When I'm not hosting this podcast, I am writing books, but it is really hard for me to write when I'm at home, so I like to find remote cabins in the middle of nowhere to just hang out and write. But I hate the idea of my house just sitting empty, doing nothing but collecting dust and definitely not collecting checks. And that's why I'm an Airbnb host. It's one of my all-time favorite side hustles. Other popular side hustles are awesome, too, don't get me wrong, but they often involve big startup costs. By hosting your space, you're monetizing what you already have access to. It It doesn't get easier than that. And if you're new to the side hustle game and you're anxious about getting started, don't worry, because you're not in this alone. Airbnb makes it super easy to host. I mean, if I could do it, you could do it. And your home might be worth a lot more than you think. Find out how much at airbnb. Com/host. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. There is this financial fairytale you've probably heard.

You find a fixer-upper, you kiss a frog, so to speak, you flip the house, make six or seven figures, and happily ever after. Whitney Elkins-Hutton is here to tell you it doesn't always happen like that, and she knows this personally. She lived the ugly stepsister version of this until she learned how to do it for real. Now, Whitney is a successful real estate investor. She's partnered in over $800 million of real estate deals. She's experienced in flipping residential real estate. And today, she shares what she learned to turn this financial fairytale into a reality. I want to go back and talk about your early real estate investing days. I know you hit a home run with your first rental property, which is really rare. We should underscore that for people who are just getting in the game. Can you tell us about it?

Yeah. So I actually bought a house with a significant other. And mind you, this actually wasn't, in my mind, an investment It was and it wasn't. It was the typical American dream. You go to school. We weren't married. We hadn't gotten married, but get a good job, buy a house, that thing. That was the path that we were heading down. Bought the house, did things out of order, and about a month later, the relationship fell apart. And then I had a house, and it had green-shack carpet, psychedelic daisies painted on the walls, dire need of a rehab. I was like, Oh, what do I do with this thing? I stuffed up full of roommates to help pay the bills. I honestly thought I was going to go broke owning this house. Got 103% lending on the property, which is unheard of these days. Then over the next 11 months, taught myself how to do tile and drywall and electrical and plumbing. The whole entire time, I'm thinking from a scarcity mindset, I'm going to lose money. When I sell the property, I walked away with a $52,000 check. I'm like, Huh? Then I'm putting together all my financials for the IRS for tax purposes.

I'm like, Wait a second. I was making money every month on this property. I wasn't losing. I was like, Oh, hold on. There's something to this real estate thing. I should do more of these type of things, make the investment over my head or the roof over my head, one of those investments that everybody keeps talking about, especially because about this time, rich dad, poor dad is hitting the scenes. I backed into real estate investing it. Then from there, I was like, Okay, how do I figure this out?

If I could double click really quickly on the 103% lending, what does that mean?

I had the primary loan on the property. If I remember right, I think I had a 85% loan. Actually, it might have been more. It might have been 90. I would use the first-time home buyer's lending. Guys, this is 2002. Pardon me, I've slept a few nights over the past 22 years.

That means a 10% down payment.

You're doing the- Ten% down payment? Yeah. And then I took out a second loan on the property, a HLAC. But at this point in time, in 2002, they actually would refinance or allow you to pull out 103% of the home's value. We had not gone through 2008 or 2009 in this standpoint in time. So in the bank's mind, real estate always goes up into the ride. It always climbs. It doesn't take. Or I hadn't done so in over 25 years at that point in time. I was like, 103% finance? More money in my pocket? I was a little naive. I didn't know what that meant. I didn't know how risky that was. But they believe in me, and I'm like, Oh, great. They believe in me. I should believe in myself. Let's go do it.

If you borrow more than 100%, you're underwater.

Exactly. Not only did I owe the money to the bank for the loan. But say I took out 100... It's like buying $100,000 B, and 103% means the bank gave me $103,000. If I lose the property, I or sell the property for anything less than $103,000, I now owe money back to the bank for that additional value that was not created on the deal.

So even though you made money, you made $50,000, $7,000 at the end, and it sounds like you were cash flow positive as you were chugging along, what would you have done differently?

On that particular deal, I probably would have sold it. That's what I would have done differently. I probably would have kept it in my portfolio. If we're thinking about afterwards, I wouldn't have gone into the next deal. I would have probably sat there and evaluated a little bit more of why did this deal actually work? That's really what I violated going into my second deal was the location piece. I I just thought, Hey, you buy a piece of property, you get a loan on it, you get as much financing and much debt as you possibly can on it. But going into the next deal, I bought in a mountain town. I didn't understand who my end customer was. I bought a small cabin with 19 steps to the front porch. My person who I'm going to sell it to is actually somebody who is a retiree. When I went to sell that property two years later, I would say 75% of the people that came to look at property thinking they were going to buy it couldn't even walk the steps up to the deck. That's how bad I violated that number one law of real estate, mutable law of real estate, is location, location, location.

