Grant Cardone, one of the most well-known real estate investors, recently gave an interview where he called out two real estate markets in the U.S. that he says he wouldn't go anywhere near right now.
The first, which may surprise many, is Austin, and the second is Seattle. He shared his perspective in an interview with Moneywise, following a prompt he made to an AI chatbot to answer the question of the ten best markets in the U.S. for investing in rental real estate.
The AI-generated response started by saying that the best markets for investing in the U.S. depend on population growth, job opportunities, rental demand, and affordability.
Cardone walked through the task on camera, and up to that point, he appeared pleased with the response he was getting from the AI chatbot.
Then, once the AI-generated response included Austin, Texas, as the best market for real estate investors, Cardone's opinion of the response shifted.
Cardone said that Austin is one of the worst markets you can be in right now, in his opinion as an investor, because it's the most overbuilt.
Austin was one of the country's most sought-after real estate markets during the COVID real estate boom—maybe the most popular. The popularity was staggering in 2021 and at the start of 2022. Remote workers from out-of-town were moving to Austin in huge numbers, and along with more flexibility in their work environments, these people could take advantage of extremely low mortgage rates.
Now, however, is a much quieter period for Austin. Home sales dropped by 22.4% year-over-year in the first half of this year. The median home price in the capital of Texas fell by 10.7%, according to Norada Real Estate Investments.
During this same time, Austin's new listings decreased by 2.7%, while active listings went up 170.2%. Pending sales were down almost 15%.
Redfin similarly described the situation as Austin being a victim of its popularity, saying there was a surge of wealthy buyers during the pandemic, pushing up property prices. Then, once there was a very rapid increase in mortgage rates, people were increasingly priced out of markets, leading to a major drop in demand.
The AI chatbot listed Dallas, Nashville, Atlanta, Raleigh, Phoenix, Tampa, Denver, Charlotte, and Seattle as its other picks for the best markets for real estate investors.
Cardone said the four top markets on the list are the most overbuilt. It highlighted not only the shifts in the real estate market in the past year but also that AI chatbots aren't always giving the most accurate or up-to-date information.
Cardone went on to say that he wouldn't touch Seattle with anyone's money.
The city has suffered in terms of its job market, and there was a big uptick in layoffs in the tech sector after the pandemic. It was similar to what was seen in San Francisco. That led to less demand and competition in the real estate market. In June, Seattle saw a decline of 23.3% year-over-year in the number of homes sold, based on data from Redfin, with home prices down 5.7%.
When you're a real estate investor, an imbalance in supply and demand, as is seen with overbuilt markets, can lower your rental income. It can also make it tougher to find quality tenants and reduce your profit.
In an overbuilt market, it's common to see vacancy rate increases, for example, in New York City. Investors then face financial challenges and have difficulty keeping up with their mortgage payments and other expenses that come with carrying the property.
Finally, Cardone appears strongly in favor of using crowdfunding platforms to invest in real estate rather than trying to choose the right market, buy a property and become a landlord. With crowdfunding platforms, you can pool your money with other investors and buy property or a share of property, working as a group. You have more opportunities, and you can reduce your risk.
