I Traded My Rentals for “Passive” Real Estate (Worth It?)

Want passive income? We mean truly passive—no tenant phone calls, no toilets, no evictions—just checks sent to your account. This is the dream of every real estate investor, and today’s guest, Chris Lopez, actually achieved it. He did what we preach on every single episode—bought single-family rentals and small multifamily buildings and ran them right—but at some point, he realized the cash flow was too low, and the headaches were too high. So he switched, finding a type of real estate that is truly passive. At one point, Chris’s rental property portfolio was only making him a meager $20 per hour. Doesn’t sound like financial freedom, does it? He dipped his toe into passive investing, invested a little more, then a little more. Now, he’s heavily on the passive side. Chris is on today to show you how to do the same. Got a lot of equity but low cash flow? Turn that rental into bigger, better, and more passive income. Tired of dealing with tenants but still want financial freedom? You can exchange your rentals for a passive income stream. We’re talking about debt funds, value-add syndications, and other passive investments that enable investors to earn more while doing less. Join Chris’s 5-week cohort to learn how to transition from active landlord to passive investor (while multiplying your cash flow). In This Episode We Cover Real estate investments that make double-digit returns (without the work) The one (easy) calculation every investor must perform annually How to vet a passive investment (and the person running it) before you invest Significant economic risks to be aware of before you start passive investing Keep, refinance, or sell? How to know your rental is past its useful period And So Much More! Check out more resources from this show on ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠BiggerPockets.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.biggerpockets.com/blog/real-estate-1150 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠[email protected]⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Dave Meyer?

  This investor found a strategy to make his real estate portfolio almost completely passive. Now he can sit back, reap the benefits and enjoy the lifestyle of financial freedom that he wanted to achieve when he first got into real estate. Let's hear exactly how he did it.

• 0:21Dave Meyer?

  Hey, everyone. I'm Dave Meyer, Head of Real Estate Investing at BiggerPockets. I've been buying rental properties for more than 15 years, and on this show, we teach you how to achieve financial freedom through real estate investing. Today's guest on the show is investor Chris Lopez. Chris was last on the show on episode 662 in 2022. So I wanted to catch up with him and hear how his real estate journey has progressed. And what I learned is that Chris has moved more of his portfolio into passive investing during the last few years. Almost a decade into his real estate career, he realized that the return he was getting on the time it took him to actually acquire and manage his properties was as low as $20 per hour.

• 1:06Dave Meyer?

  So Chris made big changes and redeployed his capital into passive investments that allowed him to maintain all the benefits of real estate, like cash flow, tax advantages, appreciation, without all the hands-on work. I was really interested to hear how he did this, and he has some great advice for how you can make a similar transition in your own portfolio if you're in a similar situation. So let's bring on Chris. Chris, welcome back to the BiggerPockets Podcast. Thanks for being here again.

• 1:34Speaker 01

  Dude, I'm glad to be back on the podcast and talk shop with you today, Dave.

• 1:37Dave Meyer?

  Yes, this is gonna be a great time. If you guys don't know Chris, he's been a friend and contributor to BiggerPockets for a long time. You were on episode 662, so if you want to know more about him, go back and check that out. But for people who haven't listened to that episode, maybe let's just start at the beginning here, Chris. Tell us a little bit about why you got invested, where you were at that point in your life when you started on this journey.

• 2:00Speaker 01

  I went to college at Virginia Tech, so go Hokies, and went there for engineering and military and realized both of those were not the calling for me in life. And like a lot of people, I read the purple book, Rich Dad, Poor Dad. And that opened my eyes to entrepreneurship and investing. And so I got extremely interested in real estate back then. And that's like 2002, 2003 timeframe. So all these amazing resources went around. So I tried to get into real estate back then, just no traction. So I went down the entrepreneurial route, make money first and I learned how to invest it. And so I built a great business through internet marketing. I thought I had achieved financial freedom because I actually graduated college not needing a job. I was making probably like 35, $40,000 back then.

• 2:44Dave Meyer?

  Right out of college.

• 2:45Speaker 01

  Yeah, and I could live anywhere I wanted to. I could, I worked from my Skype and Vonage phones back then. If any listeners remember those things.

