Mark Ameerali, a student of Stacy Rossetti’s Storage Nerds program, shares the incredible story of how he found and acquired his first self storage deal. He dives deep into the challenges he faced, the importance of finding the right partner, and the strategies he used to analyze the deal and uncover hidden value. Discover how Mark doubled the property value in just a few months through smart management and strategic refinancing, proving that with the right knowledge and execution, success in self storage investing is within reach.
—
Watch the episode here
Listen to the podcast here
Student Showcase: How Mark Syndicated His First Storage Deal
This is Stacy Rossetti and I am back with one of my students. Mark Ameerali has been in StorageNerds for a little while now. I want him to share his story on how he got his first facility under contract and how he’s managing and stuff so he’s another success story. Mark, thank you for coming to hang out. Introduce yourself a little bit, please.
Mark’s Journey Into Self Storage Investing
Thanks, Stacy. I’ve been in StorageNerds since May of 2023. We met in person prior to my coming to Vegas. I have done my research. I found StorageNerds online. I thought it was compelling and it was a good stopgap between my knowledge and where I wanted to get because I hadn’t invested in storage before. When we met in Vegas, I got to know you personally. That meant a lot to me to sit face-to-face with somebody and get to know you. I felt you were very genuine and that you did care about your students.
I wasn’t going to be a student of the Turnkey program. I didn’t have the ability to communicate with the expert. All of those things pushed my decision to sign up the next month and start learning. That was very valuable for me to go through that program that you had. That was well laid out and very thorough, especially the extra auxiliary content from other presenters that you brought in as well. It wasn’t just you. It was very good.
Another thing that appealed to me was the potential for operational support because Pete does all your operations. We had a couple of conversations about when you bring this on, this is how you’re going to handle it. That was where I felt my weakest part was. I’m not used to running things on a day-to-day basis. I wanted to make sure that if I needed help learning how to do things, I would have that support on the ground. That all worked out well.
I made the next jump to StorageNerds Turnkey Acquisitions, to find my first deal because I’m a busy dad. I’ve several children. We had our sixth child at the time and my oldest was ten. At the time, I had a newborn at home and I was still working in another job at the time. I did not have time to try to find the storage. I did try looking online. I did do a little bit of driving. I did approach some people in this area, but my buy box was pretty particular and it was difficult to find what I was finding. I spent six months spinning my wheels before decided to sign on for Turnkey.
Mark lives in Idaho. Just so you know. He joined StorageNerds and was trying to go out and find his own facility. I teach Driving for Storage, That is what I do. He was out driving around, That’s what he’s talking about, for everybody that doesn’t know. I tried to convince him a couple of times to upgrade to Acquisitions and he finally did. That’s how he found his first deal. I want him to come on and talk about why you decided to get into storage, and also the process of getting to the point where he was like, “I’m ready to do this.” Explain that.
Everyone has a unique story. I have been investing in real estate since 2011. At the time, I was living in Vancouver, British Columbia. I’m from there and I saw the opportunity after the US market crash in housing to get into discounted assets. I started analyzing the US for markets and ended up buying houses right around the area that you were buying at that same time in 2011. That strategy worked very well at the time because the product was very discounted.
That was a good time to be in real estate.
Especially in Georgia, in the Greater Atlanta area. It was a good time. Deep discounts, we rode that. If we held all those assets, that would have gone up higher, but I transitioned pretty quickly from purchasing single-families to multifamilies. I had developed a little bit of a program in a concierge service for Canadians to buy in the US.
We bought 50-plus houses for our clients, and then I started realizing that these people had a high degree of trust in what we were doing for them. I then got into multifamily because I started pooling the capital together. That’s when I first got into syndicating. I came from a finance background and I thought it would probably be easier for me to pull capital instead of doing individual transactions. That’s the direction that we headed in.
Fast forward to ten years and a lot more experience in real estate and a lot more experience with tenants. Everyone who’s dealing with that, many of them make that transition into commercial real estate. At the time, my full-time job was raising capital for other projects, whether that be multifamily companies, lenders, or land developers. I saw a lot of different business models and participated in investments and capital raising in the private markets in Canada.
Discovering The Benefits of Self Storage
2018 was my first exposure to storage. I met a gentleman named Danny and he was starting a fund called Make Space up there. I was able to get an inside look at the metrics and the appeal of storage and to compare storage to other asset classes in real estate like multifamily, single-family, office, industrial, and hospitality. It was very clear to me that the data showed storage was far and away the best opportunity to invest in on a risk-adjusted basis.
You get more return for every unit of risk that you are taking because storage has a lower operating cost and has that countercyclical element to it, where the four Ds of storage drive returns. You got the divorce, death, dislocation, and downsizing. All of those negative things that unfortunately happened more often in a down economy boost the need for storage. I like that stability.
