Funding your storage investment is tough. If you’re ready to take the plunge, then The Self-Storage Fund Of America is ready to help. Stacy Rosetti introduces a syndication fund that is ready to help investors who want to get into storage facilities. Stacy also talks choosing properties, finding the right investment and exit strategies. Tune in to learn more about this opportunity to invest.
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Self-Storage Fund Of America
Robb, how are you?
I’m good. How are you doing?
I’m good. Thanks for hopping on. For everybody that doesn’t know who I am, I teach people how to invest in self-storage. I invest in self-storage myself and also with my husband, Pete. He’s going to come on and introduce himself as well too. We have been investing in self-storage for years. We own eleven storage facilities in the Georgia and Florida area and we are looking to buy more facilities. Chris is on here too. I’m going to promote him to panelists. I’m promoting everybody to panelists.
My team is coming on because if you have been getting my emails and posts out, you have seen that we have launched the Self-Storage Fund of America. I have been working on this thing for a year and a half, trying to figure it out and get it going. I wanted to talk a little bit about that. You are going to be my practice session for the fund. I’m here to just put myself in front of you. All my students are here. A lot of my students are reading and people come to meet teaching and stuff.
What I figured I would do is introduce you to my team, talk about the fund, go over and practice with you. You can ask me a lot of questions and hopefully, I can get better at pitching it because I want to be pitching this thing out to everybody, try to get people to come in and partner with me so I can buy more storage facilities. I’ll introduce you to the team.
Introducing The Team
Jasmine is from Washington and she wholesales in Alabama. “We have a self-storage portfolio under contract in Northern Alabama and came to increase my knowledge.” I’m interested in your self-storage portfolio in Alabama. If you want to email it to me, it’s to Questions@StacyRossetti.com. I’m sure there might be some other people on the chat who would be interested in looking at that. You can always put your contact information out there and they can chat with you as well. This is a community where we are all here to buy storage facilities and grow together. Before we get started, I wanted to introduce my team here. I asked them to come on and answer some questions about how we do everything.
I am Robb Thomas. I have been working with Stacy. My background is CFO in Finance and Accounting. I’ve come on to help Stacy and Pete in any way I can. I’m learning as I go. This is all new to me as well but I have a lot of experience as a CFO. Hopefully, I can provide some value for them. I’m excited to see the pitch and be part of this.
We hired Robb at the beginning of 2022. There are two things with him. We are at the point in our self-storage investing career where we need somebody on our team whom we can talk strategy over with. We are to the point where we are growing very quickly and rapidly. We are trying to figure out two things. First of all, we have the Self-Storage Fund of America. We were trying to get that started and going. I hired him to help manage and finalize that. He’ll be on the back end managing the fund. I’ll be able to talk to him about the deals that we put into the fund, whether or not they fit into the model or what we’re trying to do within the fund.
That’s one of the things that Robb’s going to be doing. I’m excited about that. I need somebody to talk to because I got a lot of stuff going on in my brain so does Pete. It’s good to strategize about all the different deals that we’re doing, how we’re growing, how we should grow and have some people on our teams that understand the concepts that we’re doing, can help us and guide us in the right directions.
Second, we have Ms. Lillian’s Self-Storage. It is the storage facility that we own and operate ourselves. We’re vertically integrated. We have eleven storage facilities. The job for Robb is going to be to look at Ms. Lillian’s Self-Storage as a whole, also individually to all of the facilities that we have and tell us what we’re doing wrong, right, how can we improve and make more money? How can we better? How can we better at revenue management or our pricing? How do we compare to our competitors? He’s there on Ms. Lillian’s Self-storage side to help us to implement strategic strategies within the company.
Getting Into Storage Investing
We are getting to the point on some of our facilities where we have the decision like, “Should we keep this thing? Should we refi out? Should we sell it? Should we 1031 exchange them? Should we owner finance them?” Essentially what happens is once you start getting into self-storage investing, you’ll have all different kinds of loans, terms of loans and all different types of facilities that have all different types of strategies and exit strategies.
We are getting to the point with all the facilities that we have and what we want to do is the question, “Do we want to hold onto these or do we want to let some of these go, then 1031 exchange them into other facilities or something like this?” That’s where we’re at. One of the things that Robb is going to help us to do is look at the numbers and help us to be a better company and business. I’m excited about him coming on. I wanted to him in 2021 as a CFO but it takes time, especially with us. We’re storage investors. It’s us personally. I saw it in everybody in the storage and investing world but our personality is slow and steady wins the race.
