Podcast Episode 96 Transcript

Episode 96: Rapidly Scale Your Passive Cashflow With Whitney Elkins Hutten

Are you ready to bring your real estate game to the next level? My name is James Prendamano. I'm the CEO and founder of PreReal. And over the past 25 years, I've closed over a billion dollars in transactional real estate. Each week, a meeting with outstanding investors, high performing individuals and visionaries operating in the real estate space. These are the people that are actually out there in the real estate game right now. Getting it Done this podcast aims at bringing anyone's game to the next level. This is The Prereal Podcast.

Welcome everyone, to The Prereal Podcast. We have a real treat today, folks. Whitney Elkins-Hutten is joining us. The Director of Investor Education at PassiveInvesting.com, founder of ASH Wealth. Whitney has built an absolutely remarkable portfolio through a host of different partnership structures. Whitney is involved in over $700 million in real estate, over 5000 residential units, everything from SFRS to assisted living, over 1400 self storage units in eight States. Whitney, it's an absolute pleasure to have you on. Thank you so much for taking the time out today.

Yeah. Thank you so much for having me on. James, it's wonderful to be here. Thank you so much.

So before we jump in, I'm curious, can you give us a few minute context on history? Right. People don't wake up with portfolios like this. So how did you first come to, if you will get the real estate bug?

Yeah, I never went to school for real estate. I went to school, actually graduated with a degree in biochemistry. My whole intent was going to medical school, and I did. I did a couple of years in Med school and really wanted to go into public health. That was like my end all be all where I thought it's been the rest of my career. And if you think of about the old movie outbreak or the movie Contagion, I'm sitting there glued to the television like eating popcorn, and everybody else is like, this is like, I can't imagine a world like this. I'm like, yes, that was my thing. Right. So I transitioned out of Med school, into public health and spent several years working in infectious disease. Public health. And then 911 happened. And after that, I was working on the contract with the CDC. We were the United States as a whole was scrambling to educate its health infrastructure on how to deal with anthrax and smallpox. That was a huge threat. I don't know if people remember the anthrax threats being sent in the mail. The envelopes were showing up, right? Yeah. So that was a small part of what the training I was to do. And I also handled chemical and biological and radiological education as well. But anyways, it kept me traveling, kept me extremely busy, but I needed a place to live, and I had a significant other at the time. And we decided we're going to buy a house together. This is 2006. But by this time, when we're buying the house. Interest rates are you just have to fog the mirror and you can get a loan and a wild west of lending. And there's probably no way that somebody should have given me a loan. But that was my lucky break back then. I ended up bought a house, and it needed a rehab. My realtor actually put the book cash flow, excuse me, rich dad, poor dad in my hand. And I'm pretty sure I screwed it up, honestly. But I was like, okay, great, I'll buy a house and we'll do the rehab ourselves. And the relationship fell apart and I had the house, and here I was traveling out of state 80 hours a week, and I had a house that needed rehab. So I stopped it fully. Roommates paid my friends and pizza and sushi to help me do tiling and drywall, electrical, plumbing. I mean, I can't believe the people who bought the house inspection. Anyways, I did educate myself properly on that. We had some goof ups, but sold the house eleven months later for $52,000 profit. And that's when I realized I actually hadn't been paying for any of my expenses for eleven months. Oh, my gosh. How many of these projects could I possibly do? And the whole point of me selling the house is because I was traveling so much, I was like, I can't deal with the house. I need to get out from underneath it. And then as soon as I sold it, I'm like, oh, wait, this might be my ticket to freedom. Anyway, my second project did not go so well, and I know many listeners. You might have heard the story that I've told on a few podcasts where a bus fell into the roof of the property. It was a mountain home. Gravity took over. Anyways, I just got out from underneath that one and did a few more projects with my husband. He thought I was totally crazy. And I'm like, no, I got it all figured out now. And we did. We did really well at building that pocket equity. We also took advantage of what we call the 121 exclusion. So we were able to capture $250,000 tax free individually or $500,000 tax free in gains as a couple. And so we just kept having our investment babies, make babies and continue to grow their portfolio. And then it dawned on that one day we're like, how are people becoming financially free? Like having a monthly income on this? I can't imagine it. And that's when we had to slap ourselves in the head. And we're like, oh, you hold onto the property. And that's where we combined our skills of rehab with rentals and what's now known commonly as the Burr strategy. And we build a portfolio of about 30 single family homes that way. And then I hit my next ceiling of achievement. I wanted to stay at home with our child and take care of some alien family members. And my husband was like, well, I want that, too. And I'm like, no, we're not doing 80 single family properties. We've got to find a different way to scale. And that's when we transition into multifamily real estate. And we went into both actively and passively at the same time. And it's been a wonderful ride since we made that transition. So the infamous second deal that almost really tanked you right. That second deal, how close, really to the edge were you of packing it in and calling this a rat? Oh, as far as, like, real estate in general, yeah. I was one phone call away with my mom. Wow. I was there.

