It sounds crazy; renting the home you live in while owning an investment property. However, this might be crazy-smart in the right situation.

With interest rates skyrocketing, taking out a loan to buy in your current neighborhood might be unaffordable. However, a property you can afford might be prohibitively far away, or too small for your needs. This is why, in some situations, it makes sense to rent where you live and buy an investment property you can afford, which you can use for income, equity building, and tax breaks.

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The standard financial wisdom is that your rent money would be better spent on a mortgage payment rather than going to your landlord. There is much to be said for this philosophy; however, it is a bit too simple to apply to all situations. For example, if you pay the average rent in Manhattan of $3,975, this does not mean you can or should pay an average $1.4 million for a home in Manhattan at 7% interest. The common-sense financially savvy option would be to buy a home in Poughkeepsie, NY for an average $359,000 and commute two hours (each way) to your job in Manhattan. However, this makes only financial sense; most people would suffer in their life and work from a 4-hour daily commute. That said, there are some people who would be happy with this, and for those people, living two hours from work and saving money is a great idea.

Of course, the example I just provided is an extreme one; if home prices decrease in your city by about $100,000 if you commute 15 minutes, there’s something to be said for buying in the suburbs rather than renting downtown. But if this doesn’t work for your lifestyle, and the quality of your life and work would decrease if you lived where you can afford to buy, renting makes a lot of sense.

So, imagine you’ve decided you like renting an apartment downtown. There’s much to like about this, since you would avoid sky-high interest rates and the massive special assessments often charged to condominium owners. You like renting downtown, but you’ve saved up some money, and you’d like a good investment for it. This is when it might make sense to buy a small investment property you can afford and rent it out.

If you have a $30,000 down payment, you might consider purchasing a $250,000 investment property and finding a renter, or listing it on a short-term rental site. Even if you just break even on the amount you charge for rent versus your mortgage payment, the tax breaks can increase your annual after-tax income. For example, you can deduct 3.636% of your building’s value from your taxes each year to compensate for depreciation expenses. You can also deduct up to 20% of your income on the property by using a pass-through deduction (if you carefully follow IRS rules). Additionally, you can deduct money you spend to improve your property. Owning an investment property opens up more tax break possibilities than owning the home you live in.

If you own the home you live in, your home will never be a source of income, while a rental property can be. Of course, as a renter-landlord, you will be paying rent as well as collecting it, so you may be spending your income quickly. However, if you simply continue renting without owning an investment property, you will not be building equity, you won’t collect rental income, and you won’t have access to certain tax breaks.

Whether you decide to rent, own, or both, the best course of action is to truly get to know yourself and your needs, and ask yourself tough questions. Don’t make a large purchase just because society tells you it’s a good idea; you could easily wind up in a mountain of debt. Renting property exposes you to far less risk than owning it. When your ceiling starts leaking or your appliances break, your landlord is usually the one who pays. Whether it’s an investment property or a home you live in, the most important consideration is whether you can actually afford it.

Just like all of us, every housing market crash is special and unique in its own way. Due to inflation and much higher interest rates, it’s easy to think that the housing market is going to crater and that prices will fall like they did in 2008. This may happen, but it is important to recognize that this is a completely different type of market than the housing bubble from 14 years ago. Though prices have dropped, it is not clear that they are going to crash as steeply as they did during the Great Recession. So, as a real estate professional, what should you tell your clients?

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According to Redfin, nearly 60,000 home purchase agreements were called off in September, the most ever called off in a month (aside from the month the pandemic started). Clearly, people are rattled by rising interest rates, and other uncertainties in the economy. Sold prices, however, have not dropped to the same extent they did when the housing bubble burst in 2008. A major reason for this may be that the supply of homes for sale is extremely limited, which keeps prices higher than if the market were flooded with sellers. A “critical difference” between now and the 2008 recession is that “there just isn’t enough housing supply today,” write Philipp Carlsson-Szlezak and Paul Swartz, global chief economist and senior economist (respectively) at Boston Consulting Group.