Pete and I are slow and steady to win the race and everything is like a process for us. We like to think things through, analyze stuff and make sure we are doing the right thing. That’s where we’re at. It’s all about, “Let’s start thinking about growth and how we can do this the right way.” Another person that’s here is Chris. He is my acquisitions person. Chris, introduce yourself real fast. Tell everybody what you do.
I’m Stacy’s acquisitions person. My duties pretty much consist of calling owners, training the VA’s, creating lists and finding all the deals for Stacy.
Since we hired Chris, we have bought six facilities. When I hired him, he had no idea about self-storage investing. I trained him to get out there and talk to the owners. We don’t go onto Craftsy, LoopNet or anything like that. We go directly to the owners and talk to them. I did it before I hired Chris. That’s what I trained Chris to do. He’s very good at doing that. He’s good on the phone. All the owners loved him. Every time that I talked to an owner, they’re always like, “Chris is a good guy. You’re lucky.” He’s an asset to the company, especially if an owner is going to tell you that. Thank you for all you do, Chris. My husband, Pete is here. Introduce yourself.
I manage all the facilities from the point it’s under contract and then take over everything from there, getting it all set up through the closing, and then once we close on it, we get all the systems in place to manage it effectively.
Slow and steady wins the race.
He is in the management part. All my students here know I do find, fund and run them. That’s how I teach and how we run our businesses. Finding them is Chris. Funding them is my job. That’s why I’m here to practice pitching, pitch out and talk about the Self-Storage Fund of America. My job is to put this fund together to find the money for all my deals.
Pete is the management part, the running part. He has his whole team underneath them that manages all of that. That’s how we run our business. I wanted to introduce them. They are real people. We are a family-owned business. We are out here calling owners, talking to owners and trying to find the money to find the deals. We find the money to buy the deals and then manage them on the back end.
Our whole company is vertically integrated. Since COVID happened, we decided to pivot a little bit. We were up for the first couple of years of us investing in self-storage. We found private lenders and would work with them to buy a property. We would take the debt and go out. Essentially somebody would come to me and say, “I have $400,000 or 500,000,” or whatever they would have, “Can you do anything with this money?” I say, “I can.” I would go out and buy a storage facility.
We typically focus on smaller facilities. From $1 million down is what we focused on over the last years because I talked to people like you and asked them if they have any money. They lend me the money and I’d have a loan on the property. I would pay back the person that lent me the money. What happened is over the last years that I’ve been investing in self-storage, there are three different types of investors in this industry. There are the people that are the newbies. They’re like, “I want to get into self-storage and I own a storage facility. I’ve been thinking about this for a long time. I own a piece of property and I want to go build a storage facility.”
That’s the type of person that I coach. Those are the people that want to get into the industry, but they don’t have a lot of money to get in. They focus on typically million dollar or fewer storage facilities. These usually fall in the tertiary market areas of your state, sometimes the secondary market but mostly tertiary markets. Tertiary means the country. That’s what I did. I focused on tertiary markets. On the other side of the spectrum, you have the people that are like, “I want the big facilities, 50,000 square feet or less. You should never invest in anything less than 50,000 square feet because it costs so much money,” and all this kind of stuff.
That’s the whole opposite side of us, $1 million or less. These kinds of people or companies focus on maybe $2 to $3 million or more. You have these two bigger players. You have the ones like the mom and pops that want to get in there that buy and own smaller facilities and you have the bigger players that are like, “I only want to be in primary markets and focus on the top areas to be in this kind of stuff.” You have this middle area, which not maybe $1 to $3 million properties, typically in some tertiary markets but mostly secondary markets.
In that little area you have, which I called the sweet spot, you have income-producing properties and mismanaged facilities. You can also build and do a bunch of stuff. Within this little area, if you found an income-producing property that was $2 million property, which I talked to a coaching student like $1.8 million to $2 million facility income-producing, you could take that money, go to SBA, get a loan and put a down payment or you can go to a local bank and get a loan.
If they’re good deals and you’re at the right number, then they’re easy to get funded. In the industry, there is this sweet spot of $1 million to $3 million properties that are mismanaged facilities, which is you cannot go to a bank and get a loan for. That means that the property was not properly managed. It does not have a P&L, a balance sheet, rent roll or tax returns or it’s 25%, 50% or 75% full. Those to me, are what’s called mismanaged properties.
