Let me tell you about Fred’s (not his real name) story and how he got into self storage.
Over the next few episodes, I will interview some previous students and/or tell the story of a few students I have worked with, so some of you may see yourself in them.
Fred was a salesperson earning a very good income, in the $300,000 to $500,000 range per year. He had a wife and a small family. Soon after I started working with him, they had their first child.
Although Fred never attended the QuickStart Bootcamp I do, we were doing one on one work through my coaching program.
His goal was to create enough self storage income to replace his w-2 income (which was considerable for w-2 income) and dramatically increase his net worth.
Sound familiar?
As we got specific, Fred’s goal was to double his net worth every five years.
He had purchased apartments in the past but found the process of creating wealth slower than he wanted, so he started building small multi-family projects, then selling them soon after.
But he really wanted to get into self storage for a number of reasons, but primarily because he saw it as a faster way of replacing his salaried income.
Also, Fred really didn’t want investors or partners. He did bring on some family members as partners. Still, they are very passive, and their family dynamics are such that the relationships have not been affected negatively (unlike many I have seen).
The Hunt Begins
We initially started looking at existing properties and expansions but quickly found out that this was a bad strategy for Fred. He likes to create larger returns than any existing project could offer.
So, he started looking for land and conversion projects in his market area.
He found his first which was a combination of both—a 55,000 sq. ft. vacant warehouse on a large tract of land. I can’t remember exactly how big it was, but it was close to 19 acres if I remember correctly. Not all of it was buildable.
He initially walked from the deal, but things changed on the Seller’s side, and shortly after, he gained control of the property.
The due diligence was really tough. It was in a heavily regulated municipality, and the neighbors were not happy, but Fred worked through all the issues.
The feasibility report indicated unmet demand.
It was a larger project than he wanted, but he had a family member coming out of a 1031 tax-deferred exchange, and they went in together. Fred was the driver and the controlling partner.
They got approval for 45,000 to 55,000 square feet of non-climate control storage, 33,000 range of climate-controlled space in the vacant warehouse, and some outside parking.
Fred started building in 2 phases.
Interestingly enough, during the extended approval time and construction time, a lot of self storage activity began to happen in the market where he is located.
I am not exaggerating, but street rates dropped almost 40% from how he underwrote the project when he was open and started leasing.
I had never seen a market drop so bad and so fast.
I found it very interesting that one of the major REITs controls a lot of space in that market. Because of their rental rate movement and the size of their market share, their dropping rates should have slowed down the amount of new space entering the market.
However, it appeared in no way to have any impact on it.
Fred even went to meet with people who had proposed and approved plans, went over the data with them, and they knew the deals were very tight. But they were motivated to close deals regardless of the returns.
So, what did Fred do?
He discounted and leased the hell out of his project. His online marketing was stellar, and he actually competed head-on online with the big boys and, for the most part, outdid them in cost per click and online presence. I learned a lot by watching him.
Fortunately, because of the amount of 1031 money into the deal from his family member partner, the debt was low, and they could be profitable at the lower rental rates, although as profitable as he projected.
However, although rental rates were lower than he underwrote, so were CAP rates, so the value of the project was high.
Oh, did I mention that during phase 1 of the project, between the cash flow, management fees, and development fees, he was able to quit his job (“soul-sucking job” was the term I think he used)?
Around this time, the same family member also sold another apartment complex, and Fred partnered with them to do another conversion in the same market and trade area.
As they got close to stabilization on phase 1, I noticed a curious thing with Fred. He was bored with the project.
Due to the low CAP rates and the high value he had created, he was figuring out ways to sell this project and trying to figure out what he could do next with his money.
I figured out for him that running a facility was almost but not quite as bad as having a job.
The juice for Fred is creating deals and then executing that plan. Management of stabilized projects is not rewarding for him.
Also, given his double-net-worth goal, I figured out for him that selling a completed asset is an integral part of that strategy.
At some point, he may settle down and live on the cash flow of some of the deals he creates, but for now, it is apparent that he is focused on creating wealth.
So, Fred completed construction on phase II of the project and listed and sold it, leaving some upside for the next owner.
Fred doubled his money on that deal in 3 years.
He is poised to do the same on the second conversion only in four years or so.
He has exchanged his profits into other deals in different markets and is doing some ground-up construction.
He will do the same thing, doubling his net worth in another three to five years.
Conclusion
What works about Fred is he knows his strengths and weaknesses.
And he has a specific plan.
For many of us, our goal is to create passive income from self storage. Not for Fred. At least not at this period of his life.
He is playing a different game, a game of doubling his net worth every five years or so.
Not a better game, just his game.
A game worth playing, at least for Fred.
Now his strategy was not fully flushed out when he started on his storage journey, but it soon evolved as he got in and began to understand what he brings to the world of self storage.
But be clear, he came into the business to replace his income and double his net worth.
He accomplished his first in less than a year and his second in three to four years.
And he is still going strong.
I hope you find this inspiring if you are new to this world of self-storage.
Fred is smart, and he has the ability to focus on what is important and move the ball down the field, and not get too distracted.
He is also willing to take action, not knowing how everything is going to work out. But the risks are calculated, and he has a plan to cover his downside.
Now we all have strengths and weaknesses we bring into our self storage business.
Our job is to be able to exploit our strengths like Fred and get support to help us with our weaknesses.
Every day Fred gets up and plays the game he created.
Not a bad way to be in the world today.
In the next episode, you will meet a couple of guys who play a different game in the world of self storage, but one I think you will find very interesting.
See you then.
