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October 28, 2023 - Money Matters Podcast

The qualities of a financial advisor who cares about you, the pros and cons of a HELOC, a property tax query, and more.

On this week’s Money Matters, Scott and Pat reveal the qualities of a wealth manager who cares about you, and one who doesn’t. A caller from Massachusetts asks whether he should take out a HELOC to pay for an investment property. A California man building a forever home wants to know about property tax implications. Finally, a Texas caller living in an RV needs financial guidance so she can improve the quality of her life.

Join Money Matters:  Get your most pressing financial questions answered by Allworth's CEOs Scott Hanson and Pat McClain live on-air! Call 833-99-WORTH. Or ask a question by clicking here.  You can also be on the air by emailing Scott and Pat at

Download and rate our podcast here.


Man: Would you like an opinion on a financial matter you're dealing with? Whether it's about retirement, investments, taxes, or 401(k)s, Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth Money Matters, call now at 833-99-WORTH. That's 833-99-W-O-R-T-H.

Scott: Welcome to Allworth Money Matters, Scott Hanson.

Pat: Pat McClain. Thanks for joining us.

Scott: Glad to be here in the studio, and here on the microphone. Both practicing financial advisor for the last few decades, and been doing this program for 28 years. So, it's good...

Pat: Long time.

Scott: Good to be with you. And love taking your calls and talking about financial matters and all those things. Before we start, there's a reason that we're both still working, Pat, and it's not... So, as financial advisors, a lot of our job is helping people get to the point of financial independence. And for many, that really means retirement...planning for retirement, right? And I had breakfast with a friend, a longtime friend, we were friends from... Our oldest kids were in kindergarten together, and we were the science professors. We came in on Friday...

Pat: I did that too.

Scott: It was the most nervous I would be all week.

Pat: I had a white jacket.

Scott: Yeah. We did the same thing. That's funny. And we don't think we ever shared that. Anyway, having breakfast with him, and he would talk about his boss at 55, retired because a new manager came in and he didn't wanna work for the person. So, he is like, "I'm not working for this person. I retired." He wanted to... And my friend says, he's 58, he says, "Financially, I could afford to retire." And I told my...because he reports to the same person. I told this person, "Two bad days and I'm gone."

Pat: Wow.

Scott: He's like...

Pat: In a row?

Scott: I don't know. But anyways, pretty much like, "I love my job, but you make it miserable and I'm gone. I'm gonna retire."

Pat: I'm gonna retire.

Scott: I see it all the time. A lot of people retire, right, just because of those purposes. But for us, it's really about helping people get to a point where work's an option and not an obligation to the...

Pat: Hundred percent.

Scott: These two guys, that's exactly their situation. And some people have a job where they still have a lot of passion, what they're doing, feel like they're making a difference, enjoy the people they work with, in most parts of their job.

Pat: Everyone's got a little part of their job.

Scott: In every area of life. Well, I guess that's being a parent, being a spouse, all those things, right?

Pat: I always say if you get to 85%, that's a home run.

Scott: Okay. So, for us, it's really about helping people become financially independent. And it's helping... There's been a movement in our industry for this independent fiduciary advice model. Companies that don't manufacture products, that aren't driven by commissions, that are aligned with their client's interests, and they've got a compensation structure such that their clients pay them based upon some sort of success outcomes. And as they become more successful with their advisors, the advisors benefit. If they become less successful, the advisors feel that pain.

Pat: The problem is, Scott, the average consumer can't tell the difference between the models.

Scott: That's exactly right.

Pat: And the fiduciary model, us included, we talk about it, why we think it's so important. The non-fiduciary models just never mention it. So, this is all going somewhere. Okay. I got an email from a friend of mine over the weekend, last weekend. And it's this long-time significant other, had an advisor that suggested they buy a three-year deferred fixed annuity with a compound jumble rate. They called it a 5.3%. And mentioned the insurance company and asked if this is a safe investment. Any thoughts on that? And I got this and I thought, "What? I don't know this person's financial situations that well. I could just assume they're not..." So, I got this and I thought, "They're being sold..." And I did not mention the name of the company. It's a big national firm that manufactures their own products. They have some advisors, they have some branches, but they also manufacture mutual funds. They have all these other solutions. And the advisor's compensation varies based upon the products or solutions they recommend to the customers.

Scott: That's true.

Pat: Right? It's that way with most of those big firms. So, they recommended this three-year deferred annuity. And you've also heard us talk, there's a place for annuities, particularly some of the older ones had some pretty good benefits to them. A three-year annuity, what's the interest rate on it? Five-point three? You buy a one-year treasury at 5.4, you can buy a CD at 5.6 something. I actually looked at CDs. She'd have a higher rate of return in CDs than she would in this product. If she could buy a... Take a one-year third and a two-year third and a three, or whatever. How you wanna structure it. There's different ways to structure things. But the challenge with these annuities... So there's two issues that ticked me off by reading this. One is that there's a...

