Unleash the power of creativity in self-storage investing and witness the extraordinary transformations it brings to your deals. Discover the untapped potential, challenge traditional norms, and redefine your path to success with Stacy Rossetti’s best self-storage and creative deal structures. Welcome to another journey into the realm of self-storage. Join Stacy as she shares insider tips and expert insights on maximizing returns in the self-storage industry. From unconventional financing to revenue optimization, Stacy’s guests reveal innovative strategies for success. Whether you’re a seasoned investor or new to the field, this podcast is your go-to resource for self-storage investing. Tune in and unlock the secrets to creating wealth through creative deal structures in self-storage.
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Unleashing The Power Of Creative Deal Structures In Self-Storage Investing
How did Stacy buy 15 deals in the last 6 years? How did she buy all her storage facilities? That’s what we’re going to go over now. Funding self-storage. When I think of funding self-storage, I think of three high-level ways for you to fund deals. We all know that you can go to a bank and get a loan from a bank to buy property. Typically, when people are thinking about investing in self-storage, this is how they’re thinking. I don’t know if you guys were on my session in the last episode.
Traditional Loan
In the last episode, what we talked about was the six different ways to invest in self-storage. I’ll go through that as we talk about these ways to fund. Traditional is going to a bank and getting a loan. The truth is that as you go through the market and the market changes, the lenders’ terms, needs, and structures also change. Something that a bank was offering before when the market was high and interest rates were 3% is going to be totally different than what a lender is offering now not just in terms of interest rates, but in terms of lending capacity, down payments, and length of terms.
Creative Deal Structures
In the traditional loan, when we think of traditional, that’s what we’re going to think of. In terms of creative and traditional, you think of loans in terms of your payments and stuff. We’ll talk about that for a minute. When I say traditional, I mean going to a bank and getting a loan. The second thing is creative. In the self-storage investing world, this is not as prevalent as it is in residential. I invested in residential real estate for the first 5 to 6 years that I was doing investing. You do a lot more creative deal structures on the residential side than you do on the commercial side.
People don’t tend to think of creative deal structures as ways to buy commercial real estate. At least I don’t see it in the commercial real estate one. That doesn’t mean it doesn’t happen because this is how I buy all my deals creatively. It does happen, but it’s very few and far between. Another thing too about creative deal structure is that when I’m talking to owners, they are not thinking about creative deal structures. They are thinking cash or bank financing. It is your responsibility as the person offering a creative deal structure to educate the owners on this type of structure and make them more aware that you can do these things.
If you do not understand creative deal structures, you want to educate yourself on all the different ways that you can do that. I’m going to list the ways out. We’re not going to get into the specifics. That’s why I’m going to do my bootcamp. I’ll list them out so you guys have an idea like, “I need to learn about this.” It’s what it is.
In 2021, I started syndicating deals. In order to syndicate deals, it takes you a long time to be able to do that. You can’t be like, “I’m going to syndicate a deal tomorrow,” and then syndicate this deal because you have a lot of stuff that you have to do to go through for the process and stuff. In August 2020, I decided that I wanted to start syndicating self-storage.
I then had to educate myself on how to go about that process. I did that for almost six months trying to figure it out. After that, I hired a consultant and attorney to help me start putting PPMs together. It took a long time for me to figure out the syndications portion of it, but I want you to know that that is available, especially on the commercial side. Everybody wants to do syndications. If you want to own more than one storage facility, you have to think about this.
In the world of storage investing, there are about 55,000 storage facilities in the country. If you’re saying 55,000, I think there are like 5,000 storage facilities in Texas and another 5,000 storage facilities in California. Out of two states, there are 10,000 storage facilities. All the other states have 45,000 storage facilities. That means that there are roughly 1,000 storage facilities in each state. On average. Nevada only has 400 storage facilities. There are some that have less than it and some have more. On average, let’s say 1,000 just to make the numbers even.
Out of those 1,000 storage facilities, 30% of those are owned by REITs. A REIT is a public storage like CubeSmart, Extra Space, all this kind of stuff, so 30% gone. That leaves 700 storage facilities that are owned by mom-and-pop like me. I’d be considered a mom-and-pop. Out of those 700, half of those are one-owner owners, like one facility owners. They only have one facility, and that is it. Maybe half of them have 2 or 3 facilities, very rare to have more than 5 facilities.
