Chris Odegard joins us in today’s episode to talk about the world of alternative investments and why they outperform conventional options. Don’t miss out on his insights on various real estate asset classes, limited partnership advantages, and essential tips for investing with your 401k.

Key takeaways to listen for

• [07:51] Why alternative investments are better than conventional ones
• [12:26] The benefits and risks of diversifying your investments
• [14:06] What is the best first investment strategy for beginners
• [18:05] Chris’ expert opinions regarding different real estate asset classes
• [25:35] Advantages of joining communities for investors as a limited partner
• [32:42] Important things you need to know about investing with your 401k

Resources mentioned in this episode

• [07:56] Rich Dad’s CASHFLOW Quadrant by Robert Kiyosaki | Kindle and Paperback
• [24:54] Left Field Investors
• [35:20] Get off Your A$$ and Manage Your Money by Chris Odegard | Paperback 

About Chris Odegard

Chris is The Prolific Investor. He is an average guy who had a white-collar job in the corporate world and followed the only thing he knew for decades, conventional wisdom and conventional investment. This worked relatively well until 2009 when he experienced an illiquidity event where he lost 55% of his assets and thousands of dollars per month in cash flow. 

Then, his mind was opened to a different type of investing after reading Robert Kiyosaki’s Rich Dad, Poor Dad. In just nine years, Chris recouped the 55% he had lost and multiplied it many times over and now shares his experience and knowledge through his book Get off Your A$$ and Manage Your Money: Why You Need Alternative Investments and his alternative investment blog at TheProlificInvestor.net.

Connect with Chris

Website: The Prolific Investor

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Sponsored by Nomad Capital

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Chris Odegard: 00:00:41

There's things that people always need and then there's discretionary stuff in the middle. And then you've got the people at the upper end of the income where no matter what's going on in the economy, they always have money.

I would prefer to be at the bottom level or the top level and not in that middle place where they're going to cut out the spending in your asset class.

Neil Henderson: 00:00:58

In this episode of the Truly Passive Income podcast, we're joined by a man who turned adversity into opportunity, Chris Odegard, also known as the prolific investor. He, he's the embodiment of transformation from enduring a catastrophic 55% loss of assets to unveiling the power of alternative investments.

He's not just a survivor, but a thriver. And today he's spilling the secrets that led to his financial renaissance. Brace yourselves for a journey from conventional to exceptional.

Welcome to the Truly Passive Income podcast. I'm Neal Henderson.

Clint Harris: 00:01:31

And I'm Clint Harris.

Neil Henderson: 00:01:32

Well, Chris Odegaard, thank you so much for joining us here today. We got to meet you at the LFI conference just recently and we, we were just chatting offline how it's great to see a familiar face again.

Chris Odegard: 00:01:43

Yeah, thanks for having me on. I really appreciate it.

Neil Henderson: 00:01:45

All right, so I want to get right into it. What's wrong with conventional wisdom about saving for retirement in today's market?

Chris Odegard: 00:01:52

Oh, great question. Well, I call it the conventional investing wisdom and then I shorten it to conventional wisdom.

And I've been on lots of podcasts promoting my book and things, and I realized recently that every time I got asked this question, I answered a different way. So I thought, well, I'm the self proclaimed expert on this stuff, so I should have a definition.

So you guys are going to be the first one to publicly hear my definition of conventional wisdom.

And it is investing in a portfolio of stocks, bonds and mutual funds, typically through a 401k with the expectation that that is going to get you to financial freedom or an abundant retirement lifestyle. So that's the conventional wisdom. And we all know that the majority of Americans follow this. They don't even know where they got this wisdom.

It's just kind of you come out of the womb knowing this is how you do it. And the truth is it doesn't work for 91% of the population.

Neil Henderson: 00:02:47

I often call it the nest egg approach versus the cash flow approach. And that's very much where the realm where Clint and I live and you live, which is you buy a collection of cash flowing assets.

And when that Cash flow gets to the point where it's going to support a lifestyle that is satisfactory to you. You can work becomes optional, just keep putting away.

And then at some point it's going to grow to a point where you can start drawing 4%, 3%, whatever. The Trinity study says you're supposed to withdraw now. And I think I've heard you make some great points about the problem with that number.

And can you go into that a little bit?

Chris Odegard: 00:03:26

Yeah.

So when you're talking with conventional investors or your typical financial planner, the conversation usually because like you said, in the conventional world, it's not cash flowing assets, it's a balance sheet. It's this mountain of assets that typically don't produce cash flow.

