In the next few episodes, I will go into a little more detail than I have in the past about how we have raised investment dollars to buy self storage.
I do not consider myself an expert, and I am just sharing what I/we have done.
Always have a good attorney who is knowledgeable about private placements and who will guide you, create your documents and approve what you show and say.
This leads me to how to start.
First Things First
To start, let’s go to the beginning.
Before you look at your first self storage deal, before you have your first conversation with potential investors or partners, design your business strategy.
At least that is what I teach in the QuickStart Self Storage Bootcamp.
Part of that process is creating your team of vendors, employees, and partners.
Your team is there to fill in the gaps and cover your weaknesses’. We all have them.
Said another way, there is no way one person can do everything, so we create teams or support networks to ensure all the bases are covered in getting in and running our self storage business.
So, for example, one weakness I had was I didn’t have much money. So, I needed investment capital to get in the game.
So, part of my business strategy involved raising investment money.
Now I can only share my experience, so everything I am going to say is not gospel. It is not the final word. There are probably people out there that are way more knowledgeable and have raised lots more capital than we have, but let me share the biggest mistake I see as many people get started.
Like I was, if you are light on investment capital, odds are you may be light in your current net worth. This could impact your ability to sign on a multi-million-dollar loan.
The initial mistake I see many, not all, but many, people starting off in the fund-raising business do is they think they are going to find someone to invest money, then sign on the loan with them.
You very well may find such a person, but my coaching is don’t do it.
If someone invests all the money (or most of it) and they are guaranteeing the loan, then that deal is theirs, not yours.
There is no way I would put all the money in and then assume personal liability for the debt and not control the deal.
Would you?
I would make all the decisions. It’s only fair.
So, my coaching is to have investors be investors, and if you need financial strength on the loan, get operating partners.
Let me share with you what I see as the difference and the profile of each.
Potential Investors
In my world, investors are people who have already made their money.
They are not investing in self storage to get rich – they already are.
Typically, we deal with people trying to place their wealth into places where (1) THEY WON’T LOSE IT, and (2) they get above-market returns.
Now they will never voice it that way, and most, in my opinion, don’t relate to their “investing” that way, but from what I can see as I get into their world, that is what is going on.
When I mention “investors,” I am not talking about institutional investors. I am talking about individual investors, what we may call “country club” money. These are individuals who have inherited their wealth or a company that creates their wealth. However, some are first-generation wealth creators (but most are not, if they were, they would be doing it themselves in most cases).
A few are doctors or lawyers who make a lot of income working and don’t have the time or energy to figure it out. Still, most of our investors tend to be people who own or have sold companies, usually the inherited family businesses, and spend their days having fun and protecting their wealth.
They won’t say it in this way, but they primarily don’t want to lose it. They don’t want to be the ones who lost money in a bad investment.
And they want to “beat” the market (which usually means outdo the S & P or NASDAQ). They usually want to look smart and feel smart in how they invest.
Can you blame them? You do or would too.
We all know the people who have to tell you about the deal they got on whatever they bought as if paying retail is somehow bad.
Well, I assume that the investor I am talking to relates to their investing the same way. I am not saying people will do this (although I have heard lots of it), but I assume they are going to have to brag about the storage deal they got into (mine), and I need to do everything possible to ensure it is a “bragable” deal for them.
So, for purposes of raising money for your first deal, or first few deals, this is my take a quick profile of the mindset of an investor.
Not exact, but a good starting point. We will go deeper as the series unfolds.
I have always attempted to create deals this person can be proud they put their money in. They can tell their spouse and/or friends they made a great investment.
Potential Partners
In my world, investors are the last people who will ever go on a loan with me. They have already made their wealth, and loans are often perceived as a way they can lose it.
So, if you need some financial strength more than what you have to get loans for self storage, here is my suggestion; get operating partners who are financially stronger than you but are still trying to make wealth, not invest their wealth.
I looked for people who (1) had a real estate or self storage background and (2) could help me run the business.
When I did my business strategy, I saw I am very weak at (a lot of things, just ask my wife) operations. I can run a facility, but it is certainly not my strong suit.
I wanted partners willing to sign on loans, could work in the business, oversee the employees and operations, and hopefully also know potential investors.
I got very lucky finding such operating partners. You can find them in your area by attending storage conventions, real estate associations, or real estate marketing get together. You may already know them.
I’ve even seen people who attended my self storage Bootcamp partner up together and grow their business.
If you don’t need any financial strength on a loan now, at some point as you grow your business, you may still need someone to oversee operations.
This could be a partner or a vendor for you.
Conclusion
So as we dive into the world of fundraising for your first or first few self storage projects, and you are not trying to come out of the gate with a large fund (I have not seen this be very successful for people getting into the business), there are the two types of “partners” I see you may need if you are going to use other people’s money to buy or grow your self storage business.
I sure did.
Given how fast things move today and the short due diligence time frames, I suggest you have these people or these potential people somewhat in place.
We will discuss this more in the “How” episode of this series. Just know here I will request you get “soft” commitments from potential investors or operating partners, which can turn into a “hard” yes when they see a specific deal.
But start now creating your list. If you don’t know anyone, just wait, we will discuss places you can find them.
If you know me at all, you know I usually start with the mindset first.
All success stems more from understanding this than the “what to do.”
Raising money is no different. My coaching is to know your mindset and the investors’ mindset.
This episode was designed to introduce you to some of the thing’s investors merely have their attention on, regardless if they are aware of it or not.
Keep this in mind as we dive deeper into the world of raising capital for self storage in the next few upcoming episodes.
See you there.
