Grant Cardone Just Warned Investors of a Market Correction: Here’s How to Protect Yourself

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WARNING WARNING WARNING. You know how pro real estate I am. But recently I started warning you – “beware when cranes are in the air.” If New York real estate fails it will affect the entire country. This is NOT the time to buy, unless you steal.” — Grant Cardone

Are we facing a correction in the real estate world soon?

I recently took a trip to the amazing city of Miami, Florida. I saw at least 20 cranes up in the air, which is by far the most I have seen in a while. It got me thinking if there is any truth to what some of the pessimists have been saying about another real estate market correction. So is it coming soon? Does it matter? If so, what are the smart financial moves to make now?s

I am incredibly bullish on real estate, as are many other savvy and experienced investors and firms all over the world. In fact, surveys of sophisticated global investors revealed by Forbes show that over 90 percent plan to expand their portfolios in America in 2016.

Yet the indicators of a boom and questions of a coming correction aren’t just floating around Miami. It is Orlando, New York City, and throughout California, too. Even in my area of Indiana, they are building more and more.

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Related: The REAL Importance of Warren Buffett’s Words About Today’s Market [An Alternate Interpretation]

When Does a Recovery or Boom Turn Into a Flop?

Looking back at the lessons of the past, it has been oversupply, speculative buying, lack of affordability, and lack of sustainable investment that have really deflated the market.

The Financial Times, as well as several news outlets in South Florida, have noted that there has been a boom in inventory and a resulting cooling in sales and prices in some Miami and NYC market sectors. FMA Data reports that even in Orlando, it now takes almost double the average local income to afford the average housing.

There are reasons that a lot of this growth is supported, such as global investment in the United States, fear of the stock market, and higher rents, thanks to Airbnb. The big question is — is it sustainable?

If history has taught us one thing, it is that there will probably be another fluctuation in property prices. That may be in one year or seven. Savvy investors know this, yet are still buying. What they realize is that over the long run, real estate always goes up. It may dip and go sideways, but that makes little difference to those with a long-term hold game plan.

Choosing Sustainable Investments

Still, to win and to ensure your financial needs are provided for in the short and long term, investors need to be smart when buying. Warren Buffett would say never to buy based on speculative values anyway, but to buy based on production. If a property can continue to throw off positive cash flow, then it really doesn’t matter what others speculate it is worth this year or next.

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Related: The Real Estate Market: How to Analyze and Predict Cycles

So for me, I am looking for investments that are cash cows, but also that are least likely to see the major price fluctuations of properties in Miami or New York City. I am looking for sustainable investments that will remain profitable and retain the most flexibility.

I am 100 percent pro real estate. But it would be irresponsible to wildly claim that there are no clouds on the horizon, when the cranes are casting very visible shadows on the market. I want others to enjoy the much needed benefits of investing in real estate but avoid the pain millions are still recovering from by investing diligently and wisely today.

About Author

Sterling White

Sterling White started in the real estate industry at a early age back in 2009. The company he co-founded Holdfolio is a real estate crowdfunding platform based in the Indianapolis market. Before founding Holdfolio Sterling and partner Jacob Blackett were involved in the purchasing and selling of 100+ single family homes nationwide. In his free-time he trains for a World Record

29 Comments

  1. Curt Smith

    Like the 2007-8 down turn, it will be job loss lead. Watch the monthly job creation numbers. My line in the sand is 150k new jobs. If below watch out. We need to stay above 200k or higher and today we aren’t.

    Too bad there’s poor visibility into subprime auto loans. When I hear data It’s not heading the right direction.

    Just buy low and make sure you have $500 / mo margin on rent vs debt service. This is do able for crafty folks in GA.

    Be the first to drop rents, not the last.

    • Matt Mason

      Not sure where you are getting “we need to create 200k new jobs a month”. With baby boomers retiring in mass every day and most millenials already in the workforce we don’t need to create very many jobs at all, especially as we near full employment for skilled workers. Job openings have soared and companies are starting to have to “steal” other firm’s workers with higher offers. Also, job growth is a lagging economic indicator not a leading one (orders slow down, firms cut hours and ultimately cut jobs in that order not the other way around).

      • steve portock

        Matt where are you seeing this and in what industries? I am software developer and rates are tanking big time. With the constant push to get women programming jobs they don’t really want or can do, and the flood of idiots from coding schools who are working for nothing just to get a foot in the door. I don’t see where the jobs are that can afford $1800+ rents and mtgs here in Atlanta. Pretty sure its worse in more expensive cities, even programmer salaries in ny and california while sometimes hitting 150k per year, is not exactly providing enough after tax dough to live all that great. So please elaborate?

    • Justin Wooten

      Interesting comment Curt “make sure you have $500 / mo margin on rent vs debt service”

      Is that one of your rules of thumb? For your niche anyway. Rather than factoring in many different expenses do you just look for 500$+ after debt services?

