Rich Habits Podcast: Q&A Episode Summary
Episode Title: Q&A: Assuming a 2.5% Mortgage, Stock Lending, & Buying vs Leasing
Release Date: March 27, 2025
Hosts: Austin Hankwitz and Robert Croak

Welcome to the Rich Habits Podcast, where hosts Austin Hankwitz and Robert Croak delve into practical financial strategies to help listeners take control of their money through effective habits. In this engaging Q&A episode, released on March 27, 2025, Austin and Robert address seven insightful questions from their audience, providing expert advice on topics ranging from assumable mortgages to investment strategies. Below is a detailed summary capturing the key discussions, insights, and conclusions from this episode.

1. Assuming a 2.5% Mortgage and Buying vs. Leasing

Question from Michael G.

Michael, an active-duty military member, inquires about the feasibility of assuming an assumable mortgage with a 2.5% interest rate for a $1.25 million property in San Diego. He faces a dilemma in cashing out the seller for the difference and managing a monthly payment that exceeds his current income.

Discussion and Analysis

• Robert Croak explains the concept of assumable mortgages, highlighting that while they can be advantageous under certain conditions, Michael's specific situation presents significant challenges:

  • "The numbers don't really seem to be working out here. It seems like Michael would be paying 7, 8, $9,000 a month in his monthly mortgage cost, making only $10,000, which is a recipe for disaster." (06:14)

• Austin Hankwitz emphasizes the importance of not becoming "house poor" by ensuring that housing expenses remain within a manageable percentage of income:

  • "A general rule, you want your monthly housing expense to be anywhere between 25 and 35, maybe 38% of your take-home pay. If it's 50% or more, you really are in a bad situation." (10:39)

• Conclusion: Michael is advised against proceeding with the assumable mortgage due to the high debt-to-income ratio. Instead, they suggest exploring more affordable housing options or increasing income to improve financial stability.

2. Investment Strategy During a Career Transition

Question from Justin S.

Justin, 47, with substantial investments across emergency funds, brokerage accounts, Roth IRA, and 401(k), plans to leave his corporate job for a more fulfilling yet potentially lower-paying career. He expresses concern over having too much in his tax-deferred accounts and seeks advice on managing his investments and savings during this transition.

Discussion and Analysis

• Austin Hankwitz commends Justin's disciplined saving and investing but advises maintaining investment contributions to ensure continued growth:

  • "Do not stop investing in your Roth IRA. Every dollar that you contribute and invest in your Roth IRA will turn into 10, 20, 30, $40 in retirement over the next 30, 35 years." (35:36)

• Robert Croak suggests bolstering the brokerage account to ensure liquid funds are available during the career transition:

  • "I would like to see if a few years is three or four or five years, see more go into the bridge account so that there are funds that are accessible without penalty." (16:40)

• Conclusion: The hosts recommend continuing investment contributions while allocating additional funds to a more accessible brokerage account. This approach balances future growth with financial flexibility during career changes.

3. Stock Lending: Benefits and Considerations

Question from MG

MG asks about the advantages and potential drawbacks of stock lending, particularly regarding tax implications and long-term investment performance.

Discussion and Analysis

• Robert Croak shares his personal stance, indicating he does not engage in stock lending but acknowledges it as a low-risk opportunity for extra income:

  • "I don't do stock lending. I have never done lending on my stocks." (19:17)

• Austin Hankwitz explains the mechanics of stock lending and highlights tax considerations:

  • "The fee that you earn from stock lending is actually taxed as ordinary income because that fee is compensation for the use of your property." (20:03)

• Both hosts caution against overcomplicating investment strategies, emphasizing consistent long-term investing over seeking additional income through stock lending.

• Conclusion: While stock lending can provide supplemental income, it introduces ordinary income tax implications and may divert focus from more straightforward investment strategies like consistent contributions to index funds and ETFs.

4. Choosing Between Prestigious Universities and Managing Debt

Question from Ina V.

Ina seeks advice on whether her son should attend Indiana University's Kelley School of Business, which would require significant debt, versus opting for more affordable options like FSU or Rutgers with minimal loans.

Discussion and Analysis

• Austin Hankwitz advises against incurring substantial debt for a degree from Indiana University, questioning the premium of the institution's prestige:

  • "If they have to go into significant debt, which is your words, take on significant debt, please do not put them in that situation." (26:06)

• Robert Croak expands on the diminishing value of prestigious degrees in a rapidly evolving job market influenced by AI and technology:

  • "We're moving to where we are in society now, AI, humanoid, robotics, everything is changing so drastically and so quickly... the degree is going to be meaningful at all." (26:06)

• Conclusion: The hosts recommend opting for more affordable universities to avoid excessive debt, as the long-term return on investment from expensive degrees may not justify the financial burden, especially given the uncertain future landscape of higher education and employment.

