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
The YouTube Creator Academy:
Learn EXACTLY how to get your first 1000 subscribers on YouTube, rank videos on the front page of searches, grow your following, and turn that into another income source: https://bit.ly/2STxofv $100 OFF WITH CODE 100OFF
Merch: http://www.GrahamStephanStore.com/
My ENTIRE Camera and Recording Equipment:
https://www.amazon.com/shop/grahamstephan?listId=2TNWZ7RP1P1EB
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
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
Any body else notice
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!
For the algorithm!!!!!!!!!
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.
I'm sure you couldn't have foreseen Corona Virus. That makes this video much more commendable. Do you suggest buying now ?
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
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
YES, when people realise that listening to useless YT videos will not make them rich, but only the person making them.
I really appreciate your time here sharing your knowledge
do you really read them tho?
You really read this comment? If so, that's a nice table top.
Its crazy how people are commenting negatively about someone and something they dont know while hes actively tryna teach them about this stuff smh
Please please do a video on the Irish housing crisis and how it's affecting students and young people
Writing this for no reason so that Graham will read it😁
I have $1,800,000 in dept but don't worry it is good dept
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?
the day after the alien came lol
Could you perhaps talk about investing with a family
Graham you're like my twin brother from another continent I have never meet until now! 😀👌
Buy rehab rent refinance BRRR I use this strategy n didn’t even know it was a strategy
Rent never goes DOWN.
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!