My Issue w/ Grant Cardone's statement to never buy a house

18 Replies

I enjoyed episode 250.  Congrats guys on making it.

I think Grant had some good content to challenge my paradigm on investment strategy.  However, his view on not buying houses doesn't make sense for the following reason (I know he's echoing something Robert Kiyosaki said as well so I'm countering some credible voices).

Anyway, it costs more to rent an equivalent home than what you would buy.  In addition, you're accumulating equity while paying off your house if you buy.  So his argument that the equity you have in your home could have been used for another cash producing investment isn't completely true.

Case in point, Let's say you buy a $300K home, so you're out the $70K in down payment and closing costs.  So it's true that is money you can be using for an investment.  On the other hand, your P&I + insurance + taxes for your home is probably at $1,900/ month, whereas for an equivalent home to rent you're looking at $2,500/month +, a difference of $600/month.  Over the course of 5 years, that's $36K in rent savings + $30K in equity you've paid into you home which nets you at about even.

So a better answer is if you want to like the sexy life style and move around every year or two, then he's right, you shouldn't buy, but if you plan to stay somewhere longer because you have a regular job, etc. then there's a breakeven point where it makes sense to buy, especially when you add in other benefits like being able to draw a line of equity on your house and tax write offs on mortgage interest.

Trulia has a great tool to calculate the break even point between rent vs buy on any property.

https://www.trulia.com/rent_vs_buy/

I'm curious to know what others think.   Cheers

https://www.biggerpockets.com/renewsblog/biggerpoc...

The other main argument proponents of multi family like to make, Grant included, is the scaleability of multi vs. sfr., the main point being that if you have a unit go vacant in a house you have 100% vacancy. This argument only makes sense if you have 1 house. If you have a portfolio of 100 houses and a 100 unit apartment your vacancy would be the same across the “portfolio.” I agree that multi scales better for other reasons though.

The issue I have with Grant is that he has owned his own houses! He brags about making a ton of money off of one of his houses in CA in one of his books. I was almost yelling at Josh and Brandon to ask Grant if he owns any houses.

The other issue I have is that there are PLENTY of people out there making great money off houses, at least what I consider great. Grant is just on a different playing field. He’s looking at national trends and probably making 10’s to 100’s of millions NOW vs everyone else who’s looking at local trends and looking to make 100’s of thousands and then become millionaire and then deca millionaires. Grant is already there. He’s already making a TON of money so of course it’s unfathomable for him to think about buying sfr’s. It’s not too unfathomable for a lot of hedge funds though, is it? They are making tons of money too along with a lot of other investors out there.

@Luke Terry

What Grant says makes sense but not for everyone. I think the biggest factor is the market you live in. I don't like how he makes it a black and white issue. If I lived in Ohio I would definitely buy. Like you said buying is cheaper on a monthly basis. Also, the properties are cheaper so the amount of capital you have to sink into it is much less.

Where I live I will never purchase a home, regardless if I can afford it or not. The average 3 bedroom 2 bath in my area is $800,000-$1,000,000. The mortgage on that home after 20% down is roughly $4,500. I can rent the same home for $3,000-$3,500.

The difference between the mortgage and the rent is not even the primary reason not to buy. It's the lost opportunity cost on the $200,000 down payment. How many rentals can I buy with $200,000? Probably enough to cover the rent on the house.... It's a waste of capital. Cardone's advise works for me, but everyone should look at their their own situation and decide.

owning a home to live in is the foundation of the US real estate market and frequently unspoken or unknown is that 35 to 40% of folks own their own homes free and clear.. and there is nothing wrong with that.. who wants to be a life long renter.

I would not rent simply on principal I don't want someone telling me what I can and cannot do.. I don't want a leave to come up and all of a sudden I have to move.. to me moving is tramatic I have a lot of stuff .LOL.

not to mention I have 4 times and going on 5 times now in the last 40 years of owning my personal resi's have sold and made the 500k TAX FREE there is nothing better than that.. at least 2 million in my pocket over the years completely  tax free by just owning homes in the bay area and Portland Oregon.. and on top of that for me my mortgages at some times were higher than rent and at other times like right now quite a bit less than rent.. like 50%..  Plus you still have the mortgage right off which is greater write off than deprecation and it does not recapture putting you in forever 1031 to save on tax as your gains are not only tax deferred but tax FREE..

But I certainly see his point and how can you argue with someone who is in that business and very successful at it.. works for him.. be we are not all him. and cannot all be like him..  ONe multi syndicator I know personally just bought a condo in the sun for well over 1 million he could rent at the same place for years to come.. but he bought.. and he is in the same business and owns many many millions of dollars of multi..