The market was changing. I mean, there was a lot of things that I did wrong on that property. One, I bought in the mountain town ignored a lot of the immune lots of real estate. Number one, location, location, location. Two, I didn't understand who I would be selling this property to. This was a vanity property. This is the one that I wanted. And it was a little mountain home. I had 19 steps up to the front porch, and it was in a city that was largely retirement people who came there to retire. So I had so many retirees coming to the property, and they were like, well, the pictures look great, but you failed to mention the 19 steps up to the deck. I had people actually stop halfway up the stairs because it's at altitude. And they're like, no, we're done. I'm not even going to go in. So it took me a year to sell the property. And I guess the third mistake that I made is I actually had a decent contract on the table within two weeks of listing it. And I foolishly thought I could get a lot more. And I ignored all the signals that were coming at me. And I sat on the property for a year, went through three or four Realtors, and eventually sold it for the exact same dollar amount a year later. Wow. So a frequent mistake. I guess that on the real estate brokerage side, we see this quite a bit. And it seems like you're just brokering the client, but you're really not oftentimes your first offer is your best offer, regardless of the timeline. If you're hitting the goals that you've set on that particular property, it's probably a good idea to pull those triggers. So you were really at the edge of possibly saying, this isn't for me. I'm going to move on. Oh, my gosh. Well, send me over the edge is that my realtor during the inspection phase had been identified. The retaining wall in the backside of the property was failing. Now, I argued that it was actually the weight of my neighbor's school bus that was causing the retaining wall to fail and just move it right. Because as soon as she moved it down one house that retaining wall started to fail. My realtor had the foresight to make me sign an amendment saying that I would come with $6,000 at closing to keep the deal together. Essentially, that locked everybody in. And here I am, like, I had waited a year, got the same offer, and I'm like, I'm giving away another $6,000. I was kicking and screaming, but I signed it. And I'm so glad I did because I think by the time they were all in, the buyer had to put up, I think, another 24 in order to complete the wall that they wanted. And engineering, long story short, if the deal hadn't held together, I was, like, upside down for sure. Wow. So any other influences at that point in your life that family members or mentors that were significant investors in real estate? No, not at the time. My grandfather, actually, he was the one that lent me my down payment on my first property. And he knew nothing really about real estate other than buying his primary properties. And I would say both of my grandfathers, but they really just said, you're not out of the game. If you really want to do this, just go do it. They had such faith in me. Whereas I remember multiple conversations with my mom. Her little daughter is risking financial security. Right. You know, I have a daughter, too, and I have to check myself. I'm all the time saying, be safe, be careful. And that's really not the language I should be using. Whereas my grandfather's, really, you're not out that's yourself off. Get back up, get back in the game. Well, so that kind of a quantum leap to where you are today. Where do you even begin when advising clients, customers? But where do you even begin putting the framework together for, hey, I want to reach these goals and defining those goals. Where do you start? Well, in my journey, it really started at the end of 2016. I mean, there was some political pressure. My husband works for the government, and there was some political pressures that we were seeing. I would say, Moreover, kind of threats, empty threats that the pension plans might go away with the incoming administration. And whether they did or didn't, that's irrelevant. But we just realized at that point in time, it doesn't matter who's in office. We're not in charge of our own destiny. For one, to start off, you have to have I wish people were more motivated by pleasure in order to achieve something lofty and improve their life from a place of pleasure. But it's often identifying a pain point that you need to escape from is probably the first thing that people resonate with. Right. Because we don't want to be in pain. So we will be motivated faster to figure out an answer if there's a pain. I mean, how many times have you may come across a friend or family member that they have a nagging pain, or they know that they should go get the knee checked out or the back checked out, and it's not even until they can't sleep anymore. It just totally gets really bad that they actually go to the doctor.

