The Prolific Investor - Challenging Conventional Wisdom
Updated: Jul 14, 2022
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Christopher H. Loo, MD-PhD: Today, we have a special guest named Chris Odegard. And he is the founder of The Prolific Investor, challenging conventional wisdom. And he's all about passive investing through real estate. And just a brief overview before we introduce him. He's an alternative investment blogger and educator at TheProlificInvestor.net. He's the author of Get Off Your Ass and Manage Your Money, Why You Need Alternative Investments. And he's a teacher and educator, talking about 401K's, talking about increasing your annual annual returns that are less volatile, producing cash flow tax efficiency with diversification, so I'll let him talk about himself. And so without much ado, Chris, welcome.
Chris Odegard: Thanks, Dr. Loo, appreciate you having me on. It's a real honor, I'm looking forward to talking to your audience and talking about passive investments and building wealth.
Christopher H. Loo, MD-PhD: Awesome, awesome. Yeah, we were just talking backstage and, like a lot of physicians, we have high income, we enjoy our jobs, but we just need a place to park our money where it's safe, it's secure. It's not prone to all this volatility, provides cash flow, passive income tax advantage. So tell us more about yourself, how you got started, and your company.
Chris Odegard: Yeah, so I started off as you know, I grew up in a family of employees. And for anybody who's read the Cashflow Quadrant, I was a 3, I was raised by 3’s. And that's kind of all I ever knew. And, I was taught to get an education and get a job with benefits and work there forever and put your money into the company's 401K plan. And so [laughs] that's what I now call the 401K Highway to Mediocrity. So, I did that for a lot of years. And then unfortunately, something happened in my mid 40s, I lost 55% of all my assets and 1000s of dollars a month in cash flow due to an illiquidity event. And so all of a sudden, that mediocre path just got even more mediocre. And coincidentally, about the same time a friend said, “Hey, Chris, you should read this book.” And I did what I did with a lot of books, I put it on the shelf, till it stacked up for a while and I finally picked it up and read it and it was Robert Kiyosaki’s Rich Dad, Poor Dad, and like millions of others, I was my mind was open to a different way of investing. So I started going down that path pretty fast.
And I think probably like a lot of people that ventured down, you try a whole bunch of things. There's kind of the shiny object syndrome. And so there was, single family rentals and multifamily, and there were notes. I finally ended up really liking the syndication model. As a limited partner, just completely passive. You make good returns. And real estate, you get all the benefits of real estate ownership. But you've basically hired a professional in the form of an indicator, to manage this asset that you're part ownership of.
To shorten the story a little bit, nine years after I had that illiquidity event where I lost 55% of everything. I had made up all the losses, multiplied many times over, and I, and I quit my job and I never have to work again, if I won't, don't want to. And now I do what I like to do, which is to educate people of all walks about a better way of investing and getting to financial freedom or retirement a lot faster.
Christopher H. Loo, MD-PhD: What an amazing story. So now you have time, financial, emotional location. So yeah.
Chris Odegard: You know, I was listening to your podcast and I heard you talk about that. And it's way way more eloquent than what I have talked about. I have always said, what if we could just take money off the table as a worry for people? You know, whether it's COVID, or whatever it is, if you could just take that worry away, all the other dominoes kind of fall in place, and it kind of, it's kind of a precursor to the time location, emotional freedom, you got to get money off the table first. It's kind of a worry, and then the other one should come quicker, I think.
Christopher H. Loo, MD-PhD: Yeah, yeah, absolutely. Yeah. It's so interesting about you know, the whole idea of freedom from the industrial age now into the information age. So, yeah, so tell us more in terms of because I know, real estate is a very broad thing. What are some of the differences between active and passive real estate? And what are some of the advantages of syndications?
Chris Odegard: Sure, well, that ties right into a blog article. And I compare three different ways you to invest in real estate and one is, what I call the single family rental, do it yourself, and a lot of people start there that the, kind of the cost of entry is low, I mean, you purchase a single family rental, you manage it, you do everything yourself. And then the next way is a single family turnkey, where you find a turnkey operator who specializes in single family rentals, in a good market, in the United States. And then the third way, and these are not the only three, but these are just kind of three ways that are pretty available to most people is, investing in syndications as a limited partner, like I do.
