Lets address a comment I’ve been getting a LOT lately: When the real estate market drops, you’re going to lose everything. Here’s what will happen – enjoy. Add me on Instagram: GPStephan
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So lets answer that question…what happens if the real estate market drops in price?
I don’t doubt whatsoever that the market WILL drop in price. IT HAS TO. The way the system is designed, we will naturally go through phases of high demand, where prices go up – people capitalize on that momentum – demand soon tapers off – people over leverage themselves and have to sell – and too much selling drops the market even further. Then, that inventory is slowly bought up at low prices – demand begins to come back, and prices begin to increase again.
What’s realistic to expect?
Arguably, 2008 was the worst drop in real estate prices since 1929…and real estate, on average during that time, dropped 30% in value. Some areas were obviously hit much less, and some areas much more…but lets take the average 30%, and say that’s how much the market is going to drop. So what’s going to happen, and what would happen to me?
Well…the boring answer is, relatively nothing happens. This mainly has to do with the style of investing that I practice and talk about on this channel, known as the BRRRR method. This is all it is:
Save up about 20-25% as a down payment
Buy a property under market value (this is like getting it at a discount)
Renovate it – which further increases the market value
Rent it out – the rent will cover all expenses + profit
Refinance and get your money back – if applicable
Repeat as necessary
This relies strictly on cashflow, forced appreciation, and patience – and that’s what so many people fail to realize. The market value of the property is an arbitrary number that makes no difference to me after I buy it, for any other reason OTHER than to refinance and get my money out, if it makes sense at the time. If it doesn’t make sense, or values aren’t up to expectations, I don’t refinance – and I keep my loan balance the same.
So given that, what would happen in a hypothetical scenario, if 2008 happens again, and real estate prices dropped 30%?
Even a 50% drop in prices would still leave me equity in the deal without being underwater. I bought those properties with the intention of never selling. Instead, I ONLY care about one thing: CASH FLOW. My intention all along was to buy a property, rent it out, and in 30 years from now – the mortgages will be paid off in full, and I’ll just retire off a surplus of rental income.
As you can see, this chart shows a 30% decline in prices from 2008 to 2012.
Compare that to this chart showing the rental prices during the same time period. Rental prices were nearly unchanged the entire time, and began going up as home prices were falling.
https://fred.stlouisfed.org/series/CSUSHPINSA
https://fred.stlouisfed.org/series/CUSR0000SAS2RS
Rental properties are almost immune to outside market factors for one simple reason: we all need a place to live.
https://www.curbed.com/2019/1/10/18139601/recession-impact-housing-market-interest-rates
However, we DO NOT have the same driving forces TODAY that caused the drop in 2008. Banks are NOT giving out subprime mortgages, they are NOT giving out 0% down loans, they are not allowing risky borrowers to buy homes, they are not…NOT smashing the like button…and all of which SPECIFICALLY caused real estate to get hit very, very hard.
This is the reason I’ve chosen the method of buy-and-hold rental properties, because data and my own personal experience has shown that they weather recessions very well, they’re stable, they’re consistent, you can build up positive equity very quickly, and as long as you have the income to pay for the loan during a vacancy or repair, your chances of success are MUCH HIGHER than if you are just out there buying whatever and trying to sell it.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com
Hey all! Just so you’re aware, here is my second channel if you want to subscribe – going to be posting more content here, as well – it’ll be slightly different than the main channel, but still on the topic of finance/money/etc. Just a lot more casual. Hope you enjoy it!
@jeremy martinez id hope so if u can buy a mansion for the same price as a two bedroom.. lol
The Graham Stephan Show subbed 🌟
Can we get some videos on UK related schemes. For example the UK doesn’t have a ROTH IRA. We have a cash ISA which is a fraction of the percent.
The Graham Stephan Show Thanks, I didn’t know about this and now you have a new subscriber on your second channel!
@Steven Wen it is bad to do an ARM because interest rates are at all time lows so there is a higher chance that the interest rates go up versus going down or staying the same
Say Big daddy if you read this in you next video
Hahah nah
hit the dislike button because its so annoying you asking for likes
Let’s test… did you read this comment Graham?
