2253: Hedging Against Inflation with Real Estate Adviser to Robert Kiyosaki, Ken McElroy

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Thank you, Jason. I would not have as much money today if it wasn't for you. You know, Sissy and I both made a ton of money and you know, thanks to you and your guidance and your show and everything, it's been great. And now cash flow for all your clients. On top of not only appreciation, but cash flow. You made a lot of people rich, my friend. You're a good man. Thank you, Jason.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Happy New Year.

Today we will not have a normal episode. We're going to do something a little different for you for the New Year's.

But I am in Cambodia.

Saw Angkor Wat and a bunch of the other temples. It has been an amazing experience. Saw the last sunset of the year yesterday. New Year's comes earlier over here on a hot air balloon. So that was really fun. And one of the things people have.

Asked me is, is that spending Christmas.

Season in Southeast Asia, were you in the Christmas spirit? Well, let me tell you something. Even though this is largely a Buddhist and Hindu population, this is very much in the Christmas spirit. In fact, I have Christmas carols, Christmas music, everywhere you go, Christmas trees, Christmas decoration everywhere you go. There's one that's probably coming down today and the lights are off. The lights were on on the tree, so now they've got the lights off.

But anyway, I am leaving Cambodia to go to Vietnam. I'm on my way to Ho Chi Minh City.

So that should be a very interesting thing. And I just wanted to say hello and happy New Year. I hope you are ready for a fantastic year and you've got some big goals as far as your real estate portfolio.

And we're going to do some big things this year.

So I'm looking Forward to it.

And we will be back with a.

Regular episode very soon. But we've got a little bit of a review for you today. Happy New Year to all.

My pleasure to welcome Ken McElroy to the show. You've probably heard his name, he's a very well known investor and author. He's written four books now, three of them in the Rich dad series with Robert Kiyosaki. And he is responsible for having purchased over $300 million in real estate in just the past two years. But he's got over 20 years of senior level experience in multifamily proper management, development, construction, disposition analysis, acquisitions and business development. So quite a resume. And you may have read Ken's books. He's a great speaker, he's inspired audiences from around the world. It's been on PBS and just a whole bunch of things. Very widely known name probably doesn't need much more of an introduction, but from Scottsdale, Arizona, Ken McElroy. How are you today?

Jason, how are you? Thank you for the nice introduction.

Well, my pleasure. I'm a big fan. Been following your work for many years and I was just giving myself a little refresher in preparation for our interview today and In Reading the ABCs of Real Estate Investing and the Advanced Guide to Real Estate Investing. Ken, one of the things you talked about in there that I think is so appropriate is how you were reading Money magazine a few years back and how they compare stocks to income, property income, and just how misleading really, the traditional media is out there. I'm not sure if you remember what you wrote, actually, because it was quite a few years back, but what are your thoughts on that?

Yeah, well, it's a great question, I think, Jason, like you and many people that I know and talk to, I think it's all very confusing, you know, and I'm no different. I'll walk up to a bookstore at the airport or wherever and I'll grab a magazine that talks about something way different than I'm in just because I want to learn a little bit about it. And that's exactly what happened in this particular case. I picked up the issue of Money magazine at the time and it basically was comparing stocks and real estate. And of course I didn't know what it was going to say and I just read it on the plane and I just knowing both, I just really felt like it was really slanted and I got a little bit angry because I think a lot of people read some of these things and it just adds to the who do you trust? Category just pissed me off. And I just. So I started to break it down. And, you know, I happened to be writing a book at the time, and I put it in the book. And then what I did is I actually went to Money magazine and I told them I was interested in advertising. I had him send me the advertising rate card. And then I went back in and I looked and I counted up all the financial services ads in that particular magazine. I think it totaled somewhere over $3 million for that issue. And I'm not a conspiracy guy, but it was just frustrating that it was all slanted towards stocks because I felt like that's who their client was.

