EP 27 | The Upcoming Crash with Ken McElroy

On this episode of The Impatient Investor, Andrew speaks to Ken McElroy. Ken works in the real estate education space is sharing his vast knowledge on real estate with us! Ken goes through all things real estate investment and gives us the low down on what’s going to change post-pandemic.

“I don’t want to scare anyone but the truth is, we’ve got 30-some million people on unemployment, we have hundreds of thousands of businesses that have already closed, we have four million people doing mortgage forbearance. We have all these things happening at the same time. “
– Ken McElroy

Find | Ken McElroy

Website: www.kenmcelroy.com
YouTube: www.youtube.com/channel/UCzomXQvDl2UblYIjBoFR8aw

Full Transcription:

Andrew: Hey everyone. I had a great interview and conversation with my good friend, Ken McElroy. Ken is the CEO of MC companies. They own and operate about a billion dollars of residential real estate, ground up development and construction. He’s also a rich dad advisor, bestselling author and all around really great guy. Hope you enjoy. 

Andrew: Hey, Ken, welcome to the show. How are you doing, man?

Ken McElroy: Hey, how’s it going, brother?

Andrew: Good. Doing good. So there’s a lot of content out there on your background and how you kind of got started in the business. So I don’t think you need to go too deep in that, but one question for you is you made this transition from being an owner, and an operations guy, really heavy operations background. And a lot of your time now is spent in the real estate education space. And maybe talk about how you made that transition or why you’re so passionate about teaching people about real estate.

Ken McElroy: Sure. Well, the truth is the market has cycles, as you know, and so I’ve been in it long enough to, you know, be very, very, very busy when we’re buying and you know, the last couple years, as you know, we’ve been, we haven’t bought anything. And so we own a right around, just under a billion dollars’ worth of multifamily and commercial and self-storage. And we build them, we buy them, we get value adds. We raised hundreds of millions of dollars for syndications and but there was a time not to buy. So Ross and I, and my partner decided to kind of hold off on that. And the truth was is, you know, I obviously I’m in massive personal development like yourself. And I’ve been meeting with all the rich dad advisors and all my friends and, you know, we’re just hunkering down trying to make our companies better and make our personal brands better. And then I found myself just having the time, you know, especially with the pandemic, just literally having the time and you know, I’m not on a plane and you know, I’m not, you know, meeting with brokers and touring properties and doing all the things that I had been doing. And so I just literally had the time to do it. So I figured why not? You know, why not? You know, because there’s a lot of people out there that don’t have the experience. So it’s easy for me just to get on and talk about, you know, real things that we’re doing and they’re real stories instead of hypothetical. So it’s been really, really fun.

Andrew: That’s so great. And yeah, we’ll leave some links to your YouTube channel and a website down the show notes too. So we’re obviously in this crazy, you know, time, we’re not really in a recession, it’s maybe not a pandemic. It may maybe, I mean, who knows what it actually is, but we’re, you know, we’re in September, 2020 right now. There’s always some interesting leading indicators that, you know, tell us a story up to a crash typically, or historically whether it’s inverted yield curve interest rates, real estate prices. So we’ve got real estate at probably an all-time high right now. Interest rates are at very, very low. Stock Market’s high, housing inventory is low. So what does all this tell you and what kind of market trends are you looking at right now?

