Grant Cardone Real Estate Disaster (Dont Make This Mistake)

Transcript

Meet Cole And The Red Flag

SPEAKER_00 0:00

What is up, everybody? My name is Cole. I'm a part-time real estate investor, full-time legacy airline pilot, and a part-time military instructor pilot. Today I'm here to tell you about a terrible turn of events. I have somebody that I know that I served with in the military, and before I could teach them all the ins and outs of real estate investing and how to be successful, somebody else found them sooner. And his name is Grant Cardone. Brutal, brutal findings. This person came to me months ago asking me about Texas and investing in Texas and this and that. And this person lives in Wisconsin. And I told him, uh, no, it's probably not a good idea. I would get really good at Wisconsin before you start looking at anything else because it's close to you. It's much easier to understand the market, much easier to manage things if you're going to manage it yourself. There's a million, there's an infinite number of reasons why I think it's easier to do it close to where you live, if where you live makes sense. And in Wisconsin does make sense in a lot of places. But instead, he went to 10X Capital or whatever it's called, and he went to Grant Cardone and said, Please, Grant Cardone, I don't have any money. I have a dream and I want a billion dollars of assets under management. Can you please help me? And Grant Cardone and his people said, Why, yes, we can, son. So he ended up texting me just recently and told me he had the 65 unit deal. And if I put in just$50,000, I could double my money in less than five years. And I'm here to tell you the deal is horrible. So I'm gonna lead off with just reading one of his last texts to me. So that way you can get the frame of mind that this person is in that's texting me. And the reason that I'm making this video is not to disparage this person. I gave them, trust me, I gave them all of my feelings about this deal. The reason I'm making this video is because there's a lot of young men specifically that are out there that want to do what I'm doing, want to do what other people that they know are doing, the big internet personalities like Grant Cardone are doing, and they're gonna try to find generally the easiest, most accessible way to do that thing. And Grant Cardone is he offers great solutions for that. I mean, he targets unaccredited young men, uh unaccredited meaning people that don't have any money, you know, or not very much money. He's not targeting the ultra wealthy, he's not targeting Warren Buffett. He's looking for the 22-year-old that's working a part-time job, that wants to be somebody, that wants to make some money. And I've been that person. I was when I was in flight school with the military, I desperately wanted more units as fast as possible. And I was trying to do everything I could to make that happen, and it didn't happen that way for me at all. And I'm so thankful that it didn't. Looking back on it, at the time I was devastated. I want more properties as fast as possible. I was laser focused on that, but I wasn't making any headway. And the people at Grand Cardone and the other guys out there started to seep into my mind and make me think that that was the direction I should go, aka syndications diluting my ownership down. I'm thankful that I didn't do that, right? So that's what I'm talking about today. Um, and I'm gonna lead off with this text so that you can get an idea of who this person is and see if maybe that resonates with you. There's a lot of guys that watch this channel, and uh, I'm talking to a lot of you, hopefully. So I'm hoping I can save you the heartache and the wasted time and the wasted money by going not going down a path like that. Let's start it off. I need GPs and LPs, general partners and limited partners for you guys. That just means I need uh people to fund the deal. I need people to bring the money, basically. I need, let's say, partners to scale to the size I want. I'm following Grant Cardone's playbook, building an empire that makes all of my friends and family wealthy along with me. That's why Blank, his partner, and I are starting Blank with a Reg D 506B fund. We'll be private equity fund managers for a fund of non-accredited investors made up of fran family and friends. Doing it that way, we can scale 167 units, 1.63 million assets under management in our first year. I have no clue how long that would take me to do by myself, fully funding it with a W-2 income. Even this deal won't make me rich. I'd be barely making a minimum or middle class wage after we close on both assets, but at least I get to do what I love. I'll still be getting rich slowly, just not as slowly as if I stuck with growing a single family portfolio by myself with a W-2 job. And the only reason he said that end part is because I said real estate is get rich slowly, which it is. I read a text like that, and there's a lot of things you can take away from a text like that, but the way that I interpret it is I I don't want to go slow, I want to go fast. Even though he says at the end, I'm going slowly. He mentions in there 167 units, one 16.3 million assets under management. He's listing off these big numbers, but