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Cardone Capital is a freezing over for two reasons. And I'm also going to explain what the heck a freezing over means. And don't worry if you think this is just a video to on Grant Cardone and Cardone Capital, it's not. It's actually more of an indicator for you as somebody who I'm guessing wants to make money given that you're watching this channel which is dedicated to helping you make money.
You probably also have some sort of interest in real estate given that at 27 years old control over $6 million in real estate, soon to be over $7 million. And make sure you stay to the end of the video and you'll see me analyze one of Grant Cardone's deals. Now, in case you don't know what Cardone Capital is or what it means to you, don't worry about it.
Let me give you a quick primer as to how the business model of real estate syndication works. And realize you can set up your own syndication if you want as a well. So, the gist of a real estate syndication is placing people's money by buying real estate deals. For example, if you can buy a $100 million apartment building, here's how you make money as a real estate syndicator.
Number one, the placement fee, usually 1% or in the case of Cardone Capital and this $100 million example, $1 million in the bank for closing on that deal. Then, every single year thereafter, you make another $1 million or 1% for managing that property. Then, when the property goes to sell, you make another 1% fee for selling that property.
So, you can see as a real estate syndicator, you can make a lot of money by helping people buy, manage, and sell is a very profitable business. Now, before we get into any of the other stuff, let's talk a little bit about this freezing issue. Here's the number one problem for real estate syndications.
And the same is true for big hedge funds and life insurance companies and other businesses that are in the business of investing people's money. You have to have stuff for people to buy. If there's nothing for people to buy, if there aren't multi-family apartment buildings for people to buy, then as a syndication, as a management company of wealth, you can't make money.
Think about for a moment the guaranteed ways Grant Cardone at Cardone Capital makes money. Buying deals, holding deals, selling deals. This is where we get to the darn freezing issue number one. There is a massive shortage of multi-family real estate available on the market throughout the country right now.
Yet on the flip side, there is no shortage of people with money sitting on the sidelines waiting to invest. In fact, over the last 2 years, so many people in our economy have decided, "You know what? I'm going to start hoarding cash, and I'm going to wait for a crash on the sidelines." Well, unfortunately, as the scale seems to be tipping a little bit towards, "Ooh, doesn't look like that crash is coming in 2020." The indicators are all reversing and the market's sort of picking up steam again, what do we see happening?
The stock market skyrocketing. We're starting to see real estate values push upwards again a lot stronger than we have been seeing. So, here's what happens on a small scale, and then we'll show you what Grant Cardone is doing as evidence of for why Cardone Capital is feeling the freeze. On a small scale, when I start looking for deals, and I have money to place, and I can't find a deal, I might start sacrificing parts of my criteria.
I might look for a property that needs more cosmetic work, or I might even end up in an auction that needs foundation repairs. This is me softening my criteria in order to do a deal. Or some people will pay more money to get into a deal. I personally never like paying more for a deal, but sometimes I'll take on a little bit more work than I ordinarily would.
Grant Cardone seems to be having exactly the same problem. See, Grant Cardone has always said, "Buy in warm climates. Buy in the Sunbelt because you get people from the northern parts of the states that move to the southern parts of the states because that's where it's warm." This has been one of the major selling points for why Grant Cardone loves Florida, why Grant Cardone loves Texas.
These two areas not only provide decent cash on cash returns, but they're also warm climates. So, it makes sense. But, because Grant Cardone's feeling the freeze or lack of deals, guess what he's doing now. Number two, he's literally freezing. That is, he's bending his rule and literally going to Baltimore, Maryland to purchase real estate because there are so few deals to be had in the south right now.
Maybe too many people have been taking his advice. Now, don't get me wrong. This is not to say that what Grant Cardone is doing is wrong. I'm not saying he's somehow a hypocrite because he says buy in warm areas, now he's buying in cold climates. Instead, and right before I am, just going to say this before I analyze this deal, it's important to know what this signals to you.
Grant Cardone getting anxious and now literally freezing in the north is a sign that there aren't a lot of deals to be had right now in the multi-family space. This is a clear departure from what Grant Cardone usually invests in and it says nothing to me but, "We got to start opening up the map to find deals to place people's money." Because at the end of the day, Cardone Capital wants a 1% placement fee, the 1% management fee, the 1% selling fee, and there are even other ways to make money like the 35% waterfall at the end.
But, that all gets complicated. I've talked about it in other videos. It's not so important. What's more important is to think, "Whoa, wait a minute. Kevin, so what you're saying is Grant's having trouble finding deals. He's now expanding his criteria and possibly having to overpay to place money." Exactly.
