Grant Cardone has talked over and over about why buying a house is a horrible idea. He says that no one should ever buy a house to live in and that you should never buy a single-family home as an investment to rent out either. Is buying a home to live in a good idea? Is buying a home as a rental a good idea? Should you wait to buy real estate until you can afford a 16 unit or larger property? These are all things we will discuss, as well as Grant’s first investments and how he got started on his real estate journey to over one billion dollars in multifamily properties under management.
Who is Grant Cardone?
Grant Cardone is a salesman, sales teacher, motivational speaker, and real estate investor. He started to get noticed as a trainer for car salesman. He then moved on to train other salespeople and to build a name for himself as a motivational speaker. He wrote the book the 10x Rule which helped get him noticed nationally. He is also a real estate investor in multifamily apartment buildings, created Cardone Captial, which is a real estate syndication company and has stirred up controversy by being a Scientologist.
I first heard of Grant Cardone when he appeared on the first of his two Bigger Pockets Podcasts in 2015 (#108). I read his book the 10x Rule which I thought was decent and started to follow him. He was all about motivation, being super successful and giving life everything you had.
I was less impressed with Grant when he was on the Bigger Pockets podcast for a second time and completely changed his message. On the second podcast, he talked about why buying houses was a horrible investment, why buying rentals was too risky and why flipping houses was asking for trouble. Instead, we should be happy with a 6% return from his syndication company Cardone Capital.
Grant went on to say that buying a house to live in was the worst investment anyone could make, you should never buy single-family homes, and you should not be greedy by trying to make more than a 12% return. Mostly I was concerned with him telling everyone how bad it was to buy a house when historically buying houses has been one of the best investments for everyone.
What is Grant Cardone’s Net Worth
Grant loves to use his wealth to promote himself. He is constantly taking pictures in front of his plane, his cars, and on vacation. Ironically I never see him take a picture in front of the billions of dollars of real estate he owns or has under management. In fact, on his Instagram page, Grant says he has $1.4 billion dollars AUM, which stands for Assets Under Management. A lot of people think Grant is a billionaire, but he just has a billion dollars of assets under management. That means he manages apartments that have a value of over one billion. His net worth is not one billion and from what I have seen is net worth is around $300 million. That is a pretty good figure and nothing to be ashamed about, but it is not one billion.
Is buying a house for suckers?
Grant says on his YouTube videos, on social media, and in articles he has written that buying a house is for suckers,.
- He says a house is not an asset but a liability because you spend money on it and it does not pay you. I think this is a false statement because a house can pay you and you would be paying rent on another house if you do rent and don’t own, so at the very minimum, a house saves you money.
- He says that a house ties you down for 30 years because most people get 30-year mortgages on homes. I do not agree with this either since you can move and rent out a house or sell it. In fact, renting may tie you down more than owning!
- He says it is cheaper to rent than to own but usually used buying a 20-million dollar homes as an example. Yes, it usually is more expensive to own 20-million dollar homes than rent, but it is actually usually cheaper to own lower-priced homes than rent them out. The price of the home matters, and most people are not buying 20-million dollar homes.
We will talk about all these points in more detail and how Grant got started with a single-family home!
Grant Cardone’s first real estate investment
Grant bought his first house in 1990 for $78,000 in Houston, Texas. It was a single-family home that he needed $4,000 to purchase. He sold the home a year later at a break-even price. He used the home as a rental, making about $100 a month, but his tenants left, he got scared, and he got rid of the house.
Why is this important? Cardone is a massive influence on many young entrepreneurs and people looking to make it big. I think Grant provides some fantastic advice, but he also says no one should buy a single-family home. I think single-family homes can be a great investment and wanted to analyze Grants first deal. I got all the information in the house from Grant himself in a video he posted a couple of years ago.
Was his single-family home a good investment?