When I left Canada three years ago, I decided that I was going to reposition my capital base and I was going to refocus on storage when I could. That’s what I decided to do in a big way. I sloughed off everything and focused on storage. I didn’t want to be managing multifamilies and single families from a different country because I had done that already.
You decided to join StorageNerds and then you went out and started looking for facilities. You were driving for storage, talking to owners, and stuff. What happened? What was the process? How did you get yourself going? What were you doing? For all the people who are just starting out, what would you suggest?
It’s different for everybody. I would say the first three months, I did a little bit of virtual driving. I started making some calls. I did some actual driving because of the timing of the year. I ride my motorcycle around a lot. I’d be riding around and see storages. I tried contacting some owners for places that I saw. I spent a little time looking up on Google.
At the time, I had a different buy box than I had now because it was just me. I didn’t have a partner yet. I met him a few months later. My initial goal when I looked at it was given the financing situation and remember, I’m a Canadian. I’m not a US citizen yet. I didn’t have access to SBA financing at the time. Because of the conventional rates out there for financing, I did not have a lot of faith that I was going to meet the numbers that I wanted to.
What I was trying to find at the time was somewhere between $1 million to $1.5 million range, with a $250, 000 to $500,000 down payment, something that was going to be close enough that I could keep an eye on it myself, and something that I could seller finance so that I could avoid having to do the conventional rates and I could get a better more favorable rate from someone who wanted to be the bank. That’s what I was looking for initially. I worked with a couple of people and with some VAs who looked into this area. There was nothing that was coming up in this area that met that buy box.
Did you find a lot that was in your price range?
Yeah.
They’re always so expensive up there.
They are. Storage in North Idaho is highly priced. It’s a nondescript part of the country. Not many people know the surrounding area. Because there are a lot of mountains here, it’s not like a wheel and spoke area. I live next to Coeur d’Alene. The travel routes are determined by the geography. You have to go in between mountains and passes.
You have to go along certain areas and you’ll see a lot of storage along those travel routes. The reason is because that’s where everyone commutes. It’s the thoroughfare. You’re not going to find it out in the boonies here. There’s a place north of here called Sagle, Idaho. It has 3,000 or 4,000 people and they must have at least half a million to three-quarters of a million square feet of storage. You drive through there and you’re like, “Why is there so much storage?”
It’s interesting that you bring that up because it’s the same way when you get to the foothills of Georgia. There’s a lot of storage along the main roads. It’s exactly what you said. That’s where everybody is driving.
You’re going to put it for high visibility and ease of access. That makes it very hard to find hidden storage when everything is on the main road. I didn’t appreciate that at the time, but I also knew what I didn’t know. My situation changed because, in July of that year, I met my now-current partner. This is a guy from my church. When I mentioned to them that I was finding storage, they said someone else in the church was doing exactly that, which I thought was ironic because it’s a fairly large church, but it’s a community of 1,800 people. There are not a lot of people who are laser-focused on storage.
Is he up in Idaho?
Yeah, he was up there and up here at the time. He’s moved now to Arizona. He moved 3 or 4 months later. It was a good thing that we connected when we did because he was only here for a short period of time. With the advent of our partnership, we were able to shift our buy box. At the time when I met him, he had a deal under contract in Louisiana. That deal eventually fell through a little later in November because of the cost of insurance, which is a whole nother story.
That was the last piece in the deal. It was a little hairy deal because some different things were going on. There’s a flea market on site. About six other different businesses were running on that land. It was a nightmare to insure. That ended up falling through. What it did was it shifted our buy box for two important reasons. Number one, because I had an American citizen as a partner, I could now access SBA financing. I would have someone who is dedicated to off-site management. I would not need to hire a company. I would not need to do it all myself.
Also, Andrew, my partner, has a background in computer science, physics, and math. He’s a pure nerd. I’m an extroverted nerd. He’s an introverted nerd. He was doing this full-time. He was looking for storage, he was doing deal analysis, and he’d been looking for a year. He was dedicated to finding something.
With that combination, you’re trying to go big and you’re trying to scale, you can’t do it all by yourself. You need that person who’s either boots on the ground or doing the operational stuff. You need someone who is doing the sales, marketing, etc. I handle all the banking, all the capital raising, all the legal, all of our paperwork, and some other administrative things. He does all the day-to-day. He takes all the phone calls. He does all the revenue management. He’s into the software on a daily basis. Because he’s so well grounded, he’s good with all the technical aspects of management.
I feel like we approached this with a very institutional mindset. That’s also in part because that’s the world that I come from. On our advisory, we still have the president of Make Space, which is Danny Freedman, the guy that I told you about before. He’s one of our advisors and he helps guide us to do things the way that a bigger company does because they’re now managing 55 facilities and over $400 million in assets since 2018 when they started with two assets. It’s a lot of growth and I’ve got a lot of good guidance to do that.
Did you just ask him, “Would you be my advisor?” How did that come about?
