Storage properties are in great demand. With investors moving to secondary and tertiary markets to look for deals, what can you do to find properties in this hot storage market? Stacy Rossetti gives us a look at how she finds deals in today’s market. She also shares important insights for people about to get into investing in storage. Tune in to learn more from an experienced investor.
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Typical Facilities You Will Find For Sale In This Hot Storage Market
For all the people that do not know who I am, I am Stacy. I have been investing in real estate and self-storage for years. We invest in Georgia and Florida. I’m excited to say we got the next facility under contract. It is in the panhandle of Florida. That is one of the ones that we are going to use for our fund. If you are interested in investing in self-storage passively and you say, “How can I invest in self-storage without any work?” You should check out Sales Storage Fund of America. That is the fund that we launched. I’m raising money for that.
I will be doing a pitch in the next session. You can go to StacyRosetti.com/Fund. This is where you can sign up for my pitches on my fund every single Monday. I explain what the fund is, what we are doing and we have a good deal under contract. We have a great first deal for us. If you want to know about that, you should hop on the pitch.
I have been teaching people how to invest in real estate and primarily in storage for the last several years. We focus only on storage facilities. That is what we do. We do have a couple of commercial properties but those were bought when we picked up some storage facilities. We happened to buy a storage facility that also had a commercial property or something like that.
I would love to know where you are interested in buying your facilities. We are looking for facilities anywhere in Southeast, Florida, Texas and along with the 10 or the 20, going from Texas to Georgia. We do a lot of driving. We drive a lot from Texas to Georgia because I’m originally from Austin, which is where we are at. We drive up to New York a lot because my husband’s family is in New York. We are going up into that area as well too.
That is why I said anywhere in the Southeast or long to 10 or the 20 to go into Texas, we are open to buying it. The fund is there available for us. We can do that. In the eleven facilities that we own, we have bought smaller facilities in either secondary or tertiary markets. They are typically around 100 units. Back in the day, you could get those for good prices. They are a little bit more expensive but they are still available.
What Property Should You Buy?
The topic that I want to talk about is what types of properties are out there to buy for us people here. We started an acquisitions company and I have a team of four that looked for properties for us. We have been learning a lot about the market. It is hot. For everybody that does not know a lot about investing in self-storage, I thought what we would talk about is what type of facilities are out there, what I’m seeing out there to buy, and let you know so you could be aware of what you should be looking for. I had an acquisition manager. We bought six facilities in 2021. His name is Chris and is doing a great job. We hired three more people to help us find facilities.
We are extending that out. We are going to be building an acquisitions team so that we can find facilities for our students. If anybody wants us to look for facilities, you should join Storage Nerds, come and be part of the community. It is a great community. The goal of Storage Nerds is to find, fund and run them. I want my students to be successful so we are going to extend our acquisitions team out to all lifetime members of Storage Nerd. We are going to get out there and look for some facilities for you. If you are one of those people that is like, “I want to buy a facility but I do not have the time to get out there and look for a facility,” you should hire on my team because I just hired these people. We already have a facility under contract.
You could do this yourself. You do not have to hire us. I hired another acquisitions manager. He is a manager in training and was one of the students of Storage Nerds. He is doing a great job getting out there and finding facilities. I said, “I should bring him into the team so he could start looking for facilities for us.” Not only for me to buy but for other people because he is getting very good at doing that.
He has been in the coaching program for a couple of months. He is coming onto the team. I’m excited about it. He is going to help Chris to do deal analysis. He calls, talks to owners and does deal analysis. Anything like, “I’m not interested,” we could pass it along to the students. We have two virtual assistants. These two people are from the Philippines and they build lists. They do that by going on to Google Maps and other different ways that I teach. I do not go out and buy lists. We build this list internally.
What they do is they call the owners. This is the thing that a lot of people struggle with because a lot of people either think that they have to go online to look for a facility. That is what everybody does. If you look for a house, you go online to look for a house and go online. If you need a property, you go online. This is the easy way and the way that everybody does. Everybody is doing it so it is hard to come across good deals.
