How Real Estate Investors Use Debt to Build Wealth

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1:20Ken McElroy:Hello, Robert Kiyosaki, The Rich Dad Radio Show, the good news and bad news of our money. and today a special friend, special guest, but it's also a very important subject. And the subject is real estate, basically. And it's important simply because it's real estate. Real estate, parts of it are in serious, serious trouble right now. But when things are bad, also there's good opportunities for things. So my guest today is dear friend Ken McElroy, real estate expert. How many places in the world have we gone to? It's been all over the place. Yeah, we traveled the world. We're talking about real estate because, number one, real estate uses debt.

2:03Ken McElroy:And you may or may not know this, but the U.S. dollar is debt. In other words, money cannot exist unless somebody borrows it. And so all these guys, our friend Dave Ramsey, this is live debt-free. I go, you've got to be crazy. But I want to back Dave up. If you don't know how to handle debt, definitely live debt-free. Right, Kenny? Yes, that's right. I agree. If you don't know what money is and how to use it, then he's right on. Right. So, like I said, I met Dave, a restaurant up the street here, and he's a great guy. And his advice for most people is cut up your credit cards, get out of debt, and all this.

2:46Ken McElroy:I call it, we're in the first inning, Robert, still. And I'm afraid it's going to get worse. Well, you don't have to be afraid about that. It's happening already. It's definitely happening. You know, the issue is this year and next year is going to be what we call maturing debt. Right. Debt that's maturing. Another thing to understand, there's different types of real estate. Yep. Some of the worst properties are the darlings called office buildings. Everybody thought, oh, I'm going to own an office building in Manhattan and all this. And today, they're going to crash. It's going to take people down.

3:18Cities and counties are actually throwing money at developers to convert office buildings into apartments. They already know that those buildings, those office buildings, are going to be eyesores at some point.

3:29Ken McElroy:Yeah. I was a student at Dr. R. Buckminster Fuller. They call him the friendly genius, you know. John Denver called him the grandfather of the future because he's a futurist. And years and years ago, in the 80s, I heard him say office buildings will someday be homes for homeless people. I went, what? You know, that was sacrilegious for me back then. And now it's here. That's quite a prediction too. That was what, how long ago was that, 50 years? 50 years ago. I'm listening to this guy. He says, office buildings will soon be homeless shelters. And you look at the number of homeless is exploding.

4:03Ken McElroy:I don't want to be an owner of a homeless shelter, as you know. So let's get back into real estate. I said it earlier. The reason why living debt-free makes no sense simply because the fiat currency, called the U.S. dollar, the yen, the peso, the euro, they're debt. They're instruments of debt, like a bond is an instrument of debt. And that's why Dave Ravis said living debt-free kind of goes contraindicative. How can that be if it's debt? But the good thing about debt is it's debt. And on top of that, the more debt you use, the less tax you pay, right? Right. Well, three years ago, Robert, or might have been four now, you were way ahead of this curve.

4:43And I don't know if you remember. Well, you probably do remember. You actually did a closed event for us. And it was instead of fight the Fed, be the Fed. Right, right. Yeah. And that's so obvious to you, just like Buckminster Fuller. But, you know, it's not obvious to a lot of people.

4:58Ken McElroy:Just do what the Fed's doing. Yeah. It's the strangest markets. We're in serious, serious world economies and serious trouble. But it's also a great opportunity time. So what's going on in real estate, Kenny? because, you know, as some of you may know, we use debt all the time, 100 % debt. Yep. So we just locked a deal yesterday, Robert. So, you know, there's still deals. There's still, you know, there's a big disconnect between the seller and the buyer for sure. And the difference, of course, is the debt price. So the cost of the mortgage, the interest rates have gone up, as we all know. So the interesting thing, the irony is, is that real estate itself is actually doing pretty well.

5:40So highly occupied, you know, slow, steady rent growth. We're seeing some big increases on expenses. But the one big difference is the cost of the debt. So you can't pay as much when your debt costs are higher. You can't pay as much for the same property that, you know, existed one year ago. Right.

5:58Ken McElroy:And the reason Kim and I invest with Kenny, because your partner is a former banker. Yep, Ross, yeah, the best. And I tell you, it is a game of debt. It is, yeah. Well, you think about it. If you can fix your debt right now, I mean, you know, the rate that we locked yesterday, Robert, is less than inflation. Yeah, yeah. I mean, think about that. We're borrowing at less than inflation. So that's when we talk about money, that's how you do it. Yeah, and a good thing, too, is the amateurs are now floating to the surface, as they say. Yeah. Do you know what I mean? I mean, I feel terrible for people because people come up to me and they go, oh, I took your advice.

6:41Ken McElroy:I bought real estate. I'm going, holy moly. You know, real estate is not like a stock. Like you don't just buy real estate like you buy Apple. And the difference is if you buy Apple stock and let's say it's 10 bucks and it goes down to six, you can get out of it really quickly. But with real estate, it's not that liquid. And that's why you've got to be smarter. And why I cringe when people say, oh, I just jumped into real estate. I'm going, oh, my God. It's like jumping off a moving train or something. So much is going on in real estate. There is a lot. And I think what happens is guys like you, or I would say anybody over 50.

