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I went through 2008. I think one of the bigger, you know, blind spots by this administration is going to be unemployment. Ken, you have something around a billion dollars of debt. Are you not worried about that level of debt because of inflation and AI? And I don't know which force is going to be bigger, but we're going to be in doubledigit unemployment. I mean, that's that's like what we saw during the 2000. That's real bad. Let's say I'm 50% debt and 50% equity on a million dollar property. If I experience inflation of let's say 3%. I get it on the million and half of it is
borrowed. So I actually get inflation on the borrowed money, not just the my money. So if the value of the property goes up to 1,30,000, all 30,000 is yours even though half of that million you didn't even put up. Yeah. Correct. And that's paid for by the tenants. The Fed had said that their biggest mistake in 2008 is they didn't act faster. Well, if you look at stagflation in the 70s, how they got out of that was jacking up interest rates extremely high. But the problem is we can't do that now because of our debt. If the government put those high interest rates on, we would be negative on our debt as a country. So there's really not a big way out of a stagflation other than
Ken. The housing market is going through one of the biggest shifts we've ever seen in America. Right now, buying a house is almost impossible for millions of Americans. Houses are very expensive. Mortgage rates are a lot higher than where they were in 2020 to 2021. And now, to help fix this housing market, President Trump is trying to do a number of different things. He's looking at making it easier for banks to issue more loans. He's looking at selling off some public land to build more housing. He's looking at doing more things in order to make housing more affordable, including banning institutions from buying houses while at the same time the economy is slowing
down and foreclosures are going up. And so I wanted to talk to you about this specifically because last year you purchased something around $500 million worth of real estate. Are you worried about where the housing market is going? And what should the average American pay attention to? Yeah, you know, there's a very different market when you're talking about commercial multif family versus single family. So, so the 500 million that we bought was in the multifamily arena. I would call that, you know, call that renters, right? And so the single family a lot of times, you know, those are the buyers. So, you've got the buyers and you've got the renters. And um you know I went through 2008 and in 2008 we had there was two 2.3 million
foreclosures 2.9 and 09 you know 2.8 in 2010. So you know we went through this period of time 7 million foreclosures during that threeyear window and um and what happened after that I think set us up for where we are today. And that's why I went back there. So what happened right after that is everyone was freaking out. You know, banks were owning the real estate, the prices were going down. And there was one massive thing that did not happen, and that is we didn't build a lot of houses. We went from 1.4 to 1.5 homes under construction, kind of meeting household formation during that, you know, leading up to that to less than 500,000 homes being built. So, you know, I'll call it a million short, right? Each year while
the while the economy was recovering and while there were so many homes on the MLS, right, which you can imagine, right? Prices are going down, builders aren't going to build, right? So, this is like the 2008, 2012 time. Yeah. And I think so, so that kind of sets the stage for where we are today. So, and that's the only reason I wanted to go back because I think that period of time was a weird period of time. and banks weren't lending, builders weren't building because why would they? There's so much inventory on this on the MLS. And but one thing that happened was household formation kept going and people started kept getting born and going to college and you know the everybody just kept going and so the
population went up. So we have this weird time where we were under supplying you know population growth and household formation. We haven't caught up yet to that. And so that's the big difference between '08. In ' 08, there was no equity in people's homes when they've got foreclosed on. Today, there's so much, right? These people have so much equity. So, it is a little different and we're still under supplied. So there needs to be u something that helps affordability and we really are you know depending on the report four five million homes short from that period of time.
Now that's single family condo multif family that's everything in one big bucket. And so I think the things that President Trump uh are is talking about are definitely needed. I don't know which ones are going to stick, but we definitely need more supply cuz the one thing that brings prices down is a lot of choices. Like when a consumer has lots of choices, the prices come down, right? And that's actually the issue is, you know, they don't at the moment. And it's kind of this legacy problem that we didn't quite get caught up. And we almost got there. I mean, we almost were right there. And then the pandemic hit and things kind of got disrupted again. And then inflation hit and then the prices the interest rates went up and
you know so there's been all these factors to you know have the I guess a lot of the builders have pulled back. So the thing that I always wrestle with is home prices falling sounds like a good thing because now if I want to buy a house it's finally more affordable because I can afford the house but it's not so good for the people that are already owning the houses. Because if I own a house at $400,000, that's what I bought it at. And now the house goes down to $350,000. Now it might be underwater or borderline no equity because a lot of people did buy houses with 3% equity or very little down. So what happens then if house home prices do go down? How do we balance that?
Yeah. So that did happen in '08. I remember like I you know people were throwing their keys back to the lender and then just moving into rental. So, isn't that a concern that it could happen again? Oh, for sure. Yeah. The thing the difference is there were four or five million homes on the MLS back then. Today, there's a million. So, and we have more people. You know, obviously, uh the population has grown and there's there's more households since that period of time. So, uh that's always an issue. The but the other thing though is we have all this they call it that imputed equity, right?
There's equity in these people's homes. if somebody bought in 2021, they've got a lot of equity, you know, and uh even 2022. So, that was a little bit different in a way where they didn't have any they put the money down and then the price went uh below the loan and then they didn't have any choice. I think you can't forget too that in ' 08 a lot of those loans were zero down loans. So people could easily give back the keys because they didn't really have anything invested other than their monthly payments where today banks have been more stringent. So people have 5 or 10% down and you know on a $400 or $500,000 home that's a significant amount of money. So and then they're not necessarily going to get cheaper rent
than their mortgage especially if they're in these lower priced interest rates. So there is a deterrent there for people to just walk away. I think the difficult part today though is because housing is so expensive for the average American, people are turning away the idea of home ownership, at least until later on in life. And so more people are just almost like perpetually renting to the point where it's like, well, would they ever even want to own a house? Do you think that is something that it's just like a change of culture? So that's exactly why we bought what we bought. you know, we bought apartments last year and so I remember when you know there's the each president, call it blue or red, it doesn't really
matter, usually is kind of dialed into housing. They're usually dialed into affordability. So if you go back and look at whether it was Clinton or whether it was Bush or whether it was Obama or whoever, they've all had initiative to try to get, you know, the the American dream, right? Get people into homes. And so now that in some cases have been problematic. Uh but under the Obama administration that we were up to 69.1 or 2% home ownership rate and that's the highest it's been. Wow. So we were at 69% now and that was like right around the crash time. Yes, it was. Yeah. And what happened was you remember we had all this home building that kind of created that bubble and then it popped. So, and it was created by some of these
home ownership programs in the two administrations before that. Um, you know, both one by Clinton and the other by Bush. So, you know, so that's what happened. Obama kind of got, you know, took the brunt of that, but we were at 69% and on the other side of the equation is 31% renter. So, I was in the multi-ousing. I was a landlord during that time. It must have been a tough time. It was a tough time, you know, cuz these builders would say, "Hey, why rent when you can buy?" And they were doing all these programs to get people out of the rentals. I see. Um, so there's always been this kind of pushpull between the two.
