Why is Grant Cardone so opposed to single-family homes?

26 Replies

In BP Podcast 108 Grant Cardone says to "stay away from single-family homes." 

Why is he so opposed to investing in single-family homes?

Could it be that what he does and pitches is multi-family ?  I don't know the guy, but does he have any "programs" "how to" stuff? 

When you listen to any podcast, read any blog or post, read any opinion, always, always ask yourself:

1. Who is this person?

2. Do they have expertise, from experience and education?

3. Are they really qualified to advise me in the subject area?

4. What is their motivation? 

Now, investing in anything is investing! Investing is always a financial decision process, if it's not, you're not investing. 

Your investment plan is a personal matter, or a matter for stockholders and owners. 

This becomes Personal Finance 101 or Business Finance 101.

What you choose to invest in is a personal matter, or simply a business model, I'll bet most newbies haven't really mapped out a plan or set attainable goals as they usually just follow a crowd. 

For anyone to suggest that an investor should invest in only one asset type or avoid one asset type is full of horsefeathers.

Several things an investor must understand to make an informed investment decision;

1. Knowledge of the asset, how it functions and operates as an investment;

2. Liquidity and market conditions of that asset;

3. Costs of the asset;

4. The costs of administration and holding that asset.

5. The costs to dispose of the asset;

6. The investor's experience, knowledge, expertise as well as the  time and efforts required to manage the asset to achieve the investment goal. 

Now, if you run through that basic check list to compare multi-family properties to single family homes, you will see the differences of each asset class. Select the one most appropriate for you, not the crowd. 

For a new investor in real estate, pay close attention to number 6. 

Property condition has a lot to do with your efforts and skills. On the people side of management understand that a 12 unit apartment will be 12 times more involved than a single family. 12 times the vacancy and occupancy issues, 12 times the personal drama issues, 12 times the leasing issues, 12 times risks of late payments and legal aspects. 

I'm not saying that multi-family is worse than owning 12 houses, many aspects can be much better.  It's different.

For a newbie, the financial security, cost of obtaining, managing, cost of disposal, degree of knowledge required to manage, liquidity, understanding market conditions as well as time and effort to self manage are all going to fall on the beneficial side to a single family dwelling. That's not to mention the liability exposure being much less with a single family home. 

But, if you have a good general business background, the education to understand more complex business and finance aspects, have money, have the time to devote and have experience in dealing with the public, a multi-family could be your first good investment.....it's just that most newbies don't have these assets or qualities.  :)    

      

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

@Josh Foret I have been listening to Grant Cardone for three years and he was the one whom 'introduced me' to Bigger Pockets. I think everyone has their forte and with Mr. Cardone he loves HUGE deals. He also does a lot of out of state investment and dealing with and managing a portfolio of dozens of single family homes is a lot different (in his opinion) then an apartment building of 350/400 units. The people like Grant (and maybe Trump) think HUGE and SFH do not entertain them.

Grant would rather do 2 HUGE deals per year than 200 small deals per year.

It's all about thinking big in a sense of owning a few multi-million dollar properties rather than owning hundreds of relatively cheap SFRs. Once you're on that level, it's a lot easier to cash out of 1 or 2 deals using a 1031 Exchange and roll the profits into your next deal. This would be close to impossible on the same scale by using SFRs as the investment vehicle.

Then comes the ability to increase value on large multi-families vs SFRs. For example if you could find a way to raise the rents just $50/mo on an 5 cap apartment building with 100 units, you just increased the value of the property by $1.2 Million. Try doing that on 100 SFRs at the same time.

I downloaded and listened to the10x rule (one of grants books) from what I got out of it, if you have the systems, and resources in place, it takes relatively the same effort to buy one sfr house as it take to buy an apartment complex. Its a decent book/audio, The dude is pretty intense when it comes to just about everything he does in life... pretty motivating stuff.

