Ken McElroy: 2008 Prices Return for These Properties

This is not 2008 all over again…but the discounts are looking similar. A “slow unwinding” is beginning. Ken McElroy, a multi-decade real estate investor, owner of 10,000 rental units, and one of the biggest names in real estate, is seeing discounts…big discounts. Certain investment properties are being offered to him at 80% off peak prices, and, in his own words, the “blood in the streets” is becoming visible. Now is the time for ready real estate investors to strike. We’re coming straight from The Ken McElroy Show set, live with Ken and Danille McElroy, both real estate investors, but seeing very different realities. Ken focuses on large multifamily while Danille buys (and helps her clients buy) single-family rentals. Even though prices have fallen (dramatically) for multifamily but not single-family, both Ken and Danille are seeing deeply discounted deals, if you know how to spot them. Ken and Danille share their exact real estate investing buy boxes, guidance to investors starting in today’s market, the key to spotting neighborhoods with the best price growth potential, and the dangerous risk to real estate most are ignoring, a “canary in the coal mine” that Ken is paying attention to. In This Episode We Cover The almost unbelievable deals Ken is finding in the multifamily market (80% off) Multifamily’s “slow unwinding” and why we’re seeing more distress in the market The two types of single-family properties Danille says have the biggest deal potential Ken and Danille’s multifamily and single-family buy box for 2026 The key to spotting neighborhoods with the most appreciation (prices and rent) potential A dangerous problem that most real estate investors aren’t paying attention to And So Much More! Check out more resources from this show on ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠BiggerPockets.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠https://www.biggerpockets.com/blog/real-estate-1265. Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠[email protected]⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Dave Meyer?

  My guests today own more than 10,000 units and built one of the most recognized brands in real estate investing, but they each started from a single property, just like everyone else. Ken and Danielle McElroy have invested through every kind of market cycle of the last three decades. We're talking about recessions, booms, rate spikes. They have seen it all from individual condos to hundreds of multifamily units. So I want to know, what are they doing in today's market? Are they still buying? And how do they stay profitable when everyone else is sitting on the sidelines? Today, Ken and Danielle are breaking down their market outlook, the strategies they're using right now,

• 0:42Dave Meyer?

  and their advice for real estate investors, whether you're looking for your first property or you're trying to scale up to hundreds of units. If you want to know how experienced operators navigate uncertainty, this is the conversation.

• 1:01Dave Meyer?

  What's up everyone? I'm Dave Meyer, Chief Investment Officer at BiggerPockets, and this is a very special episode because I'm joined by Ken and Danielle McElroy, or you could say I am joining them because as you can see, I'm not at home. We are recording this live from their studio in Scottsdale. Let's not wait anymore. Let's jump in with Ken and Danielle. Ken, Danielle, welcome back to the BiggerPockets Podcast. Thanks for being here.

• 1:26Speaker 01

  It's been a minute.

• 1:27Dave Meyer?

  Yeah.

• 1:28Speaker 01

  Excited.

• 1:28Dave Meyer?

  And Danielle, it's your first time?

• 1:30Speaker 02

  It is my first time.

• 1:31Dave Meyer?

  Well, welcome. It's long overdue. Sorry about that.

• 1:33Speaker 02

  No worries.

• 1:34Dave Meyer?

  Thanks for being here. Well, I think we should do a refresh then, since Ken, it's been a while. Danielle, your first time. Danielle, maybe just tell us a little bit about yourself, your background in real estate.

• 1:43Speaker 02

  Yeah, so I'm a real estate investor. I own five single-family units and I started investing in real estate in 2016. My first investment was a property that I lived in. And I was actually, met Ken when I was looking to convert from a condo to a home for myself. And he said, why don't you rent the condo and buy a home? Where I was planning on selling the condo and then buying a home. And I was But I did it and that's how I started in real estate investing.

• 2:15Dave Meyer?

  How'd you convince her?

• 2:16Speaker 01

  It happens, right? I get it.

• 2:18Dave Meyer?

  Yeah, absolutely.

• 2:19Speaker 01

  You have all this equity and you're like, I need it to buy whatever next. And I'm like, no, no, no. Let's use it to leverage to get a second one, a third one, a fourth one. That's the model, right?

• 2:28Dave Meyer?

  100%. I mean, I tell, talk about this on the show a lot. It's probably, I think, the biggest mistake I made early in my investing career. Started building equity in my first deal and I felt like that was like my, my life savings there. That was like my fallback option, my nest egg. Like six years in, I was like, man, I could have 10 units by now if I had just done it strategically. But it takes a while to learn those things.

• 2:50Speaker 01

  And, and you also have to have a little bit of trust, right? And, and education and all that stuff to be able to pull that off.

• 2:57Dave Meyer?

  And fast forward, it worked out.

• 2:58Speaker 02

  Yeah, fast forward, it worked out. You know, I don't do condo investing anymore, but on single family, I think it's great. Yeah.

• 3:03Dave Meyer?

  Well, good for you. That's awesome. Thank you for joining us. And Ken, maybe tell us a little bit, remind our audience about your background.

• 3:10Speaker 01

  Sure, sure. So I started in property management right out of college, managing properties for collecting rent and cleaning units and painting units and all that kind of stuff. And that's actually when I learned the most, right? Like as you do on the operation side. So that gave me the courage to buy. I started buying about 10 years later, small stuff. Then I started scaling into the bigger stuff. So now we, we have about 10,000 units, mostly multifamily. We're a builder, buyer, rehab, value add, ground up construction, kind of do it all. But we're generally just staying in the multifamily lane.

