Single-family rentals are a hot topic in the real estate industry. Chances are, if you’ve been around the industry for any amount of time in the last decade, then you’ve heard investors debating the significance of single-family rentals in the overall real estate market. The question often arises—are single-family rentals really worth it? Though this asset class has grown well (especially the institutional ownership component), not all in the world of real estate investing are not interested.
One, in particular, YouTube ad sensation, Grant Cardone is not impressed by the single-family investing market. In fact, Cardone wrote an article a few years back claiming that “buying a house is for suckers.” And while I’m certainly not one to pick a fight, I do have a few disagreements with his reasoning.
But first, I must say that overall, Cardone’s videos are highly entertaining, educational, and he does offer up a lot of knowledge while challenging conventional thinking (something I’m a huge fan of). However, his expertise seems to be in multifamily real estate, although I’m guessing he does have a lot of knowledge about many different asset classes within real estate investing at large. But it’s always beneficial to bounce ideas off one another, so let’s take a deeper look.
“If You Don’t Have 20 Million Bucks, You Have No Business Buying a House.”
In some ways, Grant does hit the nail on the head with this statement. His caution against overspending and his emphasis that young Americans are becoming property renters more so than property owners stays true to the recent literature on the industry. But his reasoning against investing in homes doesn’t make much sense to me given my own experience, however his argument may just be simply against owning your own personal home.
Cardone claims that a house doesn’t pay dividends the way that multi-family real estate does. And while by no means am I attempting to refute Grant’s success in multi-family real estate investing, this statement isn’t true. In fact, a recent study shows that single-family rentals are indeed growing faster than apartment rentals (the SFR market is growing at 2.1% year over year compared to the 1.5% of apartment rents.) In short, the industry isn’t growing because the investors aren’t making any money.
Also, for the average American, the barrier to entry with single-family renting is much easier than multi-family investing. A few years ago, Grant said he owned around 4,000 apartments that provided him with active cash flow. A staggering number? Absolutely, but it simply isn’t realistic for the average American looking to get into real estate investing. Single-family investing allows a person to focus on one property and scale their accumulation of properties accordingly.
“A house, along with a college education, has been fed to this country as the way to financial prosperity. It may have been true in the past, but today it’s all a myth.”
Again, I agree with a lot of what Cardone says, but I worry his emphasis on getting rich through multifamily investing, something that he is incredibly successful at, may tend to dissuade people from investing in single-family rentals. It’s true, the American dream of a house and a white picket fence is shifting, but that doesn’t mean that investing in single-family homes isn’t a great way to counter shifting economic times. However, current data shows that approximately 15 million SFR units are owned and operated by mom and pop owners and at this point with residential real estate prices near, at or above their 2006 peek, most of these units are owned by investors who are actually making money.
Grant Cardone’s focus on helping Americans achieve financial peace is a noble pursuit, and it’s certainly something he has proven in his own life. My disagreement is with his reasoning against the SFR asset class, not against his success or wisdom in multifamily real estate. I agree with his mission to help people learn more about the benefits of real estate investing, I simply think the data shows that single-family rentals are a great way to invest and my own experience proves to me that the SFR asset class can be fruitful.
Meanwhile, Kris Krohn did a terrific job listening to Cardone’s Youtube video and offering his arguments point-by-point for why single family does actually make sense.