The Dangers of the Housing & Fed Correction | Ken McElroy

the government has proved that they

can't really do housing the politicians

don't really understand how to help the

renters so what's your rule of thumb

because we know it's not just cap rate

but everybody who gets started in real

estate like I got to have the high cap

well so first of all I'm a long-term

hold guy so I don't really care about

cap rate how about airbnbs is that a

bubble well there's a couple things

there's a bunch of Lone maturities that

are coming due and people need relief

they're going to lower rates this year I

believe at least three to six times I

don't know how many but but I do think

that they're going to have to are you

going to buy the dip on San

Francisco I still believe rates today

are decent 5 6% my whole career was 5 6%

what we just got through was a gift you

know ah I see and so you don't think

we're going back I

don't welcome back to another episode of

the meet Kevin show today we have the

honor of interviewing or confronting as

we like to say Ken mroy you've got over

200 sorry2 billion dollar uh under

management in your SP you've got 300

people working for you in Property

Management development I mean tell me is

everything about to crash are we screwed

no of course not no no all right so what

is like where's the opportunity right

now where where are you guys shopping

like what are y'all looking for is it do

we need to build do we need to find

distressed people where are they where's

the blood in the street sure well I I

think there's a few things you know I

always look for what's the single point

of failure for somebody debt right so

that's certainly one of them some of

sometimes with some of the syndicators

you know in the last say five six years

um they don't really understand Property

Management that's another one um they

don't it's always structured right and

sometimes they rushed and got managed

money you know like Wall Street or

whatever so you have all those things so

you have loan maturities Equity

maturities you have the interest rates

and you have Property Management kind of

swirling around so depending on your

experience level uh you know those those

those those are going to be where the do

The Dominoes fall yeah no do you are you

seeing dominoes falling on property

management oh for sure okay so let's

let's go through these one at a time so

there's Property Management Equity debt

uh and uh the fourth one which is

interest rates essentially so tell me

Property Management I think most people

when they think of buying units the

first thing they think is oh sort by cap

rate I'll buy the highest cap and then

they might not necessarily realize that

the two cap might be a little easier to

manage than like the 15 cap you might

need a gun at one of them to collect the

rent what what do you say to people like

what do you look for I'll tell you a

great story we had a guy call us one day

before he closed so you can imagine he

had a really good project in San Diego

that was completely full yeah did a 1031

exchange into a bigger project in he

selling the San Diego one okay okay

calls us one day before so he doesn't

even really know what he's buying so I

go out there and I'm like this is a

problem Oh B area low occupancy you know

lots of deferred maintenance etc etc etc

so you know that's what I'm talking

about people think they can just move

their money and then the property

management often times is the last

decision yep when they really need to

get them involved in the beginning are

these rents right yep are the expenses

right does it cash flow you know is this

a good area but so that is one of those

things and so what you've what we've got

Kevin in the you know let's say in the

last four five six even 10 years money

was so easy Market was trending up so

everybody thought this is great

occupancy is high there was really no

reason for property management to be in

trouble you know in the rearview miror

everybody could pay their rent correct

stimulus checks so now that's all

starting to emerge and so you're

starting to see the people that maybe

were trying to just make money on the

management fees or thought that they

could do it um and now that's all moving

to per professional management company

so we're starting to see that that's the

first thing so you find these syndicated

projects a lot of times that might be 75

80% occupied they're not really managed

that well you know the market saves

people well when it's going up correct

right rents are like you got it right so

so that's all emerging right now so if

you have that dialed in you know that's

again one less point of failure yes

that's that's so amazing that's

interesting because it seems like right

now uh I'm seeing deals that you'll have

sellers yeah look we're 100% occupied

and they're giving you rent rolls from

like August or July right and then all

of a sudden it's like it's January like

wait a minute you're 20% vacant what

happened uh and they can't get them

rented anymore because the rents have

fallen but as soon as you lower the

rents on those units all your other

tenants are going to want a discount so

your cap Turns Upside down so how do you

uh is it just a matter of being really

attuned with the rents or how are you

preventing that risk so that's that's

actually the magic of property

management in my opinion so I started in

that business uh right out of college ni

and that's all I've been doing you know

and then in addition to that I started

buying along the way so that is kind of

my sweet spot and so for me every Monday

I'm looking at all the rent rolls I'm

looking at all the exposure whether it's

people that are moving out or people

that H you know um let's say skipped out

or whatever it might be or any vacancies

or anything like that even lease ups and

you know every single week you need

pressure you know no pressure no flow

like that okay it's true and so because

they all work for me I'm able to call up

the phone and you know re repic do

little little uh maybe some some deals

to get people in it's all about managing

occupany and managing expenses yep yep

uh and so do you find when you're

looking at a new market uh are you

taking over the management yourself with

your own employees or you taking or you

just finding local management what do

you like to I've done both so obviously

have the experience you know we have you

know call it 300 people that work for us

in Property Management definitely one of

our sweet spots and we have all the

systems and all that so this our 23rd

year in business however when we started

buying in Oklahoma I went and found a

third party manager okay because we

didn't have a presence I'm not trying to

make a management fee sure I'm trying to

produce the best results with local

people for the investment right so you

know so uh very you know when when we

first came to Texas I ended up buying a

management company so I bought a 9,000

unit management company so I I really

what I wanted was the data and the

employees yeah I wanted the employees

sure well and all the vendor connections

they have yes correct right so that's

what I was buying what' you pay for the

man oh my God it was actually well it

was awesome okay so I did a I did a um I

did like 250 down 250 Grand down which

is not much that sounds great already

financed it and then uh what happened

was was the the partnership that um and

I was paying a monthly out of the cash

flow that the properties uh were already

generating and then about a year into it

uh they wanted they wanted the rest and

so I just negotiated a discount and I

and I think all in I was less than a

million bucks oh wow yeah for 9,000

units exactly of management and so I

mean even if you're at a th000 bucks uh

a door that's uh I mean that's a lot of

money coming in 10% of that for

management or what do you usually see

they 8 to 10% on management well it's a

little lower on the bigger projects you

know yeah like four let's say 4% but

here's the thing here's what I really

wanted like I wanted to know what the

operating expenses were and the rents

were in certain

