Why you SHOULDN'T invest in Real Estate...

What's up you guys? It's Graham here.

So, I realized that probably 80% of the videos on this channel are all about the benefits and my excitement of owning real estate. Now for me, this has been something that I've been doing since I was 18 years old. So, for the past ten years, real estate has consumed 24/7, day-in day-out. It was my excitement about real estate in the first place that even caused me to create this channel in the first place, to share my excitement and enthusiasm about making money, finances, and obviously real estate.

But at the same time, I think it's really important that we discuss the actual implications of investing in real estate and what it's really like. So that, if this is something that you want to do, you know what you're getting into, you know what to expect, and you've been warned to smash that like button if you enjoy this video.

So, let's start here. What are the biggest reasons? I feel like a lot of people want to get into real estate is because they feel like there's a lot of money to be made with relatively minimal effort. Oftentimes, the best people in the industry make it look really, really easy: find an undervalued property, renovate it, rent it out or flip it, make a massive profit, and then move on to the next one—done.

Where it's also very easy to see people who have been investing in real estate for decades, and all you see is their end result, with them doing whatever they want with six figures annually in rents rolling in. However, real estate investing should not be for the person who isn't prepared to do a lot of work up front. Part of the reason I did well investing in real estate was because I spent four years full-time working as a real estate agent before even buying my first property.

This gave me four years full-time of great experience: watching what my clients were doing, learning cash flow, learning what to buy, which areas people were buying, and having all the inside scoop of where I thought the market was heading and what I could realistically get for a property and what I can realistically get for rent.

Now, while it's really easy to look back at all of that and realize today, all of that was like ten thousand times worth it, it's a lot of work. In the beginning, that was eight months straight of searching for properties, writing offers, waiting to hear back from banks. It was me constantly worried about, am I gonna get the right contractor? Am I gonna go over-budget? What if no one wants to rent it? What if I made a huge mistake? What if I'm just gonna start doubting myself all of a sudden and realize that I—wait a second—what am I getting myself into? This is a lot of money! What am I doing?

And I promise you this one: if you invest in real estate, you're gonna end up having the same thoughts. Every single property, you're gonna have a devil on one side and an angel on the other side. The angel is going to tell you this is a great deal; you're gonna be very happy with it. But the devil, sitting there, is saying wait a second, maybe you're overpaying. Maybe you can find something better next week for cheaper. Maybe you're making a big mistake by doing this.

And if you end up listening to that little devil, what ends up happening a few weeks later is that you look back and you think, wait a second, I should have actually bought that property; that was the best deal that I have ever seen! What if a deal never comes up that good ever again? I made a huge mistake by not doing that deal.

However, when you start putting in the work up front, these thoughts—the devil and the angel—are minimized, and what their impact is to you because you start feeling more confident in your decision. Because you know the fundamentals and cash flow of the property. If you're not willing to put in a lot of work up front, then real estate investing, unfortunately, is not for you.

What most people end up seeing happen is that they invest a substantial amount of time and money finding, renovating, and renting out the best property they possibly can, and then they realize that it was less exciting than what they thought it was gonna be. Real estate is often something where you can put in a lot of work up front, but you don't really see the payoff immediately. The payoff usually happens years or even decades later.

It's just kind of like planting the seed, where it takes a while for that seed to end up growing into a tree that provides you shade—except by shade I mean a lot of money.

Now the second is that you should not invest in real estate if you don't fully understand how it works. Now, this applies to anything by the way, not only real estate. This applies to stocks, cryptocurrency, businesses, anything you invest in—ever invest unless you fully understand it. If you don't fully understand it, don't invest in it. Very simple.

And also, don't just blindly trust someone out there who tells you this property is a good investment. If you can't do the math on your own to determine whether or not that property is a good investment, then you should not buy it under any circumstance. I seriously get way too many people emailing me probably every other day with specific properties, and they say, "Hey, I'm thinking about making an offer on this property. What do you think? Is this a good deal?" This—this makes sense. My answer is if you're asking me whether or not this is a good deal, then you're not prepared to buy it.

