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GOP Tax Plan’s Impact on Real Estate Investing with Ken McElroy

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In the first part of the show, Gary Pinkerton talks about personal connection and how it’s important to a landlord. He shares that making a human connection with the tenant can do wonders for keeping them long term. In the second part of the show, Jason Hartman continues his conversation with Ken McElroy. They discuss the importance of treating the residents as customers, the two things critical to investment success, and why the American idea of homeownership may be a massive myth.

Announcer 0:04
Welcome to the heroic investing show. As first responders we risk our lives every day our financial security is under attack. Our pensions are in a state of emergency. A single on duty incident can alter or erase our earning potential instantly and forever. We are the heroes of society. We are self reliant, and we need to take care of our own financial future. The heroic investing show is our toolkit of business and investing tactics on our mission to financial freedom.

Gary Pinkerton 0:39
Hello, and welcome to Episode 137 of the heroic investing show. This is a podcast for members of the military veterans, first responders, those police officers, firefighters, and EMTs, and all who have retired from these positions and tough tasks, tough careers, of service to their citizens and to all Americans. Really, this is also for anyone looking to improve their financial future and gain some freedom with their time. We teach America’s heroes and first responders how to build passive income, build their startup business, and safely grow wealth through real estate and other alternative passive investments. We help current and prior first responders, members of the military and retirees put protections and systems in place to enable them to build a life where they can focus on their passion, that service or product that they’re uniquely gifted to share with the rest of us. My name is Gary Pinkerton, and I co host this show with Jason Hartman. This is part two, where Jason is talking with Ken McElroy, a little bit shorter podcast episode today. So I’ll give you a little bit of a break, you can squeeze this one in between two of our longer episodes. But on this one can actually get into the some of the stuff that I pre alluded to, and the beginning of Episode 135. He talks about treating your residence as your customers there, it seems like such an obvious thing. But there are so many people that I’ve met that don’t get that they see their tenants, as really just kind of somebody to take money from and abuse, probably not intentionally. But the way in which they approach these individuals is they’re really not treating them as customers, my longest staying tenants and my decades. So I don’t have the longest history in the world here. But my longest staying tenants, my tenants that paid more frequently that gave me the least problems were tenants that I made a personal connection with, or that my property managers made a personal connection with. Often I think it’s the property manager that doesn’t have the time to spend with the client that doesn’t give them. And I’m not saying have a bleeding heart and give them a break and not actually collect the rents. Again, I have the least problems with tenants that do understand that there’s a human on the other side, it’s not some evil company taking my rent every month. It’s somebody who actually cares. So I’ve had tenants endure pretty amazing stuff. I have one tenant and a single family home that I have in St. Louis, who has endured trees falling on his property on his roof. And, you know, water coming in the upper floor, had a tree fall on that that’s the house of horrible trees fell on and took out the deck and their furniture that was on the deck and one hit their car, this most recent year. They’ve had electrical problems, they had all kinds of tremendous issues at this place. They’ve stuck with me, because they understand that I’m working hard to provide the best service for them. I’ve had other tenants who had minor little water intrusion that did nothing but get the tile on their floor wet. And they left stealing two months worth of rent and never answering their phone and causing tremendous damage. Why? Because I think there was not a personal connection. It really is my my two cents. So Ken gets a lot into that. And he has an award winning company, managing thousands of units, and consistently time after time after time, gets rave reviews from the tenants and his properties. We also talk a little bit in this episode about homeownership, whether it makes sense. Is it really a myth? Or is it an appropriate pursuit for most individuals. But then he gets into this is a great topic. He talks about population growth and migrations and paying attention to actions and decisions made by the different states in the union with respect to jobs with respect to tenancy and landlord ship and you got to pay attention to that stuff. You know, you can have the cheapest, most inexpensive $10 per square foot brand new construction property in the heart of Detroit. But it doesn’t much matter if there’s no one to live in it if every year when it comes new. There’s less people in the next neighborhood, there’s less people in the district in the city and there’s less jobs really does not matter, you’re going to end up with a useless piece of dirt. Worse, you’re going to have a building on a useless piece of dirt that is, is something that’s being squatted in by individuals is actually a hazard. And that’s why the banks went and bulldoze most of these properties brand new or five year old properties, just entire blocks worth of them. Why? Because they were they had no value, because there was no one to live in them. So out migration, as Jason famously says, Is checkmate, you got to pay attention to the area and to the trends is my point, I have properties that some of them are moving upwards and the trend of the neighborhood, some are moving downwards, and those that are moving downwards, we need to take action to get out of those neighborhoods, because there’s just not a lot of option once you’ve got a rough neighborhood, I mean, you’ve lost the value of your property. And if it’s not just about the neighborhood, if it’s the fact that that region has lost a bunch of jobs, and you know, rents are going down, property values are going down and vacancies are going up. You’ve just got to pay enough attention and have a property manager that’s keeping you enough informed to know when it’s time to make some changes. So I think there’s some tremendous advice in this episode, part two, with Jason and Ken McElroy, please join us. And I will be back again, next episode with some new and original content that I think you’ll really appreciate.

