Ken McElroy: The Multifamily Crash No One Saw Coming | 10X Money Talks

Hey guys, today I'm going to be interviewing Ken Mroy. He's got $3 billion of real estate holdings. We're going to be talking about the five best markets, five worst markets, under replacement costs, the new formula for buying, the real estate crash that is presently taking place in multifamily, how to get in the deal, how to get started in deals, how to raise money, how to raise capital. We're going to be talking about capital calls. We're going to be talking about why institutions are the place to buy real estate. Dude, this is going to be one of the great real estate corrections in our lifetime. This interview is going to be phenomenal. I'm looking forward to it. Ken's been buying real estate for as long as I have and he's done a great job in the B and C. Now he's moved to A properties. We're going to be talking about Austin, Dallas, Houston, Florida, [music] uh the Midwest investing, Denver, Salt Lake City, Boise, Idaho. You you're going to love this interview. Make sure you tune in today for this. Make sure you share it with your other real estate investors. Ken's done it all. He's raised money. He's raised institutional money. And he has a great insight as to what's happening in this monster correction that is taking place in multifamily. Enjoy the interview.

>> Ken, how you doing, buddy?

>> What's happening, brother?

>> No, I'm good, man. How are you doing?

>> Ah, awesome.

>> Yeah. Weird world we're in right now.

>> I know. I know. But it's good. Lots of opportunities.

>> Yeah. So, that's great, man. So, so, uh, I thought about you the other day. I think I saw something on Instagram or something. I said, I got to call Ken. Uh, you know, after seeing you, uh, we were in California last when when I first met you, and I really admired what you've done and built over the years. You know, don't don't really understand exactly what it is you do just kind of from a distance.

>> Sure.

>> I thought it'd be great, dude, to have our my audience understand what you do. and and I just wanted to take a few moments this morning to to, you know, understand it and learn. I know you've been in the game a long time, so thank you for taking time today to do this.

>> Oh, yeah. Thanks for reaching out. It's great. Uh, it's good to meet you. I guess we were both at the Capital Conference, right? Trying to figure out who's going to invest. Well, I think for, you know, for me, Grant, it's pretty simple. I I ended up um in college for a wrestling scholarship. So, I'm still into it. I'm on the ASU board. I actually have a meeting today. That's why I have the shirt on still. Uh but you know uh so I raised a bunch of money for the kids uh you know and helped them try to uh win Olympic medals in in 2028 in LA and but but really that got that got me to college and then while I was there I I I was managing apartments you know to try to pay rent essentially and and so I fell into the game fell into the real estate game through property management and and um you know my dad

>> you look like a property manager.

>> I I was man I tell you I I wear it proudly and my dad was a contractor, my mom was a hairdresser and you know they worked hard and I worked hard. So I got there I and I I I basically cleaned up the property, right? Put good tenants in, cleaned it up. I did all the work.

>> And you were how old when you were doing this, Ken?

>> I was 22 23 years old.

>> Got it.

>> Yeah. And and you know, so one day the the the owner came in and he's like, "Thanks for thanks for uh bringing the oppy up. Thanks for cutting the expenses. Thanks for fixing all the units." I did it all myself because I I could do all I could do plumbing, electrical, drywall, all that, you know, a paint of course, cleaning. I just figured I just need to clean this up and put good people in. And uh I saw the cash flow go like this, right? And here I was fresh. And by the way, I was a business major, too. And so, but the dots had not connected just from, you know, school. Uh and once I got out into the world, then I realized, holy holy moly, this is a whole different world. And so, he came in and and and we were banking so much more money.

>> And so this is what mid mid 90s. I'm guessing you're late late 90s or mid90s or what?

>> It was actually late 80s.

>> Oh, 80s. Okay.

>> Yeah. Late 80s. And so I was sitting there across the desk from him and I'm like, man, I'm on the wrong side of this desk. And that was it for me. I swear I was like I I you know, and so I my next stent was with a with a very well-known property management company up there in Washington State, uh, with a a really great investor by the name of John Goodman. And John John hired me right out of college. And I never stopped, man. I just And then one day I was like, man, I gotta stop managing these. I I need to start buying them. So I started buying them in the 90s. Yeah. I started and and I haven't I haven't stopped.

>> So So Ken, let me ask you this. You just brought up a topic. Okay. I was on I know you know Kiasaki. Uh and I was he invited me to be on his show. I you probably don't even know about this. It was a couple years ago. And he said, you know, because I was talking to him about buy big properties, go big properties, right? And he's like, "Uh, you're misinforming my audience. You know, you're trying to you're trying to uh uh push people your my audience into your fund." I'm like, "Actually, I'm not trying to do any. I'm just telling you what my view is." And he's like, "You need to tell the people that the hardest part of of real estate is managing it." I said, "Bro, it's not true. That's not the hardest part." And and and he didn't let me finish. He got a little, you know, he went kind of parabolic on me, but I said, "Man, if you let me finish, I I own 15,000 apartments. I don't manage any of them. I managed one unit one time and realized I'm not a manager. Can you just talk to me about the difference between being the investor and being the manager is you sat there and said, "I'm on the right wrong side of this desk."

>> Yeah, great question. So, I So, here's the thing. It gave me Grant the I guess the power uh you know, to be able to go buy them because what what was happening is by this point I had managed maybe 20 to almost 30,000 apartments.

>> Wow.

>> up all up and down the western US, you know.

>> Wow.

>> And so, you know, they were small, they were big, they were lease ups, they were old, they were, you know, all over the place, all over the different cities. And so, what I got to realize during that period of time, that was I would call that my real school. I I you know, I was learning from partnerships that raised money that that overpaid, that overlevered, that, you know, they they didn't really do their due diligence, all that stuff. But I was doing it through the property management lens. So when I got to the point where

>> you couldn't get hurt, you couldn't get hurt,

>> right? You couldn't have

>> fired though. Yeah. I mean, you know, because what would happen is somebody would overpay and then they would hand it to me and they would go, "Listen, this is what the broker said it would do." And I'm like, "Dude, you overpaid or you, you didn't do your homework here, but you know, it was never obviously it was never about them." So they just kept firing property managers. So that was my world. I loved it because what it did, Grant, is it gave me the perspective of of what works, what doesn't work, you know, not not completely because at this point I'm still in my 20s, right?

>> Yeah.

>> But I I was like, you know, I now know like what I should be buying and I now know u what I can fix, what I can do forced equity with and on all that stuff. So when I actually got to the other side of the desk, I I was identifying properties that that I I would have already that I could fix. And so that's the power that property management gave me. So for me, the capital part was the hard part because I didn't know how to raise it. I didn't know any of that. But what I did know, uh, and I could take a property on and manage it. And, and that's really served me well for, you know, acquisitions, right? Because the acquisition guys, as you know, I have two, they're commissioned, right? They're they're out there pushing, pushing, pushing, trying to sell. And because they don't know, they really don't know.

>> You're talking about the guys marketing these assets.

>> Yeah. But also my in-house guys, my in-house guys, you they're meeting with the brokers and I have analysts and all that, too. You you know, and so they're they're bringing me deals and I'm slicing and dicing going, "What about this? What about that? What about this? What about that?" Because I'm actually in the rent roll. I'm actually in the financials. I'm, you know, literally asking them operational questions. So So it's served me really well to to be able to start at with that base.

>> Yeah.

>> [snorts] So, um, where do you think we're at in the cycle right now? Do you think I'm looking for a headliner right here, do you think that we're in, you know, a a trillion with a trillions of dollars, Ken, coming due, and you've been through all the cycles. You went through the 90s, you you saw 600 bank failures in the 90s. You went through 2000, 2008, COVID, and then COVID. Okay, I want to talk about all that today. But right now here we set in 2026 we got trillions of dollars maybe $2 trillion dollars of debt expiring this year. Do you think there's going to be a blood bath in multifamily?

>> Well, I guess we got to define what that means. But I will tell you, I think to answer your question, we're in the first couple innings. So that's where I believe we are. And and and now the bloodbath, however, that's LPS, right? That's that's some bank write downs and stuff like that. That's something that I don't think Main Street is really going to feel too much, you know, because I've seen this before. What happens is private equity loses, the family office loses, the institutional loses, you know, and certainly the syndicator loses in a lot of cases. Um, but those are typically uh, you know, that's typically not ma the main street. It does show up obviously. Um, you know, we

>> Well, explain that to me. Explain that to the viewer like why why does that the LP just explain the LP? Let's assume let's assume I know nothing. I don't even know what LD, By the way, I don't I don't always really know what any of these terms mean.

>> Sure.

>> I get it. So, so here's the thing. I I'll give you a great example. I bought a 680 unit building in the last cycle in San Antonio, Texas that was 50% vacant. I bought it directly from the bank. So, so set another way, there were over 300 vacancies, right? Okay. So, it's not cash flowing at all. So, I buy it because it's a mess and it's sitting on the bank's books. Um, the tenants that are living there, Grant, they don't know any better. They don't care who the name of the management company is. They don't care who the ownership is. They just they want uh their maintenance done. They, you know, they they want a really really sound place to live that's safe and all that kind of stuff. So, so the tenants could be you could you could buy anything you want. The tenants aren't going to know and they're not going to care. And I I consider them main street. Those are the those are our customers that are paying our bills. Um and and so you could bring in a new company. It could be institutional. It could be local. It could be a person. It doesn't really matter. But but the tenant doesn't even care or know. Same thing really in office buildings. Now it does show up of course in deferred maintenance and all that kind of stuff. So there are other there are other issues of course

>> but at the end of the day um I I you know who gets hurt when when um you know when something gets revalued you know which is what we are going through right now. Who gets hurt? Well, the the bank gets hurt, the shareholders get hurt, the syndicator gets hurt, the family office gets hurt. But if they're in a big fund, as you know, 100 million, 200 million, 500 million, whatever, and there's a $5 million write down or a $10 million right down

>> on one deal, you're saying, you're saying, Ken, and I'm just going to I'm trying to help for the audience, right?

>> Sure. Of course.

>> There there's a big massive fund of 600 or 800 or billion dollars.

>> Yep.

>> One deal fails in there. You're you're talking about how this one deal gets cleaned up.

>> Yeah. It Yeah. It it gets absorbed. Of course, it's a loss. It's a real loss inside of

>> to to to to the fund.

>> Yep.

>> Then maybe to the lender, but always the people that put the equity in

>> which could be grant. I could have put money in somebody's deal, right? Or it could have been Kalpers or or Teachers Credit Union or uh firemen or pension funds, etc.

>> You got it. Yeah. So, so that's why I

>> So, who who loses first, Ken?

>> So, the the whoever invested in those funds, right? So, you just saw um I think Black Rockck just did a big write down on their credit, right?

>> Uh last week. So, okay. So whoever invested in that fund uh you know so you start to see so what you're going to start to see is uh and right now Grant I think the big you know the big elephant in the room are these debt funds you know like people what they do is they raise a bunch of money.

>> Yeah. Yeah, you they kept raising when when the when the property values dropped, right? And so what what you have is you have I would call it toxic real estate sitting in these debt funds with these debt lenders and and so who loses the people that invested in the debt funds and the the you know depends on who they went to, right? They could have went to a pension company, a pension, they could have went to an insurance company, they could have gone to individuals u you know so you you always go got to go back to you know who put the money in the in the first place.

>> Yeah. So, the capital stack, which is it's called the capital stack. Can you just explain that again? Like I I know nothing. Okay. I I I found a piece of real estate like you did that San Antonio deal with 680 units. You bought it from the bank. This is what 08?

>> Yeah. Yeah, right in there. Might have been nine, but Yeah.

>> How did you do on that deal, by the way?

>> Oh, we did great. So, um So, it was a Bank of America. Okay. They they had to take a haircut on the loan, so they had to write down the loan, which affects their shareholders.

>> Okay. I

>> so so so so the 680 all the equity got wiped out. Everybody that put money in the deal lost

>> gone

>> and then it hit to the bank loan. So I guess I guess a third of it was probably equity, right?

>> Yeah. Yeah. So great question. So yeah, so the 680 units is now sitting on Bank of America's balance sheet. And of course banks don't want to own real estate. So now the prior ownership lost everything. Whoever invested uh lost everything. Gone. the investors, the syndicators, everybody's white basically gets nothing. Now it goes to the bank.

