Mortgages & Creative Financing

Grant Cardone Is Fabulous, But He’s Wrong: Here’s Why

Expertise: Mortgages & Creative Financing, Personal Development, Landlording & Rental Properties, Personal Finance, Real Estate News & Commentary, Real Estate Deal Analysis & Advice, Real Estate Investing Basics, Business Management, Commercial Real Estate
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Unless you’ve been keeping residence under a rock someplace, you’ve by now listened to the BiggerPockets Podcast 108, which features entrepreneur and real estate mogul Grant Cardone. The show was one of the best for sure – almost as good as mine. Grant is the master of his universe. A lot of folks should be motivated by this podcast.

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However, if you listen between the lines — and you don’t have to dig too dip — Grant doesn’t not have too much love for the no money down (NMD) approach to investing. He makes this point of view known elsewhere as well. In fact, Grant and those who agree with his point of view don’t see NMD as investing at all.

Since you absolutely can’t argue with Grant’s success, and he obviously must be taken very seriously, where does this leave Ben Leybovich, Brandon Turner, and 95% of the people on the BiggerPockets Forums and this blog? ‘Cause I hate to break it to Grant (like he cares), but most people have neither the kind of money to facilitate his style of investing nor the capacity to form businesses that can throw off this capital.

Why NMD is Not Investing According to Grant

Simple — the way he sees it, investing is defined as protecting and increasing equity, buying power, and magnitude of cash flow. In simpler terms, he thinks that an investor puts equity into the deal in order to convert the face value of it, as well as the cash flow that collateralizes it, from earned to passive. He and others believe that an investment of capital is the defining characteristic of "investment."

Related: The Book on Investing in Real Estate with No (and Low) Money Down

I am not going to argue this point of view – his is the most bulletproof model. Liquidity is the mother of safety in many ways, and relative to this, a business has much more potential to generate meaningful cash flow than does real estate. Grant’s formula is one that many successful investors have used:

  1. Start a business.
  2. Grow it so it throws off a lot of cash.
  3. Take this cash, which happens to be rather highly taxed, and buy income-producing real property with it, which converts the face value of cash flow into a much lower-taxed real estate variety. And as Grant acknowledges, this cash flow is less but more stable, meaning that the equity it collateralizes is safer.

Brilliant — and text-book effective. No argument at all!

But is This the Only Way?

How many out of 1,000 people who achieve some level of financial success via real estate do it Grant’s way? Perhaps one in a thousand?

Sure, if you want to shoot for the stars, then look for way to model yourself after Grant. Follow the three steps outlined above.

But I promise you, if you are starting out with nothing and want to retire with some element of dignity and cash flow that is a 100 multiple of that which your neighbors receive on their SSI checks, you don’t have to be one out of 1,000; you don’t have to be Grant Cardone. This is precisely what makes RE so good – you don’t have to be a genius! You just need to know a few things, and NMD by the way is quite helpful to most of us…

Take Me for Example

While my friends Brandon Turner, Serge Shukhat, and Brian Burke will definitely tell you that I am a genius — especially if you put a gun to their head  — I’m definitely not. I started out my college years intending to make money as a violinist, but this plan was interrupted when I was diagnosed with MS. My plan B… well, there was no plan B. There also was no income to speak of, considering I was making paychecks teaching kids at a preparatory department in a nearby college.

I came into college with credits in advanced physics and calculus, and UC counsellors asked me why I bothered with music. I could be making so much more money going for a different degree. But I love music and was taught by my parents that if I do what I love, the money will come. Besides, I was better than the average Joe on the fiddle. So in spite of low income potential, I went for it. But as I mentioned, even that prospect of low income was taken off the table following my diagnosis.

I am not a betting man; I like guaranteed returns, which is why I buy apartments. But if I were a betting man, I’d bet that 75% of you reading this are in somewhat of a similar situation.

Well, here’s the thing. If you listen to Grant, you have no business investing in real estate. Why? Because the only way you can do it is NMD, and according to him, you’d be stupid to do it. According to Grant, you should either have the brains and the balls to create a business to facilitate investment in real estate, or go work for someone.

I Disagree

I started out with nothing. I had a spouse who believed in me and a capacity to think and learn, but that’s about it.