Think about that in terms of how many people out there are truly investing in self-storage. Not a lot. I’d say 40,000 people out of the whole country. There are not a lot of storage facilities out there. Everybody wants to get into self-storage. I talk to owners all the time, essentially, on a weekly basis. I’ll talk to an owner that says, “I get a million calls a week on buying my storage facilities, but I never actually get offers. I rarely ever get an offer.”
In fact, it’s the same thing for me too. People call our facilities and say, “I’d be interested in giving you an offer,” but then they never pursue it. You have to distinguish yourself from the people that are going to put offers out and do it versus the people that are just here listening. It’s going to be interesting to me to see who here on this list is going to put an offer on a storage facility. Very few do. When you think of all the different strategies of funding, how many of those out of 20,000 or 30,000 storage facilities in the country are syndicated, have traditional financing, or have creative deal structures? Creative deal structures are very minimal.
You have to distinguish yourself from the people that are actually going to put offers out and do it, versus the people that are just here listening. Share on XIn fact, I only talked to one owner. They were seller-financing or doing some creative deal structure first, and then I would come in and make the offer. They either own it free and clear or maybe they have a mortgage on the property. Another thing too is you have to understand that in primary markets, most owners are not going to own the facilities outright. They’re going to already have mortgages or something on the property. When you get into secondary markets, more owners own their properties outright, especially if it’s a mom-and-pop. Also, when you get into tertiary markets.
When you’re in the country or towns and stuff less than 25,000 or less, a lot of those owners own their properties free and clear. Maybe they have a little bit of a mortgage, but they are very much open to doing creative deal structures. For instance, we talked to one in Georgia, and I had a Zoom meeting with him. He owed $225,000 on his storage facility. He wants to sell that storage facility for $750,000. If we would not have asked him how much money he owed on that, we would never have been able to convince him to do some creative deal structure.
You have to make sure when you’re talking to owners, you’re asking them, “How much money do you owe on your mortgage?” If it’s an amount of money that you think you can come up with, then you can probably owner-finance that deal. In fact, in the last facility that we closed on, which is in Leesburg, Florida for $2.4 million, the previous owner-financing the deal. The person that we bought it from was owner-financing the deal from the previous owner. The previous owner, the one that we bought it from was owner-financing deal from the previous owners. The first owner had the building, and it was an empty shell building because we bought a conversion. The new owner got the building owner-financed to them, and then they built out the conversion, and then we bought the conversion from them.
When we bought this facility, we also got it owner-financed. Think about that. This is a creative deal structure. The way that we bought that property, it already had a loan on the property to the first owner. We did an assumption. We assumed the first owner’s seller-finance deal, and he owed $400,000 that the owner owed $400,000 to the first owner. We bought that property for $2.4 million. The second owner, we got them to seller finance the deal to us. Think about that. Now, we have two loans on this property. One of them is the assumption and one of them is the seller-finance deal.
Think About Assumptions
That is one way. When you think of creative deal structures, you can assume alone whether it’s done creatively the way that we did it or traditionally. For instance, one of my students assumed the loan from the bank that the loan was from. I want you to always think about assumptions as a way for you to purchase a property if they’re open to it. If you already have a loan on the property, would you be interested and let me assume that loan? I’ll start making the payments for you.
Now, you have to look at the terms and stuff like this. Is it a good term? This is one of the ways for you to buy the property. The reason why we did this structure is because the owner did not want to pay the loan off and lose that money. We owed $400,000 to the first owner, and then we got a loan for $1.2 million. We had to put some down payment down. That $1.2 million, that owner did not want to give that money up. What we did is we convinced the first owner to allow me to make payments there and to allow me to make payments to the second loan.
The good thing about that too was, for both of these loans, I got interest-only payments. I didn’t have to worry about amortization. I wanted to have the mortgage as low as it possibly could. The reason why I wanted to get my mortgage as low as I possibly could in this scenario was because this was a mismanaged property. It wasn’t producing the amount of money that it could be producing. It’s supposed to be making $30,000 to $32,000 a month, and it was only making $9,000 a month.
When I hear that and I see that in my numbers, it automatically triggered me to think, “How am I going to buy this property when he wants $2.4 million?” It was only worth about maybe $1.4 million. I paid a million dollars more than what that property was worth. A lot of people are like, “Why would you do that? That’s crazy.” That property, once it’s making $30,000 to $35,000 a month, it’s valued at $4.5 million. It’s because it’s about $2 a square foot for climate control because it’s all climate control, plus there’s a commercial space and there are extra ways to make money and stuff, but it’s valued at a minimum of $4.5 million. I’ll make $2 million on this property. The down payment was $700,000. I had to come up with $700,000.