5. Fannie Mae's 3.5% Down Payment vs. Traditional Mortgages

Question from AG

AG is interested in buying a multi-family property and wants to understand the benefits of using Fannie Mae's 3.5% down payment option compared to a traditional mortgage, including potential differences in interest rates and other advantages.

Discussion and Analysis

• Robert Croak highlights the flexibility of Fannie Mae's mortgage program, which allows for lower down payments and the use of projected rental income to qualify for larger loans:

  • "You can borrow up to $1.4 million and do up to four doors. They allow you to use the proposed rental income to help you qualify for the mortgage." (30:23)

• Austin Hankwitz supports Robert's explanation and elaborates on the benefits of lower down payments, particularly for beginners in real estate investment:

  • "Having this reduced down payment I think is a godsend because... it's not what you make, it's what you keep." (31:54)

• Conclusion: Fannie Mae's 3.5% down payment option is advantageous for investors seeking to maximize property acquisition with minimal upfront costs, leveraging rental income to enhance mortgage qualification. This approach is particularly beneficial for those new to real estate investment.

6. Buying vs. Leasing a Car Amid Savings Goals

Question from Sophie J.

Sophie, 27 and in her final year of grad school, plans to buy a car post-graduation. With significant savings and a monthly saving potential of $2,000, she seeks advice on whether to prioritize her car purchase or continue contributing to her Roth IRA.

Discussion and Analysis

• Austin Hankwitz strongly advises continuing Roth IRA contributions while saving for the car, emphasizing the long-term benefits of sustained investing:

  • "Do not stop investing in your Roth IRA... every dollar will turn into 10, 20, 30, $40 in retirement over the next 30, 35 years." (35:36)

• Robert Croak offers an alternative perspective by suggesting leasing as a more financially sound option compared to buying:

  • "I would find an affordable lease... it's a better move because you're not going to have to pay for upkeep on the car." (37:10)

• Austin counters Robert's suggestion, advocating for purchasing a used car to avoid high-interest debt and eliminate monthly payments:

  • "I think it's a great idea to pay cash... by buying this car in cash, you're getting rid of a $700 a month payment and have a vehicle for the long term." (38:06)

• Conclusion: While Robert recommends leasing to maintain investment momentum, Austin emphasizes the financial prudence of purchasing a used car to avoid ongoing payments and high interest. The hosts underline the importance of balancing immediate financial goals with long-term investment strategies.

7. Insurance for LLC-Owned Rental Properties

Question from MV

MV seeks guidance on essential insurance policies for rental properties owned under an LLC, including protection for both the property and the LLC, and whether an umbrella insurance policy is advisable.

Discussion and Analysis

• Robert Croak outlines the critical insurance policies necessary for LLC-owned rental properties:

  • "Number one, you're going to need a commercial property insurance policy... Number two is general liability... thirdly, an umbrella policy." (39:13)

• Austin Hankwitz concurs, adding that insurance requirements can be location-specific and emphasizing the importance of understanding policy terms to ensure adequate coverage:

  • "Location-specific is really, really important. Make sure you have the right coverage for that property." (41:43)

• Conclusion: For LLC-owned rental properties, securing commercial property insurance, general liability coverage, and an umbrella policy is essential. Additionally, property owners must consider location-specific risks and ensure comprehensive coverage to protect both the property and the LLC from potential liabilities.

Key Takeaways from This Episode

• Evaluate Debt Carefully: Before assuming high-interest mortgages or taking on significant debt, assess the impact on your overall financial health.
• Continue Investing: Maintaining consistent investment contributions, especially in retirement accounts like Roth IRAs, is crucial for long-term wealth accumulation.
• Understand Investment Strategies: Strategies like stock lending offer benefits but come with considerations such as tax implications and should not overshadow fundamental investment practices.
• Choose Educational Investments Wisely: Prioritize affordable education paths to avoid excessive debt, recognizing that prestigious degrees may not always offer proportional financial returns.
• Leverage Financing Options: Utilizing programs like Fannie Mae’s low down payment mortgages can facilitate real estate investments without overextending financially.
• Balance Immediate Goals with Future Security: When making purchasing decisions, such as buying a car, weigh the benefits of immediate ownership against long-term financial growth.
• Ensure Comprehensive Insurance Coverage: Proper insurance for rental properties, especially those owned through LLCs, is vital for mitigating risks and protecting assets.

Notable Quotes:

• "Personal finance is personal." — Austin Hankwitz at 01:39
• "It's not what you make, it's what you keep." — Austin Hankwitz at 31:54
• "The numbers aren't mathing and we need to fix that." — Robert Croak at 12:27
• "Having the right insurance in place, location specific, is really, really important." — Austin Hankwitz at 41:43

This episode of the Rich Habits Podcast provides valuable insights into managing mortgages, optimizing investment strategies, making informed educational and purchasing decisions, and safeguarding rental property investments. Austin and Robert offer pragmatic advice tailored to individual circumstances, reinforcing the podcast's mission to empower listeners with the knowledge to achieve financial control and success.