  2. Ryan Ball

    Without reading or knowing the full context, I would guess he is speaking about class A high rise properties. That is what is being built in all the major metros and cap rates have really come down. You have to question how many people can afford the top rental rates that these new properties target. I deal with some institutional core real estate funds for my day job and almost all of them are lowering their allocation to multifamily properties like these.

  3. Don Montgomery

    Some US markets are hot and mainly due to international buying. That coupled with lending becoming a little more relaxed for the average buyer and you can have a smoking hot market. I really doubt if Air bnb is the cause of rising rent prices though. lol
    With limited supply of property and almost no new construction for low income homes coming on the market, prices of property naturally rise on any index.
    I am watching mortgage defaults. If they rise like they did in 2008 then it will all go over again. I dont see that happening because people with 550 credit still cant get a loan.

  4. Frank Boet

    I have lived in Miami since 1969, so I am experienced with the cycles this city goes through. I also own a cleaning company with a diverse clientele. We work with realtors, condo associations, property managers, teachers, etc. I like conversing with people about everything especially the economy and real estate in general. From all the whispers I hear, I wrote on BP a few months ago that I am very worried about a market bubble and I expect a recession within the next two years. It was reported a few days ago, that property values in Miami-Dade rose 8% in the last 3 months! That means that the average $300,000 home in Miami just jumped $24,000 in 3 months. This is not sustainable. I have my HELOC on the sidelines for the right opportunity. BTW, the stock market looks like it’s going to selloff soon. The chart looks very ugly. I think the DOW will revisit 15,000 very soon and if it breaks below that, look out below!!

      • Frank Boet

        Just today we were cleaning the carpets in a North Miami condo and I noticed that it was so quite. I hardly saw any residents around and I only heard construction work in one unit. I asked a maintenance men why it was so quiet and he said that there were “a lot” of empty units. I looked up zip code 33141 on Realtor.com and saw there are almost 800 condos for sale just in that zip code alone. Last month I had a professor in the University of Miami tell me that she was glad she was retiring now because enrollment in The U is way down and the student loan debt is going to explode. And don’t get me started on the subprime auto loans. These are the whispers that make me nervous to buy or own investment property right now. I am no expert, I’m just an average Joe trying to make my hard earned money work for me and right now, my money is on vacation.

        • Sterling White

          Interesting insight Frank. I would say there’s still some good deals out there just have to be careful & not overpay. No need to be on the sidelines in my opinion.

        • Frank Boet

          The only “decent” deals I’m finding are in condos. I don’t care for condos. The property has to be lot and block. There are still bidding wars right now, although Trulia just reported that the top 10 U.S real estate markets (Miami being one) are cooling off. RE is just one type of investing. I have been buying and trading gold and oil stocks. Take a look at gold mining stocks (JNUG, GDXJ) and oil ETF’s and see how well they have performed so far this year. I also like stock’s liquidity. One very profitable trick is to keep an eye on the worst performing sector. Sooner or later it will bounce. They always do. Biotech, healthcare and financials are going to be big later this year.

  5. Jon H.

    Good article, I kind of see the same thing but am by no means an expert. It’s hard to track as economics has changed drastically since the great recession. It’s so much more of a global scale than ever. Is the next one a global depression? It also seems like the untied states is at the last phase of a societies life cycle… I focus on what I can do today to make a difference in my life have my eyes and ears open to what can happen. Not a good time to have your blinders up!

  6. Hello Sterling,
    Thanks for the heads up! Your suggestions about only buying cash flow is essential to building one’s investment portfolio. The great thing about real estate is everyone needs a place to live!

  7. I also believe a correction is coming soon, in southwest Florida, we are bordering on an epidemic on affordable housing. Also when your barber starts to give you real estate “tips” you know a correction is on the horizon.

  8. Edward Synicky

    Not sure why some are worried about a market correction. It goes without saying there will be a market correction, there is always a market correction. If you are a long term investor all of this talk is mildly interesting. Investors do not invest in hi rise expensive condo’s, speculators invest there. A long term buy and hold investor purchases a 3/2/2 in a B class neighborhood with positive cash flow. If you have a 50% down payment and can get $500 a month in cash flow good for you. I can live with $2-300 a month and do very nicely. When the market craters as it will, my rents in my states will drop 10% even though my property value drops 40%. I can live with that because I know it is going to happen and I am prepared for it. It will drive you crazy to try and time the market, buy good properties in good neighborhoods, pay them off and live happily ever after.

      • Edward Synicky

        Those rent drops took effect in Florida, Arizona, Nevada and California. No rent drop unless a vacancy occurred then I had to compete with the market, but never saw more than a 10% rent decrease. These are probably the most volatile states for price fluctuation in the nation. Other markets Utah, Tenn, SC, AL and others saw a small drop in pricing but virtually no decrease in rent. During this time it was not possible to increase rents in any market. I have recently seen a significant increase in rents for all of my properties whenever a vacancy occurs. I rarely raise rent with an existing tenant as the cost of re-renting usually out ways any increase in rent should they decide to move..

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