What I did was I syndicated that deal. That means I raised the $700,000 to put the down payment and I didn’t put any money into that deal at all. I essentially got a $2.5 million facility for no money. I assumed the loan, I got it seller-financed, I got interest-only payments, and I raised the money for $700,000 to purchase it. Now, we have two notes on this property, an assumption and a seller-finance note. Guess what? The owner with the seller-finance came to me. I owe him $1.2 million, and it’s 5% interest. It’s a good interest rate, honestly.
We negotiated that. It’s a two-year loan. He gave me two years of interest only. I’ll have to pay almost $1.5 million or maybe about $1.55 million. In interest, I’ll have to come up with $250,000 or whatever it is on the loan. Now, the owner has come to me and told me he will sell this note to me at a discounted rate of 30% off if I can close within the next 9 months. This price is a 30% discount.
He told me that if I can come up with $1 million in 9 months, I will save all the interest plus the sum. He is basically selling me his own note at a discounted rate so I could save $400,000 in the next. On top of that, I said, “$1 million, I got to come up with that in 9 months? What if we do quarterly payments? What if I do $350,000 a month every 3 months? Would you work with me on that?” He said, “Yes, I’ll do that.” If I can come up with $350,000 over the course of the next 9 months, but every 3 months, then I will be able to save $400,000 on this deal because the owner is selling me at a discounted rate.
I don’t know how much more creative you can get on a deal, but that is an amazing deal. If I can do that, I’ll make a lot of money. The truth is that in commercial real estate, when you’re talking to people, nobody does this. It is your job to learn how to do this stuff. I’m going to tell you because you can get so many awesome deals that way. Any questions about that? Assuming a loan, seller-financing a note, interest-only payments, and then buying the note at a discounted rate and separating that into payments. When I talk about that, my heart is so full of joy. You have no idea.
The truth is that in commercial real estate, when you're talking to people, nobody does creative deal structures. So it is your job to learn how to do this stuff. Share on XI tried to wholesale this deal and showed it to a lot of people and they all passed it up, just like the three facilities that I’m trying to sell now. A lot of people have looked at my three facilities and they pass it up. I got a couple of offers, but nobody comes up with the offers. Nobody comes up with a creative deal structure. Nobody tries. I was complaining to my husband about that. There’s so much opportunity out there if you educate yourself on that.
SBA Projected Base Loan
Another one that I want to talk about is the one that I just closed on. It is another one in Tennessee that I closed on. It’s traditional. It’s the SBA projected-based loan. This also fits with mismanaged facilities. For income-producing properties, we can go to a bank and get a loan, but most properties are income-producing but they’re not producing what they should be making. There’s always some upside. Rarely do you ever see a facility that’s actually making what it should be making. The truth is that owning a storage facility is like a roller coaster. When you manage a business, you’ve got up upsides and downsides.
During COVID, it was an upside. Everybody was full, paying the highest rates, and it was an amazing 3% interest. Now, the crap is about to hit the fan. Now, only those that can truly manage a property correctly are going to be able to manage these properties. Another thing too is that everybody’s running their numbers at 10% full vacancy and occupancy. The truth is it doesn’t matter how beautiful your storage facility is. It doesn’t matter if you got some curb per curb appeal, if you painted it, if it’s all paved, asphalt, brick walls, or fenced in. This does not matter when you’re talking to a lender and trying to sell your property or get a property financed. What matters is this. That’s it.
I’m seeing that when I talk to lenders. What’s your occupancy? What’s your vacancy? How much money are you making? I can have the ugliest storage facility in town, but if it’s rocking and rolling, making a lot of money, that’s what the bank wants. I don’t understand the concept of having beautiful facilities. Maybe you could charge a little bit more, but the truth is we can’t afford a lot of money now. You got to think about that too.
Occupancy is the issue and concern over the next couple of years for storage. Not only for storage but for commercial real estate. There is a fine line between occupancy and vacancy. Occupancy is physical versus economic. Being full doesn’t mean that you’re making the money that you should be making. Run your numbers and try to figure out what your occupancy should be for that market. A primary market is not going to have 95% physical occupancy. It is not going to have economic occupancy because economic occupancy is how much people are paying.
We have our Fairburn location, which is about 80% full. I was talking to the lender, and he is like, “80%, that’s perfect for that location.” I was like, “Really?” He’s like, “Yes, that’s full to us.” Primary location, 80% is full. We then have our next one, which is Newnan, which is about twenty minutes South of the city, and that one’s also about 80% full. He’s like, “That one should be a little bit fuller. That should be 85% full.” We then went twenty minutes more South for our facility. Luckily, it’s 90% full, but the economic occupancy is not 90%. The economic occupancy was like 79% to 80%. You have to give people to pay in stuff like this.
