investmentwatchblog--2020-09-08--Ken McElroy: The Coming Real Estate Crash Of 2021

Chris Martenson : Hello , everyone .
Chris Martenson here of Peak Prosperity and we ’ re here with another Featured Voices podcast .
It ’ s September 2 , 2020 .
And as you know , I talk a lot about COVID .
Maybe that ’ s how you know me .
But the people who ’ ve been following me for a long time know that I ’ m talking about the economy and financial issues a lot .
COVID came along and fortunately , I had this background in science to be able to help decode that @ @ @ @ @ @ @ more interested in decoding finance and economic matters because those are the ones that impact all of us .
I think that we ’ re facing one of the most difficult , if not dangerous , periods ever because of all the money printing the Federal Reserve is doing .
And I wrote a piece about a year ago way before COVID , of course , and any inkling of it that said that I thought we were going to start in one of the largest back-to-the-land movements in history .
And part @ @ @ @ @ @ @ thought , “ Well , if the whole trend up to now is people flooding into cities , what if that ever reversed ?
” And it was centered around my own personal property search , you know ?
I was going out with Evie and we ’ re looking for properties and we were looking for property with more than five acres .
We were looking in New Hampshire and Massachusetts , two whole states .
We knew every property .
And by the time we whittled them down for our characteristics @ @ @ @ @ @ @ ’ ve satisfied our needs .
And of those , we really liked five .
And all of a sudden , I ran the math and I was like , “ What if 0.1 % of people in Boston were in competition with me for those properties ?
” And the answer is there would ’ ve been tens of thousands of people looking for the same five properties and it would ’ ve been a much more difficult search .
So , that ’ s what I thought I saw coming .
@ @ @ @ @ @ @ s upside-down and crazy .
And I know people who are both paralyzed about the idea of moving or desperate to move .
Lots of people making that transition .
So , the question comes ; where really are we in the real estate story ?
And there ’ s nobody better to talk to us about that than somebody who ’ s been in the business a long time , does his homework , knows his math , he ’ s a great guy , I can count him as a friend @ @ @ @ @ @ @ welcome to the program Ken McElroy .
Ken , great to have you here with us .
Ken McElroy : Chris , great seeing you , man , really awesome .
I love your stuff .
As you know , we ’ ve traveled all over the world together and , you know , you helped me look at my real estate markets a little bit differently with , like you said , the science and the math behind it all .
And it ’ s certainly helped us in our journey so @ @ @ @ @ @ @ been great .
Chris Martenson : Yeah , I know at one point , you have an investor meeting that you hold because you run very significant real estate investments and you have investors come in and you ’ re managing those investments for them .
I remember one year , you gave Silver to those participants .
Maybe… Ken McElroy : We have every year , actually , yeah .
So , we have about 1,500 high-net-worth investors and we have just north of a billion dollars ’ worth of real estate @ @ @ @ @ @ @ , office , land development , you know , and then , we dabble in the single-family a little bit .
But yeah .
So , we bring all those investors in and they ’ re from all different walks of life .
And you know , I just started doing that , the “ print our own silver ” with our own logo on it and you ’ ve been doing that at our employee events , our investor events .
And now , that ’ s turned into be a good @ @ @ @ @ @ @ : Absolutely .
And so , I love that you ’ re doing that and I love that you even credit even partially that Adam and I had something to do with that .
You know what ?
I ’ m just going to share my screen here real quick .
Because there was – let me see if I can pull this up .
Oh , yeah , you remember this ?
Ken McElroy : Oh , yeah .
Yes , the Tomcar .
Chris Martenson : Yeah .
So , that @ @ @ @ @ @ @ that ’ s you in the front .
We ’ re all strapped in in these Tomcars .
What an amazing thing .
This was a day where you signed us up and we went out into the deserts around Sedona .
There ’ s Adam and I and we ’ re much younger in this .
It ’ s only 2015 but geez , the years have piled up .
Yeah , there we were riding around and you took us to a place that you had up in Sedona Canyon .
@ @ @ @ @ @ @ you still have that but… Chris Martenson : … what an amazing spot you found there and we just had a grand time .
You showed us a wonderful time .
And that Tomcar experience was really just amazing to [ interruption ] … Ken McElroy : Well , you ’ ve got AK in there , too , yeah .
Chris Martenson : Yeah .
So , yeah , that was just a little trip down memory lane .
But that was , yeah , that was a lot of fun .
@ @ @ @ @ @ @ own that resort .
And you know , we bought it because it had water rights .
And you know , as you know , we went up there , you kind of helped us – how do we get off the grid there .
And so , we ’ re almost there , man .
It ’ s farm-to-table and all the water so far and so , it ’ s been a wonderful experience .
Chris Martenson : Yeah .
And based on that , I actually – we can talk @ @ @ @ @ @ @ I ’ m working on a project , which is starting from slightly more – we ’ re converting a residential place into a full space where people can come .
But it ’ s going to be around sustainability and people can come and rent a cabin but also , maybe learn how to pick their own food out of a garden or start a fire for the first time or whatever they ’ re here to do .
But actually , started a whole real estate deal , in large measure @ @ @ @ @ @ @ and other people on the real estate crews and all of that .
So , yeah , thank you very much for my own education and ability to go forward with a syndicated real estate deal , yeah .
Ken McElroy : Hey , it ’ s my pleasure , man .
You know , I think , honestly , you know , all your teachings roll very well into that – I always think of that tier , you know ?
Tier 1 , tier 2 , tier 3 .
And you @ @ @ @ @ @ @ referred to it in one of my YouTube videos that I did during this pandemic and I said , “ My buddy , Chris Martenson , he says , you know , the tier 3 , you know , the paper is the most dangerous.
” And I still believe that .
And it was a great visual for me to see , you know , you need to be sticking down to the resource category , the land , you know , the hard assets .
And that ’ s going to @ @ @ @ @ @ @ to five years , for sure .
Chris Martenson : Well , I want to go there and talk about it .
Because obviously , COVID comes along – and I ’ d love to hear about your own pandemic experiences .
It ’ s changed all of our lives .
But in honesty , it didn ’ t cause any of the things we ’ re seeing .
It certainly put some afterburners on – you know , strapped a couple rockets on .
But as far as I can tell , @ @ @ @ @ @ @ , too much printing , too much funny money even before COVID came along .
And that , of course , just gave air cover for the Federal Reserve to print more and more and more .
And honestly , they don ’ t have a plan , Ken .
They ’ re like , “ We ’ ll print and then , dot-dot-dot.
” They can ’ t fill in the ellipse in that sentence .
You know , they don ’ t know – I don ’ t think they have @ @ @ @ @ @ @ keep printing and hope it all works out .
And if it does , great .
But if it doesn ’ t , look out below , right ?
So , that ’ s where I think tangible assets make the most sense in this story .
Real estate is the most tangible of them all when you get right down to it as far as I ’ m concerned .
Ken McElroy : Yeah .
You know , when I talk about COVID , obviously , it ’ s been a big @ @ @ @ @ @ @ 10,000 tenants , and lots of properties and lots of management around all those things .
And so , we ’ ve had to do all the PPE , the PPP , the EIDL , you know , everything .
You know , it ’ s been a really interesting ops – you know , operational part – for our company in the last three or four months .
But I call COVID an accelerator .
Because I really believe what it did is it took things like – like my friends are @ @ @ @ @ @ @ mall space .
It just basically pushed them right out , you know ?
Because they were already in big trouble with the direct-to-consumer stuff with Amazon and , you know , now Walmart and Target , everybody ’ s trying to catch up to Amazon .
And so , those retailers and those service businesses were already in trouble .
You know , when people buy stuff , you know , they ’ re at home and they order it in a couple minutes and then , they go do what they @ @ @ @ @ @ @ shows up on their door .
So , that was already in motion .
And so , it just kind of washed it out , you know ?
Chris Martenson : Yup , yup .
And I ’ m thankful to the real estate radio guys , Robert Holmes and Russ Gray , for pointing out to me that real estate is not an asset class .
It ’ s many different asset classes .
You just mentioned one aspect of it .
So , I want to be real clear when we @ @ @ @ @ @ @ ’ s not like we ’ re talking about one thing .
Because obviously , malls would be a very different investment and industrial space versus apartments versus raw land , all of that , right ?
Ken McElroy : That ’ s exactly right .
You know , I go – you know , when they talk about residential , I go , “ Okay .
So , is that condo ?
Is it entry level ?
Is it high-end custom ?
” You know , that ’ s just residential and @ @ @ @ @ @ @ other categories .
You know , and then , you ’ ve got self-storage , industrial , retail , you know , the malls , which is really retail , multifamily .
You know , there ’ s a whole bunch of stuff in land development .
And so , they do it every – as you know , they put it in one category .
But the other thing is they do that with vacancy rates , occupancy rates , rents , rent growth .
You know , they ’ re like @ @ @ @ @ @ @ the occupancy ?
” “ Well , it ’ s 96 % in the nation.
” Well , you know , it might be 75 % in Detroit , you know what I mean ?
And then , there ’ s different areas of Detroit , for example , that might be worse than others and better than others .
And so , it ’ s a very localized business and you know , you really make your money by having knowledge of each individual sub market .
Chris Martenson : Yeah , @ @ @ @ @ @ @ it been for you ?
I know that I just heard that the CDC is thinking of allowing people to skip rent payments .
I ’ m not sure where that authority came from but I ’ m sure that impacts you .
So , how do things look in your space ?
Ken McElroy : Yeah .
So , well , a few things .
One , you know , so , we ’ re in the multifamily space .
We have just under 10,000 apartments and we have them throughout Texas @ @ @ @ @ @ @ know , so , we have – it depends on the demographic of the apartment building itself .
So , our senior stuff , as you can imagine , they ’ re kind of unplugged from all this .
They ’ re getting their checks .
They ’ re good .
We were literally 100 % collected before , we ’ re 100 % collected after .
Anybody that ’ s been in the hospitalities sector – you know , so , we have properties that are kind of near those – they @ @ @ @ @ @ @ trouble .
Anything that has to do with the airlines , for example , airline mechanics , the pilots , and those kinds of things ; trouble .
We ’ ve had a little disruption around our student housing because of the Zoom – you know , it ’ s not a direct experience anymore .
So , every property ’ s been a little bit different , every market ’ s been a little bit different .
You know , I would say the team has really just been incredible .
Our @ @ @ @ @ @ @ know , we ’ re collecting in the 90s – the mid to high 90s – on most properties with the exception of a couple .
So , we ’ re in pretty good shape as a company but I think that has largely to do with where we bought the properties .
And we ’ re a little bit more of high-end landlords and most of our stuff ’ s newer .
You know , we ’ re a builder , too , so we build our own .
You know , @ @ @ @ @ @ @ know they have pretty good credit , pretty good savings , you know , before they move in .
But they ’ re certainly impacted , man .
I mean , we put them into three buckets , Chris .
We said okay , Bucket 1 was they came in and paid .
No problem .
Bucket 2 was , you know , we are very concerned .
We want to work with you .
And we set up what ’ s called a PTP program , which is Promise to Pay program @ @ @ @ @ @ @ And there were thousands of people in that category .
And then , the next category was hey , you know , the President said we don ’ t have to pay rent so , we ’ re not going to .
And by the way , we ’ re not going to communicate with you at all .
So , those are kind of the three buckets .
And so , really , most of our effort was in that last bucket .
And you know , believe it or not , @ @ @ @ @ @ @ It was , you know , in the hundreds of people that just chose to not communicate , move out , whatever , skip .
But then , you throw the COVID thing on there , you know , we had residents with COVID , we had employees with COVID .
You know , you have all that , as well , just to add to the complexity of it all .
But we had to – imagine this – we had to take our whole company in March and go from online @ @ @ @ @ @ @ , personal tours to online tours – and all , 100 % automated rent collection .
So , we did all that in just a couple of weeks .
So , we ’ ve done pretty well .
But a lot of my friends are not doing so well , you know , depending on , again , the properties that they have .
I have a lot of friends in retail and a lot of friends in land development and things like that and the lending industry and all that stuff is @ @ @ @ @ @ @ : Yeah .
It ’ s certainly a very complex business to run .
And just so people don ’ t think you just sort of airlifted and dropped into your current position , I love your origin story .
Could you just tell us real quick about how you got started in this whole business ?
Ken McElroy : Yeah , yeah , I was completely lucky .
I mean , my buddy asked me while I was in college if I would manage an apartment community .
You know , and @ @ @ @ @ @ @ trying to get through school .
My parents did not graduate from high school and so , you know , me being in college was a big thing .
I was racking up the student loans at the time .
They were much different then but I needed them .
And he said , “ Hey , you know , would you take over this 60-unit apartment building in Seattle , Washington ?
” I said , “ How hard can that be ?
” You know ?
So , I moved into @ @ @ @ @ @ @ What does it pay ?
” He ’ s like , “ Free rent and $ 300 a month.
” And I ’ m like , “ Done , ” you know ?
Because I was like , “ Free rent , yeah.
” But then , I was like , “ Oh , my gosh.
” Like rent collection and then , turning the units , you know , and then , just all the individual behaviors of all the people that lived there .
It was really the first time I @ @ @ @ @ @ @ , after about a few months of just busting my butt , I had a construction background .
So , I was turning units , painting units , cleaning units , doing the maintenance , and I just was doing it all .
You know , because I thought , “ Oh , that ’ s just what you ’ re supposed to do.
” I didn ’ t realize you can , you know , vend it out .
So , the owner comes in , he ’ s like , “ @ @ @ @ @ @ @ got our property so full .
You know , but thank you , this is great.
” And I handed him – you know , because back then , he would come and I would turn over the deposits to him and he ’ d run over to the bank .
And I was like , “ I am on the wrong side of the desk here , ” and that was it for me .
I ’ m not kidding .
I was like , you know , I saw the numbers @ @ @ @ @ @ @ full .
And property management really is common sense .
And so , I was grateful and I got in the property management business .