• 3:46Dave Meyer?

  Let's just start there, Ken. I mean, it's been a rough couple of years for multifamily, for most operators. Like, how are you feeling about the market right now?

• 3:54Speaker 01

  Well, I'm excited. It's, you know, I made the most moves financially, strategically in 08. So for me, This is what I went through in 08, right? Like now I'm 15 years more wise, a lot more deals. And this is, this is incredible opportunity that we're getting ready for. So I'm, I'm very excited.

• 4:17Dave Meyer?

  What did you see in 08? Like what were the hard lessons that you learned there? And how do you think this is different?

• 4:23Speaker 01

  So what we had at that point was we had, I call it a main street crash. Right? It was a single family, main street crash. And so we had a big repricing, had three, four million units on the MLS. And it just brought all the prices down. So it's a temporary crash on the single family. But then what, what do those people do? They move over to multi. So when you move out of a single family, you, you move into the rental side. So we, we went from 69.2% homeownership under Obama to about 65. So every percent just put more pressure on the other side of the equation or the rental side. So everybody that started in the multi business after that, they looked like they were rock stars. But really it was just a, it was just a shift from single over to multi.

• 5:07Speaker 01

  And so that kind of created that run. This is really different. So this, we don't have a single family crash, in my opinion. We're undersupplied. Leading up to 07, we were building a million and a half homes, let's say, a year. After that, we were building 500 to 700,000. So, so that's where the shortage came from. It came from that, you know, call it the, the healing period, right? There's so much, there's so much inventory. Why would you, why would you build when you have so much on the MLS already? So this is extremely different where you have, depending on who you look at, Realtor, Zillow, Fannie, Freddie, they all have different reports on this. Three, four, five million short, let's say, whatever the number is.

• 5:52Speaker 01

  That's a little bit different. Yeah. So, you know, so you don't have a single family drop, but you, what you have is you have a, an interest rate issue here today, you know? So people are used to these low rates. For me, this is normal. Like rates are, rates are normal. What's not normal are the values.

• 6:11Dave Meyer?

  Right.

• 6:12Speaker 01

  Right. So the prices went up, but so now that's resetting.

• 6:15Dave Meyer?

  You, you said that you're excited about this, but also prices have been resetting. Why is it taking so long? I guess like for me, I've been waiting for multifamily prices to come down and they have what 15, 20% nationally. But I feel like the distress should already be here more than it is. And you don't see inventory flooding the market. So why has it taken so long for the multifamily market to get back to some equilibrium? And when are we going to see transaction volumes start to pick up?

• 6:48Speaker 01

  So we're starting to see it now, but, but I'll tell you what happens. There's a slow unwinding that happens. You know, these are all partnerships, right? So there's a general partner and a limited partner with, um, and so the first thing that gets exposed are the people that don't know how to manage. So the first kind of tranche is the people where we, you know, they're 50, 30, 40% occupied. Expenses are out of control. They didn't manage their CapEx or anything like that. That, that was kind of the first one. Those are the obvious ones. But the real issue, as you pointed out earlier, is that people's loans are maturing. And, or those could be, they had floaters or whatever they had. That's all creating the pain.

• 7:26Speaker 01

  So the irony is you might have a property that is actually 95, 96, 97% occupied. They actually might be running the expenses and the, the revenue, not far from what the business plan said, but the biggest expense, which is debt, uh, you know, makes it negative. The first thing is the partnership kind of tries to solve it, right? And they try to solve it internally through cash calls and all that stuff. And then they try to solve it with the lender. Then at some point, the lender's got to rip the Band-Aid off because if, if I, uh, if I have a $20 million loan and your properties were 20, I actually don't need you, right?

• 8:07Dave Meyer?

  That's right.

• 8:07Speaker 01

  You know, since I'm like, well, I'm going to get rid of Dave, take the property back and I'm going to try to sell it for 20, which was my loan. So you have the, all those scenarios going on. So that's why it just takes a while.

• 8:17Dave Meyer?

  Yeah. There's like a forcing mechanism now where the lenders are. Fed up, I guess. Yeah. Seeing the risk on the wall and they're going to just force these issues. And I want to get back to that because I want to talk to you both about private credit. But Danelle, tell us a little about what you're seeing on the single family market. Is it similar to what Ken's talking about in multifamily?

• 8:36Speaker 02

  No, single family is different because single family people are locked into super low rates. So there's not a lot of distress at this time in the single family market, at least in the Phoenix area. What I'm seeing a lot of is a lot of sellers delisting because they can't sell for what they want to sell for. And we're seeing some really good deals, but a lot of those are coming from flippers that are stuck in a deal that are in hard money. And also people that got into Airbnb, because when people got into Airbnb, you know, they thought, oh, this property is going to make, you know, 12, $15,000 a month and Airbnb is oversupplied and softening. So now they're not making that and their mortgages are $6,000, $7,000, $8,000. They're just need to stop the bleeding too.

• 9:21Speaker 02

  And in fact, I have one right now that's a short sale because of an Airbnb. So that is really happening a lot in this market. But as far as your average seller, I mean, I'm talking to them all the time. It's like, yeah, I'm going to list this property and if it doesn't sell, then we're just not going to move.

• 9:36Dave Meyer?

  Right. Well, it's so interesting what Ken was talking about in 2008, right? People who are in financial distress would move to multifamily. A lot of times now renting isn't even cheaper if you have a two or 3% mortgage. So even if people are having trouble, they just stay put. And it's just, I don't think we've ever seen a cycle like this really in residential before.

