Key LESSONS from a LIFETIME of INVESTING

welcome to conversations with Ken I'm Shawn gray this is Ken McElroy today we're going to be sharing with you guys a little personal side of Ken and his story and the whole MC company and how they were able to build and grow a portfolio to well over a billion dollars which is extremely impressive and we want to know how it came to be so first let's start with when did Ken McElroy get started with real estate what was your first taste of it and how did you know was something you wanted to do well I think it's important to know that I did not grow up around it I did grow up in a house of course so that's technically real estate but you know even in college I never even considered even then career in real estate and and what happened was I was very lucky in my very first job that I wasn't quite done with college was managing an apartment building in downtown Seattle and that's something you sought out no long story but my friend of mine worked for this company that was in Seattle which is where I lived and said hey do you want to manage this property and I said he said it's free rent and I said done yeah free rent you know as a college student yeah student loans and all that free rent was something I had no clue what I was getting into and it was quite it was an amazing experience you know collecting rent and turning units I had grown up in the construction business with my dad my dad was a contractor so I knew how to do everything I could you know fix things I obviously paint clean all that kind of stuff so I was uh I was doing a lot and collecting the rents and all those kinds of things and and I was just finishing up my 4-year degree which actually ended up being more like five I wrestled in college too so I couldn't take full credits and so I was about a year behind so I'm on the five-year plan so it was a perfect way for me to get free rent while I was finishing up school okay so first introduction to real estate business and investing was on the property management yeah so after college did you continue in property management continue in real estate how soon did you start investing well I started getting interested because the owner of the building would come you know around the you know the 5th or 6th of the month after all the rents were collected and see how much was collected and you know he would take the money to the bank and sometimes I would but but I started building a relationship with him and I started asking lots and lots of questions and you know he seemed to have a pretty nice lifestyle or a lot of freedom and there was rents coming in and I had never ever been exposed to it and I was seeing it from the operations side and so I got very interested and so while I was there I decided to get my real estate license and that was the first step and that was really my first step to education on real estate at all okay was the in Washington State taken the real estate test which is a national and estate test and and there's so many things you know involved in the studying for and taking of that test yeah that I learned a lot right and I got very interested quick question on that because I'm sure some of the viewers that might be thinking this as a real estate investor is it beneficial to get your real estate license or is it not well it can be so I'll just walk you through my story so the reason why I think it can be is because the test is comprised of a lot of technical things around laws and you know titles and deeds and things like that that are very helpful as you start to navigate through that as an investor right and so that's super important I think just the knowledge the other thing is is that there are times where you can participate in the Commission's you know with something like other deals and things like that so so I I've had my licenses in lots of states I've been licensed salesperson licensed brokers in many states over the years and and because there are different laws in different states too and so so III I've just I love education so anything I can learn about water rights in Arizona or you know or growth boundaries and Washington or Oregon or things like that and they're all they're all very unique every state and every city is very unique so you know to me I I think it's a great Avenue if you're interested in real estate at least to have that kind of knowledge it certainly helps as you're negotiating and feeling you know with those people yeah so I've heard it said this may or may not be true that a real estate agent takes an oath to sell properties at fair market value is so is it detrimental to have your license in any way or is that true that's real estate yeah so I'm not aware of that you know I've never actually losers yeah I've never actually listed okay anything personally so I've never sold a single-family home I bought them on my own through Realtors and so but I will say that the way the way things get sold typically is based on what the market bears at the time so so fair market value could be through appraisals it could be maybe something that he's done at auction or you know and so so I don't really think that there's a lot of great deals out there you know I don't think everybody's like everybody wants a deal I get that right but I think at the end of the day the banks are smart if it's a bank owned property the banks are smart they're going out and getting appraisals trying to figure out what they're worth or if you own something and you know you're not gonna discount it because you're going through some divorce or something like that you just aren't you know you're going to I think you're gonna try to sell it for you know and you might get a little bit of a deal for a fast clothes or something like that but generally I just don't think that that exists okay all right cool so let's get back to the Ken McElroy story you started you know building a relationship with the with the investor the owner of the property that you're working at where did that go from there so so what's interesting is that that owner was using a management company in Seattle and that management company was managing the property for him and I was an employee of the management company okay so and that's very common relationship so it's very common for people