How do you take control of your high-return alternative investments? How can you have more accountability for your passive income streams to get greater returns? Here to share their wisdom on the matter is Whitney Elkins-Hutten. Whitney is the Director of Investor Education at PassiveInvesting.com where she helps busy professionals transform their lives with passive real estate investing. In this episode, she joins Cash Flow Expert Chris Miles to discuss her mindset when taking on deals and investments. Whitney shares tips on maximizing your returns and why having the right operator is crucial to making this happen. Don’t miss out on this financial wisdom from Whitney and learn valuable lessons by tuning in to this insightful episode.
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How To Navigate High-Return Alternative Investments with Whitney Elkins-Hutten
I brought back a repeat guest, Whitney Elkins-Hutten. If you’ve been reading us long enough, you know who she is. If you’ve started reading or haven’t gone back at least 40 or 50 episodes, it probably got buried there. In fact, this is the third time I have had you on. The third time is a charm. You are going to make the hall of fame of guests when it comes to that.
It’s such a pleasure. Thank you, Chris.
For those of you that don’t know Whitney, I met her first because she became a client, but then she’s gone out and done their own things. She’s been mentoring and helping people with this stuff in the alternative investment space. Even now, she has access to some investment deals that are pretty enticing. We’re going to talk about that too. Welcome back, Whitney.
Thank you. I’m so happy to be paying it forward.
Give us a brief Reader’s Digest version of your background and what got you to where you are now.
I started off real estate investing in 2002 completely by accident. I did a flip and house hack. I was an accidental landlord. I bought a house with a significant other, but the relationship fell apart, and I didn’t know what to do. I stuffed the property full of roommates and I completed the rehab myself. YouTube didn’t exist. It was flipping through the Home Depot 123 book, trying to teach myself drywall, which I don’t suggest.
Long story short, I made a $52,000 profit and then realized I hadn’t been paying for any of my expenses for months. I was like, “How many more of these live and flip house hack projects can I do?” I did a few more by myself and then married my husband. We did a few together. Where you and I started working together is when I transitioned into single-family buying.
I was holding onto the rentals to create that passive income stream. I got tapped out of money and I’m like, “I leverage everything around me in order to faster and further.” That’s when we started learning how to leverage cashflow like life insurance, learned how to tap into retirement accounts, negotiate partnerships, and stuff like that.
I also got introduced to the passive investing space, both actively and passively. I started off investing passively. I was like, “Why not? I get paid to learn or for my education.” I stumbled into a partnership with a private equity group and I was able to provide value to them. I scaled with them, which led to where I am with PassiveInvesting.com. I’m the Director of Investor Education here. I get to geek out and talk real estate all day long. It’s amazing.
That’s going a long way from drywall 1, 2, 3 Home Depot to all of a sudden PassiveInvesting.com and you’re Director of Education there now.
To draw the difference, we have over 6,300 residential units in our personal portfolio, 1,400 self-storage, and 9 car washes, but long story short, we had to start somewhere. That somewhere was that first property. I always try to create an analogy for people. You look at an iceberg and you see people’s success. It’s 10% above water. The rest of the 90% is below water and that’s the journey that most people don’t see. That’s why I love podcasts and reading books because that’s where you get to learn the backstory. Most people are a ten-year overnight success.
I want to go into that because we were talking about this before. There are a lot of people and even who are reading this right now, you know who you are, and you say, “Chris, you pointed me out individually.” No, you’re not alone. There are lots of people that say these phrases, but to say things like, “That sounds great,” but when you guys talk about a 10% per year baseline, that sounds too good to be true. The fact that you guys can get people out of the rat race. I’ve seen people talk about passive income and then tell me, “I have to start this brand-new business about becoming an active investor,” which is not passive at all.
There’s all this skepticism about this and people are talking about financial freedom, but most of the time, it’s about slaving away. You weren’t saying slaving away, but ten years to become an overnight success, but people are like, “This is too going to be true. Can you create double-digit returns and it’s passive where you could still work your job, do your business, or do what you love and this can still work?” How would you respond to people that are new to the space?
