How to deal with problems with your properties? Why did I select self storage as my main asset class? How to get your first deal? Brainstorm with others exit strategies. This is the talk I had with Beth Azor at her conference Women in Real Estate Investing Summit.
Define "I learned everything I could about self storage"
Educating yourself, reading books, I hired a consultant that I heard speak on a podcast to help me analyze my first few deals.
How did you find your first deal?
It took me 2 years to find my first deal. I found it on crexi, I didn't have a team calling property owners to find off market deals, and the deal ended up being a portfolio of 3 car washes and a self storage. I didn't even bother asking anyone about car washes, that was mistake number one, and I didn't even go to a conference.
How many deals had you looked at before selecting this property?
Tons and tons, probably 1,000. It took me two years to find my first deal, I quit my job before finding it, which I don't recommend, you should find your first deal and then quit.
Where you worried about money?
No, I knew I could always get a job if it didn't work out. Everyone is fully capable of building anything from scratch.
What interested you to put an offer in this deal?
Car washes have a better cap rate because it's a much more hands on asset class, the numbers made sense.
What interested you about self storage?
Self storage is recession resistant, it does well in good times and in bad times. In good times people buy more, keep more and don't look at their credit card bills. In bad times, they downsize, they go from a 3 bedroom home to a 2 bedroom home and they need storage, and getting a storage is a lot cheaper than having that bigger home.
How do you like owning something outside of your market?
I went against my mentor's advice to buy things within a 2 hour driving distance from where you live and, for the car washes I don't like it, for the self storage, it's much easier to manage remotely.
How did you pick your lender?
You have to ask your local broker for recommendations, the sales broker in this case. The first couple of lenders said no. I kept going back to the broker to get more lender recommendations, and eventually one of them said yes. But 5 days before closing that lender called saying that they were switching the terms a bit, that because I didn't have experience operating a property, they'd like to retain the entire amount of the loan that I had in stock locked for the entire period of the loan. I called the president of the bank and I said, this doesn't make any sense, why would I even get a loan and not pay cash for it if you're locking my cash? We ended up meeting in the middle, putting a much smaller amount on hold for a couple of years, and after I prove myself as a good operator, they will remove that contingency.
You were now the owner of three car washes and a self storage, what happened on day 2?
Let's go to day 9 when one of the roofs caved! Thank God for Nationwide, they ended up paying within 2-4 weeks. The self storage has been smooth sailing, we have a local person that walks the facility about once a month, the tenants lease the units online. Today about 80% of self storage is still owned my mom and pops, and they're now retiring, they haven't implemented technology in their facilities. You can put cameras if they don't have it, you can install locks that will open with their phones. They are able to rent online, they get a unique code to the gate, you don't have to ever meet your customer.
Are all the car washes gone?
We're in the process of converting them, you have to keep talking to people and brainstorming ideas until you come up with the right strategy. The latest is: one will be converted to a laundromat in the front, and a laundromat in the back. I'm not able to sell the car washes because we went from a 55% cash on cash return to now a 30% cash on cash return, because my best employee is gone, and I wasn't able to find a great employee yet.
Is the self storage a long term hold?
Yes, I am a believer of holding real estate forever, that is how we build generational wealth in my opinion.
Have you done a fund?
I don't think it's wise to do a fund on your first raise. I'm doing my first syndication right now.
I don't like the pressure of buying a deal and have to put the money out, so I always raise money deal by deal. And if the deal is great, it's very easy to raise the money.
I think funds will be great for the next year or two as deals come up due to the rising interest rates and cap rates are also going up.
Are you going to bring other GP's?
I had to, I realized that it's very difficult to do everything alone, from finding the deal, analyzing, negotiating, doing the due diligence, getting a loan, getting investors, closing, adding value and operating the deal.
You can't do all that with three deals?
I can, but a wise venture capitalist in Silicon Valley that had done his own startups before once said, when I was building my companies, in order to build great companies, I had to hire the best people to help me grow it, and I had to give them a piece of the company as an incentive, so my piece of the pie became smaller, but the slice was a whole lot bigger than keeping the entire pie for myself.
I believe in partnerships, I love talking to people and building relationships, someone else is responsible for finding the deals, and someone else is responsible for operating the deal.
What do you think about 3D construction for self storage? It decreases the construction cost by 17% and decreases construction time by 90%.
I think it's a fantastic opportunity, and it may be a potential black swan for existing facilities because it will be 17% cheaper to build anything. Does that mean that prices for existing properties will go down? And also because it's cheaper, they can have a cheaper rent as well.
Do you have restrictions on what can be stored in the facility?
It's all on the lease, each state has their own lease from their self storage association. They have to upload their driver's license when they sign the lease.
Beth Azor
www.bethazor.com
www.linkedin.com/in/bethazor