>> Yeah. And so so here's what happens. So the bank uh has a fiduciary. They have to go out and get brokers to give values. What do they think this is worth? Okay. So they go out and get the BOVs, the broker's opinion and values. And then then they come back and they listed it with somebody. Okay. And I off the top of my head, I can't remember which brokerage company, but then I approached the broker

>> broker than you. Yeah. Yeah. Exactly.

>> So, so I go, "Okay, I'm I want to buy this." And they're like, "Okay, it's a mess." Like, there's 50% vacant, all this deferred maintenance, and the loan on it. I I'm going off of memory here. I think the loan at the time was about 25 million bucks. Okay.

>> So, so now I take a look at the loan plus the capital work I think that it's going to take plus the negative uh interest carry, right? Because it's negative out of the gate. And I put all that together and I think it was around 7 or 8 million bucks more than I needed. So I said to the bank, I need you to resize the loan down because at a stabilized value, uh, I can't pay this much and you need to take a right down on the loan, which they did. So So I buy the building and then

>> you remember what they wrote it down to?

>> Yeah, it was around in the low 20s. I think it was like 21 million. So maybe they took like a $4 million haircut off of the original debt. So they

>> they got hit, the equity was gone. Now, I bought basically a 50% vacant asset for $21 million. It was 680 units. U 30 grand a unit, right?

>> Yeah. Yeah. Yeah.

>> And what were the rents? What were the rents?

>> Oh, gosh, they were like they were, you know, 400 bucks. Yeah. You know, they were they were a little more than that, but you know, there were 1, twos, and three bedrooms, but I want to say there were 7 8 900 somewhere in there at the

>> Yeah.

>> And by the way, it was right next to USAA insurance. So, it was right by a big insurance company, which is a huge employer in San Antonio. So, it was in a great neighborhood. And so, the area around it, Grant, was in the 90s. It was occupied in the 90s. It was it was a bad asset in a good area, right? So anyway, long story short, two years later, uh, we get the value up into the high30s and we stabilize it, right? So a little over 24 months later, then I go to the bank again now that it's stable and I go get a uh basically like a $30 million loan and and I end up paying everyone back. So uh so and I I still I still have that asset today.

>> Wow. You still own it?

>> Yeah. Uh, I just pulled up the rents in San Antonio in 2008. Uh, one bedroom is $568.

>> Yeah. So, six I would say six to

>> What are they today?

>> Um, I would go off of memory, but I would say they're probably in the eights

>> for a onebedroom. Uh, you know, 8 9,000, 1100, 1200. It's workforce house.

>> Yeah. What's that property worth today? You've been in that deal 17 years now.

>> Yeah, we've we've financed it a few times. Uh it you know it's taken a hit obviously this year because of the value drop. But I would say it's probably worth um maybe 70.

>> Uhhuh.

>> Maybe 80.

>> Oh, yeah. Now now now you're marketing.

>> Yeah. Well, I don't know cuz you know I like to hold. I really

>> Yeah. But dude, so so you have all your money out of the deal, you have all your money out of the deal, you It's cash flowed probably every year since you've owned it. So you're in the deal 18 years.

>> That's right.

>> You paid all your investors back, you've been paid back, you got 680 units there that are still cash flow positive worth 80 million and you have no money in it. This is an infinite return.

>> Yeah, you got it. That's exactly right.

>> This is a better return than Google, Nvidia, Bitcoin, Gold, Silver,

>> right

>> there. There you can't even measure it on a calculator.

>> Yeah. So, that's my model, Grant. I have I have a lot of these. I mean, I have story after story after story.

>> How many unit How many units do you have?

>> We have it right around just about 10,000.

>> 10,000. Uh-huh. Because look, there's not a lot of guys in the space that are going to tell people how to buy a multifamily. There's just not I mean, do you know anybody with 10,000 units that's going to come on and say, "Here's the mistakes you're going to make. Here's the you know, this is where to find the deals, buy the deals. Do you know anybody in the space doing it?" Anybody in multifamily?

>> No. No, I don't. I I mean, most most people are hustling and and selling.

>> Well, yeah. Yeah. Yeah. So, okay. So, look, we you're in a deal, it's cash flowed now for 17 years.

>> Could you buy that deal from yourself today?

>> Sure.

>> And make money.

>> Yeah. Yeah. Oh, yeah.

>> But would you pay 80 million for your own deal?

>> So, I did I already did this. We did five recaps last year. So, you can believe that. So, I took five projects that we owned for a long time that were getting a little tired. grant, right? And that needed capex and we brought in an institutional partner and um and and and we raised our own capital, too. I stayed in the deal, so I still own them. So, I sold the deals. I got we had to get approval from all our limited partners and and everything. Um and and so we did we did quite a few trans we did like 14 different deals.

>> You sold a deal you own to someone else, paid all your investors back, but stayed in the deal.

>> Correct. Right. And I rolled 10% back in. Yeah.

>> So, you still own it.

>> Yeah.

>> You got all your investors out, you got a new investor in.

>> Yeah.

>> They put the money into to recapitalize it.

>> Yeah.

>> Okay.

>> And I used I used that money to to 1031 into some new stuff this year. So, we we 2025. So, we had a real active year last year. We bought uh we had uh like $528 million worth of transactions last year. So we had a lot going on with new development acquisitions. Uh some were value ads, some were class A. Uh yeah, you know, we did all kinds of stuff last year.

>> So this money this money that now these are deals you've owned for well what what do they all those deals have in common? Are they old value ad?

>> Yeah, I would say they were back, you know. So there was a time when I started where I used to say class A value ad, you know, or class class B, you know, they were 1980 value ads, right? Well, 1980 is gosh, what is it? Almost 50 years now. 45 years, right? So, so you know, when I first started, we were buying these 80s value ads. Well, they're they get tired after a while. Plus, there's so much new stuff with TAC, 9 foot ceilings. You know, you know, when when you when you buy a mid80s property, it's you know, it's it's an old property. I'm not saying you can't put lipstick on it, but you

>> it's still it's still it's still going to be 8 foot

>> ceilings. You got it. So, so we

>> popcorn off, but

>> Yep. You got it. But, we were, but we So, we rolled the equity into brand new class A uh projects. That's what we did last year.

>> So, you went you you didn't sell your asset.

>> Well, we sold it to ourselves. Uh yeah, we we kept it. Yep. So, we what we did was we pulled the capital out. It's just a it's called a recap. Um so, we brought in another partner. They um they partner with us. uh we were able to pay out to the investors that were in there for a long time. Um we got all their approvals before and after. Some of them wanted to move forward into a 1031 which we did. Um and then that that that brought us a lot of dry powder for 2025. So, you know, we had a lot of money uh almost $und00 million come out of those projects

>> that that we redeployed uh last year.

>> Okay. So, you still own the assets and then you moved from this value ad uh B minus property to to to to newer class A. Why? Why'd you move to class A?

>> Are you are you just are you mimicking what I'm doing? [laughter]

>> Well, I tell you what, like I was looking at the math, Grant. Like, you you know, we were looking we bought a class A building in in Henderson, Nevada, right next to Whole Foods for I I want to say 260,000 a door brand new. You know, I'm talking about elevator. Beautiful project. Uh we bought another one in Scottdale. Uh you know, right near the waste management open there. We just had

>> um you know, right by Costco there

>> by the prominade.

>> Yeah. [clears throat] Yeah. We're we're in the low 3s there per door. Uh you know, elevated, you know, rooftop pool. So So, so I for sure I'm buying below replacement cost, right? That's for sure. So that was one one thought. The second thought is is I wanted to make sure that they were stabilizing, cash flowing. Um, and so check those boxes and and then my capex, you know, my capital repair budget went way down because in on the 80s properties,

>> I was constantly it's just there are always things breaking and things going on. Yeah.

>> And of course it attracts a different tenant, right? So, so we were taking I I guess the way to say it is we were taking you know, call it the 80s limited partners um and putting them into 2020 product and and and uh you know, a lot of them came with us. Some didn't. Some some cash out and said, "I've had a good run with you guys. You know, we're going to we're going to we're going to pay tax and move on."

>> But that's what that that's

>> what cap what cap rate did you pay for that Vegas the Henderson deal?

>> Um off the top of my head, I want to say I was below five. And then what what on the Scottsdale deal?

>> Same. Same. Yeah, it was a little

>> So So did you ever imagine in your lifetime, okay, go back to 1980, 1990, 2005, that you would be paying a sub five?

>> No. Ever? No. No. Not at all.

>> So how are you making Ken? How how do you make that decision? People ask me the same thing. They're like, "Dude, how did you buy a four cap?" Like, how did you make sense of that? How do you make sense of a lower cap, better property, better location, less cash flow? So there's three things that I like. Uh the first thing is obviously I like to buy below below replacement costs and as you well know that's well below replacement costs. The the second thing is um I I like to buy cash flow. So if I'm raising money for my investors, I want that I want their investment covered. Okay. So the only way to get it cover

>> meaning your return whatever you're going to pay them

>> I would Yeah. I want to cover them period of cash flow. I could care less if I make money at this point. I I I want my investors to get paid from my tenants.

>> Got it.

>> So So that's that's the that's the second thing. And then as you know,

>> the the the industry got severely repriced when interest rates went up. Um so cap rates went up and everything, you know, and we're, you know, we're fighting like like crazy to to keep our expenses down and and and, you know, and there's a lot of new product that hit the market this year. So, so I look at 2025 and 26 be frank as a disruptive year for an apartment owner. Um, you know, values are at least 30 40% off of what they were uh based on, you know, higher debt cost. So, so I looked at this as a phenomenal time to to be able to jump into the game and, uh, you know, and there had to be a there always had to be a little bit of a story. So for me there always the story on this particular case was that there were there was room in the rent roll. Um there was room to to bring the the the the units to market not not beyond market but to market. So um you know a sometimes there's there's real gold sitting there right in the rent roll.

>> So on those deals [clears throat] you're you're what do you offer your partners on those deals? You you're you're finding the deal, buying the deal. you I I would assume you manage the deal.

>> Yep.

>> What do you offer the limited. Um

>> so yeah, so we we do a 7030 split.

>> Uhhuh. Oh, wow. Dude, dude, that's Dude, you get a bigger split than I get.

>> Yeah, we've been doing this. You know, we we've been doing it a while. Um we used to do 6733 uh way back when I started. I when I first started, I was doing 9010s, but now we're doing 7030. Um and and then um you there there but but as you know Grant, the way it works is 100% of the money um gets the cash, right? So I'm on the LP side, of course, and I'm on the GP side. So I'm a general partner, but I'm also the limited partner. And once the limited partners are chewed up, then of course um you know, I can participate. So, so I'm always years away from from a payday, but I do have my money sitting on the LP side as well.

>> Yeah. So, you're you're [clears throat] like the deal in Scottsdale. Okay. How much money did you raise for that deal? Just

>> I want a hole you took

>> in the 40s, mid-40s. Uh

>> you raised 40 million.

>> 45 I think it was it. And I Ross and my partner and I I think we have seven or eight personally in it.

>> Um

>> Okay.

>> And then we also don't forget I came out of that 1031. So I I I can't I don't know exactly how much Yeah.

>> of that came over but maybe another 20 30 and then so we had to raise

>> I think another 10 uh to close it.

>> Uhhuh. So you had the deal was what a buck 120 million

>> it was it was 97 97 million you ra so you had debt for 57.

>> Yeah. Yeah, that's about right.

>> Or thereabout. And then who would you borrow that money from? So, we got the deal from the CBRE and we ended up going Fanny and Freddy and they broker that.

>> Okay. So, so in about what 60% loan to value?

>> Yeah. Yeah. It was right around 60. It might have been just a touch below, but

>> And you're cash flowing you're cash flowing at what four and a half or

>> Yeah. Right. Exactly. Yeah. Right out of the gate it was like four to five close.

>> And you're giving that to the limited partner.

>> 100% of it.

>> So that's your money. You're a limited partner and the other money that you raised. So,

>> so how did you Yeah. How do you make sense, Ken, of a four and a half% return?

>> Yeah.

>> And and and on your money and their money,

>> you're not making any money on their money. How do you make sense of that when I could get a treasury for four and a half or five?

>> Great question. So, so there's a few things. One is don't forget they're coming out of a 1031. So, so they they have a huge huge tax reason not

>> Got it. Got it. Got it.

>> Uh so that was part of the reason. The other thing is is that's year one. Uh year two is closer to six. Year three is closer to seven. So I have a you know and and and honestly

>> you believe rents are going to go up over time.