Ken McElroy: Well, you know, for us, Andrew, like yourself, you know, the reason we stopped buying was just, you know, those are all true by the way, but you know, for us, it was can we deliver returns for our investors? That was it. So that’s always been our issue and, you know, I don’t want to buy just, I don’t need you to keep the lights on. We have enough real estate and passive income coming in on, you know, on our, I think we have about 8,000 apartments that we owned for years. And so we have enough coming in. So I don’t need to do deals. And a lot of the new startup guys need, they need to do deals. And so for us, when we started to see, when we started to see the market fundamentals change, what I mean by that is we started to see people overpaying for real estate, you know, a couple of years ago. And, you know, because, and the reason it wasn’t just an observation, these were deals that we were competing for. So we have a long track record with our acquisition guys that, you know, so we kind of have our fundamentals and we’re always trying to solve to a cash on cash return. If somebody is going to give me a million bucks or 10 million bucks or a hundred million bucks, you know, they want a return on that money. And the return is the real estate you buy. And so, you know, it’s just math from there. You know, it either works or it doesn’t work. And so we saw that then, which is why we kind of backed out and the Federal Reserve kind of propped it up with interest rate lowering, you know, and they were already low. And then they, you know, and so unfortunately they don’t really have anywhere to go anymore on that, which has been really good. Cause then we spent the last two years, we’ve financed to get everything that we have. And so that’s how we got to where we are. And so now to answer your question directly, you know, what’s happened is this coven pandemic, or, you know, whatever you want to call it, I think it’s kind of accelerated, I call it an accelerator, you know, things that are already a problematic or already happening before eyes that happen kind of in slow motion, like Amazon was already taken down retail. It shouldn’t be no surprise that malls and retail are in big, big trouble as an example. You know, if you really think about it, I’ve been watching that for years, retail has been struggling for years, you know, so there’s all these, new things too of course, but what’s happening right now is, you know, the country got shut down, while kind of, the world got shut down and people, lot of people don’t have adequate savings and reserves personally. And so I’m sitting there with maybe I’m thin and you know, maybe we got to working or I’m single or whatever it is. And I got a little bit of equity in my house. If I can have a house and my employer’s kind of on the block or my future income is kind of on the block, you know, I’m going to hunker down, I’m going to sit back and kind of see what happens. I’m going to take the PPP money or the EIDM money or the unemployment money or whatever, you know, whatever the government’s going to throw at me, I’m going to take it. And I think that’s what we just went through. And so I don’t really believe that we really seen what’s going to really happen and I don’t want to scare anybody. But the truth is, you know, we got 30, some million people on unemployment. We have hundreds of thousands of businesses that have already closed according to Yelp. And according to, you know, all these different services that track it, we have 4 million people doing mortgage forbearance. We have, you know, and 2 million of those are over 90 days in length. So we have all these things happening at the same time. And then I also think there’s going to be some new behavior coming up, you know, whatever that means. I mean, I know friends that, you know, I have good friends and some of them are really, really concerned about their health and they’re hunkered down on their home and you know, they’re not going to go fly or go into a hotel or go on a cruise ship anytime soon. And yeah, I have others that are, you know, they don’t believe it or, you know, like yourself, you know, people on all sides of the spectrum. And so I just think people’s behaviors are going to be different. And then I think employers are afraid of liability. You know, but I look at things like, you know, a restaurants are thin already on the margins. And so how does a restaurant survive when, you know, they have to socially distance their tables and, you know, so there’s a lot going on. And I just believe that, you know, we’re going to, we’re going to have a pretty rough 2021 on a number of levels. And on the other side of that though, there’s businesses that are doing really well, you know, and killing it. So it’s going to be a great time for real estate, I think, but you got to be super selective and buy the right markets and be careful, you don’t catch a falling knife, you know, on markets that are going down right now, the most appearance are the, you know, the urbans. I’m near Seattle right now, you know, which is where I grew up. I’ll be there this weekend. And you know, Seattle, Chicago, New York, LA, you know, people are just flying out of those places at the moment. And you know, it’s creating some, you know, I consider it to be short term you know, drops. So people are hunkering down. I don’t blame them for not wanting to list their home. I don’t blame them for not wanting to move right now. Because they don’t, you know, they don’t know if they’re going to work or where they are going to be. And so that’s why listings are down and that’s why prices are going skyrocket right now. You know, inventory is the lowest it’s ever been.