And so the question always is, well, how big this mountain of money need to be in order to retire? And I really think that that's the wrong question because, you know, it's just average people and investors.

We don't have a concept of how far a half a million dollars will go or a million dollars will go in retirement.

What we do know is we know that if we live in a certain city and we're making $100,000 a year, we know what that lifestyle looks like and what that income provides us. So really the question that everybody should be asking is what type of income do I want to have in retirement?

And then that gets back what to you said, Neil, about this rule out here, formerly called the 4% rule.

If you had this mountain of money, you would multiply that by 4% and that would tell you how much money you could most likely take out every year and not run out of money while you were still alive. The 4% rule was put together decades ago and it was tested against stock market data to that time. At one point, it worked.

It wasn't that you were certain to not run out of money, but you had a high likelihood if you didn't withdraw more than 4%, you wouldn't run out of money. Well, what's happened is the financial industry is finding that the 4% rule isn't working anymore.

So their answer is, well, you just have to live on less. Now it's the 3% rule or the 3.5% rule.

But getting back to so if you stop asking the question how big should the mountain of money be and how much income I want to have in retirement?

If you say it's $100,000 a year and you reverse that 4% rule and you divide by it, that tells you what the value of that 401k plan or that brokerage plan needs to be. So let's just take $100,000 a year and apply the reverse 4% rule and you get a $2.5 million portfolio.

And then you know, depending on what audience you're talking to, it's like, well, I don't know, is that a lot of money for people or do people have that in their 401k or do they think they're going to get there but it gets even better or it gets worse? So let's just say that's a lot of money for most people.

So let's say we were a little greedy and let's take the median income, which is around $71,000 a year, and apply this reversed 4% rule and you still get a 1.175 million dollar portfolio. And then it gets even worse because you say, well, the 4% rule isn't working anymore. It's really the, the 3.5% rule.

Now you're back up over a $2 million portfolio just to have the median income of $71,000 a year. So that's how those numbers work and that's what that looks like assuming, making.

Clint Harris: 00:06:30

Some assumptions about inflation remaining at a relatively stable rate, which it can be up and down and over the map as well.

One of the things I think been so interesting that I've really enjoyed about being on a podcast and speaking to a lot of different, really intelligent investors, so many different people have come to the same realization from a lot of different walks of life and background. But the people that are looking ahead and thinking about it, everybody realizes the conventional way of doing things doesn't work anymore.

And I think you've done a really good job of quantifying it and making it understanding the traditional definition of conventional wisdom and why it doesn't work. I'm one of six kids, grew up in a lower middle class family. You take nothing and divide it six ways. I was never going to get an inheritance.

I always knew anything that I was going to get, I had to get it on my own. And that my generation is never going to be able to save their way to retirement.

I think previous generations, my parents, certainly my grandparents could because the cost of living was a lot less. There were pensions and things of that nature, Social Security at a higher rate. I know that I'm never going to be able to save my way to retirement.

And most of my generation is not, with the exception of higher ending white collar or white coat professionals, medical community, small business owners that live low, below their means and save really, really well. There's very, very few of those and there's less every year as we go on.

So traditionally speaking, like, if you know that you're going to have a very low ceiling and you understand that saving is not going to get you there, then the only way is you can't play defense, you have to play offense, and that means investing. So I kind of came to that realization just because of my family background fairly early on.

I'm curious as to how the concepts you're talking about are kind of still changing with you. And you seem like over time you're dialing them in. You're doing a lot of speaking, you're doing a lot of education. You've written a book about this.

Get off your ass and manage your money. And like, you can feel that, that over time that you're really honing in on that core message. I know you got 33 years with Boeing.

I know you used to write sales contracts for airplanes. The 737, 747, you've done it all. When did you first realize this concept?

Because I would assume, like, you probably have a pension or I don't know what your retirement looked like, but how has this developed over time for you that you've come to this realization?

Chris Odegard: 00:08:32

It came to me through a very roundabout way. For those who have read Robert Kiyosaki's Cash Flow Quadrant, I was raised as an E, an employee.

There were no entrepreneurs or investors or anything in my family. So I was a conventional kind of employee. I was a conventional investor putting money in a 401K. I now call that the 401K highway to mediocrity.

And so I was doing that until about my mid-40s. What I fondly refer to as a huge illiquidity event where I lost 55% of my assets, thousands of dollars of cash flow.

And that happened to be a divorce. But so I didn't get to it from kind of an academic way that I look at it now. I got to it because that.

