Grant Cardone’s Take on Real Estate: Why Austin and Seattle Are Off the Table for Investors

In the ever-evolving landscape of real estate investment, opinions can vary widely, especially from seasoned investors. One such voice is Grant Cardone, a prolific real estate mogul known for his bold statements and investment strategies. In a recent interview with Moneywise, Cardone made headlines by declaring that he wouldn’t invest in two major U.S. cities: Austin, Texas, and Seattle, Washington. His reasoning? These markets are currently among the worst for real estate investors. Let’s delve into Cardone’s insights and explore the implications for aspiring investors.

The Context of Cardone’s Claims

During the July 2023 interview, Cardone prompted an AI chatbot to identify the best markets for rental real estate investment in America. To his surprise, the AI listed Austin as one of the top contenders. Cardone’s immediate reaction was one of disbelief. “Austin, Texas is one of the worst markets to be in right now,” he asserted, citing overbuilding as a significant concern.

Cardone’s comments highlight a critical aspect of real estate investment: market conditions are fluid and can change rapidly. While AI can provide data-driven insights, it may not always capture the nuances of current market dynamics.

Understanding Overbuilt Markets

An overbuilt property market occurs when there is an excess supply of housing or commercial properties relative to demand. This situation can lead to several negative outcomes for investors:

1. Decreased Property Values: When supply outstrips demand, property values tend to decline. This can erode the equity that investors have in their properties.

2. Reduced Rental Income: An oversupply of rental units can lead to increased competition among landlords, driving down rental prices and reducing potential income.

3. Higher Vacancy Rates: As properties linger on the market longer, vacancy rates can rise, leading to financial strain for investors who still need to cover mortgage payments and maintenance costs.

Cardone pointed out that Austin and Seattle are experiencing these very issues, making them less attractive for investment.

What’s Happening in Austin?

Austin, once a pandemic boomtown, is now facing a significant market correction. The city saw a surge in popularity as remote workers flocked to its vibrant culture and relatively affordable housing. However, the tide has turned. According to a recent report from Redfin, more homebuyers are looking to leave Austin than move in, marking a historic shift in migration patterns.

The median home price in Austin has dropped approximately 5% year-over-year and nearly 20% from its pandemic peak. This decline is attributed to a combination of overbuilding and rising mortgage rates, which have priced many potential buyers out of the market. As a result, the city has become what Redfin describes as “a victim of its own popularity.”

Seattle’s Struggles

Similarly, Seattle has not been immune to market challenges. The city has faced a wave of tech layoffs, which has significantly impacted its job market and, consequently, its housing demand. In October, the number of homes sold in Seattle fell by 8.2% year-over-year, with median home prices down 4.1%. Homes are also taking longer to sell, averaging 33 days on the market—a 32.2% increase from the previous year.

Cardone’s assertion that he “wouldn’t touch Seattle with anybody’s money” reflects the broader concerns about the city’s economic stability and the potential for continued declines in property values.

Implications for Real Estate Investors

For aspiring real estate investors, Cardone’s insights serve as a cautionary tale. Investing in overbuilt markets like Austin and Seattle can lead to significant financial risks. Here are some key takeaways:

• Research Market Conditions: Before investing, it’s crucial to conduct thorough research on current market conditions, including supply and demand dynamics, economic indicators, and migration trends.

• Consider Alternative Markets: Investors may want to explore markets that are experiencing growth and have a healthy balance of supply and demand. Cities with strong job growth, affordable housing, and increasing rental demand may offer better opportunities.

• Explore Different Investment Options: If the challenges of direct property investment seem daunting, consider alternative investment vehicles such as Real Estate Investment Trusts (REITs) or crowdfunding platforms. These options allow investors to participate in real estate without the complexities of property management.

Conclusion

Grant Cardone’s stark warnings about the real estate markets in Austin and Seattle underscore the importance of staying informed and adaptable in the ever-changing landscape of property investment. While these cities may have once been seen as prime opportunities, current conditions suggest a need for caution. By understanding the implications of overbuilt markets and exploring alternative investment strategies, aspiring investors can navigate the complexities of real estate with greater confidence.

As always, it’s essential to approach investment decisions with careful consideration and a willingness to adapt to new information and market realities.