Whitney Elkins-Hutten is the Director of Investor Education at passiveInvesting.com, which builds passive income and equity for investors through low-risk real estate investments in the hottest U.S. real estate markets. Her current focus is helping investors understand the power of investing in car washes, self-storage, and other institutional-grade assets so they can create massive leverage in their life and partake in the cash flow, equity, and capital preservation that real estate has to offer.
In this episode, Whitney discusses the benefits of passively investing in car washes and institutional-grade assets, and why low risk doesn’t always mean low return.
Whitney Elkins-Hutten | Real Estate Background
- Director of Investor Education at passiveInvesting.com, which builds passive income and equity for investors through low-risk real estate investments in the hottest U.S. real estate markets.
- Previous episode: JF1464: Passive Investing, Active Investing, and Raccoon Communities? With Whitney Elkins-Hutten
- 6500+ units (multifamily, mobile home parks, single-family rentals, and assisted living)
- Seven express car washes
- 2200+ self-storage units
- Based in: Denver, CO
- Say hi to her at:
- Best Ever Book: The ONE Thing, by Gary Keller; Essentialism, by Greg McKeown
- Greatest Lesson: Having a goal — without knowing how you want to feel when you achieve it — is the best way to live unfilled.
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Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel, and I'm with today's guest, Whitney Elkins-Hutten. Whitney is joining us from Denver, Colorado. She is the Director of Investor Education at passiveinvesting.com, which builds passive income and equity for investors through low-risk real estate investments in the hottest markets in the US. Whitney's portfolio consists of over 6,500 units of multifamily, mobile home parks, single family rentals, assisted living, seven Express car washes, and over 2,200 self storage units. Whitney, thank you for joining us and how are you today?
Whitney Elkins-Hutten: I'm doing great. Thanks so much for having me.
Ash Patel: It's our pleasure. Whitney, before we get started, can you give the Best Ever listeners a little bit more about your background and what you're focused on now?
Whitney Elkins-Hutten: Yeah, absolutely. Well, as you mentioned, I'm the director of Investor Education here at passiveinvesting.com, and what you read off was my personal portfolio that I have in partnership. But here at passiveinvesting.com we focus on multifamily, self storage, car washes, hotel and first position real estate debt. We have over 1.3 billion assets under management, 6,600 multifamily units, 3,300 self storage units, 18 carwashes and growing. We're looking to grow a portfolio of 250 to 300 locations. And that's just the tip of the iceberg... But what I am focused on professionally and personally is helping investors understand the power of investing in institutional-grade assets such as these, so they can create massive leverage in their life, and partake in the cash flow and equity and capital preservation that real estate has to offer.
Ash Patel: Whitney, who's your target audience?
Whitney Elkins-Hutten: With passiveinvesting.com we have a couple-pronged approach. Really, we're focused on working with high net worth individuals. So think of doctors, lawyers, engineers, tech workers, business owners, potentially those retirees, people that are getting close to retirement, that understand "Wow, my portfolio in stocks, bonds, and mutual funds just aren't kicking off that much cashflow as I thought they would." As a matter of fact, they're going the opposite direction in today's market... And potentially even a tired landlord who's grown a substantial portfolio of their own controlled real estate, and they're understanding "I want to scale further, faster, diversify my portfolio", or "I want [unintelligible 00:03:44.26] my property manager" and they're looking to move those assets from a more active form of investing into a passive form of investing. So really, anybody can participate in passive investing. There just are a couple of different niche audiences that we target.
Ash Patel: Is it accredited investors only?
Whitney Elkins-Hutten: Personally, we do work primarily with the accredited investor. I am really excited, we have a project in the works that would it allow sophisticated investors to invest alongside our accredited investors through a crowdfunding Reg A fund. We're not quite ready to roll that out. We don't have a complete timeline on that, but we are looking to make this type of investing available to all who are interested.
Ash Patel: In regards to the definitions of accredited investor and sophisticated investor, can you educate us on that?