Right, right. Well, I think it'd be hard to say that $3 million wouldn't influence any of us. It's just really sad. I mean, fortunately, so many people in America and around the world are finally waking up to the fact that Wall street isn't going to do it for you. Wall street is nothing more than a distribution system for mediocre to lousy assets. In my opinion, there's really only two ways to do it, Ken. You know, if people want to be financially free, they've got to invest in income, property, and. Or they've got to have their own business. And even if they don't have their own business as a primary source of income, I say they should at least have their own side business so they can get some additional tax deductions if else. But income, property is the most tax favored asset in America, bar none, with depreciation and so forth. It's just phenomenal. Then you talk about the 10 advantages and maybe, you know, maybe you can share just a couple of those great 10 advantages of income, property, and especially multifamily apartments with our listeners today.

Well, as you can imagine, the world was in a little bit different spot. My first book I wrote was in 04, and just to give you a little background, I have been buying real estate and managing real estate really since. Since I was in college or university and I happened to be out raising capital just like so many of us do. Well, they find something and they get educated. And I ran into Robert Kiyosaki and I honestly did not know about rich dad, poor Dad. I did not know, you know, his philosophy or anything like that. But I did know that my tenants could pay off my mortgage, you know what I mean, on the stuff that I had. So we were aligned in that way when we were introduced by a mutual friend. And I had not planned on even writing a book as my English Teacher would probably also say.

It was never something that I thought I would do, but when I did, I realized I had all this stuff in me from the things I had learned and the mistakes I had made. And what I realized is I had this crazy, really neat opportunity to be able to manage for people for 10 years. So I had an opportunity to meet all these high net worth people that were buying all these products, properties all over, particularly up in the Northwest and in Nevada and Arizona and California. And I got to understand how to run them. I got to understand, you know, that you have to increase the income and you have to reduce the expenses and you know, it has to cover its mortgage to be able to develop cash flow. And I built these phenomenal relationships during that period of time. And that was really the baseline for me to be able to go out and do it myself. So then what I did was I first bought a condo, a two bedroom, two bath condo that cash flowed. It didn't cash flow very much, but it cash flowed. And then I just started getting bigger properties. I got a duplex and a four plex and eight plex. And then I eventually, now we buy these large projects. And so the advantages that I have learned, really, Jason, from the beginning have changed. I realized that especially now with the dollar kind of dropping and inflation pending. I never understood the power of leverage until let's say five, six, seven years ago when initially I thought it was just all about real estate and cash flow. And I realized now how powerful of a vehicle this is to hedge inflation.

And what's better than buying something and having an attendant paying off for you, you know what I mean?

Oh yeah, nothing's better. But also the fact that you pay, or I should say your tenant repays your debt in depreciated dollars. So that's, that's a phenomenal opportunity there. And that I think really, Ken, is the hidden wealth creator that made so many people so wealthy over the last couple of decades. Most people think the real estate went up in value and it, and it did, but in real dollars, it's kind of debatable how much it did, but the debt was just destroyed by inflation. And that's, that's just the phenomenal hidden thing that most people just don't get.

It's true. And you know, when I first started buying properties, you know, and management is so important, you know, and making sure the income goes up and the expenses are in line and all that is so, so incredibly important. And I started raising equity, you know, and making sure that my Investors capital was preserved and that people, you know, they had their confidence in us. You know, we're getting returns and cash flow back out because ultimately that's why you do this and that's why you raise equ for those purposes. And I think why Robert and I were aligned is because he's always been a cash flow guy.

Always.

As opposed to a capital gains guy. I've never really felt comfortable with trying to say I'm going to buy something at one price and hopefully it goes up, but I can sell it at a higher price and that's how I'm going to make it. To me, a lot of it is just really timing and luck. So I always, I always felt like if I can manage something really well and keep it full and a cash flow based on that, then that was a much more controllable way to make my investors money. That's kind of the philosophy that we've adopted at our company for the last 15 years.