when you've diluted down your ownership, you don't really own any of it. I mean, you have to find investors to fund these deals for you because you don't have your own money, which is not the end of the world. People do that all the time, aka the stock market, right? But I think people like this have gotten confused that like the bigger numbers are all that matters. You can make a really great living having 200 units, having 50 units, having 10 units. Guess what? If you have 10 units that are paid off, you're living good, dude. You're probably living just like I am with 100 units, right? So getting blinded by the unit count is so dangerous. And I'm not gonna get hung up on that. I want to talk you guys through the deal, but that mindset is what the people at Grand Cardone prey on, right? So you need to be careful of that because um those programs, those courses, they're not made for Warren Buffett, they're not made for Bill Gates, they're not made for the people that are running or have run or built businesses. They're trying to get the guys that are desperate and want to win, they want to put a W in the column, and uh they just so happen to find that as their option, and they think that's the way to do it. And I just don't, I just don't agree with it. And I never will. And there's people out there that do that, that make way more money than me, but I'll show you exactly why that is and why I think it's not great. So scrolling back up, basically what happened is I got a text from this guy with uh a flyer, and I'll read some of the highlights off of it. 65 units, uh, 3.3 million in Kingsville, Texas. They're looking for 1.3 million, and it literally says in all caps, double your investment in five years, which is um, you know, it's a big claim to make, right? When somebody this person has no investing experience at all. So um there's that. I mean, he's had some single families, but I think he went bankrupt on them, and I don't really know. Financial details. I don't know why they would even put this in there because I would try to hide it. 2.5% acquisition fee. So right off the bat,$3.3 million you're paying for the property. So 2.5% acquisition fee. I mean, that's$25,000 per hundred million. So you're looking at$75 and some change, whatever the number is. It's$75,000 of an acquisition fee that gets paid to who? The partners. And in this case, there's four of them. So there's four general partners who are looking for limited partners, LPs, to fund$1.3 million to get this deal under contract. So right away, the management team, that's one of them has no investing experience. I can't speak for the other guys. I did a little bit of research on them, but I'm not going to speak on them because I don't know them. They want$75,000 just because they found the deal and they put it together. The annual return they claim for the first year is 7%. And by the fifth year, they're talking about 140 to 169% rate of return, which I don't know if you guys have invested in the stock market. That's a that's a significant return, especially when you're advertising it as such. You don't even, you know, there's not there's nothing baked in to say that we maybe maybe we could lose money. They didn't talk about that. And uh they talk about, you know, if you put$50,000 in what you could expect to get, and they say in five years you could expect to return about 101 to$121,000 on$50,000. So this thing is apparently just churning out money. It's churning it out. It can't stop, right? There's no problems, it's the best building of all time. That's why it's getting sold, I'm sure, right? So um there's a management team, and uh, they've got themselves an asset acquisition guy, they've got an asset management, a debt acquisition, and a capital raising guy. The way I look at that, and I was like, you have four people do this job? Like, you don't really need that. I I'm doing all this mostly by myself, and I can get insurance within one email, I can get lending with one email, I can get capital raising, I can reach out to people and get money if I need it with a text. Like, you don't need four people to do that. Uh, the management one, you definitely need somebody dedicated to that, I would say. Um, so I don't think that's crazy. But the other three are like a one-person job, in my opinion. But again, uh, I don't know that much. I'm just a lowly Milwaukee investor. So uh they're talking about you know, you're gonna get paid every month throughout, and I'm kind of paraphrase paraphrasing some of these texts. Their plan is to do 67% loan to value, which really isn't that bad. I actually don't mind that at all. I think it's maybe a little aggressive, but it with deals this size, you do have to bring a lot of equity down. So um they're bringing a lot of equity in, which means their debt service is gonna be lower and it's gonna lower your risk. You're going lower on the risk scale, but you have more investors, and you have more investor money that you need to return at some point, or you're supposed to. I don't know. I apologize. I suffered a heartbreak right there. I recorded like an extra 20 minutes of video at 4K, and the audio was gone. So I only got nine minutes worth of the audio on the 30-minute video, so I wasted a