How Debt Will Make You Wealthy (He Has $800M in Debt)

You're famous for running your company on 90 minutes per week. Tell me the downsides of being an absentee owner. What are some horror stories when you get it wrong? And also walk me through how to build company culture that allows you to be an engaged owner.

Geez, dude, that's a lot of stuff, man.

Within 90 minutes a week.

Yeah. Well, first of all, you have to have a facilitator. So we have somebody that got us on the platform, and that was a huge piece. It didn't start off with 90. It starts off with 2 or 3-day full-day meetings with your top team and analyzing your organizational chart, your direct reports, what their priorities are, their quarterly goals. So, what we had kind of— my partner and I had goals, like everyone, for the company, but they were—

Yeah.

Sometimes they're not adequately pushed down. And so that tightened all that up. So what we had was we had our C-suite all in there. And so you could take whatever's in your head and hand it over to the people on the C-suite. Take your goals and give it to them. Make them quarterly milestones or whatever. Maybe it might be a 1-year or 2-year goal. Maybe it's a 90-day goal. But whatever it is— We took all that stuff, and then once that's out of your head into those folks, then you just kind of drop in. I have one 90-day goal. I used to have 5, and then it went to 3, and then down to 1.

Yeah.

And they all have 3 or 4 or 5. And so, I get on there and I'm like, okay, where are you? You're either on track or off track, as you know.

Boom, boom.

And so, what I was able to do is I was able to take all the stuff that's going on in my brain and transfer it down, and we all have to agree on it, and what's most important. And so, once you're able to do that, with my partner too, Ross, because we got construction deals, we got acquisition goals, we got equity goals, you know, we got refinance stuff, we're looking at our whole portfolio, we got operational issues. There's so many things. And then once you get all that into the proper scorecard and the KPIs, it actually becomes quite easy.

Right.

And the big mistake a lot of entrepreneurs make is they want to do it themselves. And so, I always want to jump in, right? I always want to solve, like, always. And that's a huge mistake because you don't really— you don't give them the ability to learn, right?

Right.

If you're solving all their stuff. So, that took years to get to 90 minutes. But now, we're at that point. Like, literally, it's, okay, we know how many deals we want to close this year. We know we want to buy $1 billion in 18 months. I mean, that's all agreed on. Before I did the video, I made sure everybody was on point with that. Yes, we can do that for development, construction, and new acquisitions. So then you just basically work backwards. You know, what does 1 million units look like from, you know, 18 months? Work backwards. How many do you have to have in escrow? How many do you have, you know, including fallout and all that stuff? And you just basically put math on it.

Yeah.

And then we know how many deals we've got to close each quarter and how much equity we need. And, you know, we're, we're, we're already working on 2025. You know, I mean, that's what we're talking about now. And so once you metric it down, it becomes easier.

Yeah, you back into it. And we've kind of gotten away from the whole annual planning thing. Now it's a 3-year thing and we kind of just work in quarters.

Yep.

It seems like that's been easier. But Ken, I got a question for you. You're $800 million in debt right now. What's going on?

Well, we're— I, as I said yesterday, you know, we're in the 50s LTV, so we're not very levered, right? Like, we— which means that we have, you know, probably 45% equity, right? So, so, so when you have that much debt, um, you know, even, even during the pandemic, like when we shut down and we were like, oh my gosh, are, are our tenants going to pay? You know, in April we shut down and everybody went home. And then we were like, man, April we'd already collected, and March or May we weren't sure of. We were like, okay, you know, we only needed— I think we checked like 60 or 70% occupancy to be able to cover our debt and our expenses, you know what I mean? So, so that's what that means. So, so there's only a couple things in the, in the stack. One is debt. Let's say that's 55%, and then you got your expenses, and then that's what we call your breakeven occupancy. So you just have to collect that much to cover expenses. There'll be no distributions or returns or anything.

Mm-hmm.

So that's one thing that we did intentionally. We're not— it also gives us opportunities to be able to scoop that equity later. Through cash-out refis or seconds or maybe even a recap or something like that. So, so we never were— we've never really been in a position wherever, actually, that, that, that I could remember that, you know, that was in jeopardy, though. The thing that's killing people now is, are the interest rates.

Mm-hmm.

Right. So even if they're not heavily levered, the interest rate, you know, like on our construction projects, we started our construction projects in the in the 4s, like 2 years ago, 3 years ago, you know, and now they're in the 9s, the same project, right? Like we haven't done anything different. Like we're even on budget. And, you know, when your debt costs almost double, that's actually the, you know, even low loan-to-value and all that kind of stuff. So the interest rates are a big deal right now for most people.

Yep. And I want to come back to that in a second. But what is it that banks don't want you to know about the stuff that you're doing, as an example?

Well, the banks— so here's the thing, like, when you do a loan, like a lot of people probably realize, there's these loan covenants that are all inside of the loan documents, and loan-to-value is one of them, debt service coverage is another one, and there's a whole bunch of things about cash and cash reserves and things like that that you're required to— it's like, It's like all the fine print, but it doesn't really come up very much, you know, until times like now. So what happens is, and the debt service coverage is probably a really important one to discuss. So people call it the DSC. What that means is, let's say your net operating income is $1 million. Well, what they're gonna want is like a 1.2 or 1.3 ratio So that you have essentially $200,000 or $300,000 extra in your NOI to be able to cover your debt. I mean, that's a simplified way of saying it, but the reality is it's like an insurance policy. So when the debt service coverages are 1.2, 1.3, even 1.4, let's say, and in really good times, they might bring them down to like 1.1. I've seen them lower, but that's actually what's— what— so that's a trigger. So the bank now can come after people and go, oh, You're not hitting your debt service coverage requirement. And, and that then they can open the, you know, open the hood, take a look inside. And they, you know, so there's all these covenants and that's what the banks are afraid of right now. What's really interesting, actually the most interesting, if you look at what people paid and you look at where they should be and there's assets actually going back to the banks. But what they're doing is they're keeping it on their balance sheets. So it's the equivalent of like the Fed. You know what I mean? They're unrealized losses. So they're just sitting there. So let's say I borrowed from you and my property is not worth the loan. You take the property back.