That highway to mediocrity just got exponentially worse. And there was no way I was going to get there and no way I was going to recover. National method and that's what turned me over to alternatives. And.

And once I realized how superior they were, of course it's like, wow, I wish I'd have known this 20 or 30 years ago. But why don't we kind of get everybody else on board? Because everybody's doing it.

And there's another thing And I've heard this so many times, a young person starting out, should I put my money in a 401k? And here's a common answer.

It's a no brainer because of the company match and because of the tax deferral, where there's a couple people who have said, you know, you always need to ask yourself the question, compared to what? Well, it's a no brainer. Compared to what? Well, putting it under the mattress, it's probably a no brainer.

But let me tell you that company matches just the same thing as other people's money. And the tax deferral is a tax deferral. Well, I've done the numbers.

If you bought a single family rental, you get tax deferral and you get other people's money.

The tax deferral comes in the form of depreciation and the other people's money comes in the form of a bank loan that somebody else pays for over the next 30 years.

And if you calculate the value of those two elements in kind of an average 401k, the company match and the tax deferral and compare it to a single family rental. Those two benefits of a single family rental are almost worth three times as much money as the 401k.

So you know, we're all sitting here and we, we could, we see the light, we know, but I think there's still a whole segment of the population that they haven't got it yet.

And so what I'm trying to do is bring some real simple math and facts and data to this to show that, you know, if you want to stay on this path, stay on it, but just know that it's not going to get you where you think it's going to get you.

Neil Henderson: 00:11:08

Well, the dirty secret about retirement accounts is they were never intended to be a sole means of retirement when they were created. They were intended, the 401 and the IRA were both intended to be one leg of a three legged stool that included pensions and Social Security.

And over time companies have gone, well, we're doing this 401k match. We're not going to do pensions. So they've gotten rid of pensions and then Social Security.

Depending on who you talk to, how liquid is Social Security going to be in the future? Is it going to be around?

I don't know that I want to bet on it, but I also bet that at the very least it's going to be the amount that I get is going to be eroded. And so now it's just down to the 401k or the IRA. And that's where we stand today.

Chris Odegard: 00:11:55

And the truth is, it works for 9% of the population.

Because when we did this math and reversed the 4% rule and said in any of these scenarios, you needed to have a portfolio of over a million dollars, that means we have a name for that type of person. It's called a millionaire. And only 9% of Americans will ever be millionaires.

So that 91% of the population, this doesn't work for to just retire with the median income, but the people that it does work for, like you said, if you're making $500,000 a year and your expenses are only $250,000 a year, and you can plow away $250,000 a year into a 401k, you're going to be fine. But that's not 91% of the population.

Clint Harris: 00:12:38

I know that a lot of what you do focuses on education and basically getting people on the bus. Look, understand that what you're currently doing isn't going to get you there.

Get on the bus with alternative investment strategies, and after that, if you can switch seats later, kind of figure out where you want to be. If you fast forward that a little bit.

And I'm speaking now, if you want to speak as an LP or towards a limited partner investor, like, what kind of diversification strategies are you looking for in terms of asset class, geography, operator, or debt structure? How is your thought process on that evolved?

Chris Odegard: 00:13:08

It's changing all the time. I could tell you. Most recently, I violated one of the basic rules of investing, which was not being diversified enough.

So diversification comes in a lot of forms. And, you know, it comes in asset classes, it comes in geography, it comes in different syndicators. And here's a new one.

Maybe it comes in some of your investments don't actually have any debt.

I mean, how do you protect yourself against some of the recent things that have happened, which have been mostly caused by government interventions in the free market? And it's like, wow, well, maybe if I had some stuff that didn't have any. So diversification's kind of taken on a whole new meaning to me recently.

You're just kind of going, okay, as an lp, how do you protect yourselves from some of these things that are out of our control? I mean, not only rising interest rate, but just unprecedented rise in costs of everything.

Even the best indicator could find themselves in a situation.

Kind of the example that I use is, okay, let's just say you had a single family rental it's been thrown off $500 a month cash for however many years that all of a sudden between interest rates, property taxes, insurance and labor and material costs, all of a sudden a very short time it's negative $500 a month assuming some conservative, you know, ways of managing and things like that. So diversification is something I'm looking at real hard these days. Wish I could say I had all the answers.

Neil Henderson: 00:14:29

But Chris, the average investor, when they're starting out, they're young, maybe all they've ever been exposed to is their company 401k match, and that's really all they know is your advice for them to just go straight into LP investing or where do you maybe recommend that someone. What are the baby steps to get started?