7:19Has seen it. Has seen it. They've seen the cycles. They've felt the pain if they made it. Right. Because we've been. But if you're, you know, a lot of people are pretty delusional about, oh, next year is going to be, you know, and it has been for years. Next year's you made better than last year. It's just not the case.

7:36Ken McElroy:No. What happened since 2008, they kept lowering interest rates, and the whole world economy went into a bubble. Correct. It was a real estate bubble, a bond bubble, and a stock bubble. And so everything got inflated, but as they started to lower interest rates in 2020 or raise interest rates in 2020, a lot of those bubbles are bursting. So it's good news and bad news because there's going to be a lot of opportunities floating. So I meet some of the young women and men. They go, oh, yeah, yeah, yeah. All they know is a good market. But the biggest opportunities float when the bodies start floating.

8:12Ken McElroy:When the bodies start floating to the surface, they go, oh, my God. I can't believe that came up. Oh, my God. Look at that. And there were so many deals coming up when the fish start to float. And we're seeing them right now, Robert. I see. Yeah. Every single Tuesday, we have an investment committee call with our analysts and everybody. And they bring these deals. And, you know, continually we say, well, that deal's not really worth even the loan. So we pass. And the irony is that a lot of the limited partners don't even know. You know, so somebody brings us a deal. They're trying to recapitalize it somehow because they're in trouble.

8:51But the deal's not even worth what the debt is.

8:55Ken McElroy:Right. So it's a very exciting time. I can't believe Kim and I just listed some properties. Yep. And they went. Boom. And everybody else is crying the blues. It's true. Yeah. And it goes to the saying, your profit is made when you buy. Yes, it is. Not when you sell. And also the cash flow versus capital gains strategy that you laid out in Bridget Portet. People, this is the time where you're going to start to realize that philosophy. That's been our philosophy all along. Everything I have, cash flows. And that's just not the case for a lot of people. A lot of people bought big, big assets on a capital gain strategy.

9:33And guess what? That gain is not there.

9:36Ken McElroy:So capital gain strategies, we call it flipping. When I first met Kenny 20-something years ago, everybody was into flipping. Now, she'll flip this house and all this. So you buy a property for, let's say,$10 ,000. It goes up to$15 ,000. You flip it, you net five. Yep. But you pay capital gains. Yep. And we don't do that. Correct. And if you take that even further, if you buy a 200-unit property at$20 million and you think it's going to be$25 million, it's the same thing. The problem is it's not worth$25 million. It's probably worth$18. So you buy it for$20, it's not worth$18. That's where the problem is.

10:11Ken McElroy:Yeah, I'm chuckling because there's another – in the world, it's full of real estate gurus. Yeah. You know, if you're a housewife or a househusband and you bought two real estate properties, you're now Donald Trump as far as you're concerned. Right. But there's some of these charlatans on YouTube. I've got into arguments with some of them. This guy says, the way you get rich, just go out and buy a 200-unit apartment house. And I said, you don't start with a 200-unit apartment house, idiot. No. That's suicide. Yeah. But that's what he was selling. And I know the trick is called a bait and switch.

10:48Ken McElroy:So you go there. He shows you how you too can buy a 200-unit apartment house for nothing down and all this other stuff. but you're on the hook for millions, and then you go roaring off and try to do it, his real gimmick is to sell you what he is selling. Of course, yeah. Oh, you can't do it? I can do it for you. Yes, exactly. Yeah. So we come back, we'll continue on talking to Kenny Macle and get a bigger picture of it. It's frightening times, but it's also exciting times. It's actually very exciting. Yeah, always remember your profit is made when you buy. And one of the things I really get kind of sad about people, you know, when real estate started going up, everybody started jumping in.

11:26Ken McElroy:Yeah, remember that? Yeah. And that's not when you jump in, not when it's going up. You want to ride that roller coaster down and then buy. Right. When there's a line out the door of people trying to buy the asset, that means it's over. Yeah, it's so exciting right now. So we come back from talking more about what you can do. Even though the market is horrible for real or getting worse, I'm selling like I needed the cash. We had to move some other properties. but I cannot believe the opportunities are floating to the surface. We'll be right back. Violent threats against executives are growing at an alarming rate.

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14:41Ken McElroy:Welcome back. Robert Kiyosaki, the rich dad radio show, the good news and bad news about money. And as many of you know, the economy is on shaky grounds. You know, banks are failing all over the place. And the question is, what do you do about it? and I get really, really excited because your profits are made when you buy and as prices of real estate crash, it's actually the best time to be a buyer. But as I say it again, I meet people who are amateurs at this business. They wait, you know, the price, oh, the price went on 100 ,000, went up 200 ,000. Oh, we've got buyers lined up for the property and that's when people jump in.