And look, I'm not trying to compare myself to him except the way I like to buy real estate is finding below market value real estate. I would rather buy a $600,000 duplex for $500,000 following the principles that I outlined sales course and buying these properties that have insulation in them rather than risking overpaying while potentially at all-time highs.
Now, let's look at the deal that Grant Cardone is looking at. Now, the latest property that Grant Cardone appears to be buying is in Columbia, Maryland. And I've spoken with realtors in Columbia, Maryland and it turns out that Columbia, Maryland is actually a master-planned community. They here on Wikipedia, it says it's a planned community consisting of 10 self-contained villages.
And when I spoke with agents to try to get some comps to figure out what the value of this building might be, they told me, "Uh we don't actually really have multi-family comps. It's a master-planned community and we don't do that here." Which is really interesting because Grant Cardone is looking at a 531 unit deal in Maryland.
By the way, quick interjection, I will be holding my 10X real estate in-person on February 20th, 2020. So, 2 20 2020. And if you you to bring a friend or family member, you could email me at [email protected] for a bundle coupon. That will be hosted at the Bellagio, and food will be included in your ticket price.
Here it is, the Columbia Town Center. Now, I don't believe any of this information is confidential, so I don't think I'm doing anything wrong here, and I don't think he'd be mad at me pointing this out. Mostly because if you go to his website under investments, it's right there. And it's the only apartment building in Columbia, Maryland that appears to have 531 units.
So, I don't think this is a confidential thing. I don't like log into their stuff to like stalk it or whatever. I I personally just look at this because I think to myself, "Okay, if Grant Cardone is expanding his criteria, that's actually good for me to know because it's a sign that A, he still believes in the market, B, he's just having trouble finding deals in Texas and Florida." And in some sense, you should actually kind of admire the fact that he is ex-broadening his criteria so that he can continue to grow and place money.
It's not a bad thing. So, this place apparently was built in 2003, which I personally think is awesome. Maybe it was 2001. Either way, it was 2001 or 2003, but I love that because I hate older stuff. Older stuff is more maintenance, and something in the early 2000s, I wouldn't even be worried about the condition of the property.
It's one of those things where it's like, do you even need to do an inspection? Obviously, you should, you know, inspect plumbing, roof, and some of the major systems and major expenses or opportunities for improvement. But the place has a beautiful community pool. Maybe you could use it for ice skating now that everything's freezing.
Looks like it has a fitness center, obviously a grilling area, covered parking, business center, resident lounge. I mean, these these things are cool. That's awesome. But the big thing that I always look at is what kind of tenants am I getting? A lot of folks when they're chasing returns will sacrifice the quality of tenant that they're getting in exchange for just being able to buy a cheaper building or in a cheaper area or get a cheaper cost per door, so to speak.
And I think that's a terrible mistake because it leads to the headaches and nightmares of dealing with lower quality tenants. So, there are two main factors that I look for when I'm looking at investing in an area. Number one, population growth. Number two, is the median income. Usually, I like to look at per capita income, which is how much each head earns, but sometimes the only stats that you can easily find is like household income.
Fine. Just whatever you're comparing, just compare the right numbers. Compare similar numbers. So, when I prepped to film this, I actually was not expecting this. It says here that between 2016 and 17, the population of Columbia, Maryland actually declined about 0.26%. Not usually what I want to see.
Usually, I want to see growth rates of 1 and 1/2% or more in an area. Now, what I am though seeing is that median household income grew from 102,000 to just over a almost 104,000, a 0.8% increase, approximately. I'm rounding here. The numbers are boring. But, this is actually good and bad news. I'm not the biggest fan of investing in areas where populations are declining.
I personally think Grant Cardone also finds that this is a concern. But again, I feel like because of the freeze that's happening, he's expanding his criteria and he's possibly opening the door to doing what I say in the real estate investing course, coupon below, not to do, which is you open your door up to yeah, buts.
Like, "Ooh, this is a good deal. Everything lines up. Yeah, but the population's declining. Why is that happening? Is it because it's too expensive to live in?" But what happens if it's too expensive to live in and then people start leaving? Now, as Grant Cardone said in his video, Howard County is one of the wealthiest in the country, and this is good probably for a good quality form of tenant, but then you also wonder is this going to increase your vacancy factor as people buy instead of renting apartments.
Now, I know how Grant Cardone likes to look at opportunities for improvement. Well, let me be the first to say that 94% occupancy or 6% vacancy is an opportunity for improvement. There's no reason that as of July 2019, there should be 31 vacant units. That's a lot of vacant units to me. Every day a unit is empty, that's money.
