About Indestructible Wealth: I’m Jack Gibson. I’m your wealth strategist and I’m here to help you make some money. The Indestructible Wealth Podcast is for young entrepreneurs who want to make, keep and grow wealth to enjoy now, and for years to come.
Episode #42- My Favorite Investment: Self-Storage
Today is all about self-storage, which is my favorite investment for multiple reasons, which we’ll get into today. There’s a lot of you that are asking about how to get in on these types of deals or how to do self-storage, because you’ve heard me pitch it so to speak and you know I don’t take that lightly.
I do want to tell you up front that this type of deal is only available for accredited investors, which means you need to earn at least $200k as a single tax filer, or $300k together filing jointly, or have a million dollar net worth outside your home. As of right now, minimum investment is at least in increments of $50,000.
You can skip to the next podcast if this doesn’t interest you, however, if you know me, you know my belief is that you’ll be at this level of Earning Power in the near future if you continue to invest into yourselves, increase your skills and your Mindset, and you’ll want to know about investments like this, be educated on how they work, so when you hit the Accredited level, you are ready to go, you’re confident in what you’re getting into, and you aren’t scared to pull the trigger.
I have close to half a million in this investment, and I personally feel it’s my safest investment. I sleep very well at night knowing I’m in a deal like this. But, again, feel free to skip ahead to another podcast if this isn’t your time.
Why do I love it? My business coaches paid $250 a month for 15 straight years on their storage locker before they cleared it out and ended their lease. This example is why this is my favorite investment. You’ve got people who are willing to pay for 15 straight years without missing a beat. And you don’t have any headache whatsoever. There are no tenants, toilets, or trash to deal with because people aren’t living in your units, their stuff is. When people think of it, it sounds kind of boring, right? I mean, it’s very boring. But that’s what makes it very passive in nature, where you literally put your money in, and do absolutely nothing. Just wait patiently.
People rent out a 10 by 10 locker to store their stuff for $150 bucks on average. When someone doesn’t pay you rent, all of a sudden their key doesn’t work to get into their locker so they can’t access their stuff. If somebody’s late, they get a late fee and they’re immediately locked out, so they can’t access their stuff and they can’t access the gates.
So that process will go on essentially for 60 days. And after 60 days, they have a legal right not to own their stuff, but to auction their stuff. A bunch of people bid on this stuff. Somebody else comes in, clears that stuff out, that money that comes in helps us pay for their arrears. And then they sweep the locker because somebody else has now just cleared it out for us. They sweep the locker and it’s back online. So it becomes a very easy turning process.
It’s like clockwork, its numbers, its percentages, its data. It’s systematic and you can control it. People store shit. They store $200 with this shit and they’d pay a $150 a month to store it for 15 odd months. I mean, that is reality. In fairness though, people enter into self-storage because of life-changing events. So it’s not because they have too much stuff they bought and they really need to store it.
That’s not what causes storage. People move, they get transferred, they die.They upsize, they downsize, whatever reason people move or have a dramatic life changing event, pushes stuff into storage. They believe it’s going to be there for 1, 2, 3 months. But geez, I mean, if I put something in storage and I finally cleared up my garage, the last thing I want to do on any given Saturday is take all that stuff and bring it back to my garage. And then I got a big headache if I have to deal with this. The last thing I want to do, and then I’m dealt with a headache and it’s way easier for me to pay a hundred bucks and push that problem off to the next one to three months of needed self-storage turns into the worst Saturday of your life that you put off for an average of 15 months until you finally deal with it.
And that is the business. Yeah. Some people keep self-storage for seven years and some people keep it for one, two months. And that’s where you average in that 15 months, it’s mark approximately. So when the person comes in, if you’re going to be a short-term tenant or a long-term tenant, I can pretty much gather that the average person’s going to leave 1500 bucks.
I mean, our Headspace is always like, if we build up stabilize the, stabilize, the facilities and, and fix the problems by them in a panic with somebody, you know needs to get out and then, and then sell them when they’re wrapped together with a number of other facilities to a large fund like a state pension fund. But, we can hold them forever. Their cash flow is great. But if they exit somewhere in the earlier time frame, which is typically like historically we’ve been every two or three years, we’ve done a nice size exit.
And that creates fantastic returns. Partners investors have received. We’ve been somewhere in that 20, 25, 30% as high as 40% annualized returns?
So if you get 20% in five years, your money doubles, essentially.
Their lowest performing deal returned 10% over 10 months is a short deal that didn’t get time to stabilize prior to that of an entire group selling. So, but if I can go back after, after 120 odd deals or whatever, and say, Hey, our lowest deal kicked out 10 points annually, then I can live with that.
In real estate, the money is really made on the buy. The Store Space team scours a hundred deals to come down and actually close on 1, and Historically closing on 1 every 3 weeks.
So they are big enough that we can play with the big boys, and buy big deals. But we’re small enough that it doesn’t take us three months to buy a deal.
We can fly down, analyze it, make our mind up, make an offer in one day. And get in front of the market before it’s in front of other people. And, and so that gives us a significant advantage over the market, right there on the buy. And then usually we have to look at that deal and be like, I see what you’re seeing, but I’m looking at it differently.
They make money by increasing the net operating income, the net profits of facilities go higher. And then we sell the facilities eventually at a lower cap rate than we purchased.
