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Fast Money

The Real Estate Hustle-Culture Con That’s Exploiting Investors and Wrecking the Housing Market

A lawsuit filed against “influencer” Grant Cardone offers an inside look at a get-rich-quick scheme that could help enable the next housing market crash.

“It’s a wake-up call to the middle class,” a booming voice assures listeners during the intro to Grant Cardone’s weekly podcast, This Is Not Your Daddy’s Economy. For listeners, Cardone has become the apotheosis of financial influencers: waking up the middle class and heralding a new economy for its chosen sons and daughters. Brash and populist, he promises anyone who listens that they too can ascend into the realms of passive income by following his real estate playbook.

An ostentatious Louisiana-born salesman with a penchant for down-home relationship advice, Cardone is a practicing Scientologist who casts himself as a plucky opponent to mainstream financial institutions. He rose to fame as a cold-calling guru, building a large online following with videos and courses that promised to reveal the secrets of salesmanship. He subsequently became a fixture on reality TV shows such as Turnaround King and Undercover Billionaire. He now operates a conference circuit that straddles the line between dumbed-down business school and a clumsy revival meeting (Donald Trump was a recent guest speaker). In Cardone’s videos on YouTube and Instagram, he champions a swaggering, somewhat cruel form of hustle culture aimed at a generation struggling to make sense of its economic misfortune.

Over the past few years, Cardone has directed much of his energy toward real estate investment, making use of his raspy charisma and endlessly rising house prices to preach the gospel of passive income. His focus has been on buying up multifamily apartment rental properties to generate sustained rental income and eventual appreciation on the property value. 

Crucially, Cardone has been able to make money not just by imparting financial advice but by exploiting his fan base to build a $4 billion residential real estate portfolio. “We are becoming a renter nation,” Cardone explains in a video from 2020. He’s not wrong. But Cardone’s business model relies on increasing rents and squeezing tenants to maintain his debt-laden portfolio.

A newly filed class-action lawsuit against Cardone, however, threatens to unravel his empire. Last month, lawyers filed a suit alleging that he had misled small-time investors who’d put money into one of his recent Cardone Capital real estate funds. Whether Cardone has been cynically leveraging his followers is up to a court to decide. But the image Grant Cardone has fostered through his real estate ventures is as much about what it’s like to be an eccentric internet celebrity as it is about America’s unwieldy and ever-precarious property market—and the potential toxic admixture of the two. 

Cardone’s actual rental housing strategy isn’t particularly original or innovative in the realm of corporate landlordism. What makes his methodology different is the way he’s been able to go directly to his audience in order to solicit investments, and, in the process, to cast hyperaggressive rentierism as financial common sense. 

As an increasing number of ordinary Americans find homeownership beyond their reach, Cardone’s strategy has been to offer his followers a chance to invest in a share of his funds for as little as $1,000. The conceit is that Cardone Capital will give his audience of unsophisticated punters access to the kinds of financial security—so-called passive income—only available to property owners. 

The funds that Cardone promotes online are a type of syndicated investment. He asks his followers to invest, pools the capital, uses these proceeds to secure large loans, and then buys up undervalued rental properties on the premise that he can quickly increase the rents. He produces steady returns with the rents (the passive income), and by increasing the amount the building can earn, he’s also able to increase the value of the property itself. Along the way, Cardone takes management fees, acquisition fees, and up to 20 percent of the profits. Cardone has also been accused of quietly buying the properties in advance and then selling them back to the fund at an inflated price.

Neither Cardone nor Cardone Capital replied to requests for comment as part of this article. 

The most pertinent matter of the class-action lawsuit is the return on investment that Cardone promised his real estate fund would deliver to his investors, and the kind of risks they were taking in pursuit of that payout. What is the line between a social media influencer’s colorful online promotion and the flat-out misrepresentation of a huckster, selling online marks on the promise of the fat bankrolls available to those smart enough to invest with him?

The case was originally brought by Luis Pino, a senior citizen from Inglewood, California, who attended one of Cardone’s “Breakthrough Wealth Summit” events in 2019. Two days later, he sent Cardone a check for $5,000 to invest in one of the Cardone Capital real estate funds. (Pino died earlier this year, and his daughter has since taken up the case.) 

The suit alleges that Cardone misled investors like Pino in social media posts geared toward prospective investors. In posts showing off his private jet, exotic sports cars, and shiny suits, Cardone had a habit of overpromising and playing down financial liability, according to the suit. It is further alleged that he continued to do so even after being warned by the Securities and Exchange Commission that he needed to change how he was pitching the investment offerings to stay within the bounds of the law.