Syndicating Your Investment
Those are $1 million to $3 million that Chris or I come across quite often in the industry. These facilities are very hard to fund because there’s no bank that’s going to fund them. On top of that, there are not a lot of people that have $1 million or $2 million lying around. A lot of times, you’ll see in these kinds of properties people that are maybe syndicating that out and saying, “I’m going to syndicate this one property, raise the money and then we’re going to buy it.”
You can syndicate one property, which is not almost exactly like the fund but it’s a little bit close to the fundings. Syndication is typically for one property and you are trying to raise the money for that one property or you can do what I did, which is I started the 5060 plus revenue fund. That allows me to pull money together and use the money as a line of credit to go out and buy the properties that I want. The Self-Storage Fund of America was created to buy the sweet spot $1 million to $3 million mismanaged facilities because they are so hard to fund but we come across these all the time.
The reason there are many mismanaged facilities out there is that when you get into 150 to maybe 350 doors, it becomes a business. It’s not like a hobby. We have a business because we have a lot of doors and we’re running this business but if you go out and buy 100 units, it’s a business but for a lot of people, it’s like a hobby. It’s like, “I did this to make past time money. On the side, I made a couple of thousand dollars.” When you get into these bigger facilities, 150, 250, 350 doors, it does truly become this business because you have to manage it like a business.
Making A Profit From Your Business
For you to make the most amount of money, you have to run it like a business, look at the income, look at the expenses and analyze everything. You have to increase your income and decrease your expenses to make the biggest amount of term. A lot of people in the storage industry, unfortunately don’t understand this concept. I could say this across the board and the country because 85% of all small businesses fail within the first five years because people truly don’t know how to run those numbers, how to look at the numbers, how to increase your income, decrease your expenses, look at your cashflow and that kind of stuff.
We come across these facilities all the time, and it’s very frustrating to me to have to pass up deals like this just because it’s hard for me to pull a lot of people together to get $1 million or $1.5 million because a lot of people don’t want to work with other people that they don’t know and stuff like this. It’s a little bit more difficult. The point is that I’ve started the Self-Storage Fund of America to fund these types of fields that we come across. Chris’s job is to get out there and look for properties that we can put into this fund. Chris does a very good job of that.
I’m going to show you property here in one of the properties that I feel is a very good property to invest in. It’s just that it’s hard to fund because it is a mismanaged facility. I wanted to introduce myself. I wanted to tell you what my process was for putting this fund together because I am a teacher. First, I’m a mother, a wife, an investor and a teacher. I want to make sure that everybody that’s reading understands how I came to this point in my life and to the point of, “I’m going to start this fund.”
When I got into storage investing years ago, I had no clue that I’d be starting a fund. It’s just how the process works. When I started self-storage investing, we bought 1 storage facility in our 1st year, 2 facilities in our 2nd year and 3 three facilities in the 3rd year. We had six facilities. In the fourth year, I had three facilities under contract to purchase and they all fell through, so we bought nothing.
Funding Your Investment
In 2021, when we are in our 5th year, we bought 6 facilities, 5 of which Chris brought to me and 1 of them I bought from one of my students as a wholesale deal. That’s where we got the eleven facilities from. I have a very good friend in the industry that teaches people how to invest in self-storage. His name is Alan Cedillo. He’s a great guy. He teaches people how to find private money. I was talking to him about the self-storage industry and investing the self-storage.
Mismanaged facilities are very hard to fund because there’s no bank that’s going to fund them, and then on top of that, there’s not a lot of people that have a million dollars lying around.
He was like, “I feel that you’re at the point where you should be thinking about starting a fund. You have all these private lenders that are bringing you this money to buy all these small deals but you should be focusing on this fund so that you can move up and buy some bigger deals.” I said, “That’s a good idea.” I started looking into the fund. I got introduced to a company called Reg D Resources. It is a company that puts funds together. They help to put the back office and the marketing material to get together for the font.
I hired a consultant. His name was Ed. He helped me to work through the entire fund process. We put the financial model together. What he did was look at all of the facilities that we had bought up until then to all of our facilities. He came up with a financial model that would fit perfectly for us into what we do. What we do is we buy mismanaged facilities. It typically takes us about one year to stabilize these. We can either hold on to them, sell them, 1031, refi out or whatever we want to do. What we do is buy mismanaged facilities.
