All Forum Posts by: Henry Clark

@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.

@Bryan Danger

Hopefully people aren't reading your stream and getting sucked in.  As I stated before show your numbers.  The topic is fine, but your approach doesn't work.  In the mean time I'll give you some items to reach "Financial Independence", your not there yet.  As all of the BP crowd will say, have you done your numbers.  Otherwise its gambling.  Lets make this post, a how to do "Financial Independence" once you get to your number.  A checklist. It will be beneficial for you.

1.  Get with an accountant with a payroll service and have them pay in annually an amount for Medicare/Medicaid.  If you don't have W2 income.  Don't want to hear about spaghetti dinners and go fund me pages when you run into a problem, and you spent all your money.  Chump change now.

If you have these covered then just state you have them covered and how.  Then do 2.  If not I will do 2.

@Weina Shi

Have her look for the amount.  Sometimes it comes through under "Uhaul" (note Web Self Storage is owned by Uhaul) versus your location name.  We have that happen and the tenant doesn't recognize it.  Should be within 1 to 2 days of your date, depending on weekends.

When a transaction truly doesn't go through WSS will catch it and process it, at some point based on their system.

Congrats again on your new location.

Well its supposed to get up to 100 degrees today. Decided to move and store our Bollards that were delivered yesterday. 7 foot long, 6 inches diameter, oil drill stem, $40 each. The ones below are for a future project the rest are at out CB- RR location for our upcoming new buildings. Bought about 100 in total. They are hard to find.

Thought I would take a break and write a post, I thought about 2 days ago. Had a guy I have been helping say he got beat out on an offer by a cash buyer. My wife said we have $17,000 in that location account and have to pay the ½ property tax $19,000. Couldn’t think why the above two are issues. Lack of communication and understanding on my part. You will see below.

Today is September 11th. Thanks for everyone. September 11th for me was a surreal day.

That week was one of the happiest in my life. We just got back from South Korea with our adopted son. Was at work and went to the TV to see what was happening. Saw a “speck” falling down along side the towers. Realized it was a person jumping to their death. It wasn’t TV, I could feel the person dying. Went out to mow hay in a field that afternoon. Was like I was 200 years back, so peaceful. No planes or plume trails. No car noise on the highway 2 miles away. No noise, could picture Indians walking across the field. Went on the back porch later that day to drink a tea. Saw 3 Boeing's racing off in a close row, with two fighters alongside. It was the president heading back to Washington. All I could do was yell at him, to get his butt back to Washington.

Well lets dissect Cash management:

1. Purchase- SBA 10%; Seller financing- part now, part 5 years from now, no interest; Conventional- interest only Construction period. Save as much Cash outlay as possible at the time of purchase or development.

How did my acquaintance above, get beat out by a “Cash” buyer? I don’t understand this, because we are all cash buyers. If your making an offer with Seller financing, make sure your offer is only good for 3 days or less. That way if Seller financing doesn’t work, they have to reject your offer. Then you need to come with 100% financing or “Cash” purchase. You need to be pre-approved or have a 30 day due diligence period to cover your loan approval period.

2. Occupancy Ramp up- “Interest only” during occupancy ramp up. Make it in terms of Months or Occupancy %. We use 18 months and/or 65% occupancy. This will cover Principal/Interest and all expenses in Phase 1. Phase 2 usually only requires about a 35 to 45% occupancy to cover new building needs. If you have an operational Facility then you should be positively cash flowing already.

Value Add costs. Make sure your bank understands you will be coming back to them for additional loan capacity. Your banker would prefer to know this ahead of time, so they can write it into the original loan document, versus create a new loan.

3. Ongoing- no issue. As long as you did your numbers and now hit your targets, your in positive cash flow. The key is to not treat “Storage” cash, as a piggy bank for your other cash needs.

4. Large lump payments- Your largest lump payments will be Property Taxes, Insurance and Income taxes. Above, I didn’t get why our $19,000 property tax bill and our $17,000 cash on hand position were an issue. You don’t have to pay the property tax when it is due. This location is running $12,000 per month at this stage. Also when we get cash positive, I always pay the two payments off up front. That way there is no forgotten cash need in the future. Again, you should be positively cash flowing and not need to hold cash. Use the Cash you have to take away future bumps. Or pay more down on your loan.

5. Operational- Bank Account, one solely for the Self Storage location. Don’t mix with your personal or other business. Credit Card- one just for Self storage. Provides better tracking versus just paying with cash, when you don’t have your check book with you.