markets so so I stepped into that and so

now I've got the data and now I'm making

offers on properties in the area based

on real data and I'm not relying on the

Brokers right yeah well yeah no kidding

well you're telling me you don't like

performers

I know oh this is the worst okay so so

got it so there there Property

Management deals that become problematic

then but you could probably buy a

building that's mismanaged are when you

look at a building that you think is

mismanaged do you care if it's 30%

vacant or do you just count that into

the price take it off the price so

that's the only thing I look for I want

broken I mean broken that's how you

create value so and once you start to

get that reputation then the lenders

come to you and they're like we have

this broken loan broken deal can you fix

it for us wow so yes that's what I want

I want because that's uh we bought one

in San Antonio as an example 680 units

50% vacant oh my God so can you imagine

negative cash flow right out of the gate

Bank own all that so yes you got to

negotiate the loan down yes there it

cost a several million dollars to turn

it around it took a couple years at the

end of the day you know we we generated

an uh somewhere in the over little over

$20 million in value when it was

stabilized you know because you fix fix

the project solve the problem for the

bank and U and then you do your cash out

refi wow that's amazing that's great uh

and so are you seeing more stress now

coming up I think what you were saying

is you are yeah it's very interesting

what's happening so it's it's all based

around maturities so when I say

maturities a lot of people think the

debt but there's more than just debt

maturity so if there's a reason for

people to sell or they have to sell

then that's actually when they sell so

that might maybe it's maybe they ran out

of money that could be a reason it could

be that they're loans due or it could be

that their equities due so if you lend

me money on on a two-year deal or

three-year deal and you want it back

that's due so all of those things kind

of determine the exit let's say the

predetermined exit for the partnership

that's what you want so I pressure I'm

looking yes you want time pressure on

the seller yes and and so that's

actually those that's starting to come

due here you know I think uh I think

$1.5 trillion dollars in commercial debt

is coming due by the end of 2024 a lot

of office I hear though office retail

industrial multif family uh depends I I

I have owned them okay um and I'm not

afraid of them sure but most of them are

not uh you can't refinance or you can't

renovate them into Apartments I mean

nobody wants to live in an office

building with no common area and you

know no bathrooms and you know no lawn

and no no no windows and you know all

the stuff that yeah the times did this

really great piece on it and they

mentioned the older like 1920 stuff you

actually have more windows and more

capability of converting but like the

60s like the old like the FBI buildings

where it's just a square and you have

all this dead space in the middle no

windows how are you going to do anything

with that so they're thinking like

sometimes they try to core them out but

then you're looking at it it's bizarre

there's been a few people that have

tried it and uh so far I haven't seen a

successful one uh there was a study that

said that only 5% of all the office

buildings in the US are even convertible

I believe that yeah so I think that's a

pretty good number and to your point I

think they're really tear Downs yeah Bas

they could be storage self storage I I

know a buddy that did those vertical

Self Storage vertical self storage

because you have elevators and

everything yeah you need like freight

elevators yeah but change of use you

know I think that's uh so yes the asset

there's something there has to be the

right price um the bank has to Let It Go

for the right price right and then

there's the whole retrofit oh yeah are

you going to buy the dip on San

Francisco the which one San Francisco

are you going to buy the dip on San

Francisco uh probably not you know cuz

uh I know you're from California but so

I got to be careful here but no no

please say what want don't hold back you

know my tenants are going to want to

walk on the street at night yeah yeah

yeah so that you know so there's that

okay so so I mean there are parts of you

know Texas and Florida where we don't

want to walk like do a Craigslist deal

at 9:00 at night either right

so what's your rule of thumb because we

know it's not just cap rate but

everybody who gets started in real

estate's like I got to have the high cap

so what's your rule of thumb to where

you know it's a good area and now you're

trying to get a great deal obviously in

that good area well so first of all I'm

a long-term hold guy so I don't really

care about cap rate I mean I do I look

at it it's a it's a barometer I

certainly if I'm trying to exit I don't

of course um you know it makes it makes

something and if you're using managed

money uh they for sure are dialed in on

that but here's here's generally our

rule of thumb we want the houses the

single family houses in our Market to be

significantly more than what we would

pay for the apartment ah interesting so

so let's say we're paying $250 or

$300,000 a unit in

Dallas we would want the neighborhood I

own stuff in Plano I own stuff in

Carolton I own stuff in Richardson just

just up the road here you know at the

the the homes in the area are 400 500

600,000 and the most important thing

thing number one schools you know people

move to neighborhoods be uh for for

school systems you know that can't

afford you know private schools so

that's a big deal so if you can buy in

those areas and what you want is you

want a big gap between rent and mortgage

and of course the FED just made that

easier for us oh yeah no kidding it's

like impossible to buy now what 7% or

whatever 30 year yeah okay so Plano

they're building a lot out there are you

ever concerned about being deluded by

the amount of Supply that can be built

so easily absolutely yeah you always

have to be watching that but let you

know let's take a look at depends on

what you're buying if you're buying

Class A and trying to compete with new

class A then you're going to have a bit

of a dip but you also got to look at the

population growth the employment growth

for the area and of course North Dallas

is you know doing very well obviously

Frisco Plano Carolton all those areas

and there's big headquarters you know

like State Farm opened up their big one

of their big

like a Disney or something maybe exctly

right yeah so there's so you have to

look at all those factors and so but

what I like to do is I want to be right

underneath those so I would buy 90s

product that might be three4 $500 less

per rent per month and and I want to

hover right in under there okay so a

little below the median maybe yes I want

to be underneath that brand new class

okay um and and I want to you know you

know draft behind it okay that's that's

kind of what we like to do affordable

call it sure but nice uh well located

nice okay so so good location now how

much do you like doing Renos I mean I

know if you get a big enough discount

sure we'll do a renovation but are you

usually finding it's better to find a

you know a multif family deal that you

don't have to go in and renovate every

unit you just have to fix the management

on like what which problem do you prefer

solving management or renovation yeah

well I like both actually if I can get

it I I I management is easy for us you

you know it's a this is a people

business just like anything else you

know um it's like the restaurant you

know you go and you you know it's a

people business you know if there's

somebody in there that you really like

you keep going back same thing so um I

prefer some kind of a value ad whenever

we buy something so you know we always

want some kind of a story so if I'm

buying a '90s product let's say and you

know now we're in 2023 it could be a 30y

old building now think about that like '