Jason Hartman 6:29
the right property, we help counsel people on the management side, and we’ll introduce them to the managers in advance of their purchase and all that good stuff. And then the right tenant screening, you know, maybe offers another property management tip.

Ken McElroy 6:42
Well, I think that what’s in your lease, the lease paperwork, and how tight there’s a bunch of clauses and provisions inside of the lease that I think are very, very important, that have to do with cars have to do with pads have to do with actually occupants. And so those can all be they can be areas of revenue, but they can also be areas of concern. Honestly, things like drug activity, or smoking or non smoking. I mean, we just rolled out our first non smoking property.

Jason Hartman 7:11
That’s awesome. Yeah.

Ken McElroy 7:12
those are rules that can be adhere to, we have huge late fees and SF fees that you have to enforce. And I think what happens a lot of times, is sometimes we’ve seen very weak leases. And so you need to make sure that you know, you’ve got all the best and greatest. And then beyond that, you have to enforce it. So we’re, you know, we’re 50 or we’re $100, late fee plus $50 a day.

Jason Hartman 7:37
Whoa, that is tough, man. I mean, it’s $100. isn’t that bad? It depends on your base rent, first of all, of course, but the hundred dollars isn’t like the end of the world. But 50 bucks a day, can you do that?

Ken McElroy 7:50
You can do it? If it’s in the agreement, they sign it. I don’t want the $50 a day. Let

Jason Hartman 7:54
me You just want that pay. Yeah, right.

Ken McElroy 7:56
I want to collect late fees. Yeah, I’m not in the late fee business, you know, we want a big incentive to people come in and pay their rent, that’s all I want. You know, but there are a surprisingly in cases where, you know, people come in and pay late every single month, it just continues, I just continue to shake my head, but they do it, you know, and basically, it’s another hundred or $200 in rent, you know, but essentially, what’s in your lease is extremely important. You know, there’s a bunch of other things on, you know, on efficiencies too. On maintenance, we have 24 hour turnaround on a maintenance items. And, you know, we have a customer service full time, you know, there’s their, you know,

Jason Hartman 8:36
that falls under tenant retention, and ultimately, hopefully lowering your overall cost of ownership by being a proactive manager and maintenance. Right? Yeah,

Ken McElroy 8:45
that’s the other point I was gonna bring up in the beginning. I, you know, this is a business, you’re running a business period, right. And a lot of people think of it as an investment. And it is, but it’s not a passive investment. It’s an active investment. It’s something that you have to get involved with.

Jason Hartman 9:02
I mean, let me comment on that, folks. newsflash, there is no such thing as a passive investment. If you invest in someone else’s fund, a stock a bond, you better be paying attention to that. It may not be quite as active as your real estate investment. But everything requires attention. You know, I used to think that there was such a thing as passive. I just don’t think if you’re going to be a good investor, I don’t think it exists. If you play the stock market or any sort of investment game, you got to be educated.

Ken McElroy 9:34
It’s so true, you know, you need to actively manage it. I have, as you know, lots of different investments and lots, I have condos, townhouses. I have, obviously a ton of apartments, and they’re all different and people have needs, they move in things break, you got to be responsive. Yeah, you want to keep them there. You don’t wanna have to rewrite the place. You don’t have to put a new carpet, clean the carpet, you know, do the maintenance, do the you know, all the things that are you know, you don’t want the vacancy downtime, and all that. stuff so, so retention, they’re your customer, they’re paying you they’re their money is paying your mortgage, you know, we treat all our, our residents, you know, as if they’re our customer.