The rental stock was at 69 or the rental stock was at 31% and the single family ownership stock was at 69. Then what happened was as it went to 68, 67, 66, 65, which is where it is now, those people move back over to the rental side, kind of what you were just talking about. And what did that do? What that did was it put all this pressure on the rents, right? Because you had millions of people move over to the rent side of the equation. And to your point, that's kind of where we are now. We have this issue where there's an affordability problem with being able to buy something because the prices are still in the call it the 400 range and the rates are 6 and a half let's say where it's actually a lot cheaper to rent right now than is to buy
the I personally believe that the apartment should be a step toward home ownership. Mhm. You should go there just like probably you did, I did, you know, you go there, you build your credit, you save some money, you know, you put your down payment down, and then you know, you're in the game now. Um, but that unfortunately, it's really out of balance at the moment. But we're at this inflection point right now because I think the average home buyer is about 40 years old and you have to think it's a 30-year mortgage. So that puts them paying off their mortgage at around 70, which is, you know, later in life, but still reasonable. If that number continues to push up, then it will really affect the
home ownership rate because why at 45 or 50 do I want to get a 30-year mortgage to then be done paying it at 80 years old? So, I do think you're at this breaking point where if you know if people can't if they start buying even later than they already are, I do think that people won't even aspire to at that point. Then, it sounds almost like we're at risk of a reverse 2008 crash in a sense because 2008 was really a crash in single family housing. Correct. But if today everybody is renting and a lot of people are building dig rentals and rentals are being put up everywhere and we're trying to build more single family housing, could there be a point now where people say, "All right, now it's cheaper
for me to own. I'm no longer going to rent." And we start to see the tide shift. And now people go from renting back to owning. And now these all these rentals that have been built because a lot of people I mean even in Detroit everything is being built to rent now. Yeah. We're not seeing as much built to own. I would worry that we're going to have just a flood of rentals that are just sitting there and now the landlords are now in trouble. Is that a risk that you'd be concerned about? For sure. And I will tell you, so you know, I'm a builder of a multifamily. So I'll tell you kind of what happened from our perspective is when rates were really, really, really low, you know, call it uh you know, prior to 2022.
There was quite a few projects uh obviously as you do when rates are low that's when people start to build more and so what's being delivered what was delivered in 24 and 25 was a 50-year high for multifamily. Wow. 50 years over 500,000 units hit the US now all over the place, right? Atlanta, Phoenix, Dallas, Detroit, all over. That was all based on cheap money at the time. And then when the Fed started jacking rates in late 22 in response to the inflation that hit a 9.1 in June of 22, then the builders start to pull back because the mortgage payment or the construction debt cost, the highest cost that we have for building is debt. So when debt went from four or 5% up to 8
9% for new construction, everybody pulled back. So we actually had quite a drop off of new construction starts in call it 23 24 and certainly 25. And um so what you're seeing now is this lag of projects that were started or were already funded or they had already broken ground. You know, some of these projects take years, right, to build. So, you're going to see all that get finished. And to your point, they're they're finishing at this weird time, you know, where their costs have been really a lot higher because of inflation. Their debt costs have been a lot higher because of what the Fed did, because you can't fix a construction loan because there's no property, right?
It's just land. Yeah. So, so construction loans are floating. It's like an adjustable rate. Yeah, very much so. Because you, you know, there's no structure yet, right? You can fix it once it's stabilized. But um so anyway, we have this little window going on where you have all this product that kind of hit the market and it disrupted the market from a you know, from an operator standpoint. Like it's really you just met the my director of operations, Shannon, just a minute ago. She's having a heck of a time just keeping the place occupied, right? Because there's so much competition. All this new stuff is disruptive. New supply gives the renters
a lot of choice. So, when there's renters have a lot of choice, rents go down. There's concessions. There's all these things. There's marketing costs and there's all these things that make it very difficult to run a property. So, so that is a great time to buy So, this is a time to buy when Yeah. And when occupancy is down and expenses are high from a you that's the time you want to buy. It's a horrible time to own because it's hard. Um but as you know we have all that in house. So it's a double-edged sword for sure. Um but it's a there's a lag here. And to your point I think what we're going to see is this affordability thing if it gets fixed under Trump
there's a lag to it. you know, it's going to take years before we really start to see um any kind of um you know, significance to it. And um if there's supply added, it should help. But right now, I what we see is we see a tremendous amount of people that are forced into the rental side of the equation. And so and we also see disruption in from a landlord standpoint with higher vacancy um and higher expenses. So it's a great time to buy those properties for the long term. Paying rent every single month is expensive. And when I was paying rent every single month, money was leaving my account and in return I was getting no rewards. But it doesn't have to be that way thanks to our sponsor Built. Built is a loyalty program for renters. It takes the rent
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put towards your next rent payment. So, if you want to learn more and start earning points for the rent payments you're already making, our sponsor Built can help you with that. All you have to do is scan the QR code on the screen and I also have the link for you down in the description. So, I think the question in all everybody's mind if we just distill this cuz there's the difference between the multif family, then there's the single family. So multif family is going through a little bit of a tough time like you're saying because there's been so much building of multif family and so if you're a renter it's a great time to be a renter because you actually have more bargaining power because
landlords are unfortunately now having to compete against each other and they're struggling in that phase of this economy. But now the question I get all the time in our market briefs newsletter on my YouTube channel is should I buy a house now or is the housing market going to crash ultimately? Because we see what's happening in the economy like we've been talking about. There's concerns about what President Trump is doing that it's going to bring down the prices of houses. If somebody is now thinking about buying a house, is now the time to buy or should they wait until prices fall? Well, I think that nobody knows, right? So, to me, you're risking if you don't buy now, you're risking that prices
don't fall and they continue to go up and you get priced out of the market. Now, of course, you know, you could wait and you could see and you can see if prices soften, but at the end of the day, like you're not getting in the market, so you're just paying rent and you're not really getting anywhere. Um, for my clients, because I'm a realer, I just tell them, you know, let's try to negotiate the price down now. So, you know, because there is a lot of bargaining power in a lot of markets, including Phoenix, where you look at the list price and you might be able to get 20, 30, $40,000 off. So, why don't you try to negotiate that now? And I don't think most people regret owning homes 10
years later. Like, I don't think people that maybe bought in ' 07, you know, in 2017 when their house is worth more. They're like, man, I wish I would have waited till 2011. Because you never can time the bottom. So, I think that, you know, when I work with first-time buyers specifically, there's a lot of hesitation and then they miss opportunities. So, for me, I mean, I'm still buying rental properties. I just bought one last month. I mean, of course, I know that there's potential that the market's going to soften, but I'm just looking for the deals now because I think there's really good deals out there. So, buy don't wait.