Scott: We can tell.

Pat: One is that there's a salesperson who calls himself an advisor that's recommending this product for one reason.

Scott: A commission.

Pat: A commission.

Scott: A commission.

Pat: Because the tax structure of annuities are terrible in this tax environment.

Scott: We don't know if this is inside of an IRA or outside of an IRA.

Pat: Okay. Inside of IRA, there's no benefit whatsoever.

Scott: None.

Pat: So treasuries or CDs...

Scott: It doesn't matter.

Pat: Which you've got much more flexibility. And odds are it's not. And if it's not, what ends up happening is the interest is deferred. It doesn't mean it's eliminated...

Scott: It just deferred until the annuity... You pull the money out of the annuity.

Pat: And when you pull some money out, you can't just... If you put a $100,000 in an ETF or a mutual fund and you want 10 grand, you could sell 10 grand worth. Most of it would be a return of your principal, your deposit. A little bit would be interest. If you pulled money out of a CD, same thing. With the annuity, let's say you put a $100,000 in, you leave it for three years. That's according to this, you take 10 grand out. That 10 grand, 100% of it is tax is ordinary income, horrible tax structure.

Scott: And it's not good.

Pat: In today's tax environment.

Scott: And the reason you believe that the so-called advisor was making the recommendation?

Pat: I know the name of the firm, I'm not gonna mention it because there's no sense in disparaging these... Because they're all pretty much the same.

Scott: They are.

Pat: Vanguard, I would think would be a different...there's different structure. They don't have branches where people are getting paid a commission to sell certain products or solutions, or services.

Scott: So, they're commission salespeople disguised as advisors.

Pat: Yeah. Which is why...frankly, which is why I'm still passionate about doing this program, 28 years, to help educate...and to help grow the fiduciary industry. Because the majority of clients now are worth the independent advisor.

Scott: The majority, yes.

Pat: Not the majority of assets because some of these older people tend to have most of the money and some of the... They're still at some of those old firms. But...

Scott: The clients.

Pat: That's where the business model's going. Anyway, I thought I would just... There's a place for annuities, a three-year deferred annuity. Unless somebody is making a huge wage, and in three years from now is not gonna be making any money and you wanna defer the interest...

Scott: Well, it's actually making it much more cumbersome than it needs to be.

Pat: Because you know what happens.

Scott: Yes.

Pat: What happens at the end of three years?

Scott: They say your annuity is mature.

Pat: And then what happens?

Scott: Then they roll it into a new one.

Pat: They sell you a new one. Yes.

Scott: Correct.

Pat: So, the money never really gets out, does it?

Scott: That's right. Because they say...

Pat: And the tax problem gets kicked down the road further, and further, and further.

Scott: Yeah. And then they say, "Oh, by the way. By the way..."

Pat: [crosstalk 00:08:57].

Scott: You know, you're gonna pay taxes on this unless you actually roll it over.

Pat: That's right. And sell it for [inaudible 00:09:01.502] another annuity.

Scott: Yes. I've seen it hundreds of times. Not dozens, hundreds of times.

Pat: I gotta tell you, the banks are big on this stuff too. The banks that the...

Scott: We call them bank brokers that sit in the bank. They're big on it. They love the annuities.

Pat: Because it generates revenue, much more than CDs do.

Scott: Yes. All right. Let's take some calls. 833-99-WORTH, is the number to line up a call to talk with us. 888-99-WORTH, or an email at We're in Massachusetts talking with Jamie. Hi, Jamie. You're with Allworth Money Matters.

Jamie: How's it going?

Scott: Wonderful.

Jamie: Yeah. So, I had reached out to you guys because I'm curious about the current state of rates. I bought a two-family off-market at the beginning of 2022 that...

Pat: A what?

Jamie: A two-family.

Pat: Two-family home, like a duplex?

Jamie: Correct.

Pat: They call them two families in Massachusetts, as opposed to duplexes?

Jamie: Correct. Yeah. They call them two-family. So, yeah, I got a duplex in January, 2022. I lived there for a bit and then I moved out, renovated, rented both units. And then, first tenants moved out that were already there and renovated the other unit. And now, I have what I believe to be about 250 grand of equity in. I purchased at $350 at a 3.85 rate. And my question is... I don't wanna sell. My question is, do you believe that mortgage rates are gonna continue to climb up and now would be a wise time to take out a HELOC to have the cash on hand for another investment? Or is it just too unpredictable right now to trust a move like that?

Scott: This is a great question. So you've got...the value of the home, based upon what you just said is now...

Pat: $600. Correct?