Unfortunately, that's what we see pretty often in this arena. And for us, we tried to figure it out. We tried to DIY it for a while, and then two properties in or actually four properties in. I was like, I need help. I need a lot of help. I need somebody to sit down with me and help me look through all my different because we knew we had the money, we just stock a lot of it in our retirement accounts, and we didn't have access to it. And so we needed somebody to help us, knew more than we did who had achieved at that time that we wanted to achieve, to help us essentially lay out the plan. And it shows how to place the chest pieces. And so we hired a financial coach, Chris Miles, with Money Ripples. I mean, he's still in business. So if you guys need a contact, reach out to me. But he was amazing at helping us understand how the game is played and how we could leverage our current resources in order to achieve our goals and the process with Chris, does Chris help you define even really what the goals are? I find that a lot of folks struggle with even defining what is that we hear financial freedom thrown around all the time. Right. But what does that really mean? What does that mean to me and what it means to you? Maybe two entirely different things. And without clear goals, I think it may be really a challenge to begin to even put that map together. Does that make sense? Yeah, definitely. Okay, so the end point is the freedom. Right? So like you said, we hear financial freedom touted quite often the other freedoms are time freedom, location, independence, location, freedom, freedom of choice, and then freedom to make an impact. Okay. So one of those motivators, like when you can identify the pain, that's probably the reason why you're getting started in real estate. But what's going to keep you in real estate for the long term? It's going to be one of those freedoms. You're trying to go after one of those. Now, there's milestones along the way. Right. I think where a lot of investors kind of do themselves with this service is they'll say, I want financial freedom. Right. But that's the fifth or 6th step. The first step is actually get enough income coming in to have financial security where you can make sure that you're not going to lose the house. The heat stays on, the food stays on the table. We're talking basics. Okay. And maybe not only can last, the financial security on that dollar amount coming in only lasts six months. Okay. Then the next phase after that is learning how to create financial vitality. We've got our basic needs met now, like, maybe I want to go out to dinner and buy a couple of clothes and have a nice gift. Right. That's vitality. You have enough money coming in from your investments to last to give you a good life for about a year. Right. Then we get into what is often called the fire financial independence. That's where your assets are giving you enough income coming in on a regular basis in Pertuity. Notice, the first two were just for short little time blocks, 612 months. Right. Like, they're buffers. And those are milestones that you have to hit along the way until you hit financial independence. And then we get into our freedoms, like financial freedom, which is they cover the lifestyle that you desire and then absolute freedom, where your assets cover pretty much doing whatever you want with whoever you want, whenever you want. So again, the scale at which you've accelerated your portfolio, it's kind of mind boggling. So was this a byproduct of reinvesting dividends or was there additional monies that were pumped into the portfolio at one point or another? How did you begin to pull that framework together? Yeah, so several different ways. And I think this is where people see it's like an iceberg, right? There's only so much of it above water. And that's what people see. All the work that went into it below the water. That's where the real juicy gems lie. And so, number one, remember, we had been doing utilizing our ability to buy a primary property and move every two years to trigger the 121 exclusion for our taxes. So we were pulling in up to $250, $500,000 tax free. Now, I'm not saying we did that with every property, but we were buying properties that needed rehab. They needed love. We weren't buying the nice, pretty all done property with the garden in place and the exact area we wanted to live in. We were very strategic on how we were buying our initial properties, where it was just my husband and I. Actually, this is a green screen, by the way. This is my dream home, but we still do that. We're still in one of our rentals or not one of our rentals, but one of our properties that we bought to do that type of strategy, too. So we still utilize that. Number two, we decrease. We took a look at our expenses and really strove to only live off of one income. So we were stashing one other entire income aside to build up our savings. Okay, so we've got our value that we're creating our houses combined with stashing away an extra like $80 to $100,000 a year from somebody else's income. We did that for ten years. So that gives you a nice little nest egg to begin with. Okay, so the first few years were painful. Now it's like clockwork, right? Hard life now and easy life later. And then when we started investing in our rentals, we made that switch to actually hold on to the rehabs we were doing. We did two things. One, we harvested all the cash flow. Again, we remember we were doing a Burr type strategy, so we weren't weighing our own capital in the property. We were refinancing out as much as we could. Once we got that tenant in place, after we got it rehabbed and the tenant in place, we were getting as much as our capital back out as possible. So we weren't leaving it in the property. We were forcing the equity on the property. And then whatever cash flow we got, we didn't consume it. We reinvested it back into the business and continued to amplify our returns. And then we were still doing a little bit of flipping on the side to leveraging our team. When we didn't have a property that was going through rehab, we would try to lock down a flip to keep our team busy. So they weren't, like disappearing on us and going to do other projects with other investors. That's a lot. And you don't have to pull all of those levers at once. Even just pulling one of those levers can be so impactful to somebody's financial position. So the team I assume you're referencing contractors and folks that are involved in that entire process. Yes. Yeah. We did a majority of our bursts through our property management company. So we hired a property manager who specifically had a contracting side of their business. Got it. So for the audience to follow along here, the 121 exclusion, could you spend a minute or two on that in layman's terms, just so folks understand that opportunity? Yeah, absolutely. So I think one thing that draws a lot of investors to real estate is aside from cash flow and the potential of natural or forced equity positions, appreciation is tax benefits. Right. The IRS gives us this lovely ability to depreciation leverage depreciation to where we can offset the income on the property. But also when we want to reposition sell the property, we can put it into what we call a 1031 exchange. And we essentially are kicking the can down the road on paying taxes on the gains of that property. Now, you, as a common somebody who just has their primary residence, actually has the similar type of benefit. The 1031 is called the 1031 because of the tax code. That's the number of the tax code.

