Ken McElroy: 2008 Prices Return for These Properties

My guests today own more than 10,000 units and built one of the most recognized brands in real estate investing, but they each started from a single property, just like everyone else. Ken and Danielle McElroy have invested through every kind of market cycle of the last three decades. We're talking about recessions, booms, rate spikes. They have seen it all from individual condos to hundreds of multifamily units. So I want to know, what are they doing in today's market? Are they still buying? And how do they stay profitable when everyone else is sitting on the sidelines? Today, Ken and Danielle are breaking down their market outlook, the strategies they're using right now, and their advice for real estate investors, whether you're looking for your first property or you're trying to scale up to hundreds of units. If you want to know how experienced operators navigate uncertainty, this is the conversation. What's up, everyone? I'm Dave Meyer, Chief Investment Officer at BiggerPockets, and this is a very special episode because I'm joined by Ken and Danielle McElroy, or you could say I am joining them because, as you can see, I'm not at home. We are recording this live from their studio in Scottsdale. Let's not wait anymore. Let's jump in with Ken and Danielle. Ken, Danielle, welcome back to the BiggerPockets podcast. Thanks for being here. It's been a minute. Yeah. Excited. And Danielle, it's your first time? It is my first time. Well, welcome. It's long overdue. Sorry about that. Thanks for being here. Well, I think we should do a refresh then since, Ken, it's been a while. Danielle, your first time. Danielle, maybe just tell us a little bit about yourself, your background in real estate. Yeah. So I'm a real estate investor. I own five single family units, and I started investing in real estate in 2016. My first investment was a property that I lived in, and I actually met Ken when I was looking to convert from a condo to a home for myself. And he said, why don't you rent the condo and buy a home? Where I was planning on selling the condo and then buying a home. And I was resistant, but I did it, and that's how I started in real estate investing. How'd you convince her? It happens, right? I get it. Yeah, absolutely. You have all this equity, and you're like, I need it to buy whatever next. I'm like, no, no, no. Let's use it to leverage to get a second one, and a third one, and a fourth one. That's the model, right? 100%. I mean, I talk about this on the show a lot. It's probably, I think, the biggest mistake I made early in my investing career. I started building equity in my first deal, and I felt like that was like my life savings there. It was like my fallback option, like six years in, I was like, man, I could have 10 units by now if I had just done it strategically. But it takes a while to learn those things. And you also have to have a little bit of trust, right? And education, all that stuff to be able to pull that off. And fast forward, it worked out. Yeah, fast forward, it worked out. I don't do condo investing anymore, but on single family, I think it's great. Yeah. Well, good for you. That's awesome. Thank you for joining us. And Ken, maybe tell us a little bit, remind our audience about your background. Sure, sure. So I started in property management right out of college, managing properties for collecting rent, and cleaning units, and painting units, and all that kind of stuff. And that's actually what I learned the most, right? As you do on the operation side. So that gave me the courage to buy. I started buying about 10 years later, small stuff. Then I started scaling into the bigger stuff. So now we have about 10,000 units, mostly multifamily. We're a builder, buyer, rehab, value add, ground up construction, kind of do it all. But we're generally just staying in the multifamily lane. Let's just start there, Ken. I mean, it's been a rough couple of years for multifamily, for most operators. How are you feeling about the market right now? Well, I'm excited. I made the most moves financially, strategically in 08. So for me, this is what I went through in 08, right? Now I'm 15 years more wise, a lot more deals, and this is an incredible opportunity that we're getting ready for. So I'm very excited. What did you see in 08? What were the hard lessons that you learned there, and how do you think this is different? So what we had at that point was we had, I call it a main street crash, right? It was a single family main street crash. And so we had a big repricing at three, 4 million units on the MLS, and it just brought all the prices down. So it's a temporary crash on the single family, but then what do those people do? They move over to multi. So when you move out of a single family, you move into the rental side. So we went from 69.2% home ownership under Obama to about 65. So every percent just put more pressure on the other side of the equation or the rental side. So everybody that started in the multi business after that, they looked like they were rock stars, but really it was just a shift from single over to multi. And so that kind of created that run. This is really different. So this, we don't have a single family crash, in my opinion. We're undersupplied. Leading up