90s is now 30 years old so it's got

30-year-old dated uh carpet flooring

appliances you know all that kind of

stuff so yes but for 8 or 10 grand yeah

it's clean yeah exactly you're you're

done so so I don't mind that um you know

the the the value ads are a great way to

to grow your cash flow you're not going

to get the cash out refi right now on

that but it's a great way to to grow

your bottom line why you probably get

them rented quicker than to and get them

moving uh how how frequently are you

finding uh that your units at this sort

of below median price are sitting vacant

uh or do you generally find they get

rented pretty quickly they do they get

rented very quickly yeah again you know

if you look at the new Supply that's

being added that everybody's talking

about let's say 500,000 units this year

let's say all over the

country that's you know those are two

$3,000 units you know um I'm I'm talking

about 1,500 1600 1,700 1800 renovated so

you know so as people get squeezed with

inflation and all the things that are

going on you know they will they will go

to a really uh really well-located

30-year-old building that's completely

freshened up that's interesting yeah so

uh what are your screening requirements

for your tenants so uh pretty rigorous

you know um we do credit criminal and um

sex offender checks on everybody any

score you're looking for so what we we

try to dial into at least three times

their you know their rent and of course

income and and then what we do is we

take the decision- making completely out

of the hands of our individual property

managers so what I mean sign it says it

says yes no or yes with extra deposit

those are the three options and um and

that's it and so you know but it's all

based on an algorithm and a metric that

that each resident has to jump the Hoops

they have to jump through got it so you

might take a you know like let's say a

620 but then they might have to put more

of a deposit down so to speak yeah so

what happens is you know there's hard

like most of the things for example

bills medical is a great one medical is

a huge one right uh some people are just

down on their luck and they're great

people yep so you know those are in our

my opinion those are great credit risks

okay there was there was somebody on on

Tik Tok I have to ask you about it he

said only rent to people with iPhones

interesting yeah that's an interesting

strategy yeah I don't know why I'm not

listening to it I'm just I just wanted

to see what your reaction was well I

would I would call that person

inexperienced yeah yeah yeah yeah no I

think it's all like a clown show so but

I'm like okay uh okay interesting so uh

what do you think about Grant Cardone so

yeah I haven't met him okay so you know

he's a good marketer yeah he's a great

marketer yeah I delivered him flowers he

got they got yeah I know he's he's I

think you know I look at um the stuff

he's bought and um I think he bought him

at the right time and he probably got a

nice little market run I don't know what

he's doing doing uh um now yeah but um

you know it looks to me like he's got a

fairly decent organization he's big

online that's for sure yeah big

personality okay what about um these

debts coming due how how are you finding

them are you just looking for it's your

broker contacts are you looking for

listings online and then asking the

right questions what are you looking so

right now most of the deals you're going

to find aren't going to be through the

the traditional brokerages um so what

I'm looking for are distress

construction stuff that's in the middle

of being built uh with high debt so

right now construction debt is 89 even

10% so you know and I have uh let's see

six projects I have two under

construction now one in Lisa so you know

those deals you required cash calls the

the interest rates are significantly

more than we started them two years ago

so this is an arena that I understand

and so with the capital you can go in

and solve somebody's problem solve the

the developers problem solve the bank's

problem and um at the expense of the

equity unfortunately problem yeah but

you step in you can step in finish the

project uh I had a buddy I just had

dinner with him last week he had a a 17

million deal with a $12 million um

construction loan and he bought it for

six wow from the bank now 50% built yeah

so he had to finish it so it's 6 million

plus but the point is um those are the

deals that we're looking for you know

solve somebody's problem step into a

project take all that risk out you know

all that um you know political risk of

zoning and getting jumping through the

hoop are done all that yeah yeah so so

you just finish that up and and and

solve some of these problems so we're

looking at those we're also looking at

deals that are finished and not haven't

uh haven't leased up yet yes so those

are good 20 30 like oh we do so when

they're barely occupied I love it yeah

because because now everything Done

Construction risk is gone the the the

the the developer sitting on these these

high interest construction debt because

they can't put permanent debt on until

it's stabilized of stabilizes call it 92

93% so now I have that lease up risk I

get that but that's what I do that's my

business so you underwrite what the

market rents are in the yeah and

discount yeah you figure it out and then

you fill them up that's amazing do you

uh I mean you bought this man management

company do you prefer having your own

employees essentially or people under

your company as the managers or do you

do you really ever go to third party I

know you did once in Oklahoma yeah we've

done I've bounced around on that issue I

here's what I like I like one you can

create a nice culture with property that

you own that people work for so I used

to be in the fee management business uh

that's how I started and um the fee

management business is hard you know I

always tell people there's there's three

things that happen in Fe man the first

one is you take over a building let's

say you give me a building and um and I

I don't improve it then I get fired if

or let's say I take it over and it stays

the same I get fired or I take it over

and I improve the value and you're happy

and you sell it and I get fired so so

all feed management is tough man like it

just is tough so so I like and then what

happens is you you're always scrambling

to try to find people to fill the

projects so with our company now you

know we have people that have been with

us 20 plus years right tenants or