Andrew: You know, a little further to that. So obviously there’s this big, you know exodus is happening in a lot of the big markets, just like you said, New York and California. So what happens do you think, I mean, what happens to these cities? So some of the real estate is just incredibly expensive in those areas. And obviously if you’re working from home, you know, you’re a Google engineer making a couple of hundred grand a year. Do you really want to pay $4,200 for apartment in Cupertino or whatever, when you can go get a pretty nice house in salt Lake city or here, or even here in Phoenix for a heck of a lot less. A lot of these cities historically have been pretty resilient. I mean, what happens to these cities over some amount of time when all this kind of, the exodus I guess stops?

Ken McElroy: I think, what’s happened is this, what this has done is it’s, you know, we always had WebEx, we’ve always had zoom. We’ve always had these things right. Now they are like a, you know, a necessity, they’ve always been there. You know, Skype it’s always been there. We just were slow on our behavior change. And that’s why I say that, you know, Covid is an accelerator. The interesting thing is, and we’re wrapping our head around this too. We have 250 people, you know, we’re able to do a lot and stay efficient. And without having to come to work every day, without that 15 minute, one hour commute or whatever it is each way, there are ways to stay efficient, connected. You know, there’s some downside to it too, but I think the telecommute or work remote or whatever you want to call it is a thing, you know, there’s been big cities, to your point in San Francisco, Twitter has said, we’re not going back, Pinterest. I don’t know if you saw Pinterest, they just wrote a $90 million check to get out of their lease. So these companies are taking positions on whether or not they’re going to come back or not. And so that’s, you know, people can kind of decide, where do I really want to be. And before it was always focused around work or being near work and, kind of having a shorter commute. And so I really think we’re going to have a massive real estate correction in some of those markets. And by the way, if you go back just 10 years, 2008, just take a look at what rents were. Cupertino or San Francisco were a lot lower. And so people have a tough time going back to that and remembering, but New York, San Francisco, these are all markets that have gone through this before. So it’ll be very interesting this time around, because I think people have figured out a way to run businesses remotely. And I think you’re going to see a lot of technology around that too.

Andrew: Yeah. So you’ve got a video that went viral. I think the title of it is The 2021 Real Estate Crash. And some of this you’ve been talking about already, but when you think of the word crash, when it comes to real estate, you think of an equity crash, right? Think rents historically over time have always increased. Obviously, that’s not every single market, so what does that exactly mean? What do you see happening in 2021 as far as a real estate crash?  

Ken McElroy: I think the whole thing is going to be predicated on inventory. So the cool part about this time around Andrew is a lot of people have equity in their homes. That’s actually a really good thing because there’s a lot of people that are sitting on equity but, just put yourself in their shoes and let’s say you got 100 or 200 in equity, but you’re living somewhere and you don’t know whether or not you’re going to have any income because your employer shut down or maybe your own business shut down. Or maybe one of your significant other lost their job or whatever it might have been. I think that you might list your home, scoop some of that equity, obviously try to replace it or replace your income somehow. And so I think you’re going to find, you know, what happens, people move to safety, which is a big issue right now. You know, you’re not going to move to downtown Portland or downtown Seattle or Chicago at the moment, you know, they move for affordability, they move for weather, hey move for low property taxes, they move for good schools and so I think there’s going to be a lot of that happening. And, I would if my life, if I could cash out let’s say in southern or northern California and get a few hundred grand and move to Scottsdale. You know Scottsdale, you can buy a home there for 500, 600 grand you know, the real nice ones, a million bucks, but a lot less than, northern or southern California in a lot of areas. So that’s happening. People are moving to the suburbs, they’re relocating, they’re having their rents go down. There’s massive disruption in the  college university sector, where parents aren’t, you know, kids don’t want to go and the universities are shut down and they’re doing zoom basically from the rentals that they have one block from the campus, you know, and then they’re policing all the events and the football games and stuff like that. So there’s a lot of disruption happening. And I think that you know, I think you’re going to see it in these migration patterns. You know, the interesting thing is I haven’t seen a lot yet on migration patterns and that is, you know, where are people moving and why? And it’s really all over the map, you know. 

Andrew: So kind of more on the disruption thing, the Starwood CEO was quote, I think this is on the talk that you and Chris Martenson did talking about a third of New York City hotels going under. So, I mean, is that an Amazon play at some point? I mean, those are pretty big footprints and obviously really expensive property. What do you think happens to some of those properties?