Mm-hmm.

You just set it on your balance sheet. Now, it doesn't go out to sale yet. And so nobody knows what the price is. So, you know, I've taken a loss. You know, I lost my equity. All my investors have lost. But you're just sitting there waiting in the asset management category. So there's a bunch of assets that are sitting on these in this asset management category by big companies like MF1 and Arbor. And because I said, well, let's— I'm going to start an asset management company, you know, to start managing these assets. So I have first First crack at them. But I wasn't the only one to think about that, obviously. So anyway, now the interesting part is the equity's gone, but— and they only have to realize those gains if they sell them.

Yep.

Right? So anyway, so we're in this limbo period of time.

Yeah. Well, I mean, that's— you're still hot doing deals right now, right? You just did a deal recently.

I heard—

So yesterday at dinner, I heard it was 90, but maybe you did another one at 50?

Yeah, we have another one that we're going to do at 50 that we actually just put in escrow that we haven't even done a business plan on. But yeah, we're in due diligence. But yes, we just closed on one in Las Vegas, 347 units, and we got $52 million in debt and then put the rest up in equity, you know, with, with our investors. We love that one because it cash flows on day 1. We bought it below replacement costs. So we're a builder too. So, you know, it would've cost us probably $320,000, $325,000 to build that exact property. And we bought it for $260,000.

Wow.

And brand new. So it has, and then it also has some, it has some room in the operations, mostly on the, on the, on the, Income side, it's really hard to like. But if people, if people say you can save on expenses, you should just, you just know the broker's just bullshitting you. Like, that's just never going to happen. Like, everything's going up. Like, interest rate or insurance is going up. Property taxes are going up. Utilities are going up. Like, costs are going up. So you're not going to get a lot of cost savings. It's really going to be in the rent roll. And so there's some— there, there's, there's definitely some room to grow the rents to market in the rent roll, not, not future rents. So, we like the deal a lot.

Got it. And what, I mean, with the $90 million, I mean, no, this is a $270 deal. Let's just call it that.

Yeah.

So, how are you structuring these deals? And, you know, can you give us a little more details on the deal too, like price per door?

Yeah, of course. Yeah. So, we're right at $260,000 a unit. And then, we got an agency loan. So, fixed rate, low loan. We locked, you know, like, you never know, like, what the Treasuries are going to do. Like, we locked at 5.7, then they went down the next day. Like, you know, I was like, oh, like, you know, you know, it's— but whatever, you know, we're still cash flowing.

I—

and, uh, yeah, it's— it, it just cash flows— I'm going off of memory, but I think like maybe, maybe 4% in year 1. So it's not, it's not great. But You know, it has— we will obviously, you know, within a matter of 6 or 8 months, you know, we'll be kicking off more cash. But it's an underperforming asset that's poorly managed, that's well-built.

Yeah, got it. And what— so how do you— I mean, you do a lot of these deals, right? I'm just curious. So we were talking about this at dinner with Steve. It was like, yeah, so, you know, we're like, yeah, how does Ken structure these deals in general? Because every deal is different.

Yeah.

So how do you think about these?

It's a good question. I always think about the investor first. And I'm in that deal, $1 million. My partner's in for $1 million. And we have investors in for a lot more. And so, it's just like anything else. If you're going to give me $1 million and it was sitting in a treasury and making 4.5%, that's a hurdle, right?

Mm-hmm.

You're safer in the treasury. So, so there has to be a compelling story for the investor. So that's— we always start there. So, and it can't be, I'm going to sell it for more than I bought it for. Like, that's not a story. That's, you know, that's gambling, in my opinion.

Yeah.

So, so you have to, you have to have a story inside of the asset itself. There has to be. And I'll give you another, like the one we're in escrow on now. that we haven't put out yet. It was built in the '80s. It's right next to the Phoenix Zoo and the Papago Golf Course, which some people don't know that area, but it's right in the heart of town, 5 miles from the airport, right next to Arizona State, and it's untouched. And so, what we'll do is we'll go in and we'll do 10% of the units, we'll renovate them. We'll see how far we can push the rents, and we should get maybe $150,000 More, let's say, on those, on those units. That's called proof of concept. Now you've proven that you can renovate some units and push the rents up. That's a story. Now you can do that on the whole project. So now, uh, if we, we could sell it actually at that point.

Yeah.

You could do 10% of the units, do proof of concept. We could actually sell it for a lot more than we bought it for, or If the rates are cooperative, you know, maybe we'll refinance and, you know, do and renovate it and just do the rest of the project and hold it for our cash flow. So we're going to have kind of two— well, we'll have two roads to go. And that's what I mean by a story.

Yeah.

So every deal— so it cash flows on day one as is. That's really important with fixed rate debt, like, you know, not floating debt. And expense growth of maybe 3%, 4%. Like, you have to really say expenses are going to go up and, you know, you have to be really diligent on the way you're underwriting it. And then there has to be a story around that. So that's what we do. And so that's going to be a really nice value add. The one in Las Vegas, it'll be a really nice value add. And so that's what people are always looking for, the tax benefits, the cash flow, and then the future cash flow. And what we always like to do, Eric, is I prefer not to sell. And in fact, my whole career has mostly been hold. And we have properties, like we have several properties in Dallas here that we've refinanced 3 times, you know, and we just keep harvesting. And that's tax-free.

