Are you ready to navigate the complex world of self-storage investments? Join Stacy Rossetti in this episode as she battles through technical glitches and office moves to bring you a treasure trove of insights and success stories. Dive into the nitty-gritty of a student’s recent storage facility deal, unravel the secrets of the deal analyzer tool, and learn why understanding multiple income streams is crucial. Stacy shares invaluable tips on managing your facilities effectively, even remotely, and highlights the importance of starting your search early in today’s sluggish market. Plus, discover how mastermind groups can catapult your income, and why flexible financing offers can seal the deal. Whether you’re a seasoned investor or just starting out, this episode is packed with actionable advice to steer your self-storage journey to success!
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What Most People Forget When Running Deal Analysis On A Storage Facility
We had a student in StorageNerds on a storage facility and it’s his second facility. I’m sure eventually one day he’ll come on the show to talk and tell the story. I wanted to show you guys the process so you all can see how we worked through it. We found this deal in turnkey acquisitions for him then he closed on it. It took from January until June to close on it. That was five months. It takes a long time to close things. It’s taking a long time. I keep telling everybody that if you want to close on a facility this year, you better get your button gear because it takes a long time to find a facility and then close on a facility.
We talk to people like, “I don’t want to close on 2 or 3 facilities in the year,” but if you haven’t already been looking and putting offers, then you’re not going to get something close because it’s taking so long. Banks are taking forever to close deals. They’re so conservative right now. It’s not a bad thing. It’s not like the rates are bad or anything because the student that closed on this one got 8% interest, which sounds high, but honestly, the truth is commercial real estate is expensive and even rates are always high. The 6% to 8% is a normal percentage rate. He got an SBA loan on this deal. It was 15% down and he got a fixed rate of 8%. I’ll go through that. I’ll show you our process so you can see that.
For everybody new, I teach people how to invest in self-storage. A lot of my students, we partner together and we got a lot of deals across the country. Everybody is honestly doing very well with their facilities. It’s hard to own a facility. It’s not easy. I don’t want people to think that you can go out, buy something, put a sign-up and that’s how it works. It’s not how it works anymore. There’s too much competition out there. If you don’t want to play the competition game, then there’s no reason for you to get into this. If you’re okay with trying to figure all that out, then it’s a lot of fun.
If you don't want to play the competition game, then there's no reason for you to get into this. Share on X
Facility Owner Mastermind
We had a person who just joined the facility owner mastermind. They owned one facility and they wanted to grow their portfolio. We were talking to them in the mastermind. This person bought a facility two years ago. They haven’t done anything really to get the thing leased up. They haven’t raised rates. It’s at 80% full, but it’s always 80% full. They never raised the rates. They thought that they could buy the facility and then make money. It doesn’t work like that anymore.
There’s a lot of competition in the area. They have to figure out how to manage that property. That’s why they joined the facility owner mastermind. It was super fun to hear. Everybody in the mastermind chimed in and advised on what they should be doing. One of the big things that they talked about was their call center and they’re using the Zion Call Center. I don’t know anything about the Zion Call Center. I don’t know how good it is, but essentially, they had never gotten any weekly reports or monthly reports on how the calls worked. They had no idea in two years how many inbound calls they got, how many outbound calls, how many leads they got, how many customer service calls they got, and how many conversions they got.
I couldn’t imagine working with a call center and not knowing any of that stuff. There are a lot of call centers out there like that. That was one of the things we discussed in the mastermind. You have to be on top of whoever is answering your phone is going to make or break your facility. You have to be on top of stuff like that. That is part of ownership. A lot of people hired somebody. They answered the calls and expected them to do all the work, get the leads, and stuff like that. It doesn’t work like that. In that meeting, if they implement what we tell them to implement, which I’m sure they will, they’ll probably increase their income by several thousand dollars a month.
It took them two years to figure that all out. That’s what the mastermind is for. If anybody is tuning in and they’re like, “I own a storage facility, but I know I could do better at managing it, but I’m not 100% sure what to do,” you should consider joining the mastermind because that’s where everybody will chime in and tell you, “You should try this. This is what we’re doing.” You can take all those suggestions and implement what everyone fits your style or whatever. It was fun yesterday in that mastermind.
