← Rich Dad Radio Show: In-Your-Face Advice on Investing, Personal Finance, & Starting a Business
Rich Dad Radio Show: In-Your-Face Advice on Investing, Personal Finance, & Starting a Business
Why Most People Will Never Get Rich from Real Estate
00:41:42
In this episode, Robert Kiyosaki sits down with real estate mogul Ken McElroy to break down exactly why real estate remains one of the most powerful wealth-building tools today. You’ll learn how the rich use inflation to their advantage, how Ken...
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- [00:00]
T Mobile Representative
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- [00:29]
Robert Kiyosaki
This message is brought to you by Apple Card Did Apple Card is designed to help you pay off your balance faster with smart payment suggestions. And because fees don't help you, Apple Card doesn't have any. So if your credit card is an Apple card, maybe it should be subsequent credit approval. Apple Card issued by Goldman Sachs Bank USA Salt Lake City Branch Variable APR range from 18.24% to 28.49% based on creditworthiness rates as of July 1, 2025. Terms and more@applecard.com this is the Rich Dad Radio show. The good news and bad news about money. Here's Robert Kiyosaki.
- [01:07]
Hi, this is Robert Kiyosaki and I'm here with Ken McElroy. He is my personal friend, advisor, investor. I invest with him. We've made millions of dollars together and he's the author of the Rich dad books on real estate. So, so what we're going to be talking about today is an update on the real estate investing not only in America, but throughout the world. And the real estate market in the all throughout the world is changing at a high rate of speed. So this is kind of an update. But Kenny and I will also be talking about the fundamentals of investing in real estate. Cause these are not ordinary times. And so often I meet people come up to me and they say hey, I'm jumping into real estate. And I think that's one of the most stupid things you can do. So with that I want to introduce Kenny, one of my best friends, but also my personal advisor, but also a person has made me a multimillionaire over and over again. So Kenny, what do you have to say to somebody who wants to jump into real estate?
- [02:15]
Ken McElroy
Well, first of all, I, I always ask him why. You know it's a lot, a lot of people want to but I think they feel like it's and they can get rich quick. So that's usually the reason they say it. But if it's not always, but sometimes it's a long term strategy. And then if they say that, then I love it because then that's really what it is. It's a long term strategy of cash flow.
- [02:43]
Robert Kiyosaki
Correct. And so Kenny and I come from different backgrounds when it comes to real estate. I was, I've never been in the real estate business. I don't have a real estate salesman's license or any of that. So I went and took a real estate course way back in 1973. It was 300. I was, I was watching a TV infomercial in Hawaii. I was still flying for the Marine Corps. And I asked my rich dad is, can you teach me about real estate? And he said, that's not my job. Your job is to learn about real estate, so why don't you just teach me? That's not my job. So he says, go learn for yourself. And so I was still around, I was at Honolulu, I was flying out of Hawaii, and I was watching this infomercial and it says, you too can become a multimillionaire with nothing down investing in real estate. So since I had nothing down anyway, you know, I called up and I said, sign me up. So the course was free, the introductory course was free. And so I stroll into it and it cost $385, which I really didn't have because I was making about $600 a month as a Marine pilot. So $385 was a lot of money, a lot of money for me. But I signed up for the course, I figured out how to get the money as we can all do. And I took this three day course and that's how I started in real estate. And the most important lesson my advisor or the teacher gave me, the guy was sort of like Ken, a real real estate professional. He said to our classes, about 30 of us in the class, and he says, ladies and gentlemen, your education begins the day you leave this class. And he says, what you do when you leave this class is will determine whether or not you become a real estate investor or not. And his assignment was that each of us in the class had to look at 100 properties, do a one page evaluation on the property, why it was good or bad, pros and cons of it in 90 days. So the assignment was 100 properties in 90 days. One page, written, written documentation why it was good or bad evaluation, not very sophisticated. And everybody in the class, let's say those 30 of us, we all agreed we'd all do it at the end of 90 days, I think five of us completed it, which is usual. The stats there are about it. And so let's say 25 dropped out and that's why they're not successful. So one of the things I, and I was looking for a nothing down piece of real estate and I found on an island of Maui, which as somebody may know, is some of the most expensive real estate in Hawaii, and I found a one bedroom, one bath condo on the beach. It was $18,000 down. And that's. And I, so I gave him my credit card, I put $1800 down and I made $25 a month. In other words, I made $25 a month with nothing. I use 100% debt. So the course kept the promise that they would teach me how to make money with nothing down. But I had to do the work. So that's how I got started in real estate. So Kenny, how'd you, how'd you become get started in real estate?
