For years, Graham Stephan was held up as an example of what successful real estate investing looked like. He bought properties after the housing crash, locked in low mortgage rates, renovated rundown homes and built a portfolio of seven rental properties across Southern California.
On paper, it looked like a huge success. According to him, one property he bought for $59,500 is now worth about $400,000. Other homes delivered returns of more than 300%, and he sold one property for $500,000 more than he paid just seven months earlier.
But in a recent YouTube video, I Made Millions In Real Estate…It Wasn’t Worth It, responding to claims that some investors regret buying rental properties, Stephan admitted that the reality was far more complicated than the numbers often shown online.
“I hate to admit it, but she has a point,” Stephan said, referring to fellow YouTuber Shelby Church who argued that owning rental properties often isn’t worth the hassle. “This is the part of real estate investing that almost no one talks about.”
The Costs That Don’t Show Up in the Spreadsheet
Stephan said most people focus on purchase prices, rent payments and appreciation while ignoring everything that happens after a property is purchased.
“I’m talking the repairs, the vacancy, the risk, the expenses, the taxes, and the moment a good deal on paper looks like not a good deal in real life,” he said.
One of his biggest mistakes, according to Stephan, was refusing to raise rents.
His philosophy was simple. He had purchased properties at low prices with fixed mortgages around 3%, so he believed he could keep good tenants happy by charging below-market rents and avoiding annual increases.
“I just want peace of mind,” he explained.
The strategy worked for years until costs began rising. Insurance premiums doubled. Repairs became more expensive. Utility costs climbed.
Then Los Angeles imposed a temporary ban on rent increases during the pandemic, preventing him from catching up later.
By the time rent increases were allowed again, Stephan said the small adjustments barely made a dent in his higher operating costs.
“Every real estate investor told me that I was an idiot for not raising my rents, and I was an idiot for not listening to them,” he admitted.
The impact went beyond monthly cash flow. Because investors often value rental properties based on income, lower rents also reduced what buyers were willing to pay when he decided to sell.
Stephan estimated that one property’s below-market rents reduced its sale value by roughly $100,000.
The Return Wasn’t What He Expected
Repairs were another major issue.
Stephan said there were years when almost nothing went wrong, making the properties seem highly profitable. Then a major expense would appear and erase an entire year’s earnings.
“There have been properties that I’ve had requiring zero maintenance for years,” he said. “And then there’s one year you get a $20,000 expense and then all of a sudden the entire year’s profit for that place is gone.”
He also shared smaller examples, including paying $800 to repair an ice maker in a refrigerator that was worth only about $400.
Those experiences forced him to look more closely at his actual returns instead of focusing on rising property values.
“When people would ask me how my real estate was performing, I would usually just point to the values,” he said.
After accounting for repairs, vacancies, insurance increases, maintenance costs and other expenses, Stephan calculated that many of his properties generated annual returns of only about 4% to 5%.
“At that point, when a Treasury bill pays the exact same without any of the stress, without any of the work, without any of the illiquidity, without any of the tenant risk and liability, I have to ask myself, was that actually a good investment?”
That realization played a major role in his decision to sell most of his portfolio.
Stephan stressed that he is not saying real estate is a bad investment. He believes it can still work well for people who live near their properties and are willing to put in the effort.
But he says investors should be far more realistic about what ownership actually involves.
“Every phone call, every thought, every management expense, every little thing you do,” he said, should be factored into the investment.
His conclusion was that the returns he got were nowhere near as good as he expected them to be.