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From Investor to Tycoon: How to Scale Your Real Estate Portfolio


Jul 17, 2020 by Kevin Vandenboss

Real estate investors always have room to scale their business and continue growing. You may find yourself stuck sometimes, and out of ideas on how to grow the real estate empire you started this real estate journey for. If only someone had the secret sauce, your climb to the top might be easier and faster.

That's exactly what I set out to do, find the secret sauce. You have to be cautious of who you take your real estate advice from. Somebody in the same boat as you might not be the best choice. The person who has already built the massive empire is likely a better option.

Two major things holding real estate investors back

Cardone Capital's CEO, Grant Cardone, has built an impressive real estate portfolio, and I was able to sit down with him to find out how he made it from his first $78,000 rental house, to a private real estate fund with nearly $1.8 billion in assets under management.

Deals are too small

Grant explained how smaller deals are holding many real estate investors back. "The smaller deals are harder to make money than the big deals. When you buy a four-unit deal, who are you going to sell to? You're going to sell to somebody that's price sensitive."

Adding value to a one- to four-unit property can be difficult. Even if you raised the cash flow, the income is only one thing an appraiser considers. The value is still mostly tied to a square foot value based on comparable sales. Your buyer will probably want the same value add opportunity you were looking for when you bought the property, so they don't want to pay market price.

Larger investment properties attract investors who can afford to pay a fair price and can easily get financing. They may even be under the gun to spend money because of a 1031 exchange or because they manage a fund that's sitting on cash that they need to start earning a return on.

Pay more for a better deal

It may be cliche, but location, location, location is an overused phrase because it's true. Being in the right location will reduce your risk, provide you with better tenants, and give you more appreciation on the property.

Cardone explains from his experience, "I would pay more money to buy a deal. I would not use the buy low, sell high phenomenon, or strategy. I would pay extra for a better location. You make more money with a lower cap rate. Lower cap rate deals, over my 25 years in buying real estate, would've made me more money than buying more cash flow."

Take care of yourself

It's easy to neglect yourself when you're a busy entrepreneur. Staying up late, skipping meals, not exercising, and relieving stress with a couple glasses of whiskey is an easy trap to fall into.

It's important to take care of yourself, though. Keeping your mind sharp and your stress levels low are major factors in staying productive.

Cardone keeps it simple, saying, "I try to get enough rest. I sleep eight hours a day. Sometimes eight and a catnap in. I love a good nap. I love a good nap more than the sleep.

I don't use drugs. I drink very little alcohol; every once in a while I'll go out to dinner and have a bottle of wine. And I work out. I try to take care of myself.

So, I've got great people around me as well. I've got people that believe in me and support me. I don't have a lot of people pushing against me. And, I buy good real estate, dude. Look, if you buy great real estate, you can go to sleep at night. Most of the stuff I buy, I never think about it until I go to sell it, because I know how good real estate it is.

It's like when you're playing Monopoly. If you buy Boardwalk and Park Place, and you can put a little rental on top of those, you're going to win that game. It's just a matter of when you land on it, and you're going to have to pay the rent to stay there for a night."

Just how big can you scale your real estate portfolio?

There really is no limit to how far you can go with your real estate investments. If you're setting large goals, making smart investments, and staying focused, you can take it as far as you want.

So what does somebody who already has a fund with $1.8 billion in assets under management have his sights on next?

"Look, secretly, I would love to go public. I would love to have a public company at some point, and be listed, and take the company, rather than selling it to a Blackstone (NYSE: BX), have it become its own entity where people invest in it. I think there's a lot of room for maybe more fairness by the big groups.

My mom never really got a fair deal. She didn't know this when my dad died. There was no way for my mom to create wealth. The average person does not get the same shot at the deals that the Goldmans and the wealthy families get. The deck is stacked against the everyday guy. So, if I could figure out how to create a fund to help out the everyday person, the non-accredited, to invest alongside me and shake up the system and reduce the cost, without it being a piece of garbage paper, where people could trade garbage paper for real assets and get all the benefits of the real asset... And I don't know that I can figure that out. The system might be too screwed up to even do that, but if I could, that would be cool."

Your view on money

A lot of people are held back because of how they view money. It gets put on a pedestal and worshiped. In reality, it's just a tool. It's numbers flowing in and out of accounts with a value that can change rapidly. History has proven that money can lose value to the point of almost being worthless.

Throughout all of history, the ones with the real estate hold the most wealth. No matter what happens with a currency, real estate will always have value.

The point of this is to say that money isn't something to worship and put too much importance on. Think of it for what it is, and use it that way. It's a tool for getting real assets and building real wealth.

Cardone explains it further, saying, "Cash is trash. It's garbage. It's worth nothing. You're putting it in the bank. All you're doing is benefiting Bank of America (NYSE: BAC) and Wells Fargo (NYSE: WFC). It's a ridiculous play. So, first make the decision. Cash is garbage. This is not your daddy's economy where you wanted to save money.

Number two, your cash... Never trade paper for more paper. Trade paper for something more valuable than paper. Dollars could get depreciated heavily here because of this big print that we just went through. So, if cash is going down in value, what goes up in value? Real assets: concrete, brick, glass, floors, permits, plans. Buy something that's going to go up in value."

Putting it all together

What I realized is that all of this advice boils down to one thing: Shake everything up. Don't just look for a better way to do what you're already doing. It's not about finding the right tax strategy or the best way to structure a loan. Baby steps take too long, and slow and steady doesn't win the race.

Instead of looking for the lowest-priced deals, look for the deals that will have the most value and make you the most money. Don't put money on a pedestal and let it control you. Use it; don't let it use you. Most importantly, know that it can be done. Other people less capable than you have made it.

Unfair Advantages: How Real Estate Became a Billionaire Factory

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Kevin Vandenboss has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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