Every once in a while, you will find something and that is what I wanted to show you all. I wanted to talk a little bit about it. There are Crexi and LoopNet. The deal that we have under contract was a deal that was Crexi. I have never bought any deals on Crexi. I always go directly to the owner because this is the best way to find deals.
When you go on to Crexi and LoopNet to find facilities, you are going to have to know that you have to spend extra money. They are more expensive. This facility that we found in Florida is an income-producing property. I wanted to let everybody know about this. You all can be aware of the type of properties that are out there. The name of this webinar is What Types of Properties Are Out There To Buy.
As I hire my VAs, teach them to get out there, call facilities and talk to owners, you get a couple of different types of owners when you call them. One of them is the one who has no idea what their property is worth and value. They do not have any idea about the cap rate. You find this a lot in tertiary markets. They do not know what their property is worth.
You are the one that gets to teach them and tell them what it is worth. I love these types of people because they are regular people like us. They have not talked to a realtor about whether or not they want to sell. Most of the time, they have not even thought about selling like, “I have not thought about selling but if you want to give me an offer, I’m interested in it.” This is something that we come across all of the time.
This is what happens in a tertiary market and especially severely tertiary markets. The tertiary market is in the country. It is the towns that are in between all the other towns, the little towns in your state. Everybody has a tertiary market in all their states. As you get into the Northeast, it is more densely populated. Tertiary towns are going to be few and far between but there are some areas where there are tertiary markets where you would have to go outside of your comfort zone or typically search for a facility.
These properties are the type of properties that you are going to buy for your first deal. There is nothing wrong with buying a facility that is a smaller facility to get your feet wet. I call it the muddy boots. It is what my coach calls it. It gets you into the game. The truth is you could hold onto that property for a couple of years, sell it, make some money on it and 1031 exchange that into another property. There is nothing wrong with doing that at all.
A lot of people are scared to get into the commercial game because they feel like they have to have a lot of money and have to be one of these bigger players. You do hear in the storage investing world like, “You need to buy 30,000 square feet or more because it is a waste of time if you do not.” It is the same amount of work with 30,000 versus 5,000 or 10,000, which may be true.
Not all of us are going to afford 30,000 square feet of the facility. I always say, “There is nothing wrong with getting your foot in the door, going out, finding smaller facilities to learn and figuring out how you are doing all this.” This is what we have been doing. We have been finding many smaller facilities. We found a lot of smaller facilities that are even less than 50 units.
I get a lot of questions from my students like, “Would you buy this type of facility?” If you found a facility that has 30 units, would you buy it? If you have got a lot of money, this may not be something that you are interested in but if you do not have a lot of money, there is no reason not to be interested in something like this especially if there is land to go with that property.
I have one student and his name is Matt. He was our student showcase in the Storage Nerds Mastermind. We meet a couple of times a month and always have a student showcase. One of the students that are buying properties comes in and tells us how he is doing it and stuff. Matt lives in Jamaica and is buying property in Florida and Tennessee.
Do not think that you need to have something right around the corner from you because he lives in a different country and manages his storage facility. It is the first property that he bought. It is a 24-unit property in the middle of this tiny town in Tennessee. He picked it up for $50,000 or something like that. He paid cash for it and said it was okay because he wanted to figure out how to do it.
There is nothing wrong with buying a smaller facility to get your feet wet.
He does not have a website. He takes credit cards by PayPal. He took the old sign down and put the new sign up. It is not gated or anything like that. It’s in a little town, one of these tiny facilities. He did raise the rates but not by a lot. He got his feet on this. He has been in the coaching program for several years.
The first one that he bought was a tiny facility. He figured out what to do. He got his feet wet and got going. The second facility that he picked up was 150 units for $800,000. That is a great price in Florida. I call it the no man’s land Florida. If anybody knows what the no man’s land is, it is like in the middle of Florida where nobody wants to live but it is booming. You are not going to go wrong in Florida. That’s for sure.
