Today’s guest is Ken McElroy, who talks about finding deals and how to evaluate them. Jason Hartman and Ken also discuss the changes in the past decade and which businesses will be left standing when the dust has settled. They also address the shortage in the housing supply due to the low interest rates, which affect home purchases.
Announcer 0:01
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:11
Welcome to the holistic survival show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper? The holistic survival show is your family’s insurance for a better life. Jason will teach you to think independently to understand threats and how to create the ultimate action plan. sudden change or worst case scenario, you’ll be ready. Welcome to holistic survival, your key resource for protecting the people, places and profits you care about in uncertain times. Ladies and gentlemen, your host, Jason Hartman.
Jason Hartman 1:00
Hey, it’s my pleasure to welcome Ken McElroy back to the show. He’s a man who doesn’t even need an introduction. He’s so well known in real estate circles. He’s written several of the books in the rich dad advisor series. You hear him with Robert Kiyosaki from time to time doing his thing, and just a great educator, great friend. He’s spoken at a couple of our events, and been on the show many times before, and owns like 832 million apartment units, or at least the numbers somewhat close to that, but not exact number. Ken, welcome back, how you doing?
Ken McElroy 1:36
Hi Jason. What’s going on, man? It’s great to be back on your show.
Jason Hartman 1:39
Hey, it’s it’s good to talk to you again. It’s always good to talk to you. And man, the world feels like it’s in chaos, doesn’t it? Doesn’t it?
Ken McElroy 1:49
It is. That’s why it feels that way.
Jason Hartman 1:53
You know, you can either laugh or cry about some of this stuff. So let’s try and laugh about it. But you know, it’s all changing so fast. We don’t want to make this two times specific. And you know, one of the things I’m always telling my listeners and viewers and followers, is to just get a context and understand how much life has changed in the past 10 20 30 40 years, not even that many years. Just watch old movies, watch old TV shows. And you know, one that comes to mind that I like is Columbo, that old detective show remember Columbo. He was a funny guy Columbo and really smart. But you know, what’s interesting about that is when we talk about how this wealth gap is increasing, you know, you look around, and when there be like a rich person, that Colombo would be involved, you know, would be a suspect involved in a crime. And he would go to their house, their mansion, in the 70s was nothing like a mansion is today, right? And you can just tell how much wealthier the wealthy are becoming, they’re becoming mega mega oligarchical wealthy. And we were talking about these tech companies and so forth. What do you think about this? Is it a problem? And if so, can we do anything about it?
Ken McElroy 3:15
I think it is, you know, like you and I, I’ve traveled all over the world. I know you have. And so I know a lot of you probably your listeners have. And when you go to places, outside of the United States, there’s a massive divide between the rich and the poor. It’s super clear there. I think the us up to this point, is that a pretty good job of trying to maintain a middle class, but boy, that’s changing quickly. Now, that’s for sure. And, you know, I would I would expect based on, you know, not following any political lines here. But I would expect that the tech companies are going to be I said this the other day to a friend of mine, that you will probably get to see those get broken up, you know, just like they did Rockefeller Standard Oil back in the day, you know, at&t more recently. So, I would imagine that you’ll start to see that, you know, legislation around that. And, in fact, I’ve seen some Democrats talk about that recently. You know, I think all those things will probably will, we’ll see in the next 10 years and since gonna continue Yeah, we’ll see whether it’s Democrat or Republican. I said I, you know, I was buying apartments and real estate all through all this stuff. You know, who really hurt my business was was bush when he’s, you know, made of housing, cheap. And you know, and everybody went out and started buying it, or I shouldn’t say cheap. I was, you know, he and he said, Everyone should own a home for doing that. And so homeownership went way up, which is completely fine. Right? I disagree with that philosophy. But then Obama kind of had the, you know, he had the effects of that bust, you know, busted. So, you know, and Clinton Clinton rolled out some great policies around, you know, people that needed money. And that’s, you know, socially. So it is what it is.
Jason Hartman 5:13
Yeah, I think the lesson there is, and I’m so glad you said that can because the lesson is that you can make money in any environment, if you just adjust your strategy accordingly, right. And income property really is such a flexible asset class, where you can adjust to how you’re playing the game, right? So that’s really good. But the other little nugget that I want to make sure people realize, and what you just said, is that most people think that you want to have this booming housing market to make money. But that’s actually wrong. If you’re a landlord, and you depend on rental income, it’s better if there’s a higher renter population than a homeowner population. And you just said that,
Ken McElroy 5:59
Yeah, no, that happened. I specifically remember homeownership. That was right around 62%. And with Bush, it went all the way up to like 68 or 69%. Again, not a big deal. And then from there, it popped, and then it went all the way back down. And then so now it’s kind of gone, gone all the way back up. So and at the time, there was a metric, it was like for every 1% with a million people, right?