Chris Odegard: 00:14:48

Well, you know, one of the easiest things, and I use this example in my book and a keynote speech I'm working on, you've got Joe Conventional and Susie Alternative. You know Joe conventional, he's that $500,000 a year gu, he's putting 30 plus thousand dollars a year into his 401k.

And then you've got Susie Alternative. Now she's only making $100,000 a year, but she's got $30,000. So she takes it and puts it as a down payment on a single family rental.

I mean a lot of people start out there and a lot of the LP opportunities are limited to accredited investors, which most people don't have when they're starting off in their 20s. But that was my path. It's kind of a lot of people's path. It starts off there, the barrier to entry is pretty low and so that's a place to start.

And probably I would say, you know, I didn't know this way back when and I don't know how many of these type of things this is, but it can be even easier than that.

There are many what are called turnkey single family rental providers throughout the country where instead of you taking this on yourself, finding the rental property, these are companies that do nothing but either acquire rentable single family properties in good markets or build new ones and they put a tenant in it with property management and all you do is come along with your bank loan or your cash and you've bought yourself what's called a loaded rental. I mean, if I were doing it all over again, I probably would have skipped doing it myself and would have done that.

Clint Harris: 00:16:08

It's funny you say that over time when you look at the lifecycle of different real estate investors, a lot of times the people on the active real estate side, if they start young, is the wholesalers that start flipping houses, that start holding some rentals because they realize they're just trading time for money they get in a multifamily.

And if you fast forward that timeline to somebody who does it and does it pretty well for a long time, eventually they tend to end up towards more passive investments that larger multifamily properties with partners are large enough to have an on site manager or eventually getting into out of the active side and more into the passive side of investing because they're willing to give up a little bit of that return to get your time back. Right? Because eventually you realize that time is worth more than money for people that start out with limited partnership passive investments.

From your experience, what does that life cycle look like? The reason I got into self storage is I was active in Airbnb Properties. My wife and I have 14 of them. Then built a property management company.

It was wildly active. I made the jump to self storage because we needed to diversify.

And I asked all the smart, intelligent older investors that have been around for a long time, the guys that look like they're sitting around not doing much, those are the guys that I asked. I was like, what are you doing? I need to know. And it was predominantly of the guys that were active. It was three things.

It was hard money lending to house flippers, it was mobile home parks, and it was self storage. And that's what started me on my journey towards self storage as the more passive investor, the limited partners there.

What does that life cycle look like for somebody that's been doing it for a long time? And kind of where do you think that that person that has really caught their stride, where do they land? Like, what does their strategy look like?

Chris Odegard: 00:17:42

I think it's different for everybody. I mean, you know, I kind of grew up during when the jobs act came around and syndication became more popular.

And I started off, I was a note investor doing it myself to the active way. And I started with notes and then just. I've kind of rotated through all the different areas. And I think again, nowadays it really boils down to.

I wouldn't say that. I guess me, I kind of favor multifamily and self storage and now oil and gas. So I don't know that there's one answer to where you end up.

I think it varies very much by individual. And some of it's a diversification thing and a risk thing. And where can you find asset classes?

And you can match up an asset class that you like with syndicator that you've gotten to know like and trust and are comfortable with.

Neil Henderson: 00:18:26

Well, let's go down. Rather than trying to suss out what someone's individual goals might be and how a particular asset class might fit in with them, why don't we just.

I'm just going to fire off some asset classes at you and you can tell me in today's market, what is it that you like about that asset class as an investment? Sure. And let's start. The first one you mentioned was multifamily.

Chris Odegard: 00:18:47

I'm tending these days, actually I have been all along is things that everybody needs all the time. Workforce, housing, everybody needs that, you know. So I like multifamily.

I've got a lot of investments in that space and I think the long term, everything I hear is that there's still a long term housing shortage, whether it's single family rental and multifamily. Even though the asset class is going through some tough times now, I'm not sure right now would be the right term to buy.

But there are going to be distressed sellers and those sales that are going to be stressed are going to be losers for somebody and that's going to be something that somebody else is going to pick up. So I still like the asset class and for the right deal I would do that. ATMs I have invested in ATMs numerous times.

It has probably been one of the most solid and most reliable investments I have ever made. It has never, never missed a beat all through the pandemic. My own personal investment philosophy these days is I like appreciating assets.

So for that reason I'm just personally not doing that anymore.

