How He Bailed Out Bank of America

Ken McElroy reviews the process of rescuing a 680-unit project owned by Bank of America during the 2007 real estate crisis. Through negotiation, extensive renovations, and financial planning, he and his partner turned a severely undervalued and mismanaged property into a $40 million asset, offering a masterclass in real estate investment and recovery.
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ABOUT KEN:
Ken is the author of the bestselling books The ABC’s of Real Estate Investing, The Advanced Guide to Real Estate Investing, The ABC’s of Property Management, and has an upcoming book: "ABCs of Buying Rental Property: How You Can Achieve Financial Freedom in Five Years." Ken is a Rich Dad Advisor.
Ken offers a wealth of personal experiences, practical advice, success stories, and even some informative setbacks, all presented here to educate and inspire. Whether you’re a new or seasoned investor, the information and resources on this channel will set you on a path where you and your investments can thrive.
Ken's company: mccompanies.com/
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DISCLAIMERS: Any information or advice available on this channel is intended for educational and general guidance only. Ken McElroy and KenMcElroy.com, LLC shall not be liable for any direct, incidental, consequential, indirect, or punitive damages arising out of access to or use of any of the content available on this channel. Consult a financial advisor or other wealth management professional before you make investments of any kind.
Although Ken McElroy and his affiliates take all reasonable care to ensure that the contents of this channel are accurate and up-to-date, all information contained on it is provided ‘as is.’
Ken McElroy makes no warranties or representations of any kind concerning the accuracy or suitability of the information contained on this channel.
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#kenmcelroy #realestate #realestateinvesting #Investment #BankOfAmerica #CommercialProperty #Negotiation #Equity #DeferredMaintenance #CashFlow #Refinancing #NetOperatingIncome #PropertyManagement #LongTermInvestment #InterestRates #MarketTrends #FinancialStrategy #CapitalGains #Renovations #ValueAppreciation #TeamBuilding #RiskManagement #FinancialAnalysis #BankingSector #AssetStabilization

[@KenMcElroy]

If you want more videos like this, please share this with someone you think would benefit. it would help us a lot and motivate Ken to keep making videos like this!

[@johnnyb33good21]

Yes more videos on Commercial multi-family and you raising capital and syndicating deals. And how you have been Structuring your deals with your investors

[@gamingshortschannel1109]

Could you do a video about this video on the sort of team we would need to finalise such a deal with the banks? Thanks

[@AS-kq7hw]

I like these case study type videos. Its very educational to hear some of the details of a deal and your considerations when deciding whether or not to buy. Thanks.

[@johnnyb33good21]

Same I like when he does his case studies of his bigger deals

[@franklinromine8600]

Genius marketing Ken is doing and who he’s targeting with this specific video. I love it. Keep the momentum.

[@johnnyb33good21]

Yeah I'm surprised Ken doesn't have more investors and more assets under management with more apartment buildings. There's newer people that have gotten into the business of raising capital and syndicating large multi-family that have far surpassed Ken. But recently he announced he has some bigger goals and he wants to step it up to raise more capital and buy income producing assets. These videos will help him gain more attention and possibly more investors

[@jpmajors]

Love the way your mind works...your smooth like blue print. Thanks

[@davidstephens9594]

Wow, how the tables were turned. Instead of the bank giving you their lending terms, you were giving them your borrowing terms. Thanks for sharing.

[@johnnyb33good21]

I know right I would love to be that position. When the market gets so bad the banks actually come to you and you dictate your terms

[@zorgee]

thanks Ken, real example, real stuff, we are going through something similar and this helps.

[@305mostro]

Wonderful and detailed video explanation

[@Danny-fs1hk]

Ken, Ken, Ken. You just keep dropping gem after gem. Thank you for these Master Class sessions!

[@Northstar2000]

If I was offered a 28 mill property with 1 mil neg cash flow I probably wouldnt take it.

[@marckuhnmak]

This is an awesome video Ken. Thank you!

[@jameshowe5348]

Awesome video Ken as always

[@erickmamba1003]

Thank you so much Sir, Very informative and inspiring Video

[@nursejean903]

Thank you for explaining your process. When you explain it, it's easy to understand but difficult to execute without the right team! I'm curious about that part! How do you select your team to be able to roll out or move in on a great opportunity?

