Grant Cardone has become one of the most well-known entrepreneurs and sales coaches in the world and is now the CEO of one of the largest private real estate funds in the U.S., Cardone Capital.
Grant founded Cardone Capital in 2018, and it has quickly grown to almost $1.8 billion in assets under management. What’s more impressive is that he’s been able to do this all through crowdfunding. His multiple offerings have included funds for accredited and non-accredited investors.
We had the opportunity to talk to Grant about how he got started in real estate, how he has grown his real estate business to what it is today, and where he sees the greatest opportunities right now.
Why did you get into real estate?
Because I was tired of working so hard, man. No matter how hard you work or how good you are at something, talent and hard work by themselves won't create wealth. You must have a vehicle that, number one, multiplies itself. With real estate, for every million dollars, we buy three to four million dollars' worth of real estate.
Number two, it should produce some cash flow. No matter how hard I work, when I quit working, everybody quits paying me. It doesn't matter what the company is or how big you are in the company. If you're a ball player and you quit playing ball, they quit paying you. Same phenomenon that happens in the workplace. It's terribly unfair.
And number three, my dad died when I was 10 years old, and he died on a Thursday. Monday, there were no more paychecks. I don't want that to happen to my family. So, I wanted to leave a legacy that could take care of not just my family, but also that could take care of my charities and the things I believe in long after I'm not around. I have seven businesses. Only one of them can pay me in the future, and that's real estate.
What was your first real estate deal?
The first deal was the deal I'll never forget. It was $78,000. It cost me $3,500. I was like, "Oh my God, I'm stealing!" I thought it was the best deal of anything. I knew nothing about how to find a tenant, how to run an ad. I didn't know how to put together a lease agreement. I couldn't do an application for a loan. I had nothing, like, zero. I just knew it was a piece of real estate.
It was 1117 Sheffield in Bellaire, Texas, $78,000. This was before 1990. I got a loan, which was shocking. I got a tenant for the place, and her sister. They rented it from me for $100 more than my payment was, and I was certain I was going to become huge from this.
Well, it looks like you eventually did it
Well, you know what happened was, the tenants, they were with me for four months, and then I started... I had another job. I was in a sales job that needed my full attention. And they called me with a plumbing problem, so I rushed over there and handled the plumbing. Then the next week, it was, "We've got a roach problem." This was Texas. Texas, Louisiana, they've got roaches there.
So, the next thing you know, I think it's late October, early November, they move out, and I was now responsible for the $375 a month payment, and I was terrified. So, I didn't know what to do. I knee jerked, I sold the property. My $3,500 turned into $7,000. And I was like, man, that's 100% return on my money. I don't even know what I'm doing.
I sold the place, and then I started researching how to buy apartments.
Why did you get into apartments?
Yeah, I don't want to be dependent upon Michael for the rent. I bought two houses. Same problem with both of them, which was I was dependent upon one person's rent. My third deal was 48 units. Even if I was 90% occupied, if 10% of the place was empty, that was 48 units, 43 of them would still cash flow, 43 out of 48.
I bought that third deal with $350,000 down. Again, I really didn't know what I was doing yet, but I was learning the game. I made $5 million on that deal. That was a score. That was more money than I had ever made in my whole life. All my businesses, every piece of work I'd ever done, my entire career, from part-time jobs to full-time jobs, I had never made that much money. And that's when I was really like, OK, I'm going to focus on apartments.
And at that time, I was in San Diego, California. It was mid-'90s. It was a terrible time. We were post savings and loan debacle. Economy was terrible. It was awful, awful. And I should've bought every property I could get my hands on back then.
A lot of investors did really well by taking advantage of the 2008 recession. Do you see the COVID-19 pandemic as another good opportunity to buy real estate?
100%. This is probably the biggest real estate opportunity of my lifetime right now.
As soon as COVID happened, I'm like, get ready now. Start focusing on markets that you're in. Every backyard in America, and everybody's a stone throw from wherever anyone that’s listening to this lives. There's a million dollars to be made in your backyard. Every market in America, without exception, there is a duplex, a four-plex, an eight-plex, 16 units, 30 units. I don't focus on any of that stuff today. We're buying all 300- to 500-unit complexes, so that's not competition for me. You can find 10 or 12 units; they'll pay you forever.
We're becoming a renter nation more than we've ever become before, and COVID's going to expedite that process, for economic reasons and also because people do not want to lose their mobility today the way our parents did. They wanted to settle down in a home. They wanted to settle down and have kids.
That's not happening today. You have half the country, probably 75 million millennials, don't want to lose their mobility, and you've got another 72 million baby boomers that they've had enough of being settled down. They've owned a home long enough. Now they're going to sell their home and probably rent apartments in the future.
Second, not even the people on Wall Street can explain what's happening on Wall Street. You've got unbelievable amounts of money going in from day traders right now. Everybody knows what happens on the other side of this. When everybody starts talking about how much money he made in the stock market. I heard three people in my office talking about it today. "Man, I picked up 18 grand. I did this trade and that trade." You know the end is near. Now, whether that's one year, two years, or three months, I don't know. I don't want to lose money.