Jason Hartman 6:26
That’s the metric. It’s a million. It’s a million new renters, for every 1% decline in the homeownership rate. So under Bush, it got up to like 69%, or some ridiculous number like that, which is, is you know, it’s people in real estate, think this is like sacrilege when I say this, Kim, but I think the homeownership rate is too high. I think the natural homeownership rate even with Fannie Mae and Freddie Mac, but not overt stimulus is about 50 to 55%. That’s what it should be.
Ken McElroy 7:03
If you look around the world, it’s low. You know, when you go to Europe, or you know, anywhere in Australia or Asia, it’s low, it’s a lot lower. And so there is a there is a there’s a point where there’s, you know, there’s a there’s a rental piece there and what influences it is policy. And, you know, Bush was a Republican, so he was like everybody in his own house, which again, totally fine, but then you’re like, Okay, well, what they’re doing is we have renters moving out, buy houses, and that’s what created that bubble. And then that popped, and then, you know, Obama had to kind of clean up that, and, you know, and then once that guy got cleaned up, that was the run, we just have, you know, no one was building apartments during that time. No one’s building new housing during that time, because, because the everything was, you know, massively disrupted. And so that’s the run we just got done with it was longer than everybody thought it was gonna be, but it was regardless, it pop as you know, in 07 08. And this, this has been a 12 13 year run that we just had,
Jason Hartman 8:07
Yeah, it has now, you know, as Trump came in, in 2016 17, everybody was kind of talking back then about how, you know, it’s the end of the business cycle, this thing is long in the tooth, this recovery, you know, and my, I kind of postulated at the time that look, we were coming off such a low that the cycle really didn’t start until about 2012. It didn’t, it didn’t start in 2008 and some more kind of saying, right? So
Ken McElroy 8:39
No way.
Jason Hartman 8:40
Go ahead.
Ken McElroy 8:41
No, I was buying stuff in 08 09 and 10. And I was buying it for 50 cents on the dollar 40 you know, and we were buying stuff from banks at that price. And so that, you know, banks are trying to get all this toxic debt on their balance sheet right time. It did, it did not start to accelerate, I really did not start to really accelerate until 12 1314 I actually, I actually thought we were going to peak out around 2016 I was way off. I wasn’t
Jason Hartman 9:13
At least you admit it.
Ken McElroy 9:15
I was I really cuz I was like oh my gosh, like prices are really heating up here. But then they started using these monetary policies and driving rates down, which is what kept me going so so we we actually we really loved we actually hit kind of a ceiling on values in real estate in them, you know, called the mid 2015 2016. And then the cost of debt went way down and then it pushed it up because your cash flow and maybe your rates in the four and a half and your 2015 values. Well if the rate goes to three and a half then your value goes up because your capital is the same so that’s what counts. You know this next piece that next run we have was mana, you know from Larger policy of keeping those rates low.
Jason Hartman 10:02
Right, right. And give us some some of your thoughts on, you know, how you how you find deal flow, and your average deal size. By the way, it’s, it’s pretty big. So talk to us a little bit about, you know, how you find deals and how you evaluate them. And in an average deal size even before that,
Ken McElroy 10:24
So I just actually had this conversation, our, you know, our deals 10 years ago, we’re call it 15 20 million dollars. Now, they’re 35 or 50 million dollars. And that’s because the prices have gone up so much. The interesting thing is, that’s gone down, rents have gone up. So oddly enough, they still make sense. So but the the amount of money that you have to have the equity down and the debt you have to have is a lot more so you before we were raising, you know, college 789 10 million per deal. Now, you know, we’re 20 per deal, literally, our equities doubled. And, and which is okay, but it’s just an interesting note that you that needs to be discussed. So, deals are tough to find, right? Now we can for multiple reasons, once your people are moving all over the place, you know, maybe they their their jobs and decided that they can, they can do that from somewhere else, and they can work from home, that’s one way, or maybe that job is completely gone. Or maybe their taxes are really high. And you know, and maybe they’re just moving 20 3040 miles away, and they’re commuting in or whatever it is. So things are moving quickly right now. And and so the big mystery is, you know, where when all this settles, you know, what businesses are going to still be open to be close. And and what employers are gonna allow people to work remotely or you know, maybe part time remotely, all that stuff is still a mystery. And there’s a lot of big names that have said, never come back, you know, it’s all gonna be remote. So it’s gonna completely change the landscape for office buildings, and all that kind of stuff, downtown restaurants and coffee shops, and you know, all those kinds of places. So all that’s changing. And that’s only to say, we’re trying to figure out where the concentration of people are going to be, so that we can get by there. And so my, my acquisition guys, they’re flying to these different markets right now. And taking a look at some of the stress points around that. And typically, those show up pretty pretty easily. You know, when you when you have a property, let’s say thats 98 99% with a waiting list, you know, that dozens of suppliers know that
Jason Hartman 12:46
Supply is weak, right?
