Introduction

Welcome to The Gold Collar Investor Podcast with your host, Pancham Gupta. This podcast is dedicated to helping high-paid professionals to break out of Wall Street investments and create multiple income streams. Here is your host, Pancham Gupta.

Hi, this is Joe Fairless. If you wanna diversify out of Wall Street investments, then listen to The Gold Collar Investor Podcast.

Hey, this is Mauricio Rauld, founder and CEO of Premier Law Group and if you are serious about investing in real estate, listen to The Gold Collar Investor podcast with Pancham Gupta.

Robert: Hi, there. I’m Robert Helms, host of The Real Estate Guys Radio Program and if you want to have better results in your life, you gotta put better ideas in your mind. You’re in the right place here at The Gold Collar Investor Podcast.

Pancham Gupta: Welcome to the Gold Collar Investor Podcast.  This is your host Pancham really appreciate you for tuning in today.  Let’s get into today’s show.  Many people have role models in their life.  Role model as per dictionary.com is defined as a person whose behavior, example or success is or can be emulated by others, especially younger people.  I’ve had many people who I have looked up to in my life, but there are a few who I call my role models, meaning that these are the people I would like to be when I grow up.  I have a treat for you today, I have the opportunity to interview one of my role models, Ken McElroy.  Ken has impacted my life in many ways.  He has written many books, and I’ve read most of them.  He’s an investor, syndicator, educator, coach, writer, blogger, you name it.  Ken, welcome to the show. 

Ken McElroy: Thank you, thanks for reaching out.   It’s really an honor to be on your show that I love  the fact that you’ve broken through the you know, the high paid job, and now turn it into the passive income and now that you’re able to teach, it’s the best model.

Pancham Gupta: I have to tell you that you have played a big part in that, so thank you.  It’s an absolute honor to have you on the show.  And like I said, you know, thank you for doing what you do and I’m sure you’re going to impact many, many more lives.  So yeah, today’s episode is going to be powerful.  We are going to talk about what’s happening in the economy, investing, mindset, and maybe habits too. So, before we get started, are you ready to fire up my listeners break out of Wall Street investments?

Ken McElroy: I’m ready! I’ve been doing it for years, I’m ready to do it now.

Pancham Gupta: Great.  So, Ken. Tell our listeners about your background, and more importantly, the person behind that background? 

Ken McElroy: Certainly. So I started on a trajectory like many, you know, not really knowing what I wanted to do, and then going to university and getting an education and, and kind of going into the corporate world, but what I really realized is that I kind of saw my future in these you know, incremental increases of salary or commission or whatever it might have been, and there was a ceiling on it and I knew that if I was ever going to break through and have the career that I wanted, I wasn’t necessarily at the time thinking that I would leave corporate, but I wanted to create some passive income, so that I had, you know, multiple streams.  I think that’s showing up right now, obviously, with , a lot of businesses are in trouble, and a lot of them are doing very, very well, which is awesome. But I think people are learning that you kind of have to have some side hustles you got to have passive income, you got to have multiple streams of income. And the old way of and I started this way, is giving my money to a financial planner, and then taking a look at the statement.  You know, every quarter and maybe calling them maybe not, you know, and hoping that , it would grow. So, I did that.  And I’ll tell you 10 years later that number didn’t really change very much. The worst part is I didn’t understand why.  And I didn’t know what I was invested in, I didn’t know the fees behind it and all that stuff.  And I’m not trying to take a shot at those people. I should have asked.  It’s on me, I should have known, you know, it’s my hard earned money. But I think a lot of people are in that same scenario. And so, I started buying investment, real estate and started with one, you know, small, and then got bigger and bigger and bigger round on money.  And then I had to learn how to raise money.  And then I had to learn, obviously, how to go to Wall Street.  And some of my bigger deals were with Lehman Brothers back in the day and Merrill Lynch and, and Key Bank and Goldman Sachs and you know, we’re still stuck with those groups.  And so, it’s just been an evolution.  And at the end of the day, I find that doesn’t matter.  If you don’t have any money or you have a lot of money, the issue is still the same.  And that’s how do you find properties or real estate that provide good cash flow and have incredible tax benefits.  And so that’s been my journey the whole time.  We now have 250 employees.  We have a development company, a construction company,  a property management company, a collection company, utility company in all its vertical, up inside of our organization.   We have about $250 million under construction right now.  And we own on almost a billion dollars’ worth of multifamily office self-storage.  And so, the journey has been all started from one two bedroom, two bath that I was just cashflow to, like $120 a month.  And you know, and the rest have just been a massive learning process. 

Pancham Gupta: Wow. So, one to two baths, you said, right? Yes. How long ago was that?

Ken McElroy: That was over 25 years ago.  And, you know, I still have a bunch of small properties, but now of course, we just kind of are doing more and more and more of the bigger deals.  And of course, what happens with a track record, even at a small level, if you do what you say you’re gonna do, and you don’t have the money and you put somebody else’s money in.  They go, hey, you know, this guy over here, you know, he did this and that next thing, you know, got more investors and more investors.  And so now, we have close to 2000 accredited high net worth investors that invest in our deals.  And so, my job is to make sure that we’re investing wisely, and that it’s a win-win for everyone in it.  Of course, that’s why my partner Ross, and I invest alongside of everyone so we’re, you know, we put our own cash up in every deal so that we’re alongside of all the limited partners at all times.

