Chris Lopez’s Investing Strategy

About two years ago the real estate investing bug bit me. So I did what most people do, started Googling and quickly found 1.9 million blogs, books, podcasts, webinars, courses and gurus on how to invest. I read, studied, listened and absorbed as much possible. I learned a lot, but had two gripes.

Gripe #1: The strategies did not take into consideration the big picture of personal finances and investing. In all fairness, it’s nearly impossible to over a blog post, but it was irritating that it was never discussed in detail. Advice on investing $50,000 is a loaded question to me because you cannot just isolate that chunk of money. You have to consider other investments, risk tolerance, emergency fund, comparing rates of return, current market conditions, etc.

Gripe #2: One size fits all rules. For example, the 2% rule (the monthly rent needs to be at least 2% of the purchase price. Buying a place for 100K and renting it out for 2k/mo – I wish!) or only buy properties that cash flow at least $500/mo. As far as I could tell, these “rules” were often arbitrary and market specific. It’s stupid to apply the same investing rules to San Francisco, Denver, and Kansas City. Plus the markets are always changing! How can the same rules apply during the real estate crisis and in today’s hot market? It simply can’t.

Investing Strategy – Executive Summary

There is no “one size fits all” or “right way” to invest in real estate. It’s about finding the best one that fits your situation. Rather than focusing on black and white rules, my strategy focuses on guidelines. Focusing on guidelines has treated me well over my life from creating business plans to fitness and nutrition plans.

My investment goal is to build 3 streams of income, where each stream produces enough to live off:

  1. Business – real estate brokerage combined with internet marketing. I see a huge opportunity in the real estate industry because, in general, it’s a decade or two behind in technology. I can build a business from my home office desk that used to take an office full of people. The cash flow will flow into #2 and #3 goals.
  2. Stock market investing – focus on passive stock market investing. I follow the 4% safe withdrawal rate rule. Yes, I’m a Realtor who promotes investing in the stock market!
  3. Real estate investing – acquire 10 rental properties and pay them off.

Here are my strategy guidelines:

  • Focus on what I can control (increasing my income and living frugally)
  • Try not worry about what I can’t (what the real estate market is doing)
  • Maintain high cash reserves to ride out the rough times (they will happen!)
  • Cash is king – generate as much cash as possible from my business to buy high quality assets (real estate and stocks)
  • Focus all my efforts and investing in the Denver market (I’m very bullish on long term prospects)
  • Follow the dollar cost averaging method for buying properties
  • Only buy properties that cash flow
  • Pursue the best opportunities based on current market and personal conditions
  • Network with as many people as possible (relationships lead to deals and opportunities)
  • Build momentum through the compounding effect of my efforts and investments (See “Creating My Own Momentum” below)
  • Don’t be stupid or chase high risk investments

My strategy is not set in stone. It’ll evolve as the market changes and I become a better investor. The rest of the blog post covers the details behind my strategy. Please read and share your thoughts or play devil’s advocate. I know that I don’t know everything!

Webinar Topic: We discussed this strategy and others on our August roundup webinar. Click here to access the recording and show notes.

3 Ways to Generate Long Term Wealth

In college I read Kiyosaki’s “Rich Dad, Poor Dad” and Robert Allen’s “Multiple Streams of Income.” Both had a profound impact on me. They are the books that sparked my love of entrepreneurship and my goal of generating residual income. I successfully started a business that generated enough residual income that I didn’t need a job when I graduated. I kept growing the business and it allowed to live an awesome lifestyle of living where ever I wanted to, as long as I had an internet connection.

Hindsight is 20/20. My regret is that I didn’t keep living like a college student and invest every extra dollar into the stock market and real estate. Oh well, I have the experience and know how on what to do.

I enjoy studying and discussing finances and investments. It’s just fun. It’s a game that I can play for the rest of my life. I’ve concluded that there are three main ways for building long term wealth. I don’t include things like winning the lottery or inheriting millions of dollars because that’s due to luck, not hard work. Here they are:

  1. Building a business
  2. Buy and hold stock market investing
  3. Buy and hold real estate investing

Is one better than the other? Probably depends on who you ask! They all have their pros and cons.