workers or both workers and tenants but

Mo you know really I'm uh we're trying

to build a culture good of people and in

Property Management it's tough and so

you can have people with you you can

train them long term they can they can

rise up and and and have succession

through the company and there you know

it's just a way better atmosphere I like

that I like that a lot uh what's the FED

going to do what's the what the FED yeah

well they're going to lower rates this

year I believe at least three to six

times I don't know how many but but I do

think that they're going to have to

because it's we're heading into a

political year

also there's a bunch of loone maturities

that are coming due and people need

relief you know and I'm talking about on

the commercial on the commercial market

so now I don't I'm not hanging my hat on

any of it though because I still believe

rates today are decent oh wow 56% my

whole career was 56% what we just got

through was was a gift you know ah I see

so you don't think we're going back I

don't no no I think maybe we get down

into the mid fours High fours um but you

think about it you know obviously we're

still what 3.4% inflations and then

we've got um what are they going to do

they're either going to go neutral or a

quarter point well that's not going to

do much okay then maybe the next fed

meeting they'll do a quarter point you

you so what are we really talking about

we're really talking about maybe a point

sure year go from five to four big right

that's kind of my point so so it's not

going to move the needle enough um

especially on single family cuz the

majority of those people that are

sitting in that in that Deb like I think

I think I read 65% are sitting

underneath 4% loans oh my gosh fix

absolutely okay so they're not going to

move yeah so they have to die basically

it'll help it'll help some things it's

you know it'll be a political Hot Potato

through the year but as you know low

rates create oh bubbles inflation right

so huh so would you say uh the FED might

be motivated to steer the election a

certain way I don't know if they can I

you know I'm not smart enough

to how that works but you know obviously

it uh the rates are going to be fairly

significant going into this uh election

year for sure that's true yeah there was

somebody who was arguing and it was the

first time I heard it was just yesterday

they said well because I I said hey like

if the economy is doing well you know

people sometimes don't want to change

government regime because it could flip

but if the if everybody's miserable then

they want the current president out so

think like 2008 after lhan Brothers they

wanted uh at that point Republicans out

and went for the hope they could believe

in Obama right so there's this argument

that if the econom is doing really well

and let's say real estate didn't crash

people didn't get J you know lose their

jobs and inflation went away could Biden

sort of be reelected on that basis and

of course Vice Vera Trump

and so uh somebody yesterday from Arc

invest argued that there's a chance the

FED might have this bias of well could

Trump mean less stable dollar or less

stable

politics therefore more risk to our

mandates so do we cut more before the

election to try to keep Biden in that

was an argument they made not what I

agree with but I thought I wanted to see

what you thought about that yeah

interesting um well I think the the

systemic issue we have is homelessness

and affordability I think everything's

kind of pinned on that so you know

Biden's come out with some stuff for

that but it's slow to go and and you're

you know and your your buddy Gavin oh my

God you know he tried to roll out some

of that affordable money and that was a

disaster there's article after article

after article so the government has

proved that they can't really do housing

yes they need the private sector okay

and so what I would hope and um if you

take a look at this you know there's all

kinds of stuff going on with the

policy's going to be a big deal this

year because the politicians don't

really understand how to help the

renters and what really is needed is

Supply yeah oddly build more well you

think about because naturally High

supply low prices period like like it

gets overly complicated but it literally

is a supply problem not in every area

but in most areas if there were more

options then affordability would come

back rents would come down all of that

stuff but nimi not in my backyard

there's all these things all these

zoning restrictions all these things

that make it harder for the project to

be done make it more expensive for the

project to be done so at the end of the

day whether people want to hear this or

not when when the government makes it

more expensive to build the developer

builds but then it just gets passed on

to the tenant or the buyer anyway right

at the end of the day it all works that

way ah right so I wonder uh I don't know

if you heard my this idea of sometimes

in like a state like California because

they make it so difficult to build what

any real estate you buy over there is

almost hedged I love it I love I love

what you said earlier you know you're

you're right you always want to look for

barriers to entry so you know years ago

I bought in Portland Oregon now Oregon

is a is a rent controlled State now but

I bought in downtown Oregon the reason I

bought in downtown Oregon is because it

was really hard to build there and so

whatever you bought went up in value we

did very well with that project so it's

a great strategy so how often do you

sell your buildings in in the the fund

The Entity that you work with or do you

try to you said you just keep them

basically we try to yeah like I I I I

like to take advantage of all the tax

benefits course so in when I was your

age I was going and blowing I was buying

stuff and building stuff and doing

condos and condo conversions and all

that kind of stuff and at the end let's

say the end of in my 30s when the dust

settled I had nice stuff you know Jets

and cars and great houses and and I had

a lot of tax and I didn't own anything

yeah I was like what I don't want to do

this again so the next so I decided I

went to some smarter people and they

said long-term cash flow use the asset

to you know do your cash out refi you

use use use all the tax laws to your

advantage and um and don't sell and if

you do sell do 1031 and and uh so that's

been my strategy since probably my 40s

and uh you know that's how we bought uh

something like3 billion doll worth of

