How Infinite Returns Work in Real Estate Investing - Ken McElroy

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0:46Robert Kiyosaki:This is the Rich Dad Radio Show. the good news and bad news about money. Here's Robert Kiyosaki.

0:54Ken McElroy:Hello, hello, hello, Robert Kiyosaki, the Rich Dad Radio Show, and I apologize, I have a little cough. So if I cough every so often, that's what's happening. And our guest today is one of my best friends in the whole world, Ken McElroy. But I'm going to give you a little update, bring up to speed, before Kenny, what happened. So, again, I was coming out of the Marine Corps in 1974, four and my poor dad said to me he says you know says well why don't you get your phd i said my phd yeah and fly for the airlines because it was a pilot so many of my classmates flew for that my we flew together the marine corps they went to fly for the airlines and uh i said i don't want to fly for the airlines i've had enough flying six years of flying and then uh so i asked my rich dad what should I do I said I want to be an entrepreneur like my rich dad and he says well if you're going to do that you'd better understand real estate and I went why so this is way back in 1974 and I didn't really realize that you can't see something you can't see so then with that I took my rich dad's advice I took a little real estate investment course and my rich dad says because real estate is the object of becoming an investor in other words a lot of people invest get a 401k stocks and bonds mutual funds my rich dad says you have to buy real estate rich real estate gold and silver the basic of what basis of wealth so with that i became i took a little real estate course i had to learn how to buy real estate with nothing down and this is in honolulu how do you buy real estate with nothing and still turn a profit that was the question so i finally found a guy who could teach me and i bought my first piece of real estate on the island of maui i paid nothing for it cost me and i made 25 bucks so i paid nothing for this one bedroom one bath it wasn't quite oceanfront it was pretty close to the ocean and I paid forth my credit card.

3:10Ken McElroy:So it was 100 % debt financing, which is what my rich dad wanted me to do. He says, you have to learn how to use debt. There's good debt and bad debt. So back in 1974, I bought my first piece of property. I used a credit card for it and I made 25 bucks. It was an infinite return. In other words, I had none of my money in the deal and I was still making money. and infinite comes out of here then. And that was my first investment. Since then, I still invest in real estate. For those interested in real estate, this here is a Bible. It's called The Real Book of Real Estate. If you want to know anything about real estate, it's in here.

3:49Ken McElroy:It's all different. There's so many different ways you can make money with real estate. So if you're really interested in becoming one, here's The Real Book of Real Estate. Different investors talking about how they do it. And then I wrote this book here with a real real estate guy, Donald Trump. And I met Donald in the green room at the Javits Center in New York City. And there was about 8 ,000 or 10 ,000, I don't know how many people. We did it at Marconi Center in San Francisco. And Donald and I traveled the world teaching real estate all over the world. In the meantime, then I met Kenny McElroy.

4:27Ken McElroy:And back when I met Kenny, flipping property was really, people would buy a house and flip it for money. and I don't flip. So when I met Kenny, we were talking, I said, you're probably a flipper. Kenny says, no, I don't flip, because I'm going for the infinite return. And Kenny was the first guy, besides myself and my rich dad, who understand how to make money with nothing. So with that, Kenny and I have been best of friends for like 30-something years now. We've traveled the world with a lot of laughs. Kenny got detained in Moscow. I don't know what for, but he got detained there. But it's been nothing but a great, great road trip all over the world together for 30 years.

5:16Ken McElroy:And now Kenny puts on these huge, huge real estate seminars that I recommend. I'll have him talk to you about it. But if you're really serious about real estate, it's more than just buying a two-bedroom house and flipping it. So again, this is the Bible. Rich says, real book of real estate, all the different ways you can invest in real estate. And with that, I want to bring on Kenny McQuarrie. We're going to talk about our favorite subject, real estate. Welcome, Kenny. Hey, how are you? Great to see you as always. Good to see you. We've had some laughs, haven't we?

5:50Robert Kiyosaki:Oh my gosh. So many. We would get in trouble if we go on and on and on. But, you know, getting on the road together is so fun. but there's a lot of pranks and a lot of fun. I mean, there's a lot of work. It's fun to teach, but at the same time, we have a lot of fun.

6:06Ken McElroy:But anyway, when people say, how do they get rich? I just know Kenny McElroy because Kenny was the only other guy I met who back in the, I forget what now, they were flipping properties. I like to flip because it takes a long time to find a great property. Why would you sell it? So Kenny was the first guy that didn't flip it. and we use infinite returns. And that means we use none of our money to make money. In other words, we use brain power. So welcome to the show, Kenny, and a lot of laughs and all this, which might give people a little bit of your background in real estate really quickly on this one.