Executive Summary
We had a student who closed on a facility. He bought the facility for $2.5 million. It’s a bigger facility, but I’m going to go over the numbers. I’m going to show you what it looks like and then show you our process. You guys can see how the deal analyzer is. Let me share this real fast. This is how we do it. We found this facility and then we sent the Google Drive folder. If you guys follow me, you all know how we do this. It’s the same process in every single facility. This is the facility he closed on. It’s called Brad Self Storage. Eventually, I’ll have him come and tell his story. We found this story. We put this Google Drive folder together. Carmela is the VA that did that for him.
This is everything that you need to decide if it’s a good deal. These are all the things that we look at. We have to look at Google Maps, where is it located, and the street view of it. We put all the demographics in, which is household income, population, and stuff like that. You’ll see all this in the executive summary, then we have the Regrid. I don’t know if you guys know about Regrid, but it is what we internally use. The reason why we use Regrid is because it’s free. It’s not any better than anything else, but this is where you can look up the parcel data and you can get the property report card.
All you have to do is go to map and then once you do that, you can type your address in and it will show you all the parcel data of your property. We put that into our executive summary. It’s got taxes and all kinds of stuff and what is it zoned as? We’ve got the county information, the county report card, all the competitors and what they look like, then we’ve got the Radius+. I’m not going to get into it, but it’s another software that you can use to look up information about storage facilities.
We don’t get into Radius+ that much because it does cost money, but every once in a while we may need to get in there for some reason. I would highly recommend getting in and playing around with it. I teach this in my finding bootcamp, but Radius+ is a very good way to look at facilities that you can call and you can ask the owners if they’re interested in getting an offer.
It’s funny, the other day, one of my virtual assistants called an owner. I listened to the recording of the call, that’s why I know about this. He called an owner the owner then knew who I was. They were like, “I know Stacy. Can you please tell Stacy to stop teaching people how to put offers in on facilities? It’s annoying me so much. They’re calling me and they’re trying to put these random lowball offers in. Tell her to please stop teaching people how to put offers in on facilities.” That’s what he said on the call and I was like, “I’m making a statement out there, aren’t I?”
On the one hand with owners, maybe they’re getting frustrated because people call and ask them if they’re interested in putting an offer in. On the other hand, why not get the offer? What is the big deal about getting an offer and seeing what people value your property at? I don’t understand this concept. I wish people would give me offers. I have three facilities listed for sale and I still have yet to get an offer.
Even if the price is way off, put the offer in so that you’re practicing this concept. I don’t understand how people don’t put offers in. This is something that I push with my students, make offers. I don’t care if you’re pissing off the owners or not. Just make offers because you never know. If somebody made an offer on my facility, I would do everything I could to create a win-win situation for both of us like nobody does. It’s scary to put an offer in. Tell me why are you not putting offers in.
Just make offers because you just never know. Share on XThis is the Google Drive folder. What happened is over time, I got tired of opening up every single one of these folders and looking at every single one of them. We created the executive summary and the executive summary takes all that information and puts it into one document for me. That’s what it is. This is the executive summary. You can see it says Brad Self-Storage at the top. This is $35,000 square feet. This is a big facility. You guys all know this is a big facility and it’s making $256,000 a year. This is Carmela’s executive. It’s a beautiful executive summary. It’s creative in their executive summaries because they probably want a break from calling owners and they’re like, “Let me take some time and make this amazing executive summary, and then get a break from calling all these owners,” because that’s what they do.
Everybody on my team builds their list in the morning and then they call in the afternoon. If they happen to get somebody who wants to get an offer, they sit there and try to gather all the information to make the offer and then they come up with this executive summary. This is the Brad Self-Storage. You can see what it looks like. It’s an older building, but it’s not bad. It’s in Lubbock, Texas. If anybody knows anything about Lubbock, it is a secondary market. It’s one of those standalone cities that I talk about. It’s not in a metro area. I don’t know what the population is of Lubbock. We could probably look and see, but let’s Google that.
I always look up the populations of cities because it’s good to know what the population is. It’s 263,000 people in the city of Lubbock. On the outskirts, there are sub-secondary markets. It’s like the little tiny towns around the secondary market, which are also very good areas to be investing in. This is the same size as Tallahassee. I live in Tallahassee. I’m telling you these markets are amazing markets to invest in because there are a lot of mom-and-pop owners. There’s not a lot of big REITs there. Let’s go to Google Maps.