There are many reasons for this limited supply. One factor may be potential sellers deciding to wait until the market improves to sell their homes. Another underlying problem is that the housing market has been under-supplied for years, well before the pandemic. During the 2008 crash, there was a massive supply of homes that had been built, and many more cheap homes in foreclosure. This large supply of inexpensive homes helped tank prices. After the housing bubble burst, thousands of home building tradespeople left the industry for other employment. The New York Times estimates that housing starts went from 2.1 million in 2005 to 554,000 in 2009, a massive decrease. Since homebuilding is extremely labor intensive, time-consuming, and takes significant training, 14 years has not been long enough to attract thousands of highly trained home builders back into the industry. The pandemic helped erase any progress that had been made in construction, further limiting the supply of available homes.

Though 60,000 people called off purchase agreements last month nationally, housing supply is becoming increasingly more limited. In Oregon, there are almost 20% fewer homes on the market than there were just before the pandemic. This limited supply has a complex effect on home prices, and may be keeping prices higher than they otherwise would be.

It is impossible to predict where home prices will go in the longer term. However, in the real estate industry, talk of recession and a major market correction have convinced many potential buyers and sellers that home prices are about to drop dramatically. It is important to explain to clients that, though we are likely entering a recession, home prices may not crash to the extent that many people feel they will. Thus, it may not be a winning strategy to wait out the market in the near-term.

Though not much is clear about where the market is headed, it is clear that the under-supply of homes (and nervous buyers and sellers) have slowed the real estate business down significantly. When there are fewer buyers and sellers, the real estate industry suffers.

There is no way of knowing with certainty where the market is headed, but if you can explain to your clients the factors that are putting both upward and downward pressure on home prices, you can help manage their expectations, and give them a more realistic impression of what they will encounter in this complex housing market.

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This easy-to-use guide clarifies which CE courses you need to take. Simply skip to the paragraph heading below that best describes your license type and renewal status!

License Type: Salesperson

Status: Renewing for the first time, if your renewal date is on or after January 1, 2023

1) A two-hour implicit bias training course

2) A three-hour fair housing course that includes an interactive, participatory component during which the licensee will role-play as both a consumer and as a real estate professional

3) Four separate three-hour courses in ethics, agency, trust fund handling, and risk management

4) At least 18 hours of consumer protection courses 

5) The remaining education to complete the total 45-hour requirement must be on the topics of consumer service or consumer protection

Get all of this CE in one place by clicking here!

License Type: Broker 

Status: Renewing for the first time, if your renewal date is on or after January 1, 2023

NEW REQUIREMENTS: You must complete 45 clock hours of DRE-approved CE that includes:

1) A two-hour course in implicit bias training 

2) A three-hour fair housing course that includes an interactive, participatory component during which the licensee will role-play as both a consumer and as a real estate professional

3) Five separate three-hour courses in ethics, agency, trust fund handling, risk management, management and supervision

Get all of this CE in one place by clicking here!

Even if a property is not part of a Planned Unit Development (PUD), it may have to be defined as such for loan approval. This is because Fannie Mae, the government-sponsored enterprise that purchases mortgage loans, defines PUDs completely differently than local governments do. Why is this?

To understand this conflict, it helps to define what a PUD is. To start with, a Planned Unit Development is planned as a PUD. This may seem like a ridiculous clarification, but is an essential characteristic that sets a PUD apart from neighborhoods that are similar to PUDs, but are not PUDs. A PUD was planned as a PUD, and approved as a PUD by the local government; thus, a PUD has been a PUD since its inception. In this way, a PUD is like a subdivision; both involve an area of many homes developed as part of a plan approved by the local municipality.

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Now, what makes a PUD different from a basic subdivision is that all owners who buy into the PUD must be part of a Homeowners Association (HOA). All owners must pay dues to this HOA, and cannot opt out. In a PUD, the individual property owners own their property, and also own communal property through their HOA. A PUD typically has significant communal property ownership, like communally owned roads, parks, spa facilities, gyms, and other amenities. These communal properties are maintained through HOA fees paid by individual owners. That is, the communal property is owned by the HOA, so all property owners have a share in the communal property, since they all have a share in the HOA.

How is this different from condominium ownership, which also has an HOA that owns communal property? The difference is that condo owners do not individually own the land on which their condominium sits. Condo owners typically only own the airspace within their units, and limited, superficial use of their walls and floors. However, in a PUD, each member of the HOA owns their entire house, and the property on which it sits. Thus, members of a PUD own land, not just airspace.

