Episode #42- My Favorite Investment: Self-Storage

 

I know it doesn’t sound very exciting but bear with me. If you are an accredited investor, investing in self-storage is low-risk and can create very high returns.

If you aren’t accredited yet, listen in, because this is a nearly recession-proof deal you want to set your sights on for the future.

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Listen to the podcast here

 

My Favorite Investment: Self-Storage

I’m really excited to announce that I’m finally offering the ability for you to work with me. I know that so many of you, probably every single one of you reading, has just been thinking every day when you wake up, “When do I get an opportunity to work with Jack? That fucking guy is so awesome.” Actually, I think probably very few of you are thinking that. I do want to give you the opportunity. It is now open. I’ve got two options that you can finally pick my brains, so to speak, if you’d like to get more in depth, mentoring and coaching.

There are two options. You go to my website, MyIndestructibleWealth.com. There’s a tab that says Work With Jack, and you click that and you’re going to have two options. There’s going to be a one-on-one and you can book a call with me. If you want to book a single, “I want to pick your brain for an hour and see if I’m on the right track, or bounce some ideas off you, or talk about some strategies and building my business,” that’s great, how ever I can serve you. I’ve built four LLCs or S corporations, four different entities to over $2 million. I have fourteen different, multiple streams of income, a multimillion dollar portfolio. You guys probably already know all of that.

I’m just telling you that I know what I’m doing. I have so much to learn, but if you want to pick my brain, great, do it. If you don’t, just keep reading to the free content and engaging, that’s great too. I really don’t care. I’m not doing this for the money as you guys probably are well aware. It’s a passion project. At the same time, I can’t do things for free just like you don’t want to do anything for free either no matter how much you’re passionate about it. Go to the website, click on the link, follow along.

You can watch a video that tells you a little bit more about the mastermind course that I’m offering. That’s a real affordable way for you to get really in-depth training on multiple streams of income, debt paydown, I talk all kinds of real estate, in particular some specific opportunities that you can do. Speculation type plays like crypto, tech stocks, pre-IPOs. We’re going to talk retirement accounts. We’re going to talk the fundamentals investing into you. We’ll talk about charitable giving on that course. It’s a complete course. It’s going to take you quite a bit further along in your knowledge of what you need to do in order to build an indestructible wealth.

It’s very action-oriented and there’s basic mindset, but it’s not just, “You need to think more positive,” type of thing, or you need to work on your mindset. It’s that and it’s about how you’re thinking about your strategy, and then it’s also specific opportunities that you can actually take advantage of and start building your own portfolio of assets. If you’re interested, great, hit the website. If you have any questions on that, certainly you can feel free to email me on [email protected] or you can hit me up on Instagram, on direct messaging. I respond to those on the daily. I just wanted to let you guys know that. Here we go.

Self-storage is the safest overall investment you can make. Click To Tweet

Today is all about self-storage, which is my favorite investment for multiple reasons, which we’re going to dive into this episode. I know there are a lot of you that are asking me about how to get in on these type of deals or how to do self-storage because you’ve heard me pitch it, so to speak. You know that when I say it’s my favorite, that I don’t take that lightly.

I do want to tell you upfront that this type of deal is only available for accredited investors, which means you do need to earn at least $200,000 as a single tax filer or $300,000 together with your partner filing jointly, or you need to have a million dollar net worth outside your home. As of right now, the minimum investment is at least in increments of $50,000 and could be even $100,000 depending on the deal.

You can skip to the next podcast if this doesn’t interest you. However, if you know me, you know that 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. If you want to know about investments like this, be educated on how they work. When you hit the accredited level, you’re ready to go. You’re competent in what you’re getting into and you aren’t scared to pull the trigger.

My personal opinion is that if you’re accredited or when you’re accredited, this is absolutely the first deal that you should be putting on your radar or putting the funds together, getting ready to go to get involved. I have close to $500,000 in this investment. I personally feel that it’s my safest overall investment that I own. I sleep very well at night knowing I’m in a deal like this, but again, feel free to skip ahead to the next episode if this just isn’t your time, and it simply doesn’t resonate with you right now.

