All Forum Posts by: Scott Krone

@Jacob V.  - Is it cash flowing?  If yes, many times the best lenders are local lenders.  Potentially they would be ideal for the acquisition as well as the construction all in one loan.  The construction would be based upon "draws" to pull down from the loan to finance the improvements.

Welcome to BP. We did a similar process as you in many of those same suburbs early in our marriage. It can be a fun and rewarding process. I would caution you to dig deep into each community to investigate rental laws, transfer taxes and other expenses. For instance, if you sell in Evanston and then buy in Wilmette, you will be hit with 2 transfer taxes (Evanston Seller, Wilmette Buyer). Some communites are much more favorable towards renters than others. Property taxes is another item. A 750 sf unit in Evanston had the same taxes as a 100 x 200 lot with a SFH in Northfield - big differences!

No perfect way to accomplish, just need to know costs up front and what your market will yield.

@Jacob Hufford  - I agree with @Paul Moore - education is the first step.  I have been fortunate to have read sections of Paul's book, and he covers a wide array of strategies in self storage.  If you desire to get into storage or any other asset class for that matter, I always suggest learning as much as possible about the subject.  There are plenty of venuses:  classes, Facebook groups, podcasts, books, conferences, and websites etc.  That way when you begin nextworking with owners, operators, brokers, lenders, etc you will not come across as someone who is a complete noivce.  

The second aspect is you will have a better sense of what type of self storage you are seeking:  Class C, B or A.  It will help you define your goals and objectives, so you can identify the challenges you are facing and how people can help you solve them.  If you called me or we met at the SSA or ISS conference, these would be the first questions I would ask inorder for me to determine how to best add value to you.

I just returned from a Mastermind of self storage owners and operators from across the country.  We had the pleasure of having Mike Burnam from StorageMart present to our group.  It was an amazing presentation to learn how they have grown from a family business to a $2.0+B business.

@Lawrence Kutsovsky - I believe your question is "how do we scale"? I am also inferring you want to maintain working in the asset class you discussed, STR and SFH in FL and TX. The goal is to have "enough cash flow to cover our lifestyle".

Our company recently had a retreat for us to "work on the company" versus "working in the company".  We specifically discussed our individual and corporate goals for the next 1, 3, 5 and 10 years.  Once we understood the goals (financial and otherwise), we worked backwards to determine the required deal flow to accomplish the goals.

For instance, if you need only 5 additional STR or SFH to accomplish the lifestyle you desire, that is an entirely different proposition if you need 30 additional properties. By quantifying the number of assets, will help you determine: required equity and debt. It will provide a better sense of the requirements to accomplish your objectives. As @Paul Moore points out, syndication may be the way.  @John Warren also notes JV could be a possibile solution. Both are viable, but also have a cost which then needs to be factored into the equation of how many properties will be required to obtain your goals.

It appears you are solid in your model.  I will not aruge if there is a better model for you.  What I am proposing is working the problem backwards to determine the right solution for you.  Every solution has costs: time, experience, equity, debt, levergage, etc.  If you know the required dollar amount, you may be able to accomplish with restructuring debt to yield a greater cash flow.

@Andrew Cowles  First, thank you for your service.  Second, most of the self storage operators I know have purchased facilties in places other than where they live.  Nevertheless, south Florida is a heavily saturated market place for self storage - which means lmited buying options and perhaps paying too much for them.

Should you elect to acquire a self storage facility in a location other than Delaware, having a management team in place will be crtical especially for the first 6 months of transition.   As others have pointed out, it is real estate but also retail.  We currently own seven storage faciilities and only 2 are in our state.  That being said, we have a great team to manage them.  There are also companies that offer management services (not us!).

While in Delaware, the other potential issue is having the time and or ability to go inspect, due diligence, monitor the asset.  If you can get time away to do those things, self storage is a great asset class for a real estate career.  So, I would not be concerned if you feel the need to buy outside of where you are either currently living or desire to live.

@Tyler Hallman An NOI for $8,360 is not very significant for a property with asking price of $350k - which I suspect is the basis for your questions. I believe it requires more digging into the NOI. What are the expenses for Managment, Repairs and Maintenance, Marketing, Utiilties, etc. Most mom & pops have a high managment expense to reduce their income for tax purposes. On the income side, are they booking all the revenue?

Most lenders will not want a second for the full capital stack.  Could the seller carry the whole thing.  Only they can tell you that?  We begin all due diligence by asking the sellers both their goals as well as their challenges so we can determine the answer to your question.  Only they can answer Q4.  With regard to terms and rates, their answers will give you a sense for Q3.  Are they looking for monthly cash flow?  How much?  With that answer you can back in to possible interest rate.

@Mark S.  We are in a self storage mastermind with them.  They are very thorough and diligent in their approach to self storage.  

@John W.  When we evaluate an area, we do take into consideration what the overall market is doing - generally speaking.  If there is population growth, then there tends to be self storage growth.  

Nevertheless, if we are evaluating an area, we ultimately dive down into a specific market to determine the economic outlook.  The local, specific market is much more criticical to us then the "southern" portion of a state.  Arizona has had a tremendous amount of growth for self storage.  Which would be all the more reason we need to understand the local market to see if there are pockets of underserved markets.

@Eric Stanley - Does your question make sense?  Yes, if you can find someone to agree with it.  That being said, I agree with @Cason Acor and @Jason Hsiao regarding the SBA and zoning.  There are challenges @Patricia Steiner mentions, but they can be managed.  

My point is simply this, dentist love real estate for their practices because they still the economic benefit.  If structured properly can serve them and their practices well.  Nevertheless, it is important to structure the deal properly (equity, debt, cash flow), and understand the proces (entitlements - zoning, soft costs, hard costs, and build out costs - specific requirements for your pratice vs a traditional office building).  There are many who developers who works specifically with dentist to help find the best solution.

Why not continue with you strategy - if time with your kids is important?  If you do a live flip every two years instead of 7 years, you can build a nice nest egg.  In addition, after 2 years, the income is tax free up to $500,000 as long as you stay married, and the current administration doesn't change that tax code.