• 2:52Dave Meyer?

  I do, yes.

• 2:53Speaker 01

  Okay, there you go.

• 2:54Dave Meyer?

  I could still hear the Skype noise that it made when you would call people. It was very distinct.

• 2:58Speaker 01

  Well, business income is not investment income like real estate or stock market income. It eventually, unless you're an apple or something, eventually like it fades away. This was 2010 timeframe. The real estate market was just coming out of the great financial crisis. I always wanted to get into real estate and I was like, dude, get, get back into real estate. That's, that's the long term of, you know? That's not this quick day trade that's hard to do real estate. If I do for 20 years, I feel like I can, I can become financially free. I tried wholesaling, hated that. And then I got into brokerage and I realized that's where I really hit my groove. I was in the Denver market and I started doing like one to four unit residential brokerage. And this really mapped with me because I'm all about how can I build wealth in the long run in real estate?

• 3:42Speaker 01

  I don't care about a quick buck and flipping or a quick buck here. I didn't make my money today, but I want to build that long-term wealth. And I think rental properties are about the best way, one of the best ways to build wealth in real estate. I was like, man, five, seven, 10 years, I can keep buying properties. The market does its thing and I'll get rich over 10, 20 years. And so that really set me off on my career and as well as my, you know, building a rental property portfolio as well.

• 4:06Dave Meyer?

  So let's talk about what you did because it sounds like you don't want to be reactive. So you turned to rental properties. I was investing in Denver around the same time. What year was this, by the way, when you were starting to buy?

• 4:17Speaker 01

  2015.

• 4:18Dave Meyer?

  Okay, and what did you start buying?

• 4:20Speaker 01

  I really started focusing then, since I'm more of like a finance mindset, is when I bought my first property, I bought my very first house hack in 2011. I didn't know it was a house hack. I didn't know anything. I just knew it was way cheaper than renting. So I bought a property then. And I was like, wow, I bought this place for so cheap, $67,000. And during the bubble before was trading for like 230, 240 price range. So I got a, you know, foreclosure, huge discount. I was like, I'm gonna just pay this thing off and I'll have the cash flow forever. Well, for people who investing in Denver, like you and me, or other markets, we would hit this phenomenon where we'd have so much appreciation

• 5:01Speaker 01

  that cap rates would compress. And it's like, okay, great. I'm worth $400,000 on paper on this property, but it's cash flowing $400 a month now, or it's paid off, it'll cash flow, you know, $1,500 a month, which is, you know, really good. But, you know, I'm gonna need 10 or 20 of those properties to retire where I want to. Yeah. And you, that's not a particularly efficient use of $400,000. Yeah. And that's where you, you run into, and this is one of my mentors out here, he started explaining to me the concept on like, return on equity. He was like, look, when you buy a property, everyone talks about return on investment. Hey, you put $10,000 down, $100,000 down, whatever it is. And in year one, you make this cash on cash, or your cash on cash and appreciation, you make all this here. But he's after a couple

• 5:46Speaker 01

  of years, you have to look at not what money you put into there, but what equity you have in the deal, because that's your real opportunity cost. That's your real estate piggy bank. I remember he walked me through this on my house hack I bought, which was actually I bought for 0% down. So it's actually getting an infinite return, which was really cool to brag to my friends, really cool to talk on a podcast. You should brag to your friends about that. That's awesome. But here's the economy of it. When I was looking, when my mentor started teaching this, I had an infinite return on here, but I looked at return on equity, which is the four ways make money in real estate appreciation, cash flow, debt pay down, and principal reduction, divided by equity. I had $200,000 in equity. I was making like a 7 or 8% return on my equity. So I had an infinite return over here.

• 6:30Speaker 01

  But I also had an 8% return over here. And he was like, hey, the 8% return is the accurate one because that $200,000 is real money. If you cash out refi or sell it. And then here was the kicker. He was like, here's another way to look at it, Chris. What's the historic stock market return of the S and P 500? I was like, you know, 9, 10, 11%. He goes, yeah. He goes, you're making that property is making you less than the stock market. And you have personal liability and you're self-managing.

• 6:55Dave Meyer?