Personally, I think building long term wealth with a business is the hardest. I’m talking about a business that you can walk away from and have it keep operating regardless you and keep growing and paying dividends for decades. Think Microsoft, Apple, Walmart, Coca Cola. My first two businesses were great, but not to the point where they’ll still be generating income 40 years from now that I can pass along to my estate.

My goal is to build new a business focused on real estate. I’ll take all the excess cash flow and invest in real estate and the stock market. Stocks and real estate will keep growing and producing profits whether I’m around or not. To me, that’s true long term wealth.

I’m guaranteed long term wealth by buying stocks and real estate. Trying to build a mega business and take it public is a long shot.

Investing Guideline #1: Focus on What I Can Control

No one can control the real estate market. Yes, it would be great if it was like five years ago where you could throw a rock and hit a good deal. That’s not the reality now. Rather, I need to put my attention and energy towards what I can control. My goal is live off of 50% or less my income. I can do that by increasing my income and minimizing expenses.

Minimizing all my expenses (personal, investments and business expenses): I can control not spending my money on trivial and frivolous things. I don’t live like a pauper, but I make sure my money goes towards important things, not just clutter and stuff. A dollar here and there starts really adding up.

Maximizing my income: I wish could control the Denver real estate market and buy deals that cash flow $500/mo. Again, that’s not the reality now. I focus on businesses that allow me to create leverage and not have my income tied directly to my time. That’s why I love Internet marketing and being a Realtor.  There’s so much I can do to build multiple streams of income by leveraging my time and efforts. I can’t do that with a job.

Taking calculated risks: There is no perfect deal or opportunity. Everything has its pros and cons. Don’t spend too long running “what if” scenarios. Do make sure that you protect yourself for when things don’t go to plan. Have a plan B and enough cash to ride out the bad times.

Keeping emotions in check: Keeping your emotions in check is often easier said than done. The more experience a person has, the better he gets at keeping his emotions in check. How many people panicked during the stock market crash and sold everything only to miss the bull market afterward?

Keep it simple, stupid (KISS): It’s fun creating detailed plans, but it’s way too easy to over complicate things. The simplest way to build long term wealth in real estate is to buy and hold onto properties. Keep that in mind and don’t over complicate things too much while building towards that goal.

Investing Guideline #2: Cash Reserves and Smart Personal Finances

My belief is that as long as I can hold onto my investments (through all market cycles), I’ll come out ahead in the long run. I need to make sure that I can ride out all the market cycles and life’s curve balls. Take a look at people who bought real estate or stocks 50 years ago and just held onto it. They are often millionaires! Not because they made a lot of money, but they just bought a good asset and held onto it.

Here’s my personal finances strategy:

1 month’s living expenses in my personal checking account: Maintain a balance for my average monthly bills with a $2k cushion.

A six month emergency fund in a savings account: Keep six months worth of personal living expenses in a savings account. I really like Ally bank as they pay 1% interest and it only takes one day to transfer the money to my checking account.

A six month emergency fund in a Roth IRA: Roth IRA’s are a great place to stash part of your emergency fund. Your money grows tax free and you can withdraw your principal contributions at any time with no penalties or taxes. I like Vanguard and keep it in a short term treasury bond fund (VFISX). To keep my stock and bond investing simple (remember KISS!), I follow Warren Buffet’s 90% stock/10% bond allocation recommendations.  Anything over the 6 month reserve amount is invested more aggressively in an S&P 500 index fund, like Vanguard’s VFIAX.

Six month’s of expenses (including my salary expenses) in my business checking accounts: Early on in one of my businesses, things went side ways and I almost ran out of cash. Yikes! Never again. Plus, it’s another buffer for my personal emergency fund.

401k’s: As a business owner, I’m able to setup some amazing retirement plans. I utilize the individual/solo 401k plan because it allows me to stash away money with minimal taxes. My wife contributes to her 401k at her job. Why leave low to no tax funding options or free money from your employer’s match on the table? I do not have plans on turning my 401k into a self-directed one to invest in real estate. It’s prudent to be diversified in both stocks and real estate. Besides, stocks in my 401k are liquid and are my ultimate emergency fund. Lenders also use 401k’s as capital reserves for mortgages.

