Investing in Real Estate just got a LOT more difficult…

What's up you guys? It's Graham here. So, I figured I would make this video to give you guys a first-hand perspective of what it's like as a real estate investor, what goes on behind the scenes, and a little bit about my thought process when it comes to investing.

I hope you guys really appreciate the transparency and honesty in a video like this. The whole purpose of this is that you should watch it and walk away with a greater understanding of what to look for when evaluating a deal, and also when to know when you should simply just walk away.

Also, towards the end of this video, I'm gonna be addressing that shocking CNBC headline that says that Southern California home sales crash. Just make sure to hit that like button!

So, anyway, with that out of the way, as many of you guys know, last year I bought and renovated a duplex that I got here in Mid Los Angeles. The year before that, I bought a property in West Los Angeles and I remodeled it. Well, the plan there was to basically save up enough money to buy another property to do the same thing this year, and you guys, the time has come.

Now, most of you know where I invest, in Los Angeles, is absolutely terrible for cash flow. It's not uncommon for someone to make hundreds of thousands of dollars in equity but somehow every single month lose money in cash flow. This happens all the time.

Now, I've been fortunate so far as to come out ahead on all the properties I bought, even the ones I've purchased in Los Angeles. Last year, the way it would work was that I would look online for a few days, find a good property, go and make an offer on it. Usually, I'd be in multiple offers. The price would go up, wouldn't make sense to buy, but no harm, no foul. I would continue looking for another property.

Maybe it would take me another week or two to find another one. I found another one, made an offer on it, maybe the price went too high again, no biggie. Kept looking for a few days, found another one. It took me six months to find the deal I ended up getting, but I ended up getting a good deal. Honestly, looking and making offers, there were plenty of opportunities out there, and now I am up over $200,000 on the property that I bought just one year ago.

So, I figured cool, it's gonna take me a few weeks to find something. I'll find something, make some offers, start getting the process rolling, or so I thought. So, I had this thing where I basically just don't look at properties until I've been pre-approved and actually have the money to be able to close on it.

Now, last year before I had been pre-approved for something, I started looking and that was a terrible mistake. The first place I saw was absolutely amazing. I'm talking this place was perfect. This place was my 10 out of 10. I walked into it and I just immediately thought this is perfect, this is it. No joke, to date that's been the one property that I look back on that I just think I wish I could have made it work, but the timing just wasn't right.

I was waiting for a big deal to close that would have paid for a lot of the renovations on that. I hadn't spoken with a lender yet, and really just, it was too soon for me to make an offer. That was the one, you guys, that was the one deal that got away. So, I mean, I was already heartbroken. So, I figured I needed a good rebound property. It's okay, we all do, we all need the rebound.

So, I started looking a little more and I found another one right after it. Another one that was so perfect, it was $900,000, it was in East Hollywood, just a perfect location, perfect duplex. I absolutely loved this, and the best part about this was that that duplex was grossing ten thousand dollars a month on Airbnb. It was perfect, but again, the timing just wasn't right for that deal. I was still waiting for that big commission to come in, I hadn't spoken with the lender, it was just too soon, and that deal ended up selling to somebody else.

So, after two heartbreaks like that, I basically just had to realize I can't look at anything until I'm actually ready to buy. I can't do it, 'cause I find deals like this and I can't act on them, and it just tears me. So anyway, now that I got pre-approved, I started looking, and looking, and looking, and looking, and I just can't seem to find anything that makes sense to buy in Los Angeles.

As most of you know, first and foremost, I am a real estate agent. It is literally my job to look at properties 24/7. I know all the agents out there to be able to network and find off-market deals. I can represent myself and save money on the commission. I can best negotiate these deals, and after a month, I still cannot find not even one deal that makes sense to buy. You know what?

It almost reminds me of that Dave Chappelle meme. "We recycle, yo guys, start with more that real estate man. I just need a little bit of that real estate man. It's been one month since I've scored a deal man." Now, I will admit that last week, after a full day of searching, I found one property that made sense to buy, but that property was next to an alley. It backed up to an apartment building, next to that alley was an auto body shop, and next to that auto body shop was Venice Boulevard.

There is no way I am ever buying a property that is combined with like the worst resale perspectives in the entire planet. I know out of that. So, the hunt continued, and then just a few days later, I found another property just a few blocks away from where I bought the duplex that was priced at about $750,000. The best part about this was that it was just a few blocks away, same square footage, same floor plan, basically the same thing I already bought.