Yeah, no question about it. Cash flow is a pretty reliable thing. It's not perfectly reliable. Nothing is, but it's pretty reliable. But capital gains, that's luck. Can't rely on capital gains. And I see so many people out there, Ken, who are constantly chasing the end of the rainbow, waiting for their ship to come in, the kind of the dreamers. They think it's going to be one big payoff, but it's not really one big payoff, is it? It's the ongoing result of just good, sound investments that produce income. Right?

Yeah. And not to mention the fact that now I've been in the business long enough that I actually challenged that whole retirement philosophy period. You know, I. I know person after person after person that, you know, goes and they get that brass ring at the end of it, whatever they fill, you know, their retirement age is. And. But if they don't have any kind of purpose or any kind of, you know, something that drives them day to day today, they kind of wither on the vine anyway. And so for me, this is a lifelong lesson. You know, I'm in the. I'm investing people's money. I'm trying to learn markets. You know, I'm studying demographics and movements of the interest rates and euro and the dollar and all that stuff interrelated and inflation and all that stuff is very fascinating. And, you know, and I, for whatever reason, I never took to it in school. I didn't get it then, but now I do. And now that I'm handling other people's money than my own money and managing These assets. It's important, I think, that you stay on top of these things and watch them as they continue to change.

Sure. Yeah, it definitely is. The demographics right now are pretty exciting out there. We've got Generation Y, that's the large demographic cohort in American history, just slightly larger than the baby boomers by about 4 million. And a lot of them are living at home a lot longer than before. Part of that's probably due to the economy. But demographics are looking pretty good for rental housing now, aren't they?

Yeah. You know, it's funny that you're talking about that now. Of course, rental housing is all I've been involved in really since I was in college and I've watched the different cycles and each time credit becomes really cheap and rentals or residential housing or residential construction gets really, really active, then it pulls people out of rentals. You always see the signs. If you lived here, you'd be home by now. And why rent when you can buy and all that stuff? Well, that's normal. And that's going to happen again. Each time it swings the other way, it favors rentals. And right now, Jason, we're starting to see under the Bush administration, the home ownership went all the way up to almost 69%, which is the highest it's ever been. And it's coming back down right now, I think it's around 66. And they're saying it could get as low as 64 to 63. The year over year average has been 60. And whatever happens, it's going to retract back. Well, every one point is a million renters that kind of get forced back into the rental housing. That's an interesting statistic that I think we all have to keep in mind. And it's going to be different in each individual submarket and demographics, as you mentioned, are going to drive this. One of the things that happens in the Gen Y sector is these kids because they don't have. I mean, you know, and I know the last thing you want to do is live at home. You know what I mean? And you know, but they don't have any choice at the moment. They don't have any income. There's no real jobs. Even the kids coming out of college don't have jobs. So they default back. Thank God they have that option to default back. But now the highest number of kids living at home ever recorded, 22 million, are sitting there. When and if we get jobs, those kids will come back into the workforce and they'll move into rental housing. So we have that kind of pent up demand. Then you have, on the other side, you have all these folks that bought homes with zero down or 10% down and they have all these mortgage resets. Well, you know, as those mortgages get reset or as they lose their houses and they decide that they're just so far underwater, they're coming back into rental housing, a lot of them. Because why would you have a mortgage so significantly higher than a comparable house that you can rent for? Much lower. Now when I talk about rental housing, I'm not talking about apartments, I'm talking about houses. I'm talking about condos, I'm talking about townhomes, I'm talking about everything really. So we really are having this huge resurgence back into the rental market and there really is no end in sight for probably three or four years, you know, just to eat up some of the, some of the supply. And you know, it's very, very exciting times. If you own property and you're on the landlord's side of the equation.