I say buy I always say negotiate. Don't wait. Negotiate. I'll just add one thing. you know that when you talk about single family as you know the there's hundreds of markets that are single family so there are markets for sure that are popping right now right like Phoenix is down 5% there's areas of Florida that are down there's areas of Dallas that are down but there's also areas that are up oddly enough you know there's areas that are still tight and we're starting to see not a lot but 1 2 3% home ownership single family growth so I think a lot It depends on where of course you know and the boom and bust to me is so predictable, right? Like when you start Yeah, for me it is. You start to see
this run up real fast. When you have a fast runup, you're you're more than likely going to have a little bit of retraction. Um and the markets that have been consistent, you know, like Denil from Cleveland, Ohio, you know, the Midwest has been very consistent. uh we they never really had a run up and they never really had a pop. Um it's been slow and steady. Now there's certainly there's areas that get overbuilt like they always do, but um you know, so you just got to be really careful on where you're going to buy. You know, there are definitely areas in the US I would not buy. Like I would not buy in many areas of Florida right now. And because well because it had a nice little runup, you know, it went up like this.
Um, I think a lot of was fueled by Airbnb and low rates, for example. Um, and so you start to see these little pockets that are retracting right now. And the cool thing with AI is that data is everywhere, right? I mean, it's everywhere. You got to check it, of course, but it's really interesting to see how some markets are performing extremely well on the single family side and others are doubledigit regression. Plus, I don't really see distress with the sellers. I think that's the difference. In ' 08, the distress was on the sellers because they had these adjustable rate mortgages and they're moving and they can't afford the payment and they didn't put anything down. But now, you know, these sellers are locked into super low interest rates
and they're not distressed. You know, I people list their house all the time with me. If I can sell it for this, great because I want to, you know, buy this more expensive house, but if not, it's fine. Who's in distress right now? are obviously your flippers because they're in hard money and also a lot of Airbnb people that got in, they thought they were going to make 10 grand a month, their mortgage is seven or eight grand a month and they can't afford it. And so you're seeing that there, but I'm not seeing that on your regular homeowner that bought prior to 2023. You know, they're just not distressed. And when you don't have distress, you know, you don't have as much force selling,
which is, you know, going to increase your supply. So on that topic of distress, I want to talk about the economy, specifically how it ties into oil and real estate because with everything that happened in the Middle East, oil prices have shot up and now the concerns are again inflation that inflation is going to be worse and we don't know how the cost of living is going to rise. Well, at the same time, a lot of people have been hoping that the Federal Reserve Bank would cut interest rates because lower interest rates mean cheaper mortgages. But if there's high inflation, now the Fed is going to have a much tougher time cutting interest rates and may even raise interest rates because now for the first time, you're
hearing talks about the Federal Reserve Bank potentially raising interest rates in 2026, which brings up the sword stagflation. Yeah. That we haven't really seen since the 1970s. And that was a very painful time. So I want to get your insight. Are we going to see that type of stagflation? And if so, what does that mean for the housing market and the real estate market in general? I mean, I definitely think we could see stagflation. I mean, we're completely set up for it. Um, to your point, you know, the Fed can't lower rates right now because of the inflation mark, even though they're going to want to. So if
you look traditionally back in the 70s, you know, asset prices did rise with inflation over time and while asset prices were rising, people were losing jobs. Yes, correct. And that's the difficult part that I don't think many people can comprehend that we have the prices of things rising while the economy is getting worse. So what is that? What should the average person understand about that? what should they prepare for? We've talked quite a bit about this issue and you know stagflation I guess is well it means things are flat high inflation and high unemployment. I think one of the bigger blind spots by this administration is going to be unemployment.
Really? Yes, I do. I because of inflation or because of AI because of inflation and AI. I think u I don't know which force is going to be bigger but there's no question that employers are starting to adopt things you know from a customer service standpoint from a admin standpoint from an accounting standpoint from a HR and IT standpoint and marketing certainly there's there's lots of consolidation going on with using technology with the same people and so, you know, I think that's going to creep up. I don't know, I'm hearing all kinds of things around that. I'm you know, we have a big conference that we do in August called Limitless Expo and we have three speakers on AI.