The 121 is the number of the tax code for this thing that's available to all of us who own our primary residence in that all I have to do is live in my property two of the last five years, and then I can sell it for a profit. And as an individual person, I get to keep $250,000 in gains tax free. Or if I'm married, I can keep up to $500,000 in gains tax free. So $250 per spouse or per partner, domestic partner. And then I can go reinvest in my next property or multiple properties. Right. That's where it becomes extremely powerful. You get one and say you make $200,000, now you can have your investment. Babies make babies, and you can split that. Right. And now you start getting after two or three cycles, you have exponential growth there. So the 1031 exchange that we talk about quite often on the show is a time tested vehicle where you're allowed to execute a, like, kind exchange through an intermediary and to essentially, as Whitney said, kind of kick the can down the road where you're not paying tax in that moment, which allows you to acquire a larger property into scale and so on. So in the 121, is it still the same process? Do you go through an exchange intermediary? No. You can outright sell the property so you don't have to exchange it for, like, property. You can literally sell the property and go buy a boat or go travel the world. You can do whatever you want. Wow. As an investor who's looking to build their portfolio, I would highly suggest reinvesting back in the business to scale a property. Wow. So in 2018, you founded Ashworth and the Investor Accelerator Program. Could you talk a little bit about the Genesis of that and what exactly you can expect to find there? Yeah, definitely. My work@passiveinvesting.com is we're a family, excuse me, a private equity firm, and we specialize in multifamily self storage and car wash syndications. We also specialize in real estate debt. Not everybody can jump right there. Right. Some people need some sort of, like, glide path into real estate, and maybe they don't have like 5000 $200,000 to invest. How do they get started? And that's really where Ash Wealth comes in, is that I work with investors who are looking to get into their first few properties, not just one rental. I look for people that are looking to scale to ten to 20 units within a couple of years but really get that initial portfolio kicked off. And I helped them leverage largely single family, one to four unit type of real estate. So people come into the program and then accelerate our program. It's a mastermind. And either they're house hacking to either them, they themselves to build up more of a down payment, or they're buying a multi unit property, living in one unit and renting out the others. Otherwise, I help people walk through turnkey investing, as well as how to do a Burr type strategy or leverage all of these together. That's really powerful. Yeah. So I'm curious. On the surface, those asset classes seem to be very different. Car washes and self storage. I'm not seeing on the surface the synergies there.