So it would have been so easy, basically just to recreate exactly what I did in the duplex and the new place. Now, this would have been the deal to get. Now, just for clarification, I bought mine for $585,000. This one in an identical place a few blocks east, which is arguably a worse location, is selling for $750,000. This is almost $200,000 higher in a worse location just one year later.

But you know what? I know a good deal when I see one, and it's $150,000. It was still a good deal. The problem was that when I called the agent, they had seven offers on it already and it's going over $800,000. At that price, it didn't make sense considering I'd probably have to spend another $100,000 fixing it up.

With my calculations, I have to be in at $825,000, including renovations, for me to simply break even. Anything above that and I start losing money. Now, my strategy is when it comes to investing in Los Angeles is that number one, I at least want to break even. Then any extra money I get by paying down equity or cash flow is just a bonus. But cash flow-wise, I cannot be losing money every month.

My long-term goal here is for the property to at minimum just break even. Eventually, the property values go up, rents go up. After about five or six years, then I start making money every month simply because my cost of owning the property is fixed for the next thirty years until it's paid off. Then, after about ten years, rents have gone up significantly, the values have gone up significantly, and then I'm making money.

Then, after thirty years, the entire property is paid off, and all of a sudden I can make total bank because I will have a property that's probably worth three or four times what I bought it for. Rents are gonna be through the roof, and I will be making pure cash flow from this investment.

This, you guys, is really not a short-term play. It's not me trying to make as much cash flow as I can every single month. It's me basically having a 30-year outlook on the Los Angeles market. The reality is that I will make way more money in equity and appreciation than I ever will with cash flow, and I can use those properties to offset the ones that actually make money.

But the biggest problem here is that I can't justify spending $250,000 on a property that loses money every month in cash flow. I'll be honest with you guys, if I can find a deal that just breaks even and I make money on equity paying down the loan and appreciation, that's fine. But the idea of losing money every month in real estate, just not cash flowing, it just almost makes me break out in a rash.

Now, this leaves me in a really weird situation that I haven't really been in before, and that is, what do I do now? The preference here would simply be just to keep looking, have the patience, and hope that eventually I find something that makes sense to buy. I'm sure the longer I go without finding a deal, I will start door knocking on specific places that I have an interest in buying, just to see if they would consider selling.

Sure, if I do this enough, it's just a numbers game; eventually, I have to find someone where it just makes sense to buy. And of course, I will also be patient. It took me six months of looking full time to find the place I ended up getting, but buying that place I ended up buying was one of the best decisions I had made.

So, I've got to buy something, but the problem I'm seeing here is that these deals are just so far away from cash flowing that it's not even close to making sense to buy. I mean, sure, if we were like $50,000 to $80,000 away from cash flowing or just breaking even, that's totally fine with me. We can work that out, we can negotiate that, not a big deal.

But when properties are now hundreds of thousands of dollars away from making sense or even breaking even, that almost just makes me think that's too big of a gap to cover. But obviously, I don't give up that easily. It took me six times longer to find the place I ended up buying, and I'm only about one month into it, so I will continue searching and hopefully I'll find something.

But this is where my headspace is at right now. Now, one of my backup plans to this was to simply use this money and renovate the existing properties that I have to increase their ROI. For instance, I have a unit where if I spend about $80,000 to maybe $100,000 max renovating it, I should be able to net an extra $1,000 every single month.

So obviously, that's a really good ROI for the amount of money I invest in. However, it's up to the tenants if they want to leave or not. I'm never gonna force anybody out just so I can make an extra $1,000 a month. I wouldn't feel good with that, that's not how I work. So if the tenant does not want to leave, we're gonna force anybody out, I just can't do it.

But doing this would be a good choice; it would give me a little bit more time to start looking for something and also would give me an extra $1,000 a month that I can use towards a loan and buying something else. But since I've been looking at the LA market so closely, I started doing something I never said I would do, and that is looking out-of-state.

And surprisingly, you know, I didn't really find much. Now, because I don't really know these other areas as well as I do Los Angeles, I started doing my research, and my research has been picking the Amazon's top 20 list. I figured of all the places out there, Amazon would have done their research to the 20 best cities to invest in that had the most potential, the best infrastructure, and I really believe that these are the areas that were gonna see the most growth in.