I violated that. I didn't know. On top of that, I used really bad debt on the property. I had an adjustable rate mortgage. Tell me if this sounds familiar, when I bought it, it was like 3%. By the time I went to sell it two months later, the rate I was paying was 9% on that mortgage. So that debt was just taking off on me. I was upside down again on the property.

So after that second try, did you think about calling it quits on this real estate stuff?

I thought that. Well, so by this time, I've met my husband and barely get out from under that second deal alive. And there's a whole other... A school bus fell into the roof of the property. What? After closing. Yes.

Wait, I have a thousand questions.

Most people do. But there was a lot of things that went wrong on this property. When I finally got it closed, my husband goes, Oh, are you ready to give up on this real estate thing? And I'm like, No, actually, I think I got to figure it out.

But seriously, how do you get a school bus to fall into the roof?

So the cabin was on a hillside, and behind the house was a retaining wall that helped keep the person who was up the hill from me, their property, sliding into the back of the house. This is Mountaintown, USA. A lot of things go that don't go in the city. She was running to a tenant who parked his school bus on the retaining wall. In the inspection, when I was selling that property, the retaining wall was flagged as being deficient, breaking down. Anyways, we had to go and repair the wall, and the The school bus gets moved during this whole time. The neighbor's tenant, they moved the school bus to my neighbor's property, who has the same type of retaining wall. Nobody wanted to admit that it was the weight of the school bus on the retaining wall that was causing the breakdown. Until we all saw it happen to my neighbor. They're like, If you just tell the person to move their school bus someplace else, this won't happen. We go through this whole rigmarole. This retaining wall gets put in place. I mean, it's signed off by every inspector under the sun and engineer in the county, I feel like.

It's completely bomb proof. I had a stipulation, and then the school bus may not be moved back on the retaining wall. No way. They cannot move that back in. I'm the owner. It cannot go back there. That retaining wall is My property. You're violating my easement. The next person didn't care allows the tenant to move their school bus back. The hours after closing back onto that wall, within 24 hours, the school bus falls into the roof of the property. Oh, my God.

Well, thank you for taking that little detour with us. I do think it's worth it because it does highlight the fact that some weird shit can happen in real estate that you do not expect.

When your realtor calls you- Not on your Bingo card. Yeah, when your realtor calls you post-closing and you can hear people screaming in the background, the police sirens and a shotgun being pumped, you're like, What just happened? And am I involved in anything? Oh my God.

So what did you learn from the second deal, aside from not having school busses next to retaining walls and being strict about that? It sounds like you are not a fan of arms?

What I learned from that deal is arms, addressable rate mortgages. I'm not a fan. I like fixed rate debt. What did I learn? To back it up, first of all, the Location extremely matters. Location, location, location. Don't violate that. Depending on the type of real estate you're doing, say even adding a cash flow in business to a piece of real estate, you got to add another location on top of that. You really have to pay attention to your underwriting in these particular things and flex that skill. Then match the debt up with the business plan of the asset. The business plan on this asset In both the first and the second deal, typically, I should have had fixed rate debt on both of those deals because my intent was to hold, not to necessarily flip. I didn't know that that's what I was doing in either one in those cases. But if my intent was to flip in a certain time frame, then maybe having that adjusted rate mortgage or some construction loan actually would make sense. But understanding what your plan is and matching it up, your various either the location, the business plan profile or the debt profile appropriately with the asset is super important.

Real estate right now is so super expensive. Are you seeing any good deals out there?

You have to make a good deal right now. So asset prices are in... And here's the thing, real estate is hyper local. And so somebody can be on the West Coast or on the East Coast, and they're saying, I can't find a deal, you might go to Midwest town, America, and find a great deal in a tertiary market. So I think gone are the days for our large Metropolitan service areas, even our primary Metropolitan service areas. Those are really hard to make a good cash flowing deal. And again, we have to be very specific. What is a good deal? What are you looking for? Are you just looking to preserve capital? Are you looking to create cash flow? Are you looking to create equity? Are you looking for a blend of all that? So we have to get extremely specific. But for me, I'm a cash flow investor. I like the equity component, but I want to have cash flow. I have to go make the deal in this market, meaning I need to find a distressed seller, I need to maybe buy below value, I need to be able to get my hands dirty, roll up my sleeves, maybe try to negotiate to where I can assume the debt on the particular property, maybe go a little bit further outside of my primary market into a secondary or tertiary market.

Those are the things right now, the trends I'm seeing right now and the things that I would suggest anybody who's looking to get into real estate or expand their empire right now should consider.