6:49Ken McElroy:Sure.

6:50Robert Kiyosaki:I'll give the quick version. Um, well, when I was in college, um, I started managing apartments for free rent and there's nothing better than actually doing something. As you know, you can read about it. You can watch videos, you can do whatever you can hear people discuss it. But at the end of the day, unless you do it, you don't really learn. So I, it was actually kind of neat because I got, I was in school for business, but I I was studying it technically. And so by actually sitting there collecting rent, looking at the expenses, coding the bills, and understanding cash flow from a business standpoint, that was really my first huge education.

7:35Robert Kiyosaki:And I really liked the business because there was a tremendous amount of freedom. I understood it for whatever reason. For me, it was like water off of a duck's back. I just literally, I liked property management. it. I like the tenant, the relationship side of it. I like the business side of it. I like the freedom side of it. And I just really continue to do that for a long time for other people, Robert. And then one day I was like, I'm on the wrong side of the desk. I need to start buying these. But I really believe that I needed that timeframe in the beginning that the education side to be able to see, like what you said earlier, be able to see something that's broken.

8:15Robert Kiyosaki:Maybe it's highly vacant. Maybe the expenses are high. Maybe it has bad debt. Maybe it just needs some new capital to be refreshed, whatever it is. But having gone through the property management grind and seeing it from an operational standpoint gave me the power and the strength to be able to buy. Now we own 10 ,000 apartments. We've got about 400 employees. And there's a zillion lessons there as well. But I'm a cashflow guy. I like infinite returns, like you were talking about earlier. I use debt. I use the tax law, which I didn't know any of this stuff when I started. Not one thing, I swear.

8:58Robert Kiyosaki:I didn't learn any of this in school. I just learned it from doing. And then, of course, I was on my own journey as well, trying to be better at what I was trying to do, trying to understand tax, trying to understand debt, trying to understand equity, trying to understand where to buy and why and all of that. It's been a blessing, all of it.

9:19Ken McElroy:Yeah. Real estate, people think, I'm just going to buy a house to get rich. That's not it. And the amount of study and experience and all the things you have to understand before you get into it. So the other thing that happened with Kenny is he realized he was doing business with guys like me. He talked about the other side of the desk. so these guys would come up and kenny would hand over checks all this cash to this guy who owned the place and the lights going in kenny's head he goes i'm on the wrong side of the table so what he did is we want to go for the investor side not the operation side so he became an investor so when i met kenny when he said he was in property management my lights went on because if you can't manage property, you shouldn't be in real estate because real estate is highly property management.

10:13Ken McElroy:It's all management. So that's why you've written a couple of books on real estate that are part of the Rich Dad series, which you might tell us those books that four people want to get started. Yeah, of course.

10:25Robert Kiyosaki:Yeah, yeah. Well, the first one with encouragement from you was the ABCs of real estate investing 20 years ago. And I remember you really saying, listen, there's a lot of people that would like to know how you've done this. And I didn't really understand the power of books and the power of that. And it was really an eye opener for me to be able to write, pour out what I've done to that point into a book and have millions of people read it. And then after that was the advanced guide, which was a little bit more technical. And then the property management book, ABCs of property management, the ABCs of raising capital.

11:09Robert Kiyosaki:And of course, the ABCs of buying rental property. So all of those books were educational pieces for really to teach with while we were traveling around with you. Yeah.

11:24Ken McElroy:And that's why I said a lot of people, when I met Kenny 30 years ago, people were flipping. And people still flip. But to me, you flip, you've got a short-term capital gains problem. And the reason I wanted to have Kenny on board, he's so sophisticated that it goes back to my original deal. My rich dad said for me back in 74, how do you buy real estate with nothing? You know, other people's money. and still make money. So if you have none of your money into the property and I was making 25 bucks, that was an infinite return. We buy property, Kenny fixes it, and then he borrows out the equity. So he takes a property with bad valuation, NOY, net operating income, he increases it, and the increase in income or rent, he borrows out and he gives it back to the investor.

12:26Ken McElroy:So when I met Kenny, the reason I'm a rich man today, for many reasons, we have none of our money in the deals. We're going for infinite returns. And that comes from these two points here. But I don't recommend you try that unless you're really ready to study, put in the hard work, make your mistakes, and it's worth it. So, Kenny, we've got two minutes before the first break. What's your definition of infinite returns?

12:56Robert Kiyosaki:Well, infinite return is simply owning something that produces cash flow when you have no investment in it. I think that's the definition. And so the question is, how do you do that? There's a lot to it. First, you've got to find the right deal. So in a real simple way to explain it, I look for broken. I look for things that lenders own. I look for things that are poorly managed. I look for things with upside. I look, you know, think about a vacant building that you've driven by a hundred times that that would be broken because somebody owns it, but there's no rent coming in. So, so all you do something as simply as finding a tenant for the building.