He picked that one up and is getting an SBA loan for that. It was an income-producing property but he could increase the rates immediately once he bought it. This is the one that we are getting under the contract that we found in Crexi. I wanted to make sure I brought this up to you all because I’m seeing this over and over again when we look for properties. With smaller properties, there is nothing wrong with buying them to get your feet wet.
Should You Raise Your Rates?
When you are looking for an income-producing property, what I’m seeing is that there are a lot of income-producing properties out there. What I have noticed is that there are a lot of these properties that have not raised their rents since before COVID. They are making what they were making before COVID hit but they have been too afraid to raise their rents because they are nice people.
Most storage facility owners especially mom-and-pops, are such nice people like my husband. I tell him he is a sucker sometimes. I talked to him, “Did you raise your rents?” That is always my question. I aggravate him when I ask him that. What I have noticed on these income-producing properties and I want all of you guys to be aware is that there are many of these properties out there that have not raised their rates since before COVID.
The one that Matt has under contract is the same thing. I do not know what the price per square foot is but he could increase the rates immediately by 20% or 30%, sometimes even more. Florida is one of these great areas to be looking for any secondary primary market and a lot of tertiary markets. Over the past couple of years, I have not looked in a lot of secondary markets but we are starting to look in secondary markets.
What I have noticed is that there are a lot of facilities out there where that have not raised their rates in two years. The truth of the matter is that you better be raising your rates. I went to dinner with a guy over here in Austin who has 2 storage facilities and got the 3rd one under contract. He said he raised his rates nine times in 2021. Can you imagine?
I looked at Pete and gave him this sideways glance like, “How many times have you raised your rents?” He is in Texas and Texas is booming but every area is booming. Internally in our company and I have shared it with our students, we have this master competition sheet where all competition of all of our facilities is on this sheet for every single one of our facilities.
The job of one of our VAs is to update that every month to keep track of all the competition, what they are charging, and are we charging what they’re charging. We can make sure that we are up to date compared to everybody else. I talked to another student and he bought two facilities in November 2021. It was 150 units. It was severely mismanaged facilities. It is a little town on the outskirts of Atlanta. It is in between Atlanta and Athens. He said that he is charging $75 for a 5 by 10. It is not climate control. It is drive-up 5 by 10.
Market rates are going up but a lot of owners are not following them. Most mom-and-pop owners do not constantly keep track of what the market rates are. They are not increasing their rates to what they should be. The one that we got under contract in Florida, I’m not going to go over it here but I’m going to go over the fund pitch. He is charging $0.73 a square foot and should be charging $1.20 a square foot.
Do you know how much money he is leaving on the table by not raising those rents? A lot. We are going to be able to double the value of that facility by raising the rent. Isn’t that crazy? We picked that thing up for $1.8 million and by the time we increased the rents by $0.40 to $0.45, we may be a little bit less. What we did is we looked at all the facilities in the area and we do have competition.
It is in a secondary market in Florida. There is U-Haul, public storage and stuff. We did not count those as competition. We only looked at mom-and-pop shops. It is two facilities that are within 1 mile of each other. It is all gated, nice facility but has an insane owner. That has been owned for many years. We looked at all the competition and took out all of the bigger players. We are not in competition with CubeSmart that are three levels and this public storage.
If it was public storage like U-Haul that was one where they went out and bought an old one, fixed it up and made that into public storage, we might consider that but in this area, there has public storage CubeSmart that are three-level buildings. We did not count those. They are charging more price per square foot. We only looked at the mom-and-pop shops that were apples-to-apples to us. They are charging $1.20 a square foot and this guy is charging $0.73 a square foot.
Getting Into Tertiary Markets
What I’m telling you is that when you start looking for facilities in secondary markets, look at all the facilities in the area that you are interested in. Look at what they are charging a price per square foot. Try to find some of those owners that have not raised rents. That is the secret sauce for the market. It is something that I wanted to let you all know that you all should be looking for because this is what we are noticing. The second thing is getting into the tertiary markets.