to buy investment properties and not want to manage them right and so they use it what's called the third party management company and so coincidentally my very first job ever was with that company mm-hmm there was a you know they hired me as as I was finishing college and so I started to learn a little bit more about the company too right because they were managing properties all up and down Interstate five you know all the way clear down from Olympia all the way up toward Canada and so I was driving back and forth you know later I ended up becoming a regional manager for them and then an asset manager and a vice president so that was really my only job out of college okay was working for them and managing lots of properties forty-four plexes eight plexus big units small units new construction stuff that's a hundred years old right and so through that process you learn a lot about a lot at what point did you transition from property management into ok I'm gonna become an investor and and do this myself you know what was your first deal yeah well that was the scariest part right right I think whenever you're making that transition point that you're kind of going out into the unknown so I started small and that's what i always recommend so i started using my own money and I bought a 2-bedroom 1-bath condo and I made sure that it cash flowed okay that's the first thing that I did and then I did it again and then I did it again so I started on small stuff right but I what happens is there's only you only have so much savings and you only have so much money so at some point you have to find deals and do what's called the syndication where you're actually raising money from other people to be able to to do that that to me was a scariest part because I I felt comfortable actually taking my own money and investing my own money right but when you are taking other people's there's a whole new responsibility to it and not that I was doing it any different but it's just different it's different when you take other people's monies because typically at that point there are people that you know so friends or family and things like that that's very common right in our industry to go to friends and family to say hey are you interested in this are you interested in that yeah and I'm a relationship guy so I I really really wanted to make sure that when I got to that point that I was only getting the best deals that I could and I wasn't just trying to you know make fees and things like that because the industry is full of people that do that - okay and so so that was my very first deal big deal aside from the small ones was let me ask you this about that deal with the investors you said you raise money from investors right wait well at what point were you building your investor list or how did that investor list come to be was it just in the relationships over the time of being in the industry yeah so so yeah a little bit so the you know as you get involved in an industry you meet lots of people in it like for example the guy that owned the building that I managed obviously was an investor and a wealthy guy and so you start and as you start to manage third-party properties there are others and you start showing them around and they they fly in or they're local and they come visit the property you meet with them and so yes so your network and your relationships get bigger but I think but it's different when you are now buying something and you're trying to raise the right or a lot different and and so what happens there is I had the misconception I think a lot of people do that you need a whole bunch of money committed before you go do something right and so that's the track I went down so I started going to people like my uncle who had a bunch of money and other people and that I knew and they all said the same thing they said well bring us a deal and we'll look at it every single time and so you know I have the same thought as a lot of people which was let's get a bunch of you know I didn't want to go put my neck out on the line without the equity right same token the equity wouldn't put their neck out on the line without a property right no solution to that so the solution I think is to be educated on seeing a deal packaged it up correctly and then present it to equity and my experience was that most of the deals that I ended up buying I made sure had a had a value add component to them in other words they weren't pie in the skies a lot of times when I see deals people are they they come with theories and ideas and things like that and there's nothing wrong with that right but they're a lot more risky than like for what I was doing as I would say here's a property this is how it's been running these are the things that I would do to improve it do you want in you know what I mean it's a lot different and then I could show them specifically on how I was gonna grow the income from year to year to year even if I didn't do it exactly the way I thought I would yeah it still was a plan yeah and so they were investing in me they were investing in my team they were investing in the plan and they were investing in the property more importantly right so you know so their money was committed into a property itself they're actually physically on title yeah you know so we were partners together and things and so that was a very different relationship and and the key as I've said before is the property and then once you buy that then it's the management it's being able to execute on everything that you think you can do all right because the investors primary concern is hey when do I get my money back well yeah or is it is it invested well is he gonna have a return when when can I get my money back and what's the most important thing to know I think is before I exited the property I actually had that all figured out so before I even bought something I knew how long I was gonna hold it I knew what I was gonna do year to year and I knew what I was gonna you know generally I knew what I was going to do all done in some have a short little business plan right before I buy it right so it wasn't hey let's invest in this and see where it goes right that's very specific right this was gonna do your one this is what I'm gonna do your two this is what