I've built a portfolio of small to midsize multifamily units, which has allowed me not to work for a living. I am not rich (working on that), but I am not poor either. I have become an expert at creative finance and no money down because this was my only option.

Today, as I write this, my partners and I are negotiating on a 90-unit. Maybe it'll work out, in which case we'll syndicate it, and maybe it won't — that's beside the point. Here are a few things to note:

  1. I had to work up to a point where a deal like this is even within the realm of possibilities. This wasn’t possible 4 years ago. It takes intellectual worth, you know what I’m saying?

Guess what? It was the NMD deals that facilitated the learning.

  1. I have partners without whom I could not do this kind of a deal at this point. I need back-up. Both of these guys have more money and units than I do today (though this is not going to last). Both of them, I’d like to believe, take me seriously. Why? Because I’ve done a lot of things, and I’ve learned enough to not do even more things. They could be lying to me, but they tell me that I’m pretty smart.

Guess what? I got “pretty smart” by doing nothing down deals.

  1. I’ve been using OPM for 8 years now, and if this deal comes through, I’ll be floating a PPM of $1,000,000+; I will raise $1M from investors who agree with my partners in thinking that I’m not stupid.

Guess what? I got here by doing nothing down deals.

Newbies, Listen Up!

There is an important distinction I want you to wrap your heads around, and it is this:

Nothing down is not the final destination. I don’t plan to retire carrying too much debt, and neither should you. However, NMD has been a stepping stone. For me, NMD has been the facilitator of critical mass in terms of both cash flow, balance sheet, and intellectual worth — and it absolutely can be for you as well!

I am going to turn 40 in March. I have a portfolio (all bought with nothing down) that has allowed me to do vastly better financially than any music student I went to college with. It has allowed me not to work a job and instead to focus on learning RE. It has bought a margin of financial safety for my family, which is better than many (I’d say most) of my friends, even those earning high incomes!

Related: How to Invest in Real Estate with No Money Down (4 Rules You NEED to Follow!)

I get richer when I sleep, and it's a nice feeling to know that my car payment is being made by my tenants. I love seeing my balance sheet going up by thousands of dollars every month. Amortization is a wonderful thing indeed!

Even if I don’t make a dime of cash flow from any of the properties I currently own (as if), and if I never do another thing in RE, I am going to retire multimillionaire. Do I want to do it with the property I currently hold? No, probably not; I’ll trade up. But in concept, I am OK. My family is OK, and while I want more (and I’ll have more), I am OK.

That’s a lot better than a violinist is supposed to be able to do.

All of it was teed up by having the audacity to not listen Grant Cardone and go for it in the only way that I could: no money down.

I am not a genius, and I am not special. If I can do it, you can do it. Appreciate and admire Grant Cardone. Listen to every last thing he has to say. But take him with a grain of salt as it relates to NMD. Done right, no money down works!

Investors: What do you think? Is no money down truly “investing?” Is it a feasible way to build wealth? 

Leave a comment below!