Grant even gives us the address, which is 1113 Sheffield Street in Bellaire, Texas. Grant says it is worth $400k, and Zillow agrees and values it at $405k. Zillow also says the market rent is $1,850 a month. Zillow is not always accurate, but for the purpose of this article, we don’t need the exact value.
Grant mentions in his video the house is worth 5 times what he paid. 5 times your investment is pretty good for over 29 years. 500 percent return over 29 years is 17 percent a year. However, Grant did not have to use $78,000 to buy the house.
He spent $4,000 to buy the house because he said he was an owner occupant. Owner-occupants can get low-money-down loans and sometimes zero-down loans. Grant admits he never lived in the home and lied to the bank. I give him credit for admitting this and admitting it was wrong. He could have lived there for a year and then rented it out, which is perfectly legal and fine in most cases.
Obviously, Grant got a loan to buy the house, which was most likely a 30-year loan based on interest rates at the time (more on that later). It has been 29 years since he bought the house, and I will make a huge assumption that the loan is paid off now. That means his $4,000 turned into a $400,000 asset. That is a 10,000 percent return! If you invested the $4,000 into something that made 17 percent a year for 29 years and reinvested all the returns, you would still be short of $400,000.
If you had taken that $4,000 and invested it in something that makes 6 percent a year, it would be worth $21,673.55 after 29 years.
But the house would have made Grant more money than that.
It was tougher for Grant to make money 30 years ago
I think of appreciation as a bonus when I buy rentals. The cash flow is what I love and is the main advantage. Grant mentions his payment was $600, and he rented out the place for $700 and something. He says he was making $100 a month, which may be generous. With all the expenses on a rental, he may have been losing money each month. However, interest rates were close to 10 percent in 1990! Now they are less than half that, and the payment would be $350 to $400 a month. With today’s rates, it would make a decent rental.
Over the years, the payment would stay about the same, with only property insurance and property taxes increasing. The rent would slowly increase with inflation. As we can see, the current rent estimate is $1,850. The rent has increased by 240 percent over 29 years!
This property may not have been the best rental when Grant bought it, but it would have turned out to be an awesome investment had he kept it. If he would have bought a better rental property, it would have been an amazing investment.
How Grant could have done better
Grant talks a lot about not buying single-family homes and that they are a horrible investment. That is not always the case, and I think we showed that above. What if Grant would have invested in single-family rentals the right way?
Buy below market value
Grant bought that house for full retail value, and he even teaches that it is okay to buy at full retail. I personally want a great deal on everything I buy. I bought my first rental property for $97,000 in 2010. At the time, I knew it was worth at least $130,000. It was an estate sale, and the heirs wanted it sold fast. Every rental I have bought since then was bought well below market value and has been a great deal.
If Grant had bought the house in 1990 as a great deal, he might have paid $50,000 for it. Now his loan would be much lower, his payments would be lower, his cash flow would be higher, and if he had to sell, he would make money on the deal. If he wanted to take money out of the house, he could refinance it based on the actual value and take more money out of the house than he spent to buy it!
I can see why Grant got scared when his tenants moved out of this house. He was barely making any money on it when he had tenants paying rent! I would have been scared as well, especially since Texas has very high property taxes. The rent needs to be much more than the mortgage payments to make money on rentals. I can see why he likes multifamily rentals now because many times they provide higher rent compared to the purchase price, but not always.
When I bought 16 of my single-family rentals, the rent was usually around $1,300 a month and the mortgage payment $500 to $600 a month. There are other expenses with rentals, but you can see how much room I had to make money. When you buy the right single-family rentals, they can be cash cows just like multifamily properties. I have nothing against multifamily properties, but they are not always better than single-family.
Grant said that he did not want to take up valuable time finding new tenants. He wanted to concentrate on his other business and sales to make money. That makes sense to me as well, but you don’t have to do all the work on rental properties yourself. I have a property manager who manages all of my rentals, and I spend almost no time on them.
It costs money to hire a property manager, but when you have the right rental properties, you have room to hire property managers and still make money.