  And you're working on it. Yeah.

• 6:57Speaker 01

  Yeah. I was like, oh, that hit me hard.

• 6:59Dave Meyer?

  Yeah, totally.

• 7:00Speaker 01

  Right? And so that was just a powerful mindset shift for me that I went through in my journey of building rental properties and then realizing, oh, if we're in an appreciating market like Denver versus, you know, a Midwest market like Ohio, where their cash flow were appreciation, I have to extract that equity and then go buy another property. So I would, I started doing cash out refis. I started doing sell and 1031 exchanges to go out there and redeploy the equity. And that was how I really juiced my rental portfolio and I got really focused on optimizing equity in my portfolio and for all my clients in Denver back then.

• 7:35Dave Meyer?

  Chris, I think we have a lot of similarities in our real estate investing story. I learned the same lesson. And I want to be clear, it is a good problem to have. If you have too much equity in a property, that means you've probably built your net worth pretty significantly. It's just that if you think about your, your rate of return, which as investors, we should be thinking about, how efficiently is our capital earning us more money? That's your rate of return, right? And when you figure that out, you, like anything, there's a numerator and there's a denominator. So when you start and you think your, your cash flows, let's just use easy numbers here. $10,000 a year, you put $100,000 into that property.

• 8:18Dave Meyer?

  Well, your rate of return, your cash on cash return and your return on equity at that point are all the same, right? It's 10%. But over time, that denominator, that $100,000 grows not from 100,000 to 150,000 to 200,000 to 300,000. And I'm not saying you actually put more money into that deal, but because you bought in a great place and you're in a market like Denver, that value that you have in there is growing and growing and growing. So you have to shift your mindset and not think, oh, man, I'm still making a 10% cash on cash return. Now, you're maybe, let's just say, you're making $15,000 a year in cash flow, but your equity is $300,000 a year. Your return on equity dropped from 10% to 5%.

• 9:03Dave Meyer?

  And again, this is a good problem to have, but it means that if you redeploy your capital, you could probably be making more money more efficiently. And Chris, I did this for the first six years of my investing career, too. I had this one property built so much equity and I was like, this is it. I'm good. I am rock solid. Nothing can touch this property. And then my sixth year of investing, I joined working at BiggerPockets full-time and I was like, oh, [bleep].

• 9:30Dave Meyer?

  I messed this up. Or, you know, it's, you know, you live and you learn. I could have done this more, in a more optimized way. I think this is a very common thing and I love that theme. I know you talk a lot in your content about this idea of return on equity and I totally agree. It's a much better and more important metric than cash on cash return because it really allows you to just measure efficiency, not just in real estate too, but across asset classes, like you said, and see if you're actually finding deals that are worth not just your money, but also your time to put into it as well. All right. Well, I want to hear what you've been up to recently, Chris, but we do have to take a quick break. We'll be right back. They say real estate is passive, but if you've spent a Sunday night buried in spreadsheets, you know better.

• 10:14Dave Meyer?

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• 10:56Dave Meyer?

  $100 bonus when you sign up. Thanks again to our sponsor, Baseline. There's a point where basically every investor realizes traditional financing stops scaling with you. At first, it works. You qualify with your income, your job, your tax returns. But as you grow, that model starts to break. Now, it's not really about your personal income. It's about the income from your properties. That's where DSCR lending comes in. And it's why a lot of investors end up working with lenders like Host Financial. Host Financial qualifies deals based on property income, not personal income. So you're not dealing with W2s, or tax returns, or DTI constraints. And with 80% to 85% LTV, you can stay more flexible as you scale. It's

• 11:41Dave Meyer?

  just a different framework, one that tends to align better with how investing actually works. If you're buying rentals, refinancing, or growing your portfolio, go to hostfinancial.com, that's H-O-S-T financial.com, and see what you qualify for. You know that thing where you discover a feature you wish your software had? And it turns out, it already exists, just on a different platform. Like, oh, you want rent payments processed in two days. Rent Ready does it. Oh, you want to block tenants from making partial payments mid eviction. Rent Ready does that, too. Oh, you want full accounting and tax-ready reports without paying for a second tier? Rent Ready does it. And oh, you want tenant

