All Forum Posts by: Henry Clark

"“Build” Self Storage in Texas, California, Oregon and Washington.”

One dot means nothing, two dots is a possible trend, three or more dots in the same direction is a trend.

Hindsight is always 20/20. You can’t read the future (actually you can, read the Cattle Cycle). Etc, etc.

Forget the politics, this is about Real Estate.

Couple of things occurred in the last month around me. Most of you probably have known this for years. California, Oregon and Washington folks are either moving themselves or their money to Texas and Colorado; and I have no clue why, Ohio.

A:

Occurrences or Dots:

- Tonight a prospective renter called to confirm they would have two 10 x 20 units available. Talked with them for a little and asked where they were coming from, California. Said they and their kids are selling two houses and moving back to where they were raised. Will miss the climate, but couldn’t wait to get out of the state.

- Joined Bigger Pockets a while back. Building our last Self Storage location and thought I would share our experiences. Normally don’t do social media or forums; and just watch the local news. This whole movement of people and money became evident as I browsed through posts.

- Went down near San Antonio to help a friend get into the Self Storage business. I was expecting prices to be cheap down there, because they are going through an "Oil Bust" period right now. Been through one before, when I lived in Houston and Dallas, thus I have personal experience. But I was amazed that houses were super high and land was super high. They should be dirt cheap. Talked with three different banks and they all required LTV 40%. I can get 25% any day of the week where I'm at. The 40% actually made sense, since these banks are invested in an Oil economy, thus they need to be more conservative in a down cycle. Here is the catch. Texans, can't be supporting these high prices because of the Oil Bust, it has to be coming from outside.

- Was talking with a business acquaintance in Austin. I always ask folks how is business going. Said his business is doing great, but personally he just got up-ended. Young couple, just had a baby and decided they needed a house versus apartment. Made an offer $10,000 above asking price. Called the Realtor 2 days later to see what was up. They had 17 offers above the asking price and it was probably going $100,000 above list price. He knew he had been priced out of the market in his home state.

- Another friend down there was talking about valuing his house. He knew current sales, he should be around $650,000 to $700,000. But the Realtor with comps only was showing $400,000. Didn’t make sense in an Oil Bust economy.

- Talked with three Texas banks on financing. They all wanted 40% LTV. I told them I can get 25% all day long in Iowa, what's the deal. They said different market. Probably since all things are oil based in Texas, they have had to get conservative and increase their LTV%. Which means unless you bring money (California/Oregon/Washington) into Texas it will be hard to get finance.

Conclusion or Perception:

It should always be great when your house value is rising. The young people won’t like it though, because it is harder to get into the market. The old folks/fixed income won’t like it when their tax valuations start to increase. So who likes it? People who sell a small condo or house for $1mm, and then buy a huge house and acreage for $700,000 in the country side, with no state income tax.

B:

Being a TEXAN: Message- Be Careful investing in Texas Self Storage.

First of all, I’m not a Texan. Grew up in Louisiana. All of my relatives are from Texas. Baytown, Goose Creek, Clute, Angleton, and Freeport. Blue collar, oilfield, construction and military.

-What's it like to be a TEXAN. If you ever go to the San Jancinto monument, you will see a big concrete STAR at the top. Knowing your grandfather was the one who figured out how to put it up there. Knowing that when the “PC” folks come to take down the monument, that it won’t happen. What do all of those STARS on peoples houses and businesses mean around Texas? A lot.

-Being the Fire Chief at the Tokyo fire station at the beginning of the Korean War. Knowing you had a cush job and could stay there while your fellow soldiers went to the Korean War. Going down and requesting transfer orders to join the Texas outfits heading off to war, because you had to go with your Texas boys.

-Going on a Sunday picnic in your Model T with your young wife. Getting yelled at by a young man across the Trinity river, about what he would do to your wife if he was over there. Being 5ft 5 inches and 140 pounds and telling him to stay right there and you would be over to talk with him. Swimming the river, and killing the man with a knife. BIG HAT, LITTLE CATTLE loud mouth. Finding out he was a local politicians son and having to leave your family the next day and go to “No Mans” land between Texas and Louisiana and start another family.

