All Forum Posts by: Henry Clark

@Christian Sidaros

Christian lets see where you at first, before you head down the path.

You need three things:

1.  How much money or Collateral 60% of asset value; can you bring to the table?  

2.  What finance method are you going to use?  This will determine how much equity you have to put in.  Example:  SBA 10% of value; Traditional 25%; Traditional 40%.  You need to see if you qualify.  SBA will not do loans where you do not have at least 51% of the occupancy for your own business.

3.  Your investment track history.

Adjust the figures as you see fit:

Lets say you have $100,000 cash or Collateral at 65% of value:

SBA 10%  means a $1,000,000 project, with you investing $100,000

Trad 25%  $400,000 with you at $100,000

Trad 40%   $250,000 with you at $100,000

You need to start with the above or your wasting your time, if you go it alone.  

If you partner, and don't have the money, you have to bring something to the table.  Sweat equity, live on premise, management, etc.

Limitations-  Do you have a business to house in this investment, 51% of sqft?  If not, then SBA can't be used.  Unless your doing something like Self Storage (what I invest in).

As mentioned above, look out on Loopnet for Raleigh.  Use commercial or industrial.  Use the sort key and sort from lowest to highest.  Where your number hits, are the properties you "might" be able to do a project.  Keep in mind you can't go all in with your cash.  There are always issues.  Slow to rent up.  Rent levels you thought are to high.  Added repairs.  Client build out requirements.  Etc.

Catch us up on your status.  Based on that we might be able to bring more options to the table.

The above will set your expectations, and give you more focus on your efforts to get started.

"Start small and Make Your Big Mistakes Early"

Took a quick look at your area, within 30 miles.  Would love to build there.

Tell me what you mean by "lottttssss of inventory out here"?  If you mean a spot has 4 National Big Box storage locations all within a mile of each other with Climate control, I would love to build right between all of them.  Love your prices there.

What is your property tax rate for commercial/industrial in your area?

What type of contracting do you do?  Do you know other contractors in your area?

There is an underlying business potential for each of my questions above.

Looked out on Loopnet.  Subject to Zoning for Storage, saw about 3 spots that would be great for storage.  One that pays for itself without doing anything, before you put the storage on it.  Basically your land is free, if zoning allows.

Looked out on Sparefoot and Google.  Your storage market has three "Product offering" problems, which you would want to offer a solution for, that they can't.  It's not part of their business model.

Supply me the above info and I'll come back with a quick business plan.  You will need to get a different Cell Phone.  You will run this on a Self Service basis and never meet the customers.  Keep your day job, just stop at breaks, lunch or at night and catch calls.

Your in a great area.  Thanks for the note.

Thanks a second time.

Main building will be red iron.  This is for subcontractors wanting 25 x50; or 50 x 50 taking a wall down.  Walk thru door and a lift door as described.

Thanks for the Gable comment, was thinking single slope for our snow, facing south to melt off originally.  Gable will be easier to section off, with supports horizontal to floor.

4 inch sounds light, but a lot less money.  Mainly service trucks- plumbers, electricians, some landscape, trades, etc.

Should be no masonry on this zoning.  But they do have to approve.

What are your thoughts on common bathroom. 

Access to outside faucets.

No drains inside.  

Driveway widths?  Parking will be 25 in front of building.  There will be some storage buildings across the driveway with no parking in front of them.  Our normal driveways are 25ft.  That would give them 50 foot including their parking to turn into the bay.

I would say "Roll Tide"; but you don't know who your talking to in Alabama.

Kicking back listening to all the Beatles Songs, while I am having dinner at the office and paying bills.   "Little Darling, feel like that snow is melting"  "Here comes the Sun, it's alright".

Today made me think back to Xmas many many years ago.  Could barely go to sleep the night before.  Was that long present, my first BB gun?