• 12:24Dave Meyer?

  screening that doesn't overcharge your applicants? Rent Ready also does this. Basically, if you've ever complained out loud about your property management software, Rent Ready probably already built the fix. It's $12 a month. You're welcome. Sign up right now for $50 off your first year of Rent Ready with promo code BPcash. BiggerPockets Pro members get it completely free. Sign in through your Pro account at rentready.com/biggerpockets. That's rent, R-E-D-I, dot com, slash biggerpockets. A lot of insurance companies compete on one thing: speed. If you're protecting an investment property worth hundreds of thousands of dollars, should speed really be the priority?

• 13:08Dave Meyer?

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• 13:51Dave Meyer?

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• 14:16Dave Meyer?

  Welcome back to the BiggerPockets Podcast. I'm here with Chris Lopez. We've heard Chris a little bit about your story going back in time. And if you want to hear Chris's full story, again, you can check out episode 662, where he shares the full thing. But I want to talk a little bit more about how your portfolio has evolved. So you were doing these residential properties, it sounds like in the late 2010s. What's been going on since then?

• 14:41Speaker 01

  So I was cranking with my rental portfolio, cranking with the brokerage. And then in 2019, I actually made my very first passive investment. And this was with one of my buddies. I kind of call him like, you know, the equivalent of like a gym buddy. We both kind of like grew up in real estate together. He was a very successful fix and flip, you know, 30, 40, 50 deals a year, scaled a really good business on there. And we did a lot of collaboration. We would, you know, trade back and forth on properties and deals and clients. And then he started getting Into multifamily like a lot of fix and flippers do because it's really hard to scale a fix and flip business. Hey, rather than buying 10 single family homes, go out there and buy a 10 unit apartment building and you get a lot more efficiency from operations,

• 15:24Speaker 01

  especially from adding value and hey, they're all all tenants are the same, a lot more efficiency. So I saw him doing that and then he started, you know, raising a little bit of money from friends and family. And I was like, oh, I know you. I know the market. I know the steel. This is amazing. And I did my first like $25,000 investment back then. And the reason I did that was for a couple of reasons. I mean, you may remember this, Dave, you know, 2019, we started seeing interest rates tick up. Yep. Um, you know, this is all pre-COVID and then cash flow was really getting like almost non-existent in Denver back then. Yes. It was like, okay, well, you know, I want to buy a property for a 1% cash on cash, not too exciting. So the market had changed and then I had my second kid coming on the way, my second daughter.

• 16:08Speaker 01

  My business was taking a lot of time and so a lot of my time was spent on my business, was spent on my family, my children. And then for like, you know, my return on hassle or my return on sweat equity for like actively managing rentals. I was no longer getting this 100, 200, $300 an hour type return on my time. I was getting a $20 an hour return on my time. Well, if I'm making $20 an hour, I'm going to stop doing it or I'm going to outsource it because that's viable to my family or I can make way more than $20 an hour at my profession. So I had these things changing on here. The market was shifting. I was shifting. So I was getting more. So I was like, wow, I invested in here and I was making the same, if not maybe a little bit more money in a couple of these deals than I was in buying your rental properties.

• 16:52Speaker 01

  So I really stopped kind of like buying rentals over the next year or two and started taking the down payment money, doing more, you know, LP syndication investments. And a couple of years into that, I actually started selling some of my rental properties to then move the equity from Denver rental markets, where I was having a low ROE. Yep. Over towards passive investments where I was just getting a better rate of return. So tell us a little bit about the kinds of passive deals that you've done in the last few years. I dabble a lot, obviously. So I did a lot of small investments and a few very big investments. So a lot of like, you know, $25,000 type investments, you know, for perspective on there.

• 17:31Dave Meyer?

  And just, just to call out everyone, $25,000 still a lot, but for a lot of passive investments, for like a big deal, if you're investing in a big massive deal, sometimes the minimum requirement is $100,000. So like, I just want to put this in perspective that when Chris says a small deal, still a lot of money, but for a passive investment that is a small amount of money, whereas a lot of them require much more than that.

• 17:53Speaker 01

  Yes. And it was a small relative to a Denver down payment as well.

