GI174: Real Estate Investing for Passive Income with Whitney Elkins-Hutten

GI174 Real Estate Investing for Passive Income with Whitney Elkins-Hutten

Whitney Elkins-Hutten is the Director of Investor Education at PassiveInvesting.com and a partner in $850 million in real estate — including over 5000 residential units (MF, MHP, SFR, and assisted living) and more than 1400 self-storage units across 8 states—and experience flipping over $3 million in residential real estate.

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Transcript:

Announcer:
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles:
Do you have money sitting in the stock market? And you’re worried about it or worse. You have money sitting at the bank, not keeping up with inflation. My name is Charles Carillo, founder and managing partner of Harborside Partners. And since 2006, I’ve been investing my money and my family’s money into income producing properties. These are real assets, real properties with real addresses that produce real cash flow. At Harborside Partners, we provide passive investors who love real estate with a turnkey investing solution. If you want to put your money to work in real estate, but can’t find deals, don’t have the time to get funding in. The last thing that productive people want to do is manage real estate. We find the deals. We fund the deals and we manage the tenants, the termites and the properties. Partner with us at investwithharborside.com. That’s investwithharborside.com. Go to investwithharborside.com. If you love real estate, you like the idea of passive income and believe that income producing properties will appreciate over time. Go to investwithharborside.com. That’s investwithharborside.com.

New Speaker:
Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today we have Whitney Elkins-Hutten. Whitney is the Director of Investor Education at PassiveInvesting.com and a partner in $850 million in real estate — including over 5000 residential units (MF, MHP, SFR, and assisted living) and more than 1400 self-storage units across 8 states—and experience flipping over $3 million in residential real estate. So thank you so much for being on the show, Whitney.

Whitney:
Thank you. Yeah, thanks for <laugh> having me on here. You know, you technology dings you, finds you everywhere. Sorry about

Charles:
That. I know how that goes. So tell us, I gave you a little brief background, but can you go more into your background both personally and professionally prior to getting involved in real estate investing about 20 years ago?

Whitney:
Yeah, so I you know, 20 years ago I was working for the cdc. I was working at, as a contractor in Bioterrorism. I mean, this was just shortly right after nine 11. And and that was what I wanted to go into. I always imagined myself going into the health medical field. I went to medical school for a couple years and then I realized, okay, I really wanna do public health. So I transitioned outta medical school, straight into public health school went into infectious disease research. Primarily was working with HIV and sexually transmitted diseases. And then nine 11 happened. And, you know, they were looking for anybody that knew anything about epidemiology to help out with some of these like facilitation projects. And so I was doing bioterrorism work, working with smallpox and anthrax for the, the, the Midwest states doing a lot of educa education and training for the doctors and physicians and loved my job.

Whitney:
I mean, you wanna talk about somebody who just like loved the movie outbreak? I’m dating myself Yes. In contagion. Like, those were like my movies. I mean, I, I I would sit there and eat popcorn while other people were like, Oh my God, this is so scary. And I’m like, this is amazing. However, working those like 80 hour weeks, like outbreaks don’t take a break. And you know, I stumbled into real estate entirely by accident and I actually bought a house with a significant other. And about a month later the relationship fell apart. And here I had, I had a house. I had no intention of ever being a real estate investor. You know, I’m traveling all the time. I had this like house that, you know, needed a, a lot of love <laugh>. Otherwise no one is a big rehab on it.

Whitney:
I mean, we’re talking, you know, we had to take down the paint, all the rip up, all the floor in the cabinets, in the kitchen, everything had to come down and get redone. And my partner was supposed to help me with that and now he’s gone. And so I bought the Home Depot 1 23 book, learned how to, I’m like, I’m a crafty girl, I can figure this out. Ended up paying a lot of my friends in pizza and sushi to get a lot of like the tile work done. And I was amazed. We actually did a really good job. And fast forward 11 months later, I I I just couldn’t wait until the day until I sold this house for a variety of reasons. I thought, you know, financially it was probably gonna ruin me. And so I get this whole thing put back together.