When you buy the right rentals below market value or they go up in value, you can often use a cash-out refinance to take money out of the property. For example, if you have a loan of $50,000 on a property but the property is worth $100,000, you may be able to get a new loan of $75,000, 80,000, or even $90,000 or more depending on if you live in the home or not. If you spent $4,000 to buy that home, you could take out $25,000! You have gained money, still own the house, still make money on cash flow, and have money to invest in something else. This is often referred to as the BRRR strategy.
Keeping the rental instead of selling it
We can see that Grant would have a $400,000 house with no loan on it had he kept it and not refinanced it. He also made at least $100,000 on rent after you consider the rents would increase over the years while his payment stayed the same and eventually the payment would be gone. He also saved money on taxes because houses can be depreciated. If he had decided to refinance the house at some point, he could have taken cash out and bought another house and then did the same thing on that house to buy another…and then another. If he would have stuck with the single-family strategy, he would have numerous single-family rentals, created millions of dollars in equity, 10’s of thousands of dollars in cash flow, and would have started it all with $4,000. Not a bad investment if you ask me.
Grant Cardone multifamily investments
Grant says single-family homes are always a bad investment. He says multifamily properties are much better, and the bigger the multifamily property, the better. I cannot argue with his success as he claims to have more than 1 billion dollars of multifamily properties under management. That doesn’t mean he is worth 1 billion, as he has a lot of debt on those properties. I also have a lot of debt on my properties and think debt is an awesome thing if used right.
I agree that multifamily can be a better investment than single-family rentals in certain situations and vice versa. If you want to scale on a massive level, it is easier to do it with multifamily properties. The property with multifamily properties is that they are very expensive.
Grant says that you should buy 16-unit properties or bigger, which usually cost at least a million dollars. You need to put 25 percent down to buy these deals since you cannot get an owner occupant loan on a property with more than 4 units. That means you are putting at least $250,000 down to buy a multifamily property.
People tell me all the time on my Instagram page and Facebook page that they are waiting to invest in real estate until they buy a 16-unit property because that is what Grant said. They then say their plan is to buy in more than 10 years! For ten years, they are missing out on the amazing advantages of real estate because they want to start with a huge deal. If they would have started with single-family or 2 to 4 unit multifamily, they could buy that 16 unit property so much faster because they would have cash flow, could sell and use a 1031 exchange, or refinance to get more cash faster.
Does Grant really think everyone should only buy a 16-unit property?
One problem with Grant’s marketing is he likes to say things to get attention. He has admitted himself in Instagram comments he “just wants to get a rise out of people” and what he says isn’t always what he believes.
The overall impression that Grant leaves is don’t buy anything that is 16 units or less. But in a video in 2017, he talks about how to buy your first investment. The basic strategy is to:
- Buy a 2 to 4 unit property with a low down payment owner-occupied loan.
- Put 3 to 5 percent down to buy the property.
- Live in one unit for a year and collect rent from the other units.
- Slowly move up to bigger deals with more units.
This is commonly known as house hacking and is a great strategy! I wish he talked more about this now so his followers had this info. You can also do this with a single-family home and rent out part of the house or turn it into a rental after one year of living there.
Rent from yourself and pay an LLC
Grant loves to talk about renting from himself. He puts his houses in an LLC and pays rent to the LLC, but you have to be careful with this strategy when starting out. If you buy an owner-occupied property, you cannot use an LLC to buy it because the banks will not lend to an LLC. The owner-occupied loans only work if the property is in your personal name.
Some people may want to buy in their personal name and then quitclaim the property to an LLC, but if you do that, you may trigger the due-on-sale clause. The banks say that if you sell the property they can call the loan due at any time, and if you quitclaim or sell the property to an LLC, that counts as a sale. Be very careful using the LLC strategy when you have a loan in your personal name!