assets at that point yeah that's really

cool uh if so uh how does that we just

sort of how you

fundraise well what we've done is in the

you know before the internet right it

was all friends and family and then you

kind of country club stuff really you

know go play golf or whatever just you

know as you would and have a business

plan with you at all times now it's a

little bit easier um and uh you know now

we have a list of people but in the in

the early days it was it was difficult

it was hard um and of course with no

track record and all that kind of stuff

but after a while as you start paying

people back you start delivering on the

promise and the plan then you know

they're like okay let's do that again

and they start telling people and and

now we have um you know thousands of

folks that when we put a business plan

out it's typically funded in a couple

days wow wow that's amazing uh what

about this um well you mentioned it you

have a jet or had Jets and how is that

changed your productivity because some

sometimes people look at that and say oh

it's just you know a flashy thing is has

it been a tool for you yeah H how how do

you explain it to people well first of

all I I uh I don't think I've ever told

anyone I told you because you have we

have the same uh brand you know we don't

have to talk about it if you don't want

to no no what what I mean is you're not

going to see it on my social media or

anything is I use it like I use it to

fly to Austin for the day Dallas for the

day Houston for the day um to look at

projects and you can come back same day

and be with Acquisitions and you know so

I use it for me it's a time machine and

um you know I use it for funds as well I

flew it up to F1 you know to Vegas with

some friends and stuff like that but

generally I'm using it you know to grow

my business and um that is kind of the

point for me at least yeah completely

agree what um so long term you think

that interest rates could stay high

longer does that mean you should wait to

buy real estate or when are you trying

to buy no it's a great

question I so if you look at the

Historical averages you know we're about

right where they are so so if they go

down a point that's below the historical

Aver bonus then it's just not what

people are used to right so so um it's

going to create a fair amount of

distress and so what we really have

going on if you take a look at

let's just focus on on a supply problem

so study after study National multi-

Housing Council National Apartment

Association National home builders uh

low-income housing Coalition all of

those have anywhere from 4 million to 7

million as a number of a shortage of

housing across the US so there's for

sure shortage of housing because I went

through the 08 crash and during the o08

crash the banks are taking back all this

real estate they weren't lending on new

stuff why would they like you you know

while you're you know taking back all

that stuff you're not lending to guys

while they're building so so we went

through like a 10year run of no or very

little construction so while the

population goes like this Supply was

going like this so that's actually what

we're fighting right now so so if you

take a look at the amount of housing

that was delivered let's say from about

0708 till about 8 1718 it's hardly any

meanwhile economy is going like this

people are having kids population growth

all that kind of stuff so that's what's

putting the that's what originally put

all the pressure on this rents prices

then of course everybody's like oh we're

going to start building so they started

building they're way behind so there are

millions of units behind that that's

where we are today then when the FED

started raising

rates I think it was March of uh

2022 then all of a sudden the price that

construction debt was going up so

developer what was once a deal said y

we're going to wait because we can't

afford it because we can't Finance it

and then of course costs are going up at

the same time so so if you take a look

the the products that's going to be

delivered through this year and into

about mid of 2025 it's going to be

pretty robust we're going to get some

rent relief all that stuff's going to be

great for

renters then it drops off a cliff oh

about late 25 26 27 there's almost no

construction deliveries so all you got

to do is look at permits you know and so

so right now we're going to go through

maybe a year year and a half of this

Supply that started two years ago deals

you could be getting from the developer

you got it so that's what you want to

make deals on those and then we're going

to have a massive affordability problem

mark my words at the end of 2025 26 27

you're going to see all kinds of

legislation you know no matter who in

office there's going to be a big problem

because you have a lot of people that

are going to be looking for housing and

it's like anything like you know

whatever there's when there's scarcity

prices go up that's all this is so you

have demand not enough Supply wow and so

the affordability issue you think is

because of maybe the stress of like

lower income individuals maybe bottom 30

40 50% higher credit card debt and and

like that for sure yeah so what we

really need is affordable housing I see

for sure yeah the problem is we can't

build it yeah yeah that sucks yeah I

wish I could but you know you guys do

build some right we build as cheaply as

we can but we're at the mercy of the

lumber prices and the contractor you

know and the and the buildings uh are on

the we're at the mercy of the land cost

we're at the mercy of what the cities

allow us for impact fees and all those

kinds of things all that gets rolled in

to the price

aha interesting so right now uh what do

you tell people who are looking to buy

their own home let's say or a small you

know duplex or something just to get

started how does somebody start in

today's economy that's you know where

rates are 7% yeah well I like some of

the traditional methods you know I like

house hacking i r rooms I love that I I

do you can buy I just actually talked to

a guy at the gym last week he bought a

$175,000 duplex lived in one side rented

the other paid for the whole thing thing

those deals are still out there and also

you know while we haven't had crazy

population growth cuz it's definitely

been lower than

normal what's been interesting is all

the migration moving around like

immigration coming in or well that that

too that's you mean like Co migration