Ken McElroy 12:48
Yeah, that’s right. Yeah, supply is weak, and demand is strong. So and, and then you might particularly have growth there. And then you got to look at Do you really want to buy more there? Do you want to build more there? So we’re looking in, throughout most of the markets in Texas, trying to be careful of Austin, we’re already there. We’re already in Houston. We’re already in
Jason Hartman 13:09
What Why do you say be careful of Austin?
Ken McElroy 13:12
Well, because the markets
Jason Hartman 13:14
too expensive?
Ken McElroy 13:15
very, very high. Yeah, right. So but, but also, there’s a lot of employers going there, and a lot of people moving there. So it doesn’t necessarily mean it’s at the top. But you do what you know, we don’t stop there 10 years ago, and so for us, it’s doubled. And so you have to take a look at you know, rents have not doubled, I can tell you that. So you know all those things kind of play into that. But basically it’s boots on the ground, what’s happening and it can be sub market, the sub market, so you can go even Vieques is where I live now, we have areas that are going like this crazy good, we have areas that are not kind of based on what’s happening with employers in the area, I’ll give you an example. I was on a call yesterday with all my regional property managers. And we went through basically with them. By our call, we were we wrote every single budget on every single property, you know, the 2021 budgets. And that’s also when I find out a lot of stuff, because I’m on the phone with my managers. And you know, like in Flagstaff, one of the big employers is about range shutdown. So small market, I own property there, you know, those are those are things they’re starting to show up. And so you got to kind of be careful of that, because when you have an employer in an area that is not doing well, or potentially maybe closing down, maybe not the company, but just an area or region, a distribution center or whatever it is, as as as he tried to figure out a way to save money, those those are real estate issues. And you know, they they stopped buying groceries, they stopped buying houses and stuff. Those are and they move and so that those are all All the things that we’re trying to figure out right now, Jason, it is hard. I mean, everybody’s doing the same thing we’re bidding us on did not a property right now. Actually, it’s due in a week. And it’s about $56 million deal. There’s 45 groups
Jason Hartman 15:19
that are bidding on it?
Ken McElroy 15:21
Yes.
Jason Hartman 15:22
So while these numbers, your deals are so big, everybody probably says, I can’t wait to be in the big leagues. I can. That’s awesome. But But there, you’re competing against 44 or 45. Other buyers?
Ken McElroy 15:37
Yes. It’s going to be interesting. So but that’s, I’m used to that. That’s the way it is. And it’s very, very common for us to have I mean, when you know, the the data and the information, and the groups out there syndicating money and the groups out there with funds and family offices and private equity and all that stuff, or has never been stronger. Especially because think about this. If you let’s say you are in retail, and I know you’re not in retail, but let’s say you work
Jason Hartman 16:06
Retail properties you mean
Ken McElroy 16:07
Yeah, you’re not gonna do that. So you’re gonna go, Okay, I’m gonna do industrial or multifamily. So, okay, so that’s what happens in the commercial arena, because money is money, that
Jason Hartman 16:21
So the money is just flowing from one asset class to the other.
Ken McElroy 16:25
So when everything’s going well, when retail is going well, and malls are going well stays there. Yeah, it kind of stays where it is. It’s less competition. But when a whole sector like retail or malls, as you know, or hospitality or
Jason Hartman 16:39
In an office,
Ken McElroy 16:40
yeah, office. Yeah, there, you know, it. What it does is it moves on to other things. And, and that’s what’s happening now,
Jason Hartman 16:48
But can so there’s certainly this move from retail and office type properties to housing. And I’ve always loved housing, I would say housing, housing, housing, you know, and you like housing too, obviously. And that’s great. But just in general, you know, I was talking with one of our clients today, and you know, they want to buy some more single family houses, which is our thing. And, you know, they were saying, gosh, it seems like everything is just so expensive right now, you know, real estate, Bitcoin, the stock market is just like every asset is just pumped, pumped, pumped in, you know, I said to him, I said, Look, you’ve got to just realize that the world, there’s just so much money sloshing around out there. It is absolutely amazing. And I think one of the reasons is that’s maybe not that undiscussed that often, is that nobody can earn yield. In the more traditional things like a savings account a CD, you can’t do it in bonds. So it is all come in to other assets, like real estate, and certainly the stock market and crypto. You know, all this money is just looking for a place for yield. It’s, you know, as the saying goes, it’s Seeking Alpha. Right. So what do you say to that?
Ken McElroy 18:10
Great timing on this one, because I actually called Kiyosaki the other day, you know, we talk almost every day, and he goes, he takes a call, and he’s like, hey, let me call you back. Go, I go, okay. He’s like, I’m on the phone with a financial planner. Okay, that’s something I never thought he would hear from Robert ever.