Robert Freund, a lawyer specializing in consumer class actions and digital marketing who is not involved with the Cardone case, says that some influencers find real estate particularly appealing as a way of cashing in on their popularity. 

“You don’t really have to explain to someone the concept of buying property, whereas investing in some kind of other security or financial instrument takes a little bit of sophistication to grasp,” says Freund. The concrete appeal of real estate—the idea that investors have bought into something physical and that its value will keep rising—is central to Cardone’s pitch. 

But after years of selling online courses, Cardone was also looking to take advantage of a recent change in securities laws. Registration A+ offerings, or Reg A+ offerings, were signed into law by Barack Obama in 2015 as a part of the JOBS Act. Intended as a way of deregulating the financial sector and reinvigorating investment after the great recession, Reg A+ offerings are a form of small security offering that are more accessible to retail investors and require much less oversight than a traditional initial public offering. While large-scale corporate property investors like Blackstone lure capital from pension funds, Reg A+ offerings allow Cardone to receive investment directly from his audience.

So instead of bringing his real estate deals to well-seasoned, well-heeled investors, Cardone was permitted to open his funds to an audience that was much less inclined to understand what he was selling—which, at the end of the day, was not a  concrete property at all but rather a financial abstraction in the form of shares in a pooled, debt-leveraged, 10-year lockup fund. 

While Cardone Capital filed standard SEC paperwork and posted disclosures, the suit alleges that Cardone’s evangelizing social media videos sometimes went astray. See, for example, a Cardone video from 2019: “You’re gonna walk away with a 15 percent annualized return. If I’m in that deal for 10 years, you’re gonna earn 150 percent. You can tell the SEC that’s what I said it would be. They call me Uncle G, and some people call me Nostradamus, because I’m predicting the future, dude: This is what’s gonna happen.” 

The trouble with this sort of commentary is that Cardone is not Nostradamus—and guaranteeing a 15 percent annualized return is exactly what the SEC had warned Cardone against in a July 2018 letter the agency sent him—nearly a year before these dazzling claims made it into his video.

The suit against Cardone argues that the legal disclaimers that he stuck at the bottom of his website weren’t enough to insulate Cardone for the outlandish, overblown marketing of his real estate funds. “You can’t just sort of bury the disclosures somewhere and then point to it later,” says Freund. “Cardone certainly has his work cut out for him substantiating all of the claims that he’s made.”

Freund says that the central dispute of the class-action lawsuit filed against Cardone is a familiar aspect within the broader trend of financial influencers looking to break into pooled investment vehicles. “Cardone’s not the only person soliciting investments in various funds, leveraging the power of social media to do that.” Popular real estate influencer Kris Kohn claims you can “multiply your wealth 27x faster” by partnering with him on real estate investments. YouTuber Ryan Pineda has started his own Pineda Capital focused on crowdfunding and finding real estate deals through his followers. Clayton Morris, former co-host of Fox & Friends who’s now plying his trade as an influencer and property investor, fled the United States after being accused of fraud by investors who had entrusted him with money for real estate deals.

The push toward real estate crowdfunding and syndication hasn’t been limited to celebrities, either. Tech platforms like CrowdStreet, RealtyMogul, FundRebel, and Fundrise charge users a fee on every successful deal and promise to democratize passive returns. As Fundrise’s website promises, it’s all about “tearing down barriers to the best investments.” Arrived, a start-up backed by the investment funds of Jeff Bezos, Uber’s Dara Khosrowshahi, and Salesforce’s Marc Benioff, offers shares of ownership in rental properties for a $100 minimum investment using the same Reg A+ legislation employed by Cardone.

In many ways, this is part and parcel with the larger phenomenon of investment, driven in part by cryptocurrency trading, becoming a form of online entertainment akin to gambling. But the rise of this sort of real estate investing is of particular concern because of the way it can adversely impact many people beyond the investors themselves. While the real estate market continues to have an oversized importance as a foundation of the American economy, the issue with crowdfunded investment isn’t about systemic risk to the sector (at least not for the time being). But the way Cardone and others have constructed a populist veneer for this kind of real estate investing can come at the expense of those in precarious housing situations.

Cardone Capital’s real estate purchases consist mainly of large apartment complexes in Florida, Texas, and other parts of the South. The buildings purchased by his real estate company tended to be rebranded with “10X” in the name (10X Inegra Shores, 10X Del Ray, 10X Sawgrass, etc.), building on Cardone’s “10X’’ business and motivational speaking brand.

