Home ownership has long been considered 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 is undoubtedly the WORST investment people can make, but it's also the most common.”
Cardone, also known as Uncle G, wants to change that perspective and change the course of people's financial decisions. Instead of throwing yourself into huge debts to buy your own home, he advocates alternative approaches. What does Uncle G find problematic when buying a house? 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 costs, he highlights the various expenses you would incur over the decade:
12% ($69,120) in brokerage fees
10% ($57,600) in maintenance fees
20% ($115,200) property tax
70% ($403,200) to the bank
The additional costs add up to $645,120 which, when combined with the original price of the home, makes a total of $1,221,120. Uncle G claims, “A $576,000 house has to sell for $1.2 million in 10 years. That's not what you're going to sell to break even.”
Cash: ‘That one deal made me a millionaire': Former airline pilot Ryan Tseko reveals his investment strategy that anyone can follow
He refers to this investment as “dead money,” a term used to describe an investment that shows minimal appreciation or remains tied up for an extended period of time with limited returns.
According to recent reports, 78% of Americans still associate homeownership strongly with the cherished concept of the “American Dream,” and 65% of people view home ownership as a strategic approach to building generational wealth.
Although the financial benefits of homeownership are significant, the implications of homeownership go beyond financial considerations. According to Mark Fleming, chief economist for First American Financial Corp., buying a home isn't just a financial decision, it's also a lifestyle choice. This perspective sheds light on the enduring fixation on home ownership as the embodiment of the cherished “American Dream.”
But according to Cardone, homeowners serve a master by borrowing money from institutions like Bank of America Corp. lend. You can set up a small retirement account that will ultimately fund Wall Street. He sees this as part of a larger game.
Cardone continues to stress the need for a $100,000 down payment, citing the 20% down payment that lenders have required in the past to avoid mortgage insurance.
What does Cardone propose as an alternative?
Instead of buying a home, he suggests renting your home and investing the $100,000 you saved as a down payment in passive income-generating properties.
He favors multifamily real estate, which, unlike other commercial real estate segments such as offices, hotels and retail, has maintained strong fundamentals despite the recent economic turmoil.
Investing in real estate doesn't necessarily require buying a rental property or dealing with the challenges that come with being a landlord. Cardone highlights the opportunity to invest in residential real estate investment trusts (REITs), public companies that collect rent from tenants and return it to shareholders as regular dividends.
Another avenue he supports is real estate crowdfunding, which allows everyday investors to pool their money and buy real estate or real estate interests together as a group (even for as little as $1,000). Cardone has raised over $1 billion through crowdfunding for his company, Cardone Capital, which invests primarily in Class A multifamily properties.
Regardless of which path you take, Cardone emphasizes the importance of generating cash flow that can be reinvested and grown until sufficient funds are accumulated to meet the financial challenges of homeownership.
“On the way up, I just don't have to own a house,” Cardone said. “I need to have assets that will pay me on the way up. And once I have enough cash flow from assets, if I want to buy a house, a watch, or a car, then I buy it out of passive income.”
By focusing on assets that offer ongoing returns, individuals can accumulate enough cash flow to fulfill their desires and aspirations, whether it's owning a home, buying luxury goods, or enjoying financial freedom.
In the quest for financial security and independence, understanding the power of passive income and aligning investments accordingly can pave the way for greater flexibility and the achievement of long-term goals.
Image Source: Screenshot of “Grant Cardone Proves why personal homes are BAD Investments” on YouTube
Don't miss real-time alerts on your stocks – join Benzinga Pro for free! Try the tool that will help you invest smarter, faster and better.
This article “The Worst Investment You Can Make” that Americans are obsessed with: How to Avoid the “Dead Money” Trap According to Billionaire Financial Guru Grant Cardone originally appeared on Benzinga.com
© 2023 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.