I do want to take this from the mailbag, so to speak. This is from Mary Kate Wyatt. I really appreciate this message that she sent. I wanted to read this off to you, guys. She said, “I wanted to take a quick moment to say thank you for being such an inspiration to my husband who handles our account, @TheLocalCatering company. That’s their Instagram handle. He’s been following you for a few short months, but you’ve changed his thinking strategy and perspective, and has motivated him to strive to always be better as a person and become more financially responsible while building new and multiple revenue streams. We have two little boys and we own a couple of businesses together. We feel a great connection with you and everything you stand for. Congrats on all your success. We look forward to seeing you grow even more. Thank you sincerely from a wife who has seen a true change in my already amazing husband.”

 

That’s amazing. I want to wanted to say thank you so much for sending that. Anytime I get messages like this, it’s completely incredible to me. When you’re speaking into a microphone at home by yourself, it’s a very lonely process of being a content creator. To get those type of messages is awesome. Thank you so much for that. There are several others of you that have sent in messages like that. I want to say thank you and I appreciate you. I’m going to continue to keep pouring to you and giving everything I got.

Here’s another example of pouring into you. Originally, I had this audio recorded. I had a special guest speaker on to talk about self-storage and we had to nix that, and their lawyers ruin everything fun. Don’t get me started. I’m sorry if you’re a lawyer and you’re reading this, but you are a buzzkill pretty much. That’s what you do for a living is you kill the fun. You’re a fun sponge. Anyways, I had to nix the episode that he was on for various reasons. I don’t know. It doesn’t really matter. I’m going to be able to still give you guys a lot of that content that we covered, and the ins and outs of this particular business. I’m going to do my best to let it rip. Here we go.

Self-storage, why do I love it? Here’s an example. My business coaches, Jan and Monica, I’m going to have them on an episode here very soon, they paid $250 a month for 15 straight years on their storage locker before they cleared it out and entered their lease. I saw them post on Facebook. This example is why it’s my favorite investment. You’ve got smart people who are willing to pay for fifteen straight years without missing a beat. You don’t have any headache whatsoever from your tenants. There are no tenants, toilets, or trash to deal with because people aren’t living in your units. Their stuff is, and you don’t have the maintenance and repair type situations that come up with rental property.

When people think about the word ‘self-storage,’ it sounds boring. It’s very boring, but that’s what makes it very passive in nature, or you literally put your money in and you do absolutely nothing. You wait very patiently. Not all real estate is passive. Some of it you’re very involved actively. Very actively would be fixing and flipping a house. That’s an active investment. You’re very involved in that. Even if you have a crew that you’ve hired, you still have a lot of decisions and a lot of things that you need to be involved in to carry that investment all the way through to sale and profit.

Then rental property, I put a little bit in the middle though. It tends to be more passive than it is active. However, rental property, even with a good management team in place, you still have tenants, toilets, trash, and decisions to make, tenants moving in and moving out, and maintenance and repair decisions. Whereas self-storage, I put on the extreme end of the passive nature because essentially, people rent on a 10×10 locker to store their stuff for $150 on average. When someone doesn’t pay your rent, all of a sudden, their key doesn’t work to get into their locker so they can’t access their stuff. If somebody is 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. That’s essentially what happens in the self-storage realm.

When investing in the storage space, you literally put your money in and do absolutely nothing. You just wait very patiently for the returns. Click To Tweet

That process will go on essentially for 60 days. After 60 days, the self-storage company has a legal right not to own their stuff, but they can auction it off. Then a bunch of people bid on it. Somebody else comes in, clears that stuff out, that money helps pay for their arrears that they owe. Then they sweep the locker because somebody else has now just cleared it out for us. They sweep the locker, it’s back online, and it becomes a very easy turning process. That’s very different than a typical tenant turned into a residential property.

It’s like clockwork. There are numbers, percentages. It’s all about the data and systems, and you can control it. Bottom line, people store shit. They store $200 to $500 of their shit and they pay $150 a month to store it for 15 average months. That’s the reality of self-storage. In all fairness, people enter into self-storage because of typically life-changing events. It’s not usually because they have too much stuff that they bought and they really need to store it. That’s not what causes storage.

People move. They get transferred. They die. They upsize their home. They downsize for whatever reason. People have a dramatic life changing event that pushes their stuff into storage. They believe that it’s going to be there for 1, 2, 3 months, but let’s think about this. If I put something into storage and I finally cleared out 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. I’ve got a big headache if I have to deal with that.