Ken McElroy: I don’t know, you know a lot of those hotels have been repurposed over the years. I mean, New York’s a very resilient city. In a year, and she’s just going through what it’s going through at the moment. I remember, you know, it was bad when I remember as a kid, you know, it was dangerous to go there and Juliana and kind of cleaned it up, you know, and obviously when that happens, people like to go. So I think whenever you, again, whenever you take that kind of product out of the market and it closes, you know, then it obviously lowers the amount of product in the market, but the big issue is going to be, who’s going to go there. You know, I don’t really want to go there anytime soon based on the defunding of the police and all the other things. I’m not trying to be political, but just from my own personal safety, you know, I want that. I want to go places that are safe and I don’t know if New York is, or isn’t at the moment, but that would be, it would probably be a city I’m going to skip for a while and same with Chicago and you know, some of the other. So I think people are going to do that. And I also think that businesses are trying to figure out what it is that they’re going to do.  Do they need to be, do they need to have the big floors or high rises in New York City and do they need to be paying the big rents and can they run their businesses remotely? Can they save money? What about their employees? If all that stuff happens that I do think there’ll be less hotels needed. And, it’s kind of a combination of all these levers that are being pulled at the same time, you know, on the safety side, on the tourist side, tourism is a big, big deal in New York. Businesses, obviously a massive deal in New York, but it’s a mess. I was on the phone two days ago with my friend that runs the real estate for Goldman Sachs. And, he’s in the Hamptons and they’ve been there since June and they’re not planning going back anytime soon. And, he’s rolling pretty well. And so there’s going to be a lot of people that I think it’s going to be a filtering out, but those hotels are, people are going to lose money on those hotels. You know, they’re going to lose their equity. Those are going to go back to the banks. And at some point they’ll be repurposed, I would guess, could be, who knows? You know, it depends on who the next person is and what they do with it. 

Andrew: Yeah. So I guess, you’ve talked about 2021 exposure and there’s this massive job displacement, which all ties into this, you’re talking about malls being closed down pretty big percentage. And just like you had said, whatever the number was for restaurants and small businesses getting shut down. You think, it’s hard to say what’s going to, what the country is going to look like in five or 10 years, just as far as certain segments of the job market gone. Like all my friends in the concert business are not working right now for the most part. Sports, like slowly starting to come back. I mean, what happens? You think more entrepreneurs step in at this point and work on creating jobs. There are certainly ones that happen during the subprime crash, where there was like an Airbnb or Uber. So I got to think that there’s so many more problems now than there was seven months ago. I mean, what’s your take on that? Do you think entrepreneurs are going to kind of step up and really work to create more jobs? 

Ken McElroy: I do. I think this is going to be an interesting time because I think it has, is going to largely, I think a lot of people are going to realize how at risk they were with their paycheck. And we’ve been talking about this, you and I talk about this all the time. You need to have multiple streams of income. You know, you don’t have to quit your job, but you need to have multiple streams of income. And so when you are reliant on one thing and you know, you’re not, it’s not yours, you’re not controlling the income and expenses. I think that’s risky and that’s proved out right now. And so there’s going to be a lots of people that are just going to dig deep, I believe, and try to figure out, you know, how is it that I can survive during this period of time? There’s already 3 million people that have moved back with their parents or grandparents since March. And we’re at 32 million people so far. So think about that, 32 million people are now living with their parents or grandparents, the highest ever, and things are disruptive. So yes, I do believe that. I think like, like if that happened to you or happened to me, we would figure out a way to get out of our parents’ house and make money somehow some way, no matter what. And so I do believe that’s going to happen. I think millions of people are going to, hopefully instead of get depressed, they’re going to say, okay, I need to dust off and figure out, well, you know what this new chapter’s going to look like for me. And they’re going to go for it, and some of those are just going to turn into remarkable companies, you know, I believe.