And as you move left to right across those scales, something really interesting happens, your highest risk is really on the left side with the single family, do it yourself, because if you haven't really done the study and the homework, you could get it wrong. And you know, real estate is illiquid. So, your risk there is pretty high. Now, if you move across to the next path, which is the single family rental turnkey. Now you know you've you've you basically kind of like the syndication, you've hired somebody who's a professional to manage that single family rental. And then the same thing with the syndication. And you could get into all three of these investments for $50,000. Certainly lower in some places in the country with the single family rental or turnkey.
But here's but one of the interesting things is the returns in these numbers came from an actual turnkey provider, and a real property that was for sale, on the single family rental, let's say you'd make about you might make about 11%, return annual return on your investment, doing it doing everything yourself. But you've also now got a second job, right, because you're, you're pretty much doing everything for this rental, and for your, for your audience of you know, high paid doctors, they don't need a second shop, right. So and then you move over to the turnkey, and your returns go down a little bit like maybe from 11% to 9%, because you got to pay them to do this stuff. Now you go over to the apartment syndications. And I have never had an apartment syndication make less than 20%, average annual returns. So to me, it's the only way to go, you kind of have the lowest risk. If you pick a great syndicator you have the best returns, you get all the tax advantages. And once you've wired your money off, you're pretty much out, you just call it. I like to send my money out and have it come back in about 36 to 40 months with twice as many friends. [laughs] So those are kind of three three ways to do it.
Christopher H. Loo, MD-PhD: Now what because I know, you know, we have people in the audience never invested in real estate, some of them are just homeowners, they, they and some of them are landlords. And you know, what, what qualifications do you need to to get into syndications? Do you need any experience to go?
Chris Odegard: So there's two. There's a little thing called accredited investor which the FCC came up with and so in some in most indications, you need to be accredited investor, but not all. And that just a credit investor is someone who has a net worth of over a million dollars excluding their primary residence or an income of I believe it's 200 as a single person, or 300, as a joint filer with a spouse.
But even if you do, even if you don't have that, there are syndicators out there that will accept some number of non accredited investors into their deals. Matter of fact, I have a relative who's going through this right now. And I steered her to some resources where you can more easily identify these people, then you set up the conversations and get comfortable with somebody and then it's just a matter of, okay, well, what is their next deal? So yeah, it can be done.
Christopher H. Loo, MD-PhD: Yeah, yeah. Are there any risks that people need to be aware of if they go the accredited investor route versus the non accredited? So like, is the sponsor quality less with the non accredited investors? I’m sure people are asking that question.
Chris Odegard: Since I haven't done anything like that as a non accredited investor. That's a good question. I think in general, for conventional investors that invest in the stock market, when you compare that to alternatives, like real estate, there's one element of real estate that's riskier, you know. And that's why this accredited investor rule exists. These things are unregulated. You know, anybody who's got $15,000 to hire a lawyer can set up, what's called a private placement or one of these syndications and say, Hey, I'd like to have some of your money so I could go do this. So it's easier in this space, you know, to get hooked up with a bad operator. So you have to be careful. I think that's across the board, whether they're, whether they're accepting accredited or non accredited investors.
In the stock, conventional area, it's not like it's foolproof. I mean, we've heard of the Enron's and Volkswagens and Wells Fargo, so it happens there, but I think it could happen easier than the other on the alternative investment side. So you really just have to pick a great syndicator. And I only go with people who come with recommendations from people that I - a lot of recommendations from people that I know that I can trust. And that has a track record. You know, one of the syndicators I use has been doing this for I think about five to seven years, and they have a track record of delivering 30%, average annual returns to limited partners. So you're looking for somebody who's done that. You don't want to, I mean, I don't think you want to, be their first in their first deal. They're gonna have to do that with somebody else.
Christopher H. Loo, MD-PhD: Exactly. Yeah, track record, trust, in the end, a good sponsor, do your due diligence, do your own research, don't lose more than you can afford. And so another, this is great, this passive real estate in syndications. It's a great way for the busy, high income individuals to build their wealth.
What are some of the risks, especially in today's economy, if people are interested in getting started in this, they should be looking out for?
Chris Odegard: Well, we're in a very interesting time now with the price of single family rentals being high, the price of apartments being high and the cap rates being low. And, if you go out and you know, you could follow 10 or 15 people in the industry who, who theoretically know about this stuff, and you get 10 or 15 different answers. I was just at a get together with the syndicator, and one of the founders of the company was there. And he, they're still buying apartments today, using the same criteria that they've been using the whole time. And they're still finding stuff. And what that means is like, hey, they've got this box. And if this apartment building, all the factors fit into this box, it's a buy, and they will buy it, and they know they can make money, and they are still finding those in today's market.
