Grant Cardone's Cardone Capital Private Equity Fund, is it worth investing in?

[markochoa]

Hello everyone. I hope all is well.

I'm thinking about investing in Grant Cardone's Private Equity fund and I wanted to run it by the seasoned investors here, like @MJ DeMarco, to get your opinion on it. The fund is backed by the multi-family apartment buildings Grant's company (Cardone Capital) invests in. Here's the exact fund in question... https://cardonecapital.com/fund-v/

Here are the bullet points if you're a non-accredited investor, which I am...

• $5K minimum investment
• 15% IRR is the targeted return after 65/35 is taken after it’s all said and done with a 10 year target
• This fund is currently yielding 4.5% and is expected to increase over time as the properties were recently acquired
• The fund pays out monthly
• Non-Accredited Investors get a 65/35 split in the Investor's favor
  • For example, if you invest 10K and the monthly cashflow return is 4.5% = 450 per year at 65% = $292.50. The real return would be 2.9%. As of 08/19 the 65/35 split isn’t being exercised and the investor is getting the full payout (this could change in the future though as the property starts producing better returns)

I'm a new investor and would like to know if this is a good deal. I appreciate any feedback from people with experience.

What are your thoughts? Is this good or bad?

 

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[MJ DeMarco]

@SteveO and @JScott would be better folks with more experience to judge this. This type of investment is not my cup of tea, either for speculation or for a paycheck pot.

 

[Champion]

Reading your post, my gut tells me that you would be better off investing the money into your own business ventures.

Are you currently working on building a business or just looking for opportunities to invest?

Best
Champion

 

[SteveO]

15% is a reasonable IRR. I'm assuming that most of this will come from planned appreciation. Although this is a possibility, we are pretty deep into an upward cycle. How long can this trend continue?

I've sponsored deals like this with mixed success. Had multiple deals where the investors made lots of money. Had one deal that collapsed in the crash around 2010. Everyone, including myself, lost all their money.

I always set the deals up such that I received nothing until the investors were paid 8% per year. Such worked out to around 40% after 5 years. Then after that, the returns were based on a waterfall. The more the investment made, the higher the percentage of my take. Some deals made over 200% per year on the invested money.

This would not likely happen in the current phase of the cycle.

How is this setup? Does the fund get paid upfront? That is a big deal if it does.

 

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[markochoa]

Are you currently working on building a business or just looking for opportunities to invest?

I've had my business for the last 5 years and have set money aside to invest.

 

[markochoa]

How long can this trend continue?

They believe if there's a turn in the market (recession) people will be more likely to rent in affordable Class A properties in tertiary markets.

How is this setup? Does the fund get paid upfront?

@SteveO, when you ask "How is this setup? Does the fund get paid upfront?" I'm not sure what you mean. Can you please ask it a different way so I can understand and answer?

 

[markochoa]

I'm only investing with those syndicators who are on the conservative side and who I believe have good contingency plans should the economy take a toll on multi-family.

Thanks, @JScott. This is the first time I've heard of this type of investment. Who else is out there that does exactly what Cardone Capital is doing? And do they all non-accredited investors to invest?

 

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[SteveO]

They believe if there's a turn in the market (recession) people will be more likely to rent in affordable Class A apartments.

@SteveO, when you ask "How is this setup? Does the fund get paid upfront?" I'm not sure what you mean. Can you please ask it a different way so I can understand and answer?

A turn in the market can mean different things. If people are losing jobs, they are more likely to move in with other people. It is known as "doubling up". Plus, the cycle could end with overbuilding. Thus, too many apartments to fill.

Are the sponsors collecting any large upfront fees for themselves. If they do, it means they get paid regardless of how the asset performs.

 

[MitchC]

View: https://m.youtube.com/watch?v=7hHI6kYz9So


Here is a video that I believe I have seen posted here in a thread about this topic, or maybe it was another of this youtubers videos

 

[markochoa]

Are the sponsors collecting any large upfront fees for themselves. If they do, it means they get paid regardless of how the asset performs.

Hey @SteveO, in their FAQ section it says Cardone Capital charges an Acquisition Fee of 1% of the purchase price of the individual property and a Disposition Fee of 1% of the sales price of the individual property. An annualized Asset Management fee of 1% of the Investors Contributed Capital will be charged to the fund, and may be paid monthly.

What are your thoughts on that?

 

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[markochoa]

Many investors do what Cardone Capital does. It's called multi-family syndication, and it's basically the concept of finding a big multi-family investment property (generally over $5M), bringing in equity partners to cover 20-30% of the costs (downpayment and capital reserves for upfront renovation), using debt for the remaining funding and then giving those equity partners 60-70% of the cash flow and equity.