• 17:57Dave Meyer?

  Yeah, at that point, for sure.

• 17:59Speaker 01

  So I did a lot of investments like that, a lot of multifamily value add, you know, typical things a lot of people did. And that's like basically people buying an apartment building and doing a burr on there. Buy the apartment building, burr it and, and a year, year and a half, it's renovated, rent's increased by 30, 40, 50%. And you start getting some really good, you know, cash flow distributions. A lot of those investments, invest in some development deals for like residential development, apartment development, a lot of debt funds. So a lot of people with hard money lenders.

• 18:28Dave Meyer?

  Same.

• 18:29Speaker 01

  Hard money lenders get their money from private investors. They're not getting it from Wall Street. They get it from people like me and Dave and our 401Ks a lot of times. They're IRAs.

• 18:38Dave Meyer?

  Yep.

• 18:38Speaker 01

  And so they take the money and then they're lending it out to fix and flippers and people who need bridge debt. And then a lot of other just deals, but those are like the main asset classes I focus on because I had relative knowledge on there. And also had a really good network of people that I could like find deals from that way as well. And I did some other smaller deals to just kind of like test the water and, you know, learn about it.

• 18:59Dave Meyer?

  That's great. Again, man, dude, we gotta, we gotta hang out next time I'm in Denver. We, we've sort of done the same exact stuff. I, I think it makes so much sense. Like I'm not taking down a 20 unit multifamily property to renovate. Like I, I don't have the skill set to do that, but I know it's an awesome way to make money, right? Like you see people doing this successfully all the time and you want to participate. And this is an awesome way to participate with very little time. And I mean, I, we could. Talk a little bit about this, but in my experience, Chris, like passive investing is awesome because you do a lot of upfront due diligence. You got to figure out what's good about the deal. You got to really concentrate on the operator and make sure they know what they're doing.

• 19:44Dave Meyer?

  But after that, you kind of do nothing. You just look at quarterly financial statements and make sure that you're on track. And of course, that comes with trade offs. Like you don't have the same liquidity in a multifamily deal. Sometime in debt funds, you still have liquidity, but or in funds, you have some liquidity. But that's very appealing to someone who's still doing other stuff and has other interests outside of operating a deal. So maybe, Chris, just give us an example of of one deal you did that you really like. And maybe tell us, have there been any deals that have gone wrong?

• 20:15Speaker 01

  I got lots to talk about both. So a deal that I a couple of things I really liked. I like investing in funds, which is, you know, a syndication is I usually like a single investment to an apartment building. Hey, here's a hundred year apartment building. We need to raise $5 million for it. You invest in that. A fund will be multiple apartment buildings or multiple houses or multiple loans you lend out. So I'm a big fan of investing in funds. I'll give you two quick examples because it creates diversification because hey, some some individual deals will do really well. A lot will do kind of towards a pro forma and one or two usually don't go the way as planned, right? That's just investing in that's life. So I sold some Denver rentals a few years ago and invested in a value add multifamily fund.

• 21:00Speaker 01

  With, I mean, I think they have like 800, 900 doors in the portfolio on there. And of course, I'm a very small owner of that, but heavy concentration in the Midwest.

• 21:09Dave Meyer?

  Yeah.

• 21:10Speaker 01

  So I got geographic diversification.

• 21:12Dave Meyer?

  Love that.

• 21:12Speaker 01

  I'm getting cash flow and then really seeing how the Denver multifamily market is just going through its 2008 right now.

• 21:20Dave Meyer?

  Yeah, it's tough out there.

• 21:22Speaker 01

  Yeah, the Midwest is, you know, they're doing performing a lot better. So that fund has performed really well while, you know, a lot of Denver deals have gone south and a lot of other, you know, multifamily deals have gone sideways. I did a lot of investing into debt funds as well. Again, a lot into like a Midwest debt fund because I want to geographic. Diversification and then they just pay out a higher debt funds are like pure cash flow.

• 21:44Dave Meyer?

  They're great.

• 21:45Speaker 01

  There's, there's no principal reduction.

• 21:46Dave Meyer?

  I love it.

