Skip to content
×
Try PRO Free Today!
BiggerPockets Pro offers you a comprehensive suite of tools and resources
Market and Deal Finder Tools
Deal Analysis Calculators
Property Management Software
Exclusive discounts to Home Depot, RentRedi, and more
$0
7 days free
$828/yr or $69/mo when billed monthly.
$390/yr or $32.5/mo when billed annually.
7 days free. Cancel anytime.
Already a Pro Member? Sign in here

Join Over 3 Million Real Estate Investors

Create a free BiggerPockets account to comment, participate, and connect with over 3 million real estate investors.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
The community here is like my own little personal real estate army that I can depend upon to help me through ANY problems I come across.
Multi-Family and Apartment Investing
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated almost 5 years ago on . Most recent reply

User Stats

707
Posts
269
Votes
Jason Merchey
  • Investor
  • Hendersonville, NC
269
Votes |
707
Posts

Ken McElroy Doesn't Do Apartments At This Point!

Jason Merchey
  • Investor
  • Hendersonville, NC
Posted

In a 2018 video, Ken McElroy said he doesn't do apartment investing anymore. Talked about how it is too hard to make them work with the low cap rates, and instead he builds from the ground up. He's obviously a big name in the field so I gulped, because I heard from Ashcroft/Joe Fairless about a deal in WInter Park, FL that seemed so solid I pulled the trigger last month. My first-ever multifamily investment. 

Of course, Praxis is good, too. And I like 4 Mile Capital, and someone said something positive about Three Pillars. Neil Bawa certainly seems to know what he is doing. Ryan McKenna is all over deals these days. 

I'm just wondering if ya'll feel that Ken is mistaken, or being gimmicky. I mean, Joe F. says he has done this 27 times, and I haven't heard that Praxis is getting out of the game. I'm trying to use multifamily passive investing to build wealth and be my heavy hitter. I get that a lot of syndicators are in this space, and that cap rates are quite low. But a value-add investment not being able to "work", gosh I just doubt that Joe Fairless would be able to be convinced of that. 

Then again, sometimes a vehicle with a lot of inertia can't slow down if it wanted to. Perhaps that is why Rod Khleif lost $50,000,000 in SFDs in 2008; the idea of throwing in the towel just didn't occur to him.

Most Popular Reply

User Stats

2,283
Posts
6,908
Votes
Brian Burke
#1 Multi-Family and Apartment Investing Contributor
  • Investor
  • Santa Rosa, CA
6,908
Votes |
2,283
Posts
Brian Burke
#1 Multi-Family and Apartment Investing Contributor
  • Investor
  • Santa Rosa, CA
Replied
Originally posted by @Jason Merchey:

In a 2018 video, Ken McElroy said he doesn't do apartment investing anymore. Talked about how it is too hard to make them work with the low cap rates, and instead he builds from the ground up.  

To say that you don't invest in apartments, but build apartments from the ground up is a bit of a red herring.  Make no mistake, building apartments from the ground up is not only investing in apartments, it is doing so with a strategy carrying one of the highest risk profiles.

If prices fall (which means a reversal of the cap rates that are being faulted for making investing unattractive), developers would suffer just as bad as owners of existing buildings, and perhaps worse.

But Ken is selling investments in developments, so it is his job to articulate his reasons why his strategy is better.  I sell investments in multifamily value-add syndication investments, so it would be my job to market those by pointing out the availability of multifamily investments below replacement cost in the marketplace, and rising construction costs which make development less attractive.  But I suck at marketing, so I'll say that the truth is that there is room for both strategies and there is nothing wrong with either of them.

Developers and their investors are willing to accept higher risks to chase higher returns.  Value-add operators and their investors are willing to accept lower returns in exchange for lower risk.  In my observation, these are often two different investors.  We did a several-million dollar development fund last year and it oversubscribed in 30 hours.  But by and large, the investors subscribing to it were a different set of folks than typically invest in our acquisition vehicles.  So, to each their own--and no matter what the strategy, it works--until it doesn't.

Loading replies...