Here’s the thing. I sat on the advanced product committee when I was in my previous firm in Canada. What that did was it put me in close contact with him when we were developing their offering from scratch. I helped design what they’re offering would look like. We got to know each other through that process. We had we had an existing relationship. When I moved, I told him I was interested in getting storage. I asked him, “Would you help me? Would you guide me? Would you advise me in my journey?” and he said, “Yeah.” He was very instrumental in helping us get off the ground in our business and was more than happy to help. Danny is a very down-to-earth approachable guy.
To finish that thought, we shifted our buy box. We started looking at products that were in the $2 million to $5 million range. That could be anywhere because now we had someone dedicated to full-time management. It opened up a world of opportunities for us. That particular range of $2 million to $5 million is a unique buy box.
There are not a lot of people who could buy that on their own as an individual. There are not a lot of institutional minds that are going to come down to that level either. You have that secondary tertiary market with bigger storage. You would imagine would have a smaller number of potential purchasers because you need to syndicate it but you’re not going to be seeing to retake that down.
Do you guys always know you were going to syndicate?
I knew that from the beginning. To that end, I formed the entities that we used for our first deal. Prior to meeting Andrew, I knew I was going to syndicate it. That’s how I operated before.
Syndicating to you means raising money for the deal.
Correct.
Everybody knows that’s what it is. When you guys were working out your partnership and stuff, how did you all discuss that? What was the conversation?
It was funny because we just met each other. I should step back and mention that Andrew wasn’t working other than doing this. He was doing this full-time. We had no income coming in. I lost my job five weeks after I signed up for StorageNerds, which is part of the reason it took me a little while to want to go to Turnkey because of the additional lay of capital. There was that uncertainty. We were both like two strangers in a lifeboat. We have to find a way to get to where we want to go.
You work where your heart is.
Absolutely, but you also need to be able to build trust. Trust takes time to build. We did a few different things. We had each other send our personality analyses. We had references that we were calling for each other. It was easier because we’re both part of the same very conservative Catholic traditional church community. There is a certain level of trust going in on that end. I’ve had terrible partnerships before. We did what we could to make sure that we were not getting into a relationship that we didn’t want to be in. We just focused on the problem at hand which was finding a deal.
You also need to be able to build trust, and trust takes time to build.
What was your analysis? What personality test did you take?
What I used and what I sent him was a personality assessment that I’d done some years back when I was applying for a job back in Vancouver. The gentleman I was working with put me through a six-month interview period and it included something called a personality DNA test. It was a very expensive personality assessment. I don’t know what the name of the test is, but it’s like a DISC.
It was much more like multiple thousands of dollars to put me through this thing. It’s a very extensive 22-page report. It was very accurate. The irony is at the time, what IIt produced was to say, “This person is very capable, very intelligent, and very independent. You should not hire him because if you hire this person you’re going to lose them within a year or two when they learn how to do what you do. They’re going to do it themselves.”
That’s for me too. We probably have a lot of stuff in common.
The irony at the time was I was beginning my career. I was like, “How am I supposed to get experience if no one can hire me because they know that I’m going to end up doing my own thing anyway?”
You should be an entrepreneur.
I knew that in the beginning, but when you’re trying to be an entrepreneur in the world of finance, it’s hard. You can’t start to be your own banker or investment firm with no experience. That was the constant feedback that I was getting, “You need to be working for yourself.” I know that now with the benefit of twenty years of hindsight.
A lot of people have said, “Stacy is here. We shouldn’t show her what we’re doing because Stacy’s going to take it and do it many times better.” That’s what I do. When people hear stuff, it’s like, “That’s how it is.” I was like, “Let me go out and do my own thing on that.” That’s what everybody listening to us should be doing. We’re sitting here spilling the beans right now. You take that and go with it.
Now you have a facility under contract. Let’s go through your deal. We all know you found it through Acquisitions. if you guys are interested in Acquisitions, go to StorageNerds Acquisitions. This is where my team sends you lead generation. You get to have access to owners who want to talk to you about maybe selling their facility and stuff.
You joined and I’m so glad you did because I know you’re going to find something. A lot of people, I can tell if they’re going to do this. You’re one of the ones that I wish would get into Acquisitions so that you could get a deal. A lot of my students are like that. I was like, “I wish you could do Acquisitions because I know you can do this,” but finding your first deal is a lot of work.
It’s like anything. When we first started buying in Atlanta, after we bought that first one, it started getting easier because people broker relationships. They know if you’re going to do it. Many people say they want to do it and then don’t end up doing it, even in programs in real estate.
It’s not hard. It just takes a lot of effort.
It seems it’s hard until it happens. You then look back on it after you’ve done a few and it’s like, “That wasn’t that hard.” It’s like anything. Until you do it, it feels like it’s going to be a lot harder than it is.