- [06:03]
Ken McElroy
Thanks, Robert. Well, it's interesting now, people look at us now, you know, we have a billion dollars in real estate and 10,000 apartments and 300 employees, et cetera, et cetera, et cetera. But I started very similarly like you. I was in college 30 years ago and my buddy said, hey, would you manage this apartment building, you know, for free rent? And, and I said, yes, I will, because, you know, free rent is good. And I was, you know, I was racking up student loans and going through school. And so the idea of managing Property was only 60 units, but I remember it wasn't easy and you know, collecting rent and maintenance and all that kind of stuff. I was like, how hard can it be? So that was my first experience in real estate, really. And the guy who owned the building came. You know, I would deposit all the money and then he would show up and there's nice Mercedes. And he would sit down, he'd go, thank you very much for keeping the property full, you know, and then he would drive off as a Mercedes. And I was like, okay, I'm on the wrong side of the desk here, like something's, something's wrong. And I was just finishing school, I was in the business school. And, and so really I just decided at that point I was going to get my real estate license at the same time. So I started to get my real estate license and got that. And then I went to work directly right out of university for a very large company that does commercial real estate and brokerage and land development, property management and all that based in Seattle, which is where I'm from. And boy, did my education start there. I started managing properties. And so for the first 10 years of my career I was managing properties. I probably managed somewhere between 20 and 30,000 apartments up and down the western United States. And then at some point I decided to start to buy them and own them myself. And so I've been doing that for 20 years, but I've been in the real estate business for 30.
- [08:08]
Robert Kiyosaki
So the point that Kenny makes, which everybody should listen to there, is that he got his experience and he got experience not in the acquisition necessarily, but the hardest part about real estate, which is the management. And when I look at people, when I look at people who lose money in real estate, they're pretty good at buying because almost any idiot can buy a property yet to be very smart to manage the property. And I think, and so that's why when Kim and, you know, when Kim and I started investing in real estate 30 something years ago, is that we bought our first property, but she managed it and that's. And then, although she has a business degree, that's when she really started to learn about business, is not only, not only acquiring the property was a. Was a two bedroom, one bath house in Portland, Oregon, but she learned more by managing it. And I think that's one of the key reasons that people fail at real estate, because they can't manage. And so when Kim and I met Kenny and he found out he could manage real estate, he was like a godsend to us. God, we really want to partner with Kenny. So Kim and I at that time had about 40 rental units. And so Kim asked Kenny, he says, kenny, would you manage my properties for us? And I don't remember if you know what you said to her, Kenny, but you deflated her balloon so hard.
- [09:37]
Ken McElroy
Sorry.
- [09:38]
Robert Kiyosaki
You know, it was, it was like because up to that, we thought we were Donald trump. We had 40 units, you know. And what did you say to her about.
- [09:48]
Ken McElroy
Well, yeah, I just, you know, what happened is as you evolve and you start to buy properties at that point, I think when Robert, when you and I met and Kim, you know, I had already owned, you know, several thousand units at that time. And we were just handling properties that were 200 units and larger. So that was, you know, because it takes a lot of effort to manage anything. So a 40 unit building is hard. So is a 200 unit building, but really they're not that much different. The basics are pretty much the same. And so a 40 unit building is not Very profitable, or even, you know, 10 unit or 12 unit or 8 unit. It's not very profitable for any property manager, really. So that's why I had already, you know, been in the business long enough to know that 150 to 200 units is really required for us in order to even make a profit in the management side.
- [10:43]
Robert Kiyosaki
So that's one of the biggest lessons that if you could listen to what the fundamentals are, is start small. And as Kenny knows, Kim is a far better real estate investor than me because she has the management experience. And management of property is the management of people. And when I was a kid starting out, when I was 10 years old, one of the first jobs my rich dad gave me, your son and me, Mike, was in Hawaii. Went on. We collected rent. You haven't lived until you've collected rent. Yeah, you'll hear every bullshit story, every lie, every victim, everything you could ever think about. And so Mike and I would be pounding on these doors as little kids and say, hey, you're 30 days, your rent's behind. And then you hear lie, cheating, stealing, BS and all this stuff. And the hard part was if we didn't collect the rent, we had to go talk to rich dad. So the question for Mike and May was, which is worse, this tenant or rich dad? And finally we grew some backbone, cajones, and we started pressing the guys for the rent. And it was even worse when they totaled it. Sometimes we peek in the unit and these guys had dogs and chickens and cats and donkeys inside their units, and they were destroying the property. And that's when you really start to understand management. So, Kenny, is that true today?