We try to at least double the value of the facility in 1 year to 18 months. You can do this. Anybody can do this. If I can figure this out, anybody can figure this out. We got good at doing it. My husband is very good at managing the facilities. We’re vertically integrated. Jim asked, “What’s vertically integrated?” It means that our entire team is in-house. We have my husband who manages our facilities and underneath us, we have Bonnie, who’s been working with us for many years.
She also worked at one of our other companies and then once we sold that, we moved her over to our storage company and she manages our storage facilities for us. She’s our Operations Manager. We have a phone support person. His name is Patrick. He answers the phone. He handles all of our calls for all of the facilities that we have. He talks to all the tenants and tries to get all of them to pay. He is always getting all of them to sign the contracts because we are 100% vertically integrated. All of our facilities are all across Georgia and Florida. His job is phone support.
Vertical Integration
On top of that, we have DJ, who’s our boots on the ground person. His job is to go around to each of the facilities twice a month and check on the facilities, overlock, clean up, do the maintenance, whatever needs to get done at the facilities. He has a schedule that does that. That is what I’m talking about being vertically integrated. Everybody that we have is in-house and my husband manages all those people. That is us in a nutshell and how I got it.
It took over a year for us to put the fund together. We’re also super busy with our stuff as well. It takes time to put all this together and get the financial model done. We got the PPM, operating agreement, and everything done, and then we worked with remedied resources to get on the website, which is Self-StorageFundOfAmerica.com. You can check out the website, the PPM and all the information about it. It took us one year to put that thing together. I’m excited to say that we’re launching it and I’m going to go over the presentation with you so you can see what’s involved but overall, essentially we’re doing the same thing, except for, we’re not focusing on smaller facilities. We are focusing on the bigger facilities.
The bigger facilities are going to be $1 million to $3 million properties that we find that we consider mismanaged properties. Our goal is to stabilize them within the first year and either refi them out or sell them. In some instances, we could add on units if we wanted to add on but most of the time, we would refi out and sell them. Welcome to the Self-Storage Fund of America. I’m proud to announce that we are going to be over the offering.
This is a statement of exactly what I went over, who we are, what we do, where we’re at and what we’re looking for. We’re looking for $1 million to $3 million properties that are mismanaged facilities. We are going to be purchasing and stabilizing them. It’s going to take us typically about a year. It depends on how mismanaged this is. If it’s 25% full and a dumpy facility, it could take us longer than 75% full facility.
Learning The Storage Facility Game
We want to stabilize them and in the end, we would either sell them or refi out. In some instances, we’d be adding on as well. If we wanted to add on, we could add on. We don’t honestly add on too much. We like to buy facilities that are ready to be managed properly. This is what I’m going to be going over. We are going to be doing an introduction, the offering characteristics, business strategy, investment strategy, acquisition target pipeline and the investment strategy. We are going to do how we underwrite everything. The case study is royal storage and the pipeline investments about Self-Storage Fund of America. Any questions that we have, we can go over that as well too.
The Self-Storage Fund of America and its sponsors have extensive experience in acquiring, managing in exiting self-storage and other real estate assets. My husband and I have done over $20 million in assets, purchased and have sold properties in the last years. We do have a little bit of experience on the residential side and the commercial side as well. I want to point out that we focused on smaller mom and pop, $1million or fewer facilities but this is going to be targeting the medium size facilities.
We are going to be focusing on the South Eastern United States and Texas, anywhere from Texas to Georgia. We are always going back and forth from Texas to Georgia. We’re looking for property in Texas as well. I’m originally from Texas and my husband is from New York. We’re going back and forth from Texas to Georgia and Florida. We figured that would be a good area for us. We don’t live in an RV and travel full-time, so that’s a good area for us to be driving back and forth.
The offering. We are trying to raise $7.875 million. The option is to expand up to $10 million. The target investor leverage IRR is 19%. The whole period is 7 years with 2 one-year extensions and the preferred return is 10%, the remaining cashflow splits. The way it’s working is the preferred return is 10%. Once we reach the first hurdle, it is the preferred return of 10% and then we will have an 80/20 split, 20% to us, and 80% to everybody in the fund up to 15% IRR. Once we hit the 15% IRR, we have reached the second hurdle and it essentially becomes 75% to investors and 25% to the sponsor promote over the 15% IRR.
