All Forum Posts by: Henry Clark

Had my eye on some land for about 2 years which has been for sale, but have been very hesitant about the economy, us retiring enjoying life/travel, and our personal financial risk tolerance.  This would be about a $3.5mm total cost location.  Around 300 cargo units, 200 regular storage units and about 250 parking spots.  In 3 phases to reduce risk.  Phase 1 would be profitable but not a deal I would do on its own.  Phase 2 where you leverage the land, fence, and interior road/parking costs becomes really profitable, and Phase 3 is wonderful, but not necessary.  Phase 3- I actually don't like large storage locations, since your more exposed to competition.  I would rather build another location.

About 300 of the units would be Cargo Containers, another 200 in traditional buildings, the rest in parking.  Looking at Cargo containers because their prices are far down, about the same as 10 years ago.  Versus traditional has almost doubled in the last 5 years.  Cargo containers also don't get property tax, are easily resold with very little loss in value, can be added as needed.  Basically, the Risk level is very low with them.  Insurance would be under Personal property and not as a Building.  Financing is a little more difficult since Containers are treated as equipment versus Buildings.    We already use cargo containers and have/had around 80 of them and they work great.

Zoned Industrial, although I would need to get a Special Use permit for Self-Storage.  Containers are a lot more difficult since most zoning does not allow them.  But Industrial they are permitted.  Performed a market analysis and demand is definitely there, competition is full, rates are high, competition has no area to expand, zoning and land availability is difficult for any future developments.  On the Market analysis we have an unfair advantage.  We have a location about 15 miles away, and using the Customer Map, we can tell we are pulling from this market, meaning lack of supply.  Although this might impact our location 15 miles away, we have other competition in our area, which they would also be pulling from that market.  In our market 15 miles away, there is double the amount of storage that should be in our market and all of us are full and raising rents.  This explains that.

Potential resale of developed location- Talking with our Self Storage broker, he said as an example, if the location used a cap rate of 7 for regular units, use an 8 for Containers. Potential buyers would pay less. Which is okay. Since Containers get no Property Tax, lower maintenance, and also lower Insurance costs, the NOI- Net Operating Income portion of the Cap rate would be more favorable and offset the lower Cap rate of 8.

Potential Capital Gains:  Phase 1 $700k; Phase 2 $2mm; Phase 3 $3.2mm.  This is if we sold.  Does not include monthly cashflow while we hold.

Start small and Make Your Big Mistakes Early.

A separate post later on risk and why if we are retiring.

Got a call from one of our realtors.  An older facility coming on the market in the next week.

Took a look at it and did some quick number crunching.  Asking price is workable.  Good location.  Older but in good shape.  Has two gate entries but a little tricky doing automated gates.  

Has about 75 units in multiple buildings, Metal or wood construction.  

This would have been a great starter location for me to understand self storage and to develop our systems and procedures.  I always say "Start small and Make Your Big Mistakes Early".

Going to pass.  To small of a location versus where we are at from a size and resource standpoint.

Market is still out there.  Financials would work.  It is good to be active with a Realtor, then deals come your way.

Don't call or contact me; not marketing.

Start small and Make Your Big Mistakes Early.

We have always taken more of a Developer approach to real estate.  Which dictates our buy sell approach.  

Our expected returns are 400% cash on cash over 2 years with our self storage investments plus the ongoing monthly income and 200% over 5 years on our Country land/lot sales.  

With that approach Seller financing or 1031 are not viable options.   We make more money thru developing and rolling the money into the next deal than seller financing returns.  1031 although this would be great for us does not give us the speed and flexibility when we are doing a deal.  We have done a Reverse 1031 but the timeframes were very stressful.  But the delayed Capital gain tax payment for 15 years was great.  

Should we ever plan to liquidate all holdings and stop developing both of the above strategies would be viable. 

We have also used the 100% depreciation write-off.   Again great for taxes but you should plan on not selling that asset and paying for recapture any time soon.  

Risk management-  normally Developing is considered more risky.   But once you have your approaches down I would consider it less risky since you have more control over the outcome.  

Competition-  less competition.  Plus we like Nasty properties which mean even less competition.  Easier to do acquisition with less Seller price control.  