Now they're not finding as many of them. But the point is, they haven't had to go out and change their criteria to match the marketplace. They have a business model, and they say, we know if we can find buildings like this, we can make money for ourselves, our investors. So I'm voting with my dollars and continuing to put money into apartment syndications.
Christopher H. Loo, MD-PhD: Yeah, yeah. So that's yeah, we're definitely living in interesting times. You know, the other day, I was looking at the mortgage rates, they're almost like 4% 5%, with all this inflation and a lot of development. And, it sounds like they are saying the housing prices are over inflated. So, it's, are we doomed for 2008 or something similar? You know, it's hard to say. But I guess, but, yeah, so.
Chris Odegard: I can talk about 2008 a little bit because I, when I was still doing my own single family rentals and small multi families, it's all through that 2008. You know, yes, yes, the values dropped dramatically, but they were positive cash flowing properties. And as long as I didn't need to sell them at those values. I had tenants, I had increasing rents, and you just waited out the storm and the values came back eventually. So I've kind of been through that, and seen that happen. So I feel like you know, at least for me, I'm working with some really smart people and they're still finding these deals that they believe work. You know, when they wait when they tell me that we've come to the end of that road, and there'll be other opportunities that really smart people will figure it out.
Christopher H. Loo, MD-PhD: Yeah. Especially with real estate. There's a market for everything, old strategies may not work or, old strategies may only work in certain markets these days. So, it's definitely not a one size fits all approach, you have to sort of tailor it and adjust your risk. And so it's really an interesting market, and very dynamic.
Chris Odegard: Yeah, and every market is different. I mean, this particular company is only working in about four to six cities, and they look at hundreds of deals, and before they actually, find one that works for them. So, there's just some markets across the country that just aren’t working for just about anybody.
Christopher H. Loo, MD-PhD: Yeah, yeah. If the numbers work out, especially with the cash flow, the net operating income, the purchase price is decent, and you're not over leveraged. You know, if you are, if you do get caught in a downturn, if the numbers still work out, you're still okay, just weather it out. Like you said, ‘08 they were over leveraged. You know, the numbers didn't work. And it's just, just a big mess.
Chris Odegard: It's a different situation. Now, that doesn't mean there's that risk out there. But it's, yeah, this is different for sure.
Christopher H. Loo, MD-PhD: Yeah, definitely. Well, this has been a fantastic conversation. I know a lot of listeners on the show are interested in hearing more about you. You do a lot of blogging in your book, interested in what you do. So what's the best way to contact you to get a hold of you to find out more about you and possibly work with you?
Chris Odegard: Yeah, the best way is just to go to the website. It's theprolificinvestor.net. And there's a handful of ways you can interact with me. One is, you can subscribe so you get notified every time I publish a new article. There's a link there to pick up the book that will take you directly to the Amazon link. You can take the conventional wisdom quiz, which is a 10 question quiz that will test your knowledge on conventional stuff and alternatives. And you can also book a free virtual 30 minute coffee with me if you want to, get past the books and the articles and just talk about what your situation is. And so yeah, everything's at the prolific investor, then.net and all the social media things, the articles, the videos, I have a lot of resources, you know, different companies that I use or, come highly recommended. So that's the one spot.
Christopher H. Loo, MD-PhD: Awesome, awesome. Well, thanks so much. And, this was a fantastic conversation. For all the listeners out there. We'll provide the resources in the show notes. And till then, we encourage all the listeners to go visit Chris's website, find out more about him. And so thanks so much, and we look forward to having you as a future guest on future episodes.
Chris Odegard: Great. Thanks for having me on. I was honored.
Christopher H. Loo, MD-PhD: Many thanks again for being here. If you’re new, you can find me online at Christopher H. Loo, MD-PhD, where I have links to other episodes or links to online resources that will support you on your financial literacy journey. I’ll see you there in on next week’s show. While I bring you thoroughly vetted information on this show regarding a variety of financial topics, I cannot promise you a one size fits all solution. This is why I caution you to continue to learn. Educate yourself and seek professional advice unique to your situation. If you want to talk to me, I welcome it. Please reach out via my website or email at Chris@drchrisloomdphd.com. I read and personally respond to all of my emails. Talk soon!
Editor's note: This transcript has been edited for brevity and clarity.