That’s the purpose of StorageNerds Acquisitions, to help you with that. He has a deal now. Let’s go over your deal because it’s exciting. I want you to show how you ran the numbers on it, funded it, and managed it. How are you and Andrew working together to manage this thing? That’s what I want to get into.
Analyzing The Deal And Finding Hidden Value
You know this about me already, I guess, but your group doesn’t. My background in finance is I am a chartered financial analyst. I can read the numbers in spreadsheets and financial statements on an above-average level. What I wanted to find with our deal analysis is something that I could put into my model that would project forward what my returns would be for the investors. For us, when we’re syndicating, we need to be able to tell that story in a succinct way to the investors.
When we’re syndicating, we really need to be able to tell that story in a succinct way to the investors.
As I mentioned shifting the buy box, we went up in price point and when we found this deal in Abilene through Turnkey, I was shocked because I had spent so many months looking that I started to think maybe this doesn’t exist out there. It took me a little longer to get into Acquisitions because we were initially working on our own deal from July to November. When that didn’t happen, I joined in December.
I think I was on vacation in January when this deal finally came through. I was on vacation. I pulled up my laptop. At first, when I saw this deal, it didn’t make any sense to me because the way that the financials read, the expenses were super high. It didn’t make any sense to me because it was for $2.6 million that they listed it for. It was a seller that was not a mom-and-pop. This gentleman has a 50-year career in commercial real estate and has tens of millions of dollars in assets, owns his brokerage, and builds commercial strip plazas.
I saw this P&L and I saw all these expenses on there that didn’t add up. That’s why I think that deal was so attractive to us because we could see that these weren’t the true expenses for this facility. There’s no way that they’re spending $62,000 a year on repairs and maintenance. What they were doing was they were allocating all of the company’s repairs and maintenance on a pro-rated basis over their entire portfolio. That was the allocation for this.
Why do you think they would do that?
I think they would do that because it’s easier to reduce your income when you can share things between different buildings. I have a few other ideas on why he might want to do that but at the end of the day, the P&L that I was looking at did not correspond to my expectations of what the expenses should be.
That is very key for a lot of people to understand because we look at P&L all the time and it’s all over the place. If you know what your expenses should be, then you can calculate and try to figure it out. I can guarantee if he had run his property and had P&L the way they should have been, you would have not gotten the price that you got.
Uncovering Hidden Expenses And Increasing Revenue
There’s a good argument for that. The other reason that the price was what it was is because they had owned that property for 22 years. They had three storages in their company, but the storages were not the focus. They were an afterthought. They have administrative people whose mandate was to keep it full. They were charging less than average. They would do these broad-based price rate increases. They did a price rental increase of 5% right before we bought it in May.
We bought it in July. They asked us, “Do you mind if we do a rental rate increase of 5%?” I come to realize this is 5% across the board. I know you’ll believe this but it’s still shocking when I say this. We have people who’ve been there for 20 years. They started at $50 and are renting $200 units at $50, so a 5% increase is not going to do anything. This is a business. If you’re not paying close attention to the health of your business, then you’re going to not make as much money as you could.
This is a business and if you’re not paying close attention to the health of your business, then you’re going to not make as much money as you could.
They had issues on the expenses side and also on the income side. We were able to make some assumptions and we had to take a leap of faith that we could increase those rates and we could reduce those expenses, and then when we got in there and we visited the facility, that was fun because that confirmed our suspicions that there was some tasty meat on that bone to strip off. They were running that facility in a way that clearly showed that they weren’t paying a lot of attention to the details.
That’s important for people to hear. A lot of students in Acquisitions passed on this deal because the expenses were too high. This happens quite often. When they’re looking at the deals, they look at the face value of it and they don’t look at the deal. You do a good job of due diligence, looking at numbers, and looking to see if there is an opportunity inside of the deal, which is something that a lot of people don’t do. You do that well. I feel a lot of students pass up deals because of this.
I’ll mention this and this is something I learned in your course. I have a rule of thumb when I look at a property to say, “What is this worth?” One of the ways that I do that is I use, depending on the facility, an expense ratio and calculate what the NOI potentially is, etc. When I first joined StorageNerds, I had no idea what the expense ratio should be.
When I looked at this crazy expense number, I couldn’t remember what it was. Let’s say 52%. Their expense ratio is 52%. I said, “That doesn’t make any sense. This should be in the 30% to 35% or 30% to 40% for sure. They’re sitting at 50% to 60%. I always try to build a story as to why that number is telling me what it is. I have a visual here that I’ll bring up so that you can see what we did to try to improve the value, and how we found value in that facility and increased it. These are the things that I find interesting. Hopefully, everyone will find some value in it.
It’s key to say that storage is asset management. People think, “I’m going to own the property and it’s real estate,” or whatever. The truth is the better you can be at things like this, the better your facility is going to be. That’s what it is.