- [12:20]
Ken McElroy
I mean, yeah. Yeah. So as. As you know, the backstory of how Kim and Robert and I met was I was already in the business full on. And I actually read, I was raising money, and this guy said to me, hey, you should meet Robert and Kim, because we both lived in Phoenix at the time. And I went down. I read your book before I met with you, Robert. Rich Dad, Poor Dad. And I said, I want to know, you know, get in this guy's head and figure it out. And this was brand new. The rich dad, poor dad was just out. It wasn't the big hit that it is now, but I remember in the book you actually said, the most important person on your team is a property manager. And so I had actually never read that before because I knew. Now, keep in mind, I was in the trenches at that time. And most what happened in my world was people would buy real Estate. You know, I have a great story of a guy that he had a property that was 75 units, fully rented, cash flowing like crazy. He was out on a sailboat. He lived in San Diego. And a broker convinced him to sell that and to buy 140unit in Mesa, Arizona. Okay? So he did that. It's called the 1031 Tax Deferred Exchange. But here's what I remember the most. He called me the day they were closing. He said, we need a manager. And unfortunately, this is what happens. So what he really needed was a property manager to actually look at that 140 unit in Mesa and tell him whether it was a good deal or not. Because the broker, they're just working for commissions. The property managers, they're the ones that actually have to make it perform. And so what happened was he was so far behind, he was already committed, and he had to close. And so he ended up buying it. And here's the problem. The property was filled with a bunch of bad things. So we actually had. It was. Already had a lot of vacancy. It had a lot of deferred maintenance. And in addition to that, we had to evac. We had to evict a number of people that weren't paying rent. Cause, you know, why would you rent to anybody that can't pay? And so pretty soon, the occupancy on that thing was like 60, 70%. And so then guess what he did. He fired us. You know what I mean? He's like, oh, it can't be my fault, you know? And I'm like, dude, like, you know, you know, you bought a mess, and so we'll clean it up for you. And it took a while. It took like eight or 10 months. But finally I. He was trying to, you know, project back onto me, like, as if I had something to do with. I'm like, all I'm trying to do is fill this thing up with good people, you know? And he's like, well, now I'm, like, flying over to Phoenix all the time. I'm working all the time. I go, dude, you sold 100% occupied boat property that had a lot of cash flow. You're sitting out on your boat, and now you're flying to Phoenix, and you bought this property that's, you know, in a borderline area. It's your own fault. He didn't want anything to hear about it. And the point is, is that, you know, people like you said in the beginning, Robert, it's easy to buy something. It honestly is easy. It's not that hard to get money. Having money can be very dangerous, you know. And so people are doing that right now. And this is a. That was a great example where a guy, you know, he just. He had. He had a comfortable life and then all of a sudden it was riddled with. And he fired the property manager after that. And then after that. And then he ended up selling the property again for a loss.
- [15:45]
Robert Kiyosaki
And some. Sometimes those are your best investments.
- [15:49]
Ken McElroy
Yeah, I know, I know. I wish, I wish I was just managing property at that time. And I wish I would have had the cash. Cause I would have went in and swooped in and bought that thing. Because it really, you know, it takes a while to turn around a property. You know, in some cases it's taken me a year. Year. And on big ones, you know. We have a 680 unit property in San Antonio, Texas, for example. It was, I think, remember you and I went to it. There was 300 units. There were 300 vacant when we bought it.
- [16:17]
Robert Kiyosaki
Wait, wait, wait. What's worse than that? It was the worst property I've ever seen. We walk into the first unit, all the walls are taken out because they took all the wire out of it. And sitting in front of the fireplace was the toilet. I'm looking at that and I said. And Kenny says, God, this is a good deal. There's an effin toilet sitting in front of the fireplace. All the drywall is taken out, all the electrical, all the copper wires taken out. And there's no carpet. And I said, Kenneth says this is the best deal he's ever seen. This is the worst I've ever seen. So that. But the guy I listened to was the guy that turned the property. What was his name? Yeah, Ken.
- [16:58]
Ken McElroy
His name was Ken also. Yeah. Remember? And. Yeah, no, you're right. He was the property manager.
- [17:02]
Robert Kiyosaki
Yeah. He looked at this thing and says, this is a. He said to me on the side, he says, this is the best deal I've ever seen. Either you guys are nuts or I'm blind. I'm missing something here. And that turned out to be one of the best cash on cash returns we have.
