REIA 140 Whitney Elkins-Hutten: Passive Investing Made Simple

Welcome to Real Estate Investing Abundance, the show for busy, fulfilled professionals like you to learn how to develop financial independence built on solid passive real estate investments. Now here is your host, Dr. Allen Lomax.

Hello, enlightened investors, and welcome to Real Estate Investing Abundance. I'm your host, Dr. Allen, and it is a pleasure being with you today as we simplify the passive investing process as we explore the fundamentals 7 steps to investing in our next passive investment. Whitney Elkin-Hutton is the Director of Investor Education at PassiveInvesting.com and a partner in real estate assets of over $700 million, including 500,000 residential units in multifamily, mobile home parks, single-family homes, and assisted living, and more than 1,400 self-storage units across 8 states. And she has also flipped over 3 million in residential real estate. So Whitney has a whole lot to offer us today. Whitney, before we get into real estate, share a memorable experience from your formative years that helped you to be who you are today.

First of all, thank you so much for, you know, having me on today. I'm excited to tackle our conversation. You know, I think when I think back over my formative years and, you know, something that really kind of made me who I am today I think back to the time where I had that just pivotal decision to make on to take control and not leave things up to chance. And I've had that decision put in front of me several times, but the last time that I had it put in front of me was in 2013. And we had just had a huge flood in Boulder, Colorado. And we had already been investing in real estate up at this point in time, but really hadn't decided to scale our portfolio. And here we did. We had a little baby at home. She was not quite that small, a year and a half, and our house had flooded. We had some damage there, of course, minor compared to a lot of other people. But at the same time, 2 days later after the flood occurred, the government shut down and my husband was no longer working and we didn't know for how long. He was on furlough. And I was like, that's it. We've had a convergence of not only You know, having our home threatened, you know, our livelihood threatened, our financial situation threatened, our jobs threatened. I was like, that's it. We've got to take the bull by the horns and figure out what it is we're going to do and how we're going to scale this beast and become financially independent and free.

And you certainly made that shift. So let's get into real estate and tell us a little bit how it is that you have created, uh, your time freedom by shifting from active investing to passive investing?

Yeah, well, I would like to say that I was a fast learner, but I'm, in most cases I am, but in this case I wasn't. I actually started off in active investing in 2002, live and flipping and house hacking. Now that is actually being actively involved in real estate. I really helped accelerate my path on the passive side because I was able to build up large buckets of equity Through my active investing. And it was more of a sliding scale path. I was living flipping, house hacking, and then a few years later, my husband and I kind of smack ourselves on the forehead and we're like, how are people becoming financially independent from this? If we're not doing a project, we can't pay the bills. And that's when we were like, oh, rentals. Oops. We started acquiring rentals and everybody talks about single-family houses being the place to be, It's certainly easy access. It's such a smooth transition from owning your primary to figuring out how to get your first or next single-family investment. But that investment is anything but passive. And you're still very much actively involved down to the lending, maybe even the management of the property. And we certainly had issues scaling past about 30 properties because our target number was going to be 80 to hit financial independence, not financial freedom, just financial independence. And that's when I was like, okay, there's got to be a different way. And so I just looked at what the people around me were doing, especially in multifamily real estate. I mean, it was natural to think that if I can— if it took me just as much work to close on one property as it did 5, and I'm like, whoa, hold on. What if I could do 20 or 30 or 50 or 100 units at a time? And that's really when we started to shift our gaze to multifamily And then eventually self-storage and residential assisted living at that point in time. But, you know, that was really the inflection point was like, how do we scale this model?

Well, it certainly isn't passive, but it certainly is educational. I mean, I don't think anybody can really go wrong by starting out on the passive path because it is so educational because you just learn absolutely every facet of the real estate business. So, I mean, a lot of people don't start that way, but I don't think you can go wrong by beginning in that way.

Oh, absolutely not. Yeah, passive, especially if you have a good understanding of what passive investing is and you believe in the power of real estate, you know, and the 5 wealth generators of real estate, but you lack the time, but you have the capital, right? You can certainly pair up with somebody that has the other 2 points of that value triangle, the time and the hustle in order to get that project done. You know, what I think is more tragic is when people understand the power of real estate, yet they don't take the steps necessary to empower themselves to invest passively. They think they have to be active or bust.

Hmm.

And that's just simply not the case. Like you can totally skip that whole like single-family phase, flipping phase, small multifamily phase, and get right into the larger deals if you have the capital to do so.