to 07, we were building a million and a half homes, let's say, a year. After that, we were building 500 to 700,000. So that's where the shortage came from. It came from that, call it the healing period, right? There's so much inventory, why would you build when you have so much on the MLS already? So this is extremely different, where you have, depending on who you look at, Realtor, Zillow, Fannie, Freddie, they all have different reports on this, three, four, 5 million short, let's say, whatever the number is. That's a little bit different. So you don't have a single family drop, but what you have is you have an interest rate issue here today. So people are used to these low rates. For me, this is normal. Rates are normal. What's not normal are the values. So the prices went up. So now that's resetting. You said that you're excited about this, but also prices have been resetting. Why is it taking so long? I guess for me, I've been waiting for multifamily prices to come down, and they have, what, 15%, 20% nationally. But I feel like the distress should already be here more than it is, and you don't see inventory flooding the market. So why is it taking so long for the multifamily market to get back to some equilibrium? And when are we going to see transaction volumes start to pick up? So we're starting to see it now, but I'll tell you what happens. There's a slow unwinding that happens. You know these are all partnerships, right? So there's a general partner and a limited partner. And so the first thing that gets exposed are the people that don't know how to manage. So the first kind of tranche is the people where they're 50, 30, 40% occupied, expenses are out of control, they didn't manage their CapEx or anything like that. That was kind of the first one. Those are the obvious ones. But the real issue, as you pointed out earlier, is that people's loans are maturing. Or those could be they had floaters or whatever they had. That's all creating the pain. So the irony is, you might have a property that is actually 95, 96, 97% occupied. They actually might be running the expenses and the revenue not far from what the business plan said. But the biggest expense, which is debt, makes it negative. The first thing is the partnership kind of tries to solve it, right? And they try to solve it internally through cash calls and all that stuff. And then they try to solve it with the lender. Then at some point, the lender's got to rip the bandaid off because if I have a $20 million loan and your property's worth 20, I actually don't need you. I'm like, well, I'm going to get rid of Dave, take the property back, and I'm going to try to sell it for 20, which was my loan. So you have all those scenarios going on. So that's why it just takes a while. There's like a forcing mechanism where the lenders are fed up, I guess, seeing the risk on the wall and they're going to just force these issues. And I want to get back to that because I want to talk to you both about private credit. But Danelle, tell us a little bit about what you're seeing on the single-family market. Is it similar to what Ken's talking about in multifamily? No, single-family is different because single-family people are locked into super low rates. So there's not a lot of distress at this time in the single-family market, at least in the Phoenix area. What I'm seeing a lot of is a lot of sellers delisting because they can't sell for what they want to sell for. And we're seeing some really good deals, but a lot of those are coming from flippers that are stuck in a deal that are in hard money and also people that got into Airbnb. Because when people got into Airbnb, they thought, oh, this property is going to make $12,000, $15,000 a month. And Airbnb is oversupplied and softening. So now they're not making that and their mortgages are $6,000, $7,000, $8,000. They just need to stop the bleeding too. And in fact, I have one right now that's a short sale because of an Airbnb. So that is really happening a lot in this market. But as far as your average seller, I'm talking to them all the time. It's like, yeah, I'm going to list this property. And if it doesn't sell, then we're just not going to move. Right. Well, it's so interesting what Kim was talking about in 2008, right? People who are in financial distress would move to multifamily a lot of times. Now renting isn't even cheaper if you have a 2% or 3% mortgage. So even if people are having trouble, they just stay put. And I don't think we've ever seen a cycle like this really in residential before. Yeah. And that's interesting too, because the difference in a way is people didn't put any money down either. So it's like, if I don't put any money down, it's like, yeah, it'll destroy my credit for a few years, but I'm just going to walk away from this. Well, now people have put down 5%, 10%, 20% of the average single family home, like a starter home in Phoenix is in the fours, maybe fives. So you put down a significant amount of money, they're less likely to walk. Plus to your point, it's not going to be cheaper to rent. So it doesn't really solve much. And it's not like they have a ton of equity if they just bought in the last few years. So I just am not seeing a lot of distress on... I know there is some distress, but just not a ton. Yeah. Well, I