Re-Exposing Grant Cardone & Cardone Capital.

hey everyone me Kevin here in this video

we are going to react to parts of a

video I made five years ago on Grant

Cardone and Cardone capital and since

then there have been some changes so in

this video not only are we going to

review what was true back then and how

that compares to fundrise and Vanguard

and REITs and otherwise but then we're

going to talk about how some things have

changed some of the new fees which are a

bit lower but why we'll talk about debt

and we'll talk about what you should do

going into 2024 here obviously not as

personalized Financial advice but as

perspective for you to consider them so

let's get started with a throwback to

over five years ago benefit to having an

exit strategy is Grant gets to make

money on his website he tells you

exactly what the fees are for his

business and the business model anytime

a property is acquired Grant takes a 1%

fee anytime a property s sells Grant

takes a 1% fee and to manage the

investment Grant takes another 1% fee so

let's do an example with this $32

million deal $32 million $8 million

invested let's be generous and say the

fee is based on the $8 million invested

in under control and not on the 32

million because the numbers would be

ridiculous then and maybe they are

ridiculous 1% of $8 million is $80,000

on purchase $80,000 to Grant and we put

the deal under contract like Bang you

just tell me what your terms are and

I'll give them to you whatever you want

I'll give it to you H I love that

analogy so that right there that little

cut that I did what over five years ago

here is actually really important for

understanding one of the biggest

downsides of a real estate syndicator so

understand this when somebody gets paid

money to buy real estate and to sell

real estate what do you think their

motivation is it's to buy and sell real

estate estate so if they're a real

estate fund manager and they're

incentivized to buy and sell making you

pay 1% every time they do that then

their goal is to tell you how great it

is to constantly be buying and selling

real estate the reality is buying and

selling real estate is extremely

expensive every time you sell you have

to rely on the market moving in your

direction you have to rely on the buyer

doing their due Dil inspections and

getting financing you have to pay agents

fees escro fees title fees it's a

disaster and it's very expensive but

it's how syndicators make money and so

that's why that little aside there where

cardone's kind of like hey you give me

the terms I'll give them to you of

course you're not incentivized as a

syndicator really to get a good deal

you're incentivized to deploy Capital

One of the big downsides of a

syndication but let's keep listening in

to some of the comment interor for the

management every single year $80,000 to

Grant and upon the sale of the property

$80,000 to Grant uh on that $8,000 a

year for management what a lot of the

fund managers do and Cardone I've seen

this in some of his ppms as well maybe

not all of them but some of them uh what

I've seen is what they'll essentially

say is we're going to not charge the

management fee for say 10 years and that

will make it look like we can send you

more cash flow on a monthly basis then

when we go to sell the property we're

going to take all those 10 years worth

of management back at that point and so

then what you're left with at the end is

even smaller because you weren't paying

10 years worth of management even though

you owed it it's there's there's so many

fees in real estate it just rubs me the

wrong way you're the one to decid to

work for 1% don't tell me man oh my god

dude don't oh my God me this is funny

because Cardone here is making fun of

real estate brokers working for 1%

meanwhile he's literally collecting 1%

on everything he can you're the one that

picked that freaking job and then you

wonder well I mean okay so there's not

that big of an incentive to sell a

property right no no there there is

we're getting to that what's brilliant

about that 1% in the middle that kind of

slides in there as in not the 1% to

purchase and find the property or 1% to

sell the property is that's not to

manage the building that management

expense oh no no no no that's coming out

of the Investor's pockets for what it

costs to op at the building right so

it's not a management fee it's a

management fee to manage the manager

right so that's actually known as an

asset management fee when you hear AUM

or advisory fee or asset management fee

I want you to think how much is the

building and then it's 1% generally of

that building cost that's the asset

management fee now somebody has to get

paid for dealing with the tenants doing

the leases dealing with the repairs and

the complaints and the tenants the

toilet that's all that nonsense okay

that is the property management fee so

when you hear Cardone taking the 1%

management fee it's actually 1% as a

management fee to manage you the

investor your money and pick up the

phone go hey property manager how's the

property doing not actually doing

Property Management himself that's a

very big difference people forget about

you're actually paying for two managers

every single year that means if you have

a 400 unit building there's going to be

an on-site management company that

company is going to get a fee and Grant

takes 1% of that $8 million to manage

that management company and again every

PPM is written differently the example

we're using in this video is 1% of 8 mil

which is the equity in the deal most of

these management fees are charged on the

total asset under management not the

equity those little 1% fees everywhere

they add they add they add they add they

add they make the syndicator rich now

let's talk about the real killer as to

why the exit strategy is the best

business model Grant has ever come up

with and I'm so excited for him but you

should know about it and it's not only

him who does this syndicators across the

world do this I figured to try to

clarify some of what's going on so you