Here’s a visual description of some of the meat on the bone that we found. I’ll start here, optimized utility. What you’re looking at is the original NOI that we had when we bought this facility back in August. $171,000 a year was our net operating income as of that month if August was a full twelve months. I noticed this on due diligence on my visit. It was a 30-yard dumpster. This is what I mean by the value of finding the meat on the bone.
That 30-yard dumpster was costing $800 a month to empty. I asked why it was there and they said, “We bring garbage from other facilities like our commercial strip plazas here and then we take it from there and it’s convenient for the tenants to have.” I asked Danny about that and he said, “Why would you want to provide a receptacle for everybody to pile stuff into it at your cost? It doesn’t make any sense. It’s a pure cost.”
Here’s the crazy thing. That dumpster showed up as a water bill. I was like, “Why are we spending $11,000 a year on water in this facility when we don’t have any water that runs to the facility?” There were no fixtures. There was not a faucet anywhere. The reason that it was listed that way is because the City of Abilene provides trash and water services, so it showed up as a water bill, and I knew immediately that was not the case. By removing that dumpster alone, we saved $16,000 a year between removing the dumpster and adjusting the utilities.
It costs at least maybe $10,000 a year for trash removal. The other component of the savings is $16,000 a month worth of savings. The other thing was that their HVAC systems were very old. They were the original ones. They had the temperature control set between 65 and 80 degrees. Texas standard is between 50 and 85.
By doubling the range of the temperature control, we would automatically reduce the strain on the electricity because they were spending in some months up to $3,000 a month in utilities. When I projected what the utilities could cost, I was coming up with their cost somewhere in the $1,600 to $1,800 range a month. I went in and we replaced those HVAC units or the ones that needed to be replaced. We ended up reducing to our average monthly bill is now less than $900t. We would save somewhere in the range of $60,000 to $8,000 a year in just power by changing the thermostat.
I think we changed maybe seven heat pumps to update them because they had started failing after twenty years. I was able to do that. There’s a whole backstory to how we ended up getting that cost from $120,000 down to $40,000. It’s talking to people and learning what you don’t know. That was optimizing the utilities. That saved us $16,000 a year.
We mandated insurance in month one. We now require all tenants to either use their own insurance or our insurance. That brings in an additional $25,000 a year. Those two things were a huge jump. We anticipated that we didn’t know what to anticipate for fees. We put up a couple of hundred dollars a month. We are pulling in close to $3,000 a month for these things.
We talk a lot about this in the Mastermind.
I think it went from $1,500 to $3,000 last month just because we have 350 tenants now, and 10% of them don’t pay on time. In our back office, I saw 52 late payments. We’re in the sixth of the month right now. They ended up incurring the late fee. I used to get stressed out when I saw that number of non-payments at the beginning of the month, but now I’m like, “It’s due. They chose not to be on an automatic payment and that’s more money in our pockets.”
It’s dressed that way. We do auctions every month, the 23rd? I’m always like, “They need to be paying their stuff because we’re starting an auction process.”
One of the things that gave me a lot of comfort and that’s why I say this facility was the perfect facility for us price point-wise, environment-wise, and we don’t have to deal with the last snow. There are a lot of things that line up that I like. It was concrete, fence, automatic gate, cameras, and whatnot. One of the things that I liked about the way that the property works in the financials was that they didn’t have a lot of delinquency. In the first month when we took over, we had $1,800 worth of delinquencies.
Price point-wise, it was so cheap.
Some people were severely discounted because they’ve been there for so long, but they’re only about 20% to 30% below market rates for the newer people.
What did you do with all those people that have been so long and they get a discount? Did you raise the rent?
We did a rate bump in October. We gave notice in September that we’re doing a rate bump. It wasn’t just a general everyone is going up 5% to 10%. With our management software, we can laser focus on segments that are unit types. We can also blanket increase everyone to a certain percentage discount to market if we want to.
Let’s say, we have 60 10x10s, and they have all these different people, the price for 10×10 is $100. We have people in there for as low as $25 and as high as $100. What we can do is we can set everyone who’s at a discount to come up to 20% below. It’ll automatically do that. We don’t have to do each individual on our own.
That’s one of the things that I love. Their back office is so flexible, and we can get in contact with them and get a good response as to what we need to do to make that change. We were even talking to them a couple of days ago about some of the finer points in the reporting and analytics that they present. That’s what this $ 54,000-a-year increase is. It’s that simple one-month adjustment.
We did not bring them up to market rates. We brought them up to 15% below market rates. We’re planning on doing another bump in the spring. We were a little nervous. The reason we did it that way was because we didn’t know how much we were going to drive vacancy, but we lost one tenant through that.
They were getting a good deal.
The theory was that even if they might be upset when they see the rate increase, they’ll still look around and say, “I can’t get another unit of equivalent size at the same rate.” Ironically, there’s a facility run by the largest operator in Abilene right across the highway from us, which is another beautiful thing about the facility.