- [17:17]
Ken McElroy
Still in the last 10 years, it's been the best deal that I've been able to buy. You know, we bought it for 25 million. We got the bank to write down another three. So our basis was like 22. And then we put seven into it and now it's worth over 60. And we got our money back.
- [17:34]
Robert Kiyosaki
And the bank loans you the money to rehab it, right?
- [17:37]
Ken McElroy
Yes, right, right. So that's. And that is actually the power of real estate investing is seeing that, you know, as you say, Robert, a lot you say, you know, deals are done in your mind. You know, it's something that you see that no one else sees. And I knew in two years I would be able to turn that property around, put new debt on it, get all the investor money back and own it free and clear. As we like to say. Infinite returns.
- [18:05]
Robert Kiyosaki
Infinite return is we get money, but we have no money in the deal.
- [18:09]
Ken McElroy
Right. We still own that building. We have 30 million in equity in that deal. Just the one. And it kicks off about 800,000 a year in cash flow, and we have no money in the deal. And that's a property that we own right now, today.
- [18:22]
Robert Kiyosaki
And because it's real estate, we get to write off the depreciation, amortization and appreciation.
- [18:27]
Ken McElroy
Right, right.
- [18:28]
Robert Kiyosaki
It's really a great deal. The point here, as I want to make is this, is that if you can't do that, you should stick with stocks and bonds. Because there's one word about property that is bad. Property is not liquid. In other words, the moment you buy it, you own it. And if you've made a mistake and it's SS Titanic, you're going down with it. So that's why you better know what you're doing before you buy it, because if you make a mistake, you can't sell it. And that's what I see happening to so many people. They just jump into real estate thinking it's a mutual fund or an ETF or an reit, but then they can't get out of it because it's illiquid. And so that's why real estate requires much more financial education and a real life education than stocks and bonds and mutual funds. Any comments on that, Kenny?
- [19:20]
Ken McElroy
Yeah, I think that probably the thing that I would just want all the listeners to know is that before I buy something on, I mean, literally before we close on it, we already know what the value is going to be in year one and year two and year three, and we already know how we're going to get our equity back. And it's almost never via sale. Almost never. So in other words, we don't buy to sell, we buy to hold in cash flow. And it's a very different philosophy. And that takes a tremendous amount of experience and education and a team to do it. Yeah, yeah. It's so worth it, you know, but the thing is, even if you don't know how to do it, you know, there are lots of people that will help assist you in that. Remember I was telling you about my billboard story? You know, you know how we're buying billboards? I didn't know anything about billboards, but there's lots of people that know them. There's lots of people that put ads on them, there's lots of people that own them, there's lots of people that manage them. So I just found the people that could help me understand it, that's all. And they're out there and these people are everywhere. And that's the mistake the guy from San Diego made, is that he just thought, well, I can roll my money from my San Diego property into one in Phoenix and it's going to do the same thing. And you know, I don't really need a team. I don't really need. I don't need to understand it because it's going to be full just like the one I have. What's not the case? He bought it at a very bad area and so you have to have that team.
- [20:59]
Podcast Host
Let's analyze this week's tech innovations and startup moves.
- [21:04]
Ken McElroy
Honestly, Elena, I didn't track the updates, but I did switch to T Mobile with their new Family Freedom offer.
- [21:12]
Podcast Host
That's not the disruption we're covering.
- [21:16]
Ken McElroy
Well, I'm pivoting from AT&T and scaling up with T Mobile. They paid off my family's four phones up to $3200 and gave us four.
- [21:27]
Podcast Host
New phones on the house unicorn status.
- [21:32]
T Mobile Representative
Introducing Family Freedom. Our lowest cost will switch our biggest family savings all on America's largest 5G network. Visit your local T Mobile location or learn more@t mobile.com familyfreedom up to $800.
- [21:46]
Per line via virtual prepaid card typically takes 15 days. Free phones via 24 monthly bill credits with finance agreement eg Apple iPhone 16 128GB 8299 eligible trade in eg iPhone 11 Pro for well qualified credits end and balance due if you pay off early or cancel contact T Mobile.
- [21:58]
Podcast Host
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- [23:04]
Robert Kiyosaki
And there's one more thing that I learned the hard way is that when a salesman, a real estate broker, and as I would say, the reason they call them brokers is because the broker that you are and they have to sell you this property and it's not against the law to lie. So they'll give you all these numbers called performer. And a lot of times a performer really should begin with the words once upon a time or in a perfect world, no lies. So, Kenny, when I, if I was a, if you're looking at a property like the building I'm in right now that I own and I gave you a performer, you know, the sales the broker gave her a performer, would you believe the numbers?
