Six Things You Won’t Learn About Real Estate From HGTV

Real DOG on board HGTV Float

Using HGTV for your real estate knowledge could land you here.

“No real estate is permanently valuable but the grave”
–Mark Twain

“If you want to know exactly where the property line is, just watch the neighbor cut the grass.”
–Unknown

Today, I was in the gym. The person before me had left the television on, and it was on HGTV. Not exactly ESPN – the usual gym fare – but as long as it wasn’t Food Network, that was fine with me, particularly since the show was “House Hunters International,” and I have a fascination with expatriates. As an aside, who really WANTS to watch the Food Network while working out? Does seeing someone cooking a giant chocolate cake really make you run faster or lift harder? It just makes me nauseous.

Anyway, if you’ve not seen the show, the premise behind House Hunters International is that U.S. citizens go somewhere else in the world and go looking for property. The agent shows them three pieces of property and then the buyers make a decision. Granted I’ve only seen three episodes in my life, so I’m extrapolating, but so far, the plot hasn’t changed.


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In this episode, the woman was trying to buy an apartment in Paris. Her budget was $1,000,000. The real estate agent, helpfully, showed her three properties which each had a price tag over $1,000,000. Two of them needed work and renovation as well.

So much for budgets.

The woman thought about it and finally picked a place. Six months later, she was happy as a clam. They’re always happy as a clam six months later. I suspect that HGTV cans the shows where the post-purchase interview is reminiscent of Tom Hanks and Shelley Long in The Money Pit.

Tom Hanks

Before he made the disastrous house purchase.

The next show which came on was “Income Properties.” All I caught was the intro segment. The person whom they were featuring had a rental home. His mortgage was up for renewal. Apparently, his rent was barely, or worse, not even making the mortgage payment for him. He wanted to renovate the basement to be able to rent it out so that he could go buy another rental property. Fortunately, at this point, I was done with my workout and left the gym, so I didn’t get to see how the episode ended.

I can imagine that there are people in the United States who watch HGTV and think “I can do that!” Two years later, they’re up to their eyeballs in debt and underwater in an investment property they couldn’t afford with a renovation that cost 2.5 times what the contractor had originally budgeted. That doesn’t make for good TV, though.

What lessons shouldn’t you take away from HGTV?

  • Only look at three properties. I don’t care if HGTV is flying me to the end of the earth for the show. There’s no way I’m only going to look at three properties and then make a decision on which one of the three I’m going to buy. While I don’t want to get caught up in the tyranny of choice, I also am not going to be so naïve as to think that three properties are going to be enough.
  • Don’t negotiate. I’ve seen two episodes where buyers paid full price for fixer-uppers. My definition of a bubble is when there’s much more demand than supply and people will pay anything for any type of supply. At that point, you want to either be a seller or sit out. You don’t want to be a buyer. There are some instances where paying full price is acceptable, namely, the listed price is a fair price or better. However, these people didn’t even try to negotiate.
  • You can flip that house too! Buy a house, slap on a coat of fresh paint, jack up the price, and sell. I’ve nearly lost my shirt on renovations because I didn’t know what I was doing and my contractor had no sense of budgeting or management. The people on TV have crews who are experienced, and they’ve done rehabs before. They can walk through a house and estimate repair costs and time and usually be within 10% of their original estimate. You can get to that level of capability, but it takes time and work, and either a great relationship with a contractor or a LOT of elbow grease.
  • You deserve to have a house full of nice furniture. Actually, you don’t. You might earn and be able to pay for a house full of nice furniture, but you don’t deserve it. Nice furniture and interior decoration is not an inalienable right.
  • The list price on a home is the only price you pay. Don’t forget to budget for closing costs, loan origination fees, and the money you’ll spend getting the place to look the way you want it. It’s fine to spend all of this; just make sure you can afford it and that you’ve accounted for it.
  • Repainting your bedroom will be the thing which makes you really happy. Finding meaning in life and focusing your life and your energies on the things which are REALLY important to you will be what brings you happiness. A nice coat of paint won’t hurt, but it won’t bring you the peace and happiness you seek.

Real estate can be a great investment if done correctly. Your house can be a place where you enjoy to stay and entertain friends. However, real estate is also an enormous investment, and entering lightly into it, either as a home or as an investment, can dig you into a real money pit.

Castle or money pit? What do you think? What wisdom have you gleaned from HGTV? Tell us your thoughts in the comments below!

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About Jason Hull

Jason Hull is a Fort Worth financial advisor. Before becoming a Fort Worth financial planner, Jason co-founded, built, and sold a software development company. He is a CFP candidate, has a MBA from the University of Virginia, and a BS from the United States Military Academy at West Point. He is the owner of Fort Worth financial advisor Hull Financial Planning.

Comments

  1. Great article! These HGTV shows make it seem like a piece of cake. All the points you made were spot on like not negotiating, seriously, who doesn’t negotiate when dealing with property.

  2. The so-called “math” on the show “Income Property” drives me CRAZY! It’s entirely misleading. Here’s how they do their calculations:

    First, they tell you what the mortgage payment is. (Whether or not that payment includes escrow for taxes and insurance is unclear). Then — after fixing up the unit — they report the cost of the repair work, and then flash a nice shiny rental figure that highlights how the rent is now higher than the mortgage. Oh, isn’t that nice!

    Except, of course, they’re assuming 100 percent occupancy (0 percent vacancy). And zero future repair/maintenance costs. And zero management costs. And zero CPA/bookkeeping costs. The math looks so much prettier when you “forget” to calculate those numbers …

    I love watching the show; don’t get me wrong. I watch it at the gym, too. But the numbers they showcase are horribly misleading, and I sincerely hope that no one watches that show, sees the numbers, and thinks, “I can do that!” Next thing you know, they’re over-paying for a rental which they’ll later lose in a short sale (to a buyer like me) ….

    • Their pain is our gain. I use a quick and dirty calculation – I assume half of the rent goes to expenses and, were I to use a mortgage, the remaining half could be used to service the mortgage and account for additional free cash flow. The show does give some good ideas for how to fix a property without breaking the bank (one that I could have used several years ago), but people forget that this is for entertainment purposes!

      I know I’ve said this before, but I am such a fanboy of your approach! I love that your outlook on life is to grow the pie. Earn more income, afford more fun things like travel!

  3. Great article Jason. Look, no one should pay list price and that goes for houses and a lot of other things. The seller does not even expect to get full price when he list it; why should a buyer think that.
    Second, looking at only three homes is just ludicrous. My wife and I literally looked at over 25 homes probably more when we were buying our second home. We were young and stupid when we bought our first home back in 1979 and probably did only look at 3 or 4 houses.
    Finally, it would seem to make sense to have a buyer broker represent your interests if you are inexperienced but even then you need to do a lot of homework and due diligence and be clear as to your goals and what you need.

    • Thanks for coming by and commenting, Steven!

      When my wife and I bought the house which we presently live in, we gave our Realtor a list of 16 or 17 houses that we wanted to see. We flew in on a Friday night, met her Saturday morning, got carted around all day, and then put in an offer on the house we currently live in. Some of the easiest money she probably ever made (although she still almost screwed it up due to her crass incompetence). I’ve only had a dual rep situation where I was the seller and the buyer knew the Realtor personally and trusted her to do the right thing. I don’t like the dual agency situation if I can possibly avoid it.