I will be talking about a project that I have been working on and that closed about a month ago. I'll be sharing as many details as possible that I can share publicly with you so you can learn how it was done from the beginning, as well as what is going on up until now. I will break it down into a few episodes because it has been quite a ride so far. And also for you to know that nothing is a straight line.
This property came into my inbox because I have been getting alerts for self storage properties for sale. It was a portfolio of one Self Storage property and three self serve car washes. It took 84 back and forth email messages, plus some phone calls to get all the information that we needed to analyze the property, to agree on a price, and also one year from my first communication with them to the closing. Why did it take a year? Let me take you through the entire process. I started reaching out to them on October 31 2019, asking for more details on the profit and loss statement. From there, I send some questions regarding to the details of some of the expenses, for example, why there are legal costs? Who is running the properties? How old are the roofs? I also asked how much are the Self Storage Units going for, the reason for that is so I can compare with the neighboring properties and see if there is some upside on increasing rent for the Self Storage. I also asked for some tax returns for the last couple of years on all of the properties.
This portfolio has been completely managed by the actual owner. So there were no expenses on the management because the owner was managing himself, he was not counting his time as an expense. And that is something that is incredibly important, obviously to make sure that you add that cost into your expenses, and into your financial calculations, because you're going to have to hire people to manage these properties for you. I started to understand how long does it take to manage the car washes because I have no idea about anything related to car washes. The owner owned these properties for the last 30 years. And he was retiring. That is why they were selling.
After getting all of this information, I decided to make an offer. And that was early December 2019. It took quite a while to get a response back. It took about a month and I was also following up with the agent. The seller was exploring potentially doing some seller financing. And then the holidays hit and then unfortunately, something happened where a family member of the owner passed away. So that took another month. And I still did not get a response from them. However, I was having a conversation with the real estate agent throughout that time, every week or every two weeks or so. I had to figure out how much it would cost to have a manager on site and what their duties were going to be. I have to say that I was not doing this alone. I definitely was having calls with my self storage mentor and making sure that I didn't forget to ask for anything. In hindsight, I should have gotten a carwash mentor as well. I have no idea about anything related to car washes, and definitely should have gotten someone to guide me through more questions that I should be asking, and also what it would entail to manage and operate car washes.
We ended up finding somebody that agreed to manage the properties, and by then it was already March 2nd, 2020. And then we wanted to make sure that the manager met with the owner to see what exactly the job entailed, and to make sure that he could do the job of managing all the properties. All of that also took a few more weeks of back and forth. And then COVID hit!
On March 19th, 2020 I sent a follow up and the agent said "Everything is is crazy over here, the governor just shut everything down in the state, schools, restaurants, bars, gyms, etc. And so I had to take a step back, because I had no idea where COVID was going to take the properties, but I was still talking to them. And then I went quiet for about 1.5 months.
I reached out again to the agent on May 22. I said that we wanted to put an offer. Obviously our offer was lower, because again, we had no idea where COVID was taking things. And before that I asked for an updated performance on the numbers, he sent me the income from January through May. And that was a little bit less than the year before. And so I had to decrease my initial offer from December that they never responded to. And also because of COVID. Up until today, we don't know how this is going to affect the income of the properties. We finally heard back from the seller on August 7, and we went into contract. Mind you, I was following up all the way up until then, almost every week. And they were just taking a little bit of time to respond.
We went in contract with a 45 day due diligence period and then a 30 day financing period, starting after the due diligence period was over. And we agree to have the seller take care of the Phase I reports because car washes are definitely a high risk type of property for having soil contamination. I cannot iterate this enough, you must order phase one reports for every single commercial property that you buy no matter what, if it's retail, industrial, office or anything, especially gas stations, especially laundromats because they are so easy for the soil to be contaminated. And even if your property is near a carwash, if it's near a gas station or a laundromat, the chances of it being contaminated could be high, and even if it's not near any of these you still need to order it because if it is contaminated, it can cost you a huge amount of money to get that land decontaminated and the city will make sure that you do that. Plus, no buyer will ever buy a contaminated property. So this is a very important step that I want to make sure that I integrate this, and make sure that you do not forget this very important step.