Jamie: I mean, that's a rough estimate. Zillow isn't familiar with the work that I've put into it. And I've renovated both units. But Zillow says right now it would sell for about $520.

Pat: And how much did you put into it, in just, not your labor, but just pure cost?

Jamie: So, I did most of it...most of the work myself. But the cost that I'm at, for total, both units, I'm looking at about, I believe 40 to 50 grand

Pat: Between the two of them? So, your basis in there is about $400,000. And what would you do with the proceeds of the HELOC?

Jamie: I would look for another property that I can put more sweat equity into.

Pat: And could you get a fixed-rate HELOC right now? Most HELOCs are not fixed rate.

Scott: They're variable.

Pat: They're mostly variable, adjustable, so it wouldn't matter.

Jamie: So that would be...that's part of the question that...when I say like, "Oh, do you trust when the Fed says they're not gonna go up a lot or..." I mean, nobody's got a critical ball so...

Pat: So, nobody knows what's gonna happen with interest rates. The market...

Jamie: Yeah. Some days you hear that it's stable, some days you hear they might go down, some days you hear we're a long way from the top, so.

Pat: But my point being is because it's a variable rate, whether you took it out today or in the future...

Scott: Well, but rates can go up or down. The Fed raises rates a few more times as interest rates goes up on his HELOC. And if they get cut, and they go down.

Pat: So, he goes and gets a HELOC today at 8.5%.

Scott: Right. And the Fed decided to raise rates another couple of times, and now it's at 9%.

Pat: That's right. But him taking out the loan either now or in the future is not gonna make any difference. It's a bad call because the spread between what he would actually reinvest the dollars at... So, what I heard him say is, does it make sense for me to tap a HELOC today, pull the cash out, put it on the sidelines? Is that the question you're asking?

Jamie: Not so much the sidelines. I mean, I'm approaching 30 and so my next home purchase, I'm between either getting another investment property if the right one came about or just purchasing a home. And if I were to take out equity, I would be able to put 20% down on something...

Pat: All right. So, you're age 30, good for you, you're gonna be just fine if you manage your debt correctly. Because you talk about taking out equity, and that's a marketing term that financial institutions have created to encourage people to pledge their home as collateral and borrow money from them, right?

Jamie: Yes. Absolutely.

Pat: So, you're not really taking money out. What you're saying is, I already have a mortgage and I already have a bank lined up here and I've got it collateralized there, but because there's actually equity in the... I actually have some of my own capital here now. I'm gonna pledge the remaining equity, or at least some portion of that to another financial institution, so I can take another loan to lever up... I would assume to buy a property and then have another loan on that property.

Scott: Yeah. You would be using it for the down payment. And how much cash do you have?

Jamie: So, at the moment, cash is pretty strapped. Although I'm renting both of my units right now at a... I'll have a new tenant moving into the top unit in about two weeks, and then that'll put me cash flowing at about $2,500 over my mortgage.

Pat: Good for you.

Scott: Yeah. Good for you. Congrats on this, by the way, Jamie. Good for you.

Pat: Are you in the trades by... When you remodel these, are you in the trades? Do you know what you're doing? Am I watching this old house...?

Jamie: So, it's funny because kind of. So not to get into a big story, but a long time ago, or four or five years ago, my dad has had his GC for a long time among other businesses that he has. And so, he's been doing this sort of thing for a while, and he suggested to me that I get my electrical license and then start working with him, and my brother get his plumbing license, and we all start working together. And now neither my brother or I have our licenses in the trades, but we both have enough experience where, for example, I can look at the electrical plans of a house and I can do it all by myself. And so that's been able to save me about 50 grand on electrical costs, or maybe not 50 but...

Pat: If you put 40 to 50 grand into the two family places, where'd you come up with that cash?

Jamie: So, I'm on a personal loan right now, but it's a 0% personal loan of about 30.

Pat: Get more of that. That was when you made me do it, Scott. So, here's my point. You pulling cash out...the market is what the market is, so you pulling cash out of a home equity line of credit and putting it on the sidelines due to the fact that it's an adjustable-rate mortgage, there's no benefit in it. There's zero benefit.

Scott: No, he wants to buy something else, right?

Jamie: Yeah. So, that's the question. I wouldn't trust it just like having it in the bank, although it would be able to get me out of my personal loan.

Scott: I like the personal loan. If you don't want the personal loan, I'll take the personal loan if I can get [crosstalk 00:16:45].

Pat: Yeah. You know, something, I would... I'd bet on you. I'd bet on him.

Scott: What are you talking about?

Pat: If he's asking, does it make sense to take some equity out of this property now, collateralize that, and get a new property, I don't know. If you were gonna do it as an investment property, I would bet on you.

Scott: If you were doing it as a primary residence. What do you mean, you'd bet on him?