Why did I tell you about being a TEXAN and not a Californian, Oregonian, or Washingtonian? I want to stress these are two totally different markets. As you look for a spot to build Storage in Texas, Be Careful.

““Build” Self Storage in Texas, California, Oregon and Washington.”

C:

Cattle Cycle:

Seeing Texas market and prices booming and California/Oregon/Washington money moving out; it made me think of the two ends of the Cattle Cycle. I want you to understand you can “Tell the Future”.

The cattle cycle is one of the true golden investment cycles of all time. You can actually read the future. It has held true since the 1800’s except for a miss in the 2000 era.

Doesn’t matter where you start in the cattle cycle, it just loops around. The following cycle is based on an increase or decrease of just 5% of the national Cow herd (breeders).

- Price is going up, start feeding more heifers to butcher. Herd at 95%.

- Prices continue to go up, then start pulling out heifers to breed. Herd at 100%

- Takes the heifer to get to two years to reach breeding age. Then 9 months to calve. Then the calve takes 18 months to slaughter. Total cycle takes about 4 years.

- Price then goes down. After everyone has decided to breed heifers, then there are to many cows. Herd at 105%.

- Price continues to decrease. Young steers and heifers still in the pipeline, driving down prices. Start selling off old cows. These extra cows butchered, make the prices go further down. Herd at 100%

- Price continues to decrease. Start selling off younger cows. Selling off younger cows, heifers and bulls, makes the market go down further. Herd at 95%

-Cycle then starts over.

““Build” Self Storage in Texas, California, Oregon and Washington.”

D:

So what is the point of me telling you the cattle cycle?

Self Storage runs in a cycle. If the economy is going up or if it is going down, Self storage is great. Actually a stagnant economy is the worst time for a Storage business.

Texas is going up.

California/Oregon/Washington are going down.

These are prolonged trends, which makes it a great time to “develop” Self Storage in those states.

The reason I am stressing for you to build, is you get a greater return when you are a “Developer” and you are not paying a premium in a hot market. Part of the reason is you are taking on a greater risk. In the Self Storage business, as a Developer, you are taking on the risk of “will they come?”. With these trends, you are able to “See into the future”. Keep in mind Self Storage is still a “LOCAL” business, within a 1 to 3 mile radius, no matter what the trends are.

E:

So which states should you build in?

Texas- is on the positive upswing (in the middle of an Oil Bust, see the Cattle Cycle story above), although downswings are just as profitable for Self Storage.

- No personal income tax, but high property taxes.

- Texas banks are running with 40% LTV. So you need to bring money/collateral to the table versus 25% LTV. Unless you do SBA 10%.

- So I have been saying BE CAREFUL in Texas. In the Counties there is “NO ZONING”. See the old guy in the old pickup, he’s worth $50million (oil). His Accountant just told him he needs more write offs. Normally “NO ZONING” sounds great. But from a Risk management standpoint, every neighbor along the road could do Self Storage. You have to evaluate and protect against that happening.

California/Oregon/Washington- are on the down swing. Don’t worry, sunshine, ocean and mountains will always draw people. Don’t worry, its a loop (Cattle cycle).

- high taxes

- here is the kicker, which is true for all states. The major risk to Self Storage owners from a Government is “Self Employment” taxes. As these states continue to come under financial stress they will look for more Taxing authority. If your going to build there, factor that into your equation.

““Build” Self Storage in Texas, California, Oregon and Washington.”

Use another post or forum for Politics.

Start small and Make Your Big Mistakes Early.

a.  What is the "basis" she has in the house?

b.  How much of a gain (cash) does she have if valued at $450k less the loan?

c.  Google who pays the tax if gifted to you and how much?  Want you to do the work answering this.

d.  Google what is the basis if you get the property after your mother passes away?  Says she is close to retiring, so I would think she would live for another 30 years.  Want you to do the work answering this.

e.  If she is near retirement, find out why she took out a second refi (lower interest rate, or took money out?).  Also she should not go into retirement with $150k debt, or cosigning for you on $150k debt, if you bought the house.  Something is wrong.  Help your mother figure out her problem.  She probably needs to sell the house and downsize.

f.  Help your mother do a 1031 into a more suitable house. Good RE experience.

g.  Back to you.  With $30k and no job.  I wouldn't put the effort into getting a finance loan, until your employed again.  With the $30k, I would work on Trailers or Mobile Home investing.  Lower dollar figure and you will probably not need to take out a loan.

h.  If your mother downsizes, then you should house hack into a Multi Family.

i.  RE learning.  Just doing one Trailer rental will be an education, that you will be able to use on your future investments.