The Erection crew has the final 30 x 220 building done.  Just need to tension the doors and clean up the job site.  Great team (one week 25 highs and 9 lows, luckily no wind).  All buildings are completed except for the Office, which will take a while for us to finish the inside.  Tomorrow the buildings will get turned over to us.  We have already had several rains and snow melts.  All the roofs are leak tight.  Used a Standing Seam roof for the first time.  

If you look back over the post, you can see all of the steps needed, potential missteps, etc.  The biggest test is "Will they Come?".  See my post on that topic.  

As our Basketball coach would say, pat yourself on the back for a day, then get back to practice.

We are about half way there with this location and project.  Still need to build more in the Spring, but all of the tasks are laid out.  Will start setting up the signage, gates/fences, internet, Sparefoot, Security, etc.  Then the race to 65% occupancy (breakeven).

@Cole Bigbee; @Brian m sweeney; @Brett Peter; @William Thresh; @Greg D; @Ronald R; @Zach Q; @Bjorik Mutize; @Shahriar Khan;  Can't get addresses to show.

Getting ready to gear up for Building our Flex buildings in 2021.  Please give input, especially on the highlighted items and any items not listed.  Will probably be 3 separate buildings.  1.  100 x 400 on 25 widths and 50 ft depths.  2.  50 x 50.  3.  30 by 100, with 25 ft widths.   Want to stay away from Welding, Mechanics, etc requiring a lot of outside storage or parking.  Thank you.

I'm a list guy, but like to fail on paper first.  Any input on the below is great.

New investor asked about max house refi to invest in Storage and holding excess cash.

Depends on the numbers and your objectives (do you plan to make another investment or move homes)? Change the numbers as you see fit.

Example A, Refi House:
Storage Build all in, $500,000
Home/land is $600,000
Existing Home loan balance is $150,000
Okay going below PMI to 20% value, thus cash out refi is $600,000 - $150,000= $450,000; 20% of $600,000 is $120,000; thus cash out is $450,000 -$120,000= $330,000 cash out.
Interest rate is 3%. Deductible or not?
Appraisal $2,000

Storage build is $500,000 less cash out $330,000= $170,000 loan for Storage.
Interest rate- 4.5% deductible, non-SBA.
Appraisal- $2,500

Problem 1- You probably didn't recognize, but now you have two loans with two different banks. You now have collateral with two different banks and since banks don't like taking a 2nd position on a loan, you can't use one of the collateral with one of the banks. Point- try to do both financings through the same bank. They will cross collateralize these two loans then. Also check with them on their "Loan Cap Rates" to make sure they can service you into the future.

Problem 2- Going SBA, you will research whether a Home loan versus an SBA loan both interest rates and term lengths are comparable. Point- Both may be close. If a traditional commercial loan the collateral and interest rate will be higher and the loan term will be shorter than a Home or SBA loan. Find out if SBA will allow collateral against a home, or if you have to bring cash.

Problem 3- if you go SBA loan, then the $330,000 you cashed out and applied against this property, will not be usable on your next project unless you use the SBA. Point- SBA has restrictions on what they will invest in. Your Collateral might be tied up and not usable.


Example B, Second mortgage or HELOC:
1st rule of Real Estate investing is to put as little cash into the investment as possible. Leverage Debt. Keep cash (grow to dislike Cash) or collateral back for emergencies, poor planning or new investments.

Everything same as above, except take out a second mortgage or HELOC, for the least amount of money as possible. This will depend on your funding source:
1. SBA 10% collateral- you need either $500,000 x 10%= $50,000 cash or collateral. Point- don't put your home up for SBA collateral, it will get tied up.
2. Conventional commercial loan 25%; $500,000 x 25%= $125,000 cash or collateral.
3. Conventional commercial loan 40%; $500,0000 x 40%= $200,000 cash or collateral.
Action- take out a second mortgage or HELOC with your existing Home loan bank for the minimal equity position of $50,000/$125,000/$200,000. Point- this leaves any remaining collateral in your home/land accessible with a second refi.