Andrew: Yeah. And you had said, I thought this was pretty interesting. You know, it’s pretty dark times for a lot of people out there, especially if they’re out of work and just like you said, they don’t have savings and it’s just a hard time for a lot of people. You had said, and I think this was with Chris Martins and you said it’s a wonderful time and people should be where they want to be really focused on the opportunities that are either here currently or kind of coming down the, coming down the pike. Can you expand on that a little bit?

Ken McElroy: Yeah. I mean, as you know, I was in the grind, you were in the grind, so we can just talk about us. I was corporate, you were corporate. We were both climb and whatever we climb, we made money. We were doing well, you did it in the entertainment industry. I did it in the real estate industry. When we went out on our own, it was tough. And after a couple of years, it became easier. And then our lifestyle changed, you know, for me, I ended up being where I wanted to be. You know, I ended up having a home in Scottsdale and a home in Coeur d’Alene, Idaho, which is where I am now and raising my kids the way I wanted to raise them, sending them to schools that I wanted to send them to, spending the time that I wanted with them, excuse me, going on vacations wherever I wanted whenever I wanted. And so I think that people will start to realize that they now can do that themselves. They should be near family. They should be near water. If that’s where they want to be, they should be in the woods if that’s where they, they should be on a farm on a hundred acres, if that’s what they want and they can buy that for cheap and they can still be connected. So that’s what I meant by that. And, you know, Chris did that years ago, he did what he wanted to do, and he was plugged into New York and, you know, high finance and decided to, you know, basically be a little more remote and live a life that he wanted to live and grow sustainably and all that kind of stuff. And that’s what I met. I think that this is a time to evaluate the choices that you have. And I think that they were always there the whole time. Now the employers and the business is now such where you can still make money wherever you want to be. And that is, I think really, really important for the psyche and for, you know, just you as a person, because, you know, being a road warrior and business business business, and working your ass off all morning and all night is, it’s not rewarding over the long haul.

Andrew: Right. Right. So switching gears a little bit you’ve talked about a paper being dangerous when we’re talking about currency. What do you think happens to the economy over time with all of this money that that the government has been printing the last six months? 

Ken McElroy: Well, it’s super scary. Whenever you add that much money to the money supply, it’s concerning, obviously because it’s again a supply and demand thing. So whenever you add high amounts of something to something, you know, typically the value goes down a little bit. What’s happened initially is it’s gotten to people’s savings accounts. So if you look at the savings rates, the personal savings rates they’ve really jumped from March, which is awesome. People are now, you know, this is what happens when you get furloughed or, or your employer closes, or it doesn’t make it, you know, the people put money in savings. And so that’s happening right now. When they start to get comfortable again, then that money starts to come out and starts to circulate. Then I think that’s when we start to see inflation. So the money has to circulate and, you know, and, and you know, there’s costs pool and demand, push types of inflation. And so you’re going to start to see that I believe, and you’re going to, you’re going to need to be careful about rapid inflation that the, the federal reserve just changed their standard just recently where their target was 2% of inflation annually. And, they’ve adjusted it to say that it can go higher. They didn’t say how much higher. 

Andrew: That doesn’t include food or energy though. Right? 

Ken McElroy: And that’s, you know, as you know, that’s going up, I mean, I go into the grocery store and I’m like, man, this stuff’s starting to get expensive. You know, like, you know, meat is $15, $16 a pound, you know, $20 a pound now. And so all that kind of stuff is coming more and more expensive. So to me, things are becoming more expensive and all that additional money in my opinion is, is, is only going to make it worse. And the truth is that if the Federal Reserve’s target inflation has been 2%, that, people should just wrap their head around that I think, cause that in the last 20 years, you know, they’ve lost 40% purchasing power of their money,

Andrew: Right. And salaries haven’t nearly kept up with that.

