Grant Cardone and Alex Hormozi

Social media influencer Alex Hormozi interviewed Grant Cardone on January 14, 2022. Curiously, Alex Hormozi has since removed his interview with Grant Cardone from YouTube: https://www.youtube.com/watch?v=vsr2FXMTHyc

Alex Hormozi titled the video This 60 minute coaching call with Grant Cardone could make me a billionaire… The video had 305,704 views.

Alex Hormozi had paid Grant Cardone $120,000 for 4 personal one-on-one advice calls at $30,000 per hour. All that remains online of the evidence of this interview is this grainy thumbnail and a non-functioning Wayback Machine link.

Alex Hormozi never does anything without a solid reason and so we were naturally curious as to why a social media influencer nuked a video which had 305,704 views and 13,000 likes.

What is Alex Hormozi hiding? Why is the heavily-muscled tycoon holding out on his viewers? Alex? Care to answer?

Hormozi, however, has kept posted a TikTok video about Grant Cardone:

In the now-removed Hormozi-Cardone interview, which we watched and studied, Grant Cardone stated that his new game was to have $50 billion Assets Under Management (AUM) and to start a bank.

Based upon Cardone’s twin brother Gary Cardone’s credit card businesses Card 1 Ventures and Chargebacks911, this confirmed our long-held suspicion that the Cardone brothers want to start a bank.

In an interview with the Emerging Payments Association, Gary Cardone talked about how the present system of payments is antiquated and is a market ripe for disruption. He seems to be telegraphing a vision for The Bank of Cardone; this should the Brothers Cardone ever own a bank. The thought of a carnie like Grant owning a bank is terrifying. Nevertheless this is America where anything can happen.

One reason Grant Cardone would want to buy or start a bank is to take advantage of fractional reserve lending.

In very simplified terms, fractional reserve lending allows a bank to take in depositor money, keep 10% in reserve, and loan out the rest. So, for example, if a bank takes in $1 billion in deposits it can loan out $900 million. In the US, however, the Fed eliminated reserve requirements altogether on March 26, 2020. Banks can now loan out all of their deposits.

Grant Cardone’s strategy of owning a bank could, theoretically, allow him to lend his own company Cardone Capital the money to purchase more multifamily housing units to hit Cardone’s goal of owning $50 billion in multifamily housing units.

Cardone currently pays investors an annual 6% distribution. Conversely, The Bank of Cardone could pay its depositors 2.0% in accounts guaranteed by the FDIC. In this strategy, there is no risk to depositors. Further, Cardone Capital eliminates its 6% distributions to investors, and, it does not have to share the proceeds from the sales of its properties with investors.

After taking in deposits, the Bank of Cardone could loan depositor money to Cardone Capital and Cardone REIT I LLC at, say, 3.75% fixed interest and thereby solve the problem of skyrocketing interest rates.

Essentially, the Bank of Cardone would not have to turn much of a profit as it would be a privately-owned captive entity of Grant Cardone as is Cardone Capital and Cardone RIET I LLC.

As such, Cardone Capital would use Bank of Cardone loans to purchase multifamily, commercial, single family residences, and other real estate.

The Bank of Cardone could also donate a percentage of its profits to various Scientology organizations and call it corporate philanthropy.

In a hypothetical example, The Bank of Cardone would require Cardone Capital to put 30% down on the loan. So, for example, if Cardone Capital purchased a $180 million multifamily complex, it would deposit $60 million with the bank of Cardone.

Under the rules of fractional reserve lending, the Bank of Cardone could then take that $60 million down payment and loan it back to Cardone Capital towards the purchase of another multimillion dollar multifamily complex or single family homes.

Again, the scheme here would be for Grant Cardone to quit paying 6% distributions and get much cheaper depositor money from the Bank of Cardone. By owning a bank, Cardone could eliminate the middleman a/k/a investors.

The Bank of Cardone could also issue credit cards at >22% APR and make money that way.
Gary Cardone’s company could act as a credit card processor for the Bank of Cardone and keep all of the credit card fees within the Cardone companies. The Bank of Cardone would also collect all of the usual banking fees.

The motivation for creating The Bank of Cardone is very likely motivated by the dwindling supply of Reg A and Reg D investors willing to lock up their money for ten years with Cardone Capital. In the face of rising inflation, cash has become king nowadays for many reasons, particularly its liquidity.

In our view, Grant Cardone needs a bank and the power of fractional reserve lending if he hopes to hit his goal of $50 billion AUM. There are much better private equity funds to invest in than Grant Cardone’s which are optimized for him to take fees and make profits with every transaction. Cardone Capital reeks of GPB Capital Holdings in this respect.

For example, to make a 10 year $100,000 illiquid investment in Cardone Capital in exchange for a fixed 6% annual distribution for 10 years is, in our view, a fool’s game. Inflation is making that 6% — which is $6,000 annually — worth much less in real dollars day by day. This is where Cardone’s 2017-2021 investors are stuck for ten years as Cardone Capital does not allow withdrawals.

There are far better strategies for liquid cash than locking it up for 10 years with Grant Cardone. If you have the cash, a better strategy is to make a down payment and buy your own condo or home for, say, $350,000 in Las Vegas, Santa Clarita, Austin, Nashville, or almost anywhere in the US and stop being a renter.

It is smarter to pay $2,000 a month on a mortgage payment than paying $2,000 in rent to a landlord. A mortgage comes with many tax benefits and the building of equity over time. With home prices expected to sharply decline in many areas, the inventory will climb and it will become a buyer’s market.

OTHER NOTES ON GRANT CARDONE

As we reported, Grant Cardone has had to cut distributions to investors by 33% on some of his funds even as he is raising rents at his properties. Some of the rent increases are necessary to cover increased interest rates on the adjustable-rate mortgage (ARM) loans Cardone took on some of his properties. Cardone Capital is also raising rents >$500 at many of its properties.

The Fed is expected to raise rates 75 Basis Points (BPS) at its September meeting. If this happens, and the market expects it to, this will be horrible news for Grant Cardone due to his  variable interest rate loans. Cardone had to cut distributions 33% in some of his funds in July 2022 due, among other reasons cited, increased interest costs.

Bottom Line: Does Grant Cardone need to buy a bank in order to save himself from ruin?