mean, that's good, I feel like, for society, right? You don't want to see a lot of stress in the housing market for ordinary people. Does this mean you're not finding deals or how do you... I'm finding great deals. Oh, really? Yeah. I'm finding great deals for clients and for myself. I just closed on something last week because what I have found is the people that have to sell have to negotiate. So I'm not really seeing... I get a lot of buyers that are like, I don't want to buy yet. I want to wait for prices to come down. I'm like, you don't wait. You negotiate the price now. You force it. Yeah, you force it. And you have to find the right sellers that have to sell. But if you can find that, then it's been really working out. And to your point, I'm still finding cashflow in deals. You just have to put more down. Right. Yeah. But that deal you found. Yeah, exactly. Tell them about the deal. It's a four-bedroom house for 500 grand. Yep. I found a four-bedroom house and I'm renting it for 2,900 a month. And I actually think I could have got more, but I just bought it. So I want to get someone in right away. I could have got 31 because I had so much interest at 29. But at the end of the day, people like to wait to buy because they're uncertain about what's going to happen with the market. But the way that I look at it is I bought a deal three years ago. It's worth a little less than I bought, probably like 10 grand less than I bought it for. But in the past three years, I've collected over $100,000 in rent. Yeah, it's amazing. So you have to offset that to some degree. You can wait, but you also don't know what the bottom of the market is. So I want to talk to you about this and how to navigate it, but we got to take one quick break. We'll be right back. 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We're talking about multifamily, single family market, how things have changed since 2008. And let's start talking about opportunity because I think that's what people are excited about right now is that pricing is getting a little bit better, affordability is getting a little bit better. So Ken, we were talking, kind of joking before that, the situation we're in right now, not great if you're holding assets, good for buying assets, but you do both. So how are you thinking about portfolio level strategy? Sure, sure. So I think it's important that I'm a fixed rate guy, right? I think you should always hedge your biggest expense. That's your biggest expense, fix it, and make sure it cash flows day one period, right? So that's been my philosophy from day one. That's why we never got in any trouble. I don't buy anything with an expectation that rates are going down ever. I always actually think they're going up no matter what. That's where my head is. I like that. And I'm like, if they go down, great, but if they go up, then I'm hedging. And our whole portfolio, the other thing is we're under 60% loan to value on our whole company. We have some in the 30s, some in the 40s, some in the 50s. We have a few in the 70s, but not many, right? So I like loan to value and I like fixed. And then we have our in-house management. So when I look at the blood in the streets right now, and it's a lot, what I see are I find low occupancy, I find poor operators, I find high expenses, I find stress, I find high expensive debt, all that stuff disrupts multi. So I'll just give you a couple examples. Two weeks ago, we looked at a deal in Texas. I won't say what city, 5% occupied. What? What class property? B. 278 units. Now here's the interesting thing. It was worth $45 million in 2021. So it's like a B minus, but they had dumped like five, $6 million of rehab money into it. And it's got a 28, $29 million loan on it. And we just made an offer for 8 million to the lender. Not to the lender. Yeah. So now, am I seeing those deals every week? I am not. But I just looked at another deal in Kansas City, very poor occupancy. So what you have is you have this stress happening and we're dealing with the people that own the debt, right? And usually it's coming from a broker. And sometimes the syndicators involved, sometimes not. So I think we're at the beginning of, we might not get those two. Certainly we made offers on both, but this is what I'm seeing. I'm not talking about 92, 88, 85% stuff. I'm talking about deep, deep discounts. I'm talking about 2008 prices. That's unbelievable. I imagine it would be very difficult to resist something like that. When we looked at that, call it the $8 million offer, we figured that it was going to be another 8 million to fix it and the negative carry and all that stuff. So we're trying to stay under 20 million all in, let's say. But then stabilized, it should be in the mid thirties. So a good deal, potentially, if we can pull it off. But those are the things that we're seeing. Well, I want to just sort of big picture this for the audience here, because what you're saying is, you're taking some paper losses right now. And just for everyone, that just means the value of your properties sometimes goes down on paper. You don't realize those losses unless you sell them, but it sounds like you're basically able to say, yeah, that stinks. It's not ideal, but you've just bought fundamentally sound properties that cashflow with fixed