Why I'm Selling

What's up guys, it's Graham here. So, as most of you know, since I've started the channel and really for the last 10 years, I've dedicated the majority of my efforts and my money towards investing in real estate, with a lot of it documented here in the channel. In fact, up until recently, real estate made up the vast majority of my portfolio.

For the longest time, I invested with the assumption that these were going to be properties that I would keep for the rest of my life. After all, they've each been rented out without issues. Several of them have no mortgages, and now I have a full-time property manager to handle most of the day-to-day tasks. But now, after a lot of consideration, I've made the difficult choice to begin selling off some of that portfolio.

I know this goes completely against the general philosophy of "you shouldn't wait to buy real estate; you buy real estate and wait." But in this case, circumstances have changed, and it's worth explaining so that you could better understand my logic in terms of how and why this makes sense, even though I went into all of this with no intention of ever letting anything go.

And listen, all I ask is that you go into this video with an open mind. If you think I make a convincing argument by the end of the video, just do me a quick favor and sell that like button for the YouTube algorithm by giving it a gentle tap. Okay, no, but seriously, I think you'll agree with my reasons for selling once you hear this out. For anyone curious about the overall state of the real estate market, hopefully, this provides a little bit more context coming from someone who's been full-time in real estate since 2008.

All right, now first of all, in terms of what's changed, like I mentioned before, I've spent the last 10 years doing everything I could to save and build up a portfolio of rental properties that would eventually provide that elusive financial independence that everyone always glamorizes. Like, I specifically remember being a teenager and reading books like "Rich Dad Poor Dad," "The Four-Hour Work Week," and "Buy It, Rent It, Profit," and then charting out the next 20 years of hypothetical savings and rental income to determine just how much money I would need to make and invest in order to turn that into a reality.

And sure enough, a lot of that came true. I wound up working as a real estate agent in 2008, spending the next three and a half to four years saving everything I could, and then purchasing three bank-owned properties near the bottom of the market between 2011 and 2012. My first property was a three-bedroom, two-and-a-half-bathroom home in San Bernardino for $59,500. The second home was located just a few blocks away for $72,000, and the third was a triplex just a few miles away for $125,000.

Once they were all fixed up and rented, they cash flowed about $3,000 a month, which was enough to pay for all of my living expenses at the time. This then allowed me to double down and save 100% of my income as a real estate agent until I was able to save up enough money to buy another home, and then a duplex, and then another duplex, and another duplex after that. Within a decade, I had built up a portfolio that was eerily similar to what I had mapped out in a hypothetical situation when I was 18 years old, all within a short driving distance from where I lived in Los Angeles.

Now obviously, since then there have been some changes. We've moved out of California, which means I can no longer manage everything myself. I've taken somewhat the opposite of early retirement by working more hours today than I ever have in the past. Right as we entered the COVID shutdown phase of 2020, it hit me that I was stupid for having nearly my entire net worth tied up in only Los Angeles real estate. After getting publicly criticized by Kevin O'Leary for not diversifying, I'm not gonna lie, that was a really big wake-up call.

Even though buying real estate worked really well while I was in the growth phase and could put in the work, now that I had built up enough to cover my expenses, it was more important to focus on preservation so that I wouldn't lose what I had built up. So, I began to rebalance my portfolio from that point on.

Besides the home I purchased in Las Vegas in 2020, almost all of my savings went into buying index funds, with the goal of one day having just as much money invested in the stock market as I do in real estate. I wanted to build a portfolio that would be as resistant as possible to the market fluctuations while still growing in value over time. Today, that's resulted in a portfolio that's now 35% real estate, 35% index funds, 20% in cash, 5% cryptocurrency split between Bitcoin and Ethereum, and 5% alternative investments.

So, no matter what happens, there's always going to be something to fall back on. However, in the process of doing that, I have to say, I have really, really enjoyed the mental peace of mind that comes with taking a more passive backseat approach of buying index funds on a regular basis, dollar-cost averaging into the markets, and I'm done.

There was something really calming about not having to take contract or phone calls, answering questions to a property manager, making sure I reset my home insurance every single year, and keeping track of all the bills. But even with all of that, I still thought to myself for the longest time, "Great, I'll just be able to keep what I have right now and keep buying more index funds." That's fine, but yeah, that's not what wound up happening.

Initially, I had no intention of ever selling anything, but earlier in the year, one of my rental properties had a mysterious flood. I have my own assumptions about what happened, but without going into too many details, the property had to undergo a rather extensive renovation through the insurance company. In the process of fielding about a dozen phone calls a week, I realized now that it's vacant and being fixed up, this would be the perfect time to sell.

Not to mention, I never had a mortgage on the property, so I don't get the benefits of leverage or having a mortgage interest tax write-off. The property is located in California, with some of the highest tax rates in the country, and as property values increased, the rental yields became a smaller and smaller amount relative to some of the other investments I was making. Although I have to say, once I started moving forward with the process of selling, I thought, "Why don't I list another one and just see what happens?" So, I did.

This was a property that, similar to the first one, was also paid off, located in a state that I no longer lived in, and I had a few other investments that I could use the money towards. So, I put it on the market, and within days I had multiple offers over asking and hit open desktop.

To me, this has nothing to do with the fear that real estate prices have peaked; they're about to crash, get out now while you can. But instead, taking a very close look at where my money is allocated and handing off the keys to someone else who's able to manage it in ways that I cannot. Now, in terms of the others, though, most likely I'm going to keep them because I have them all locked in on low-interest fixed-rate mortgages for the next 30 years. They're all in areas that I believe will continue doing well, and they're rented to long-term tenants.