Jamie: I'd be looking to buy, ideally, just something that is a total dump, and I can get in there and get my hands dirty and make it something nice.

Pat: Well, maybe you should sell the two-family.

Jamie: It's so hard to justify that at a 3.8 rate and the cash flow of $2,500 a month.

Pat: Look, we've been around long enough to see the different market cycles and see people do well and people who get blown up. Here's the risk. If you go down this path you're considering, you can do it, and it's highly speculative. And here's what I mean by that. So you take out a loan... Now, he is 30. I'm just saying, you take out an adjustable-rate mortgage on this, you use some money for down, then you got a large mortgage. And we go through a period of recession where, maybe you've got a tenant in there who's not paying his rent for a while.

Scott: Maybe it stays empty for a while.

Pat: Home values decline a bit, interest rates go up further on your variable rate mortgage on the home equity loan. Now your monthly payment to that you suddenly you find yourself cash-strapped.

Scott: And so the least risky thing is to sell this, pay the gain, and do it again. That's the least risky thing.

Pat: That's right.

Scott: That's the least risky thing.

Pat: And I also like the concept of you keeping this as a long... But if the money's gonna be made and you finding a distressed property and fixing it up, that's much more profitable than holding on to a rental long-term.

Scott: That's correct. Regardless of the cost of finance.

Pat: But market cycles can take...

Scott: Can squeeze that out too.

Pat: That's right. So, look, you're 30. If you were 55... We'll be like, "No way."

Scott: Not a chance.

Pat: Because there's like, I don't know, maybe there's an 80% chance it would all work out well for you, but there's some probability, much greater than zero, that this would not work out well.

Scott: By levering.

Pat: That's right. By levering.

Scott: By using [inaudible 00:19:24.009]

Pat: You're 30,

Scott: But you're 30. You're 30.

Jamie: I feel like it's the time in my life to take risks.

Scott: Oh, I agree.

Pat: Oh, that's it.

Scott: I took risks when I was younger too.

Pat: Oh, that's it. Oh, I did stuff in my 30s...

Scott: That's right.

Pat: ... I wouldn't do today, both personally and professionally. Yeah. So, the least risky thing is Scott said... But it is hard to walk on that 3.85% mortgage, which is...

Scott: Yeah. Well, then don't sell the thing.

Pat: And where did the personal... The personal loan, obviously...

Scott: The father.

Pat: Well, that's what I'm guessing.

Scott: That's my guess. Or uncle.

Jamie: Yeah. My dad is a... We work in Gloucester Mass together, and he has a couple of businesses and I'm working for him in. Because I do all this electrical work, I was able to... He bought a three-family last year as well that every unit needed to be redone, that I did all the wiring for that as well. And so it's working out well for both of us. But I'm trying to figure out how to get my hands on....

Scott: Oh, does he have other money?

Pat: That's what I was gonna ask. How deep is that well? Because if you pay him interest, he might be more excited about investing further.

Jamie: Yeah. I mean, that's something that I was trying to avoid because, just from a personal pride standpoint, I wanna do it on my own.

Scott: I get that too.

Pat: How deep is the well, though? If you went into this and it just went sideways for a while and you said, "Hey, can you advance me a hundred grand, just to get me through this market cycle?" What would the answer be?

Jamie: Yeah, I couldn't do that.

Scott: Okay.

Jamie: If I had a really, really good opportunity come across, I might be able to pull out, like say, "Hey, could you help me out with another $30" or something like that? But $100 would be steep. It would be too much to ask.

Pat: So, you can get a line of credit without drawing upon it, right?

Jamie: Yes. And so I just learned that recently. I thought it was a commitment by getting an appraisal even. So...

Pat: But they can cancel at any time too. So what's the point of actually...

Scott: Well, it puts him in a position to settle fast.

Pat: ...that you find something. And what's the property gonna cost you to purchase?

Jamie: Well, that's the other thing, is why I don't want to sell, because the town that I'm in, Gloucester, Massachusetts just got rated like the number one small town in America to move to. And Massachusetts, furthermore got rated the number one town for families to move to. And so, I mean, everybody has a different source, but any publicity is good publicity. So, my thought is that the equity in this town is just gonna continue to go through the roof. And if I can find something that is maybe worth like $400 right now, another duplex or a three-family for anywhere from four, probably under six, I could probably turn it into a $800 to a million dollar property in the next four or five years.

Pat: I would bet...

Scott: Yeah, you might as well.

Pat: Yeah, I'd bet on you. I would. I like your thinking, right? And you're 30. If you didn't have the skillset, it's risky.

Jamie: But it is a risk... It's a risky thing, yeah.

Scott: Yeah. The least risky thing you can do is to sell that existing property...

Pat: Or to just save up some money and wait a few years before you buy your next one. That's the least risky thing.