within yeah so that's been interesting

because people are moving out of San

Francisco let's say but they're nearly

not moving to another state a lot of

them some are but they're moving to the

suburbs that's happening in Seattle

happening in Portland happening in you

know a lot of these towns and it's

creating bubbles in these small little

you know call it submarkets and those

bubbles are massive opportunities

because for example I have a home in C

Lane Idaho ah so you that is one of them

yeah I was there yeah so corane Idaho I

I've been there 15 years I've watched it

you know it's just one thing a lot of

people moving there not enough housing

price goes like that so those little

those are massive opportunities because

what we have there now just as that

because I know that one so well you have

a situation where people can't find a

place to rent that work in the service

business so you solve that problem you

know so so those are the kinds of things

I think there's a tremendous amount of

opportunity even though all the stuff is

going on globally you know and and

nationally there's massive opportunities

uh with real estate and plus we still

have all the tax benefits and all the

things like that and and we're heading

to a renter Nation you know if you

really if you really look at it yeah cuz

affordability if I I believe people are

supposed to rent and then buy a home

okay that's kind of the progression and

if they don't want to that's obviously

their choice and I just think that's

kind of the natural progression and do

you think that you know if today maybe

what 63 is 64% of people own their own

homes do you think that'll flip in the

future where maybe it's 60% of people

are renting as supposed to owning I

think it's going to go down and for the

first time ever under 60% wow yeah so if

you remember under the Bush

Administration he was like everybody

needs own a home and I went up up to

about 68

69% then Obama kind of you know he took

the heat but really um it was Bush that

kind of rolled out all these polic

policies and then um um you know that's

when it kind of started going backwards

08 you know 0708 and and then everybody

moved from single family to Ral during

that period of time so I was in the

rental game during that time so you know

while while we took a hit on our multif

family prices people were moving out of

single family into multif family they're

they're really they don't work together

they're actually opposite oh my gosh

because if the single family Market is

not doing well if you can't afford it

you rent makes sense makes complete

sense yeah oh yeah and so and I like

your idea of you want to have that

almost wedge between what you're renting

for compared to what a single family

would cost so that way you're something

to fall back on because I mean certainly

like if you're a two-bedroom one bath

apartment and somebody could get a house

for what rent you're asking because you

built that class a luxury or whatever

well somebody probably get to go for the

House eh that's ESS what you're saying

yeah so we just we sold the property

this year in Tulsa Oklahoma I owned it

like 12 or 13 years it's like 300 units

I renovated it twice and we owned it a

long period of time the rents in the

area were somewhere right around $2,000

you know for at at our project the

single family houses in the area were

about you know 2500 oh wow close yeah so

we're like H all right so we exited and

then moved that money to um San Antonio

so what are your favorite markets now so

I like where everybody's moving so where

is that that's Texas Florida North

Carolina's Tennessee that has been

played Arizona no gosh no well obviously

it's getting a lot of press and people

are there don't get me wrong but if you

look at Texas last year a couple there's

a couple things I like to follow the

first one is driver's licensees turned

in second one is Postal Service people

do the change of address third one's

U-Haul one way another one is United Van

Lines okay so those are four for your

for your listeners yeah but you know if

somebody read what the last one one way

the the United Van Lines Van Lines by

the way these are all onlinein yeah

that's so interesting so go online they

have these they have these lists like if

a family moves from Seattle to Phoenix

one way it it's just a data point so you

start to look at all this stuff and you

kind of see where people are going it's

pretty cool and so from there you just

make really good decisions it's all to

California I know my gosh it's coming

out of there so California is obviously

at the bottom of the list of people

moving out but they have net migration

in and net migration out and they have

all 50 states and we can't get U-Hauls

for some reason yeah I wonder why yeah

no kidding they all come out of they

tagged yeah yeah yeah exact that's funny

oh my gosh so uh okay so Florida Florida

Texas um how about Airbnb is that a

bubble yeah well so there's well there's

a couple things uh it's not a bubble

like if you look at Airbnb

year-over-year there's more people using

it okay the issue is twice as amount of

people doing it right so you have you

have the owners doubled um and so so

that's what you have you have a lot lot

more choices and so it's interesting to

see by the way those are great

opportunities too well the ones who were

upside down because yeah yeah because I

I you know I was like you can't have a

single point of failure you can't have

your only solution being you know 70%

occupied in Airbnb it has to be able to

rent to you know for the normal rent so

that's that should be where you start

and then the Airbnb is just gravy and

then you can always pull back yep well a

lot of people didn't do that so so so

that would be another opportunity for

somebody to go in because we're seeing

it all like I live in

Scottsdale and and there's all these

million dooll plus homes that were these

guys bought renovate them beautiful

great locations furnished them and you

know you you know how you can always

tell on the MLS or the Zillow um they

have bunk beds oh yeah there you go

there you go up the bun this look for a

picture with bug beds so those are great

opportunities to to snipe and and and

grab because you know they're they're

they're you know they've lost a lot of

money on them and the markets the

markets come down but their their

proforma rent says everything's fine

yeah I know I know exactly so okay so

what do you think about uh airbnbs now

trying to push more apartment building

owners to allow their tenants to

