Mortgage Is 'Just A Fancy Bullsh*t Word For Paying Rent For 30 Years To The Bank,' Says Real Estate Billionaire Grant Cardone — Here's Why Renting Could Be A Better Financial Move

Grant Cardone, real estate titan and founder of Cardone Capital, recently sparked controversy with his candid views on homeownership. Speaking on "The Money Mondays Podcast," he stated, "If renting doesn’t make sense at half of what it costs to pay the mortgage, how does the mortgage make sense, which is just a fancy bullsh*t word for paying rent for 30 years to the bank."

Cardone, whose firm boasts a portfolio of $4.5 billion in assets, including multifamily properties and commercial spaces, has long been a critic of buying a primary residence as an investment. He argues that the financial burden of a mortgage often overshadows the perceived benefits of homeownership.

"Let’s say it’s in Orange County where the house is $800 grand," Cardone said. "You’d have to sell the house for $2 million just to pay the interest back. Not property taxes, not maintenance, not the wear and tear. … That's the house you're stuck in. That is the great American dream as a homeowner."

This perspective challenges the traditional view of homeownership as a financial milestone and raises an important question: Is renting a smarter financial move than buying?

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Renting A Home And Investing Elsewhere

The debate between renting and buying is complex, especially in the current housing market. The average home price in the U.S. during the third quarter was $513,400, with mortgage rates at 7.87% for a 30-year fixed-rate loan. The average down payment of 14.7% translates to $75,470.

In contrast, renting has a lower barrier to entry, with an average monthly rent of $1,354 in October and an initial payment of around $4,062 to cover the security deposit and first and last month’s rent.

When the numbers are crunched, with today's mortgage rates and private mortgage insurance (PMI) for down payments below 20%, the initial mortgage payments amount to $3,356 for the first 71 months and then $3,174. Conversely, assuming a 3% annual increase in rent, renting remains cheaper than the mortgage until the 30th year.

If you were to invest the initial down payment savings of $71,408 and the yearly difference between the rent and mortgage payment, with a 6% annual return, the investment could grow to over $1.68 million in 30 years.

On the flip side, purchasing the hypothetical home results in total mortgage payments of $1.2 million over 30 years, plus the down payment. To break even, the home's value would need to appreciate by more than 139%, not including closing costs or property taxes.

Adding the average 2022 property tax bill of $3,901 to the mix, the total cost over 30 years on a $513,400 house reaches $1.4 million. Investing the annual property tax savings could increase the potential investment account balance to $2.2 million.

The Decision To Rent Vs. Buy

This comparison doesn't factor in other ownership-related expenses like insurance, maintenance and repairs. It’s also important to remember that these calculations are based on national averages and hypothetical scenarios. The decision to rent or buy is personal and should factor into individual financial situations, market conditions and personal preferences.

While Cardone's take on homeownership might not align with everyone’s values, it highlights the often-overlooked financial aspects of buying a home. Whether you choose to rent or buy, it’s a decision that should be informed by a thorough evaluation of personal circumstances, financial goals and the realities of the housing market.

How To Invest In Real Estate Outside Of A Primary Residence

Cardone may not think it makes much sense for most people to purchase a home to live in, but real estate is still his favorite investment. 

"I buy something, other people rent, I collect the cash flow and wait for the rents to go up. Over long periods of time, you create wealth," he said. 

The problem with investing in real estate has historically been the significant capital required to purchase a property and the expertise needed to properly manage it. Many of Cardone's properties have cost hundreds of millions of dollars to purchase and require an experienced team of experts to manage.

Thanks to changes in securities laws in recent years, average investors now have options to invest in income-generating real estate without having to purchase and manage a property themselves. Firms like Cardone Capital allow accredited and nonaccredited investors to buy equity in Class A multifamily and commercial properties. Investors receive their share of the cash flow each month plus equity gains when the property is sold. Other investment platforms offer options to buy shares of single-family rentals, real estate-backed debt or farmland. So, while you may opt to rent your home instead of buying, there are still plenty of options available to add real estate to your portfolio.

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Image: Screenshot from Grant Cardone on YouTube