Scott: That's probably the least risky thing. But...

Jamie: I wanna get ahead of it, though, before the prices really start to go crazy here.

Scott: Well, we don't know what they're gonna do.

Pat: That's right. I mean, that's...

Scott: We don't know what they're gonna do. I mean, that's... Look, we all have self-confirming biases, and yours is right there, that the prices are going to continue to go up. And that's...

Pat: They may or may not.

Scott: They may or may not. We have no idea.

Pat: Nobody knows.

Jamie: Yeah. Just to put it into perspective, two years ago, a two-bedroom, one-bath condo in Gloucester was going for like $300. And now it's going for $550.

Pat: I understand you. That's the argument why you shouldn't do it.

Scott: It's already up in price.

Pat: The prices have already run.

Jamie: Yeah. I mean, I'm looking...

Pat: Investments are the only thing in the world that people...when it goes up in price, they want more of. And when it goes down in price, they run away from. I do like... Look, you understand the risk and I think the home equity line and then a fixed rate mortgage on the rest of the property, if you can get it, makes sense. Just know that the risk exists.

Jamie: I mean, my thought process, and you can tell me if you think I'm hedging or putting out myself with too much risk. My thought process was, as long as I can make monthly payments on something without over-exerting myself, no matter what the rates are, it makes sense.

Scott: It may make sense, but the thing to remember is, during that time period...during that time period that you're doing the rehab or that the property isn't rented, it's the existing condo falls apart and all of a sudden there's no tenants there, and that's the risk.

Pat: Or they quit paying and you gotta evict them.

Scott: And that's the risk.

Pat: I don't know what the rules are like in Massachusetts, but my guess it's not that easy to evict somebody.

Jamie: Although I am fortunate that I'm getting my apartments approved by low-income...

Pat: HUD?

Jamie: ...communities.

Pat: That's right.

Jamie: So, these places are paying for the apartments.

Pat: I'm with you.

Scott: I got it.

Pat: I'm with you. I'm with you. I'm with you. I'm just telling you, there is... Scott and I own a commercial property together, and we've owned it for 13 or 14 years.

Scott: It's been that long?

Pat: We bought it... Twelve years.

Scott: Oh, my gosh.

Pat: This is the worst year for cash flow it's ever had, the worst.

Scott: Because small businesses, some of them are struggling.

Pat: They are.

Scott: And the ones that aren't, they don't offer to pay extra.

Pat: That's right. That's right. And that's right. That's right. And there's more... It's the environment we're in and we'll weather it, it'll be fine. But just know that whatever you write on paper, design the plan that there's going to be contingencies. But you're 30, for goodness sakes. You're 30, and you've got the skillset. If you were my son, I'd say go for it.

Scott: Yeah, because the worst that's gonna happen.

Pat: That's right. Right?

Scott: Are you married?

Jamie: No, I'm single.

Scott: Yeah. Even more so. I'd go for that.

Pat: I gotta say, now's the really time to take risks before you've got a mortgage, a spouse, seven kids.

Scott: Children. Seven kids?

Pat: He's from Gloucester.

Scott: Hey, appreciate the call, Jamie.

Pat: Well, by the way, I have a question. Fishing history there... I've never been, I've always wanted to go. The fishing history, phenomenal there? Just the whole Gloucester, it was the cod capital of the world at one point in time.

Jamie: Yeah. Well, I mean, have you ever seen the movie "The Perfect Storm?"

Pat: I have.

Scott: Yes. Yes. [crosstalk 00:26:35]

Pat: I've read the book.

Jamie: I mean, nobody knows what happened on that boat because nobody came back, unfortunately. But it's based on... I drive by the bar that that movie's based on every day.

Scott: I hope you don't stop there every day.

Pat: I was gonna say, keep driving.

Scott: Otherwise, if that's the case, don't do anything. Keep driving. Appreciate the call, Jamie.

Pat: Appreciate the call. It's interesting but I've got a family member, young man who...he's in the trades, so he's a contractor, right? But he is always wanted to have an opportunity to take a fixer-upper and flip it. It's been on the market, two months?

Scott: Oh. Yeah. Market conditions you have no control over.

Pat: Yeah. So, he's probably at a point now where any of his labor is gone, you know, he is not gonna get any return. And if it takes a couple more months to sell...

Scott: And he doesn't wanna convert it to a rental?

Pat: Well, he's got a financial backer.

Scott: Oh, that doesn't want it to convert to a rental.

Pat: I wonder how that financial backer feels about that, Scott. You've got family members.

Scott: Well, I do. I've got pretty good protections on it all, but...

Pat: That's right. Sorry, Mr. Nephew, I own this now. That's the nature business. Try to help your family out.

Scott: You can? You do what you can.