Whitney:
I stepped it full of roommates and when I sold it, that’s probably my number one investing stake. I realized, hey, not only did I make 52 grand in 11 months, which was quite frankly about as much as I was getting paid to do my day job, traveling, like as much as I was working, as much as I was, however, I hadn’t been paying for rent the entire time or for any of my utilities my roommates had. And I was like, Oh, hold on, hold the boat. This is how people actually start making money in real estate. I was attracted to the flipping side of it, not really fully understanding how the house hacking, like stuff it full of roommates and having them pay my bills and paid down the loan for me was actually, you know, probably contributing more so to my wealth than the flipping side.

Whitney:
And then, you know, I I, I’ve continued to flip for several more years before I, I finally did the math and realized, hey, holding onto these properties is probably gonna be better for my long term wealth and being able to unlock these cold handcuffs for myself. And so I dove in head first and inquired about a portfolio of 30 properties, still doing a lot of flipping on the sides. And we had a baby girl. I met my husband and I had a baby girl at home and I wanted to spend more time with her and some alien family members. And so we but I didn’t want to own many more houses. Like I had another full-time job managing these houses, even with property management, just the amount of decision making that had to go into this and securing loans and all that. And so that’s really when we discovered passive investing. We went into multi-family real estate both actively and passively and we haven’t looked back since. It’s been an amazing ride.

Charles:
Awesome. That’s that’s great to hear. So you were managing those and it was kind of as I kind of say like semi passive where you had management on there, but you’re constantly ma it’s really with that many units, you’re, you’re not going by many days without getting a call back in a call now, probably a text telling you exactly, Hey, what are we gonna do here? Are you, you know, what are we gonna do this maintenance, can’t fix this, and so and so on, and we have to send, you know, all that kind of stuff. So I understand exactly how that goes. I did that for many years and it’s, it’s great when you go when with the property manager, but then you find out later it’s not truly passive as everyone keeps on saying it always, I always get like jerk when people tell me that, Oh, it’s passive. Well, not really. No, it’s, it’s, it’s, it’s very intense unless you are an actual passive investor in a deal.

Whitney:
Mm-Hmm. <affirmative>. Well, and you know, funny enough that ring at the beginning of the shows my property manager, so <laugh>, we’ll see what other fun surprises he has in store for me. And we’re actually in the middle of doing construction and one of the properties it turned and, you know, surprise, not only are we a hundred percent vacant, we’re not bringing in any income on the property. We’re actually paying on the property. And now we’ve got to, we’ve uncovered some issues that we have to take care of. So, but yeah, it’s not passive, it’s passive. I mean, I think, you know, a lot of people get into that style of investing, for one, it’s accessible. They’ve bought their primary and, and it’s a great, I don’t wanna enter any investor from getting into real estate. That’s the path they wanna go. But eventually I think people will elevate themselves out of you know into a more time passive part of real estate, single family real estate, small multifamily real estate is passive income.

Whitney:
So you are benefiting for those tax benefits and tax rates from the the IRS code. So you can check the block as far as passive that way, but when it comes to your time, like you said, it’s semi passive. You’re leveraged is what I call it. You have a little bit more leverage, but if you truly don’t want the don’t call me, I’ll call you type mentality. You’ve gotta figure out how to like scale yourself out of that side of the business, you know either build it large enough for yourself or invest in somebody else’s business.

Charles:
So tell us about right now what your firm is the assets that you guys are targeting and what is your current investing strategy?

Whitney:
Yeah, so I’m the director of investor education [email protected] and we are a private equity firms. We specialize in multi-family self storage and express car washes in the southeastern corridor, the United States. So I think Texas, Florida the Carolinas is kind of our bread and butter both North and South Carolina. And you know, our, you know, like many people out there, like many operators, we were focused on, you know, cash flowing assets that are stabilized today. We love the, the A class asset, this kind of suburban infill type asset that is still very affordable for people, you know, to, you know, as far as multifamily for them to rent. And you know, we’re in good growth markets across the United States. You know, one thing that really sets us apart is that we have specialized across multiple verticals to be able to help our, our investors diversify their portfolio under one roof, which I think is very unique.