can understand the Brilliance of this

scheme for Grant Cardone but how

expensive it is for the investor I

thought I would show you how this looks

over a 10-year period of time uh and

then I'll explain some of the

differences between you know what a

syndication is and like a read or

whatever uh as well as how these fees

are different from what you would expect

regarding a

property so first this section right

here this is just the fund this is like

similar to the Cardone fund structure

which is a real estate

syndication let's say you bought a

building for a100

million and by year 10 it was worth

double which would be great okay like

great timing the fed's printing money

real estate prices are going up most of

that's going to be luck especially since

a lot of

these you know buyers of multif family

buildings and syndicates they don't

really care about getting a good deal up

front as we heard Cardone say we play

that little clip like bang you just tell

me what your terms are and I'll give

them to you whatever you want I'll give

it to you just tell me your terms and

I'll buy the deal that's what they're

looking for because they're trying to

deploy Capital because they don't really

care about doing work on the deal

usually they just want to raise the

funds and then hold the funds because

that's how you make money because watch

if you acquire a $100 million deal and

you take 1% Commish as a syndicator you

make a million bucks instantly for

acquiring it then usually what the

syndicators do is they defer their

property management for 10 years their

revenues for 10 years to make the cash

flow appear higher and then they collect

that when they sell at the end so that

way it seems like they're Distributing

more and remember these are Asset

Management fees not Property Management

fees that's very different asset

management is like managing the manager

you're managing the money not the

tenants so it's your a fee and so 1% per

year for 10 years is $10 million

assuming the property is just $100

million property until you sell it and

it's worth 200 uh and then you're going

to take 35% of the gain so 100 to 200

you'll take 35% of that on sale which

will be 35 million approximately I'm

shaving off like realtor fees and stuff

like let's just say we're netting 200

here right uh and then you get another

1% on disposition which would be another

$2 million so now all of a sudden when

you put all of these fees together on a

10-year hold a syndicator who

potentially has zero of their own money

in the game they may initially and then

they get bought out by their investors

so they pretty much just ride for free

with your money they could be making

roughly

50% of the deals long-term profit

because look at this a million up front

2 million at the back acquisition

disposition 10 mil for for the

management of the money plus 35 million

for the sale gain that's nearly 50% of

the entire gain $47 million in fees but

it's not just that then they also write

in all of our administrative funds the

secretary work in the office the

investor relations people that we have

working to manage the money like all of

the the legal reimbursements for the

filing to be able to raise the money in

the first place those are usually all

additional reimbursements plus you get

travel reimbursements in these

syndications like if you really want to

make money off of other people's money

doing relatively little other than

fundraising and then picking deals a

syndication is a fantastic way in a

brilliant way like you can't you can't

shade it because it's just like you make

so much money with it a brilliant way to

make a lot of

money but not as an investor it's a

brilliant way to make money if you're a

syndicator I personally don't like this

because I think that's unfair to the

people risking their Capital it's way

too expensive way too expensive so I'm

not a big fan of this that's a

syndication so for me when I hear

Syndicate whether it's the 8020 model or

it's 65 35 I'm not the biggest fan these

Partnerships no go people get excited

because they're like oh but I get a K1

and I can depreciate that just

complicates your taxes you don't

necessarily want K1 it's more

complicated

anyway what's also important to remember

is that these syndication fees are

different from your actual property fees

usually when we look at a property we

like to say that a building has expenses

known as Timmer t i mm urur plus d plus

I property taxes Insurance maintenance

management utilities reserves

depreciation and

interest all of those those expenses

here in Orange are not part of The

Syndicate fee like operating the

building the property manager for the

building the repairs for the building

all of that still comes out of the

investor cash flow on the deal so you

just get less of a yield on the deal

because you're really paying two

property managers here the money manager

and the property manager so those are

syndications you can see this a lot with

Partnerships as well very expensive in

my opinion you do get companies like

fund rise who have tried to make this a

little bit less expensive and what they

try to argue is that they just take a 0

uh or or .15 uh fee which is basically

15 basis points so if you multiply by a

percentage it would look something like

this but the reality is fundrise charges

15 basis points for the

actual advisory fee they call it and

then they charge another 85 basis points

for the asset management so they're also

charging the same 1% per year they're

also charging 1% on acquisition and

often they're charging one or 1 to 2% on

loans or construction that they're doing

as well so the fees are actually way

higher for

fundrise than it makes it seem like

because in addition to paying these the

1% here the annual 1% over here plus the

construction and lending fees and

disposition fees or realtor fees or

whatever in addition all that you're

still paying the property

expenses now fundrise and I think this

is totally wrong like it's almost scammy

when when you do this fundrise says oh

but you know

vanguard's uh uh re fund or whatever or