Um, two of them said that we're going to be in doubledigit unemployment. And double digit unemployment, I mean, that's that's like what we saw during the 2008. That's real bad. I have to wrap my head around that to be honest because I've like how you I just personally am not a tech guy. So I don't see it like they see it. But um and I'm not a conspiracy guy either. So I'm really trying to vet this out. But I think it's a real deal. You know, I have a friend that just laid off five people and he saved 400 grand and he was able to use he said I was able to take some AI things and roll it into my company with using uh some of the same people and so I'm hearing more and more
stories like that. One here, two here, five here. So that's I think something that's coming potentially. And the inflation of course is real. And this is precisely why I love real estate, you know, cuz you know, Denil said it earlier, if you buy if you buy something at a 100 grand and you live through this high inflation, you're you don't have to do anything. You just have to sit back and let inflation do its thing. But I think then the concern is if you buy a house and you lose your job Yeah. Then what? Because on one hand, yeah, housing prices might go up. But if unemployment is a problem, then people can't pay the mortgages. And I think that's now that double-edged sword that I don't know what's going to happen.
But then they can't pay the rent either. So then I think that the government is going to have to step in. I mean, that the Fed had said that their biggest mistake in 2008 is they didn't act faster. They would have acted faster. And I think in COVID, you saw that they acted immediately. They start sending everyone checks. Good or bad, it's what they did. And I think if you start to have massive unemployment, people have to either pay rent or pay a mortgage. And their mortgage isn't necessarily more expensive than the rent would be. So I think that the government I just personally think that the government would get involved.
Now that gets really interesting because now you say, "All right, we have inflation. We Exactly. we're going to solve this economic problem by just printing more money, which doesn't really fix things. It uh can make a bigger problem, which could be a currency crisis. It could be a debt crisis, in which point real estate could be a great protector, but somebody has to still be able to make that mortgage. And I guess what are your thoughts about where then what happened to the dollar? Where is the economy going to go? Well, if you look at stagflation in the 70s, how they got out of that was jacking up interest rates extremely high in order to, you know, getting a mortgage was what, 15 to 18%. But the problem is we can't do that now because of our debt.
Really? Yeah. Our debt's too high. If the government, you know, put those high interest rates on, we would be negative on our debt as a country. So, they can't do it. So, there's really not a big way out of a stagflation other than printing. Right now we have like $39 trillion of debt as a country. And so for the government, just to kind of clarify what you're saying, inflation is good because inflation means that they can essentially lower the value of their debt because they're paying it off with cheaper dollars. And right now, our second largest expense is interest payments for the government. And so what you're saying is if interest rates go up to solve stagflation like they did in
the 70s, we can't do that because that means now our interest payments now for the national debt go so high that we can't afford it anymore. Correct. Which really has me now more concerned than even before. Yeah. Which is what is that like how does the average person now hear that and how do they protect themselves? I mean does that mean that they really need to buy a house sooner rather than later? Well, I think getting in that fixed rate mortgage, you know, we're the only country that really has a fixed rate 30-year mortgage. Other countries say they do, but it's like fixed against their prime rate. So, it moves with the
prime every 1 to 5 years. So, for us, it's like if you get into a mortgage now and we do have high inflation, which I think most people can agree that we're going to, it's going to make your mortgage payment easier and easier to pay over time. Where if you're renting, your rents are going to move with inflation. Oh, I see. Okay. So, to fight inflation, housing is good, assuming that you can get a 30-year fixed rate mortgage. Because if you do have inflation, now your mortgage payment essentially becomes less and less costly because that $3,000 a month that you're paying now is essentially worth less because the value of each dollar is going down. If mortgage rates do fall, then you can
refinance and now you can hopefully bring that cost down. Now, on that topic of debt though, I do want to bring up a question. Ken, you have something around a billion dollars of debt. Uh, I think that number would keep a lot of people up at night. It would make people freak out. Are you not worried about that level of debt and what that could mean if you can't pay it? Sure. Well, I think a couple things.
One, I think when people think of debt, they think of bad debt. I think that's a really important debt. Bad debt is something like credit card debt or maybe something that you buy that goes down in value. Uh, right. So, so I break things into and bad debt to me is something that somebody else isn't paying. So, when I think of good debt, I think of using the bank's money to buy an asset that somebody else is paying off. You know, we have 10,000 units. So our tenants if we manage them correctly um pay off our debt each and every month. The other thing is I also think when people think of debt they think of high leverage and really risky.
You we're we have many properties where we have 30 40% loan to value. Uh we have I think our whole portfolio is in the 60s. So we're somewhere in the low 60s on a so which means that we have 40% equity uh at least in most of our assets and so we're not highly leveraged but we use debt to you know leverage our positions of course but it's all paid for by the tenants. So the ten you know if I have a tenant that's paying me $1,500 a month a piece of that rent pays the mortgage. you know I mean it pays expenses and pays utilities and taxes and all those kinds of things and you will hope that it cash flows too but you know our tenants are valuable people there you know they're coveted in our company because they pay everyone and so
you know so the job our job is to keep the properties highly occupied and make sure that they have an incredible experience you know where they live and then so it's just basic property management But as long as we can keep these properties pretty occupied, um, you know, then we're we're good. I would have to be my occupies and my properties would have to get into the 60s and 70s%. Um, for me not to be able to pay the mortgages, you know, so they're not highly leveraged. Would you say that being in debt helps you make more money?
