For many, buying a home has been a quintessential part of the American dream, representing stability, prosperity, and success. However, real estate mogul Grant Cardone strongly advises against this notion, especially for those under 30.
The Case Against Homeownership for Young Americans
Grant Cardone, who has previously called buying a home “the worst investment people can make,” recently reiterated his stance in a post on X (formerly Twitter). He emphasized the substantial financial burden that comes with homeownership, making it an impractical goal for young adults in today’s economy.
The Financial Burden of Homeownership
According to Cardone, the average home now costs around $436,000. Although he didn’t provide a source for this figure, the U.S. Census Bureau reported a median sale price of $420,800 for houses in the first quarter of 2024. Cardone broke down the total annual outlay for homeownership to be approximately $50,000 a year, or $4,200 per month. This amount includes interest payments, property taxes, homeowners association (HOA) fees, private mortgage insurance (PMI), and maintenance costs.
Renting as a Viable Alternative
Given these costs, Cardone recommends that young people consider renting instead. He argues that renting can be significantly cheaper, with costs potentially under $2,000 per month, and it offers advantages such as no long-term commitment, no down payment, and greater mobility.
“Buying a house is no longer the ‘American dream,’” he concluded, suggesting that young adults should focus on more flexible and financially manageable living arrangements.
Alternative Ways to Invest in Real Estate
Despite his stance on homeownership, Cardone acknowledges the appeal of real estate as an investment asset. Real estate can provide income potential, act as a hedge against inflation, and diversify an investment portfolio. For those interested in real estate investment without the burden of homeownership, here are three alternative strategies:
1. Invest in Publicly-Traded REITs
Real estate investment trusts (REITs) are companies that own income-producing real estate, such as apartment buildings, shopping centers, and office towers. REITs operate like giant landlords, collecting rent from tenants and distributing at least 90% of their income to shareholders as dividends.
Investing in REITs is straightforward since many are publicly traded. Unlike buying a home, where transactions can take weeks or months, REIT shares can be bought and sold anytime during the trading day, offering high liquidity. Additionally, there are no significant upfront costs; you can invest in REITs with as much or as little money as you want.
2. Invest on a Crowdfunding Platform
Crowdfunding has revolutionized real estate investing by allowing individuals to pool their money to invest in real estate projects. Through crowdfunding platforms, investors can own a percentage of various properties, including rental properties, commercial buildings, and land parcels.
Some platforms are designed for accredited investors, requiring a net worth of over $1 million or an annual income exceeding $200,000 ($300,000 with a spouse) for the past two years. However, other platforms have lower barriers to entry, allowing investments with as little as $100.
While crowdfunding makes real estate investing more accessible, it’s crucial to understand potential drawbacks such as liquidity constraints and the lack of guaranteed income.
3. Real Estate Mutual Funds
Real estate mutual funds invest in REITs and real estate-related stocks. These funds provide diversification and professional management, making them an attractive option for those who prefer a hands-off approach to real estate investing.
Like REITs, real estate mutual funds offer liquidity since their shares can be bought and sold on the stock market. They also allow investors to benefit from real estate market trends without the need to directly manage properties.
Conclusion
Grant Cardone’s advice highlights the changing landscape of the American dream, urging young people to rethink traditional homeownership. By considering alternatives such as REITs, crowdfunding platforms, and real estate mutual funds, young investors can still benefit from the lucrative real estate market without the financial strain of owning a home.
As always, it’s essential to conduct thorough research and consider consulting with financial advisors to find the best investment strategy tailored to your goals and financial situation.