There are no major players in the city. There are almost 300,000 people in the city, but there are no major players. That to me is a very good market because I don’t have to have them as competitors. Affordable storage and discount storage, they’ve got a couple of them here and stuff, those would be my competition. How do they manage their businesses? How do they manage their facilities? Obviously, they know what they’re doing. I look at that. Lubbock is a great town to be investing in. I let you know if the price is right. It’s a very good buy-and-hold market.
You can see here this facility had two locations. They are selling them together. It has 241 units and then 76 parking spaces. The upland facility has 101 storage units with 76 parking spaces. That’s how it is, then access acres, 0.78 on upland 2.2 areas. The vacancy rate is 9%. It’s full. It’s doing good. The annual income is $175,000. Office, 42. There are some offices. When you’re doing your deal analysis, you do not put the office income into the storage units. I see this all the time that happens. These are two separate incomes, and parking is a different income.
He has three different types of income coming into this facility. You can’t say, “It’s $256,000 as the income,” because the price per square foot for storage is completely different from office or parking. Parking price per square foot is typically around $0.20 a square foot, maybe $0.20 to $0.30 depending on the location. The office is $1 a square foot. It’s typically around $1, then storage could be probably around $0.85 a square foot here.
You can’t combine all this together and run numbers on $256,000 because your numbers are going to be totally skewed. You have to run these three things separately. That’s why on our deal analyzer, you can run the units. You can run your parking separately and run other income separately. That’s how you do it on our deal analyzers.
Be aware that when you start doing deal analysis that’s what you’re looking at. What you’re doing is separating this because there are way too many times I see you all combining all that together and then numbers get all screwed up. The demographics. You see there are $260,000 people only increasing. These secondary markets are going to be the hotbed over the next 5 to 10 years because all these bigger markets are saturated. Who wants to move to these big huge markets anymore? They want to have a place where you don’t have to sit in traffic for an hour. That’s why I left Atlanta and moved to Tallahassee.
There are 260,000 people. The growth rate is a little bit over 1% a year. It’s increasing every year. The radius is 3, 5, or 10 miles. A 3-mile range is 45,122, 272. This is the property information from Regrid like I told you the tax information, what it’s zoned at, and stuff like that. This is what it looks like. This is the first location and the 50th Street location. This is the 35th Street. This is the office space. This is what he got. That’s the office income. That’s making $40,000 a year and here’s the storage. Here’s the facility. This is the land parcel.
It’s fun to look at all this stuff. This is the 7304. This is different. This is the second location. Let’s see what this looks like. This is a little bit older unit. It’s got the double doors and stuff. Nobody cares about this. Maybe they park vehicles in here, like enclosed parking. This is a big thing in Texas, this enclosed parking. I have another student who has another one under contract that looks exactly like this. This is where they park their boats and stuff like that. That’s very big in Texas. It’s like enclosed parking maybe because it’s hot. I’m not sure why it’s big in Texas. You all tell me, but I do see this quite often in Texas, these types of buildings.
Here’s this facility. It’s got storage and they got the bigger park in the bigger units. It’s a little bit older-looking. It’s not too bad. Maybe it needs a good paint job. We just painted one of our facilities. It looks amazing. It only cost us $2,500. It cost us $3,000. We got a couple of people to paint it for $3,000. It’s a 10,000-square-foot building and it cost us $3,000 to paint that thing. It looks amazing. This is a covered parking right here.
This is us compiling everything into one executive summary and here are the units. There’s one, and then they’re right next to each other. It’s right up the street. You could get anywhere in Lubbock for ten minutes probably because that’s the best part about all living in Tallahassee. Here’s the competitor. Secure Care is a bigger second-player competitor. You’ll see a lot of Secure Care in these secondary markets. In Monterey, you can see a lot of the buildings are older. Lubbock is a very old town. A lot of stuff is going to be older. Lubbock has a fantastic twenty-year plan and they’re building out a lot of stuff. They’re putting a highway. They have one inner circle that goes around. I don’t what it’s called, I can’t remember.
