The Secrets to Smart Passive Real Estate Investing

Aviva (00:00)
This week's Listener of the Week is CX Invest. CX, thank you so much for leaving us a five star review. And for those of you listening, if you leave us a five star review below, you might be next week's Listener of the Week. Week, week. This week on Commercial Real Estate Secrets, we have Whitney Elkins Hutton.

Whitney is the Director of Investor Education at passiveinvesting.com and the founder of ashwealth.com. Whitney, thank you for being on the show today.

Whitney Elkins-Hutten (00:35)
Thank you so much. This is going to be fun.

Aviva (00:38)
Yeah, so Whitney, if you don't mind, can you share with the listeners who you are and what you do?

Whitney Elkins-Hutten (00:47)
Yeah, so I am the Director of Investor Education at passiveinvesting.com and quite often people ask me, what is the Director of Investor Education? Well, my background and experience in private equity real estate was in holding the role of Director of Investor Relations. So I get to work with investors in my role today to help them understand the ins and outs of passive investing so they feel comfortable.

diversifying their portfolio with cash flowing and equity building assets.

Aviva (01:20)
Fascinating. So how did you get into this?

Whitney Elkins-Hutten (01:24)
Well, I'd like to say that I went to school and this was like my dream job all along. But really, I went to school for public health. I have a master's degree in epidemiology and a PhD in public health and nutrition. So I had a very different career path. And really, my intersection with real estate occurs back in 2002, where I bought a house from this significant other. about a month later, the relationship fell apart and I had the house.

So yeah, like I was the one with the paying job and everything, but the house was in dire need of a rehab. We're talking about green shag carpet and psychedelic Deezys painted all over the walls, fresh out of the 1860s. And so guys, YouTube didn't exist back then, so I had to learn how to rehab this house, just using, you know, off of Home Depot classes and a Home Depot 123 bike, which by the way, I still own.

But really when I sold that house 11 months later, because I thought it was going to bankrupt me, that's when I realized that I made $52,000, kind of like as a side hustle, like nights and weekends, which was almost as much as I was making in my day job that had me traveling 70, 80 hours a week. Guys, remember back in 2001, 2002,

We're post 9-11, so we're talking about smallpox threats and thoracic threats. I had a pretty high stress job. But really learning that lesson early of how to unhook my time and the value I create in the world was pivotal for me. I did several more live-in flips and house hacks. I scaled almost a 40-unit single-family rental portfolio, bought a multi-family building and partnership, got into larger general partnership deals on multi-family assets.

Aviva (02:56)
Well.

Whitney Elkins-Hutten (03:16)
And then that's where I landed today.

Aviva (03:24)
Okay, so you've done a few deals in your day, sounds like. I love it.

Whitney Elkins-Hutten (03:29)
22, 23 year overnight success.

Aviva (03:35)
Alright, aren't we all?

Whitney Elkins-Hutten (03:36)
Right, we're

all like, you know, we're some projects.

Aviva (03:41)
So as the director of investor education at passiveinvesting.com, what does that actually look like? How are you educating potential investors?

Whitney Elkins-Hutten (03:54)
Yeah, so having had the role of director of investor relations before with a different private equity group, I found that my love was talking to investors about their goals, their risks, timeline, what they needed from their passive portfolio, and then helping them match to an investment. Now, if we continue that.

what that role is for a director of investor relations. Now, I've got to pitch a deal, get them into a deal, and then close the deal. Get all the money in, and very short timeline, high pressure job. But for me, I really would love taking a step back and just talk, kind of like almost like a coach and mentor to investors who are looking to get into the space, diversify, maybe they already are a commercial real estate.

professional that they want to diversify outside of their current holdings, diversify out of their current business, or maybe they are a high paid professional that wants to take their income and put it to use to scale passive income in passive holdings, keep it out of the stock market, but they're not going to double down on their employer's business like with stocks.

They're going to take it out. They're going to create that income for themselves now. So that's what I get to do is really walk this quasi mentoring relationship with investors. But I'm going to meet them where they're at. Some people are very new to the space. They don't understand the lingo, the jargon. And then I'm going to hold their hand, match step, and lead with them through

developing, you know, understanding, remembering, analysis skills to the point where they feel comfortable going into an investment.