- [23:53]
Ken McElroy
Well, no. You know, there's several reasons. You know, I always take the position that they're, you know, that they, maybe they are trying to lie, but I always take the position that they just don't know the property. And so a broker doesn't understand management generally. Most of them, some of them do, some of their very good ones do, but most of them don't. Most of them are just trying to get a listing and sell it to the next person and move on and mission. Yeah, their commission or, you know, as we like to call it, tips, you know, but the, and so, so that's the position I take every single time I take the position. And so I always, you know, because I have the knowledge and experience that I'm always managing the broker. So I'm always saying, well, I understand that. I just had this scenario two weeks ago. I understand that you started your first month at 92% occupancy in your pro forma or your budget, but the Property is at 78% occupied today. So if you buy it today, the beginning number should be 78%, not 92. So how can you, you know what I mean? So you just get into the nuts and bolts of what really is. And so what you're always trying to do is you're always trying to buy the proper on how it's operating today, period. That's what you want to buy it on. You want to buy it on how it's operating today. And then you want to turn it into some value.
- [25:24]
Robert Kiyosaki
Well, this is my question, because this is what I was really weak at, which Kevin's really good at, is how do you get the real numbers? So when you're looking at a property, you have the stuff that the sales sheet the broker gives you. But what do you do next, if you're interested, to get the real numbers?
- [25:42]
Ken McElroy
It's a great question. So here's what we do. First of all, they're almost never correct, as you pointed out, when you get them. But the. But if you know what the area, if you're really studying an area and you understand an area, so, you know, we'll just pick San Antonio, like where we were. What I knew was even what the broker had was lower than what the market was. So it's the equivalent of seeing a, you know, a $200,000 house in an area where everything's selling for 250 or something like that, except on the rent side. So. So I already knew that. But I actually, as you pointed out, I already knew it was worse. Right? Yeah, I already knew that. You know, whatever the broker said it was. Because what the brokers do is they take whatever the last few leases were, even, even that might be wrong, and then they make say, okay, that's what the whole property is. Well, really, there's what we call legacy issues, where you got tenants that have been in there one year, two year, three year, five year, in this particular case, even longer, their rents might be 1, 2, 3, $400 under the market. And so what you have to do is understand that there's a lot of room there. And so what we do is, if we see that there's a lot of market lift, even from what the broker says to what the market is, then we like to go in and make an offer. And then from there we get into due diligence. And that's where the magic happens. So we will pull every single lease on every single file. So on the property that you visited, Robert, the backstory of it is, you know, of the 350 units or plus or minus that were occupied, we pull every single lease and we do our own rent roll and we figure out what our own rents are, you know what I mean? And so that's what we did. And then we put together our own projections based on our due diligence time frame.
- [27:34]
Robert Kiyosaki
So for. So for those of you who listen to this thing, if you're just starting out in real estate, don't jump in, don't Start with a hundred units, maybe start with a duplex or four units and then you'll learn more from those four units. And if you've made some serious mistake, you might be able to get out quicker. But when people buy large properties, they can't get out. That's when the whole thing comes out like a house of cards. So that's what I enjoyed about Kenny, working with him, because I learned more from bad properties than from pristine properties. And so anything else would you suggest that people look at and do before jumping in?
- [28:16]
Ken McElroy
Yeah, well, I think what happens is, you know what you want. The biggest thing for me is you can make, sometimes you can even make a mistake on the buy in a real estate market. Like in other words, maybe you're buying in at and you're not getting a great deal, but if the market itself is really jumping, you know, like, like Phoenix right now, as you know, Robert is one of the fastest growing. Arizona was the fastest growing state. Well, okay, so that's a result of a lot of job growth, a lot of population growth, and people are moving here, et cetera, et cetera, et cetera.
- [28:51]
Robert Kiyosaki
California, people leaving California.
- [28:53]
Ken McElroy
That's right, yeah. Because of tax and high expenses, et cetera, et cetera, et cetera. So, so what you can take a look at sometimes that will save you. So in other words, sometimes demographics, when there's stress on supply and demand. So there's more people moving to Arizona than there are housing, let's say. Well, then housing is going to go up, period. Rents are going to go up, lands prices are going to go up, all that's going to go up because there's a lot of people trying to buy in an area that has, you know, small demand. It can work the other way around, as you know, like in Detroit, you know what I mean? When everybody moved out, not everybody, but you know, when the manufacturing stopped and blah, blah, and all of a sudden the real estate started to go down. So sometimes you can buy in a market and the market can save you. But you really need to understand both.