Pat: He's talked about maybe renting it for a year. I said, "I have zero interest in renting it for a year. Like, I'm sorry."

Scott: And you are the capital.

Pat: Right. That was not the plan. And it is not the plan. And so some things... The challenge in those things, you've gotta be...not only do you need to buy it right, at the right price, you need to manage the construction costs and do that well, and then you need to sell it right. You've got three things you gotta do well. It's not that easy.

Scott: And the thing that you can't control is the market conditions.

Pat: And you have no idea what's coming.

Scott: That's right.

Pat: We have no idea what happens tomorrow.

Scott: No, no. But he's a young man, right? Your nephew's a young man.

Pat: Yeah.

Scott: He is a great kid.

Pat: He's a great kid.

Scott: Oh, I'm sure.

Pat: Got three little kids and all. He's a good young man. I love him. Yeah. I don't love all my nephews, but I love that one. No, I'm just kidding. All right. We're talking with Jerry in California. Jerry, you're with Allworth Money Matters.

Jerry: Hi. Thank you.

Scott: Hi, Jerry.

Jerry: My wife and I live in Sacramento. We bought our home back in 1996, two-story house, big yard, pool, great neighborhood, the whole nine yards. We're now in our late 60s and the house isn't designed to age in place. So, we're in the process of... We're fortunate we found a lot in the neighborhood we love, and we're building a customized house that's all ADA to basically live the rest of our lives in. The thing is, our current house has appreciated so much in value that the property tax benefits from Prop 13 is really great. And when we move in the new house...

Scott: What's your value of your home now?

Jerry: Now, I would say over a million.

Scott: All right. Let's just call it a million. How much are your annual property taxes?

Jerry: Oh, gee, I think it's like maybe $3,500.

Scott: And what's this new place gonna cost when you're said and done?

Jerry: Over 2 million.

Pat: And is it the same county as you're in?

Jerry: Yes, yeah, same county, same neighborhood, one zip code over.

Pat: All right. And what's your question?

Jerry: My question is, I kinda remember that somehow, maybe there was some sort of benefit that seniors could transfer their basis under Prop 13 to their new property.

Pat: On homes of lesser value.

Jerry: Oh, homes of lesser value.

Pat: Right. And that depends.

Scott: I don't remember.

Pat: There's been some changes to it in the last couple of years.

Scott: I don't remember.

Pat: It was typically, and that's I think Prop 58, and there's gonna be some real estate expert listening, like, "These idiots don't know what they're talking about." I believe it was Prop 58 that allowed to carry forward the property taxes. And for those 55 and older, there's a one-time opportunity to carry the tax base forward. And you're trying to do some research as we're talking.

Scott: I am trying to do some research and I am not finding it. So, it is a great question, and I actually do not remember...

Pat: And there's been some changes.

Scott: Well, county to county can be different as well.

Pat: That's right. Are you staying within the same county?

Scott: He is, yeah. I don't remember.

Pat: Ninety-five percent confident needs to be of lesser value.

Jerry: Oh, okay. Okay, I guess I could check with the assessor's office, the tax collector's office.

Scott: Absolutely. I bet you could find it online, but I'd check with the assessor's office. I can't remember whether... It is just perplexing. I can't remember whether it's...

Jerry: The trouble is that if you're building stuff now, you can never get any of... The cost of building and everything has gone up so much that we were hoping to kind of make it a downsized house but...

Pat: Well, your property taxes are going to go from $3,500 to 24 grand. And if the lot's in an area where they've got other Mello-Roos bonds and stuff, it could be worse than that.

Jerry: Yeah, no, I don't think it has any Mello-Roos. Doesn't have any Mello-Roos on it.

Pat: Are you guys in a financial situation where you can swing this without impacting the other areas of your life?

Jerry: Oh, yeah. Yeah, we can do that. We can do that.

Pat: That's good. So it's gonna...

Jerry: But I was just hoping that if there was an advantage to take advantage of it.

Pat: No, there certainly is. And by the way, it's county to county. Some counties will allow it, some won't. Some allow it in the...

Scott: The reciprocity.

Pat: The reciprocity from county to county.

Jerry: I thought they changed something.

Pat: It's been changed a couple of times, but...

Jerry: Oh, I see. Okay.

Pat: It's so localized. But thanks for the call.

Scott: In my recollection, it's when it's buying down and...

Pat: But I would check. I would check.

Jerry: Okay. Okay. Well, thanks. Enjoy your call.

Pat: You know, it's... Prop 13...

Scott: Can we explain to the...

Pat: The rest of the listeners.

Scott: It's a California thing. Yeah. This happened, I think, in 1978, something like that, '77, sometime in the '70s.

Pat: Howard Jarvis tax bill.