Going back to Matt, my student, he has the 24-unit building and then this building in Florida that he buys. The third facility that he is buying is another 30-unit facility on 2 acres. It has a little bit of parking but is pretty much almost full. It is a brand new facility but there is room for a couple more phases. In his mind, what he is doing is he is building the next 30 units and it is going to cost him $100,000 or something like that. He was like, “I will spend $100,000. That is my budget. What can I get for $100,000?” He will do that phase, fill it out, build the next phase and fill it up again. That is his mindset on the little facilities.
He got his first little one but he got one in Florida that is a bigger one and income-producing. He could rip the Band-Aid and make money on it instantly. The third one that he got is the one that he could add more units to but in phases. It is a small town. The fourth was he got in a project. He has only been in the coaching program for a few years. His fourth one is he found a piece of land that his owner would finance. It is along a major country road. It is not in any backyards or anything like that. It is a good location on this country road in the middle of Tennessee. He is going to build.
That is what he has been working on. I’m impressed with how he is doing it. Slow and steady, he wins the race. He is slowly going through, finding these smaller facilities and building on them. The first facility that he builds will also be small. It is in a small town. He is going to test the water. A piece of land is 4 acres. He can do whatever he wants but he is not going to go out and build some huge facility. He is going to build 50 units and later 50 more to go along where the market is. He is going to build. He got it owner finance. It is little money down.
One of the things I want to talk about is what I have noticed out in the tertiary market properties. It depends on what areas you are in. The Northeast might be a little bit more difficult. There is a lot of opportunity in Delaware but Pennsylvania, Maryland, the lower part of New York, New Jersey, and Virginia are going to be a little bit more expensive.
There is a lot of tertiary market in the Northeast as well, Pennsylvania, Upstate New York and Maine. I have a student that is building in Maine. You have got to be focusing on those. Think about what the population is. If you want to be in a secondary market, know that what you should be looking for is properties that have not raised their rent in a couple of years. That would be the best.
There are a lot of facilities out there that have not raised their rates in several years. The truth of the matter is that you better be raising your rates.
You can’t find a lot of severely mismanaged facilities in secondary markets because they have all been snatched up. Everybody is out there looking but there are a lot of properties that have not raised their rents in a while that are still income-producing. A lot of owners honestly think, “I’m free and clear on this facility. I’m making $150,000. Why do I need to raise my rents.” They think this way because I meet and talk to them. Those are the two types of properties I wanted to talk about. They are important for this market.
Should You Invest In A Declining Market?
In terms of the tertiary market, I want to dig into that a little bit more. Make sure with tertiary market properties, you are looking at the population growth or being stable. That is one of the things that you got to look at. “Is it okay to invest in the declining market?” The thing about declining markets is that you do not know the true data because there is no real data. The truth is 2020 and 2021 have been nuts and growth. People are leaving big cities and going to small towns. Get out there and look in your areas. Try to find tertiary cities or markets that are growing. The only way you can do that is by going to them.
I have a facility in a little town called Americus, Georgia. When you look at it, it says, “Over the last several years, it is declining market of negative 0.8, 0.1, 1.4 negative. I was like, “Let me drive over there and take a look at it.” There is so much construction going on in that place. They are building roads and doing subdivisions. I’m like, “How are they building so much if it is a declining market?”
You got to look at the towns and look at them. You can’t go off of data. You can go into Radius Plus. In 2018 and 2019, you can maybe look up but you have to pay for 2020. If you want to get current data, you have to pay more money for it. I do not even know if they have 2021. You could get into Yardi and use it as software. That stuff is expensive. Do you have $3,000 for one market?
All the people that have a lot of money all pay for that. The truth is that Yardi does not have any mom-and-pop information. They do have some class D and class C facilities in their software but not a lot but you could look them up. We had a demo of Yardi where you can look up class C and D facilities that are owner-operators. You could call them but they only have certain markets.
They do not go out to tertiary markets at all. They do primary, maybe secondary markets. I feel Yardi does not fit into me and what I’m looking for. Maybe somebody on here wants to go and check it out. If you are all interested, Paul from Yardi can get you all a demo. He is a nice guy. I think it’s Paul@Yardi.com but I can’t remember what his email is.