He was like, “You need to bring the numbers up for your economic occupancy. You can’t just be physically occupied. You have to also be occupied.” Occupancy is the most important part of owning a storage facility. If you do not understand this concept, and if you are not thinking, “How can I make sure that I am economically at 85% to 90% occupancy all the time for my storage facilities, what is my strategy?” that’s what you should be thinking as an owner, but that is where an SBA projected-based loan comes in. For instance, in our Tennessee facility, there are 275 doors. It’s 30,000 square feet. It’s a pretty big storage facility. We picked this one up also for $2.5 million. Almost exactly the same numbers.
It’s the funniest thing. Except for this owner, he had owned this property since he built it, which was years and years. He’s older, he’s sick, he’s dying. He got COVID back in 2020 and never got over it. He’s not doing well and they don’t think he’s going to make it in the next month or so. They were pushing to sell the property. We ran the numbers. I can’t remember what the numbers were, but it came out to $1.4 million, and they wanted to sell it for $2.4 million. It was the same concept. They wanted $1 million more for the property.
When somebody wants more money for a property than what the numbers come out to, what people are doing is they’re running their numbers and they’re saying, “I put all the numbers into the deal analyzer and your valuation is coming out to X amount of dollars, but this guy wants to sell his property X amount of dollars. How am I going to get $1 million? How can I do that? How can I make $250,000?” One person just posted into our Facebook group, and make sure everybody’s in our Facebook group. Search Super Simple Self-Storage, and you get into the Facebook group.
He posted out a deal that he was working on and they want $750,000, and he was coming out with a $500,000 you know valuation, which is totally typical. Especially if you have it on Crexi, you’re listing it, the realtor doesn’t know what they’re doing, and then they try to list it because they have to make their money as well. It’s like a whole thing. The truth is that if you can either get an SBA projected-based loan or you can do a creative deal structure, still buy this thing. It is as long as you know that maybe your first year, your cashflow is going to be tight or you’re going to be coming out of pocket.
For instance, on this deal that we bought here with this loan, our interest-only loan payment was $7,000 a month that we have to pay. It was only making $9,000 a month. We know that we may have to come out of pocket for the first couple of months to get the thing up and running or even longer. We are okay with that because we know on the upside on the back end, within 2 to 3 years, we’re going to double or triple the value of that property.
The truth is the only way that you can buy these properties is if you understand creative deal structures or if you know how to raise money to do deals like this. It’s because you have to either pay cash, you have to do a creative deal structure, or you could do an SBA projected-based loan. The SBA projected-based loans are not easy to get. It’s not that it’s not easy, but it’s a lot of work to do what they need. You have to jump through a lot of hoops to convince a lender to lend you on a projected-based loan. They want to see your goals for price increases and occupancy.
When we applied for this SBA projected-based loan, we had to give them a business plan. We had to make a business plan, showing what the property was making now and what it could be making. We had put this whole thing together. We had to put a financial model together. We had to do so much stuff in order to convince this lender to lend us $1 million more than what the property was worth. It took us December to April, so almost 5 months to close that loan. A lot of hoops and a lot of work to get it closed, but we did it. We only had to put 10% down. For a $2.5 million facility, we only had to come up with $200,000.
SBA projected-based loans are amazing and awesome. It depends on your experience how much money you have to put down, 10% to 15% is typical. The interest rates are going to be higher obviously. You want to make sure that you’re like $0.50 on the dollar for these deals. You really need to be $0.50. We bought this thing for $2.5 million and it’s going to be valued at $5 million plus. Once we raise the rates and make sure that the occupancy is at 85% to 90%, that property will be worth over $5 million.
We had to convince the bank and the lender to give us that loan. Somehow we did and they gave us a loan. Guess what? For this, it was a $2.5 million deal. We had to come up with a 15% down. Also, another thing is SBA loans are super expensive. They have so many fees. It’s ridiculous. If you want to be for an SBA, you want to be $0.50 on the dollar, 50% LTV or Loan-To-Value. You’re going to have a higher interest rate. Also, SBA loans are variable, so interest rates are high. You have to make sure and prove to the lenders that you’ll be able to afford the interest rate as it goes up or down. You typically can’t afford a high-interest rate. The higher the interest rate, then the more of a spread you need on the deal. That’s why I say $0.50 LTV.