I would. Yeah. And then the precisely the reason is uh let's just say let's say I'm 50% debt and 50% equity on a million dollar property. Let's say and this is a multif family. Sure. Yeah. It could be commercial office, retail, multi uh could be a forplex. It could be all kinds of stuff. But if you're let's say you put 50% down, you have 50% debt and a lot of my debt is sitting around in the fives and some of it's in the fours and that was a long time ago. But um you know we just we did a bunch of stuff last year at 5 and a half and so the cost of um equity or cost of debt was about 5.5. If I experience
inflation of let's say 3%. On that million I get it on the million and half of it is borrowed. So I actually get inflation on the borrowed money not just the my money. So the if the value of the property goes up to1 million30,000. Yeah. All 30,000 is yours even though half of that million dollar you didn't even put up. Yeah. Correct. And that's paid for by the tenants. So um the tenants are paying down the loan each month and if it's managed correctly. So the tenants are paying down the principal as that's the kind of the point. I get the inflation on the whole thing and then I get uh tax benefits you know in the form of depreciation and all kinds of other things to offset that ordinary
income. So for me real estate is an inflation hedge paid by somebody else using other people's money in the form of debt you know. So most people know how a bank works, but when you have a million dollars sitting in a bank, it's a problem for the bank because the bank actually owes you interest. So if they're paying you 2 3% interest, they have to lend it to me at otherwise they just have an expense. So it's actually other people's money anyway, you know, in just in the form of debt. Keeping up with the economy is not an easy thing to do. And then when you have all these crazy things happening, it makes it so much more difficult not to get caught up in the political mess. And that's why I created Market Briefs. It
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investment opportunities. So, if you want to get the investing masterass and market briefs all for free, all you have to do is sign up and I have the link for you down in the description below. I want to go back to this thing that you said a couple times, which is if it's managed correctly. And the reason why I want to bring that up is because some of the best real estate deals that I've purchased were from other investors that took on too much debt. Yeah. And they were not able to pay it back. The banks then seized the property and then sold it at a big discount. Yep. And what happened? Because I think it goes back to what you were saying. If it's managed correctly, what does that
mean? Because I think everybody who thinks of real estate investing is you just buy a property and put some tenants in there. Yeah. What is the difference between that and you having a billion dollars worth of debt on your real estate and not losing sleep at night? There's a science. First of all, you want to find a pro you want to buy a property that it's hard to own a home nearby. So, I'll give you an example. We have a property in Plano, Texas. Plano, Texas is a very affluent suburb of Dallas and it's north of
Dallas, but the, you know, the homes in the area are one, two, three, $4 million. And we have a an apartment building, you know, right in the middle of that. So, why would I buy there? I would buy there because it's got an incredible school district and it's affordable. So, you know, so you're targeting your investments into markets and places that people really want to be. And also, you know, I on the other side, I made a mistake once, more than once, but in Oklahoma City where I bought a property where the homes next door were two or 300,000. And so people once they saved up a little money just moved into the neighborhood next door. So, so all of a sudden, so part of buying is where and why and so you want that pressure. And so, so that's the first
thing. You can't rely completely on, you know, just buying something. You have to buy it in the right spot. And there has to be a whole bunch of reasons why. Um, and so, you know, and we've certainly made a ton of mistakes in this area, but as you do, you become smarter and a little more refined on where. Um, and so, so for me, um, as long as we're in markets that tenants want to be in, that's not severely overbuilt and it cash flows, we like those properties in the long term, you know, because like in the Plano example, we literally are in one of the best school districts of Dallas. So, if you don't have the means and you're raising a family, you move to a property like ours because you want your
kids to be in that school district, as an example. But there's all kinds of reasons, right? Um, most of the time we're trying to find properties that are located in areas with high employment, a high population growth. uh maybe it's a a destination area for you know like the people like to go on summer vacations or school district or whatever it might be. There's a whole bunch of factors that you have to consider when you're actually buying something. And if you do all those things correctly, you're going to have a relatively high occupancy. So our whole portfolio today is 96%.
Wow. Today. Now hopefully we can stay there and it's not without a little bit of pain. We have to offer some concessions and there's some things and you know the next wave of new construction certainly tries to get tenants from you know from the existing u properties of course as you would um and so it's definitely a harder time than it was just a few years ago but um if uh so that's part of the reason why I like to have the in-house property management is as you just met you just met a few of those people but talk to me now about taxes. is because you said something very interesting that you glanced over and I want to really dive into that because it's a big driver of revenue for some
real estate investors which is you said that debt can also help you save taxes. Now, I don't know if you know this, but uh I'm a licensed attorney. And when I went to law school, I studied a lot of tax. And more specifically, I was specializing in um partnership tax. And then and before that class started, my professor sent us an email uh to read this article about how rich people are evading taxes. And I thought it was very interesting because what it was really talking about was how rich people are avoiding taxes, which is the big difference between avoiding and evading taxes because evading taxes is illegal even.
Yep. Avoiding taxes, it's here's the IRS rule book. Yeah. Do what the rule book says. And you can pay less or more in taxes depending on what the rule book is. And what I think a lot of people don't understand is you didn't design the IRS rule book. you're using it in a way that's allowing you to potentially pay less in taxes. So, could you talk to me more about what does that mean for you debt and taxes specifically? So, every administration has a different view on tax, right? And who should get it, who shouldn't get it, and all that kind of stuff. So, the right thing to do is just take a look at whatever rule book they have on the table. Just look at it. Um, one of the things that we're seeing with this
administration is a big one called the opportunity zone. So an opportunity zone essentially the concept is a good idea and this was proposed in for Trump in 2016. But he basically took thousands of areas around the country and said these are areas that need money and they're usually in you know maybe the outskirts of town or an area that you know I'm sure your area around Detroit has some of these areas. They're just the basic opportunity zones. if they if somebody put a lot of money into this area, it would revitalize the area. So that's the point of the opportunity zone. That one thing which is in existence right now, um what it is, it's a capital gain deferment.
Uh that's what it is. So capital gains are what? So capital gains are if I buy something for a million, I sell it for$2 million, I potentially have a $1 million capital gain to pay. So you could take that and you could roll it into these opportunity zones and kick the can down the road and not have not to have to pay tax if you reinvest into these opportunity zones. And so these are ways that, you know, we use to be able to direct u maybe an exit from a property, a capital gain that we might have. I actually have an opportunity to own property right now where uh my partner Ross found and as we start to exit things as you do and take some profit um you have a capital gain issue and then you can roll some of that
money into these opportunity zones. I have another one that's called bonus depreciation um that is um 100% write off in the year you do it. Now this is for oil and gas. It's for all kinds of things. I'm in the I just got done buying a bunch of bill digital billboards. And a digital billboard is literally just a like a flat screen in the sky along a you know a major freeway. And there's a whole science to this. But the point is we were able to write off a 98% of the purchase the entire purchase. What does that mean write off? Because I think that's that's a very often used term. Sure. But not very understood term.