Jason Hartman 18:28
Oh, that is surprising, right? Because, in other words, because he’s, he’s not a stock market guys that way, right?
Ken McElroy 18:35
I was laughing. So going back like 20 minutes later, and he’s I go, dude, I thought I would never hear that from you ever. I’m on the phone with a financial planner. But while he was and there was a cool conversation, the guy basically said, we have a problem we have, I have 1000s of clients that are sitting on millions of dollars each, in some cases, 1,000,002 345 million, whatever, and networks, and they would work in their whole lives. And they’re making a pretty good salary. And their issue is the if they stop making the salary, that money isn’t making money. Go so now we’re looking at whatever they’ve saved, and they’re trying to figure out a way to get cash flow, because, you know, they have a burn rate, they have a living expenses, and let’s say they’re gonna say 50,000 a year that they need that comes out of their principal. So the issue was the guy was talking to him about, you know, what do you suggest, Robert, because my clients are looking for some kind of cash flow, and something that isn’t meant necessarily in a bubble. And so it was a interesting perspective, because the I think the guy very wisely was asking the question for on behalf of his clients, because how do you replace you know, 200,000 or 100 $1,000 a year job that’s paying your monthly burn rate. And you’re right, you’re used to putting that money away in savings, and then it’s gone. And now you’re living off of savings or living up the earnings from that savings. And so that was the issue. And I think that’s happening happening right now. Even more. So.
Jason Hartman 20:19
Yeah, I think you’re right in in, you know, money’s just looking for a place to go. You know, it’s interesting, too, because years ago, back in 2004, when I started teaching my creating wealth seminar, I found this article. And it was it was actually a report by Michael Milken, everybody knows his name. And Jeremy Siegel, another name that’s pretty well known in financial circles. And it was so fascinating, Ken, because Jeremy Siegel in there, I used to quote him all the time, because he was talking about globalization and how it’s lifted, you know, 300 million people out of poverty. And there’s this like, rising middle class around the world. And, sadly, the middle class is diminishing in America, but it’s definitely rising around the world, right, China and India and so forth. And, and he says, with all of these people, suddenly coming into the investor class, he didn’t say it exactly this way. I’m paraphrasing. But you know, that this was the gist of it, with all of these people now coming into, like, middle class life, and then people above them getting truly wealthy, I mean, Chinese people, Indian people, and and others. You know, there’s, there’s a looming asset shortage, he says, Where are all the assets for these people to buy? Like, you know, and I think we’re seeing that now. And, you know, this, this was a report from almost 20 years ago. And now we’ve seen more globalization, more people lifted out of poverty. And we see there is really an asset shortage. I mean, look, you’re, you’re bidding on an apartment complex, and you got 45 other institutional buyers against you in this deal, right?
Ken McElroy 22:07
That’s true. Yeah, it’s absolutely true. And part of that is because there people believe in, in the, in the short and long term, rental space, you know, as as, as, as as economy continues to unravel, and employment, you know, shows it’s, you know, shows the card, that, and then the businesses Finally, settle out, and everybody everything’s figured out, more people should roll into rentals, and as a result of the forbearance and, and the mortgage defaults, and all the things along that line, whether it’s a commercial investor, or whether it’s a business investor, or whether it’s a single family home owner, it doesn’t really matter, you know, you’re gonna start to see, I think you’re gonna see a lot of pressure, positive pressure on the rental market.
Jason Hartman 23:03
In other words, a lot more rental demand, as people move out of the ownership market, you mean like a declining homeownership rate, right?
Ken McElroy 23:11
It happened before it’s happened a ton of times, and we can look at this, you know, look, just look at Oh, eight, that’s actually what happened now is a little different. Of course, if home values went down, and you know, they, they were below what they owed. And so this is a little different, where people owe, you know, they have pretty good equity in there. But they still owe money. And they may or may not have worked. And so I think, as I keep telling you, that I believe that there’s we’re gonna see a lot of listings next year or this year now, I guess. And then we’re gonna see in inventory as people try to clean up some of that whatever it is, that money that they owe, you know, because we have a debt issue. That’s the issue. everywhere it’s a if you own a hotel, it’s a debt issue. If you own a home, it’s a debt issue. If you own student loan, it’s a debt issue. If you own credit cards, it’s a debt issue. It’s all around debt. So and when the money dries up if you own a hotel and occupancy is down there’s no money
Jason Hartman 24:10
at issue. Hotels, hotels have been suffering like crazy I mean, that’s we didn’t mention hospitality too much before we said retail and office. But hospitality is terrible. That’s in the tank, right?
Ken McElroy 24:22
It’s in trouble. Yeah, I get these things called the trap report. Tr e pp. You check it out. It’s all about you know, dad and mortgage, commercial mortgage defaults by sector. And and, you know, the hotel industry is in big trouble. I mean, I was looking at, I think, well, Miami, Chicago, New York. You were talking about all 50 60 70% in the fall.