• 21:47Speaker 01

  No tax benefits. A lot of times a double digit cash flow. And so they were paying on the higher end, a lot of debt funds. And that was just because they're in the Midwest where there's less competition. The Midwest is more of a rental market. And so those were two, two deals that I invested extremely well on, and they performed extremely well as well up to this point. And that count with my thesis of diversify away from Denver. But really leverage my knowledge as investor to go out there and find the right investment threat operators.

• 22:15Dave Meyer?

  Well, I mean, that, that makes a lot of sense for me. That is one of the major things about doing passive investing that I really like too, is that the diversification, not just in asset class, but geographically. I have syndications in places I've actually never been to, which is rare for me. When I do active out of state, I definitely go visit all those places.

• 22:33Speaker 01

  Absolutely.

• 22:34Dave Meyer?

  But passive, you know, if you're working with a good operator and it looks, you know, you and I both seem to be data nerds, like you can figure out if it's a good asset with a good operator from, from remote. And that's awesome because I don't have any active holdings, for example, in the Southeast, but a couple of years ago, when appreciation was exploding there, I wanted to invest there. And you were able to do that and diversify. And it's super cool. What about deals that have gone wrong?

• 22:58Speaker 01

  I'd say compared to a lot of the horror stories you hear on the internet, I've fared extremely well. I have not had any deals zero out yet. I'm not going to win on here. No complete loss is what I mean by zero out. I did catch a couple, like, you know, the phrase is, you know, a falling knife. In the Denver market, when things started turning in late 22, early 23, you were like, oh my gosh, we're getting this apartment building at 150 a door. This is amazing. You know, he'd done a bunch of deals in his areas, you know, especially the Denver deals where I'm having the most trouble. And that's because part of the Denver market. And then also something else I put on my radar here is Colorado has had just a lot of new landlord tenant legislation come through the last couple of years, and it's made things a lot more complex.

• 23:44Speaker 01

  It's made operating expenses a lot higher in terms of like vacancy and, you know, how you do evictions and, and things like that, how you can collect some fees. And so the combination of the market going south and then the legislative headwinds really was like a double, you know, one, two punch on there. And so I've had a couple of deals where distributions are paused.

• 24:04Dave Meyer?

  Yep.

• 24:04Speaker 01

  But luckily, and this goes back to like, you know, leveraging the network and the knowledges. I underwrite the operators the most because I'm, I'm trusting that person with my capital. And they are really good operators in terms of like how they underwrite, like their SOBs when it comes to negotiating, which is good. They're wealthy themselves. So if things were sideways, they can feed the deal some themselves as well. And so, you know, hey, some deals have paused and luckily they've put good debt on there. And probably just hopefully the plan is just ride out the storm for the next two or three years as the mark comes back. Sell at probably, you know, principal or maybe a little bit of a loss, a little bit of a gain. But we're positioned where we can ride out the storm on those, which I've been very, very fortunate with.

• 24:45Dave Meyer?

  To be clear, like, we're also going through a market cycle where multifamily, where a lot of syndications are concentrated. Is getting crushed. I mean, like nationally, prices are down 15 to 20%. Some markets it's even worse. Some markets are fine. But, you know, syndications have gotten a bad rap, I think, because the whole asset class is suffering. And people bought at inopportune times. Not that the deal structure of a syndication, remember syndication is just a deal structure. It's not a particular deal or a particular asset class. Syndications themselves, I don't think are the problem. It's that the operators bought at bad times, you know, like, so there, there might be a bad operator.

• 25:26Dave Meyer?

  It might be adverse macro conditions, but for me at least, I don't think it's the fault of the deal structure. And that it was the fact that it was a syndication, you just bought the wrong asset at the wrong time.

• 25:36Speaker 01

  Man, there's starting to be some really good opportunities in both worlds out there now.

• 25:40Dave Meyer?

  Oh, I agree.

• 25:41Speaker 01

  What I like about the passive side now is like the operators that, you know, just they underwrote deals poorly or couldn't, they just weren't good operators. Those guys are washed out now.

• 25:51Dave Meyer?

  Yeah.