ton of time, and uh, I spent a long time trying to upload it and fix the auto, but it was just not there. So I'm picking up where I left off and I'm gonna try to power through this. Bear with me. But basically, where I was at was talking about the fact that they were doing 67% loan to value. I actually didn't hate that part of the deal, and I was getting to my first sticking point. And the first sticking point is that one of the GPs, one of the partners, is also the property manager, and it's not bad, right? You want your general partners, the people that are, you know, putting the deal together to have a management plan in place. But when the manager happens to be also the person that is buying into the ownership and getting, you know, a lot more of equity than they deserve, as far as the down payments are concerned, then that's kind of a tough one for me. When the cash flow comes in and gets divvied out, the manager's always going to get paid, right? But the manager also just so happens to be an owner. So if you're a person that say put a million dollars into this deal because they're asking for 1.3 million, if you put a million dollars into this deal, you could find yourself in a situation where the partner, the GP, that's the manager, is getting paid more than you as like the million dollar investor that they hauled in. And I think that's kind of for like for me as an investor would be risky, but it's kind of shady too, right? And I'm sure that this person that's managing all these other properties is more than happy to do that because they have to bring very little money in, they get the control of the deal, they get to place themselves as the manager. And guess what? Who's gonna fire them if they don't do a good job? I mean, it's the owner and one of the GPs, and they've convinced the rest of the board that they should be the manager. So when would they ever get fired? And would they get fired and replaced in time to save the deal for the investors? I mean, they're all questions that I think are worth asking, and I don't know that everybody asks these questions, and they're hoping that you won't ask these questions. So that's something I want you to think about. If you're looking at deals like this, or you're gonna go to Cardone Capital and you know start syndicating deals, have answers to these questions because if he if he had answers to all this, I'd be maybe like, okay, like he's done his due diligence, but I asked all these questions and there were no answers. So here are the seven things that I didn't love about this deal and questions that I asked him to have answered for me. And one of them was the expense side of the balance sheet. The expenses on this property were way understated. They were looking at$3,000 a year for unit turns. To put it in perspective on like a two-bedroom, the average two-bedroom, I actually just did a three-bedroom. I'll give you this one. This is even more conservative. On a three-bedroom that I just turned recently, it was about$1,800 to turn that unit. That was one. They have a 65-unit building. You mean to tell me that you're not going to do more than two turns a year? I just don't believe it. And so his response to that was that, well, the units are really nice, there's not much to do them. And they questioned me, why are your so your expenses so high? I'm like, uh, because paint costs money, flooring costs money, cabinets, bathrooms, like none of the stuff is free. So, you know, somebody's got to pay for it. It ends up being me as the owner. So their expense out of the balance sheet, as you'll see in the pro forma, is way understated. Um, and I'll get to another point on that one in a moment. Insurance. They don't plan for any major insurance changes. And anybody that's lived in the real world, whether you own properties or not, has noticed that insurance has certainly gone up and it's certainly more unpredictable than it used to be. It used to be that you just get your premium for your car, you know, I've got a Camry and set it and forget it for 10 years, and it really isn't going to change. That isn't really the case, especially with properties these days. There's a lot of movement up and down. Um, and what was$10,000 a year one year could be$30,000 a year the next year. And how are you gonna plan to eat that cost without going back to your investors and saying, hey, I need more money? Property manager, like I mentioned, the property manager thing is really a sticking point for me because they're a GP, they put themselves in place, they got a unanimous decision by the four members who don't know what they're doing, at least one of them doesn't know what they're doing, and they're gonna get paid no matter what. They're setting the fees, they're deciding what gets fixed, what you there's just a lot of complications that come with that, and it's okay if you can make it equitable. I think it's okay. But no one's demonstrated to me that they can make that equitable and what that even looks like, right? So there's that. The pro forma again, going back to the pro forma, rent growth. This whole pro forma is just built off of continuous rent growth forever. Um, and that doesn't always happen. And that doesn't always happen. Sometimes rent growth