Does Cordone own a jet ??? or do you think he hops on South west ?

Hi @Luke Terry ,

Most REI own their personal homes. What most successful REI do not do is walk into their lenders office and say "max me out, bro."

For a personal primary residence, I'd say the "no more than 3x gross income spent on housing" rule is prudent and fine. That'll work out to a ~33% housing-to-income ratio, which is what most landlords require when they are forcing their tenants to be prudent with their finances anyways. If you can get it down into the 20s and still have a happy home life, great go for it.

Basically, we're just "practicing what we preach" here and taking into consideration that just because your lender can go up to ~45% DTI, doesn't mean it's a good idea. I review what we can do, and the "1/3 of income spent on housing" thing (ie, what we should do) with most of my owner occupant SFR non-investor homebuyers (I like that my 3 year running short sale / foreclosure / missed first payment track record is 0/0/0, tyvm). A great way to end your real estate investing career super quick is to be house-poor and unable to save up any down payments. Most successful REI have their personal finances basically in order (the "101" level stuff, like 1/3 of income on housing & not having a ridiculously expensive car payment) before getting into real estate investing, they don't get into it with two nickles to rub together as some sort of "get rich quick" scheme.

If we're following that 33% rule either way (rent v own), then homeownership then becomes more of a family lifestyle choice than an investment strategy, though if you get lucky with appreciation like @Jay Hinrichs that's certainly icing on the cake too.

My $0.02 as someone that looks over a lot of people's personal finances - successful people, and otherwise. 

Too many people are taking Grant's comments in Episode #250 personally. @Brandon Turner summarized it nicely at the end when he said (paraphrased), "What works for Grant Cardone and his goals may not work for Brandon Turner and his personal goals."

When someone says, "Bald people are ugly" I ignore it because I know I'm bald and handsome as hell. When @Ben Leybovich says it's impossible to make money with a $30,000 pig, I ignore it because I know his statement is designed to be controversial, not a hard-and-fast truth. I consider statement like this, evaluate them against my personal experience or knowledge, determine what is true or false, and then move on.

It's just like leasing a car. In most cases, leasing a car is one of the most financially irresponsible things you could do and many people have written as much. For a select few, leasing a car makes great sense and really doesn't matter because they are wealth and it's peanuts to their bottom line.

Test all things; hold fast to that which is true.

If you have been around enough people in your lifetime there is one universal truth. People like to live their lives all differently. Some groups or people have more commonalities and interests than others but not all 100% the same.

Some people enjoy constantly being on the move because TO THEM that is living. To someone else like me.......... : ) I do not like to constantly move houses or places. Born and raised in GA. I do like to travel and see new places but love coming back home to where my roots are.  

Everybody has a filter and thinking process with their brain on how they view living and the world. That tends to change as we age and have more life experience.

Money IS NOT everything folks. It really just isn't. Everyone puts on their clothes the same way each day.

I do know people of huge wealth. I have read stories of some people in their 60's and 70's in age obsessed about money. In the interview they talk about how they would rather be worth 50 million today and have lived many amazing memories from their 30's to 70's in age then have worked themselves around the clock to have 200 million but not experienced much in life.

Money is only one component of life. Balance is what is key.

Some mentors I go to for advice are very wealthy. They share with me that in their 30's to 40's in age they focused 60% on the business, 30% family, 10% mentoring or helping others.

Middle age 50's,60's they did about 45% business,40% family, and 15% mentoring.

In their 70's now they do about 20% business, 50% family, and 30% mentoring to help others.

They still work on large projects however have trained up others over decades to run their businesses for the most part.

TIME is one of the most precious commodities.

Majority of the population see their home as retirement and something to work for. It instills a sense of pride in a community and area. There is a big emotional component to people's choices and living. It is NOT all about just the dollars folks. As mentioned cost of living and rent to purchase and owning ratios differ across the country. I listened to the podcast a bunch of great points were made.

Grant seems to have a message and way of living life that he wants others to embrace and follow. They can take some, all , or none of what he does and try to make it their own.      

I hear you there.  We recently moved from Los Angeles to the Cleveland area.  It's a totally different ball game in most of California.


Originally posted by @Jonathan Hulen :

@Luke Terry

What Grant says makes sense but not for everyone. I think the biggest factor is the market you live in. I don't like how he makes it a black and white issue. If I lived in Ohio I would definitely buy. Like you said buying is cheaper on a monthly basis. Also, the properties are cheaper so the amount of capital you have to sink into it is much less.