Yeah.

So, it's like if you put a loan on your home, A refinance. That's a cash-out refi. You don't pay tax on that because it's debt. So if we can, like this project that we have, if we can grow the value significantly and put new debt on it and be able to do a cash-out refi and distribute that to our investors, that's tax-free because it's debt. Now, if we sell it, we have a capital gain. But because if we don't, if we just keep harvesting it, And just keep doing cash-out refis, then it's forever a tax-free event. And so, so you can kind of go down both roads and we prefer to hold.

And is that the infinite money glitch?

That's the— yeah, infinite money is when we give 100% of the equity back. And we have a lot of properties like that where it used to work better in the old days, right? Like, you know, when we were buying, you know, prices are really high right now and interest rates are really high right now and expenses are really high right now and cap rates are really high right now. So everything's going the wrong way. So, it's a great time to be looking to buy because there's disruption.

Yeah.

But it works like in new construction. So, new construction, we have several new construction deals that we're doing. We have one almost leased up. We have one that we just started. And you're building for wholesale costs. So, we're building for, let's say, $300,000 a unit. And if, And this is a big if, if that thing is worth significantly more than that, then you go back and you pay off the construction debt. You do a cash-out refi with Freddie or Fannie, and then that money gets distributed to the investors. But the whole idea from the beginning, 'cause I'm in every deal, I'm invested, is how do we get that money back tax-free? And then when we get to the point, sometimes it takes 2. Sometimes it takes 2 cash-out refis. Yeah, probably. That's probably more likely in today's, today's world. But still, these are long-term holds. These are 5, 6, 7, 8, 9, even 10-year holds. We have properties here in Dallas that we've owned 15 years.

Yeah. Let me ask you a political question. Yeah. How does your calculus change with unrealized capital?

Oh, man, I'll get crushed, man. Like, like I don't know, man. I mean, just think about everything. Think about like your car. Like, I've got some old classics and some, you know, some fancy cars. And even on my house, like, I've got massive gains, you know, from what I paid. On my personal stuff, I don't have any debt, oddly enough. Like, everything I own personally, I have— I don't do with debt. I only, I only do that with the ones that the tenants pay off, you know.

Yeah.

But there's a lot of— I have a lot of unrealized.

Yeah.

A lot. Yeah, it would be— I would have to move to Cuba.

I love it.

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I do want to come back. I mean, just, you know, the way I think, obviously— can you hear me okay?

Yes.

So, you know, what's interesting to me, I've worked a lot with software companies. I mean, you're price testing, right? You're experimenting, you're seeing what works, and then you roll it out. So I guess, I mean, let's just stay on the acquisition side of things for a moment. What is in your deal box? Like, what do you look for when acquiring?

Well, the very first thing is market. So, you know, we've had a lot of migration. You know, we've had a lot of change in where people are, where they want to be. Political environment is huge. The people that can work from home moved. The people that can move do. You know, there are lots and lots and lots of thousands of stories of people. One of the really cool things you can follow, one of the things we follow, It's quite simple. It's like Ryder Trucks, U-Haul, and United Van Lines. One-way moves, like, this is all tracked. You just go online right now and it shows. Like, if somebody moves from Seattle to Phoenix one way, well, it probably means that they're moving, you know, and they're not moving back. And so there's all this. It's really crazy. That's just one way. There's out-of-state driver's licenses and there's All these ways that the US kind of tracks where you are. Cell phones are now obviously the big one. And so they can kind of see where people are going. That's extremely important before we do anything. So you always want to be where people are going. And then what it does is it puts a lot of pressure on the infrastructure for that town. So it puts— like, I live in Scottsdale, Arizona. It's like impossible to get a restaurant reservation, and I've been there for 20-some, 25 years.

Is it really?

Yeah, it's crazy, man. Like, it's like, wow, all these people. Where's all this traffic coming from? Where's all the— you know, and it's just because there's a lot of people moving to Arizona right now, Paradise Valley and Scottsdale and other places, because the political environment is decent, I guess, and it's safe, it's warm, it's pretty reasonable price. It just happens to be. But the same thing is going on in North Carolina, Florida. Tennessee, Texas, a lot of areas in Texas. So, that's where you start. But there are areas that you want to stay away from, right? So, that's a state, but then you start to look at towns and you start to look at submarkets and you start to get really, really focused. Like in Las Vegas, we're in Green Valley, which is the affluent area of Vegas, and it's outside of the Strip. It's where, you know, the homes are $800 million homes, the average price. Next to a Whole Foods. So, you start to look at those submarkets really, really— that's really important. And there's— if you really want to shortcut this whole process, just go find where there's big companies doing the same thing. Like Whole Foods is a great example. Whole Foods is going to plant a store in an affluent area. That's where we want to be. That's where we want our apartments to be.

Mm-hmm.

Because you're gonna have, you know, a higher demographic. And now, there are also people that do the opposite, right? They go after the low-income housing, which is totally fine. I've done a bunch of that. So, it's a very different strategy. We're going after the people— what we want is a big, big delta between rent and mortgage. So, a million-dollar home is gonna have a significant mortgage where our rents are $2,000, you know, so there's a big gap. And then what it does is they want to be in the area, it's a nice area, but them being able to move to that neighborhood is— so we start with all of that.

Right.

Then, you know, then our buy box becomes really small.

Yeah.

You know what I mean?

Yeah.

And then from there, we have our acquisition guys who are here actually, and they just go at it.