rate debt. And so, yeah, it's not as fun to look at your net worth statement probably, but you're still cashflowing, you're not worried about them, you're just stressing them. And that allows you to move on to opportunity and to see this time period as an opportunity to buy rather than freaking out about your old deal. Cashflow is way down. No question. Just higher vacancy. Higher vacancy, concessions, expenses are up, all that. And net worth for sure took a hit, but that's what a cycle is. Exactly. You can't time the market. And I think that a lot of, especially small investors or maybe people that haven't invested yet, they don't want to make a mistake, so they try to time the market. But realistically, like what Ken was saying, of course, everyone would love to buy a good deal that they hit right at the bottom and then it just went up. But at the end of the day, if it's cashflowing, it's really just your ego, like you said, how much you're worth. Because at the end of the day, the rent are pretty stable and you're cashflowing the deal. So who cares if you bought it now and then if you would have waited a year, it would have been worth less. You don't really hear too many people saying, oh, I bought in 2018. I wish I would have waited until prices, because they gained all that equity. And even now people that bought in 2010, you're not hearing them complaining because they're in the money too. So if you hold something long enough because of inflation, it's going to go up. It's just you can't be forced to sell it. Exactly. That is the number one way you lose money in real estate, being forced to sell when you don't want to. People are just getting into this or the average homeowner who often tries to dissuade their friend from investing in real estate. I think what they miss is that market appreciation, just like waiting for macroeconomic tailwinds to boost up your property price is one way you make money from real estate. And if you wait, you miss out on all of those other things. I'm not saying to go out and buy anything. You should be diligent and buy good deals. But you're still making money even if you're taking a paper loss for a couple of years, right? I'm sure even with your vacancy and cash flow down, still paying down your debt, still making cash flow on your single families or your multifamilies, right? Yeah. You don't really think about it. You just look for the next opportunity. You look for the next thing that cash flows. You don't want to buy something that doesn't cash flow. I made that mistake one time. But as long as you're cash flowing, it really doesn't matter. This is music to my ears. This is what we talk about all the time. I like appreciation, but would never buy something without cash flow. It doesn't make any sense. Otherwise, you're just guessing. It's just pure speculation. So Danelle, tell us how you're thinking about portfolio strategy because you're in a situation I think a lot of people are facing, which is you like residential, it's stable, but prices are weird. You don't really know, we're going to go down a little bit this year, maybe up a little bit. That's why people are tempted to wait. So how are you thinking through that? Well, there's a couple of things. One, I had three single family homes and two condos. I 1031 both condos to single family homes in the last year. The reason I did this is because the HOA prices were just killing me. And I'm like, I need to move this into something that's a better value. Plus all of the class A's that are being built are a direct competition to those condos. So my rent was going down and on my single family homes, it really wasn't. So I made that transition into all single family. The other thing that I'm looking at is sellers right now are in a tough situation and they're more likely to look at creative options and they're more likely to negotiate to a lower price. So myself and my buyers, I'm having us look at, okay, at what price does this need to cash flow and how does this work? What number could we buy to make this cash flow? And then you negotiate that price or you offer creative financing and you're going to get a hundred nos, but when you get that yes is when the deal works. Building up that thick skin to get rejected a little bit. Oh yeah. And just knowing you're going to have to, like, you know, I work with buyers sometimes and they fall in love with a house. I'm like, you can't fall in love with it because the numbers have to work. You know, you have to be a little bit indifferent. You can fall in love with it after the inspection and after the offer is accepted. Yeah. Once you already own it, fall in love with it, but not until then. Yeah. That makes sense. And is it really a hundred to one? Do you feel like it's really that many offers you have to make to get a deal right now? It's a lot. I think you can look for things. I look for Airbnbs because I know that those are going to be more motivated to sell. I look for flips because I know those are going to be more motivated to sell. But yeah, I mean, I think that you do have to make a lot of offers and you have to look at a lot of properties. It's one of those things you have to put more work into being a buyer right now to get a deal that pencils, but it's very possible. Ken, on the multifamily side, you