Pancham Gupta: Great. Yeah, no, thank you for sharing your background.  I just want the listener who’s listening right now or watching on YouTube.  It took 25 years for Ken to be where he is today.  Starting from that to two bed, two bath condo, so it can be done.  You know, so you just have to stay at it, like Ken said, and people will start watching you and will connect with you.  So, Ken I want to kind like of segue into what you’re doing today.  And given what we have going on.  In the last eight months, the stock market saw the quickest and the biggest comeback in the middle of pandemic.  You’ve been in this industry for a long time and have seen many, many ups and downs and have done really well.  Lot of experts are warning that asset prices, including apartment complexes are highly overvalued, given how the economy is doing, the unemployment that we have, and the struggle for the tenants and small businesses to pay rent, right?  But on the other side, we have this, an amazing gigantic force, which we call Federal Reserve. And it’s infinite money printing, right?  This is uncharted territory and is inflating asset prices all across the board.  The bulls are making a case that we can have 25%, delinquent apartment complex and still rising valuations for these complexes.  What are your thoughts on that?  And you know, this is like uncharted territory, like I don’t even know how much money we have printed in last 12 months compared to the last 100 years?

Ken McElroy: Yeah, it’s crazy times, that’s for sure.  So, a couple of things, there’s obviously massive disruption at the renter level.  And so, you know, at the end of the day, all real estate exists for the people, period.  So, no matter what Wall Street’s doing, or what we’re trying to do, or what we’re trying to convince them at the end of the day, if people aren’t walking into a restaurant or walking into a gym, or living in an apartment building, and they’re moving in with their parents or doubling up and roommates, that all has massive impacts on real estate itself.  And so, I think you got to start there, what’s happening at that level, and at the grassroots level, because that is the truth.  That’s what’s happening.  Everything else resonates up and so there’s a lot of things going on obviously.  We have a pretty big rent delinquent issue, a pretty big of fiction issue. Hitting multifamily next year, there’s not a lot of value add, and there’s not a lot of rent growth. Obviously, during this time, I’ve seen this before . It’s happened in 2008. It happened actually in early in 2000 in the late 90s and 2001 so it’s not unusual for rents to go up and down and spur concessions to creep in.  And I think the big issue is these migration patterns of these people are moving all over the place for a couple of reasons.  One, they don’t like let’s say the politics or the government.  That’s one thing we’re starting to see that’s showing up and they’re moving all over the place and we’re starting to see big companies.  Obviously, a lot of these tech companies have come out publicly, Twitter, Facebook, etc.  As you know, they may not even be returning back to their offices as an example.  I think Twitter came out and said that they weren’t.  And so all that’s happening, and so it’s a 40 people to be able to work from home, which is good.  If the company likes it, then why not?  You know, it’s a lot of people are moving to affordability, good weather,  safety, low tax, you know, low barriers of entry.  So, all that’s happening right now and that’s creating some very cool things around the country.  I see, you know, in areas like Phoenix, like, Florida, like Las Vegas, you’re seeing bubbles.  You know, I mean, literally these people, you know, let’s just pick on California. A lot of people moving out of California and creating bubbles in areas.  And you know, and that’s happening up in the northeast, and we’re in New York and in Chicago, and, and people are moving out of San Francisco.  And so, there’s, you know, there’s all this stuff happening, and it’s creating all these migration flows in and out.  So that’s for sure, we don’t know where all that’s gonna land, but there’s definitely people that are not able to pay their rent, and there’s definitely people that aren’t able to pay their mortgages.  And, you know, there’s millions and millions and millions of people in forbearance.  And so all that I think is gonna, the rubbers gonna hit the road next year.  I think, hopefully, this, this vaccine reduces some of the fear going on and all that.  You know, I don’t want to get into politics or anything like that, but at the end of the day, what we need is stability. One thing is for sure, this happening, oh, wait, we will definitely see people move to rentals.  As a result of this, people selling out of their homes paying off some of their debts, and kind of downsizing.  And some people will buy, some people will rent.  We’re already seeing it.   We had, I can’t remember the exact number, but there’s a massive amount of people that have moved in with their parents.  And there’s a massive amount of people that have moved in as with roommates,  but this happened before.  In 2008, I saw this exact thing. And it’s, it’s going to put pressure on the rentals, because the one thing lenders are doing is lending a lot right now because they’re afraid. And they’re, you know, they’re dealing with all these defaults.  So, we’re going to have a supply and a demand issue, and it’s going to be much more demand than there is supply.  We just haven’t seen it yet. And so, it’s gonna be very, very, very profitable opportunity in the next two or three years, in my opinion, in a lot of arenas.