Ken McElroy: Yeah. Yeah. If you have $10,000 in the bank or $100,000 in the bank 20 years ago and still the same, it just buys less. So I think people need to have, they need to understand that they need to wrap their head around that fact, if they stick it into a hard asset, whatever that is, you know, I’m a real estate guy. So I obviously love real estate. I love debt, good debt. Debt is paid off by my tenants. Those are hard assets because those fixed loans, if I borrow today, you know, $10 million from you and I don’t pay 1 cent of it down, it’s still $10 million in 20 years. And, you know, as long as I pan you currently, and I, if I still owe you 10 using the 2% again, you know, I’ve paid you off the cheaper dollar. So I’m hedging inflation by using debt. So I think people, once they just wrap their head around the fact that it’s just paper and it’s currency and they’re printing it and there’s a lot of it coming, they should probably not be too heavy in savings and start to look for things that are inflation adjusted so that they’re not going backwards. That’s what I meant by that.

Andrew: Yeah. That’s pretty unbelievable. So we talked about this a little bit. Retail’s having a really hard time. Some of that’s really not a surprise office space, certainly that’s really struggling right now, malls, restaurants. We were both in residential real estate, which, you know, I wake up every day and I’m thankful for being in residential real estate and affordable housing. How do you see all the moratoriums that are happening? How do you see that affecting mortgages and occupancy when all this kind of starts to shake out?

Ken McElroy: Well, I think the government, if you’re looking at history, you know, really back from the, you know, early twenties or actually be out before that, even the governments are always concerned about housing and food. And so I think we’re in a really good spot rentals were, rentals were severely under supplied before Covid, you know, I think that by 2030 we were supposed to hit, you know, equilibrium, but from 2008 to about 2013, 14, there wasn’t a lot of new housing being built because we were just kind of, you know, Dustin ourself off from the last recession. So we were already under supplied on the rental housing side. So it’s interesting that, you know, on one hand I’m calling you a crash. On the other hand, I do believe that, you know, we’re going to have a rental housing shortage and even more so now, because people are trying to keep their homes, they’re going to move out of their homes. They’re going to downsize, they’re going to do whatever they have to do to survive financially and in 2008, which is, this is not 2008. There’s a whole heck of a lot of people that got displaced on rentals. And that’s actually the reason Andrew that we got the rental, it was because of the crash in 2008 that people spilled out of homes and they put all this pressure on the rental market and Nope, and we weren’t able to keep up. And so individual markets where people were going to migration patterns like Austin, people were going there because of jobs, there wasn’t enough housing. And so the rents are going up $50, $100 every time that they renewed. And that’s why we got this big job and that’s why the real estate prices went up. So that’s what happened in the last time. And this got disrupted a different way, but the truth is we have a, I think it’s close to 30 million people that, are you know, having a tough time paying the rent, that are being protected right now through the CDC eviction order. And then we have the forbearance stuff that’s supposed to end at the end of September, but they can renew it again for another six months, but they have to prove hardships. So in both cases, both on the rental side come January and both on the mortgage side, they have to prove hardship. And a lot of people have hardship, but it’s going to be interesting at some point, they’re going to have to pay the Piper. These, the renters actually believe it or not, I think have less at risk because if you, if you can’t pay your mortgage, you haven’t paid for five, six months.

Let’s say by the end of the year, early next year, you also have the jeopardy of your equity going down as a result of all this flooded inventory. So I believe that we’re going to have a massive inventory. That’s going to hit the market at the end of the year after forbearance and spring and next summer. And I think that’s going to disrupt a lot of markets because of the supply side, the renter stuff kind of works itself out, you know, people’s credit get dinged, landlord’s take it in the shorts. You know, some of the deals go back to the lenders you know, renters roommate up, they figure stuff out, so that happened in 2008. We started seeing it there, you know, our collections went way down. And so, you know, all that happens at the same time. And so I think you’re going to have, I think you’re going to have a lot of movement on the evictions and apartments. I think people, people are going to go to family. They’re going to go to whether they’re going to go to jobs, they’re going to go to safety. They’re going to go to affordability all that’s going to happen, and everyone’s going to have a different agenda and a different want. So all that’s going to happen, I think, in the next 14, 15 months.