mentioned Texas and Kansas City. Yeah. What's your buy box right now? Is this anywhere? No, we're actually very, very strategic. We follow migration patterns, work, population growth, billing permits, walkability, school districts, all of it. So we like markets that are progressive somehow, right? I'm not talking about politically either, but that has been a factor too. People have left because of those kinds of things. But it's really simple. Without people, real estate doesn't work. It's so simple, right? Yeah, it's your customer. They go to the end of the earth or they go to the edge of town because it's cheap and they can't figure out why they can't get a tenant and all that stuff. So you're better off to buy in areas that are growing progressively somehow or whatever it might be and focus on that. And so there are very specific markets that we like. I mentioned Kansas City, but there's not very many areas in Kansas City we would buy, but there are a couple. Even within. You know what I mean? And the same thing in Tucson, the same thing in Phoenix and the same thing in Dallas and on and on and on. You have areas like North Dallas that's incredibly progressive. Richardson, Frisco, Carrollton, you're going to have really good growth and that's kind of the path of progress. So those are the things we look at. Danelle, how has your buy box shifted over time and how are you adjusting it at all based on just market conditions? I'd say my buy box is right around 500,000 in North Phoenix or Scottsdale because I just see that those are paths of growth. Tenants want to be there. I've never had any issues, any vacancies really. And I'm getting about the same rent I've gotten from the high. I might be down a hundred bucks a month, but it's pretty darn close. That's great. And so those are the deals you're starting to see more of. Yeah. I'm not really seeing them at five, but I'm seeing them at like 550 and you might be able to negotiate closer to that 500 mark. I think what might be interesting though, is you could tell Dave. So Danelle had an imputed equity issue, which meant that she had a lot of equity in her condo, but it wasn't cash flowing a lot, right? Yeah. Because the HOA was $400. So a lot of times people don't look, they look at their equity, but it's not actually producing. So even though she had a low fixed mortgage, she goes, you know, I'm going to... 2.8. But all of a sudden she's turned that into a big cash flower. Real cash. Yeah. I'm cash flowing 1600 a month on this property. So that's really great. But on the other one, I was only cash flowing $700 because of the HOA cost. And also, like I said, the downward pressure on condo rents due to multifamily building. Two things I want to reinforce here. One, thinking about your competition, I think is something a lot of real estate investors miss at front. They're like, this is a great property. Might be. There might be 300 of them right next door and them too. And if they face some financial distress, they're going to be quicker to lower rents than you are. And that's going to impact you. The other thing that I want to mention is talking about return on equity and measuring the efficiency of your deals. A lot of people, when they get in, they're like, I just want to get $500 a month in cash flow. $500 a month is great if you're invested 15K into that property. If you're invested a million dollars in that property, not so good, which is why we always talk about thinking about either cash on cash return, or ideally when we really like is return on equity, as Ken was mentioning. It's a good problem to have. If you build up too much equity in your deal that your cash flow is no longer efficient, it is a problem. It's a good one because you just made a lot of equity, but it is something you should address. And you do that either by doing a 1031 exchange, selling and optimizing, taking out a line of credit, whatever it is that you're doing, but trying to access that equity to move it into another deal where you can do better, which it sounds like you're able to do right now. Well, what was interesting is when I first started talking about this, because about a year ago, I'm like, I think I need to sell one of my condos just because of these HOA fees. And I was going to sell the one that I just sold because I had debt on it, where the other one was free and clear, and I was cash flowing more because I didn't owe anything on it. And Ken made me stop and think and say, OK, I know you're making more on this one over here, but you have so much more money tied up over here. So then we actually did the math and come to find out, because I was sitting on this 2.8% mortgage, my return on equity was so much better on this one that had the loan. And so that's what prompted me to sell the other condo first. And to your point, I never would have looked at that. So I think some people are like, oh, this is paid off, I'm making all this money, but are you really making all this money? Yeah, not efficiently. It sounds like a little difference, but the difference between a 10% return on equity and even 12% return on equity, you compound that for an investing career, it's millions of dollars probably. And those kinds of optimizations, you do it immediately in your first deal. But as you grow as an