Not because there's anything wrong with the investment, but it's a great cash flow and great internal rate return and you get the bonus depreciation on whatever schedule we're on with that kind of declining benefit.

Neil Henderson: 00:20:00

Now my understanding with ATMs it's purely a cash flow play with a depreciating asset. Is that correct?

Chris Odegard: 00:20:05

Yeah, I mean it's like a used car or at the end it's a seven year thing.

You get a fixed amount of money per month and at the end they're old and they sell them for whatever they're worth and there's no, almost no residual value at the end of it. Obviously if you spend it all, it's all gone. Right. But.

Clint Harris: 00:20:18

Well, you know, I'm going to ask about self storage. I got to hear what your thoughts are.

Neil Henderson: 00:20:22

I was trying to hold off on that one.

Chris Odegard: 00:20:24

I love self storage.

I've invested in self storage and I remember reading an article years ago about a study that was done of which asset classes performed the best in down markets. And my recollection was that number one was mobile home parks, number two was self storage, and number three was multifamily. So I love self storage.

I like the way you guys are doing it. And get back to the other point and you have non accredited investors in your deal.

So it's not impossible for somebody just starting out to start out that way. You guys are kind of a minority in that area.

Clint Harris: 00:21:00

I don't want to front load the answer into the question, but like, if you're talking about assets that may not be a necessity, I'm talking specifically like maybe RV parks or resorts. I got approached with a resort recently and I was like, in these times I think I'd rather stick with things that people need.

But there's also an argument that a lot of people are downsizing and a lot of baby boomers are hitting the road. So maybe there is a need for that in the RV space.

But what do you think about things like that that aren't as traditionally a necessity like housing or storage or something like that?

Chris Odegard: 00:21:29

Yeah, for me personally, I'm probably not going to go there just because when times get tough, what do people do? They cut back on discretionary spending. And it's interesting because there's kind of this, the workforce housing thing or the necessities.

So there's things that people always need and then there's discretionary stuff in the middle. And then you've got the people at the upper end of the income where no matter what's going on in the economy, they always have money.

So I think I would prefer to be at the bottom level or the top level and not in that middle place where they're going to cut out the spending. In your asset class.

Neil Henderson: 00:22:02

All right, last asset and then we'll move on from this is mobile home parks.

Chris Odegard: 00:22:06

I have not done a mobile home park and I don't know why. I'm just a little shy of doing that, but I am.

But I really don't have a rational reason of why because all the data kind of suggests that that's a really good asset class. So I don't think there's anything wrong with it. I just haven't been able to get myself to make a move in that direction yet.

Neil Henderson: 00:22:26

My only understanding of it is it's sort of like you got workforce housing and below workforce housing, you've got mobile home parks and you know, talk about something that is always going to have a need and it's going to be low income housing. And right now that's almost the only place that there really is low income housing.

Chris Odegard: 00:22:45

And they're not making any more of it. It's a declining asset because no one's building any new ones. The counties don't like them because they don't generate a lot of tax revenue.

And so anytime there's a chance to get rid of one, off they go.

Neil Henderson: 00:22:56

So what about converting malls into little miniature cities? Have you seen that one lately?

Chris Odegard: 00:23:01

I think there was somebody at left field that was taking malls and turning them into multifamily.

Neil Henderson: 00:23:07

Yeah, mixed use, multifamily and yeah, so.

Chris Odegard: 00:23:09

I heard a pretty reputable syndicator I'm thinking more of. It wasn't malls. I think it was office space. I think the guy was taking office space and that's kind of a huge problem.

I heard somebody say I'd never see anybody do it successfully.

So hey, if somebody can figure out how to do that and do it economically, I mean there's certainly buildings out there that are not being used, whether it's malls or office space that something needs to happen with them. And I'm sure somebody will figure it out.

Clint Harris: 00:23:33

They will. I think that that's. It's a space like that.

If you're talking about any kind of asset class conversion, this is when it comes down to yeah, you can really like the deal, but you better really love the operator. Because there's some tricky stuff when it comes into the conversions. Even if it comes down to converting old buildings.

Like just one of the small things we deal with with storage is making sure that it's rated for £150 per square foot.

When most of the buildings out there may have been built for £75 per square foot and they were built for office or for multifamily but you can't get a CO for storage or anytime there's an asset class conversion. You have the potential for huge value add because you're changing the formula by which the asset is valued.

But you also have potential for huge pitfalls. So you better really know like and trust your operator.

I tend to find that the people with the vertical integration that are doing the construction in house can manage some of those costs a little bit more. But I totally agree with you. There's going to be a need for that. Absolutely. In the future.