- [29:45]
Robert Kiyosaki
For those of you please pay attention because remember our friend Richard Todd?
- [29:52]
Ken McElroy
Yeah, I remember this.
- [29:55]
Robert Kiyosaki
He's the funniest guy in real estate I've ever seen. He's such a dear friend of ours, but we, there's friends because we need some entertainment.
- [30:05]
Ken McElroy
Remember we were on stage in Singapore and he put that map up on the behind us.
- [30:13]
Robert Kiyosaki
Yeah, you got to hear this. So Richard says, yeah, I did what you guys advised. I'm investing in America. And what was this Mistake, Kenny.
- [30:22]
Ken McElroy
Okay, so first of all, he's like, we're on stage and he's happy. Remember this? He was so excited. He's like, I finally bought some. I finally bought some real estate. And so the first piece that he bought was. He bought a church, remember?
- [30:40]
Robert Kiyosaki
Yeah.
- [30:40]
Ken McElroy
And then I said, oh, great. So that could be a good investment. How much is the church paying you? Well, I felt bad charging him rent, so he bought the building, but he didn't have any income. That was the first thing.
- [30:56]
Robert Kiyosaki
Because Richard and Veronica Tan are. They're true Christians. And I reserve those words for true Christians. They really are. They practice what they preach. They're very good people.
- [31:08]
Ken McElroy
Incredible people. But it was funny because I said, okay, well, Richard, when you buy some real estate, it's okay that you bought a church and let them rent free. That's fine. But it's not necessarily going to be a good deal for you. And, you know, unless the church goes up over time. But on the one, though, then he showed the picture of the United States, and keep in mind, we're in Singapore. And he's like, had a dot. He said, I bought a property right here. I remember we turned around and we looked at it on the screen, and I said, I go to Richard. I go, richard, I think that's Mexico. And it was. It was Mexico. He bought a property, he thought, in North America, but it was in Mexico. It wasn't even in the United States. But this is a guy with money that, you know, just sent his money, wired his money around and bought properties, unknowing that. And he also bought it. I remember he bought a hotel that was half finished and all this stuff. It's that, you know, so there's a lot of people that do that, a lot of people that throw their money around like that.
- [32:15]
Robert Kiyosaki
So Richard. The good news is Richard's gotten a lot smarter because, you know, the way we all get smarter is by being stupid. We've all been stupid, made our mistakes. So he's become very, very successful. But Richard has one bad habit. He starts big.
- [32:30]
Ken McElroy
Yeah, yeah.
- [32:32]
Robert Kiyosaki
Our lesson is start small. Thanks. For smaller. So the other point we can get on with this is that market's always changing. And, you know, Kenny. One thing I respect about Kenny, as a real professional, you're always attending seminars and classes and, you know, things like that. I remember the last time I. One of the last times I talked to you, you went to a real estate seminar run by millennials who were teaching how to use.
- [33:00]
Ken McElroy
Yeah. AI. Yeah, yeah, yeah, yeah. So I flew to Seattle. You know, it's cool because sometimes when I do go to those, they want me to speak. And so I did speak up there with bigger pockets and a bunch of guys, you know, because there's a whole generation coming up behind me, and it's so fun to watch. And so they're trying to figure out how to do more with less, you know, through apps and cell phones and things like that. And the fact is, is that the real estate industry, largely even property management, is antiquated. You know, it's a lot of paper and a lot of this and a lot of that. And so these guys were fascinating to hear. You know, they were. These guys are managing hundreds of houses, you know, all automated, you know, with apps and property management tools on their phones. And it was. For me, it was really eye opening. And the great thing is I was able to come back because we have a property management company as well. That's one of the majority of our employees are that. And I was able to sit down with the CEO of our company and start to overhaul our whole company and say, hey, how do we automate more? How do we automate all the way? How do we make it easier for the resident? How do we make it easier for the property managers and easier for the investors so that everybody can see everything and be super transparent? Carrot. So it was exciting.
- [34:21]
Robert Kiyosaki
And then, you know, markets are always changing. But, you know, around 2006, 2007, you know, we had. We didn't have as many properties as we do today, but people were leaving our properties to buy these giant homes. I mean, Ken and I were sitting there, our vacancies are going up because people are leaving to buy these McMansions they can't afford. Remember that?