investor, this is one of the key skills, being able to optimize, trade up, trade out. You really got to learn how to do it. But I think it's the fun part, actually. I think it's where you get to tinker a little bit, move your chess pieces around is the fun part. It's not a bad problem to have. I always thought that I would be a buy and hold, never sell anything, just keep... And then you have to really start looking at your portfolio. And it's been really fun to your point to 1031 some of these deals into better deals. Yeah, absolutely. All right. So let's talk some advice for our investors. Ken, you were talking about deals, you're seeing them, but lenders are bringing you deals from your hard-earned experience and reputation. But how does an average investor who's trying to get into multifamily and take advantage of opportunities in the market do that? I think it's going to be hard right now, just to be clear. So what does a lender look for during times of distress? And I think that's the issue. So by the way, you can do this, but the very first thing that they look for is, I'm a lender and I have a problem, and I'm going to sell something to Dave. Can Dave pull it off? Period. It's not if you have the money. Nobody cares about that right now because everyone has the money. Everyone can buy a distress deal. The issue is, do you have the team? Do you have the experience? Can you pull it off? And so I'll give you a really good example. I had one of the bigger banks in the country, had a 680 unit building in San Antonio that I bought from them directly from the bank. So the bank took a write down, but the thing was 30% occupied, almost 200 people living there. So obviously you couldn't pay its bills, couldn't pay it. So now what does the bank look at? The bank's looking at my ability to renovate the property, manage it well, manage the construction, manage the renovations, manage the interest reserve and all the stuff. Do I have the systems and the people and the team to pull all that off? Because the last thing they want to do is just sell it. And they can't. It's not financeable. You don't finance something that's- So they are looking for you to operate, not just to unload it. Correct. Yeah. So that's the big issue. That's going to be the defining moment for people. This is not about putting money together. This is about the team. This is where we're headed, right? So this isn't about going to a weekend seminar and learn how to syndicate. Like, you know, it's not really, this is going to be, you know, can you do a 30, $40 million renovation and manage your way out of this scenario for somebody else, right? And so the lenders or the debt funds or whoever they are, they're looking at the team, the experience, the wisdom. And so if you're new in the game, you can absolutely put those people together, right? Like obviously, you know, this year at Limitless, we're going to have, the room's going to be full of those folks. The people that have been through it could help, you know, and that would be a great year to put together your team and your dry powder for what's next. But just to go out and do it and raise the capital would be very, very difficult because even though you might have the money, they might not want to take the risk. Yeah, that makes sense. And you might not want to take the risk just because you have the money. Yeah, that's true. It's another really good point. Yeah, it's a very good point. Do you think, what about like a smaller multifamily asset if you're looking at 10, 25, 30 units? Like, do you think there'll be distress with smaller investors and like could, you know, someone who's got a small portfolio, small multis take something like that down? For sure. Yeah, I actually, they're all over the place. You know, here's what I would look for. I would look for a small multi operator that did a full renovation and their prices are 30, 40% adjusted. You could step in and buy that thing for pennies on the dollar and not have to do anything. Because they bought, they did the renovation, their debt adjusted, and now they're not covering their cashflow and they got to get rid of it. And even if it's fixed, you know, maybe they fixed and maybe they did all the renovations, but the, you know, the cap rates are up over six now. So they probably bought it when they're in their fours. A lot of people. Yeah. So you're talking about two points on an NOI, even if they have the NOI. So I think if they're holders, they don't have to worry. But if they have any kind of maturity in any way, this is really boils down to the cost of the money. Yeah. Janelle, what do you see in this single family? Like, do you have any advice for people who are wanting to get into this market? And how do you navigate it? We talked a little bit about negotiating, but any other thoughts? Well, I think there's hesitation. You know, I always, I work with homebuyers and I work with really experienced investors and I work with people maybe looking to buy their first investment. And the difference with the investors is, you know, we negotiate a good deal and they take it, you know, and it's cash flowing. Where my first time homebuyers, it's just good advice, even for homebuyers, first time homebuyers and beginning investors, they're like, okay, but if they're so