• 9:56Speaker 02

  Yeah. And that's interesting too, because the difference in a way is people didn't put any money down either. So it's like, if I don't put any money down, it's like, yeah, it'll destroy my credit for a few years, but I'm just going to walk away from this. Well, now people have put down 5, 10, 20% of, you know, the average single family home, like a starter home in Phoenix is in the fours, maybe fives. So, you know, you put down a significant amount of money, they're less likely to walk. Plus to your point, it's not going to be cheaper to rent. So like it doesn't really solve much and it's not like they have a ton of equity if they just bought in the last few years. So I just am not seeing a lot of distress on, I know there is some distress, you know, but just not a ton.

• 10:38Dave Meyer?

  Yeah. Well, I mean, that's good. I feel like for society, right? Like a lot of distress in the, in the, in the housing market for ordinary people. But does this mean? You're not finding deals or like, how do you?

• 10:52Speaker 02

  I'm finding great deals.

• 10:53Dave Meyer?

  Oh, really?

• 10:53Speaker 02

  Yeah, I'm finding great deals for clients and for myself. I just closed on something last week because what I have found is the people that have to sell have to negotiate. So I'm not really seeing, you know, I get a lot of buyers that are like, I don't want to buy yet. I want to wait for prices to come down. I'm like, you don't wait. You negotiate the price now. Yeah, you force it and you have to find the right sellers that have to sell. But if you can find that, then, you know, it's been really working out. And to your point, you know, I'm still finding cash flowing deals. You just have to put more down.

• 11:26Dave Meyer?

  Right, yeah. Everything cash flows.

• 11:28Speaker 02

  Yeah, exactly.

• 11:30Speaker 01

  Tell them about the deal. It's a four bedroom house for 500 grand.

• 11:33Speaker 02

  Yep, I found a four bedroom house and I'm renting it for 2,900 a month. And I actually think I could have got more, but you know, I just bought it. So I want to get someone in right away. I think I could have got like 31 or, you know, because I had so much interest at 29. But at the end of the day, you know, people like to wait to buy because they're uncertain about what's going to happen with the market. But the way that I look at it is like, I bought a deal three years ago. You know, it's worth a little less than I bought, probably like 10 grand less than I bought it for. But in the past three years, I've collected over a hundred thousand dollars in rent.

• 12:06Dave Meyer?

  Yeah.

• 12:06Speaker 02

  So I mean, you have to offset that to some degree, you know, like you can wait, but you also don't know when the bottom of the market is.

• 12:14Dave Meyer?

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• 12:58Dave Meyer?

  strategy with no credit check and no strict monthly payment schedule. So you stay invested, you stay tax aware and still have access to liquidity when opportunities show up. If you want a more efficient way to manage both taxes and access to capital, check out Freck and schedule a free portfolio analysis.

• 13:18Dave Meyer?

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• 14:00Dave Meyer?

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• 14:40Dave Meyer?

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• 15:38Henry Washington?

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• 16:21Speaker 04

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• 16:54Dave Meyer?

  Welcome back to the BiggerPockets Podcast. I'm here with Ken and Danil McElroy. We're talking about multifamily, single-family market, how things have changed since 2008. And let's start talking about opportunity because I think that's what people are excited about right now is that pricing is getting a little bit better, affordability is getting a little bit better. So Ken, we were talking, kind of joking before that, you know, the situation we're in right now, not great if you're holding assets, good for buying assets, but you do both. So how are you sort of thinking about portfolio level strategy?

• 17:25Speaker 01

  Sure, sure. So I think it's important that I'm a fixed rate guy, right? I think you should always hedge your biggest expense. That's your biggest expense. Fix it, you know, and make sure cash Day one period, right? So that's been my philosophy from day one. That's why we never got in any trouble. I don't, I don't buy anything with an expectation that rates are going down ever. I, I always actually think they're going up no matter what. That's where my head is.

• 17:52Dave Meyer?

  I like that.

• 17:53Speaker 01

  And, and I, I'm like, if they go down, great. But if they go up, then I'm, I'm hedging. You know, and, and our whole portfolio, the other thing is, is we're under 60% loan to value on our whole company. We have some in the 30s, some in the 40s, some in the 50s. We have a few in the 70s, but not many, right? So, so I like low loan to value and I like fixed. And then we have our rent house management. So when I look at the, you know, the blood in the streets right now, and it's a lot. You know, what I, what I see are I, I find low occupancy, I find poor, find poor operators, I find high expenses. I find, you know, stress, you know, I find high, high expensive debt.

• 18:36Speaker 01

  All of that stuff disrupts multi. So, so we're, I'll just give you a couple of examples. Two weeks ago, we looked at a deal in Texas. I won't say what city, 5% occupied.

• 18:48Dave Meyer?

  What?

• 18:48Speaker 01

  270.

• 18:49Dave Meyer?

  What class property?

• 18:50Speaker 01

  B, 278 units. Now here's the interesting thing. It was, it was worth $45 million in 2021. And, you know, so it's like a B minus, but they had dumped like five, six million dollars of rehab money into it. And, and it's, it's got a 28, 29 million dollar loan on it, right? And we just made an offer for eight million to the lender.

• 19:18Dave Meyer?

  No, it's a lender.

