Verdict: There are better ways to invest into real estate. And its under investigation of fraud, those are only allegations at this time.
In this article, we will talk about what Cardone Capital is, whether it is a scam or not, and for what type of investor it is best suited. Near the end of the article I have the Alternatives to Cardone Capital. In the Cardone Capital review section, I will highlight the pros and cons of investing with Cardone Capital and examine each of its features one by one.
I will start by giving an overview of Cardone Capital’s investment opportunities and it’s platform features. We will also look at Cardone Capital’s commissions and fees, their customer service, and the quality of investments that are being offered. Finally, I will conclude this review by examining how well suited – Grant Cardone’s – Cardone Capital is for saving, retiring, and achieving financial freedom.
What is Cardone Capital?
Cardone Capital offers real estate crowdfunding opportunities in multifamily residential properties for accredited and non-accredited investors.
These investment properties are held by various investment funds.
The funds for non-accredited and accredited investors are usually separate and the accredited funds tend to advertise slightly higher overall returns.
Cardone Capital is set up as a real estate syndication where investors receive a share in an LLC that owns a portfolio of investment properties.
Proceeds and operating income from those properties are then distributed to the manager – Cardone Capital – and the investors at a split of 65/35.
This is just one of the ways in which Cardone Capital actually makes money.
If you’d like to read more about the ways in which Cardone Capital profits click here to check out the article I wrote a few months back.
The investment process with Cardone Capital is fairly simple: once you have created your account and confirmed your personal details you will be able to invest in a fund of your choosing with a minimum of $5000.
You will then receive monthly distributions starting about 60 days after your initial investment.
What Cardone Capital is best for
Cardone Capital is best for passive real estate investors who are seeking to outperform common REITs.
It provides a convenient way of investing directly in multi-family deals which would otherwise not be accessible to the broad public.
The main difference between investing in a REIT and in a syndication – such as Cardone Capital – is that you will receive a different tax form as a member of the company.
This tax form is called a schedule K-1 form. When tax season comes around you will then be able to deduct expenses and depreciation of the property from its income.
This will typically result in a much lower tax burden.
Cardone Capital is best for:
- Passive exposure to multi-family real estate
- Higher returns than some REITs
- Tax Savings
Is Cardone Capital a scam?
There are claims online that Cardone Capital is a scam. Given the research and analysis, I have conducted thus far and my own personal experience I can say it’s not a fraud, at least on the surface.
All investor funds are indeed held by the corresponding LLC which owns a portfolio of multifamily properties. In return, as an investor in the LLC, you will own a share in the company itself.
Cardone Capital will be appointed as the manager of that LLC overseeing and leading its operations. However, it also might not be the very best real estate investment available on the market.
When I say that Cardone Capital is not a scam I mean that it does not promise investors false outcomes or makes false claims about its investment procedures.
Cardone Capital Review: The Pros & Cons
In the following section, we will examine the pros and cons of investing with Cardone Capital. We will also review its main offerings and potential risks.
Overview
As outlined above, Cardone Capital offers retail investors with a minimum capital of $5,000 the opportunity to invest in multifamily properties.
As a member of the LLC owning the property, the funds will distribute earnings on a monthly basis.
The funds that are currently open to investors mostly contain properties in the south and southeast of the United States.
Grant Cardone has highlighted on several occasions that he believes the southern and southeastern US markets to be the most desirable real estate locations in the United States because of their steady population increase and job growth.
The properties themselves are upper-middle-class to luxury apartment buildings. In most of their funds, Cardone Capital advertises an internal rate of return (IRR) of 15% or higher.
The cash flow for most non-accredited funds is around 6% and for accredited funds around 7% as a preferred return. The equity multiple for most of these deals is 2.5 to 3x.
Platform & Features
Once you have created your account and are signed in to Cardone Capital’s platform you will be able to view all the available offerings.
Currently, Cardone Equity Fund IX and Cardone Equity Fund VI are open.
In your account dashboard, you will also find all the relevant documents for each property such as the offering memorandum, the operating agreement, and financial data.
The newer accredited funds offer three different share classes that you will be able to invest in. These share classes vary in the profit split between the manager and the other company members.
For instance, Class-A1 shareholders will be eligible to receive an 80/20 split on operating income and appreciation while Class-A3 members will only receive a 65/35 split.
The total size of most of the funds is usually between 50 and 100 million dollars. In order to invest in a fund, you will have to send in the offer submission form.
For most funds, the minimum amount to become an investor is $5,000 which will have to be transferred after signing the subscription agreement.
Once you have invested in a fund of your choosing you will be able to track your investments under the My Investments tab.
Here you will find updates regarding the properties as well as a history of distributions that have been made so far.
All in all Cardone Capital offers a simple and user-friendly platform to access investment documents and track your investment progress over time.
Commissions & Fees
The most important factors we need to consider in any investment are the associated commissions and fees. Unfortunately, Cardone Capital has quite a lot.
The most obvious fee that Cardone Capital charges lies in the amount which is distributed not to the investors but to the manager of the company, i.e. Cardone Capital.
For non-accredited investors, this will usually be a split of 65/35 on all proceeds. In other words, investors will only receive 65% of all rental income and 65% of profits when the property is sold.
There are three other types of fees that we should consider when investing in Cardone Capital or any other real estate syndication – for that matter.
First of all, there is the acquisition fee. Cardone Capital charges a 1% acquisition fee. This means that 1% of the purchase price of the property that is being acquired will be deducted from your investment.
In addition to the acquisition fee, there is also a disposition fee. The disposition fee that Cardone Capital charges is 1% as well, so when a property is sold, 1% of the sale price is also deducted from your investment return.
Another fee that Cardone Capital charges on a continuous basis is the asset management fee.