is stagnant, sometimes rent growth goes the opposite way, sometimes things go down, right? And they didn't build any of that in. So that's concern to me. If you're only betting on the rent going up three, five, ten percent a year every single year forever. Um, well, first off, that brings you back to the first point. You're gonna have unit turnover. People are gonna move out because you're gonna raise the rent on them, they're gonna say, I'll go somewhere else. And you can only raise the rent as fast as the competition allows you to. So there's all these dynamics of the market to consider. Is there even a reason for people to live in Kingsville other than the Navy base? I don't know. I've never lived there, I don't know the market, but that's another reason why you need to know the market that you're investing in, or find people that don't know what they're doing with their money and take their money and use it for your benefit. Um, if you look at the pro forma, again, I'll throw it up here and you guys are already looking at it as we speak. Bad debt is zero. Why is bad debt zero? Bad debt means somebody that didn't pay you. And in my experience, people don't pay. Most people pay. I would give it over 70% of people are gonna pay their bills, but there's gonna be people that don't pay. There's gonna be people that get evicted. And in the case of this building, you've got half the units as one-bedroom apartments. I don't know if anybody's worked with one-bedrooms in big buildings like that, but there's a lot of turnover, there's a lot of issues that come with that sometimes. Um, you're not renting to big families, usually with dual income and stable jobs. It's a lot of instability. And I live in a one-bedroom, so I'm speaking from experience. Uh, so that to me seems insane to I bet that nobody's ever gonna not pay their bills. No one's ever gonna move out more than two people a year, basically is what they're saying. We'll move out of the building and it'll just be set it and forget it, keep raising the rent on these people and are never gonna leave. That's not realistic, especially not in Kingsville, Texas. It's not LA, it's not New York, it's not Milwaukee, but you know, it's just it's really hard for me to believe that that's a possibility, and maybe I'm totally wrong about that. I could be proven wrong. When it comes to the management, they said that the current owner is running about a 65% expense ratio, which is certainly high. I usually run about 40% expenses with everything included prior to debt service when I'm doing my numbers. They're running 65%, so it's certainly high, but why is it high? Is it because they're the worst manager of all time and we know what we're doing, we're gonna fix it? That's kind of how he was talking. Or is it that this building just has a lot of problems and there's a lot of unattended issues? And so his response is that no, we know what we're doing and we're gonna change the management, we're gonna save so much money. You're you never have saved so much money in your life. And so they're gonna bring the expenses down to like 30 some percent. And they don't really have a plan in place. Their plan, which is my next sticking point, is contract maintenance, contract everything for leasing, you know, leasing agent to show the units, somebody to turn the units, the day-to-day calls of, you know, my drain is plugged up, I put something in the toilet, whatever. That kind of stuff is all gonna be contracted out. How are you gonna save money when you contract every little thing out? That's expensive. I mean, look at the government, the government loves contractors, the military loves contractors, and it costs us so much money to do what we need to do. And the same thing applies in this management world. When you're contracting everything out, it's gonna be super expensive, and you can't even verify whether the work has been done properly or not. So you have to how do you find people to trust? Where do you find those people and how can you keep them around? How can you incentivize them to stay without paying them a ton of money? These are real problems, and these are problems that they did not have the sufficient answer for, if you ask me. And the last problem I had was that the combined total for all of them is$150,000, and that wouldn't even really get you a hundred thousand dollars or a million. The next problem I have, and the final problem I have with this deal, is that the GPs, the people that are putting the deal together, the brains, the brawn behind the deal, which is not much, there's not much there to go off of, but the brains and the brawn behind the deal are the GPs. The GPs are bringing less than$150,000 to this deal, yet they're gonna take up 20% of the equity. Um, and when you look at that compared to what they could buy with 150 grand on their own, maybe less than a million dollars worth of properties. So they're waiting for they want the investors to come in and supplement them so that way they can grow the equity and then take the money off the top with a cash out refinance or whatever. And that to me feels very snake-like, it feels very dirty. I don't like it. Um, and I think that there's a lot of problems with that. And the biggest being