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Temporary factors

In a recent interview on YouTuber VladTV, Cardone said high mortgage rates were creating a unique environment for the American housing market.

The average 20-year fixed mortgage rate is 6.99%, as of June 2024. Mortgages haven’t been this expensive since 2001.

Elevated borrowing costs have made ownership much more expensive than renting, which is now cheaper in all 50 U.S. states, according to Realtor.com’s February 2024 Rental Report. It’s 60% cheaper to rent rather than purchase in 50 of the country's largest metropolitan areas.

Cardone believes this disparity is highly unusual and temporary. “In my entire lifetime, the disparity between ownership and rent has never been this wide,” he says during his Vlad TV interview. “So if mortgage rates don’t come down, rent has to go up.”

Not only does Cardone expect rents to rise, he expects them to nearly double within a decade. He estimates that the average rent in America is currently $1,800 and is set to hit “nearly $3,000” by 2034.

Rising rents should push property valuations higher. “This would increase the value of Cardone Capital portfolio by double," Cardone wrote on X, formerly Twitter. "If I'm right, this will provide an 8%-10% cash flow to our investors and 2X-3X return on capital investment."

To meet this lofty target, Cardone is focused on a niche segment of the real estate market: large multifamily properties with distressed debt.

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Unique opportunity

Cardone believes multifamily properties owned by large institutions are ripe for bargain hunters. He says he’s recently done deals for properties that were “40% to 50% below replacement value” and that this segment of the market is the “best, biggest, most massive opportunity of my 66 years of existence.”

Commercial real estate loans, which tend to be more expensive than ordinary residential loans, are facing more distress. The overall distress rate in the multifamily real estate industry hit a record high of 8.34% in April 2024, according to property data firm CRED iQ.

Cardone believes large institutional investors who entered this market during the pandemic years, when interest rates were at historic lows. now face tough choices and are compelled to offload their assets. “They probably have redemptions due and they can’t make cash flow so they’re cleaning up their book right now,” he says.

Based on this thesis, Cardone says he’s looking to deploy nearly $1 billion into the asset class by July of this year.

He isn’t the only one making this bet. In recent conferences, Barry Sternlicht of Starwood Capital Group and Tim Sloan of Fortress Investment Group also pointed to distressed multifamily deals as attractive targets in 2024.

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Vishesh Raisinghani Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.

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