We have an incentive to try to get the highest IRR that we possibly can. The distribution timing would be quarterly. As soon as we have any profit, it will be paying out every quarter and the target returns will vary. The sponsor contribution and ownership to the contribution will be at the 4% contribution. That means that we are putting 4% into the deal. The promote would be at level 1, which is 20% after the 10% preferred return and 15% IRR distribution. Level 2 is 25% thereafter. It’s an 80/20 split with a 10% return. Once we reach 15% IRR, then it will go to 25%.
The minimum investment is only $25,000. The qualification to invest is that you have to be an accredited investor, which isn’t a big deal once you get into the back office and look at the PPM and everything, then essentially you’ll see that there’s a document that you have to sign that shows that you are an accredited investor and then allows you to put the money in. The offering type is ready.
We wanted to go quickly over the waterfall, which is the hurdle. In tier one, it’s the 10% preferred return, the type is communicative and the investor puts in 96%, we will put in 4% and the promote is zero. Up to 2%, essentially, we make nothing. Tier 2 would be when we hit the 15% IRR. It would be a 76% investor return and then the 4% comes from us, the 20% comes to us for the return. Thereafter, anything over 71%, we still have that 4% in, then you get the 71% split and we get the 25% split.
“Some self-storage industry leaders say that the self-storage is a huge bump in values rates and utilization due to COVID and economic stimulus. They’re saying this is probably a relative temporary effect. Once inflation reduces, investor money will shift to other assets, down the self-storage value. What is the longer-term strategy from a fund to avoid these possibilities?”
Strategizing Mismanaged Properties
This fund is for us to purchase facilities. The long-term strategy of this is to exit out. We are here to stabilize the facilities because the facilities that we buy are mismanaged facilities. There’s not a buy-and-hold for a specific amount of time. Essentially our goal is to buy, stabilize and then sell them. The reason why is because for us to purchase, this fund is based off-of debt. We need that money upfront so we can buy them because we cannot go to a bank and get a loan.
Our goal for the Self-Storage Fund of America is to stabilize properties as soon as possible, sell them, or possibly refi them out.
Our goal for this fund is essentially to stabilize the properties as soon as possible, sell them and possibly refi them out. We could refi them out and then go to a bank and get a loan for those. For most of the facilities that we buy, we will typically sell that property once we’ve stabilized it. Stabilizing it for us essentially means having a minimum of one year’s tax returns, P&L, a balance sheet, and a rent roll that can produce us the highest value that we can get within that term.
The longer that we hold onto the property like for two years, then the better the value because we’ll have that tax returns. We’ll have all those numbers. It depends on the type of property that we buy. They will be mismanaged facilities, so it’s going to take a little while for us to stabilize them. That is what the fund is for.
The offering fees and the management fee is 0.625%. We built this to put this fund together. We tried to make this fund as lucrative as we possibly could for you guys and the investors because we want to make sure that we prove to you that we know what we’re doing. The terms of the fund are very aggressive and competitive to a lot of other funds out there.
The management fund is 0.625% of the gross purchase price. That’s the management fee that we’re going to be getting. The acquisitions fee is 0.5% of the gross purchase price. It’s a one-time fee that goes to us. There’s no refinance fee or disposition fee. If we happen to add on facilities, we would get a 5% development fee on the new construction or expansion to manage that and we would get 7.5% as a general contractor fee, which is very low compared to the industry standard. Those are the fees.
A Market Of Opportunity
Our strategy is that we’re here to buy mom and pop shops across the Southeast United States and Texas. We’ve been in the industry for years. We own eleven storage facilities. We do know about what we’re doing. We are going to hold these essentially to get them to the point where they have good tax returns, balance sheet, and then most likely we’re going to sell those off. The market is the Southeast. 10.6% of the household’s rent self-storage facilities are estimated at 32.5 million households in the United States.
The person asks, “What is happening in the self-storage industry?” It is growing very fast. We focus on mom and pop areas and the tertiary markets. Where the secondary and the tertiary market began is where we focus on. We already talked about the company plans and the focus on the Southeast and Texas. Texas is the fastest-growing state. It’s a great area to be investing in. We are talking about Southeast United States, Texas and the markets that we picked are synced through the markets where everybody is growing. All the states are growing. That’s why we focus on these areas.