@Clayton Smith

Might look at my post in the Commercial section about 10 days ago on Cost Seg.

@Jeffery Callis

The length of time it takes is more based on your efforts/preparedness than the bureaucracy of it.  Follow the notes I gave you above and you will have good success.  Make any offer subject to re-zoning, and put an end date on the offer.  This is one of those times where you "Help them to help you".  Lay it out for them.  Have done this 3 times in two different towns and got approved.  Only failed one time in a different town.  I was trying to jump a zoning level, and the (voting) neighbors didn't want it.  Which is how the process is supposed to work.

The city we are developing now, has their primary development area intentionally listed as agriculture (lowest zoning category).  That way they control what businesses come in.

Give you two ends of the spectrum. Other than fighting a tight market in SFH/MFH.

Low Entry Point.

Trailer hack, easy to get in/out. Buys you some time on the SFH/MFH side. Otherwise you will be rushing and locked in for a while. Don't know your family situation.

Go big:

Check out Loopnet for commercial properties. There is a 3 parcel land piece for about $375k asking. Build Contractor buildings on. Make one your "live in" business location. SBA 10% LTV if you qualify.

There is another commercial property walking distance to downtown.  Has an A/B unit in it.  Hack one side and rent the other.  See if this is area is being urbanized.

@Jai Reddy

Comes from being born in Oklahoma.  And also making mistakes and learning from them.

There was no reason, but the day I hit 30, I realized it was “ME”. Everyone around my family was doing fine, work was great, it was a nice day. Just for some reason, I realized I was the person in charge of my life. Its not like I all of a sudden matured. Paid my way thru college, top of the class, top 1% job, only got drunk twice in my life, etc, etc.

My realization was, I was it. Now I didn’t do anything with that thought. From that point on, until I was 50, I knew literally I could go through Mountains, jump over them, dig under them, go around them and stop Run away trains by hand. There was no obstacle in my life that I could not overcome.

And then it hit me. I ran into an obstacle, that I had no clue how to deal with, it could not exist (in my world), and the experts had no clue (from my point of view). No more Invincibility.

We are all at different points of our lives, perceptions of living into eternity, Invincibility, or just lack of thought on the subject. If your “there” and are aware of your lack of invincibility, please keep reading.

So you just Died. The following are actions not to put your Family through Hxxx. (Also Vendors, Customers, Bankers, employees)

A. “Will” or “Trust”?- Do you want things to go through Probate for several months or seamlessly go through a Trust with no stoppage in operations or control? Without a business, you might not care if your below a certain Dollar level or asset types that don’t deteriorate. Various discussion points- Bucket Trust, rename all of your assets to include the Trust, etc, talk with your attorney.

B. Power of Attorney- you can have this made specific to different aspects of your life. You may have a business partner who you want to be able to make decisions on your behalf for the Storage business, but have no say over your Personal life.

C. Bank Accounts “POD”- Payable on death, So you just died and who is going to pay the bills? This will automatically allow a person to access the funds and support the ongoing business. You probably have you and your spouse on the account already, so put somebody that is likely not traveling or living with you, in case both spouses pass at the same time.

D. Life insurance- not tax deductible, tax free proceeds. This is more about risk, comfort zone, lack of knowledge and stage of investment. With our fast growth we have taken loans out. All of the locations cash flow very well, so there really is no risk from losing a “wage earner”. It is more about taking pressure off the family members who will end up with the property. Also to cover any estate taxes or debt restructuring if they arise.

Where the major danger comes in, is if your in the middle of a development and your the main developer. The other family members only know how to run an existing facility. This is where you can lose a lot of money, if you have to sell the property and not complete the build out.

We identified three areas of risk and they are all on three different time tables. 1. Ongoing debt payments for existing units., 2. One location in Rent Up Phase., 3. One location in development phase and then Rent Up phase.