They’re building a second one on the outskirts because they’re planning for the growth that’s supposed to be happening over the next 5 to 10 years. Something that you want to look at when you look at cities is are you looking at their twenty-year plan? Where are they planning to get the growth if they are growing and stuff? Lubbock is very good at that. Some cities are not good at planning, but Lubbock is one of those that is very good at planning. Here’s an easy stop. A lot of this stuff is concrete. I’ve noticed here too. A lot of buildings are concrete, maybe that was a thing back in the day versus metal. Orchard Park is right here and Storage Zone. These are metal.
Q&A
Heather is saying, “Do I need to spend money on an inspection before I make an offer?” No, just make offers. You do your due diligence. Let’s say you make an offer. They accept it and you’re like, “Now what do I do?” What you do is you put it under contract, either you can go out and look at the facility after they accepted the offer, or you can be like, “I’m going to go take a look at it,” or you can put it under contract and have some due diligence time.
Typically, in the commercial world, 30 days of due diligence is not unheard of. We have facilities where you’re getting 60 days of due diligence and sometimes even up to 90, depending on how big it is. You just need to put an offer in. That’s it. Don’t worry about all this other stuff. Learn how to run deal analysis and put an offer in and then you can worry about the next steps like when that actually happens because the truth of the matter is it takes 50 offers for 1 to get accepted. It takes a ridiculous amount of offers. Just put some offers in.
“When we find a facility, can we ask for owner financing?” Yeah, that’s the whole purpose of the deal analyzer. I talked to one of my students. He got one under contract for $500,000 with owner financing, and all he did was send over the offer letter. I push a lot of creative deal structures. One of the students is going to do $500,000 cash and then $100,000 seller financing. He has a couple of investors and they’re all partnering together. They have so much money, but the owner wanted $750,000. They convinced him to do $600,000 with $100,000 of seller-financing.
That $100,000 is not paid until after one year of ownership of the property. They’re going to pay cash, $500,000 for the property, and a couple of them getting together, partnering together on a deal then the $100,000, they are going to pay one year later. They’re going to start the owner financing for ten years. He has 5% interest for ten years on $100,000. It’s interest only. It’s super low. I think it’s $700 or $800 a month. The truth is you could negotiate any type of deal. There’s no one way to do it.
Noel, “Who do you recommend for skip tracing when looking for owners of properties?” We use Crexi to skip trace, but you can also use Whitepages. Let me share that with you. In Crexi, we have the investor’s account. There are two different types. In Crexi, you think, “I’m going to list my property and then go make an offer on it.” We won’t ever make any offers on Crexi. What we do is we have the investor’s account with Crexi. What that does is that gives you access to all the data that they have and they have a ridiculous amount of data. I do not know how to use Crexi. I apologize. I’m horrible because I have a team that does all that.
The difference is that you have comps and records. You have lease comps. This does not come up when you’re in Crexi normally. I don’t know what else that is actually. I apologize. Crexi is where you can get the owner’s information. You can get the email and phone number of the owner in Crexi. That’s what we do. I can introduce you to Grant if you’re interested. Just message Questions@StacyRossetti.com.
He’s our account person for Crexi, and then he can do a demo for you and stuff like that. He’s come on a couple of times to the show. You can go back to those if you want to. If you can’t afford Crexi, because it does cost a little bit of money, then you can do Whitepages. It’s the cheaper version, but you get what you pay for. In Crexi, you typically get good information. In Whitepages, it could be good or not. Try both. That’s what we do. We try one or the other.
I got a couple more questions there, “Does your student live out of the state, not in Texas?” Yes, one of the students lives in Alabama. He got under contract in Texas, but he also owns a facility in Arkansas. He owns a couple in Alabama and then Arkansas and now Texas. We own sixteen facilities. We live in Florida and we have three facilities in Florida, and the rest are in Georgia and Tennessee. You do not have to be near your facility if you know how to manage it. That’s why I said once you own the facility and you join the facility owner mastermind, and then you start becoming good at managing it.
That’s the thing. The hardest part of of storage is not finding it and it’s not funding it, it’s managing it and making sure that you make money on a deal because you’re buying a business. Everybody is like, “It’s an investment.” It’s like, “Businesses are investments, but you’re buying a business, you have to be able to manage it.”