You may as well just be taking out of your pocket and throwing it away. In fact, Lauren and I were just recording lectures on our , vacancy is the kiss of death. So, I think Grant knows that. I think that could be an opportunity for improvement, but that population decline does concern me. I will say though, I love the building and I love the location.
In fact, let's pull the location of this deal. So, the location, I have to give it to him. If I was going to buy in Columbia, I love love the location of it. It is right by the town center. The mall, it's it's called the mall in Columbia. I mean, this is great. You got a Whole Foods there. You got uh J.C.
Penney, not that great anymore, but uh you know, Macy's, okay, European Wax Center, Corner Bakery, whatever. I mean, if you're going to want to live that maybe like retired lifestyle or uh you know, millennial lifestyle where you don't yet have kids and you want to go to dinners or shopping all the time, all you have to do is walk across the street.
Location-wise, Grant, beautiful job. I I have to give him that. Now, you know, location within the country is is well, we already covered freezing. Now, even though this is a master-planned community, there can still be a lot of apartment buildings. And analyzing your competition is very important. We won't go super detailed on this, but let's just type in apartments.
Uh you know, usually Oh, wow. Okay. You have a lot of apartments. So, maybe you got more of a rental culture over here or something, but uh this is a lot. I would want to see how the vacancy factors on these units compares. And guess what the easiest way to figure that out is? You call up Columbia Point Apartment with the three-star review or Lake House or Hartford's Forest and go, "Hey, you got any three bedrooms available?" "Oh, really?
How many do you have available?" "Oh, we got like seven to choose from." Well, then you start realizing if all of them are telling you they got seven three bedrooms available and 22 bedrooms available, then you start going, "Hmm, is it Is there going to be uh you know, we're going to start seeing rents decline here?" In fact, if you look at apartments.com and just put in the address, look at the amount of available units.
Again, maybe Grant just wants to improve this, which I I imagine he's thinking of. If he's not, maybe then this is ridiculous how many units are available here. Uh I mean, I get maybe percentage-wise it doesn't seem like that much, but it's a lot, okay? I'd be pissed if I were an owner in that building and had that much vacancy.
But the other thing to look at is on the LoopNet advertisement, on the ad for the property, they put a picture of something that says "Up to $500 off first month's rent, move in by July 31st." It's like, why during the summer are they having to incentivize pricing? Imagine what they're having to do in the winter when it's freezing.
Now, I also know Grant Cardone not to talk about a building unless he's bought it. So, it says it's under contract. I'm sure it's Grant. You know, he wouldn't be talking about it otherwise, so good for him. I have to say, I mean, overall I like the deal, but I've got my concerns. Now, I will do one more thing here and say that I have tried looking for multi-family comparable sales.
And literally the closest multi-family comparable sale that I could find is a five-unit building in Frederick, which is I think somewhere around 30 minutes away from where this deal is. All right, it's currently 47 minutes away. By the way, this is the kind of analysis that I do on my private live streams where I analyze your deals.
Pretty much everything I'm going through here is kind of that raw example of how I analyze a deal when I'm looking at your deals that you submit once you get them in escrow or you write an offer on them or whatever. But anyway, the big thing that I found is almost no multi-family comps, which makes it very frustrating for me to feel safe that I'm not overpaying for the deal.
But let's go ahead and do some quick math to see how much Grant Cardone's probably paying for this building and realistically what he should be paying for the building. So the easiest way to do that because they don't give you the pricing here. You grab the average rent at 1860. Now, my hope is that this is the weighted average.
It's not worth me going through that time right now to figure it out. Realistically, I'd need the whole rent roll on a spreadsheet and I could do it all. I'm just going to hope that they did this the way they should have. And then obviously you'd have to verify that later. $1,860 is the average rent.
There are 531 units. By the way, the easiest way to analyze deals is not using some crazy fancy calculator. It's knowing what you're doing and then being able to do it from scratch. That's also what I teach in my real estate investing course. I get you that knowledge. But anyway, $1,860 as an average rent, 531 units.
Great. Now my goal is very simple. I'm going to multiply these two figures here to get a monthly figure and then we're going to take this from monthly and we're going to go annual. So units, average rent. There we go. Now we're going to make this an annual figure and we can really start doing math with this.
So this is where ordinarily what we want to do is we want to take the gross rent multiplier of the market that we're buying in or the cap rate and use that to determine what a fair price is to pay in this area. The only way to do this is with multi-family comps, and you usually, because LoopNet doesn't show you, here are all the deals that sold and how much they sold for, it tends to go private.