13:40Robert Kiyosaki:It could be that simple. And then once it's, I would call it fixed, then you really just go put debt against it to replace the debt or the money that you already put down. And I'm simplifying it, but it really is quite fun. Because everybody wins, right? You're finding an opportunity and you're helping investors. You're helping lenders. You're helping people that are, you know, property management and, you know, and people are happy. So I love the business. I just think it's the greatest thing ever. Once I discovered it, it's hard to unsee it, right? Like once you know how to invest money and you know it's two, three, four years short term, and then you're pulling it back out and just redeploying it, it really starts to get fun.

14:35Ken McElroy:so i had the pleasure of traveling with kenny once to look at a property was i think it was san antonio and i was there i was there with your fix it guy the guy that actually did your construction and it was somebody it was a skip of the titanic i think it was like 300 units or something and they just there was nothing there the place was they took they opened up the walls they took all the copper out and sitting in the middle of the living room was the toilet Yeah. I remember that. I went, man, this is a horrible looking property. And all Kay did was look to his guy who could fix it. He goes, no big deal.

15:14Ken McElroy:So what they did was they took that property. You got it for a song so undervalued. Then I put my money in. Kay takes the money, then improves the property, then increases the rent. And the increase in rent is what services the debt. Is that basically it?

15:35Robert Kiyosaki:Yeah. I'll just give you the fast version. So it was bank owned. That's the first thing. So the bank had a problem and it was 50 % vacant. So because of my background in property management to be able to fix stuff, I wasn't afraid of that at all. So I knew how to fix it. I didn't know if it was going to take a year or two years, but I knew I could put the team together because of my background that I explained before. So the money that we put down and the negotiation with the bank and all that stuff was all great. And I knew how to pull all that together. The question was, what would it be worth when I fixed it?

16:14Robert Kiyosaki:So you always got to start with, what are you paying? And then what is it worth when you fix it? So we bought the note for about$20 million. We put$7.5 million in, and I knew it was going to be worth over$40 million in two years. That's based on just fixing something that's broken. and it actually being appraised for about$42 million. So we ended up hitting the business plan the way that I thought. And at that point, we put new debt on, pulled the original capital out, and at that point, everybody had zero in. And that's kind of the point. That means that from there, we were infinite. Get the income.

16:52Robert Kiyosaki:Yes. We didn't sell the property. Everyone stayed in. All the people stayed in. They just got their money back.

16:59Ken McElroy:again before we go to break there's one last thing i've seen kenny do there was a property i think what he did was he put in washing machines or something so he borrowed money to put washing machines in it increased the rent and the rent then covered all the costs of the washing machines plus the building yeah another infinite return

17:23Robert Kiyosaki:so that's just another yep another strategy i'll i'll go in more detail after after the break on

17:29Ken McElroy:that one yeah so it's not just one way and uh it takes creativity takes guts but it takes a lot of experience and years of uh you know making a lot of mistakes along the way yeah okay we come back with jenny mccroy he's the author of the rich dad's guide to um you know abcs of real estate property management and financing properties. So we'll be right back because what you want today is an infinite return. You make money without any of your money being in the deal. We'll be right back.

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20:36Ken McElroy:welcome back robert kisky rich dad radio show my special guest today is my long friend over 30 years now ken mcelroy he's made me a very rich man but kenny talks about his aha moment was that he's a property in college he's property management he collects all the rent he manages the property and this investor pulls up and kenny gives the cash to the investor and that was his, the lights went on. So Kenny switched sides of the table. And now I'm one of those investors that comes up to Kenny and he makes a lot of people very, very rich with zero of their own money in the deal. He is 100 % dead. Now don't try this at home unless you're willing to practice because debt can kill you one way or the other.

21:22Ken McElroy:And the reason I want to bring Kenny up right now is this. Everybody keeps talking about what's the Fed doing in the 3 of COVID, bro? What's interest rates? All this stuff. It's important. But when people keep talking about the Fed, how much does that affect your thinking? The Federal Reserve Bank, should I say.

21:43Robert Kiyosaki:First of all, you've got to watch that stuff. Those are indicators for sure. But I think for a lot of people, they're just a distraction from actually getting busy. You know what I mean? It's important, But the Fed doesn't, you know, everything that they do takes a year to a year and a half to two years to even hit the economy. Like everything, like an interest rate increase or, you know, so they're a slow moving animal. You know, the market, the stock market definitely reacts and, you know, those kinds of things, you know, obviously based on some decisions. But real estate is, it's a slow moving animal.