So what I'm hearing is you're largely looking at traffic flow at the end of the day.

Yeah.

It's interesting because my software friends, other business friends, a lot of people are like, yeah, we don't touch debt. We don't know how to leverage debt. But then you look at someone like you, it's like you've gotten very comfortable with it, right? So what would you say to people like that? All the YPO people.

Yeah, I know. We're both in YPO. My wife, I'll tell you, she's got a number of real estate deals. She actually— this is a, this is a great debate in our home. You know, she's— she doesn't like that. She uses it to buy stuff, but then she pays it off and she just doesn't want any. Where I'm like, hey, if it's covered with my tenants and I have— I own the management company, so that gives me a, you know, that's, that's, that's— I came up through the management business. I do understand how to keep a property full. So, that's kind of my secret sauce, I would think, is I'm not afraid of 52% debt or 53%, I think, for our Vegas deal because I only have to keep that property basically 75% occupied.

Mm-hmm.

And it's like 97%, 98%. So, things really have to unwind for me. Where people get in trouble is where Their debt plus their expenses are so high, they have to keep the property so occupied and they have to have so much cash flow to cover that debt. That's actually—

Like 60% to like 70%, 80%?

Oh yeah, or even higher. Yeah, yeah. I've seen— the worst I've seen is 104%.

Wow.

So imagine what that means is the guy has to be 104% occupied, which of course can't happen. Which basically means that somebody gave him so much money, his expenses plus his debt, there's no possible way he can ever cash flow. He basically, if he's 100% collected, he's got to write a check for 4% every month or every year. I was like, man, dude, you're in big trouble. And that's not how you want to buy real estate. So, so that those two, those two things are really— we call it the break-even point. And, and then anything after that is cash flow.

Yeah.

Right?

Yeah. So, and you can say, I don't want to answer this, but of all the deals that you've done, what percentage haven't worked out?

Oh, really small. Like, we probably bought $3 billion. I know exactly the few deals that haven't worked out. You know, I did a condo conversion deal in Scottsdale that we sold 200 of the 300 units. So, that didn't work out. That was in the condo conversion days. We've done a lot of that. We take apartments and convert them. You know, and, you know, it happens.

Yeah.

And that was 20 years ago.

Yeah.

But still, it's painful, you know, when you have to sit down. And I had money. Ross and I had half a million each. We had investors and sit down with them and walk them through. And then, you're dealing with the bank and you don't really Here's what I learned, Eric. You know, you don't learn almost anything when you're making money. Like, you learn it when you have to pull the loan documents out and the joint venture agreements out and you sit down and you— that's when you learn. You're like, oh, okay, this stuff, these pages are real. They come to life, you know? And then you sit down with the lenders and the investors and you kind of walk them through.

Yeah.

And, you know, it's a painful process.

If you were to consolidate the lessons from all of the deals that didn't work out, what were the patterns that you saw?

Future, future growth, future value was going to be more. Like, even in the condo business, what happened with us was when you buy something, when anybody buys anything, they want it to be worth more later, right? And you have to have a strategy that allows for when that doesn't happen, right? And that's a cash flow strategy. So, if you can have a cash flow strategy that hedges value, the people that are doing fine now are the ones that have enough cash flow to support whatever's happening. And they don't have a predefined exit. So, the predefined exit is, let's say you give me money and you want it back in 3 years. That's a predefined exit. You're like, listen, 3 years is it. You don't get a 4th. So, those are the things that you learn. And so, in the condo conversion business, what happened was this 2008 timeframe, The investor loan business stopped completely. If you remember, we had a big fallout of the single-family housing market. Well, our exit was single-family housing, you know what I mean? So, when you don't have people buying single-family or condos or whatever it is, and there's no loans for it, it just turned— it literally turned off overnight. And so, we were left with— we had $12 million in profit. toward the end, plus inventory that we didn't see.

Got it. Now, should— I've debated this a couple of times, actually. So my podcast co-host and I, so Neil, he's got a 9-figure business, and we've talked about how we've invested in real estate or people's funds or like all these, you know, angel investing, all these things, right? And what we found at the end of the day is nothing grows faster than our own business.

Yeah.

And so we're like, okay, you know, yesterday with Steve over there, we're talking about, like, in my mind, I'm just like, should— if you're an entrepreneur, should you even bother investing in real estate? Because my argument is like, no, because you should just focus on your main thing and keep the main thing the main thing.

So, I'll challenge you a little bit here because obviously, I'm a real estate guy, but I believe that the purpose of a business is to buy real estate.

Wow.

So, let me just explain what I mean by that. And the reason is, uh, it's a tax reason. So if you look at the model of, let's say, McDonald's, you know, you ask— like Ray Kroc has said multiple times, he's not in the hamburger business, he's in the real estate business. Now, the, the— what, what if you look at the real wealth of a lot of those early franchise, you know, it was all in that, in the real estate. And so, I think that if you're going to have a— I think, like, I work with a lot of doctors, dentists, chiropractors that are growing practices. And when they retire from their practice, if they wanna shut it down, a big piece of their wealth is, because you think about it, they're transactional. I call them, like, my friends are doctors, so I'm like, dude, you're working for tips. Literally, like, You're just seeing patients so fast, like, and you're generating cash, but you're just working your ass off for— and that's—

if you—

and if they bought a building and they're paying rent to themselves, which is the right way to do it, you buy a building, you pay rent to yourself, and then you're paying it to somebody at the end of your career. I have a good friend out of Florida. I think they've got 6 or 8 clinics now, and they're eye doctors. They're crushing it. Every clinic is worth, I don't know, $3, $4, $5 million. And now, that's a big part of their net worth. And so, when they decide to walk away from— they could sell the business. I had another friend that did this, a YPO guy out of San Antonio.