I started managing bigger properties , more properties , all up and down , basically from Northern Washington , basically , the Canadian border , all the way down through Oregon and even Southern California .
And I did that for about eight , nine years .
And then , I just started my own firm .
You know , started a management company and then , I @ @ @ @ @ @ @ investment was 160 grand , I used my own cash .
Second one was a little bit more .
I used my own cash and then , guess what ?
I was out of cash .
So , I was like , “ Okay , now I ’ m going to have to figure out – I still am finding deals and the cash flow but now , I ’ m going to have to figure out how do I get the money ?
” And that ’ s when I learned how @ @ @ @ @ @ @ find people that had confidence in me .
And then , so , I started small with a two-bedroom , two-bath , and just grew from there .
And you know , now we have just right around a billion dollars ’ worth of assets .
We ’ ve had much more than that .
We sold a bunch in 2019 , pulled a couple hundred million worth , which is good timing , I guess , in hindsight .
But you know , I ’ m a cycle guy , Chris , @ @ @ @ @ @ @ hanging out with you and Adam .
I really am .
You know , it ’ s hard when everybody ’ s doing – you know , like there ’ s a frenzy over things .
People have – you know , the herd mortality .
They want to go buy now .
You know , they believe that they have to now .
And I look at numbers , you know , just like you and I ’ m like , “ Well , I ’ m going to sell now.
” @ @ @ @ @ @ @ , maybe it goes higher .
Great for the next guy .
But if it doesn ’ t , you know , I ’ ll be there for when it comes back down .
And that ’ s what Ross McAllister and I have done the whole time .
So , we ’ ve been buying in the cycles .
And we actually haven ’ t really bought a lot in the last two years .
Because , you know , a lot of new money came in and pushed it up , @ @ @ @ @ @ @ know , when I ’ m talking about new money , I ’ m talking private equity , big institutional equity , Blackstone , Goldman , you know , giving all kinds of people money to buy apartments and just kept it going .
And our returns were going down so , Ross and I decided not to buy .
We started building .
We were buying land and building .
And you know , it ’ s always based on – those syndicators are basing – they ’ re usually , they @ @ @ @ @ @ @ on a value add .
And so , they ’ re basing on next year being better than the current year and that ’ s not a bad strategy when the fundamentals are there .
But we felt like it was peaking , actually .
I thought – I actually – you know , COVID , like I said , it just kind of made it happen .
But we were close already , I believe , on a lot of levels on the market peak here .
Chris Martenson : Yeah , @ @ @ @ @ @ @ , it was in September of 2019 , months before any inkling of COVID could ’ ve possibly come out , that the Federal Reserve was busy shoveling money into markets for – you know , bailing out arcane corners of the financial system .
You know , and these were all like really highly complicated , speculative things run by big firms .
They don ’ t actually produce anything .
Again , these are firms that they ’ re using money and that ’ s the end of that .
Nobody @ @ @ @ @ @ @ deal , you know , all of that .
But they got in trouble and the Fed started bailing them out .
So , you can feel the creaking and the groaning , you know ?
And the Fed had to put 500 billion in even before COVID came anywhere near the doorway .
And then , it did and then , you know , they just threw more on there .
I ’ m sort of a fundamental guy .
I don ’ t think that you can print your way to @ @ @ @ @ @ @ our tag line at Peak Prosperity .
But I wanted people to hear your background because you have this deep experience .
This isn ’ t your first rodeo .
Maybe you ’ ve seen a cycle or two in the past .
You now have a really , a very viral , even , YouTube video out that ’ s talking about where you think that this cycle ’ s coming .
As we just mentioned , the back story was it was already on the way here .
COVID ’ s @ @ @ @ @ @ @ a little delayed because of all this stimulus money and people getting some checks and that and all this .
But why don ’ t you lay that theory out for us there ?
What do you got ?
What are you working on here ?
Ken McElroy : Sure .
Well , I look at things like you .
You know , like one of the things I learned from you and Adam is there are definitely markers and there are signs .
There are things that are happening that , for @ @ @ @ @ @ @ You know , and so , obviously , the first thing we watched was all the unemployment numbers go up and the truth is we didn ’ t know when things were going to reopen .
And then , they came out with the PPP and all the Cares and all that money and that kind of kept a lot of the businesses going .
But there are a lot of business – I have a lot of friends , if you had over 500 employees , didn ’ t get any money @ @ @ @ @ @ @ you ’ ve got to take a look at what ’ s happened when a lot of these businesses are fighting for their lives right now financially .
You know , the restaurants that maybe sat 100 are not seating 50 .
You know , gyms that had all these members – you know , all these businesses that are , you know , they ’ re slowly going through massive change and massive behavior change .
And so , you ’ re looking at all that .
And then , the people @ @ @ @ @ @ @ , they got the $ 600 a week , you know .
And my friends are going , “ I ’ m trying to reopen but now , I can ’ t get a dental tech to come work for me because I was paying them $ 18 an hour and they ’ re getting $ 20 by sitting at home.
” And so , there was all of that .
And so , that just eliminated – and so , it ’ s all been propped up .
And I read recently @ @ @ @ @ @ @ is being funded by government stimulus .
Ken McElroy : Yeah , yeah .
And I was like wow .
So , I started digging into the numbers .
You know , you start to look at the unemployment and then , you start to look at forbearance .
And all forbearance is , is the ability to not pay your mortgage .
Ken McElroy : Yeah , right , right .
So , that was you did not have to prove hardship for the first part of that Cares Act .
So @ @ @ @ @ @ @ you ’ re going to see all of that , you know , right now .
So , you had all these people – right now , we ’ re close to 3,000,000 people that have not paid their mortgages that are over 90 days delinquent , okay ?
And then , so , for the next six months , if they keep – they have to prove hardship and then , layer that over with the non-eviction thing , which Trump kind of started , you know , back – he said @ @ @ @ @ @ @ October.
” And then , the CDC came out this week with , you know , “ We ’ re going to kick that down to the end of the road.
” What it doesn ’ t do , though , Chris , is it doesn ’ t allow them not to pay .
It just says they can ’ t be evicted .
So , it ’ s still owed .
Both the mortgage is still owed and the rent is still owed .
And so , I just believe that at @ @ @ @ @ @ @ you know , like in the musical chairs , you know – it stops .
And everybody ’ s going to sit down and things are going to sort themselves out and hasn ’ t had an opportunity to do that .
And so , that ’ s what that video did is said , “ Listen , here are the numbers .
Here ’ s where it ’ s heading.
” I personally know there ’ s a – I mean , look at all the bankruptcies .
I mean , you @ @ @ @ @ @ @ Macy ’ s to Niemann Marcus to Sears to J.C. Penney ’ s , you know , and you just could look .
And those are – while they ’ re big names , people don ’ t often associate them with people that work there .
You know , and there ’ s all these jobs that are being displaced ; the restaurants and , you know , service business and the travel business .
And so , I just see all this stuff really exposing itself next year .
And so @ @ @ @ @ @ @ be a housing crash because right now , there ’ s uncertainty .
So , you ’ ve never seen , ever , these kinds of low inventory numbers .
And that ’ s why the market is high .
So , like think about it .
If I ’ m sitting here and I don ’ t know if I ’ m going back to work or where I ’ m going to go work or my financial certainty or uncertainty or , you know , I don ’ t know what @ @ @ @ @ @ @ ’ m not listing my house .
You know , I ’ m going to sit here and just go , “ Okay , let ’ s see what happens here .
Is my employer going to hire me back ?
You know , am I going to come off of furlough ?
Or how much savings do we have ?
And how much equity do we have in our house ?
” All that stuff , everybody ’ s calculating that right now .
And so , I believe that when all @ @ @ @ @ @ @ get this vaccine and , you know , we can go on and on about that , as well .
But then , I think people are going to start coming back to normalcy next year , hopefully .
And then , you ’ re going to really see the aftermath .
And at that point , there ’ s got to be massive , massive government stimulus to keep this thing going .
And I believe at that point , Chris , the forbearance stuff has to end .
They can ’ @ @ @ @ @ @ @ they ’ re paying somebody .
If you hold my mortgage and I ’ m not paying you , you ’ re in trouble , you know ?
That ’ s income for you .
So , they don ’ t calculate it all the way up .
You know , when a renter doesn ’ t pay me , then I can ’ t pay the bank and then , the bank puts me in default and then , the bank owns the real estate .
That ’ s the cycle .
@ @ @ @ @ @ @ about that .
So , all that ’ s happening .
It ’ s not really being talked about a lot but there are big companies that are missing payments – big ones – you know , that are all over the news .
You know , I ’ m talking about hotel chains and things like that .
And so , you know , they ’ re just not paying .
And then , big retailers are saying , “ Sorry , we ’ re not paying.
” And you know , @ @ @ @ @ @ @ , “ Well , we own the center and you ’ re in it , ” but they ’ re saying , “ Well , we ’ re closed.
” And so , all that ’ s happening and so , I think you ’ re going to see a massive amount of inventory next year .
And that inventory is going to jump up so high that – and the demand ’ s going to be less that people are going to be hammered financially .
That ’ s when you ’ @ @ @ @ @ @ @ a massive price drop and you ’ ll see properties that are going to go back to the banks and you ’ re going to see all this migration , these patterns moving all over the country .
We ’ re already seeing that but you ’ re going to see it , especially with remote work .
So , that ’ s what that video is about and it ’ s gone viral , which has been great .
And I just , again , I just stick to the numbers , @ @ @ @ @ @ @ just said , “ This is what ’ s happening right now.
” And then , you try to do some kind of probability around that .
But I think it ’ s going to be really , really ugly next year .
Chris Martenson : And again , thinking of real estate as many different asset classes , you just mentioned there ’ s regional patterns of disruption .
Would it be fair to say that some cities might get in trouble around this ?
You know , I ’ ve seen @ @ @ @ @ @ @ I saw a picture the other day .
Sometimes it ’ s the little picture that catches you with seven moving vans on one street in New York City , right ?
Just like people are just up and leaving .
Would you think it ’ s cities ?
Ken McElroy : Yeah , yes .
And so , one of the great things about migration is that you could actually – U-Haul , North American Van Lines , even out-of-state drivers ’ licenses – that ’ s all data .
So , @ @ @ @ @ @ @ , of course – you know , if you ’ re moving from Massachusetts to Arizona , that ’ s data .
Okay , all that ’ s tracked .
And so , you can go online and find this stuff .
You can see where people are going .
I ’ m telling you , you know , those markets – whether it ’ s New York , Chicago , Seattle , Portland , whatever it might be – those markets are – definitely have a massive outflow happening .
So , @ @ @ @ @ @ @ go on the US Census .
It actually shows you which states have had inflow versus outflow .
It ’ s just data and it ’ s all tracked .
Because when you go there , you buy a home or you rent , you know , you have a certain period of time to trade in your driver ’ s license and so , they kind of know where you are .
And so , that is data that is already out there .
And so , you ’ re going to @ @ @ @ @ @ @ I would consider to be high-density cities .
You know , I think San Francisco ’ s going to really take a shot .
Because you know , like Twitter , Google , SalesForce , you know , these big companies that have thousands and thousands of employers so , you don ’ t have to go back .
You can now all work remotely .
And so , you know , instead of 3,000 or 4,000 a month , they ’ re an hour away and it ’ s 1,000 , you @ @ @ @ @ @ @ s all this stuff happening .
It ’ s going to be interesting to see how it all settles out .
But without a doubt , Chris , you know , everybody ’ s talking about how hot these markets are .
Well , they ’ re hot because people are going there but nobody ’ s talking about the – you know , they ’ re coming from somewhere so , it ’ s affecting something else somewhere else .
You know , so , that ’ s all going to show @ @ @ @ @ @ @ , we ’ re already seeing massive price adjustments in some markets .
And again , back to the inventory issue , inventory ’ s low right now .
Because you know , if I ’ m – I mean , you know , I ’ m hunkering down and I have a little bit of equity in my home .
I ’ m not making a move .
You know , I ’ m going to see how everything flows out .
Unless I have a lot of cash and I can @ @ @ @ @ @ @ then I might do something like you ’ ve done , you know , and just go buy a farm and just see where this whole thing lands .
And which people are doing , too , by the way .
I mean , the sector that you ’ re in ?
Oh , my gosh , it ’ s hot , hot , hot , hot .
And I ’ m up in the northern United States right now near Montana .
I ’ m up in Northern Idaho right now .
@ @ @ @ @ @ @ right now in the rural sector , you know , for these off-the-grid type stuff .
Chris Martenson : Yeah , yeah .
It ’ s the hot sector right now .
Again , I followed my Spidey senses .
You know , last summer , Evie and I , we just saw – you know , we ’ re living in a nice house .
We ’ ve got a little riverfront place up in Greenfield , Mass , got a garden .
But all of a sudden , we just said @ @ @ @ @ @ @ bigger – you know , we ’ re going to need a bigger boat , you know ?
” So , off we went and just – I feel so fortunate .
Because if I was trying to look at that right now , I would feel that scramble you talked about because it ’ s so much competition .
I would get that same urgency other people do , you know .
And I ’ ve heard these horror stories of people – some of my followers – saying they ’ ve @ @ @ @ @ @ @ waiting and now , all the sudden , it all feels out of reach because the places they want , there ’ s a lot of demand for that .
Do you think in the real estate crash of 2021 that you ’ re talking about , does that include these rural properties that are now hot ?
Or is that – are you saying this is a tale of two worlds ?
It ’ s both the places being left and the places being gone to .
Ken McElroy : Well , @ @ @ @ @ @ @ ’ s going to happen from a rural standpoint at the moment .
It looks to me like that could be fairly sustainable .
You know , I think when we see a boom and bust in a market , there ’ s usually a boom .
So , you know , in a lot of the rural areas , there really weren ’ t booms .
And so , now , they ’ re higher , for sure .
But there weren ’ t real booms .
And so , you know @ @ @ @ @ @ @ major cities , you know , we saw 5 % to 10 % rent grow over the last ten years .
Okay , that , I would say , is a boom .
You don ’ t see that 20 miles out of town , you know what I mean ?