[@smokeyallanritter3211]

You Rock, Ken! Very interesting strategy!

[@zhenshan456]

Thanks Ken! great strategy, I would also love long term holder GPs than buy low sell high just to scoop their money and built their credit in syndication.

[@jeffmartinaz]

Lost our ass in '07-'08. Gained a lifetime worth of kessons that have set us up for life. Glad you guys scooped this up.

[@patriciacampos6428]

Thank you

[@ReynaDPerez]

Wow I better have good successive skills on this video because there’s plenty of information. Fantastic!! Love it!!!

[@usnmedic09]

Hopefully some of these deals show up in the deal room

[@bruceduckett87]

Can't Beat Experience! Great Information ........ Going to Be a Choppy & Rough Two Years in Multi Family!

[@johnnyb33good21]

Which state and Market do you work in Bruce? what are you seeing in your neck of the woods when it comes to multi-family?

[@dhowto3005]

"Bailung Out Bank of America During The GFC" >>>> This is good information! Thanks!

[@toddmcdonald9838]

Excellent

[@brockh1044]

So if you are paying out the cashflow and all the refi profits where do you get paid?

[@crystalsdestiny]

Fannie Mae announced the sale of non - performing loans is this an indication of what's about to happen or is it common practice

[@tz1731]

For bank owned single family homes, are their realtors that work directly with the banks or are there individual agents that specialize in foreclosures? If so, how does the small investor get into this opportunity? Thank you in advance to anyone who's willling to provide insight.

[@pierrejulienregnard1892]

Amazing content

[@s.t.pebble8018]

Excellent video

[@LARaised]

What happens in these cases when the rents exceed what people can afford or people stop paying?

[@johnnyb33good21]

Look at california. Lot of times people move in together to help pay their rent or mortgage. Or look at California's case. the state lost population according to the US Census Bureau from 2020 to 2023. California lost 538,007 people

[@davidque3776]

What is “Cap Rate” ?

[@monkmysterio]

and can i show the slide example at 5:52 to educate Leticia James in New York state, if I end up in court out there? lol

[@kevinarias1221]

Can we get a video about rv parks. What are cap rates now?

[@johnnyb33good21]

Cap rates vary from market to market. Cap rates vary from asset class to asset class. For example, multifamily, industrial, self-storage, mobile home parks, and RV parks have all different cap rates and trade differently Whatever state and market you're investing in, you need to find a local real estate broker that can tell you where Cap rates have been trading. For example, if you live in the Phoenix Metro of arizona and invest in the Phoenix Metro of Arizona, don't call a Texas real estate and broker and ask them what cap rates are trading at

[@monkmysterio]

can i set up a construction school in Mexico just over the boarder, and import my own certified workers with a temporary work visa to work on my properties?

[@David-bb4yv]

That's the way it is done. You really have a lot of chuzpah, but you have experience. Well done. This strategy can be done on smaller projects or even condominiums, like I did...

[@johnnyb33good21]

Yes, the VALUE ADD PLAY for 5 units and above can work great! I purchased an Off market property with seller financing of a 6-unit apartment in the Phoenix Metro of Arizona. all 1bed/1bath 504 sq ft and an adjoining 0.98 acres (42,689 sq ft) zoned for Multi-family up to 22 units can be built for 1 acre according to the local planning and zoning Potential to nearly double the gross income and lower expenses. rents averaged 447 per unit = (total 2,685 per month) on October 2020. Potential to reach $5,394 ($899 per unit) per month and bill back tenants for utilities (water, sewer, trash) at this time 1 year later, on November 2021, after achieving avg rents at $949 per unit, exceeding my pro forma, I executed a cash out refinance. The new valuation from the appraisal came in at $810k with a NOI (net operating income) of $48,462 and a cap rate (capitalization rate) of 5.982%. After remodeling all 6 units and renting the units to well qualified tenants and getting the bldg stabilized, I successfully paid back the seller their $315k loan amount with the new loan from the cash out refinance and after all closing costs I received a wire transfer for $197,009.65! That's the POWER of commercial real estate investing when it comes to drastically increasing the NOI. you get a much higher valuation! Commercial multifamily is valued based on the appraisal method of the income approach, which uses the NOI and divides it by the CAP rate, and that will give you your value. In a declining market with rising cap rates that means you're building can be decreasing in value because it has an inverse relationship. with the current NOI and cap rate for 2024 I estimate my six unit apartment building to be worth $1 million and if I get a 70% loan to value that will be a $700,000 loan to pay off my current loan of $500,000 so I would be able to pull out another $200,000 in net proceeds compared to 1-4 unit properties that are valued based on the appraisal method of the comparable sales approach.