Yeah, no question about it. All of those people will find a way to somehow, if they're in a house that's underwater, that the payment just doesn't make sense anymore. They're going to find a way to get out of it. They're going to short sale, they're going to try loan modification. That's pretty, pretty difficult to do most of the time, but they're going to get out of that property. And many of them have damaged their credit and some of them have done it with strategic defaults where they've been living in their house for a year for free. They saved up all that money and maybe that's the reason consumer spending was so good this holiday season. I don't know. I always kind of wonder that. But they're going to go out and they're going to recycle into the rental market and they're just going to be another customer for us landlords, aren't they?

They are. And I'll tell you what, Jason, you know, we, we have 8,000 units now, so I have well over 10,000 tenants between Arizona and Texas. So I'm really on the ground. I get to see the occupancy, the issues that happen day to day, the rentals, the move outs day to day and all our projects. And I'm telling you, and I of course been in the business a long time and been very involved in multiple organizations that all have to do with multifamily as an investment or rental housing of some sort. And my Peers are all experiencing higher occupancy, higher income and better credit from the renter. And I think that the only thing that's going to offset that is additional supply. And that's not coming anytime soon because of financing.

Right. And building is almost completely kaput. I mean, there's hardly any building going on at all. So yeah, you're absolutely right. I mean, it's a phenomenal time to be moving into the real estate investment, landlording side of the business, the dairy farmer side, as Robert Kiyosaki puts it. Not the cattle rancher, where you're planning to flip, but where you buy and hold good properties and milk them like a dairy farmer milks a cow. What are some of the reasons that you like apartments so much versus office buildings or retail properties? I just never was very interested in those properties. I think they're incredibly complex, incredibly capital intensive and management intensive. Housing, housing, housing, if you ask me. I think you agree. What are your thoughts?

That's a great question. I have very, very good friends in all those sectors. One of the things that I like about apartments is, first of all, why I like the larger ones is what I learned as managing the smaller properties, even though that's where I got all my experience and I would definitely recommend it to anybod, is that they're tougher to manage without a staff. So, you know, like everyone, at some point I got the call to move out and I needed to paint the unit or the, you know, the toilet that was overflowing or the tenant next door, all that stuff. So I fielded all those calls. But once I got to, I realized that once you get to some of these larger projects, then it actually supports a staff and it's actually better from a customer service standpoint, number one. But it's also better from my standpoint where I don't have to actually have those phone calls come in because they kind of get handled right then. Like if somebody has an issue, you know, on a maintenance side, you know, they go down to the office and there's somebody there, they're handling it right then. And so those don't always filter up to the office. And so that's why we ended up going into the larger projects with respect to the comparison between residential or office or industrial, et cetera. I personally like the fact that housing, I just felt like it was such a basic staple and retail and office was not as necessary as apartments. So to me it just seemed like it satisfied more of the masses. From a retail standpoint, you were always subject to the actual tenant in that particular space, whether it's a pet store, a flower store, a tuck shop or whatever, you know, you were always kind of reliant on the independent skills or the location of that particular person, how they could run their place. And whereas apartments were, if it was priced right, it was a great location, it was clean and it was managed well and there was great customer service. Then, you know, I could kind of manipulate and control my own income, you know, by occupancy and, you know, putting really good staff in there. And so for me, it was again, just really a lot closer to being able to control the financial outcome of the asset.

And with apartments, one of the things I'm trying to do with my own portfolio, and I hope the listeners are too, is you start with the single family homes, you move up, you move up and you get more and more units, you do bigger projects. And isn't it about 70 units and over, Ken, where you can get that good on site management? Usually the property will support it. With about 70 units.

Yeah, that's about right. I think, you know, you can with a 70 unit property you can actually have two people and you know, depending on the rents and the expenses and where it is and all that, but generally 70 unit property will support two people. And I think that, you know, again, if you have a vacancy and you have somebody there, you're not, you know, you're not placing an ad and you're not driving over there and meeting somebody and you actually have somebody physically there that can, you know, so sometimes the vacancy gap and, and the maintenance issues and the customer service issues, all that gets tightened up, which all boils into resident retention. And we try to keep our residents and our tenants for the long term. We have entire programs based around resident retention to try to keep people there and keep them happy. Because generally people move from rental to rental, especially today. And if they're moving out, I want to know why and what did we do right or what did we do wrong? And you know, that's part of the whole business piece.