>> Well well there there's a few things that that that we're we're going to do to get to that and and but we're we're well below Scottsdale rents, right?

>> So So that was part of it. The one thing you can't if you're buying something that's perfect, there's nowhere to go. Um, so, so we're just trying to find stuff, you know, that has hair on it somehow. And this particular one did. And then if we're lucky, if rates go down and cap rates go down, you know, we'll we'll hit that target, too. But we don't really buy for capital gain.

>> So, so, okay, I got a lot of things to to break. We're going to be here at least 90 minutes doing this, okay? So, we got to break this down for for my audience. So,

>> um, dude, this is awesome. By the way, uh I get excited listening to this because it validates the story I tell myself every day.

>> Um on that deal, your your split's going to be your exit. Who who do you exit that deal to and how important is the exit knowing who you're going to sell to or refinance? You made a comment earlier about you're really a long-term holder. So, what does that mean? And what does an exit look like? I I'm at this point, you probably are too, where there's you find these deals every once in a while that you you just don't want to part with. So, this Scottsdale deal is one of those things. So, so the real question for me internally is how do I keep that deal, get everyone's money back

>> and and um you know, and stick that in my trust or you know, whatever I'm going to do with it. and and because it's a, you know, it has reoccurring long-term legacy, great location, irreplaceable. Um, and um, so in in in a couple of the in like in '08 when we started buying, uh, rates were higher and then they started to go down and so every time the values would go up, we were just refinancing on the way down.

>> Uhhuh.

>> So, so one of the strategies could be refinancing on the way down if rates go down. Now, And what what rate are you how long are you in for that loan, Ken?

>> Uh it's 30-year loan. Uh and you know, we're in for the mid5s,

>> but but what's the term on it?

>> 10.

>> Oh, you're at 10.

>> Yeah. Interest only, too, by the way.

>> So, you're not refinancing that. You're not refinancing that for another seven or eight years.

>> Well, I might. It just depends. And so, one of the things that we look at, of course, is let's say rates go to full. It might be worth it, right? because you know cuz you can do

>> your payoff your payoff on that's going to be

>> could be

>> $6 or $7 million.

>> It could be but if you know if cap rates compressed the same time

>> Yeah.

>> you know we could have 30 40 $50 million of of equity in that.

>> Yeah. Yeah.

>> So yeah, so so I've been through this before where you you're right. You you got to take a look at the prepayment penalty weigh it with the cost of capital and then take a look at your payment. Uh, and so, you know, we, having gone through this once before,

>> by the way, I don't know if that'll happen. Clearly, we don't know if rates are going to go down. If they do, that's a great strategy.

>> Yeah. Yeah.

>> Um, and um, if if they don't, um, then we're just fine where we are because we're cash flowing. Just going to kick the can down the road a little bit longer.

>> Yeah. And you got a good asset in a good location.

>> Great asset, great location. We're 96 I was just there last week. 96 97% occupied. Well, dude, then you're the only you're the only building in all of Arizona that's 96.

>> Well, it's really true. Like, we bought it was 92, so it was pretty highly occupied. Um, and um it's right next to Costco there on Haitened.

>> Yeah. What's the name of it?

>> The Core.

>> The Core.

>> Yeah. You know where the gas station is on Costco there? It's right behind

>> Bro, I don't go to gas stations, man. [laughter] The Core. The Core in in Scottsdale.

>> The Core. Just look it up. It's beautiful.

>> Yeah. Here, I'm I'm going to show everybody what it looks like. Um, if I can do this. Oh, yeah. Gorgeous, dude. Dude, do you do you regret not buying this stuff the whole time. A little bit.

>> Yeah. [laughter] I gotta be honest. Like, you know, first of all, you you brought up a really good point. They're tougher to cash flow, right? There's no real huge value ads. Like, when you when you buy something 80s or 90s, you can move the needle 100 150 200 a unit. Um, you can't do that with this stuff, you know. This is like this is like buying uh There you go. Yeah, there you are.

>> Yeah. I mean, yeah. Let I just want to see what the loc Oh, look at this. See See to me, Ken. Okay. And I I think everybody starts in the same place, you know? They start with the value ad, the smaller stuff, C locations.

>> Yep.

>> And then they're like, "Okay, well, maybe I move up." I mean, we started moving up in 20 well during COVID. I'm like, dude, I can buy I can get the same cap rate on something brand new. Why? Why not buy the brand new stuff? I mean, if I had one regret in my career, I would have never spent any time in the value ad space.

>> Yeah, I I learned a lot, but you're right, it's a grind. It's hard. uh you know it's a better story for honestly for the you know call it the high net worth investor because they they get okay the rents are a thousand I can grow them to 1,200 by doing this work that's really an understandable story u but you know we at one time grant we had over $50 million in renovations going at once

>> you know like and it you know

>> well and this might been why Kiasaki said the management was the pain the the the hardest part of the deal what do you what do you think is the hardest this part of the deal, managing a piece of real estate or finding a good piece of real estate.

>> I actually do believe it's managing, you know, and and and there's a there's a couple reasons why I feel that way. I I I the when a broker hits a hits a button, it goes out to five, six, 10,000 people at the same time. Uh you know, it's highly competitive. uh it's very very well bought up uh bid up and and I and they're hard to find of course but the the reality is is when we're investing finals like you have been >> uh you know there's six maybe eight groups uh and all our NOIs are within 100 grand like you know we're all right there so so I I feel like

>> we're all using the same math

>> all using the same math so that part is a commodity in my opinion I feel like debt and equity is a commodity for for the most part.

>> Um, and so I really believe that the execution, uh, you know, being able to buy correctly, um, and then and then actually, you know, distributing the money to the investor is the hardest part, you know.

>> Yeah. But, but I haven't heard you talk about the management yet.

>> Well, that's what I mean that this distribution to the investor comes from the management. So, I think

>> so for for my our values are our residents are gold. They pay for us. They pay for everything I have. They they pay for the corporate office. They pay for the people working there. They pay the investors, they pay the bank off. So the my my employees and my investors um are uh you you know and the only way to do that is to is to really take care of your customer, your residents.

>> Yeah. So you're saying because what I'm hearing you say I think when most people hear management they think about plumbing, they think about a roof, they think about the capex. You're saying no, no, no, dude. Management is the managing of the LP, the tenant so that you get the cash flow so that you can pay your pay your uh limited partner.

>> Yeah. And th those things happen like all that stuff happens. But but I will tell you like honestly we have maybe 75 or 100 maintenance guys, you know, there's a whole program to get them trained up on HVAC and electrical and plumbing. It's daytoday. Like that's what they're that's what they do.

>> Why do you do the management, dude? Why why don't you just third party it? I I kind of like it. I know it's uh uh trust me that I've been asked this a lot. You know, I walk onto a project and I I I I like it. I I can sit down with a manager. I can sit down with a maintenance guy. I know that if they're BSing me. Yeah.

>> I I I know what things cost. Uh and and I think the devil's in the details, you know, on how it's running operationally and and uh and that's actually been kind of the kryptonite for me. I've been able to look at deals that come across my desk and know, oh, okay, they're really overspending in these areas just because, you know, it's it's kind of what I do. Um, and I I think a lot of it is because maybe that's the gift that was given to me when I was younger in the property management space. But, um, I I like it. I I look at it, Brandt, as as as managing like a family office, honestly, like like because otherwise like one of the one of the things that drives me nuts is when people turn their money over to someone else and they don't know where it's being invested and all that stuff. And and that's just me though. I like being close to the sun. I like like I can walk down the hall and say, "Hey, we're 88% occupancy. What do we have to do to get up to 92, 93, 94?" Literally, I can do that like right after this. I can walk down and sit down with my own property manager who's managing for me that works for me that wants to work for me and and and and strategize with them and say, "How do I get the occupancy up? How do I cut expenses? How do I do this? How do I do that?" So, I like having those levers here inside of our in our company.

>> Yeah. Okay. Let me let me just pretend to drop you off in in a handful of places.

>> Okay. Austin that Nashville or Dallas? It's value. It's a B+ B location. You're at 85% occupied today, Dallas, Nashville, or Austin. How do you raise the occupancy and reduce the expenses? What's your three go-tos?

>> Sure. Well, first of all, Austin,

>> those markets right now, though.

>> Yeah. No, no, I I know all three. Uh Austin's in big trouble, right? They have so much inventory. That would be the last one on my list. I I wouldn't buy there, but if I had to,

>> um the the first thing, you know, I would I would not pay attention to rent. I would pay attention to occupy. I would try to get it as high as possible.

>> And and and I you know, you don't try to maximize rent in a market like that at all. Um because if you're able to increase your occupancy, then you can reduce your turnover, you can reduce your marketing, you we can reduce all that and the stress level comes way down. But you got to set the expectation.

Um, and and by the way, I was in Austin in 2008. So, so I've lived this. Uh, yeah.

>> And, and uh, you know, my residence saved my bacon because I bought, the prices went down. What saved me was the occupancy and the tenants pay paying everything off. Um, Nashville is a little scary. It's a smaller market, not as diverse. Uh, depends on where. If you're in the downtown area, you're you're it's highly vacant and it's a little bit toast. Um, the outline areas are are a little bit better. I we we own in Dallas today. Uh, and and there's pockets of Dallas that are crazy good like Frisco and Plano and Carolton and, you know, Richardson. Look, those you know, North Dallas is really really that's where the path of growth is.

>> If you're in South Dallas, probably a little bit tougher. Um, you know, so so market selection is a big big deal obviously. Um and and so um but I I of the three today, I would for sure go North Dallas.

>> And and and so h and how do you how do you uh I mean, look, Austin's got two months of free rent.

>> Yeah, I know.

>> Plus probably a $1,500 bonus, a Starbucks card, and maybe they might even throw a [ __ ] in. I mean,

>> yeah. Well,

>> so you don't want to c Yeah. You don't want to catch a falling knife there, man. Like like you know, that's just too much. like if I was competing in that market, um you know, the the only way to do it is have a is is um uh is is to is to try to fill that thing up with uh the best concession you have and keep those people happy. That's it. Uh you know, because if if you got somebody across the street down the road and they're all doing two months free, you're at least two months free.

>> Yeah. Um, and and so it's going to go it's going to fall down to the product and then it's going to fall down to the value and then it's going to fall down to the people. So those are the three things that matter in and I've been in those markets before. You know, downtown Phoenix right now, Grant, is four months free on a 12-month lease. Downtown Phoenix,

>> onethird of the year is free.

>> Can you imagine that?

>> So that means that they're advertising a $2,400 rent for all of you listening. And when they say, "Hey, the rent's 2400." The truth is that rent is really 1,600 bucks.

>> Yeah. And that's not paying any bills, man. Like that's certainly not touching the mortgage. It's it's it's paying, you know, utilities. It's paying uh uh insurance and property tax. It's paying all that stuff. It's not touching the mortgage. So So that's cash negative for sure.

>> Dude, I I have I have I don't know 30 questions here. I haven't gotten to to 28 of them. Okay. But let me ask you, why do downtown and and and as I'm doing this, I don't need any of these questions because I could just talk to you forever. But why do the downtowns for the most part never work?

>> Yeah. I Well, first of all, they're typically expensive. They're underparked. Uh, you know, I'm just, you know, the the I think when they do work, it's there's a walkability piece to it, right? And walkability means what's near me? You know, is there a Whole Foods? Is there uh is there a corner this, corner that? like how easy is it is how easy is it to get in? How easy is is it to get out and what else is going on down there? So like Phoenix for example and by the way I've watched I've watched different cycles. I have friends we have a guy on staff that was that was head of the you know Phoenix city council um and and you know and and I've heard all the stories. The thing is you know there are you got to really like it down there. Um this the there it's not uh entirely safe in a lot of areas. That's the first thing. Um, you know, it's it's tough to to get around. You pretty much have to walk. Shopping means you get in your car, go somewhere. Um, you know, there's there's just all these little conveniences that that are a little more difficult. Um, and and and also it's not vibrant like like if I was going to move into any big city in this town, it would probably be New York City. Um, because you know that that's it's everything's it's gone through those cycles and everything's figured itself out. like you you don't need a car in New York period. Like you just don't.

>> Yeah.

>> And I I think eventually when you get to that point

>> then um you you know then of course it works. But

>> the

>> LA LA failed.

>> Yep.

>> Dallas will fail. Y

>> Houston's a failure.

