Grant Cardone: Major U.S. cities are bad markets for real estate investors

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Internationally renowned real estate investor Grant Cardone gave his opinion on two U.S. real estate markets he wouldn't put his money in: Austin and Seattle. Cardone shared this opinion in an interview with Moneywise after asking the AI chatbot to answer the question, "What are the 10 best markets to invest in rental real estate in America? "

Smith's AI response began, "The best markets to invest in real estate in America can vary depending on factors such as population growth, job opportunities, rental demand, affordability and potential rental income. "

At this point, Cardone was satisfied with the answer. But when AI named Austin, Texas, as the best market for real estate investment, the investment guru exploded.

"Austin, Texas, is one of the worst markets right now," he exclaimed. "Of all the markets in America, it's probably the most crowded".

Here's why a crowded real estate market is bad for investors, and how you can still invest without taking all the risks.

The top 10 U.S. cities for real estate investing

The top 10 U.S. cities for real estate investment, listed by AI Smith for Cardone, include Austin, Texas; Dallas, Texas; Nashville, Tennessee; Atlanta, Georgia; Raleigh, North Carolina; Phoenix, Arizona; Tampa, Florida; Denver, Colorado; Charlotte, North Carolina; and Seattle, Washington.

But he wasn't satisfied with that answer. "These four markets are among the top five most crowded markets," he said, pointing out that sometimes AI chatbots provide outdated information and require fact-checking.

Cardone didn't cite the source of his "most crowded markets" claim, but earlier this year a Redfin report also listed Austin, Seattle and Denver among the fastest cooling real estate markets.

One should always take the advice of such financial experts with some incredulity, however. Cardone has been the subject of lawsuits in recent years over allegations of defrauding investors.

He denies the allegations, writing on LinkedIn that it's "a tragedy that our system is so litigious and people are encouraged to sue others to hold a company doing great things hostage. "

What's wrong with Austin and Seattle? "

Austin was one of the twin cities of the pandemic. It rapidly became popular in 2021 and early 2022 as people from other cities moved there to take advantage of historically low mortgage interest rates.

The capital city of LonelyStar State is now experiencing the quiet after the storm. In the first half of 2023, home sales and the median home price declined. According to Norada Real Estate Investments, Austin is considered one of the most overvalued markets in the United States, with buyers paying nearly 51% more than expected for real estate.

Redfin describes Austin as "a victim of its popularity." An influx of wealthy homebuyers during the pandemic drove up real estate prices, and then a sharp rise in mortgage rates pushed people out of the market, leading to a drop in demand.

In the meantime, Cardone said he "wouldn't even touch Seattle with anyone's money".

The Emerald City has suffered a major blow to its labor market. A spate of post-pandemic layoffs in the tech industry, similar to what happened in San Francisco, has shaken Seattle's economy and led to a drop in demand for home purchases.

The number of homes sold in Seattle in September was down 17.2 percent from a year earlier, and home prices fell 4.6 percent, according to Redfin. Homes are also lingering on the market longer - an average of 29 days, up 9.5 percent from a year earlier, according to Rocket Homes.

What this means for real estate investors

When the real estate market is overcrowded - whether residential or commercial - it can lead to oversupply, which can lower property values.

As a real estate investor, this imbalance of supply and demand can reduce your rental income (and potentially make finding tenants more difficult), and can also lead to shrinking profit margins.

Crowded markets also often have elevated vacancy rates - as we see in the office sector in saturated markets like New York City - which can cause financial hardship for investors who must pay mortgage payments, utilities and other expenses.

If you don't like the hassle of choosing the right market, buying a property and becoming a landlord, but are still interested in investing in real estate, there are other options.

You can invest in real estate investment trusts (REITs), which are publicly traded companies that collect rent from tenants and pay it out to shareholders in the form of regular dividends.

You can also consider crowdfunding platforms, which allow ordinary investors to pool their money to come up with a(They're all out of the stock market.)

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This article provides information only and should not be taken as advice. It is provided without warranty of any kind.