Passive/Active investing- developing is definitely active "up front" then it turns passive. Due diligence- Once you have your systems in place I would rather do the due diligence on one Self Storage location than look at the 100s of other REI units to equal the same dollar value. Development- at first it is very Active then later deals are more passive. But after you develop your team of contractors, bankers, legal. You just tell them we are doing another one and they take care of us with very few issues or discussion. We stay local in a 40 mile radius. We pay our contractors the day we get the bill and actually hand them the check, we plan and thus very few midstream changes, when we ask for a quote they know it's the real deal, we don't shop and penny pinch. It's hard to find contractors but ours love us and want more of our deals.

Timeframe- The above two REI strategies are short/midterm cash driven. We started investing in Belize 5 years ago. Mainly to find a warm weather winter location during Iowa winters. Blended two approaches. Teak tree plantations and land banking location/location/location. Teak trees are a 10 year for preexisting fields up to 25 years for new plantings. We pick spots that have value beyond just the land. Hilltop views, rivers or streams, utility access( most of Belize land is off grid), close to towns. There is an increasing demand for expat living all over the world. Thus land price has a steady built in increase. Income tax, property tax, and capital gain tax is zero or very close to it. Downside you have to bring cash, financing is extreme there. Building costs are less expensive.

Military- I did not join the military but to me this is the greatest REI strategy accessible to the majority of people. Hopefully our son who is in the Navy will take advantage. Once you reach E5 rank you can live off base and get Base Housing allowance. This is tax free. Could be $15,000 up to $50,000 annually based on rank and location. Can be used on rentals or buying a property. My brother uses this and it has been great. Early in his career he started with a trailer and then worked his way up. There is no reason for you to not be a millionaire by your early 40s.

OP   There are a million potential items to check off.  Recommend you go to Loopnet in your area for a type of commercial property you might be interested.  Post in on here and ask what types of concerns, considerations, people would have.  Develop your checklist.  Do about 5 of these and also Deal Analysis on each.  After you have done that read the books, watch the commercial podcasts, talk with area Commercial Agents, etc.

OP.  Agree with the above.  I would look around that area for commercial listing signs and call that Commercial broker and list it.  Yes, you pay the sales commission, but since you're not in the business you won't realize the best price and also it wills stay on the market a lot longer, plus you won't know how to market it.

Also look on Loopnet online and look for what Commercial agent has the most listing, preferably of your type of investment.

Both of the types of locks we use for Self-Storage are Made in China.  Just ordered a years' worth.  

With the Tariff and trade war.  Our vendors will need to source from elsewhere which will drive the cost up as others also switch there sourcing to a limited vendor base.  Or no locks will be available as stocks here run out.  Even if China came to the table and things were settled.  Just like Covid there will be a backup of container ships being able to be offloaded in our US ports.  

Also, Chinese ports are packed full of cancelled orders.  Even a new production order of Locks would have to make it through a Chinese port that is already full of containers sitting, plus you would need to find an empty container to ship.

Main point- identify what is critical for your business and make a plan.  Although we bought a years' worth of locks.  We will always be able to use them.  Also, they are small dollar but critical to our business.

Start small and Make Your Big Mistakes Early.

OP    Would only own the Storage facilities, never lease.  If you leased a facility from me and turned it into self storage.  When the lease came due, I would tell you to leave, or I will buy for 30% of value.

Your business doesn't travel.  And you renters won't move with you.

Believe I noted in an earlier post.  My brother oversaw fire efforts south of LA to the border one year with the military. But when their resources weren’t need they helped LA and up to Washington state.   For LA specifically they gave them a recommendation to put pre filled water tanks up in the hills.  From there it was gravity fed pressure through the fire hydrants.  LA did not want to do it.  

OP. 

See if a new Chiropractor came in the area.  Assume the other retired.

Reach out to your closest Chiropractor schools.   Interview current and recent graduates.  Set up a good startup lease deal with option to buy after 5 years.

OP.  I would disregard cap rate in those two situations, actually in all situations.  They are both very high from a price standpoint.  Example for a grade of A. What is the difference between a 97 versus a 99?

As mentioned just above look at the specific market dynamics, the location dynamics and then the actual deal dynamics. Growing communities, school systems, location within the community, can you ADU or split a lot off, which has lower current rental rates compared to that local market, which has more or less Capex coming due, etc. etc.

Who gave you the Cap rates?  I would challenge the numbers unless you developed them.  Plus is this based on their asking price, or what you would pay?