Pancham Gupta: Right.  So, let me ask like two questions there, right? 2008. first, we had this crash, right? That’s called a stock market crash, right?  And then it took a long time to recover from that.   Then you saw the lagging effect of real estate that followed and that’s when this happened.  But here, it’s different from that point of view, right? Because of all that printing, the market is like, you know, nothing has happened.  In fact, we are booming, right?  So, like every tech company, people are making like, you know, they’re making up 10%, 20% rich every day.  People who are very active right in the stock market and doing day trading and stuff.  And now,  you talk to your Uber driver, he’s day trading too. So, my question is, this is one big difference when it comes to 2008 and 2020.  I understand the ground level, you know, similar things are going to happen next year, and we are recording this end of December, so this is gonna go out early 2021. So yeah, what are your thoughts on that one?

Ken McElroy: Yeah, well, it’s very different.  You’re right.  So, here’s what I think’s happening; I think that government is afraid of deflation, that’s what I think.  So, if you think about it, it makes sense.  How can businesses be going out of business?  How can people be so unemployed, either throwing money at, you know, telling her where to stay home, and then they’re throwing money at everyone which they need businesses needed?  People need their, I believe, trying to stop deflation.  And I had it explained to me and here’s what the guy said, he said, “you know, the bubble, this balloon has basically inflated over a long period, there’s a hole in it” . And so, they’re throwing money at it to keep it inflated, so that it doesn’t deflate.   Deflation would be a big problem, but  because they’re doing that, in Japan’s gone through this, as you know, and so, the question is, why?  And so, I here’s what I believe.  I believe that if, and this is why the Federal Reserve, you know, you know, how they kind of lifted their 2% we said, Oh, 2% inflation is kind of our target.  And then, and recently, they said,  “Oh, well, that might be a little above that” specific.  So, I think that that was a door that’s open for them to be able to inflate real estate and other things obviously, just you have to pay it inflation. And here’s why we have a massive debt massive, you know, debt in this country.  And if inflation goes up to save for, and this happened in the, in the 40s, in the 50s.  If inflation just goes up a little bit, they can get that debt down, the debt can go down by almost half.  So, because they can deep, you know, they’ll deflate the debt, but with using inflation, so by devaluing the currency over a long period of time, so that bodes really well, for real estate, obviously, anything that hedges inflation, like that, and that’s also bodes really well for getting debt.  So obviously, if like Ross and I were, you know, we’re building about $250 million worth of apartments, we’re going to have about 150 million in debt, well, in 10 years, that debt will be, you’ll be able to pay it off with cheaper dollars, so you’re hedging by using debt.  And then we’re going to get the natural, hopefully, the inflation, you know, from the components and everything and we’ve seen this over the years.  So that’s what I think that makes the most sense to me is that the government is going to just keep throwing money so that they can reduce their overall debt, which is a big drag on the economy right now.

Pancham Gupta: Got it. So, my second question on this, you mentioned that, you know, in 2008, this happened, people moved into rentals, and there is a supply demand issue that’s going to happen, it’s going to bode well, for apartment complexes or in general rentals, single family rentals, or even, you know, condos.  So, my question for you there is, what do you think like given what’s happening right now, the prices are already, like, all time high in terms of you know, relatively speaking, given it’s every market is different.  Yeah, cap rates are relative to the market, but generally speaking, if you pick any market, the cap rates are low as they have been, and yes, rates have been lowest had as they have been.  So, do you think that we are going to see a dip and then it’s going to go up?  Or it’s going to just keep going up? Because the demand for rentals is going to go higher? When these foreclosures potential, you know, distress that we will see next year? What are your thoughts there?

Ken McElroy: Well, again, going back to the very basic fundamentals, there’s definitely going to be defaults.  So, in you know, real estate is a big broad category.  Obviously, you’ve got hotels, you’ve got retail, you’ve got malls, you got multifamily, you got office, you got self-storage, you’ve got land, got residential, and then even in residential, you got all these different categories.  You got custom,  you got condos, you got entry level. 

Pancham Gupta: Yeah, exactly. 

