Avoiding Drastic Mistakes | How to Create Wealth Investing In Real Estate | Grant Cardone Books
Grant Cardone is a salesman-turned real estate millionaire who has created tremendous success turning a $78,000 mistake into over $700M in assets. He spends much of his time nowadays teaching younger investors how to better their lives financially through books, podcasts, videos, and blogs.
This article is the first of an eight part series breaking down Grant Cardone’s book, “How to Create Wealth Investing in Real Estate”. The purpose of this article is to:
- Review the book, and decide if it is worth purchasing
- Break down the information from the book
- Provide insight into Grant Cardone’s strategy
Grant’s First Mistake – Single-Family Rental
Grant Cardone began much like the rest of us. He had low funds, and bought what he could afford.
In his case, he could afford a $78,000 single-family home as his first rental property.
He put $5000 down, leaving $73,000 in debt.
After purchasing the property, Grant immediately found a tenant and began receiving a small amount of positive cash flow every month, $140, to be precise.
$140 a month over the course of one year equals $1680. This is a 33.6% return on the $5,000 investment he originally made.
Four months went by before he realized that the single-family home may not have been the best decision. The tenants began calling in every few days with complaints: Toilets, termites, roaches, the problems just kept coming.
This is when Grant tells us the three T’s of real estate:
Then, problems got even worse. The tenants were the ones paying off the house, but they surprised Grant with a notice that they were moving out. This meant that now Cardone would be paying the mortgage. He put the house on the market and it sold within two months.
He barely broke even, and if he would have taken longer to sell the house, it would have been a loss.
Many people like to blame others for their mistakes. He didn’t. The reason why Grant Cardone is a success today is because he didn’t let his failures define his situation. Instead of blaming the failure on real estate, he blamed it on himself.
Grant went back to the drawing board, and realized:
All of the great real estate moguls got rich through apartments, not single family homes. They got rich because apartments provide more free cash flow, and have a greater chance to multiple.
Cardone then explains why he began the book with his mistake, versus his successes: He shares an old proverb: “A fool learns from his own mistakes, a wise man learns from the mistakes of others.” He says that he wants to give readers the opportunity to learn from his mistakes so that they can go and get a jump on the real estate investment vehicle.
Size, Patience, and Pursuit | Grant Cardone Books
Grant’s next point is about the size of the deal: He says he bought what he could afford, instead of what he needed, and that was a mistake. The bigger the deal, the more profit you will get. He says the reason he lost money is because he was scared to go bigger, and he bought a small deal.
Another key trait that was elaborated on is patience. Cardone waited for 3 years after selling his first home before he purchased his first property.
He was still an active investor, he walked hundreds of properties during that span, and he invested thousands of hours into researching deals and investments and the market where he lived. But he waited 3 years before pulling the trigger on a deal that fit all of his criteria.
The point behind him explaining this is much like a quote from Warren Buffet: “The stock market is a device for transferring money from the impatient to the patient.” Same principle here, except real estate. If you jump in quickly because you don’t want to miss out, you will most likely lose money.
That is another tip of his don’t just a media reinvest he looked at hundreds of properties any invested thousands of hours into studying before he made his first apartment deal which has 48 units to get at an amazing deal because he was patient he did not rush into the situation four years later he sold the property for almost four million dollar profit
During Grant’s wait, he didn’t spend money. He saved every dollar that he could. He ended up stocking enough cash to put a down payment on a 48-unit apartment. It was a $350,000 down payment, for $1.9M in assets. Grant explains that the beauty of real estate is getting 5X the assets for what you put in.
If you put $350,000 into the stock market, you get cash flow for $350,000. If you put $350,000 into real estate, you get cash flow for $1.9M. 5X the cash flow, 5X the profits, 5X the scalability.
He made improvements to the apartment, and held on to it while it appreciated while the tenants paid off the mortgage— and then some.
He sold the apartment four years later, for an almost $4M profit.
He used the information he gained from his first single family deal, and then his first apartment deal, to build up to what he is today.
Grant Cardone learned from his mistake and has never lost a deal that he’s made since that first single family home. He has made it through the loan debacle, the internet bubble, the housing collapse in 2008, and most recently, the COVID-19 pandemic.
Grant Cardone’s 5 Real Estate Myths to Avoid
- You are going to do this with No Money Down
Grant’s answer: You’re not. Even if you have the ability to get no money down because the banks gave you financing for it, don’t. It is way too risky. If you can’t afford a 20% down payment, you shouldn’t be investing in the deal. You need to find more ways to make money, Grant says. Work 2 jobs, 3 jobs, 4 jobs, 5 jobs, or even 6 jobs. Whatever it takes for you to be able to afford the down payment.
- It is better to Manage the Property Yourself
Grant’s Answer: It’s not better. You will spend so much time, effort, and energy managing the property that you won’t have time to look for new deals. Not only that, but your scalability is lowered drastically, because you won’t be able to effectively manage hundreds of units when you build up your portfolio. Give the 10% for a quality manager, and be done with the headaches. You’ll easily make the 10% back looking for the next great deal.
- Small Properties are good for beginners
Grant’s Answer: Wrong. Grant made that mistake, as many have before him. Buying small leads to small rewards— and an increased risk of failure. Bigger deals provide bigger safety nets, with a bigger difference between expenses and cash flow.
- The best chance of success is when you invest Debt-Free
Grant’s Answer: Wrong again. There are constant debates about this, but it really is no debate: If you want a few rental units, then save your money for many, many, decades so that you can buy your 5 rental units with cash, and then enjoy life.
Or, use leverage to build your portfolio to hundreds, even thousands of units. Then you will have so much free cash flow that you can buy whatever you want! It isn’t a dream, moguls like Grant Cardone, Robert Kiyosaki, and Ben Mallah have all used leverage to build their portfolio to many, many, millions of dollars.
- Invest for the Long-Term
“I’m not in this to get rich quick. I’m in it to get rich for sure.” -Grant Cardone
Any real estate mogul will tell you: short-term investing will take you down. Flipping is speculating, you are only guessing that the market will still be good when you go to sell. You are only guessing that your budget was calculated to wear you can accept a marginal profit.
Real estate moguls aren’t the only ones that will tell you this. Warren Buffet, Charlie Munger, Benjamin Graham, and Peter Lynch are all world-renowned stock investor. They say that the patient investors will be the only winners in the end.
Lastly grant stresses that real estate is the greatest asset class and it is undeniable a quote from Andrew Carnegie says 90% of millionaires became so through investing in real estate
Grant Cardone gave a blatant statement saying that real estate is the greatest asset class to expand your wealth. Most billionaires out there agree.
“Ninety percent of all millionaires become so through owing real estate.” -Andrew Carnegie