• 19:19Speaker 01

  Yeah. So, so now, am I seeing those deals every week? I am not. But I just looked at another deal in Kansas City, very poor occupancy, you know? So what, what you have is you have this stress happening. And we're dealing with the people that own the debt, right? Um, and usually, uh, usually it's coming from a broker and sometimes the syndicator is involved, sometimes not, but, um, you know, so I think we're at the beginning of, we might not get those two. Certainly we made offers on both, but this is what I'm seeing. I'm not talking about, you know, 92, 88, 88, 5% stuff. Um, I'm talking about deep, deep discounts. I'm talking about 2008 prices.

• 20:02Dave Meyer?

  That's unbelievable. Yeah. I imagine it would be very difficult to resist something like that.

• 20:06Speaker 01

  Well, you know, but you know, when we looked at that, you know, called the eight million dollar offer, we figured that it was going to be another eight million to fix it.

• 20:13Dave Meyer?

  Yeah.

• 20:14Speaker 01

  And the negative carry and all that stuff. So, you know, we're trying to, we're trying to stay under 20 million all in.

• 20:19Dave Meyer?

  Yeah.

• 20:19Speaker 01

  Let's say, but then stabilized, you know, it should be in the mid 30s. So a good deal.

• 20:25Dave Meyer?

  Amazing. Yeah.

• 20:26Speaker 01

  Potentially, if we can pull it off, but those are the things that we're seeing.

• 20:29Dave Meyer?

  Well, I, I want to just sort of big picture this for the audience here because what you're saying is, yeah, you're taking some paper losses right now. And just for everyone, that just means the value of your properties sometimes goes down on paper.

• 20:41Speaker 01

  Mm hmm.

• 20:41Dave Meyer?

  You don't realize those losses unless you sell them, but it sounds like you're basically able to say, yeah, that stinks, it's not ideal, but you've just bought fundamentally sound properties that cash flow with fixed rate debt. And so, yeah, it's not as fun to look at your net worth statement probably, but you're still cash flowing. You're not worried about them.

• 21:02Speaker 01

  A hundred percent.

• 21:03Dave Meyer?

  Stressing them. And that allows you to move on to opportunity and to see this time period as a, as opportunity to buy, rather than freaking out about your old deal.

• 21:13Speaker 01

  Cash flow is way down.

• 21:14Dave Meyer?

  Yeah.

• 21:14Speaker 01

  No question.

• 21:15Dave Meyer?

  Just higher, higher vacancy.

• 21:17Speaker 01

  Vacancy, concessions, expenses are up, all of that. Um, you know, and net worth for sure took a hit. But that's what a cycle is.

• 21:27Dave Meyer?

  Exactly.

• 21:28Speaker 02

  You can't time the market. And I think that a lot of, especially small investors, or maybe people that haven't invested yet, you know, they don't want to make a mistake. So they try to time the market. But realistically, like what Ken was saying, I don't, of course, everyone would love to buy a good deal that they hit right at the bottom and then it just went up. But at the end of the day, if it's cash flowing, it's really just your ego. Like you said, like how much you're worth. Because at the end of the day, like the rent are pretty stable and you're cash flowing the deal. So like, who cares if you bought it now? And then if you would have waited a year, it would have been worth less. Like, you don't really hear too many people saying, oh, you know, I bought in, you know, 2018, I wish I would have waited until prices, you know, like, because they caught, they gained all that equity.

• 22:11Speaker 02

  And even now, people that bought in 2010, you're not hearing them complaining because they're in the money too. So if you hold something long enough because of inflation, it's going to go up. It's just you can't be forced to sell it.

• 22:23Dave Meyer?

  Yeah, exactly. That's the problem. That is the, that is the number one way you lose money in real estate, being forced, sell when you don't want to. Right. People are just getting into this, or the average homeowner who often tries to dissuade their friend from investing in real estate. I think what they miss is that market appreciation, just like waiting for macroeconomic tailwinds to boost up your property price is one way you make money from real estate. And you, if you wait, you miss out on all of those other things. I'm not saying to go out and buy anything. You should do, you should be diligent and buy good deals. But being, you're still making money, even if you're taking a paper loss for a couple of years, right? Like, I'm sure even with your vacancy and cash flow down, like, still paying down your

• 23:04Dave Meyer?

  debt, still making cash flow on your single families or your multifamilies, right?

• 23:09Speaker 02

  Yeah, you don't really think about it. You know, you're, you just look for the next opportunity. You look for the next thing that cash flows. Like, you don't want to buy something that doesn't cash flow. I made that mistake one time. But as long as you're cash flowing, it really doesn't matter.

• 23:22Dave Meyer?

  This is music to my ears. That's what we talk about all the time. Like, I like appreciation, but would never buy something without cash flow. It doesn't make any sense. Otherwise, you're just guessing. It's just spec, it's pure speculation. So, Danelle, tell us how you're thinking about portfolio strategy? Because you're in a situation I think a lot of people are facing, which is You like residential, it's stable, but prices are weird. You know, like you don't really know, are you going to go down a little bit this year, maybe up a little bit? That's why people are tempted to wait. So how are you thinking through that?

• 23:53Speaker 02

  Well, there's a couple of things. One, I had three single family homes and two condos. I 1031 both condos to single family homes in the last year. The reason I did this is because the HOA prices were just killing me. And I'm like, you know, I need to move this into something that's a better value. Plus, all of the Class A's that are being built are a direct competition to those condos. So my rent was going down and on my single family homes, it really wasn't. So I made that transition into all single family. The other thing that I'm looking at is sellers right now are in a tough situation and they're more likely to look at creative options and they're more likely to negotiate to a lower price.

• 24:33Speaker 02

  So I'm, myself and my buyers, I'm having us look at, okay, at what price does this need to cash flow? And how does this work? You know, at what number could we buy to make this cash flow? And then you negotiate that price or you offer creative financing and you're going to get 100 no's. But when you get that yes is when the deal works.