- [34:46]
Ken McElroy
Oh, boy, do I ever. Yeah, I remember because we screen all of our residents. Obviously you want to. So you have to. You basically, they pay you to run their credit, and you want to. Obviously, if you're going to rent something, you want to rent it to somebody that can afford it. And so, you know, we get all their data. You know, we know where they're working, we know, you know, their past credit history, all that kind of stuff. And so at the same time that were actually denying some people, those people were actually buying condos and houses. So the people that we were actually denying to move in as a renter. And so that's what. Remember. I remember you and I were sitting there and I said, oh, Robert, I'm telling you what I'm seeing at the occupancy level is that we're actually seeing people with pretty bad credit that can't even really afford to pay rent, that are actually buying homes right now. And I said, this is gonna turn into some kind of a bigger problem.
- [35:44]
Robert Kiyosaki
So I remember, you know, it was kind of frightening because our vacancies are going up. When vacancy goes up, you know, cash flow goes down for us. And all we could say was, let's just wait because something's going to happen and when it happens, we'll move back in.
- [36:01]
Ken McElroy
Yeah. And that's what we did. Yeah.
- [36:03]
Robert Kiyosaki
2008. Yep.
- [36:04]
Ken McElroy
It took years, but it did happen.
- [36:07]
Robert Kiyosaki
So when Lehman Brothers came down in September 2008, that was kind of a sign from God, because that's when we moved in and fast. That's because prices of real estate were coming down and interest rates were coming down.
- [36:23]
Ken McElroy
Yeah. Yeah.
- [36:24]
Robert Kiyosaki
It's a perfect storm, wasn't it?
- [36:25]
Ken McElroy
It was. It was. You know, it's interesting because all. If you really want to get super simple about what happened, people were giving people money that couldn't pay it back, period. That's what happened. And that all of a sudden everything fell. That's why they call it the big short. Meaning of people that recognize that, you know, you can give anybody money anytime, you can give 100 bucks, a thousand bucks, a million bucks. If they can't pay it back, there's a default. And that's actually what happened on a big, big scale.
- [36:58]
Robert Kiyosaki
So what happened after the crash?
- [37:01]
Ken McElroy
So that's when all the banks and institutions started taking those, that real estate back.
- [37:07]
Robert Kiyosaki
And so wasn't that when you made some of the best buys ever?
- [37:10]
Ken McElroy
Absolutely. That's, you know, that's when we saw that San Antonio property, you know, that was owned by bank of America. They had lent on that and it was 50% occupied. And it was what we would call bank owned. And, you know, so, yes, that's when you see all those things. It's incredibly difficult at that time, though, Robert, as you know, to buy because they're. Everybody's hunkering down. Everybody's scared. Everybody's hunkering down on their money. The investors are going, real estate's a terrible, terrible time. And so that's when you have to have your team together, you have to have your systems together, and you have to be ready for that. And that's what most people miss. Most people jump in when all that's fixed, you know. And, you know, I remember, I remember we were joking. I said, you know, when the checkout person at Target is giving Me a real estate tip as I'm Christmas shopping. I said, there's a problem or you're hearing at a lot of cocktail parties, the party's over, folks at that time. And right now it's kind of the same time. Even though I still think we have a lot of run in the market in some areas, not all. You know, it's, it's, it's a dangerous time to come into the market.
- [38:30]
Robert Kiyosaki
And that's what I was getting at is because when Ken, this is in 2007, 2008, everybody was flipping houses. And that's when, you know, I was talking to Kenny and he says, I don't flip. And I said, I don't flip either because Kenny and I are cash flow people. We want the property to pay us an income for the rest of our lives or as long as you hold the property. But all these people that were jumping in were flippers. So they want to make the quick buck. And my concern is that's kind of where we're at today. And I was looking at the real estate section of the Wall Street Journal, New York Times, and people are just euphoric because the prices are at all time highs, just like the stock market, the Nasdaq S and P at all time highs right now. And that's where the amateurs jump in, which includes real estate. So the part I wanted to get to today is ask Kenny what you're looking for, because I think we're more cautious now. I am more scared now than I was in 2008. In 2008, I was just glad it was crashing.
- [39:38]
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- [41:01]
Ken McElroy
Right now, let's map out this week's.
- [41:04]
Robert Kiyosaki
Amazing destinations and travel tips.
- [41:07]
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Robert Kiyosaki
That's not the itinerary we're following.