Per our advisor we took out three separate Term life policies. That way as the risk diminishes you can drop one policy at a time. If you had just one large policy covering all three risks, you would have to cancel a policy and renew. You have gotten older, any new health issues that arise, and the need to go through the review process again, may change your access and cost of an insurance renewal. Don’t get to exact figuring out your coverage needs, it is really cheap, go for the higher number.

E. Living Will; End of Life- This is more for applying medical treatment or not under certain circumstances to continue your life support, while you are incapacitated. Just added this so you have a complete package of estate issues. By this point you should not be in control of any business, unless you were incapacitated due to an accident or sudden medical issue.

F. Medical Power of Attorney- this allows someone to be in charge of your medical treatment if your incapacitated. Not so much a business impact, but wanted to keep the list complete.

G. Facilities Management- worst case, no one knows how to run or has the time to. Develop an “Info List” with all contacts and passwords. Identify ahead of time a Management company or local Realty company who you have vetted to manage the business. Have them identified on the list.

H. What does a storage facility look like 6 months after you have died? You go down to 70% occupancy from 95%. 40% of your customers are behind. Some customers haven’t paid in 6 months. No one can find the contracts. 5 of the units were yours. All of your systems are on paper and no one has kept up. Trash has been thrown over the back fence and the neighbors want it fixed. Weeds are everywhere. I come in and offer to pay 50% of the value. Ended up not buying your property. It takes about 3 to 4 months to get a location like this transitioned over to a management system and cleaned up, through auctions. Your investment value has greatly deteriorated since there was no transition plan.

So are you taking action; or are you sending everyone associated with you under the bus ?

“Start small and Make Your Big Mistakes Early”

Have been plowing snow for the last 2 1/2 days. Was at one of the locations and I cut to deep and got into the driveway base. It was Pea Gravel. This doesn't happen at our other locations where it is either Concrete or crushed rock. So I got to thinking about driveways. It's pretty boring pushing snow for 2 1/2 days, near record 2 day totals.

Drive ways-

Dimensions:

a. Widths-
- We use 25 foot widths. Most vehicles and trailers are built to be no more than 6-8 feet wide. Two vehicles passing is 16 feet using the 8 foot width. If you consider the two sides next to each vehicle and the space between the vehicles, or three spaces then there is about 3 foot for each space (25 width less 16 foot width of two vehicles= 9 feet/3 spaces). This is fairly comfortable for all of our tenants. Our speed limit is 5 MPH, and they can comfortably pass each other.

- 20 foot widths. Same math, except now there is 1.3 feet for each space (20 width less 16 foot width of two vehicles- 4 feet/3 spaces). Most vehicles would still be comfortable passing, since your smaller vehicles are more towards the narrow width of 6-8 feet wide. I might actually prefer this width, since on our 25 foot width, some people try to back up and turn around in the middle of the driveway; or try to back a U-Haul or trailer into the unit with the wider driveway.

b. Turn arounds- We use 50 feet. This is mainly due to ease of access for our customers. This is a little excessive and could be narrowed down to 35 feet, they just have to come around the corner a little slower and you need heavier Bollards on the building corners. Zoning set backs may come into play. We have one area that requires a 50 foot setback at the entrance, so we are not giving up anything using 50 foot turn arounds there.

c. Depth or thickness-
- In the country side, there is no set depth for our drive ways. If we are using just Rock, we would use 3 inches of 3 inch rock or Crushed concrete "Clean" with no filler for the BASE. Either drive something heavy over it to push it into the ground or wait for a good rain and drive a vehicle over it. You want it to sink into the ground and form the BASE. Otherwise if you put your smaller 1 inch to 1.5 inch and filler (dust and smaller parts), directly on top o the 3 inch rock without compacting the 3 inch first, it will mix together. You want a smooth road surface, so you don't want the 3 inch rock on top. Then put about 3 inches of the 1 or 1.5 inch with the fines on top. Never use just "Clean" rock for your surface. It's like driving on marbles, they just move around and are loose under your tires.

- If you use "Engineering Fabric" on the dirt, then you don't need to put BASE rock down. Just put your 1/1.5 with fines. This material comes in rolls, with widths of 12 or 15 foot wide. It is a solid black mesh with no holes, although it will let water seep through slowly. We have started using this on all our rock roads. Takes less rock and you never have a pothole. This material is super strong and by putting the rock on top, you stretch the material. The impact of a dump trucks wheel pressing down, is distributed in a circle by the fabric, versus just below it. Also the water not soaking quickly into the ground prevents puddle forming and making a pothole. You just lay out and put a few pins in it. Then have the dump truck drive over and spread the rock.