Make sure that was the one where you’re 20% below or something.
Exactly. It is the extended Ring Road around Abilene and we are on one exit ramp and they’re on the entrance ramp.
That’s important too though. You were in the right market. These secondary markets are good markets to be in. For Abilene, I don’t know what the net per square foot is. Do they have too many storage facilities?
No, they don’t.
It’s like Tallahassee. There’s not a lot of storage.
In our trade, we had 10 or 11 square feet per capita, and 1 square foot per capita of climate control, which is another value-add to our facility. It’s 50% climate control and we’re the only ones in the area that offer climate control except for two other facilities. One is another one that the seller owns, and it’s 5 miles away or 3 miles away. One is U-Haul, but they only have 3,000 square feet of climate control storage. We have 22,000 square feet of climate control storage, which is 92% full right now.
If it is so low, you may want to consider building.
That is another area of discussion. The seller’s name is Paul. He’s a developer. He owns the entire corner and he’s planning on building a strip mall there. The strip mall is going to take the entire 38 acres. He offered us an additional 8 acres to buy and build. Here’s the interesting thing. We are 1.5 miles down from the Dyess Air Force Base. Dyess was granted the beef of 21 bombers contract, which means that those bombers and the 10,000 people that are going to be operating and that 3,000 service members plus their families are going to be moving into that corner of Abilene within the next 24 to 36 months.
Paul also owns the track of 30 acres across the road from us. He told us explicitly, “I’m planning on building that into housing because I know there’s going to be a huge demand for this and so is the person next to me.” He said, “If you’re planning to build, now is the time to do it in this space if you’re willing to do that.” He also said he would consider seller-financing us the dirt.
You need to look at that, honestly.
Refinancing And Doubling The Property Value
We are. This is how we’re going to take advantage of this because this slide has pretty much run its course. I’m going to show you this one here. This is the valuation of the facility from the day that we bought it. The day that we bought it, it was worth 2.3 to 2.4. Now because of our initiatives, you can see the increase in the NOI that’s come up to where we’re at 295 up from 171. Our value has gone up from 2.4 to 4.2.
The value prop now is that we can refinance this thing in a few months. That’s why I did the SBA 7(a) loan, by the way. My original plan was that I was going to do the SBA 7(a) loan, paid the higher interest rate, and get the NOI up, then I’ll refinance it into a 504. While I’ll pull out a bunch of money, my actual debt service cost will remain the same even if I’m pulling out $1.5 million because my interest rates going to drop to 3%.
Also, the 7(a) is a variable rate. We’ve seen a 75 basis point decrease in the cost of capital since that. Our debt cost has come down and will come down even further on refinance. The reason I didn’t go with a 504 originally was because it was going to cost me too much to refinance when and if I want to refinance because the first five years of a 504 is going to cost you 10%.
You guys took it and doubled the value of the property by increasing the rights. This is an income-producing property. What that means is it was already making money. All he has to do is come in and increase the rent. I see these types of deals in higher purchase prices.
I’ll clarify that when we bought this, it was cashflow negative in the first month or two.
That’s because the expenses were so high.
It was not his expense. It was the debt cost. Our total cost all in is about $30,000 a month, maybe a little bit higher, $32,000 or something like that. Originally, the income on this property was only $23,000 to $24,000 a month. We knew that we would have to do a little bit of work to get it up that high. Now, the gross revenue is $39,000 as of this month.
How did you convince the lender to lend you money on that then?
He looked at our pro forma and we built our own model. We built a pretty complex model, but at the time we were building a stop-gap model, we were using a model that was good enough to show that with some minor tweaks in the reduction of cost and increase in rents, we would have an increase in occupancy, which is one of the things we didn’t talk about on the previous slide. We would be meeting the banks’ debt service coverage ratios.
With some minor tweaks in the reduction of cost and increase in rents, we would increase in occupancy.
can’t put out a big enough plug for SBA and Bank Five Nine because they’re super good at analyzing the deal and they know their numbers. They don’t need to convince them because they know the value of storage and they’re focused on that. They allowed us to put 10% to 15% down. They allowed us to have interest only for two years and they only require a 1.15 debt service coverage ratio. Whereas a lot of banks will require a 70% to 80% loan to value. They’ll require a 1.25 to 1.3 debt service coverage ratio that won’t give you the interest only.
There are a lot of benefits to looking at the SBA, but they are a little harder to get. There’s a little bit more work. I didn’t mention this but my first job at a university was as a commercial credit analyst. I know what they’re looking for. I’m used to talking the language of debt. It wasn’t hard after showing them our projections. They just needed a little bit of convincing on our backgrounds that we’re able to pull off. With their backgrounds, education, and experience in real estate, it didn’t take long for them to understand that. Sixty days after we closed on this, we’re looking at our next deal and it was so much faster to get that done.