Aviva (05:40)
Yeah, it's a big step and it can be really intimidating, but, I think I have heard people say this over and over and over again. You know, I should have done that. I should have bought that deal. I should have, you know, you're driving by with somebody and they say, I almost bought that deal. I should have done it. And it's like, my biggest fear is the regret of not having done something. So,

While it's a big hurdle to get over initially, you have to jump obviously with calculated caution, but, and like you said, with education, but at the end of the day, as long as you do, know, our rule number one is don't do dumb deals. As long as you follow rule number one, hopefully you make it out on the other end. All right.

So I have some notes here that talks about the billionaires real estate playbook and how the wealthy invest in real estate to maximize their returns and time. Can you talk about the billionaire real estate playbook?

Whitney Elkins-Hutten (06:40)
Yeah, so that's a part of a section out of my book, Money for Tomorrow, How to Build and Protect Generational Wealth. I recently published it, The Share with Bigger Pockets. But in that section of the book, we're talking about the seven different pillars of wealth. If we can go back and study the greats. And guys, remember, I don't know if you don't know my story.

First few deals went really well, and then I had that one deal. You talk about don't buy dumb deals. I bought the dumb deal, and it almost broke me. And so I was like, OK, wait, hold on. People make money off of real estate, cash flow, equity growth all the time. What are they doing with their portfolio, with their investments, in order to put themselves in the best position for success?

Any investor knows, if you've been in this game long enough, it's not a matter of if you're gonna have a dumb deal, it's gonna matter of when, right? So how do we limit that? Well, one, we wanna invest in deals that are gonna preserve capital, right? Warren Buffett's rule number one, don't lose money. Rule number two, see rule number one, right? Like, let's try to put all those cards in our favor to not lose our initial capital, because if we don't lose our initial capital, we live another day to play the game.

Aviva (07:45)
You

Whitney Elkins-Hutten (07:57)
Number two, we want to invest with deals that have some sort of cash flow or potential for cash flow in a short period of time. Now, I know somebody might be listening to this and they're like, whoa, I do ground up development or I flip, cash flow is not in the cards. And I'll explain to you how all these pillars fit together in a second. Pillar number three, equity growth, either natural equity growth, forced equity growth, which is like the king at building wealth, and then

Natural pay down like you if you're have a tenant in the property and they pay down the loan for you Those are the three different ways we can get equity number four tax benefits Okay, that's why we love real estate so we can accelerate our wealth Those are four core pillars and then on top of that inflation hedging making sure we're using leverage in a very smart way Okay, a lot of people learn that lesson of the last two years

And then also making sure that you're investing with experienced operators. If you aren't the operator, you have to, one, if you are the operator, you have to be experienced. If you're not experienced, then find that experience and invest with them. So those are the seven pillars. And there are investments out there that don't have all of those seven pillars. Just know you're giving up a foundational way of making wealth, right?

People, the billionaires out there, they are investing in assets that have most of those pillars in them. Generally all seven, but maybe they might give up one. Like if they want to fly your investment, they give up the cash flow. But they've got other different, they have six other ways to make their wealth with that particular investment.

Aviva (09:26)
Mm-hmm.

Fascinating. So talk to me about passive real estate equity versus debt. Which investment strategy wins in today's market?

Whitney Elkins-Hutten (09:48)
Ooh, that is a great question. So you first have to understand the market cycle, right? Where are we in the market? Okay, so are we in recovery? Are we in growth? Are we in hyper-supply? Or are we in a recessionary environment? Now, I can ask that question to your audience and I might get like, you know, max four different answers, but it really depends on where you are in the United States, okay? We can't...

All the, every different region in the United States, even state, even maybe even local municipalities within state are gonna have a different, be in the different phase of that market cycle. Generally right now, we're kinda in the hyper supply in a lot of area. We have been in a couple of years, the last couple of years, we're moving through the recessionary parts. Some areas of the United States are moving to recovery. That is a key component because that's gonna inform what assets, type of assets do really well. Because whenever we hit hyper supply,

into recessionary environment, debt gets sucked out, credit gets sucked out of the system, bank stock lending. That gives them a unique opportunity for investors to step in and become the bank and solve that problem. Because now they don't have to compete with the banks. can charge 11, 12, 13, 14 % interest rate and 2 or 3 % in origination fees. They make a lot of money that way. But as we move through recovery,

bank money's gonna start coming back in, there's gonna be more competition. So now we're starting to shift into where equity assets may make more sense for the portfolio. So there's really two questions there. Equity or debt depends on what part of the market cycle you're in. If you're a passive investor though, that is one way to diversify your portfolio. We talk often about diversifying across operator, market and deal. We also need to diversify across the different layers of the capital stack.

because it's not a matter of if we hit these market cycles again, it's a matter of when. And so we wanna have our portfolio balanced to where we can smooth that ride, smooth that volatility.