15:18Ken McElroy:You should be getting out at that moment. You want to get out. Another thing too is that people say, well, I don't have money and all this. When the real estate market crashed, it's crashed several times. Yep. And I had no money. And I saw we were trying to put a deal together with interest rates were 12%. And today's what? What percent are they today? Yeah, it's more like six, five to six. And people come, oh, you know, I would have killed back then for a five to six percent interest rate. So, you know, it's always a good time, but you have to know what you're doing with real estate. Yeah, well, almost every single real estate person that you're going to listen to didn't start with money.

15:54No. I mean, we rarely do. You don't actually need money to start. You need a deal. And that's what you'll learn.

16:01Ken McElroy:Well, even worse than that, my rich dad always said to me, my rich dad always said, only lazy people use their own money. I know. Gosh, that was such a great statement. It's true. Yeah. Yeah. I mean, people don't realize, like when you put your money with an insurance or a pension or even in a bank, it's a liability for those institutions, period. They owe you expense. you know, in a form of interest, that's a problem for them. So they have to lend it to guys like us. Right. And that's called OPM or other people's money. And you're going to learn things like that at the event. Yeah. And always remember this, the U.S.

16:36Ken McElroy:dollar or the euro and all these other currencies, they come into existence only by people borrowing it. Yes. And that's why our friend Dave Ramsey says live debt free. And that's good advice if you don't know what you're doing. But if you say, oh, I don't have any money. Well, you silly person. You're not supposed to use your own money anyway. You're supposed to always use OPM, right? That's 100 % right. And also, you know, in the form of debt and equity, you know, money's money. Nobody cares what it's called. It just is a different price. So let me attempt to explain what Kenny does for Kim and myself.

17:13Ken McElroy:Because what Kenny does is very sophisticated. You can do it too, but you have to have Kenny's background to do what he does. Because he started from property management. And the key is always the management of the – 100 percent. And so the way we did it was – I forget the numbers, but let's say it was$300 ,000 deals in an apartment house. So where are the people that put up the equity? So Kim Ellis, it's$300 ,000. We put up$30 ,000. Right. You borrow the money. I mean the rest of them to pay from the bank to pay for the property. Correct. And then what Kenny does, he fixes the property. And this is Kenny's niche.

17:49Ken McElroy:He makes the property more valuable. The equity of the property goes up, and then we borrow out the equity. That's correct. Yeah. If you can spot a deal where there's value in it and then know how to create it, you can raise lots of money. You know, imagine. You can't do that with a stock. Like, I love it. I always tell people, like, sometimes I bought a vacant building, had it in escrow, got a tenant before I closed. That's how you create value. Right. So it's going to be an exciting, exciting time. Like I said, I still remember putting deals together. Interest rates were 12%. And yet you have to get smarter.

18:31Ken McElroy:That's all it means. That's the thing. I tell everybody, I actually was on a podcast yesterday. I said my entire career was five, six, and 7 % interest rates. So right now seems very, very normal to me. The only problem is that the prices are high. And the sellers now are starting to realize that because there's almost no transactions going on. So, you know, that's all. It's the bubble went up. Now it's coming down. Right. The people that are in trouble, the people who jumped in late, do you know what I mean? They were at the top of the market. Yeah. It's going to keep going up. That's a big lie is that real estate always goes up.

19:06Ken McElroy:That's not true at all. No, my gosh. It's delusion. You know, it's that herd mentality, right? Everybody's jumping on. I'm going to miss out, and next year's going to be better than last year. That's not how real estate works. Quick note for everyone listening right now. We're giving away a free wealth defense kit to every listener who claims one today. Three guides everything we know about defending your wealth and retirement savings in 2026. Yours free. Here's why we're doing this right now. U.S. debt just crossed$40 trillion. The dollar just hit a two-decade low. And Jim Rickards, former CIA and Fed advisor, a man President Trump amplified on Truth Social, is predicting gold could hit$10 ,000 an ounce.

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21:23Ken McElroy:So that's why real estate is one of the most sophisticated investment strategies. Kenny, what's an infinite return on your investment? So infinite return is quite simple. Let's say Robert and Kim give me a million bucks. I pair it up with another nine. We buy a$10 million property. I grow the value to 15. I go to the bank and I put another$10 million loan on it. I give the nine back to the original debt holder or the bank, give you your million. We're into the deal for zero. That's an infinite return. Right. And Kenny, so let's say Kim and I put a million in, which is pretty much normal for us.

21:58Ken McElroy:We get that money back via debt. Yes. And that's tax free money. Yeah, because you don't pay tax on debt. So we're taking new debt, replacing old debt and equity, and that's a return of capital. It's not capital gain, and it's not a sale. So the genius of Kenny is he's not like one of these fund managers that, you know, this is for me and the rest is for me too. I mean, when Kenny talks about the infinite return, his investors get an infinite return also because they borrow out the gains. That's right. When you borrow out the gains, there's no tax on debt. You got it. Interesting world, isn't it?