Multifamily investment is preferred for passive monthly income with multiple benefits, including rental income, appreciation and tax advantages. But according to one well-known entrepreneur and investor, the biggest mistake you could make is not buying enough units.
Grand Cardone and his private equity real estate investment firm Cardone Capital has amassed a multifamily portfolio with assets worth over $4 billion. In a recent blog article, he credited his father for telling him at a young age, “Buy real estate. Own real estate. Wealthy people own real estate. If you want financial freedom one day, own real estate.” That, according to Cardone, led to his “biggest mistake” when at a young age, he put $5,000 down to buy a $78,000 single-family home in Houston at a young age. The biggest issue? His small amount of passive income was anything but passive.
“The two sisters I rented the house to started calling all the time with complaints — electrical issues one day. The sewer backed up the next day. And then termites. It was one thing after another. Fixing stuff and calling plumbers and electricians took time. Instead of working on my main job, I was spending time fixing problems. Out of the blue, one of the sisters called and said, “We’re moving,” he wrote.
Cardone said he was “fuming mad” at the sudden move of his renters and found that advertising the house, finding a new renter, fixing the problems with the house and holding down a full-time job was just too much. With bank notes due he sold the house and “barely broke even.”
What did he learn from this experience? Go big or go home. He now believes that instead of buying one door, he should have bought 32, saying, “It's easier to make money on 32 units. It's easier to sell 32 units. And it's easier to get a loan on 32 units than it is on one door.”
In its 2023 forecast, commercial real estate brokerage CBRE stated that “despite economic headwinds and ongoing capital markets disruptions,” the nation’s multifamily sector was expected to see above-average performance. Although the group forecasted lower rent growth and higher vacancy rates than in recent years, it also noted that housing fundamentals were still strong and anticipated occupancy rates higher than 95% and rent growth at 4%.
But investing in multifamily is not as simple as “buying more than 32 doors,” according to Impex Capital Group CEO Ash Shah, who wrote on Forbes.com, “Investing in multifamily properties requires substantial capital and expertise. You must have the funds to purchase and maintain the property, knowledge of the local real estate market and property management skills. This can be a significant barrier for new or inexperienced investors and may limit their ability to invest in high-quality properties.”
That said, Cardone, after acquiring billions in multifamily assets, doubled down on his advice by reemphasizing that the benefits have outweighed any risks.
“Real estate is about making money,” he said. “It's about protecting your capital. It's about cash flow. It's about tax write-offs. And ultimately, it's about making passive income. That's when the game gets really fun.”
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