All Forum Posts by: Henry Clark

@Erik Henneman

Cash on Cash= $1,100,000 / $30,000= 3,667% return in 6 months. In a year, lets call it 7,200% COC return. This doesn't include the actual operational revenue, just the asset appreciation in 6 months.

Do you have $30,000 in cash or collateral? Do you live anywhere near Roanoke, VA?

See the post I did for @Nicolai Grebencio.

Now, its truly not this easy.  We have done a lot of analysis and are on our 8th location and have ran a ton of analyses to build or buy.  Plus made a ton of mistakes and learned a lot.  At some point we got to where we could "SEE" a deal.

Start small and Make Your Big Mistakes Early.

@Nicolai Grebencio

Says you have an IT background.  I'm an ex auditor.  Probably have flowcharted 40 different company's systems.  Payroll, AR, AP, Sales, cost, etc.  I understand Linear or process oriented thinking.  Critical thinking.

If you were ever hesitant about picking a Real Estate investment to get into due to your background, it should not be Self Storage. There are some nuances, but basically the financing, management, site/location selection, cost, offer price are all Linear and process oriented. SFH/MFH, you can say the same thing, but there is a lot more to learn, nuances, grey judgment areas, interpersonal skillsets required, hidden issues, etc. On a level of learning and risk; Storage is a 2 and SFH/MFH is a 10. Both in getting into the unit and the follow up management.

Your real lucky.

Look on Loopnet self storage Virginia.  There is a "DOG" of a property for sale in Roanoke.  Personally I love the place from what I can see.  Their asking $435,000; you offer $250,000.  Cleaned up this location is worth about $600,000 from a cost standpoint, from a revenue standpoint at 90% occupancy about $1,100,000.  You will probably need to put in about $50,000 into paint, replace some doors, electric, security system, general cleanup.  Lot of clean up, but what makes this property a winner, is it is in a great location relative to customers and geographically; low competition.  Also your entry point is relatively low for Storage and your potential LOSS is relatively low.  SBA loan at 10% down, would be $300,000 x 10% equals $30,000 down.  Low entry point.  Even if the buy in is higher, it still works.

Its not on sparefoot, thus not marketed.

Its in the middle of a Storage desert, in the middle of neighborhoods.

With this location you will learn about 90% of what you need to know about storage. From there, if you have a greater appetite; Self storage is a cookie cutter business. Very easy to replicate. Its actually more of a Financial investment, than a true REI as noted above.

It is better with experience.  You could get a part time job with a storage location helping to cover nights, days or weekends.

I can't attach excel files on Bigger Pockets, but below are some checklists.  Basically a process list.

Way at the bottom for some reason is a cost analysis worksheet.

@Erik Henneman

Hello from a former fellow CPA.  As you know you can make the same number look good or bad, its just a matter of perspective.

To help narrow down the above great inputs, if you could give us your perspective:

a.  Why do you want 12% in todays economy?  Beyond the obvious, its big.  What is your personal/financial objective?  More importantly how much risk are you willing to take on?

b.  What is the magnitude of both financial and sweat equity investment you want to invest? $xx,xxx

c.  How much are you willing to lose?  $xx,xxx

Example of returns and risk:

1.  We bought 8 acres for $200,000 ("off market" about to be on market the next day at the realtors office and he said hey, take a look at); not in the best location.  Bought it in one hour after looking.  Took a chainsaw in the middle of the winter and started clearing trees on 3 acres.  Rented a skid steer and mulcher to clear trees.  Hired some bulldozer work.  Put a free firewood sign out front.  Two years later per the appraisal, its worth $100,000 per acre.  No it didn't cost $200,000.  Lot of sweat equity and about another $20,000 in clearing costs.  But what is the return over a two year period?  Loss potential- $50,000

2.  On that same property we did Self Storage.  Used the equity above in a 10% SBA loan.  Built a $1.6mm location.  Appraisal came in at $2.4mm just for the storage on two of the acres, two years later at 30% occupancy.  Still in the rent up phase.  What is the return?  Loss potential $400,000.

3.  Everyone has this same story, just a different version.  Bought 48 acres for $485/acre in 1993.  Subdividing and selling for $40,000 per acre today.  Was that planned, no.  Partially yes, but not to those levels.  Loss potential- $0; its where we live; just don't need that many acres anymore.  We bought this location both to live, but also I could see the value of the location increasing over time.

1 and 3 above, if it was a business, you have to keep replicating.  These don't happen and come along everyday.  Plus you have to be able to "see" them and act on them

Item 2, we have $200,000 cash in.  Once 90% occupancy we will be cash flowing about $200,000 per year.  On a 20 year term amortization; although we will probably try to pay off in 10 years.  So during that time "we" don't get any cash, but we build $200,000 equity every year.  On an original $200,000 investment.  Not counting what we plan to do with the other 6 acres.  This is a planned investment.  This is our 7th location out of our final 8th buildout/purchase.  So it didn't just magically happen.  A lot of errors and mistakes along the way.

Start small and Make Your Big Mistakes Early.

If you can answer A, B, C above, the above group can get you into a 12% return. 

It could be a $20,000 trailer that you put $2,000 rehab into, and rent out for $800 per month, net of the lot fee of $500 for $300.  What return is that?

Or, a $3,100 cargo container; that you rent out for $90 per month on rented ground of $30 per month.  Net $60 or $720/year on $3,100.  What return is that?

The above scenarios are in my world.  The people above have tons of other options, with varying risk factors.

Literally while typing this post, my realtor just called and we have an offer of $87,500 on one of our 2 acre $100,000 listed lots.  Its all about putting your efforts into "forward" motion.