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Yeah, so I break down this model, you know, for investors into 7 steps just to kind of help them understand how they should be thinking about, you know, getting started in passive investing. You know, when you just put a deal in front of somebody, you know, you can sometimes see like their eyes glaze over, the mind shuts down. They're like, I get it, but I don't know what to do with this. So really that deal is like step 4, 5, and 6. We've got to back it up. As a passive investor, what are your goals? First question is, do you believe in the power of real estate? You and I are here talking about real estate. Passive investing actually covers so many other facets other than real estate. But for us, in our conversation, do you believe in real estate? 2, do you want to be active or passive? Now, an active investor, you can certainly be very hands-on with the acquisition, the day-to-day operations of your property, disposition, financials, and all that, but what is your time worth? What do you want? Is that what you want to do? Because certainly you can still leverage those 5 wealth generators of real estate and not have to be active. So this all is kind of part of that mindset that you were talking about just a minute ago. If you can check the box on real estate, check the box on wanting to be passive and have your time back and leverage somebody else's business in order to access the real estate investment, then it comes down to what's your risk tolerance? And this, I like thinking in terms of the business plan. Are you okay with a deal that's more like core or core plus? These are great properties in urban or suburban markets, newer builds, probably either no deferred maintenance on them or very little, but essentially you're buying a property at a good value and earning some modest income and appreciation off of that. Now, where we are in the market, I love that type of product, Because you don't have the risk of the business plan, any sort of lease-up or pushing rents or construction and material costs and all that. Now, the other 2 business plans are value-add and development. Now, value-add, I like value-add too, in certain parts of the market cycle. Right now, we have material cost fluctuations. I'm not saying a value-add investment is necessarily wrong. You just need to be an amazing operator that understands how to manage that type of project. Then you've got the development. These tend to be older deals, more deferred maintenance, or they're going to be ground-up type construction. And again, what is your flavor for risk here? Most investors that I speak to are just wanting to have a very stable project where they can have reliable income and a reliable chance of appreciation. And then you have to tie emotion to this. everything that you do when you're laying out your goals and determining your risks, because it's going to be really easy for you to identify your goals, map those out on a sheet of paper, check some boxes on what type of business plan resonates with you. However, when that deal actually gets in front of you eventually, are you going to be able to pull the trigger? Are you going to be able to move fast enough? So you have to understand what your emotion, the emotion that you're going to tie to this is. And that goes back to the mindset. Most people are like, I want some replace my income. Well, that's great, but why? We want to know the why. What freedom do you want? Do you want freedom of time, freedom of choice, financial freedom, freedom to be with whoever you want, whenever you want, however long you want? So those are kind of the first 2 steps. And then we start getting into the tactical pieces, which is vetting the operator. And we can go down a whole rabbit hole, spend a whole episode on this here on how to vet the operator. But essentially we're trying to find these people that have a great track record, that we know, love, and trust them. They have a background in business. They're not new, they're full-time. I want somebody looking after my money as if it's my money, not theirs. Then the next step after that, once we identify the operator, and we can come back to this because I have a wealth of questions that I can kind of clue people in on what to ask in these conversations, then you want to vet the market. Now, a great operator is going to have done this research already on the markets and submarkets they're investing in for their deals, but it's always great for you as the investor to double-check that information. Okay. I personally love high growth markets. So I want to see the population growing, incomes growing, jobs growing, jobs are diversified. I want to be in an area where tax law is favorable to investors. Okay. Taxes are a huge expense. I also want to be in areas where, especially if I'm investing in something like multifamily real estate, where landlord laws are friendly to the landlord, where we can actually run our business appropriately. And just a general affordability. We want to make sure that we're in areas, or at least I like being in areas where the rents are affordable. Everything is growing, but the rents right now are super affordable. And then number 5, once we check off the operator we're with, the market we're in, and those 2 things are taken care of, now we're getting down to the nitty-gritty about the deal and the deal structure. One thing that I really help investors understand, and I see this all the time, investors will apply to 50, 60, 100 operator lists. They get everybody's information and all of a sudden their inbox is just completely overwhelmed. You have to match your investing goals with that operator and strategy you want to be with. And only deals from those operators should actually be hitting your inbox. Everything else is noise. Okay. And then you have to have this, be able to review the investment summary for the deal details and the deal structure. And I'm actually going to be doing a masterclass here in a couple, or actually next week on this, and where I just walk everybody through the deal funnel process to help them understand it end to end on what to look for. But certain things, what is the strategy of the project? What is the unit count? What class of property is it? Then we're getting into the return details, financial information, the fees, just looking at the overall capital stack too, making sure it aligns with your investment goals. And then step number 6, that's when you're going to place your firm commitment. Essentially, you identified an operator to be with, market you're in, a deal that you love, then don't hesitate, place your firm commitment for that deal. Get your Raise your hand and say, I'm in. Okay. But, and then at that point in time, that's when the legal documentation, you know, the subscription agreement, the operating agreement, and, you know, other details will be sent to you for you to review. And again, complete your due diligence on it. I mean, this, this packet right here, you know, if it's an investor's first time reviewing this, can be pretty overwhelming and filled with a lot of legal jargon. So, but take time to sit down and read it. Ask questions, make sure all the information in there aligns with what you saw in the investment summary, also heard on the investor webinar, and even in conversations with the operator. And if you, at any point in time in this process, you have questions, jot them down and get them answered. Don't hesitate. Because I don't know about you, deals— I, the last few times I've seen deals come out from all many operators that I take a look at, They're filling up super quickly. I mean, there are investors that want to invest right now, even at the end of the year. It's blowing my mind. I mean, we're recording this a couple days before Christmas and I've seen a few deals come out and they're like 24 hours later, they're closed, they're done. So make sure to get that funnel set, that process set for yourself. That way you can kind of go through there very quickly. And then after that, it's You know, getting your, you know, last part of the step is getting all that legal documentation reviewed, signed, and delivered, and your funds in. And then once you do that, you know, now you get to sit back and let the operator take care of the rest of the work. And those are the 7 steps.