Hey man first of all I wanna say keep doing what your doing. You know what your doing and people like me are gonna learn something that’ll change my and their life. People need to understand that real estate is a higher risk than bonds and low annuals returns and like any other investment you need to be educated about what your buying. I’ve watched a lot of your videos and I can say your my roll model. I’m 18 and am just beginning in life and can’t put my finger on what I wanna do. I don’t wanna put myself where I’m stuck in a degree and a job I’ll get board of. I’m listening hard about the IRA. $1 turning into $21 before I’m 59 is a lot better than $1 turning into $16 and I’m listening. Keep making these videos people are benefiting. I don’t do comments on YouTube but if you really read all of these I wanna give credit when credit is due. Good job man!
So banks are lending with zero money down now and with no income verification as well.
In truth if you really have 4 years of cash 500,000+ dollars and something actually causes rents to decrease in your market, then you have a good shot at surviving. But that would be the zombie apocalypse and your renters would eat you lol.
All investments are risks including real estate and no matter how prepared you are, investments can lose.
Bet everyone feels dumb
I’m not an investor, (yet) im only on baby step 1- BUT i really enjoy your videos.You make alot of sense and explain things well. My favourite part that always makes me smile is how you sneak in your smash the likes button in each video, its really clever. 😊
1/6? Income streams
YouTube, stocks/ETFs , tenants, real estate agent.
Do you count both YouTube channels?
I must have missed some videos seeing as I can’t correctly Identify the last two sources.
Hey Graham! Love your content and methodologies you use to breakdown any investment opportunity.
I have a question for you I was hoping to get your take…
You mention cash flow is more important than value of the property in the BRRR strategy which I absolutely agree with. However, how do you factor in return on investment?
For example, just reviewing your numbers here:
Total current value: $4,100,000
Mortgage: $1,750,000
Current equity: $2,350,000
You’re currently making $7,500/mo return from that equity which comes out to about 3.8% return. Seems like a rather low return on investment with current equity you have.
I understand if you sold everything now you would lose a lot of that equity to taxes and fees unless you did a 1031 tax exchange. It just seems to me, you’d be better off with different properties or a different investment vehicle at this point.
Just curious about your take. Feel free to comment or send over email 🙂
Again huge fan! Look forward to each video you post.
Hi! I’m saying this because you said you read every comment.
Maybe you have posted this already as I’m still a newbie to your channel(s) and love the way you explain things. I was a financial dummy back in the housing bubble burst but I would love a video where you go into detail and explain how it happened. I know sub prime loans were a factor, but that’s all Greek to me!
Thanks so much!
The key difference I see between Graham and Dave Ramsey is the non-acceleration clause. Dave has talked about how he became a millionaire in his 20s with real estate, but then the loans got called and he didn’t have the liquidity to cover the debt. That’s a HUGE factor in why Graham has been successful that most people seem the just glance over and scream DEBT BAD. Add in that Graham has 4 FREAKING YEARS of liquidity in reserve to cover all of his business and personal expenses, and it becomes abundantly clear that Graham is doing things right. Risk of ruin here is so incredibly low it’s not worth considering.
Hi Graham, in our country the mortgage part you can get at a fixed rate is a maximum third of the loan. The banks aren’t stupid, they want to protect themselves from inflation.
But Graham, what if there’s a Communist revolution?
If I may ask how many property’s do you own
6!
Your videos are always the best thanks lots of love ❤️
Hey Graham
Why don’t you buy land and build duplex or triplex with your capital?
Thank you SO much for explaining. That strategy is genius!
Great video
@Graham Stephan anytime! You should react to this video: https://youtu.be/rMk7CKwJ8OM
You make more money when the market drops because amateurs put their properties on sale…..
hey i like your videos if you read all you comments can u reply to this one however u want
How do you factor in taxes?
Love the airplane wing desk. Thanks for the great info. I am having some trouble finding a bank that will go 30 years. They only want to go 20 on a commercial loan. ( Rental Property ) have you had this issue?
Not to mention with YouTube and everything else you’re doing STUPID well so even if it fails you’ve got so much more. 👏👏
And realistically, if all that fails, too, I imagine you won’t be the only one failing, too hahaha
You’ve trained me well. Before I clicked another video, I scrolled up to make sure I had liked this one. I’m undecided as to whether I should feel bothered by this.
I can tell you’re quite the salesman lol. You waste no time telling me how I’ll benefit from subscribing.