What are some of the things or what's a little checklist that you look for when you're evaluating a residential property and whether or not that could be a good investment for a rental.

I bring this back to what is that investor's goals first? What do you need? Do you need capital preservation? Do you need cash flow? Do you need equity growth? Do you need tax benefits? Because if we're talking buy and hold real estate, you can get all four of those. If you're talking fix and flipping real estate, we got a different checklist altogether, and we knock out a couple of those wealth pillars right from the start. But for me, I'm also looking to layer on lifestyle. My checklist varies a little bit different from somebody who's starting off in real estate, because for me right now in my phase of investing, I'm looking for a strong markets, probably secondary, tertiary markets. But I'm also looking for places that I want to travel to because I want to be able to do a midterm rental on that property and take advantage of using that property.

What is a midterm rental?

Running for 30 days to under one year, that would constitute a midterm rental. It's going to be somebody who needs a property longer than what you would rent a short-term rental for, but doesn't need to sign a full lease agreement. I have two rentals in a mountain town close by, and we keep those on six-month midterm rentals for those units. You get service workers that come to the area seasonally, maybe a travel nurse. In some markets, that's the hybrid between what you can get for a long-term lease versus a short-term rental. You can get best of both worlds by using a mid-term rental, at least.

You say there's a simple math equation to unlock your asset's true potential. What is that?

One of the equations that I help people understand is to understand, are you using the right debt on a property? Because this is the one of the ways that people can actually lose a lot of money, and anybody can use this. That's understanding what is your total debt, say, on a credit card or a auto loan or a personal loan, divided by the minimum monthly payment. That's That's going to give you what we call an index. That now allows you to compare apples to apples on which that should be paid off first. If that number yields 50 or below, that is a debt you probably want to get rid of ASAP. You're probably going to make, if you can think of it in this terms, you're going to probably make 30% or more on your money by paying off that debt. If it's between 50 and 100, that's debt you're going to want to renegotiate. See if you can get a lower interest rate or extend the payment terms, lower your monthly payment somehow. Then for debt that has an index of 100 or over, now that's probably debt that's pretty efficient. Those are going to be largely your home equity lines of credit, your primary loan on your house, maybe even a primary loan on a rental property.

Then that's where it gets really fun because if you have that type of debt and now you can cash flow it, you've got a huge advantage there at building wealth.

You mean for each individual type of loan you have, do that equation, not lump it together?

Exactly. List out all your credit cards. What do you have? All your credit cards, all your loans, all your car loan, your student debt, every loan that you have on a house, rental property, whatever it is, every single debt that lists that out. Because this also... When people do have extra cash flow and they're trying to figure out, what do I pay off first in order to get ahead, lower my debt to income, maybe even just lower my overall monthly payment so it's less of a burden. We want to be very cognizant on which debt is going to get us there the fastest. Some would think that it's just all about paying down your largest debt first or your highest interest rate debt first. There's actually a more nuanced way to do it that actually will create more value with your money.

I assume, though, that all credit card debt is going to be under 50.

Generally, Yes. Unless it's a 0% interest rate. If you have an introductory interest rate for 18 to 24 months, while you might want to get rid of that credit card debt, you might have a higher and better use of your extra cash flow So putting that to a car loan for the next 18 to 24 months and holding off and allowing that 0% interest rate to carry you through. Now, you got to be really savvy with credit, though, because If you are even late one day on that zero % interest rate, you could lose it.

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It's one of my all-time favorite side hustles. By hosting your space, you are monetizing what you already own. It doesn't get easier than that. For me, hosting on Airbnb has It's always been a no-brainer. When I first signed up, I remember thinking to myself, self, you pay a lot of money for your house. It is time that house return the favor. And to get real with you for a sec, I felt so much guilt before treating myself on vacation because traveling can be so expensive. But since hosting on Airbnb, I feel zero stress for treating myself to a much-needed vacation because having Airbnb guests stay at my house when I'm traveling helps offset the cost of my travel. So it's such a win-win. I mean, if I could do it, you could do it. And And your home might be worth more than you think. Find out how much at airbnb. Com/host. And now for some more money rehab. All right, you have already mentioned some of the alphabet soup of real estate, and it's wild. I mean, it just never ends. Whitney, can you help define some of these real estate acronyms? Ready?

Yes. Adu. Accessory D dwelling Unit or Attached D dwelling Unit. Property. I'll give an example. The mountain property that I spoke about, we actually have an accessory dwelling unit. There's a main house with a garage, and then in the back of the property, there's a park garage with another 800-square-foot unit above it. That's an accessory dwelling unit. Now, it can also be attached to the main house as well. This essentially allows it to operate as a multi-unit type property where you could live in one unit, run out to the other unit, or you could rent both, run out both units.