• 25:51Speaker 01

  The people who are still doing deals, they're the people, usually the good operators, of course, always do your due diligence. Look at their track work and all that stuff. Like, I'm not giving investment advice here, like, but like, it's weeded out a lot of like the, the subpar operators. And now I think like there's great buying opportunities in both like, you know, active residential and both in commercial, active and. With like commercial passive type deals. So I'm like really excited right now. Like the, you know, there's pain, uh, but like there's lots of opportunity coming down the pipeline.

• 26:18Dave Meyer?

  I, I think it's only going to get better for the next couple of months, but I'm starting to see good deals for sure. I'm, I'm revving up. I just sold some property too, to go buy more stuff because I think there's going to be better deals out there. Anyway, I digress. I want to turn the conversation to just like how people can do this because I think this, this transition from active investor like you were doing, and I, I still do to passive. Like, how do you make that transition successfully? Because I think a lot of people want to do this. Let's get into that, but we've got to take one more quick break. We'll be right back. So if you are an experienced investor, considering more passive investing options, Chris is going to lead a five-week live cohort to help you navigate the transition from landlord to limited partner.

• 27:02Dave Meyer?

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• 31:11Dave Meyer?

  Welcome back to the BiggerPockets Podcast. I'm here with investor Chris Lopez. We're talking about how Chris has gone from being an active investor, building his own portfolio in Denver, to taking a more passive approach. And Chris, I want to talk about how our audience can follow a similar path if they want to. Like we said, there's points of divergence in your investing career. Some people choose to go all in and become an operator. Some people just stay with the slow and steady approach that they've always done. But I think a lot of people are interested in this passive approach. So how do you recommend people make this transition?

• 31:46Speaker 01

  Measure twice, or probably measure like twice, you know, like be very intentional, be very data-driven. Going back to portfolio review, my framework is I load every property into a spreadsheet or software and I go through and say, hey, what's return equity? And then I run through three options. You can keep the property, which means keep it as is, optimize it, pivot to an Airbnb, or now, you know, room by room living or co-living is a hot strategy right now for cash flow. Hey, can I convert the property or keep it as is? Second option is can I do a cash out refinance? Can I extract the equity and then go use that cash I pulled out to invest elsewhere?

• 32:28Speaker 01

  The third option is you can sell the property to extract the equity and then go invest. And I used to always sell in 1031 exchange, right? So I get the tax benefits of 1031 exchange where I get to defer my taxes, defer my appreciation or capture and go buy a new asset. So you can sell and you can either do 1031 exchange or you can also just sell, pay taxes, and invest elsewhere. So. If people go through and they look at their portfolio and for each property, they go through and look at these three options and then they look at their goals, it gives you an amazing, here is where I am presently. And then you can look at the investment opportunities you have in your market, partnerships outside the market, you know, stocks, DST syndications, other rental

• 33:11Speaker 01

  properties. You can go out there and say, hey, I'm sitting here. What can I start doing? And I always tell people do a lot of what ifs and just play it out. And you know, the great thing about real estate is you don't have to make all these decisions and transactions in 30 days, right? Map it out. And then if you got the worst performing property and it's the biggest headache, maybe just sell that and reposition. Sell on 1031 exchange, or sell and invest in a syndication, or sell, invest in the stock market and just, you know, make one or two moves a year and over, you know, a five, seven year timeframe, rebalance your portfolio. And I still own active rentals. And I'm a big believer, hey, I want to have both and I like both.

• 33:52Dave Meyer?

  We talk about this a lot on the show these days. It's like, I know there's this edict in in real estate. People a lot of say like, never sell. I think that's absolutely crazy. Like, why would you do that? Why would you hold on to something that's not performing as well as other assets probably could? I think a lot of people just don't want to go through the exercise that you just talked about, which is like, you gotta go and do the work. And it's not a ton of work. I have spreadsheets that are associated with my book that you could check out. I'm sure Chris has spreadsheets too. Like, there are ways that you can do this. It's not that complicated. You just have to put in a little bit of work to be able to go through and do this. But I think one of the big things that hold people up on passive investing, Chris, is just the idea of where do you find the deals? Where

• 34:37Dave Meyer?

  do you find the operators? And how do you vet them? So can you just give us a brief idea of like, how people can go about that?