So in theory you’re saying that the way you are investing in real estate is the more conservative way to do it?
hello
I noticed unreleased music I noticed.
Lol, your critics have no idea what they’re talking about. You and I will leverage debt for positive cash flow and they can be dependent on a corporate job (taking advantage and keeping them thinking debt is bad) plus the markets. The same markets which are propped up by fake money from QE. Hopefully 200 trillion in derivatives worldwide crashing will leave them something left. I hope they have gold or something besides cash at that point. Although if derivatives crash completely real estate won’t matter either at that point.
How do I build a strong financial foundation during a divorce in a community-property state?
All the haters are obviously not educated on the subject of the way you leverage your real estate. Keep the vids coming I’m learning a ton from you!
@grahamstephen what are your thoughts on sea level rising and what would you advise people do? (How, when)
It will rise over a long period of time (like 50 years), not all at once like you see some people who fear monger. So you’ll have a lot of time to prepare yourself.
How can you be a “slave to the lender” if you aren’t even “working” for the money. Its passive income.
Hey Graham!! Love your videos! I’m trying to make some income of of YouTube videos, would you give me a shout out for subscribers much appreciated!!
Before I start watching this video, I’m willing to bet that this is a clickbait title.
not really
@Sensei Adam – Brawl Stars it was, but it was also a solid video. So, meh.
Keep making these videos. I’m sure jealousy is the primary leading cause of most of the negative comments your receiving
Fav channel! Keep it coming!
Sorry if this sounds a bit dumb, but what do you mean with “+2700 equity paydown”? I googled it but don’t really understand..
It means he’s paid down the principal of the loan down by that amount in his mortgage payment. Basically it’s the part of the payment that goes towards the home itself and not just interest on the loan
Are you sure you read the comments?
Since you read all comments, ignore those haters. You’re doing a great job and doing what those haters fear to do. I love your educational videos.
I wonder all the haters that commented first, I wonder if they still have the same view now after ALL of this is explained mmm
I love how everyone is throwing out negative comments to someone who is obviously successful in what hes doing.. I wonder how successful those people are in life?😂
Bet you didnt read this comment
You said you read every comment…. good videos, keep it up. You’re one of the few channels I go out of my way to gently tap that like button everytime.
Great content. This guys seems really genuine and I’ve got a lot of value out of his videos! Keep the content coming
Graham will always be fine because he is very smart and lives beneath his means. Hard work pays off.
Talk about your other sources of income
I want to find fire in your videos, but i can’t find for that deal https://youtu.be/uJ4dx4SeqOg?t=634 so is legal ?
I actually destroyed the dislike button since I’m 1:24 into the video and you failed to let me have a chance to watch it to even have a reason to “Like” the video, why not just give us a chance to watch it and then we’ll like your video
You read all the comments? Can you tell me where you got that cool dinosaur skull on your desk?
If you read this, like it then. If not, you’re a liar 🙂
OK now I believe that you do read them all and you have no life
Wife and I just started following you. Thank you for sharing valuable knowledge, creating these videos along with the transcription.
My question is can you describe your experience in taking your first known risk in real estate investing after studying and learning all you could? We are looking to make our first deal and it’s exciting!
Check my video “how I bought my first rental property” – answers it in detail!
Asshole dickheads make comments about nothing they know. Graham reads all the asshole dickhead comments and decides to make a video. Shows people how their comments are just stupid and not necessary on his channel. Spending all that time talking about graham (esp on reddit) shows how fucking small minded you really are. oh and because your so small minded and a stupid asshole commentor.. Grant just made money off your stupid asshole comments by making a video. So Thanks for being you and letting us laugh at you all together while graham makes money. (There Graham i fixed what you really want to say).
How I determine to “smash the like button” if its predictable I wont like it. If it catches me off guard I’ll like it lol I appreciate all the videos though.
Great Videos. But so many ads!!!
Sorry for this question. I’m foreigner. What is the meaning of “equity pay down”?
Another quality rebuttal.
I am doing investment like you since 2009 and waiting for the market crash 🙂 I put in $60k downpayment on each house and made over $600k for each . My only regret was that I didnt buy more back then. It is fun watching you talk. We have a broker with guarantee cheapest fee and lowest loan rate. Check wonderate.com for live rates and it searches over 50 lenders. Hopefully we can work together one day.
