Would You Invest All Your $$ Into This Self-Storage Deal?

Question

Hi all!

I have about $40K I want to start investing into RE. I'm leaning towards multi-family rentals, and possibly doing Brrrr. A friend of mine just approached me with a deal on a self-storage business. It would take $50K, and that would max out all of my monies to invest. I don't like the idea of all in one, I was hoping I could use this $ over a few different deals. But also, I hear such good things about storage facilities as an investment, I want to make sure I don't pass up a good thing.

If all the numbers are correct, I would be a 1/3 owner (The other owner putting up 2/3 of the capital), $50K in with profit in my pocket of $1K per month.

Is this an appealing deal in your opinion? What am I not looking at that I should be? (Besides the all eggs in one basket thing and only wanting to invest $40K. I know it's POSSIBLE to do deals thereafter without using your own capital, but I'd imagine it would be MUCH easier to do more deals WITH some capital.

Thank you for your input. David's BRRRR book comes in the mail today along with Frank Gallinelli's popular cash flow book. I'm in learning mode. : )

Justin Frank · Answer

@Kelly Beasley

I will have to disagree with some of the folks on this post. When you don’t have much to work with upfront sometimes it is necessary to go all in with the hopes of building some capital to then invest in other assets. If you are investing $50k and making $1000/mo that you can put right back in your bank account I would say you are doing pretty well. This would be nearly a 25% COC return and for me I would be happy. The questions I would be asking are: how sure are you that you will get $1k/mo? do you trust your manager/operator? what is the property worth upfront? what will it be worth after 5 years of operations go well? is this a stable property or Is this a value add property (this can significantly increase the amount of equity in the property which would be very beneficial for you)? what are the long term plans for you and your partner: can you take a buyout option after a given period of time, or if significant value is added to the property can you guys go for a cash out refinance and take your money out of the project and just let it cashflow? What are your goals/wants in the project and can you get those goals/wants out of the project? To me for the amount of money invested the return sounds great. With that being said I know nothing about the properties location, condition, current value, potential value, etc....... If I were you I would be researching how likely it is that you will get $1k/mo and I would also be looking at how much you and your partner can increase the total value of the property.

Brian G. · Answer

@Kelly Beasley investors frequently go all in with their first investment (ie save enough until they have enough to do their first deal). Education and knowledge will help mitigate a lot of fear and doubt on your first deal but won’t remove it altogether. Using all $50k imo is not an issue. The issue is you must be educated enough to make a good decision on whether the investment is sound before putting $50k at risk.

Couple things:

1) never invest in a niche or strategy you don’t understand. You need to have at least a basic working knowledge of the investment niche before risking capital

2) partnering with someone experienced is a great way to reduce your risk *IF* that person has a proven track record of success

3) continue educating yourself until you know what niche you want to invest in for sure (sfh, storage, multi, etc.)

4) develop a basic working knowledge so you are able to analyze deals

4) when you find a deal that meets your desired criteria - Go for it!

Alina Trigub · Answer

@Kelly Beasley

I'm with @Charles Carillo, I would not put all of the funds into a single deal especially since storage is a new territory for you.

Here's some info on self-storage for you: https://www.biggerpockets.com/member-blogs/10850/88110-pros-and-cons-of-investing-in-self-storage-or-why-not-another-asset

Charles Carillo · Answer

@Kelly Beasley

I would not invest all of my money into one deal. What is the experience of the other partner in regards to self-storage? This deal has a cash-on-cash return of 24%? Who is getting approved for the loan? Who is managing the property etc. Just a few things I would bring up. If you decide to move forward, I would try to go in with less money and bring in another partner.

Lance Langenhoven · Answer

@Kelly Beasley - yes. Cashing in my ROTH IRA was a bold move. It's not for everyone I know. But, if you do what everyone does then you get the results that everyone gets.

I've also made a few wrong moves early on but you can't let those deals stop you. You learn from them. Not every stock you've ever bought is going to make you money every single time. I haven't seen that stop people from investing in the stock market.

So, just get better and keep looking. When the right deal comes along you'll know. In your heart you'll know. Another avenue I've done very well in is buying & selling unrestricted commercial land. I've made just over $1.8M USD doing that in the last 4.5 years. And my deals haven't been big except for the last few that were over $500k but that happened after making the money from the first bunch. My first deal was $70,000!!! I had to come up with $20k and the owner owner-financed the other $50k. From that small start deals got bigger & better.

Kelly Beasley · Answer

@Lance Langenhoven I totally agree about doing things opposite of the way others do. But yeah, I have to warm up to it a little. LOL. I'll keep your course in mind. Still reading BRRRR. And I refuse to be one of those who reads and reads and reads and never takes action. The hard part for me will be to figure out a market. I live 'nowhere' and 'everywhere'. Though I know many buy out of state. Not sure I should do that on my first real investment property.  Nope.

Kelly Beasley · Answer

Wow, @Lance Langenhoven, what great insights! I am with you on the partner thing and not being at least a 50% partner. What if I wanted to sell in a year? What if I wanted out- could I sell my stake? What if I didn't like the way he was running the place or the books? So many questions.

It didn't feel comfortable. And wow, you used your Roth IRA? Pardon my fear speaking, but that would scare me to death, but I am a complete newbie. Maybe down the road I could see the great benefit in that in the way I could turn my $$ around and make it so much more profitable than in the markets.

Good for you! Sounds like you have a very sound investment and it's about to explode in growth. That's the name of the game. I am very excited about all of this- I made one of those horrible investment deals back in 2004 when I bought a lot in a rural area because it was something I could 'afford' and thought I could flip it. You know what happened from there.

It just stopped me from thinking about doing any investing again until now. Something flipped in my head a month or two ago and it's GAME ON again! So I am excited about what is to come!

And thanks again- I will keep myself open to commercial.

Cheers!

Lance Langenhoven · Answer

@Kelly Beasley I know you bowed out of the deal which is what I would have done. My main reason though would have been due to the fact that I was a minority partner with no ability to make any calls, not the projected investment return. So... you would essentially be stuck in a deal that might not turn out so great but you can't do anything about it and it would be difficult to sell a minority share if you wanted to get out of the deal for some reason. For me control is primary. Without the ability to control the direction an investment needs to be managed I would feel powerless.

I don't mind going all-in with everything I had into a deal if it was the right deal. I did that on my boat & rv storage facility that I bought.... the cost was $650,000 and I had to come up with about $130,000 cash deposit. All I had in my ROTH IRA was $70,000. I had to scramble hard to scratch together the rest of the down payment required! I managed it without having to take on partners. Just me & the bank.

But, it was the best investment decision I think I've ever made. That property is now worth $1.2M USD and I've just lucked out that two of my neighbors are selling me a total of about 4.7 Acres into which I can expand. This expansion will add at least another $3M USD in value to the property over the next 24 months.

I also don't care too much about the initial returns. If the operation seems badly managed and not making too much currently that is just the kind of deal I crave because I know I can make it better. And making it better brings more business and brings higher rents which eventually results in a higher valuation.

So... just wanted to give you some different perspectives.

Good luck on your investment journey! Commercial real estate is a great way to go!

Kelly Beasley · Answer

I have already bowed out of the deal. I need to figure out what I want to do with my cash before jumping into the first thing that was offered to me. It DOES sound too good to be true, as well, I agree, Sergio.

Victor S. · Answer

This. Can you provide some more info on the deal, other than your entertainment of going all-in?

Would You Invest All Your $$ Into This Self-Storage Deal?

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