Jason Hartman 24:48
It Wow. That’s, that’s just incredible. And okay, so there’s a couple things we got to unpack from what you just said. And since we’re on this one now, and I want to go back in a moment to something you said before, but since we’re on this one I’ve been talking just a little bit not enough about the cmbs market commercial mortgage backed securities. And I think this is one of the next big dominoes to kind of fall, because the residential mortgage backed securities are pretty good. I mean, there’s some forbearance in the system. I don’t think it’s anything big, but you might disagree with me. So feel free to comment on that. There. It’s definitely out there. There are certainly some people struggling, no question about it. But the commercial mortgage backed security market, I mean, there’s a lot of defaults going on in retail office and hospitality type of properties. You know, they have bondholders, they have investors behind that, oh, you know, what happens with that domino effect?
Ken McElroy 25:47
Well, you’re right on my I’ve been talking about cmbs a bit. And, you know, and oh, wait, it was the single family residential kind of bust. And not that there weren’t some commercial too. But that was kind of the focus, that movie, the big, short, all of that. So people that don’t know, when you get a mortgage, that it gets packaged up with a bunch of mortgages and sold off into the secondary market. And cmbs is the same thing. It’s commercial mortgage backed securities. And so they’re all packed into, you know, these these bigger, you know, with these bigger investors, and they’re in people’s portfolios, for sure. So, it’s going to be interesting to see, you know, which ones do default, it’s definitely going to make its way and these these investors are, I think you’re going to see big, big disruption in this area.
Jason Hartman 26:47
And so what does that mean? I mean, these bondholders, you know, though the, the property owner defaults on their office building, or their shopping center, or their hotel, then the bondholders don’t get paid? And who are those bondholders? Are they, you know, the Harvard endowment or they pension plans, insurance companies, all of the above? And what happens there?
Ken McElroy 27:12
They’re all of those people. Yes. And so for people who don’t know, like, like, when I when I’m going out to buy, let’s say, 100 or $200 million, with the commercial real estate, and in the multifamily space, I’m going to those groups, you know, might be from Goldman Sachs, it might be through Blackstone, it might be through, you know, a couple other different groups. But those those folks are managing massive amounts of money. And they’re looking for guys like us, that are that complacent for them. That’s how the system works. So so the Harvard endowment as an example, or CalPERS, the California
Jason Hartman 27:53
retirement retirement fund,
Ken McElroy 27:54
yeah, all those are, those are just, that’s just managed money. That’s real money from real people. And then those money managers go out and look for guys like us. You know, they say, we like Phoenix multifamily, we’re gonna, we’re gonna go and talk to Canada and see because you know, they have a pipeline, I actually have a call on this tomorrow. And so that’s how the system works. And then what happens is, wherever that money went, if it went into a self storage, or an office building, or retail, or even a regional mall, and now that’s the kind of money that bought those things, that as they default, as, as the, you know, the people and let’s say, of people inside of a mall, campaigning more Well, the owner of that mall can pay. And all of a sudden, it’s just a trickle effect that makes it all the way down into that portfolio. Whoever lent that money from beginning.
Jason Hartman 28:51
So connected to that is the looming fear, and I think this is going to be big, and I don’t think enough people are talking about it. Not even close. But there is a not a US problem, not a state problem, but it’s a global pension crisis. You know, we have, I don’t know, maybe a couple billion people like it’s a big number, okay, who are sort of kicking back thinking, you know, I’m 45 years old and 20 years, I’m going to retire and have my pension. And I think they are going to be they’re in for a rude awakening is sadly,
Ken McElroy 29:28
I’m telling you. It’s a really good point, Jason. Robert Kiyosaki just wrote a book. It’s called, who stole my pension. And he, I was looking for it on my bookshelf here with a guy that does whistleblowing for pensions. And you’re right, people are sitting there. Again, it’s the same system guys. Like if you’re working your butt off somewhere, and you’re handing your money over, it’s going somewhere and somebody is managing, and so it’s either there or isn’t there and you need to know No, this is the whole point of financial education. This is why we teach it because I think a lot of people, even my, my, in my own family, work their butts off, and then they turn their money over into these pensions, and then they get managed. But they also those pensions, I’m not saying some of them are corrupt, I’m sure, you know, there’s been fraud and all that kind of stuff around it. But that’s not what I’m talking about. What I’m talking about is where they’re investing is important. So if, if, if, if they’re primarily in retail opposite malls, it’s going to be a problem. Right? Or or in in something else that speculative, for example, so those money managers are making big decisions with other people’s money, OPM, and you know, all these folks that are they’re contributing into their paycheck. So this this pension, these pension, then we have our Well, we’ve already seen it, I mean, all you can google this lost pensions, and, you know, you’ll see, there’s been a ton of mismanagement and a ton of people have retired after all these years, and those pensions are gone, or not even close to what they thought,
Jason Hartman 31:08
Yeah, who else it’s, it’s, that’s, that’s gonna be a tough one. And the government’s pretty much everywhere are broke. So, you know, they they might pay the, you know, some sort of social security or whatever it’s called in their country, but it’s going to be in dollars that are worth less than people expect, I think.