Yeah.

He started rehab clinics. He was an addict. Phenomenal story. It's called Warrior's Heart. I invested in this deal with him, but he started rehab clinics, and then a private equity company came in, and he sold the business and kept the real estate and just did long-term leases, you know? And so, he's retired. Then, he bought a big ranch in San Antonio, and he created a whole new business called Warrior's Heart. But the point is, the cash flow from that, you know, from the businesses are— Got him through that period of time while he was growing his next company, and he didn't— because he also had the cash, right? So I always, if I exit something, I want to keep the real estate because I want that passive income.

Right. So here, I'll give you a potential setup here. So in the agency business, which I'm in, so let's give simple numbers here. So let's say an agency is doing $5 million a year in profit, then it decides to buy a platform or become a platform where it starts to buy other agencies. You can buy $2 million here in EBITDA, $5 million here in EBITDA, you stack the EBITDA. but then your multiple goes up 15, 20x, right? So you can sell it for a lot if you wanted to sell it, or you can have an exit year every year, $20, $50 million or whatever. But if you do exit it for a couple hundred million or maybe billion, maybe a potential model is, I don't want to learn real estate, right? Maybe I just put money into your fund. Is that a model?

Well, yeah, you could. So here's the thing. First of all, that's Similar to what you're doing. But I think— I haven't paid tax in I don't know how long, a long time, because legally, because I get such a big tax break for providing housing. And there's all kinds of other reasons. You get bonus depreciation, cost segregation, you know, and of course straight-line depreciation. And there's all kinds of tax benefits that the government gives you. So, I'm, you know, we're making lots of money. Actually, my accountant's here, and I just— we just bought a building, and we exited another one, and I'm like, Eric, I need a meeting in October. You know, we need some year-end tax strategy to see where, you know, how exposed we are. And I think that, you know, I have friends that have done what you've done, you know, because I'm in YPO, right?

Yeah.

Friends that have exited big companies. And the problem is, is they— you pay a fair amount in tax. And so the option at that point, Eric, there's actually real estate sophisticated, very good groups that are actually trying to aggregate people to go into opportunity zones. So opportunity zone money, you can take a capital gain and invest it into an opportunity zone fund.

Okay.

And then defer that capital gain. So for me, it's all about trying to mitigate tax, even if I'm exiting, you know? And I actually was, we almost sold our business to Blackstone.

Wow.

And we were in an NDA, and that was my big issue, was, okay, you sell off a big piece, Man, like, they wanted the real estate. So we have so much appreciation recapture, and so, you know, there's so much— so, so such a big tax piece. And a lot of people is, why would I, why would I want to give up 30, 40% of whatever I've, whatever I've made, even more, you know? So, so for me, um, I think it's a— I think it has to be a part of that growth strategy.

Yeah, I mean, that's another thing I talk about with a lot of founder friends or YPO friends, it's like, if you're loving what you're doing, it's continuing to grow, like, why would you sell it, right?

Yeah, no, it's a fair question. I think at some point, there's a lifestyle, you know, we all get addicted to growth, right? So, I have. And then there's, you know, kind of a balanced lifestyle and what that looks like. I have friends that sold big companies. One guy in my forum started a company called LifeLock, if you guys know what that is. He sold it for over $2 billion. And he tried to start multiple companies in that first few years. I'm like, dude—

Hyper.

Yeah, it's in your blood and you just want to keep trying. And I'm like, just relax. Just go hang out. But after a while, that gets boring too. Like, you know, there's some momentum and there's some things you want to be connected to, whatever it is. And even if it's like philanthropy, right? And so that's actually what— it's not really the money at that point, right? It's, you know, it's the joy of it.

I got to take a minute to tell you about the Agency Owners Association. This is a peer group for agency owners. Think YPO or EO, but for agency owners.

And I just wanted to read you a couple of testimonials.

So this first one comes from Carrie, and we asked her, what do you like most about the group? She said, Having a group of people to discuss and bounce ideas. The leads are great too. Yes, we share leads in this group as well. This one from Alian, he says, the ability to really post whatever I want and need and the group responds. Great experienced members. Getting a lot of insights from conversations with other members. Getting a lot of value from sessions from Eric. Getting advice from others as well. And so if you want to grow your agency faster and you want a peer group to do so, just go to marketingschool.io/agency. This is a group that both Neil and I created. And our hope here is to create a vibrant community of agency owners and do a lot more with it in the future. So again, marketingschool.io/agency, and we'll see you inside.

I'm curious, did— and maybe this is forum confidential, but did his things work out after? Oh yeah.

Well, some of them. Yeah, yeah, yeah. For the most part. I mean, you know, these are smart guys, you know. Yeah, it was fun to watch. You know, we have a rule. in our forum that if you sell your company, you can't invest or do anything or start anything for 1 year.

Oh, wow.

Like, that's— I mean—

What if you do?

Do you get kicked out?

It's a loose rule, but we're like, dude, knock it off. Like, you know, because, you know, once you get all that cash, you want to just redeploy it right away, and you want to just, you know, you're used to that.

So, you're saying the rule is, the loose rule is, you got to sit on your cash, don't do anything with it, and don't try to start anything.

Just emotionally settle down. Like, you know, like you think because you're like throwing money all over the place investing in things. I'm like, yeah, you just, just relax.

I'm curious, Ken, so what do you think your superpower is and who are the key team members that kind of make up for your weaknesses?

