Ken McElroy: 2008 Prices Return for These Properties
BiggerPockets Real Estate Podcast Podcast Recap
Published:
Duration: 45 min
Guests: Ken McElroy, Danielle McElroy
Summary
Ken McElroy discusses the current real estate market, drawing parallels to 2008, particularly in multifamily properties. The episode highlights opportunities in the market due to lowered multifamily prices and the importance of data-driven investment strategies.
What Happened
Ken McElroy and Danielle McElroy have accumulated a substantial portfolio of over 10,000 real estate units, focusing primarily on multifamily properties. Ken began his career in property management and has since developed a strategic approach to real estate investing that emphasizes stability and growth.
Ken McElroy sees the current real estate market as reminiscent of 2008 in terms of opportunity. Unlike the 2008 crash driven by single-family home repricing, today's market is affected by high interest rates and multifamily price drops of 15-20%. Ken highlights the slow manifestation of distress in the multifamily market due to maturing loans and poor property management.
Danielle McElroy's journey in real estate started in 2016 with investments in single-family homes. She employs creative financing and negotiation techniques to secure cash-flowing deals, and she transitioned from condos to single-family homes due to high HOA costs and increased competition.
The episode discusses the importance of strategic market analysis, with Ken McElroy emphasizing migration patterns and population growth as crucial indicators for multifamily investments. He advises maintaining a loan-to-value ratio under 60% and opting for fixed-rate loans to ensure financial stability, especially in volatile markets.
Ken McElroy also advises investors to focus on areas with significant development, such as redeveloped malls and new amenities, as these locations tend to be more resilient during market corrections. Danielle McElroy's current 'buy box' is in North Phoenix or Scottsdale, targeting properties around $500,000 due to strong tenant demand and growth paths.
The episode suggests that smaller multifamily assets, particularly those with 10-30 units, may offer investment opportunities due to distress from renovation costs and adjusted prices. Ken highlights the structural advantages of multifamily real estate, such as depreciation benefits that can offset taxable income.
Real estate investors are encouraged to use data-driven decisions, especially in multifamily investments, where accessing specific data might require payment. Ken McElroy emphasizes the importance of visiting out-of-state properties to gain a comprehensive understanding of the area beyond what data and online research can provide.
Ken McElroy has a podcast and YouTube channel, the Ken McElroy Show, where he shares more insights with live sessions every Monday and podcasts every Thursday, providing continuous education and updates on the real estate market.
Key Insights
- Ken McElroy notes that multifamily property prices have decreased by 15-20% nationally, creating opportunities for investors to purchase at prices reminiscent of 2008. However, distress in the market is gradual, often linked to maturing loans and poor management.
- Danielle McElroy demonstrates the importance of negotiation and creative financing in finding profitable real estate deals. Her strategic shift from condos to single-family homes was influenced by HOA costs and market competition.
- Investors should focus on geographical areas with substantial development investments, such as redeveloped malls and major amenities, as these areas tend to withstand market volatility better. Locations like North Phoenix or Scottsdale are attractive due to their growth potential and tenant demand.
- Data-driven decision-making is critical in real estate investing, particularly in multifamily sectors where specific data might not be freely available. Ken McElroy advises investors to physically visit potential investment areas to complement their research and data analysis.