This is why you got to analyze these deals when they come up. You usually have to talk to local brokers where they tell you, "Hey, this is what the gross is out here. This is what the cap rate is out here." I'm going to make a guess because I know what things are in California, I know what things are in Florida.
I'm going to guess that Grant is trying to get as close to Florida and Texas pricing as possible, but he's probably going to have to overpay for this a little bit, and he's going to justify it by saying, "Hey, it's a more luxurious area. It's more luxurious building." That might be true, subject to that population declining.
That That is a concern and that vacancy factor. But anyway, let's assume that Grant is willing to pay a 13 times gross on this deal. That might be high. He might honestly be closer to like 12 times gross. Here's how simple this is. To figure out the price he's willing to pay, all we have to do is take the gross rent and multiply it by the annual gross rent.
That's why it's a gross rent multiplier. Paying a gross rent of 13 means Grant is willing to pay $154 million for this deal. If he pays California prices, like 18 times gross, he would be paying $213 million for this deal. I don't think he's touching that with a 10-foot pole. So, let's go back to 13.
Realistically, a good deal, by the way, like really good numbers, but usually that comes with like crime and problems. Not always. It would be like a nine or 10 times gross, which would be like $118 million. That'd be great. I I don't think he's there. But let's fact-check this a little bit by using our cap rate.
So, here's how you do cap. First, you have to get your net operating income or NOI. In order to get the net operating income, we're going to take our annual gross rent, which again we got from an average of 1860 * 531 units is almost a million dollars in monthly gross. Then we're going to multiply the annual gross, almost 12 million dollars right here.
We're going to multiply this annual gross by an expense ratio. I'm usually working with a 35% expense ratio. My guess is Grant is either a 35% expense ratio or 40% expense ratio because he's got his expenses in there, too. But anyway, uh let's let's go with a 35%. That is a net operating income per year of 7.7 million dollars.
Now, let's use a cap rate here. So, this is going to be price based on gross. So, this is based on gross rent multiplier. This is going to be price based on cap. Let's make this a percentage. And then what we're going to do here is we're going to assume he's trying to get a six cap. Let's see if he can get.
So, the way to do this is you take the net operating income, you div- -ided by the cap rate that you want, and you get the price. 128 mil. Ooh. So, he would be overpaying at 13 times gross. To get a six cap on this deal, he needs to buy this for Ooh. 10 10.5 11 about 11 times gross. I don't know. Or, because I realistically think these will probably sell for like 13 times gross, let's say he's willing to go down to a cap rate of five.
Which, if he's willing to go to a cap rate of five, it's a sign that he's really squeezing for deals. 154 mil. Why That's almost the same number. Let's see what a cap of 5.5 would look like. 140 mil. Okay, I can see this. Especially if he's trying to pay out between 5 to 6%. I can see him paying somewhere around 140 million dollars for this deal.
Now, the other thing that I could do here is I could divide this into a unit cost. Divided by uh 531 units. This means he's paying about $263,000 per door. The only comp that we had was this particular property about 40 minutes away. This particular property is probably selling for about $230,000 a door, assuming they took a little bit off the price, and it's 40 minutes away.
This could line up. My guess is Grant's probably going to want to pay closer to $250,000 per door on this deal. In order to get this down to 250, Grant has to be buying this at about a 5.8 cap rate, or an 11.3 gross rent. Not a bad deal overall, if he can get it for that price. So, now you've watched me talk about the freeze that's affecting Cardone and his ability to find deals, why he's literally freezing now, and you saw me analyze one of his deals.
But, what I have is a challenge for you. If you know how much Grant Cardone is buying this deal for, please post that below, so we can compare what he's buying it for to what these numbers look like. I'm just going to put this out there, and I could be totally wrong. But, my guess is he's getting a good deal on it if he's paying anything under 130, under 125 mil.
125 to 130, that's like that's decent, right? Anything below that range, amazing deal, he should buy it all day long. But, because this is a luxury market, I'm guessing there's a chance he might be willing to overpay for these deals and pay somewhere in excess of $145 million for this deal. I have no idea.
I really wish I could tell you what he was in escrow for. I really want to know. I want to see how close my thoughts are to his. But, here's the bottom line takeaway from this. If Grant got the deal for under 130 mil, that's a good sign. He's buying great deals. If he's paying more than 145, it's a little bit uh I I got to get out there and shop for something even if it's cold. Thanks for watching and until next time.
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