I love Grant Cardone from a motivational perspective. And the 10X Rule was a great read. I don't personally get a lot in the way of specifics on running your business.

He really talks a lot on how to market yourself and your company. You're always selling is his mantra. I'm not sure most people are looking to go as big as he suggests, but if you ever need a pick-up, you should read his stuff or listen to one of his myriad of media he has available.

As a side note, and I know this is probably just me, but he needs to lay off the off color language and adultish themed topics. I'd love to be able to listen to him with my wife and child in the car, but there is just no way I can. He might be hurting his own cause (he wants everyone in the world to know who he is) because there are a lot of people who will not listen as soon as they hear an F-bomb.

Medium webuysmallmultifamilesRonald Perich, We Buy Small Multifamilies | [email protected] | 314‑896‑0669 | http://webuysmallmultifamilies.com

I would say it is mostly about vacancy rates. In a Single family, if your tenant leaves your occupancy goes from 100% to 0%. In multifamily, you are not just relying on that one tenant. I've heard him say this a few times throughout my time listening to GC!

VA Agent # 0225220714

One other thing. He's not completely opposed to single family homes. His website shows the single family he bought in Los Angeles. 1401 Oriole Dr. Of course, purchased for $7.35M and sold for $17M after eight years. Pretty sure this is where he lived before he moved to Florida.

Medium webuysmallmultifamilesRonald Perich, We Buy Small Multifamilies | [email protected] | 314‑896‑0669 | http://webuysmallmultifamilies.com

Originally posted by @Ronald Perich :

One other thing. He's not completely opposed to single family homes. His website shows the single family he bought in Los Angeles. 1401 Oriole Dr. Of course, purchased for $7.35M and sold for $17M after eight years. Pretty sure this is where he lived before he moved to Florida.

 Pretty fair gain for single family home ; )

I agree, it's about scale.  Cardone is a big thinker and doer.  He would rather focus on and close a couple large deals per year than hundreds of smaller ones. His returns will be larger and though big deals take more time, energy and resources (not to mention patience), it would be less chaotic (I feel) than re-doing the same start-to-close processes over and over for smaller deals.  I think he's just playing in a bigger ballpark at this point in his career than most of us.  I think a lot of us here share the same goals to get to that scale some day.

I discovered GC a few months ago by accident and what an AWESOME accident it was!  Or maybe it was the universe speaking to me......   Since then, his motivational videos have totally inspired me!  I've got 10X, Sell or Be Sold, and If You're Not First....  I am also taking the Cardone University courses and love the material.  It's ignited a huge fire in me that drives me to pursue my goals in a much more aggressive manner.  

Initially my focus was SF but after listening to his rationale for going MF, I understand why bigger is better (at least in his case).  He buys big because the rewards are bigger.  Like he and other mentors have said, it takes just as much effort to make $100 as it does to make $1 million. 

@Sherri Southwell , I agree in principle that the efforts are the same, but the work needed to perform is a much different animal. When you buy larger properties, the due diligence is much bigger. You might need environmental studies, walk-throughs might take an army of people, management of the units requires a larger effort, etc.

On the other hand, building a portfolio of 100 properties is much easier to do if you go the multi-family route. One hundred closings is no small feat. One hundred property inspections at one hundred different locations. One hundred ways to finance. Holy cow, is that tough.

For example, if you have $100K for a down payment and only buy eight-unit buildings, you'd need 4 purchases in 146 months (months 0, 70, 106, and 130) to make $100K in cash flow per year. With SFH, you get there in 122 months, but you have to make 36 purchases to get that same $100K/yr cash flow. It seems to me that 36 purchases is going to be significantly more work than four purchases, especially on the closing process.

Medium webuysmallmultifamilesRonald Perich, We Buy Small Multifamilies | [email protected] | 314‑896‑0669 | http://webuysmallmultifamilies.com

It is definitely a personal preference. More opportunity for greater cash-flow with bigger properties. 