Yeah. So we look I'll just give you an example. We bought a digital billboard in Columbus, Ohio. It was a let's just say it was a million dollars. We got a $980,000 tax write off in the same year. And a write-off means um you it's subtracted from your income to then adjust your taxes. Because normally when I go and buy a watch, I spend $10,000 on a watch or 10 dollars on a watch, whatever. I don't get to write any of that off. when you go and buy a billboard, you're saying you can write off the entire almost the entire purchase price of that because of this bonus depreciation.
It's called the bonus depreciation. Yeah. And there's um you know jets are the same thing, you know, um like if you buy a personal jet u and you use it for business, you whatever you pay for, even if you finance it, you can write it off in the year you buy it. So it's almost like a free investment. it. Well, it you do get into debt and you are investing, but you do get the offsets. Some people would say that uh you know, I always want to make sure there's cash flow like on the billboards. You know, I want to make sure there's advertisers and I'm buying something that cash flows. How much does a million-doll billboard pay you? I don't know anybody in the billboard business, so I really have no idea. I Well, I'm new in this and I think we bought eight last year and
uh you know they'll do 20 to 30,000 a month each. Now that's gross. Yeah. Gross. So before expenses there's Yeah, but there's not a lot of expenses. You know, there's some sales costs and there's um you know there's there's insurance and things like that. So you're saying that if you buy a million dollar billboard, it's going to make you $200 to $300,000. Oh yeah. We'll we'll do we should do pro we'll probably do 17 18% cash on that particular one after expenses. That seems like an amazing Yeah. unheard of opportunity that I mean I personally never even thought of investing in buildings. But the interesting thing is I actually we kind of started off talking about the tax law. I actually found it that way. I said what does the tax law
legally let me do? And one of those is billboards. And if you take a look at uh billboards falls under the bonus depreciation category as does a whole bunch of other things. So if you invest in oil and gas and build a well you know which I don't do um there that also falls inside of that. It's you know so you know I found it that way and then worked my way backwards into it. So I started with the tax problem worked my way into that and then got into the business to offset my own personal tax. Did you start with the tax problem because you had a big tax bill? Yeah. Well, yeah. In the if you're exiting real estate, you know, if you're buying and selling like we are, we have we definitely have some tax uh
liabilities and we pay a fair amount of tax, but you're always trying to minimize it, right? Well, I guess I got to look into bid boys. I want to talk about two more things. I want to talk about buying a house and then buying a rental property. So Daniel, you're a realtor. Buying a house has been extremely difficult post pandemic for a lot of reasons. After the pandemic hit, it was a sellers market where I mean, if you were buying a house, you were competing hard with over asking price offers. You were not even getting home inspections. Today, we're at a point where it's expensive to buy a house. And a lot of people are sitting on the sidelines who want to buy a house because they don't know if they can afford a house.
What should somebody who wants to buy a house, what should they be prepared with? How much money should they have? What should they be thinking about? What types of houses? And what are the things that somebody who has never bought a house before? What are the mistakes that they're making? That way they don't have to make those mistakes because they're hearing from an expert like you. So, I'd say the first thing is you need to be realistic with what you're going to buy. You know, I think a lot of times people want their dream home right away and then they can't afford it, so they don't buy anything. And I think when you do that, you just set yourself farther back and farther back of ever being able to afford something
because those people that had a starter home, you know, prior to 2020, you know, they were able to sell their home and maybe buy the home that they wanted, you know, because it wasn't that big of a step because you're kind of moving with that. And then I think secondly is people need to get creative. There are ways in which you can afford a down payment. There's some programs that you know local programs that uh places do. There's also you know house hacking I think is very underutilized especially if you're younger looking to buy a house. So basically if you buy a four-bedroom house you can rent the other three rooms while still living there. And of course this is harder if
you have a family but these young people to be able to get into these houses. And we know a bunch of young, you know, kids doing this right now where they're just saving up for the down payment, buying a home, and moving their three friends in, their three friends all pay them rent, and then they have a very low mortgage that they then can afford. And over time is when you make more money and inflation happens, you'll be able to afford that home on your own, and you can slowly move people out. But I know that sounds kind of off the beaten path for those of us who have owned homes a long time, but with these expensive home prices, people need different options.
Another option I think people aren't utilizing, is rent to own. You know, they're not approaching sellers with a rent to own strategy. And I think there's a lot of sellers right now, especially because homes are sitting, that would consider it. And basically what rent to own is you pay rent plus some additional expense to help save up for that down payment to the owner of the home and then you eventually purchase the home from them. How do I find a rent to home? So you're not going to see them advertised. You're going to have to approach sellers and show them the benefit that this is to them. And the benefit to them right now is I'll pay the asking price that you want even
though your home's been sitting. And also, you don't have quite the tax liability because you can write some of that off over time as I'm paying it to you yeartoear until I go and purchase the home if they're going to have a tax problem. If I work with a realtor, should they know what that is? It depends what realtor you work with. Um, well, here's the problem with a lot of realators, and this is why you have to find a good one, is, you know, you might ask a hundred people to do that, and you might only get one person that says yes. So you need someone that doesn't mind grinding it out with you to try to find that needle in a hay stack. But it really is, you know, the mistake that buyers are making right now is that
they're not doing any of this. They're just waiting for prices to fall. And I think that they're, you know, while you might see some softening in some markets, it's not even going to matter because then they're going to think prices are just going to fall more, you know, and they're frozen in this state where they're so afraid to overpay that they don't make any moves. And there's so many moves that you can make right now. I mean, you can if you don't want to be creative at all and you just want to buy a house for less, find the seller that will sell it to you for what you want to buy it for. You know, there are they're out there. I mean, I work and the sad part is I work with a ton
of investors that do this and I watch the deals that these investors get and I watch the deals that I get and then I have the first-time home buyers that are like, you know, the house is at 470. Like, it's just too much. I'm going to pass. Well, why don't you make an offer for 440? You know what I like? Well, they're probably not going to take it. Or if they take it, well, I still feel like now it could be 420. You know, they just they can't. It's like analysis paralysis. They're so afraid that ' 08's going to happen again. And I just don't think we're in the landscape when 08 happens right now. And you can't predict 5 10 years into the future. You just
have to set yourself into a mortgage payment that you can afford. Imagine, you know, imagine 10 years ago whatever your rent payment was if it just never changed. It would be so much easier to pay it right now. And that's where people need to be thinking. So I want to talk about mortgage payment. what can I afford and what can I afford from a house but I want to talk about working with a realtor first because that's been a very hot topic lately because number one there was a lot of regulations about uh you don't have to pay a realtor or the seller is not going to be paying the realtor anymore. So if I'm buying a house do I need a realtor because I can just go into Zillow and um see which houses are
for sale and I mean do I need a realtor to open up the house for me and show me the house? You do. And here's the thing is that the sellers in almost every deal are still paying your realtor cost. They don't legally have to, but they are because it's a buyer's market. So, I've only had one deal where the seller refused to pay my cost and we could have negotiated it, but they really wanted the house. So, I think there's two things. One, there's a lot of different kinds of realators. There's some realators that just open a door for you, show you a house, and that's all they do. and it's up to you to decide what price you want to pay and what your, you know, but then there's realators that negotiate for you.