Whitney Elkins-Hutten: Absolutely. Accredited investor is pretty easy - the Securities and Exchange Commission has come up over the years, they've modified the definition. So it can be somebody who meets either a net worth test, or an income test, or there's a couple other provisions in there. So for the net worth, it's pretty simple - if you have a million in assets outside the equity in your primary real estate, so the house that you live in... And that can be individually or in conjunction with a spouse or a spousal equivalent; an income test is a little more nuanced - you can either have $200,000 of income for the previous two years, and reasonable expectations going forward individually, or you can qualify with a spouse or spousal equivalent with $300,000 of net income for the previous two years, and reasonable expectations going forward.
And there's also one more that the Securities and Exchange Commission added in about a year and a half ago, and that are for people who have a series 7, 65 or 82 license, they can potentially qualify as an accredited investor, as well as employees that work at a private equity firm; they could potentially invest in their own deals with their firm.
Ash Patel: Interesting. I didn't ever hear the spousal equivalent before. So I'm assuming that includes domestic partners; and does it have to be a live-in partner?
Whitney Elkins-Hutten: That is a great question. Those third party letters are generally granted by lawyers, your CPA, or a licensed broker dealer. So they are going to have the specific definition of what the spousal equivalent actually means. And here's the thing - I haven't seen that checklist to specifically know what that means. But I would imagine this allows for people who are domestic partners, that just never got married, or maybe same-sex marriages in states perhaps where the marriage actually legally cannot be recognized... Or people who are just like, "Hey, I'm not going to get married, but this is my partner of like 10, 15, 20 years, and all intents and purposes, we are married; we share our household expenses." That would be what I imagine it is.
Ash Patel: Yeah, you can go out and get a high net worth boyfriend or girlfriend and all of a sudden potentially qualify... But seek legal advice.
Whitney Elkins-Hutten: [laughs]
Ash Patel: Interesting that they've included that definition. That's awesome. You mentioned conservative investments; I think the words that were -- it was low-risk, which to me is the equivalent of lower returns. What are your typical returns on investments?
Whitney Elkins-Hutten: Well, that's not always the case. It's about how do you risk-mitigate all these things that are happening in the environment, most notably in the past year interest rates rising a little unchecked by the Federal Reserve... How does that impact the various levers that you can pull within an investment? For our multifamily investments, we're looking at a 7% pref, which actually isn't a return; that's just a hurdle that the general partner has to meet. But interest rates rising, it does pull the cash on cash down a little bit... But it doesn't actually mean that it's a lower return, because we are limiting the risk in that type of investment by getting fixed-rate interest rate debt, locking in that in for the term of that business hold, if not longer, and perhaps securing extensions on that fixed rate, interest rate debt, to allow ourselves the flexibility in this market environment if we need to hold the property longer. So that's just one thing that you can do on the multifamily side, as well as self-storage side.
But we also have our carwash assets that kick off a little bit more income, but people need to understand that it is an operating business that is very cashflow intensive. But what we're doing is we're actually buying the underlying real estate; we actually built our own third party property management company. So we own the land and own the brand. So yeah, you might look initially at an investment and see 10% pref, cash on cash by year five of 15%, and go, "Wow, that's a lot of risk." But when you own the end to end vertical of everything in that business, and you're getting nice high-quality debt on it, that is a very de-risked investment.
Ash Patel: What are the numbers on IRRs for these investments?
Whitney Elkins-Hutten: Yeah, so car washes, which is what I was just speaking about - what we underwrite to the investor, put on a proforma, is the most conservative way that we can actually exit these particular deals, which is individual sale of asset. So it really starts at the beginning - how are we purchasing this particular asset? Well, we're looking to purchase the carwashes - they're trading 12x to 15x EBITA. In the market today, we're looking to pick up acquisitions that are somewhere between 7x to 10x EBITA. What does that mean? An investor might be going "I don't know what that means." Well, that's a multiple of the profit of the asset. So it's a little different than valuating a deal based on net operating income like you would in a multifamily deal. But on all intents and purposes, net operating income is a part of the profit calculation.
Alright, now, you asked me about IRR. Well, really, because each carwash has to individually stand on its own for it to go into our portfolio, it also needs to exit well on its own. So we put them into small portfolios, but we don't put an underperforming carwash in there and just kind of cross our fingers and hope it performs. No. Every single one performs from day one. That's extremely important from a risk mitigation standpoint.
