Homeownership has long been regarded as an integral part of the American dream, symbolizing independence, financial security and prosperity — aspirations shared by many.
But renowned real estate investment guru Grant Cardone challenges this notion. In an Instagram post earlier this month, he wrote, “Buying a home without a doubt is the WORST investment people can make, yet it’s also the most common one.”
Cardone, also known as Uncle G, aims to alter this perspective and change the trajectory of people’s financial decisions. Rather than plunging into deep debt to purchase a home, he advocates for alternative approaches. What does Uncle G find problematic with buying a home? He shares his reasons in the Instagram post.
Cardone presents a scenario where you spend $576,000 on a home and keep it for 10 years. In addition to the initial cost, he highlights the various expenses you would incur over the decade:
- 12% ($69,120) in broker fees
- 10% ($57,600) in maintenance fees
- 20% ($115,200) in property taxes
- 70% ($403,200) to the bank
The additional costs amount to $645,120, which, when added to the original price of the home, totals $1,221,120. Uncle G asserts, “A $576,000 home will have to be sold for $1.2 million in 10 years. You’re not going to sell it for that, to break even.”
He characterizes this investment as “dead money,” a term used to describe an investment that shows minimal value appreciation or remains tied up for an extended period with limited returns.
Recent reports show 78% of Americans still strongly link homeownership with the cherished concept of the “American dream,” and 65% of people view owning a home as a strategic approach to constructing intergenerational wealth.
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Although the financial advantages of homeownership hold significant weight, the impact of becoming a homeowner extends beyond financial considerations. According to Mark Fleming, chief economist for First American Financial Corp., purchasing a home is not solely a financial decision but also a lifestyle choice. This perspective sheds light on the enduring fixation with homeownership as the embodiment of the revered “American Dream.”
But according to Cardone, individuals pursuing homeownership are serving a master by borrowing money from institutions like Bank of America Corp. They may build a small retirement account that ultimately funds Wall Street. He perceives this as part of a larger game.
Cardone goes on to emphasize the need for a $100,000 down payment, referring to the 20% down payment historically required by lenders to avoid mortgage insurance.
What does Cardone propose as an alternative?
Rather than buying a house, he suggests renting your residence and using the $100,000 saved for a down payment to invest in real estate that generates passive income.
He endorses multifamily real estate, which has maintained its strong fundamentals amid recent economic turmoil, unlike other segments of commercial real estate such as offices, hotels and retail.
Investing in real estate doesn’t necessarily require purchasing a rental property outright or dealing with the challenges of being a landlord. Cardone highlights the option of investing in residential real estate investment trusts (REITs), publicly traded companies that collect rent from tenants and distribute it to shareholders as regular dividends.
Another avenue he supports is real estate crowdfunding, which enables everyday investors to pool their money and collectively purchase property or shares of property as a group (even with as little as $1,000). Cardone has raised over $1 billion through crowdfunding for his company Cardone Capital, which primarily invests in class A multifamily properties.
Regardless of your chosen path, Cardone stresses the importance of generating cash flow, which can be reinvested and grown until enough funds are accumulated to overcome the financial challenges of homeownership.
“I just don’t need to own a home on the way up,” Cardone said. “I need to own assets that pay me on the way up. And once I have enough cash flow from the assets, then if I want to go buy a house or a watch or a car, I buy it out of the passive income.”
By focusing on assets that provide ongoing returns, individuals can accumulate enough cash flow to fulfill their desires and aspirations, whether it be owning a home, purchasing luxury items or enjoying financial freedom.
In the pursuit of financial security and independence, understanding the power of passive income and aligning investments accordingly can pave the way for greater flexibility and fulfillment of long-term goals.
Read next:
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Image source: Screenshot from "Grant Cardone Proves why personal homes are BAD Investments" on YouTube
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