Charles:
Oh, that’s great. That’s great. When you’re working with passive investors, what are some of the common questions, hesitations or reservations that people you keep having, you know, that keeps them from, you know, diving in, starting to passive invest?

Whitney:
Yes, this is, you know, the conversations that I have, you know, kind of pretty much day in and day out with people. I mean, I, and I think there’s several different levels of objection, right? Level number one, you know, somebody who’s, you know, maybe owned their own single family real estate and they do, they’re trying to figure out how to get themselves out of that time conundrum, even with their property manager, they were like, Well, why would I give up day to day operational control and invest with you when I have my property over here? Well, great. You know, do you like getting these calls in the middle of the meetings just saying, Hey, there’s a tree down on the property, or guess what, your tenant didn’t pay the bill, or guess what, we’ve got this happening on the property. Do you like that?

Whitney:
That sort of thing. You know you do give up day to day operational control when you move into pure passive investing, you know, like with, you know, an equity firm like us, what you get back though is an immense amount of leverage. You get to leverage the operators not only knowledge and expertise about, you know, the investing strategy for me to make the leap from single family investing, you know, even at 30 properties to buying a 300 or 400 unit building. That’s, that’s a chasm for me to fill. Could I figure out that puzzle? Absolutely. How long would it take me? Probably years. However, when I, I can make that leap and access that asset by investing in another person’s business that’s already got that figured out. So I can take advantage of their knowledge, I can take advantage their team that they put together, they put together the experts that can manage, find the asset, manage the day to day part of the asset.

Whitney:
I can take advantage of their network with new credit and lending and property management insurance and legal and all that. I don’t have to figure out those puzzle pieces and I can take advantage of their ability to get credit and lending and access other investor capital. Again, could I figure out how to buy 300 unit building? Absolutely. But it would take me years to build that business. Instead, I can, you know, I always ask people, what’s the shortest point between two dots? And you know, oftentimes they say, draw a straight line. I’m like, actually no, it’s collapse. Fold the paper in half and have the two dots meet. Right? You have to think about how can you bend time in order to supercharge your wealth. And the last piece is that time, that’s what I get back when I access passive investing. And so and like I said, investors, usually their objection falls somewhere in one of those six areas that they feel that they actually can bring to the table and then is serving them. But the true leverage of access passive investing is being able to check all those boxes at once by investing in another person’s business,

Charles:
Right? Yeah. You’ll, you won’t have the control, but you will have quite the return on time because it, it’ll just, it’ll, it’ll skyrocket cuz the amount of time you’re spending buying, you know, buying a property all the time has to deal with it. Not counting the operations of it and even selling the property, the amount of hours and hours that is required to do that. The other thing too is a lot of things with syndications, which people don’t really think about too much is that most business plans now, were such a hot market, this has been compressed a little bit, is five to seven years. And the other thing too is that if you’re buying a property long term, they’re like, Oh, I’m gonna keep this for 20, 30 years. Well, down the road, you’re not gonna have much of a return on equity. Now you’re able to harness all of your equity, all of the gains in that five year period of investing, and now you can put it all into another investment and you can start getting returns on that again that you’ve done, which is before if you paid off a house, it’s great to have a paid off piece real estate, but on the other hand, you have a lot of equity that’s just kind of sitting there. So that’s another thing with

Whitney:
Returning Yeah. Under percent exposed to the market. You wanna talk about risk <laugh>, right? That’s a lot of risk. I mean, what did you do? You, you shored up the bank’s position mm-hmm. <Affirmative>, it’s not like you eliminated your expenses, you still have the maintenance on the property, you still have taxes, you still have insurance mm-hmm. <Affirmative>, right? You just short up the bank’s position and you know, for them to get their capital back. But yeah, I, I think is when we talk about control, passive investors give up that day-to-day operational control, but they still have control. And a, a few key areas. One, they get to choose their strategy, okay? Number two, they get to choose who they invest with. And I think this is a really big mistake that oper or investors commit, is that they, they, they don’t do complete due diligence on the operator.

