The 5 WORST MISTAKES you can make if the Real Estate Market DROPS

What's up you guys? It's Graham here. So, I think we all know that inevitably, at some point in the future, the real estate market will drop in price. Whether that's a few months from now, a few years from now, maybe a decade from now, maybe the market goes up another 30 percent before it starts going down, at some point the market will drop in price. It simply can't just continue going up indefinitely all the time, forever.

Given that, it's what you do in the times when the real estate market does not go up in price that really matters the most. These are the five worst things that you could be doing if the real estate market drops. And by the way, if you want my prediction on the real estate market and what I think will happen over the next few years, if you're into that sort of thing, just watch the very end—it’s all there. But until then, let's get right into the video.

The first biggest mistake that people make if the market drops is to panic and make emotionally driven decisions. This is probably the worst thing that you can do. I venture to say that most investors let their emotions get the best of them, namely fear, and they act based off of that. For instance, if the real estate market is dropping in price or they fear it will drop in price, they panic sell because they fear losing money. Likewise, when the market starts moving back upwards, they hop back in because they're fearful of being left out.

That type of investor mentality was quite evident during the recent cryptocurrency boom and crash. Emotions and speculation really ran that market rather than the fundamentals, which is essential to consider anytime you invest. This type of fear also led people not to invest in real estate. Between 2012 and 2015, I had so many clients who were fearful that more inventory was gonna come on the market and crash the real estate market. These people simply sat on the sidelines because they feared losing money.

These are people who missed out on potentially doubling or tripling their investments simply because they let fear get the best of them while they waited for prices to drop, and they never did. It’s stuff like this where you miss out on the best opportunities simply because you are too fearful. You know, the reality is that accurately timing the markets is nearly impossible. Even the best people out there cannot accurately and consistently predict when the market will drop, how long it's going to drop, and when it's going to recover.

Now, while yes, we can certainly look at trends and make our best educated guesses—at best those are educated guesses, at worst it's simply a shot in the dark. It's also really important to note that real estate is local, not national, and that some individual markets will perform considerably better or worse than others because of that. Personally, I'm not a fan of trying to time the market or predict any of these cycles. I personally believe, and many studies have confirmed, that the most profitable investment strategy out there is simply to buy when you're ready, buy on fundamentals, buy when the numbers make sense, and simply hold long term.

Now, if you're wondering what long-term would be, I would venture to say that this would be at minimum seven years, but realistically for me, I would rather hold my properties for thirty years to life. The reality is that if you're gonna need this money in the next few years, chances are you shouldn't be investing with it. By investing long-term, you really give yourself the chance to recover from any short-term losses along the way because markets don't simply just move up consistently over time. There will certainly be ups and downs along the way and simply holding and not panicking will give you the best chance at coming out ahead.

Like I said, this also applies to those that were fearful about jumping in the market simply because they kept thinking it was going to crash. I knew so many people who in 2013 were afraid of investing in the S&P 500 because they said it was $1,800— it was at an all-time high, it couldn't possibly go any higher and it was about to crash. Then the S&P 500 got to $2,000, which at the time was at its all-time high, and people said the same thing— it couldn't possibly go any higher, I'm not investing because it's about to crash any day now.

At this point, it's over $2,800 or 55 percent higher and those same people are still sitting on the sidelines, fearful for a crash and afraid to put their money in the market. They're simply just waiting for a drop that may not ever happen, or it may take decades for it to finally drop, at which case they've missed out on years' worth of profit. It's really as simple as this—just buy, hold, and wait. That's it.

Now, the second biggest mistake that people make is to over-leverage and go into heavy on an investment that maybe they can't afford or is simply just too volatile. I think it goes without saying—don't overextend yourself if you can't afford to weather the storm. That was a major catalyst to the 2008 real estate crash. People simply couldn't afford what they were getting into, didn't have the income to repay the loans, and couldn't afford to hold the property in the event the market went down, which it did drastically. This forced people to sell when the property values were hit the hardest.

The people who bought in 2007 at the peak who still came out ahead simply just held. These are the people who didn't have to sell, that didn't overextend themselves. They continued making their payments and stayed on course like nothing happened. Anytime you invest in something, especially real estate, just make sure that you can afford it. This means that the property doesn't consume all of your income. It means you already have an emergency fund in place in the event that you need it. It means that you're able to buy the property and at the same time still have extra money left over to save and invest.