Opportunity fund: This is another savings account at Ally. It’s where I put all my extra cash to use for investment opportunities. Details explained in the “Pursue the Best Opportunity” section below.

6 months in each rental property account: Every rental property will get its own checking account at Ally. Why Ally? It’s free and easy to open from my desk. If a worse case scenarios happens and I can’t rent out my property, 6 months in reserves is enough time for me to move other funds around and go into crisis mode planning. I want anything above the 6 month reserves invested to earn interest.

Investing Guideline #3: Pursue the Best Opportunity

What’s the best opportunity to invest in? Well… it depends! It’s relative to what’s out there, my time and skill availability, my overall portfolio, and what’s going on in my personal life.

At the time of this writing, it’s hard to find great investment returns anywhere. The stock market is at all time high, real estate has surpassed or getting close to pre-bust prices. While I wish $500/mo cash flow deals were still available on the MLS, the reality is they are not. Do I just have my money sit on the sidelines in savings accounts and wait for who knows how long until the market adjusts?

Hell no!

While the investing landscape is not nearly as attractive as it was 5 years ago, I’m still lucky enough to live in America to pursue opportunities that most people around the world can’t. I’m writing this blog post while sitting in my air conditioned office, sipping my organic fair trade coffee made from filtered water this morning – tough life!

I want my money out there working for me. A 10% cash on cash return is better than a 1% return in my savings account. Depending on the current landscape I may invest in a fix and flip, or buy and hold, or reinvest the money into my business to generate more cash flow.

As I write this, my wife and I just had our first baby three weeks ago and are purchasing a new primary residence in the next 6 months. From a personal perspective, pursuing new investments at the moment just isn’t on my radar. I’m busy learning how to be a father and lining things up to buy a house. We’re still investing in our 401k’s, building my businesses and stashing cash away.

Investing Strategies Series: One of the best ways to create or fine tune your Denver real estate investing strategy is reading the strategies of others and sharing your own for feedback. Click here to submit your investing strategy for feedback.

Investing Guideline #4: Dollar Cost Average into Rentals

Dollar cost averaging is a strategy typically associated with stock investing. It’s where you buy stocks each month, no matter what the stock market is doing. Studies show that this strategy is the best for investors because it takes emotions and market timing attemps out of the picture. People are usually their own worst enemy.

I don’t have a crystal ball for the real estate market. I can take an educated guess as to where it’ll go, but it’s still a guess…and I still have zero control! A similar strategy of dollar cost averaging into rental properties will get me to my goal of 10 properties. This strategy will keep me focused and take me out of trying to time the market.

Now, will it be the best returns? No, probably not. But, I’m fine with that because it’ll lead to my goal. I’m focused on achieving my goals, not having the most impressive numbers on a spreadsheet. It could be 1, 5, or 10 years until the next market correction. There’s a big cost to me waiting. I’ll miss out on years of my tenants paying down my mortgage. I could potentially miss out on appreciation and rent increases.

Or I could buy at the top of the market. Well, I’ll have my reserves to see me through it. It’s important to keep in mind that rents usually don’t take a hit like those of housing prices.

Of course, I’m not going to be stupid with my money and buy anything. I’ll seek out “good, base hit deals.”

Investing Guideline #5: Cash Flow Properties – 45% Down to Make it Cash Flow???

What exactly is a cash flowing property? Any property will cash flow, if you put enough down!

I did a brief stint as a multifamily real estate broker in Los Angeles, CA. While I hated that business model, I did gain a unique perspective. You think Denver is getting expensive? Not compared to L.A.! The clients we worked with invested in 15-100 unit apartment buildings. These were class B apartments with bidding wars for cap rates between 3 and 4. Typically, investors were putting 35-45% down in order to qualify for financing and to make the properties cash flow. Yikes!