Ken McElroy 31:29
I actually think that’s gonna be the one of the things that happens in the next 10 years based in let you know, as you pack this stuff together, guys, the revenue from the cities, or the states as an example, come from the taxpayers, right. And so as they move around, and as they mismanaged or expenses go up, now we’ve seen it, we’ve seen cities file bankruptcies, right. Well, bankruptcy, we’ve seen it. I remember, back in the day, there was, you know, some some cities around Detroit, some cities in Connecticut,
Jason Hartman 32:01
in California like Vallejo, California, I think, yeah.
Ken McElroy 32:04
So I think that’s the next thing we’re gonna see. We have to. I mean, as people move out of those areas, and and they stop paying things, what else is going to happen? It’s, it’s simple math,
Jason Hartman 32:19
The the sales tax revenue in these urban areas is just going to completely dry up. I mean, we had a whole summer and fall of riots in downtown everywhere. Okay, basically, almost in, you know, in every major city, you know, whether it be in Minneapolis, or Philadelphia, or Portland or Seattle, you know, broken windows are some, you know, attacks on police officers, basically riots, right. And the, you know, insurance companies are not going to write insurance for businesses to reopen in those cities. And not that the businesses would even want to in the first place, but assume they did, they’re not gonna be able to get an insurance policy or it’s gonna be so expensive, right?
Ken McElroy 33:06
Well, right, right. So So yeah, let’s just pick on a city like San Francisco. Okay, so you have all these people in these high rises that are now full, let you know, pick a pick a company, Salesforce, Twitter doesn’t really matter. They’re not they’re not coming to work. Okay. So they’re pouring out pouring out of the elevators. They’re not pouring into the coffee shops, they’re not born into the pubs after work, they’re not getting dinner afterwards. They’re not buying breakfast, or lunch during the day. Or they’re not taking their dry cleaning, and all that stuff’s gonna happen. Okay, so we all know this. But what does that really mean? What that means is that you said those people are spending money somewhere else. And and so that city, as an example, relies heavily on the property tax and sales tax, and, you know, parking fees, and all the stuff, you’re all our rolls up. And and so that I really believe that we’re going to start to see some serious issues in some of these municipalities.
Jason Hartman 34:07
Yeah, I think so too. So, you know, with all of this talk, I mean, what do people do about it? What’s the plan?
Ken McElroy 34:15
We’ve seen this before? So not maybe not in San Francisco, you know, we’ve never seen negative migration out of California, and was for as long as I can remember. But it’s happening. And so I think you have to wait and let it fall out. So for me, you know, I think California is still awesome. I don’t know, you know, and, you know, we saw it in New York back in the early days when, before Giuliani went in and kind of cleaned things up and made things more tax friendly. And there was a time when I was younger, where you would you’d want to go to New York because it was dangerous as an example. And that’s all
Jason Hartman 34:48
It’s dangerous again. The murder rate has skyrocketed in New York.
Ken McElroy 34:52
Dangerous again, Chicago was already that way. So you know, so what happens is, you know, the people They go, where they want to go based on the safety and all that kind of stuff. So that’s gonna make its way. And then what happens is, that will be a slow, you know, Death of 1000 cut type thing. And then you know, then guys like you and I will go in there and we’ll start stamping up stuff again. And then the policies will change. And then, you know, so you want to wait for that to kind of work itself out. That’s how real estate is.
Jason Hartman 35:25
And it but it. Ken, I gotta tell you, I think that is a very long cycle.
Ken McElroy 35:31
I don’t disagree with you. I think there’s a lot of permanent change. For sure. But, but hey, I wouldn’t mind I wouldn’t mind getting a penthouse in New York or maybe San Diego or fly out to Iran
Jason Hartman 35:46
If it returns to its former glory or close to it. I agree with you. Yes. Yeah.
Ken McElroy 35:53
Yeah. So anyway, I don’t know. But I do think that the way I look at it is you got to let the tide go back out. And that’s just the beginning.
Jason Hartman 36:03
Yeah, yeah. No, it is just the beginning in terms of that. So talking about the market in general, you know, you made some videos. And look, I’ll all say it, if you don’t have to say it. When you make a video or you do some marketing, just like any media sensationalism gets attention, right. So, you know, you made some pretty sensational videos for being such a sort of understated guy, you know, about market crashes and the end of the world. You know, what do you think now, I mean, during, you know, that, like, the thick of the plan demick I intentionally called it pandemic, okay. By the way, you were making some pretty ominous videos and, and people will watch your stuff. And then they’d watch my stuff. And they constantly heard this. I heard it all the time. But Ken McElroy says the markets going to hell.