Ken McElroy: Well, it’s a big thing. Plus, you have different things going on in every spot.  So, I grew up in Seattle.  You know, Seattle has a massive out migration right now.  So, you know, I’ll just pick on Seattle because that’s where I’m from.  And so, what you have right now is you have big companies, even like Amazon, considering leaving.  We all heard about Oracle moving to Austin, you heard about Elon Musk moving to Austin.  So, people are making decisions right now that are going to massively impact areas.  And back to the people thing I was saying before, if you own obviously an apartment complex across from Oracle, you’re probably a little concerned, right?  And the same thing is going on all over this place.  So, you kind of have to watch that because you could, as I say, you can catch a falling knife too, right?  You could buy something. And you know, right now, Oracle, everybody knows well, that we probably wouldn’t do that. But what’s the next company? What’s the next firm actually trying to take a look at moving.  And so those are the migration patterns I think you need to look at.  There’s  definitely massive, massive real estate not doing well.  I got friends that own a retail, I got friends that own malls, I got friends that own hotels, and some are doing well, and some are not doing well at all.  And so, you know, that’s part of the industry in real estate, where real Wall Street investment bankers and real money is behind that, behind a lot of those.  And so that’s all going to make it up through, you know, in people’s stock portfolios and their holdings and stuff like that, for sure because somebody is taking that back, and there’s going to be vacant buildings, for sure.  Now, on the other side of that, you know, let’s take a look at what’s positive.  What’s positive self-storage is going to be positive. Multifamily in most areas, I think is generally going to be positive, but you wouldn’t want to buy multifamily in New York City. Yeah. Okay. You want to wait. Now, I’m a massive fan of New York City.  I love New York City.  I would love to buy apartments there and this might be the window for me.  Isn’t going to come back long term, of course. But I don’t know when it could be, three years, it could be 10 years. But the question is, you got to find the fundamentals.  Always buy on the fundamentals. So, if New York is, you know, 50% vacant, then you have to buy based on the fundamentals of a 50% vacant or you just don’t buy.  You know, and so when, when they’re throwing around these values and stuff, and it’s all important, I get that you have to take a look at that, but I don’t do that I don’t really pay attention to my equity, or how much is something worth today.   It’s important to know only if you’re selling or buying, you know, but if you own it for the long term, and you’re buying for cash flow, it doesn’t really matter.  So, if I’m buying something for 30 million today, and it cash flows, you know, 10%, cash on cash, I buy it, you know, maybe it goes to 28, 26.  And maybe the cash on cash goes down a little bit, but if rentals are strong, who cares. And you know, eventually, and I’ve been through these cycles.   I bought an Austin in 2005. And I held everything through the downturn and up through the upturn and we did just fine.  So, the value of the property went down, but people were moving out of homes, and they filled up our properties.  So, our occupancies were high, our cash flow was high. And it we probably, you know, if we would have sold it, it probably would have sold for less, but we held it, you know, and then we did very well later.  So, so real estate is not like a stock where you’re trying to time it you’re not trying to come in and come out.  It’s a long term strategy, or cash flow and for tax I mean cause you know, I like to pay as little tax as possible by using depreciation, and cash out refinances and things like that they’re all tax free.  That’s where our head is at all times. So, we just go back to the basic fundamentals, where are the people? Where are they going to be? And let’s make sure we have real estate in those areas, you know, over the long haul, and that’s where we want to be as, as Wayne Gretzky says, you know what, when he was, why are you such a great hockey player, he said, “I always tried to skate to where the puck was going to be”. And that’s what we’re trying to do now is, and that’s why I think there’s a lot of money really concerned about the stock market. It obviously is not based on fundamentals; it’s really based on cash coming in kind of like Bitcoin.  And we’re real estate is super dumb.  I mean, it’s, you know, it either it’s either full people that can pay or not.  And if it’s not, then it goes back to the bank, and you buy it for pennies on the dollar, and then you breathe some new life into it.  It’s a much easier, safer strategy.  I think it’s really a simple strategy for a long term wealth building.

Pancham Gupta  

Great, thank you for that answer.  And you know, I live about 25 miles from New York City.  I was there last weekend.  I absolutely love New York City.  That’s where I work for 14 years too.   You definitely have an opportunity there to get stuff.  Now I know so many my personal friends have left the city.  But I’ll tell you like my brother-in-law lives there as well.  And I tell you, though, there is one big fundamental shift in New York City, which probably wasn’t there before and that is political risk.  We won’t go into that.  But like more like rent control laws and stuff like that,  it’s just like, I know, my I have my partner who is a builder in New York City, they build in New York City apartments.  And it’s just right now at least it’s very, very difficult to get anything done.

Ken McElroy: It takes a while to unwind all that. 

Pancham Gupta: Yeah. 

Ken McElroy: You know, it needs to it happened once before.  Oh, you know, New York was a rough place in the 80s, I think it was.

Pancham Gupta: 80s yeah

Ken McElroy: Yeah.  And I actually went to New York, I met with Giuliani,  of all people and he told me all the stories where he was going around and trying to, you know, solve issues all over the place as he was trying to get New York kind of back and you know, get it a little bit safer.  And then, of course, tourism came, not that he was the sole reason, but it’s going to take that it needs to crash, it needs to bump along the bottom.  People need to say enough, and then you know, change will happen.  And that could take, it could take a long time.

Pancham Gupta: Yeah. Great. Well, thank you, Ken, for explaining all that.  I want to switch gears.  I want to talk about your amazing YouTube channel that you’ve put together, you know, listener, if you’re listening to this, or if you’re watching on YouTube, and are you’re interested in learning about investing or economy in general, I would highly encourage you to subscribe to Ken’s channel you know.  Ken, tell us about your channel why you started it and I know you put together a bunch of videos there like tell the listener about that. 