What are the connections and why those asset classes? Yeah, just to back it up a little bit with the multifamily real estate, it's residential. Right. So there's a roof over somebody's head. Now, with multifamily real estate, they're living in maybe one bedroom, one bath, two bedroom, one bath, three bedroom, two bath type of property. They may not have a garage. Self storage is a natural kind of partner to multifamily real estate in an emphasis phase right now as far as, like, consolidation, it's ripe for disruption. Right now. It's also a great way for people to diversify their portfolio so they're uncorrelated. So multifamily has a different real estate cycle than self storage car washes, I call that more of a business type of business driven real estate, whereas the way we buy them at passiveinvesting.com is that we're looking to take over a very specific type of car wash, which is an express car wash. Think of those nice long panels with the beautiful lights. You can get 40, 60 cars going through, like in a very short time period. We've looked at by those type of properties because, again, like self storage, this industry is ripe for disruption. Most of the owners of self storage and car washes are still mom and pop owners. And so we're able to build these properties, put in a lot of operational efficiencies, rebrand them, and then package them up for a nice exit to say, like a REIT or something like that, maybe even IPO. Wow. So you're not acquiring car washes that have a land lease, for example, on it, and you're specing from there. You're actually buying it for the business to create operational efficiencies, bundle it up, and then sell it at a cap rate at some point down the road to a larger institution. Yeah. So we're looking to scale about 150 units that way. Now, we do have some opportunities where we are looking at land for development, but a large portion of the portfolio we are specifically looking to buy existing car washes. How did you stumble upon car washes, for example, as a market segment that was right for disruption?

I happened to stumble into self storage, and I'll tie that together or after this comment. But where and how did car washers come into play? Yeah, that's really a brainchild of our founders. So Dan Hanford, Danny Rondozo and Brandon Abbott. And Brandon Abbott is the kind of our go to founder on the car washes. And one of the risk of today's environment for investors that are getting in any sort of investing, whether it's single family or syndication, is they're chasing yield. And that's not always the safe thing to do. Car washes are a unique thing because it is a business that has very strong cash flow to it and there's so many different levers that we can pull there to supercharge the cash flow on the business side of things. So that is a nice yield play for a lot of investors. And I think that was just kind of a natural progression that we added it to our portfolio. So we do a good bit of commercial real estate here as well. Retail specifically. And as we went through the retail apocalypse, as the rest of the world did, right. Post 2008. And really before 2008, we started to see the model was changing. We felt and we found that these sites that were previously occupied by a pretty healthy mix of apparel and some light service retail, some limited food and beverage, started to encounter these massive vacancies. Right. As tenants started to trade bricks in for clicks and really start to move to the online model. There were these centers that previously you had a line of tenants. For now, we were faced with these new challenges, and we found that there was an interesting model where the self storage pattern fell into that light retail pattern, and people were looking for it almost to be included as part of the convenience of their weekly things that they're doing. They were hitting the self storage locker. And we had this preconceived notion, self storage at the end of an industrial road, poorly lit, not in the best location. And as we started to tinker with moving self storage into really the center of shopping centers, it clicked and it started to align with the strategy. And we were able to fill some significant spaces with these self storage units. So with car washes, I find it fascinating that there was the opportunity and tie in there. So when working with you, Whitney, are you training people and schooling people on how to go find those car washes that need that repositioning, or is it, let's invest with Whitney. And then Whitney goes and makes the acquisitions and does the whole take down from there? Number two. Number two. Yeah. So we do have our multifamily investor nation and our self storage investor nation channels that are kind of sister channels of passive Investing.com. So for somebody who wants to kind of pick our founders, brains on how they got started in multifamily and what to look for and want to be more on the active side, we have those channels for them to access. I would imagine at some point in time we would open up a channel for car washes as well, because we do get a lot of inquiries about that. But for right now, what I offer, what I help educate investors on is on the passive side, how can you incorporate these type of assets into your portfolio to build your passive income, build long term generational wealth, diversify your portfolio, and take advantage of the tax benefits from them? Got it. So inflation, right? It's the new borough. Everyone's talking about inflation, right? House hacking, inflation Burr. That presents a lot of interesting challenges in the real estate world, but it also presents opportunity. So what was once the Holy grail for a lot of our investors? Long term corporate signatures, fixed increases. In a world where inflation is outpacing those fixed increases, you're all of a sudden in a new paradigm where technically you're losing value year over year. Right. Because your tenants are the best increases you're going to get from any tenant of significant signature is 2% every year, if not 10% every 5%. That's the best you're going to get. And when inflation is at 89%, that creates a whole new set of challenges. So could you talk a little bit about the multi families and self storage, in particular, how that really does provide quite a hedge against inflation? Yeah, definitely. And it's not so much that the real estate asset classes provide the hedge against inflation. It's the underlying principles of the real estate classes that provide the hedge. So, number one, both classes provide capital preservation. You're investing in a hard real estate asset. The building has value. The land has value to it. It will never go to zero, unlike some stocks. Right. Some businesses have gone to zero. We are investing in assets that have cash flow at day one. The more cash flow, the better. Right now, with asset prices soaring, rents haven't caught up to those asset prices. That cash flow is a little bit compressed. We always look for assets like cash flow. Now that tells us there's a little bit of stabilization in the market. We have wiggle room with our rents, and it just provides a layer of security. And I can dive in any one of these wealth pillars deeper because there's things that you want to look for in a deal to ensure that the cash is really going to be protected. And then you have I look for an equity puller in my deals. Is the property the multifamily or self storage in a growth market, am I going to be kind of insulated with populations growing incomes, growing jobs growing jobs being diversified, good employers coming in, and that's all going to crime going down, vacancy going down, favorable tax laws, favorable landlord laws. Right.