6. Cost Segregation- Depending on the size of your location always do a cost segregation study. If your developing, make sure your Road bills are segregated from your building pads or dirt work. Example: On a $1.5mm deal. Say $300,000 concrete roads, $50,000 Electrician, $50,000 Security, $5,000 landscaping, $60,000 Fence, $10,000 Office equipment, etc. This is 15 year life or less assets. These can be either written off in year one, or over the first 5 years. I prefer to write these off in year one, while you are short on cash. Hopefully don’t pay (cash) any taxes for the first 1 or 2 years (Loss carry forward).

Fix/Flip- don’t do Cost segregation since you will need to do depreciation recapture.

7. Auto pay only- credit/debit card or bank account ACH. Our two latest/largest facilities we moved to Auto pay. This is more of a reduction in management time versus a Cash decision. At our other locations, we have started moving all new customers to Auto pay. The reason this is a “Cash” discussion is it improves your Cash Cycle. No more payment is in the mail. You get to “lock out” quicker. Which means more “good” stuff is left in the unit, which means they are more likely to pay.

Prefer Credit/Debit card since this is an immediate notification. Bank ACH may be a week after your system charged before you know insufficient funds.

8. Unit Auctions- Only accept cash or money orders 3 days before the auction. If they pay with a credit card or a check one day before the auction, they can cancel after they get their valuables out.

9. Cash “Control”- if your not managing your facility you need a weekly cash/rent/bank reconciliation report and every few months take a Rental unit audit and Rent price audit. This becomes less of an issue when you move to Auto pay. You still need to do the above audits.

10.  Contractors- Always pay the "next" day after you get the bill.  They are your team.  I can call at 7 pm on a Sunday and they are happy to talk with me.

Start small and make your BIG Mistakes Early.

@Bryan Danger

Actually had to look up FIRE.  We really do our own thing and don't really follow the rest of the world's drive.

When you start a post like this, you should put your cards on the table first, versus asking other people to.  Define Financial Freedom and your "positions" as a starting point.  You could have a Woman with net $10,000 with Financial Freedom and a man with net $10,000,000 who doesn't have financial freedom.  Each person has their own values, positioning, risk management and assumptions.

I'm glad everyone doesn't have financial freedom or is even proactively looking for it.  You drove a Van.  The person that made the Lug nuts probably doesn't even know about financial freedom.  Which I'm glad, because we probably would have a shortage of lug nuts.

Lets look at your position.  Change the figures, add/subtract concepts, etc as you see fit.

1.  Liquid cash/cds/money market/etc.  $100,000  How many years of liquid cash do you have on hand.

2.  Net worth.  Investments.  $1,000,000

3.  Monthly incoming cash flow.  $2,000

4.  Monthly outgoing cash flow.  $2,000

5.  Planned costs.  New boat motor, new roof, new HVAC, etc.  How much do you have set off to the side?  $50,000

6.  Financial Asset Risk Analysis.  60/40;  40/60; etcetera.

7.  Health insurance

8.  Long-term care

9.  Long-term health insurance.  Federal- Are you paying your minimum Medicare/Medcaid?  

10.  Lifestyle.  Kids.  Family. Neighbors. Community.  Interests.

11.  Investment "financial" management.  All in Portland with same bank, great.  Same thing is bad, diversification.  Spread out across the country great, diversification.  Same thing bad, can't cross collateralize, your an unknown investor.

Credit Score.  I have never discussed my credit score with my 3 different bankers.  I don't know what mine is.  Why is this so critical for your RE investments.  No answer needed, just we have two different investment approaches.

Can't tell your W2 income generation history.  Your investments, looks like it was great timing to be in Portland.  Was this true for other people?  My point is, was this timing or business skillset?  Like getting an inheritance without knowing how it was originally earned.

A.  Forbearance, is not a Financial Freedom solution.  Look at 1 thru 11 above.  You should have the liquid cash.  Also you should have been able to sell one property into the market.  Re-analyze your 60/40 40/60 asset positioning.  Re-analyze your Analysis of Financial Freedom.

B.  Liquid cash investments versus Short term needs.  Long term investments versus long term needs.  Re-analyze your positioning and needs.

Your original question.

FIRE, Overland, etc versus BP.  FIRE is looking for financial freedom 100%.  BP is looking for another way.  They both will probably end up at the financial freedom question.  Just not the same starting point of discussion.  And if you look at most of the people above and their background, Financial freedom is not what "drives" them.  Its a by product.  Also its hard to get your "Momentum" going again, both mentally and your "Team".  Whereas these other groups are already "Gone".  Most BP people are not "Gone" they are either getting started or growing.

We're living the dream also below.  Just that's not our end game or number.