Jason Hartman 10:11
Yeah. And I’m so glad you said that because I say that all the time. You know, like real estate investors and property managers like to sort of belittle the tenants, you know, oh, they’re like children, they’re like irresponsible. No, they’re your customer. If you own a store and someone was coming in buying stuff, would you do that to them? Would you talk about them like that? You better not be your customer for too long. So they’re your customer? Yeah,

Ken McElroy 10:34
you’re right. Think about the number they’re paying. Like,

Jason Hartman 10:37
it’s a big number mean, people

Ken McElroy 10:38
are banned. 10 1215 20,000 a year. That’s a lot of money. You know, and and they deserve your respect, and they deserve your time and they deserve the responsibility that you owe them under the terms of the lease to make that place safe. When you do that you’ve created a relationship with your resident, they’re less apt to move.

Jason Hartman 10:58
Yeah, good point. Good point. Okay. Can I hope you bring us some more of these great tips to meet the Masters when you speak there. But let’s switch gears just in the interest of time here. The economy. The rental market has been booming, booming, booming, the real estate market has been booming, booming, booming. There’s some talk about the business cycle. But man, I don’t know. You know, Trump wants to loosen the strings of the money. He’s our first real estate president Do you know love them hate him doesn’t matter. You know, he wants to dismantle Dodd Frank. There’s just a lot of money out there chasing deals. And there’s a lot of people who don’t want to be tied down with homeownership. I think this homeownership thing is a myth. I mean, who says the homeownership rate needs to be high? George Bush, right. You know, I think that’s an old fashioned idea. I think people need to be able to move to where the jobs are moved to where the opportunities are. We as landlords serve those people, I used to always own big beautiful homes. You know, I own several homes up in Newport coast, California is beautiful area most expensive zip codes in the country. And, you know, I’ve been renting for years now. And honestly, I love it. It’s like so carefree. And I own lots of rental properties that other people rent for me. But I personally rent, you know, and I think about buying a house, like every other day, but I don’t know, I’m just not that motivated. Honestly, I’ve got investments. So you know, I’m in the game.

Ken McElroy 12:20
Yeah, you are. I actually agree with you. I think what happened under Bush, and unfortunately, again, I’m not, you know, too political. But, you know, Obama got the brunt of, you know, the all the poor loans and things under the Bush administration, you

Jason Hartman 12:36
know, that really back to Clinton, you know, that was Yeah.

Ken McElroy 12:38
That’s kind of what

Ken McElroy 12:42
what drives homeownership is typically, interest rates and the ability to buy a home cheap, with cheap debt, and almost no downpayment. And that’s kind of what, that’s what pushed it in the early 2000s. And, you know, those are gone right now. And, you know, I’m still kind of cleaning themselves up from that. I think that whenever we’ve seen an issue, you know, because it’s the opposite of renting, obviously, in the height of it, we would deny people we were talking about credit a little while ago, to rent a, let’s say, $1,000 apartment, but then they would go out and buy a house, you know, you know, which basically means that they had really poor credit, and we wouldn’t rent to them, but, you know, somehow, some way they, they were able to buy a home. And so those days are gone. I do however, Jason think they’ll come back again.

Jason Hartman 13:33
Yeah, they’re coming back a little bit. I mean, you know, there’s Millennials are entering the market under buying a bit. So you know, yeah, yeah.

Ken McElroy 13:40
But also the other piece of that, well, you got multiple things happening, you got population growth, obviously, is a big deal and migration where people are going is a big deal. So if you follow where the baby boomers are going, you’re going to have real estate issues there. For example, I think there’s 50,000 people turning 55 every day, I think as a number. No, I’m sorry. It’s 65. Yeah, 50 50,000 people a day, you know, that’s part of that baby boomer generation. You know, they’re moving to hot places, Texas are moving to Arizona. They’re moving to Florida. Yeah, why those states are always you know, number one in growth, right. You know, when people move to an area and they’re retired, it’s not necessarily job growth, but it’s definitely puts pressure on real estate because there’s more demand, there’s more supply of those people for a limited number. And if there’s not a lot of homebuilding, then there’s gonna be you know, there’s pressure in that market. And so that’s what you see. That’s what you’re seeing in Arizona. That’s what you’re seeing, you know, in Florida, and I think as people retire and consider moving from the Midwest or northeast or wherever to where it’s warm and perhaps affordable. That’s one real estate play. The another one though, is jobs. You know, as you start to see these younger folks, their mobile, you know, they’re gonna go to where the jobs are and, and honestly, they don’t require a lot of space. You know, that’s why the new 350 square foot apartments pop.