[@johnnyb33good21]

Yes, the VALUE ADD PLAY for 5 units and above can work great! I purchased an Off market property with seller financing of a 6-unit apartment all 1bed/1bath 504 sq ft and an adjoining 0.98 acres (42,689 sq ft) zoned for Multi-family up to 22 units can be built for 1 acre according to the local planning and zoning Potential to nearly double the gross income and lower expenses. rents averaged 447 per unit = (total 2,685 per month) on October 2020. Potential to reach $5,394 ($899 per unit) per month and bill back tenants for utilities (water, sewer, trash) at this time 1 year later, on November 2021, after achieving avg rents at $949 per unit, exceeding my pro forma, I executed a cash out refinance. The new valuation from the appraisal came in at $810k with a NOI (net operating income) of $48,462 and a cap rate (capitalization rate) of 5.982%. After remodeling all 6 units and renting the units to well qualified tenants and getting the bldg stabilized, I successfully paid back the seller their $315k loan amount with the new loan from the cash out refinance and after all closing costs I received a wire transfer for $197,009.65! That's the POWER of commercial real estate investing when it comes to drastically increasing the NOI. you get a much higher valuation! Commercial multifamily is valued based on the appraisal method of the income approach, which uses the NOI and divides it by the CAP rate, and that will give you your value. In a declining market with rising cap rates that means you're building can be decreasing in value because it has an inverse relationship. with the current NOI and cap rate for 2024 I estimate my six unit apartment building to be worth $1 million and if I get a 70% loan to value that will be a $700,000 loan to pay off my current loan of $500,000 so I would be able to pull out another $200,000 in net proceeds compared to 1-4 unit properties that are valued based on the appraisal method of the comparable sales approach.

[@johnnyb33good21]

Yeah, the value-add play strategy works great on smaller commercial units, 5 units, and above. I purchased a 6 unit apartment building with seller financing in October 2020 for $385,000. The average rents were $447 per unit. One year later, in November 2021, I executed a cash out refinance with new average rents at $949 per unit. The appraiser used the income approach method for appraising and calculated my net operating income at $48,462 and used a cap rate of 5.982%, and came out with my new valuation at $810,000. Then, the new bank gave me a loan of $525,000. after closing costs and paying back the original seller loan amount of $315k. I was left with and wired $197,000

[@johnnyb33good21]

This was in the Phoenix Metro of Arizona

[@mikehallrealestate]

what a gem of a deal

[@David-bb4yv]

How much did each investor put in? it would have been nice to see a picture of the complex.

[@johnnyb33good21]

Yeah that would be cool to see the before and after pictures of the 680. And to also see what a typical investment looks like and the returns

[@eliknapp8412]

I wish you’d do a video just like this on how you decide when to do a refinance on this property and how it affected your cash flow on the property

[@meganoleary584]

I was gonna say the same thing our properties at 4% right now and we’re putting two more units on it. It’ll be worth a lot more afterwards but we are borrowing the money from a family member and those two units are going to pay them off in five years then will be cash flowing all that money so I don’t know if it would really make sense to refinance the whole entire property since our cash will be so much lower.

