All Forum Posts by: Henry Clark

@Bryan Danger

3.  When your looking at retiring or financial independence you have to look at your needs and your investment types.  You need to decide how much liquid assets or cash you have versus long/midterm investments.  Your investment strategy of having an asset appreciate as your main funding is good for long term, but not as a short term strategy as you found out.  Its a personal risk assessment question.  Do you want 1 year, 2/3/4/5 years of liquid assets relative to your personal needs and how you view both your long term investment strategy and the world.

How many years usage of  cash or liquid assets are you carrying?   What mix do you recommend at the moment or before you go to Financial independence?  Many people who are nearing (5 to 10 years out) never get educated or advised on moving their mixes from aggressive to conservative.  They are 64 and getting ready to retire and a stock market crash.  They have to keep working since they were still at 90% aggressive stock. Same holds true for people seeking Financial independence, just a different age.

That is the personal needs approach.  You have to have an approach above, or your just gambling and running on negative cash flow. Hoping your long term appreciation materializes at the correct time.

Same thing for your rentals.  When someone says they are cash flowing $200 per month on a rental and another person says the same thing.  Not sure both are calculating the same way.  Need to take into account less than 100% occupancy rate and also set aside funding for capital needs.  Roofs, HVAC, Windows, etc depending on the nature of the properties.

With the above said that person needs to actually set aside those funds.

How many months of Occupancy and Capex funding do you have set aside?  What is your approach in calculating?

What steps for the two above should people do, given your recent experience with the two above?

@Steven Thinnes

ZONING, I-3 RIGHT?

When ever I take a look at a new town to do storage, I take two approaches at the same time. Do I build? Do I buy? Do both of these at once and go with the one with the best return or impact. Preferably, I like to buy because this takes out competition, greater control over pricing, and hopefully they have some land to expand on. The expansion of an existing facility is always more profitable than the initial purchase or build.

A. Look at zoning either online or at the City or County courthouse look up both the Zoning Map and get a copy, if one exists of a Zoning template, which explains what each zone permits and may allow under a Special use or Condition permit.

B. Read each Zone in detail, unless they have a cross reference table showing “allowed” and “special use”.

C. Ask for the Future planned zoning map. This will tell you where you probably can ask for a change in Zone or for a Special Use permit; and have a greater chance of getting it approved.

D. Talk with the local realtors and they may know what is not on the above Maps and tables. Most cities don’t allow “Spot” zoning. So they don’t get sued. One city I know designated an entire area “Agriculture”, the lowest zoning possible, so they could control allowing what industries come.

E. Most of the time Storage is designated to an Industrial zone. But not always. I have seen it under Agricultural, Planned Residential, Commercial and some Industrial zones.

F. Look at a GIS map of the city. See if Railroads cross through. The Federal government gave both city sites and land along the tracks to the railroad. The Railroad then sold this land to help finance their construction. Look for any land that is still owned by the railroad and ask them to buy it. It won’t have a “For Sale” sign on it, but it will most likely be available for sale if it is not used as a work yard or siding. The good thing about this property since it is so old, it will be in the middle of the town, in a great location. It will probably be zoned “Residential”, but the Railroad will not sale it without putting covenants on it, that no human habitation (home, daycare, school, retirement home, etc) can be built there. Another good thing, is the Railroad does not pay property tax, anywhere. Put in an offer subject to zoning approval. Ask the Zoning committee to allow you to do a “Special Use” permit since the Railroad will never allow “Human Habitation” in this Residential zone. Also ask them to let you pay property taxes. Your units will be well landscaped and they will provide a noise buffer with the railroad.

G. Look at Non-Allowed zoned properties, next to Allowed zoned areas. Still look at these properties since Zoning committees may allow you to switch the zoning or do a special use permit. They do not regard this as “Spot” zoning, since it is next to an allowed area.

What do you do with this information?:

1. Now, that you know the zoning, look for any spots greater than 2 acres (“drive up” storage). Start checking on the prices, even if a location is not for sale. So you don’t waste your time looking at all locations, prioritize and pick locations that put you in a more favorable location between your future competition and your residential customers. Most storage facilities are Mom/Pop and were built with the owner in mind and not the customer. Examples: Gas station owner had two acres and built on one. Hotel operator had additional space. Etc. They did not necessarily build closer to their customers or for ease of access or street advertising. Buy them later when you have a footprint in the town. You don’t want to buy them first and have to go check on 30 units, 30 miles away. We built in one town, and before construction was done bought two other locations that were offered.