Our focus is the mid-range facilities between 15,000 and 45,000 square feet, anywhere in the Southeast. They’ll all be a mom and pop shops. We do what we call rip the Band-Aid, which is a price increase. As soon as we bought the facility, we all started completely virtual. Essentially, we have not been to any of our facilities and our boots on the ground. People go to our facilities but we don’t go to the facilities. We don’t meet people at the facilities. Everybody runs online. We are 100% remote so we can run our storage facilities from anywhere.
The post-acquisition customer experience is that you can lease within 24 hours a day. You could move in 24 hours a day. You can pay online and have live support. We have a day person that answers during the day and then at night, we have a call center that answers. We’re always answering the call. You get the law and the updated information. You could buy insurance immediately offer the tenant insurance as well for all the facilities.
We have a pipeline of over $13 million worth of facilities. The company has identified and contacted another 83 facilities. What happened to us is out of 60 facilities that Chris called, 10 of them wanted to sell. We have put in 5 offers on 5 facilities. We’re looking to put in a couple more. For us, finding facilities is not that difficult. We’ve got that down. That’s for sure.
The company’s underwriting model is based on acquiring underperforming facilities and bringing them in line with several key measures, including vacancy loss to lease and operating expenses. We want to decrease the vacancy rate and decrease the loss to lease. What that’s saying is that we’re taking of a property that is vacant or losing money and trying to decrease the vacancy rates from 35% to 13%. We’re decreasing the lease rates from 20% to 10%.
This is based on the case study that we came up with. This is one of the properties that we were looking at buying. It was 168 units. It was 25,000 square feet, located on 10 acres with 11 buildings. The purchase price was about $35 a square foot plus all the additional land that it came with. The transaction would cost about $25,000 for us to purchase. To close on it, it was about $7,500. The fees were about $34,800 to finance it, which would be like just the debt and nothing for the equity.
The total is almost $35,000 to finance. The total transaction cost was about $97,000 to purchase this thing and to get up, running and ready to go. The purchase price was $620,000. The transaction cost was $97,000. The equity was $67,000 and the debt was $650,000. The total project cost was $717,000. This is an example of something that we would purchase within the facility. This facility is 168 units. It was somewhere between 25% and 50% full. The owner was not managing it properly.
These are some of the facilities that we’ve looked at to purchase. We’ve looked at facilities in Valdosta, Georgia and we do own in Valdosta. We’ve looked at St. Mary’s. We own in Newnan and Valdosta. We’ve looked in Tallahassee, Marble Falls, Texas and Ellijay, Georgia. We’ve been looking all over Georgia, Florida and Texas for the pipeline. This is my husband and me. You have met us several times and many times.
“Didn’t your slides say a hold period of 7 years plus 2?” That’s the timeframe of the fund. Essentially, the fund is five years. It’s a 5-year fund with two 1 year extensions that are possible. “How is your investment secure? Did the investment secure shares of the fund?” Yes. You’re going to be putting the money in and then you will be getting quarterly statements from us that explain how we’re doing and what we’re doing. On top of that, you’ll be paid out every quarter as soon as we make money. It takes us a little while to make money. On an annual basis, you’ll get a report from us. Once we sell, then you’ll get paid the return as well. There’s a whole bunch of different ways that we’re doing that.
An Example Deal
I do want to talk about one deal that I would love to fund. In this one, we have put several facilities under contract. They’ve been pitching but essentially, I wanted to get into the deal that I’d like to fund first. These are two facilities in Franklin, Georgia. They’re almost brand new facilities. This one has a commercial property on it, which is making $1,500 a month. It’s almost a brand new facility. It’s pretty nice. It has a regular storage facility. The owner is sick. We own a storage facility right around the corner from this one.
You could check it out. It’s Google Maps and type in Ms. Lillian’s Self-Storage. It should take you to all of our facilities. This one here is in Franklin, Georgia. The two facilities that we’re going to buy are in this area as well to choose from. Franklin is a small town in a tertiary market in Georgia. We own a facility already there. I can’t remember if Chris called him or the owner called us up but essentially, he is sick and he wants to sell. He’s not doing very well. He doesn’t have a lot of time to manage this thing. He has a full-time job and honestly doesn’t want it anymore.
10.6% of the households currently rent a self-storage facility. That’s an estimated 32.5 million households in the United States.
I wanted to show you what the storage facilities look like. They’re both newer facilities. One was built in 2017. One was in 2020. They’re both on 5 acres of land as well. They have a lot of room to be able to grow and expand. I’ve already talked to the county and the county said, “You can grow and build if you want to build.” There’s not an issue if we ever wanted to do that.