Sfr.

Single-family Rental.

So that's no ADU.

No ADU. Yeah, that's going to be your primary house, your three-bedroom, two-bath house.

All right. Str.

Short term rental. This is where your intention to rent is less than 30 days. And so these are going to be more of your Airbnbs, your VRBOs.

R-a-l.

Residential Assistant assisted living. You have to be the right type of operator. If you want a passive investor, this is not for you. This is for my active investors. You can buy, say, a four, five, six bedroom house and change those rooms. You're going to have to jump through a lot of hoops understanding what your county and city provisions are, but essentially retrofit it for assisted living clients. Somebody's mother just lost their husband and doesn't want to live or something like that. Somebody who needs a little bit more extra care, wants to live in community, but it's still pretty self-sufficient. You can rent by the room or even put two tenants into a room depending on your coves in your county and in your city. Those type of living situations, you would bring them, probably a cook, probably a nurse, maybe some nurse's aides. You need to make sure that everybody is safe and sound and to run the location. But you could probably charge 4,000, 5,000 a month per tenant MHP. Mobile Home Park. This is where you're going to have a piece of land, and essentially, you're providing the infrastructure for the land, like the water, the sewer, the electricity.

Then people are moving their mobile homes, double-wide, single-wide, manufactured homes onto those pads, as they call it, like the driveway. You'd have a driveway, and you're essentially placing the house at the end of the driveway, and you're charging rent for the pad and for the utilities.

My favorite.

Yeah, so BRR. I think I got all the R. It's buy, rent, rehab, repeat. But essentially, you're going to buy the property below value. Try to get as good a deal as you possibly can. It usually means that... It can mean buying a property that just needs some paint and carpet, or it can mean buying a property where you got to tear it down to the studs. There's all flavors of rehab, but you're buying a property below value, you're going to complete the rehab on that project. In this case, you're probably going to get some combined lending that allows you to purchase the property and pay for the rehab at the same time. You're going to make the improvements on the property through the rehab. You're going to put a tenant in there. Maybe before the rehab, it rented at $800 a month, but you rehabbed the property, and now you can get $1,300 a month. You're capturing the extra value. Then you're going to refinance So maybe you took the house from a $100,000 purchase, the other R, and now the house is worth $170,000, and you're going to refinance out as much of your money as you possibly can.

Yeah. So I've heard it as buy, renovate, rent, refinance, repeat, which I guess you don't have to refinance. It depends on what your strategy is. But I'd love to double click a little bit more on this one. You've used the BRER strategy successfully. I had Barbara Corcoran on the podcast, and she said that she feels like this strategy is trendy, but it's not super effective. Why do you think it's worked so well for you?

I think it's the type of strategy. It actually works in every market, but it works better in markets where there's a nice spread between the entry purchase price for the initial asset and the appreciative value, and where rents are closer to aligning with that appreciative value, that are closer to 1% or 2%. What does that mean? When I was scaling 36 units in single-family rentals, I essentially would buy a house for, say, $60,000. I would put 10 or 15K in a rehab into that property, and now that value of the property was, say, $110,000, and I could rent it for $1,100 a month. I'm getting all my money, maybe even extra out of that property when I refinanced. Essentially, I had zero in the property. I might have actually put 5 or 10k in my pocket to carry into the next deal. I was renting at 1%. I was getting $1,100, and the appreciative price of my property was $110,000. Today, that strategy actually is harder to take all of your money back out of a property, but it can still work effectively well for you to get property that other people won't touch. You can still get a little bit below value, but you might not get 100% of your money You might only get 80% of your money back out.

But now you're in at a lower cost basis and you're actually picking up property that other people won't touch, so your competition pool is much less. Yes, I agree with Barbara on the fact that it was trendy for a while because everybody was like, Look at me, I got 100% of my money back out of my property. Now, you've got to really have your financial metrics dialed in and understand that you are essentially getting in for a lower cost basis, and you got to wait to get that additional appreciative value on the property.

We enter episodes, Whitney, by asking our guests for one money tip listeners can take straight to the bank. I know you have so many, but what is one that you can leave us with?

I would say go back to basics, especially in this market. Make sure that you have a fortified financial portfolio portfolio. And if there's one move, make sure that you're tracking your income and expenses and your assets in your portfolio. I know so many high-profile investors that are wondering, How can I optimize and whenever I coach them, they just have no idea what money they're bringing in, what taxes are going out for their personal banking, for their asset banking, for their business banking.

So go back to basics. Moneyrehab Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan LaVoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your moneyquestions, moneyrehab@moneynewsnetwork. Com, to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank Thank you for listening and for investing in yourself, which is the most important investment you can make.