If you can't decide and you don't know how to determine whether or not this property is a good deal, then you're not in the position where you should be investing and buying that property. If this is something you're interested in getting into, you're going to have to be prepared to be an expert at everything involving that market you want to invest in— in real estate, cash flow, finding contractors, and setting everything up.

Now obviously, some of these just naturally have to be learned as you go along the process. There are some things that you can't simply prepare for. There are some things that are way beyond numbers that you just need the experience to have firsthand in order to learn these things. But at the very least, you should be able to understand the cash flow well enough to determine whether or not a property is a good deal or not.

Largely, the people who end up losing money in real estate simply don't know what they're doing. They don't understand values, and they get emotional anytime the market goes down, and they panic and they make rash decisions or they end up getting greedy and hold out when they want to sell.

So please, it's so important to understand the market dynamics and to know what you're doing. If you're confused and you want to meet people in person, I highly recommend going on BiggerPockets.com, find out some local meetups that you can show up to, and go and meet local real estate investors in your area. I promise you, there are so many amazing real estate investors out there that would be happy to meet up with you in person, that would be happy to give you advice and simply just help you out because largely, the real estate community is just a tight-knit group, and everyone wants to help each other out.

And also, shameless plug here, but I do for some paid real estate consulting for anyone who is interested. Link in the description.

Now the third thing is that you should not invest in real estate if it's meant to be a short-term play. Now, I would be the first to admit that some people may disagree with me when I say this and that this does not apply to everybody, and they wouldn't be wrong if you disagree with me on this one. But chances are, if you're just getting into real estate and you're trying to learn as much as you can about it, you should not be investing in real estate with the expectation that you're gonna be selling it in the short-term for a profit.

As you get more experienced, by all means, sure, if you understand the market dynamics, the market fundamentals, and you can go in, fix up a property, and flip it for a profit, by all means go and do that. But for beginners, I see way more people losing money than making money when they're first starting out.

And what do I mean when I say investing for the short term? I typically see this as holding on to a property and you're trying to flip it within the next one to five years. The reality is that in this short term, we don't know really what the market is going to be doing, and you don't want to put yourself in a position where you plan to sell after five years, and the market may not be exactly where you wanted it to be in five years.

Maybe you're just at break-even values, maybe the market's only gone down a few percent, maybe it's gone up just a few percent, and you put in all this work, and holding it just to make like ten thousand dollars or five thousand dollars—maybe it's not worth it. In the short term, there are so many variables that are entirely outside of your control that could affect whatever your property value is.

And sure, if you ended up buying a property in 2010 and you sold it in 2015, congratulations, because you've just made a ton of profit. But if you ended up buying a property in 2005 and you held it to 2010, and you sold it? That must have hurt.

This effect is what's amplified by what we call leverage, which is where you borrow most of the money to invest in real estate, and you yourself only put down anywhere between 5% and 25% of the home's value. This means that if you went and bought a $100,000 home and you put $20,000 down, and that home goes up in value to $120,000—well, congratulations! You literally just doubled your initial $20,000 investment. You just got a 100% return on your money.

However, if that same property goes down in value $20,000, well guess what? You just lost your entire investment. On paper, you just wiped out all the money that you put in the deal—it's gone. Just like if the property doubled in value and went from $100,000 to $200,000. Well, that means your $20,000 investment has turned into a $120,000 amount. But what if the property then goes down in value fifty percent? Well, all of a sudden, you lost your $20,000 investment and now you're $30,000 in the red—in the hole. Of course, all on paper.

The reality here is that almost always, time makes real estate a good investment. If you ended up overspending on a property, if you ended up losing money in the short term, chances are if you simply just hold it long enough, eventually you will become profitable, and eventually you'll make money on the deal. You pay down the loan, your equity slowly increases, and over time, the value of the property goes up.

But short term? None of us know because the variables and up and down prices might have an effect in a short term. But over the long term, I think it's pretty safe to say that the longer you hold real estate, the more likely you are to end up making a substantial profit.