Ken McElroy: Sure. Yeah, I was you know, I met, we haven’t really talked about Kiyosaki along the way, but Rich Dad Poor Dad was a book that I read, and Robert happened to be in Phoenix.  I’m in Phoenix.  A friend introduced us; we became friends.   He started investing in some of our deals.  And so, he’s actually Roberts, actually, I’ll give him credit for the person who taught me that I’m a teacher  and then I need to teach, I need to give back because after he is he was already financially free when we met, he was investing yet he had made a lot of money, trying to find somebody that he trusted. Luckily, that that was me, he brought me on as an advisor and we’ve been really, really, really close for many, many, many years.  But really, I didn’t want to be a speaker, you know, guy that wrote a bunch of books and travel around, and I didn’t want to be that guy, I wanted to invest in real estate. And so that’s what I continued to do. And obviously, we’ve been very, very, very successful at it.  But then when the world came to a halt, in February, March, I was at home.   I was like, man, like, I have the time job, not, not in my chaotic schedule of being on a plane and flying around doing all this stuff. And you know, managing like a lot of people, I have the time.  And so that’s when I dove into the YouTube piece.  And I said, I’m gonna embrace the learning piece, and try to teach people while I’m at home.  And so, you know, we’ve made that happen and we started the YouTube channel.  The YouTube channel, we had started before that, but candidly, I just wasn’t giving it the attention at all.  I didn’t have the time, I was out doing deals and running my companies and doing all those kinds of things. but March really gave us the opportunity. And then you know, what it gave back. So, this is the honest truth.  I started doing videos based on just education and then we started getting money.  And I was like, what, what’s happening, like, we’re getting paid.  I did not know.  And then all of a sudden, the money started coming in, and more of it started coming in.  I was like, oh, this is awesome.  So, then what I started to do was I instead of just having the money, I said, well, this money should be spent to get better folks better, education better.  And so that’s the money that we use to put together the team.  That was the whole philosophy, the whole philosophy is to reinvest it back into the education, and then it just continues to give.  And so, it’s been incredible.  So, we’ve now got a copywriter, a social media, who’s our brand director, we got, we got Jerry and Jake, that do our videos and our editing.  And so, we have this team, but that’s what you need in order to produce good product.  And it’s super exciting.  And so now we’re, you know, kind of taking it to the next level.  But at the end of the day, I’m still doing deals, the majority of my time is spent managing our management company doing our operations.  I was just in San Antonio, last week, going to properties meet with the managers, meet with the district manager.  We had a two day meeting last week on our company, you know, on our goals for next year on the buying side, we just put a deal out last week called silver bell for our high net worth investors for $20 million raise on one of our new ground up construction.  And so that’s really what I do all day. And so, it’s great to be able to bring all that stuff to the channel and say, this is what I’ve learned this is what he knows what’s going on.  So, it’s real and it’s not or and you know, it’s just been a blessing.

Pancham Gupta: Great. No, thank you for doing that. And as Zig Ziglar says, right, if you do enough of what other people need, you know, you will just get back and that’s what you saw happen there.  Right,  So, you know, now I want to actually talk about this book right here, guys. If you’re listening, yeah, if you’re listening, the name of the book is,  Ken, recent book his recent book called Return to Orchard Canyon, a business novel?  I read it; I was actually fortunate enough to be in a book study with Ken about this book.  And it’s a great book.  I actually really resonated with the book and the story of David in this book because it’s kind of my journey little bit.  Yeah, I was not, I’m not 50 when I found my passion.  I’m fortunate enough to do that in my 30s but definitely resonated with it.  Can you tell our listeners about this book, Ken. 

Ken McElroy: Yeah. Wonderful. Yeah.  So, I tell you what, like, so it’s funny, Robert Kiyosaki and I, have this competition. and like we like, we’re always on the phone.  We’re always texting we’re always laughing.  And I’m like, my goal is to put out a book as good as Rich Dad Poor Dad.  It’s so, I loved Rich Dad, Poor Dad so much because it wasn’t boring.  And you know, a lot of times real estate books that are kind of more tactical, as how to book.  And so, the goal was always to beat Robert.  But what I wanted to do was all stuff I had learned from him, I wanted to put in the book.  I wanted to say listen, these are the things I think are important.  These are the things on a lot of people’s minds. That’s the power of Rich Dad, Poor Dad was so good. And so, I was trying to put it into a story. And so, you know, the things like inflation and multiple streams of income and, and currency and all the things that you could say, like the devaluation of currency, I could, you can say that, but to put it into a story, like we did, the great, I got the weave the Great Depression in there and talk about all the kinds of things and talk about the generational wealth.  So, I kind of started with all the things that I wanted.  And then I brought it back to a piece of real estate that that I already owned and just and made it all connect with, with the resort that I currently own today, which is in Sedona, Arizona, and so that it was really fun project to work on.  It took me a couple years  because you kind of have to, you know, in between deals and stuff, you’re kind of chipping away at it but it’s been really fun. So, thank you. 

Pancham Gupta: Oh, thank you.  Thanks to you for writing it. You know, my nine year old son actually read the book very recently.  I was you know; I knew that we were talking today, and I was, you know, checking my bookshelf.  I couldn’t find the book anywhere  and I’m like, I was talking to my son, I’m like, where’s the book? He’s like, “Oh,  I was reading it” . So, I’m actually going to question and when the book after it, you know, yeah, I probably have some feedback for you.

Ken McElroy: Good. Let me know, I’d love to know.

Pancham Gupta: Yeah.  So no, thank you for writing the book.  And, you know, I have two more questions before we jump on to the next section of the show.  And I’ve been asking these questions to everyone. lately.  My first question is in the middle of this COVID crisis, right, like, I know, you mentioned about your deal that you’re doing, you know, raising $20 million, it’s a ground of construction.  Are you doing any existing?  Are you buying existing apartment complexes?  And in this, like, have you bought any this year?  And if so, what do you think?  If not, what do you think?  What kind of asset class within multifamily Class A, Class B, Class C is where the opportunity lies?