We had $2.5 million and then we put $150,000 for CapEx. Totally, we had to come up with like $500,000. That included the $150,000 CapEx that they wanted to keep, and then we have to do draws and stuff. We had to come up with $500,000. This $500,000 for a down payment, you’re like, “Where do I get that?” Guess what I did? I syndicated the deal and raised the money for $500,000. We had 10 to 15 lenders and investors putting money and pulling this money together. Syndications essentially allow you to pull money together. We have X amount of people putting money, we pulled the money together, and we raised $900,000, so we raised way more than what we needed.
Syndications essentially allow you to pull money together. Share on XWe syndicated this out. When I say syndication, I mean the government and the Securities and Exchange Commission are okay with us pulling a whole bunch of investors’ money together. By law, you cannot do that. You cannot pull money together. We syndicated this out and raised $900,000. We used $500,000 to buy the thing. Guess what? I didn’t put a dime of money into any of this deal. Actually, that’s not true. I paid for the syndication, which costs about $10,000. As soon as we closed on the deal, I reimbursed myself for that $10,000.
I syndicated that deal out and I didn’t put a dime of my own money into that deal. I own another $2.5 million facility and we didn’t put any money into buying it at all. That’s two ways to syndicate. You’re going to a traditional bank and getting an SBA, but it’s also super creative in the way that you can do that. I utilized syndications in order to raise the money. A lot of people ask me over and over. They say, “Stacy, how do you buy so many storage facilities?” In 2022, I bought $10 million worth of storage and I didn’t put a dime of my own money into any of it. I put a little bit of money into the fund because I co-invest with that, but that’s it. That is how I do it.
Deal Analyzer
For the bootcamp on June 3rd and 4th, 2023, I will go into all of the different ways. I’ll show you step by step how to do all this. I wanted to give you an idea of what is out there for you and how I do this. If you are interested in coming to the bootcamp, then make sure that you go to StorageNerds.com. The great thing about these creative deal structures that I’m showing you, my Deal Analyzer runs those scenarios for you. It’s very hard to run numbers on creative deal structures, but we came up with a deal analyzer that allows you to do that. You can run fixed interest. You can do private money. You could do owner-financing. You could do all different kinds of scenarios. That is in the deal analyzer, so make sure you check that out as well too. There are some training videos showing you how to do that.
That’s an overview of what’s going to go on in the bootcamp. Let me see. We got a couple of questions here. “What were the terms for the syndication participants? If monthly, for how long?” For syndication, it’s a hold. It’s like a 3, 4, or 5-year hold. When they put the money in, you come up with the terms. Essentially with syndication, you come up with the terms and then you have to convince your investors to accept your terms. One of them was a 3-year hold and another one was a 5-year hold. Your pref, which is the interest rate that you’re paying could be different too. It could be 6%, 8%, or 10% interest.
You come up with those terms when you’re syndicating those deals in quarterly payments, monthly payments, or however you want to do it. All terms are basically whatever you want to come up with. That then creates your terms and create your PPM, the Private Placement Memorandum. That PPM is what we call your offering. That’s the offering that you’re making out to everybody about your deal and you’re convincing the investors of your deal.
“How do you tell if a property is mismanaged?” The only way you can tell if a property is mismanaged is if you get the numbers and run the deal analysis. You cannot look at a storage facility and be like, “That looks mismanaged,” because guess what? We’ve just got a storage facility under contract in Florida over here and then the panhandle. It’s looking pretty rough, but it’s completely full and it’s making very good money. That’s why I said curb appeal and big and huge buildings.
When you see a storage facility that’s super beautiful and perfect, they need to charge a lot of money for their rent in order to pay for all of that. You have a regular metal storage facility and it doesn’t cost that much money to build or maintain those. That’s how it works. If you’re going to have a big beautiful storage facility, then make sure your rates can compensate for how much money it’s going to cost for you to build, put that together, buy-in, or whatever it is.
I hope that you guys check out StacyRossetti.com. I hope you check out StacyRossetti.com/Fund. That’s the Self-Storage Fund of America. I’m raising money for one amazing deal now if you’re interested in passively investing. Look at the course, look at the deal analyzer, and come to the free Wednesdays. Check out StorageNerds.com. This triad right here is going to help. If you’re reading and saying, “Yes, this is amazing. I want to do this. I want to learn how to do this,” this is what’s going to help you do. This is like a DIY. This is me. This is coaching. This is me holding your hand, being there, and telling you what to do step by step. I appreciate you guys hanging in there, and I will see you guys next episode. Take care.