I'm gonna go do in year three so not to get too technical but I'm curious you know yeah if you're saying all the people you went to go raise money from said hey bring me a deal right show me the deal first do you have to get that deal under contract to put it in a put in a letter of intent you know because generally a good deal probably won't last very long so there's a window I'm guessing that you have to go out and raise the money one the time that you have the ability to close on the deal so all all very good questions well first of all not all deals are that apparent people so you know I think I think there's a misconception that once a good deal hits the market it goes really quickly I think that's probably true if it does okay but I don't see that as often as you think so so a lot of the some of the very best deals that we bought were from banks let's say and you know banks had taken them back for some reason and you know you make a lot of money when you buy and obviously you cash out when you sell it but you really really want to make your money when you buy and so so you know when something's owned by a bank it's usually a mess and there's a lot of people that don't want to touch it and right and so those are the kinds of deals that I liked I like the properties that were 50% occupied right so a property of say 50 percent occupied for example it's not going to sell for a lot of money but it's gonna be worth more when it's a ninety ninety five percent right and so that is as simple as it can get okay and so they're not necessarily listed and there's not a lot of people flocking for those kinds of they're not stable okay so what you're talking about our stable deals when you know when you're looking at houses for sure oh yeah nice house nice house house it's been beat it's gonna sell for less and you know so that's simple but when you're looking at something that has you know a bad management history around it and there's a lot of damage and things like that it gets more complicated okay yeah that makes sense all right so just chronological order we got out of college we did the property management thing built the relationships with with the investors started doing our own deals via syndication raising money from other investors at what point did MC come into play so well I've had several companies before MC and so but they're identical okay and so I always kind of had this buying properties or or getting land and building properties and so did my partner Ross McAllister and we were just doing it independently of each other okay and so one day because we're we're both pro education we were both on the board a local apartment Association called the Arizona multi Housing Association or the AMA and we had gotten to know each other and I was looking to expand into Tucson and I called him up and I said hey because you know we had been talking all those years I said I'm looking at buying a management company in Tucson and I want to expand and he said well let's go have a cup of coffee and so we just decided to merge our companies together at that point okay how long ago was this that would have been about 15 years ago okay yeah all right all right so bringing up bringing us all the way to today you know we've gone through the whole process the philosophy is you know underperforming force equity at value-add right you know MC has grown you and Ross together have grown this company huge over a billion dollars in portfolio right yeah so what's next where you that right now wasn't what is what is what is the big opportunity right now for Chemical NMC the good news is is everything that we bought is worth a lot the bad news is if we sell it all then we would come in at the top of the market so so what we've been doing is spending our time working on our management team mm-hmm and all of our systems and our relationships that have gotten us to this point we're selling properties that are you know underperforming for whatever reason like there's there's properties that we bought that maybe we shouldn't have bought or maybe they were included in portfolio sale and they you know we had to take everything so we're selling off about couple hundred million dollars worth of properties right now and then we are taking that profit and equity and we're putting it into a fund and we're getting ready for the next downturn got you got you okay picking up properties on the cheap hopefully yeah yeah so right now we're working all the legal stuff around that we're selling we have all the ten properties in escrow okay we'll sell them all before the end of the year and then we'll take that money which will be just under a hundred million and we'll take that and we'll put it into a fund and then we'll that money will be earmarked for value opportunities again but we have to kind of wait yeah for the next downturn okay so my question now is is you know you mentioned hey sometimes there's a property that maybe we shouldn't buy an underperforming one for whatever reason how do you go about having that conversation with your investors or even right now how do you have that conversation with your investors saying hey we're we're selling a bunch of stuff first of all I think it's incredibly important to be fully transparent I think what happens a lot of times is people wanna say oh look at all look at all the great little shiny things that are going well you know but our philosophy has been to give them both and and that's what that's done is it's built the confidence with our investor group and our employees they feel comfortable standing up there and saying hey I made a mistake or hey we bought the skin correctly or hey whatever you know and so that's an education in itself but and so I think it's unreasonable to think that you're always gonna hit home runs and it's very probable that you know you buy something and it just isn't gonna work out like one example as we bought our property from a bank in San Antonio and you know we bought it it's so cheap and we put a bunch of a couple million bucks into it and the neighborhood is just brutal right it's just you know within a couple years it's just it's a tough tough tough neighborhood tough management and we missed that you know we thought hey we're in we're you know we bought it so well and