2. Line up your potential purchases in priority and start making short and time sensitive offers. You are now in power since you are not tied to one location or even one town. You have a 40 mile radius or whatever you consider a comfortable distance to manage.

3. The harder it is for you to find a location, the better. Less chance for “Stupid” money to build next to you, or out position you.

Zoning Adjustment Meetings:

“Just the Facts.” You will get to speak first, remember your an “Outsider” and don’t vote in that community. Take your time describing your facilities. The property and sales tax it will bring. Explain the current taxes and current look of the property. Show them a “Look” of the new facilities. No one may show up, or you might get 30 people to show up. You “personally” may have to notify everyone within a 200 foot radius or the City might do it. When the public speaks, don’t argue with them. They get their say. Hopefully your added property/sales tax dollars outweighs the public view point. When the vote (good or bad) is over thank each of the members, they’re not paid and most have businesses.

If the Zoning Adjustment committee approves or disapproves it, you then can go to the City/County board for another public hearing and a vote. Don’t waste your time, if the Adjustment committee voted against you. If the City/County Board approves, ask them to waive the need for future “Reading” meetings. The above two public hearings, possible two more “reading” meetings and the final “vote” meeting may take you 4 months, 4 weeks or maybe just two meetings. Depends on how often the boards meet and how much opposition/benefit there is.

Happy hunting. This is the most stressful and fun part of the process. You have very little control, but your decision on property will be the most important of the whole build/buy process. Add Control, by adding more location/city options. ClarkStorageLLC is done growing, but you never stop looking. The best spot yet, is a cornfield where there isn’t a house for a mile. Would love to have built a 1,000 unit location there.

Remember, start small and make your big mistakes early.

@Steven Thinnes

Read my post "Self storage- Zoning I3 right?

@Bryan Danger

2.  Still on health insurance/costs.  Get an annual policy with Allianz Global, since your travelling.  Costs $825.  This will cover transportation costs back to the US for anything major  plus other medical.

Non life threatening issues in Second and Third world; setting broken leg $50; MRI scan $200; Hip replacement $15,000; Chinese Acupuncturist $10/hour; US trained doctor $50/hour just because he wanted to talk with someone from the US; Prescription drugs being over the counter from Pharmacist cheap, etc.  If you want better care, then contract with local doctors versus State run clinics.  Most are US or Cuban trained.

Your major issues of Heart surgery, Cancer treatment, or ongoing treatments such as dialysis; you will need to find a low premium, high deductible coverage, plus move back to the US for treatment.  This is your main concern if not in the US or a 1st world country.  Since this will probably be a rare occasion, don't need to set aside funds.  Need to be prepared to sell a property to meet deductible.  If you don't have insurance, you need to be prepared to sale all of your properties ($250,000 to $1,000,000 bill), plus go back to work while taking Chemo or rehabilitating from Heart surgery.

Tell us your numbers and how you have covered.

What's number 3 item on your list for Financial Independence?

@Jai Reddy

Lukewarm on storage?  You know how you push someone to do something then they won’t do it.  But if you tell them not to do it, they will do it

If I remember tomorrow, I’ll write a post on why “ not to invest” in storage.  See if I can convert you to the dark side. 

@Mary Jay

My brother and nieces live in Phoenix.  Great town, kind of hot.  Like he says though, its a "dry" heat.

Don't wish anything bad on Phoenix, but it took a real nose dive the last hit.

Sell your house.  No taxes if you lived 2 of the 5 years.

Run the numbers on the Van Buren st Selfstorage.  Has live in quarters or you can make it that way. Do self service, you don't need to meet your clients.  See our youtube.  Do a 10% SBA loan while interest rates are low.  Either rent your house out, or with extra money buy another property if you live on site.

I like it, since it is a small operation.  They don't show any numbers though.

Run the numbers.  Check out the property next to it, and see if you can expand.

@Bob Vollmer  Your town can take 270 units. Drive around and see how many are there.  We are in Glenwood, Iowa; your next to Glenwood Springs, Co.  Same guy built ours, then moved to Colorado to build that town.  Send some steam pictures of the springs this winter.

Go down to Apple Box Storage and make them an offer.  If I have a registered Hereford Cow herd, I don't need a Charolais bull.  I think you can buy this one.  As always, check the zoning and run your numbers.  And there aren't any cows there.

Overview of two storage rows at the top and 6 Flex buildings on the bottom.  Storm pond at the bottom left, I need to dig out 2 feet more, since I added buildings.