It's so important that you don't become a wage slave just to be able to keep and own your property. The property should at minimum cash flow in the event you decide to rent it out. The people who end up losing the most are the ones who don't cash flow or simply don't have the extra income available to hold the property in the event the market declines. So, just make sure that you never take out a mortgage you can't afford and also never rely on the markets going up for you to be able to make those payments. Because the last thing you need is to be caught panicking if the market goes down and you can't afford it; you can't make the payments and maybe that forces you to sell at a time where the market prices simply aren't the best.

Now, the third mistake that people often make is simply buying for the short term. Now, while some people may disagree with me on this one, I think there's a big difference between investing and speculating. If you're buying something with the intention of selling it for more money because it's going to be worth more a year from now, I would say this is more akin to speculating than it is investing. Now, while you can certainly do really well with this in the short term, the reward that you get is directly correlated with the amount of risk that you take.

Because market timing is so difficult to accurately predict, you risk that any short-term price movements may not be in your favor at the time you need to sell. Now, this is also one of the reasons why I'm not a big fan of flipping properties. It all requires you look six to twelve months in the future as to what you're going to get, and in my opinion, that's simply too short of a time frame to guarantee any sort of returns. Instead, simply just buying and holding is, first of all, a lot safer, it's a lot more predictable, and gives you the time to recover from any short-term price movements that could affect the profit of the property.

Also, because real estate carries such heavy closing costs, the property needs to go up in value about 6% just to break even on commissions and closing costs. This doesn't also include the cost of interest, property taxes, insurance, and everything else that goes along with that, which realistically means that most likely the property will have to go up in value about 10% just for you to break even. Then anything over that is your profit. So, buying something with the intention of selling it in the short term is especially risky. Yes, the markets could go in your favor, and there are a lot of variables to play into this, but at the same time, it's often too much risk that people don't fully understand.

The moral of this one is that the longer you hold real estate, the more likely it is that you will come out ahead. Now, the fourth mistake that people make if the real estate market drops is to simply be too conservative. This is something I have dealt with firsthand on so many occasions as a real estate agent. I had so many people telling me in 2012 not to invest in real estate because the bank was holding back inventory that they were suddenly going to release, which was going to crash prices even further.

Well, guess what? That never happened. Then, as the market started going up and it was obvious that there was no excess inventory, they simply said, "No, now the market's too expensive. We have to wait for another drop." Whatever the market is at the time, they had their own justifiable reason about why they're not investing in it. So, anytime you're investing, just understand that sometimes playing it safe to an extreme can simply work against you.

Now usually, this applies a little bit more to the people who simply wait to try to time the market, and meanwhile, they miss out on all of these gains. But you get my concept here. It's really important when you're doing this simply just to buy when you can, buy what you can afford, buy on fundamentals, buy what makes sense, and simply just hold long term.

The fifth mistake that you could make is not having enough cash on hand to take advantage of the deals when they come up. Now, one of the biggest advantages that I had in my investing career is that I would save as much money as I could. I would save, save, save, save. Then when a deal came up, I would buy it, and then I go right back in to save, save, save, save until another deal came up that made sense to buy. I'd buy it and do the same thing and just continue saving. I didn't care about market timing. I didn't care what the prices were gonna be like a few years later. I didn't care if I sold it the next year for a profit. I simply just bought what I could afford. I bought the deals that made sense. I bought the deals where I could add value to them. I bought the deals where I knew I could make money from them, and that was as simple as that.

Being able to live frugally, save as much money as I can, and have cash on hand is what led me to making over a million dollars in profit in real estate simply by having the money to jump on opportunities as they came up. Now, I'm not saying just to hoard cash and wait for the market to crash for that one unicorn deal that may or may not ever exist. I don't advocate that. But don't be afraid to use that money when the right deal comes up, where the numbers make sense and the fundamentals are there.

And with that, also make sure that you have the cash on hand to cover any unexpected things that might come up. Maybe you lose a job, maybe your tenant moves out and for some reason they trash it, and it takes you months to repair it. Maybe the property simply loses some value, and then you need to replace the water heater, the AC, the roof, and all the things come up at once. Make sure you have the cash to cover yourself.

I structure all of my deals so that I could take a 20% cut in rent and still not be affected or come out of pocket for any expenses. Property values could go down by 50% in the short term, and it would make absolutely no difference to me simply because I don't plan on selling. I also have the reserves and cash on hand to go years in the event that something unforeseen happens, and just everything hits the fan at once, and things go unrented and values plummet.