When I buy multifamily, when I buy a deal that I buy 10 units, and it cash flows when there's seven people occupying the 10 units, that means I have the upside of three units. If it's in a good location, good schools, Whole Foods is close, Starbucks (NASDAQ: SBUX) is around the... there's a Chipotle (NYSE: CMG) in the neighborhood, something like that. And I've got 10 units, and I can rent those for $1,200 or $1,100 a month, depending on what market you’re in, you're never failing on that deal.
Location's good, and you can cash flow, and you're leveraged, it's just... make money on that deal. And you're waiting. While you're waiting, you're getting paid to wait for the appreciation and/or to pay off that loan. This is 10 times better than buying a house. At least 10 times better because you've got 10 units, and number two, you're not paying for the house. They're paying for everything. They're paying taxes, they're paying electricity bills, the water, everything, the rehab of the property, the roof. They're paying for you to actually write off the depreciation.
And the third reason right now is because of the amount of companies that have paused their dividends. There are no yield-producing companies in the world today. Multifamily apartments, they produce a cash flow to the investor, and you can't get it today. You're earning maybe an eighth of a point at the banks on that $500,000 in cash just sitting there. Bonds are paying almost nothing today. Yields are at, what, a half a point or 0.07, some bits of 1%?
You're losing money, and it could go south of that. I'm pulling Class A institutional-grade properties; I'm paid 5% and 6% a year to wait for something to double or triple in value. Even with COVID, my real estate properties' values stayed stable throughout the entire COVID. We were at 94%. We stayed at 94% all the way through COVID.
You've made a lot of successful real estate investments, but I imagine you had to have some deals that didn't really go as planned. What's one that sticks out to you?
There was a deal that I did in Tucson, Arizona. I bought a 2,200-unit portfolio, and there was one property in the portfolio that I knew was not going to cash flow. It broke even, but it paid like a point. I said, "Look, this deal is going to be garbage," and I knew it, and he's like, "You need to take them all. If you're going to buy these seven, you've got to buy the eighth one." I tried to kick it out, and I'm like, I'm never going to make any money on this deal. I'll make $2 million on that deal, but no cash flow.
That deal, I think… it was a small deal. It wasn't a big deal. It was a couple million bucks. I might've had $400,000 in it. But it didn't pay me any cash flow. I love cash flow. I like to be paid.
Did that change the way you look at new investments?
Well, look, every deal can't be a screamer. Most deals... I bought a deal in Charlotte, North Carolina, with $400,000 down. It made me $13 million. I didn't know it was going to do that. It was right at the economic crash.
I get a phone call from a bank, "Hey, we've got an REO. It's in Charlotte. We know you. We know you can move fast. Can you do it?"
I got on a plane, flew to Charlotte, looked at the property. As soon as I drove onto it, I knew immediately I was going to buy the deal. I think 20% of the units were down because of a fire. All kinds of problems on the property. I took it from the bank, gave them $400,000, 70% occupied or something when I bought it. It cash flowed at 70%. But it was a little risky. It was scary. Every deal is scary. Every deal. It's like going into a game. I want to win, but am I going to win?
Is it common to run into some unexpected problems in a new investment?
Yeah. I just bought a deal up in Maryland. I bought it from a fund, an institution. The beautiful thing about buying from an institution is typically they need to be straight with you, because they're public. Because they're public companies, they can't play hide the weenie. They can get in trouble for that.
So, we found a siding issue, that either they didn't know or their management team didn't share with them, because sometimes that happens. Nobody wants to tell the boss about a problem. We just showed it to them. They were like, "Oh, wow, we didn't know that." It was a $1.5 million adjustment, and I'm like, "You don't expect me to eat it, do you? You didn't know about it, right? You guys didn't know about it, right? I didn't know about it. How could I know about it if you didn't know about it?" This is where you've got to learn how to negotiate with these big guys.
The deal died. It actually killed the deal for 60 days, and every three or four days, we would call the guy back. He wouldn't even return our phone calls. We just kept calling him back. We're still the buyer. We put the deal back together. So, sometimes you find out stuff. These are big properties, so you find out something. If they're sellers, then they'll do the right thing.
I'm buying a deal right now, post-COVID, for almost $10 million. We're going to put it in an opportunity fund, almost $10 million less than we had it under contract for before COVID.
It's Monopoly, man. It's Monopoly. I was playing Monopoly with a 10-year-old the other night, and she really wanted Park Place, and I had it. And I said, "How much money you got?" She's like, "I've got $900." I said, "I'll take $900 and every other property that you had," and she gave it to me, and I choked her out on it, because she couldn't keep it.
Not all real estate... It's where in the cycle do you get it? Just because I can make a bunch of money on it doesn't mean the next guy can. You over-leverage, overpay. You're going to have properties in New York. The indestructible New York City real estate will degrade, because you've got the Louis Vuittons and these that are like, "I can't pay this rent anymore."