Though members of a PUD own land, PUDs generally have strict rules about the use of this land. Rules might involve restrictive quiet hours, restricted house paint colors, restricted types of plants that may be grown, specific fencing that must be used, and other significant limitations on land use.

A common source of confusion in the real estate industry lies in defining how PUDs are different from neighborhoods that have HOAs, but are not PUDs. Many neighborhoods have Homeowners Associations that require each owner to pay an annual fee, usually for certain limited maintenance of a communal part of the neighborhood. For example, some neighborhoods have a communal well that supplies water to all owners, and each owner must pay dues to the HOA to maintain this well. Other neighborhoods may have a fence and plantings at the entrance to the neighborhood, and charge owners an HOA fee to maintain this entrance.

So, what is the difference between a neighborhood that has an HOA but is not a PUD, and a neighborhood that is a PUD? The source of most of these differences comes back to planning. A PUD is planned as a PUD, and is approved as such by the local government. At the time of approval, the developer of the PUD has created communally owned amenities, restrictions on the use of each property, and many other rules. A neighborhood that simply has an HOA but is not a PUD was not planned or approved as a PUD by the local government. In fact, the neighborhood may have many properties within it that were built decades apart, not as part of the same planned development. However, due to the nature of the neighborhood, it may have been necessary to require all owners to use the same well or to require communal maintenance of some other basic necessity, like a retaining wall to keep out a nearby stream or river. The HOA fees could also be used to clean the neighborhood sidewalks, or perform other aesthetic maintenance. 

These may not seem like particularly important distinctions between PUDs and non-PUD HOAs. However, Fannie Mae, which purchases over 4 million home loans a year, usually defines neighborhoods with HOAs as PUDs, even if they are not. This is because Fannie Mae defines a PUD as a neighborhood in which there is common property and participation in the HOA is mandatory. Thus, almost any neighborhood with common HOA property is a PUD, according to Fannie Mae. This means that thousands of neighborhoods that were not planned, approved or categorized as PUDs must be defined as a PUD in order to be sold to Fannie Mae on the secondary market.

This confusing definition of PUDs can create problems for the loan approval process, as there is often a discrepancy between the way the property is categorized in county records, and the way Fannie Mae categorizes it. Additionally, lenders often treat PUD properties differently, since PUDs usually have higher HOA fees that the borrower must pay on top of their mortgage payment.

An owner in a neighborhood with an HOA that is not a PUD usually pays minimal fees, often only a few hundred dollars a year. A PUD usually has significant, high-maintenance common property (gyms, tennis courts, roads, etc.), so the fees charged to maintain these amenities are much higher.

Another common problem occurs when lenders assume a PUD property is a condominium because it has an HOA. Since lenders are much more strict about lending requirements in condominium projects, mistakenly categorizing a PUD property as a condominium can create significant, time-consuming problems for loan approval.

If a lender has mistakenly categorized a property as a condominium, this mistake must be corrected as early in the approval process as possible. However, if the lender categorizes a non-PUD property as a PUD to fit Fannie Mae’s unique requirements, this might not actually be a mistake, and might help with loan approval.

As is true in real estate and law, seemingly basic definitions are context-dependent. The single most helpful way to define a PUD might be to say “Who’s asking?”

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Most articles on condominiums and special assessments are about how to avoid them. It’s easy to think of condominium special assessments as an unexpected disaster that happens to people who don’t do enough research before buying. There is truth to this; however, buildings don’t deteriorate on schedule, and sometimes a special assessment may actually save significant money in the long term. A special assessment can come from a well-managed HOA that is proactively trying to stop a sudden, expensive problem from becoming worse, or it can come from a terribly managed HOA that has no plan and rarely does maintenance.

Regardless of the reasons for a special assessment, you are statistically likely to pay one if you live in a condominium long-term. At least a third of all condominium associations have insufficient cash, according to Robert Nordlund, CEO of Association Reserves. Nordlund should know, as his firm has conducted over 60,000 reserve studies.

Of course, every HOA should have millions on hand to easily and quickly address a massive emergency, but realistically, it’s rare that an HOA is completely prepared for an unforeseen disaster.