Yeah, so for me, it was my property management background. So, you know, I started in property management, so I really understand the operations and So, when I look at a deal like the deals we just got, it's so— I just— I can see how a property runs just by looking at the financials before I even show up. I'm like, oh my gosh, this is great. Like, literally in 5 minutes. And you can see it. You start to see patterns. You start to see mismanagement. You start to see expense control or income issues right inside of the rent roll, right inside of the financial. And that's actually where— and then that is probably it. Then I'm like, yes, this is a go. Let's go look at this. And sometimes that plays out, sometimes it doesn't. And then for me, like in Vegas, I haven't seen the property yet. Actually, I haven't even been to it.

Wow.

Yeah. But my team has, and literally my head of property management is here, my head of operations, Shannon. She flew in yesterday. We took over the property Tuesday. She flew in yesterday. Today's Friday? So, yeah, a couple days ago. And, you know, so that's, you know, you got to build a team out, one that can find it, one that could do the due diligence.

Yeah.

You know, I'm involved in the equity and the debt at the ownership level, you know, the legal and the numbers. And obviously, I look at all that stuff before we Do any work.

Yeah.

But I haven't physically been to the building.

Got it. So, you would say, I mean, I'm hearing a couple things right here. So, top superpower might be you're good at identifying the right deals, and then when it comes to structuring it, the details, that's also you.

Yeah.

Got it.

Yeah.

Okay. So, who are the key members on your team that make up for, I guess, the other—

So many. We have 300 people. So, our, you know, we have our CIO, Charlie, our COO, Brian, our, you know, head of ops, Shannon, you know, my partner, Ross, Our CFO, Freddie.

Yeah.

And we have our— and then, I mean, we have heads of construction and like, there's so many. And we do, we run our EOS.

Yeah.

So we run on EOS, which it's an entrepreneur operating system, and the whole company runs on it. And we manage all that 90 minutes a week through our L10. And it's super structured. So essentially, I run the whole business on about 90 minutes a week.

Yeah.

And then all the other noise that comes in through emails and stuff like that, if we're not in a closing, all goes into Tuesdays at 11 o'clock. And then we do an investment committee meeting the same way. And so there are operations meetings that I'm sometimes on, sometimes not on. If we have a problem, and we have plenty of them, I'll jump into one, you know? So like, we have that stuff for our property management company. We have that stuff for our asset management company. So those meetings are going everywhere. But I'm not in all of them.

Got it. So, you're playing free safety where you need to, but then there's one standing meeting you have, which is the L10.

Yep. The L10 and the investment committee, because that's a big one. The investment committee is essentially the acquisitions guys are out. They're meeting with the brokers. They're bringing— we have deal flow coming in. We're underwriting stuff. Then I'm looking at maybe 2 or 3 a week.

How many inbound are you getting per week?

We'll look at 500, 600, 700 a year deals. Okay.

And what percent are you swinging on?

We make offers on maybe 3 or 4 a month.

Okay.

That's it. And then, we get zero, I would say. I mean, you know, like, in the last 3 years, I only bought 2 deals. And so, you know, because prices were really high. Now, things are really like the bloom is off the rose. We've seen a big correction on pricing, and we'll see where interest rates go. But if that makes sense today with interest rates where they are, we're buying.

You're optimistic about the cuts coming?

Yeah.

Cool. You got 2 deals out of 36 out of 700.

Yeah.

I think a lot of people, and I made a mistake in the beginning where you just Swing on like after looking at a couple of deals.

Yeah.

It's just you got to look at a lot.

You do. Yeah, yeah. And you set up your team that way, you know, just you give them the parameters that, you know, we always start with cash on cash, start with the investor. You asked that great question. That's where it starts. And then, so, if they bring me a deal that doesn't cash flow, I'm like, next. You know, like, I don't even look at those. And so, it makes— it simplifies the process and they do all the work. So, what I'm looking at is maybe 20 to 30 deals a year. And then, you know, and by that time, you know, it fits all our parameters. And so, we're actually— now, we're in the LOI stage. We're saying, okay. And then, you know, how far do we want to stretch on this? So, we have an offer price and then we have a maximum price, you know, and then there's a process to that.

Right. You know, I kind of want to nerd on. nerd out on the investment, the time investment you're putting into YouTube because you do have a unique metric that you're optimizing for there. So, can you speak to like what it was before and after? Because it seems like your YouTube is actually driving good deal flow now, or not deal flow, investor flow.

Yeah, yeah, that's been a real surprise. Well, I would have never done any of it if it wouldn't have been for the pandemic. I don't know if you knew that. Like, yeah, I was like, Why would I go on the internet? Like, you know, like we had a whole business. And then I'm sitting at home and Jerry, who's over here somewhere, I went on Craigslist like, we need a video guy, come to my house. Started doing videos. I didn't know what I was doing.

That's Jerry?

Yeah.

Really?

Yeah.

Wow.

And I was like, man. And all of a sudden, I did a video. That went viral because I'm like, wow, this is easy. And everybody's home watching. And then the best part was it was connected to a bank account because I didn't set it up. And I didn't even know you made money on YouTube.

Mm-hmm.

Like, the money was going into this bank account. And one day somebody asked, hey, how much are you making on YouTube? I go, what are you talking about? They're like, oh, you make money on those. I'm like, what? So, I had no clue. And so, from there, I was like, well, this is— we had a fair amount of money in there at that point, which was surprising. I'm like, oh, so now I can hire a team. And so, that's what we did. And I've never actually taken a nickel out of it. It's always been like, how do we educate more people with this? And again, back to the model, it got away from me. I was like, oh my God, this is like a whole other job.

Yeah.