[@johnnyb33good21]

To calculate your estimated flow before you execute your Cash out refinance. You will need to know an estimation of 1. what your new interest rate may be, (ask mortgage broker where rates are at) 2. what your new valuation May be (Need the NOI and Cap rate to determine value) ask real estate broker where cap rates are trading at. 3. what the LTV (loan to value) the bank may give you to figure out 4. what your NEW loan amount will be ( talk with a mortgage broker to zero in on these) With these 4 things you can input those things into a simple mortgage calculator to figure out what your new monthly loan payment may be and then you will need to have assumptions of what your rents may be in the future And then you'll calculate your income ( rents, pet rent, reserved parking, utility Bill back, application fees Etc) minus . Your vacancy Factor. It may be 5% of gross rents. And this will give you your EFFECTIVE GROSS INCOME now minus all your expenses ( property taxes, property insurance, Property management, Landscaping, water sewer trash recycling, repairs and maintenance etc) this will give you your ( NET OPERATING INCOME ) minus your NEW debt payment and that will give you your cash flow number 5 units and above are valued based off of the net operating income and then a cap rate. one to four unit properties are valued based off of comparable sales AKA what a similar property in a similar location with a similar condition and similar time period sold for. they may look at the rents of the property but it's not going to be a major deciding factor For example, I purchased a 6 unit apartment building in the Phoenix Metro of Arizona October 2020 for $385,000. The seller financed the loan for $315,000 at 6% interest only for a 12-month loan term and I put down a $70,000 down payment which was approximately 18.18% down. All 6 units are 1bed/1bath 504 sq ft and an adjoining 0.98 acres (42,689 sq ft) zoned for Multi-family up to 22 units can be built for 1 acre according to the local planning and zoning Potential to nearly double the gross income and lower expenses. rents averaged 447 per unit = (total 2,685 per month) on October 2020. Potential to reach $5,394 ($899 per unit) per month and bill back tenants for utilities (water, sewer, trash) at this time 1 year later on November, 2021 after achieving avg rents at $949 per unit, exceeding my pro forma, I executed a cash out refinance. The new valuation from the appraisal came in at $810k with a NOI (net operating income) of $48,462 and a cap rate (capitalization rate) of 5.982%. After remodeling all 6 units and renting the units to well qualified tenants and getting the bldg stabilized, I successfully paid back the seller their $315k loan amount with the new loan from the cash out refinance and after all closing costs I received a wire transfer for $197,009.65! That's the POWER of commercial real estate investing when it comes to drastically increasing the NOI. you get a much higher valuation! Commercial multifamily is valued based off of the appraisal method of the income approach which uses the NOI and divides it by the CAP rate and that will give you your value. In a declining Market with Rising cap rates that means you're building can be decreasing in value because it has an inverse relationship. with the current NOI and cap rate for 2024 I estimate my six unit apartment building to be worth $1 million and if I get a 70% loan to value that will be a $700,000 loan to pay off my current loan of $500,000 so I would be able to pull out another $200,000 in net proceeds compared to 1-4 unit properties that are valued based off of the appraisal method of the comparable sales approach.

[@johnnyb33good21]

​@meganoleary584 You don't have to do a cash out refinance if you do not want to lose your low interest rate loan. You can do something called a HELOC (home equity line of credit), which is similar to a credit card revolving line that taps into your home equity. Or you can do something called a HELOAN (home equity loan) that has a fixed date that it will be paid off. Both of these products will be higher interest rate since they will be in the second lien position And if you Google Blended interest rate, you'll find answers on how to use your low interest rate number. Plus, your HELOC interest rate to calculate what your new blended rate will be. for example, 4% interest rate on your first position mortgage and then a HELOC at 10% may have a blended interest rate of 5 or 6% I am in a similar situation. I have a 4plex in the Phoenix Metro of Arizona with a 2.25% interest rate loan, and I do not want to give that up just yet. I'm looking at doing a HELOC (home equity line of credit) or 2nd position home equity loan I want to tap into my My Equity to do more renovations on my apartment buildings and purchase another property

[@eliknapp8412]

@@johnnyb33good21 thanks for the long reply. I understand that you’d have to recalculate all your numbers but there isn’t any videos talking about how the decision is made, and what the goals are that makes someone pull equity out.