If somebody wants to buy a $400,000 house, what type of money do they need? What type of down payment should they have? And I guess when can they afford that house? So, you really need to understand your monthly payment. So, I've run into this a lot lately, and this is why it's important who your lender is, because you can be approved for, you know, whatever amount you're approved for, but you have to be able to afford the monthly payment. On top of the monthly payment, you have maybe an HOA, tax, insurance. You have to be putting away some money for repairs. You can't be, you know, paycheck to paycheck on owning a home. So, I think that's the number one thing is you really have to go into this and know your budget and
know your finances and know how much you want to afford, calculating all of those things. And so, you know, just because you only have to put down three or 5% doesn't mean that's what you should do. And you have mortgage insurance, too, if you don't put down the 20%. So, that adds to your mortgage every single month. So, I have people that maybe they have 20%, but they don't want to put their whole savings account into the down payment. And that's okay, but you also have to calculate what you're paying for mortgage insurance, too. And that can really add up, especially now that home prices are so much higher. But I would say while you don't necessarily get your dream home right away, I find that people that in that buy where they
want to live are long-term happier. So buying a smaller house where you want to live versus buying this large house where you don't want to live. I find that those people in a couple years are regretting that they didn't buy in the area they wanted. where I very rarely have people that buy a smaller home in the area that they want and they can fix up the house over time. They're not as urgently wanting to sell and buy something else. They seem a little bit more content. Well, location, location, location, right? As I say in real estate, what about rental properties, though? If somebody's watching this, they have $10,000 to $50,000 saved up and they like the idea of investing in real estate, they hear about the cash flow,
they hear about the tax benefits. Do they have enough to go out and make their first real estate investment? And how would you recommend they go about doing it? Yeah. You know, I think a lot of times when I work with investors, they don't they want to invest for appreciation. And I don't think it's a good idea to invest for appreciation. Walk me through what that means. What's the alternative? That means, you know, I'm going to buy a house for 400,000. I'm I'm going to be negative cash flow every month, but I'm just going to push through that and hold on to it for five years and then I'm
going to sell it for 500,000 and I'm going to make money cash flow. Yeah. So, the alternative is cash flow. So, if the property needs to cash flow. So, whatever money you're putting down, whether it's 10%, 20%, 30%, you need a return every single month. And then you can hold on to it and hopefully get some appreciation later. But even if you don't get that appreciation, you're not negative. Because what I find, you know, I have a client right now in an Airbnb and his mortgage is $7,000 a month. Now, he thought he was going to make more than that with the Airbnb rental where he's not. So, what happens is you get behind on your mortgage or maybe you, you know, work an extra job and you're
able to keep up with the mortgage, but then, you know, you have stuff start to break. you have a roof leak, you have um vacancy, maybe your tenants don't, you know, they move out and you don't rent it for three months and now all of a sudden you have all these extra expenditures and you're so behind and you're so stressed out and you totally hate everything about owning a rental property and then you sell it for a loss and you'll never invest again. And that's a horrible way to do it. You want to make sure that you have some cushion and some cash flow so you're putting money away every month. So, even if you're not making a ton of money on the property, that's okay. But if your roof goes, you have the money saved
because every month you've been putting this money away. Or if you have a vacancy, it's not a big deal. You don't have to rush a bad tenant in just to fill a vacancy. You just, you know, have a month of no cash, you know, no money coming in. And that's okay because you have a savings. So, I think the biggest thing with new investors is making sure that the property you're investing in makes sense and it's cash flowing. How much cash flow should I expect? If I have $10,000 put away today, what should I be looking for as an investor? Depends where you're investing. So, you know, you can get a home in the Midwest for 150 grand. You know, in Arizona,
that same home's going to be 400. And the rents, while they're different, they're not as different as the price. So, you really have to just look, it's deal on, you know, your return. Can I invest my money in the stock market? It's very clear. If a company pays a dividend, I can say that this stock is going to pay me 3% a year in cash flow because I buy $100 worth of stock. It's going to pay me $3 in real estate. Now, it's varies by location. So, if I'm investing in Phoenix and I'm buying this $400,000 property, what should a investor have in terms of down payment? 20%, 30%, 50%, or should they buy it all cash for the first time?