>> Correct.

>> They spent $20 billion in Los Angeles. Okay.

>> It's ridiculous.

>> Uh Miami downtown that'll work. Austin downtown will work, but they were organically working before anybody tried to make them work.

>> That's right. Uh, correct.

>> Downtown Nashville will fail. Um, I mean, I could just go Fort Lauderdale will work because it is basically a downtown.

>> Yeah, you're right. All this is correct. And, you know, they have to get three or four dollar rents just to make a deal work. Like, well, you know, how many people are going to spend three pay three or$4,000 for a 1,000 square foot? not many. So, you know, and that's the only way you can make that deal work, you know. So, so you're right. So, um so that's why we don't usually typically buy in in those core areas.

>> Yeah. Why do so many institutions chase so many bad ideas? The micro, they chase the micro, the downtowns, they tra chase the top eight, San Francisco, they went to all Why do these institutions always seem to get it wrong? I do every time. That's why I love this business, right? Because, you know, I feel like they're they're like a cruise ship and, you know, we're like speedboats, you know, like, you know, they they're tough. They they don't, you know, they they they they read all the the data and and and they believe all the BS and they deploy all the capital. Meanwhile, uh that's why I love the entrepreneur. The entrepreneur can can can can draft off of all this stuff.

>> You're talking about the entrepreneur investor, the real estate guy that also has the entre

>> Yeah.

>> Yeah. and and also use their money, right? Like that's the thing like uh you know there I I remember this is years ago. I'm dating myself, but I went into the Lehman Brother, you know, before they went down. Wow. And and and we did a bunch of stuff with Lehman back in the day. I roll in there. I'm nervous as heck. I'm in my 30s and um there's like three, you know, Harvard MBAs sitting in front of me and you know, they're super super smart and they're saying stuff to me. I'm just shaking my head like, "You are so out of touch here in these big highrises. you have no clue what goes on. Um anyway, they ended up funding for us this deal, but um uh not without some pain on the, you know, on the on the terms, but regardless um you know, they they're just really really out of touch. And and you think about it, really what they are, Grant, is they're they're high paid, commissioned, very smart young folks.

>> That's what that's what they are. They they're they're not they don't know they don't know what's really happening at the street level at Main Street. Not at all.

>> [clears throat]

>> Ken, there's 190 REITs in this country. Four trillion four and a half trillion dollars worth of real estate under management. You can't need that many REITs and and most of them are not performing. They they underperform the S&P 500. How many of those REITs should be consolidated? And how many should it be consolidated too, if you have an opinion? And which one should just roll over and sell to a guy like you or me? Great question. Um, well, let's so let's talk about what a REIT is because a REIT is called a real estate investment trust and it's essentially just a big fund of of assets, right? And so there are different kinds. Industrial REITs, multifamily REITs, retail REITs, office building reats, office uh mall reats, like there's all these different kinds of REITs. There's also class A apartment REITs, there's core REITs, there's, you know, all these different kinds. So, so what I always do, Grant, is I always take a look at what's in the REIT. So, so one of the reasons I don't like REITs is because the you you take out all what I think is what all the investors want is are the tax benefits. You know, the the REITs REITs don't get that. It's essentially just a coupon with with a you know, a big big fund in order to buy these assets. So, so I think you know at least in my world most of my investors they want the the capital gain um they want the bonus appreciation they want the uh the the cost segregation studies they want the cash flow not and not necessarily in you know some kind of earnings right um uh off of a stock so so I think you know when I look at something um this is a really really great question I if I'm going to buy something I I look at a pyramid. Uh I look at paper at the top. So paper to me is ETF, like instead of physical gold, it's it's a REIT, stock, whatever it is. And then I look at the middle as the company. So um you know, uh and then the very bottom is the actual physical.

>> You're saying the REITs are a pyramid scheme?

>> I do like I I mean it's just

>> at the top at the top of the pyramid is the paper.

>> Paper is always the most at risk, right? Like like

>> so so the paper would represent what here the loan or the the equity.

>> Yeah. Sure. So the let's say the apartment building at the bottom. Okay. You know apartment it's actually like

>> bricks. Sticks and bricks, right? Physical. You can walk to it, knock on the door, like drive onto it. It's like it's real and and you should be on the title there.

>> Uh the next level up is the company that owns it. And the next level up

>> and that would be you. you you would be owning it or the LLC the bit me managing it okay then the company

>> and then the next level up is the paper like okay

>> which is the loan and the and the equity

>> or the stock the REIT the share whatever it is you know so I I look at I I look at everything that way I look at timber that way water that way gold silver so silver like I'd rather have physical gold

>> than ETF

>> like like it's just obvious to me so so for me a REIT represents an ETF Yeah. So, okay. You know, now you got kind you you baited me with the gold [ __ ] [laughter] Do Why do you have any gold?

>> I have a lot. Oh my gosh. I've been investing forever.

>> Okay. So, so goals goals that What would you rather have? If you had a million dollars and you could only invest a million dollars in one of the two products, would you invest it in gold or multif family?

>> Multi all day long.

>> Why?

>> Yeah. Well, because I could lever it with another four. So I can I can go to the bank and get three or four million more of OPM or other people's money. Yeah. Uh in debt. So So I can buy a $5 million asset with one million. Yeah. And I can buy 1 million of gold with one.

>> So clear. Clear. Like you you almost you don't almost even care about the real estate. You're like I'm taking the real estate over the gold any day of the week.

>> Yeah. And then I I'll use the the distributions. I'll use the passive income and buy gold.

>> Uhhuh. Now Now Okay. Now how do you get Okay. Let's say you had a million dollars of gold today. Yeah.

>> And how long how long before you could actually trade that gold today? Not paper gold, but real gold.

>> So, I have a lot more than that. Uh, trust me, of physical gold. Uh, and

>> but how much how much how much gold do you have?

>> I want to say I haven't actually added it up, but it's got to be in the 3 to four million in physical gold.

>> Okay. So, you got $4 million worth of gold.

>> Yep.

>> How do you get rid of it by by by Wednesday?

>> Well, you can you can liquidate it, but then I have a big tax problem. Correct.

>> Yeah. But you don't you you can't I don't think you can get your money by Wednesday.

>> No, no, no.

>> Somebody's got to come out. Somebody's got to come out.

>> Sure. Yeah. Yeah.

>> Tell everybody what has to happen with this gold

>> they think is liquid,

>> I guess. Yeah. I I don't consider it liquid. I consider it an insurance policy against the US dollar. Uh that's what I that's why

>> you already got insurance.

>> Your real estate your real estate is insurance.

>> I know. I know. But why not have a diversification? So, so for me, um, you know,

>> 10,000 doors.

>> I I'll give you a great example of of um and and with your buddy, uh, Robert Kiasaki. So, he told me this story.

>> U, he just bought another house. Um, and and I was like, "Oh, I didn't know you were going to buy another house." And he's like, "Yeah,

>> he probably didn't even know." He probably didn't know he was going to buy another house.

>> Well, he's like, "I'm going to go buy another house." And I go, "Oh, that's cool." And so, what how'd you do it? He goes, "I used gold." So, so he, you know, he's a big gold guy. So, he he took gold. I said, "Well, okay." So, this $5,6 million home.

>> I go, "How much gold did it cost you?" You're like, "What was your basis?" Right? And he goes, "I took uh" He goes, "I figured I had like in the low 400s of an investment in gold. It was probably at this point, I don't know what what he bought them at different times, but he used the gold. In his mind, he paid four or five $450,000 for this house because he actually invested $450 in gold and then and then used it to buy the house.

>> But but he he did he sell the gold to buy the house?

>> Yeah. Yeah. Yeah. He sold the gold. He's back to being poor dad then because he should have borrowed against

>> I never understand this guy because I'm like dude what what advice are you taking? Like rich dad would borrow against the goal.

>> Yeah.

>> By the way, never buy the house.

>> He has a lot of gold. So that that was a small piece, but he's got I think they're all in it's all in Switzerland or or in Singapore.

>> Who knows where it is,

>> but the the you know, so so I think you use gold I I think you use gold for things that you want or need. And and I I think you know, it's had a very very nice run. U I I literally just had uh I have a u several guys that I call around this and and obviously everyone everyone that's a gold buck thinks it's going to go higher. I don't know. But um

>> Yeah.

>> But I know this. If you had if you had your last million dollars, if you were 25 years old and you had your grandmother died, left you with $250,000 and you had to invest it. What would you tell the 25-year-old invested in?

>> I would do it in cash flowing real estate all day long.

>> Exactly. Because the gold doesn't cash flow, the silver doesn't cash flow, the Bitcoin doesn't cash flow. I tell everybody, do that do that stuff out of cash flow just like you said.

>> 100%. No, I listen I if I want like a Ferrari, I'll buy an asset that pays for the Ferrari. I I don't buy the Ferrari. That's exactly

>> You don't buy the Ferrari from earned income. You buy it from cash flow from the the investment you made.

>> Right. Yes.

>> Do you do you own a Ferrari?

>> Of course. Yeah. Yeah. I love them. Yeah.

>> dude. I got rid of all I I've never bought a super car. I've never I've never owned a supercar. Is that what they call them?

>> I don't know, man. I just, you know, it was one of those I' I've had several, but I I I, you know, back in the day, it's like it's like when I got my first Rolex, you know, when I was young, I was like, "Yeah, okay." I gave it to my son later. But, you know, it just represented like, I don't know, a next rung or whatever. But now um I actually almost sold it and the guy's like, "You got to hold this car. It's going up in value because it's um one of the natur last naturally aspirated ones." So, I ke I I I I just kept it. But um uh but yeah, man. I I but I again I look

>> Do Could you write Can you write off the Ferrari?

>> Uh maybe. I don't know.

>> I don't think so, bro. I don't think so. I think you stretch it. I think you stretch.

>> But I look at I look, you know, Grant, I this a great This is a great thing. I look at um gold watch. I look at watches. I look at cars. I look at you know, Robert invests in uh old um like machine guns from World War I and two um you know, and all that stuff goes up in price, right? And so so

>> you know, you can collect things that go up.

>> Yeah. Yeah. Of course.

>> You know, or or you could or you can buy things that depreciate. I I don't know.

>> Yeah. Let me ask you this. Who who who gets wiped out? If we have a wipe out

>> in real estate, who gets wiped out? The syndicators,

>> the banks, or the retail investor,

>> the syndicator for sure.

>> The syndicator gets wiped out.

>> Yeah. Yeah. Yeah.

>> How many syndicators have been wiped out in the last three or four years? Well, I think some recognize they have and some are delusional still and they haven't they they don't recognize it yet. They're still fighting. Uh which I admire, but but uh they're toast.

>> How many do you think are left to fall?

>> Oh gosh, I don't know. Like a lot. I I

>> So these are syndicators. Like who who are some names that have already gone by the wayside?

>> You know, I know companies I I know there's

>> uh what was it? Tides. Tides.

>> Yeah, there's several. There's some like I I look at kind of bar I know there was a couple that were hit the Wall Street Journal. Uh a couple groups out of Houston. Yeah. You know, a couple groups um out of uh Florida area. I know uh a couple groups uh here locally in Phoenix.

>> Um and and um you know and and I I you know I know when when you bought something at 50 million bucks, it's worth 40 today. Like period. It just is. like three four years ago if it was if you

>> your stuff my stuff all of it's all it's pulled back in in the value the market

>> you bet yeah so so if you if you base whatever you bought if you based ne if you base next year oh I'm going to you know everything's going up which is a horrible strategy um you know you're going to get stung and so you know they uh I I took my pedal I took the pedal off the gas the last few years not last year but the year the two three years before that uh we didn't buy much it was very hard to not buy. Um and and uh the and there were people that loaded up. They bought 20, 30, 40, 50 buildings uh during that three-year run. Um and they're in big pain right now.

>> Yeah. When does that hit the the big names?

>> I think it's already started. We looked at a portfolio um last year and even one um two weeks ago before NMHC um you know 1,400 units and uh they it was six properties um owned by one of those names. Um and um you know we're looking at 60% uh we bid uh 60% of the loans on on the whole portfolio.

>> Yeah. Will you get it?

>> I don't know. Let me

>> I don't think so. I don't think you get it at 60%.

>> Yeah. Well, uh, you're probably right, but that's the right number. We We

>> Yeah, that brings me back to like when you did that deal in 2008 in San Antonio. Okay. Because I'm trying to figure out how long the cycle last here.