Whitney:
And we can dive into that if we want to. They also get to choose where in the United States they invest, they can choose the markets. And that is huge, right? One of the big IMU laws of real estate is location, location, location. It’s illiquid and Ill immovable. And then the third area of control is actually investing in the deal. They get to choose what kind of deal they go into. And sometimes when I’m talking to an investor that has never owned rentals, but is only invested in, in Wall Street the Wall Street can see them as I call it. I ask them, I’m like, What kind of control do you have? And they’re like, I can get in and outta the market whenever I want. I’m like, But you don’t get to choose who’s in that mutual fund. What, what companies are being held in that mutual funder eft. You’re not meeting with the board, you’re not shaking hands like you, you’re giving up all that control for the feeling that you do have a little bit. I don’t, hopefully that makes sense.

Charles:
Yeah, yeah, yeah. I always feel the liquidity thing and stuff like that. And that’s always nothing. That’s very been a huge thing for me because I, I’d rather, especially where we are now in a inflationary market inflationary times is that I wanna place capital, have it work and then go on to the next thing. You know what I mean? And something like that is it also makes you think clearer when you’re like, Oh, you think about an asset, I can’t sell it. And then you start really think about, other than me just like logging in and solving something. So

Whitney:
I, having the illiquidity aspect of real estate has saved me from myself several times.

Charles:
<Laugh>. Exactly. Couldn’t have said better than myself. So let’s talk about where like, just I was bringing up that, and I, I want to dive back into what you’re saying about the operators, but what are concerns, I guess, when you’re talking to investors now, or how, like where we are in the current market portion of the market cycle, and how are you, how would active or past investors prepare, let’s say for a pullback?

Whitney:
Yeah, so I mean, I think the buzzword right now is inflation and, and it’s real, right? But it’s been real for several years. I think it’s, I think now that the, the government is, you know, openly admitting that inflation is at a higher than two or 3%. I mean, I think, you know, people have gotten that big reality check. So I think right now in the market that’s a big concern is how do I hedge inflation? How do I cash flow things right now when assets are at all time high? And you know, it goes back to fundamental investing in principles. So I, there’s not a new slick cool tool out there. There’s not a slick new cool investment out there. It really goes back to some principles. So when we look at, you know, principles like Warren Buffet, Ray Dalio, someone, you know, I know those guys are, you know, you know, made a lot of money in private or in Wall Street type equities, you know, securities and stuff.

Whitney:
But you know, Warren Buffet owns a lot of single family houses. So let’s talk about what, you know, some of those principles are one, capital preservation, and that’s real estate yields that, I mean, will the value of the land ever go to zero? No. I mean that, you know, and there’s ways that we can protect ourselves on, you know, maintaining the value of the asset through how we buy, who we invest with, what kind of insurance is on the property, the due diligence, the market we’re in, that all can help protect capital preservation. Having reserves on the property can help preserve your capital. Cash flow, investing for cash flow, that’s another wealth pillar. So making sure that the, the property has some sort of element of stabilization today in is cash flow into day today’s inflationary market. That’s, that’s huge. Now I know a lot of it in you know, passive investors I speak with, they say, Oh, I don’t need the cash flow right now.

Whitney:
I’ve got a good day job. So put me in something that’s going to chase higher yields, appreciation yields, and I usually have them kind of pause. I’m like, what if you had to step away in a year, maybe your health field? Okay, it would be great if those assets that you had in your portfolio were already cash flowing. You don’t need the cash flow today. Fantastic. Harvest it, you know, into pull of money, go make another investment, you know, continue to reinvest back into your passive business. But, you know, lease, make sure you could, you have the ability to turn that spigot on if you need it. Third pillar appreciation, or excuse me, equity. And you can achieve this in a few different ways. You can, you have natural market appreciation, which we’re seeing that right now with asset prices, soaring, single family, multifamily self storage, you name it, real estate’s going up.