Ken McElroy: Yeah, good question.  So, we are trying.   We have our acquisition guy.  Literally, I was meeting with him this morning, you know, he was in Kansas City last week, he was in Dallas a week before and, and we’re constantly looking at deals we’re making offers every single week, but it’s very competitive, there’s a lot of money pouring into our space.  And the last two deals, we were second, in both, you know, but that’s part of the process.  It’s okay.  You know, the problem is, you don’t want to stretch, you know, just to do a deal.  I have no issue with not doing deals.  I only have issues with not trying to do deals, and every once in a while, they’ll be one.  And that’s kind of the way we’ve grown over time is you have to kind of stick to the fundamentals on the cash.  So, there’s a point where and you got to know that point, there’s a point where you’re paying too much, and you’re not going to get the return.  And so, the deal, the last two deals that we lost out to were 1031 exchange buyers, and you know, they’re trying to save tax and so a lot of times, 1031 is an awesome way to buy property, but sometimes the people overpay to avoid tax.  And so, you know, we lost both deals, one in Dallas, one in Phoenix to a 1031 buyer, but that’s okay, we just we know our limit, we push to what we push, and then you walk away, and you look at the next ones in the queue.

Pancham Gupta: Right. So, you know, in terms of the class, like, you know, Class A, Class B, Class C, you know, radio thing right now, like as we speak, where the opportunity lies,

Ken McElroy: Well, class C’s are really getting hurt right now because of the, you know, pandemic. 

Pancham Gupta: Yeah

Ken McElroy: And I think a lot of the lower income, you know, service workers etc., have been impacted more than others.  But that doesn’t necessarily mean class C is bad because you might have an underperforming property in a good area.  And so that might be something that you might want to consider on our reposition, for example, and the deal that we were looking at in Dallas,  there was one owner for 16 years and he hadn’t done any interior work. And so, it was what I call a forced equity.  It was probably a B-, and you could bring it up to maybe a B+, but it wasn’t necessarily an A, but it was real bread and butter right in the middle of everything, had a nice walkability score.  Some of the class A’s, I think potentially could be a problem, depending on how high end they are  and depending on how many there are and depending on where they’re located.  So, I’ve always been kind of a Class B guy during recessions because I felt like people move out of A’s and the B’s and you know, and that’s kind of a stronger area.   And there’s also a case for not necessarily doing value add at the moment, and just looking at more of an affordability play.  So that has a lot to do with it as well, you know, there, there’s areas that have gotten really expensive and so you have to be conscious of that, on whether or not you know, those rents are going to take a dip, you know, whether you’re going to start concessions and stuff like that.  So, there’s a lot of factors.  And so, we try not to look at like, okay, we’re not going to look at any C’s, for example, even though C’s are tough, because C’s could have asbestos, lead, paint, flat roofs, you know, central boiler central this and for that, you know, you pay last, but, you know, you might be getting at a top real estate that, you know, is, is high on the maintenance side, for example.  So, you got to kind of look at everything, in some cases, we look at C’s as a tear down, and you know, that could potentially be a play as well, you know, just to get the land, and then to do you know, something a little higher end, if there’s demand there, so we’re kind of looking at all the different things all the time, but I would say right down the middle play right now would be B class.

Pancham Gupta: Right. Well, and what year was the building that the owner that you lost in Dallas?

Ken McElroy: Uhm 88. 1988

Pancham Gupta: 88. Great. Yeah, we’re sticking to B’s too like for our business, mainly focus on Carolinas and Florida.  All right, great.  My last question before the next section is this, what is your morning routine?  Do you have one?  And do you think that attributes to your success?

Ken McElroy: Oh, for sure, yeah.  Well, first of all, I think you got a, I have a little thing for gratitude.  So, you know, I do that every morning.  I get up, I get my cup of coffee, I, you know, I write down a couple people that I’m grateful for I sent him a text, you know, so that’s a big piece for me.  And then I go straight to the gym.  Usually, I think health is a big piece.  You know, certainly I remember going to a speaker, I was in a group called YPO, and Entrepreneurs Organization, also EO.  And we had the guy who founded Canyon Ranch Spa, which is in Tucson, Arizona, and then they branched it out all over the world.  And I remember him saying this, he said, “I get all these really expensive, you know, weeks, two weeks, one month, these people pay me hundreds of 1000s of dollars to come. And they want me to fix them in a week or a month. And you know, they’re 50, 60, they’ve made a lot of money.  And they come here, and they want me to fix them”.   And so, I always read that resonated with me, he said, ” if they would just take care of themselves, while they were working so hard, take care of their family, take care of them, tell them health, they usually have done pretty well financially”.  So that is a big, big piece.   I usually try to stay off of all my internet and all that stuff till about 11 o’clock.  You know, because I think what happens a lot of times you get up and you look at your phone, and then you’re in you know, or you’re looking at a social media, and then you’re in.  And so, you know, I try to create some space for myself. And so, every morning,  I’ve till about 11 is mine.  And then after that, I’m basically everyone else’s.  I spend my time at the office or doing whatever I do but generally, I would say mornings are always mine.  I always take Wednesdays, and Fridays off.  And that’s my, those are my personal days.  And every once in a while if it’s moving the needle on the company forward, I’ll take meetings on those days, but always from home.  And now of course, with zoom that’s a little bit easier.  And then in the summer, when my kids were growing up, I always took those days off.  So, if they had a spring break, I took it off, fall break, took it off, summer break, took it off, and so I was always with them that entire time always present and the course now when they got to be teenagers, they didn’t get up till like 10 or 11.  So perfect.  So, I’m like you get all that stuff done.  Go to the gym, still get the work done, get on the emails, you know.   In the summer, for example, but then when they get up and we go out I have a home in Coeur d’Alene, Idaho.   We’d be out on the boat.  Nothing, I’m not working.  I’m with them present.  So those are some of the things I do every day.  I also meditate.  I’ve kind of fallen off that in the last few months but I need that’s my one of my goals for next year is to get back to that routine. 