Where I live I will never purchase a home, regardless if I can afford it or not. The average 3 bedroom 2 bath in my area is $800,000-$1,000,000. The mortgage on that home after 20% down is roughly $4,500. I can rent the same home for $3,000-$3,500.

The difference between the mortgage and the rent is not even the primary reason not to buy. It's the lost opportunity cost on the $200,000 down payment. How many rentals can I buy with $200,000? Probably enough to cover the rent on the house.... It's a waste of capital. Cardone's advise works for me, but everyone should look at their their own situation and decide.

@Luke Terry - I agree with a few of your points about Ep. 250 and Grant Cardone's advice

There were 3 key takeaways from episode 250, for me: 

1) "Think bigger" about your next acquisition - This is advice you hear/read in most of the popular Commercial REI-for-beginner books. It really resonates with me. As a guy who's only closed on Duplex and SFR so far, it makes me wonder: Why couldn't I leap frog to a 6... 10.... 20 unit apartment? (assuming ample hustle, focus, relationships, etc)

2) Buying SFRs to live in can be totally awesome, but Grant's lifestyle expectations are different: He wants to fly around and live somewhere every 2 weeks, and I gotta admit... that sounds awesome. Compare that to our lifestyle with 2 kids under the age of 4. We're looking for something different at this point and are pretty darn satisfied with a less-transient lifestyle (for now). An epic trip to the zoo and/or park down the street is a happy weekend for us

3) Depending on the market, buying-right can lower your largest fixed expense 

This is kind of a "duh!" callout, but for our circumstances, buying a 100-year old SFR within 30 minute commuting distance of work in SF ended up being an outstanding decision for our family. Here's why:

  • Bought our house in 2013.  Gained a few hundred thousand in appreciation. We feel very lucky we got in while the market was still rising. Like everyone else, we're expecting a correction in the market and our home value; but in the meantime, we opened a HELOC and are using that equity for investment
  • We live in one of the most expensive markets of the country (San Francisco bay area) - Rents in the city are north of $4,000 for 1 bedrooms in nice neighborhoods (which is why so many folks have to co-habitate). We refi'd a year before opening our HELOC. The refi removed PMI, and lowered our payments significantly. Our mortgage payments are now much lower than current market rents  (and although we only have a modest 3 BR, 2 BA with a little tiny front yard. It's still enough to keep the kiddos appeased, and much more space and comfort than you'll get for 2x the monthly payments in nearby metro areas).

When it's all said-and-done, Grant's prediction for the massive shift away from SFRs in the next 20 years is likely to become a reality. That said, there will still be folks like us in the right context at the right time to call SFR's a good idea

Originally posted by @Jonathan Hulen :

@Luke Terry

What Grant says makes sense but not for everyone. I think the biggest factor is the market you live in. I don't like how he makes it a black and white issue. If I lived in Ohio I would definitely buy. Like you said buying is cheaper on a monthly basis. Also, the properties are cheaper so the amount of capital you have to sink into it is much less.

Where I live I will never purchase a home, regardless if I can afford it or not. The average 3 bedroom 2 bath in my area is $800,000-$1,000,000. The mortgage on that home after 20% down is roughly $4,500. I can rent the same home for $3,000-$3,500.

The difference between the mortgage and the rent is not even the primary reason not to buy. It's the lost opportunity cost on the $200,000 down payment. How many rentals can I buy with $200,000? Probably enough to cover the rent on the house.... It's a waste of capital. Cardone's advise works for me, but everyone should look at their their own situation and decide.

 For Grant it works because he says he moves all over all the time and buying personal makes that less easy.  Most are not moving all the time and or are happy to stay in a good area with good schools etc...I am not sure what he does for kids schools but moving them every year is too disruptive for most parents. 

I would think it makes more sense to buy personal home in Torrance or South Bay vs Ohio actually if one planned on staying. I understand the rent ratio today. I expect that rent to go up so buying at the least would lock in expenses and eventually be less than market rent just like most of those who stayed for awhile experience today.  The other factors for appreciation , pay down, taxes tend to dwarf renting same time periods ( over 10 yrs) if compared. 

@Luke Terry people get offended by ideas that challenge their own view of the world. I love to have my thinking challenged.

I mathematically proved that it would be best for me financially to sell my home and rent, but I have not done that. Home ownership is very much an emotional decision for me as it is for most people. That is ok. I can accept the logic in what Grant says and still do the opposite. 