The operators (the people putting the deal together and running it) typically keep the other 30-40% of the cash flow and equity. Investors often get a preferred return, meaning they get a minimum return before the operators get anything, and generally the operators make their big payday on the backend when the property resells for a large profit.

Operators are able to accomplish this by buying property that is undervalued and mismanaged. They "reposition" the property by doing renovations and improving management, which accomplishes two things: 1. Increases income and 2. Decreases Expenses. Because the investment is making more money, it's worth more.

Most syndicators these days are offering their investors about 8% annualized preferred return with a forecasted compounded return (IRR) of 14-17% over an average of about 4-6 years.

As for whether syndicators take unaccredited investors, it depends. Some will and some won't. Whether you're allowed to have unaccredited investors -- and how many -- is determined by how you register your investment with the SEC. In general though, if you do have unaccredited investors, the SEC requires that you have to have a pre-existing relationship with them, and that puts the onus on the syndicators to ensure that they vet their unaccredited investors carefully. Also, unaccredited investors tend to invest less than accredited investors, meaning you have more investors overall, which creates more management headache.

Thanks, @JScott. How would I go about finding other groups that offer multi-family syndication opportunities?

 

[SteveO]

Hey @SteveO, in their FAQ section it says Cardone Capital charges an Acquisition Fee of 1% of the purchase price of the individual property and a Disposition Fee of 1% of the sales price of the individual property. An annualized Asset Management fee of 1% of the Investors Contributed Capital will be charged to the fund, and may be paid monthly.

What are your thoughts on that?

These fees are not unreasonable and may be less than some. It is nickle and diming though. If they would just stand behind their investment choices and let that be where their money is made.

 

[cjh382]

Thanks, @JScott. This is the first time I've heard of this type of investment. Who else is out there that does exactly what Cardone Capital is doing? And do they all non-accredited investors to invest?

There are a number of online real estate crowd investing platforms. Cardone Capital investor platform is essentially whitelabeled by Crowdstreet.com. I'm familiar with a dozen or so of their competitors in the space. Of these sites, I've personally only invested in both Cardone Capital and directly in Crowdstreet's offerings.

Like an earlier post, Cardone typically pays out 5% monthly; this amount is distributed and they do not allow for an automatic reinvestment into the same/new funds. The risk(s) associated with this investment were also mentioned in prior posts. Combining the risks with the inability to automatically reinvest (or pull your money out), I think a smart stock dividend investment strategy held in a tax advantaged account with automatic dividend reinvestment is the better option...between the two.

There are other options out there with the same/less risk that would allow you to return 10-12% on your money, have pro-rata ownership in the underlying business and/or real estate--while remaining entirely passive.

 

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[markochoa]

There are a number of online real estate crowd investing platforms. Cardone Capital investor platform is essentially whitelabeled by Crowdstreet.com. I'm familiar with a dozen or so of their competitors in the space. Of these sites, I've personally only invested in both Cardone Capital and directly in Crowdstreet's offerings.

Like an earlier post, Cardone typically pays out 5% monthly; this amount is distributed and they do not allow for an automatic reinvestment into the same/new funds. The risk(s) associated with this investment were also mentioned in prior posts. Combining the risks with the inability to automatically reinvest (or pull your money out), I think a smart stock dividend investment strategy held in a tax advantaged account with automatic dividend reinvestment is the better option...between the two.

There are other options out there with the same/less risk that would allow you to return 10-12% on your money, have pro-rata ownership in the underlying business and/or real estate--while remaining entirely passive.

Thanks for the insight @cjh382 !

 

[markochoa]

I'm hesitant to recommend any specifically, but there are LOTS of multi-family real estate syndicators out there these days. And most of them have appeared just over the past year or two as this form of investing has gained in popularity.

If you want to find these groups/people, I would recommend doing some Facebook searches for multi-family investors. Most of these investors have FB pages/groups where they share info and try to recruit investors. The BiggerPockets podcast has had some successful multi-family investors on the show, and there are several prominent multi-family investors who participate on BiggerPockets.com.

I would recommend sticking with investors who have one or more of the following:

- Have invested through at least one full economic cycle (i.e., they were investing before 2007);

- Have gone full circle on at least a couple multi-family deals (i.e., they have successfully exited a couple deals);

- Have their own cash invested in their deals (many multi-family investors don't invest in their own deals, so they have little financial risk).

Thank you @JScott. I appreciate all of your answers and feedback!

 

[Rawr]

Great thread, thanks Jscott making me learn and think.

My take on CC is the good thing is he is grounded - he cuts through a lot of bullshit, and calls people out when they start painting w a little BS. He is also ruthless, he knows he is there to make money, and he believes to make it you have to sell, and he is a master salesman, and he owns that. He has limited education which could prevent a better perspective.

 

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