- In the City where we are building, they give an option of 7 inches of Asphalt or Concrete; or 4 inches of Asphalt or Concrete over 6 inches of rock base. We chose to go with the 7 inches, since it is hard to get a consistent height and compaction on the 6 inches of rock base. Plus it takes more steps.

Drive way Material:

Your common drive way materials are Concrete, Concrete with Rebar, Asphalt, Reclaimed Asphalt (with tar and oil still, not extracted), Rock, Recycled Crushed Concrete, Pea Gravel, River Rock, Water Absorbing Concrete ( Did I say Water Absorbing Concrete?; not good for Freezing areas), Road Mats.

d. Zoning- always check first.

e. Cost- Generally from high to low in this order; Concrete with rebar, Concrete, Asphalt, Reclaimed Asphalt, Rock, River Rock, Pea Gravel, Recycled Crushed Concrete. The new technologies, I haven't seen prices. Part of the cost on concrete is the forming, laying rebar, pouring, levelling, wait time to "set", wait time before driving on (7 days and up). Won't get specific prices, since some of these depend on availability, distance and delivery cost. Example: If your near a river system, River Rock may be super cheap. If your in the middle of a mountain range or farm ground areas, there may be little River Rock and it might only be used for landscaping at a high price.

f. Pro's/Con's-
- Concrete, expensive and time consuming. Repairs are expensive, hard to do just a patch. Low maintenance.
- Asphalt, quick to lay down. High maintenance cost. Easy to do patch jobs.
- Rock- the saying here is the "Ground" ate it. Have to replace it, every few years. When you drive down a rock road and see the dust flying, that's the rock slowly being crushed into dust. Easy to spread and compacts into a nice solid surface.
- Recycled crushed rock- cheap since it is not mined and is usually close to you. It breaks down a lot faster than mined rock.
- River Rock and Pea Gravel, try to stay away from it, unless its just cheap and you have a relatively flat drive way. But hey you have Self Storage, it better be fairly flat. The worst surface to Plow snow on, since it does not readily compact.
- Water Absorbing Concrete or pads- you might not need Storm drains and/or Storm retention ponds. Less Pond, more rentable ground.


Product Warning:
No material or technical input was received from MIT, GIT, CIT, or my guys LSU. Yep, just me riding a tractor or skid steer working with different material and paying the bills. If you have a different experience, thought or input, please add for our benefit. Thanks.

Help your Storage renters drive safely, provide them a good drive way system.

@Yonah Weiss

Please add comments in general or by asset type.  Issues or improvements you would recommend to people on record keeping or level of detail needed.  Wanted to bring a little more to the discussion on this topic.  Thanks.

Wrote this for a Single Family/Multi Family new investor, who was having trouble focusing after three weeks entering Real Estate investing. Adapt to fit Self Storage.

Lets see where your at:

Step 1: "Financial FOCUS"- What are you financing capabilities? Determine this so you can narrow your search field down. If you have $100,000 to invest and are working with a Banker offering you 40% LTV, then your max deal is $250,000. Use that to limit your search. No point wasting efforts on $400,000 flips, BRRR's, etc. Determine your LTV 10%, 15%, 20%, 25%, 40%. Changes the numbers as you see fit. Have you met your banker? Go say hello. Let them get to know you in their way: Supply last three tax returns. Fill out their Personal financial statement. Credit scores. Investment background, Open up an account with them. Might be the difference between 40% and 35% LTV. Pick a banker who knows your business. Show them your business model and numbers. Etc. If your Financial number is not enough for SFH/MFH, re-focus to mobile homes or RV's. Build your capital.

Step 2: "Build your team". Make a list of all of the functions you will need. Surveyor, landscaping, financing, legal, plumbing, electrician, drywall, insurance, city/county zoning, inspectors, title search or insurance, etc. As you are researching/talking/meeting/etc. Start to develop a "list" by category. Start finding out who you want to work with. Don't go looking for them. Find them along the way. Even if you had a great property right now, you probably couldn't act on it. Build your team.