And that's the 7 steps. And of course, I mean, each of those 7 steps are critical steps. And, and there's many, many details, of course, to each and every one of those steps. But once you go through it once, it becomes much, much easier. It's that first time and that of actually going through this process and actually putting your hard-earned money on the line. So how do you get started? How do you develop that mindset? How do you get into this process of passive real estate investing?

Well, I would start off with understanding if there's an investor, if you're listening to our discussion here today, I mean, honestly, go back to step 1. What is it that you value most? What do you want? Do you want cash flow? Do you want appreciation? Do you want some sort of balanced blend of both? And why do you want it? So those are the first 2 questions you have to ask yourself and answer. What do you want? Why do you want it? And then the third follow-up question after that, once you have— and I'm not going to— I rushed over that. Those 2 questions alone, getting the answers to those questions, they don't have to take you a long time, but you might have to sit with those for a few hours or a couple of days or maybe a week or so. And it's an evolving process. I know for me, what I wanted in 2013, even 2002, It's so much different than what I want today. And so you, it's not, you're, you're not just going to ask those questions once. You're going to have to continue to ask yourself those questions on a regular basis and level up who you need to become to continue on the path towards your goals. So those, what do I want? Why do I want it? And who do I have to become to get it? Those are the first 3 questions that you really have to dig into and really fully understand. And again, it's that investor mindset. Otherwise, people just go with what— push the easy button. And I don't mean simple, I mean easy. And then that's when we see either they get into the wrong investments or the poorly run investments. Yeah.

Well, good advice. And I like how you laid out those 7 steps and it's a good formula and a formula that really anybody can follow who puts their mind to those things. So Whitney, tell our viewers and listeners how it is they can get in touch with you and what is it you have to offer?

Yeah, definitely. You can get in touch with me at passiveinvestingwithwhitney.com. In there, I have a checklist that will take you through the 7 steps to investing in passive real estate. Also, I'll have an ebook or follow-up that will expand on these different topics, especially if this is your kind of your first rodeo into passive investing. And then we can jump on the phone together as well and just kind of work through your initial goals and understand what it is you're trying to do.

Well, Whitney, excellent. And I have one last question here before we close, and that is, share with us one of your most difficult setbacks in life and how did you come through that time and what did you learn from that experience?

Oh my gosh. So I think one of the most difficult setbacks for me, you know, emotionally and mentally, was when my mother passed away. I had actually— I lost several family members before then, you know, including my father. But, you know, when my mother passed away, you're just— I don't know, for me emotionally, I was like, I'm an orphan. I mean, I'm a 40-plus-year-old orphan. And, you know, I don't, I don't think it emotionally gets any easier, you know, as you get older. But it was really trying to understand, you know, all the gifts, you know, You know, personally, emotionally, developmentally that my parents had given to me, and then really making sure that I put those to really good use over time. And then just really leaning on my family, you know, around me, my husband, you know, my daughter, you know, she was very young at the time, but even she understood grandma's gone. But, you know, I, it just made me think about it. I'm like, life is short. And if this is my goal and I need to step up and level up my game and I have to do it now, not someday, but now.

Well, Whitney, it has been a pleasure having you today. Thank you for sharing your experiences and your wisdom. It's been a great show. So thanks for being with us today.

Oh, my pleasure. Thank you so much.

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