The last thing I want to do is that. It’s way easier for me to pay $100 or $150, push that problem off to the next 1 to 3 months. That’s how it goes until you finally are forced to deal with it. That’s the business. Some people are going to keep self-storage for 7 years, and some people are going to keep it for 1 or 2 months. That’s where you average in that 15-month mark approximately.

The Headspace is if we can build up and stabilize the facilities and fix the problems, somebody else’s problems that they have incurred with owning the self-storage facility. What happens is they get wrapped up together with a number of other facilities, sold out to a large fund like a state pension fund, but we can also hold these forever because the cashflow is so strong. If they do get sold out somewhere in that earlier timeframe, which typically and historically has been every 2 or 3 years, you get a very nice sized exit. That creates some fantastic returns, somewhere in that 20%, 25% as high as 40% annualized returns.

 

Think about this guys, what’s an annualized return? If I have $100,000, I get a 20% annualized return and it takes 5 years, that means in 5 years, I’m going to double my money because every year off $100,000, it’s generating $20,000 in net profits. The company that I work with, Store Space, their lowest performing deal returned 10% over 10 months. That’s their lowest one that they go back over across 120 deals that they’ve done. The lowest one kicked out 10 points or 10% annually. I can definitely live with those numbers.

In real estate, the money is really made on the buy. Your goal is buy low, sell high. That was from one of my original mentors in real estate, Toby. He’s like, “Here’s the key to real estate, Jack. Buy low, sell high.” I was like, “Got it.” The Store Space team scours 100 deals to come down and actually close on one of them. They’re big enough that they can play with the big boys and buy big deals, but they’re small enough that it doesn’t take them three months to buy a deal. They can fly down, analyze it, make their mind up, make an offer in one day, and get in front of the market before the property gets in front of other people. That gives a significant advantage over the market right there on the buy.

Usually, they have to look at that deal and be like, “I see what you’re seeing, but I’m looking at it differently.” The money is made on the buy, but the money is also made by increasing the net operating income. What’s net operating income? It’s simply the net profits of the facility. When they increase the net income, then they’re able to make the value or the sale price of those facilities go even higher than what they purchased.

Real estate trades at a NOI, that’s the Net Operating Income, it’s referred to in real estate as the cap rate. I think I’ve talked about this before. Say you have $100,000 property, and after all is said and done, your net operating profit after all expenses is $10,000. That would have a 10 cap. That’s what real estate trades at basically is how much the buyer is going to expect on their return on investment.

If I accept a 5% return on my money, it’s the same way of saying, “I’ll pay you a 5 cap. I’m accepting a 5% return,” assuming there’s no financing involved. That’s just a straight cash purchase. Usually, active businesses look at it from the perspective of how much I got. From a small business that’s making $100,000 a year, you would look at that if say a business is generating $100,000 and it was trading at a 10 cap, then that business would be sold for $1 million.

With self-storage, you're getting into a solid asset that people will absolutely rent in any economy. Good, bad, or terrible. It's recession resistant. Click To Tweet

Essentially, what they’re trying to do is they’re buying facilities at say a 5 cap, and then they try to sell it at a lower cap rate to another fund. They’re in this position to where they can sell these out to these large scale funds for lower cap rates than what they bought them for. I want to explain to you guys here. Essentially, you’re going to have investors that are going to buy in from this for multiple millions. You’re going to have some that come in with $100,000, and everybody’s pooling their money together.

That’s how the money is all raised to go out and buy these large facilities. It’s not one person that’s coming up multiple millions of dollars. You’re partners with us in this deal as a limited partner. Limited partner means if everything went to hell in a handbasket, everything collapsed, they can’t go after the limited partners for anything more than they invested. That means you’re limited in terms of your liability.

There was a storage fund that closed out, and it hit about a 24% annualized range of profit. Depending on when you invested into the deal, if you got in on the very early stage, then you’ve got 24%. Maybe if you came in a little later, you’ve got 21%. Some that are exiting sometime in the next coming few months, that will probably be in the mid-twenties in annualized returns as well. If you’ve got $100,000 in and you have a 24% annualized return, that means off $100,000 that you put in, you’re going to make $24,000 per year. Essentially in four years, you’ve doubled your $100,000 investment.