Ben has been investing in multifamily residential real estate for over a decade. An expert in creative financing, he has been a guest on numerous real estate-related podcasts, including the
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    Nicole Miller Langston from Clearwater, FL
    Replied over 1 year ago
    Late to the party but here goes: Cardone’s strategy is just one of many on the pathways to success. Granted it’s not for everyone but he made it clear what his stance on the matter is. Is he wrong? No, again it’s just one of the many paths to success in real estate. As long as it isn’t fraud, it ain’t wrong! IMHO, every dime of your own money that you’re NOT putting down is money you will owe or have split with your partner(s) down the road when the returns come in. You don’t get something for nothing. As such I’m doing it partly Cardone’s way: working more, going into business on my own, and saving that extra money towards a down payment on my first property. Will this process take longer? As a new investor, it’s very possible that it will. Will I ever look at NMD as a viable option for me? Perhaps….
    Joseph Turnquist New to Real Estate from Indianapolis, IN
    Replied over 1 year ago
    Love this post. 1) I admire GC and 2) I’m looking to start my portfolio using NMD. Posts like this one give me the encouragement to drive forward and closer to my dreams. Thank you!
    Jennifer C. Investor from Denver, Colorado
    Replied over 1 year ago
    Ben’s post doesn’t touch this other subject that Grant Cardone is wrong about. He says that the single family housing market is dead for investors, and in the future everyone will want apartments (I’m paraphrasing something I heard him say.) Grant Cardone doesn’t have kids. If he did he would know that the single family home market will never die, because parents are desperate for a yard so they can get the kids OUT of the house but still have them in sight.
    Jay Kaulitzke from Colorado Spgs, Colorado
    Replied over 1 year ago
    I agree, I don’t think it will ever be dead for exactly that reason. The times I have seen him say to stay away from single family properties though mostly has to do with vacancy. If you have a single family home that goes vacant for a month then you just lost 100% of your income. If you instead have a 10 unit apartment complex and 3 units are vacant then you have only lost 30% of your income.
    Joshua F. Investor from Tauranga, Bay Of Plenty
    Replied over 1 year ago
    Great stuff! The article and the comments!
    Jay Kaulitzke from Colorado Spgs, Colorado
    Replied over 1 year ago
    I love Grant, and I think he is brilliant at what he does but I also think he has lost perspective on what it is like to be the average Joe just getting started out. Grant’s business was already very successful before he even started in real estate. When he tells the average person that they shouldn’t even get started in investing until they have saved up 100k that is because to him 100k is pocket change. For the average person saving 100k is an impossible task and if everyone followed his advice most of us would never even get started. Just squirreling away money in a savings account that doesn’t earn enough interest to keep up with inflation isn’t helpful. You need to get started, and get started anyway you can.
    Dev Horn Flipper/Rehabber from Arlington, TX
    Replied over 1 year ago
    I’ve been in this business a while and I don’t sell courses, seminars, or books on this topic, so perhaps my perspective will have some merit. In real estate investing, value is created when we buy a distressed asset, repair it, and restore it to full value (so it can be sold for a profit or rented for cash flow as it continues to appreciate). If we get a house under contract and sell (assign) that contract, the value of the property has not been improved – it’s the exact same product that you just “bought”. This forces wholesalers to buy at an even steeper discount than a cash investor, which is super tough in hot real estate market like we have today. I think that’s the big challenge with NMD today. There is almost no low-hanging fruit in the real estate market right now – NMD “investors” need to be smarter and work harder than the people that have the capital to invest. Wholesalers (“NMDers”) that succeed are excellent marketing people – they find the deals – and excellent negotiators – they get the right price. Some cash investors who are not good at marketing and negotiation like to work with wholesalers – it’s a win/win. All that said, wholesaling (NMD) is not actually “real estate investing” (except perhaps in the case of subject-to deals where you actually cash flow a property with little or no money down). Does this matter – whether you call it “investing” or not? Probably not. NMD is a way to start a real estate marketing business that can generate cash that could be used to invest in real estate (or any other asset). The point is, you start from wherever you are and build something. In my experience, I’ve seen a few NMD guys become successful cash investors. Honestly, most do not succeed and end up doing something else before long. There’s nothing wrong with that. Only 1 out of 10 new businesses will succeed in any industry. If you LOVE real estate and the art of the deal, then go for it. And if you don’t enjoy real estate, you’re not so great a marketing, and hate to negotiate… there are probably other opportunities that will be a better fit. ~ Wish you all much success!
    Dev Horn Flipper/Rehabber from Arlington, TX
    Replied over 1 year ago