Now, the fourth is that you should not invest in real estate if you don't have the time to devote to it. This is not going to be a passive income source without you putting in a substantial amount of time up front. It's not like the TV shows where a buyer looks at three homes, picks one, tenants come raining from the sky, and profits start sprouting from the ground. That never actually happens.

Now, I'm not saying this is a full-time job by any means, but in short spurts of time, it could seem like it. For instance, when I first set up the very first rental property, I was there just about every single day. I would drive an hour to get down there in morning traffic to meet with contractors, pick up materials, make sure everything was going according to plan, and making sure it became rental ready.

When it was finally rental ready, I was picking up my phone all the time with people who were calling, answering emails, going to meet them, and driving an hour to hold the open houses there for like half the day to meet tenants. It was pretty involved in the very beginning.

And also, very important here, and I'm sure every single real estate investor can always attest to this, the first month that a tenant moves in is always filled with problems. I don't know why, but there are always little nuances that get missed—like the garbage disposal doesn't work and the dishwasher doesn't turn on; the microwave makes a beeping sound when the food is ready—like weird little things that keep coming up that are just very minor things, but they're little issues that you have to address.

If you don't have the time or patience to do all of this, you need to either factor in a property manager into what it's going to cost out on that property or simply don't invest in real estate. This is really gonna be a time-intensive project to get it to the point where it's streamlined, where you don't have to spend the time in the future.

At this point now, I honestly spend about one month—of one month—every hour— I was about to say as of now, I spend one hour every single month managing my rental properties. Now, I do have one property manager on one of my properties, but to manage the others, it's about an hour every single month.

But to get it to that point, it took me months of setting it up so that I wouldn't have to spend a lot of time later. This is why I often don't recommend people who are traveling a lot, who are overseas, who want to invest out of state do this on their very first property unless they really understand what they're gonna be doing and how much time it actually takes.

Now finally, number five—and this one might sound a little common sense—but don't invest in real estate if you don't like real estate. I know this probably doesn't apply to 99% of you watching because you're watching my channel simply because you like real estate. But you would be surprised that some people just don't like real estate at all. They like some of the returns; they like the lifestyle it could bring, but they otherwise hate real estate. They don't like tenants; they don't like the responsibility; they don't like the time aspect; they don't want to be tied down to a certain location; they want to just go remotely, turn off all of their phones, be hassle-free, and live the life.

And that isn't necessarily what real estate investing is, and honestly, I somewhat envy that sort of lifestyle. And there's nothing wrong with that, but I think it goes without saying that if the real estate life ain't for you, you shouldn't invest in it.

There are really a lot of nuances when it comes to properties—like architecture, floorplan, design, area. There are a lot of little things. If you're not interested in it, you're gonna look over some of the really important aspects simply because you're bored by it or you feel like it doesn't really matter. You also might not give it the attention it needs in order for it to be the most profitable it can be. Things will fall through the cracks; they won't be done as well as they could be, and that means less money in your pocket.

The realities here are that there are a lot of benefits to investing in real estate, but I understand it's certainly not for everybody. Real estate tends to attract the type of person who really wants to be hands-on with their investment, who wants something tangible, who wants something that they can control, and largely, who wants a higher return.

A good real estate investor can easily beat the markets if they do the proper research, and they know that their return is 100% on them and not necessarily the market dynamics. It's a slow, long, arduous process to start, but long-term, once you get it up and running, it could be one of the best investments that you can make.

So as always, you guys, thank you so much for watching. I really hope you guys enjoy this video. Before you click out, wait, wait a second, before you click out of this video, just give the video a like. It does really help out a lot. The algorithms are slowly starting to favor my videos again because people are engaging with them.

So literally any sort of like, comment, subscribe, hit that notification bell so YouTube sends out a notification because they don't do that to everyone. I don't know why. I also feel free to add me on Snapchat and Instagram; I post pretty much daily, so if you want to be a part of it there, feel free to add me there.

Finally, I have a private Facebook group; the link to that is in the description for anyone who's interested in real estate, real estate investing, real estate agent, anything real estate—you want to talk about real estate that I mentioned—real estate. The link to that is in the description. Make sure to add yourself to that.

Thank you again for watching, and until next time!