I’m pretty sure Radius Plus does not give 2021 data. It gives 2020 data that you have to pay for but 2021 data is not available. I feel that in the last couple of years, the market is severely changed and it is going to keep changing. Everybody that is in super-expensive primary markets is migrating to primary markets that are less expensive or even secondary markets. Everybody that was in the secondary market is migrating to a tertiary market.
Finding Opportunity In Small Tertiary Markets
There is a lot of opportunity in small tertiary markets that are growing. Which ones are those? You have to do your research and look to see in your state or whatever areas that you are located in. We have a facility involved in Valdosta, Georgia. That city is growing but I feel Americus had way more construction for that tiny city than Valdosta did in this big city. Valdosta has 75,000 people. Americus had 15,000 people. That 15,000 number was from 2019. Who knows what is the census for that? The census has not come out yet.
We do it personally in house so we look at the population a lot. That is one of the things I ask Chris when we talk about deals, “What is the population of this city? Is it growing? Is it declining?” We have to get in and try to figure out what the population is and whether or not it is stable or what is happening. We invest in supposedly declining markets but it was declining a couple of years ago and is growing again. The thing I was going to say is if you are going to invest in a declining market, it was declining a couple of years ago but it looks like it is going to be growing in the next couple of years.
Those are the two types of properties that I wanted to go over of what we have been noticing by utilizing VAs to call around and find properties for us. “Aside from Tulsa in Oklahoma City, the rest of the state is pretty much tertiary and secondary.” I got off a call with one of my students who lives in Oklahoma City. He has a boat and RV parking place in some lake outside of the city but he is looking in secondary and tertiary markets of Oklahoma.
Tulsa is growing fast. If you want to be in a secondary market, you need to find those types of facilities that have not increased their prices. In the tertiary market, you can find income-producing or mismanaged facilities because we are still finding those in tertiary markets. Sam is saying, “We are looking at one in the same area as one we have under contract unit property, 39 units, 2 apartments and 1 retail storefront, nice property and reasonably priced we are considering.”
That sounds like a good one. We have a facility under the contract that is storage plus commercial plus an apartment. The only thing that is hard about these types of properties is getting them financed. Finding the money for them because investors were like, “I want to invest in storage or apartments.” Finding investors for those types of properties or lenders is a little tricky. Make sure you keep that in mind.
You have to find a good commercial lender that will lend on those types of properties or an investor. Tim has raised the rents. Let me see who else. “I’m interested in the search service but I need to know the cost.” The doors for StorageNerds are opening on May 1st, 2022. I only open the doors a couple of times a year and they are only open for two weeks. I do calls during those times.
Make sure that you get on the waitlist if you are interested in doing a call with me and talking about the coaching program. I will talk about all the different ways that you can get in and the term key solution if you want to do that but you have to get on the waitlist so that you are notified. You will have access to my calendar. What we do is open the waitlist up to my calendar. If my calendar does not get filled from the waitlist, we open it up to everybody else. Make sure you get on the waitlist so you can have access to my calendar.
If there’s anything else that you need help with finding facilities, our VAs are interesting to see how it works. It is very time-consuming to call owners. We do not go on Crexi or LoopNet and look at facilities often. What happened on this one was one of my VAs called the owner and talked to the owner. He told my VA that the property was listed for sale on Crexi. That is how he got the property. He said, “My property is listed on sale in Crexi. Everything you need is there. Here is my realtor’s phone number. You can call my realtor and talk to him.” He did talk to the owner and the owner is the one that told us it was on Crexi.
I do not know if you count that one as us looking on Crexi or not. What do you think? That is how we found the property. We do not go on Crexi or LoopNet. Our VAs call owners directly. They typically are calling around 25 to 30 owners a day. After that, they do not want to do anymore. We split their time between list building and then calling owners.
The VAs create the list, call the owners and do the follow-up. If any owner wants to sell, they gather all the information first. Once they gather all the information, Chris is going to need to run a deal analysis. If he thinks it is a good deal, we can talk about it in one of the meetings that we have and he will put the offer in. That is how it is working.
