Why You’ll Regret Buying A Home In 2023

What's up, guys? It's Graham here. So given what's happening in the housing market and the sudden decline across pretty much everything, I felt like it would be appropriate to address everyone's concerns, share my thoughts about what's going on, and explain what you could do to prepare. Coming from someone who's been involved full-time in real estate since 2008, after all, it's reported that home prices in the Bay Area have already fallen 25% in just the last eight months. Dallas has already dropped 10% since June, and Barclays believes that National values still have another 10% sell-off to go. While rents just saw their largest decline in seven years, that's why, with the current market turmoil combined with even more upcoming rate hikes, it's crucial that you avoid these seven common mistakes anytime you buy or invest in real estate.

I promise from all of my experience buying, renting, selling, and investing in real estate, these next 15 minutes could save you a lot of money and a lot of headaches if you just pay attention to a few pitfalls that almost everybody makes that could be easily avoided. All I ask for in return, if you find this video helpful, is just to hit the like button or subscribe. I know it seems silly to ask for it, but it does help with the channel tremendously, and this is a thank you for doing that. Here's a picture of a llama! So thank you, guys, so much, and now that said, let's begin.

All right, now to start, in real estate, there's a comment saying out there that says that you make money when you buy, not when you sell. To a certain extent, that's true. That's why it's so important that you do not overpay. Now, obviously, if we're talking about your one-of-a-kind forever home or money's no object, then by all means, overpay. But for everybody else, as hard as it might be to admit, most likely the home you love is replaceable, and because of that, you could afford to negotiate.

So here's the thing: when I was working in real estate, it was so unbelievably common to see a buyer get excited about the aspects of purchasing a property, then get overly emotional out of the fear of losing it, and then all logic goes out the window. At that point, it makes it impossible to see whether or not there might be better opportunities out there. Or you begin thinking to yourself, "What if nothing else is as good as this one?"

Like I mentioned earlier, with real estate, the best opportunity always comes at the time of purchase because there are deals to be had where you could buy an undervalued property that's worth 5% to 15% more the moment you close on it. This not only gives you additional equity, but it also insulates you in case the market keeps falling. After all, every single property out there makes sense to buy at the right price. So if you can find that price and match it to the property, you're good to go.

That's why you should always understand how much homes are recently selling for, set a maximum price from which you're willing to pay, be aggressive with your inspections, and then just stick with the plan. Obviously, you shouldn't lose out on the perfect deal because of a fifty-dollar leaky sink, but you also shouldn't pay more than what the market says it's worth at the very most.

Second, you should not be buying a property if you haven't run the numbers to determine how much it's actually going to cost. Of course, when I say this, I don't mean, "Oh, the property is going to cost four hundred thousand dollars, and the mortgage payment is going to be twenty-seven hundred dollars a month." Instead, what I typically see happen is that someone buys a property and severely underestimates the amount of repairs it needs or they overestimate the amount that they could get for rent. It's usually a combination of both.

In fact, even though you might think that this only applies to investors, homeowners do this all the time when they blindly walk into a property being completely unprepared for things to break the moment they close. Or even worse, they didn't realize that they could have just rented the home for a fraction of the price and then waited to find a better deal on something else.

So from my 15 years of experience in real estate, having sold over 130 million dollars worth of homes while working full-time as an agent, I will tell you with 100% certainty expect that every repair you do is probably going to go over budget. So when you're planning a renovation and you're trying to do the calculations to determine the end value, just assume you're going to spend 25% more than you plan to. I don't need to see the numbers; I don't need to know how reliable your contractor is. It just happens every time.

In addition to that, it's also incredibly common for new home buyers to magically forget about all the minor day-to-day annoyances that begin to add up over time, like insurance payments, landscaping, utilities that run more than expected, property tax increases, and regular maintenance that you would never think about until you own a home. All of this can easily add up to an extra few hundred dollars a month that nobody thinks or talks about until they've already owned the home for longer than a year.

That's why it's so incredibly important that you know how to evaluate a property, understand how much it's going to cost to renovate, add in a margin of error, include miscellaneous expenses, and realistically know how much the property is going to rent for. Otherwise, you could be stuck with a property that costs too much to own with zero profit and without the potential rental income to cover your costs if needed.

A third common mistake out there is to make sure that you do not take on too much debt. Now, don't get the wrong idea, because this can be okay if you're safely making enough to cover the cost of the payments or you get a low enough interest rate. But the problem arises where you take on too much debt to the point where you become entirely reliant on rental income, a strong housing market, or a strong job market to continue sustaining those payments without anything else to fall back on.

The fact is, unless you have the income and the savings to carry through that mortgage in the event of a loss of income or a job loss, you could go broke really, really quick. Just look at what happened in 2008 when people took out too large of a loan and couldn't ride out the drop in prices in a way that's beginning to happen again now for those who have not already locked in their interest rates as prices begin to fall across the country.

The last thing you'd want to happen is that you can't make your payments, you can't rent out the property at a high enough price to offset your costs, and you can't sell because you owe more than what it's worth. That's why I typically recommend coming in with a 20% to 25% down payment for anything that you purchase so that way you have a bit of a buffer to fall back on just in case.

Fourth, speaking of loans, I would personally stay away from short-term or adjustable-rate mortgages unless you really understand what you're doing. The problem I see today is that it's cheaper to take the short-term adjustable rate mortgage than to take the 30-year fixed, especially with the mindset that the FED is going to U-turn and lower interest rates in Q4 of 2024 because they'll have to.