So, what I started looking in each of these cities, I found almost the same problem I had in Los Angeles, is that even the best deals in good areas were still just breaking even. Now, given it's a lot easier to find a deal that breaks even there than it is here, I'm not really finding much that makes sense to buy given the risk of investing out-of-state, that I'm gonna have to hire a property manager, and I'm just not as knowledgeable of those areas as I am here.

I would be way more willing to take the risk and invest out-of-state if I knew I was gonna be baking between 5 and 10 percent return on my money and paying down the loan. But I just can't justify it when I'm either breaking even or maybe just making a few hundred dollars every single month.

Now, I like to think of what I do is basically an indication of what everyone else is doing as well. For instance, if I'm having this much difficulty, I have a feeling that hundreds or thousands of other people out there are having the exact same struggles and thoughts. And also, what does this mean for the real estate market in general? Well, CNBC recently released an article the other day that says that Southern California home sales crash.

The article summed up says that we've seen 10% fewer sales in the last 12 months, but prices have continued to go up even as inventory increases. Now, if I could speak from the perspective of both a homeowner, a real estate agent, and a real estate investor, to me, it's not shocking that home sales have decreased.

To me, this just means the less properties are sold as people buy and hold on to their inventory, and with that, sales volume just naturally declines. Now, at the same time, we've also seen prices increasing another 7.3 percent year-over-year. But what I'm finding is this: the first thing to consider is that existing homeowners simply don't want to sell because they don't want to give up their low mortgage.

There are plenty of sellers out there that have taken a 3.5 percent thirty-year mortgage where if they sold their house, they would then have to buy something else, which would cost them way more because now they would be paying about 4.5 percent. This is a reason why people are choosing not to sell, why they are not adding to the inventory of homes sold, and why they will simply just hold on to their home long-term.

Now, the second thing is that people like me are having a difficult time finding something that makes money, and with that, the sales volume just naturally declines because fewer people are buying right now because they simply can't find anything. And that, to me, makes sense. If nothing is making money, I'm not buying something. And if I'm not buying something, there are hundreds or thousands of other people out there that are not buying either, and with that, sales volume just drops.

Now, third, as more inventory comes in the market, I think it's reasonable to assume that the ones that need to sell will simply lower their prices and sell. As more comes of the market, buyers have more to choose from. They can afford to be more selective, and with that, listings all of a sudden begin competing with one another.

Also, we're seeing the tail end of a lot of developers and builders who have started these projects two years ago and just now finishing them, hence the increase in inventory. And also, just for fun, this was my prediction that I posted almost a year ago of what was going to happen in the real estate market. Here it is: we're not gonna see these huge price increases that we had been seeing over the last seven years. That is completely unsustainable, and that is not a healthy market.

So, by doing this, we're gonna see a combination, like I said, of increased inventory and higher interest rates that, between the two, is really just going to soften the appreciation that we have been seeing over the last seven years. It's gonna be very slow in terms of the value that you're gonna get. Long-term, real estate is still a great investment. You have to buy smartly. You can still add a ton of value by renovating the properties. Just don't expect to go and buy this brand new construction at retail and then sell it the next year for $300,000 more. It's not gonna happen.

So with this, the whole point of this video is really just to share that it takes patience to be able to find the right deal that makes sense. Do not rush into something, do not force a property where the numbers simply don't make sense, and to make sure you do your due diligence to know that if you buy something, you can make money from it. It's also okay to sit on the sidelines and simply wait for the right place to come up.

That is how I've operated my real estate business for the last seven years, and how I will continue to operate it going forward. It's all about patience, knowing your numbers, and then jumping on the right opportunities when they present themselves. That is the best you can do, and I hope you can apply these to your own investing career as well.

So, with that said, you guys, thank you so much for watching. If you enjoy videos like this, make sure to go ahead and smash the like button. I say this in every video, but it does dramatically help out the channel a lot just to hit the like button, and it shows me you guys enjoy the content, so please do that, that's all I ask.

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I just up there, and then lastly, I have a private Facebook group for anyone interested in real estate investing, agent ting, wholesaling real estate. It's in the links in the description, check that out. Thank you again for watching.

I can't believe it, I was like two seconds away from finishing this, and the camera cuts off. Thank you again for watching, and until next time, here we go! There you go, camera, you didn't have to cut off right there.