Ken McElroy 36:58
Yeah. Okay, so you’re right, what I was trying to do is unpack what was happening at the time. So that the prediction video that I did, it did not have a the cares act issue. We didn’t that wasn’t even a thing. So that was kind of pre that. And so what happened was after that video, and Okay, cannabic people, you know, we’re gonna forbear mortgages, and then they kicked down the road. And so I still do believe, Jason, that we, you know, this is all being propped up right now, by the Fed primarily. So I think it’s just prolonged, because
Jason Hartman 37:37
They always kick the can down the road, there’s no question. The problem is, is that, you know, it’s like the question of when will the Bubble Pop? Well, you know, the bubble, you know, it, maybe it should have popped eight years ago, but they can blow it up for nobody knows how long they can keep blowing it up. Right? Or, or how long they can kick the can down the road?
Ken McElroy 37:58
Yeah, the mistake I made, was not thinking that the Fed was going to command at, you know, the trillions of dollars that it has, I didn’t think we were going to go to 7 trillion.
Jason Hartman 38:11
You didn’t. You mean, Ken, you didn’t think we would we would print 25 or 30 or 35% of all the money printed in the last 100 years in one year.
Ken McElroy 38:22
That one, I miss. Imagine that one. You know, they’re gonna do it again, cuz we’re not out of this. Oh, no. propped up right now. And people need the money. I’m kidding. I don’t dispute that they do. Business is needed that people need it. And nobody wants to evict anybody. And nobody wants to lose anything. But people are right now. I think they’re running out of savings. They’re running out of reserves. Doesn’t matter if you’re a homeowner or business owner. Both are happening. I’m seeing it all over the place. And so I mean, just there’s, there’s a lot of big companies have filed bankruptcy. Oh, yeah. A lot of big names, you know, hurt Macy’s. I mean, think about these companies, Neiman Marcus, companies that have been around for a whole lifetime.
Jason Hartman 39:14
But going back to like creative destruction, my favorite economist, Joseph Schumpeter, I mean, those companies had to go anyway. Right. You know, they were, I mean, come on Macy’s, and needless markup. I know. They should have gone out 20 years ago, they were way past their time. This is the problem. You know, folks, like in can comment on this, you know, but like, you notice all these sort of zombie businesses right there. They’re just these companies that were really big A long time ago, and they have so much cash and sort of this momentum that kind of keeps them around for decades longer than they really should be around. Right. And
Ken McElroy 39:54
we saw with Sears and Kmart. So I agree with you on the department store stuff and direct to consumer stuff. There are other big companies that are also, you know, apparel brands, restaurant chains like California Pizza Kitchen and you know in hertz and of course as well Park Place and so, you know, I just think I think you’re gonna start to see more and more and more than Jason specially we’re not out of the woods yet
Jason Hartman 40:20
Oh no, I agree with you there’s more to come no question and who knows how long they’re gonna keep parts of the economy locked up, you know and if you put on your tinfoil hat, some would say this is completely intentional to destroy, you know, the middle class. A lot of these, you know, small business people are Trump supporters. So you know, and if you look at it like that it’s the democrat jurisdictions where the biggest lockdowns are and and then the republican ones are open like I’m in Florida. It’s like people say, what’s it like there? And what’s like the say it’s just normal. That’s the only thing is you got to wear a mask in the grocery store. That’s the only part of my life that’s different. That’s it. You know, in Florida,
Ken McElroy 41:00
Same thing in Arizona. Yeah, even though we turned blue. You know, that is we were basically ready for that. But I agree. I don’t know. You know, I’m not as much as a conspiracy guy. And
Jason Hartman 41:13
If we were talking to Kiyosaki, he would be would say that.
Ken McElroy 41:16
Oh, Robert, for sure. But I think it’s just it is what it is, you know, the I think things are gonna unravel, I still believe there’s going to be a crash. Jason, I just think it’s being propped up with money, which is going to create inflation. And I think that’s why the run governor run on Bitcoin because I talked to George Gavin, the other day, we had him on my show. And, you know, he said, and Anthem Blanchard too, you know,
Jason Hartman 41:44
Oh, I know Anthem. I didn’t know, you know him What a small world
Ken McElroy 41:47
Anthem. Yeah. I said, Why? He said, people are there, they’re just concerned about their own savings.