So for me, I have the ability to simply just weather the storm as long as it takes. Now, I'm not saying that you necessarily need to be at this level, but don't be a few paychecks away from having the entire thing collapse and falling behind in your payments. Having this extra cash on hand also just gives you the ability to deploy it as needed if a good deal comes up.

So, the moral of this entire video is simply just this—buy on fundamentals, buy a deal that makes sense even in a worst-case scenario, make sure you don't overextend yourself, and also make sure to keep cash on hand just in case something comes up. And for me personally, I don't worry about timing the market. I simply wait and buy the deal when it makes sense with the expectation that I'm going to be holding it for twenty or thirty years or longer. If the right deal comes up tomorrow, perfect. If a few months from now, great. If it's a year from now, great. If the numbers don't work, simply don't buy. It's really as simple as that.

Real estate should really just be a logical, numbers-driven decision. It should not be this emotional rollercoaster of panic, going from one insane article to another with end-of-world scenarios. None of this should matter thirty years from now in the long term.

Now, as for my prediction of what's going to happen in the next 12 to 24 months—and it's just a guess—I have a feeling that we're gonna see interest rates hit the low five percents in the next 12 to 18 months. I think that will put a bit of a psychological pressure on buyers, but I don't think that's going to massively affect prices other than simply just slowing down the appreciation that we've been seeing over the last few years.

I think we're also going to see more inventory continuing to come on the market as short-term investors simply want to get out and move on with their investments. If I were to bet money on anything, I would venture to say that we're not going to see the insane five to ten percent price increases like we've seen annually. I would say we're probably going to see more in line with two to four percent, which in my opinion is a good sign. It's a sign of a stabilizing market, a sign of a healthy economy, and simply this is a normal return for real estate.

And because real estate is really such a localized market, every individual market will be different, and they have their own factors that contribute to prices. So markets will inevitably do better than this, and some markets will go down in price. This is really such a localized phenomenon, and overall, I think this is just a healthy sign. Imagine it like you're driving a car that's going 80 miles an hour, and you take your foot off the gas, and the car slowly goes to 60 miles an hour— that's where I think the real estate market is realistically going to do.

Instead of you going 80 miles an hour and then just slamming on the brakes and the thing comes to a screeching halt, I don't think that's going to happen. I think it's going to be a very steady, very slow decline from the insane growth we've been seeing—just slowing the growth slowly and slightly. So, I don't think it's gonna be any sort of crash, just simply we're gonna see slower growth than what we've seen in the past.

And my prediction also sees people reducing their prices. And I'm saying this as a real estate agent; many sellers have noticed the market going up at such a steep trajectory, so they're pricing their property based off that line instead of the market going like this—maybe the market is going a little bit more like this. So, all of a sudden, we're over here; their expectation is up here because that's what the market has been doing. But realistically, the market's just been slowing down a little bit and hasn't been rising as much, and that difference in price is where the price reductions happen.

This is what I'm seeing is that simply sellers are used to seeing these 10 percent year-over-year increases, and instead of doing that, maybe we're seeing 3 or 4 percent. So, that difference in price right there is that price reduction. Again, these are all just my best educated guesses. At the end of the day, no one can accurately predict the market. This is just from my own experience—take this for what it's worth.

And the most important thing for you to do is read as much as you can, listen to as many people as you can, and simply come up with your own conclusion. So, with that said, you guys, thank you so much for watching. If you guys enjoy videos like this, make sure to smash that like button; it does really help out a lot. I really do appreciate it for all the time I spend on these videos—probably gonna spend like eight hours on this video, so hit that like button.

Also, if you enjoy videos like this, if you haven't already subscribed, make sure to smash that subscribe button and smash that notification bell so you could be a part of that notification squad that tries to get the first comment. There are like 20 people now that try to get the first comment, but if you get the first comment, of course I always heart that comment. It's the best comment ever. Also, feel free to add me on Snapchat and Instagram; I post there pretty much daily. So, if you want to be a part of that, feel free to add me there.

And then finally, I have a private Facebook group for anyone who's interested in real estate investing, wholesaling, agent training, or just wants to talk about real estate. You want to see what other people are talking about real estate? Add yourself to that group—link in the description. Thank you again for watching, and until next time!