Self Storage- SBA Financing 09 13 2021

Our 7th location has taken about 3 years to get financed on our Self Storage project. The project was under a Construction Loan interest only while we processed our SBA loan. The original SBA loan proposal took 9 months to process, which was extremely long compared to the 3 to 4 months projected. We then got the property and proposed facility appraisal and the appraisal was about $1,000,000 over cost. Which is great, but I found out I could not use that appraised equity value on the next phase of this project which was to be Flex/Contractor buildings. SBA requires 51% occupancy by the applicant. Plus they just didn’t like the idea to begin with. Thus I stopped the loan process. Even though they were going to give us 6 months both principal and interest for the SBA portion of the loan with the Covid funding/ARRA.

This is an 8 acre property, we split 4 acres for the Self Storage and the other 4 acres is to be for a Flex/Contractor complex. The SBA loan took all 8 acres as collateral. I knew if I proceeded with the loan they probably would not rescind the additional 4 acres. Put the loan on pause. Did a Subdivision of the land with the city. This took about 6 months. Finally got the subdivision approved.

Went back to the SBA and put in a request for the property to be released. Covid hit. Three quarters of SBA personal were switched from loans to process PPP (Paycheck Protection Program). Thus any loaning processing got extended indefinitely due to lack of resources. This was a simple request since the total Appraised project plus the original land purchase we paid ($200,000), left the banks with about $600,000 “extra” collateral value. Far more than the 10% requirement, which with the collateral they have could be an $8mm project.

Loan Signing- September 13, 2021

10%- our portion

45%- Local Bank

45%- SBA

Terms:

Local Bank- 4.25% 10 year term; 5 year fixed/renewal; At 5 years renewal interest will be 1% point over index, currently at 3.25%. No prepayment penalty. No origination fee from the initial Construction loan.

SBA- 2.86% was 4.7% when we started the above process; 20 year fixed; 10 year descending early payment penalty.

Cash flow:

Principal and interest is $8,500 per month. Currently we are running $12,500 at 48% financial occupancy, and can cover. Normally we shoot for a 65% occupancy for breakeven (P/I, property tax, insurance, income taxes, etc). Since we developed this location and had the hard costs, we were able to do a Cost Segregation, thus no Income taxes for the first two years, to help with cash flow.

Shortcomings/Whoopee:

The above additional Appraised value can only be used through another SBA loan. When we met with the banker today, let him know we are already to start Phase 2 (see separate post). The additional collateral from Phase 1, covers phase 2, thus no more capital infusions. We also discussed our Flex/Contractor building project, which there is a separate Post, and he noted the 4 acres at the appraised value will cover LTC/LTV at 25% up to a total $2mm project, so no cash infusion for that project is required. Things are looking good.

Wisdom learned:

a. Always segregate properties up front, if you plan two different projects. We knew up front we would not do the full 8 acres in Self Storage (market risk management- 230 built, another 200 phase 2, Could have built another 350 on the flex site). Intentionally built the storage on the backside of the property and left the front for the Flex buildings to utilize the Vehicles per day around 15,000 on 4 lane road. Will make it easier to rent the Flex buildings.

b. Bad luck is good sometime. SBA 2.86% versus if done earlier 4.7%.

c. Don’t underestimate how long the government takes, both on the Loan processing and the re-zoning/subdivision process.

d. Construction period interest. This is before we started renting was about $50,000. Due to the weather and construction taking about an extra year, we were about $35,000 over our original budget.

Start small and Make Your Big Mistakes Early

Yep, still learning.  Ya'll are probably getting bored reading these posts.  About another year and another 700 units built on existing sites and I will be done posting.  Just passing the time, sharing experiences.

@Sohrab Ansari;  @Scott Krone

Scott's points are really valid.

One deal I looked at, they did not show property taxes, normally one of the biggest expenses.  Zero is  a no go.  Found out it was part of a larger agriculture property and not yet subdivided.  Plus the government had not re-assessed the property as Self storage. Thus yes, they had paid minimal taxes, but you would with the subdivision and re-assessment.

Same deal, there was no management charges.  He was paying "cash" (25% of revenue) to the neighbor and not reflecting on the Sales data.

Both of the above are "okay????", but you would get hit with them.  Always start from zero on both your Revenue and expenses and challenge and build them up.

Make sure your offer has a 30 day due diligence period.  Then really fast you need to learn how to do due diligence (which you can't learn it fast).  Pay one of the folks on the Forum $3,000 to help you do a due diligence review.  This is a cheap spend. And I'm not in that business.