Jason Hartman 41:54
Yeah, absolutely. And they want sound money, they want to know that they can keep something, and it’s going to be worth something in the future. But who knows? If that’s gonna be Bitcoin, because Bitcoin is like a roller coaster. absolutely crazy. Can I got a theory I want to run by you. And you know, we’ll wrap it up, I guess. But But check out this theory. Okay, so you’re talking about how, you know, there’s more to come. And I do agree with you on that, there’s definitely gonna be certain parts of the economy there being for, you know, there’s a lot more pain to come. So we got to prepare for that. But when we think about this theory, we’ve got 10s of millions of people that are either refinancing or purchasing homes with literally the lowest interest rates in and you know, George talks about this 5000 years, they actually have statistics back to ancient Egypt on interest rates, if people can believe that. But forget about 5000 years, certainly, they’re the lowest interest rates in 100 years, or in, you know, since the 70s, or whatever you want, right? They’re low. I mean, mortgages are insanely cheap, arguably, negative interest rates, in real terms, you’re getting paid to borrow the money. Okay? So you got all these people that have these killer mortgages, and the mortgage is not movable. So what I think is going to happen, you know, three years, five years, 710 years from now, is we’re going to have this constraint on housing supply, because nobody’s going to let go of their houses, they’re either going to number one, they’re going to add on, they’re going to do in addition, they’re going to do you know, they’re going to do improvements, they’re going to do new landscaping, they’re going to fix up their house and keep it in stay, or they’re going to keep it as a rental. But they’re not going to let go that mortgage, because it’s such a good deal. And I think that’s going to really constrain housing supply in the future. And I think that’s going to have this effect of keeping prices elevated. What do you think?
Ken McElroy 44:00
I actually agree with you, I think that I know that that is a reason that a lot of people will not make a decision to buy somewhere else would be obviously higher interest rates. And I think that’s where you’re kind of heading with that. And because they’re at all time lows, and that’s always good. Whenever rates go up, or you know, maybe their payment is going to go up because of the rising price of a home as an example somewhere else, then that’s a constraint and a big decision. If somebody if somebody’s going to move somewhere and their mortgage is going to be $1,000 more then they’ll they very well may could decide to stay one that that where they are
Jason Hartman 44:44
Yeah or or keep it as a rental. And you know how I thought of that because low interest rates pervert the market, they distort it. And it’s just like rent control. I’ve got this guy that works for us. He’s been with us for several years, and he and his wife have a rent can For old place in San Francisco, and they got in there in like 1997. And can, they’ve got such a great deal, they cannot move, they want to move. They don’t like their place anymore. They’d like to move, but there is no way they can give that deal up that rent controlled place. They’re paying 20 $400 a month, for a place that’s worth like 2 million bucks. And the same will happen with these super cheap mortgages. People just won’t want to give them up. It’s like a rent controlled apartment, you know?
Ken McElroy 45:32
Yeah. It’s, it’s the same concept. So yeah, you’re absolutely right now we’ll definitely make some people stay. There will be interest rates at you know, drive consumer spending all over the place that you whether it’s a home mortgage, or a car or, you know, something, something that they finance, you know, like a TV or something that they buy. So, interest rates are something to watch, and I think that if they go up, it does tend to keep people in place.
Jason Hartman 46:02
Yeah, yeah, it said soon. It’s gonna be an interesting future for sure. What else would you like people to know as you wrap it up, and please give out your website. You know, I got that link from your assistant, but I don’t have it handy. Some of you have it. It’s it’s just got my name at the end. I know.
Ken McElroy 46:17
Yeah. Yeah. Yeah. Just well obviously go to Ken McElroy.com you know. Jason Hartman is the the work
Jason Hartman 46:25
It’s it’s just Ken McElroy dot comm slash Jason Hartman, right?
Ken McElroy 46:29
Yeah. Slash Jason Hartman. That’s one way that obviously the YouTube channel is, has been fun, you know, we, we post a video every week. And and then those are the two best places to reach me and to learn more.
Jason Hartman 46:42
Awesome, good stuff. So that’s Ken McElroy comm slash Jason Hartman. And Ken, any closing thoughts, anything you want people to know? Thank you for joining us. Just wrap it up?
Ken McElroy 46:53
Yeah. Well, I just I think, you know, there’s a lot of fear out there. And there’s a lot of fear in the media, you know, what everything’s happening and rightly so, with COVID and the pandemic and all those things. And, and so you can absolutely, positively tend to focus on the defaults, the business closures, you know, the desk, COVID numbers, and, and you should know those things. But there’s a flip side to it. And that is, you know, stay objective and start to take a look at, you know, when people are moving from somewhere as an example, where are they moving to because it’s creating bubbles and other areas. So some areas might be getting depressed with with low occupancy and negative rent growth and low values and business closures. But other areas, people are moving around. And so there’s tremendous opportunity out there if you just choose to look for it.
Jason Hartman 47:49
Good stuff. Good advice, Ken McElroy, thank you again and happy investing.
Ken McElroy 47:55
Always good to see you.
Jason Hartman 48:01
Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out this shows specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.