Cardone is upfront about his preference for moderately upscale properties in small and medium-size tertiary cities. And the vast majority of the properties he purchases are located in the Sun Belt, a region that is already the beneficiary of considerable property value growth—as well as some of the highest rates of evictions and foreclosures.

Scooping up undervalued middle-class properties has its own impact. Cynthia Laurent, housing coordinator for Florida Rising, a social justice group based out of Orlando, says that the Sun Belt is already dealing with knock-on effects of investment in mid-tier real estate in peripheral urban enclaves and leafy suburbs. “It’s a chain effect. If folks can’t afford to buy homes, then they become renters. If more middle-class folks are now paying rents, the lower-class folks are being priced out of what is already a short-supplied and underdeveloped housing stock.” 

Despite Cardone’s insistence that he stays away from depressed areas, Cardone Capital notes the Covid-19 eviction moratorium as an investment risk in its mandatory earnings report for the fund filed during the pandemic. Eviction has become part of how Cardone operates: Cardone Capital finalized the purchase of 10X Las Olas Walk in downtown Fort Lauderdale in December 2021 and got to work quickly, beginning eviction proceedings against seven tenants in the building the following month. Since then, there have been dozens of evictions filed against tenants in the building.

Cardone has tried to evict more than 50 tenants at 10X Riverwalk, another building in Fort Lauderdale, since he purchased it in 2021. Twenty evictions were filed at 10X Boca Raton, and nearly 100 have been lodged at 10X Delray Beach. This dovetails with extensive studies showing how investor-owned rental properties tend to have much higher rates of eviction

A recent investigation by The Tampa Bay Post also charged that Cardone had been abusing a “workforce housing” scheme and overcharging tenants who are meant to receive affordable, subsidized housing in his building. Instead of passing on the subsidies to the tenants, 10X Wellington Club pocketed the public money provided by the county and claimed subsidies for vacant properties in the building as well.

Cardone Capital’s commitments to pay returns to its investors don’t make life particularly pleasant for tenants who end up living in the properties, either. Jonathan Reynolds lived at Cardone’s 10X Living Grandview apartment on the outskirts of Austin with his wife and four kids. Trouble started even before he had moved in. “We had a bait and switch. We said we’d sign the documents, but when we received the lease documents [the rent] was way more than they had offered,” says Reynolds. Despite high amenity fees, maintenance on the building was poor, leading to, among other things, a faulty gate and a rash of car break-ins in the apartment parking lot.

Next came an ice storm that hit Austin in February 2021. “When we had three days of sustained below-freezing temperatures,” said Reynolds, “the fire water lines ruptured in our building and half the building was flooded.” Management of the building dragged their feet on repairs after the flood, and Reynolds ended up with leaked water sitting stagnant behind the plaster of his bathroom, eventually leading to a severe mold problem. “It was starting to affect my health, and they wouldn’t come and do anything.” Reynolds and his family eventually decided to leave the building—only to have one of the apartment’s heaters cause a small electrical fire on their move-out day.

In Weston, Florida, insurance salesman Oors Fermin lived with his wife and two children in one of several buildings that Cardone purchased in the area. Fermin says that they’d been dealing with poor maintenance in the rental apartment before Cardone took over. But once the building gained Cardone’s “10X” brand name, the situation changed “drastically.” No repairs were completed, says Fermin, but when it came time to re-sign the lease, Cardone’s company had increased the rent. The following year, the rent increased again. By that time, water was seeping in from the floor (which Fermin thinks was likely due to problems with the foundation) and management of the building did little to address the issue. “We were like—you know what, we’re fed up with this. And the rent was going up another $300 or $400.”

Residents who live at Cardone’s properties often struggle to get repairs done while suffering steep rent increases. But that seems to be of little concern to Cardone, who insists over and over again that his funds are raising up the video-watching masses by letting them in on the hidden world of real estate profits. “The real estate we are buying has traditionally been available only to the large institutions (such as Blackstone, Vanguard, Fidelity, Fairfield) and out of reach to everyday investors,” Cardone said as part of a promotion effort for one of his latest real estate funds. “I am making extraordinary investments available to the everyday person.”

