Real estate tycoon Grant Cardone is making bold predictions in the face of a historic disparity between the costs of homeownership and renting, claiming that investors in his company’s real estate portfolio will witness substantial returns over the next decade.
Cardone recently shared an eye-opening graphic from Visual Capitalist, which vividly depicts the impact of rising mortgage rates and soaring home prices on the housing market. The numbers tell a compelling story of how the landscape has shifted dramatically over the past half-century.
Cast your mind back to October 1981, a time when the housing market was bustling with activity, particularly among the oldest baby boomers. It was during this period that the 30-year fixed-rate mortgage skyrocketed to an astonishing 18.63%. Back then, the monthly tab for purchasing a home stood at a modest $875, while renting came at a mere $365 per month, as per the Visual Capitalist chart.
Fast forward to the 2006 housing bubble, and we witnessed a seismic shift. Rental costs nearly tripled to $1,056 per month, while the monthly expenses associated with buying a home surged to $1,518. However, despite the significant spike, it paled in comparison to the exponential increase experienced by renters.
Now, let’s bring the discussion into the present. In 2021, fueled by a convergence of factors including millennials hitting prime home-buying age and historically low mortgage rates, home values soared. Renting became even pricier, with costs averaging a staggering $2,697 per month, while the monthly outlay for homeownership rose to $1,634.
Looking ahead, Cardone isn’t just making predictions; he’s painting a picture of a future where rents are set to skyrocket even further. He envisions a scenario where rents will balloon to an average of $2,800 per month by the year 2034. According to his projections, this surge will effectively double the value of Cardone Capital’s portfolio, providing investors with a handsome 8% to 10% cash flow and a return on capital investment of 2X to 3X.
However, not everyone is sold on Cardone’s vision. Some of his followers express skepticism, citing concerns about potential government intervention in the housing market and the influence of major players like BlackRock. Others doubt the feasibility of Cardone’s optimistic forecast, emphasizing the need for wages to rise significantly to support such high rental prices.
Yet, amidst the skepticism, Cardone’s track record speaks volumes. With a portfolio boasting 15,000 rental units, Cardone Capital has already distributed over $300 million in cash returns and a further $1 billion in depreciation, effectively reducing investors’ tax liabilities.
However, it’s essential to acknowledge the broader housing market trends. Recent analysis from Bankrate suggests that renting remains the more financially prudent option in many major U.S. cities, with the cost of purchasing a home outpacing that of renting by about 37% on a monthly basis. Despite this, rent increases have shown signs of softening, prompting experts like Zillow’s Chief Economist Skylar Olsen to caution that breaking even on a home purchase could take longer than anticipated.
In conclusion, Cardone’s bold predictions may raise eyebrows, but his confidence is rooted in a deep understanding of the real estate market. Whether his forecasts materialize remains to be seen, but one thing is for sure: the gap between homeownership and renting has never been wider, presenting both challenges and opportunities for investors and tenants alike.