It’s the same lender. They’re like, “Okay. You all know what you’re doing.”
The goal here is to refinance when the penalty drops to about 1% in our interest. When our interest-only period drops off, we’re going to have an extra $40,000 a year in carry costs. That would be about what our penalty is to refinance. I say, “Why don’t we refinance at that point which is 25 months from purchase, pull out $1 million or $1.5 million, build $1 million worth of storage on the land that we’re having seller finance, and double that.
We know that there’s demand for this and the reason we know that is because on this slide you can see we’ve increased occupancy by 20%. We’ve got $11,000 worth of new rentals in the last 60 days. It’s a huge jump to see every day 2 to 3 messages on my phone that a new lease has been signed. I’m starting to get to the point where I’m like, “What are they renting because there’s not a lot left?”
You have to watch your net, your move-ins, and your move-outs. That’s what you have to do because people always leave.
Last month, we had 52 move-ins and four move-outs.
That’s crazy.
That tells you there’s a huge amount of demand there. That’s 60 days. We didn’t do any SEO. We didn’t do any marketing until October because we were just getting our feet under us. In October, we started hiring SEO and hiring Google ads. We started using SpareFoot, and it’s running now about two-thirds of our new leases. They are coming from our own organic searches, and not from SpareFoot, which is nice.
Who are you using for SEO?
Managing Operations And Dividing Responsibilities
That’s an Andrew question.
Who does what then?
Andrew takes out the calls. He manages the employees. He does the revenue management. He does all the marketing. He does all that in coordination with the SEO person. We have someone in Turkey who does our SEO in maybe India or Pakistan for Google ads. I can’t remember. He’s using Apple to do it and then we have someone that we brought on that wants to take on to do deal analysis. He’s got 40 deals that he wants to analyze and he wants someone to put all that data into our model.
On the flip side, I’m the one who helped make the model and that was a fairly complex tasks. I’m the one who uses the data from that model to go and tell that story to all of our potential investors, keeps those relationships going. I hold investor dinners to educate people and what we’re doing. I’ve held a couple of events that were very successful in getting people out to explain what we’re doing. I have a certain method of doing that from all the experience of doing that up in, and then you know, doing all the MailChimp and investor relations. I’ll send out the quarterly reports and then I’ll coordinate with all the tax from legal professionals, as well as the accountants. I do all the boring one-day stuff in the background seemingly and he does all the that the heavier lifting on the ground and the day-to-day work. It’s a great division of labor.
I would say that you’re doing the fun stuff and he’s doing the boring stuff.
Sometimes I’d love to get a little bit more granular in there and try to figure it out. There are always fun situations. Yesterday, we found someone. We had only five tamper tags on units and I said two months ago, “We need to shift those tamper tags locks because I bet you someone is going to store garbage in there when they don’t want to empty their unit or something.” Our boots on the ground opened one yesterday and found it full of expensive insulating foam. It’s like someone moved a whole bunch of foam into a unit.
We deal with those day-to-day problems. I like it because it makes me see the tangibility. This is a real asset. When I’m dealing with the paperwork and the emails, I don’t get to see it as much. I went down to Texas last month and I did a tour. I was going to the TSA Conference in Austin. I still have a house down there because I lived down in Texas. I was looking at four deals from Acquisitions up in the Fort Worth area. I said, “I’m going to go down and go, touch, and feel the investment.” It makes me feel I’m still part of the real world instead of just the virtual world.
I haven’t been to my storage facilities for a long time. The only time I ever go to the storage facilities is when I do the infill training day.
Your partner is there.
Pete’s always complaining. He goes, “This storage facility is too much.”
I will agree with you that my job is fun in that investor relations is human relations. It’s relationships that are going to allow people to trust you with their money. I have a good network of investors in Canada and I’m building one down here in the US. All I have to do is allow these people to get to know me and I get to know them. If there’s a fit for the investment, they’ll make the investment. I don’t have to convince them. I don’t have to sell them.
All I do is explain what the opportunity is. I’m out riding my motorcycle with my friends. I’m snowboarding. I’m going on vacation and hanging out with them and camping. That’s the real fun part for me. It’s when all you’re doing is spending time with your friends and updating them as you go to what’s going on. They’re like, “I have some capital that I put towards that.” There you go. There’s another project.
Three hundred fifty units sounds like a big facility, but it doesn’t take that much time. I feel like at around maybe 600, you start feeling a little bit more busy. Andrew is answering the phones or is he not answering the phone?
He is answering the phones and to clarify, we have 350 enclosed units and another 75 parking, so 426. We use Grasshopper. Thank you for that tool. I have Grasshopper on my phone. The phone doesn’t ring to me. It goes to him and then to the answering service. I can see how much he’s busy and with this amount of lease, I mean you have 50 leases.
That’s a lot.