You don ’ t see those kinds of price adjustments on those homes 20 miles out of town .
And so , I think you ’ ve got to pay attention to if you ’ ve just seen a boom , then @ @ @ @ @ @ @ of a bust .
Could there be some adjustments ?
Sure , maybe .
You know , again , but I think at the end of the day when everything settles out , we ’ ll know .
But real estate is very much a demand and supply business .
So , if there ’ s a lot of people that are going to a town that has very limited housing , then of course , you ’ re going to have a very , very robust market through all this .
And @ @ @ @ @ @ @ it works .
But everybody ’ s definitely moving from something to something else .
And I think once they figure out where they want to be , I think a lot of people are really worried about the virus .
You know , so , you have that , you have others that aren ’ t worried very much at all .
You know , and then , you have people that are just getting out of the dense neighborhoods , there are people that don ’ t have to work within @ @ @ @ @ @ @ four from where they were before .
They ’ re making decisions .
And so , it ’ s going to be really interesting , I think .
I think it ’ s a wonderful time .
And you know , people can now be where they want to be .
I think that ’ s actually what it should be .
You know , people should be where they want to be and they should not have housing as an obstacle for them .
Chris Martenson : Yeah , well , this @ @ @ @ @ @ @ Chris Martenson : So , we ’ re Zooming away happily right here and that ’ s been something I think is hard for people to get their minds around .
I ’ ve been talking about it a lot , which is that these changes that just happened are permanent .
We don ’ t know what all the impacts of that yet but things will emerge from that .
But I don ’ t think we ’ re getting this thing where people rationalize , “ I have to live 60 @ @ @ @ @ @ @ in through this horrible commute to be there face-to-face .
If I can not do that , I ’ m not going to do that anymore.
” Like the Great Depression changed behaviors forever for some people , I think COVID has permanently shifted behaviors , including mine .
I see myself , Ken , as possibly traveling a lot less , you know , sort of recreationally .
And you know , it ’ s just more thoughtful .
It ’ s just a little different , you know .
And to @ @ @ @ @ @ @ is fantastic .
It really is .
Ken McElroy : Yeah , it is .
And you know , so , that , in my opinion , was already starting .
I mean , this technology , Chris , has been out there , you know .
And again , it ’ s an accelerator .
And so , you know , we have – every week , I have a 90-minute call with my leadership team and we do it all through Zoom .
I haven ’ t seen any of them @ @ @ @ @ @ @ Ross , I haven ’ t actually seen since February .
You know , but we ’ re doing this every single day and our company ’ s still moving along .
And I think a lot of companies are starting to figure that out that , you know , they don ’ t necessarily need to go someplace physically .
And that ’ s really impacting the office market .
You know , and I have some office – I mean , a corporate office that has 10 , 20 , 30 @ @ @ @ @ @ @ You know , I still believe it looks to be like they ’ re still going to have a corporate office but maybe it ’ s 5 , you know , and they have some conference rooms and places where people can come and go to do meetings or when they want get-togethers .
But it ’ s very , very different , you know , to have that big 50,000-square-foot footprint with your name on the building .
I think those days are gone , honestly .
They ’ re not necessary @ @ @ @ @ @ @ , you certainly have your finger on the market and understanding where all of this is really going .
I mean , one of old saws that I grew up with is that real estate is really a function of the jobs .
So , we ’ ve just seen tens of millions of people lose their jobs .
They ’ re coming back slowly and , you know , we ’ re hoping that we don ’ t have a big double-dip recession , you know , that they ’ re just @ @ @ @ @ @ @ this whole thing from cracking up .
But to me , Ken , the real engine of the country has always been small- and medium-sized businesses .
That ’ s where most of the hiring happens .
Do you see that coming back ?
Or do you think there ’ s another shoe to drop there in terms of how they ’ re – you know , you just mentioned all this stuff about occupancy at gyms and restaurants being half .
You know , those things were not – many of them @ @ @ @ @ @ @ capacity , right ?
I just don ’ t even know how [ interruption ] … Ken McElroy : That ’ s exactly my point .
It ’ s interesting .
You know , there ’ s something that came out last week on Yelp .
And I was like – you know , Yelp has no skin in the game , right ?
They basically rate businesses .
And it essentially said that 33 % of the restaurants are gone .
Yelp .
And I ’ m like , “ Okay.
” @ @ @ @ @ @ @ businesses .
You know , these are all they do .
You know , they have no skin in the game .
They ’ re not trying to sell anybody anything .
They just basically are there for a business .
And I just think that there ’ s going to be a massive amount of money lost as a result of those closures .
But on the other side , to your point , there ’ s going to be tremendous opportunity , also , to deal with new behavior .
So @ @ @ @ @ @ @ is doing very well .
Anything with a grocery store in it is doing very well , obviously .
So , still , it might have a karate studio next door and maybe a yoga place or whatever .
Okay , those centers are actually doing okay .
But the ones that don ’ t have that are not .
But pretty common sense if you think about it .
You know , and so , you ’ ve just got – and the other businesses that have done pretty well are the @ @ @ @ @ @ @ , you know , where you could drive through , okay ?
A lot of those have done pretty well because people don ’ t want to go inside .
And so , you know , it ’ s just going to – so , I think you ’ re going to see new design , I think you ’ re going to see a lot of things change , you know , around people ’ s behaviors and – and you know , to your point , I mean , you ’ @ @ @ @ @ @ @ People are doing more at home together and they ’ re doing it in smaller groups .
I think that ’ s wonderful .
You get back to relationships .
And it ’ s been a great time for me .
I mean , my kids got kicked out of school in March because of COVID .
You know , they both came home and finished in their rooms , you know , which was super weird .
But having them home was awesome and you know , we were on lockdown .
@ @ @ @ @ @ @ with them every night .
But now , they ’ ve gone back and my son said it ’ s horrible , you know ?
They basically – you can ’ t go on campus and all the dining halls are closed .
And they ’ re trying to do their best but it ’ s just they ’ re not really learning over Zoom .
And so , I think the student housing market and the college , you know , institutions of higher learning , is under massive , massive attack @ @ @ @ @ @ @ their sports and all that stuff are shut down .
So , you know , revenue ’ s taken a massive hit there , too .
That has real estate implications .
Massive real estate implications .
Because you had dorms that had two people in them and now they have one , as an example .
And so , but a lot of those people got displaced to off-campus housing but they ’ re going , “ Why would I get a rent – why would I lease here and then Zoom @ @ @ @ @ @ @ from campus ?
” You know what I mean ?
Because kids are there for , obviously , more than just that .
And so , I think this is at the very beginning , Chris .
And you know , colleges have only been in session for a couple weeks .
So , you ’ re going to see – I think you ’ re going to see some massive disruption .
People are questioning the college – the cost of college education over Zoom .
And you know , if they @ @ @ @ @ @ @ kid is paying for it themselves and working two or three jobs , they ’ re going , “ Why would I do this ?
You know , why would I spend $ 15,000 , $ 20,000 or even more all over the country , you know , when I can actually do this at home ?
” So , my son ’ s friends are saying , “ I ’ m not going to move to Tucson , Arizona to go to University of Arizona when I could just live in Phoenix @ @ @ @ @ @ @ from , at my parents ’ house and do the same thing and save a thousand dollars a month on rent ?
” So , you know , there ’ s all this stuff happening and I think it ’ s going to really , really , really be disruptive and we ’ re going to have a very interesting 14 , 16 months ahead of us .
Chris Martenson : Yeah .
I ’ m thinking a lot of colleges and universities aren ’ t going to survive this .
I don @ @ @ @ @ @ @ one of them but I was reading the Wall Street Journal article about Iowa .
And you know , the sports program ’ s got $ 110,000,000 revenue sort of a situation , which is like gone .
But they still have all these expenses , you know ?
And so , they decided out of 26 competitive programs in their NCAA program , they ’ re going to cut two of them .
So , they cut like men ’ s swimming and women ’ s diving or something , right ?
@ @ @ @ @ @ @ of $ 110,000,000 , which includes like big-time coaching salaries and all that stuff for football and things .
So , just the adjustment process is going to be really hard for people to get their minds around this .
One of the reasons I really like hanging out with you and the real estate guys and all the other crowd around this because everybody there ’ s an entrepreneur and entrepreneurship is about adjusting quickly , right ?
You had a plan , didn ’ t quite work , and you either @ @ @ @ @ @ @ or you go down in flames , right ?
So , that ’ s just how I think everybody ’ s going to have to be just a lot more entrepreneurial .
And I sort of raised – you know , that college is sort of like so stuck in its ways and all it could think to do was cut $ 916,000 out of $ 110,000,000 budget .
That was probably painful , right ?
We ’ re going to have to be faster and quicker than that , aren ’ t @ @ @ @ @ @ @ right .
To your point , I actually dug really into this , as well .
So , I looked at Ohio State just because I was like , okay .
Because I don ’ t know if you remember the student visa issue where the student visa issue basically said there ’ s a – there was a condition in the student visa that said you can ’ t – so , if an international student comes over to the United States , they can ’ t take their classes online .
@ @ @ @ @ @ @ , Trump reversed that just about a month ago very quietly .
But that issue , just that one issue , there were – I looked at Ohio State – there were 7,400 students that were international at Ohio State paying 40 grand .
So , it was like $ 300,000,000 in change .
And the Ohio State football team brings in $ 500,000,000 .
So , just those two things are $ 800,000,000 .
You know , and that ’ s not even counting the kids that live in the United States @ @ @ @ @ @ @ , I don ’ t think I want to move all the way to Ohio and just rent something nearby and take it over Zoom.
” So , I actually think you ’ re going to start to see pretty big layoffs .
And we ’ ve already seen a little bit of it , I don ’ t know if you ’ ve read .
But there are definitely schools that are already doing this and they ’ re going to have to massively adjust their revenue model , you know , @ @ @ @ @ @ @ think there could be some really good real estate implications around all this , you know , I really do .
I would love to be able to pick up some real estate on college campuses .
Because I think over the long haul , they ’ ll correct and come back .
But this could be a great time for a real estate investor to keep their eye out for that .
Because whenever you have – real estate exists for people , not the other way around .
So , you @ @ @ @ @ @ @ lot of people , you know , whatever , you want to rent , then that ’ s it .
Or you want to buy then , you know – or buy something .
You know , that ’ s what it ’ s for .
And so , you can ’ t just stick a piece of real estate out there and hope people come .
You have to have – you have to watch supply and demand on those things and then , make sure that you ’ re out in @ @ @ @ @ @ @ certainly something that ’ s reversing .
You know , I think those institutions , as you know , they slowly buy property and then , all the sudden , they have city blocks .
You know , I think you ’ re going to start to see that stuff on the market in the next few years .
Chris Martenson : Well , so , what would you say to somebody who ’ s maybe been sitting for a little while and thinking , “ You know , I ’ d like @ @ @ @ @ @ @ country , ” or , “ Maybe I should move , ” or all that .
Would you advise them to wait and wait for something to blow up and watch where the dust is settling ?
Or would you want them to get out in front of that ?
Ken McElroy : I would .
I would want them to start looking and get out in front of it now .
And I think that to your point , not all real estate ’ s on fire , you know , and @ @ @ @ @ @ @ big country and there ’ s a lot of stuff happening all over .
And so , if you ’ re really concerned about that over the long term , you know , there ’ s amazing deals one mile from – or one hour from city centers all over the country .
And you know , as you know .
So , as you get further and further out , generally , you get better and better deals .
And so , if you ’ re concerned about that , I wouldn @ @ @ @ @ @ @ know , in the city , it might be a million bucks but all the way out , maybe it ’ s 100 grand , you know what I mean ?
It ’ s inconsequential from a lifestyle standpoint , you know , on what you want .
But there are definitely bubbles that are popping right now as , you know , it ’ s already starting .
We ’ re already seeing defaults , we ’ re already – you know , I was watching the head of Starwood .
He @ @ @ @ @ @ @ And I can ’ t remember his name but you know , Starwood , they ’ ve got all the big hotels around the world .
And he said he thinks a third of the hotels in New York City are not going to make it .
So , just as one example .
And that is – this is a very knowledgeable smart guy .
And I ’ m like , “ Man , ” you know .
Because people aren ’ t going there , they ’ re not paying those @ @ @ @ @ @ @ money .
And so , that ’ s real real estate that ’ ll be sitting there at some point owned by somebody – somebody else , the bank , you know , who knows ?
So , you know , that ’ s happening all over the place .
And I think that as you start to see that , you know , going out and doing something like you have and just being more sustainable , more off the grid , and a little more unplugged , I think is a @ @ @ @ @ @ @ Martenson : Well , it feels right .
It certainly ticks all my intuition buttons and it ’ s hard work but it ’ s the kind of work I love .
So , maybe it ’ s not for everybody .
But I really enjoy systems and figuring stuff out and doing things a little better and trying stuff .
You know , we ’ ve had some really bright young interns sort of show up to help and all of them are a little bit surprised because I ’ m just @ @ @ @ @ @ @ fast as… ” “ Really , shouldn ’ t we do this right ?
” “ Nope , just slap it together and then , we ’ ll figure out the better way to do it.
” I ’ m a rapid prototyper , you know ?
And then , once you figure it out , then you can invest a little more in doing the fence exactly right .
Ken McElroy : Well , that 12-acre resort we have in Sedona , you know , we have an organic farm there .
@ @ @ @ @ @ @ know , when we bought this thing but I knew I could figure it out .
And we had so many people that were clamoring to help work there .
Because , you know , I talked to the girl that we have working for us right now and she ’ s like , “ This is my dream job.
” I go , “ Really ?
” She ’ s like , “ Oh , I studied this , I dadada.
” And so , she comes with all this knowledge .
@ @ @ @ @ @ @ pay her a ton but to her , she ’ s like living in the best place on the planet and she ’ s providing food for our guests .
And you know , so , I ’ m learning from her .
And so , there ’ s no shortage of people that are really smart that can help me navigate all that stuff .
You don ’ t have to know , on the front end .
