{"id":153802,"date":"2023-06-09T12:09:56","date_gmt":"2023-06-09T18:09:56","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=153802"},"modified":"2024-02-27T10:46:08","modified_gmt":"2024-02-27T17:46:08","slug":"how-i-found-a-self-storage-investment-in-the-desert","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/how-i-found-a-self-storage-investment-in-the-desert","title":{"rendered":"How I Found a Great Investment in a Tough Market (And in the Desert of All Places)"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC4774526954\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p><span data-preserver-spaces=\"true\">Is it still possible to find undervalued commercial real estate investments?&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">I believe it is, and I\u2019ll prove it by telling you a remarkable story about a recent investment we made in a Nevada self-storage opportunity.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">We\u2019re in a Transitioning Market<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">We are in a time of transition. From a booming market to a shaky market. From historically low interest rates to the highest we\u2019ve seen in years. From eager buyers, sometimes willing to overpay, to sidelined buyers, waiting to see where the falling knife lands.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Great cash-flowing deals have gotten hard to find. And with higher interest and cap rates, even harder to pencil. Times like this require more due diligence than usual and a dedicated acquisition team turning over every stone.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">I believe acquiring underperforming assets from mom-and-pop operators is more strategic than ever. Deals like this may present attributes to overcome challenging interest rate environments and recessions.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">The Deal<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">So let\u2019s take a look at this self-storage deal.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">A question for residential real estate investors: What if you could acquire a house with below-market rent of $600 on a street where similar homes currently rent for $1,480? That would be quite unlikely, right?&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">My firm manages a diversified fund of recession-resistant commercial real estate assets. This includes self-storage, RV parks, mobile home parks, and more.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">BiggerPockets published&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"http:\/\/www.biggerpockets.com\/storage\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">my book on self-storage investing<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;a few years ago. This book outlines a strategy to acquire struggling facilities from mom-and-pop owners, upgrade them, and eventually sell them to an institutional buyer.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">This is one of the best examples of this strategy I\u2019ve seen.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">This self-storage facility is in Henderson, Nevada, adjacent to Las Vegas. It was owned by the original 1982 builder for over four decades. The facility came with over 40 years of handwritten records and no online marketing presence or management technology.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The manager collected rent in person, cash only, when the tenants paid at all. And when they didn\u2019t pay, the manager rarely evicted any of them.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The owner provided quite a few free units to family and friends, including some homeless tenants violating the law. So it\u2019s no surprise that the facility needed deferred maintenance, fresh curb appeal, and enhanced security.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">But here\u2019s what we found so surprising.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The previous owner charged $60 monthly rent on 10\u2019 x 10\u2019 units. The going market rate for similar units in Henderson is $148. Here\u2019s what that means:<\/span><\/p>\n\n\n\n<p><strong><span data-preserver-spaces=\"true\">The facility\u2019s rents can be increased almost 2.5-fold and still be competitive.&nbsp;<\/span><\/strong><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The new asset manager has also identified a variety of other value-adds that will enhance income and property value. These include selling retail items (like locks, boxes, tape, and bubble wrap) and adding more storage units on the vacant land acquired with the property.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">How the Wealthy Invest<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Many of America\u2019s wealthiest investors love commercial real estate. While residential real estate values are based on nearby comps, commercial real estate values are directly proportional to income.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">All other factors equal, doubling the net operating income (NOI) of a commercial real estate asset doubles its appraised value. And this effect is magnified on leveraged properties.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">So imagine how much this facility\u2019s increased income could drive value and investor returns.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">This may sound like a once-in-a-lifetime deal. But it\u2019s certainly not. Similar \u201cdiamond-in-the-rough\u201d properties are hidden all over the U.S. Of course, you probably don\u2019t have time or interest in searching out these properties, and that\u2019s where investing with a professional operator comes in.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">This is how our firm invests (with professional operators), and we recommend most people investing in commercial real estate follow a similar strategy.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The challenge for most investors is this: How do you successfully perform due diligence on an operator? And on a deal?&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">My BiggerPockets book can give you an overview of how to invest in self-storage. But if you plan to invest passively in self-storage, multifamily, or any type of commercial real estate, there is a more important book I recommend for your consideration.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">My friend Brian Burke wrote&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/store.biggerpockets.com\/products\/the-hands-off-investor\" target=\"_blank\" rel=\"noopener\"><strong><em><span data-preserver-spaces=\"true\">The Hands-Off Investor<\/span><\/em><\/strong><\/a><strong><em><span data-preserver-spaces=\"true\">.<\/span><\/em><\/strong><span data-preserver-spaces=\"true\">&nbsp;This comprehensive guide will give you all the information you need to carefully examine both jockeys (syndicators\/sponsors) and horses (the deals themselves).&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">If you\u2019re a new or experienced passive investor, I highly recommend you invest in this book before you invest a dollar in a project.&nbsp; &nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Final Thoughts<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">We\u2019re all focused on safety right now. But safety should be a serious focus for every investor at all times.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Safety is a matter that should always be foremost in our decision-making. And risky debt is usually the culprit. Most investors\u2019 troubles these days stem from investing in assets with risky debt.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The operator acquired the underperforming asset described above for cash. The new managers are hard at work stabilizing operations and cash flow. The plan is to add moderate financing to this investment once it is optimized.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">If executed as planned, this strategy should maintain safety, provide additional return on investment (ROI) to investors, and return some equity to redeploy into other investments.&nbsp;<\/span><\/p>\n\n\n\n<div id=\"hero-block_62ee867235a1c\" class=\"first:mt-0 hero-block py-4    has-background has-slate-300-background-color has-text-color has-slate-800-color\">\n    <div\n        class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 lg:w-2\/3 \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-slate-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Learn how to invest in self-storage!<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px\">Investing in\u00a0self-storage\u00a0is an often overlooked real estate strategy that can accelerate your income and compound your wealth with minimal active management.<\/p>\n\n\n\n<div id=button-custom-event-block_64138705d4d27 class='button-custom-event'>\n      <a\n    href=\"https:\/\/store.biggerpockets.com\/products\/storing-up-profits?utm_source=blog&#038;utm_medium=marketing_block\"\n        x-on:click=\"window.analytics.track('Blog Block | Publishing: Storing up Profits Book', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/how-i-found-a-self-storage-investment-in-the-desert',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Get Yours Now<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\"lg:w-1\/3 first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/11\/Storing-Up-Profits-3d.png\" alt=\"\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>Yes, it&#8217;s still possible to find these types of investments. You just have to look for it. Here&#8217;s what happened.<\/p>\n","protected":false},"author":214608,"featured_media":153804,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7358,5527],"tags":[],"class_list":["post-153802","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-stories","category-commercial-real-estate-investing"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/153802","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/214608"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=153802"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/153802\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/153804"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=153802"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=153802"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=153802"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}