Everything about the deals they were doing, broke all the “rules” that I had read on the Internet. These investors were not stupid or newbies. They were multi-millionaires with decades of investing experience. Their attitude was to buy as much as possible and just keep buying, regardless of cap rates.

Buying apartment buildings at low cap rates are not a recent trend. One of the veteran brokers told me how in the 80’s everyone bought negative cash flow deals. I can’t recall numbers, but when you looked at the return from properties bought 30 years ago to now, it was phenomenal. They focused on more advanced metrics, such as IRR (internal rate of return.) They didn’t care about cash-on-cash returns.

Now, I’m not advocating to go out there and buying anything. But if savvy, successful and rich investors like them are doing deals, isn’t worth trying to learn from them?

This is one of the reasons I’m dollar cost averaging my rental acquisition.

While I cringe at the thought of having to put 30% down, what if that’s the investing landscape in the future? I’m hoping as my momentum builds (see #7 below), that I’ll find better deals and become a savvier investor.

Investing Guideline #6: Denver vs Out of State Investing

Unless Denver turns into San Francisco overnight, I have zero plans for investing elsewhere. Even if it does, I’ll still probably stay local in Denver. When I lived in Los Angeles, I took a serious look at out of state investing. Out of state investing is not a right fit for me.

I like to be in control. Investing in turnkey properties is the exact opposite! If you’ve ever had business partners, you can probably relate. It’s really hard to find a good business partner. I’ve had good ones and bad ones. Bad business partners can quickly derail everything.

It’s easy to post great returns in a bull market. What happens when the market pulls back? Is my long distance landlord going to care as much about my investment as I would? Nope. I don’t want to offend anyone who does turnkey rentals, but I’m very wary of “set it and forget” investments with people. Remember all the Ponzi schemes that went bust (Bernie Madoff ring a bell?) 10 years ago?

I had a friend who had the majority of his money invested with one of his good friends in Alberta, Canada. This was when the oil sands and high oil prices were causing real estate to go through the roof. During the boom, life was good great! Amazing returns every year. Until… the market crashed. My buddy lost all his money – close to $900,000. His friend running the investment group went suicidal because he felt horrible about losing everyone’s money. My buddy literally had to talk him off the ledge.

Holy shit. What a horrible scenario all around. I realize those are extreme examples, but they happened. And they weren’t the only ones.

Appreciation is a must. About every investing strategy I’ve read says, “buy for cash flow, not appreciation.” However, if I can’t reasonably expect my asset (rental property) to at least appreciate with the pace of inflation, it’s a bad investment! The only time it’s acceptable to not keep up with inflation is money in an emergency fund or opportunity fund. When I looked at out of state markets that had houses selling for the same price today as they did 20 years ago – no thank you.

If you’re not familiar with how much inflation can steal from you, then play around with an inflation calculator. Look at the chart below for a quick example. What happens to your returns in the long run when your property and assets don’t at least pace inflation? I’m not okay with it.


I’m bullish on Denver. It’s impossible to guarantee that what I invest in will appreciate with inflation. But using macro economic indicators makes me feel a lot more confident. Bottom line, Denver is growing.  I won’t repeat all the details here since Charles Roberts and Your Castle has done an impressive job of explaining Denver’s economic indicators.

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

-Warren Buffett

Denver is a wonderful market. I’d much rather buy Denver deals at a fair price, then wonderful deals in a fair market.

Growth is the #1 factor: If I had to choose a business to start or area to invest in by only using one metric, it would be growth. Growth causes more opportunities to appear.

Investing Guideline #7: Creating My Own Momentum

Momentum is a hard concept to describe… and even harder to create. If you’ve played on a sports team or been in a business that had momentum, you know what I’m talking about. The Wharton Business School describes it the best in “The Power of Momentum: Companies That Build Their Wave and Ride It“:

Momentum. Most businesses get it at some point — the impres­sion that everything they undertake succeeds effortlessly, as if they’re being carried along by a tailwind that increases their efficiency and propels them on to exceptional growth.