I am fairly certain you could find rental investments using that $70K that could return more than $2500 per month. You would gain equity in rental property the same way you would in a primary residence.

The difference with renting is that you are not tied to your property. If you lose your job suddenly, you could move your family to a different city with 30 days notice. No worries about selling your house in a down market. You could also down size from a $2500 rental house to a $1200 rental house to reduce expenses. People talk about their homes being a great investment, but neglect to factor in all the repairs, updates and expenses when they go to sell. In some markets, the property values average growth rate at just over inflation. Lots of people lose money when they sell their homes. 

I don't think there is a right answer, but the math very often supports what GC has to say. 

Originally posted by @Joe Splitrock :

@Luke Terry people get offended by ideas that challenge their own view of the world. I love to have my thinking challenged.

I mathematically proved that it would be best for me financially to sell my home and rent, but I have not done that. Home ownership is very much an emotional decision for me as it is for most people. That is ok. I can accept the logic in what Grant says and still do the opposite. 

I am fairly certain you could find rental investments using that $70K that could return more than $2500 per month. You would gain equity in rental property the same way you would in a primary residence.

The difference with renting is that you are not tied to your property. If you lose your job suddenly, you could move your family to a different city with 30 days notice. No worries about selling your house in a down market. You could also down size from a $2500 rental house to a $1200 rental house to reduce expenses. People talk about their homes being a great investment, but neglect to factor in all the repairs, updates and expenses when they go to sell. In some markets, the property values average growth rate at just over inflation. Lots of people lose money when they sell their homes. 

I don't think there is a right answer, but the math very often supports what GC has to say. 

 I agree for some or some locations renting could be better. For other locations rent might average 2500 2bd and there are no $1200 places within 50 miles. So that fixed cost might help or worst case rent out a room for $1200 with job loss scenario. 

The thing that Grant forgets to mention is he made several million doing a LA live in flip. Why would he not encourage some to do that on smaller scale in those type markets and might be equally as % profitable? IDK.

I still agree he is right for the majority of locations but not all. 

A couple of random thoughts:

1. It is possible to "have your cake and eat it too". You can buy a house, get some appreciation (or mortgage pay-down), and access that equity through a HELOC, refi, etc. So it doesn't necessarily have to be an either-or proposition.

2. Just because someone says they're worth $X million doesn't make it so. Until you have an independent audit of someone's finances, they could be worth $1 or $1 billion. There have been plenty of "big-name" people that turned out to be worth Zero when all of the chickens came home to roost. I have personal experience with that. In my "day job", we worked on a 9 figure development project with some guys who drove around in 100k cars, got banks to loan them 50 million, had 20 personal assistants running around, etc. That development went bankrupt in 2007. In the lawsuits that followed, it turned out that the rich guys who "controlled $200 million in real estate" had net worths less than my net worth. The whole thing was a charade. Unfortunately, a lot of good people got snookered in the process because they bought into the hype. 

3. Money isn't everything in life. Some things you do just because it improves your quality of life. I personally believe that being part of a community, knowing my neighbors, and creating a bedrock for others to anchor upon is a worthwhile endeavor. That's hard/impossible to do if you move every 6 months. Some people find having their own airplane improves their quality of life, despite the fact that financially it makes no sense. Not everything has to make sense financially. I see earning money as a means to an end, not the end. 

Agree with what others have said here. I think what Cardone said makes sense for him, but until I get to the Cardone level of success, I'm happy to stay in my home for now. 

Originally posted by @JD Martin :

A couple of random thoughts:

1. It is possible to "have your cake and eat it too". You can buy a house, get some appreciation (or mortgage pay-down), and access that equity through a HELOC, refi, etc. So it doesn't necessarily have to be an either-or proposition.

2. Just because someone says they're worth $X million doesn't make it so. Until you have an independent audit of someone's finances, they could be worth $1 or $1 billion. There have been plenty of "big-name" people that turned out to be worth Zero when all of the chickens came home to roost. I have personal experience with that. In my "day job", we worked on a 9 figure development project with some guys who drove around in 100k cars, got banks to loan them 50 million, had 20 personal assistants running around, etc. That development went bankrupt in 2007. In the lawsuits that followed, it turned out that the rich guys who "controlled $200 million in real estate" had net worths less than my net worth. The whole thing was a charade. Unfortunately, a lot of good people got snookered in the process because they bought into the hype. 

3. Money isn't everything in life. Some things you do just because it improves your quality of life. I personally believe that being part of a community, knowing my neighbors, and creating a bedrock for others to anchor upon is a worthwhile endeavor. That's hard/impossible to do if you move every 6 months. Some people find having their own airplane improves their quality of life, despite the fact that financially it makes no sense. Not everything has to make sense financially. I see earning money as a means to an end, not the end. 