Loan steps:

1. Take out a construction loan first with a local bank, even if going to SBA. Ask for interest only until you hit 65% occupancy or 18 months from opening. Do your numbers. 65% should get you to Cash breakeven. Principal and Interest payments also covered. Even at 35 to 40% occupancy you should be able to cover Principal and interest.
2. Convert the construction loan over to a term loan. With SBA or bank.
3. In your term loan, most banks won't go past 5 years. Make sure there is a rider that only allows for X% points of rate increase. Like 1% point up to 2% points for every 5 year adjustment.
4. Loan payoff. You should have structured your Storage deal to pay off in 8 to 12 years. If you financed for 20/25 years, then you will have excess cash coming in. You can spend it, or save/apply it against the loan. Point- see 5 below.
5. What if interest rates increase? They will. I am hesitant to invest above 7%. Will not invest above 9%. If I was doing flips, which we stay in our "lane", I could go 15% APR for 6 months. Point- Don't get caught where your numbers don't work. Try to pay down quick. You can always do a refi, if you need cash for your next deal, or use your first storage equity as collateral for your second. If your paying down ahead, then by year 4 to 8 you should be in a good equity position, even it rates skyrocket.
6. Make sure you are in a good financial and personal position, so the Commercial Banks will refi you at the end of the 5 year term.


"Start small and Make Your Big Mistakes Early."

@Julia Stroud; @Mike Lambert

@julia, as mentioned keep working on building your portfolio as mentioned above.

@Mike Lambert  There is the Finance side of things and there is the investment climate part of things.  Make sure people understand the investment side of things and the risk by country.  If the investments you are talking about are gated communities, or primarily Expat communities, state so.  My Cousin, Brother and Sister/Brother in law have all lived in Panama; you have to have someone watching your place.  Belize is that way.  You say the poorer countries than Belize are not that way, I will not disagree with you, if I did I would be making a sweeping generalization that the poorer a country is, the more crime there is.

Below is the average annual wages in USD.  Belize is at the top, except for Costa Rica and Panama.  Is GDP or Annual Average wages a better metric for individual wealth, not going to have that discussion.

To the far right is the inflation rate.  I would like you to look at the very bottom at Venezuela, this is not a country @mike lambert recommended today.  Go back a few years ago and it was one of the most wealthiest Countries in SA/CA.  Now it is virtually broke.  My point, don't just look at the Finance side of things, look at the overall investment climate. Look at their political climate and form of government.  Your investment is one Coup away from Zero.  Portugal and Spain are sounding great right now.

@Julia Stroud

@Mike Lambert

Mr Lambert makes a great point about blanket generalizations are rarely helpful.

As you pick your country, evaluate the following.  I will use Belize as an example.  It is actually one of the most "wealthy" countries on a per capita basis than the majority of Central and South America, again a sweeping generalization.  Let me explain "Wealthy".

A normal Belizean would normally pay about $60,000 to $100,000 USD for a modern house.  Quite small.

A normal Belizean trades/craft person will be paid $25 to $50 BZD per day, that is $12.50 to $25 USD per day.  You can hire a illegal immigrant from neighboring Guatemala for $8 BZD or $4 per day.

They have to pay for their kids to go to school, uniforms, meals, etc.  Most do not graduate from 8th grade because they can't afford it, plus there are few jobs that warrant it.

As you can see above, a normal Belizean can never afford to buy a house.  They just can't save enough.  Now you come in, they see you as "Money".  Again, this is in one of the most "Wealthy" nations in Central and South America.  The poorer nations, do not have a different view of you.  If you can bury yourself in a gated community, you will be fine.  Go to Cancun or Cozumel.  Tell the driver to take you a mile outside the tourist areas.

All the countries Mr Lambert, mentioned I ticked off as we searched for a Property.  They all have positives also that are better than Belize.  You have to weigh your total package. Let me try to help you understand my views, I prefer Houston over Dallas.  Lived in both.  Yes, I prefer Belize.  