So with our strategy and what we show investors, we're probably somewhere between, again, that 2x multiple, that's 17% to 18% IRR. But our actual strategy to exit this portfolio, again, getting that scale of 250 to 300 locations, is we're looking to IPO this entire portfolio. A secondary strategy would be to roll this up and sell it to a REIT or a private equity group, and each one of those would have a much larger equity multiple return and higher IRR return to the investor. We just don't show that to them, because it's not the most conservative way to underwrite it.
Ash Patel: Is there a minimum deal size that somebody can present to your platform? And is there a minimum investment?
Whitney Elkins-Hutten: Our acquisitions team are the ones that actually underwrites all of our deals. If somebody has a carwash that they're looking to sell, definitely reach out to me at whitney [at] passiveinvesting.com. I can put you in touch with the right people on our team.
As far as the deal size minimum, not necessarily. Again, it goes back to the [unintelligible 00:12:07.15] That's one of the things that we look to do with car washes, because car washes are probably being purchased somewhere between $2 to $7 million. We look to portfolio these together, to put together a larger deal for our investors to go into, so we can get better lending terms, get scalability with presenting deals to investors.
Now, as far as the investor, our investment minimum for these types of portfolios is $100,000, and that gives you immediate diversification over markets and deals, which is amazing; a good fund structure to be able to diversify your funds in a very time-efficient manner.
Ash Patel: Okay. Will you allow retail industrial properties on your platform?
Whitney Elkins-Hutten: We're not a crowdfunding platform. So we are the direct operator-owner of these real estate assets - of the multifamily, the self storage, the carwashes. So I'm kind of picking up on that now, but yeah, we are the owner-operator.
Ash Patel: Oh, interesting. Okay.
Whitney Elkins-Hutten: Yup, yup. So industrial - we're always looking at the market to understand what is the best asset that would produce nice capital preservation, cash flow for investors, solid equity returns, amazing tax benefits, and provide diversification. So perhaps at some point in time industrial buildings will be something that we add; we just haven't yet. We want to be experts in the space, and that way our investors can know, love and trust that we are operating in their best interest.
Ash Patel: Alright, forgive me. I should have known that. Very interesting. So when I invest with passiveinvesting.com, I'm investing into a fund, versus an individual asset.
Whitney Elkins-Hutten: On the carwashes, yes. On our multifamily assets, we do single-asset entities. So we'll buy a multifamily building say like in Charlotte, North Carolina, and that is one single asset entity. And so one thing that we really strive to do for our investors is to actually show them all the assets so they can clearly see what they're going into. Every once in a while, say we want to put out a self storage portfolio where we have three lined up, and maybe the fourth isn't completely under contract where we can actually show the investor... There might be one kind of quasi-blind asset in that small portfolio, but we really strive to show all of those assets in that portfolio to the investor upfront. Again, that helps the investor de-risk their portfolio. They see what is being purchased.
Also, the interest rate. We are already in talks with the lender about interest rates. If you don't have a property under contract, it's very difficult to talk to a lender about what interest rate you're going to be able to acquire that property at. So they actually can trust the numbers that we're putting out there. And there's a preference of investment strategy.
Ash Patel: Whitney, in terms of carwashes, one of the reasons they're so attractive is there's massive depreciation from all the equipment. You get the bonus depreciation in year one. As a passive investor, do you get to share that negative K-1?
Whitney Elkins-Hutten: Yeah, so that is an amazing question for any limited partner to ask on their due diligence of the operator, is like, "Hey, what portion of that losses do I get to share in?" Because I've been shocked to learn that not every operator shared that, equally, or pro rata. So with the car washes, the way we share our K-1s is pro rata. So it's based on your percent ownership in the deal.
So year one losses on a carwash opportunity - we tell our investors between 70% to 90%, and that is because you can write off all of that equipment in year one, and take that bonus depreciation... Even though bonus depreciations ticked down to 80% this year, we can still take it.
Ash Patel: That's great. What if I'm a 1031? Investor? I just sold something. Do you have provisions to help me?