>> Yeah.

>> At some point, the bank's going to say, "I've had enough. Fanny or Freddy or the insurance company?" Okay, guys, like you got to call it's over now. Can you explain first of all how long that process takes? Like the deal with Bank of America, that deal was probably in trouble in 089, but when did when did you actually take it over, Ken? How long did it take?

>> So, let me tell you like like I every cycle is a little different, Grant. But, but let me tell you real time what what's happened. You know, when rates what's when rates started going up in late 22, uh, as a response to the high inflation, um, anybody that had any floating rate debt was in trouble at that point. cash flow shrunk, maybe even went negative and so they were funding as opposed to getting distributions. Well, that carried into 23 and then they started doing cash calls at 23 24 and so so there's this long process of you know will rates come down, will my values go back up and all that stuff and you know we don't know what tomorrow brings. So so this this slow unwinding has been going on in my opinion since call it mid22 when you know that that or Yeah. Yeah. So we're we're in four years now.

>> Correct. And so so what's happened now? What's happening is people syndicators ran out of money. They're they're they're off sides with their loan covenants. Uh, you know, their debt that the debt coverages are are off and their reserves are off and there's all these things that are that are happening and and they're of course uh meeting with all these these the these lenders. Now the lenders, as you know, don't want the deals back. what they really want, they want they want that sponsor to be successful, but they're not because the values are oftentimes below the loan.

>> So, so there's this catch 22 where the lender is saying, "Okay, guys like us, we need you guys to fund it." Like you were like, "Well, why would we fund something that's 20 30% below the loan? U we'd rather give it back to you." Um, so there's this, you know, there's this chicken egg thing going on right now. So that t that could take years.

>> So let me let me give you an example. Let's say I have a deal. I paid 120 million. I'm just going to give you I owe 90 million to the bank.

>> Yeah.

>> I raised the 30 million for my investors.

>> Yeah.

>> The loan's due. Okay. It's coming due at 6 and a half or 6% today or five and a half, whatever. And I had money at three. And the bank's like, "Hey, we're tapped out. We're done." Would you said the bank doesn't want the deal? They wanted me to pay the loan down from 90 million to say 70 million.

>> Yeah.

>> And I'm like, dude, I don't have 20 million sitting around.

>> I don't have

>> That's right. That's what's happening right now.

>> By the way, I have 47 projects and they could all need money.

>> Yeah. So

>> So what happens? What what happens in this process for the viewer that's watching right now? This is the deals you guys are looking for.

>> Correct. Yeah. So it's a great example. So Okay, so in that particular scenario, you're faced with a do I write a $20 million check to keep the asset? And by the way, here's the irony. That asset has the same tenants that it's had in there a year ago, two years ago. Uh the rents are probably not that much different and the expenses are maybe up a little bit, but the assets not necessarily underperforming. And that's the real interesting thing is that that property might be running really well.

>> Yeah.

>> A distressed uh debt, not a distressed asset.

>> You got it. So So, so do you want to write a $20 million check? And and also, so let's say you go to your investors and say, which is what you should do, you should say, "Listen, if we write a $20 million check, we can keep this asset, but it's worth 90." Um, and and and you know, so you're going to get a kind of a a split decision there.

>> And what is that called there?

>> Um, well, that that's called bad. It's like,

>> no, that's called a cap capital, right?

>> Yeah. Yeah. So, you know, nobody wants to do that. So, so you're now faced with, do we throw the keys back to the lender?

>> Uhhuh. and just say, "Listen, we need to move on another day." You don't know if the, you know, is that 20, what does the 20 million get you? Uh, you've already lost the the the other equity,

>> the 30 million. Yeah.

>> Yeah. So, so, so what's happening is this exactly what's going on.

>> When you say when you say, just so I understand, when you say I've lost it, there's going to be a time where this thing's worth 120 again.

>> We hope. Yeah. Yeah. Yeah. You know, if if it isn't Yes. You're right. It hasn't been lost, but but but it's frozen kind of in space and time.

>> Sure. That but now you have to get to you have to get to that just to get your original capital back plus the 20 you just put in.

>> Yeah.

>> So you know so you you know how long is that take? So, you're sitting back looking at, okay, or

>> do you buy do you take 20 million and buy an asset without all that drama next four next door,

>> right?

>> That cash flows and and and then now you get in and that 20 makes 30

>> instead of the 20 makes you uh

>> So, how do you capital can can have you have you done a capital call with your investors before?

>> Yeah, of course. Last couple years. Yeah. Yeah. we because everyone

>> you go to them and say what I mean I've never done this so I don't know how how painful is it?

>> Yeah. Well, it's painful like like you know first of all the the you know it's the last thing you want to do is is but you got to be transparent. You got to say listen that you know the values are down the loan maturity's up. Um and so what we had we bought rate caps you know to but then they expire and then you basically have to uh you know uh you know put more money down to renew the rate cap. So Ross and I personally funded gosh I I'm going off of memory but 68 million bucks something like that in the last two years. Um rather than going to your investors going to your investors. Yeah. Yeah. But we also um we also have done some uh capital calls for sure uh you know to try to uh to to work through a lot of this stuff.

>> And so how do you make how does a syndicator what's the professional way to make a capital call? How do you do that?

>> Well, you pull out the operating agreement. you see what it says and you got to follow it by, you know, but to the tea first of all. So, so that's the first thing. And so what we do is we have constant we have a a investor relations department here. Um, and so we're constantly on the phone with these folks. We do webinars, we do we do letters, we do phone calls, we do whatever it takes to kind of walk people through, you know, after we've done all the math. Um and of course like in the situation that you talked about um you know what what you do is is u you say listen you know do we put 20 million down to on the hopes that we get our other 30 back.

>> Is this a vote? Is this a vote like

>> Oh yeah. Yeah. Yeah. So so you know there's a there's provisions in there. Um typically the there's a vote with the GP. The GP can do lots of things outside of the operating agreement. But for a capital call, the way it works is in the operating agreement, let's say, let's say we need, you know, $3 million cuz they haven't been very big. Um, and and we have $1 million come in, right? Let's say, and two million two uh uh two two million of it, they're like, "Sorry, I'm not going to do it." Yeah.

>> Well, then you you take the million and then you you actually have to adjust the position that they're in because they want to be in like a position ahead of the other money. Um, and that's all inside of the operating agreement. So, you got to do it really, really, um, tenderly, but also legally. Uh, you have to follow the operating agreement.

>> Let's say no money came in.

>> Yeah.

>> You go back to the bank and said, "Hey, we made a capital call. Let's say the deal was 12 million. I'll use the same example. I'll just take a zero off."

>> Sure.

>> We borrowed nine. It's worth seven. I got to pay it down two. No money comes in from the capital. You send a letter out. Hey guys, the phones start ringing. [ __ ] What's going on, Ken? God damn you.

>> Yep.

>> Does that happen?

>> Oh, yeah. Well, no. We we we haven't ever had zero. But but

>> but before before we get one or two or nothing, right? Like like the phones start ringing, people start calling you now.

>> Oh, for sure. Yeah. Like like listen, I mean, you you know, you say you put a business plan out and you say, "Hey, this is you know, this $12 million deal is supposed to be worth 15 and and now it's worth nine." Okay. Yeah. That's you know, that's conversation number one, right? Conversation number two. These are

>> which is the loan amount.

>> Correct. Right. These are our options. Um and and uh you you know it's it's really pretty black and white. Yeah.

>> Grant, you know, and and at the end of the day, that's why Ross and I wrote a bunch of checks. Um, you know, because there were we have investors now 20 over almost 20 we're on our 25th year of business. um you know and and these are folks that have been with us who tried and true up and down and and some of them they're just everyone's in a different financial situation. Some of them are like yeah we're with you. Some of them we don't have the money. Some of them some of them are now sitting in their kids' estate and the kids are like who are you? Like

>> Right. Right. Right. So let's just say let's just say no money came in and you and Ross don't have 2 million.

>> Yeah. Then we're in big trouble.

>> No. No. Are you or do you just go back to the bank and say, "Hey, bro, like now now walk me through the next phase of this problem."

>> Okay. Yeah. So, but let me ask you, let's say you're the bank and I say, and you now I you know that I owe what the loan is worth. What's your motivation to keep me around? Like there isn't like I I just the you're in the best position ever. You're like, I don't need Ken. I I could take back the asset. I could be completely whole with my investment, my debt. I can I don't need any of this problem.

>> Oh, you're saying because it'll sell for nine

>> yet?

>> Maybe. Yeah, maybe.

>> Maybe. You're right.

>> Yeah, but but but Ken, okay, let's just walk through this. Okay. I don't have one of these. I have

>> So, that's the issue.

>> 321 of these.

>> Yeah. So, there you go.

>> All happening at the same time.

>> Yeah.

>> And I'm a bank. I'm I'm a bank. I'm not a real estate management company.

>> Yeah. So, so here's the way I like to say it. Uh this is an interesting perspective. If the loan is way way above the the value

>> Yeah.

>> way above the value. So let's say let's say it's 9 million and the thing's worth six.

>> Yeah. Got it.

>> Now the bank's motivated.

>> Yeah. Yeah. Yeah.

>> But if the loan's nine and the value is nine, the bank's actually, oddly enough, not as motivated.

>> So the bank is going to list that. He's going to go to some chop shop and say, "Hey, list it for nine. Sell it as fast as possible."

>> Yeah. Everybody's clean. Equity gets lost. You know, we're fine. Um,

>> how many of those deals, Ken, do you think exist in the country right now?

>> There's a there's a lot. I I bet maybe not over a thousand, but there's hundreds and hundreds of loans uh below uh that are values are below the the debt. Now the interesting thing is Grant it's not that big of a deal ironically because if if unless the loan matures you know you kind of brought this up at the beginning if you know we have this maturity wall the debt wall right so when a loan matures then you know that's when everybody sits around the desk and goes okay what's it worth what's the loan etc but if you're four or five years from a low maturity and you know you're underwater it's not a big deal

>> yeah because you don't have to worry about the the debt maturity So, so um you know the ones on the low and maturities, those are the ones those are

>> what what percent what percent Ken of the deals that are out there because if the you guys are watching right now, Ken just explained to you that you're looking at what you think is a deal. CBRE listed it. They told you what the price is. The guy's got four years left on the loan. He's not a seller. Okay? He he he he he's a troll, but he's not a seller. He's got a fishing line in the water, but he really doesn't want anything to bite the line because or he I mean, yeah, if it's a right fish, but but you want to just explain that that maybe 40% of all the deals listed aren't really for sale. They're trolls.

>> Yeah, that's a great great point. So, yeah. So, so what happens a lot of times is you know like um you you have all this noise going on inside of the partnership like like maybe uh issues between the GPS maybe there maybe there was some new capital brought in uh rescue capital you know we went through a period of time maybe the LPs are upset whatever it is you've got all this pressure as the GP to list something um and so sometimes to your point it's it's just a parade right? Like they're just trying to see, you know, what the market is worth today. But as you and I both know, the the market has come down dramatically. Cap rates are way higher than they were several years ago. Um and the whole the whole industry has been repriced. And so, you know, if you bought something in the last three or four years or you have something maturing, um you know, it doesn't necessarily mean it's a good deal. Now, I we just looked at a deal last week. I have an investment committee uh every week. 2.8% fixed and there's eight years left on the loan. Um and we're like

>> 2 2.8

>> 2.8. So we step into this deal. Um and what are we buying?

>> Oh, you you bought you bought it with a with a with an assumption on it.

>> Well, we're looking at it. We haven't bought it yet, but but it's, you know, our acquisition guys brought it to us and and um you know, like that's great because it's a coupon, right? It produces six 7% cash on cash. It's got a 2.8% loan on it. Um it's a HUD deal and and uh you know 221D4 which is a construction of PERM. Um and and so it's a 40-year amortization. Great deal. Um and so we're bidding on that right now. And and the power of that is we're stepping into the assumption.

>> Yeah. Who's that seller?

>> Uh I actually don't know. Uh I actually I can't even I think I think that deal's in Phoenix. Uh might be somewhere in Arizona. Uh you know, we're looking in multiple states at the time. I I don't know at all who the seller is. It the the broker I do know.

>> Is it Asher?

>> Uh I know it's CBRE, but it could be.

>> So what deal I mean what to you like I'm out in the market. Let's say I can raise money like you do or

>> Yeah.