[@johnnyb33good21]

@eliknapp8412 If you look through KZbin, you'll find some videos on why investors want to do a cash out refinance. for me, I was able to receive $197k, which was all my initial investment out (original payment and rehab funds) and pay off the seller financed loan that was on a 12-month loan term. So I was under pressure and had to sell or refinance in a year to pay the seller back $315k) also, part of me doing a cash out refinance, I was able to lower my rate from 6% interest only to an amortizing loan at 4.79%. So, not only did I pull all my initial investment out, but my cash flow went up because my operating income was higher through raising rents, despite my debt payment going higher so now I have no money in my 6 units. I have an infinite return on investment, and that property cash flows $3,115 per month. When interest rates lower, I will execute another cash out refinance Again, the main reason someone would want to do a cash out refinance for 5 units and above is the type of original loan they have. It may be on a shorter loan term, meaning they have to sell or refinance in x amount of years, they may have investors that they need to pay back, they want to tap into the equity in the property to re-leverage the property to increase the return on investment or cash on cash returns, and they may want to lower their interest rate Could be a combination of those things all at once as well

[@tenzinkalden9123]

More such videos

[@DMichaelAllenMusic]

Bro you’re a wizard

[@Pug318]

I gotta listen to this too each three times because I just don’t understand how you could cash out refinance and the property still able to continue to pay the debt. I guess it’s maybe because I live in New York City and nothing cash flows here.

[@user-vd5lt9wv9t]

A lot of boroughs in New York have rent caps but it’s my understanding you could still raise the rent about 5% a year. What Ken is doing is he increasing the rent substantially and harvesting the new equity to pay out distributions, so it becomes an infinite return for the equity investors, you can only do this if you’re implementing rental escalations annually

[@johnnyb33good21]

Ken was able to drastically increase his net operating income meaning he was able to increase the rents and lower the expenses to get the noi higher and during the time that he executed his cash out refinances we had a very favorable environment for mortgage interest rates in 2014 and 2021 mortgage interest rates started increasing in 2022 and are still high currently in 2024 which is hurting the current valuations of large multifamily properties that are five units and above

[@johnnyb33good21]

And yes States like California and New York are notorious for high regulation, not business friendly and high cost of living, and expensive properties and that makes it hard to cash flow. Which is leading to more people and businesses leaving those states. According to the US Census Bureau from 2020 to 2023, California lost the most at 538,007 people And New York City lost the 2nd most at 533,434 people

[@frankle246]

​@@johnnyb33good21Thanks John. So, the key to when Refi cash out is when rate is low?

[@mike2959]

Of course I don’t operate at this size. But this along with the other KZbin guys a “Bigger Pocket” guys, the refi and reinvest AND still be able to cash flow cannot work at 7.5% interest rates. A 16 unit landed in my lap at 2.2M. Owner wants out. His rate is about to adjust 4.1% to 7.3%. I get the T12, and the rent roll. Heck it’s doesn’t even cash flow if I put 30% down 😅. Guys. Math is math. At 1.5m sure. I’m in. Seller said he couldn’t. Ok. Well, just because I buy it doesn’t mean prop taxes will go down. Actually they almost always go up. Doesn’t mean utilities go down.

[@mannymanny3859]

70% of 40 M is 28m not 33m... I confused

[@user-vd5lt9wv9t]

KEN HAS Cojones! new nickname: “Cojones Ken “

[@MgtowRubicon]

My business is real estate. I explained to a wholesaler how to buy a free-and-clear $5.5mm clean McMansion (on a 1-acre lot) with seller financing at 2% interest rate with no money down. The seller receives $1.2mm at closing from a cash-out refinance at 8% interest rate. Then flip at a $7.7mm price for 10% down and 5.7% interest rate. If you can't sell a house, then you're not doing it right.

[@johnnyb33good21]

That's pretty interesting which State and Market are you in? I currently have a 7 unit apartment building that is seller financed in Phoenix Arizona. I was wondering what that would look like if I ever did seller finance out of it

[@LOVESHERPA_1234]

❤💜💙

[@ianvw7729]

Why bail out such a terrible bank.

[@avinashbn8909]

This is exact reason how America is going doldrum, just keep milking debt

[@ashog1426]

I listen to you for inspiration and for when I start to really invest. In RE I mean thank you for all you do sir 🦾💪🫵🙏