Sure it is, yeah. And to your point where you're talking about comparing these different sectors, you know, industrial property, retail property, office space, to apartment buildings or to houses, housing is a requirement. It's a basic human need. Food, clothing and shelter. Ken, I look at like the macro trend of it too. You mentioned some of the micro trends and I'm sure you thought of these. But they can outsource the manufacturing to China, they can outsource the call centers to India, lessening The need for, for office space or the Philippines, the factories go to China, lessening the need for industrial property. Outsource shopping to some extent to the Internet. And what do you have? You got Fortune 1000 companies telling their employees to work out of the house. Because look at, from a company's perspective, all the problems that just disappear when employees work virtually. They're not in an office, so they're not subject to office politics so much or wasting time around the water cooler or sexual harassment lawsuits or OSHA requirements or all these crazy things that you've got to do as an employer when you put people together in an office space. And you can really see, you know, why companies are doing that. And all of this lessens the need for every other sector, yet at the same time it increases the need for housing because our population is still increasing even now with this economy in the United States, isn't it?

Yeah, you're absolutely right. Those are all really, really good points. You know, I am very concerned about all those things you just said. And I know, you know, the wave everybody's buying, especially this season, they're buying off of Amazon, they're getting things delivered, you know, they're not going out and battling, you know, like they were. And all that translate translates into less retail and particularly less office. And I don't know where all that's going to go. But what I do know is from a demographic standpoint, we have this big demand right now with renters from the things we mentioned before, and we don't have the supply offset. And we just, as a country, we need 250,000 units delivered annually just to keep up with demand and population growth. And we've been delivering 50, 75, 100,000 units over the last three years. We're significantly below supply. And that's not even counting the people that are actually falling out back into the rental market.

I do want to be cautious about one thing, though, Jason, and that is not every market is treated the same.

No question. That's the next question I wanted to come across. You know, you've got a chapter the next top 10 markets to watch. And I couldn't agree more that all real estate is local, isn't it, Ken?

Yeah, it is. You know, you really, really got to be careful. And you know, as I travel around with Robert and we're now raising money in Canada and in, you know, South America and Mexico and, you know, we're investing people's money from all over the world. And it's funny because these people have all been Duped in one case or another by buying single families for, you know, 30, 40 grand in certain areas or a $500, you know, home in Detroit.

Those are crappy. Those just.

They are.

Yeah.

You know, and so, you know, from the outside looking in, I totally get it.

It seems like a great deal. It seems. It's like a free house. Why wouldn't you take it? But. But it. Responsibility comes with that, doesn't it?

Yeah, it's true. So what we do is the same thing that you do is we take a real macro view of where are the jobs, where's the population, what areas are overbuilt, what areas are under supplied, what's happening with employers, where are they moving? And that's all part of real estate. If you can be ahead of that curve and try to buy in areas. For example, we bought this year, I bought 1500 apartments in San Antonio alone. And the reason I bought there is because their largest employer for San Antonio is health care. And I believe based on what we talked about a little bit ago with this demographic is these baby boomers, and we haven't really talked a lot about these folks. They're going to be looking for, I think, places where they can afford to live and have health care and climates that are nice. And San Antonio jumps right out of all the Texas markets for that particular reason. So we bought in the area around the Texas Medical center and USAA Insurance and kind of in the northeast, north, central, northeast section of San Antonio for that very, very reason. We don't want to buy properties that aren't going to have tenants.

Let me take a brief pause. We'll be back in just a minute.

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Well, you generally like Arizona and Texas quite a bit, don't you? You know, I completely know what you mean when you look at Michigan. I mean, Michigan is a disaster and a half the population is decreasing. Detroit, the population's been cut in half in the last couple of decades while everything else practically is growing. I mean it's completely opposite the trend. And big government unions have just pushed businesses out, they've just gotten rid of them. But I mean, am I right in saying really Arizona, Texas are your two main interests?