When we normalize this, right now on an occupancy basis, where 85% per unit. We started about 70% and dipped down a little bit. We’ve done a lot of activity in the last couple of months in terms of marketing and advertising. He had to take a lot of calls. He was very busy when he was there three times in one month, flying back and forth from Phoenix to get everything for our capex list done, which wasn’t a huge list, but it still required direct oversight.
He’s had a very busy six months getting everything up to scratch. Once we get stabilized, which you could argue that we’re stabilized now. Once we get up to 90% to 92% occupied, we’ll consider ourselves fully stabilized. Everything hopefully is a little bit more iterative. We’ve been blessed because there’s not a heck of a lot of turnover. We’ve only been seeing on average about four move-outs a month since we started.
You guys should be almost stuffed then. Eventually, the calls will slow down. There’s a lot of calls coming in. We have a lot of storage facilities and we don’t have a lot of calls. It will slow down a little bit, and then have your regular move-in and move-out, and that’s it.
Once you normalize, you’re good. I want to speak to something that you taught me as well. The first 90 days are going to be crazy and it is. It’s not just from the capex. It’s not just from the closing. It is getting those tenants transitioned over so that they understand who they’re paying and any changes you’ve made to the way that the facility operates. That can take up so much time. What I did in the first 60 days was that that phone was ringing to Andrew first, and then to me if he didn’t get it.
We were getting 10 to 12 calls a day, which when you think about it’s over a 6 to 8-hour period. You’re getting a call every 30 to 45 minutes from somebody asking you. We changed the gate code system. We changed the the locks to get in, and the leases, and got everybody signed up for autopay. We still only have about 75% of people on autopay. That’s a good 100 people that still need to call in or go online to pay.
For whatever reason, people are still calling Andrew to rent a unit. We’re running a few places. We are the only place in our trade area where you can rent 100% online, which we’ve seen the great benefit from because we’ve seen a lot of people rent units at 2:00 in the morning and then show up the next step afternoon, or show up at 8:00 at night and be like, “I need to store something.” “You can store it right there.”
I have never heard happier tenants and the ones that realize they can rent after hours and get going right now. Those people are blown away because every empty unit we have has a spare lock in it and then when they sign their lease, they get the code for the lock that’s on the unit. They drop that in the box in the door and return it to us and they’re good to go. They don’t need to talk to anyone. They’re super happy about that.
Texas is also a good market. Florida is the same way. I like our Florida facilities. They are always not crazy. People are moving in and out, activity, calls. It is busy. Texas is like that as well because in our Georgia facilities, there are slow times and then there are faster times and stuff. Certain markets I’ve noticed that they’re consistently busy all the time. Maybe Texas is like that.
The weather allows for it. It doesn’t get too cold, You can still be moving twelve months a year but things tend to get busy. I found the fall was a lot busier than the summer. I expect this spring to be a lot busier than the winter.
We did rent increases for February 1st, which is when nobody wants to move because it’s too cold outside. That’s our strategy. We’ll raise the rent when everybody’s too busy and stuff. We’ll see how that goes because we did a rate increase a couple of months ago. Every six months, we do rate increases and it’s 5%. It’s not that much but we’ll see February 1st how that goes with everybody. We’re hoping that it’ll be cold because it does get cold.
All of our facilities are in Northern Georgia, which is now in this area as and stuff. I’m hoping that. It’s a lot of strategy, especially pricing and stuff. Hopefully, you guys will get into that. Hopefully, one day we’ll be able to talk about pricing and stuff once you guys get into it, but you all are doing great. You are getting it for sure. You’re all going to do great. I know you guys are trying to find another facility. You have another one under contract.
Yes, we do. I’ve been waiting for a while for this one to come home, but as you said earlier, the larger deals take a little longer to get done. The irony on this one is it wasn’t the bank that was taking us longer. Every situation is unique. In this one, we had some environmental things and some complications with the seller that the lawyer that you put me onto is helping me solve.
Awesome.
The Value Of The Storage Nerds Community And Network
There are tons of value in the network, like things I didn’t know, connections I didn’t have, strategies, and the value of the community. It’s been great. People are hesitant to pay to be part of a program not wondering if the value is going to be there. I found the value at least three times over in the community and the knowledge, and then the network is the net worth of the program. You get connected to that one connection or that one person. The lawyers saved us $10,000 in legal fees to get the syndication paperwork done.
He’s so good, isn’t he?
Yeah. Those are invaluable connections when you have a good person or a good partner to work with. It makes it so much easier. Thank you very much.
You’re welcome. You are doing a great job. Thank you so much. I’m glad you’re in Acquisitions. You guys could keep looking at more deals. Hopefully, you’ll find something else.
Important Links
- Mark Ameerali – LinkedIn
- Andrew Leese – LinkedIn
- Danny Freedman – on Make Space
- StorageNerds Acquisitions – Website
- Grasshopper – Website
- SpareFoot – Website