The asset management fee that Cardone Capital charges is 1% of the total aggregate capital commitments. Thus, Cardone Capital will charge a 1% fee per year during the first 3 years on all invested capital.
Surely a 1% fee here or there does not sound too bad but when added up these fees can make up a significant part of your return.
In simple words, the 65/35 profit split which is by itself not a fantastic deal in real estate ends up being something more like a 60/40 or even 55/45 split when taking into account all of the add-on fees.
In terms of fees, there are certainly better opportunities in real estate out there.
One company that does a fantastic job at very low fees and much better profit splits is Holdfolio. Click here to my full Holdfolio review.
BUT AN EVEN BETTER CHOICE WOULD BE GROUNDFLOOR!
Groundfloor is a much better lower bar to entry to diversify into the real estate market passively.
Customer Service
With regard to customer service, Cardone Capital is probably one of the most diligent companies out there. Most of their customer service representatives are available and reachable 24/7.
However, this does not mean that every interaction you have with a customer service rep is necessarily helpful. There are two dimensions to customer service: one is the availability and the second is the quality of assistance you receive.
In terms of availability Cardone Capital’s customer service is certainly a role model for many other companies but availability without quality does not amount to much.
Generally, Cardone Capital’s customer service agents are also able to provide quick and effective assistance.
This is especially important when dealing with a range of different investors who all care about their money.
Though, more times than not the customer service agents of Cardone Capital will also so try to sell you more products by Grant Cardone (personal experience).
This behavior is not necessarily conducive to a trustworthy customer service interaction.
Investment Quality
In the following few paragraphs I will try to draw a broad picture of the offered investments and their quality.
Cardone Capital does offer retail investors and the unique possibility of investing in real estate assets that were previously reserved for the ultra-wealthy.
However, as we have seen above Cardone Capital also charges a significant amount in fees and commissions for this service.
We will rate the quality of their investments by two main factors. These two factors will be: risk and return.
Generally, when considering a new investment we always want to weigh our risk against our potential return.
The correlation between these two factors should be such that the return far outweighs the risk of any investment.
Return
With that said let’s first look at the potential returns that Cardone Capital offers.
Real estate is a fairly illiquid market and as such cash flow from distributions plays a significant role in overall returns. Cardone Capital targets a cash flow of around 6% in most of its funds.
Thus, in cash flow alone these investments yield less than the average return of the entire US stock market over the past 30 years which has been north of 7.5%.
However, we also have to account for asset appreciation. The holding period for each property is determined by Grant himself and can range from 7 to 10 or more years.
Cardone Capital aims for a total internal rate of return of 15% which includes the monthly distributions.
Taking the appreciation into account and accepting the advertised IRR as reasonable we would end up with a return that is almost double that of the stock market.
Risk
In terms of risk real estate as an asset class is fairly safe. You are investing in a real physical asset that will very likely always have some value preventing a total loss of capital.
But there are some other risks to consider when investing in real estate:
One of these risks is the break-even and occupancy rate of the properties themselves. Single-family homes can be subject to an especially high-risk profile because your cash flow depends entirely on a single tenant paying rent.
With multifamily properties, your investment is much more diversified since your income stream is split between usually 50+ tenants.
Cardone Capital even goes one step further by including several of these multifamily properties in a single fund.
This way you will be investing in a fund of multifamily properties with an income stream that is diversified not only through a multiplicity of tenants but also through regional variations.
Overall the risks that Cardone Capital poses are certainly higher than investing in a public REIT but far lower than owning individual rental properties.
The potential return could be higher in total but is subdued slightly by why the collection of fees that are being charged.
Financial Freedom
Lastly, I will evaluate if and how well Cardone Capital is suited to achieve financial freedom.
Real estate as an asset class in general is a phenomenal tool to become financially free.
What makes it so compelling is that it offers not only a regular monthly cash flow which with to cover your expenses but also provides a more long-term growth in asset appreciation.
With Cardone Capital, you also get the best of both of these worlds.
You will receive monthly distributions paired with a chunk of the profits from the sale of individual properties.
All in all the profit split that you receive is not the highest but it will likely get you to financial freedom faster than more traditional investments.
There are two other important points that I would like to highlight if you are considering investing with Cardone Capital.
First, research other real estate syndication deals out there and compare for yourself which of the deals that are offered is more likely to help you succeed financially.
This can come in the form of a different profit split, fewer fees, or better properties.
Second, just because Cardone Capital – and real estate in general – presents a good way to achieve financial freedom it is not and should not be the only way.
A diversified portfolio is key to any long-lasting financial stability and growth. Overexposing ourselves to one asset class or one company can increase risk exponentially
The Bottom Line: Cardone capital Review
As we have seen in this Cardone Capital review there are many pros and cons. Overall, however, the pros seem to outweigh the cons by quite a bit.
The properties that are being offered together with the fairly low investment minimum make for a highly attractive deal to gain exposure to the multi-family asset class while remaining a passive investor.
Even a 65/35 profit split might not be the worst of it all considering that you literally do not have to do anything except clicking a button to become a member of the company.
Cardone Capital offers a compelling platform and several features that make investing and tracking your investments progress over time a breeze.
They certainly also stand out with great and sometimes over-the-top customer service.
Cardone Capital’s commissions and fees do put a damper on the enthusiasm I feel for real estate syndications in general but do not compel me to dismiss Cardone Capital from the getgo.
Conclusively, Cardone Capital is a legit real estate syndication company that offers some exciting opportunities for retail investors.
We will see if these types of investments will become more common in the future or if the SEC will tighten its ropes when it comes to the participation of non-accredited investors in real estate.
Let’s hope for the best! Check out Groundfloor if you are interested in investing in just real estate debt for just 10$.