• 24:51Dave Meyer?

  Building up that thick skin to get rejected a little bit.

• 24:53Speaker 02

  Oh yeah. And just knowing you're going to have to, like, you know, I work with buyers sometimes and they fall in love with a house. I'm like, you can't fall in love with it because the numbers have to work. You know, you have to be a little bit indifferent. You can fall in love with it after the inspection and after the offer is accepted.

• 25:06Dave Meyer?

  Yeah, once you already own it, fall in love with it, but not until then. Yeah, that makes sense. And is it really 100 to one? Like, do you feel like it's really that many offers you have to make to get a deal right now?

• 25:17Speaker 02

  It's a lot. Like, I think you can look for things, like I look for Airbnbs because I know that those, you know, are going to be more motivated to sell. I look for flips because I know those are going to be more motivated to sell. But yeah, I mean, I think that you do have to make a lot of offers and you have to look at a lot of properties. And, you know, it's one of those things, you have to put more work into being a buyer right now to get a deal that pencils, but it's very possible.

• 25:39Dave Meyer?

  Ken, on the multifamily side, you mentioned Texas and Kansas City.

• 25:43Speaker 01

  Yeah.

• 25:43Dave Meyer?

  Like, what's your buy box right now? Is it just anywhere?

• 25:46Speaker 01

  No, we're actually very, very strategic. We follow migration paths.

• 25:51Speaker 01

  Work, population growth, building permits, walkability, school districts, all of it. You know, so we like markets that are progressive somehow, right? I'm not talking about politically either, you know, but, but that has been a factor too. You know, people have left because of those kinds of things, but you know, it's really simple. Without people, real estate doesn't work like, like it's so simple.

• 26:16Dave Meyer?

  It's your customer.

• 26:17Speaker 01

  They go to the end of the earth or they go to the edge of town because it's cheap and they can't figure out why they can't get a tenant and all that stuff. So, you know, you're better off to buy in areas that are growing progressively somehow, whatever it might be. And focus on that. And so, you know, there are very specific markets that we like. And, you know, even I mentioned Kansas City, but there's, there's not very many areas in Kansas City we would buy, but there are a couple.

• 26:43Dave Meyer?

  Even within.

• 26:44Speaker 01

  You know what I mean? And, and the same thing in Tucson, the same thing in Phoenix and, you know, the same thing in Dallas. So, and on and on and on. You, you have areas like North Dallas that's incredibly progressive.

• 26:56Dave Meyer?

  Yeah.

• 26:56Speaker 01

  You know, Richardson, Frisco, Carrollton, you know, you're going to have really good growth and that's kind of the path of progress. So those are the things we look at.

• 27:05Dave Meyer?

  Danil, how has your buy box shifted over time and how are you adjusting it at all based on just market conditions?

• 27:12Speaker 02

  I'd say my buy box is right around 500,000 in North Phoenix or Scottsdale because I just see that those are passive growth. Tenants want to be there. I've never had any issues, you know, any vacancies really. And I'm getting about the same rent I've gotten from the high, like I might be down a hundred bucks a month, but it's pretty darn close.

• 27:31Dave Meyer?

  That's great.

• 27:32Speaker 02

  Yeah.

• 27:32Dave Meyer?

  And so those are the deals you're starting to see more of.

• 27:35Speaker 02

  You are. Yeah. I'm not really seeing them at five, but I'm seeing them at like 550 and you might be able to, you know, negotiate closer to that 500 mark.

• 27:42Speaker 01

  I think what might be interesting though is you could tell Dave the. So Daniel had an imputed equity issue, which meant that she had a lot of equity in her condo, but it wasn't cash flowing a lot, right?

• 27:53Speaker 02

  Yeah, because the HOA was $400.

• 27:55Speaker 01

  So she's sitting at, so, so a lot of times people don't look, they look at their, yeah, they, they look at their equity, but it's not actually producing.

• 28:02Speaker 02

  Mm hmm.

• 28:03Speaker 01

  So she's, even though she had a low fixed mortgage, she goes, you know, I'm gonna,

• 28:07Speaker 02

  2.8.

• 28:08Dave Meyer?

  Ah, it's so hard to give up.

• 28:10Speaker 01

  But, but now all of a sudden she's turned that into a big cash flower.

• 28:15Dave Meyer?

  Real cash.

• 28:15Speaker 02

  Yeah, yeah, I'm cash flowing 1,600 a month on this property. So that's really great, but it, but on the other one, I was only cash flowing $700 because of the HOA costs, you know? And also, like I said, the downward pressure on condo rents due to multifamily building.

• 28:30Dave Meyer?

  Mm hmm. Two things I want to reinforce here. One, thinking about your competition, I think is something a lot of real estate investors miss upfront. They're like, this is a great property. Might be, there might be 300 of them right next door to them too. And if they face some financial distress, they're going to be quicker to lower rents than you are, and that's going to impact you.

• 28:48Speaker 02

  Mm hmm.

• 28:48Dave Meyer?

  The other thing that I want to mention is talking about return on equity and measuring the efficiency of your deals. A lot of people, when they get in, they're like, I just want to get 500 bucks a month in cash flow. 500 bucks a month is great if you're invested 50, you know, 15K into that property. If you invested a million dollars into that property, not so good, which is why we always talk about thinking about either cash on cash return, or ideally, the one we really like is return on equity, as Ken was mentioning. It's a good problem to have. Like if you build up too much equity in your, in your deal, that your cash flow is no longer efficient, it is a problem. It's a good one because you just made a lot of equity, but it is something you should

• 29:30Dave Meyer?

  address and you do that either by doing a 1031 exchange, selling and optimizing, taking out of the line of credit, whatever it is that you're doing, but trying to access that equity to move it into another deal where you can do better, which it sounds like you're able to do right now.