real estate fund charges maybe 15 basis

points oh well we charge 15 basis points

as well again that looks like this if

you're going to run it as a percentage

right and by the way I didn't mean to

put this little percent sign here

because if you multiply by

0.15 it already does that for you so

ignore that little percent there but

wait a minute the same problem exists

with Vanguard because fundrise is taking

your 15 bips and putting it into an

expensive management fee setup but with

vangard they're putting you into rats

and builders that also often have 8020

split models or asset under management

fees built into them so like it's

literally just fee burying under fee

burying and the more you go through the

paperwork the more you're like you're

just getting feed to death now maybe you

could find a Reit which uh Grant card on

for example likes to poop on REITs I

don't really understand why because you

get preferred dividends on them he's

like oh well you own paper you don't

actually own the property bro your K1

ownership interest is the same it's a

piece of paper the title for your car is

a piece of paper the deed for your house

is a piece of paper the share

certificate of a real estate investment

trust which is can be publicly listed or

not is a piece of paper like they're all

paper theoretically they represent an

underlying asset that is real like real

estate or sometimes in the case of reats

you could have mortgage reats but a what

you really have to do is you have to

look if like if you're investing in a

Vanguard real estate fund you have to

look at the underlying companies and go

well what fees are they charging because

if you're in REITs that have the 8020

models or all these asset under

management fees you're spending a lot of

money on all of this as well so the

reason I'm bringing light to this is uh

is is really just because people keep

sending me emails and messages and DMS

they say Kevin can you explain all of

these fees because obviously you're

running a housing startup where you buy

fixer uppers uh and you rent them out

whether they're multif family or single

family you're looking for wedge deals

wedge deals is basically buying deals

under market value we're not trying to

time the market we just buy properties

under uh market value uh and so people

are like well well are you a Syndicate

no are you a re no are you fundrise no

we're we're none of those we're not any

of those and I'm not even fundraising

for money in this video or whatever I'm

just trying to provide value and

perspective we're trying to build really

a competitor to like you know the ey

buyer models like uh you know we think

we could basically bankrupt Open Door

okay that's like a three billion doll

company now we think we can bankrupt

them we don't think they're a great

company uh you know red fin when Zillow

was it we think we can do better than

those companies so I'm not here to to

talk funds uh and if we ever did any

kind of Fund in the future I personally

have an inspiration to say how can I

take all of these non-property related

fees and basically make the fees zero so

that way you basically change the game

of investing in real estate where like

imagine if somebody actually provided a

fund product in the future where there

were legit no fees like you go through

the whole PPM and it's like damn there

really are no fees it'd be such a game

Cher because everybody's taking so so

much freaking money in fees now

obviously then people are like well how

do you make money how do you charge no

fees well how house heack makes money is

we buy good deals like we actually put

the work in to not pay market value like

a lot of the rats or syndications do but

we actually try to buy a good deal under

market

value and now all of a sudden you have a

market value deal that's fixed up

stabilized rented out no fees that's the

difference so uh there is absolutely an

opportunity to have uh zero Fee real

estate uh investing out there but it

doesn't exist today uh you know we don't

even have that today it's something that

I think is is a goal we can Aspire

towards and I think there's a huge

opportunity there now let's consider the

revised fees the updated fees because

now it's really expensive to do real

estate consider this you got a 7%

property yield back in the day with a 2

and 1/2% mortgage you've got free cash

flow of 4 1/2% potentially that's a

great deal but if today you're buying a

4 and A2 cap property because prices

went up and all of a sudden you're

paying 7% interest only in interest

you're actually negative 2 and a half%

on that deal now I'm not the biggest fan

of negative cash flow but there are

times that actually Mak sense if you

believe the property value can

appreciate or will immediately

appreciate more in value that is

remember there are multiple ways to make

money from Real Estate there's making

money from the cash flow and then

there's making money from the

appreciation of the building above and

beyond whatever it takes to actually

maintain it because if you don't

maintain it it

depreciates but otherwise let's consider

Grant card own's new and revised fees

let's say because it's harder to raise

money now Grant card own raises $50

million and he leverages that 3x so you

have a $150 million deal Grant cardone's

still going to take that 1% 1%

acquisition is based on the actual

property value which is is $1 1.5

million let's say he could double it at

some point we'll call it after 10 years

which would be great leverage

depreciation fantastic 1% of this we're

going to take $3 million over here for

Cardone now the management fee is going

to be based on the equity which would be

500k at this number but if we double

then uh when we go to sell this building

assuming we do an interest only loan

we're still going to have $150 million

of debt but we should now have $150

million of equity and that's the benefit

of Leverage the benefit of Leverage here

is you get a potentially tripled the

money in the deal that's not bad if the

whole building doubles in value right so