@Carlos Ptriawan

This is for Florida.  Google  Daycares4sale.com  There are other websites doing this.  Most of these are selling the business and not the real estate, but contact the real estate owner.

There are other ones out there.  Also look up schools for sale.  You can buy these cheap and make MFH.

@Jorge Ydlibi

Since you are starting out and are not tied to a specific type of investment.  

Look at Daycares.  This industry has gotten clobbered.  Lot of people still staying home with kids.  Shots are still a ways out.

No, don't get into the day care business.

No, don't rent to day cares.

See if you can find a building for sale that was a daycare and then do value add.

See if you can find a daycare business for sale, that the building is being leased.  Contact the building owner to buy.  They are probably hurting for a tenant, but you buy the building.  Knock on 25 doors and someone is going to sale to you.

Everyone else is looking for SFH or MFH. Go to a different market and value add back into MFH.

@Jorge Ydlibi

Our background is self storage but I will apply what we have learned.

1.  Everything everyone has said.  But lets move on to an analysis.  You need to join a group or get with an experienced person to go over your analysis.

2.  As mentioned above start your own spreadsheet.  Once you have done that, then look at the calculators and others. Go check out 2 or 3 locations and improve your spreadsheet.  As to do a ride along with an experienced investor and then afterwards ask what they saw.

3.  Go to loopnet miami apartments.  Pick 439 NW 59th ter.

4.  Picked a "clean" project.  Something easy for you.  No apparent major repairs.  Figure out if or if not, value add can occur.

5.  Start an excel list and list every component of a house or apartment.  Roof, floors, sub floor, walls, stairs, attic, fire exits, kitchens, sinks, bathrooms, laundry, HVAC, fireplaces, pools, garages, parking, landscape, mold, water damage, Sewer, water lines, flood plain, flood insurance, insurance, ADA, etc.  Put into groupings.  As you analyze a property save it.  Keep each property you analyze as a separate file and keep improving your list and spreadsheet.

6.  Read the Executive Summary.  Something is wrong with this property.  Non permitted wall.  You just learned something from them.  Add to your list, Permits?  Walls, stairways, parking, etc.

7. For your first deals start non complex. Not big money makers. Become a specialist in Landscaping and bathrooms. Or Kitchens. Don't do any huge BRRRR's. You want to get started and not get clobbered. You might become the Pet pee stain expert or drug house specialist. Then start to branch out to harder fixes.

8.  Look for the value add items that aren't being discussed, that are of value to you.  Example:  2,730 sq ft unit on a 11,000 sq ft lot.  Can you add more parking.  Can you add more attached units?  Close to bus terminal or highway?  etc.

9.  Love the Steel front door.  Either easy fix, or a selling point.  Check the neighborhood out and adjust to it.  If rough neighborhood add security cameras and barred windows as selling point.  Put a visually enclosed fence so they can let their pit bulls run in.  Key point, is look for value add items.

10.  This looks like a clean unit, so there isn't much "meat" left on the bone for you.  Check out added value. 

11.  7% sales commission.  If you go to flip, how do you avoid this, or build into your checklist.

12.  Determine your financial metrics.

13.  Determine your financing capabilities.  What dollar figure is your asset category.  No point wasting time on assets that don't fit your numbers.

You can learn a lot of things, but you will forget them, even if your experienced.  Keep adding to your checklist.

Do about 10 of these on your own and keep building your list.  Then either join a group or find an experienced investor in your same category to go over things with.  You need to add value to that person.  Don't ask for free advice from them.

@Jake Dotson

An option for the future is to add in a "Non compete" agreement.  Move more dollars away from the unit.  Plus the "Non compete" can be amortized or expensed quicker than the building.

Define what is a good deal to you?  Also how often and how fast are you wanting to find those deals? 

If this is your first deal, don't look for a "Good" deal.  Just do a deal with low risk to get started.  It will be a great investment in learning.

We only do Self Storage, thus the following are worthless to us.  But the point is, there are deals out there.  All of these come from my network.

Off market, do you want a house in probate?  One sitting right next to my office.

Off market, do you want a 60 room motel?

How about 50 to 60 SFH/MFH over the next 5 years or sooner as two old guys 85, start to reduce their holdings? How do you find those two old guys? Look on your cities GIS map. Start looking at the type of properties you like. When you find one, look down at the bottom and see "related" properties. Look for someone that has a bunch of related properties and call them. Give them a solution. How do they start to wind down if they are 80?

Is there snow on the ground where you live?

Drive around and see which houses didn't clean up the snow in their driveways.  Make a list and start hammering them.

Look for "Coal" and make diamonds. Look for MLS or Commercial/Industrial property that are dogs and have been on the market a long time. Value add them.

Go rent a similar car for a week or month.  Don't worry about the car itself, but see how you feel or appreciate it.  Have a Toyota Corolla with 360,000 miles, with dents on three sides, for my day car.  We rent a nice vehicle whenever we have a trip.  Then decide to buy or not.

I could say don't do it, but hey.  My son and I rebuilt my wife's family's original farm truck.  It mainly sits.  Cost a lot to rebuild.  But its a lot of fun and worth it.

Also there is a big gap between the rental income and the NOI. Audit the Rental income hard. Look at what the operating costs are, should not be $60,000. If this includes Depreciation, back it out of your cash flow calculations. Something is off. Just audit the numbers.

Biggest numbers should be.  Management- you said zero.  Property Tax should be little ???,  Mowing, Electric, Water, Insurance, etc.