• 34:44Speaker 01

  So, you know, two main ways I look at is your personal network as investor, you a lot of times have networks to go out there and network with your, your, with your investors, your professionals, everyone out there, see what deals you're doing. Other things are like platforms like Passive Pockets. About a year ago, BiggerPockets acquired Passive Pockets and I'm very plugged in that community. I do some podcasts over there as well. You take the resources that like BiggerPockets has for active investing, they have that for passive investing. And they also have a deal room too, where you can see actually sponsors on there. They present their materials. And a lot of times you also have community reviews, community feedback, other investors underwriting. And sometimes investors have invested in previous deals with them and give you real feedback.

• 35:25Speaker 01

  Hey, this investor was great, or this guy, red flag, red flag, never invest with him again. So I'm a big fan of Passive Pockets. As an amazing resource looking at deals and learning that, learning that game.

• 35:36Dave Meyer?

  Yeah, I mean, this is such a valuable thing because I've found in my own transition that being around other people who do syndications is super helpful. Like getting advice from someone who's super active. You know, who's an operator on syndications or on debt funds. It's not really that helpful. You want to sort of like build a community of people who are doing like-minded things, which is why we started Passive Pockets. It's a great free resource, that podcast that Chris is on. We also have our own forums and stuff there that you can check out there as too. So, so that's really good advice. What about sort of like the skills that you need? Cause you still need to underwrite these deals and they might be a little bit more complicated than buying a single family or just like a duplex.

• 36:16Speaker 01

  Yeah, I mean, I would say for active investors out there, you probably got like 80 to 90% of the skills you need to underwrite it. Because I mean, as an active investor, like you know how to do rent comps, you can look at pro formas and be like, hey, a 10% increase from rent every year is BS. So you have a lot of skills on there and you have to fill in that like remaining 20% with understanding the legal structure and also understanding how to underwrite the operator. Because it's like investing in Apple or a company in the stock market, right? When I invest in Apple, Tim Cook does not care about my opinion and I have no influence over Tim Cook. And when I invest in syndication, that operator, hey, at least they'll take my phone call usually. Like Tim Cook, but I don't have control and no input. So I am, you know, completely hands

• 36:59Speaker 01

  off. So it's really learning how to do the legal stuff and underwriting the operator, like the two new skills active investors have to learn. And one other resource. So I've gone through a transition myself that helps with my clients here in Denver. So a really exciting program that I get to kick off. That's kind of a joint venture between bigger pockets and passive pockets is a five week active to passive cohort. So it takes through a lot of the methodical steps we talked about on the podcast today. Over five weeks, we go through and review people's portfolios, your goals, learn the basics of underwriting passive deals. We spend a whole week on just tax advantage strategies from active to passive, because you typically can't do a 1031 exchange

• 37:41Speaker 01

  unless you're running a million dollar plus check. Just the way things are structured, you can't do it. So we go through very methodically how you can go out and look at your portfolio, learn active investing and either make your first investment, or maybe start transitioning some of your rental properties and create a game plan for it. It does kick off July 28th. So it's coming around the corner, but I am super excited to kick it off and would love to have everyone on there. Come join us.

• 38:05Dave Meyer?

  Dude, that is awesome. That is really, really valuable. I get this question all the time, people who want to make this transition. So if you want to check that out, Chris, where do they go?

• 38:14Speaker 01

  So biggerpockets.com/transition will take you to the course page, view all the details there and you can reserve your spot and come join us for our July 28 kickoff.

• 38:25Dave Meyer?

  So anyone who wants to learn how to do this successfully, obviously, as we've heard over the course of this episode, Chris is an expert in this and will be a great teacher to help guide you through the transition from active to passive investing. I wish I had this kind of help while I was trying to figure this out a couple of years ago. Chris, good luck with the cohort. Sounds like an awesome program and thanks so much for being here. This was a lot of fun having you and thanks for sharing your story.

• 38:51Speaker 01

  My pleasure. Thank you so much, Dave.

• 38:52Dave Meyer?

  And thank you all so much for listening to this episode of the BiggerPockets Podcast. We'll see you all next time.

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