I would say, “Absolutely. Yes, you can. I’m living proof.” When they ask the question, “Can you do this?” they’re asking, “How does this work for me?” There’s a lot of training. You talked about this, especially when we were in our coaching relationships. We are trained by the media, by our fiduciary, in our 401(k)s to accept a certain level of return and give up our control and responsibility. When we step into our own and understand our true investing goals and risk tolerance, and then take on that investing ourselves, that’s scary.Most people are a ten-year overnight success. Click To Tweet
If you’re willing to accept that control, now you’re in the strategist and the operator’s seat. Who gets paid? It’s the strategist and the operator. You’re switching hats. You’re no longer the person that’s handing over your paycheck, crossing your fingers and hoping that it works out 30 or 40 years from now. You have to accept a certain level of responsibility and in exchange for that, you should get a return.
When we talk tangibly about investment, there are so many different things that we can do. For us, PassiveInvesting.com, we love multifamily, hotels, car washes, and self-storage, very recession-resilient asset classes. We can dive down into some rabbit holes there, but we’re looking to create passive income for our investors as well as equity growth. We’re in partnership with them. We’re not putting them in a deposition. We’re sharing the risk and the rewards together on all these assets. I can tell you from my personal portfolio, I average about 7.5% to 8% preferred monthly return that’s coming in on everything I have invested.
That’s just the preferred return. That’s like your base salary.
A preferred return is different than a cash-on-cash return. I would love to pick that apart for people. A lot of people, especially if they’re coming in the space, they’re like, “I’m looking for an 8% or a 10% preferred return.” They’re looking for that paycheck. That’s different than what the cash-on-cash could be. Ten percent preferred return. I wish we would drop the lingo return. It’s a hurdle. It means the first 7% or 8% of the profits on the deal go to the investor before the general partnership begins to share in the deal. I encourage people to look at the cash-on-cash numbers.
Where we are in this market across the board on a lot of investments, we’re probably seeing year one cash-on-cash between 5% and 6%, maybe up to 8%, 9%, and 10%. It depends on how much risk you’re willing to take. You should see it ramp up from then. That’s one way I get paid. What’s coming in monthly or quarterly is the distribution. I like monthly because my bills are monthly. It’s easier for me to keep track of.
When the asset repositions, maybe refinances or sales at the end of the business plan, I get a gain. The easiest number to look at here is the equity multiple because it allows me to compare and contrast based on time. That number doesn’t take an account time, but it allows me to do math in my head easily. If I’m investing $100,000 and the business plan is five years and it says a 2X equity multiple, I am potentially going to walk away between distributions and capital gains with $200,000. That’s real.
I had six assets exited at the end of a year and they all hit 2X equity multiple or above. I’ve had another seven exits in another year and all hitting at about 1.9 to 2.4. Why would it tick down a little bit? It’s based on time. We’re only holding it for three years. It’s not going to be quite an equity multiple, but now we’re getting into a higher level than that.
Either way, that’s still way into double-digit returns if you think of doubling your money in five years.
We’re talking about the internal rate of return. I know the average on our deals is 25% on our exits.
You can hear your financial advisor say, “I’ll give you that.”
Nobody should say, “I can give you that.” You want them to be conservative.
We want to put a disclaimer here. Results may vary. Also, we’re not giving any investment recommendations right now on what we’re talking about here, but it’s true. It sounds amazing. I thought you said it so beautifully because you were like, “We’ve been trained to accept a certain rate of return to give up all of our control to let somebody else handle it, and we’re almost turning a blind eye to it and hope that things work out.”
There is a different level of accountability when you are behind the wheel, but you don’t have to drive the investment, find the deals, and do all that stuff. There are already ready-made deals, but I want to go into the next thing, and we’re talking about this before we start. It’s not about the investment, is it?
No. That’s another thing. We’ve been trained to look at numbers. What is the yield? What is my return? If you’re investing in securities like stocks, bonds, and mutual funds, you can’t control anything else. You can’t control the operator in the mutual fund. You can’t control the market where you’re going to invest in. You can’t even control what businesses you’re going to be included in the mutual funds. The only thing that you can look at or your decision point is, “Am I going to make money potentially or lose money?” That’s it.Preferred return is actually different from the cash on cash return. Click To Tweet
When you started investing in private equities, now you have a whole other level of control and responsibility. You have to know your investing goals and risk tolerance. I love the book CASHFLOW Quadrant by Robert Kiyosaki because it explains this very well. If you want to be completely passive as an investor, you have to go to the I quadrant. You have to find good businesses to invest in.