Belize- official language is English, since it was a British possession; Belize Dollar is pegged to the US dollar 2 to 1, you will see in a second why that is important; When you buy property in Belize, you actually own it, since they are under common law like the UK and US;  2 hour flight to Houston;            Petty theft is common; Top 10 murder ratios in the World (small population, plus majority of murders are in a 2 mile square section of Belize City; not the best roads; Can't handle severe medical issues; smaller medical issues are cheap and over the counter medication (prescribed in the US) is available.

Mexico- yes a lot of US expats live in Mexico.  If you get a chance check out San Luis Potosi.  Mexico's interstate system is far better than the US's.  Do me a favor.  Go on the interstate between two towns an hour before sun down and stay there an hour after sun down.  Tell me what you see.  Tell me what you did next.  Tell me what you felt.  That is the country you will be living in.

Costa Rica/Panama/Dominican Republic-  Great places, better beaches than Belize. Compare land prices between them and Belize.  Also flight times.  Also in Panama and Costa Rica, stay near the cities.

Colombia/Brazil/Uruguay- Inflation/Deflation/Currency valuation.  Also how fast these can swing.  Have someone explain how to get your money out during inflation, deflation and normal periods. Won't go into the rest of the items.

Key is to build a matrix of the key things you are looking for and require.  Then do your visits and make your contacts.

First though get on your county Tax lists and off list properties and start building your wealth.

Follow up to an individual who was trying to decide to invest or not in the Storage unit business through a Storage Syndication company.

I'm going to go with you are in Philadelphia proper. Take all of the info above which is good, and apply it as follows. Your going to get "dirty" and get into the Micro the folks above are discussing.

Pull up Google and type in "Self Storage Philadelphia pa". Then click on the "Map". This is not all storage sites but is a true reflection of the market. As you move around on the map, to new areas, more storage will pop up. Do the same thing using "Sparefoot" and use their map.

Now a couple things to note, that aren't obvious.

a. A lot of the locations are in the same location due to easy zoning. Not customer service.

b. A lot of locations are along major highways, not in the neighborhoods.

c. Now start looking at the areas with many cross streets, this is where your population is.

d. Then look at the "holes" where you see very few storage locations if any. This is due to zoning and availability/price of land.

e. In a highly dense population like Philadelphia your competition is only within 1 to 3 miles. If that area has 50,000 people in it, it needs roughly 3,000 storage units, minimum. You just have to drive around and count the units. If there are 1,000 then build or buy; if there are 4,000 look somewhere else.

f. Lets say you see a location that has 5 National or Large local, climate controlled units all within 3 miles. I would love to build there. Even if they are all at 75% occupancy. I'm pointing out there are two markets in the same area. Say a 10 x 15 unit for $200 climate controlled. 10 x15 unit for $130 drive up. The drive up will win hands down. There are more people at the $130 market and who want to do drive up; versus buggy/elevator/hallway. The key is land availability/zoning/price.

g. Business approach. Most big box companies rely on an onsite manager. This forces them to stay at a minimum size location and also reduces their break even point and increases their unit price points. Like all big companies/industries you have two objectives in life. 1. Grow sales every year XX%., 2. Grow profitability % every year x% points. This puts a premium on making deals and expansion. Although these people are very smart, this pressure can make some stupid decisions. Even if all of their spreadsheets and market analysis are correct, 5 companies may pick the same local market in the same year and build, not factoring each other in. Don't play their business approach. They are playing averages over maybe 100's locations, you might only have one. Also they have greater SEO power than you ever will.

Takeaways:

1. As mentioned several times above, your market is micro.

2. Not only is your market micro, it is really micro within 1 to 3 miles in major cities.

3. Stupid Money. Finding a spot or evaluating a location for sale. Do a stupid money test. Assume you are trying to build in that 3 mile area. How hard is it to find land zoned, rezone, large enough, valued correctly, to hilly, rivers divide your territory, etc. The harder it is to find a spot, the more valuable your spot becomes. Stupid Money can't just walk in.