I mean , we ’ re just normal guys .
You know , I @ @ @ @ @ @ @ much smarter than me and surround myself with those people and , you know , voila , you look better [ laughter ] .
Chris Martenson : No , there ’ s a lot of people who are very interested in this lifestyle .
And so , that ’ s for people who do have the capital , I do think it ’ s – maybe I shouldn ’ t overstate this – but it feels like my responsibility , Ken , to share what I ’ ve got – and I bought @ @ @ @ @ @ @ don ’ t feel like it ’ s ours .
It ’ s kind of like we ’ re stewarding it or something .
And we ’ re trying to figure out how to share it with more people .
So , for people who are really inspired by it , it ’ s a beautiful , beautiful spot .
So , it just like yeah , we ’ re just here sharing it , you know ?
And my only – I have very simple criteria .
Whatever somebody does , I @ @ @ @ @ @ @ .
Somebody could come and be a beekeeper or if they want to start a garden or they want animals , I don ’ t care .
But my rule is you have to make it – you have to leave it better than you found it .
Ken McElroy : Yeah , right .
I think that ’ s what you should do on every piece of real estate .
I bought an amazing historical home here in Coeur d-Alene , Idaho , and just sold it , actually , two weeks @ @ @ @ @ @ @ bought it in 2014 when the market was down and I just brought it back to life and sold it , you know , for , honestly , a couple million more than I paid .
And I did that because , again , to your point , I felt like , you know , I ’ m just – it was built in 1905 – I ’ m just one owner that owned it for six years .
And now , I ’ m passing it to the next owner and hopefully @ @ @ @ @ @ @ as well .
And that ’ s how I look at real estate , you know .
I look at it as , you know , we really are just passing through , you know ?
And if we can make it better and enjoy it and not to get too beat up in the process , you know , I don ’ t know why you wouldn ’ t consider it in the overall financial picture for yourself , which is what you ’ re doing .
And the stock market scares @ @ @ @ @ @ @ it just does .
I ’ m just – but I understand real estate .
It ’ s slow , it ’ s dumb , you know , you can buy something and stick – you can buy a vacant building and put somebody in it , it ’ s worth more .
I know that , you know ?
That ’ s just super simple , which works for me .
Chris Martenson : [ Laugh ] What ’ s on that license plate of your car ?
Ken McElroy : Yeah @ @ @ @ @ @ @ I was , man , I tell you , I really was so , yeah .
Chris Martenson : Well , and thankfully so because it led you to property management that led you to where you are .
So , that ’ s how life goes , right ?
If you follow the yeses , you can get to where you need to be , right ?
Ken McElroy : Yeah , yeah .
It ’ s so true .
And you know , for me , I just learned the operation @ @ @ @ @ @ @ be able to learn the operation side first .
And so , then , when I started buying , I just could overlay all that experience and I knew – I actually know before I ’ m going to buy something – you know , I have a whole plan of how to re-engineer and turn it into something more valuable .
Chris Martenson : Yeah , yeah , I remember hearing you talk about your process with that and it was very scientific for a C student .
I don ’ t @ @ @ @ @ @ @ .
Ken McElroy : I know .
Well , I call it “ forced equity , ” you know ?
I just think it ’ s everywhere , I really do .
It ’ s exactly the house that I just mentioned to you .
It ’ s just , you know , on the water , great value , breathed some life into it , and sell it to the next person , you know .
And I think – that ’ s how I see everything .
I see that with @ @ @ @ @ @ @ buying billboards , by the way , and those have been great .
Ken McElroy : Yeah , oh , yeah , man , I ’ ll tell you .
I ’ ll tell you a short story , you ’ ll love this .
I got a piece of land , it ’ s three acres , had a billboard right in the middle and the billboard ’ s making like five grand a year .
And the land was only 300 grand or something .
It ’ s like 100,000 acres @ @ @ @ @ @ @ , I go , “ Hey , I want the billboard , I don ’ t care about the land.
” So , we called the billboard guy and I said – you know , because it ’ s on a big road – and so , the billboard was just mismanaged .
And I said , I asked him , I go , “ How much do you think you can get for that ?
” He goes , “ Probably 40 , 50 grand a year , you know , with @ @ @ @ @ @ @ obviously put it into escrow .
I put an easement around the billboard , sold off the land for a little bit less than 300 .
You know , so , I was in the billboard from zero .
And now , that thing ’ s doing about 45 net a year .
But it ’ s a real estate play , you know ?
It ’ s like – so , this is all I think about .
This is crazy .
I ’ m like , you know , I just @ @ @ @ @ @ @ entrepreneurial .
It ’ s like , you know , there ’ s something wrong here and it was really the end of the day .
It was a great billboard along a great road that had – it wasn ’ t even thought of as a use .
It was actually looked at as a nuisance because the guy wanted to build some single-families on there .
And for me , I just wanted the billboard .
And so , people – you know , making money and doing deals is in @ @ @ @ @ @ @ mean ?
It ’ s what you see .
It ’ s what nobody else sees .
And so , that ’ s just pure education .
And so , once you start to look at things that way , the money shows up , man .
You know , obviously , I didn ’ t need an investor for that but the money shows up .
When you see things that are broken and that are in need of an injection of money – and sometimes you can spend too much , @ @ @ @ @ @ @ buy in the wrong spot , sometimes – you know , it ’ s what I call “ catching a falling knife , ” you know ?
You don ’ t want to catch it while it ’ s still falling .
You want to wait until it stops .
You know , but if you can learn how to do that and have a good team , you can really have an incredible life .
I mean , as you know , I ’ m blessed .
I fly all over the @ @ @ @ @ @ @ money for ourselves and our investors and I ’ m healthy and happy .
Ken McElroy : And I ’ ve invested a lot of gold and silver for you guys and timber and all kinds of stuff .
Chris Martenson : Good , good , yeah .
At the tier 1 , 2 , and 3 , right ?
You want a bunch of stuff at the bottom of the tier but nothing wrong with tier 1 , easy to understand , makes a lot of sense .
That ’ s been @ @ @ @ @ @ @ You know , the largest allocation of money that I ’ ve done in years has been into real estate and primarily , productive farmland , timberland , you know , and things like that .
So , it just feels right .
I can understand it , it makes sense .
I don ’ t understand how Apple is allegedly worth more than the collective companies in all of the UK , I don ’ t get that .
So , if I can ’ t understand something , I ’ m @ @ @ @ @ @ @ ’ m out of that .
Ken McElroy : I agree with you .
Real estate is not complicated .
It honestly is not .
I mean , it seems unreachable for a lot of people but once you understand it , there ’ s a bunch of people that are getting their butts kicked other places that will give you money to do real estate deals , I ’ m telling you .
You know , but you have to know it , you have to understand it , you have to @ @ @ @ @ @ @ to have a good team .
And it does pay off for you .
The money does attract to you when you have that kind of knowledge , and it should .
You know , that ’ s exactly how the world works .
People want to invest with us because , you know , of all the things I just mentioned , all the things that we learn and the team that we have .
We have – you know , not every deal goes completely well .
A lot do .
@ @ @ @ @ @ @ , we learn from that and we put really , really good teams around that .
There ’ s no shortage of people trying to figure out how to make money on their money and not be in the bank .
Because inflation ’ s coming , man .
Chris Martenson : Yeah .
Well , it has to , right ?
Trillions and trillions of printing and it ’ s already here in the stock market .
That ’ s what I see .
People are like , “ Why is it @ @ @ @ @ @ @ s inflation , right ?
And eventually , that inflation ’ s going to leak out .
I think it ’ s already – you know me , I ’ m such a curmudgeon .
But the government doesn ’ t always tell us the truth , you know ?
There ’ s lies [ interruption ] … Chris Martenson : You know .
And you know , I don ’ t get out of the house as much as I used to because of COVID .
But every time I go to @ @ @ @ @ @ @ shocked not .
I can put my arms around two bags and about 300 bucks of stuff .
Just it ’ s ridiculous now , right ?
So , they can tell me that food inflation ’ s 1.8 % but I can tell you it ’ s not , right ?
Ken McElroy : Yeah , yeah .
Oh , people have to be seeing that .
I think something to be careful of coming up is I think the government ’ s really going to go after real estate taxes .
@ @ @ @ @ @ @ fruit for them .
I don ’ t know if you knew but Nashville passed a 34 % property tax increase recently and the governments are going to look for things – through tax – to fund whatever they need to fund .
And I think real estate is low-hanging fruit so , I would let your listeners know that that ’ s something that they should be considering over the long haul .
In fact , one of the reasons I sold my home here in Coeur d ’ Alene was the @ @ @ @ @ @ @ 26,000 in four years .
Chris Martenson : Yeah , it ’ s such a great point .
And a good friend of mine , Mish , just escaped from Chicago and to your U-Haul story , he had to wait three weeks to get one .
But they were offering – if he wanted to go get one from some other place where they all were piled up and bring it back , he could get a great deal , right ?
So , he had that experience .
But I ’ @ @ @ @ @ @ @ that university story where they can ’ t quite figure out how to trim this massive budget .
I think Chicago ’ s going to be just a poster child for a place where they have all these government workers and services and they ’ re going to – they want to keep all of them running , they ’ ve got great stories for why every single program is essential .
And people are fleeing so , the taxes go up on the remaining people and you just in that tax death @ @ @ @ @ @ @ going to be playing out all over the place .
So , yeah , you ’ ve really got to – when you ’ re picking a place , consider the tax base very , very carefully because [ interruption ] … Ken McElroy : Yeah , it ’ s a big deal .
It ’ s a big deal .
It can sneak up on you .
So , you know , as you ’ re looking , make sure that you ’ re really in tune with that .
Because the @ @ @ @ @ @ @ buy something and a year later , you could be – I literally hire an attorney every single year to appeal it and every single year , they ’ re basically , “ Sorry , dude.
” So , it wasn ’ t the primary reason I sold but I was certainly frustrated with the fact that my taxes doubled in that period of time .
Because that ’ s a big part of revenue for a growing city .
Chris Martenson : Yeah .
Well , I ’ ll tell you – @ @ @ @ @ @ @ two states , Massachusetts and New Hampshire .
Very different tax strategies .
New Hampshire , no income tax or sales tax but it all comes out of property tax .
And that weighed kind of heavily .
And when I said that there weren ’ t that many places that we were interested in , I ’ ll tell you what was all over the place in New Hampshire were McMansions .
You know , people had taken a little two- , three- , four-acre thing , put this big 6,000- , @ @ @ @ @ @ @ it ’ s got $ 20,000 to $ 25,000 yearly tax bill .
And so , when you sort of pencil that in and you go , “ Do I really want to pay a quarter million dollars in property taxes every ten years or would I have a better use for that money ?
” Ken McElroy : No , yeah , right , yeah .
I mean , most people don ’ t think about that .
You know , that ’ s a couple grand a month , you know @ @ @ @ @ @ @ a payment on a piece of land .
I mean , just that , like you know , it ’ s just – you know , so , you ’ ve really got to take a look at all that .
I think property taxes are low-hanging fruit for governments moving forward to pay for a lot of what we ’ re seeing right now .
It has to be .
You know , we ’ re going to get – as a landlord , I know that that ’ s coming .
@ @ @ @ @ @ @ ’ re looking at is where are the property tax-friendly states , you know ?
And so , I think as people start to move around , you know , they ’ re looking at safety issues , of course .
They ’ re looking at affordability issues , of course .
And they ’ re looking at weather amongst , you know , other things .
And so , those are things , I think , you can look at those spots , I think you ’ re going to see migration @ @ @ @ @ @ @ to regroup , you know ?
I would .
You know , I certainly would .
I would try to figure out ; how can I get my living expenses down and reinvent myself , whatever that might be .
And so , and that goes back to what we were talking about with you earlier and you already did that .
Not that you needed to but you did it for other reasons .
But the point is I think a lot of people are going to start to look at that @ @ @ @ @ @ @ expense for an individual and property tax is part of that , not just the debt payment .
Chris Martenson : Yup .
And now that you can be anything from anywhere with Zoom technology and things like that , it really feels to me like this is a great period of reinvention .
It ’ s honestly , Ken , why I ’ m not all that pessimistic .
You know , I think there ’ s some hard times coming .
I ’ m really glad I ’ m not an @ @ @ @ @ @ @ like that in one of these industries that ’ s just trashed .
You know , I ’ m glad I ’ m not really banking on cruise industry kind of earnings and all that .
But for everything that ’ s going away , there ’ s a whole new set of things that are starting up and that ’ s where the entrepreneurial mindset ’ s just got to come in .
Because there ’ s lots of stuff going on out there that , you know , at least for @ @ @ @ @ @ @ right now and I can ’ t possibly get to it all right now .
Ken McElroy : Well , there is .
With disruption , there ’ s opportunity .
And it ’ s interesting .
I actually was Googling – it ’ s been about two weeks ago – just what businesses started during recessions , you know .
And there ’ s so many .
I mean , Airbnb is a great example , you know , and Uber .
You know , they started during recessions .
Now , @ @ @ @ @ @ @ weren ’ t when they started .
And so , there ’ s a lot of cool stuff happening .
I have a good friend that ’ s in the pet business and it was okay , it was pretty good .
But then , with COVID , he ’ s like all the shelters ran out of pets because everybody went out and got pets and that ’ s a good thing , he said .
You know , but so , one of his businesses is dog crates .
And he @ @ @ @ @ @ @ “ I can ’ t keep up.
” And so , like you said , there ’ s another of – you know , you always hear about the things that are bad but there ’ s another side of it , too , that there are businesses that are going to do very , very , very well .
And as Buckminster Fuller , as you know , we studied him , he says , “ Use the forces – you know , use the momentum and just pay attention to the @ @ @ @ @ @ @ benefit.
” And that ’ s all you have to do .
You know , and I think a lot of people are super resistant .
You know , they ’ re trying to hold on to old behavior , old biases , old habits .
And you ’ ve just got to step back and say , “ Okay , you know , what could happen ?
What is the possibility that ’ s going to happen here ?