Well, we're actually tracking Seattle, Portland, Salt Lake City, all the major markets in Texas. You know, we like obviously Southern California and in some areas of Northern California.

Now let me ask you about that if I can. You said obviously Southern California. As if I should take that for granted. Sure, that was interesting. See, I think California, almost the whole state has a pretty difficult RV ratio, rent to value ratio, doesn't it? I mean it's great. The Irvine Company is obviously doing great there, but their basis is so low. The Irvine Company, they got that land for nothing forever ago. But everybody else, the prices you have to pay in Southern California compared to the rents you get. I mean I know the market is tight, I know that, I know that apartments are, the occupancy is high, but they're expensive to buy. What are your thoughts?

There's no question, I mean everything that you said is correct. My good friend is the president of Irvine Company and so I understand where they came from and how all that worked. And you know, and that was a, you know, that was years and years and years in the making. But the, what I mean by Southern California and even parts of Northern California is again I'm looking at population and employment growth just purely because of the area. And one of the things that I like about some of those particular markets is that in order to start something new, the ability to add supply in those markets is so, so difficult.

Right. And that's pretty much because of government and environmentalists and it is, it's very difficult to add supply. It's interesting you bring that point up. I was talking with, and this was about year ago but I just never forget. It's one of those conversations I just won't forget. It was a manufacturer of, we were looking at self storage facilities and so they manufacture these self storage facilities which are basically like you can assemble a self storage facility in a week if you, if you have a piece of land and it's all approved, you can come out there and just put these buildings up. They're all like modular and they're really easy to do. And he was saying that they did a project, I think it was, they did a project in Missouri and they did it in four days. They built the whole thing. And they did one in, in Northern California, like the Napa area, in the wine country area, took four years because they had to have environmental impact reports, studies. There was some little bug they had to worry about. And it's just, this is why I can't stand California. But I get where you're coming from on the constrained supply. Yeah.

But I'll tell you, you bring up a great point. I have a very good friend that has 40,000 mini storage units in Nevada. He's the largest mini storage owner, self storage owner. And I was just with him last week actually, up in Las Vegas. We went to the ASU Boise State game up there and we were talking and essentially he said, you know, it's funny, there's a lot of people jumping into my business right now, but at the end of the day, it's still all about demographics. And we were talking about a piece that over here in Arizona, which is directly across from the Arizona stadium, Phoenix Stadium here, where the Cardinals play. And he said, well, what do you think about that area? And we were talking it through and you know, his demographics and what he looks at are so far different than mine. And he said, you know, I'd rather be in the middle of a neighborhood with, you know, these kinds of demographics and this household income. And so the point is, he's been in the business for 20 years. He has his particular model on things that are successful or not that successful. And I think ultimately that's what we're talking about here is it's not, it's not just go out and try something somewhere. There's so much more to it, you know, because if you can't fill it, it's not going to work.

And I think that's a very key thing that you just mentioned, Ken. Everybody has their model. They have sort of the things they like. I mean, I've got a buddy, Chris, and he's been investing for years. He's done very well. But, you know, his model is just, I don't know, I just don't really agree with it that much. And he does well with his stuff, I do well with my stuff. And it's just you can slice and dice different segments of the market, different specialties. There isn't only one right way to do it. So, yeah, no question about that.

People see things differently. And the custom home builder looks at something one way, the single family production guy another way, the condo guy another way, you know, the apartment guy, the retail guy, you know, then you got high end custom Low end, custom. I mean everybody, everything's just a little bit different, you know. And I think the key to this business is, is understanding your particular niche. What we do is just apartments and everything that drives it is employment, population growth and trends.

Yeah, well, any other things that you want to mention in terms of the next top 10 markets or employment trends or anything like that? I mean, that's obviously a great topic and everybody wants to know the future.