And so, the marketplace will have the last word. It'll be like, if I can't afford it, I can't afford it, and that brings the value down to whatever the marketplace could pay for it.
That makes the point, do you ever invest in anything besides multifamily?
Look, I've done shopping centers that were great during 2008, actually. I would do shopping centers again in this cycle, because I've had my full attention on apartments since '08, for 12 years. All I've been focused on is apartments. But I would look at retail again right now, right here.
Strip centers. If I could find a strip center in Miami, Orlando, that would cash flow at 50% or 60% occupied, I would definitely consider retail right now. As awful and as negative as everybody is about it, I would look at it as a great location first, with some upside to fill that property up. Because people will go back to visiting places.
And I would also look at office. I think office is going to be a winner out of COVID, actually. I don't think people will be working from home remotely the way Facebook (NASDAQ: FB) and Twitter (NYSE: TWTR) want to suggest.
I think it's a COVID knee-jerk, Oh, we're not going to have offices again. I think people want to be in an office, want to be on a team, they want to be with people. We're social animals. We're not designed to sit at home and work by ourselves.
We have 120 employees right here in Miami. When I opened back up, people couldn't wait to... they couldn't wait to get here. They were wearing masks for a day and a half. And I also think if the COVID thing is real, and people are worried about it, then people will buy more office space. If they were buying 10,000 square feet for 20 employees, they might buy 12,000 square feet for the same 20.
Why did you start Cardone Capital? Why not just keep it all yourself?
Because I can scale this way. Number one, I can scale, and number two, my customers were asking me for it. We do large events. We do one large event a year, and another dozen or so events working with company owners and business owners and entrepreneurs on scaling their business.
I do an event every year; 12,000 people go to it. It's for three days, called the 10X Growth Conference, the biggest business conference in the world today. It's the most profitable, for sure. And I've got people in there, they're buying seats for $10,000, $15,000, and $20,000, and they're like, "Hey, I've got $200,000 to put in a deal, I've got $350,000, I've got a million dollars. I want to invest with you." They see what I'm doing.
And so, we let a few people in, and then we let a few more in, and then I'm like, "Hey, this is working good for them and working good for me."
We did, one week ago, $6.5 million to our investors. If you want to make a truly loyal customer, don't sell them something, send them something. When I start sending people checks, man, I've got people praying for me. People who are like, "Make sure Grant Cardone is healthy, God."
They're praying to Allah, "Hey, Allah, make sure Grant Cardone is healthy." If you start sending people money, they'll fight for you, man. They'll throw down. So, I swore I would never take other people's money, because I thought it was going to be a pain in the ass, and we have 3,700 investors that have given us $400 million.
Who is Cardone Capital for?
Yeah. Cardone Capital is for someone that doesn't want to do all of the work. The perfect audience would be someone who's starting their own business, a doctor, a business owner, a CEO, they've got a family at home, and they don't have time to manage 200 units on the weekend.
For every deal that we buy, I probably personally look at 80 deals to buy one deal. And I might still not get that deal. It's a tremendous amount of work to buy real assets. Unlike the stuff that people can buy going to swap. You can go on there and say, "I'm going to buy some Amazon (NASDAQ: AMZN) today for $2,400." What's at risk? $2,400. Buying a... whether it's a $1 million deal or a $140 million deal, it takes time, it takes energy, it takes an LOI, it takes a purchase and sale agreement, it takes a loan, it takes somebody managing it. It's a big asset, and if it's a real asset, it takes time.
The perfect investor has $1 million, and they want a better return on their million dollars. I buy a million dollars of Amazon, I get a million dollars worth of stock. I buy a million dollars of Cardone Capital, I get $3 to $4 million worth of real estate that will depreciate. The $1 million, you'll get $4 million worth of depreciation out of every million dollars invested. You can't get that anywhere else.
OK. So, you said you're at almost $1.8 billion in assets under management. Was that right?
So your first deal was for $78,000. Did you imagine you would be here today? Was this the goal then?
No. My goal, my first target was 20 units. I used to write down in a little book, a little journal I had, I own 20 apartments that have cash flow every year. All I could imagine was one day, I'm going to make 10% on $100,000, $10,000 a year.
And if I made 10 grand a year without working, then I'm rich. Then my first apartment deal was 38 units, or 48 units. A 20-unit deal was consumed, because I was buying houses. I'm going to buy 20 houses, and I couldn't imagine doing 20. Somebody showed me apartments one day, and they're like, "Look, you can buy 20 units in one location. One deal, one time," and I'm like, "Well, that makes sense." And it solved my occupancy or my vacancy problem.
So, I never imagined I'd be where I'm at right now. The new goal is we're going to do $10 billion. I'm going to buy $10 billion or $12 billion worth of real estate, and then I'm going to go sell the whole portfolio to someone like Blackstone (NYSE: BX).
They're probably not going to give me everything I want, and then I'm probably going to learn how to turn it into a REIT (real estate investment trust) myself and go public in the marketplace and turn all my investors into shareholders in a REIT.