All Forum Posts by: Michael Wagner

Eric Mavor, Mike Ware, Dave Savage, and any other Rochestarians,

I will be speaking at the June 13th FFREIA meeting about self-storage. Probably a repeat of much that I've discussed on BP but the networking at the meetings is always great and I'd like to meet you (or see you again). Hope you guys can make it!

For folks who aren't members, the first meeting is always FREE.

JC Skweres,

I am admittedly biased so take my words with a grain of salt but generally speaking my vote would be for Self-Storage as the best vehicle for one's money. Please don't perceive the following as immodest as I share only to help others discover this incredible niche. I base my bold statement about Self-Storage on my personal success in that niche (recently turned 40K investment into 60K per year in positive cashflow and increased equity in the property from the 40K I invested to $500K in just 18 months.....hence the bias:) but also on some key statistics.

1) Self Storage REITS were the top performing REITS for 2011 with returns of 35.22 and second for 2012 (to the Timber REIT) coming in at 19.94

2) Self-Storage Backed Loans default less than any other real estate backed loan on the PLANET (including owner occupied homes).....less than 8% default rate says something about the health of an industry.

3) Income to Expense Ratios hover around 33% in Self Storage compared to 50+% for apartments/offices, etc.

At the very least, I would encourage you to take a look at this niche! All the Best,

Mike

John Gossett,

Seems to me like Self Storage is an avenue you should consider. Cash flow is great, management is relatively simple and your woodworking shop would fit right in.

I'd be glad to contribute my humble two cents if its desired. Areas of experience are self storage as a niche or I could possibly do something on mindset. I've got some fairly well articulated ideas about "having a big why" as well as financial literacy/delaying gratification (the opposite of get rich quick) as essential building blocks for successful investing. Let me know if any of this would fit in.

While I agree with Bill G. that Master Lease Options do not eliminate risk, I find them to be an EXCELLENT way to mitigate risk. They also do significantly lower the barrier to entry for commercial properties. They work particularly well for properties that are under-performing in that they give you time to turn the property around, stabilize income, increase value and refinance with permanent financing when you purchase. Highly recommend getting smart on this technique!

Hi Adam,

$50 an hour is way too much for painting and the like. It is fair or good (IMO) for skilled things like plumbing and other things you can't hire a teenager to do. Having one guy for everything is nice but in your case it seems that you could save some money by separating the skilled work from the unskilled work and paying accordingly. HOpe that helps.

Hi,

1) Yes you inherit the leases. They survive the sale and so you should review them as part of your due diligence.

2) The month to month will survive the sale but because a sale usually takes 30 days, you could have the owner give 30 days notice now so that you take over the building empty. Whether this is a good idea depends entirely on the quality of the people currently there.

3) Yes you will get credits at closing for the deposits held.

4) The owner may or may not be truthful with you about the quality of the tenants. When I was active in this area, I preferred to avoid inheriting tenants because of a couple bad experiences I had. I just prefer doing my own background checks etc.

5) Yes, absolutely normal and you should ask for proof of any claims that seems suspect to you.

6) Quality or presence of tenats should absolutley be considered. A house with a great tenant in it will require no immediate intervention in that area so will be worth a bit more (at least to me). An empty house will require you to find a tenant will be worth slightly less. A house with a bad tenant that will require you to evict and then fill again is worth even less especially considering the potential for retaliation etc......With all that said, the tenant issue is a temporary and fixable problem so the best long term investment is to get the BEST HOUSE and then deal with tenants.

Hope some of that helps!

Mike

Check the classifieds. Peruse Craigslist. Drive through your neighborhood and call any for rent signs. Walk through available units to see how they compare to the ones you will provide. Should be able to answer this question after an afternoon's worth of due diligence.

Jon Holdman, I'm far from guru when it comes to storage but I do have some experience in turning around struggling facilities. Feel free to PM me if you'd like. Would be happy to provide some humble insight into how you might improve the operations at your facility to increase return/minimize loss.

Nick K., It sounds like you've gotten a lot of good advise on this thread. My two cents would be to not "chase the dollar". You've got to tie your efforts to a greater "why".....Why do you want 100K passively? Truth is everyone wants 100K in passive/residual income but few get there. The ones that get there have a BIG WHY motivating them. Is it so your kids (assuming you have some either now or in the future) can have a stay at home Mom. Or is it bc you want to be the rarified "stay at home couple" where neither of you work a regular JOB? Perhaps its to be able to support the parents who raised you for your first 18 years during their final 18 years? These might sound like cliche ideas but in my experience, answering the "WHY" is the single most important thing you can do.

ANSWER IT!

Good points have been made in this thread about the stark differences between a "job" and "investing". They are very different and become complex when you try to find the balance between the two. If I were you I would look for opportunities that allow you to do both (that's how I left my 75K per yr job behind once and for all).....Storage is a great way to do just that (in my humble opinion-and it can be done in many other forms of REI). Here's how it could play out:

1) Find a facility within 90 miles of your house (contact the owners of ALL of them)
2) Identify the ones that would consider selling
3) Execute a Master Lease with an option to buy. For example lets say the facility is 75% full and worth 300K. The owners want to retire but bc theyve owned storage for a long time the do pretty well and dont really need all the money right now. You can offer them a "option payment" of X-dollars plus X dollars per month for 36 months. Then you take over operations, rent the facility up to 90% making payments to them PLUS covering operating expenses which lets them continue to earn passive income. Everything left over is your JOB income for now and the increased equity in the property is your first return on "invested" time and money.
4) When the facility can support it, delegate the day to day operations to a manger whom you pay a fair $10 salary so that you can still have Passive (better called "Residual") income each month and a lot more free time to rinse and repeat.

Admittedly it is not nearly as easy as it sounds but entirely doable. And while you search for the first deal, get a JOB that will at least cover your living expenses in the interim.

Lastly, Heed Jon's advice about SPENDING MORE THAN YOU MAKE. We've all heard it but few do it. We are all conditioned to see the guy with a Mercedes and immediately think that he is Rich. The truth is, he may be rich but all we really know about him is that he SPENDS a lot of money on cars. If you want to succeed in business/investing you have to abandon the need to Keep up with the Joneses and learn to DELAY GRATIFICATION!

Hope some of that is helpful!

This is a double edged sword. On one hand you want to step up and take action. Inaction is the single biggest cause of failure. On the other hand, getting something under contract and then failing to perform is not good for your reputation. Having an out is important and occasionallly using the out is required but doing so with any regularity will hurt your business. The simple answer to whether or not you should put a property under contract without a concrete "disposal" plan is.....it depends.....it depends on the deal. If it is a good enough deal, you should be confident in your ability to make it work and move forward. If its a "might be a deal", then you'd want your buyer lined up ahead of time.

As a quick example, I just bought 3 acres of land for $38,000 at a NYS Dept. of Transportation auction. I have no buyer lined up but I know its worth 75-80K so it was a no brainer. I also have a back up plan of keeping it to build self storage on if I can't unload it quick enough for a reasonable profit.