When you’re investing in private equities, you should switch to your mindset. It’s not all about the numbers. It’s a factor, but who is the person that’s going to help you hit that number? A great operator can take a pretty mediocre deal and crush it out of the park. A not-so-great operator could take an amazing deal and possibly tank it.
The operations team is who is going to get that deal across the finish line. Know how to underwrite the operator and find great operators. I love what you do here at Money Ripples. Also, what markets are those operators in? Are they in good, strong cashflowing primary markets? Are they more in tertiary markets? There’s a risk profile for each type of market. You then get down to evaluating the deal. All along the way, you’re going to be checking the different parameters of the market in the deal against what you’ve already established as your investing goals.
As we were talking about before, I even heard somebody say in another interview, “It’s not about the horse. It’s about betting on the jockey.” The horse helps. You got to have a decent horse that can at least make it to the finish line, but the jockey, the operator, or the person that’s doing the deal is the one that can knock it out of the park for you.
They’re going to know how hard to run their horse or how to adjust the tactics. The jockey would know what to do with the business plan. What is their business experience? What is their real estate experience? What is their experience with the particular strategy that they’re executing or their exit plan? You want somebody that has that deep breadth of knowledge.
What’s their worst failure? That’s always a fun one too.
It’s the track record and performance. I do a Tuesday masterclass where I go deep dive into passive investing in different parts, the things that everybody needs to know. You guys can find me there and I’m sure we’ll touch on how to register for that, but I help people understand all these different moving pieces and how vet operators, markets and deals.
That’s one question that that’s big because, for me, it’s not like, “Have you lost on deals?” For me, it’s more, “Did you lose and what did you learn? What kind of experience did you gain from that? How’s that made you a better investor or better operator of that deal?”
Not even lost. It’s like what challenges have you faced and what did you do to overcome them? A lot of operators are selling assets that have been very challenging for them in 2019, 2020, and 2021 because the tides have been going up and assets have been appreciating across the board. You ask an operator, “Have you lost?” They think, “No,” because they didn’t. They probably still hit the IRR and blew their equity multiple out of the water, but were they paying distributions for twelve months during COVID?
Those are the type of questions you want to dig under the surface and start getting granular with the operator to uncover what challenges they have. That’s not a scary question. No operator should feel intimidated by that question. Every operator has some learning experience that they’ve taken away, and if you were hiring for your own business, you want to see how they’ve overcome that.
In fact, if they shy away from the question, it probably means you should not ever do a deal with those people. It means they’re hiding more.
Yes. They probably lack the experience.
Tell us about the operators you work with. You’ve invested in lots of different areas and places. You’ve gained the experience for many years yourself. Why do you work with the people you work with and what’s been their track record?
I work with many different operators. I should say, I personally invest in operators, multifamily, self-storage, and ATMs. I’m looking for deep experience in real estate if that’s what the investment is. I’m looking for business experience, especially if it’s a larger operator that has multiple properties and the same geographic area. What is their scaling? It’s one thing to pick up 1 to 4 buildings, but whenever you start getting 5 to 10, it’s no longer 2 or 3 people running the business. They need to have a team built out underneath them so they can delegate and that’s keeping an eye on the ball and making sure all the assets are being managed appropriately.The easiest number to look at is the equity multiple, because it allows you to compare and contrast based on time. Click To Tweet
How are they scaling their business? What’s their ability to source deals? Do they have a great pipeline built out? There are a lot of relationships that I look for when I’m talking to operators. How can they get off-market deals? How can they work with developers and get the deal at a bigger discount before it ever hits the market? I can hedge my bets as an investor. These are things that we do at PassiveInvesting.com. What kind of acquisitions team do they have? What is the methodology for underwriting? Is their underwriting conservative?
I have seen numbers that were scaring the pants off of me. I remember a few deals that we passed on and you see another operator put it out and they paid $1 million what the last offer was. It makes you wonder what they were doing to manipulate the numbers. I want to understand the full underwriting and how they’re underwriting their deals. If I can get the actual underwriting, fantastic. Not everybody shares their underwriting, which I understand. Sometimes they have to sign a nondisclosure agreement and they can’t share it.