Pancham Gupta: Great. Thank you for sharing that. 

Ken McElroy: Sure

Pancham Gupta: We’ll be back after this message.  If you are an accredited investor and have been thinking about putting your money to work for you, then I have good news for you.  I have created an investor club which I call the Gold Collar Investor Club.  I will be putting together Investing opportunities exclusively for the group.  These are the opportunities where I have done the due diligence for you and will be investing my own money alongside you.  If you are interested, please sign up on the goldcollarinvestor.com/club.  I repeat the gold collar investor.com/club.   I will reach out to schedule a 30 minute phone conversation to discuss your investing goals once you sign up.  This can be a good opportunity to diversify and take some chips off the hands of Wall Street to produce some passive income.  And in case you are wondering, what is an accredited investor, accredited investor is someone who has earned more than $200,000 as filing single or more than $300,000 filing jointly for last two years.  Another way to qualify as an accredited investor is if your total net worth is more than $1 million, excluding your personal home. It includes your stocks, 401k’s, IRAs, cars, etc. just not the equity in your personal home.  If this is you, I would highly encourage you to sign up.   So, Ken, this is the next section of the show, which I call taking the leap round ask these four questions to every guest on my show.  My first question for you is when was the first time you invested outside of Wall Street? Was that condo?

Ken McElroy: So, I started like a lot of people.  I threw my money at a financial planner in the beginning.  And then I was like, what the heck, like, this is not the same amount as 10 years later, then really what I started to do was, I threw money at different things.  So, I, I invested in a tech company, I invested in a I was in the stock market.  And I was in a goldmine.  And I was also buying real estate.  So, I was buying the single families and stuff like that I was kind of bumbling along, I was growing my company at the same time.  But then I got hammered in the stock market.  I got hammered in my goldmine. And my stock portfolio was basically relatively flat.  We didn’t have the run that you know, everybody’s experiencing right now.  But the one thing that always spoke back to me and always, you know, had that reoccurring revenue was real estate.  And so, then I said, okay, I clearly don’t know enough about all these other things I need to I need to try to be stay in my lane and be really good at what I can control, which is how to acquire real estate, how to get it to cash flow, and then the property management company that we have right now, which is where about 200 of our employees are that manages all of our, you know, all of our money basically.  So, Ross and I, we’ve created a company that basically manages our money for us,

Pancham Gupta: Got it. got it.  So, my second question for you Ken is what fears did you have to overcome? Right, when you first invested, let’s say in your very first deal that you bought, which was a two bedroom two bath condo?

Ken McElroy: You know, it’s funny.  I still have fear in every deal I do.  I really do.  I always am thinking what am I not seeing?  What is it that could happen?  And so that is still today something I don’t ever think that I have it all figured out.  And so, when I when I first bought that two bedroom, that’s the way I was feeling.  And you know, when everything that I’ve done up to this point, even my personal residence I was like oh my gosh, but over time, you know, if they’re managed well and they’re bought well then you know that’s done pretty well for me the times where I haven’t really understood anything have been when I’ve just given somebody some money and not asked really, really good questions. And that’s typically not turned out very well for me.

Pancham Gupta: Got it? Now, so thank you for sharing that.  So, I’m not alone.  

Ken McElroy: Yeah.

Pancham Gupta: Every single time. All right, third question for you. Can you share with us one investment that has not gone as expected?

Ken McElroy: Yeah, for sure. So, I’ve had a few. The last one was in 2005.  We bought an apartment building, and it was a 300 unit apartment building.  We paid around 30 million back in 2005.  And we were going to sell them as condos at a basically 150 so basically had about a $45 million exit $30 million purchase and then a lot of stuff in between.  And so, by the way,  I had done this I had done these are condo conversions.  I’ve done this before, and what happened was in you know Just not too long after that, everything kind of stopped.  And so, one day, we were about 50% through the project, 50% sold, where everything just stopped. And there was nobody else buying condos.  And so, we still owed at the time, are, you know, all the debt and all the stuff and all the equity and everything that we had got to that point.  But when you sell 50% of a project, you’re not paying those people off, you’re paying some of them off.  And so that’s when you learn the most is, yep, you know, the unwind.  And so, we had little over 100 units that we had to basically unwind and try to get everyone paid and, and lots of communication with the lenders and lots of communication with the investors and, and basically converting it back to an apartment building.  So, it was half condo and half apartments and, and it was a I could do a whole book on that. 