The Phase I reports came clean for all properties, we then put every single important date on the calendar in order for us not to miss anything, we put reminders for every single item that was due. Then we asked for recommendations for a local real estate attorney that could review the title report and the surveys. And that is also very important because there are things that can be missed. And there are things that are always missed, that the attorney does end up catching.
I also asked for recommendations for local lenders, local lenders have been proven to always show up and be a lot more helpful and open to lending to you. They know the area, they know the tenants, and they want their area to thrive. And I have had a lot of success with local lenders. So we started applying for loans, got the attorney to review the surveys. At that point I had to ask for updated profit and loss statements up until August, because the contract took a long time to get agreed on and we wanted to make sure that the numbers were still in line with what was shown to us before, we also had to get the tax return for 2019.
Because this is an all cash business for the car washes, and I was going to be managing it from far, I had to start exploring putting credit card machines in these car washes, which turned out to be quite an ordeal. I'm going to talk about the ordeal of the credit cards in another episode. But we basically had to understand what every single controller looked like, what every single bay looked like, there were some doors that were different, so the person who would be installing the credit cards had to order new doors, and these doors were not even manufactured anymore. So they had to be special ordered.
I did not go to see the property personally, I felt like I did not need to see the property personally because I had a few people doing that for me. Throughout the entire due diligence and financing process, I was literally doing every person's job. And by that I mean that I had to follow up with every single person, otherwise things would not have gotten done.
I'll give you a few examples so that you have an idea of how important following up is and also making sure that you don't forget to follow up. Taking notes, and knowing what you need to follow up on. Because you think that people are going to be responsible for doing their jobs. And a lot of times that does not happen. When you send something and you cross that off your to do list, do not expect that to be done. You cannot cross that off your to do list because a lot of times they will say Oh, I didn't see your email or they got the information wrong, or they will just not respond to you.
Here are some examples:
- I had to get quotes for putting internet in all of the car washes for not only the credit cards, but also for the cameras that I was going to be installing. And it turned out that for all of the car washes I had to get a different internet provider because not a single one of them could provide service in more than one car wash, they just did not have service in the other properties areas. That probably took three full days worth of work to find the best internet provider for every single location.
- I searched for the best provider for the Self Storage Facility. The previous owner did not have a website, and they were sending out paper invoices to all of their renters. So I had to get someone to create a website for us, and also to be able to accept rent, accept credit cards and also have people be able to lease things online. I found this very young startup that fit every single need for the property. And because they were so young, I really had to beg for them to take me as a customer. And that took a lot of following up, I said, Guys, I'm with you, I know it's not going to be perfect, but I really think we can be a very good first few customers. So let's get this going. And we got them to agree to that.
- I had to follow up with the guy that agreed to be a property manager and was not even responding to my phone calls.
- I had to follow up with the insurance company, I wanted to continue working with the same insurance that was the provider for the previous owner, because it was a good price, plus that insurance provider already had all of the information for the car washes. After three weeks of not getting a quote and also following up with the agent, she tells me whoops, the underwriter thought this was a renewal and send it to the wrong person in the office. And this was one week before closing. So I started Googling for highly rated insurance providers in that whole area, and above and beyond. And I started getting quotes from everybody that I could get my hands on. And so I got a quote that was the closest to what the previous owner had. But on the quote, it was unclear who the actual insurance provider was. And after seeing some horror story documentaries about insurance companies being created in Mexico and never paying things out, I asked the insurance agent to guarantee that that was a good insurance. He then pulled up a report that is a standard report in the insurance world, and they were rated A+. This was the legit insurance provider, and I decided to go forward with that one. We literally agreed to get that insurance started on the day of closing.
In the next episode, I'm going to talk about how the lending went. It was definitely not a straight line. And there were some surprises along the way. Not good surprises, but things that we had to deal with. I will also talk about how we structured the LLC's and I will go into a deep dive into what happened after closing, which is going to be quite an entertaining episode.