• 29:44Speaker 02

  Well, what was interesting is when Ken and I first started talking about this, because about a year ago, I'm like, I think I need to sell one of my condos just because of these HOA fees, and I was going to sell the one that I just sold. Because I had debt on it where the other one was free and clear and I was cash flowing more because I didn't owe anything on it. And Ken made me stop and think and say, okay, I know you're making more on this one over here, but you have so much more money tied up over here. So then we actually did the math and come to find out because I was sitting on this 2.8% mortgage, my return on equity was so much better on this one that had the loan. And so that's what prompted me to sell the other condo first. And to your point, like, I never would have looked at that. So I think some people are like, oh, this

• 30:27Speaker 02

  is paid off. I'm making all this money. But are you really making all this money?

• 30:31Dave Meyer?

  Yeah, not efficiently. And that's, I mean, it sounds like a little difference, but difference between, you know, a 10% return on equity and even 12% return on equity, you compound that up for an investing career, it's millions of dollars, probably. And those kinds of optimizations, you don't need to do it immediately on your first deal. But as you grow as an investor, this is one of the key skills, being able to optimize trade up, trade out. You really got to learn how to do it. But it's, I think it's the fun part. Actually, I think it's like where you get to like tinker a little bit, move your chess pieces around is the fun part.

• 31:05Speaker 02

  It's not a bad problem to have. You know, I always thought that I would be a buy and hold, never sell anything, you know, just keep. And then you have to really start looking at your portfolio. And it's been really fun, to your point, to 1031 some of these deals into better deals.

• 31:18Dave Meyer?

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• 32:03Dave Meyer?

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• 33:26Dave Meyer?

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• 34:57Dave Meyer?

  Welcome back to the BiggerPockets Podcast. I'm here with Danil and Ken McElroy. Let's jump back in. All right, so let's, let's talk some advice for our investors. Ken, you were talking about deals, you're seeing them, but lenders are bringing you deals from your hard-earned experience and reputation. But how does like an average investor who's trying to get into multifamily and take advantage of opportunities in the market do that?

• 35:22Speaker 01

  I think it's going to be hard right now, just to be clear. So what does a lender look for during times of distress? And I think that's the issue. So by the way, you can do this, but the very first thing that they look for is I have, I'm a lender, I have a problem, and I'm going to sell something to Dave. Can Dave pull it off? Period. Yeah, it's not if you have the money. Right. Like, nobody cares about that right now because everyone has the money, right? You're going to buy, everyone can buy a distressed deal. The issue is, do you have the team? Do you have the experience? Can you pull it off? And so I'll give you a really good example. I had a, one of the bigger banks in the country had a 680 unit

• 36:04Speaker 01

  building in, in San Antonio that I bought from them directly from the bank. So the bank took a write down, but the thing was 30% occupied, almost 200 people living there. So obviously, it couldn't pay its bills, couldn't pay so, so now what does the bank look at? The bank's looking at my ability to renovate the property, manage it well, manage the construction, manage the renovations, manage the interest reserve and all the stuff, you know, do I have the systems and the people and the team to pull all that off? Because the last thing they want to do is just sell it. Right? And they can't, there's not financeable. Right? You can't, you don't finance something that's

• 36:42Dave Meyer?

  They are looking for you to operate, not just to unload it.

• 36:45Speaker 01

  Yeah, so that's the big issue. That's going to be the defining moment for people. This is not about putting money together. This is about the team. This is where we're headed, right? So this isn't about going to a weekend seminar and learn how to syndicate. Like, you know, it's not, this is, this is, this is going to be You know, can you, you know, can you do a 30, 40 million dollar renovation?

• 37:09Dave Meyer?

  Right.

• 37:09Speaker 01

  And manage your way out of this scenario for somebody else, right? And so the lenders or the debt funds or whoever they are, they're looking at the team, the experience, the wisdom. And so if you're new in the game, you can absolutely put those people together, right? Like, obviously, you know, this year at Limitless, we're going to have, the room's going to be full of those folks. The people that have, you know, been through it could help, you know, and that would be, it'd be a great year to put together your team and your dry powder for what's next. But just to go out and do it and raise capital would be very, very difficult because even though you might have the money, they might not want to take the risk.

• 37:47Dave Meyer?

  Yeah, that makes sense.

• 37:48Speaker 02

  And you might not want to take the risk just because you have the money.

• 37:50Dave Meyer?

  Yeah, that's true.

• 37:51Speaker 01

  It's another really good point.

• 37:52Dave Meyer?

  Yeah, it's a very good point. Do you think, what about like a smaller multifamily asset? If you're looking at 10, 25, 30 units, like, do you think there'll be distress with smaller investors? And like, could, you know, someone who's got a small portfolio, small multis, take something like that down?

• 38:11Speaker 01

  For sure. Yeah, I actually, they're all over the place. You know, here's, here's what I would look for. I would look for a small multi operator that did a full renovation and their prices are 30, 40% adjusted. You could step in and buy that thing for pennies on the dollar and, and not have to do anything.

• 38:32Dave Meyer?

  Cause they bought, they did the renovation, their debt adjusted, and now they're not covering their cash flow and they got to get rid of it.