I’ve had momentum twice. The first time was on a highschool sports team. The second time was in the business I started in college that allowed me to graduate not needing to go get a w-2 job. In fact, efforts from that business almost 15 years ago, still bring in residual income today. Momentum pays!

Momentum is hard to create and hard to keep. Once you have it, ride the wave for as long as possible. Here’s how I plan on creating momentum in Denver and for my investments.

Denver is in a “sweet spot.” Yes, Denver is one of the hottest markets right now. When you compare it to some of the coastal cities, it’s still very affordable. I’m sitting on a market that is still affordable and has great long term prospects. Unless something dramatic happens (like a 9/11 event), but I have no control over that. Unfortunate events can happen anywhere. I’m confident that in 30 years, I won’t give a damn how much I paid for property now. I’ll probably be wishing that I bought more! Growth builds momentum.

Ready – Fire – Aim: You read that correctly, “ready – fire – aim” rather than “ready – aim – fire.” Taking action trumps creating the perfect plan. I’ve seen too many people never do anything because they are always “getting ready to get ready.” I’d much rather buy an investment that turns out to be mediocre than sit around waiting for the perfect deal. First hand experience is the best way to fine tune your game plan. You can only develop your skills so much by reading. Taking smart action always beats the perfect plan. Action builds momentum.

Networking: The more people that you know, the better. I believe there is a direct correlation to success and happiness to the number of people that you have relationships with. Life is more fun with friends. New opportunities will materialize from relationships. For clarity, I’m talking about building genuine relationships, not ones because you see dollar signs “floating over the person’s head”! One of the main reasons I built this website was to get to know as many people around town as possible. Networking builds momentum.

Generating my own deals: Another reason I built this website is to generate “motivated seller” leads to find deals for myself and my clients. Charles and I are currently building a solid SEO (search engine optimization) foundation. Couple that with my ability to use predictive behavior analytics to target likely home sellers, and I’ve created an incredible advantage for myself. I used to run $20,000 ad campaigns for my old business. Running a profitable marketing campaign is a recipe. Once you know the right ingredients and amounts, you just have to follow it. A $1 dollar ad spend can generate a $10 return once I have the recipe figured out. Generating deals builds momentum. 

Hard work: I consider myself average intelligence. I consider my work ethic above average. If someone has more skill or talent than me, then I’ll make up for it by outworking them. I have no problem starting my day at 4:30 AM to get a jump on the day. I don’t care about Netflix’s latest hit TV show. Hard work builds momentum.

Mentorship: One of the main reasons my business in college took off is because I had some great mentors. I’m starting to develop great mentors around Denver. In the last few months since I’ve been working with Charles Roberts, I’ve learned more and met more people than I expected to in the next two years. Mentorship builds momentum.

Improving my real estate skills and knowledge: A big reason I became a real estate broker is to increase my overall knowledge and skills for real estate in general (not just investment focused.) Every buyer and seller that I work with, increases my knowledge. Every contract (accepted or failed) is a learning experience. Every time I do a deal, I’ll get to work with someone new on the other side of the transaction.  Skills build momentum.

The compound effect: One of the things that attracted me to both investing in real estate and becoming a broker is that neither one takes anything special. I truly believe that anyone who works hard long enough (most people quit too soon), will have success. Of course, some people will have faster success or more chips in their favor, but in the long run, anyone can make it work. Just like compounding interest generates more wealth, all my efforts and investments will start compounding and lead to more and better deals. New connections and skills will lead to new opportunities – whether that’s buying an off market deal from someone or getting into development one day. Who knows!

Conclusion – Nothing is Guaranteed, Except What I Bring

Will I be able to create the momentum similar to what I did in the past? I don’t know. If I don’t work my ass off for the next 5 years, I certainly won’t. That only leaves me with one alternative – work my ass off. Hard work is always rewarded.

If you made it through the entire blog post, you probably realize that I love talking investments and numbers. Let me know if you ever want to grab a cup of coffee and discuss investing strategies.


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Chris Lopez
Chris Lopez is a Denver area real estate entrepreneur and investor, as well as the host of Bigger Pockets’ House Hackerz and the Denver Real Estate Investing Podcast.
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