Pancham Gupta: Yeah. Did it come out positive?

Ken McElroy  

No,  I lost.  Ross and I , he lost a half a million each. So, we lost a million. I lost some investor money during that, and which I’m not proud of, but we got everyone on the phone.  There was a there was only 10 people and just got to rip the band aid off. Tell them the truth.  Say this is what’s happening and be super transparent and communicate.  That was in 2005.

Pancham Gupta: Wow. Where was that?  Scottsdale? Yeah, you know, as you know, I call these real world seminars.  Right, I’m sure, real world cushion, you do them, and you learn them? I’m sure you’re stronger because of that.

Ken McElroy: Scottsdale A lot stronger? Yeah, there’s a lot of things you do.  There’s a lot of things, a lot of changes that we made in our company during that period of time.  You learn a lot when you’re cash balling and trying to work with lenders and dealing with property management issues. You learn a lot.  And yeah, that’s what Yeah, because you have everything goes down to the legal agreement.  

Pancham Gupta: Yeah. 

Ken McElroy: All those things that you guys are signing right now.  Hopefully, you never have to pull them up.

Pancham Gupta: Yeah, that’s right.  So, my final question for you Ken is, what is one piece of advice would you give to people who are thinking of investing in main street that is outside of Wall Street?  And they’ve never done it before?

Ken McElroy: Yeah, well, I think that first of all, I just think you shouldn’t have all your eggs in one basket.  So even I, I had, but I still do have money in the market.  But I like to have multiple things happening at once.  And so, I just believe that you should, first of all, you should take hold of your financial future because a lot of people are making a lot of money, especially in this last run, especially in tech.  You know, everybody, I have a ton of friends in tech and they’re killing it, which is awesome.  But they’re sitting on all this cash, the biggest issue people have right now I’ll tell you what, number one, we just had a, I was actually on the phone with Robert Kiyosaki the other day.  And he said,  one of the big issues facing America today is that there’s all these people that have a pretty good network, you know, their, let’s call it million box to 5 million bucks or whatever you want to call. And when they all of a sudden, that’s over, they exit, they retire, they, they do whatever, that money’s sitting there, and it does one of two things.  They either use it to pay bills, or it generates income.  And if it generates income, then hopefully enough to be able to pay for their bills, if not, they’re eating into principle.  That’s the biggest issue people are having right now.  And so that’s part of the reason why people are working longer.  And because they don’t want to eat into that principle, and you can’t blame them.  And so, so when you, I think you need to take a look at less of a capital gains strategy, which is isn’t going to go up next year. And am I going to read a statement that’s going to show higher, or cash flow strategy, which is, you know, more of a passive income.  And how do I if your burn rates 20 grand a month, or 10 grand a month? How do I generate enough income monthly, that’s not my paycheck to cover that so that when you now can make your you’re financially free. And so that’s the way people should be thinking in my opinion. 

Pancham Gupta: Great. Well, thank you for sharing that Ken.  I know you’ve added a ton of value here and tell our listeners how they can connect with you. I know you have a free chapter for them.

Ken McElroy: Yeah.  Well, I think, you know, we decided we’re gonna give everyone a free chapter.  All they got to do is go to kenmcelroy.com\gci, Gold Collar Investor, then they’ll get the first chapter of return to Archer Canyon for free. 

Pancham Gupta: Great, and is there any way they can connect with you, any other way or that’s the best way?

Ken McElroy: Yeah, though. There’s a ton of ways.  All right on there, they can send me emails, there’s ways to contact us.  That’s how we, you know, get people on our shows that we do. What I really love about the kenmcelroy.com platform, is we take people’s questions, and then we do a live every week.  So, people are sending questions in and I’m actually problem solving with them, you know, on their own deals or whatever they’re working on or whatever question they have.  And so, there’s a bunch of resources that kenmcelroy.com that people can have for free.  And then if they want some of the upgraded ones, they just go in the premium is, it’s like 200 bucks a year. 

Pancham Gupta: Great. Thank you, Ken, for your time here.

Ken McElroy: My pleasure. Always great talking to you, and congrats on all your successes.

Pancham Gupta: Thank you, and you’ve been part of it.

Ken McElroy: Appreciate it.

Pancham Gupta: Thank you for listening. I hope you learn something from Ken.  Ken has been in this industry for many, many years, decades, and he’s done a lot of work around investing, teaching people too, so definitely encourage you to check it out.  If you’re interested in active investments and learning about real estate investing.  Thank you again.  I appreciate you. If you have questions, email me at p@thegoldcollarinvestor.com. That’s p as in Paul atthegoldcollarinvestor.com.  This is Pancham signing off.  Until next time, take care.

Thank you for listening to The Gold Collar Investor Podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at www.thegoldcollarinvestor.com and follow us on Facebook at The Gold Collar Investor. The information on this podcast are opinions. As always, please consult your own financial team before investing.