Chris Odegard: 00:24:25

I love that term. You're the first guy I've heard say that. So maybe you should like trademark that asset class conversion. I think that's awesome.

And just the way by just changing the classification, it gets completely revalued virtually overnight.

Well, it's not overnight after you do all the work, but, you know, certificate of occupancy and all of a sudden, boom, now it's worth twice what it was. Just because it's being looked at differently.

Clint Harris: 00:24:46

Yep. It takes the people that are doing that in terms of the construction and the engineering, they got to have some chops.

I think the people that are going to work in that space and do it are going to do it really, really well. And there's going to be a barrier to entry for a lot of other people unless they've got a lot of experience in that space.

But thank you, I'll write that down. We're going to trademark that. Neil.

Neil Henderson: 00:25:06

Clint. Clint, number five.

Clint Harris: 00:25:10

This is a little bit of a selfish question, but one of the things that I like about the alternative investment space as it's really honestly, and I think it's a combination of there's way more opportunity, but there's also a lot more opportunity in terms of socializing and networking and using social media to allow the everyday American to know what's out there. One of the things I really enjoy seeing in the space is the value of community.

the best ever conference with: 1300

And I have no doubt that that organization is probably going to be at 4,500 to 5,000 members over the next two years and continue to grow. I love that. And so one of the things I enjoy seeing is the power of community.

So I'm interested from your perspective, you've probably been tapped into this a lot longer than I have.

How you're seeing those communities form and what are some of the communities out there that you see having real value in terms of education, some of the ones that you've spoken at and that you're a part of, and what value that brings to that everyday LP investor?

Chris Odegard: 00:26:17

I have to say that I've been part of a couple of them and I won't mention them because I'm not really part of them anymore.

But Left Field has been really the best group that I found for the limited partner and a group that is letting the limited partners, letting the group decide here's everything that's coming across our desk. All the deals, all the sponsors. You decide what you want to do, and you've got the forums and the education and the meetings.

So I haven't come across. There's some groups out there that are very restrictive and they won't even let a guy like me in. I don't know why.

My domestic travel every year tends to be stuff like left field or whatever, and it's the best one that I found for me as a limited partner.

Clint Harris: 00:27:00

Good.

Chris Odegard: 00:27:00

And, you know, it's inexpensive. As Jim Pifer always talks about the community or the personality, that's not the right culture. It's just got an open culture.

Everybody's willing to share and help. And from that, there are clubs that break out for people that are, you know, in particular areas.

And from this group and other groups, I'm on calls with three or four guys, a couple different groups of three or four guys once a month, where we get together and talk about what we're doing. And so other smaller groups form out of these things as well. So it's a fantastic thing.

Neil Henderson: 00:27:32

Chris the conventional wisdom on portfolio management with a conventional stock portfolio is that as you age, you start diversifying into stocks or started diversifying into bonds. You rebalance your portfolio as you get older and older, so you're getting into less and less, quote, unquote, risky investments.

Do you practice any sort of similar discipline when it comes to managing your alternative investment portfolio, or is it more freestyle?

Chris Odegard: 00:27:59

It's more freestyle.

I've heard a guy on a podcast, and he had some kind of like a mini family office, and he was talking about how family offices manage their money, and he was trying to bring that to a level that's accessible by those of us, you know, don't have hundreds of millions of dollars. And he said something that isn't rocket science. It's something that I haven't done very well.

He says, well, you know, family office knows they've got this pie, and they know exactly how much money they're going to put in real estate and ATM machines and mineral rights and oil and gas. And that's something that I'm starting to think about and I haven't figured out.

I have started thinking a little bit about passive compared to active investing. But the only real passive investing in my mind is the conventional investing. You put your money in a mutual fund that's passive.

Even as limited partners, there's a lot of work that goes into figuring out where you're going to invest, what asset class and who you're going to do it with. So I do think about, as I go down the path, if I'm going to slow down and what is that kind of going to look like?

Because I'm still in the building mode as we speak.

Clint Harris: 00:28:59

I think you make a really, really important point. Passive income is a buzzword. They get spread across a lot of different industries. Get an Airbnb, get a drop shipping company, it's passive.

And the reality is, like we look at syndication as a passive investment, but really, to be honest, it's probably more of res residual income if you do it the right way, which is the way that you're talking about, which is you have to do the work to understand the asset class, to understand the operator, to underwrite the deal, to read the ppm, the operating agreement. You do all that upfront because it's your responsibility. Right? Nobody's going to mind your business the way that you should mind your business.