Scott: Okay. And lots of states, and you know, if you're living in a state where the property taxes can just change willy-nilly, and suddenly your assessment goes from $3,500 a year to $6,500 a year. And so what was happening in California, people were getting priced out. People lived in their homes forever, and suddenly they couldn't afford their property taxes. So, with Prop 13, what it did was froze property values and said, the maximum increase that can happen is at 1.2% or 1.25%...

Pat: Small.

Scott: ...or 1.3% a year. It's just barely over 1% a year. That's the maximum amount that your property taxes can go up.

Pat: Up, regardless of what the value of your home.

Scott: So, it's created an interesting situation in California today. And there's talk, there's been more talk... Every year there's a little more talk about repealing this or making some changes to it. Because here's what happens. Like, we just had this last call from Jerry. His property taxes are $3,500. The house is worth a million. He's got plenty of assets.

Pat: So, what this says...

Scott: Right. He's gonna go spend 2 million bucks, and he's got plenty of assets.

Pat: So, Scott, when this was frozen in place, he's owned that home for 27 years. When this was frozen in place, when he purchased the home, he paid somewhere around $300 and...

Scott: Or less than that because it's gone up 1% a year.

Pat: That's right. So, around $300,000 for the home.

Scott: I bet he paid less than that, but... Let's just, whatever. Let's go... Yeah. The challenge now is his next-door neighbor who just bought the same house, is paying 10 grand a year for the property taxes. And so the primary beneficiaries of Prop 13 are really older folks that have been in the same house for years and years.

Pat: That's right.

Scott: And the argument originally was, well, these seniors can't afford their property taxes. Which, there's two different things, like, if they can't afford their property tax, maybe there's another way to view it, but there's animosity now with younger families, like, why am I subsidizing? Because tax revenues come from somewhere. Why am I subsidizing, my next-door neighbor's got more assets than I do?

Pat: And every few years there's a charge at this. Someone swings at it, the politicians, like, how do we fix this?

Scott: Yeah, but no, no, no.

Pat: It's not gonna happen.

Scott: Well, in California, they were focused on other things instead of that, why would they wanna focus on that? I saw the other day that nuisance signed, well, how many bills? It's like 28 bills dealing with housing. And I thought, 28 bills? Like, the state is so regulated, like, to try to build anything... Now, there's 28 more rules you gotta abide by, just the administrative state, like, the tax on businesses can be phenomenal.

Pat: Anyway, I'm not going there with you.

Scott: Yeah, you are. In your head, you are.

Pat: That's right. You're completely aligned on that one.

Scott: I know we try not to get political, but I think most people listening agree that things...when you overregulate something, it chokes the industry.

Pat: It can, yes.

Scott: It can... Overregulation can. Don't be so politically correct. It can. All right.

Pat: Let's go to Texas. We're talking with Anne. Hi, Anne. You're with Allworth Money Matters.

Anne: Hello, and good afternoon.

Pat: Hi, Anne.

Anne: Hi. I feel like I'm a very small fish in a very large pond. I am almost 70. I've been on disability for a while. Then when I turned 65, I went on Social Security. And I've only saved a small amount of money, and I just wasn't financially able to invest or do much other than just survive.

Scott: And are you renting right now?

Anne: No, no. I haven't worked in 15 years.

Scott: No. You are renting?

Pat: Are you renting a place to live?

Anne: Oh, I'm renting. I lost my home. So, yeah. Well, no, no, no, no, no. I didn't lose my home, I sold my home. Because physically couldn't... I did lose it. I couldn't physically pay for it. I couldn't care for it. It was too big since I had my accident. So out with that, and now I'm in an RV where I pay very little a month, and it's nice and it's small so I can get around, and... It's just much smaller than a 2,700 square foot.

Pat: Is it an RV or is it a mobile home?

Anne: Yes, it's an RV, now that you can get up and move. I've saved, like I said, very small potatoes here, $3,500, maybe close to $4,000, if I pinch a little more the next couple of months. I don't know what to do with it. I mean, I had hoped that I would know, visions of grandeur, I'd have $10,000, $15,000 by now, but it just cost too much just to live [inaudible 00:38:37]. And my money is going... You know, it's just not stretching.

Scott: And all of your income is from Social Security?

Anne: Yes. Yes. Because I'm disabled. Now that I've had an accident and I can't work.

Pat: And have you applied for any low-income housing?

Anne: Are you talking about that Section 8?

Pat: Something along those lines, or senior low-income housing?

Anne: No, no, no. I've heard really bad things about it.

Scott: But how much is your rent now?

Pat: Well, she's in a RV, so she can move wherever the cheapest rent is.

Anne: That's the beauty of it. That's definitely the...

Pat: Well, the answer to your question is that money that should be invested, it should be invested in a...

Anne: Exactly.