But in terms of where I'm going to be reinvesting that money, along with my overall thoughts on the housing market, here's where things get interesting. Since I've been focusing on a more backseat approach without being tied up in the day-to-day operations, I've invested with Brandon Turner in one of his recent funds where him and his team handle everything, along with a partnership with Ryan Pineda, where we could cumulatively buy more real estate along with other accredited investors than I could do on my own.

Which, by the way, if you're interested in potentially partnering with us, I'll link to some more information down below in the description to see if it might be a good fit. Separately, I'm also expanding for the first time ever into a franchise opportunity with Houston's Hot Chicken. Yeah, it sounds random, right?

Well, long story short, a few months ago we had Houston on the podcast, the Iced Coffee Hour, where he mentioned his chicken restaurant and how he was about to host a car show at a new location that was about to open. Of course, I showed up, I ate the food, and it was so unbelievably good. Houston also gave us the full behind-the-scenes tour of his entire operation, and when I jokingly said, "Ooh, I want to be able to invest in this," he said, "Uh, sure, go ahead."

Now, as of right now, we're still working out some of the details, but fingers crossed in maybe the next few weeks or the next month or two, I could have my own location here in Las Vegas. We've structured it in such a way where him and his team can handle all the day-to-day operations, and then I could focus on what I'm good at: investing and eating hot chicken sandwiches.

Okay, no, but for real, selling off these properties just frees up a little bit more capital that I could reinvest somewhere else at a higher return with a lot less work on mine. Although, in terms of the overall state of the housing market, here's what you should be made aware of. First of all, it's no surprise that higher mortgage rates are going to have a negative impact in the housing market.

In fact, it's said that a one percentage point increase in mortgage rates reduces demand by 10.4%, suggesting that policies that target mortgage rates are an effective way to influence the housing market in the short run. Because of that, CoreLogic found that out of the 392 markets they looked at, 45 of them had a greater than 50% chance of seeing a decline over the next 12 months, which just for reference, a month ago only 26 markets fell into that category.

As you're about to see, even though some areas show some risk of a decline, the most susceptible areas are the ones that saw the biggest increases, including Boise, Idaho, Bend, Oregon, Fresno, California, and Lake Havasu. However, just because they deem them as overvalued doesn't necessarily mean they're going to drop, and with inventory still remaining at record lows, believe it or not, prices are still expected to rise by another five percent year over year.

Of course, in terms of the good news for home buyers, it does appear as though more inventory is coming in the market as sellers list their homes. Price cuts are becoming slightly more common, with eleven and a half percent seeing a reduction, and home buyer demand is down 14% year over year, giving buyers a little bit more leverage than before.

On the rental side, though, prices are actually still increasing and catching up with the cost of everything else. Like, according to Redfin, median rents rose 15% year over year, above $2,000 a month for the first time ever, with some states like Texas seeing an increase of nearly 50%. Of course, since a third of the inflation rate does comprise of what's called the owner's equivalent rent, there is the concern that higher rental rates would contribute to a higher likelihood of seeing a bigger rate hike, which in turn would decrease housing affordability.

But overall, in terms of the big picture, the honest answer here is that most likely we'll see higher inventories, more sellers list their homes, buyers are qualifying for less because mortgage rates are going up, and rents will keep getting more expensive. Yes, some areas will probably see a decline in value, but others could stay the exact same or even go up.

So, some words of wisdom for someone who's obsessed with all things real estate: here's what I think. For home buyers, be patient, take your time, don't rush into a deal, shop around your mortgage, and only buy something that you intend to keep for at least seven to ten years. This way, you're not going to be at the mercy of fluctuating values, and generally, the longer you hold onto a property, the less likely you are to lose money.

Now, for home sellers, you have to price aggressively if you want to sell your home in a market that's becoming slightly more competitive. Unfortunately, buyers only look at the newest properties that are coming on the market, so if you come in right off the bat overpriced, they'll easily look over it, and then you lose all the momentum. Thankfully, though, for investors, now is the time when you could actually negotiate on a property with the seller who wants to unload as quickly as possible.

On top of that, rental prices tend to remain fairly stable regardless of what happens to housing values. That means for buy-and-hold investors who simply want to rent their property long-term, this could be a great way to leverage your money and hedge against inflation in an asset that tends to go up in price over time.

Now, sure, some markets could see a decline, but if you focus on cash flow, as long as you have a fixed-rate mortgage, this could end up being a pretty good opportunity. Finally, for renters, do your best to shop around, and it never hurts to try to negotiate with your landlord not to increase the rent.

I'll tell you firsthand, as a landlord myself, I would much rather keep a great tenant and not raise the rent than go through a vacancy and try to find someone new. In fact, this philosophy has worked so well that out of 10 rental units, I still have some of the original tenants from 10 years ago, where I have never increased their rent. Probably a bad business move, but I have a lot of peace of mind knowing that they take care of the place really well, they always pay on time, and when they help me out, I'm more than happy to help them back.

So overall, I hope that explains my thought process for selling off some of the real estate that I honestly thought I'd be keeping forever. The older and busier I've got, the more I began to value the mental clarity of freeing myself up from the day-to-day things that pull me away from the bigger picture.

By diversifying into new ventures, I'll be able to expand and talk about brand new topics here in the channel that I haven't been able to before. So if you want to be a part of the journey and see what happens with the hot chicken franchise, make sure to subscribe, and there will be a video coming very soon with all the details.

Thank you guys so much for watching. Also, feel free to add me on Instagram, and don't forget to get your free stock down below in the description when you sign up for Public using the code "gram." That could be worth all the way up to a thousand dollars. Enjoy, let me know what you get. Thank you so much for watching, and until next time!