Nov 2, 2023 - News

Real estate mogul Grant Cardone argues homebuying is a trap

Grant Cardone with his new book. Image courtesy of the author.

Trying to buy a home in today's expensive market may seem depressing — but famed real estate investor Grant Cardone says renting may be better anyway.

What's happening: In his latest book, "The Wealth Creation Formula: How to Go From Middle Class to Wealthy," released in September, Cardone argues that many common investments are actually problematic.

Why it matters: Through his Aventura-based firm, Cardone Capital, he controls a real estate portfolio that includes numerous Florida apartment buildings, which he says is worth about $5 billion.

What they're saying: "Saving money is a trap. 401(K)s are a trap. Colleges are traps. Homes are actually traps," Cardone tells Axios. "Buying a single-family home traps an individual for 30 years under the pretense that it's a savings account and that you're going to make money."

  • His opinion may be controversial, but he says that, factoring in current interest rates over 30 years, "a $500,000 house in Miami would have to then sell for $1.5 million for you to break even."
  • He suggests that people rent instead and use money they would have spent on a down payment on something that can produce income — such as their own businesses or a rental property.

Catch up quick: Cardone, who gained fame through the show "Undercover Billionaire," social media channels, books and seminars, is known for crowdfunding — pooling money from many small investors, buying apartment buildings, collecting rent from tenants and sharing the profits.

  • He recruits working-class people to invest as little as $5,000, in contrast to other private equity funds that are only open to wealthy investors.
  • "We have 13,000 investors. The goal is to get that up to hundreds of thousands of investors — even millions one day," Cardone says.

Yes, but: Cardone has been sued by investors who alleged they were misled. Cardone prevailed in court.

  • His website acknowledges that his firm aims for returns in the teens, but warns that investors could lose some or all of their investment money.
  • Critics point out that his firm takes fees and that some properties he buys are highly leveraged.

What's next: In November, the federal government-backed Fannie Mae will offer mortgages on duplexes, triplexes and fourplexes with just 5% down payments rather than the previously required 15%–25% down, if the owner lives in the property.

  • Assuming a buyer could find a multifamily property for $400,000, they could buy it for just $20,000 down, live in one unit and rent out the other(s).
  • "If that was a single family-home, you would have to put $80,000 down," says Cardone, who's planning a free webinar about the policy change.

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