Heather says, “Would you ever buy a facility in a flood zone? There’s a 1% chance of flooding every year.” I think we do own facilities in flood zones. For me, it’s not that big of a deal, but for your first deal, you have to make sure what kind of a flood zone it’s at. We live in Florida. It’s flooding all the time. We have facilities in Florida. The whole state of Florida is a flood zone. I have students who live in the boot of Louisiana and own storage facilities there.
It depends on your risk level. On a scale from 1 to 10, where are you on that scale? That’s what storage facility you’re looking for. If you’re 1 on that scale or less than a 5, you should be looking for income-producing properties that are inland and they’re in good markets that are growing and something like the secondary or primary market.
We had somebody that applied to the program. He put a ten. If I wanted to fill out my application, I would’ve put a 10 on mine. I’m a very risk-averse person. I do whatever. It’s like gambling a little bit. Some people are not like that. When you tell me, “On a scale from 1 to 10, what number are you?” Whatever number that you tell me, I can tell you what deal you should be looking for. On average, how much does Crexi corporate account?” I think it’s $150, but I’m not 100% sure because I get the Stacy discount because I share it out and everything.
Deal Analyzer
Let’s do the deal analyzer here now. You can see Brad Self Storage. I’m going to share the deal analyzer with you so you can do it. I highly recommend that you guys have the deal analyzer and you’re running numbers on it. It helps you to run the numbers. This is what the deal analyzer looks like. You can buy the deal analyzer on the website. Go to the StacyRossetti.com website and you can buy this. I made this public about a year ago. A lot of people have used this deal analyzer to make offers and stuff. I got an offer on one of my facilities previously and they used my deal analyzer and sent the offer letter. I was like, “This is awesome. I got my own offer letter,” but it was bonus points.
This is the deal analyzer. This is how we ran numbers and stuff. When you’re talking to an owner and you’re like, “What do I ask this owner? What information do I need?” Everything in yellow that you see on this info tab, you can see all the tabs at the bottom, but on the info tab is what you’re going to be asking the owner. They need to know the market cap rate. The market cap rate is based on the market. I go over this quite often in a lot of videos and stuff, but typically, it depends.
Lubbock ran the numbers. A 6-cap is where they ran the numbers. Lubbock could be a 6-cap. Secondary markets are typically between 6 and 7 caps. The primary market has a 5 to 6 cap, and the tertiary market is 7 plus, maybe 7 to 8 cap or something like that.
You won’t find any cap rates higher than 8. A lot of people are looking for higher cap rates. I have one student. He’s adamant about buying a 10-cap storage facility. I’m like, “We never going to find a storage facility to buy. I’m sorry, those things are gone. You should have gotten into storage eight years ago when I got in because everything I bought was 10-cap or higher.” That doesn’t happen anymore. You should be happy with the 7 cap, otherwise don’t buy, it because then that means that you’re not like a 7, 8, 9, or 10. You’re below a 7 on the risk level. Maybe right now is not the best time to be buying.
The income you can see here is $174,000. That’s just for the storage. When you’re running your numbers on this deal analyzer, you’re only running numbers on the storage facilities, 241 units, 35,000 square feet, and 9% vacancy. The storage is full. The other income is where we put it under this valuation current. You can see the office is at 42,000 and then the parking was at 40,000. He not only bought a storage facility, but he also bought office space and he bought a parking lot.
When we run our numbers, what we do is we look at it in three different ways. We look at like, “As is right now, this is what the numbers are and the valuation is,” then we also look at like, if it was 25% full, 50%, or 75% and you have to do some work to get it filled up, what does that look like? What do you have to do to get it filled? You don’t raise the rent until you have it to 80% or 85% full and you know that you’re not going to lose a lot of people by raising the rents and stuff.
We run the numbers of what we call potential, which is getting them full. People think, “What does potential mean?” Potential means, “Is it full?” If it’s not, this is what you’re going to do. You’re going to market the heck out of it to get tenants to come in. You’re not just going to raise the rents, you’re going to fill the thing up is what you’re going to do. That’s step one. You can see here it’s 9% to 8%. We run our numbers on 8% full. This is almost there. It goes up a little bit from 174 to 176 by that 1% at the $0.45 a square foot.