Aviva (12:01)
Sure. So as a passive investor, you obviously need to find an active investor or a GP to lead the way. What are three qualities in a GP that you find you would invest your money with?

Whitney Elkins-Hutten (12:24)
Well, this goes back to who do you know, who do you like, and who do you trust? So first you gotta be in the room with these operators. Where are they hanging out? And then you have to get into relationship with them. And I think that those first two steps are really where, if you're a limited partner, new limited partners kind of fall short. Because they're so starry-eyed on like, give me the deal that's gonna make the most amount of money.

right, because they're coming from stocks bonds and mutual fund investing, we really have to get to know and like that person and then establish trust with them. Understand their background experience. What kind of team do they have? Do they have the ability to close the deal? You know, do they have the access to credit and lending? You know, what has happened in their portfolio? Because

Aviva (13:15)
Yeah.

Whitney Elkins-Hutten (13:19)
Everybody has had some sort of challenge in their portfolio if they've been around for the last like five to eight years. But I wanna know how that operator has met that challenge and navigated it through. I don't want them burying those challenges. I wanna know. I wanna know the dirty laundry. Air it out. Give me the full story. Because that's gonna just feed back into that know, like, and trust loop. And then of course, you want an operator that is transparent.

with you with what's going to happen, you know, what's going on with your deal from from beginning to end.

Aviva (13:57)
So say I have $50,000. I'm a new real estate investor. have $50,000. What would you do with that in November of 2024?

Whitney Elkins-Hutten (14:12)
In November of 2024, in private equity, Arena 50K is probably an initial investment. Right now, would probably put it in a debt. If it were me, my 50K, I would put it in a debt offering and wait and see. Something that has short-term liquidity, get it out of the bank, the bank's interest rate is dropping. I think my bank's down to like 4 % now and they're pretty high.

for high yield savings accounts. know, put in a short term debt offering, real estate debt offering. You know, we have one, people want to know more about that. We can certainly talk about that. But wait, wait, don't, I think the big thing here is how can we get that capital making money, put it to work, but keep it liquid enough where we can have enough patience to find

the right equity deal if that's where you want to go. But guys, you can still make a lot of money allowing 50K to compound at 8%, you know, know, importunity, right? You can still make a lot of money that way.

Aviva (15:14)
Sure, super interesting.

Hey, my dad always says, I know this is somebody else's quote, but he always says, one spouse, one house, compound interest. That's dad's motto. So.

Whitney Elkins-Hutten (15:39)
I think he like combines like three or four clothes into like one and I love it, right? You're gonna save a lot of money if you never get divorced.

Aviva (15:45)
Hey,

Yeah,

yeah. And you know, he's not, we joke, we do warehousing in Denver. We joke that our vacation houses are warehouses. so, that's what we do. Whitney, what makes you happy with what you do every day in real estate, investing, et cetera?

Whitney Elkins-Hutten (15:59)
nice.

You know, knowing that I'm creating a real impact in people's lives, you know, even despite market challenges, you know, in the past couple years, you know, just helping people, you know, understand what passive investing is and how it can actually, you know, be a good tool towards financial freedom. That is what gets me up in the morning because I know I can help somebody create $200,000 in three years and 3 million in 20.

Right? So that will change the world the more people we can get into that mentality of owning their financial future.

Aviva (16:49)
Whitney, thank you so much for being on the show. Where can the listeners find you, follow you, contact you, et cetera.

Whitney Elkins-Hutten (16:58)
Yeah, so you can find me the easiest way is you can go to passiveinvestingwithwhitney.com. I've got some free goodies for your audience as well as if anybody's interested in investing in a passive deal, they can hop on my schedule and we can talk all things passive real estate. If somebody's like, whoa, I need mentoring and coaching and handholding to figure out this plan, you can reach me at ashwealth.com.

Aviva (17:24)
Whitney, thank you so much for your time today and for everybody listening. We'll see you next week.