This actually is really helpful. Thanks for the video. You explained it like I wouldn’t be able to explain to my husband why becoming landlords will be the best way to retire.
Hey Graham, interesting video. Where did you get this data? You said, ” My experience and the data.” Can I see this data? I am curious.
Some of it is in the description
Do you really read every single comment?
Graham, I’ve been watching your videos since late 2016. They inspired me to get into real estate investing. Today, I finally am in position to buy my first property. My budget is 200-215k. I live in the Portland, Maine area. One question for you: Duplex or Single-Family (assuming I can get the same amount of equity in each)?
Until next time
If the economy collapses Graham’s going to have to cut down on his spending.. oh wait.
i noticed the comment unreleased music
Supply and Demand: There will always be a demand for rental property. Great point. My father built his wealth with property.
Appreciate the videos. You are a great speaker.
Never thought of it like trading lol until now.
I’m to the point where I don’t even get through the intro before I “destroy the like button”. I’m a fan man keep doing what you do you are 99% of my likes videos and I even have my wife watching your videos now. From the advise and methods on this channel we are out of debt, killing the credit card churning game, and are purchasing our first investment property. Thanks a ton for what you do man!
We love you Graham and your 20 cents iced coffee & avocado toast!
Near the end, I felt Graham talking to the others in the back 👀
Very clear expaination. My son and I love your videos!
PS is your cat named after Dave Ramsey???
Yup
Rent never goes DOWN.
If it drops you loose everything for a few years maximum 0:35
Wait why would it never recover? 2:30 If the economy recovered from the great depression it can recover from a recession
Well ya when a recession hits people still need a place to live 8:50
Buy rehab rent refinance BRRR I use this strategy n didn’t even know it was a strategy
Graham you’re like my twin brother from another continent I have never meet until now! 😀👌
Could you perhaps talk about investing with a family
the day after the alien came lol
Why dont you pay of your mortgages now and pocket that $8,200 a month that you are spending on mortgages? I know you believe you will get a better ROI elsewhere but wouldn’t it be nice to have the peace if mind to not have any debt and still be pulling in really good money from that cash flow?
I have $1,800,000 in dept but don’t worry it is good dept
Writing this for no reason so that Graham will read it😁
Please please do a video on the Irish housing crisis and how it’s affecting students and young people
Its crazy how people are commenting negatively about someone and something they dont know while hes actively tryna teach them about this stuff smh
You really read this comment? If so, that’s a nice table top.
do you really read them tho?
I really appreciate your time here sharing your knowledge
YES, when people realise that listening to useless YT videos will not make them rich, but only the person making them.
if anybody is scared of a housing crisis you can buy cheap puts on REITs or any instrument that mirrors performance of housing as insurance. so if your houses drop 25% but you have like 10-20k in put options youll keep your equity sell at the lows then ride back up
8:32 what is a equity paydown?
Done, I liked, thank you for helping me keep a bullish mentality, even after having 3 DUIS, and reckless driving accounts, your entertainment has saved my life, I could have been anyone else even ( the taker CarDon{he is a great guy I’m just salt my asset class is not there XD}) but you are the man who helped me find a way to keep my MORALE
I’m sure you couldn’t have foreseen Corona Virus. That makes this video much more commendable. Do you suggest buying now ?
I asked in another video If you ever planned to be debt-free. Now that I have found this video, my question was answered. Sounds like 30 year fixed is probably going to be 30 years. 👍
Great content! Love the channel. Me & nearly 2m others.
For the algorithm!!!!!!!!!
Hey, love the channel. I think most people who watch your videos would love to know about ALL parts and jobs involved in real estate transactions.
Maybe walk thru a real estate purchase and how to obtain the seed step by step by DIY/cheapest ways to obtain real estate, thank you and love the videos!
Any body else notice
you read all the comments bet lol i consider you my mentor even thought we’ve not met and based on alot of research. testimony from other millionaires and even some fake financial gurus ive come up with a step by step plan to becoming wealthy or a millionaire. its going to take my entire life but im sure 60 year old me will be very grateful. I take alot of what you say and internalize it. Im insanely behind but ill catch up sooner than later. love your content. smashing the like button