It’s not always obvious which buildings are in bad shape, since poor building materials often don’t become apparent for decades. In the Pacific Northwest, many 1970s and 1980s condominiums were built by California-based builders, who used materials for the building envelope that were for dry, warm climates. However, the Pacific Northwest is extremely rainy, so the cladding on these buildings develops mold, rust, and other major problems. This was largely unnoticed for more than 30 years, until recent and rapid deterioration required many of these complexes to spend millions to redo the entire building’s exterior quickly, before further damage, injury, or even death occurred.

Extensive research is essential when buying a condominium. However, no matter how much research you do, you should absolutely plan for a special assessment. Do not assume that because you did research, you will not have to pay an assessment at some point. If you’re expecting the HOA to be proactively setting aside money, you should also be proactively setting aside money in case something expensive happens to your building.

Besides setting aside your own special assessment fund, here are some essential things to consider and investigate before buying a condominium:

-Find out how old the plumbing is. This is a hugely overlooked area of concern, and is a significant sign of how good the HOA is with fixing hidden problems. If buying in an older building, be sure that the HOA has completed or is in the process of completing a full plumbing replacement. If you’re looking at a 90-year-old building that has never replaced the plumbing, be extremely wary.

-Low HOA fees can be a sign that owners do not want to pay for maintenance, or cannot afford to.

-Obtain past maintenance records, reserve studies, and long-term maintenance plans from the HOA board.

-If major building components are not mentioned in the long-term plan, this is a bad sign.

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A recent survey by Cinch Home Services found that 60% of sellers knowingly did not disclose significant issues with their home to their buyers. Additionally, 77% of sellers said they were encouraged by their real estate agent to mislead in the disclosure process.

This fascinating study of 476 home sellers notes that selective memory and exaggeration are always a concern with surveys. For example, it is not clear exactly how these agents encouraged sellers to hide material facts; was this explicitly said, implied, or was it a general feeling the seller had?

Whether or not the agent actively or passively advised against disclosure, this study indirectly highlights how quickly an agent can be blamed in the event of a lawsuit. It is essential that an agent never even remotely hint or suggest that a seller omit material facts. If a seller is privately considering hiding information, remember that even offhand comments by an agent may be construed as a suggestion to illegally mislead.

How to Identify Problem Properties

This study also reinforces the importance of inspections for a buyer agent, and of paying attention to hidden clues about property condition. If a buyer is displeased with their purchase, this makes them significantly less likely to recommend your services as a buyer agent. So how can you tell if a property is going to have problems?

Criticisms are safer. When you investigate a property for your client, remember that making assurances that a property is in good condition can easily get you in trouble for misrepresenting your expertise. Thus, it’s much safer to make criticisms than specific, positive assurances. For example, if you don’t find any obvious issues with a building’s plumbing, you likely should not disclose this to your client, as they could easily assume you have expertise in plumbing that you do not have. This should only inform your own general optimism about the property. However, if you do find cause to investigate the plumbing further, suggest that the client have an inspection performed.

Here are some ways to identify problem properties:

Get to know your county records. These records can show permitted maintenance and improvements, and can be far more revealing than seller disclosures. For example, if a building is 90 years old, but there is no record of the plumbing ever having been updated, this could become a major expense for the buyer. On the other hand, if you find evidence of regular repairs and updates over the years, this could be a good sign.

Is the building reinforced? If the building is made of unreinforced masonry, it could be structurally unsound, especially if located in an earthquake zone. Make sure the building has steel reinforcement, or at least a wood frame if it’s an average-sized house. An unreinforced building has no significant frame holding it together. This is another area of investigation that county records can help with.

Get to know climate-related concerns in the area. If the building is in a coastal zone, are there signs of rust from salty air that may damage the building? The Surfside Condominiums that tragically collapsed in Florida recently had major rust-related structural damage. If the climate is rainy, get to know the signs of mold. If the area is low-elevation, get to know the flood plain area maps. If the property is located near a stream, investigate if there has been flooding or ground instability relating to the property or to properties nearby.

Always read HOA minutes. In a condominium complex, it’s much more difficult for groups of owners to conceal their concerns about their building in a meeting than it is for one owner of a single family home to hide their concerns.

Always check historical sales records. If the property sold for significantly less than asking in the last few years, or if the property was pending a number of times without selling, this could indicate inspections that found major problems.

Are a lot of units in a condominium for sale at below market value? This is an obvious clue, and an easy one to check out. Generally, this indicates a significant special assessment or major structural problem that forces many owners to consider selling.