I'm stacking all those in my favor, and then I'm also looking for the tax benefits on the property. And that's why multifamily and self storage are so good, because I get a return based on the tax benefits. Right. I get to leverage a 27 and a half year depreciation schedule in multifamily. I get to leverage a 39 year depreciation schedule and self storage. I can do a cost segregation analysis on either one of those properties and accelerate whatever depreciates in 20 years or less to the first five years of the project. So I'm looking for operators that do that. And both of these businesses, as my expenses increase with taxes, insurance, different types of costs, those also can be passed through to the tenant. Like you say, the signature who's standing on the line now? With multifamily, my lease is generally a year, so I can reset that. I can reevaluate every single year with self storage. I'm resetting that every 30 days. I'm looking what's happening in the market. I'm also looking what's happening on the long term horizon. And I can adjust everything my pricing every 30 days. I can even do it potentially during the exact same day, like if I have some sort of dynamic pricing model. And also I hit like 95% occupancy the rest of my units, they jump up like really high. Right. I'm in demand. Right. Again, I look for investments that have all of those pillars to them. That is what's going to help me kind of hedge in any market and hedge inflation long term. Yeah. So it's an amazingly flexible and neat opportunity, folks, when you're able to be on the other side of the inflation. Right. Where we're not just stuck paying for the increase in cost, but when you have assets, as Whitney is describing, where you're able to in almost real time adjust and enjoy that upside of this pressure that's pushing prices up, it's a nice addition to and can significantly impact the bottom line on the investment. I do want to add one thing, because there is one thing that I left out that I think is extremely important. The number one thing, though, is also looking at the debt right now. We want to make sure that we can lock in debt for at least the term of the project. Okay. And multifamily and self storage. You can secure interest only type debt. You can get FBA loans, but lock in those debt terms, even if it's a floating debt rate. Make sure there's some sort of cap on the rate that you can buy. Make sure there's an extension to those caps that you can buy should the market turn stop and you need to wait a year or two to exit. Don't put yourself in a situation with just like an adjustable rate mortgage that can take off on you. Because again, the whole trick is the reason why this works is that you're either locking in your expenses or if an expense is going to fluctuate that you can't do anything about like your taxes and insurance, you can pass that through. Yeah. So that ties into the next point. I was going to ask you about where everyone hears about syndications and passive real estate, but it's not all lollipops and rainbows. Right. I haven't seen a proforma yet that didn't pencil all of these performers look great on paper. And I think to Whitney's point, you've heard us talk on this show endlessly over the last, I'd say six or seven months about being just because there's an entire generation now of folks that only know one set of interest rates. Right. They didn't know the other side of the paradigm. And some are arguing that we may never get back there. I would argue vehemently that we will when looking at these opportunities, paying a few Bucks more now to get to the other side of the rainbow, if you will, to get that project to completion is one of the absolute most important things. And when you're looking at performance, folks, if they're dependent on two, three, four liquidity events and the rates are at today's rates, but we're four or five years down the road, yet the pro former is banking on 30, 40, 50% appreciation in rent. Something is wrong, right?