Yeah, well, well, I think actually what I'm most concerned about is inflation. So if you study. One of the guys that I saw that you had on your show was Richard Duncan.

Richard and I are friends. I've read his books. I think he's phenomenal. As you know, he was with the IMF and he lives in Thailand. So he has a very objective view of what's happening here. And he taught me a lot about trade imbalance and all the things. And again, that's part of the reason why I like to travel lower animals. Robert, because I meet some of these folks that just add a little bit to, you know, what I thought I knew and just kind of fine tunes it all. And so one of the things I'm most concerned about is the fact that we're so underwater as a country and we have to print all this money to pay our bills essentially. And I do believe that that's going to translate into inflation. And why that's important is because. Because if you're saving money in the bank, which is what everybody's been doing, is they've been putting a lot of money in the bank, then that money is going to buy less later. That's what inflation does to it. So I'm not advocating real estate, I'm not advocating gold or silver or anything else. But what I'm saying is you need to understand that if inflation comes, the money that you have in your bank account is going to be worth less. So the thing to do is to get educated and to figure out what can I put that money into that potentially is inflation hedged. In other words, what goes up with inflation? If you just Google that, you'll be fine, you know what I mean? And just start to look for things what should I put my money in that rises with inflation? And so to me, Jason, I think that's our biggest issue. So what I've been doing in my asset class is I've been buying as many apartments as I can and I've been putting fixed rate debt on. So I don't have any floating loans and I don't have any recourse loans, which means that all my loans are non recourse, which means I don't personally guarantee anything. So the rates that we've been locking at have been like 4.3, 4.4, 4.5, 10 year money. And you know, at some point, if rates go up, which they're projected to do at some point, and the rates are 6 or 7, which they've been in the past, all of a sudden my assets become very important to future investors because I'm going to have my properties are assumable so people can step into my shoes. They can buy my property with a 4.5% loan on it. All of a sudden that's a few million dollars worth of value to the next guy.

Oh, no question about it. People should look at that like a bond almost. Ken, think about it. When you have a bond and it's paying a certain rate of return, I mean, just always put oneself on the other side of the equation. If you buy a bond and it pays X percent and then the future bonds come out and they pay a lower percentage, your bond has become more valuable. It's the same with your income property. If the rates are higher so that a future landlord or investor needs to come along and pay it a higher rate, then that mortgage, that debt you have, becomes an asset and not a liability. And also that's usually in sync with an inflationary environment where you pay the debt back. Or really your tenants, because you outsource your debt with income property, your tenants pay your debt back for you in ever cheaper dollars. So you win really two ways already. But then there's a third way, because what you really own when you own single family homes or apartment buildings or fourplexes, is you own a bunch of commodities, a bunch of construction materials, as long as they're in low land value areas. Because those construction materials have always been a great hedge against inflation. Concrete, lumber, copper wire, petroleum products that are involved in building the house or the apartment building, all those materials, those tend to hedge very well against inflation, don't they?

They, you're exactly right on. You know, and you asked me about the markets, what we're studying is which markets are progressive and why. And so what do I think is going to grow? I think, I think university and education always grows in recessions. Always. Because you know, if kids, kids are still in school and there's no jobs, they, you know, they keep going to.

School, might, might as well stay in school, get a master's degree.

Yeah, I know, I know. It's crazy, but it's true, you know, in healthcare and you know, there's some, you know, anything related to pharmaceuticals or medical. So if you just follow, you know, the very, very, you step back from everything and you say, okay, what's happening? We have a, you know, we have a new group coming in, the Gen Ys and we have a, you know, the baby boomers kind of moving out. And you just know that, you know, those, those, those two groups have certain trends happening to them and you just follow it. You just try to be in front of it. That's all I'm trying to do. Energy being another one. I think, you know, which is why I like Dallas, Texas. You know, the oil and gas and natural gas and wind and you know, they're very progressive. And you know, we're in Houston, we're in Austin, we're in, we're in San Antonio, we're in Fort Worth. So I'm in all those markets and in each one's different. Completely different.