desperate that they're going to go from 550 to 500, maybe we should just wait and just see, you know, and they always want to wait and see. And you can't do that because you miss out on opportunities when you just wait and wait and wait. Sure, maybe you're right. And maybe, but are you going to act if it does go down a little bit? No, because you're going to wait and think it's going to go down further. So you just have to focus on the numbers. And if you're able to cash flow, then that's really all you need. Absolutely. I think for everyone watching this or listening to this, I think the key here is that multifamily has distress, probably will continue to have some distress. And that's where you can see these huge discounts and hopefully we'll see a rebound and you'll be able to take advantage of that. With residential, the discount isn't there. And even if it comes in the next year, at least everyone who listens to this knows my opinion about this. It might go down a little bit, but I don't think we're going to see some dramatic crash in housing prices. And so it's really just about what you said, finding good assets that cashflow. If you find them, the question is, what else are you going to do with your money? Are you just going to sit on it and wait? If you have something that cash flows in as good asset, it usually makes sense to actually go out and buy that. And just because the seller's willing to negotiate with you does not mean if you wait, they're going to negotiate more. I've had so many clients where it's like, I'm just going to wait. And then a few days later, the deal's gone. And you want to have the data and you want to make sure you're cash flowing. But then after that, you just have to just trust and do it. And if you're going to hold it, you're going to be fine. Now, when people come to me and say, I want an investment or to buy a home for five years when I'm going to move or I'm going to sell it, then now might not be your best time to buy. Because who knows what the real estate market is going to be like in five years. But if you're planning on holding it, then you just need to just do it. Great advice. Well, that's a perfect example of what Danil and Ken just said of how we talk about looking at data, but grouping things into a metro area, especially in a place as big as Phoenix or LA or wherever you're investing, just doesn't make sense. You really need to dig into individual levels. You can find that data. If you're in the single family space, a lot of it is available for free. You can go on Redfin or Zillow, use chat GPT with caution, but you could get some of that out there. It's a little harder to come by in the multifamily space. You usually have to pay for it. But if you're going to invest in multifamily, go pay for it. You have to do it. Data is everything. Honestly, every single move we make is data-driven. I love it. Yeah. And you really have to look at even going on Zillow or Redfin and looking at the different rents and the different areas and how many rentals are available in that area. Everyone always asks my buy box, and my buy box is certain roads, certain blocks. It's not this big, ever-expanding area because you have to look at where you want to be and where tenants want to live. And because of that, I have very low vacancy rates, where, to Ken's point, some people, to get a better deal, they want to invest way outside of town. And that really works when rents are going crazy and everyone's moving here and everything's booming. But now that things have pulled back, those rentals are empty or they're significantly discounted because now people can't afford to live where they want to live. And so you see them moving inwards. Exactly. I'll give you a great example. We have an area, everybody has these old aging malls all over the country, right? We passed one driving here. Right? They're everywhere, right? Yeah. So where Daniil decided to focus, and anyone can do this, a big, big developer bought the mall. They ripped it down. I'm talking about Macy's. I'm talking about Sears. I'm talking about JCPenney, gone. And what did they replace it with? Whole Foods, Lifetime Fitness, apartments, really cool, edgy, outdoor concept. It's not very often you can buy a big chunk of town, right? So she's like, this area is going through a resurgence. So she's been focusing within several blocks of that. And she's bought two properties over there. It's just paying attention. That's it. You know what I mean? It's going on everywhere. It's just paying attention. But it's important if you're going to buy in an area that you don't live in, that you have someone really knowledgeable about the area. Because if you're not from Phoenix, you're not going to really understand it. And I see investors do this a lot where they find a good deal with maybe a realtor or somebody that doesn't know a lot about the area. And then now they have this rental that doesn't rent what they thought it was going to rent for. It's in a bad area, even though three blocks up might be a great area. It can be that nuanced. It really is. That's the job of the investor, right? That is the research that everyone should be doing. Even if you have a great agent, go learn these things for yourself. That's why I always recommend if you are investing out of