” Like on the college campuses , as an example , or on @ @ @ @ @ @ @ what is that actually going to do and what are the opportunities there ?
And there ’ s a lot of money to be made in the next three to five years , you know .
And the fact that people are really realizing , I think , how thin their paychecks and their jobs and maybe even their savings , hopefully is a wakeup call for a lot of people and they don ’ t get hurt too badly and they could really reinvent themselves going forward and do exactly what you @ @ @ @ @ @ @ whole time is you need to have multiple sources of income and you need to be unplugged from the grid just a little bit – you know , not as some conspiracy theorist – but just enough to know that you ’ ve got buckets of money coming in and that you are safe and you ’ re not relying on one source .
And that ’ s , I think , hopefully , a wakeup call for a lot of folks .
Chris Martenson : Yeah , yeah .
And so , @ @ @ @ @ @ @ love to – I mean , thank you so much for this conversation .
Chris Martenson : And you ’ re the brightest C student I know , by far [ laughter ] .
You are very smart in your ways .
Again , you ’ ve always got – you ’ re skating to where that puck is going to be and there ’ s a lot to learn from that .
But really , what it comes down to has been it ’ s just you ’ re a hard worker @ @ @ @ @ @ @ ’ re thoughtful and you ’ re conscientious .
And if you carry those attributes with you , I think people will be fine , you know , if they can model that .
So , you ’ ve got this video out .
How can people find it ?
Ken McElroy : So , you can find it on – KenMcElroy.com is our website , you know , and we have – it ’ s all free videos and forums and stuff if people are in the real estate .
You have @ @ @ @ @ @ @ is just Ken McElroy .
And just go subscribe .
I ’ m having a blast .
I ’ m getting my ideas from the people that are joining , you know ?
Because , you know , I ’ m just one guy trying to figure out what everybody wants to hear .
And then , like you , I just dig into it and try to figure out and I have lots of network and resources around all that .
And so , I ’ ve been trying to deliver videos @ @ @ @ @ @ @ help them through all this .
So , it ’ s been great .
So , KenMcElroy.com is the spot .
Chris Martenson : Great , we ’ ll have that link right below this , of course , and direct people there .
And fantastic video .
And I didn ’ t want to go through all the highlights of it because , you know , people should go watch that .
It ’ s really that good .
And everything , especially if you ’ re considering – and I know @ @ @ @ @ @ @ are you going to do about your living situation ?
Are you going to change that ?
It ’ s something you really need to go watch and understand from one of the masters and somebody who ’ s been there , done that , and not his first rodeo .
So , with all of that said , Ken , thank you so much for your time today and it ’ s just been a real pleasure .
And I wish we didn ’ t have COVID because I would love to @ @ @ @ @ @ @ ] … Ken McElroy : I know .
Well , I ’ ll tell you what .
Let ’ s get together – let ’ s Zoom after this and just have some more of this chat .
I love your mind and the way it thinks and it just thinks so differently than mine .
And I ’ m always trying to change my opinion so , I would love to get into some more dialogue with you and Adam .
Chris Martenson : Well , absolutely , let ’ s do @ @ @ @ @ @ @ thanks very much for today .
Thanks , everyone , for listening and we ’ ll be back next week .

TRANSCRIPT
Chris Martenson: Hello, everyone. Chris Martenson here of Peak Prosperity and we’re here with another Featured Voices podcast. It’s September 2, 2020. And as you know, I talk a lot about COVID. Maybe that’s how you know me. But the people who’ve been following me for a long time know that I’m talking about the economy and financial issues a lot. COVID came along and fortunately, I had this background in science to be able to help decode that.
Well, I’m really more interested in decoding finance and economic matters because those are the ones that impact all of us. I think that we’re facing one of the most difficult, if not dangerous, periods ever because of all the money printing the Federal Reserve is doing.
And I wrote a piece about a year ago way before COVID, of course, and any inkling of it that said that I thought we were going to start in one of the largest back-to-the-land movements in history. And part of the reason for that was I thought, “Well, if the whole trend up to now is people flooding into cities, what if that ever reversed?” And it was centered around my own personal property search, you know? I was going out with Evie and we’re looking for properties and we were looking for property with more than five acres. We were looking in New Hampshire and Massachusetts, two whole states. We knew every property. And by the time we whittled them down for our characteristics, there were about thirty that could’ve satisfied our needs. And of those, we really liked five. And all of a sudden, I ran the math and I was like, “What if 0.1% of people in Boston were in competition with me for those properties?” And the answer is there would’ve been tens of thousands of people looking for the same five properties and it would’ve been a much more difficult search.
So, that’s what I thought I saw coming. COVID happens. Now, everything’s upside-down and crazy. And I know people who are both paralyzed about the idea of moving or desperate to move. Lots of people making that transition.
So, the question comes; where really are we in the real estate story? And there’s nobody better to talk to us about that than somebody who’s been in the business a long time, does his homework, knows his math, he’s a great guy, I can count him as a friend. I’m really happy to welcome to the program Ken McElroy. Ken, great to have you here with us.
Ken McElroy: Chris, great seeing you, man, really awesome. I love your stuff. As you know, we’ve traveled all over the world together and, you know, you helped me look at my real estate markets a little bit differently with, like you said, the science and the math behind it all. And it’s certainly helped us in our journey so, thank you. It’s been great.
Chris Martenson: Yeah, I know at one point, you have an investor meeting that you hold because you run very significant real estate investments and you have investors come in and you’re managing those investments for them.
I remember one year, you gave Silver to those participants. Maybe…
Ken McElroy: We have every year, actually, yeah. So, we have about 1,500 high-net-worth investors and we have just north of a billion dollars’ worth of real estate right now. Mostly apartments but self-storage, office, land development, you know, and then, we dabble in the single-family a little bit.
But yeah. So, we bring all those investors in and they’re from all different walks of life. And you know, I just started doing that, the “print our own silver” with our own logo on it and you’ve been doing that at our employee events, our investor events. And now, that’s turned into be a good thing [laughter].
Chris Martenson: Absolutely. And so, I love that you’re doing that and I love that you even credit even partially that Adam and I had something to do with that.
You know what? I’m just going to share my screen here real quick. Because there was – let me see if I can pull this up. Oh, yeah, you remember this?
Ken McElroy: Oh, yeah. Yes, the Tomcar.
Chris Martenson: Yeah. So, that’s Adam in the back and that’s you in the front. We’re all strapped in in these Tomcars. What an amazing thing. This was a day where you signed us up and we went out into the deserts around Sedona. There’s Adam and I and we’re much younger in this. It’s only 2015 but geez, the years have piled up. Yeah, there we were riding around and you took us to a place that you had up in Sedona Canyon. And I don’t know if you still have that but…
Ken McElroy: Yeah.
Chris Martenson: … what an amazing spot you found there and we just had a grand time. You showed us a wonderful time. And that Tomcar experience was really just amazing to [interruption]…
Ken McElroy: Well, you’ve got AK in there, too, yeah.
Chris Martenson: Yeah.
Ken McElroy: My buddy AK, yup.
Chris Martenson: Yeah. So, yeah, that was just a little trip down memory lane. But that was, yeah, that was a lot of fun.
Ken McElroy: Yeah, we still own that resort. And you know, we bought it because it had water rights. And you know, as you know, we went up there, you kind of helped us – how do we get off the grid there. And so, we’re almost there, man. It’s farm-to-table and all the water so far and so, it’s been a wonderful experience.
Chris Martenson: Yeah. And based on that, I actually – we can talk about it some other time – but I’m working on a project, which is starting from slightly more – we’re converting a residential place into a full space where people can come. But it’s going to be around sustainability and people can come and rent a cabin but also, maybe learn how to pick their own food out of a garden or start a fire for the first time or whatever they’re here to do. But actually, started a whole real estate deal, in large measure, because of meeting people like you and other people on the real estate crews and all of that.
So, yeah, thank you very much for my own education and ability to go forward with a syndicated real estate deal, yeah.
Ken McElroy: Hey, it’s my pleasure, man. You know, I think, honestly, you know, all your teachings roll very well into that – I always think of that tier, you know? Tier 1, tier 2, tier 3. And you know, in fact, I actually referred to it in one of my YouTube videos that I did during this pandemic and I said, “My buddy, Chris Martenson, he says, you know, the tier 3, you know, the paper is the most dangerous.” And I still believe that. And it was a great visual for me to see, you know, you need to be sticking down to the resource category, the land, you know, the hard assets. And that’s going to show up here in the next three to five years, for sure.
Chris Martenson: Well, I want to go there and talk about it. Because obviously, COVID comes along – and I’d love to hear about your own pandemic experiences. It’s changed all of our lives. But in honesty, it didn’t cause any of the things we’re seeing. It certainly put some afterburners on – you know, strapped a couple rockets on. But as far as I can tell, everything was sort of already too extended, too much printing, too much funny money even before COVID came along. And that, of course, just gave air cover for the Federal Reserve to print more and more and more. And honestly, they don’t have a plan, Ken. They’re like, “We’ll print and then, dot-dot-dot.” They can’t fill in the ellipse in that sentence. You know, they don’t know – I don’t think they have a plan. Their plan is to keep printing and hope it all works out. And if it does, great. But if it doesn’t, look out below, right?
So, that’s where I think tangible assets make the most sense in this story. Real estate is the most tangible of them all when you get right down to it as far as I’m concerned.
Ken McElroy: Yeah. You know, when I talk about COVID, obviously, it’s been a big deal. We have 250 employees, 10,000 tenants, and lots of properties and lots of management around all those things. And so, we’ve had to do all the PPE, the PPP, the EIDL, you know, everything. You know, it’s been a really interesting ops – you know, operational part – for our company in the last three or four months.
But I call COVID an accelerator. Because I really believe what it did is it took things like – like my friends are in the retail market or in the mall space. It just basically pushed them right out, you know? Because they were already in big trouble with the direct-to-consumer stuff with Amazon and, you know, now Walmart and Target, everybody’s trying to catch up to Amazon.
And so, those retailers and those service businesses were already in trouble. You know, when people buy stuff, you know, they’re at home and they order it in a couple minutes and then, they go do what they’re going to do and it shows up on their door. So, that was already in motion. And so, it just kind of washed it out, you know?
Chris Martenson: Yup, yup. And I’m thankful to the real estate radio guys, Robert Holmes and Russ Gray, for pointing out to me that real estate is not an asset class. It’s many different asset classes. You just mentioned one aspect of it.
So, I want to be real clear when we’re talking real estate, it’s not like we’re talking about one thing. Because obviously, malls would be a very different investment and industrial space versus apartments versus raw land, all of that, right?
Ken McElroy: That’s exactly right. You know, I go – you know, when they talk about residential, I go, “Okay. So, is that condo? Is it entry level? Is it high-end custom?” You know, that’s just residential and there’s, of course, other categories. You know, and then, you’ve got self-storage, industrial, retail, you know, the malls, which is really retail, multifamily. You know, there’s a whole bunch of stuff in land development.
And so, they do it every – as you know, they put it in one category. But the other thing is they do that with vacancy rates, occupancy rates, rents, rent growth. You know, they’re like, “Well, what’s the occupancy?” “Well, it’s 96% in the nation.” Well, you know, it might be 75% in Detroit, you know what I mean? And then, there’s different areas of Detroit, for example, that might be worse than others and better than others.
And so, it’s a very localized business and you know, you really make your money by having knowledge of each individual sub market.
Chris Martenson: Yeah, well said. So, how has it been for you? I know that I just heard that the CDC is thinking of allowing people to skip rent payments. I’m not sure where that authority came from but I’m sure that impacts you. So, how do things look in your space?
Ken McElroy: Yeah. So, well, a few things. One, you know, so, we’re in the multifamily space. We have just under 10,000 apartments and we have them throughout Texas, Oklahoma, Arizona. And you know, so, we have – it depends on the demographic of the apartment building itself. So, our senior stuff, as you can imagine, they’re kind of unplugged from all this. They’re getting their checks. They’re good. We were literally 100% collected before, we’re 100% collected after.
Anybody that’s been in the hospitalities sector – you know, so, we have properties that are kind of near those – they’re in a little bit more trouble. Anything that has to do with the airlines, for example, airline mechanics, the pilots, and those kinds of things; trouble.
We’ve had a little disruption around our student housing because of the Zoom – you know, it’s not a direct experience anymore.
So, every property’s been a little bit different, every market’s been a little bit different. You know, I would say the team has really just been incredible. Our team has just been incredible. You know, we’re collecting in the 90s – the mid to high 90s – on most properties with the exception of a couple.
So, we’re in pretty good shape as a company but I think that has largely to do with where we bought the properties. And we’re a little bit more of high-end landlords and most of our stuff’s newer. You know, we’re a builder, too, so we build our own.
You know, so, the demographic. And we know they have pretty good credit, pretty good savings, you know, before they move in.
But they’re certainly impacted, man. I mean, we put them into three buckets, Chris. We said okay, Bucket 1 was they came in and paid. No problem. Bucket 2 was, you know, we are very concerned. We want to work with you. And we set up what’s called a PTP program, which is Promise to Pay program. And that was Bucket 2. And there were thousands of people in that category.
And then, the next category was hey, you know, the President said we don’t have to pay rent so, we’re not going to. And by the way, we’re not going to communicate with you at all.
So, those are kind of the three buckets. And so, really, most of our effort was in that last bucket. And you know, believe it or not, it wasn’t that many. It was, you know, in the hundreds of people that just chose to not communicate, move out, whatever, skip.
But then, you throw the COVID thing on there, you know, we had residents with COVID, we had employees with COVID. You know, you have all that, as well, just to add to the complexity of it all.
But we had to – imagine this – we had to take our whole company in March and go from online tours to – I’m sorry, personal tours to online tours – and all, 100% automated rent collection. So, we did all that in just a couple of weeks.
So, we’ve done pretty well. But a lot of my friends are not doing so well, you know, depending on, again, the properties that they have. I have a lot of friends in retail and a lot of friends in land development and things like that and the lending industry and all that stuff is obviously a bit disrupted.