We own in Franklin, the one right around the corner. He has two facilities. It’s a triangle. This is all buildable. We could add more units. He is 100% full. He is making, $150,000 a year on this facility. It’s 157 units and 18,400 square feet. He’s charging the same price that we’re charging. We’re at the same price. What would happen is when we buy these two facilities, we will increase the rates. We’ll probably increase them to $0.65 a square foot but over time, we’ll probably get them to even $0.70 a square foot.
It’s $126,000 plus he’s making for the commercial building $18,000 and $5,000 a month for a boat and RV parking. In total, he’s making around $150,000 a month. Here are all our operating expenses. It’s going to cost us roughly around $40,000 a year to manage this thing. The NOI comes out to about $106,000. This NOI is the number that everybody should be looking at because this is what we’ll be looking at for a fund. How much money are we going to be making? This is what we’re going to be making right here. We’ll be making about $100,000 a year.
It’s valued at about $1.329 million. Once we increase the price to $0.65, which will do that immediately, not only to our facility but to all these two facilities, we’ll increase the price to $0.65. It will be a value of $1.4 million. There’s already equity in this deal. There’s already a $400,000 inequity in the deal. On top of that, we will eventually be increasing the prices to around $0.70.
By doing this over the next years, stabilizing this and getting it to become a property that you can fund because the owner only takes cash, he has no numbers at all. That’s why it’s considered a mismanaged facility. It will value about $1.5 million. It’s taking it from a 10 to 12 and then splitting the money for that and what we make on that. If we decide to later build on, we could raise the money and also build on it as well too, but this is the very first deal that I would like to put into the fund.
This will be a good first one because it’s stabilizing it. It’s not even that mismanaged. The only thing that’s mismanaged about it is that there’s no P&L or no balance sheet. He has nothing at all. He has no numbers to show it all, but it is 100% full. We’ve been around and looked at the whole thing. He says his physical occupancy and economic occupancy are very high. Everybody’s paying. He doesn’t have any issues. He rarely ever does any auctions. The truth is, I know this to be true because we have a facility right around the corner, which is the same thing.
We don’t have any issues with that facility at all. I can do auctions, but it’s not like that big of a deal or anything. This is a very good first facility for this fund. I’m going to be trying to raise $1 million to buy this and then we can all share in the profits. I wanted to show you. That’s the first deal for this fund. The hurdles are not per deal. The hurdles are for the fund. The sooner you get your money into the fund, the more money you can make and the sooner you’ll be able to get those returns back.
That’s why I’ll be pitching and try to get better at pitching it. It’s like raising the money right so that we can get out there and buy a whole bunch of facilities. The Franklin facility, the one that we wanted to close, we’re closing this. Whoever gets in, there’s going to be risk and benefit you the most because you’ll be able to reap the benefits of this facility, which will be making money immediately, as soon as we buy it.
The Exit Strategy
This would be considered an income-producing property if we could take it to a bank and get a loan but we can’t take it to a bank and get a loan because there’s no P&L and balance sheet. I feel like the Franklin facility is only going to take us about a year to get up and stabilize. We’ll just have to decide internally. I’ll talk to Robb and Pete. We’ll decide when we are ready to sell this property.
What I was thinking too also to sweeten the deal is if we do decide to sell the Franklin facility, we’ll add our Franklin facility into it and then we’ll create a little mini portfolio that we can sell to everybody. We’ll sell the whole thing and take ours in 1031 exchange into something and everybody can get their returns. I’m guessing this is not a very long hold for this facility.
“Do investors have to keep their money for the entire length of the time?” Yes. It’s the sense of once you put it in and you’re putting this money in, so you want to make sure that you know that but every quarter, you’ll get something back. When you put the money in, that’s for the term of the fund. “What does Alan think about funding the deal you were telling us about?” He doesn’t know anything about storage facilities. He teaches people how to raise money.
He focuses on residential but he does teach people how to start funds and things like that. The truth is in this fund, the terms are very high. We try to make them competitive for everybody. What you’ll do is go to the Self-Storage Fund of America. You can go to the website, check it all out and get access to the PPM. You’ll be able to take a look at everything, check it all out and then make a decision. The minimum is $25,000 and the goal is to buy this facility and close in the next 30 days. We’re going to be in, ready to go and get this thing going. I will see you at the next session.