So real estate trades at an NOI, which is another way of calling your net profit and a cap rate, which real estate trades basically how much the buyer is going to expect on the return.
So I’ll accept a 5% return on my money. It’s the same way of saying I’ll pay you a five cap, if I accept a 5% return assuming no financing. And it’s the same way of saying, take your net profit or NOI and say, take that times. 20 is one 20th is 5%. So usually active businesses look at it from the perspective of how much I got from a small business, that’s making a hundred thousand bucks a year.
So we will try to buy facilities at a certain cap rate and then try to sell it at a lower cap rate or another way of saying, I’ll try to buy it at a certain net operating income, and try and sell it for more times earnings. I’m going to try and increase the earnings. I’m going to try and increase the multiple and that’s great if we sell, but if we don’t sell, we can hold them. That’s great too. So we’re kind of in this position because both our exit options are good and I don’t care which one happens, but the faster they can turn the faster you can get in and out. Do it again. So that’s great too.
So how does it work? This is what we call a syndication deal, where a bunch of investors are coming together and they’re putting in increments of typically 50k – 100k.
And then it goes up from there. Obviously you probably have investors that do multiple millions. You have some that come in with 100K. So they’re pooling their money and when you’re ready to raise capital and go out and buy more facilities and then lay out the process.
Yes you’re partners with us in the deal as a limited partnership, limited meaning on the general partners, our side, we hold viability on the mortgage. Like if, if everything went to hell in a handbasket and everything collapsed, they can’t go after the investors for anything more that they invested. So they’re limited partners.
The one we just did were in the 21 to 24% annualized range, depending on when they invested into the deal. So that’s what just exited early this year. And we’ll have another one exiting sometime in the coming few months than it will probably be in the mid-twenties annualized.
So if you got a hundred thousand in and you have a 24% annualized return that means off the hundred grand you’re making $24,000 per year. So essentially in four years, you’ve doubled your hundred thousand.
They did some great deals in Indianapolis where they picked up an old K-Mart building a hundred thousand square feet, converted into two stories, self-storage, and that’s part of the deal that we just sold out in January that hit huge. Sometimes they get facilities that aren’t run well. Warehouses that we convert into self-storage or businesses strip mall type. If it has enough square footage because the smaller stuff with 100 or 200 doors doesn’t make sense.
They tend to prefer buying a broken bus and fixing the wheels on the broken bus while it’s running. That way they’re making money on day one, even if it’s not optimized, and they just keep making more. So we make some on day one, as opposed to waiting for permits and plans to start construction.
It’s really tough buying deals right now. So instead of us being like, oh, let’s wait for it to get better. We’re like, it is tough. It’s going to be tough. There’s a tremendous amount of liquidity out there right now. There’s three and a half trillion dollars being pumped into the economy. That’s only gonna push more money down into hands that are looking to park a certain percentage of it, which is going to only put more pressure on real estate. So we’re in a high pressure environment. Good for selling, tough for buying.
So their plan is always to stabilize the units, and if they can never sell, everyone still makes really good money. They can refinance with bank debt to pull money out for themselves and investors. If they never sell there’s ways to work the deal. But there’s 60,000 facilities out there in the U. In the U S there’s 45 odd thousand that are owned by these independents.
So, typically investor funding opportunity historically opens twice a year. Usually they’ve already started buying deals into that fund. So they are usually already moved into buying something that’s already got a start to it. And then we run that until we have historically 6, 10, 15 facilities, close it off and let that fund do it’s thing.
So we got a lot of upsides with this. I mean, it’s a very simple model. It is scalable. It is incredible, you know typical returns, although not like you said, not guaranteed, but historically has been very strong in the mid 20% range, plus it’s collateralized as you’ve got a real, tangible asset. It’s not built upon a promise.
I was thinking all along, one of the downsides to this is that unlike, let’s say I buy a single family home. I can put 20% down or 30% down, whatever I’m comfortable with, I can get the rest in bank debt. That’s always going to increase my return on investment for sure. What I was thinking with this is that you put in the money into the syndication, a hundred grand, 50 grand, whatever. And you’re not able to accelerate that return because like me as an investor coming into this deal, I’m not able to use debt. However, they are utilizing debt. We’re just not the ones that are pulling out that debt ourselves.
So as an example, let’s say if we as investors come in with 40% equity, let’s say you’re buying a million dollar building. So investors contribute $400,000 and the bank loans $600,000 to buy the million dollar building. And that gives us a fairly big cushion if this million dollar building went down in value to 700 grand where we still have equity in the building, but historically they’ve driven it from a million to $1.4 to $1.7 million.
And that means that our 400 grand now just doubled or tripled because now it went to a $1.7 million, and we have $400k in. That means our 400 grand is now worth 1.1 million because we still have the same $600,000 bank note. So we’ve driven from 400 grand at 1.1, by taking the building from 1 million to 1.7.
So, to wrap this up, if you’re interested in this type of deal, reach out to me because I’m pooling investors together to invest into the next round when Store Space opens for funding.
If you’re accredited then you can do this, if you’re not, you can put this on your goals list and focus on Increasing your Earning Power so you can get in on incredible deals like this that don’t have the wild fluctuations of the stock market or crypto but still have really high, consistent returns.