Just stumbled upon this (old) thread, but figured I'd add my 2c while I'm here... Curious if people disagree with this... Grant is right that, in theory, if you're gonna take the time to do a deal, might as well do a mega-deal (massive apt complex) than a tiny deal (1 SFR). But, I think the biggest hindrance is that no matter what you buy, you need to make it a GREAT DEAL. And b/c there's literally a million SFRs for sale at any moment all across the US, there's always plenty of GREAT DEALS to be had on SFRs, and they're not that hard to find.

If, however, you're really intent on finding a great deal on a massive apt complex... the amount of time you might have to spend to find that great deal can simply be massive. (Not to mention the subsequent time needed to negotiate the deal, build your team, put together the complicated financing, organize the complicated rehab, etc, etc, etc)... It's simply too much to do for most of us who have a full-time job. Hence, the simpler thing to do for those of us who have more cash than time is just to invest in SFRs (or small multi-families) bc it's much easier to find great deals on those using the limited free time we have while still working a full-time job, spending time with our families, etc, etc. Just my 2c - curious if people disagree...

Grant is all about 10X, so multifamily is just that from single family

He is also managing risk behind himself he moves on to the next project. There is a LOT of sense in the simple notion that a vacancy in a SFR is a huge impact. One vacancy in even a 4 unit building only has 25% of the same impact. One vacancy in a 100 unit property, and there you are.

If I don't go all MFR, my goal is to at least get one of them.

The Russians have a saying that I like to remember:

Quantity has a quality of it's own.

@Josh Foret

Hi Josh

I think SFH work in certain markets, but the time is passing to buy them. What I have noticed is that the majority of investors concentrate their efforts on SFH because of their comfort level, being that most investors have experience buying their own home. I think that breeds competition and more people chasing the same asset only increases the price and cuts margins.

Some one stated that multifamily are more of a headache than singles.  Would you rather have 12 homes scattered throughout a city, or 12 units in one location?  It is all about limiting beliefs and thinking you can't start with multis.  I would rather have one closing rather than 12 individual closings, less costly and less aggravation dealing with sellers, bankers, broker, etc.

If you think you can buy multis, then you can. If you think you can't, then you are also correct.  BTW, Grant Cardone is a beast. You may not agree with him, but you can;t deny his success.  Listen to his message.  Everyone is always scared of the upset, and miss the power in his message.

Gino

Medium jake and gino real estate 400 consultants 3 01Gino Barbaro, Jake & Gino LLC | [email protected] | (914) 522‑3041 | http://www.jakeandgino.com | Podcast Guest on Show #182

@Gino Barbaro Thanks for that. So where are the best places to buy MF rt now then?

@Eric P.

I feel your pain.  I am also a New Yorker, but was fortunate to invest down south with my partner.  I would look for areas that have job growth.  @seth williams has a blog  on his site www.retipster.com that talks about investing outside your market. 

I am currently in Florida trying to assess this market

Good Luck

Gino

Medium jake and gino real estate 400 consultants 3 01Gino Barbaro, Jake & Gino LLC | [email protected] | (914) 522‑3041 | http://www.jakeandgino.com | Podcast Guest on Show #182

@Gino Barbaro Haha, thanks! I have no problem investing outside my market. My main issue is that I've found a lot of great cities (in the south & midwest) that offer great cashflow on SFR (class B/C locations in the cities). But it seems like the good MF opportunities are harder to find & a lot of the MF seems to be in the ghettos.

@Josh Foret probably because he doesn't see SFH as effective way to build passive income.

Ayodeji Kuponiyi MBA, A&K Investment Ventures

I think that if you can afford to jump into the MFH market it is a great was to build income. But most people starting off don't have the money to get into the larger deals. Even if you can scrape up enough for the down payment the larger issue for most beginers is having enough funds for CapEx reserve and reno right off the bat.

Most people start with SFR and use those as a stepping stone to larger deals using the equity they have built up.

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