Whitney Elkins-Hutten: Yeah, we can definitely assist investors to 1031 into our syndicated deals for the multifamily self storage and our hotel deals. And it's because it's considered a like-kind exchange, that is real estate for real estate. When we get into the car washes, it's a little bit more difficult to tease out the business from the real estate piece, so we really keep our investors focused on that 1031 exchange on those hard real estate assets. So it's a million dollar -- a lot of people are exiting large properties, have large exits right now, with high appreciation over the past couple of years, so we can work with investors, if they have a million in equity they're bringing in on hotels and multifamily, or $500,000 in self storage.
Ash Patel: Is there a minimum if I'm bringing in 1031 money?
Whitney Elkins-Hutten: Yep, so that million on the multifamily and hotel deal, and then $500,000 on the self storage deals.
Ash Patel: Got it. And the reason for that is all the legal backend work that goes with that 1031?
Whitney Elkins-Hutten: Yeah, we take care of setting up the TIC, the tenant in common, and the special purpose vehicle; all of that legal paperwork. And also, when you set up a structure like that, you actually have to take that TIC -- in a special purpose vehicle it actually has to be underwritten by the lender. They have to be able to visualize that as well. So it's very labor intensive on our side. But again, we take on that ownership in order to make it a smooth process for our investors that are coming in in that 1031 exchange.
Ash Patel: Yeah, there's certainly a lot involved in that. And just to be clear, I could bring 1031 money in, and then I could take it back out and 1031 into something else.
Whitney Elkins-Hutten: Yes, upon exit, we really are striving to help our investors to continue to partner with us as we 1031 these assets into the future. We've executed eight 1031 exchanges just in the past calendar year. So I know a lot of operators say they do it; not all operators actually can execute on that very efficiently. So it is something that we really pride ourselves on. And certainly, I believe the way it's set up, since it is a tenant in common, the tenant in common could actually then go 1031 exchange into a different deal if they'd like.
Ash Patel: Yeah. And it's a great benefit, because I can choose to go into another investment with passiveinvesting.com. Or if I find a deal on my own, I can choose to exit the 1031 and put the money into another deal. So it's a great benefit. Whitney, what is your best real estate investing advice ever?
Whitney Elkins-Hutten: Get started. I'm a ready-fire-aim type person. So I say get started kind of tongue in cheek, but really, asking these questions that I'm going to give to you of yourself early and often, is "What do you want? Why do you want it? Who do you have to become to get it?" And when we ask that question of who do we have to become to get it, it's understanding your mindsets, your skills and your network. And you can't just ask these questions once, or once a year... I'm talking ask these questions once a quarter; it doesn't matter if you're a limited partner investor, or an active general partner in real estate. Continuing to ask these questions of yourself continually, that way you can get to build that life plan for yourself and get further, faster.
Ash Patel: Whitney, are you ready for the Best Ever lightning round?
Whitney Elkins-Hutten: Yes, let's do it.
Ash Patel: Alright, what is the Best Ever book you've recently read?
Whitney Elkins-Hutten: I love it. Best Ever book - caveat, recently read... I actually just read the book Essentialism. I'm a huge fan of The One Thing, but I think reading the book Essentialism just really took all the things into one thing and stripped it down even further to just how can you create a simple, yet very impactful life.
Ash Patel: Whitney, what's the Best Ever way you like to give back?
Whitney Elkins-Hutten: I have a podcast and a YouTube show called Passive Investing made Simple. I spend a lot of time and effort there, really helping investors understand the ins and outs of passive investing, so they can go into their first or next deal with confidence.
Ash Patel: And Whitney, how can the Best Ever listeners reach out to you?
Whitney Elkins-Hutten: You can find me at passiveinvestingwithwhitney.com. There I've got a free eBook and checklist for people. You can also - just with a quick little form you can get access to my calendar, and we can talk all things real estate.
Ash Patel: Whitney, thank you very much for sharing what passiveinvesting.com does. Thanks for your advice. And thank you for your time today.
Whitney Elkins-Hutten: You're welcome. Thank you.
Ash Patel: Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five star review, share this podcast with someone you think could benefit from it. Also, follow, subscribe and have a Best Ever day.
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