sublease on Airbnb what do you think

about that yeah I've done this for a

long time yeah like years ago I had 200

units of furniture and we were doing we

were doing two or three or four in all

our projects um and we you know back

back then um it wasn't as sophisticated

and dialed in as Airbnb is but we always

have corporate units always always

always always have corporate units

because there are people that are

visiting their their friends or family

there and they want to use it uh we use

them for models and so so I've been in

the space a long long long time and um

the the the big thing is is it can be

very disruptive you know when you have

people moving in and moving out in

generally um if you have long-term

tenants let's say um so I have no

problem doing it like in a dedicated

area dedicated building you can set up a

whole thing and run it that way but it's

it's a very different business than set

and forget yeah no yeah you know like

like these are these are needy people

that you know they things happen while

they're here and they expect really good

service just like they would a hotel I'm

not saying not to do it what I'm saying

though is it's a very different business

than you know just regular Property

Management yeah exactly so that's

interesting to sort of carve out like oh

yeah if you have sort of multiple

different buildings Building C that'll

be there absolutely you could do that

and do it very well probably and then

just test it and you always have

corporate rentals where are you

advertising these so we typically uh we

typically do that right on our websites

and it's it's usually internal so um and

then uh there are certain things that go

on in Arizona every year like spring

training um we were doing deals with the

Giants with the Cleveland Indians not

with the the players but with the

coaches and the media and that kind of

stuff so um we did stuff with the um the

U some of the artists like The Lion King

would come and and you're we're talking

about 15 20 units uh furnished so

there's a there's a there's an

underground of groups that are always

coming to markets wherever they are that

uh even like when they're opening like a

Target store you know there's a team

that comes ahead and they're hiring

people you know and maybe it's just five

or six or seven people so there's those

kinds of things are going on everywhere

they're there for three months or couple

right so there's a whole network of that

and uh we're dialed into all that nice

okay and then what's what's the sort of

exit with the SP like how how does how

does your company structure work I guess

yeah so the the the way we've done it is

um I'm a long-term hold guy so you know

as I said I I I wasn't that in my 30s

and now I have been um what we've been

doing is we're upgrading our whole

portfolio so stuff that you know what

when I was in my 40s I was buying stuff

that was built in the 80s and now that's

50 years old you know you know so we're

just rolling that forward into you know

some of this newer Class A stuff so

really it's just taking old assets not

really paying tax on them rolling them

forward into newer products that make

sense financially easy so just just

momentum got it got it so it's not even

so much anymore uh new funding that you

you're trying to look for or whatever

it's it's just taking what you have the

cash flow from that throwing that into

to Opportunities along with sales yeah

yeah so it's just now it's just taking

Equity properties and and and trying to

uh legally avoid tax as much as you can

and and and upgrading the projects in

different areas different markets tell

me about YouTube oh gosh it's been I

started during the pandemic I didn't

know what I was doing I still don't

think I do I'm having fun with it be

honest I I love educating um I never

thought I would do it I never thought I

would have the time so it's been fun and

uh so would you say uh your favorite is

sort of uh talking about uh what the

market might do or like what what kind

of content do you prefer

doing well I think what people what I

found is what's resonating with the

people that have been watching are you

know what am I doing what am I looking

at um obviously I've been in this

business for 40 years and and I've been

in lots of different businesses um you

know different Cycles but and I don't

know everything but there's a little bit

of wisdom that goes on when you've

bought and sold all that stuff and

you've grown companies and and I've sold

a few companies um all of that and of

course EO YPO I me all those as well and

so you bring all that knowledge into

into some of these and all I'm trying to

do is um help people not lose money um

and and shortcut the learning process so

that they can achieve their financial

goals quicker that's awesome what about

uh folks who uh like subject two subject

two real estate deals what's your take

on that yeah yeah so I don't know a ton

about it I've never done them but um I

know it's a it's a legal process right

yeah I I it seems like I I always hear

people who are getting started in real

estate want to do subject two but but

then the people who are always doing

real estate don't so there's some kind

of Disconnect between the hope of of

taking over like somebody's existing

debt and then you know paying them uh

you know a second loan as an example

yeah I I think it revolves around I

think most people think they need money

to buy real estate and I think that's

actually the problem because you don't

like you do not need money you mean like

5% down on a house you're buying or do

you mean like go to people if you're

doing something personally and you're

going to move into it clearly you you

have to have a savings but if you're

doing it for investment you don't need

it like there's more people with money

than there are deals so once you start

to find the deal my my experience has

been in fact right after this interview

I got a got a best and final call on a

project that we're working on and you

know you know once if we get it we'll

put it out to our group and they'll

decide if they want to be in or not and

so the you know we're constantly trying

to vet deals and so my experience has

been that if you can find something that

makes sense

financially it doesn't even the business

plan is a formality you're basically

just like putting it together you

already know the deal in your head it's

like back of the napkin stuff yeah of

course it should be you know and so

um the the funding is never a problem if

the deal is good correct yeah how what's

