August 12, 2019

Chiro Hustle Podcast 111 – Grant Cardone

Who is Grant Cardone?

At the age of 60 in the year 2019, Grant Cardone is famous as an internationally renowned sales trainer and as the bestselling author of The 10X Rule and If You’re Not First, You’re Last. His primary venture, Cardone Training Technologies, provides Fortune 500 companies, small businesses, and entrepreneurs with an interactive sales training platform.

Additionally, he has gained popularity for single-handedly building a massive real estate empire that has a present-day portfolio valuation of around $900 million. His investment vehicle, Cardone Capital, has been involved in more than $800 million in real estate transactions covering around 4,700 units of multi-family properties throughout many American states. Here is an overview of how Cardone built his multimillion-dollar real estate empire without raising external capital from anyone beyond his close family members.

Exploring Cardone’s Empire

Cardone’s interest in real estate as an investment option is owing to several key reasons and features the property market offers. They include better stability in property valuations compared to the high volatility observed in the equity market, regular cash flows in the form of monthly rent from tenants, benefits of amortization as rent from tenants pay down the debt and help create long-term wealth, tax benefits available in the form of depreciation, potential for long term appreciation in property value, and availability of leverage which allows one to purchase property worth four times the money they actually have.

Based on the tagline “Making big deals available to everyday investors,” Cardone's real estate venture raises money from the public by launching public equity funds in which common investors can purchase units/shares. The collected money is used to purchase existing income-generating properties, and the earnings are shared with the investors as regular monthly distributions. Created through real value and tangible assets, Cardone claims to simplify the real estate investment for the average Joe investor.
For instance, the Cardone Equity Fund IV will use the collected capital to invest in purchasing multi-family properties in the states of Florida, Texas, and Alabama. The fund manager may also occasionally invest in single family and commercial properties, and in other real estate-backed investments in other markets within the Continental U.S.

Cardone manages all the properties and takes care of all operational overheads linked to the real estate dealings as well as the property maintenance. It allows the common investors the complete freedom from handling such operational issues. They benefit from a steady flow of monthly income, an appreciation in the property value over the long term, and can focus on their regular jobs and businesses. Essentially, Cardone claims to let investors create a passive income stream which guarantees regular cash flows, the scope of value appreciation, and the opportunity to create long-term wealth as a side business/investment.

Capital Growing Side Business

Unlike the majority of property emperors, who successfully built their sizable portfolios as a full-time career, Cardone’s real estate holdings were slowly expanded as a side business. Cardone’s real estate venture was not intended to be his primary business or his main income source. Instead, it was created in order for him to have a stable holding place to preserve and grow the earnings from his sales consulting company.

During a February 2015 interview with the BiggerPockets Podcast, Cardone said, “Every time I get money, I go broke again because I shove it into this real estate thing.” He went on to elaborate that “I take these three companies that will probably be destroyed in my lifetime, that I’ve made a ton of money off of, and I take all that money and I park it over here so I am always broke running these three, or I am having to hustle every day to get new money and then I shove it in over here.”

Though at the core he considers himself an entrepreneur and not a real estate investor, Cardone believed that real estate provided a wealth-preservation vehicle that his other business ventures could not offer.

Early Tryst – Property Investments

Since the age of 15, Cardone had been actively involved in the real estate market and was studying the intricacies of the deals. During his childhood, he and his father regularly visited different pieces of property as a family outing activity, and over time his interest in buying buildings developed. To this day, shopping for real estate is still something he enjoys doing with his wife and children.

In 1981, Cardone graduated from college with an accounting degree. Despite wanting to immediately acquire properties, he delayed it for a few years. This allowed him to grow the money that he would later use to make investments. Additionally, it allowed him sufficient time to imbibe as much as he could on the subject of real estate.

In an October 2014 episode of his real estate show, Cardone revealed that a lot of his education – “understanding different terms such as net operating income (NOI), what a pro forma is, and what a good market looks like” – came not from academic study but from actually “looking at different deals, and meeting agents.” In fact, Cardone has never read anything on real estate investing: He replaced the knowledge that can be found in books with the knowledge that can be attained by actually looking at listings in different markets.

The First Step in Investment

At 29, Cardone finally put his years of real estate studying into practice. He bought a single-family property in Houston that initially did well. However, after a few months, the tenants left, and Cardone’s cash flow dried up. He hated the fact that he had to lessen the focus on his main business in order to find new tenants. Afraid that this situation would recur, Cardone quickly sold the property for a break-even price and swore that he would never purchase single-family residential real estate as an investment ever again.

Slow and Steady Approach

Cardone’s second acquisition did not take place until five years later, in 1987. During that time, he continued to accumulate cash as well as increase his property investing knowledge. His first multi-family property deal was a 38-unit complex in San Diego. Cardone acquired the property for $1.9 million, making a down payment of $350,000. Just over a month later, he acquired another complex.

Cardone continued to purchase more complexes – at first, one at a time, though the pace later picked up. In 2012, Cardone Capital made what was dubbed as Florida's largest private party acquisition of multifamily real estate. It consisted of a portfolio of 1,016 apartments spread over five apartment communities for a total of $58 million.

Financing the Acquisitions

In a March 2015 interview with Joe Fairless, offering the “Best Real Estate Investing Advice Ever,” Cardone disclosed that less than 2% of his real estate portfolio is owned by external partners, all of whom are his close family members and friends. The majority of its acquisitions are funded with Cardone’s personal cash as well as traditional bank loans. A large portion of the Florida deal was financed with debt from the Federal National Mortgage Association (Fannie Mae).

His present-day real estate holdings are based in Alabama, Arizona, California, Florida, Georgia, North Carolina, Tennessee, and Texas, and continue to expand across many other regions with new funds being launched regularly.

The Bottom Line

Though Grant Cardone is famous as a professional sales trainer, he has successfully built a real estate empire from scratch which is now valued in excess of $740 million and comprises of a diversified portfolio of multi-family properties spanning multiple U.S. states. More people are renting now than at any point in the past 50 years and the number of homeowners has remained relatively unchanged. The market is big, and by offering easy investment options to common investors Cardone is capitalizing on the big potential that is available by purchasing multi-family properties. However, investors should note that such investments come with their own set of sector-specific real estate market risks, and property appreciation needs longer holding periods.

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