I agree it is very, very passive compared to active investments. But that doesn't mean that you can be irresponsible. You certainly have to front load.

And I think if you vet an operator the way that you should, if you decide to reinvest with the same operator down the road, and sometimes there's benefits of doing that, it gets easier, right? You still need to continue to do your due diligence, check up on them and see how things are performing.

But at the end of the day, I think you make a good point that even though we talk about truly passive income and investing your capital with other people's time and experience, and the whole is greater than the sum of its parts, when you're all invested together, the reality is exactly what you alluded to is that no one's going to do the work for you. No one's going to mind your business the way that you should mind your own business. So that's a great point.

Chris Odegard: 00:30:17

I talk about this in my book. It really depends on how serious you want to take this stuff.

You know, when I lost 55% of my assets, I was like, I need to pull every lever that I can pull to try and get myself out of this financial valley.

And that included getting better returns on your investments, that included getting taxed less on your investments, that including having your assets protected so you don't lose them once you get them back.

And so picking the investment in the syndicator is one thing, but if W2 people, they pay taxes on their gross income, they get paid first, and then the federal government takes taxes and then they subtract their expenses later. Businesses get taxed on their net income. You have revenue, you subtract expenses and then you pay your taxes.

You don't have to have a business other than investing. Chris Odegaard doesn't invest in anything. One of my companies does my investing and then I get the tax treatment of net income that businesses get.

So there are layers to the passive investing and it all depends on what you're trying to achieve. Do you want to go to that next level and treat yourself as a business so that you can pay little to no income taxes?

When you combine the benefits of the investment class, the tax benefits of the investment class with having a business structure and a good tax strategy and you don't have to do all that stuff, it just depends on what you're trying to achieve. Right?

Neil Henderson: 00:31:38

Well, you bring up a great point and I think a lot of people don't really do this calculus which is the more passive something is, typically the lower return it's going to be. The more active it is, the more higher risk it is, the higher your return is going to be.

That's just the way of economics and what you're looking for.

And one of the things I love about investing in private placements and things like this is that the risk adjusted return along with its level of active involvement by me is in my mind lower than any other active investing strategy that I could use.

Clint Harris: 00:32:11

Let me ask you this Chris. So I know you had a 33 year career with Boeing. So I had a 16 year career in medical sales. I turned 41 last week.

And I've got retirement accounts from, you know, have an IRA as well as a 401k that got that company matched. It was a no brainer for all those years. Right. And then I've made my transition a year ago to a full time real estate investor. I'm a general partner.

I still do some active real estate investing. I'm an LP investor as well with part of those real estate funds.

But when you catch somebody part of the way through their journey, like me in their 40s with retirement funds, what's your recommendation on. Because to me it's a word problem.

I've done the math of what happens with that 401k that I've got if I don't touch it anymore because there is no more employee match because I'm out of the industry, what's it worth when I'm 65?

Then I've also done the math of okay, what if I cash it out, take a huge hit, I pay the penalty plus the taxes, and then I put it into work in syndication. That's scary. But the returns are significantly higher given the returns that we're seeing across syndication space.

But it's challenging that conventional wisdom.

So when you find someone kind of where I'm at, in the middle of their journey, say somebody finds this podcast, they're 35 to 45, 50 years old, they got those retirement funds. What's the conversation you're having there if.

Chris Odegard: 00:33:24

They'Re still working for the man? The first question, and I say is you need to ask. I guess the first question is, well, do you want to make more money with that 401k money?

Do you want to try to maximize that and get it out of the stock market and start doing some alternatives with it? If the answer is yes, then they need to go to their employer and ask them if they will do an in service transfer. That's exactly what they need.

And that means some employers and some 401k plans will allow you to transfer some of your 401k money out to an outside administrator while you're still working for the company. We were talking about groups. I belong to an investing group way back when.

And I was having this conversation with the guy that ran this group and I had been at Boeing for over 20 years at this point. And he said, chris, go ask them. And I said, what's an in service transfer? And he told me and I kind of went, come on.

If that were possible, certainly I would know about it by now, having for the company for 20 years. And so I just kind of pushed aside and forgot about it. And one day it popped back into my brain.

And so I inquired, sure enough, the company would let me take out all the matching funds that they had made over the history. And you could put that and I could roll that out. It's a just a rollover, no taxes to a self directed ira.

That's problematic for some tax issues with real estate. But there's a better solution, which I found out later. So I talked about having a company.