Blackstone, Vanguard, Fidelity, and Fairfield are the lumbering giants of asset management and among the largest private owners of real estate in the U.S. Their size enables them to make incredible returns, swinging property prices, benefiting from economies of scale, tax advantages, lending rates, and complex financial engineering. Cardone benefits from many of these advantages as well. And while many commentators have pointed to the issues that emerge when ownership is concentrated among a few large institutional investors, Cardone’s smaller pooled funds contribute to the same affordability issues that have come out of the decline of affordable housing as rents increase. Housing as an investment category is the issue. And just like the powerful corporate investors, Cardone is intent on raising rents as much as he can and evicting those who can’t pay. For all his posturing, Cardone has spoken openly about his hopes that Blackstone will eventually acquire his real estate portfolio.

Cardone may be best known for the way his training courses and videos make the case for multifamily rental properties—a type of asset that the majority of his audience can’t afford to invest in—and then conveniently show them how they can access that investment by handing over their money to him. But his other piece of well-worn financial advice has to do with a rather creative interpretation of the difference between assets and liabilities. 

Cardone is famously opposed to homeownership, urging his followers to see their own houses as a money-sinking liability rather than a real estate asset. The solution, he says, is simple: They should sell their homes and invest (preferably in his multifamily property fund). He has often advised his followers to “quit saving” and to instead put their money to work. The Cardone Capital website features a whole section urging his audience to take control of their IRA or 401K and put it toward Cardone Capital.

This convenient confusion over the role of assets and liabilities comes up repeatedly in the class-action lawsuit, most comically in the form of another dubious claim made about the debt Cardone employs so that his real estate fund can make acquisitions. Those properties are usually leveraged at 60 percent to 80 percent, although they usually skew toward the higher end. As Cardone Capital boldly writes in an Instagram post: “One question you might want to ask is, who is responsible for the debt? The answer is Grant!” 

Needless to say, Cardone was not responsible for the debt. Cardone’s real estate business relies on debt to purchase multifamily properties, and he’s able to secure that debt because the real estate system as a whole relies on copious amounts of debt to continue to operate. Cardone can take bigger loans because he has investors’ money to pay off the debt the fund had taken on in order to purchase the properties. If the fund went bankrupt and wasn’t able to repay its debt, the investors would lose their money.

There are signs that Cardone’s operation may run into problems in the servicing of his debt. With rising interest rates, his exalted multifamily properties were no longer as appealing as they once had been. The Wall Street Journal has reported on the collapse of a real estate syndication fund in Dallas, not unlike Cardone’s, taken down by rising rates.

Those macroeconomic changes may lead to an even broader housing crash, something that Cardone speaks about nearly constantly. Back in March 2020, Grant Cardone posted a video declaring that he was near bankruptcy. He would go on to write the video off as a joke. “That video is the most freaked out I ever saw him,” says Jeffrey Augustine, a private investigator and journalist who tracks the money behind Scientology and has been following Cardone’s career. “He’s used debt to build his empire, and he’s highly, highly leveraged.” Augustine says that Cardone’s fears were legitimate and well justified.

Cardone has continued to raise new funds from investors to expand rapidly over the last few years (he’s now onto his twenty-second fund). Using the financial figures that Cardone readily provided in his now-deleted bankruptcy video, Augustine was able to show how Cardone’s business could become untenable because of a series of loans he had taken out which required only the payment of interest (not principal) for the first five years. The rapid expansion of his business meant that he could service that debt, but at the end of that interest-only period, Cardone will be under serious pressure. And as he continues to increase rents in the property to service that debt, he’s also running the risk of losing tenants in his multifamily buildings. A lower occupancy rate could prove disastrous for the “passive income” he’s promised investors. 

The lawsuit against Cardone is likely only to worsen his problems. “If I were Blackstone, I would wait for him to weaken for a discount on his property,” says Augustine. 

For the time being, however, Cardone’s best bet is to keep investors buying into the fund in order to keep his head above water. In what appears to be a sign of desperation, Cardone is also diversifying with a “10X HVAC Summit,” targeting the air conditioning industry, and a new 10X “health optimisation“ and supplement brand.

Cardone has ratcheted up rents, skimped on property maintenance, survived off wide-scale evictions, and engaged in dubious investment practices. While his mix of light entertainment, investment advice, and manosphere life coaching might seem fringe, his ability to thrive within the world of corporate real estate reflects a lot more poorly on the world of real estate than it does on Cardone himself. Funneling savings and retirement funds into an aggressively managed real estate portfolio only serves to inflate an already ballooning property market. Cardone’s rentierism represents a new evolution in the world of the financial influencer—and one more type of financial predator on the hunt for easy marks.