After-update is your opportunity. It’s like, “If I raised the rents, added more units, added more square footage, what would the numbers look like?” These are all the different opportunities that you could be doing to the property. That’s the three different ways that we evaluate our deals. We’re not adding units. We’re not adding square footage. We’re not increasing the occupancy. All we’re doing is increasing the rates from $0.45 to $0.66 a square foot. Where do we get the $0.66 a square foot? You get that from your competition analysis, your competitive analysis.
As you can see here, all those competitors that you saw in the executive summary are all put here on the deal analyzer. We are looking at the competitors. We do apples to apples. Whatever unit sizes or the facility that we’re buying has available, we’re looking at what the competitors are charging for those units. You’re filling out the info tab and you’re getting this information, everything in yellow, these are expenses down here this is your property taxes, utilities, and expenses to run it. These are all formulas. You can keep the formula if you want. These are based on our numbers or you can override it. You can be like, “Stacy’s numbers suck. I’m going to change this. I can do it cheaper, better, I could be leaner.”
We write our numbers between 35% to 38% expense ratio. One of my students was like, “Maybe do that 27%.” I was like, “Run your numbers to 27%.” If you think you could do better, change these numbers. That’s why they’re in yellow, so you could change it. It’s not going to hurt my feelings. If you don’t know what the expenses are, leave them here because this is a very good ballpark number and they’re good to start. These are numbers to start with. Over time, you can change them if you’re better than this.
That’s my two cents.
I went to unit mix. The unit mix is where you put the unit mix. You can see here that we’re labeling 10 by 10 by 15, 17, 19, and 20. It’s got all these weird sizes. We label all those out 5 by 5s, then we have the 12 by 5s and by 25s. This is the total square footage and this is the rent rate current and then the competition. The competition is coming from this page. These numbers are all coming from here. Our competitive analysis creates this number. You can see currently, we’re at $0.45 a square foot. We’re going to take it to $0.66. All we’re doing is taking the numbers from the competition, putting it here, and then adding it up here.
There are a lot of lines because sometimes you find storage facilities with a ridiculous amount of sizes. We’ve had facilities that have 30 different sizes of units. That’s why there are a lot of lines. You can see here, 232 and 35,000 square feet. Right now it’s making around $16,000 a month. If it was 100% full, it’d be around $16,000. It should be making around $23,000. Does that make sense to you all? If you wanted to get into physical versus economic occupancy, you could fill this out as well too. We didn’t fill out this one, but sometimes we do.
Now we’ve got all the numbers filled out on the info tab, we have the unit mix tab filled out and we have the competition. Those are the three big ones if you don’t have other income. If you do have other income, you’re filling out your valuation current, and potential, then after-updates. Let’s say that you have on this current, we have $43,000 and $40,000. You could say like, “If I raise the rent on these two things, what could I make as well too? Could I get more than $1 a square foot or more than $0.20 a square foot? Could I go up to $0.30 a square foot?” You can also increase the income on these. You can change these numbers. You could say, “I’m going to start at $40,000. My goal is to get to $45,000 each on both of these.” You could change that number.
That’s how we look at the numbers now. All these are filled out. Now we need to put in our financing inputs. Financing is the most important thing right now. How are you going to pay for this? How is this person going to pay $2.3 million, $2.5 million, $2.6 million, or whatever amount of money the owner wants? You have to figure that out. You have to figure out, “How am I going to fund something like this?” You have to have this type of funding in your back pocket. If you get an SBA loan, you need 10% to 15% down. If you’re going to get a conventional loan, you need 30% down. If you’re going to have cash, you’re going to 1031 exchange, you have cash or whatever it is, or you’re going to get them to sell or finance.
That’s how we run our numbers. You can see cash and owner financing. There are three different ways, then there’s either bank or private lending, depending on your scenarios. These columns are nothing but calculators. I could put any name up there, I could put like, “Booga,” it’s the same thing all the way across. These are just five different calculators and you get to run your numbers five different ways. Don’t get all freaked out about like, “I don’t have $2.3 million of cash,” or whatever. You’re offering the owner a cash offer, which is you either going paying cash, going to the bank, or getting a private lender to come in, and give you the money or you’re going to seller financing. You’re going to do some creative deal structure.