Always remember that, no matter how exciting it can be to find a property with seemingly few problems, it is not a good idea to give the buyer specific assurances about property condition. Criticisms and suggestions to consult experts are much safer and more beneficial to the buyer. If you are excited about a property, it is much better to simply say generally that it seems like a good fit for the buyer’s needs.


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Air conditioning used to be considered a luxury, but it is becoming essential for health and safety. As many parts of the world experience record-setting temperature highs and heat-related fatalities, air conditioning is increasingly seen as a basic human need, like heating in winter. It is estimated that home air conditioning cut premature deaths related to heat by 80% since 1960, according to the Washington Post.

Soon, a home without air conditioning could be as difficult to sell as a home without heating. When purchasing a home, make sure it has a good air conditioning system, or verify that one can be easily installed.

If you are purchasing a home that does not have air conditioning, at least verify that the amperage of the electrical system will support the added stress of running an air cooling system. If your home does not have adequate amperage, you may not be able to run basic appliances while your air is on without blowing a fuse. Whether you’re using a portable window air conditioner or a forced air system, you will need adequate electrical capacity to keep all appliances running.

Many older condominiums have a hidden problem of inadequate electrical capacity. If you’re looking at a condo built in the 1950s that has a 60 amp capacity, you may have trouble running an air conditioning system if you also use a lot of appliances. It’s not always easy to increase your amperage, since this likely will involve changing the capacity of the entire building, and getting the local electrical company to make this change could be costly. Make sure to have a professional verify that any home you plan to purchase has adequate amperage.

The Catch-22 of Air Conditioning

As summers become hotter, air conditioning becomes vital; however, widespread use of air conditioning consumes massive amounts of energy and uses toxic refrigerant. Though it may be tempting to skip air conditioning in order to decrease energy consumption, remember that excessive heat can be deadly. If air conditioning ever becomes more environmentally friendly, this will likely be the result of systemic changes, like widespread use of solar systems, geothermal systems, or changes to the way electricity is created in general.

Energy-saving Air Conditioning is Often a Luxury Item

Air conditioning is much more affordable than it used to be. However, air conditioning that uses dramatically less energy is incredibly expensive. Geothermal air conditioning systems consume much less energy, as they use the earth’s naturally cool underground temperature to chill your home. However, geothermal systems cost between $20,000-$50,000 to install, which guarantees their adoption will be limited. In the future, the cost of these systems may come down, perhaps due to government subsidies and/or more efficient production.

Hopefully, major changes will occur in advancements to geothermal systems, solar power, and other efficient technologies. For these changes to be effective, they will have to be systemically implemented, rather than relying only on people who can afford them. In the meantime, it is important to take air conditioning into account as a health and safety consideration when purchasing your home.

Math and Emotion

For the first time in four years, the Federal Reserve increased its target interest rate in March. Though this was widely expected, the drama was intense.

Former Home Depot CEO Bob Nardelli said that the rate hike will have a “devastating impact” and told consumers to increase cash reserves and “build up a supply of non-perishables in your home.” Former Treasury Secretary Larry Summers warned of “economic distress” and said that Fed forecasts had been “delusional.”

These statements about “economic distress” might make home buyers rush to purchase before the rate hike, or they might drive consumers away from the mortgage market towards assets with greater liquidity. What CEOs and economists say about the rate hikes could have more of an effect than the rate hikes themselves.

A rate increase may seem purely mathematical, but its effects on financial markets involve emotion and significant unpredictability. A rate hike is meant to spark a wide-reaching series of human reactions, many of which are difficult to quantify.

The Fed’s Interest Rate is Not What You Think

Even without the highly emotional element to a rate hike, the connection between mortgage rates and federal interest rate hikes is surprisingly distant. In fact, the Fed doesn’t really “set” the target interest rate at all. Instead, the Fed announces a target rate as a suggestion for banks to use when lending money to each other. In order to move bank interest rates toward this target, the Fed increases or decreases the money supply, and purchases or sells securities, which indirectly motivates banks to charge rates as close to the target rate as possible.

The only interest rate the Fed sets is actually not the target interest rate–it’s the rate it charges banks to borrow directly from the Fed. This is the federal discount rate, and the Fed usually sets it higher than the target interest rate in order to encourage banks not to borrow from the Fed, but instead to borrow from each other closer to the lower target rate.

