Grant Cardone: What a CPA Think of Investing in Cardone Capital

A reader reached out to me and asked what I thought of investing in Cardone Capital. If you didn’t know, that’s the real estate investment fund run by motivational speaker and thought leader, Grant Cardone.

Although, I’m not an investment advisor and this isn’t investment advice, I wanted to apply my accountant lens, and business experience and offer my thoughts on what I think of investing in Grant Cardone’s Cardone Capital.

Just so you know, I’m a fan of Grant Cardone, also known as GC, or Uncle G.

He’s got great motivational content. He’s written some really good books like this one here, the 10X Rule. It’s a great book. This book actually helped me to take massive action when I was building my tax and accounting business.

Now, as much as I have followed Grant Cardone, and studied his stuff, he does have some things going on, let’s just say, that give some people pause.

First off, what is Cardone Capital.

Let’s look at their website. They offer:

Equal Opportunity Investing With Grant Cardone
Accesss the highest - quality real estate investments
No Banks • No Brokers • No Middleman Fees

Their website is very impressive, but let’s dive deeper.

According to Bloomberg, Cardone Capital LLC operates as a real estate investment company. The Company identifies, acquires, and manages income producing properties that provide opportunities for investors to preserve capital investments, collect cash distributions, and future capital appreciation of the assets.

Let’s go back to their website and take a look at their real estate investments.

Let’s look at 10X Miami River. It's their newest offering, Cardone Equity Fund 22, LLC

DISTRIBUTION SCHEDULE Monthly. I assume this is how often they pay out distributions

MINIMUM INVESTMENT $100,000. This is for accredited investors. The fund may also be available to non accredited investors, probably for a lesser amount like 10 or 20 thousand.

TARGET RAISE $150 million. This is how much the fund hopes to raise.

Let’s look at the description:

Cardone Equity Fund 22 offers accredited investors the opportunity to capitalize on strategic real estate investments. Cardone Capital believes that attractive investment opportunities will increase as the US cycles through an inflationary environment. Okay. The Fund is seeking up to $150 million in capital commitments to target properties in high-growth markets.

I looked over the operating agreement, and a few things stuck out to me.

Grant Cardone gets a 1% Asset Acquisition Fee and a 1% Asset Disposition Fee on each and every Fund Asset. So this is for every asset or property they buy in the fund.

He also gets a 1% annual management fee.

Okay, that sounds reasonable right, but let’s do the math…

If he raises 150 million dollars, his target raise. One percent of that is 1.5 million dollars. That’s a nice chunk of change. So he would get that times times two when he buys the properties, and when he sells the properties. He also gets that each year he manages the properties.

That’s a lot of money. And one could say, that’s how Grant is funding his extravagant lifestyle. Investors of Cardone Capital are paying for it. So, he gets paid regardless.

There’s also a 1% fee on the principal amount of each loan placed on the properties. These fees really add up, and they all go back to Grant Cardone and his companies.

I understand private real estate managers have similar fee structures, and Grant deserves to get paid for the hard work he’s doing.

Just know, there’s a lot more in the operating agreement. With any investment like this, it’s important to read it carefully and go over it with presumably your investment advisers.

I did some additional research and found some really good information from Aaron Smith Levin. He pointed out some very interesting things regarding Grant Cardone and Cardone Capital.

Allow me to share some of the highlights.

Grant Cardone has financed his Cardone Capital properties with a variable 3.75% interest rate. With rates now close to 7%, this is a huge hit to his bottom line. Meaning, his interest or carrying costs have just about doubled.

Upon reviewing their 10X Miami River property brochure, you can see they have a 2.90% variable interest rate loan on the property.

And as you know, with higher interest rates, the interest costs on a property can quickly make it unaffordable.

You would think that Grant Cardone would’ve tried to lock in those low rates when he had the chance. In my opinion, rates won’t be that low again anytime soon.

But do keep in mind some commercial properties don’t qualify for fixed rates. Also, you can see that the loan is interest only. Meaning, that no principal gets paid down.

From a sound business planning point of view, I don’t think this was a good decision.

Yes, it helps with boosting the cash flows, but he’s essentially betting on appreciation of the properties.

Also, Aaron points out that in 2022 distributions to Cardone Capital investors were cut by 33%. With higher costs and rising interest rates, this shouldn’t be a surprise. But if you’re an investor, that’s a big percentage cut.

You may be thinking that Cardone can just raise rents to offset the higher costs.

It’s my understanding that he’s raising rents anyway, by around 33%. But keep in mind that many people can’t afford that percentage increase and may look for cheaper housing elsewhere. This would increase his vacancy rate, and even with all of these factors, he’s had to cut his distributions.

I’ve also go the 10X Miami River sales brochure, which includes a financial projections summary at the end.

Near the bottom line where it says Investor Cash Flow, this to me is the net income. Looking at the year 4 column, which is I think the year we would be in, it shows a net income of $940,690. Compare this with the debt service amount of 4.9 million. This number will only increase with higher interest rate costs. See for yourself. As you can see, there isn’t a big cushion to absorb higher interest rate costs.

My conclusion is…

Maybe you don’t want to invest with someone who is flashy and extravagent with money. I still respect and admire Grant Cardone, but he’s got Gulfstream jets, flashy cars and fancy luxury watches. That’s just me, but do your own due diligence and decide for yourself.

Personally, the only way I see the investment paying off is if the property value appreciates, which he says on his website. 

Basically, Grant Cardone is betting on appreciation. If the property appreciates, then he and his investors get paid. If the properties don’t appreciate, then I think investors get caught holding the bag.

What do you think? Is investing in Cardone Capital a good idea? If you’re an investor in Cardone Capital, are you happy with your investment?

Thanks for reading and see you in the next blog post!