your favorite way to negotiate I mean

you said you have best and final call is

this you emailing a counter offer in do

you ever like to meet the sellers call

them how what what's your preferred well

relationships everything obviously so

obviously if you know the sellers or you

know the Brokers or that's big their

track your track record and what you've

done is Big at this point you know we

have a five-page in uh buyer

questionnaire that we have to fill out

so the seller often times might even

know who we are you know we're talking

about 4050 offers down to three and then

a best and final round and then so you

always come in with a little less then

you have some dry powder at the end so

we'll come up on price probably today on

on the deal that we're looking out but

we might not we might not get it so when

we whenever we make an offer there's a a

a price that we um want to buy it for

and then there's a Max so we always know

what that is internally and we come in

somewhere in the low end obviously and

then once we hit that Max we we we say

no done yeah yeah and we just move to

the next one so it's uh it's not

emotional it's all math-based if um if

it doesn't make money for the investor

don't buy it we pass yeah absolutely

what do you do uh when you're when you

buy a deal that you well it doesn't

sound like you like to buy stabilized

deals but let's say maybe you found a

stabilized deal that you liked and then

you go through escrow and they kind of

let the management go while you were in

esro which happens you know it's 60 days

sometimes to close these deals come on

in um what what do you do are you going

back to that seller how are you beating

them up yeah so well usually that's in

the contract right um so you know if

they do something that's um you know

like I'll just give you an example I I I

was in the I'm trying to buy a media

company right now with a bunch of

billboards and digital um and uh during

due diligence we found a bunch of stuff

you know I don't want to throw the guy

under the bus but at the end of the day

day not a very sophisticated seller you

know over 20 year old uh owner um grew

it from you know from from the

bootstraps and um you know we went back

to him and he had done a bunch of stuff

while we were in escrow yep and um you

know you got to paper it up not

necessarily lawyer it up just paper it

up and then have that conversation with

them and uh he either budges or he

doesn't and he didn't so I'm like okay

we're out and we killed it yeah well I

mean as you should I feel like sometimes

there's this this weird balance between

like you you want you want to have that

great reputation but then if somebody

else screws you like you can't let

yourself get screwed e like I don't know

how how do you balance that oh yeah yeah

I'm really crystal clear on this you

know I I look at it first of all you

have to have the right lawyer and you

make sure you got to have all that stuff

in there and and over time you figure

out what some of those things are you

know what to look for I've seen a lot of

things you know with Sellers and Brokers

and and projects and stuff and we found

stuff A lot of times we find stuff um

that the seller doesn't even know yeah

and and it's true like a lot of sellers

are using third party managers and they

might not even know so and maybe the

broker doesn't know but you know you

always wonder but it doesn't really

matter to me so at the end of the day we

just always call it so like you know

like there could be Plumbing issues

there could be asbest there could be led

at paint love all those things yeah all

those but those are all things a lot of

times they don't know yes

so you you need to flush that out all in

due diligence and and you know with time

you kind of figure that out but you got

to be careful because you're you're

stepping in I always say don't don't

catch a falling knife yeah you know I'm

kid you can't step into somebody else's

stuff because you're going to have these

issues when you buy it no kidding yeah

and so you really really have to be

tight with that and it's going to be

money or time or both and you just don't

want to be in that position so I'm fine

with saying no you know and and um you

know we've done it a few times we don't

we try not to get anything in escrow and

then do it I mean like most of that

stuff's done before we're in escrow like

right now on our call this afternoon you

know we'll be asking all those hard

questions and we'll be boxing the seller

in the broker in and then if um if we

find something different then we just

refer back of course of course um what's

your

last question sort of the um biggest

advice you'd have to folks

watching well I think you're going to

see a massive wealth transfer here in

the next five years you know and there's

no question in my mind you know we have

a huge supply problem I don't think real

estate's going to get any cheaper so um

you know it's the most stable way uh if

you want to build passive income for the

long term I think it's it's by far

Bitcoin yeah yes exactly I think it's I

think Real estate's by far the best

thing you get all the tax advantages you

get all the tax uh cash flow um and um

it's not that hard yeah that's it isn't

I I really believe it it's not that hard

I believe you I think I think anybody

can do it it it does it takes effort but

it's not hard effort right I like that

okay that's really good how can people

find you uh Ken maroy official and you

know I'm on YouTube Ken mary.com on the

internet yeah awesome thank you so much

this is amazing we'll link that all down

below thank you so much appreciate it

Budd good to seeing you yep even though

I'm a licensed financial adviser

licensed real estate broker and becoming

a stock broker this video is neither

personalized Financial nor real estate

advice for you it is not tax legal or

otherwise personalized advice tailored

to you this video provides generalized

perspective information and commentary

any thirdparty content I show should not

be deemed endorsed by me this video is

not and shall never be deemed reasonably

sufficient information for the purposes

of evaluating a security or investment

decision any links or promoted products

or either paid affiliations or products

or Services we may benefit from I also

personally operate an actively managed

ETF and hold long positions in various

Securities mentioned including potential

short positions however I have no

relationship to any issuers nor am I

presently acting as a market maker