Andrew: Yeah. And I think people, especially at least the families that I know, you know, mom and dad at home working from home three kids, I mean, they would give their left arm for another bedroom or another office or more space. Right. So even more of a reason to kind of get out of these more expensive cities and markets.  Part of your business is new construction and ground up developments. I know some costs right now are much higher than they were in the past. Do you think that’s a trend that continues just as far as construction costs, or you think that kind of all settles out on the other side of this?

Ken McElroy: Well, that’s a bit of a loaded question. It’s a great question. But the reason is there’s a lot of things that push on that. So I do think a lot of subcontractors are going to go out of business. Lenders are definitely going to get way more stringent on loaning money, especially on new construction, because there’s no collateral, it’s just vacant land. And, you know, it’s against, you know, personal individual when you go get a construction loan. So you’re going to have, there’s going to be a, the lenders are going to want to lend, but they can’t because there might not be somebody that can buy that place. So there’s just all this disruption around the lending market on new construction. So I do think we’re going to have a little bit of a blip there that supply chains are really a big issue. So in other words, the drywall and the lumber, you know, from Canada or the you know, some of the stonework maybe from Mexico or stuff that’s even locally, you know, that relies on something else. Like I have a friend that’s a man in the manufacturing business, and most of his steel was coming from overseas and, you know, that’s been disrupted. And so some of the supply chains are going to disrupt and they actually, they already are. And, you know, as you could see stuffs, we’re running out of things, there’s lots of, you know, the reorder part is just not happening. Because everybody’s kind of you know, mobilize, I guess. And so all of that’s going to be determined on the construction costs. So, you know, not to, I don’t know yet, but we’ll see for now, we’ve seem to be doing pretty well. Cause all the projects that were under construction are going to continue to be constructed. And so a multifamily project like ourselves, if we’re under construction today, we might have been under construction a year ago. You know, these things can take a couple of years to finish. And so if they’re already funded and we’re already pulling draws and we already have all that stuff happening, those are going to be safe. It’s when all that stuff runs out. And the completion of those office buildings or retail buildings or multifamily buildings, we are already seeing one to two months concessions in some markets like Dallas for apartments, for a new renter. Just so we hadn’t seen that since 2008. So you’re starting to see things pop up as all the stuff that’s kind of in motion right now, even could be a single family home. A single family home could take, you know, four to six months to build. Maybe it could be a year, you know, could be a year and a half, depending on the size and all the other thing and the complexity. You know, all that stuff will be finished. All that stuff will determine if someone’s going to be able to buy that or not buy that. And then whether the lender will lend again, cause people, lenders lend to people who can pay them back. And so that’s all a bit fuzzy as well. So it’ll be interesting.

Andrew: Yeah. So one more question on the education side you know, there’s always people that are getting into real estate education, real estate investing education. What would you tell people right now where they’re looking to, you know, someone says, I want to invest in real estate right now in 2020, what’s your recommendation and assume that their, you know, their interpersonal development and can really learn and go the education route. What would you tell them?

Ken McElroy: Well, you know, real estate exists for people, so not the other way around, you know, so if there’s a lot of people going somewhere and it’s putting some stress on the supply, then you’re going to start to see probably real estate that’s going to be fine over the long haul. The stress on the supply has to do with jobs typically. So I would focus on markets where there’s good job growth and continued employment and continued population growth, because those are the people that, they come in and get a cup of coffee. They buy a breakfast sandwich, they sit down for a lunch, they buy a steak at night, they stop for a beer, they rent an apartment, you know, all that stuff kind of revolves around people and commerce. And if you just focus on jobs, then I think you’ll be okay. And that’s, you know, that’s a big, big question Mark right now on a lot of markets and sub markets. So just be very careful, be very careful not to chase deals that appear to be, you know, really, really well priced. There’s a reason, I’m starting to see a lot of product hit the market and it’s because sophisticated investors are exiting.