So then I went to Monday. So I do all filming Monday. I have meetings in the morning. We have a meeting with the team. We do a live at 11, and then I do a couple of things in the afternoon, and that's it. I do nothing YouTube, nothing social media at all from basically Tuesday on. So just Monday. So I've dedicated Monday to the channel.

That's 8 hours Monday.

Yeah, probably more like 6. But yeah, and that's worked out really well because everybody— and then Josh comes, you know, Josh is— Josh really helped our channel.

Yeah.

And so he's helped. It's really something that I'm trying to understand.

Yeah.

Like, it's a foreign world for me.

It's interesting because during the pandemic, right, everyone's watching. You were getting a couple hundred thousand, if not maybe million-plus views per video. And then it really went down.

Yeah. Went down a lot.

Maybe like 100,000 views a month or whatever, and then now you're back up to a couple million.

Yeah.

They're long-form views, which are more valuable.

Yeah.

Right? But the key thing that I'm just explaining to everyone here is it's like you're actually driving business value from it. So what is the metric that you're optimizing for?

Yeah, so it's interesting. I've always— I said, listen, no selling. It just has to be like, let's just talk about what we're working on. And then Josh figures out— and then that's easy because I have— We got new construction, we got property management, we got asset management, we've got deal flow, we got all this stuff going on. We're doing loans, we're doing refis, we're doing recaps. And so, there's never a shortage of going to properties or anything like that. And so, for me, it's a great way to highlight my team and also just to tell what's up and tell the truth. Say, this is what I'm seeing. This is what's going on. It's actually been great, you know, and it makes the team sharper. And it's funny, like, when you're talking in front of a camera, you don't really— I see it here. Like, I had no idea. Like, you know, it shows up at, like, a Limitless, right? People are like, I love your channel. I was like, you know, so you look at views are just like, you know, oh, that's cool, you know.

Nice dopamine hit.

I need to go out more, I guess. Yeah.

So, okay, but you're— I mean, I think you were getting like a— you're looking for investor applications at the end of the day, right? I think now that your YouTube channel is growing again, I think you're getting what, 5 to 10 times more?

That's been a really cool thing. Yeah, yeah, I started just teaching, right? You know, I got the books and stuff that I've written, and we have a whole division. We have a full-time director of philanthropy. in our company. We have a whole division for philanthropy. And so all the books and all the stuff that I've been doing in the past has been all kind of going toward that, going toward charity. And so it kind of started off with, oh, this is a great way for me to teach online, because there was a lot of gurus online. It was like, I don't know, just bad information. So I was like, OK, I want to be the guy that— I don't want to be that guy. And then it's turned into trust online, which has been really cool. And then that's been driving deal flow, and we've had a lot of investors, and all of that's been a blessing.

Yeah. I still think YouTube's the biggest opportunity for the next decade. And the thing is now, it seems like you've maybe changed the strategy a little bit, and I want to come back to the deal stuff in a moment. But you are— I was talking to Josh, he's like, Josh is like criticizing me on my channel. I was like, dude, why don't you just talk about your business, right? And so it seems like that's what he's done to you. Like, what are you talking about mostly now?

Yeah, well, it depends. Like, most of the time, like, if something big happens, then I try not to be like— I hate the clickbait stuff, you know? But, but I unfortunately— and I'm not in control of it at all— they are— there are people there that And like, that want that. But typically, I think people just blocking and tackling, just real basic stuff. Like, these are some of the things that we're doing. These are some of the things that we're seeing. And I just want to stay in my lane, you know? I don't— I've seen guys try to be like news hosts or whatever. And like, I'm like, that's just not who I am. Like, I read all that stuff.

Yeah.

You know, but also, If I'm trying to— sometimes I'll have really great conversations with people, and sometimes I'll talk about those behind the scenes. I had a great conversation with the head of capital markets for Bacadia, which is a big company. Warren Buffett owns this company, and he works for Warren Buffett. I'll have maybe an afternoon with him, and then I'll talk about that. Just being able to say, this is what big money's thinking. That stuff. Those are the boardroom meetings. Without breaking confidentiality.

So in that video, he's anonymous?

Yeah, yeah, yeah. He may be. I'll ask him. I'll say, hey, is it okay if I mention your name? He's like, no, no, or yes. But I always— I think that's the stuff people want. And it's straight from there.

So here's another question from Steve. This is a deep one. At the end of their life, or at their end of life, people often say family and health matters most. I'm young and I really care about wealth creation. What are some tips you can give me today as someone focused on making money that can help me mature my mindset around family and health?

Oh, it's a really good question. So I went to a mentor once. I've had a lot of them. And his name was Charlie Dunlap. And it was a YPO thing, actually. And he had a business plan that he He brought, and it was a business plan for his family, like a full business plan. Him and his wife would leave for 3 days a year. They would, 2 nights, 3 days. They would go usually in like Sedona or Flagstaff in Arizona. He's from Arizona. And he's like, you know, he has 5 kids. And he was like, you know, like we do business plans for our businesses, for our real estate deals and all that stuff. We like really think a lot about like all this stuff. But we never do it for our family, for our faith, for our health, for our kids. It's just like, oh yeah, yeah, we'll get to that. So I went to this thing for him and he's like, you know, he had the wives and the husbands there and he's like, what would you guys rate your marriage? You know? And the wives were like a 6 or a 7 and the guys were like a 9. And he's like, Every time, it's the same. And he's like, there's such a big gap because there's that communication problem. But he's like, and then what happens is, because most people go business, kids, wife, or spouse, let's say. I probably need to be careful with that one. So, business, kids, spouse. And he's like, it needs to be spouse, And so, that for me was a big game changer, and there were all these things that I learned back then. And so, for me, the changes I made immediately were, if my kids had a spring break, fall break, summer break, whatever, Memorial Day, whatever it was, Labor Day, I took off. So, I started right after that, My kids would get out of school, let's say, June 1st. I would take off, literally, June, July, and then when they would go back to school, I literally was with them 24/7. This was years ago, and that changed a lot of stuff for the better, right? And so, that was one big change that we made. There's a bunch of others, and it just kind of reprioritized everything.