Chris Martenson: Yeah. It’s certainly a very complex business to run. And just so people don’t think you just sort of airlifted and dropped into your current position, I love your origin story. Could you just tell us real quick about how you got started in this whole business?
Ken McElroy: Yeah, yeah, I was completely lucky. I mean, my buddy asked me while I was in college if I would manage an apartment community. You know, and I was racking up student debt and trying to get through school. My parents did not graduate from high school and so, you know, me being in college was a big thing. I was racking up the student loans at the time. They were much different then but I needed them. And he said, “Hey, you know, would you take over this 60-unit apartment building in Seattle, Washington?” I said, “How hard can that be?” You know?
So, I moved into this place. I go, “What does it pay?” He’s like, “Free rent and $300 a month.” And I’m like, “Done,” you know? Because I was like, “Free rent, yeah.” But then, I was like, “Oh, my gosh.” Like rent collection and then, turning the units, you know, and then, just all the individual behaviors of all the people that lived there. It was really the first time I had a massive education.
And so, after about a few months of just busting my butt, I had a construction background. So, I was turning units, painting units, cleaning units, doing the maintenance, and I just was doing it all. You know, because I thought, “Oh, that’s just what you’re supposed to do.” I didn’t realize you can, you know, vend it out.
So, the owner comes in, he’s like, “I don’t know how you got our property so full. You know, but thank you, this is great.” And I handed him – you know, because back then, he would come and I would turn over the deposits to him and he’d run over to the bank. And I was like, “I am on the wrong side of the desk here,” and that was it for me. I’m not kidding. I was like, you know, I saw the numbers once the property was run well and full. And property management really is common sense.
And so, I was grateful and I got in the property management business. I started managing bigger properties, more properties, all up and down, basically from Northern Washington, basically, the Canadian border, all the way down through Oregon and even Southern California. And I did that for about eight, nine years.
And then, I just started my own firm. You know, started a management company and then, I started buying single-families. And my first investment was 160 grand, I used my own cash. Second one was a little bit more. I used my own cash and then, guess what? I was out of cash. So, I was like, “Okay, now I’m going to have to figure out – I still am finding deals and the cash flow but now, I’m going to have to figure out how do I get the money?” And that’s when I learned how to syndicate, put groups together and find people that had confidence in me.
And then, so, I started small with a two-bedroom, two-bath, and just grew from there. And you know, now we have just right around a billion dollars’ worth of assets. We’ve had much more than that. We sold a bunch in 2019, pulled a couple hundred million worth, which is good timing, I guess, in hindsight.
But you know, I’m a cycle guy, Chris, and that’s why I loved hanging out with you and Adam. I really am. You know, it’s hard when everybody’s doing – you know, like there’s a frenzy over things. People have – you know, the herd mortality. They want to go buy now. You know, they believe that they have to now. And I look at numbers, you know, just like you and I’m like, “Well, I’m going to sell now.” And I’ve made enough so, maybe it goes higher. Great for the next guy. But if it doesn’t, you know, I’ll be there for when it comes back down.
And that’s what Ross McAllister and I have done the whole time. So, we’ve been buying in the cycles. And we actually haven’t really bought a lot in the last two years. Because, you know, a lot of new money came in and pushed it up, interest rates went down. And you know, when I’m talking about new money, I’m talking private equity, big institutional equity, Blackstone, Goldman, you know, giving all kinds of people money to buy apartments and just kept it going. And our returns were going down so, Ross and I decided not to buy. We started building. We were buying land and building.
And you know, it’s always based on – those syndicators are basing – they’re usually, they’re saying it’s based on a value add. And so, they’re basing on next year being better than the current year and that’s not a bad strategy when the fundamentals are there. But we felt like it was peaking, actually. I thought – I actually – you know, COVID, like I said, it just kind of made it happen. But we were close already, I believe, on a lot of levels on the market peak here.
Chris Martenson: Yeah, and if people don’t remember, it was in September of 2019, months before any inkling of COVID could’ve possibly come out, that the Federal Reserve was busy shoveling money into markets for – you know, bailing out arcane corners of the financial system. You know, and these were all like really highly complicated, speculative things run by big firms. They don’t actually produce anything. Again, these are firms that they’re using money and that’s the end of that. Nobody gets housed, nobody has a better deal, you know, all of that.
But they got in trouble and the Fed started bailing them out. So, you can feel the creaking and the groaning, you know? And the Fed had to put 500 billion in even before COVID came anywhere near the doorway. And then, it did and then, you know, they just threw more on there.
I’m sort of a fundamental guy. I don’t think that you can print your way to prosperity. It’s part of our tag line at Peak Prosperity. But I wanted people to hear your background because you have this deep experience. This isn’t your first rodeo. Maybe you’ve seen a cycle or two in the past. You now have a really, a very viral, even, YouTube video out that’s talking about where you think that this cycle’s coming. As we just mentioned, the back story was it was already on the way here. COVID’s maybe accelerated that. It maybe got a little delayed because of all this stimulus money and people getting some checks and that and all this.
But why don’t you lay that theory out for us there? What do you got? What are you working on here?
Ken McElroy: Sure. Well, I look at things like you. You know, like one of the things I learned from you and Adam is there are definitely markers and there are signs. There are things that are happening that, for whatever reason, people just ignore. You know, and so, obviously, the first thing we watched was all the unemployment numbers go up and the truth is we didn’t know when things were going to reopen.
And then, they came out with the PPP and all the Cares and all that money and that kind of kept a lot of the businesses going. But there are a lot of business – I have a lot of friends, if you had over 500 employees, didn’t get any money.
And so, you know, you’ve got to take a look at what’s happened when a lot of these businesses are fighting for their lives right now financially. You know, the restaurants that maybe sat 100 are not seating 50. You know, gyms that had all these members – you know, all these businesses that are, you know, they’re slowly going through massive change and massive behavior change. And so, you’re looking at all that.
And then, the people that are working at all those places, they got the $600 a week, you know. And my friends are going, “I’m trying to reopen but now, I can’t get a dental tech to come work for me because I was paying them $18 an hour and they’re getting $20 by sitting at home.” And so, there was all of that.
And so, that just eliminated – and so, it’s all been propped up. And I read recently that 25% of America right now is being funded by government stimulus.
Chris Martenson: 25%.
Ken McElroy: Yeah, yeah. And I was like wow. So, I started digging into the numbers. You know, you start to look at the unemployment and then, you start to look at forbearance. And all forbearance is, is the ability to not pay your mortgage.
Chris Martenson: For a bit.
Ken McElroy: Yeah, right, right. So, that was you did not have to prove hardship for the first part of that Cares Act. So, at the end of September, you’re going to see all of that, you know, right now. So, you had all these people – right now, we’re close to 3,000,000 people that have not paid their mortgages that are over 90 days delinquent, okay?
And then, so, for the next six months, if they keep – they have to prove hardship and then, layer that over with the non-eviction thing, which Trump kind of started, you know, back – he said, “Listen, no evictions through October.” And then, the CDC came out this week with, you know, “We’re going to kick that down to the end of the road.”
What it doesn’t do, though, Chris, is it doesn’t allow them not to pay. It just says they can’t be evicted. So, it’s still owed. Both the mortgage is still owed and the rent is still owed.
And so, I just believe that at some point, the music stops – you know, like in the musical chairs, you know – it stops. And everybody’s going to sit down and things are going to sort themselves out and hasn’t had an opportunity to do that.
And so, that’s what that video did is said, “Listen, here are the numbers. Here’s where it’s heading.” I personally know there’s a – I mean, look at all the bankruptcies. I mean, you could just go down the line from Macy’s to Niemann Marcus to Sears to J.C. Penney’s, you know, and you just could look. And those are – while they’re big names, people don’t often associate them with people that work there. You know, and there’s all these jobs that are being displaced; the restaurants and, you know, service business and the travel business.
And so, I just see all this stuff really exposing itself next year. And so, I do believe that there will be a housing crash because right now, there’s uncertainty. So, you’ve never seen, ever, these kinds of low inventory numbers. And that’s why the market is high.
So, like think about it. If I’m sitting here and I don’t know if I’m going back to work or where I’m going to go work or my financial certainty or uncertainty or, you know, I don’t know what’s going to happen, I’m not listing my house. You know, I’m going to sit here and just go, “Okay, let’s see what happens here. Is my employer going to hire me back? You know, am I going to come off of furlough? Or how much savings do we have? And how much equity do we have in our house?” All that stuff, everybody’s calculating that right now.
And so, I believe that when all this starts to reopen up and we get this vaccine and, you know, we can go on and on about that, as well. But then, I think people are going to start coming back to normalcy next year, hopefully. And then, you’re going to really see the aftermath. And at that point, there’s got to be massive, massive government stimulus to keep this thing going.
And I believe at that point, Chris, the forbearance stuff has to end. They can’t kick it down the road because they’re paying somebody. If you hold my mortgage and I’m not paying you, you’re in trouble, you know? That’s income for you. So, they don’t calculate it all the way up. You know, when a renter doesn’t pay me, then I can’t pay the bank and then, the bank puts me in default and then, the bank owns the real estate. That’s the cycle. You know, nobody’s talking about that.
So, all that’s happening. It’s not really being talked about a lot but there are big companies that are missing payments – big ones – you know, that are all over the news. You know, I’m talking about hotel chains and things like that. And so, you know, they’re just not paying. And then, big retailers are saying, “Sorry, we’re not paying.” And you know, and the landlords are sitting there going, “Well, we own the center and you’re in it,” but they’re saying, “Well, we’re closed.”
And so, all that’s happening and so, I think you’re going to see a massive amount of inventory next year. And that inventory is going to jump up so high that – and the demand’s going to be less that people are going to be hammered financially. That’s when you’ll start to see the beginning of a massive price drop and you’ll see properties that are going to go back to the banks and you’re going to see all this migration, these patterns moving all over the country. We’re already seeing that but you’re going to see it, especially with remote work.
So, that’s what that video is about and it’s gone viral, which has been great. And I just, again, I just stick to the numbers, stick to the math, and I just said, “This is what’s happening right now.” And then, you try to do some kind of probability around that.
But I think it’s going to be really, really ugly next year.
Chris Martenson: And again, thinking of real estate as many different asset classes, you just mentioned there’s regional patterns of disruption. Would it be fair to say that some cities might get in trouble around this? You know, I’ve seen probably the same news you have where I saw a picture the other day. Sometimes it’s the little picture that catches you with seven moving vans on one street in New York City, right? Just like people are just up and leaving. Would you think it’s cities?
Ken McElroy: Yeah, yes. And so, one of the great things about migration is that you could actually – U-Haul, North American Van Lines, even out-of-state drivers’ licenses – that’s all data. So, you can literally – and U-Haul knows, of course – you know, if you’re moving from Massachusetts to Arizona, that’s data. Okay, all that’s tracked. And so, you can go online and find this stuff. You can see where people are going. I’m telling you, you know, those markets – whether it’s New York, Chicago, Seattle, Portland, whatever it might be – those markets are – definitely have a massive outflow happening.
So, there’s a – you can go on the US Census. It actually shows you which states have had inflow versus outflow. It’s just data and it’s all tracked. Because when you go there, you buy a home or you rent, you know, you have a certain period of time to trade in your driver’s license and so, they kind of know where you are. And so, that is data that is already out there.
And so, you’re going to see massive, massive outflow from what I would consider to be high-density cities. You know, I think San Francisco’s going to really take a shot. Because you know, like Twitter, Google, SalesForce, you know, these big companies that have thousands and thousands of employers so, you don’t have to go back. You can now all work remotely. And so, you know, instead of 3,000 or 4,000 a month, they’re an hour away and it’s 1,000, you know?
And so, there’s all this stuff happening. It’s going to be interesting to see how it all settles out. But without a doubt, Chris, you know, everybody’s talking about how hot these markets are. Well, they’re hot because people are going there but nobody’s talking about the – you know, they’re coming from somewhere so, it’s affecting something else somewhere else.
You know, so, that’s all going to show up, I think. You know, we’re already seeing massive price adjustments in some markets. And again, back to the inventory issue, inventory’s low right now. Because you know, if I’m – I mean, you know, I’m hunkering down and I have a little bit of equity in my home. I’m not making a move. You know, I’m going to see how everything flows out. Unless I have a lot of cash and I can make a move. You know, then I might do something like you’ve done, you know, and just go buy a farm and just see where this whole thing lands. And which people are doing, too, by the way. I mean, the sector that you’re in? Oh, my gosh, it’s hot, hot, hot, hot. And I’m up in the northern United States right now near Montana. I’m up in Northern Idaho right now. I mean, things are on fire right now in the rural sector, you know, for these off-the-grid type stuff.
Chris Martenson: Yeah, yeah. It’s the hot sector right now. Again, I followed my Spidey senses. You know, last summer, Evie and I, we just saw – you know, we’re living in a nice house. We’ve got a little riverfront place up in Greenfield, Mass, got a garden. But all of a sudden, we just said, “I think we need a bigger – you know, we’re going to need a bigger boat, you know?” So, off we went and just – I feel so fortunate. Because if I was trying to look at that right now, I would feel that scramble you talked about because it’s so much competition. I would get that same urgency other people do, you know. And I’ve heard these horror stories of people – some of my followers – saying they’ve been waiting, they’ve been waiting and now, all the sudden, it all feels out of reach because the places they want, there’s a lot of demand for that.
Do you think in the real estate crash of 2021 that you’re talking about, does that include these rural properties that are now hot? Or is that – are you saying this is a tale of two worlds? It’s both the places being left and the places being gone to.
Ken McElroy: Well, it’s hard to know what’s going to happen from a rural standpoint at the moment. It looks to me like that could be fairly sustainable.
You know, I think when we see a boom and bust in a market, there’s usually a boom. So, you know, in a lot of the rural areas, there really weren’t booms. And so, now, they’re higher, for sure. But there weren’t real booms.
