Investing in real estate is a common way to build wealth, but limited supply, high demand and surging interest rates have kept it out of the reach of many investors. Grant Cardone, a billionaire investor, author and motivational speaker, believes that’s about to change — but he doesn’t believe single-family homes are the way to go.
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“I don’t consider a single-family house an investment,” he said in an interview on Fox Business’ “Making Money with Charles Payne.”
Here’s why Cardone says a house is not an investment, and what you should invest in instead.
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Low Return on Investment
Multifamily real estate is an attractive category of real estate investment because, as Cardone noted, “it is very simple, easy to leverage … It’s an inflation hedge, it protects [you] against inflation; it benefits from rent increases; and it provides cash flow that people have to have today.”
A single-family home, on the other hand, “doesn’t cash-flow and doesn’t really appreciate at the same levels the large apartment complexes do,” he said.
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Prices Will Remain High
Cardone believes prices are about to plummet on real estate — with the exception of single-family homes.
“You have major institutions that are releasing assets,” Cardone said, calling the release a “wealth redistribution from institutions back to regular, ordinary, everyday people.”
“Four units, eight units, 48 units, 400 units — We are having the biggest real estate correction in my lifetime, certainly since 2008, and it’s all happening in large apartment complexes, not single family. Single-family is not going to be where the correction is this cycle,” he said.
Focus on Duplexes and Large Apartment Complexes
Cardone encouraged investors to shift focus from single-family homes to larger properties for bigger returns, and you have a few different ways to do so:
Real Estate Investment Trusts
One way to invest in commercial property is through a real estate investment trust, or REIT, which “is a company that owns and typically operates income-producing real estate or related assets,” per Investor.gov. There are many REITs to invest in, but this option often doesn’t require a large amount to get started, and you also don’t have the hassle of managing the property.
Crowdsourcing Real Estate Platforms
Crowdsourcing real estate platforms offer low-cost investment opportunities to multiple people at once. For instance, you only need $10 to get started with Fundrise, which is technically a private equity REIT — you can’t trade shares on a stock exchange like you can a traditional REIT — but has a massive portfolio of properties that includes multifamily apartments. The fund has produced 4.5% annualized returns since its inception. It’s a simple, beginner-friendly way to start investing in larger properties, plus you don’t have the headache of dealing with tenants and property management.
Other crowdsourcing platforms let you make direct investments in individual properties, but they’re typically open to accredited investors only.
Partner Up
To reduce the responsibility and cost factor, working with a partner can make the path to acquiring the funds needed easier. Just make sure you’re on the same page in terms of day-to-day management, when to sell and maintenance.
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This article originally appeared on GOBankingRates.com: Grant Cardone Says a House Is Not an Investment — Here’s Why