Andrew: Right, right. So to kind of wrap things up, you know, I talk a lot about generational wealth and leaving a legacy behind I think that really the two types of legacy to leave one financial and the second being knowledge. When we first met, you had written a book called sleeping giant, which is really cool and kind of like an entrepreneur’s tale. Your two boys were on the cover, young kids and kind of your suits, right? Like a really cool cover. Anything you want to talk about just with what that means, generational wealth or legacy you know, you’re building all this content. So putting aside the actual real estate part of your world. I mean, you’re putting together a lot of very valuable content. I go and see, you know, on Facebook or somewhere and, you know, people love it and they’re asking good questions and you’re answering questions and you’re really giving back. So what does, what does legacy mean to you or generational wealth?

Ken McElroy: Well, there’s, I think a lot of people equate that with money. I do not. So I know, and, you know, hundreds of people that have gotten money from their parents and they go out and they buy cars and they turn into drug addicts and they do all kinds of stupid shit. And so, you know, giving somebody money without the tools to understand how to use it for philanthropy and for making more money and making other people money and educating, I think is the best gift. So that’s what I’ve been focused on. And that’s what I’m trying to do for people is, you know, my journey was very humble beginnings. As you know, my parents didn’t go to college. And of course, and they barely got out of high school and I didn’t grow up with any money, but I learned how to use it, how it works.

Ken McElroy: I still have a lot to learn. I’m trying to teach it to my kids. That’s certainly working, but I also want people to make good decisions get some of that reoccurring cash flow, get some of that passive income that we talk a lot about. And then you can focus on the real things that are important the most, which is in my opinion, your health, your relationships, your family, your friends, and then the real estate, the money should be working for you. And you should be able to do what you want as you know and I think a lot of people think of it the other way around is they work really, really hard. And then they spend the money to go do what they want. I want that stuff to be producing what I want so that I can literally take a look at, now, the only issue I have Andrew is managing my time. Well, how do I want to spend my time? And that’s really freeing because you don’t have to worry about the money. And so if we can teach people how to get to that spot, then they can spend time with their families. They’re not going to spend all hours at work. You know, they’re going to be home with their kids for dinner and those kinds of things. So for me, if I can help teach that financial education on the front end, then perhaps they can bring that into their own families and then teach that to their kids, through things like the cash flow game. And some of the other things, you know, their school does not set you up very well, you know, for education. I think it does an okay job from, you know, math and writing and arithmetic. Doesn’t teach you leadership, doesn’t teach you relationships. You don’t know how to navigate through those. It doesn’t teach you about money. It doesn’t teach you how to invest or things to ask. And so the more you can do that, then I think you, and you can, you know, your kids learn from what you do, not from what you say. And so that’s what I’ve been trying to do with my own kids. And that’s what I’ve been trying to do. That’s why I like this social media platform, because all I got to do is show people what I’m doing, you know? And if I can show people what I’m doing, then they can see it. And it’s not me just standing on some stage, you know, saying, buy this and do this. You know, I’m actually doing it and I’m showing them how to do it.

Andrew: That’s great. Hey, really appreciate you taking the time today to talk. And what’s the best place for people to reach you. What’s the best website to send people to?

Ken McElroy: Yeah. Just send everybody to www.kenmcelroy.com. So kenmcelroy.com. And we’ve got everything there. They can go see my companies. They can go to the YouTube stuff. We’ve got blogs, we’ve got videos. We got forms they can download if they’re, you know, in the rental business, we got all kinds of stuff there that is free that they can take a look at it and jump on board if they’re interested.

Andrew: Great. Thanks again. I appreciate you having you on. 

Ken McElroy: Sure, dude. Good seeing you as always. 

Andrew: Thanks, man.

Ken McElroy: Cheers.


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S P E A K E R | I N V E S T O R | P O D C A S T E R

Andrew is a founder and Managing Member of Four Peaks Capital Partners. He oversees the company’s acquisitions, asset management, and investor relations. He also co-directs the overall investment strategy along with Mike Ayala. He brings to the company over 10 years of experience in general management and new business development

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