However, this is not guaranteed, and you could very well pay more in the future if interest rates continue increasing. Not to mention, as of today, banks will barely give you a discount for taking a short-term loan versus the guarantee of locking in for 30 years. So why take the risk? My thinking is that a 30-year term is going to give you the assurance that no matter what happens, your payment will stay the exact same.

And because of that, you're able to plan far out in advance in terms of your monthly budget. Then from there, if interest rates do go down and you're able to refinance to something cheaper, go for it. But we can only speculate what interest rates will be 10 years from now, and that's personally not a risk I'm willing to take on one property with such a large amount of money.

Fifth, you should never buy real estate with money that you need short-term. The one report from Forbes found that it takes an average of five to seven years just to break even on a property purchase once you account for the cost of buying, owning, and selling. If that sounds absurd, just consider this: if you buy a home for three hundred thousand dollars, most likely you'll pay an additional six thousand dollars in closing costs, insurance, and fees. From there, you're also going to be responsible for all the miscellaneous expenses that come with owning a home, like property taxes, insurance premiums, repairs, and random things that you'd never think about that just come up out of nowhere, which let's just say averages to three thousand dollars a year.

That means to break even on the property after five years, you'd have to sell that property for three hundred and forty thousand dollars, or a thirteen percent increase just to be left with three hundred and nineteen thousand dollars after all of your closing costs, which is enough to compensate you just for the cost of buying, selling, and owning a property to begin with. Now, yes, of course, real estate does tend to trend upwards over time, but that's not guaranteed. So if you're looking for a quick way to make cash, most likely this is not going to work in your favor.

That's why I always recommend to only buy a property that you intend on keeping for the next seven to ten years. That way, your chances of breaking even are significantly higher, and maybe you'll even turn a profit.

Sixth, the same thing could also be said about buying a property without having enough cash saved up. From my experience purchasing eight properties over the last 12 years, it is so important that you have enough money saved up for all planned renovations plus 25% because you know it's going over budget, and have enough to pay for all property expenses for at least three to six months. Otherwise, I promise you're going to be running into a situation where you have a two thousand dollar repair, you'll have to put it on a credit card, and you'll be scrambling to pay it down as fast as possible to avoid the high-interest rates.

Or a tenant moves out, and it's four thousand dollars to fix the walls once it's empty for another few months while you try to find another tenant who pays less than expected because national rents are dropping. I know it sounds excessive or fear-mongery, but trust me, it happens all the time, and it's something to be prepared for.

However, one of the easiest ways to soften the blow is just to plan for it ahead of time and assume it's going to happen. What I personally do is just keep a checking account for every single property that I have, and no matter what, I always keep four to six months' worth of expenses in there at all times for anything that comes up. Once the amount exceeds that level, I'll transfer it over to invest elsewhere.

It's that easy. It's really simple that way. Anytime there's a repair, there's money sitting on the sidelines that's accounted for for that exact purpose. I keep it simple, and it doesn't need to be complicated.

Finally, for all of you real estate investors out there, do not pick a bad tenant or the first person who offers you the most amount of money. I'll give you two personal stories that I've had to deal with. My first was all the way back in 2012, where I picked the first tenant who called at the time. I was desperate for money; I had sunk everything I had into renovations, and I had nothing left to fall back on. So I just accepted it.

Within six months, he stopped paying, he trashed the place, and I had to go through with an eviction. By the time I actually got him out, it cost me about four months of lost rent, eight thousand dollars in damages, and another few thousand dollars in eviction fees. That was more than an entire year's worth of profit just lost because I happened to pick a very bad tenant.

I've also witnessed other tenants who I like to call "professional tenants," who simply put up the bare minimum to move in and then they stopped paying. They know that it's going to take them anywhere between 3 to 12 months to actually get evicted, so they just bank the money instead. The point being from all of this is that you have to be very, very picky because essentially what you're doing is entering into a business contract with a complete stranger for the next one to two years, and you need to make sure that you both have clear expectations and can communicate with each other in terms of what each of you expect.

Now overall though, since then, for the last 10 years, I've been really fortunate to have amazing tenants, and I credit that to picking the person, not the price. I typically do not take the highest offer; I just want somebody who stays there long term, is really nice to work with, pays on time, and treats the place as if it's their own.

That's all. That's why I'm never in a rush. It's always better to find the right person than get the highest price.

I'm doing all of this because I truly believe you're going to be in a much stronger position to buy or invest in real estate throughout these next few years, even if the market continues to decline. My personal philosophy is that there's always good deals out there even if they take longer to find, and by investing aggressively for the long term, you're going to put yourself in the best position possible to make as much money as possible.

Oh, and by the way, for anybody interested, I'll link to all of this in my newsletter as well. It's down below in the description. It's totally free. They go out twice a week and would mean a lot to me if you wanted to support that. It's kind of cool; I've been doing it for the last few months, and it would be amazing to have you a part of it.

So thank you, guys, so much! I really appreciate it. As always, feel free to also add me on Instagram, and don't forget that you could get a free stock that's now worth all the way up to a thousand dollars for their sponsor Public.com down below in the description when you use the code "GRAM" and make a deposit. Let me know what stock you get.

Enjoy! Thank you so much for watching, and until next time.