Whitney:
Now is it the inherent value of the asset that’s going up or is it the dollar deflating? Right? Yeah. You know, I’m not an economist. We’ll kind of stick a pin in that <laugh>, we can dig down that rabbit hole. There’s also forced appreciation, I think people are familiar with that. You buy something that needs some love is a little ugly, you know, you throw some paint, new carpets, fixtures and there’s sos a whole spectrum on that scale. You know, you can do something that’s very minor or you can take on projects that are, have heavy deferred maintenance like rouse and foundations and sewers and waterlines and plumbing and stuff like that. Yeah. And then tax benefits. So investing in an asset that yields some sort of tax benefit where you can partner with the IRS in order to defer your income, or not defer the income, but like take depreciative losses that help cover, you know, the income of the property.

Whitney:
So that’s, that’s fantastic. And also ways that you can kick that can down the road, maybe through a 10 31 exchange. Now there’s, those are the four main pillars. So when somebody says, you know, I’m nervous about investing in this environment, you really, if you are investing with those four pillars in mind, you’re setting yourself up in a position to where you can bob and weave with whatever market comes at you, right? We saw in 2020 March of 2020, whenever everything shut down, people were, you know, our, our renter is gonna pay the bills. You know, if my properties already cash flowing, I can drop rents to stay competitive in the market. That’s huge. If my property wasn’t cash away and I had to drop rents that now I’m upside down, right? So you know, if my property has some sort of built in value to it, like with forced appreciation or a tenant pay down, I don’t, I can sit on that property and if it’s cash flowing, I don’t have to sell it in this market.

Whitney:
I can wait for a better market to sell it in. If I’m getting a tax benefit, all the better I can shield my income, right? So those are just some, you know, fundamental pillars to, to pay attention to. Now, there is one last kind of bonus, which is the inflation hedge. And that’s one reason why I love real estate is because when the dollar, you know, when inflation does start going up, I can actually that will naturally be passed through to the tenant as far as like cost, right? If my taxes go up, if my insurance goes up, those do get passed through onto the tenant. Now, you know, you can argue whether that’s good or bad, but you know, we’re, we’re running businesses here. So, you know, that’s you know, that’s something that, you know, happens in this type, type of environment.

Charles:
Yeah. It’s a short term contract of only one year so that you can easily readjust versus other, other commercial asset classes where you might have a five or 10 year contract

Whitney:
For 20 year, I’ve seen 10 year contracts. Yeah.

Charles:
Right? So at that point, you don’t have the ability to bump rents more with inflation unless it’s inside your lease. But that’s a whole different story. The thing though is that the other thing too is with the defer, I like the depreciation and you’re kind of kicking down, kicking the can on the road, as you said, but also you’re gonna be paying those taxes at a much cheaper dollar. And if we keep on going how we are now, it might be half as much. So when you’re paying your taxes several years on the road, you might, might be half as much what it’s worth, You know what I mean? If we continue on what we’ve been doing here for the last year, so well, and I

Whitney:
Don’t think, I don’t think investors really fully understand that, right? Is that the you know, the what, what that, that dollar will feel like today versus what it will feel like 10 years from now, you know? So you know, that’s very real, you know? And if you are locking in your expenses or your largest expense, like your, your the mortgage cost of the property, I mean, that, that’s a great inflection hedge right there. So you’re paying it back with cheaper dollars for sure.

Charles:
Yeah, it’s, it’s definitely a fantastic position to be in. So I know you have a hard start coming up in a few minutes, and I, I just wanted touch base more on vetting operators. Can you give us a, maybe a couple bullet points of what someone should be looking for if they’re interested in passive investing?