What type of lending is going on the property? I want to understand the different types of lending. You’ve got fixed rate debt. We’ve got floating rate debt. I want to see debt at least for the term of the business hold and the interest rate is either fixed or with a cap. If it has a cap on that floating rate debt, I want to make sure that it’s been underwritten at the full cap for the entire hold. I know one operator that did a fixed straight debt on one of their properties and didn’t cap it. They’re in trouble.
They stress test it.
They stress-tested it, but I don’t think they stress-tested it with 9% plus inflation and the Fed bumping everything up 3/4 of a point for 2 or 3 months in a row. That was not in the stress test. Those are different ways that I’m asking questions, picking apart how conservative they are, and safeguarding the investment. When I hand over my money and I’m no longer the operator of that investment, I’m doing it so I can get my time and my attention back. Also, so I can sleep better at night. Somebody else who’s more knowledgeable than me is running the investment.
You have different investments going on. When you guys are reading this, there could be a completely different investment deal, but I know you have a hotel deal that’s about full. You’ve got the car washes that come up occasionally. You got some of these things that are more on the speculative end, even self-storage, and things like that. How do you guys minimize the risk in your deals?
As of now, we do have some space left in our hotel deal. When you talk about hotels, we’re very specific in what type of hotels we’re going after. Hotels were challenged during COVID-19 and now there’s a window to pick them up because they’re undervalued based on their not operating income or trailing 12 and 24 expenses. You can’t lump all hotels in one basket.
The hotels that got hit the hardest were the full-service hotels, the conference venues, and the wedding venues. You also have limited services hotels, which we’ll stick a pin in because that’s what the space we’re in. You have the budget hotels and then you also have your motels or micro motels. We love the limited services space. We love having branding on the hotels, but we will entertain independent brands as well.
We’re very specifically looking for a hotel that stood on its own merits for leisure and residential travel during COVID. They didn’t get kept in the teeth aside from the first few weeks. They have a strong net operating income on the asset. The problem is that they’re stigmatized now. Also, we’re looking for an overlay on top of that, a very strong corporate strategy to come back.
We’re not underwriting the purchase of these hotels. We’re not giving the seller that income for the corporate strategy. We’re looking to harvest that for when it comes back and we are seeing that come back. Case in point, we have a deal right now in Hilton. It’s a destination island. There are 2.9 million visitors that go there every single year. It’s the only Holiday Inn on the island. You have over 35 million people that live in a 300-mile radius. That’s a huge draw.
When you look at the income of the people that come to the island, there’s plenty of room to move the average daily rate of the hotel. When we’re talking about hedging inflation, that’s huge because when you’re looking at multifamily, and I still love multifamily, but I can’t adjust rates, but once a year. Self-storage, it’s 30 days. Car washes, maybe every 2 weeks to 30 days. You don’t want to confuse your customers a whole lot by moving your subscription prices around.
Hotels? I can move that on a nightly basis. I can move it midday and follow my book. If half my hotel books up first thing in the morning, I can change pricing that afternoon. It is a very flexible strategy, but you have to know what kind of hotel to look for and what market to be in. We’re looking for strong markets where the populations are growing and especially strong blue-chip companies coming in to hedge our bets. We’ve got the leisure, tourism part of it, and then also we have the corporate strategy for corporate travel coming in.
Whitney, this has been insightful. This has been cool to see. It’s absolutely pretty interesting.
Thank you. I’m happy to share.There's a risk profile for each type of market Click To Tweet
Everybody, there you have it. You might be skeptical and wondering if this stuff is too going to be true and even if it was, it’s worth looking into and diving deeper to see because what if it’s not? What if everything we’re telling you is 100% true and legit? If it is, what is that costing you now by not learning more about it and not taking action? That’s my challenge to you.
You can read these episodes all you want, but what are you going to do with this information? How will this change your life and potentially create some freedom that you never knew was possible for you? That’s the challenge I have for you. If you have any questions, go to MoneyRipples.com. Go and make it a wonderful, prosperous week. We’ll see you later.
About Whitney Elkins-Hutten
Whitney Elkins-Hutten is the Director of Investor Education at PassiveInvesting.com and a partner in $700MM+ in real estate — including over 6300+ residential units (MF, MHP, SFR, and assisted living ) and more than 1400+ self-storage units across 8 states—and experience flipping over $4.0MM in residential real estate.
Reach out to Whitney: Whitney.firstname.lastname@example.org