Yeah, yeah, they sure are. They sure are. Well, Ken, this has been fascinating. Anything else? Yeah, I'm just looking at one of your books here and they're all great. But anything else you want to tell us? Just to kind of start wrapping up here about the purchase process or equity and financing? I mean, obviously leverage is the holy grail of income, property, assembling, a great management team and anything like that. Any of those? Sure.

Yep. Well, I'll tell you what, I think that we have about a year and a half to two year window to be able to take advantage of this, these low interest rates. So I think, I think you're going to have a one year time frame.

Before the presidential election to take advantage of borrowing. So whatever you're doing, whether it's business or real estate or whatever it is, I think you need to take a look at using leverage because these rates are so low and you can borrow at such cheap dollars right now. My latest book, the Sleeping Giant, which is about entrepreneurship and creating businesses. I know you and I spoke about this a little bit, Jason. I really believe that.

The normal job, if you have that 9 to 5 job, it's going to be very, very difficult for people to keep up with inflation. And it's going to be very, very difficult to keep up with their savings eroded from the dollar. And they're going to have to have some kind of supplemental stream of income, like you said, part time, full time real estate business or something. They're going to have to do that just to stay ahead.

They Definitely are. They definitely are. And that's good advice to get oneself on the right side of the equation as inflation hits and put, put inflation on your side because it's coming. And Ken, you mentioned inflation being such a big concern. Everybody I have on the show, I ask them this question and nobody knows the answer. Of course it's a prediction, but how much inflation and when. Any, any thoughts? I mean, are we looking at 20% a year, 100% a year, or is it just 15%, which is totally mild historically? What do you think there?

Well, again, it's all, you know, I'm going to have a very similar answer, I guess, from some of your other guests, but I think that the reported inflation that we've been getting and what really is happening is different. So in other words, you know, we've been reporting, let's just say four. I think it's actually been, you know, upwards of eight. You know, there's all kinds of websites that, you know, kind of support that based on the basket of goods that, you know, that they, that they use. But essentially I had an opportunity to talk to some people, you know, that, you know, invest at a very, very high level and, you know, more on the economist side of things. And here's why they say we don't have infl yet. He said the first stage of a recession, people start to save. So all the money that's in circulation in the economy, all the money that's been printed and all that stuff is actually in people's bank accounts. And if you'll notice, that's why banks are now saying they're charging you to open an account. Right. It's the exact opposite of what it used to.

Right. Used to get a toaster.

Yeah, right. Right now, now they're charging you. So there's a lot of money in the system, and we won't actually see inflation hit until people start to feel comfortable and start to feel like there's some stability on the employment side of things and the economy's kind of settled out a little bit. And so once they start to fill that, Jason, then they're going to start spending again. And when that money starts to enter the system, that's when we'll start to see inflation. So in other words, the money is out there, it's parked, as you can see if you look at savings rates. But when it starts to come back into the economy, we'll start to see inflation hit. And at that point, I think it's going to be fairly significant.

It'll be interesting to see what they report, but my guess is going to be between 6 and 8%.

Yeah. And so the consumer price index obviously totally understates it. Anybody that looks@Shadowstats.com or just looks at their bills, they go to the grocery store, pay utility bills, they realize inflation is much higher than that. So we all know that that's a bogus measure, no question about it. But when that genie, when that inflation genie gets out of the bottle, Ken, it's hard to put it back in and contain it. Everybody's got to follow Ken's advice and position yourself for it because it is coming and to some extent, it's already here. Ken McElroy, give out your website again, if you would.

Sure. It's kenmcelroy.com so it's K E N M C E l r o y.com all right.

Well, Ken, thank you so much for joining us today. Great insights. Keep up the good work out there and keep acquiring more un.

Thanks, Jason. Great chatting with you. Appreciate being on your show.

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