That’s how we set the tone for our offers. We run the numbers that way. The one thing that I didn’t point out is that on the info page, you see this little green box up here. This is how you can run the numbers in all the different ways. You can run five different scenarios. You pick this. He ended up doing the bank financing. We ran the numbers and you can see here, what we do is we look at cash-on-cash return. We try to get around 10% or higher on the return for the cash. That’s our goal, 10% cash on cash return or higher, whatever your goal is, but we try to get the cash-on-cash. Ten percent is our target.
We come in and start running the numbers. If I had $2.6 million, it would be a 9% cash-on-cash return. I tell all my virtual assistants, “It has to be 10% or higher for the offer.” They always try to get it above that. That’s how we came up with the $2.3 million. We’re just playing with the numbers and running the numbers is what we’re doing. It’s super simple to get that number.
At the same time, over here. we need to get the cash on. We need to get the return to 10%. If we do a $2.3 million at 30% down and 10% interest by running this scenario, then it’s a 7% cash-on-cash return. You’re saying, “What if I get 8%?” Typically, for conventional financing, you’re going to get 30% down and 8% interest. It’s where it’s at right now. That’s what you run your numbers at. You can see it’s at 10% for $2.3 million.
For the owner financing, we always try to do a little bit more. We try to entice them. We try to entice the owner by paying more money for the seller’s financing. The way that bank financing works right now is that you have to get what’s called the DSR. It’s the Debt Service Ratio. The banks want you to have this spread. They want you to be able to make the mortgage and be as conservative as possible. We always shoot for getting this DSR right at $1.3 million. I’m going to scroll down here and you can see the DSR is right there. The DSR comes out at $2.3 million. The DSR is at $99.99. You want it to get to $1.3 million. That means that this price might be too high for a bank. This is why deals are not working out if you have to go to banks because if I had to get this to $1.3 million, I’d have to be at $2 million.
Numbers don’t just pencil out. When you have to go to a bank, it’s hard. It’s $1.17 million so it’s even lower. That’s why numbers are not penciling out because the idea is so high. Banks are conservative. This is one thing that we try to discuss with the owners and explain to them. The banks are being conservative. For me to get to any number that you want, I need to have $1.3 million to get the numbers. That means that I have to put in some random offer. I have to buy this thing at $1.8 million to get it.
It’s green. It says, “It’s a good deal, I’ll do it,” because our numbers are based on that. If you went to a bank right now and you had to put 30% down, 8% interest and you had a balloon for 5 years, over 20 years, you would have to be at $1.8 million to make that number work for the bank, even though your cash on cash is at 20%, the banks want this huge, massive spread. Make sure that they’re safe and you are safe. Just because the interest rates are high and they want to higher down payment, you do have this massive spread to make it work or you can shoot for an SBA loan.
Let’s say, your first time it’s 15% and then you’re coming out to 9% interest. They’re about 9% or maybe 9.5%. He got an 8%, but typically they’re 9% interest. Now you’re at 26 and you’re at 101. Even the DSR is not going to work with the 15% down. You have to say, “What am I going to be able to make an offer at for the bank to be able to do such low payments?” You play around with that. In the end, what our student did was not buy it for $2.3 million. He bought it for $3 million. He put 10% down and got 8% in trust. He got a 20 over 20 loan. He has to pay a mortgage of $17,000 a month.
That’s what he did. He put 10% down with 8% interest and then he got this thing for $2.3 million. He’s okay with coming out of pocket every single month to get the valuation of $4 million. He has a $4 million valuation on this property. He bought it at $2.3 million. He put 10% down and he got it for 8% interest. The bank was okay with funding it, then you have to ask yourself on deals like this, “Are you okay with coming out of pocket a little bit every single month if you know on the back end that you’re going to be able to make $1 million or $1.5 million?”
This person’s risk level is at 8, 9, or 10. He’s like, “I’ll come out of pocket a little bit every single month. To get this valuation up, I’ll pay this.” The current cash flow, he’s making $256,000 a month. His expenses are coming out to around $95,000 or $97,000. His NOI is at $150,000 then he has his mortgage every single month that he’s coming out of pocket on until he can get it up to his valuation. He’s a CPA so he plays with the numbers until he can get it to whatever is working on this. You could also offer seller financing. You could say, “If I give you 10%, 20%, or 30% down, would you be interested in financing the deal?” Would you be interested in being the bank?”