4. You mentioned syndication and passive income. Looks like you want to invest in the stock market approach, put your money down and have someone else do the work. Here's the rub. Do you want a AAA or B investment? For the AAA investment in storage you will need to do 6 hours hands on work per week at your storage location. You might have to do a lot of work up front developing; and go through a learning process. For the B investment you just read your quarterly report.

5. Where is the self storage industry going. There is only one Casket maker in the US. There used to be about 15,000. Economy of scale, distribution and marketing got rid of all the rest. The same thing will apply to Self Storage. Remember there are two markets in Self Storage, the above story only applies to locations above xxx units, with a Big Box business model. The other smaller locations will also tend to consolidate, but at a small town level within 40 to 60 miles.



So your final question of last stage market cycle or is the end near. Again, there are two different markets and they could be just across the street from each other.

Big Box- End is near- they work off of averages. They may hurt each other in some markets. But there are cities out there of 200,000 people that there is not a single Big Box located there. Even once they fill all their potential areas; then the consolidation process begins. They start to make money off of streamlined corporate, computer systems, financing cutting 1% point off, advertising they do away with Sparefoot since they own the market, they buy their own maintenance and construction companies- which I say stay in your lane, they control pricing, etc. Yes they will hit a dip, but then their profits will increase and streamline until they have reached maturity as an industry. That's about 20 years out. Buy them, there is still an increase profit stream in front of them, versus other mature industries.



Little Guy strategy- same as the big guys. Or are they the same as US. Take advantage of the Baby Boom generation, all of these locations will be for sale. Most of their kids wont live there anymore and don't want to do storage, it is boring.

1. When I go into a town I look to both buy and build. Which ever is the most beneficial is the one I do first. Prefer to buy, since this takes out competition and gets me faster to price control.;

2. Price control- Once I reach 60% of the market, I raise the unit price $10. Doesn't sound like much, but this is about a 30% increase in profit and cash flow, with no cost.

3. Now that I have consolidated several towns and locations in an area, if/when we go to sale; we will offer a multiple package deal versus one location. This is more valuable than just one location. All of the consolidation and acquisition work has been done. All of the systems, contracts, maintenance have been consolidated. Back office efficiency. We are in 5 towns. Have 7 locations and building an 8th. Last two locations are in large metro. Location 1: 230 phase 1/ 200 phase 2/ Contractor buildings phase 3; Location 2: 330 units in one phase. All done on one phone. We never meet our customers- self service.

4. Same as big boys, go back and refinance, and pick up 2% points on financing.

5. Do away with Sparefoot. We own 60% of the market. Increase our profit by 15% points.

My advice is for you to build your own syndicate. Go out and pick smaller (30,000 or less) towns and sit on them, hammer them, grow them, consolidate them.


Start small and make your Big Mistakes Early.

@Kimberly Gamez

If you want on excel file, send me a colleague request.  Otherwise BP doesn't allow files to be sent.  Good luck.

If possible, I would keep the putting green, a three hole course and the walking path, jus for kicks.  Your RV folks might enjoy.

Also, if you do any rock roads, use "Engineer Fabric" under them.  Black.  Comes 12 and 15 foot wide.  You will not have to put base rock down and will use less rock.  Also no potholes.  When snowblading, leave a little snow on, don't go into the rock.

See if you can go shallow on the Water and Sewer.  Set up for a blow out system, at the end of the season.  Unless you do all year park, which I wouldn't.  Take a winter vacation, or give free space to someone living there, to watch over.

Set up convenience store in lodge.  Ice, drinks, alcohol, snacks, propane, etc.

Really sounds like a fun project.  If you "nail" it, then go around the US re-doing it.  Even though this past year was one of the best ever for Golf, it is my understanding a lot of the mom/pop courses are calling it quits as interest has gone down in Golf from youth.