>> What would you be looking for today? What is the perfect scenario? Perfect size deal, perfect asset quality. Give me the perfect city and what you would pay for and what the expected returns would be.

>> Sure. So I start with the city. I start with where people are going because as you know without people none of this works right so so I always start with migration I always start with population employment growth and all that kind of stuff and I work backwards so that's the first thing um and so where are those markets right now um Salt Lake City Phoenix Tucson um Dallas certainly um uh Boise Idaho uh you know just on the west right we we we've looked at um uh Colorado Springs you know we've looked at Denver we've looked at some other markets, but you know, so that's the first thing I look at. Then the second thing that I do is I break down the city, like kind of like what I was talking about with Dallas, like when we first started buying in Dallas, I recognize that South Dallas is probably not exactly where you want to be. So, we focused north and we were right and and and so that's where the best schools are. That's where the highest home values are. That's where the employees are employers are are moving, etc. So, so once you get all that down, it actually eliminates a lot of the noise. Um, and and you're like, okay, is this deal inside of, you know, are is it in those cities? Is it in those subm markets? Then from there, Grant, uh, we look at everything. We'll look at class A, class B, probably not class C. We might look at class C. Ironically, we looked at, we actually bought, I would call it a B minus this last year, and I'll tell you why. Um the guy had no debt on it. It was likeund it was small 150 units right by um Papepiggo Golf Course in Phoenix. Never been renovated. 25 year old property, but he replaced all the ACs for whatever reason. Uh put a new roof on and painted the outside. I was like, he didn't do anything to the clubhouse, but the interiors he didn't touch. So I'm like, okay, well this is obviously a value ad. This is complete luck. But we end up buy we ended up buying that. Um, and so, so

>> what'd you pay for that?

>> Uh, gosh, I knew you were gonna ask. I want to say it wasund and low hundreds per door.

>> Oh, wow.

>> Yeah.

>> Okay. So, so why why not chase you said no class C? Why not chase class C?

>> Well, you can uh so class C is um can be tough. Like uh so right now there's a compression in A. So we had over 500,000 units delivered in the US in the last you know 18 months right so you know where is a different issue but there if you just you just look at where all the new construction hit it hit all over all over the planet okay so what that does is that two months free that we're talking about in Austin that four months free we're talking about in Phoenix um that all of a sudden competes with the B's and the C's

>> so so when when rents are heavily discounted in A's the the the people that are living in C's and B's go to A's,

>> right?

>> So so so you create all the stopness in B's and C's and so so you look at that but but um but uh so so

>> and and and I just want to say to the because you know a lot of the ge guys buying B's and C's you guys think you're going to get rent growth.

>> Yeah.

>> You're not going to get rent growth.

>> Correct.

>> Because the moment you try to move 50 or 75 bucks, they're going to move to the A property with the swimming pool and amenities. Do you just want to expand on that concept because

>> Yeah. So that's exactly right. So [clears throat] I mean if you think about it if if two months free is the equivalent of of a C-class rent.

>> Yeah.

>> On an A. Right. So so one month free is equival equivalent of a B class rent. So if you just do the math the tenants tenants are smart, right? If they if they can get two months free on a 12-month lease, um they're going to be in the A's all day long and they're going to move from the C's and the B's. And so you're gonna there's softness in the B's and the C's. Um you know we just did our budgets uh and for this year Grant and I told uh our company no rent growth like d do not budget rent growth uh you know and and and you know we're just trying to keep our occupies as high as possible and stop trying to get that extra 20 30 $40. Uh you know I'd rather be at 96 97 98% occupied and have cash flow because we're not selling we're not refinancing. We're not doing anything this year uh on the on our current portfolio. U let's just let's just get as much cash as we can and and not worry about market rent.

>> You said this a couple times now. Why would you rather have a higher occupancy and a lower rent?

>> Sure. Yeah. So So there's there's a um when [snorts] when a when a renter has choices like if they're going to a to a new construction um you know the the rents are going to be higher. So I'd rather be a hundred bucks under that. I'd rather have that renter. Um, and and and I'd rather be full with cash flow coming in than than trying to maximize the market rent. So, so there's a time that you want to obviously maximize your rent. And when would that be? It would be when you're selling something or you're refinancing something. But other than that, what's the point? Like seriously, I I don't want to fall too far back, but but you know, why why why why um challenge the the the tenants ability to pay and and put them in the marketplace competitively against you when you're the best price in town? You know, you are. It's it's strategy. It's not like

>> Yeah,

>> it's not we don't our head's not in the sand, but I'd rather have it I'd rather be full at 75 below market or 100 than not. And then as your to your point, if if I'm going to sell, let's say this year, you know what I'm going to do immediately push rents.

>> Let's see how much let's see how much I can get on the ones. Let's see how much I can get on twos. Let's see how much I can get on three. And then I get my rent roll. If I can get 20 30% of it at these higher rents,

>> you know, the Asher, see, they're going to that's the rent. You know, it doesn't really matter. And then the the new

>> So So Ken's Ken's sharing with you a little sellers trick here.

>> Yeah. Okay.

If you guys look at a 12-month rent roll and the last three months, all of a sudden you had a spike in rents, you have to ask yourself, okay, October, in this case, it would be uh November, December, January, all of a sudden the rent grow rent rent collections went up. You're like, what happened?

Well, he's a seller. You want to just talk about how you're manipulating your rent roll?

>> Yeah.

>> To to to show that you're a viable operation.

>> Yeah. I'm maximizing my rent.

So, so it's the same thing with a value ad, right? If if I got a property that's 20 years old in a two-bedroom and nothing's been done in it and I and I I put 10 grand into it and it looks great and I get an extra 150 200 more for rent, I've now set the market, you know, somebody's renting it. Um, so I now know that my twobedroom can get another $200 by putting 10 grand in. So now I've set the mark for a buyer, right?

Same thing if I don't do a value ad. If I'm under market on a onebedroom and my onebedroom is sitting at 900 and I know it can be uh a thousand um I'm going to I'm going to push that. And what you're doing at the same time though is you're creating vacancy. So you know but you're testing the market. It's just like a car, right? Like you're constantly trying to test the market. See how much can you get for it.

Well, and the market sets rents, not the landlord. So I'm just trying to push to the market. Um, and then once I do that on all my unit types, my ones, my twos, my threes, um, now that's in the rent role. I have real renters paying real rent, uh, with leases in hand on the people living there. So now when I go to a broker, they're saying, "Oh, your one-bedroom rents are they're a,000. You're two, you're you know, be even though maybe the rent rolls at 850 and 900." Um, the the the the buyer is going to see that the onebedrooms are $1,000.

Um, would you rather $25 and no value ads spend or $200 and spend$10,000? Would you rather zero spend and 25 bucks raised?

>> Or invest $10,000 and get $200 a month more in income?

>> I would rather do so I I look at a cap rate. So, if I get $200 more at times 12, yeah,

>> That's 20 that's $2,400 in NOI. um for you know, for for a $10,000 rent uh and and a at a five cap that that's a good deal all day long. So that's how I look at that.

>> Yeah.

>> Um so that's what I would do.

We we back in the day, you probably have done this in our value ad space, we used to do that with washers and dryers.

>> I would buy a you know $800 set of washers and dryers and I'd get $75 per month and I just put them in. I'd literally and at the end of their lease I would charge 75 more.

>> Um and and so times

>> The unit the unit owns the dish the washer and dryer.

>> Yeah.

>> Yeah.

>> Yeah. So

>> So you're collecting $900 a year on a $800 spent.

>> Yeah. Yeah. You got it. But but really as you know it really it goes to the cap rate, right? So yeah. So if you roll that all up and put a five cap on it, it's millions of dollars.

>> Yeah.

Ken, so bring me back to this. Okay. Best, you know, tell me the perfect deal today. What city? If you could only pick one city and you're gonna get the perfect deal, I want to know what city, what asset quality, how big is it, and what are you paying per door?

>> Great question.

>> Let's just go city. Let's go city. You can only buy in one city. It's going to be a great deal, by the way. What city do you want to be in?

>> Yeah, I I know I'm I'm very partial to Arizona. I think it's a very young state. So, so I would buy in um probably Scottsdale.

>> Okay, good. How big is the deal?

>> Um there's nothing under 100 million in Scottsdale. So, it's going to be at least a hundred probably in the in the you know, so

>> 100 million.

>> Yeah.

>> Okay. Um what asset quality?

>> A

>> A And where's it located in Phoenix? Yeah, it it would be around um the probably the Scottsdale Quarter, the you know uh fashion fashion square.

>> Yeah. Did you look at Optimus when it was selling?

>> Yeah. Yeah. I know David very well. Uh David Hovie, of course. Yeah. He's a I were in YPO together. Uh Yep. Yep. I knew he used to be a furniture store before he bought it.

>> Now, now they hit their number.

>> Yeah.

>> I think their number was 460 million.

>> Yeah.

>> They hit it and still decided not to sell.

>> Yeah. Yeah. That makes my 300,000 uh 300 door uh you know a mile away uh look like a pretty good deal.

>> Yeah. Do you know uh again that goes back to the example of you know there's a lot of guys out there that are trolls. They're not sellers. Do you know this deal?

>> I don't know. Where is it?

>> West 6 in Tempe.

>> Oh yeah. Yeah. Okay. It has a history of uh Yeah. Yeah. Yeah.

>> Okay. Now you know who had the listing on this probably. It's probably going to market right now.

>> Yeah. Y

>> I I drove it on a Saturday morning.

>> Yeah.

>> I drove it on a Friday night, a Saturday morning, again on a Sunday afternoon.

>> Yeah.

>> What What is your opinion of this that asset?

>> I'd have to look at the I know uh it has a history of uh didn't fully get constructed, then somebody bought it for a song and they've run it for a while. Uh I'd have to look at the math. Um, you know, and and uh if the math works, I love the location. I mean, right right in the heart of Arizona State, right? And so, it's a phenomenal location.

>> It's, you know, they would you would you pay a four and a half cap for that?

>> I might. It depends on uh it depends on the what's inside of that four and a half cap. So, as you know, here's what happens with cap rates. You know, they're based on what? Like, you know, they're based on how they're being operated today, right? So, so if I see something inside of the operations that uh maybe it's not a four and a half, uh, you know, it could be, you know, so I I would really look have to dig into that.

>> Yeah.

What um let me see. Did we do our perfect deal yet? Let me see. I'm in You're saying Scottsdale, couple hundred units, hundred million dollar deal. How much a door? How much a door are you willing to pay in that market?

>> I think if you pay under 400, u you're you're in a really good spot in the right location. I would not do South Scottsdale. I would certainly do uh call it anything uh anything north of Indian School probably.

>> Yeah. Do you like the builtmore the Courtland Builtmore deal?

>> It's okay. Uh you know, I I look at the Builtmore is kind of uh tired a little bit. I think the new upandcomer is Paradise Valley Mall, they at Cactus and Tatum area. Uh you know, that that was an old mall that uh Red Development bought. You know, these malls are right in the center of town, right? And they're just dead, right? Macy's, Sears, J C Penneyy's dead.

>> Wait, wait, wait, where is this? The pair of

>> Cactus and Tatum. Yeah, right there. That that that they they just put a Whole Foods in. They just put a a Lifetime Fitness in. They're doing multi there.

>> Uhhuh.

>> You know, really we So, so I I would rather be there than the Builtmore, personally. Uh, you know, so I look at I look at kind of the new fresh stuff.

>> Yeah. You're you're saying across the street then? Is that still in the Builtmore or is that another market?

>> No, no, this is more uh this is a a little bit more north.

>> Uh-huh.

Man, I' I've been to Phoenix four times now trying to buy in the last four years.

>> Yeah.

>> And I can't I can't I can't get the deal.

>> Yeah, I know.

>> I I asked Asher, "What am I doing wrong?" He's like, "You're not doing anything wrong, dude. There's some people that have just overpaid."

>> Yep. I agree with them. Yeah. Yeah. It's there's deals are tough to find, as you know. You know, we we look at we have we have an investment committee every week and it's a grind, man. Like, yeah, we're bidding on stuff. We're literally making offers every week.

Okay, let me ask you some quick quick uh quick yes or no questions.

>> Yeah.

>> Or one answer. Okay. How small is too small?

>> 150.

>> 150 units below that.

>> Not worth it.

>> Jesus Christ. People hate me. [ __ ] [laughter] I said 32, dude. Like, oh my god. Y'all go hate on Ken. Don't quit hating on me. Y I've had enough.