Step 3: "Focus your time"- Start reducing what your reading, who you are listening to, etc. I love a good "NO". You need to go back and thank those initial investors who told you now is not a good time to invest. They gave you a good solid "NO". Stop talking with them, don't add them to your team. Why do I like a good "NO". I did door to door sales for three weeks when I was 17 years old, right out of high school. First week I made $25, carrying a 25 pound case door to door in 95 degrees and 80% humidity in Louisiana. This was going to be my money to go to college in 3 months. Second Week, made $300. Third week, made $700. Went back to construction week 4.

Lessons I Learned:

Week 1- they don't like/love me.

Week 2- they don't care about me either way, I just don't know how to sell or know my product.

Week 3- I learned how to sell my product and more importantly I knew it was a numbers game. 1 out of 10 doors was now going to buy from me. At that point, "no" meant nothing to me. I actually grew to dislike people who were nice or polite to me. I wanted a solid "NO". Not, till my spouse comes home. Not, come back later. Not, can I afford it? Not, I was just leaving. etc, etc. Unless I got a solid "NO" I kept on selling to them.

Step 4: "Stay in your Lane": Pick a business model and stay in that lane. All the things above that you know to ask; and then all the things that you don't know, until you do some deals. Its a huge learning experience. Don't learn two business models at once.

Step 5: "Get out of your Lane": Find other people that are in your lane, but also out of your Lane. Talk deals with them. There is a lot of cross learning that can occur, that you can take and apply to your model. Might not even be in REI.

Step 6: Zoning: For your business model get to know the details of your particular type of business. Setbacks, drainage, add ons, Minimum square footage, etc.

Step 7: How Smart are you?: a. Dumb- keep making the same mistake over and over., b. Smart- learn from your own mistakes., c. Brilliant- learn from other peoples mistakes. Yes, you want to find a way to learn from other peoples mistakes. Most of this, you can bypass by picking good team members and sticking with them. Don't keep switching each time a new contractor says they can save you 5%. I love my contractors. Can turn my back on them and know when something is up, they will catch it for me, while a decision can still be made. There are cheaper contractors. My contractors I can call them on a Sunday or 8 at night for some input and they are happy to talk with me.

Step 8: Lets make a Deal: First of all the above steps are in no order. Let me go with your a SFH or MFH model person. 1. You want "that Deal". The one where you can tell everyone you put $20,000 down on a $400,000 house. Re-did the carpet and netted $50,000; 2 weeks later. Don't look for that deal. You want to minimize your risk. Know your exit strategy is realistic. Learn a little bit, not everything at once. Pick something that is easy, one or two of the following: Landscaping. New Roof. Pet stained carpets, New kitchen, Outside face lift, etc. So you make only $5,000. You learn $20,000 of lessons and you finally jumped off the "Cliff". Making the deal- earnest money, due diligence period, inspections, etc. Make a closing list. A 35 unit Self Storage location or cargo containers is a great place to start.

Determine your financial and personal objectives ahead of time. COC, NOI, Payback, sweat equity, etc.

Step 9: Lets find a Deal: Build your network, but for now lets look at properties that are actually for sale. Look at the following two properties. Forget whether they are out of your price range or not in the correct location. Start doing deal analysis, to the nth degree. Self Storage, go out on Loopnet and pick some Self Storage in your area or near you. Analyze them, run the numbers.


Get signed up with the national Self Storage Brokers, talk with your local Commercial brokers, look on loopnet, get to know and keep in contact with all Mom/Pop storage locations within 40 minutes of you. The Baby Boomer is aging and their kids moved away. Give them an exit strategy.

Do two thorough Deal analysis in the next 4 weeks. You want to get so good at Deal analysis, without having bought one, that when the right deal comes along and you have only 1 week to analyze, your not mired down in information collection. I'll put a separate post out on Deal analysis. Keep analyzing deals.

Step 10: Join a group: If you go down this path, you will find no one wants to discuss with you or can relate to you. Find a Real Estate group to have these conversations with. My buddy has a Laundry Mat and a car wash. Totally different businesses, but we can relate.

As always Zoning/Zoning first.


"Start small and Make Your Big Mistakes Early"