we're gonna make it look great and hopefully we can attract you know a better tenant or better resident base and the the fact is is it is where it is and and so it's always been a struggle right you know with with just turnover and things like that and so that's just one example another one we bought which was on the Gulf of Mexico in near Galveston and you know we've been hit by two hurricanes right and we hit by got hit by Hurricane Ike and then you know the most recent one and so you know those create insurance issues and you know we're talking about millions and millions of dollars damage and you know so some of them you just like okay and now our insurance costs are so high yeah you know so there's things that you learn as you as you move through and in Oklahoma we've had I don't know six five or six hail storms and you know when I say hail I mean golf ball-sized I know one time it broke 40% of the windows out and punctured all the roofs of our property we had in Oklahoma City and so your you know you you learn these things nothing wrong with property but you know and so there are things that happen that just create extra layer layers of drama you know from you know where it's located or or whatever and and then you start to learn so we're backing out of we backed out of Oklahoma City we're backing out of Tulsa you know we're backing out of Houston and we're gonna redeploy and in other areas and other markets that are really strong right okay one final question for you if there was one thing that Ken macaroni and MC companies could implement today that would have the biggest impact um getting you to the next level I remember a conversation I had with with Robert Kiyosaki and you know a lot of people are looking at you and your level of success and how much you've achieved with with real estate or thinking wow he you know he must be done you know or just coasting or maintain and are just sitting back and enjoying enjoying life and yes you do enjoy life but you have to be absolutely like what Robert said to me so what got me to this level it's not what's going to get me to the next level right and I know you're all about growth and continuing on if you've had to implement one thing today that would have the biggest impact on MC companies and Ken McElroy what would that thing be first let me just comment on what you said I I I think that what happens is in a good way you're kind of ignorant at in your early 20s early 30s - everything that's ahead of you mm-hmm you just are you don't know the major obstacles and walls and failures and things that you're gonna have and they do come and they come hard and some of them hurt and I honestly think that there's a process to that that you have to go through that you just have to start with some kind of momentum you know you just have to do something just do anything you know okay and and so with that you gain experience and knowledge just like you would in anything like you know whether you're playing golf or driving a car or whether you're learning ite or it doesn't really matter like you know every day you learn something new and things come at you and so it's the same and so what happens is you know you fast-forward 15 years that's a or 20 years down the road and you have all this legacy and all this experience and so what Roberts saying is you know and what most people that have been doing what I'm doing at this point in their careers have are saying is now we're not done because we have all this great knowledge up to this point so we're gonna make better decisions for the next correction and so so I would I would encourage the biggest mistake I think people make is that they just don't start they don't do anything they just there's no momentum in there they're sitting there trying to figure it all out before they make one move because they don't want to make a wrong move and I can guarantee you that they will right now they just but they're so hesitant on making any kind of mistakes that they don't make any moves and so so that's what I think he's saying and so my partner Ross and I now it's gotten really fun you know were we're at a point to where we know we're we understand markets better we understand interest rates better we understand what drives markets we understand supply and demand and we understand how to higher acquisition people under you know obviously we understand management but all that stuff together with the team that we have provides us a next greatest opportunity to go in even harder you know and stretch ourselves again right you know even though some people might say oh my god and we are of course we're retired but that would be pretty boring you know and so the next the next the next level might be to grow it to five billion right let's say and and so that's that actually produces a little anxiety with me yeah there's all of a sudden do I really want 1500 employees right right and all those kinds of things and be in all these different markets and you know I'm not afraid of that but to me I just take everything I've learned and just scale it now for the next for the next time all right make sense well as a pleasure talking with you now you guys have a little bit more insight into Ken McElroy how he came to be the success that he is and continues to be and emcee companies as well a couple key takeaways that I got was you know pro-education always learning continuing to learn as far as the philosophy of investing about adding value and that goes for also the relationships that you've built along the way so hopefully you guys have gotten a lot of valuable information out of this head over to Ken McElroy comm subscribe to become a free member got tons of more content for you over there Premium side where 10 goes deep into a lot of these topics so thanks for watching we'll see you next time

Channel: Ken McElroy

Views: 42,138

Rating: 4.9049678 out of 5

Keywords: Rich Dad, Entrepreneurship, Investing, Personal Development, Get Wealthy, Earn Wealth, Ken McElroy, Entrepreneur, Rich Dad Advisor, Success, Business, Self-Help, Coaching, Real Estate, Real Estate Entrepreneur, Real Estate Investing, Freedom, Lifestyle Business, Hustle, Life Lessons, Planning, Changing Careers

Id: Fi2cQBgeSWI

Length: 26min 49sec (1609 seconds)

Published: Mon Sep 24 2018