Scott: High-yielding savings account.

Pat: High-yield savings account.

Scott: A separate account from your checking account.

Anne: Yes. Yes. But there was so many on the internet, I don't know any of them.

Pat: It doesn't matter. As long as they're FDIC-insured, which they will be, you just pick the highest rate. It doesn't matter.

Scott: They're all the same.

Pat: It could be Ditch Water Bank, and it doesn't matter.

Anne: Okay.

Scott: It could be the Keating and Company.

Pat: Charles Keating. It doesn't make any difference. It's FDIC insured. I don't know if he's allowed to have another...

Anne: [crosstalk 00:40:00]

Pat: But that's... Michael Milken Bank.

Scott: That's a blast from the past.

Pat: Oh, we could go all day with this one. Yeah.

Anne: I'm well aware. Everyone's well aware. That's why we love you.

Pat: Here's what... That isn't... If we were sitting having a cup of coffee together... First of all, mine would be iced tea.

Scott: I've never seen you drink a cup of coffee.

Pat: I wouldn't be focusing on this. I would be... I mean, Anne, I would be worried about you in 10 years.

Anne: I am.

Pat: I would encourage you to reach out to low-income housing. And let me tell you, you know, I'm not familiar with how it works in Texas, but I have had deep involvement in this sort of space. There is an organization that is throughout the United States, which is called Mercy Housing.

Anne: Yes. I've heard of Mercy Housing.

Pat: Mercy Housing. And right down the street from us, less than two miles behind the hospital, it's now called Dignity Hospital, but it used to be run by the Sisters of Mercy, a Catholic organization. There are these beautiful small homes that are only for low-income seniors. They're beautiful and they're normally income-based pricing. And so, I would encourage... If I was having breakfast with you, I would say, let's get into this system as quickly as we possibly can so that you can age gracefully in place. And if you find yourself... And my guess is your Social Security is probably less than a $1,000 a month, would that be a fair statement?

Anne: No, it's a little bit more, but not much.

Pat: Okay. That's exactly where I would go with this. And if it required you to reach out to social services on a state or local level, then do so. Do you have internet connection?

Anne: Mm-Hmm.

Pat: You need to start searching for someone that can shepherd you through this process. And oftentimes, by the way, you may be on a waiting list in order to get into one of these properties, a nice one.

Scott: It could be a long waitlist.

Pat: It could be years. And that's why you wanna start as soon as possible. And so the $3,500 is, you know, that's an easy question. But I'm worried about Anne when she's 80, or 85, or 90. And there are social programs out there that would absolutely improve your life significantly. So when you think about Section 8, there's all kinds of Section 8 housing out there, but you're a senior who has special needs.

Anne: I didn't know that Section 8 pertains to...

Scott: Well, not necessarily section... I don't even know if that's always called Section 8 anymore. But there's programs out there...

Anne: Out there, right?

Pat: Yes. And maybe they have Mercy Housing in your area. But I promise you...

Scott: But something similar.

Pat: Something similar...

Anne: [crosstalk 00:43:30] I get. It's all basically Catholic-driven, which is...

Pat: Well, Mercy used to be, but a lot of what they do now is administrate... And I'm speaking out of turn here, they get governmental money and then they administer the programs for state local governments and federal government. But the point being, in the conversation that we're having now is, you need to start this process immediately.

Anne: Okay. will do.

Pat: You need to begin the process. You're picture perfect for qualifying for this.

Pat: Low-income disabled. Oftentimes they may have restrictions about drug and alcohol use.

Anne: I don't [inaudible 00:44:17.444]

Pat: Okay. There you go.

Anne: No.

Pat: She's laughing.

Anne: I'm glad. Thank God I'm not like you guys. [inaudible 00:44:28.338]. I'm sorry."

Pat: Not like us? What, drug and alcohol abuse?

Anne: You guys [inaudible 00:44:33].

Pat: Is that the implication?

Anne: What's the weather like on your planet? I love it. I absolutely love it.

Pat: What's the weather like on your planet? Oh, you're awesome. All right. Well, take care.

Scott: All right, Anne.

Anne: Thank you. Take care both. Bye.

Scott: Bye-bye. I was about to say, life's really about relationships. But without a certain level of financial security, life can be really hard.

Pat: Oh, Scott, heartbreaking.

Scott: And it could be to the point where so much of your day is just trying to focus on survival that trying to even think out a couple of months, a couple of years, a couple of decades, it's impossible.

P: It's heartbreaking. It's heartbreaking, especially for a senior.

Scott: Yeah.

Pat: All right. Well, that's the show for today.

Scott: I don't feel like talking anymore so... Anyway. Yes. Thanks for being part of Allworth's Money Matters. We'll see you next week.

Man: This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or a state planning attorney to conduct your own due diligence.