 Yeah, private company, no one knows. I am sure GC has plenty of cash. The first podcast he was at 300 million or 450 I forget and by the 2nd podcast 600 million. So I checked after first podcast, that was 300 -450 million bought and sold combined not 300 mil in assets. Read between the lines sometimes can help and either way he appears to be killing it. 

Originally posted by @Matt R. :
Originally posted by @Jd Martin:

A couple of random thoughts:

1. It is possible to "have your cake and eat it too". You can buy a house, get some appreciation (or mortgage pay-down), and access that equity through a HELOC, refi, etc. So it doesn't necessarily have to be an either-or proposition.

2. Just because someone says they're worth $X million doesn't make it so. Until you have an independent audit of someone's finances, they could be worth $1 or $1 billion. There have been plenty of "big-name" people that turned out to be worth Zero when all of the chickens came home to roost. I have personal experience with that. In my "day job", we worked on a 9 figure development project with some guys who drove around in 100k cars, got banks to loan them 50 million, had 20 personal assistants running around, etc. That development went bankrupt in 2007. In the lawsuits that followed, it turned out that the rich guys who "controlled $200 million in real estate" had net worths less than my net worth. The whole thing was a charade. Unfortunately, a lot of good people got snookered in the process because they bought into the hype. 

3. Money isn't everything in life. Some things you do just because it improves your quality of life. I personally believe that being part of a community, knowing my neighbors, and creating a bedrock for others to anchor upon is a worthwhile endeavor. That's hard/impossible to do if you move every 6 months. Some people find having their own airplane improves their quality of life, despite the fact that financially it makes no sense. Not everything has to make sense financially. I see earning money as a means to an end, not the end. 

 Yeah, private company, no one knows. I am sure GC has plenty of cash. The first podcast he was at 300 million and by the podcast 600 million. So I checked after first podcast, that was 300 million bought and sold combined not 300 mil in assets. Read between the lines sometimes can help and either way he appears to be killing it. 

 Everybody thought MC Hammer had plenty of cash until they saw him on TV hawking "Cash for Gold" on late-night infomercials ;) . If I went on a podcast and claimed to have $300 million, then a couple of years later claimed to have $600 million, who could say otherwise? 

@Luke Terry I listened to the Podcast awhile ago and I don't remember his full argument, but at least to your numbers, I think youre missing the investment part in your calc. 

You'd only have about 18k in paydown after 5 years.  So that would be 36k in rent savings + 18k in debt paydown + the original 60k in down payment.  So 78k equity + 36k in rent savings.

If you were to take that 70k and invest lets say into 3 100k properties with 20k down each that rent for 1k netting 200$/mo and for the sake of the argument you put that money directly towards your rent...  After 5 years, you have 36k in rent savings + the same 18k debt paydown + the same 60k (20*3) in equity.  So 78k equity + 36k in rent savings. Which is the same.

Or .... if you took that 70k  and invested it in a 8% fund (very doable at least with today's growth)... after 5 years, you'd have earned around 32k in interest and be up to 102k.  Take 36k off the top to cover your excess rent, and you still have your 70k left.  

I think as far the numbers are concerned (assuming the right investments), it becomes somewhat of a wash, although my numbers could be very wrong.  Just wanted to give it a whack.

Of course, I know I'd rather buy but that's because i want to build a large garage :D

Let's say you're an investor that currently rents. It would be hard to make a good argument to you that purchasing a SFH with a conventional loan is a good investment. You would have to tie up tens of thousands of dollars for a down payment and spend a significant amount of time and money maintaining your new home, instead of using that time and money to invest and make good returns.

Let's say you're an investor that currently owns a modest house that comfortably fits your family. Maybe you have some equity in the house and a HELOC, and maybe the house is in a good school district, has decent taxes, and has appreciated in the years since you've owned it. Maybe you manage your properties and have a truck, trailer and some tools that take up space. At this point, it would be hard to convince you that owning that property is financially irresponsible when you look at the alternatives.

Your millage may very.  He is a sales person First. He is all about his image. Nothing wrong with that in fact a lot but not a majority voted a sales person in as POTUS. Take what you want out of his spew and throw the rest away. I like to own my home but I don't believe others should always own in this area because jobs change, life changes. Who wants to be tied down with a house that may or may not sell when you need it to. Again I don't take my own advise.   I enjoyed his talk but I don't want to live like him either.

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