So you set yourself up an investment company and you set up a solo 401k. Now you roll that money into your solo 401k and you can do whatever you want with it. That's permitted under the IRS.

All the company 401k plans limit you to stock market stuff. That's the first thing. And if you've left the company, then you don't have to ask anybody.

You can roll that money over to whatever plan, you just got to set up a self directed IRA or better yet some type of a solo 401k and you're off to the races. Now you've got a whole bunch.

Because a lot of times these people, all of their investing capital is mostly stuck or 80 or 90% of it is locked up in that 401k. So there's ways to get at it. Once you've explained to them that actually the benefits of the free money and the tax deferrals are actually better.

Other places maybe they stop contributing to the 401k going forward from there. Instead of making that $30,000 a year contribution into their 401k or whatever it is, they've saved that or 15,000.

They save that for a year or two and they go and buy that first family rental or they do some Kmart to self storage asset class conversions, you know, with $25,000.

Neil Henderson: 00:35:58

Well, Chris, I want to give you a chance to talk about your book, get off your Ass and Manage youe why you Need Alternative Investments. So somebody who picks up this book, what are the high level basics they're going to get from that book?

Chris Odegard: 00:36:09

They're going to understand the difference between conventional investments and alternatives. And it's really easy. Conventional investments are everything that's publicly traded. Alternatives are pretty much everything that's not.

I basically take an example of an ATM machine. I compare conventional and alternatives across 13 different categories. Things like the return, tax advantages, liquidity, volatility.

And you go down this whole list of about 13 things. And the only place where conventional investments are better is that they're liquid, they're very liquid and most alternatives aren't.

But the downside of liquidity is the volatility. But anyway, so I show them that, look, here's like 13 characteristics that I think we could all agree that we like our investments to have.

Well, 12 of them fall in the alternative space. So why would you be over here where your only advantage is liquidity?

And then I take an actual ATM investment that I took it because it's simple and it's a fixed return. And I just go through that example, the ATM example, with every one of these characteristics. And I also talk about the 401ks and why they suck.

Most people won't tell you that 401k sucks. Things that you need to think about is alternative est. Most people probably don't have a personal balance sheet.

You need to know that because someday you want to get into the accredited space and there's actually a Download. That's kind of an action plan. So if you want to make this move, here's some of the books you should read.

Here's some of the podcasts you should listen to. You need to identify some events that you're going to go to once a year, figure out what your net worth is.

u can't say, oh, just go do a: 6040

You have to figure out where you want to play in this space and what you're comfortable with. And so there's no one right answer. You just kind of have to the taxes and the advantages.

So it's really, you know, after it had taken me 10 years to go through this path, I created the book to create a more straight line and streamlined path for somebody who wants to make this move with some percentage of their assets to make it easier. And it's a very easy read. It's a couple hundred pages and it's got lots of color pictures and graphs.

And if you go to my website, the prolificinvestor.net you'll see it right there. There's a link there. Take it Amazon and you can order that as well as read my articles and watch the YouTube videos and all that good stuff.

And you could book a 30 minute free virtual coffee with me if you want to actually talk to a real person and talk about this stuff for 30 minutes. I set aside Thursdays to do that. So anybody wants to do that, they're welcome to do that and I'll just plug that.

By the end of the year, I hope to be marketing a keynote speech.

It's called the People versus Conventional Investing Wisdom and it's in a mock trial format where the audience is going to be the jury and I'm going to be the prosecutor and I'm going to present pieces of evidence of why conventional wisdom is broken. And you got a sneak peek of it here today.

Clint Harris: 00:39:07

So I love that. I can't wait to see that at some of the conferences next year.

Chris Odegard: 00:39:10

Yeah, I'm looking forward to it myself.

Neil Henderson: 00:39:12

Well, Chris, we've both really enjoyed this so people can find you and your book@theprolificinvestor.net Chris, it's been great chatting with you, man.

Chris Odegard: 00:39:21

Thanks. I really appreciate it. You guys are awesome.

Clint Harris: 00:39:23

Thanks so much, Chris. Really appreciate your time.

Neil Henderson: 00:39:25

Thank you so much for listening and watching. Truly Passive Income podcast. If you liked the show, if you think it would be useful for someone else.

The greatest compliment that you could give us would be to share the episode, leave a comment down below or leave us an honest review. If you have any questions, don't hesitate to let us know down below.

And remember, with truly passive income comes freedom of time, place, and the freedom to pursue your higher purpose.

Clint Harris: 00:39:52

Sam.