>> No, you can hate on me. Okay, but let me let me just let me throw you a little curveball here. I've owned I owned a 68 unit building and guess how many people uh guess h guess how I had to staff it? Like two people,

>> Which means that it's closed, right? Like they're really really hard to run,

>> Right?

>> U you know, so that that for me it's again back to the property management side. 150 units. I I I have a staff of four. Okay. But let's say I'm a I'm I you know I'm new to real estate. You're saying skip the two units, the four units, the six units, the 8 units, the 12, the 32, the 64, and just go straight to 150.

>> Well, no, no. What I'm saying is that's what I would do. I I think there's incredible knowledge to be had and education to be had uh in in the smaller stuff.

>> That's how I learned, you know.

>> But why get educated on smaller? Why not just why not tell me tell me why I shouldn't just skip?

>> Yeah. Yeah, I get it. No, I I trust me like I I you know I think the knowledge if you're going to raise capital and place it um I think that you you know you you got to have some tough skin and you got to learn you got you can't just do it in a textbook and you can't just do it um you know uh you know by watching a video like you have to actually feel it, you know.

Okay, that's great dude. Um, tell me worst deal you've ever done.

>> I did a condo conversion. Uh, I got caught up in the condo conversions, man. Like, uh, you know, in the early 2000s and we hit it really, really good, Grant. We were buying apartments and converting them to condos and we were selling 50 a month uh, like crushing it and and then we were doing Conor Developments and all that stuff. And I'm talking about in Tucson and Scottdale and Vegas. Um and then you know 200 or 2008 the music stopped and and we ended up um it was bad like you you know you

>> How much how much did you did you lose? I wanted well um it was it was a lot we well we lost all our investment and our investors lost too uh because what happened is the the you know all the juices at the end so so when you get to that last 20% that's where all the profit is

>> Right

>> um and and there was one project in particular where you know we were about 50 60% of sold um and and you know

>> And the music stopped.

>> Yeah. The music stopped and then you're sitting there with all this product that's supposed to be condo um and the you know everything was unraveling and there was no buyers and and uh you know that was that was a but that's what you learned the most. My gosh did I learn a lot during that

>> You learn not to be an idiot.

>> Yeah, you do. And to change like I just stay in my lane, man. Just be multif family. every time I every time I moved over here to try to do office buildings or self- storage or or condos or whatever it is, um you know, I I underestimate the learning curve.

>> Yeah.

Tell me the best deal you've ever done.

>> Well, I got a deal I just refinanced for the third time last week uh in Flagstaff. Uh almost 300 units. I bought it 20 some years ago. Um, you know,

>> Refinanced it three times.

>> Three times. Yeah. We just pulled another 14 million out last Thursday. Uh, and and um, you know, it's just the gift that keeps on giving, man. Like,

>> It's insane, bro. No tax event.

>> Three times. I I mean, the first one, the first time I bought it for like 195.

>> Yeah.

>> Let's call it 20 years ago. And then I ended up um uh we ended up refinancing it like four or five years later, I think. And everybody got their money back. And since then, you know, for the last 15 years, it's just been we've been running it cash flowing like crazy. It just produces so much money. And um it's an older project uh built in the 70s and 80s, but the loc it's 40 acres right in Flagstaff almost downtown. It's just just a phenomenal uh property.

>> How so how much money you think you've pulled out of that deal?

>> Oh gosh, I would say six 50 60 million.

>> Yeah. Easy. Uh, over three ref.

>> The first time you pulled money out of a deal, were you shocked? Were you like, oh my god, I this this I underestimated

>> Well, first I was like, I can't believe it worked. Yeah. Like obviously you have a plan, you set forth, you're working your butt off, and then um you know, there has to be a lot of things that work your way. Then it worked, and then I refinance, of course.

>> How much of that How much of that, Kim, was just time? It wasn't because you were a brilliant manager. It was just time.

>> A lot of it. Yeah. I think uh market cycles honestly are underestimated by a lot of people and and they're everything. That's why, you know, we kind of took our foot off the gas and you know, call it 21, 22, 23, 24. Um, you know, when I saw the prices of the cap rates really going down and I saw people overpaying and all that, you know, so the signs are all there. I just I don't think I saw them in my 30s and probably even maybe in my 40s. Um, so market cycles are everything. You can buy wrong and catch a market cycle, you know, and it makes you look great.

Um, what's the downside of a 1031?

>> Forcing forcing a tax situation uh into a bad deal. So, a lot of people do it to avoid tax and then they end up buying a bad deal. And I have a number of stories here of people that have come to me and done that. You know, I had a guy out of San Diego.

>> So, so let me just set it up. So, you had you had a $45 million profit from the sale of an asset. Let's say it was 10 million. You sold it.

>> The 1031 you're moving into another asset the same size or bigger.

>> Yes.

>> In order to prevent paying capital gains tax, which is only about 20% by the way.

>> Yeah.

>> But I want Ken to talk about the downside of the 1031 because everybody talks about how great it is, but everybody nobody ever talks about the traps.

>> There's so many traps. So, so here's the thing. Like as you said in the very beginning, finding a deal is really hard, right? So if you're if you have a bunch of money and you're just trying to save tax, you're discounting the hardest part like which is finding a deal. So so you you know where it goes is more important than where it's coming from.

>> And and so so for me that always has to so whenever we do a 1031 uh here's a here's a little hack for you. We actually as the um as the seller delay a close like

>> You you delay the close.

>> Sure. Yeah.

>> You want more time to find something. Yeah.

>> Because you have 45 days and 180 or your two terms.

>> You got it.

>> So he's he's going to actually extend his closing which you don't want to be as a seller,

>> Right?

>> You don't want to add time for this guy to walk away. So

>> Correct. Right. Actually, but I'm more concerned about preservation of capital and and deferring tax. Yeah.

>> Um and so it has to be the right deal at the right time. And so there's been many cases, Grant, where we actually had 1031 money

>> And um we ended up, you know, identifying three and and saying no to all three.

>> Yeah. Yeah. I've done, I don't know, 16 1031s. I don't know that I'll ever do another one.

>> Yep.

>> Because I never identify three. I identify one that is my one. The seller knows, by the way, I mean the next guy, the other guy knows if I'm doing a 1031, the other thing is that puts you in a very vulnerable place because if he's selling to you and he knows you're in a 1031, he you the urgency is more on you than it is on him.

>> That's right. Yeah. Yeah. 100% right. Yeah. So,

>> And you definitely don't want to go to number two and number three. No. Who Who wants to Okay, I didn't get the girl I wanted. Let me go let me go to the let you know let me move down the bar because it's getting later.

>> Yeah, finding one is hard enough. Finding three is extremely hard. And so to your point, um we always try but we don't let the tax um

>> Drive drive investment at all.

>> Yeah. Have you ever done a 1031 where you regretted it? You're like, "Shit, I just wish I had just paid taxes."

>> Not yet. Not yet. I did buy a resort in Sedona that I still own today. Uh from a 1031 and and it um that was a I thought at the time a little risky, but we ended up um we ended up turning around. I still own it today.

Let's see here. Why buy value ad rather than brand new or vice versa?

>> Well, I again I I think you know what everyone wants is they want they if your if your sole investment philosophy is based on something going up then then I think that's a really really that's gambling and and so so for me a value ad always has value because it's that's the whole point of value ad it has value ad in it and so so if you can force the equity um you can raise capital easier than something that's, you know, right off the brochure.

If I have markets you like the best right now,

>> Um, I like Boise, I like Salt Lake, I like Phoenix, I I like Tucson. Um,

>> You like Tucson, huh?

>> I do. Yeah, I like Tucson. It's never really too overbuilt. Um, it's been generally affordable. It's got a major university.

>> It never does much, though, dude. I bought 2,200 units in in in Tucson in three days. Yeah, I haven't done that, but I'll tell you, uh, it is slow and steady. It's not flashy, man. Like Tucson's just slow and steady.

>> Yeah. What's the fifth one?

>> Um, let's see. I would say Dallas.

>> Dallas. Okay.

Five worst markets. You're like, I'm not putting your money or my money there.

>> Austin, um, Nashville, Houston.

>> Um,

>> Houston has no Houston has no pipeline. No, no, no new supply coming on this year. Lowest supply in like 25 years.

>> Yeah, I know. I know. I I We're just

>> I got it.

>> Yeah, that's just I know.

>> Yeah, I know. Dude, it's hard to make money in Houston. It's You know,

>> It is. Yeah. Yeah. And then And then obviously Portland and Seattle.

>> Uhhuh.

Okay. Appreciate all the time you're spending with me, by the way.

>> What's the lowest cap rate you've ever paid

>> Going in cap? Yeah, probably high threes.

>> Okay. Do you regret that deal or like

>> No, no, no, no. Because again, I I don't really, you know, I'm a long-term guy. So, if if I if I'm buying a low cap rate, it's usually based on existing operations and I'm always buying there's there's something inside of the deal itself. Uh that I I don't believe it's a it's a high three cap rate. So, a high three like how do you value what what's a cap rate on a 50% vacant building? You know what I mean? Like

>> Right. Right.

>> You know, so that's that's a thing I I

>> Do you think people should disregard uh uh you know, put less value on today's cap rate

>> 100%.

>> And more value or emphasis on the the replacement cost formula.

>> Yeah. I don't think I think the cap rate's interesting, but I I don't I don't think it's

>> You're not going to buy anything if that's all you're driven by.

>> No. No. I I look at cash flow. I look at upside. I look at replacement costs. I look at the story. I I want to buy broken.

Dude, there's something on the internet about you work you work only 90 minutes a week or something and you've made, you know, hundreds of millions of dollars.

>> Please tell me that's [ __ ]

>> So, I know.

>> Please tell me it's [ __ ] that you only work 90 hours a week or 90 minutes a week.

>> So, what it is is I run the company for I have a I have a 90inute meeting every single week with my leadership team.

>> Okay. Uh I obviously I have an investment committee that you know we spend another 90 minutes on but those are the two meetings.

>> So you work 180 minutes a a week.

>> Well, there's other stuff that comes in like my partner called on a development deal yesterday and I maybe have a 30-minute call or whatever. But

>> I mean god damn this this podcast is going to last longer than 180 minutes.

>> Yeah. Working longer now. Um

>> Yeah, listen, we just went through a merger. Um, and um, I don't have an office in my office. I I don't um, I work from my house. I got somebody running my company.

>> Oh, you got the life, dude.

>> Yeah. I'm just saying like

>> I'm still out here grinding trying to trying to get my game on.

>> I I you know, we we have a whole team. We got 400 people. So, you we we have a whole team of doing stuff, but you know, if I'm working inside of my business, um, I'm not working on it, right? So, I'm always working on it somehow, but uh from an actual operational standpoint, that that's not too far off.

Are rents going to crash uh with 500,000 new units coming on?

>> They already are. Like, it's flat, negative. Uh, you know, there's month free and all that kind of stuff. So, I think we're in the middle of it.

>> You think rents are crashing right now in 2026?

>> I mean, yeah. You know, you know, you I think it's funny when if there's one month free, two months free, four months free, that's a rent crash in my Yeah. So, that's going on today. It's not in every market, but for sure it's happening.

>> Do you think that there's going to be a crash in multif family in 2026?

>> No.

>> No way.

>> No. No way. No way. Like,

>> No way. No way. What?

>> The crash already happened. Like if you own something, you already know you you've crashed. You're you're still in the you're still on the side of the mountain in the plane maybe, but you know, you're done.

Is multif family dead for newbies.

>> No. No. It's the best time. This is the best time. You want No rent growth. You want high vacancy. You want high expenses. You want lender distress. That's when you buy.

How much did you lose in 2008? Um on paper uh not much believe it or not because uh now if if you if you calculate the values for sure just like today just like how much did we lose in the last two years like hundreds of millions right went vaporated right from the cap rates went up uh same thing financially from a cash standpoint I didn't get hurt at all [sighs]

>> You know apartments were the first thing to recover after 20ou in 2010 by the way the the number one thing to recover in 2010 was apartment rents.

>> Yeah. So So what happened was that you know the single family market what what did all those people do? They moved to rentals.

>> Yeah.

>> You know if I was in the right place at the right time.

>> Yeah.

Do you consider single family homes an investment?

>> Um if there's cash flow. You know what I mean?