And so, you know, if you go to all the major cities, you know, we saw 5% to 10% rent grow over the last ten years. Okay, that, I would say, is a boom. You don’t see that 20 miles out of town, you know what I mean? You don’t see those kinds of price adjustments on those homes 20 miles out of town.
And so, I think you’ve got to pay attention to if you’ve just seen a boom, then you’re going to have more of a bust.
Could there be some adjustments? Sure, maybe. You know, again, but I think at the end of the day when everything settles out, we’ll know. But real estate is very much a demand and supply business. So, if there’s a lot of people that are going to a town that has very limited housing, then of course, you’re going to have a very, very robust market through all this. And so, that’s just how it works.
But everybody’s definitely moving from something to something else. And I think once they figure out where they want to be, I think a lot of people are really worried about the virus. You know, so, you have that, you have others that aren’t worried very much at all. You know, and then, you have people that are just getting out of the dense neighborhoods, there are people that don’t have to work within a mile or two or three or four from where they were before. They’re making decisions.
And so, it’s going to be really interesting, I think. I think it’s a wonderful time. And you know, people can now be where they want to be. I think that’s actually what it should be. You know, people should be where they want to be and they should not have housing as an obstacle for them.
Chris Martenson: Yeah, well, this Zoom thing is great, right?
Ken McElroy: It is.
Chris Martenson: So, we’re Zooming away happily right here and that’s been something I think is hard for people to get their minds around. I’ve been talking about it a lot, which is that these changes that just happened are permanent. We don’t know what all the impacts of that yet but things will emerge from that. But I don’t think we’re getting this thing where people rationalize, “I have to live 60 miles outside of San Francisco to commute in through this horrible commute to be there face-to-face. If I can not do that, I’m not going to do that anymore.”
Like the Great Depression changed behaviors forever for some people, I think COVID has permanently shifted behaviors, including mine. I see myself, Ken, as possibly traveling a lot less, you know, sort of recreationally. And you know, it’s just more thoughtful. It’s just a little different, you know. And to the extent we can do this now is fantastic. It really is.
Ken McElroy: Yeah, it is. And you know, so, that, in my opinion, was already starting. I mean, this technology, Chris, has been out there, you know. And again, it’s an accelerator. And so, you know, we have – every week, I have a 90-minute call with my leadership team and we do it all through Zoom. I haven’t seen any of them since March. Even my partner, Ross, I haven’t actually seen since February.
You know, but we’re doing this every single day and our company’s still moving along. And I think a lot of companies are starting to figure that out that, you know, they don’t necessarily need to go someplace physically. And that’s really impacting the office market. You know, and I have some office – I mean, a corporate office that has 10, 20, 30, 40, 50,000 square feet. You know, I still believe it looks to be like they’re still going to have a corporate office but maybe it’s 5, you know, and they have some conference rooms and places where people can come and go to do meetings or when they want get-togethers.
But it’s very, very different, you know, to have that big 50,000-square-foot footprint with your name on the building. I think those days are gone, honestly. They’re not necessary.
Chris Martenson: Yeah. Well, you certainly have your finger on the market and understanding where all of this is really going. I mean, one of old saws that I grew up with is that real estate is really a function of the jobs. So, we’ve just seen tens of millions of people lose their jobs. They’re coming back slowly and, you know, we’re hoping that we don’t have a big double-dip recession, you know, that they’re just throwing stimulus money to try and keep this whole thing from cracking up.
But to me, Ken, the real engine of the country has always been small- and medium-sized businesses. That’s where most of the hiring happens. Do you see that coming back? Or do you think there’s another shoe to drop there in terms of how they’re – you know, you just mentioned all this stuff about occupancy at gyms and restaurants being half. You know, those things were not – many of them are sort of marginally profitable at full capacity, right? I just don’t even know how [interruption]…
Ken McElroy: That’s exactly my point. It’s interesting. You know, there’s something that came out last week on Yelp. And I was like – you know, Yelp has no skin in the game, right? They basically rate businesses. And it essentially said that 33% of the restaurants are gone. Yelp. And I’m like, “Okay.” And they projected 25% of the businesses. You know, these are all they do. You know, they have no skin in the game. They’re not trying to sell anybody anything. They just basically are there for a business. And I just think that there’s going to be a massive amount of money lost as a result of those closures.
But on the other side, to your point, there’s going to be tremendous opportunity, also, to deal with new behavior. So, as an example, grocery-anchored retail is doing very well. Anything with a grocery store in it is doing very well, obviously. So, still, it might have a karate studio next door and maybe a yoga place or whatever. Okay, those centers are actually doing okay. But the ones that don’t have that are not.
But pretty common sense if you think about it. You know, and so, you’ve just got – and the other businesses that have done pretty well are the ones that had takeout windows. Literally, you know, where you could drive through, okay? A lot of those have done pretty well because people don’t want to go inside.
And so, you know, it’s just going to – so, I think you’re going to see new design, I think you’re going to see a lot of things change, you know, around people’s behaviors and – and you know, to your point, I mean, you’re way ahead of the curve. People are doing more at home together and they’re doing it in smaller groups. I think that’s wonderful. You get back to relationships. And it’s been a great time for me. I mean, my kids got kicked out of school in March because of COVID. You know, they both came home and finished in their rooms, you know, which was super weird. But having them home was awesome and you know, we were on lockdown. But man, I was having dinner with them every night.
But now, they’ve gone back and my son said it’s horrible, you know? They basically – you can’t go on campus and all the dining halls are closed. And they’re trying to do their best but it’s just they’re not really learning over Zoom.
And so, I think the student housing market and the college, you know, institutions of higher learning, is under massive, massive attack. Not to mention the fact that their sports and all that stuff are shut down.
So, you know, revenue’s taken a massive hit there, too. That has real estate implications. Massive real estate implications. Because you had dorms that had two people in them and now they have one, as an example. And so, but a lot of those people got displaced to off-campus housing but they’re going, “Why would I get a rent – why would I lease here and then Zoom in, you know, a block from campus?” You know what I mean? Because kids are there for, obviously, more than just that.
And so, I think this is at the very beginning, Chris. And you know, colleges have only been in session for a couple weeks.
So, you’re going to see – I think you’re going to see some massive disruption. People are questioning the college – the cost of college education over Zoom. And you know, if they’ve got student loans or a kid is paying for it themselves and working two or three jobs, they’re going, “Why would I do this? You know, why would I spend $15,000, $20,000 or even more all over the country, you know, when I can actually do this at home?”
So, my son’s friends are saying, “I’m not going to move to Tucson, Arizona to go to University of Arizona when I could just live in Phoenix, which is where I’m from, at my parents’ house and do the same thing and save a thousand dollars a month on rent?”
So, you know, there’s all this stuff happening and I think it’s going to really, really, really be disruptive and we’re going to have a very interesting 14, 16 months ahead of us.
Chris Martenson: Yeah. I’m thinking a lot of colleges and universities aren’t going to survive this. I don’t want to pick on any one of them but I was reading the Wall Street Journal article about Iowa. And you know, the sports program’s got $110,000,000 revenue sort of a situation, which is like gone. But they still have all these expenses, you know? And so, they decided out of 26 competitive programs in their NCAA program, they’re going to cut two of them. So, they cut like men’s swimming and women’s diving or something, right? They saved $916,000 out of budget of $110,000,000, which includes like big-time coaching salaries and all that stuff for football and things.
So, just the adjustment process is going to be really hard for people to get their minds around this. One of the reasons I really like hanging out with you and the real estate guys and all the other crowd around this because everybody there’s an entrepreneur and entrepreneurship is about adjusting quickly, right? You had a plan, didn’t quite work, and you either have to – you either fix it or you go down in flames, right?
So, that’s just how I think everybody’s going to have to be just a lot more entrepreneurial. And I sort of raised – you know, that college is sort of like so stuck in its ways and all it could think to do was cut $916,000 out of $110,000,000 budget. That was probably painful, right? We’re going to have to be faster and quicker than that, aren’t we?
Ken McElroy: Well, right. To your point, I actually dug really into this, as well. So, I looked at Ohio State just because I was like, okay. Because I don’t know if you remember the student visa issue where the student visa issue basically said there’s a – there was a condition in the student visa that said you can’t – so, if an international student comes over to the United States, they can’t take their classes online. That was in the agreement.
Well, Trump reversed that just about a month ago very quietly. But that issue, just that one issue, there were – I looked at Ohio State – there were 7,400 students that were international at Ohio State paying 40 grand. So, it was like $300,000,000 in change. And the Ohio State football team brings in $500,000,000. So, just those two things are $800,000,000. You know, and that’s not even counting the kids that live in the United States that are saying, “You know, I don’t think I want to move all the way to Ohio and just rent something nearby and take it over Zoom.”
So, I actually think you’re going to start to see pretty big layoffs. And we’ve already seen a little bit of it, I don’t know if you’ve read. But there are definitely schools that are already doing this and they’re going to have to massively adjust their revenue model, you know, their value proposition model. And I think there could be some really good real estate implications around all this, you know, I really do. I would love to be able to pick up some real estate on college campuses. Because I think over the long haul, they’ll correct and come back. But this could be a great time for a real estate investor to keep their eye out for that. Because whenever you have – real estate exists for people, not the other way around. So, you know, if there’s a lot of people, you know, whatever, you want to rent, then that’s it. Or you want to buy then, you know – or buy something. You know, that’s what it’s for.
And so, you can’t just stick a piece of real estate out there and hope people come. You have to have – you have to watch supply and demand on those things and then, make sure that you’re out in front of it.
And this is certainly something that’s reversing. You know, I think those institutions, as you know, they slowly buy property and then, all the sudden, they have city blocks. You know, I think you’re going to start to see that stuff on the market in the next few years.
Chris Martenson: Well, so, what would you say to somebody who’s maybe been sitting for a little while and thinking, “You know, I’d like to get that place out in the country,” or, “Maybe I should move,” or all that. Would you advise them to wait and wait for something to blow up and watch where the dust is settling? Or would you want them to get out in front of that?
Ken McElroy: I would. I would want them to start looking and get out in front of it now. And I think that to your point, not all real estate’s on fire, you know, and there are lots – this is a big country and there’s a lot of stuff happening all over.
And so, if you’re really concerned about that over the long term, you know, there’s amazing deals one mile from – or one hour from city centers all over the country. And you know, as you know. So, as you get further and further out, generally, you get better and better deals.
And so, if you’re concerned about that, I wouldn’t wait. Because, you know, in the city, it might be a million bucks but all the way out, maybe it’s 100 grand, you know what I mean? It’s inconsequential from a lifestyle standpoint, you know, on what you want.
But there are definitely bubbles that are popping right now as, you know, it’s already starting. We’re already seeing defaults, we’re already – you know, I was watching the head of Starwood. He did a great video on YouTube. And I can’t remember his name but you know, Starwood, they’ve got all the big hotels around the world. And he said he thinks a third of the hotels in New York City are not going to make it. So, just as one example. And that is – this is a very knowledgeable smart guy. And I’m like, “Man,” you know. Because people aren’t going there, they’re not paying those high dollars, and they need that money.
And so, that’s real real estate that’ll be sitting there at some point owned by somebody – somebody else, the bank, you know, who knows?
So, you know, that’s happening all over the place. And I think that as you start to see that, you know, going out and doing something like you have and just being more sustainable, more off the grid, and a little more unplugged, I think is a very, very good idea.
Chris Martenson: Well, it feels right. It certainly ticks all my intuition buttons and it’s hard work but it’s the kind of work I love. So, maybe it’s not for everybody. But I really enjoy systems and figuring stuff out and doing things a little better and trying stuff.
You know, we’ve had some really bright young interns sort of show up to help and all of them are a little bit surprised because I’m just like, “Slap something together as fast as…” “Really, shouldn’t we do this right?” “Nope, just slap it together and then, we’ll figure out the better way to do it.” I’m a rapid prototyper, you know? And then, once you figure it out, then you can invest a little more in doing the fence exactly right.
Ken McElroy: Well, that 12-acre resort we have in Sedona, you know, we have an organic farm there. And I knew nothing, as you know, when we bought this thing but I knew I could figure it out. And we had so many people that were clamoring to help work there. Because, you know, I talked to the girl that we have working for us right now and she’s like, “This is my dream job.” I go, “Really?” She’s like, “Oh, I studied this, I dadada.” And so, she comes with all this knowledge. You know, we don’t pay her a ton but to her, she’s like living in the best place on the planet and she’s providing food for our guests. And you know, so, I’m learning from her.
And so, there’s no shortage of people that are really smart that can help me navigate all that stuff. You don’t have to know, on the front end. I mean, we’re just normal guys. You know, I just reach out to people that are much smarter than me and surround myself with those people and, you know, voila, you look better [laughter].
Chris Martenson: No, there’s a lot of people who are very interested in this lifestyle. And so, that’s for people who do have the capital, I do think it’s – maybe I shouldn’t overstate this – but it feels like my responsibility, Ken, to share what I’ve got – and I bought this beautiful place with Evie and we don’t feel like it’s ours. It’s kind of like we’re stewarding it or something. And we’re trying to figure out how to share it with more people. So, for people who are really inspired by it, it’s a beautiful, beautiful spot.
So, it just like yeah, we’re just here sharing it, you know? And my only – I have very simple criteria. Whatever somebody does, I don’t care what they do. Somebody could come and be a beekeeper or if they want to start a garden or they want animals, I don’t care. But my rule is you have to make it – you have to leave it better than you found it.
Ken McElroy: Yeah, right. I think that’s what you should do on every piece of real estate. I bought an amazing historical home here in Coeur d-Alene, Idaho, and just sold it, actually, two weeks ago. And you know, I bought it in 2014 when the market was down and I just brought it back to life and sold it, you know, for, honestly, a couple million more than I paid. And I did that because, again, to your point, I felt like, you know, I’m just – it was built in 1905 – I’m just one owner that owned it for six years. And now, I’m passing it to the next owner and hopefully, they take care of it, as well.