you could potentially have a triple that

on the equity up to $150 million so that

means the management fees would be

anywhere between $500,000 to $1 1.5

million let's make the math easy and

just assume it's $1 million per year for

10 years therefore $10

million now we have an example of the

total fees pre waterfall with debt in

this case the total fees would be

$14.5 million on a $150 million deal uh

that so far isn't that bad it's like

almost like a 10% Venture Capital Carry

right but Cardone has now a new fee it

used to be 35% probably still is for the

old funds but because interest rates are

so high and it's harder to raise money

for Real Estate it looks like cardones

reduced this to the classic 8020 model

law of supply and demand Can't Get

Enough investors you lower your fees so

now Cardone is pushing for a

20% waterfall which in this case the

gain on the deal could be $150 million

say everything works out perfectly 20%

of that gain n a fees would be about $30

million so now we're going to add these

together here and we're going to realize

that Cardone on this deal is still

pulling about

$44.5

million in fees which is basically the

entire amount that investors first

invested in the deal which if we

consider it on a math basis it probably

works out to splitting costs 7030

investor 70% uh and Cardone 30% roughly

if we are able to double the property

value so this is a lot better than 50/50

now keep in mind there's still going to

be reimbursements this assumes you have

cash flow taking on debt in this

environment and it assumes the property

building value can double this is still

a lot of money for moving people's money

into a building and then waiting for

leveraged appreciation to do its work

work and remember with leverage comes

risk as well so this gives us an updated

look on the fees now does that change

anything in terms of what you should be

doing probably not let's talk about that

the reason I say probably not is because

quite frankly you could find real estate

investment trusts or other funds that

don't charge you nearly a third of your

profits to go leverage real estate most

re have debt and that's because they're

doing the work of Leverage for you and

they're dealing with the tenants and

toilets for you you still have to be

careful though a lot of these rates can

still charge you somewhere around 20%

just run the scenario I just showed you

twice Cash basis leverage basis and look

for the fees fees really add up heavily

and so it's generally not a surprise for

you to end up paying between 20 to 40%

investing in real estate opportunities

with somebody else doing all the work

for you personally I would like to try

to figure out how to get all of this

down to zero or as close to zero as

possible that's a dream of mine and a

goal of mine we don't have that at this

point so we're not fundraising for

anything in this video or whatever we're

just trying to add perspective so what's

the best thing though and I'll never

ever ever take this away from somebody

what is the best thing to do in my

opinion not as personalized Financial

advice for you uh but in someone's

situation well for the vast majority of

people with a net worth of under 500 K

to a million dollar one of the best ways

to start is actually buy real estate

yourself I'm a big big big big fan of

finding something that you could turn

into a rental yourself don't over

improve real estate don't buy funky

properties next to highways busy roads

under high tension power lines or with

funky additions just buy yourself a

normal three-bedroom two bath don't over

improve it put 10% down 5% down 15% down

something like that with a a 30-year

fixed trade mortgage at a payment that

you can afford don't overextend and when

you get in don't go remodel everything

it is way easier to save money by saying

no to remodeling something than it is to

try to get a discount on your vendor

that you hired to do some work for you

way easier just to say no upfront so buy

real estate and then when you move rent

it out now you have your own leveraged

appreciation and by default by not

paying syndicators the fees you're up

probably 20 to 40% on your own version

of Leverage depreciation and since you

have a 30-year fixed rate mortgage

you're not even in a situation where

you're paying an interest only loan

that's doing payable in 5 to 10 years

instead the house is fully paid off

after 30 years you never have to

refinance if you can afford that payment

it doesn't change there's no margin

called the loan doesn't get called it's

a much safer option for somebody getting

started now I've got a lot of videos on

the channel of exactly how to get

started and how to buy wedge deals go to

the little playlists on the channel you

could see all the archived real estate

videos there's some really cool ones but

look I'm I'm a really big big big big

believer that if you're just now working

on building your wealth you've got to

stay away from fees the fees will

absolutely destroy you instead do

everything you can to get into real

estate one of the best things to do is

buy it yourself if if you don't want to

buy real estate yourself look for

something that gives you that lowcost

diversification the danger here though

is if you throw money into a Vanguard

real estate fund remember they might be

throwing your money into funds that also

have those 20 to 40% fees so be careful

about that like you're paying Vanguard

to kind of be the distributor for you

right uh so look for the best options

for you I I I I think at this point

there aren't that many great options I

wish I could recommend one that I

thought was was better uh so we'll see

maybe we we'll save that for a future

video but for now consider diversifying

into real estate yourself and be aware

that even the syndicators are starting

to have to lower their fees but even at

the lower numbers they're still

ridiculously expensive thanks so much

for watching and I can't believe that

after five and a half or almost six

years here pretty much nothing's changed

it's still a glorious business model for

Cardone