Yahoo Finance 2 Mistakes Grant Cardone Made That You Should Avoid To Build Wealth Faster
Grant Cardone is a successful businessman and financial influencer known for his bold real estate investing strategies. His stated approach often involves taking risks and pushing the boundaries of conventional business wisdom.
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When writing about his real estate business in the ’90s, Cardone pinpointed two specific strategies he now considers to have been missteps. Here’s what they were and how you can apply the knowledge to your own business.
Mistake #1: Not Going Big Enough, Fast Enough
The first mistake Cardone says he made was being too cautious in his expansion. He believes that he held back, and that pushing his business to expand at an accelerated rate would have led him to greater growth.
There are advantages to quick, large-scale business growth. Expanding allows companies to capture significant market share while outpacing competitors, potentially securing a dominant position in the industry. Companies with larger growth can better capitalize on emerging markets and leverage their size to achieve better negotiation terms with suppliers and partners.
The Dangers of Overleveraging
Aggressive growth through debt can lead to big returns in the real estate market, but it also comes with the risk of losing everything during a market crash. This approach can be risky, as seen in the collapse of Lehman Brothers, which was heavily leveraged and ultimately unable to sustain its debt load during the financial crisis.
In real estate, leveraging means buying homes on credit by using borrowed funds to cover a portion of the property’s purchase price, typically through mortgages or other loans. Overleveraging happens when the level of debt taken on is disproportionate to the investor’s ability to pay it back through the income generated by the property or other financial means. For example, if an investor is using income from one property to pay mortgages on another, he can lose both if he is no longer able to rent out units and does not have enough income to cover loan payments.
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If the property’s rental income is insufficient to cover the mortgage payments, taxes, maintenance and other operational costs, the investor faces a cash flow shortfall. This situation can become unsustainable, especially if multiple properties are involved. If the loans are tied to variable interest rates, there’s a risk that rising rates will increase the debt service costs unexpectedly. This can make monthly payments suddenly unaffordable [6].
Mistake #2: Setting Goals That Were Too Realistic
Cardone says that his goals were often too realistic, which he believes capped his potential for achieving greater success. He argues that investors and businesses should set goals that are 10 times higher than what they think they can achieve. This is the premise of his popular “10X Rule.”
Setting high targets can indeed be a catalyst for innovation and lead to significant business breakthroughs. According to the MIT Sloan Management Review, ambitious goals can push businesses to rethink their strategies and operations, leading to inventive solutions and substantial advancements in their field. Leaders who set high aspirations may be able to inspire their teams to greater efforts and achievement, fostering an environment where creativity and performance thrive.
Final Take
Cardone’s real estate strategy encourages aspiring entrepreneurs and investors to venture beyond their comfort zones, suggesting that significant rewards often require taking risks.
If you’re looking to emulate Cardone’s success, it’s important to develop a good understanding of market dynamics and how to avoid risks and pitfalls. Make sure to keep a keen eye on your financials and have plans in place for potential downturns.
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