So what are some of the things Whitney folks can look at or keep an eye out for? What are some of the red flags when selecting a syndicator or selecting somebody to work with to help them grow their passive portfolio? What are some of the things they should keep an eye out for? Yeah, so I'll go through as many as we can possibly go through because there's a lot the number one thing, when you invest in syndication, you're investing in operating business. I know investors that are really new to this type of passive investing or they're coming from single family investing where they were the operator. They're looking at the deal, they want the deal, they want the numbers, they want the return. But you need to switch your mindset to bet on the jockey, not the horse. Right. So the operator is the deal. And so you want to be with a good reputable operator. So do they have the track record in business, more specifically in real estate? Do they have exits? How did they exits perform to the initial performance? Are there more than one partner involved? Do they have a team built out underneath them? Are they investing full time? Are they working full time in the business, just asking all these questions about who they are? What do they do? What's their strategy? What are their preferred lending terms? How do they handle their exits? Do they have multiple exits on a deal really getting to understand the core fundamental business. But when you get that deal in front of you, you need to double check everything that operator said to make sure that it holds true. And so that can be a little trickier because the operator is taking data and then the operator offering memorandum, that pretty document that gets put out. It's a marketing package. So you need to go in and double check the work, make sure they dotted their eyes and cross their teeth. So a lot of that is looking at the trailing twelve financials from that the seller will provide and looking at what the operator is projecting, especially near one, to make sure that there's some reasonable assumptions taking place. Our rent increases being conservative, right, they may be able to achieve ten to 15% rent increases.

Maybe they're buying from a developer. Developers are kind of notorious for putting butts and seats and not optimizing to market rent. However, even if that is the business plan, I want to see an operator conservatively underwrite that in the numbers, not say, yeah, I can get 15%, but they underwrite seven, right? Maybe half that vacancy are they underwriting vacancy to more than market rate? We saw a lot of people get stuck by that during COVID. They had underwritten their projects to market vacancy. Well, guess what? Covid people didn't move, but they stopped paying. Yeah. What happened? We had economic vacancy expense increases. Sometimes you can look at a performance and you're just like taxes aren't increasing the whole five years. The hell no way. Not happening. Something is wrong there. The cities want their money for sure. And just other variable expenses. Like you're full time employees. Right. You might be able to optimize the employment on the premise. However, they're going to expect raises over time, too. So you want to see numbers climbing, expenses increasing over time as well. So those are just kind of like a few things to really take a look at and then look at the deadline if they have to do a refinance at year three.

Did they put all those costs into their pro forma? I've seen performance where those costs weren't included. Well, that's part of the project. Where did it go? There's just some things you need to really kind of dig into the numbers and make sure things are being conservatively underwritten. I'd rather be under promised and over delivered personally. Yeah. And as you're doing this type of diligence, you start to press those boundaries of being an active investor, which is why it is so important, if you're passively investing, to have the right partner, the right syndicator on the other side of the table. As Whitney's calling these things out, I'm thinking of pro forma after pro forma where you're seeing skyrocketing rents, but you're not seeing commensurate increases in expenses. Right. You're seeing these liquidity events again that are predicated on rates today, not rates for tomorrow. And many times, candidly, folks, these things are not readily available on that surface package. You have to do some investigating to get there. Not everyone is as reputable and as forthcoming as we'd like for them to be. Right. And there's a potential we've seen raises, two, 5810 million dollars, raises that are closed out in what feels like hours. But it's more like a day or two on just flat out faulty information. It's a scary prospect. And as folks are trying more and more, I think, to reach for this true passive investing lifestyle, these are great things to keep an eye out for. Whitney, I know you have another engagement coming up. So before I let you go really quickly for you, passive or active investing, what gets it done for Whitney? I do both. But when I look at the core of my portfolio and what gives me the time financial freedom? Financial or time freedom? It's the passive piece. Now that my passive portfolio is built up as such, that it affords me to do what I want, what I want, with whom I want. Now I get to play. I get back to that vitality right. And it was being happy in the journey too, right? I built that in along the way. I didn't wait until we have the financial freedom to all of a sudden enjoy life. I built that in along the way but I still play actively. I drive my husband nuts. I'm still looking at single family properties for short term rentals that we can go visit and stuff like that. He was like seriously well, that's a wonderful problem to have right is having those extra properties to go visit.

Whitney. Congratulations on just an immense amount of success. Really outstanding. What's the best way for folks to find you? Yeah, absolutely. You can find me at passiveinvesting.com. I do have a landing page there at passive investing with Whitney that has some free goodies for everybody on it. A checklist and soon to be released ebook. You can also schedule a time with me to talk one on one, anything real estate. I'm happy to do that as well. And yeah, you can also find me on LinkedIn but passive investingwithwhitney.com is the best place. Perfect. Whitney Elkins-Hutten and everybody, thank you so much for the time. It was an absolute pleasure and an honor to have you on the show. Thank you so much,

James be well, everyone out there as always, stay safe.