If you buy a single-family home to live in, you also have another huge tax advantage. In the United States, if you buy a house and live in it for at least 2 out of 5 years, the profit is tax-free up to $250,000 for an individual and $500,000 for a couple (in most cases). If you move the property into the LLC and pay yourself, you may lose this tax-free advantage. If you want to use the live-in flip strategy to buy a house, fix it up, and then sell in two years tax-free, you probably should not put the home in an LLC. Note, this is not a 1031 exchange, and you do not have to buy a replacement property to get the profits tax free. Please consult an attorney or accountant for specific tax advice.
A house is a liability, not an asset
Grant also states that a house is a liability because you pay money into it. Other influencers have adopted this wording as well, and I think they are completely wrong. First, the definition of a liability is not that you put money into it. A liability is a loan, a debt, or something you owe someone else. The loan on a house is the liability, not the house itself.
Second, if it was true that everything that costs you money is a liability, then stocks with no dividends, gold, silver, and fine art are all liabilities as well. I don’t buy that for a second.
Third, a house can make you money. You can rent out part of the house, even in a single-family home. You can earn money on mineral rights. You can earn money from a business you have at home. If you did not have the home, you would have to pay rent somewhere. So while the home may not directly pay you, it saves you money since you don’t have to pay rent somewhere else.
Rent where you live
The rent instead of buying strategy is everywhere now. The problem is that there are many misconceptions about the advantages of renting versus buying. Grant says always rent where you live, but I think he is wrong.
Is there more work when you own a house?
He says you have to mow the lawn and take care of other maintenance when you own. When you rent a single-family home, you still have to do these things! You also still have to pay the utilities when you rent either in the form of higher rent or actually paying them directly.
Is it cheaper to rent than to own?
When you buy a house, the mortgage payment is usually lower than when you rent. That is, house landlords like me make money. When you buy massive houses, that may not be the case. Grant loves to use the example of buying a $20 million dollar home when comparing renting versus buying. He says he would have to put $5 million down to buy the property when he could use that $5 million to buy an apartment complex that makes money and rent the house for $100,000 a month instead. Guess what: he is right. If you are spending $20 million on a house and putting 20 or 25 percent down, it is not a wise financial move. However, that is not what people do when starting out. They buy a $200,000 house and put $10,000 down or less! You can’t buy an apartment complex with $10,000. It is usually cheaper to own in the lower price ranges and more expensive to own in the higher price ranges.
How does inflation affect the rent?
Rents will go up over time with inflation while your payment stays the same. Even if owning is not much more expensive now, it will be in a few years. Over ten years, it will be much more expensive…all while your mortgage payment stays the same and you are paying down your loan
Does renting save you time?
As a renter, you could be forced to move every year. Grant talks about time and protecting time. Well, renting can cost you a ton of time if you are forced to move when you do not want to. It can uproot your work, your family, your kids, all when you have much better things to do. If you own, you can move when you want to.
Are you tied down for 30 years when you buy a house?
Flexibility is not sacrificed either. People want to be able to move around. When you buy, you do not have to sell the house when you move: you could rent it. Most leases are at least one year long, and you are tied down to a property with them as well. If you buy the right properties, you should be able to move around often and sell or rent easily. It is not as easy to get out of a lease!
If you really want to rent where you live by owning the property and paying your own LLC, that still counts as owning the property you live in. I have no problem with that as long as you know the tax rules and loan rules when you do that. Overall, buying is much better than renting for the majority of people. In fact, middle-age America has 70 percent of their net worth in their homes. Even for people who have no idea what they are doing, a home is a good investment. It is a forced savings plan, an investment that almost always goes up, and an amazing use of leverage.
Grant is not wrong about everything. In fact, some of his videos are full of great advice. However, the perception that you should only buy a 16-unit property and that single-family homes are bad is not what he has done personally. It is also not what he has always taught, as we can see from his videos. I think you can see from the property that he bought how great of an investment a single-family home can be when bought wrong and how much better it can be when bought right. Multifamily can be a great investment as well, especially when house hacking. You don’t have to wait until you have $250,000 in the bank to invest in real estate and be successful.