- [41:17]
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- [41:31]
Robert Kiyosaki
Bon voyage.
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- [42:01]
Ken McElroy
Yeah, yeah. How much more room do we have in this particular market and where are we? And if you look at the money that it's backing off, you know, rents are topping. You know, occupancies are not as high as they were. Cap rates are starting to go up. Capitalization rates as you know, we sold that big portfolio of ours, Robert, almost $300 million worth of stuff in the last 14 months. And our cap rates were in the low fours 4.2, which is really low. And so, you know, if you don't understand cap rates, then you better be careful because they're important as you invest. And so what we're, what we're starting to see.
- [42:45]
Robert Kiyosaki
I'll give people the definition of cap rate. You gave me a cap rate of 4 means if a property is a million dollars and you put a million dollars in your Return is four. Is that how you.
- [42:57]
Ken McElroy
Yeah, that's pretty close. Yes, it's good enough. And so what happens though is that 4%, whatever it might be, that's generated from the property from the net operating income, which is another formula, which is basically expenses after income. And so what happens though is if that cap rate goes to five, then that what happens is the value of the property goes down and you have to jump. If you think about this, 4 to 5, the ratio is 20%. You actually have to grow your net operating income by 20% just to break even. And a 20% growth in net operating income is super hard to do. And you know, if the cap rates go down at all and there's any softness, especially with interest rates, then I'm telling you that these properties are not worth what people are paying today. And all of a sudden they're going to be underwater with their mortgages or their, you know, the things are not going to cash flow like, like they, like they should.
- [43:56]
Robert Kiyosaki
Right. So in spite of prices being high, the market being volatile and all that, are there still opportunities out there?
- [44:04]
Ken McElroy
There are. I, I gotta tell you, you know, it's interesting, I just, on my podcast, I just had a guy that's investing in mobile home parks as an example. And you know, mobile home parks were not even on the radar. People weren't even talking about, let me tell you what they are. They're land plays covered by rent. And you know, these are affordable places. And so they're buying these things, you know, 100, 200, 300 unit mobile home parks. And they're, you know, the rents are 6, 7, $800 a month. You know, they don't actually own. Sometimes they bring their own and they, they stick it there. But they get basically a rent for the space. And you know, the people own their own place or in some cases they own, they don't own their own place, they just charge them rent. The point is, is that more, more, more people are moving to what I would call affordability. That's one of the big things, you know, is, you know, affordability and rent control. All that stuff's coming, Robert, as you know, it's already here.
- [45:08]
Robert Kiyosaki
So anyway, well, thank you for your time, thank you for your education. There's always an opportunity out there, but I think you've got to be a professional at this. So any final words would you say to somebody who's thinking about jumping into real estate? What would your final words be? Well, buy your three books, of course. Start with that.
- [45:27]
Ken McElroy
It's cheaper Than, yeah, yeah, education, down payment. Education is everything, you know, as you know, Robert, honestly, find yourself some mentors. Find yourself a group of people that are like minded and like to study. You know, even I, Robert, and you know, you and I, we study a lot. You know, that's why I created the chemcroft calm, you know, the web, the videos and all that stuff so people could just go on there and study and learn and from real experts. That's where, you know, you can only get so much out of a textbook though, and you can only get so much out of a video. You, you actually have to go out and like you did with your, with your stuff in Maui, you know, and go out and actually learn. You know, that's how you really learned. But, but do that first before you spend your money or somebody else's money and you know, because the market's not always going to go up.
- [46:22]
Robert Kiyosaki
So thank all of you for watching Kenny and myself discuss this very important subject called real estate. When people say, you know, do what you love, I really think it's also invest in what you love. And I really love real estate, which is going to be a problem because I bought some really bad real estate because I loved it. So I mean, if you love it, study it, be a professional, have mentors, and I think make it a lifelong plan to keep acquiring real estate. So thank you, Kenny.
- [46:49]
Ken McElroy
Yeah, thank you, Robert. Great. Always great chatting with you.
- [46:52]
Robert Kiyosaki
Thank you for listening.
- [46:57]
Podcast Host
This podcast is a presentation of Rich Dad Media Network. This episode is brought to you by Progressive Insurance. You chose to hit play on this podcast today. Smart choice. Make another smart choice with Auto Quote Explorer. To compare rates from multiple car insurance companies all at once. Try it@progressive.com Progressive Casualty Insurance Company and affiliates. Not available in all states or situations. Prices vary based on how you buy.
- [47:23]
Podcast Advertiser
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