What kind of deals do Store Space buy? They have done some deals where they pick up an old Kmart building, 100,000 square feet converted into storage with the self-storage lockers in. Other times, they get facilities that aren’t run very well, that already are performing, but just aren’t run well. They tend to prefer buying a broken bus and fixing the wheels on the broken bus while it’s running. That way, all the investors are making money on day one even if it’s not fully optimized. Let’s say they’re only getting 50% of their total rent that they could make, but then they know that they can optimize it and keep making more. On day one, you’re making income as opposed on an abandoned K-Mart building when you’re waiting for permits and plans to start construction.

My thought is what’s it like right now buying deals? That’s my question. I know the market is pretty tough. It is really tough to find good deals. Instead of being like, “Let’s wait for it to get better,” they’re out there grabbing up deals because there’s a tremendous amount of liquidity that’s out there. What’s that from? There’s $3.5 trillion being pumped into the economy. That’s only going to push more money down into the hands that are looking to park a certain percentage of it, which is going to only put more pressure on real estate. It’s in a high-pressure environment. It’s great for selling. It’s just making buying a lot tougher.

 

How often do these funds typically open up? Usually, it’s opened up twice a year. Before the fund even opens for us as investors, they’ve already started buying deals into that fund. They’ve already started using their own money to start buying deals. They typically put around 6 to 15 facilities into that one fund, raise the capital from us, the investors, close it off, and let that fund do its thing.

We’ve got a lot of upsides with this. It’s a very simple model. It’s scalable. It’s incredible. You know the typical returns over last 120 deals, the facilities that they bought. They’ve been very strong in the mid 20% annualized range. Warren Buffett, one of the most incredible investors on the planet, has averaged 19% annualized returns over his career. To get these kinds of returns with a collateralized real, tangible asset is amazing. What does collateralized mean? That means what you’re investing in has real, tangible asset behind it. It’s got real property that’s essentially backing up your investment.

One of the things about this particular investment that I’ve been thinking all along that I found out on the interview with Store Space, is that the downside is that I couldn’t leverage this asset. Let me give you an example. Let’s say I buy a single-family home. I put my 20%, 25% down, whatever I’m comfortable with. I get the rest in bank debt. Anytime I use bank debt, that’s always going to increase my return on investment. Anytime you use leverage, that increases your return on investment.

What I was thinking with this investment in self-storage is that you put your money into the syndication, say $100,000, $50,000, $200,000, $500,000, or whatever, that you’re not able to accelerate that return because as the investor coming into the deal, I’m not able to pull out that debt. However, all of these deals are utilizing bank debt. They’re utilizing leverage. It’s just we’re not the ones that are pulling out that debt ourselves.

As an example, let’s say we, as investors, come in with 40% equity. For example, we’re buying into a $1 million building. The investors, we contribute $400,000 and the bank loan, $600,000, to buy the $1 million building. That gives us a fairly big cushion that this million-dollar building went down in value to say $700,000 where we still have equity in the building, but historically over the last decade, they’ve driven it from $1 million to $1.4 million in value to $1.7 million in value.

This is the beauty of leverage. You guys got to get this concept. That means our $400,000 doubled or tripled because now it went from $1.7 million, for example, and we have $400,000 in. That means the $400,000 is worth $1.1 million because we still have the same $600,000 bank note. We’ve driven $400,000 to $1.1 million by taking the building from a value of $1 million to $1.7 million. That’s incredible.

That’s what makes this so exciting is that you’re getting into a solid asset that people will absolutely rent from. They’ll rent these lockers in any economy, good, bad, terrible. It’s recession resistant. You’ve got the ability to not have tenants, toilets, and trash. You have an incredible management team that’s backing up and running the whole show so you don’t have to worry about anything.

It’s extremely passive. You’re able to leverage the asset through the bank debt that the Store Space conglomerate pulls into all the deals. On top of that, you’ve got an exit strategy where you create cashflow that comes in while you’re waiting for the fund to sell to a much bigger fund. These funds will eventually sell out to like a big, large pension fund, a big institutional type buyer where they have multiple, hundreds of millions to buy these out.

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. We’re looking at December 2021 is when we’re going to open it up for investing. 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 earnings, so that you can get on incredible deals like this that don’t have the wild fluctuations of the stock market or crypto, but still have really high and consistent returns. I’m always here to bring you guys incredible opportunities to grow your net worth. This is why self-storage is my favorite investment. Have a great day.

 

Important Links

• [email protected]
• Store Space
• @TheLocalCatering – Instagram