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Regarding real estate, Grant Cardone isn’t shy about sharing what he loves – and what he’s learned the hard way. In a 2022 CNBC article, he explained: “I love investing in real estate and it’s a major reason why I was able to become a self-made millionaire.”
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But before you rush to sign the dotted line on that dream home, you might want to pause and listen to why Cardone believes buying a single-family home might not be the investment jackpot you think it is.
Cardone’s wake-up call came in 2003 when he was a newlywed with a newborn, living the quintessential American dream in Los Angeles. He’d just purchased his dream home, but something felt off. As time passed, the returns on the money – and the time – he’d invested in his house weren’t exactly rolling in. They weren’t rolling in at all. So, Cardone made a bold move. He sold his dream home and funneled the equity into rental properties. And just like that, the Cardone family swapped the title of “homeowners” for “renters” once again.
Now, don’t get him wrong – Cardone isn’t against homeownership. He currently owns three homes, two of which he rents, while the third is his primary residence. But here’s where it gets interesting: “At the end of the day, for many people, owning a home takes money out of their pockets,” he notes.
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So, why is Cardone waving the caution flag on buying a home, especially now, with rising inflation and housing prices soaring? Let’s break it down.
1. The Costs Will Eat You Alive
Imagine you bought a home for $100,000 and put down $5,000. Fast forward ten years and you sell it for $200,000. Sounds like you’ve just hit the jackpot, right? Well, not so fast. Cardone walks us through a reality check:
In those ten years, you’d likely have racked up $60,000 in interest (at a 6% rate), shelled out another $20,000 in property taxes and forked over $6,000 in real estate fees. And that’s before even touching the maintenance costs, which can add up during times of high inflation. After all those expenses, you’re left with a $14,000 profit – or just 1.4% per year. Suddenly, that dream home looks less like an investment and more like a money pit.
2. Your Home Won’t Help You Sleep at Night
True real estate investments are supposed to put cash in your pocket every month, whether you’re sipping coffee on your porch or off on a beach vacation. That’s what Cardone loves about his rental properties. But when you buy a home to live in, there’s no monthly cash flow. Instead, you’re stuck waiting and hoping that when the time comes to sell, you’ll find a buyer who’s qualified and smitten with your place.
Cardone points out that tough economic times often push up the value of rental properties while hurting single-family homes. When he sells a rental property, all he needs to find is someone eager to make a profit. That’s a much easier sell than convincing someone to buy your old home.
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3. The Tax Man Is Not Your Friend
When it comes to taxes, not all real estate is created equal. Homeowners can only write off so much mortgage interest and are limited in the tax exemptions they can claim when selling. But switch gears to income-producing real estate and the tax benefits start stacking up. From deductions on mortgage interest and property taxes to depreciation and repair costs, owning rental properties can make the taxman a little more bearable.
Should You Buy a Home?
Cardone’s take? “Don’t buy a home – unless you can afford to waste money.” Ouch. He believes that while a home can offer stability and a place to call your own if your goal is to build wealth, there are far better ways to invest your money. Stocks, commercial real estate and other income-producing assets Stocks, commercial real estate and other income-producing assets might give you the returns you’re hoping for – without the surprise costs of homeownership. He’s not against rentals and their income-producing abilities but against owning a home for yourself.
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Of course, for some, a home is more than just a financial decision. It’s about roots, community and the intangible feeling of having a place that’s truly yours.
And as for the “American dream?” Cardone isn’t sold on the idea that it should revolve around owning a home. “For the most part, it’s simply a place to live – and there are always costs attached,” he concludes.
So, before you fall in love with that white picket fence, take a moment to consider whether it’s the best investment for your financial future. After all, Grant Cardone might just have a point.
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This article ‘Don’t Buy A Home – Unless You Can Afford To Waste Money’: Grant Cardone Thinks Your Dream Home Might Just Be a Money Pit originally appeared on Benzinga.com
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