    I’ve been in this business a while and I don’t sell courses, seminars, or books on this topic, so perhaps my perspective will have some merit. In real estate investing, value is created when we buy a distressed asset, repair it, and restore it to full value (so it can be sold for a profit or rented for cash flow as it continues to appreciate). If we get a house under contract and sell (assign) that contract, the value of the property has not been improved – it’s the exact same product that you just “bought”. This forces wholesalers to buy at an even steeper discount than a cash investor, which is super tough in hot real estate market like we have today. I think that’s the big challenge with NMD today. There is almost no low-hanging fruit in the real estate market right now – NMD “investors” need to be smarter and work harder than the people that have the capital to invest. Wholesalers (“NMDers”) that succeed are excellent marketing people – they find the deals – and excellent negotiators – they get the right price. Some cash investors who are not good at marketing and negotiation like to work with wholesalers – it’s a win/win. All that said, wholesaling (NMD) is not actually “real estate investing” (except perhaps in the case of subject-to deals where you actually cash flow a property with little or no money down). Does this matter – whether you call it “investing” or not? Probably not. NMD is a way to start a real estate marketing business that can generate cash that could be used to invest in real estate (or any other asset). The point is, you start from wherever you are and build something. In my experience, I’ve seen a few NMD guys become successful cash investors. Honestly, most do not succeed and end up doing something else before long. There’s nothing wrong with that. Only 1 out of 10 new businesses will succeed in any industry. If you LOVE real estate and the art of the deal, then go for it. And if you don’t enjoy real estate, you’re not so great a marketing, and hate to negotiate… there are probably other opportunities that will be a better fit. ~ Wish you all much success!
    Jeremy Wickens
    Replied over 1 year ago
    There is something really special about watching a bunch of really successful debate, share and agree with each others opinions in full view of average people with far less experience. Thank you Ben, Grant and Biggerpockets for making this possible.
    William Weaver Jr from Charleston, SC
    Replied over 1 year ago
    Thank you for sharing this post. I have read Grant Cardone’s Real Estate book and he definitely discourages investing in anything less than 100’s of doors. We all can’t walk the same path as he did and need to start somewhere. What is your suggestion regarding no money down in today’s climate. With a correction over the horizon, wouldn’t that be a risky play?
    Ricky Davis from Searcy, Arkansas
    Replied over 1 year ago
    I agree with both of you. Grant is correct and I believe that no money down is a way to get started. BUT it also carries a lot of risk. I personally believe that if someone does not have any skin in the game it is far easier to walk away when times get tough, and they always do.
    Josh Eitingon Rental Property Investor from Massapequa, NY
    Replied over 1 year ago
    Totally agree with Ricky. Everyone needs to start somewhere. What we hate seeing in this market especially is people syndicating deals that do not have experience and not putting their money with their mouth is..
    Josh Eitingon Rental Property Investor from Massapequa, NY
    Replied over 1 year ago
    Totally agree with Ricky. Everyone needs to start somewhere. What we hate seeing in this market especially is people syndicating deals that do not have experience and not putting their money with their mouth is..
    Josh Eitingon Rental Property Investor from Massapequa, NY
    Replied over 1 year ago
    As someone that is not the biggest Grant Cardone fan (just the style), I generally agree that real estate is not meant as a no money down game. From a smaller deal, higher leverage perspective it has worked well the last 10 years but, there is a lot of risk and if you are not well capitalized this can lead to catastrophic issues in what should otherwise be a pretty low risk space.. From a syndication (OPM) perspective, I get both cautious and frustrated when I see first time syndicators doing larger deals, raising a lot of money, and not investing their own. If there isn’t your own skin in the game, you should not be the one running the show (especially the first time you are raising money!) While we do syndicate deals, we always invest personally. I’ve invested in other’s syndications passively and would never invest if a sponsor is not very experienced in the asset class and if they’re not investing personally.
    Jason S. Jackson
    Replied about 1 year ago
    I understand this post is almost two months old, and I apologize. I honestly think Mr. Cardone has the right overall strategy for retirement, but I need to find the NMD way in. Let me explain. Autoimmune disease has wrecked my life. I turned 41 in July, and I've been sick since I was 15. Finally, after developing my third dehabilitating disease, I can no longer do my traditional "work" and essentially have been left to waste away on a small income, other than what my wife pulls in, for the rest of my life. What my wife pulls in combined with my small income isn't going to get it done. I'm not disabled to where I can do nothing, I am just disabled to where physical labor, and consistently having to pull 12-16 hour days is no longer physically possible. I *need* something, but I've got nothing to invest. I can't do physical labor to get that starting nest egg Grant talks about, and please believe it isn't because I'm lazy. We lost almost everything in medical bills due to our awful health care system. I *thought* I'd be prepared to provide, but like Grant talks about in his amazing videos, shit happens, man. Well, it happened to me. Now, NMD may be my only way to get to Grant's method. I sure hope he doesn't think less of me for it, because now that I've found these ideas, I'm going to work my ass off. Any option off the bottom should be viewed as a good option -- just maybe not the most efficient one.