And that’s how I look at real estate, you know. I look at it as, you know, we really are just passing through, you know? And if we can make it better and enjoy it and not to get too beat up in the process, you know, I don’t know why you wouldn’t consider it in the overall financial picture for yourself, which is what you’re doing.
And the stock market scares me to death. You know, it just does. I’m just – but I understand real estate. It’s slow, it’s dumb, you know, you can buy something and stick – you can buy a vacant building and put somebody in it, it’s worth more. I know that, you know? That’s just super simple, which works for me.
Chris Martenson: [Laugh] What’s on that license plate of your car?
Ken McElroy: [Laugh] My car? C student.
Chris Martenson: That’s the license plate reads, “C student.”
Ken McElroy: Yeah, yeah [laughter]. And I was, man, I tell you, I really was so, yeah.
Chris Martenson: Well, and thankfully so because it led you to property management that led you to where you are. So, that’s how life goes, right? If you follow the yeses, you can get to where you need to be, right?
Ken McElroy: Yeah, yeah. It’s so true. And you know, for me, I just learned the operation side. I was really blessed to be able to learn the operation side first. And so, then, when I started buying, I just could overlay all that experience and I knew – I actually know before I’m going to buy something – you know, I have a whole plan of how to re-engineer and turn it into something more valuable.
Chris Martenson: Yeah, yeah, I remember hearing you talk about your process with that and it was very scientific for a C student. I don’t know, very comprehensive [laughter].
Ken McElroy: I know. Well, I call it “forced equity,” you know? I just think it’s everywhere, I really do. It’s exactly the house that I just mentioned to you. It’s just, you know, on the water, great value, breathed some life into it, and sell it to the next person, you know. And I think – that’s how I see everything. I see that with businesses.
You know, I started buying billboards, by the way, and those have been great.
Chris Martenson: Oh, really?
Ken McElroy: Yeah, oh, yeah, man, I’ll tell you. I’ll tell you a short story, you’ll love this. I got a piece of land, it’s three acres, had a billboard right in the middle and the billboard’s making like five grand a year. And the land was only 300 grand or something. It’s like 100,000 acres. So, I said to Russ, I go, “Hey, I want the billboard, I don’t care about the land.”
So, we called the billboard guy and I said – you know, because it’s on a big road – and so, the billboard was just mismanaged. And I said, I asked him, I go, “How much do you think you can get for that?” He goes, “Probably 40, 50 grand a year, you know, with the right advertising.” So, I obviously put it into escrow. I put an easement around the billboard, sold off the land for a little bit less than 300. You know, so, I was in the billboard from zero. And now, that thing’s doing about 45 net a year.
But it’s a real estate play, you know? It’s like – so, this is all I think about. This is crazy. I’m like, you know, I just look at stuff like you, like entrepreneurial. It’s like, you know, there’s something wrong here and it was really the end of the day. It was a great billboard along a great road that had – it wasn’t even thought of as a use. It was actually looked at as a nuisance because the guy wanted to build some single-families on there. And for me, I just wanted the billboard.
And so, people – you know, making money and doing deals is in your mind, you know what I mean? It’s what you see. It’s what nobody else sees. And so, that’s just pure education. And so, once you start to look at things that way, the money shows up, man. You know, obviously, I didn’t need an investor for that but the money shows up. When you see things that are broken and that are in need of an injection of money – and sometimes you can spend too much, sometimes you can overpay, sometimes you buy in the wrong spot, sometimes – you know, it’s what I call “catching a falling knife,” you know? You don’t want to catch it while it’s still falling. You want to wait until it stops.
You know, but if you can learn how to do that and have a good team, you can really have an incredible life. I mean, as you know, I’m blessed. I fly all over the place, do deals, and make money for ourselves and our investors and I’m healthy and happy.
Chris Martenson: So, you win [laughter].
Ken McElroy: And I’ve invested a lot of gold and silver for you guys and timber and all kinds of stuff.
Chris Martenson: Good, good, yeah. At the tier 1, 2, and 3, right? You want a bunch of stuff at the bottom of the tier but nothing wrong with tier 1, easy to understand, makes a lot of sense. That’s been my own play at this point. You know, the largest allocation of money that I’ve done in years has been into real estate and primarily, productive farmland, timberland, you know, and things like that.
So, it just feels right. I can understand it, it makes sense. I don’t understand how Apple is allegedly worth more than the collective companies in all of the UK, I don’t get that. So, if I can’t understand something, I’m done with it. So, I’m out of that.
Ken McElroy: I agree with you. Real estate is not complicated. It honestly is not. I mean, it seems unreachable for a lot of people but once you understand it, there’s a bunch of people that are getting their butts kicked other places that will give you money to do real estate deals, I’m telling you. You know, but you have to know it, you have to understand it, you have to have a little experience, you have to have a good team.
And it does pay off for you. The money does attract to you when you have that kind of knowledge, and it should. You know, that’s exactly how the world works. People want to invest with us because, you know, of all the things I just mentioned, all the things that we learn and the team that we have.
We have – you know, not every deal goes completely well. A lot do. But the point is, you know, we learn from that and we put really, really good teams around that. There’s no shortage of people trying to figure out how to make money on their money and not be in the bank. Because inflation’s coming, man.
Chris Martenson: Yeah. Well, it has to, right? Trillions and trillions of printing and it’s already here in the stock market. That’s what I see. People are like, “Why is it going up?” Like it’s inflation, right? And eventually, that inflation’s going to leak out.
I think it’s already – you know me, I’m such a curmudgeon. But the government doesn’t always tell us the truth, you know? There’s lies [interruption]…
Ken McElroy: Oh, really? [laughter]
Chris Martenson: You know. And you know, I don’t get out of the house as much as I used to because of COVID. But every time I go to the grocery store, I’m shocked not. I can put my arms around two bags and about 300 bucks of stuff. Just it’s ridiculous now, right?
So, they can tell me that food inflation’s 1.8% but I can tell you it’s not, right?
Ken McElroy: Yeah, yeah. Oh, people have to be seeing that. I think something to be careful of coming up is I think the government’s really going to go after real estate taxes. I think that that’s low-hanging fruit for them. I don’t know if you knew but Nashville passed a 34% property tax increase recently and the governments are going to look for things – through tax – to fund whatever they need to fund. And I think real estate is low-hanging fruit so, I would let your listeners know that that’s something that they should be considering over the long haul.
In fact, one of the reasons I sold my home here in Coeur d’Alene was the taxes went from $13,000 to $26,000 in four years.
Chris Martenson: Yeah, it’s such a great point. And a good friend of mine, Mish, just escaped from Chicago and to your U-Haul story, he had to wait three weeks to get one. But they were offering – if he wanted to go get one from some other place where they all were piled up and bring it back, he could get a great deal, right? So, he had that experience.
But I’m looking at places like Chicago like that university story where they can’t quite figure out how to trim this massive budget. I think Chicago’s going to be just a poster child for a place where they have all these government workers and services and they’re going to – they want to keep all of them running, they’ve got great stories for why every single program is essential. And people are fleeing so, the taxes go up on the remaining people and you just in that tax death spiral. I think that’s going to be playing out all over the place.
So, yeah, you’ve really got to – when you’re picking a place, consider the tax base very, very carefully because [interruption]…
Ken McElroy: Yeah, it’s a big deal. It’s a big deal. It can sneak up on you. So, you know, as you’re looking, make sure that you’re really in tune with that. Because the assessors, you know, you could buy something and a year later, you could be – I literally hire an attorney every single year to appeal it and every single year, they’re basically, “Sorry, dude.”
So, it wasn’t the primary reason I sold but I was certainly frustrated with the fact that my taxes doubled in that period of time. Because that’s a big part of revenue for a growing city.
Chris Martenson: Yeah. Well, I’ll tell you – I told you I was looking at two states, Massachusetts and New Hampshire. Very different tax strategies. New Hampshire, no income tax or sales tax but it all comes out of property tax. And that weighed kind of heavily.
And when I said that there weren’t that many places that we were interested in, I’ll tell you what was all over the place in New Hampshire were McMansions. You know, people had taken a little two-, three-, four-acre thing, put this big 6,000-, 7,000-square-foot house on it. Now, it’s got $20,000 to $25,000 yearly tax bill. And so, when you sort of pencil that in and you go, “Do I really want to pay a quarter million dollars in property taxes every ten years or would I have a better use for that money?”
Ken McElroy: No, yeah, right, yeah. I mean, most people don’t think about that. You know, that’s a couple grand a month, you know. I mean, that could be a payment on a piece of land. I mean, just that, like you know, it’s just – you know, so, you’ve really got to take a look at all that. I think property taxes are low-hanging fruit for governments moving forward to pay for a lot of what we’re seeing right now. It has to be. You know, we’re going to get – as a landlord, I know that that’s coming.
But one of the things that we’re looking at is where are the property tax-friendly states, you know? And so, I think as people start to move around, you know, they’re looking at safety issues, of course. They’re looking at affordability issues, of course. And they’re looking at weather amongst, you know, other things. And so, those are things, I think, you can look at those spots, I think you’re going to see migration patterns to those areas as people try to regroup, you know? I would. You know, I certainly would. I would try to figure out; how can I get my living expenses down and reinvent myself, whatever that might be.
And so, and that goes back to what we were talking about with you earlier and you already did that. Not that you needed to but you did it for other reasons.
But the point is I think a lot of people are going to start to look at that now. Because housing is a massive expense for an individual and property tax is part of that, not just the debt payment.
Chris Martenson: Yup. And now that you can be anything from anywhere with Zoom technology and things like that, it really feels to me like this is a great period of reinvention. It’s honestly, Ken, why I’m not all that pessimistic. You know, I think there’s some hard times coming. I’m really glad I’m not an airline pilot or a mechanic or something like that in one of these industries that’s just trashed. You know, I’m glad I’m not really banking on cruise industry kind of earnings and all that.
But for everything that’s going away, there’s a whole new set of things that are starting up and that’s where the entrepreneurial mindset’s just got to come in. Because there’s lots of stuff going on out there that, you know, at least for myself, I just see opportunity everywhere right now and I can’t possibly get to it all right now.
Ken McElroy: Well, there is. With disruption, there’s opportunity. And it’s interesting. I actually was Googling – it’s been about two weeks ago – just what businesses started during recessions, you know. And there’s so many. I mean, Airbnb is a great example, you know, and Uber. You know, they started during recessions. Now, those are big names now but they weren’t when they started.
And so, there’s a lot of cool stuff happening. I have a good friend that’s in the pet business and it was okay, it was pretty good. But then, with COVID, he’s like all the shelters ran out of pets because everybody went out and got pets and that’s a good thing, he said. You know, but so, one of his businesses is dog crates. And he’s like – he goes, “I can’t keep up.”
And so, like you said, there’s another of – you know, you always hear about the things that are bad but there’s another side of it, too, that there are businesses that are going to do very, very, very well. And as Buckminster Fuller, as you know, we studied him, he says, “Use the forces – you know, use the momentum and just pay attention to the momentum and use the forces to your benefit.” And that’s all you have to do. You know, and I think a lot of people are super resistant. You know, they’re trying to hold on to old behavior, old biases, old habits. And you’ve just got to step back and say, “Okay, you know, what could happen? What is the possibility that’s going to happen here?” Like on the college campuses, as an example, or on some of these big cities. And what is that actually going to do and what are the opportunities there?
And there’s a lot of money to be made in the next three to five years, you know. And the fact that people are really realizing, I think, how thin their paychecks and their jobs and maybe even their savings, hopefully is a wakeup call for a lot of people and they don’t get hurt too badly and they could really reinvent themselves going forward and do exactly what you and I have been talking about the whole time is you need to have multiple sources of income and you need to be unplugged from the grid just a little bit – you know, not as some conspiracy theorist – but just enough to know that you’ve got buckets of money coming in and that you are safe and you’re not relying on one source. And that’s, I think, hopefully, a wakeup call for a lot of folks.
Chris Martenson: Yeah, yeah. And so, in closing here, I’d love to – I mean, thank you so much for this conversation.
Ken McElroy: Yeah, of course.
Chris Martenson: And you’re the brightest C student I know, by far [laughter]. You are very smart in your ways. Again, you’ve always got – you’re skating to where that puck is going to be and there’s a lot to learn from that.
But really, what it comes down to has been it’s just you’re a hard worker and you’re diligent and you’re thoughtful and you’re conscientious. And if you carry those attributes with you, I think people will be fine, you know, if they can model that.
So, you’ve got this video out. How can people find it?
Ken McElroy: So, you can find it on – KenMcElroy.com is our website, you know, and we have – it’s all free videos and forums and stuff if people are in the real estate. You have that.
But then, the YouTube is just Ken McElroy. And just go subscribe. I’m having a blast. I’m getting my ideas from the people that are joining, you know? Because, you know, I’m just one guy trying to figure out what everybody wants to hear. And then, like you, I just dig into it and try to figure out and I have lots of network and resources around all that.
And so, I’ve been trying to deliver videos that are meaningful to people that could help them through all this. So, it’s been great. So, KenMcElroy.com is the spot.
Chris Martenson: Great, we’ll have that link right below this, of course, and direct people there. And fantastic video. And I didn’t want to go through all the highlights of it because, you know, people should go watch that. It’s really that good. And everything, especially if you’re considering – and I know a lot of you are – what are you going to do about your living situation? Are you going to change that? It’s something you really need to go watch and understand from one of the masters and somebody who’s been there, done that, and not his first rodeo.
So, with all of that said, Ken, thank you so much for your time today and it’s just been a real pleasure. And I wish we didn’t have COVID because I would love to hang out with you again [interruption]…
Ken McElroy: I know. Well, I’ll tell you what. Let’s get together – let’s Zoom after this and just have some more of this chat. I love your mind and the way it thinks and it just thinks so differently than mine. And I’m always trying to change my opinion so, I would love to get into some more dialogue with you and Adam.
Chris Martenson: Well, absolutely, let’s do that. So, until then, thanks very much for today. Thanks, everyone, for listening and we’ll be back next week.
Ken McElroy: Take care, everybody.
Chris Martenson: Alright, thanks.