Two Lesser-Known Interest Rate Drivers

The connection between the target federal funds rate and mortgage rates is also more distant than it may seem. Mortgage rates are highly influenced by 10-year treasury notes. When 10-year treasury notes increase in yield as interest rates increase, purchasers of mortgage-backed securities want even more yield from mortgage-backed securities, since they are far riskier than the extremely low-risk 10-year treasury notes. This causes mortgages to become more expensive.

Additionally, the Federal Reserve itself was buying $120 billion a month in mortgage-backed securities to stabilize markets during the Coronavirus Pandemic. Now, the Fed has slowed its purchasing of these securities, so that $2.5 trillion in mortgage-backed securities will need buyers. This could dramatically cause mortgage rates to increase, and have far more of an effect than the Fed’s target interest rate.

Many analysts think that the Fed’s decrease in buying mortgage-backed securities has already been taken into account by banks in their current interest rates. However, it is impossible to know if this is entirely true. Human emotion and reactivity will play a huge role in how mortgage markets are affected by interest rate hikes. Robert Heck, a vice president at mortgage broker Morty, says that the manner in which the Fed speaks about its participation in the mortgage-backed securities market will have a massive impact on mortgage rates. Often, it’s not about the interest rate itself, but about how it is communicated, and how much of a surprise it is, that affects financial markets.

Anyone who tells you that interest rate hikes are predictable because they’re just about math is missing the point; the market is designed around human fear responses and reactivity. Educated guesses can be helpful, but it all hinges on our collective human hive mind to decide where mortgage rates are going.

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Because imagining is often fun, we like to think that it doesn’t require work. However, imagination involves a lot of effort. Use your imagination right now to see yourself looking through listings on a real estate app; imagine going through each listing and figuring out the exact layout of the floor plan, what each room could be converted to, which walls could be knocked down, and the basic style of the house underneath all the furniture and renovations. Doing this for every single listing is exhausting. If you’re excited and motivated, this might also be fun, but it is important to understand how much work this is.

The lesson here is that you should not expect potential buyers to have any time or imagination to put into viewing your house. Sure, you may stumble across some imaginative buyer with time and money to blow who may see immense potential in your listing, but it is important not to count on this when listing your home.

Before you list, make sure each room in your home is converted back to its original purpose, if possible. For example, if you changed the family room upstairs to be a storage area, remove your stored belongings and make it look like a family room. You don’t want the casual viewer to wonder if they’re looking at a massive closet, a basement, or a garage, and then hope they’re able to imagine what it might look like if it were not that.

This is where staging can be helpful; remove all your belongings, and have some basic, clean and mildly attractive furniture that is appropriate for each room’s original purpose spread throughout the house. Make each room look like it’s always clean, and has just the amount of furniture to barely qualify as a room. That is, make it look like no real people live there; like it’s a room from a TV ad.

The furniture doesn’t necessarily have to be nice, just clean and sparse. This is where you can finally trust the imagination of potential buyers, only after you have removed the personal clutter that serves as a barrier to seeing what the house is and can be.

Another essential part of staging your home is lighting. Bright, warm lighting in every room helps leave less to the imagination of each buyer.

Of course, there are exceptions to every rule. For example, if you have a beautifully restored Victorian home, and you have many carefully selected antiques that make it look like a movie set, then you may want to leave the house as-is. Or, you may in fact live like you’re not a real person, and your house may be spotless with barely any furniture. If this is the case, congratulations–you’re ready to sell without staging!

Another essential rule to follow is to allow buyers to see your home without you there. This will make them feel less uncomfortable, and will allow them to more easily picture themselves owning the home rather than seeing you as the owner. Again, the less there is to distract from the potential buyer’s imagination, the better.

Listing your house can be an understandably challenging process, especially because it’s difficult to have perspective on your personal space. This is why it’s helpful to have a broker or other real estate professional come look at your house and advise you on what might be good to change before listing. You can also look at houses that have sold quickly for high prices in your neighborhood, and take notes on how they look.

Remember; the average house will sell faster and for more money if each room is converted back to its original purpose; if the furniture and decor is more generic and is sparse; and if the house is brightly lit. When in doubt, assume that your buyer has no imagination, and stage your home like people who are not in any way real live there. Good luck!