• 38:39Speaker 01

  And even if it's fixed, you know, maybe they fixed and maybe they did all the renovations, but the, you know, cap rates are up over six now. So they probably bought it when they're in their fours.

• 38:51Dave Meyer?

  Yeah.

• 38:51Speaker 01

  A lot of people, yeah. So you're talking about two points on an NOI, even if they have the NOI. So I think if they're holders, they don't have to worry.

• 38:59Dave Meyer?

  Yeah.

• 39:00Speaker 01

  But if they have any kind of maturity in any way, this is really boils down to the cost of the money.

• 39:06Dave Meyer?

  Yeah. Dino, what do you see in this single family? Like, do you, do you have any advice for people who are wanting to get into this market and how do you navigate? We talked a little bit about negotiating, but any other thoughts?

• 39:16Speaker 02

  Well, I think there's hesitation, you know, I always, I work with home buyers and I work with really experienced investors and I work with people maybe looking to buy their first investment. And the difference with the investors is, you know, we negotiate a good deal and they take it, you know, and it's cash flowing. Where my first time home buyers, it's just good advice even for home buyers, first time home buyers and beginning investors. They're like, okay, but if they're so desperate that they're gonna go from 550 to 500. Maybe we should just wait and just see, you know, and they always want to wait and see and. You can't do that because you miss out on opportunities when you just wait and wait and wait. Sure, maybe you're right and maybe, but are you going to act if it does go down a little bit? No, because you're going to wait and think it's going to go down further. So.

• 39:59Speaker 02

  You just have to focus on the numbers and if you're able to cash flow, then that's really all you need.

• 40:04Dave Meyer?

  Absolutely. I think for everyone watching this or listening to this, I think the, the key here is that multifamily. Has distress, probably will continue to have some distress. And that's where you can see these huge discounts and hopefully we'll see a rebound and. You'll be able to take advantage of that. With residential, the discount isn't there and even if it comes in the next year, at least. Everyone who listens to this knows my opinion about this. It might go down a little bit. And I don't think we're going to see some dramatic crash in housing prices. And so. It's really just about what you said, finding good assets that cash flow. If you find them. The question is, what else are you going to do with your money? You're just going to sit on it, right?

• 40:45Dave Meyer?

  And wait, like if you have something that cash flows and is good asset, it usually makes sense to actually go and buy that.

• 40:50Speaker 02

  And just because you're, the seller is willing to negotiate with you does not mean. If you wait, they're going to negotiate more. You know, I've had so many clients where it's like. I'm just going to wait and then a few days later, the deal's gone, you know, and, and. You want to have the data and you want to make sure you're cash flowing, but then after that, you just have to just trust and do it. And if you're going to hold it, you're going to be fine. Now, when people come to me and say, I want to invest in an investment or to buy a home for five years, then I'm going to move or I'm going to sell it. Then now might not be your best time to buy, you know, because who knows what the real estate market is going to be like in five years. But if you're planning on holding it, then you just need to just do it.

• 41:28Dave Meyer?

  Great advice. Well, that's a perfect example of what Danil and Ken just said of how we talk about looking at data, but grouping things into a metro area, especially in a place as big as Phoenix or LA or wherever you're investing, just doesn't make sense. You really need to dig into individual levels. You can find that data. If you're in the single family space, a lot of it is available for free. You can go on Redfin or Zillow. Use ChatGPT with caution, but you could get some of that out there. It's a little harder to come by in the multifamily space. Usually have to pay for it, but if you're going to invest in multifamily, go pay for it. Like you have to do it.

• 42:07Speaker 01

  Yeah, data is everything. Honestly, every single move we make is data driven.

• 42:12Dave Meyer?

  I love it.

• 42:12Speaker 02

  Yeah. And you really have to look at even going on Zillow or Redfin and looking at the different rents in the different areas and how many rentals are available in that area. I mean, it's all, you know, everyone always asks my buy box and my buy box is like certain roads, certain blocks, like it's not this big ever expanding area because you have to look at where you want to be and where tenants want to live. And because of that, I have very low vacancy rates where to Ken's point, some people to get a better deal, they want to invest way outside of town. And that really works when rents are going crazy and everyone's moving here and everything's booming. But now that things have pulled back, those rentals are empty or they're significantly discounted because now people can't afford to live where they want to live. And so you see them kind of moving inwards.

• 42:57Speaker 01

  And I'll give you a great example. We have an area like everybody has these old aging malls all over the country.

• 43:04Dave Meyer?

  We passed one driving here.

• 43:05Speaker 01

  Yeah, right. They're everywhere, right? So where Danil decided to focus, and anyone can do this, a big, big developer bought the mall. They ripped it down. I'm talking about Macy's. I'm talking about Sears. I'm talking about JCPenney, gone. And what did they replace with? Whole Foods, Lifetime Fitness, apartments, really cool edgy, you know, outdoor concept.

• 43:33Speaker 01

  It's not very often you can buy a big chunk of town, right? So, so she's like, this Area is going through a resurgence.

• 43:40Dave Meyer?

  Yeah.

• 43:40Speaker 01

  So she's been focusing.

• 43:42Dave Meyer?

  Yeah.

• 43:43Speaker 01

  You know, within several blocks of that. And that's, she's bought two properties over there.

• 43:48Dave Meyer?

  Yeah.

• 43:48Speaker 02

  Yeah.

• 43:49Dave Meyer?

  It's just paying attention.

• 43:50Speaker 01

  That's it. Like, it's just, you know what I mean? It's going on everywhere. It's just paying attention.