Whitney:
Yeah. Vetting the operator. I mean, I call it vetting on the jockeying, not the horse. So, I mean, because that’s what you’re doing. I mean, if you’ve read Rich Dad, Poor Dad my favorite book by him is Cash Flow Quadrant. I mean, he introduces it in Rich Dad, Poor Dad, Robert Kiyosaki does. But you know, the second book to that is Cash Flow Quadrant. So when you are investing in passive real estate, you’re investing in the eye part of the quadrant. So you’re in the most leverage for your time and leverage for your dollar and leverage for your tax benefits. And so that’s where every investor should be aspiring to get to. It takes some, you know, ti time for people to, you know, unhook like, you know, their, their worth from their job and stuff like that. I get that. It’s a journey.

Whitney:
However, whenever you can get into that I category, it does mean that you actually have to invest with people that are going to help you invest according to those four pillars of wealth, capital preservation being in the top of that, right? Warren Buffet. That’s rule number one. Don’t lose money. Rule number two, see rule number one, right? So when we’re looking to invest with operators, we want to have somebody that has a track record in business, ideally a track record in real estate specifically, Okay? If they don’t have it personally, I mean, people have gotta start off somewhere in real estate, I totally get it, but somebody on their team must have a track record in real estate. I wanna understand who their team is, right? I, I’m not looking to invest with just a single partner because what happens in that something happens to them, right?

Whitney:
They, I don’t know, like I hate to say I get hit by a bus, right? Like if something happens, what happens to the investment? So I look for teams that have multiple partners on the team. I also look to understand are, are, is it just the partners or are they building out a team underneath them? Because it indicates to me how serious they are about the business as well as are they in the business full time, right? I want them taking care of my money as if it’s my money, Okay, not their money. And then then we can get kind of into the nuances of like, you know, what strategy do they invest in? What are their ideal markets? You know, what is their exit strategy on properties? Do they do, you know, want to do a 10 31 exchange? How successful have they been at 10 31 exchanges? And, you know, there’s a plethora of questions to ask. And I actually have a free resource for people on my webpage, passive investing with whitney.com. You can go there and just fill in your information, you can download it, and it has several questions in there that you can investors should be asking operators on a daily basis.

Charles:
Okay, great. So as we’re wrapping up here, do you have how can our listeners learn more about you and your business? I know you just had your past investing with whitney.com, which I’ll put that into the show notes. Is there any other way people should be connecting with you?

Whitney:
Yeah that’s the best way because you can get some free resources there. You also get access to my calendar. I love Talking Shop, you know talking real estate. So be sure to schedule some time with me. You can also find me at LinkedIn. That’s another great place that I hang out. And yeah, I’d love to connect with people.

Charles:
Thank you so much for coming on today, Whitney, and looking forward to connecting with you here in the near future.

Whitney:
Sounds good. Thank you so much.

Charles:
Thank you. Bye-Bye.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

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Speaker 4:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

Links and Contact Information Mentioned In The Episode:

About Whitney Elkins-Hutten

Whitney and her husband, Colin, along with their daughter and German short-hair pointer, live and work in Boulder, CO.

She is the Director of Investor Education at PassiveInvesting.com which is a national passive real estate investing firm based in the Carolinas. The company acquire 4,233+ units with a portfolio valued over $742mil with just over 1,400 investors active in those assets.

Whitney stumbled into real estate by accident. After purchasing her first rental in 2002, and hitting a home run, then nearly losing it all on her second deal, she took control and figured out how to invest in real estate the right way. She realized that success must leave clues. So, she studied and replicated the very personal finance and wealth creation strategies the wealthy use to create financial freedom.

Today, Whitney is a partner in $700M+ of real estate —including over 5000+ residential units (MF, MHP, SFR, and assisted living) and more than 1400+ self-storage units across 7 states—and experience flipping over $3.0M in residential real estate.

Whitney is also the founder ASH Wealth (ashwealth.com) and the Investor Accelerator Program, which helps investors develop a clear workable plan that gives them the results they dream of, solves their business startup or scaling issues and drives massive progress towards their real estate and financial goals.

Whitney wholeheartedly believes that she’s living proof of just how successful anyone can be at real estate investing; all it takes is a little grit. When she’s not out scouting a new deal or meeting with clients, she enjoys trail running, mountain biking, camping, and spending time with her family.

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