Our offers look like this. This is the offer letter. It’s either $2.3 million cash or $2.5 million owner financing, then over 10 years, you’re going to make around $650,000 to $1 million if you seller finance it to me. This is what you show. You’re showing your purchase price, monthly payment, interest rate, terms of the loan, down payment, and the total interest to the owner, and then the net amount to the owner if they can sell it. The cash, which is either paying cash or going to the bank getting this. If you can seller finance it, you’re getting this.
That’s how we show it. That’s what opens up the conversation. I’m not 100% sure what he ended up with on the final thing. When we started with something like this and then he went back and forth and did his thing, whatever he came up with the bank and stuff. I’m out of the equation for that. That’s how it is. This table here is perfect to give to owners. This creates this awareness of how much money they could possibly make even if they seller finance. Either we’re going to pay the bank this or we’re going to pay the owner this. Why don’t we just pay you this, and then you don’t have to do anything at all and you get to save on your taxes because you’re only having to pay taxes on the money that you make on a yearly basis and you don’t do anything.
Over time, you’ll make $1 million by not doing anything at all. That’s how we convince the owners to do that. You could play around with these numbers. All you do is think about these five columns as calculators. Whatever it is, it’s a calculator, then you run the numbers based on whatever you can afford. What’s your down payment that you could put down? If you put 20% or 30% down, what does your numbers look like?
The bank will say, “For me to lend you this money, I need you to put this much money down.” This is a scenario that happened with one of our other students. She got it under contract for $550,000. The bank came back and said, “We could lend at $550,000 if you put $200,000 down.” She only wanted to put $150,000 down. What they’re doing is they’re coming up with that service ratio, they’re coming up with that spread, which is called the loan to value. They come up with the scenario that fits their risk level the best.
You are doing the same thing on this sheet. You can change all these numbers to anything that fits your risk level, and the amount of money that you have then you run scenarios to find a win-win situation for you and the owner. That’s how it works on the deal analyzer, then you can print this and then send this offer letter over. That’s how we do it. We print this letter and send it to the owners. That’s the deal analyzer.
Put Offers Out
You can hop on to StacyRossetti.com to get the deal analyzer. It’s a course you can through and teach you how to fill everything out. You have ways to make offers. You need to get out and make offers. Even if you don’t get anything, at least you’re practicing. You’re putting offers out. If you’re not putting any offers out, that’s all I’m going to tell you. You might as well buy this and make some offers so you can learn how to do it.
Heather says, “Can you do a deal like this? If I don’t have my own money to pay the difference every month?” You want to have it. You want to look for it. You don’t have the difference and find something where you’re breaking even or you’re making a little bit of money. There are a lot of facilities out there where you do have to come out of pocket, but there are facilities out there that are making income. You have to find the right facility.
“Where does he get the money to make the difference?” He has no money. This guy got money. For him to come out of pocket a couple thousand. This is how I think. I’m like, “If I have to come out of pocket, let’s say $2,000 or $3,000 a month for the next two years to stabilize this deal, that means that I’m coming out of pocket $75,000 or maybe $100,000 at the most. Am I willing to come out of pocket $100,000 over the next 2 years to make $1 million in the next five years? That’s what I ask myself. Coming out of pocket every single month is scary for a lot of people. We have sixteen deals and this is how we do in all deals. I’m willing to come out of pocket. The first one you’re always really scared of but then after a while, you start making money on the first one and then you use that extra money to pay the second one off.
It’s like a cycle. Now all these facilities that we’re making money on, we use that money to buy another facility. We pour all that money into it. It builds up over time, is what it does. That’s how we did it. You don’t have to do it that way. You could buy an income-producing property and then make sure that you’re cash-flowing and that you can break even or make a little bit of money on the back end.
“Can you put it on a credit card?” Yes, put your bills on a credit card. It’s like coming out of pocket for the expenses. You can’t put your mortgage on a credit card, but you can put your expenses on a credit card. You could pay all kinds of other stuff on credit cards. We put our stuff on credit cards so we can get the points. That’s what we do. I appreciate you guys all hanging in until the end. Hopefully, I’ll see you guys at the next session. Take care.
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