Jason Hartman 15:10
Yeah, right. I call that the portable society. And you know, I was talking about that on another episode of how, you know, if I wanted to be a minimalist and live in a much smaller space, all my stuff has just gotten smaller my electronics, my stereo system, my TV set, you know, like everything is just much more small and portable. You know, it’s just these devices that matters. You know, that stuff used to take up real space. My stereo speakers used to be giant now they’re tiny. No, matters. Yeah,

Ken McElroy 15:40
I tell you, I just converted my whole house to wireless, you know, everything right? It’s incredible. You don’t even need it components anymore. I know. It’s all cloud based. Absolutely. Okay, good. So

Jason Hartman 15:51
just finish your thought on the other play there the jobs and the younger people? And did you conclude that thought

Ken McElroy 15:57
all I was saying is that that, you know, I don’t blame them. There’s a bunch of kids coming out of college, and they’re looking, you know, where do they What do they want to do? Where do they want to be? And it’s kind of cool, I love it that, you know, they’re moving to Austin, they’re moving to San Francisco, if they can afford it, or they’re, you know,

Jason Hartman 16:12
where they’re moving to Denver, they’re moving to Nashville, they’re moving to, you know, they’re moving to well, they move to Arizona to you know,

Ken McElroy 16:19
they do, and they go there if there’s jobs, you know, so that’s traditionally what they’re doing is they’re moving for work. And I think as long as the city or the state or you know, as progressive from that standpoint, you know, completely different from the baby boomer situation I was talking about earlier, you’re gonna start to see jobs. So so we just did, for example, here in Tempe, Arizona State Farm just did a big relocation and built a big, big campus here, and hired over 2000 people now a lot of them moved from other places as well. But that was a big, big night boost. And those are things that can change little sub markets very, very quickly. And so those are those are very exciting things that I like to see all over the place. And those the overall concept, though, I

Jason Hartman 17:05
think that you’re talking about, you know, we had Meredith Whitney on the show before and, and she wrote a great book, it’s called the state of the states. Okay. And you can you’ll, you’re probably familiar with it. But you know, it talks about how people are basically leaving the liberal states, right, because the taxes are too high, the real estate’s too expensive, they’re crowded, the cost of living is very high, and they’re moving to these more business friendly states, because that’s where the jobs are. That’s where the businesses keep setting up shop. You know,

Ken McElroy 17:33
that’s, yeah, that’s not new, though. You’re right. That’s not new. I mean, I, I lived in Las Vegas, in the 90s. And that was going on, you know, people, companies, we’re moving from California, to Las Vegas and relocating, and so yes, that’s absolutely what will happen. You know, when if an employer is big enough, and they’re deciding they’re located somewhere, for example, they’re

Jason Hartman 17:55
not opening up in in

Ken McElroy 17:57
one of the big factors is, how much are the homes there for my employee, you know, how much am I have to pay him? Because, you know, it’s the wages are different in Phoenix, and they than they are in LA? Yeah,

Jason Hartman 18:08
no question about it. Absolutely. Couldn’t be more true. Okay, well, good, good stuff. Can that’s all all great stuff. Do you want to mention any thoughts before you go on? And, you know, the economy or what to expect or just just anything? I haven’t asked you? You know, to wrap it up?

Ken McElroy 18:22
Sure. Sure. I actually think we’re pretty healthy. I mean, certainly, there’s some areas of real estate that are overpriced, that’s for sure. Yeah. But there’s still so much opportunity in this market. You know, what I mean, I’m in a, I’m doing self storage. I’m doing office buildings, you know, and, you know, we’re doing some, you know, to the ground up construction. And so there’s still a lot to be done, you know, and just keep your eye open and find the right mentor. Coaches for the area. Absolutely good stuff.

Jason Hartman 18:51
can give out your website,

Ken McElroy 18:53
MC companies, so www.mc companies.com that’s my company. And then my personal one is Ken mcelroy.com. www. Ken mcelroy.com.

Jason Hartman 19:05
Fantastic. Well, Ken, I will look forward to seeing you in just about a little less than a month now at meet the masters of income property. We can’t wait to have you speak there. Thank you again for coming back on the show and sharing your wisdom with our listeners. We really appreciate it.

Ken McElroy 19:19
Anytime, Jason. Anytime.

Jason Hartman 19:23
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