No, I it just depends on the property. So, I just had one that I put 30% down and it cash flows. Um, sometimes you can find a deal that's 20%. It's harder right now than it used to be. Uh, 30% was pretty good in this market, you know. So, I think that you have to look at how much you're putting down and then where that cash flow comes in. You have to remember with real estate, you don't just get the cash flow because people look at the return as, okay, the cash flow, but you know, the renter is also paying down your mortgage. So, as a long-term strategy is like a retirement strategy. Once that mortgage is paid down, then the whole thing cash flows. And once that mortgage is paid down,
there's a common strategy out there called Burr, which is uh you buy and then you rehab. I don't exactly remember what the acronym is, but you essentially you're going to build equity in the house and you're going to pull out more cash from debt. Would you recommend somebody do that or do they just keep paying it off and now? So, we have different views on this one. views on this. She likes her homes paid off. I do. I like my homes paid off. I think it's a good long-term strategy for me personally because I know at what age each of my homes is going to be paid off and then I know in today's numbers what that means for my cash flow. Ken likes
to pull money out and you know refinance the debt and then make money on the you know. Yeah. because it's taxfree. You know, you're when you're, you know, we've done this is my whole model is buying something, improving it, uh, and then putting new debt on there and pulling the original investment back out. So, at that point, I'm infinite, you know, we have no investment in the deal. So, like we would buy a $10 million property, put $3 million down, finance $7 million, let's say, and then we would grow the value to 15, and then we'd put a $10 million loan on it, let's say, and then we'd get our three back and um we would be in that deal still.
We'd have 5 million of equity, and it would be cash flowing, but I would not have any investment in that deal. So, so this is uh we personally have multiple properties where we've we've refinanced three even four times and we've held for 15 even close to 20 years. And you said this concept of uh pulling the money out tax-free, but only if the property goes up in value. And you said that you were now working to raise the property value. Yes. What how did you take a $10 million property at 15 million? Yeah. So before we even buy something, we have a strategy to improve it and create the value. So I'll give you some real examples. We just bought a property that the owner had for 25 years and he
has he had never touched the interiors not once. So when you walk in there, literally you're going to see, you know, uh interiors are 25 years old. you know, original appliances, original carpet, original, you know, all the things that you would see. Now, obviously, as they turn those units, you know, they repaint them and things like that. But that's a real opportunity to go in there and spend maybe 6 $8,000 and, you upgrade the counters and upgrade the flooring and upgrade the appliances to stainless and, you know, put in new sinks and new fixtures and all those kinds of things. So, that's that's called a value ad. So, so an opportunity like that when you find it, and this is my whole career has been
built on this is, you know, how much more rent can you get to something that's completely renovated? In that particular case, it was $125 a month. So, more you're getting $125 more per month after these renovations. Yeah. So, that's a value ad. Um, and then, you know, there's a numerous examples. Another one we used to do, we used to uh specifically target apartment buildings that had washer and dryer hookups but no washers dryers. And th this is all over the place and step back. They're still out there everywhere. So it's very common for a builder to put in washer and dryer hookups but not have this machines in there. So, we would target those properties, let's say a 200 unit
property, and we would buy 200 sets of washers and dryers, right, as part of our purchase price, and we'd put them in every unit. So, every single tenant would now have washers and dryers. And the only thing we had to do was buy the the sets for them now. And then when they're lease renewed, they got free use of them. And when they're at least renewed, we would get anywhere from $25 to $50 more per month because they now didn't have to run down and use the coin operated somewhere. Uh so it's a huge convenience. So it's a win-win. So those are various types of value ads. So before you actually purchase something, you're making sure that there's a reason that you're creating value uh in the asset, whatever it
might be. And there's there's so many examples like that we've done. So it's a whole plan when you're buying something you have a whole plan to incre to improve the value. And I think the second part to that is now you if you increase rents by let's call it $250 a year. Now the value of the property goes up because of that. Yeah. And could you talk about that? How does that increase rent cause the value of the property go up? Yeah. So there's there's the uh for some people know what NOI is or net operating income, it's just simply rents minus expenses. That's all it is. So if your income goes up um and your NOI goes up faster than your expenses, your the bank that's
financing you is going to be happy because what they always they loan you based on your NOI. you know, what's your income, what's your expenses, and we're going to loan you based on that because the property pays the loan back, not you personally. So, they're always looking at the operations of the property. So, if we're able to grow, let's say in this particular case, the rents significantly on, let's say, 200 units by $100 a unit, for example, that's $20,000 more per month times 12, which is $240,000 a year in income or NOI growth. So, so now the bank is saying, oh, before you were at a million NOI, now you're at a,240,000. um we're now able to give you more loan. So what you do is you take the old loan
and you pay it off with the new loan. And because you're using debt and you're not selling, it's actually a cash out refinance just like you would do on a home. And that money is tax-free. Uh because it's debt, it's owed. So, it's, you know, the IRS wants their pound of flesh when you sell something. But if you don't, if you literally just use debt, um, you know, as you grow the value, then you actually don't pay tax because it's it's a debt. So, you're raising the value of the property by spending money to improve the property. And when you spend the money to improve the property, you're raising the rent a little bit, which then causes the value of the property to go up. But you don't have to sell it
because now you just do a cash out refinance which pays off your initial equity and put some money in your pocket tax-free. Yes. And now the tenants continue paying the mortgage and then hopefully you can do this again and maybe even again after that. Uh which allows you now to grow your wealth while you're not actually paying taxes on that appreciation. Yeah. The other thing that's really interesting is that the money that you spend on a property is a capital improvement and you can write that off.
Tax write offs. Tax right off for actually improving the property. Yeah, this is one of the reasons why I say real estate has some of the biggest and best tax breaks that our tax code has to offer. Well, this was a very valuable uh discussion. Ken Denil, I really appreciate the time. Uh where can somebody learn more about you and follow more of what you're doing? Yeah. Well, kenmackro.com is keenm ly.com is the greatest place uh to find us. And then we have a very big conference, a couple thousand people, 50 speakers coming up in August called Limitless Expo. That's limitlessexpo.com. And uh it's not to be missed. Beautiful. Thank you.
The end of the American Empire could be 2026. It's cuz we're so deeply indebted. If I spent $1 a minute, how long would it take me to spend a trillion dollars? 32,500 years. And they're printing it every 100 days. Do you think that the