• 43:55Speaker 02

  But it's important if you're gonna buy in an area that you don't live in, that you have someone really knowledgeable about the area. Because like, if you're not from Phoenix, you're not gonna really understand it. And I see investors do this a lot where they find a good deal with maybe a realtor or somebody that doesn't know a lot about the area. And then, you know, now they have this rental that doesn't rent what they thought it was gonna rent for. It's in a bad area, even though three blocks up might be a great area. It can be that nuanced.

• 44:20Dave Meyer?

  It really is. That's the job of the investor, right? Like, that is the research that everyone should be doing. And even if you have a great agent, like, go learn these things for yourself. It's why I always recommend if you are investing out of state, go visit. I know, again, it's.

• 44:34Speaker 02

  That plane ticket is worth it.

• 44:36Dave Meyer?

  But whatever, go do it. You will learn more in those 24 hours than you do months sitting on Zillow or listening to me blab on the podcast. Like, I promise you, you will go learn more doing that. And you just get the vibes. Like, the data is important, but you can see, like, hey, I wanna invest in the zip code. But when you go drive around and see it, you'll understand. And the other thing that you mentioned, Danil, it's so important is that it it changes really quickly, too. Sometimes, like, if you're looking at rental vacancies or where the supply is, or you know, you might find out about this mall being redeveloped. And if you're two months late on that, people like Danil, who are smart, are gonna know to go buy that. So it's something that you have to continuously pay attention to.

• 45:18Dave Meyer?

  It's not like it takes that much work, but it is something that you need to build into your process as an investor when you're gonna acquire things.

• 45:25Speaker 02

  But I also think, you know, when you hear of, I always tell my clients, like, I hate the word up and coming areas, cuz I just hate that. Cuz to me, that just means edge of town, you know, they're maybe building some new homes down there. But what you really have to look for is, is somebody putting a lot of money into an area to make it up and coming. Cuz to me, like, just cuz they're doing a lot of new development and it's far out, once again, you get into that same thing. People like to move towards the center of town if rents get. So I like to look at where's somebody putting a lot of money like where's Whole Foods investing? Where are they putting a ton of money that they're expecting this area to grow? Cause that's the stuff that actually moves the the needle on home prices and rents.

• 45:59Dave Meyer?

  Yeah. My theory, when I first started, I started investing in Denver's booming. And my whole philosophy for like 10 years was just how close can I get to the center of town with a good asset? Like something that's good quality, get as close to it. And Denver's going through a big correction right now. It's not doing well, but my properties, they're they're in that inner core circle. It might not have been the most units, but they're still doing fine. And I, I think that's what you see historically, if you look at the data, the pattern is always people are going to move. If every rent comes down and your affordable, your paycheck stays the same, you're going to go take the nicer apartment with more amenities and a better place. And I think that that's the opportunity right now. It's like prices are coming down on these good assets.

• 46:41Dave Meyer?

  If you want to buy them and hold them for 10 or 20 years, like this is, I'm seeing better quality assets. Even if the prices are still somewhat flat, the quality of the assets is getting better, at least in the residential.

• 46:53Speaker 02

  And you have more negotiation, like if there's stuff on the inspection, you can negotiate that. Where a few years ago, it was just pound sand, you know? So you have to look at all this stuff and to your point, like if you find an asset, like I always like the cheapest asset in the best area. Right. You know, and people are turned off by that. Oh, this house isn't that nice. I'm like, yeah, but the nice house that you want surrounded by crummy homes, that's not going to rent well.

• 47:15Dave Meyer?

  Yeah, you're going to get all these tailwinds.

• 47:16Speaker 02

  Right. Like what's going to rent so good is this little house, it's the cheapest house. You know, people always told me, don't buy two bed, two baths. There are going to be two bed, two bath homes are going to be so hard to rent. Well, that is three out of the five of my portfolio and they run amazing because guess what? A single parent with two kids will rent that all day. They get to be right in the heart of Scottsdale and they can afford it. And if they want to go up to three bedrooms, it's expensive and people don't have the money right now.

• 47:39Dave Meyer?

  Yeah, it's true. If you just put yourself in the mind of the tenant, right? Everyone decides where they want to live. Most people decide where they want to live, what neighborhoods before they decide on the unit. And so if you're in those out of, you know, sort of tertiary areas, like you don't even get in the search when they type in Zillow, right? Like, they're not even going to be in there. So they'll, most people, for convenience, for schools, for whatever, choose that first, and you want to be in those good areas.

• 48:03Speaker 02

  Yeah, and people are, you know, they're on budgets right now. So, you know, before, everyone had a bedroom and it was really important. And now, you know, talking to single parents, it's like, no, like, if it saves me 500 bucks a month, my kids can share a room. You know, it's not as big of a deal when people are limited on their budget.

• 48:18Dave Meyer?

  Yeah, for sure. All right. Well, thank you both so much. It's been long overdue to have you both here. This is awesome. And when, if people want to learn more from you both, where should they do that?

• 48:27Speaker 02

  Well, we have the Ken McElroy Show, which is a podcast and on YouTube. And we go live every Monday and we have a podcast every Thursday. And then also, if you go to kenmccleroy.com, we have a subscription for $10 a month. You can subscribe and get a bunch of great content.

• 48:44Dave Meyer?

  Great. Well, Ken, Danil, thank you guys so much for being here. Thank you. And I'm soon going to be on the Ken McElroy channel as well. So make sure to go there and check it out. Thanks so much for listening to this episode. We'll see y'all next time.