state, go visit. I know, again, it's a thousand bucks. But whatever, go do it. You will learn more in those 24 hours than you do months sitting on Zillow or listening to me blab on the podcast. I can promise you, you will go learn more doing that. And you just get the vibes. The data is important, but you can see like, hey, I want to invest in this zip code. But when you go drive around and see it, you'll understand. And the other thing that you mentioned, Danila, that's so important is that it changes really quickly too. Sometimes if you're looking at rental vacancies or where the supply is, or you might find out about this mall being redeveloped. And if you're two months late on that, people like Danila who are smart are going to know to go buy that. So it's something that you have to continuously pay attention to. It's not like it takes that much work, but it is something that you need to build into your process as an investor when you're going to acquire things. But I also think when you hear of, I always tell my clients, I hate the word up-and-coming areas because I just hate that. Because to me, that just means edge of town. They're maybe building some new homes down there. But what you really have to look for is, is somebody putting a lot of money into an area to make it up-and-coming? Because to me, just because they're doing a lot of new development and it's far out, once again, you get into that same thing. People like to move towards the center of town if rents get cheaper. So I like to look at where's somebody putting a lot of money? Like where's Whole Foods investing? Where are they putting a ton of money that they're expecting this area to grow? Because that's the stuff that actually moves the needle on home prices and rents. Yeah. My theory, when I first started, I started investing in Denver. It's just booming. And my whole philosophy for like 10 years was just how close can I get to the center of town with a good asset? Like something that's good quality, get as close to it. And Denver's going through a big correction right now. It's not doing well, but my properties, they're in that inner core circle. It might not have been the most units, but they're still doing fine. And I think that's what you see historically. If you look at the data, the pattern is always people are going to move. If every rent comes down and your paycheck stays the same, you're going to go take the nicer apartment with more amenities and a better place. And I think that that's the opportunity right now. It's like prices are coming down on these good assets. If you want to buy them and hold them for 10 or 20 years, I'm seeing better quality assets. Even if the prices are still somewhat flat, the quality of the assets is getting better, at least in the residential space. And you have more negotiation. Like if there's stuff on the inspection, you can negotiate that. Where a few years ago, it was just pound sand. So you have to look at all this stuff. And to your point, if you find an asset, I always like the cheapest asset in the best area. And people are turned off by that. Like, oh, this house isn't that nice. I'm like, yeah, but the nice house that you want surrounded by crummy homes, that's not going to rent well. Yeah, you're going to get all these tailwinds. Right. What's going to rent so good is this little house. It's the cheapest house. People always told me, don't buy two bed, two baths. They're going to be two bed, two bath homes are going to be so hard to rent. Well, that is three out of the five of my portfolio. And they run amazing because guess what? A single parent with two kids will rent that all day. They get to be right in the heart of Scottsdale and they can afford it. And if they want to go up to three bedrooms, it's expensive and people don't have the money right now. Yeah, it's true. If you just put yourself in the mind of the tenant, everyone decides where they want to live. Most people decide where they want to live, what neighborhoods before they decide on the unit. And so if you're in those out of tertiary areas, you don't even get in the search when they type in Zillow. They're not even going to be in there. Most people for convenience, for schools, for whatever, choose that first and you want to be in those good areas. Yeah. And people are, they're on budgets right now. Before everyone had a bedroom and it was really important. And now talking to single parents, it's like, no, if it saves me 500 bucks a month, my kids can share a room. It's not as big of a deal when people are limited on their budget. Yeah, for sure. All right. Well, thank you both so much. It's been long overdue to have you both here. This is awesome. And when, if people want to learn more from you both, where should they do that? Well, we have the Ken McElroy show, which is a podcast and on YouTube, and we go live every Monday and we have a podcast every Thursday. And then also if you go to KenMcElroy.com, we have a subscription for $10 a month. You can subscribe and get a bunch of great content. Great. Well, Ken, Danelle, thank you guys so much for being here. Thank you. Thank you. And I'm soon going to be on the Ken McElroy channel as well. So make sure to go there and check it out. Thanks so much for listening to this episode. We'll see y'all next time.