Yeah.

And my buddy said, listen, you know, you got to, like, give your family half the money and twice the time. I was like, yep, you're right. And so, for me, that was a game changer. And then, you know, I got my son here somewhere. Oh, he's over there on his phone. So, he's really present. You know, my other kid is watching live right now. He's working back in Arizona. My wife's here. So I think, you know, I just put my business at the end.

How long ago did you do that?

God, 15, probably over 15 years ago.

Wow, and it's still like that today?

Yeah, 100%. Like 100%. I'll give you a great example. It's recent. I was with my wife. We went to the Olympics, and we just got back. And, you know, we got Bobby Kennedy coming, right? So, yeah, I'm excited about that. And I get a text from Tarle. He's like, hey, we got invited to the Kennedy compound. You know, like, sweet. When? It's like, in a week. I'm like, I'm with my wife. Nope, sorry, gotta miss it. So, you know, and that would be obviously something I really wanted to do.

Yep.

But I told her, I go, listen, you know, I'm not cutting our vacation short. And like, we're on this thing. And so there are things that always chip away at you, you know, that you want to do. And, uh, it's just, uh, it's those moments, you know. Like, I, I had a— I, I— this is a crazy story. My son wrestled in high school. I'm a big wrestling fan, by the way. I wrestled in college, and we went to wrestling in the Olympics. And I had a meeting in Rome, like, of all places, right? And I was there for something, and this is, I don't know, 6, 7, 8 years ago. He had a wrestling match, a high school wrestling match, and I had never missed him. So I was like scrambling from Rome, right, to get home, and I made it. And that's the kind of commitment. I literally, I mean literally, just made it like 20 minutes before from Rome, and I think you just got to like— so that's kind of the point. You always just have to—

So, I met one of your sons at an event maybe last year or so in Park City, and my immediate reaction was this guy's really humble. really driven, right? And in YPO, so we have a third people that are hired guns, a third people that are entrepreneurs, and a third that are family businesses. But I find in the family business people, they're either really amazing, they've been raised really well, or they're complete screw-ups. So I guess my question for you would be, how should someone that does well like yourself, what's your philosophy around raising kids?

It's hard. I will tell you, I have so many stories. The first thing we did was we, again, I said this yesterday, I really believe it's true, the environment is stronger than will. And I think for me, my parents are great people. My mom was a hairdresser, my dad was in construction. Their circle, we were bumping up to whatever their mindset was, period, their belief systems and all that stuff. And once I kind of got out of that, I grew. Once I got into bigger circles, I had a wrestling scholarship. I got to college, and all of a sudden, it was a different circle. And then you start to be around. And so what happened for me is that just happened organically. So I always tried. YPO has been great for me because I keep my— the kids don't listen to me, right? So why would they? And so I just make sure that they're around good people and around other folks. And also, they worked. I taught them— there's a great internet— I think something on YouTube called The Red Paperclip, if you haven't heard of it. We watched that together. And basically, the guy, the kid, this kid took a red paperclip and ended up with a house, all without using money. It's all barter. And so, there are things you can do. They had businesses at 7, 8, 9, 10 years old. They were selling golf balls. And then they were doing duct tape wallets, and then we had a little marketing company. And so, by the time they got to college or high school, they had played the cash flow game. They understood what an asset and liability was. They knew what debt was. And I also got them into my business, and they were cleaning units.

Yeah.

Painting units and all that kind of stuff. And so, it's a process. And so, by the time they got to— I never gave them money. I mean it. They always made it. Always. My son over here, he was fixing, back when you could, iPhone screens, making $50 or something, $75 in college, because every kid in college has a broken iPhone screen. And then my other son, same thing. They would buy stuff, sell it for more from China or whatever. And they were always just creative. They always had money.

Yeah.

And then, you know, so it's all that small stuff. There's 100 lessons like that.

So no allowance, nothing like that?

No, no, that's like welfare, you know?

You know what I love? I mean, this is a great place to end it. It's, you know, oftentimes the kids won't listen to their parents, right? But instead you're like, okay, okay, I'm just gonna surround them with people that have my philosophies and kind of set them into them.

Yeah, my forearm. So, like, I took both kids to— we climbed Kilimanjaro when my kids turned 17. It's like a rite of passage thing, you know, let's go for a month to Africa. And, you know, and I put the team together and all YPO guys. And, you know, they hang out with— so I got their kids and they got my kids and, you know, they're feeding them with good information. That's what I mean by environment, you know, and then same thing. Like, I've had a couple of my kids go off track, you know, like we all do. And I call them up. I'm like, hey, I need my son to— you know, he's like, I got you. You know, right?

Yeah.

And then I had one kid actually go move to work for one of my friends. And he drove and picked him up in the morning and got him to— brought him to work. And he did that for over a year. And just to, you know, beat some sense into him. And so that's, you know, that's the kind of stuff I'm talking about.

Yeah, that's amazing. Well, Ken, this has been great. We went for the full hour. What's the best way for people to find you online?

Oh, yeah, yeah, yeah. So obviously, kenmcelroy.com is the best way to find me. We've got all kinds of stuff on there. And MC Companies is our investment company.

All right, Ken, thanks so much for doing this.

You bet, man.