You do not need us if you do not want to. You can hire your VA and do it that way as well too. If you want to get into the coaching program, you can utilize ours. What we will do is we will hire a VA and have them scour the whole state that you are in. Whatever areas that you are interested in, call all the owners and keep following up.
“I was driving through a facility of about 100 units and saw several abandoned units with the door open and all the stuff inside about 20. Is this a sign of mismanaged facility?” That is a sign of mismanaged facility. If you see the doors are open and you can see all this stuff inside, whoever is supposed to be taking care of that has not taken care of it.
The mismanaged facility cannot provide a P&L and a balance sheet, does not want to give you tax returns, have no numbers to show you, can’t give you a rent roll or can give you a rent roll but are not charging what they should be charging. For me, the one that we have under contract in Florida, I would consider a mismanaged facility.
You can’t find a lot of severely mismanaged facilities in secondary markets now because they have all been snatched up. Everybody is out there looking.
We got that thing under contract for almost $1.8 million and we are going to raise the rents by $0.40 to $0.45 in the next couple of months. It must be worth $3 million. I leave them $1 million or over $1 million on the table. If you can double or triple the value of your property in the next years, that to me is considered a mismanaged facility. If they do not want to give you any data or information, they are mismanaged facility.
Mismanaged facilities are the hardest types of facilities to fund because you have to raise the money. You can’t go to a bank and get a loan for that. Depending on what the price is, be aware that a mismanaged facility is hard to fund especially if it is less than 50% full or there is an economic occupancy of 75% but only 50% or 40% are paying. Banks do not want to fund something like that. They want to see that you are increasing the rates, making money regularly and prove to them that you will be able to pay the mortgage. That is what they want to see. I would talk to lenders and see in case but I say most of them are hard to fund.
Cap Rates And Exit Plans
“What kinds of cap rates are you using to come up with values of mismanaged facilities?” The cap rate in the mismanaged facility is impossible because you are buying these at a horrible cap rate. If you run the numbers on a mismanaged facility, the cap rate is low. You can’t look at the cap rate from the mismanaged facility but what you need to be looking for is the opportunity.
What is the opportunity for the facility? Can you double or triple the value of the property? I would not buy a mismanaged facility if I could not double or triple the value of that property. The more you pay on a facility, the harder it is to double or triple it. If you buy a facility for $1.5 million, to be able to double the value of that property is quite a feat.
Sometimes you will hear, “I can 1.5 exit, 2 exit or 3 exit.” If you buy a facility for $300,000, you should be able to triple the value of that property in the next couple of years, as long as it is not a severely declining area. If it is severely declining, it might not be a good area to invest but if it is a good town or city, you should be able to double it, at least minimum doubled, if not triple the value of that property.
We have a facility in Augustus that was $400,000 to purchase. Over several years, you should be able to double the value of that property. That property is not a primary market. In primary markets, you are looking at cashflow versus appreciation. We could double the value of the property in a primary market but in secondary and tertiary markets, you should be able to do a little bit more than that a lot of times.
Hedge funds are in primary markets. They are looking for certain types of properties and a lot of cash with a little bit of appreciation. They are okay with raising rent and making some money. When you get out into secondary markets, you should be able to increase the value of that property and in tertiary markets as well.
You are making less money. If you buy something for $300,000 and you could sell it for $900,000, great, you are making $600,000. In a secondary market, you can buy something for $1.8 million and increase the value to $3.2 million. You are making $1.2 million, $1.3 million or $1.4 million. A bigger amount of money makes you more money. A smaller amount of money still makes you money but less money than a different market. I hope that makes sense.
We meet every Monday. You all can hop on at any time. If you are an REI USA member, welcome. I’m teaching for REI USA. Make sure you check out REI USA if you want to learn how to invest in real estate. If you do not have a lot of money to do that, REI USA can help you do that. We do have shows. There is an REI USA Podcast and Storage Nerds Podcast. If you miss any sessions at all, you can always check out the show for REI USA or StorageNerds. I appreciate you hanging out with me and putting up with the storm. I’ll see you next time. Take care.
