. everyone says how lucky they are, And I always thought about that. I went, Well, wait a sec. Those are the same grandparents that told me a candy bar cost a nickel.

Candy bars are $2 now. So if I bought a ton of Snickers in 1975 and sold them today, I’d make a 4,000% return. So inflation is the biggest driver of appreciation. What was minimum wage back then? if you think of the costs, they were struggling to get into homes just like everyone else. also didn’t have Netflix, Amazon, DoorDash, Lyft, Uber, all these frivolous convenience expenses that we have now, So

I think we have to like, mean, I didn’t have bottled water as a kid. Like, we just think of these things that everyone’s saying, well, someone had it better, but we don’t look at our own lifestyle and our own choices. And I think we really have to analyze what’s important to me. am I willing to sacrifice a couple of my, streaming subscriptions? Do I really need all of these? And how much money, much more house could I buy I moved those frivolous costs?

Into a mortgage. And I have a c I built a calculator for that. I think convenience is killing home ownership. so inflation is the biggest driver of appreciation. So going back to me, I bought my condo when I was 20, bought the townhouse when I was 23, bought the single family when I was 25, sold, sold, sold, we sold that home and I’m in what I would consider the dream house now. One day I woke up and I went,

I wonder how much money I’d have if I’d never sold those properties. It was four and a half million dollars. I just went on Redfin, looked at what the values would be of the condo, the townhouse, and the other property. Going back to house hacking, if I had just held on to those properties, used the home equity line like you talked about earlier to pull the equity out to buy the next house, I would have I’d be sitting on four and a half million dollars in equity. it’s not liquid. It can be pretty darn quick, So

Time is so so powerful. And I’m forty-five, my oldest son’s twenty three, and then I have an eighteen year old. I’m teaching them what I know now. And I’m like, boys, if you guys do these very, very simple little things in investing in the market as well as real estate, it is impossible, literally impossible for you to not be a multimillionaire the future. Impossible.

Dylan Silver (35:26)

It’s true. It it takes some initial outlay of pretty extreme discipline. You’re gonna have to say no to some people, You have to be able to maybe live without the Netflix, And how do we do this, in in today’s world? But if you’re able to create those habits initially, it pays dividends in the future. I do want touch on the HELOC, going back to that. It’s interesting to me that everyone that has a home with equity has access to this tool, but not everybody knows about it.

do you see a as someone who’s in the mortgage profession that world, are mortgage advisors talking about this with their clients when they’re looking at their first home? Is this something that comes up or doesn’t come up? Is this in everyday home buyer’s vernacular even?

Sean Herrero (36:06)

No, now that you no, it’s not. And I’m not, should be. I’m going to you from now on, but I’m not talking about it on the onset. trying to overcome the the fear and misconceptions of do I, what if I don’t make my payment? What happens? Do I really want to take this step? Am I gonna be tied in? But I should be I always show them how quickly their money will work for them, Here’s how much equity you’ll have in three years or five years based on your initial investment. I always call the down payment an initial investment, So you’re gonna.

10X that in a couple of years. It’s pretty incredible how fast your money works for you. I’m not talking about how you access it later. I always end up talking about that after they have their they own their home. But to your point, it’s probably not a bad thing to talk about up front of here’s how this can work for you again. I always say that I want to help people make their money multitask, and that’s what a mortgage does. saw something the other day.

every everything is comparing, should you invest or should you buy real estate? Never did they say do both, But it was if you bought a, you could have bought a home for $500,000 in 1995, if you take that same $500,000 and invested it, you your your return on investment would be far greater now. Who had $500,000 in cash to put down? And if you do, should you, Why wouldn’t you just put $50,000 down?

Take the other 450, put that into the market and win twice. That’s how you make your money multitask. Right. So these articles, they’re, they’re, so shallow. Like, if you took 500,000 and bought a house, you would lose. Nobody’s paying cash. Like I know multi-multi-millionaires, don’t pay cash for houses. There’s too many benefits to having a mortgage and making their money work and it’s a leverage,

Dylan Silver (37:30)

Yeah. I I mean, how many other things can you buy, use the equity for or use that a as a way to take out a loan that you’re paying interest on, but it’s going, to something that you own, effectively. you don’t have to sell that underlying asset. Like if I have, under a hundred thousand dollars of of a stock and my total brokerage account, let’s say, is under a hundred grand, I can’t just take a loan against it and

without selling it, without liquidating it. We have that ability to do so with with a home. and I’ve heard a lot of people in the insurance space specifically talk about this idea of like whole life insurance, infinite banking. What what we don’t talk about is when you have a home, you have access to a similar tool. your home is going to continue appreciating. You can, continue to pay the mortgage on it. You have equity, so you have access to that. It is your own bank in in in a large way.

Sean Herrero (38:17)

I love what you just said. So the argument to that would be, yeah, but they’re gonna charge me interest to access my own equity, it’s like, okay, that’s a fair point. But if you liquidated fifty thousand of the hundred thousand you have in your investment account, how much are you paying in capital gains? you want to pay taxes do you want to pay interest? It’s it’s the lesser of two evils. And that’s just another thing we analyze for people. I have a lot of clients that they’ll there’s a lot of tech.

People that I’m helping here, a lot of restricted stock income, a lot of people are building wealth through their stocks. And we’ll compare, the cost of interest versus the cost of capital gains taxes. Which one’s lower? Right. One of my favorite we’ll call it a down payment assistance program is a 401k You can access typically $50,000 or 50% of your 401k balance, whichever is lower. And the interest that you pay on that is paid into your 401k.

So if you’re gonna pay anyone interest, you might as well pay it to yourself, I love four o one K loans for that purpose.

Dylan Silver (39:08)

We are coming up on time here, Sean. Any projects or activities that you’re working on these days or anything you’d like to mention directly to our audience?

Sean Herrero (39:16)

Yeah, for me it’s it’s education. I want to overcome, just like I said in the beginning, I’m trying to overcome what the media and social media says about real estate and how we can build wealth through real estate. I’m building tons of financial literacy calculators that are all on my Instagram, you go link in bio, my Instagram’s @adventurelender. I just want to make sure people make the most confident educated decisions, and I don’t want them to take my word for it. I want them to be empowered to use these tools to look at different things and figure out what’s worth it and what’s not and what is my path.

Because there is no one single path. mortgage is not one size fits all. It should be personalized to your individual lifestyle plans. and that’s really what I’m trying to help people accomplish.

Dylan Silver (39:53)

Sean, thank you so much for your time today. Thanks for joining us.

Sean Herrero (39:56)

Thank you, Dylan. It’s awesome.