>> Well, yeah, but I can't. Yeah. If I'm not if I'm living in a single family home.

>> Yeah. Well, I it's it's a I I get where you're going. Here's the thing. There's 46 trillion dollars of equity sitting in single family homes with people that are not investors. Now, think about that. Like, literally, like my mom, my mom's a hairdresser, still owns her home. She paid 11 grand for it that's worth over 700, right? Is she an investor? She's not.

>> No.

>> But she got the she got inflation, you know, she got the ride with inflation, right? And so that's what happened. So, are those investors? I don't really think they are, but their home is an investment.

Do you think do you think a person should keep their single family home residence where they live value on their their personal financial statement as an asset?

>> They do. Uh I

>> Should they should they is it is it proper accounting?

>> No.

>> No. What?

>> Well, no. No. Like like you know equity can evaporate quickly. Like you and I both know that. Like so so what does it really mean? It's it's fake. Like uh whatever whatever equity you have today in a home could be gone in 6 months to a year. So no.

>> Yeah. No. No. It should not be on their financial statement.

>> Well, it is though if obviously they have a loan. But I know but if they have a loan, it's the bank's asset, not yours. The bank's lending. So the the loan is on the bank's asset. It's a liability for you. And if there's equity, you know, they do consider it. and and if they're giving you if you're doing a cash out refi on your personal residence, they do an appraisal and they you know they they use that as collateral. So, you know, I I think that there's a case, but to your point, uh I I think it's u it's a weak it's weak.

>> Yeah.

Uh man, this has been great, dude. I really really appreciate your time. What What would you be doing if uh different if you were me? You watch me if you've watched anything that I'm doing and you're like, he shouldn't do that. He should do more of this. If I was him, I would do I'm looking for some personal uh advice from you. What What should Grant Cardone do different?

>> Well, first of all, I I I love the energy and you know, obviously you're you're everywhere. I I I think you know, every time I stepped out of something I really know like uh I always I underestimate the, you know, the the learning curve, right?

>> Yeah. Yeah. I I underestimate the momentum I have right now like with 400 people and acquisitions and analysts and all that and you know a team and and the investors all that stuff and so when I go over here to something else um I I I you know it's like pushing a rock uphill and and it's it's four times the effort you know with with a very very little uh so so so for me what I've had to learn is is to just stay in my lane and try to be really really good at this and uh I got burned all over the place.

>> Yeah. So, what do you what do So, what are you associating that with when you think about me? Like, what do you see me doing that's not in my lane?

>> Well, no, I I know you're in a lot of lanes. So, um you know, I I'm just saying that it's very very difficult for me personally. I don't know where your stress points are at all, but I I do know that it's really really hard to be in five, six, seven, eight, 10 lanes,

>> Right?

>> Uh and and be really really good at one thing. That's all. And so for me, every time I, you know, my wife, she's like, "Did you start a new company today?" Like that's like our little inside joke. I'm like, I'm like, I deserve that. You know what I mean? Because that's been my life, too. Like I I I you know, it's like shiny object, squirrel, let's go over here. Let's do this. Um, and so every time I've done that, it just takes a little bit off what I'm doing. So for me, it's just focus.

>> Well, you didn't really answer my question, though.

>> Well, I guess I would need

>> Maybe you should get in politics. Maybe you should get in politics when you're not wrestling.

>> All right. Well, where you spending all your time?

>> That will help me

>> In the multif family space. You see what I'm buying. You you know what I'm buying. You know what I'm paying. You know how I raise money. What would you tell me to do different or more of?

>> Okay. Well, have you have you bought anything in the last two years?

>> Yeah. Yeah.

>> Okay. So, how many

>> I mean, we we bought billion dollars worth of real estate in the last two years.

>> Okay. Well, for me, I I would just double down on that. I would get into the development. I get I get everything all apartments. I think that's where it's going. But um and the other lanes would be, you know, maybe crypto and maybe some of the other things that that you've been promoting over over the time, you know.

>> Oh, you think you think so? Me combining the real estate and the Bitcoin. You don't like that concept?

>> Well, has it done well?

>> I mean, I'm I'm basically take I'm basic, you know, has it done well this week? I mean, Bitcoin's down. our we're below our average price, but we've also collected 2,000 Bitcoin with our real estate portfolio, both of which are long-term investments.

>> Yeah.

>> Now, now Bitcoin goes to zero is a terrible, terrible plan.

>> Well, you know, like when you're like Bitcoin, you know, when you're wrestling when you're wrestling me to the mat on gold and it doesn't cash flow, that's how I see Bitcoin.

>> Yeah. But when I combine Yeah. Yeah. So, you're not a Bitcoiner?

>> Well, no, no, no. I I I own it. No, no, but I I don't But I'm not taking my platform and and trying to roll the two together. I I I I'm just saying like I don't understand. I It doesn't cash flow for me.

>> Yeah. But I But I have cash flow from the real estate.

>> See, this is this is the gimmick. Okay. This is the gimmick I'm using. This is the hack. This is

>> What is it? Th This is the the concept.

>> I'm going to take something that cash flows it. We bought this deal in Bocas, 230 million. We bought it from Blackstone. It's 100 million maybe 140 million below replacement cost. [ __ ] stole the asset. It's going to do uh stabilize four and three quarters. Perfect location. Ken, I mean, you can't replace it again. It's impossible.

>> So, I I know I have everything that you talk about, right asset, right location, da da. So, what we did was rather than just stealing the asset, we added $100 million of Bitcoin to the purchase and combined the two. Well, there's the math equation there and I I know you know what it is. So, I don't know like has it done well or not?

>> So, well, I mean, I've been in it, you know, we've been in it six months, so like, you know, I'm below I'm I'm below I have my my average cost in the Bitcoin is lower than I than our purchase price today,

>> Right? And and so I guess again like CR

>> Yeah, I'm trying to create a new vehicle, dude. But I I'm trying to create another way for because the real estate I mean just talk about how boring is real estate when it's boring. How boring is it to the investor?

>> I flipping love it being boring man. Like I know it's not but you know it it is boring. Yeah for sure.

>> And you like that it's boring.

>> Yeah man for sure. Right. Well I mean I I if I want not boring I go somewhere else.

What happens to a group, Ken, like Starwood or Blackstone or these big giant groups that bought Blackstone bought 10,000 units in Florida in 2022?

>> Yeah, that's a problem.

>> Starwood probably added 30 or 40,000 unit. The these guys I'll probably bleep the names of the companies out, but um these guys were over bidding me by 20 and 25%. We had a deal down in South Florida. I was at 240 million and one of these groups came in. I was stretched out, bro. I was like as far as I could possibly go and and feel like I wasn't killing myself and they came in another $40 million. 18% over my my bid.

>> Yeah, that's ridiculous.

>> What happens to those deals? Well, it's that's that is some very very dumb money like like people think that institutions are, you know, really really really bright. But you and I both know those stories are everywhere. Like we have the same kind of stories. People I just shake my head going, you know, cuz like you know when there's a deal and there's six, eight people in best and final, you know, you know, we're all real close. Our NOIs are all very close. And then you get one sitting out here that's just crazy high. And of course as a seller you're going to take it. Um and typically they're backed by, you know, some institutional equity like that. Um I I just, you know, but that is the way it's been, Grant, as you know. They're they're so far from the the reality. Um I I I don't I don't get it.

Do you offer your uh investors a a pref?

>> Yeah.

>> What's a pref on your deals? uh we've done six to eight depending on six to 8% depending on the deal itself. I I you know what we always do and the reason why there's a range is I start with the deal and then I work back to the prof. So I don't I don't raise money on a pref and then try to find the deal. I I look at the fundamentals of the deal because the deal is what pays people. Um and and so I don't use the pre to raise capital. I use it to you know to pay people.

Ken, last question. So when you look at a deal, okay,

>> Before you start doing the math, do let's say you don't like the deal.

>> Yeah.

>> You you you just have this like h do you then underwrite that deal and try to make sense of it at some price or

>> So great question. We So every week we do this. Uh yeah. Yeah. We we have a our you know our investment committee has

>> You'll buy deals you don't like.

>> Eight nine people on it. No

>> No no you won't. No, no. We we we I it has to be the right location. It has to be a story, you know, has to be something that, you know, I always I always solve back to the equity. Uh man, if they're if they're not covered, we pass.

>> Yeah. But but let's say let's say it's a deal you're like, ah, but then the numbers, the guy's got to sell. There's a story that comes in financially says, "Oh, no. We we're going to make money on this deal."

>> But you don't love that. You don't love the asset. You don't love the location. Maybe you don't love the full story, but you're like, I'll take it home at some price.

>> Yeah. Oh, yeah. I always look at stuff that way.

>> 100%. Yeah. Like there's always a price for sure. And and uh you know, so we'll,

>> You know, we we we underwrite it to our buy box, which is we back into the preferred return number. We make sure that there's a cash on cash play. We make sure all those boxers are ticked. And then obviously if it's in a shitty location, we'll pass. But if it's in it's an okay location, we might buy and we might do a one, two, three year hold, right? That portfolio I was trying to buy six properties. There were two in there I did not want. But we bet on the whole thing and the the goal was to get rid of one or two in the in the first two years.

How important is real estate education, Ken?

>> It's everything from my standpoint.

>> Yeah. And how how would you get an education today? When you and I were learning, there was no video, there wasn't courses, there wasn't online, there wasn't any of this. Like this will be the mill millions of people will see this interview between you and I that that was not available 20 years ago or even seven years ago.

>> Well, I I mean this studying like this and listening to people who have done it is number one, right? Because you know, pay attention to who your teachers are. Like if they're not buying and they're just, you know, uh, you know,

>> You're saying if they're if they're teachers and they were once buying is different than if they're teachers and they are buying.

>> Yeah. And both, you know, so there's a lot of people on the YouTube that, you know, are just selling stuff, right? And and they're not they're not really doing what they're saying, you you know. So I I think the the the wisdom of the teacher, all my mentors, all my coaches, uh even in wrestling, you know, they're incredible wrestlers or they're, you know, they're incredible real estate investors. So I always even when I was a young man, I had a guy by the name of Charlie Dunlap, you know, who was a multif family guy who bought a lot of bunch of stuff and he was my my go-to. So uh but I also think, you know, there's no um there's nothing that replaces actually doing it, Grant. Like you don't learn anything when money, you know, when you're when you buy something and sell it for higher and the market is your gift. You you really learn when you get the your teeth kicked in, right? And so you have to go through those periods of time like like we've been through where your teeth get kicked in and that is when you're really learning. Uh and so you know and of course you dust yourself off and do it again. But uh but you start with this kind of stuff for sure. Uh and then just get around coach the you know I always say just hover up to next people you know what room are you in?

>> Yeah yeah

>> Like seriously what room are you in are you in the right room at the right

>> Do you think it's important to go to to to conferences and events and and and be with other real estate investors and

>> I created one specifically for that uh called Limitless Expo um and you know we do it in Phoenix once a year uh it's in this year in August and and absolutely 2,000 people picked a cool month to to do.

>> Yeah. Yeah. It's just cool. I know it's great for everyone else, but

>> It's a value ad. It's a value ad conference.

>> It's But yes, Grant, you're right. And so I get to hand select, you know, 50 speakers, you know, and they're and they're not speakers. They're they're actually doers. Like

>> Yeah.

>> Last year I I got a guy that's that's in the health and wellness space. He's building a you know, a day- spa with um in in Park City, you know, I brought him in, right? And okay, what's going on in the wellness space? Well, all of these things. So, so that's where you learn and you know and he's got his challenges, right? Like it's not a known space. Um, so those are the kinds of people that I learn from, you know, the people that are doing things and and so being in those rooms, you learn a lot from people and you know, because we are in our lane and and and there's some incredible people doing some incredible things out there.

Ken, thank you so much, man. I really appreciate your time. I got just got two hours with a guy that's done I don't know how many billions of dollars of real estate have you done? Uh, three three billion. Three billion. I got a buddy that sold 70 billion. I said, "Bro, would you rather sell 70 billion and get paid on it or own three or four or five billion?" He's like, "Oh, no, bro. Own it. Don't sell it.

>> Own it." Yeah. Cash flow, man. Just keep it. Use the tax to your advantage.

>> Ken Mroy, this has been too long. We got to do it again, buddy. I really appreciate you. Thank you so much. Grant,

>> You bet. Take care, man. Thanks.

>> Thanks. Cheers. [music]

>> [music] [music]