Grant Cardone has around $300 million in current deals, and he’s exploding with knowledge. Investor, Corey Thompson, who was literally voted Grant’s biggest fan, proves that he did his homework as they discuss Grant’s humble beginnings, his meteoric rise, but most importantly how to get yourself $300M in deals. Corey became a real estate investor after hearing Grant Cardone’s multifamily investing podcast (https://www.biggerpockets.com/blog/biggerpockets-podcast-250-grant-cardone-multifamily-investing-buy-house ). He consumed everything about real estate investing and applied it to become an incredibly successful investor who is piloting his own extraordinary ascent.
An Expanding Portfolio Doesn’t Always Equal Expanding Income
After moderate success in the single-family investing world, Grant purchased a 2,200-unit building in Tucson, AZ, which he found attractive because it wasn’t advertised in any of the books. Over time, he acquired a total of 3,500 units in Tucson, which brought in a cozy $3.8M in annual rent. Luckily, he sold that portfolio before the market crash. He doubled his money on that transaction, but laments that 3-4x would have been a much bigger win.
Currently, Grant has 7,100 units at $1,700 per door. If you assume that an increase in the number of doors coupled with significant jump in rents lead to more money in your pocket, you would be wrong. Grant discusses how despite a steep growth curve, his income has remained the same, by Using his own portfolio, Grant illustrates why he believes that the most important number to consider is the total units. In Tucson, he got $1,100/month per unit and the San Diego venture commands $1,700/month per unit.
All things being equal, there’s more money in San Diego, but here’s the catch, there IS more money in San Diego, which leads to a hefty bump in the cost of living which means more operating expense. So why would investors acquire “higher rent” assets if there is no income increase? Because the goal is to build wealth and the real score is in the exit strategy, which could be to “stabilize and sell” within a short time or a long-term hold with infinite cash flow returns. Grant’s longest hold was in San Diego, CA, which he bought for $3,000,000 sold for $10,000,000, held for 15 years, took money out 3 times and stayed cash flow positive every year except the year they did a major renovation. In his current portfolio, his oldest asset is a 1,000-unit property that he has held for 10 years. He paid $15M down, tot $55M doing a cash refinance, and he will get a $4M payout this year. Not bad.
Things That Every Multifamily Investor Must Know
Grant cautions that, yes, you learn from failure, but with real investing, failure is extremely expensive. So, learn from other people’s mistakes. Don’t go where there are cranes (the machine, not the bird). New apartments are your competition. Instead, look for areas where the apartments have waiting lists. Don’t buy where there is snow (there are exceptions so always look at the numbers). People and jobs migrate to warmer climates so consider the current and future job opportunities. Know the cash flow, the scale of the project, and, most importantly, you must love it enough to live there. You can add any amenities you want, but be aware of the vicinity of anchoring businesses that provide convenience like Starbucks, Whole Foods, banks, etc. Avoid locations near malls as they tend to be a destination not a convenience.
When walking a multifamily, talk to the tenants because they will tell you all the problems that a walk through won’t. Perform comprehensive due diligence and be keenly aware of deferred maintenance issues as they can crush your profit. Bank everything you will need for the next 5 years in deferred maintenance expense. A 15-year old HVAC system is reaching the end of its usable life.
Know Your Acronyms
The GPR (Gross Potential Rent) is the maximum amount of rent to expect from a property during a given time. A hundred units renting for $1,000/month is a $100,000 GPR/month. The NOI (Net Operating Income) equals the GOI (Gross Operating Income) minus the Operating Expense. GOI equals the gross potential income net any credit or vacancy loss. Operating expenses include utilities, management, legal, taxes, supplies, maintenance, accounting and insurance costs. DSCR (Debt Service Coverage Ratio) measures how much cash flow is available to cover the debt obligations. Alternately expressed as the ratio of operating income available to meet the debt (DSCR = Net Operating Income / Debt Service), where Debt Service equals the sum of the principal, interest and lease payments. Although he has no hard and fast rule about this, Grant is currently working with 60-70% DSCR. Understand the advantages of leverage, amortization, appreciation, cash flow, location, and know the exit.
What’s All This About a Fund?
Grant started Cardone Capital 20 months ago to provide investment opportunities to the public with the knowledge that he uses his own money and personally signs on the debt. Typically, he puts 40% down with his own capital, then brings the fund to finance the remainder. Only stabilized and cash flow positive assets are offered to the public. Cardone Capital distributed $18M in 2019 and his goal is to distribute $20M per month. He distributes the check every month as he is also an investor in the fund and that is how he gets paid. On Grant’s first public fund offering 3 years ago, he told his investors that he felt that it would return 12-13%, but conservatively set expectations at 6-7% for the first two years, and he would pay a bonus on any profits beyond that. This year, it returned 13% throughout the year. He increased the cash flow by increasing rents without much expense. This makes the asset much more attractive for a potential future buyer. Some outcomes are more modest like the 88-acres in Austin, TX he got for $220K per door. His projection of 6% in the first year fell short at 3.5% because of the competition from the new builds in Austin. Even so, he would do it again just for the location alone. Watch “How to Make 15% on Deals” (https://www.youtube.com/watch?v=BS2G28A-s1Y)
Flex Your Work Ethic
You must have incredible work ethic and there is nothing wrong with flexing that online. Grant Work Ethic Video (https://www.youtube.com/watch?v=MQks_zQZo6M). Buy all the junk (watches, cars, jewelry, etc.) out of passive income. If you can’t buy two of them in cash, don’t buy it. If your biggest question is still how to overcome an objection, you are not thinking big enough.
*Disclaimer: This information is not intended to serve as legal or financial advice. It is designed to provide general information on the subject matter. Consult with your own advisor(s) regarding your specific situation.