um these GPs are looking for a ton of money from people, they have no connections to the area, they have no real track record, um, but they're looking for the money, and there's people that are going to give it to them. So, this is my warning to you. These are just some of the questions. I mean, I have tons and tons of text between us, um, but these are some of the questions I brought up, and I just bring it up to kind of give you a chance to ponder and wonder um and strategize. I bring this all up just to give you an opportunity to kind of think and formulate your questions in case somebody comes and approaches you, whether you're going through Cardone Capital or whoever, um, there's a million different places that do uh syndications like this. Um, think about these questions in advance. Really think about the management team, who's running the show. Um, and if you're not going to run the deal yourself, understand that you might not be getting the best deal of all time. It may sound good on paper, double your money in five years, this and that. But I would really look at this stuff through a skeptical lens because it, you know, as I say, if it seems too good to be true, then it probably is. And in this case, I certainly think it is. Um, but this is just another example. As I read his text at the beginning, he wants to change his family's life, he wants to change his life. There's later, he sends me a text that says, Um, you know, I can't do anything but this, so I'm gonna move my family down there and we're I'm just gonna run the fund. And the fund is a three million dollar building, which to everybody I know sounds like a lot of money, but when you look at it and what the net numbers are on a three million dollars worth of real estate, it's not what you might think it would be. On the$600,000 that this building might bring in, I'm guessing they're gonna see less than$100,000 of that, and probably significantly less than$100,000 of that. So when you're looking at this stuff, please be cautious because it's really easy to get caught up in just trying to get the most assets under management, the biggest numbers, keep growing, keep moving. Um, but you can really put yourself in a really bad position for not only you but your family. And, you know, if you had just instead changed your mindset and gone slow and stable, and you know, I'm still aggressive, I'm still doing things that are risky, um, but I'm doing it in a in a little bit different fashion where I'm retaining the ownership, I'm retaining my equity, um, and I think it's I think it's working out in the long term. And I think five years from now, it's really gonna show the gap between him and I. I don't think that most people get really wealthy off of syndications. I think they they do it themselves. They, you know, they kind of grow something that's local to them or in an area that they understand instead of just buying whatever deals they can find online and find investors for. And a lot of his text we're talking about closing the deal, closing the deal. Closing the deal is just the beginning of it. That's like, I mean, that's like the first step. Closing the deal is just a prerequisite, running the Deal managing the deal and properly treating your investors is really the whole game right there. And I only have a handful of small investors. I've never done a syndication. I can't speak from experience, but a lot of the people are doing syndications are the same people that used to sell used cars. Nothing against people selling used cars, but it's just that mindset. Um, a lot of the get rich quick, a lot of the schemes, the scams, the trying to find ways to squeeze a dollar out of every person you interact with. And I have a really, really big problem with that. So um, this is just a quick example of some text that I got from somebody that I know that I tried to give advice to. They didn't listen to me, and that's okay. I'm not gonna hold it against them. But I did ask for updates, and I'm very, very eager to see how this plays out because while I'll be moving towards 100 units by middle end of February, um, and close to$10 million worth of assets. He he's gonna beat me in in a month or two. He'll have 167 units, he says, and 16.3 million dollars under management. So he's smoking me, he's crushing me. So maybe I need to take some notes from him. But I'm sure you can tell by my smile that that's not totally genuine. So that's just a quick rant. And again, I'm kind of trying to clean it up because I lost a lot of filming time on this one. Uh, but I really appreciate you guys. I got a standalone camera now, so I'm not putting my phone on a cardboard box. Uh, hopefully, this will be the setup for the future and it'll allow me to make more videos more quickly and stay more consistent. So that's really what I'm hoping for for 2026. And I'm making the investments on my end. Any support of the channel with a you know, subscribe, like, comment, especially the comments. I love the comments, love talking to everybody. So feel free to also respond to my comments. I love interacting. I really do appreciate the time you guys spend with me. And I look forward to making another video, hopefully, without the audio problems next time. See ya.