What You Missed May 2015 General Meeting
by Rob Earhart
Presented by: Scott Meyers
May 5, 2015
Coming from Indianapolis, Scott expressed his appreciation for being able to return to Florida. “I will teach you everything I can in the next few hours that I have learned since 2005,” proclaimed Scott. “Why here and why now?” “I don’t get out on the speaking circuit as much lately because of developing our business but I wanted to make hay while the market is hot. This market is hot!” exclaimed Scott.
Jacksonville is saturated but Tampa and St. Petersburg are hot markets today. When I got into the business, there was not anyone doing this type of teaching so I got the name of the Self-Storage Guru. I have invested in houses and apartments but now all I do is self-storage.
Through our self-storage business we now take two months a year to do mission work building houses and helping people in many countries. We set a goal to give 10% of our corporate profits and build one more house per year than the last.
I started doing workshops in my local Real Estate Investors Association. I met Dave Ramsey, followed his radio show, read his book and became a fan. Dave was a big real estate investor that went bankrupt, lost his family, his home, and everything. He has rebuilt his life and helped me direct my career into this business.
I occasionally speak at most major groups and in front of the Self-Storage Association, where I had been attending earlier to learn. Our company was growing quickly and we shared the process with them.
Real estate investing is a real small business, but 95% of investors fail in the first 12 months. If you don’t have a passive income then you are working in your business, not on your business. I moved to Indianapolis, Indiana in 1992 and bought all the real estate systems I could find. Then I was making more money in real estate than in my full-time job. So, in 2000 I quit my job and started single family homes and rehabbed 80+ homes between 2000 and 2005; some we sold and some we rented.
We were selling them on rent-to-own and the work got more difficult. We would get the lease and options signed and then try to help them get their credit straightened out. So I went out and started buying apartment complexes and expected things to get better but it did not work out. I was working 15-16 hours a day and was a millionaire on paper, but with not enough money to pay the bills.
I was at the proverbial fork in the road. I thought about getting a job but couldn’t see myself reporting to someone else. My wife asked, “What about self-storage?” Then someone attending the REIA meeting stated they sold all their properties, bought a storage unit and now did not have any of those problems.
Searching for the “Masters,” not the guru’s, I found there is little competition, insane profits, and a lot less hassle. I wanted to learn from the best in the business.
Myth #1 – This is a niche business. Wrong! There are 11 million single family rentals, 16 million apartment rentals, 1.4 million mobile home rentals, but there are 24 million self-storage units. The big guys only own 9%, leaving 21.8 million units for the mom and pops. That’s the market we are searching.
Myth #2 – Isn’t it saturated? They have built 8 million new units since 2000. It’s the fastest growing real estate sector for 36 years straight. One in ten households use 1 or more units, a 65% growth since 1995. With a 90% occupancy, 100% in some hot markets, storage units are in great demand. Baby boomers are downsizing or snowbirding where they need one in each location. When the parents pass away, the kids can’t get rid of their favorite items, so they continue to pay.
Myth #3 – Self-storage units are cash cows. Wayne Hughes of Public Storage is in the Forbes 400 with a net worth of $2 billion.
Apartments get $1.02 per square foot, but self-storage units get $1.12 per square foot. Apartments have a 49% expense ratio and self-storage is at a 31% expense ratio.
The overall earning statistics are: they average 35.4% return versus an 8.8% for apartments. But the returns are 483% for the mom and pop units, so which one do you want?
Self-storage units are the easiest to finance, since banks want these loans because they have the lowest loan default rate: a 2.53% default rate. Of those, some have gotten wrapped up in an unrelated bankruptcy. New SBA loans for 90% are available and, with a 10% seller carry back, it’s a 100% loan. Private investors like to invest in self-storage, and you can use Realty Mogul for crowdfunding.
Why are they selling? There are burned-out owners, moving, death, divorce, bankruptcy, retiring, etc. They normally want to offer seller financing because they don’t want the capital gains, but want a steady income.
Scott talked about some of their purchases. “We sent letters to everyone and one called us. We checked it out and started to talk business.” They said, “If you are going to pay cash you are not our buyer.” They did not want the capital gains but wanted the cash flow in retirement. So I didn’t have to worry about not having good credit or money because of that.
How do we manage them? We give them six days, then they are late. Once late, we remove their gate code and an additional lock is put on their unit. We have cameras around the property and watch them try to get in. Once they try the gate code and it does not work, they may follow someone to get in, though they can’t get out because they need a gate code. Then we’ve got them. Once it’s evident they can’t get into their unit and can’t get out without a gate code, they’ll come in and pay us.
If they don’t pay we put a lien on their unit and we advertise an auction. Then the eBayers come by and buy the unit, only looking into the unit since they cannot go inside. Once it’s sold, the new owner puts a lock on it and we have a new customer. We normally get enough to cover late fees and rents at auction and sometimes more. If it’s more we have to send it to the last known address, so we can’t keep it.
“No courts, no collection services; I am the judge and jury,” proclaimed Scott.
Once the units are cleaned out what do you have? No carpets to replace, no toilets to repair, no drywall to repair, etc. No need to rehab a unit to re-rent. It takes three minutes to turn a unit where an apartment would take $1,300 or so and several days to turn.
Myth – Self Storage is a full time job. We don’t manage anything. We just store people’s junk. Now we use kiosks for collecting rents. Customers just walk up to the kiosk and it directs them how to rent. They put in a driver’s license and register a fingerprint. Then the kiosk asks the client three times to buy renter’s insurance. The kiosk has a check reader and takes cash, credit, debit, or checks. They sign the lease on the screen and it prints out a copy for them. Then it issues a gate code and they can even buy a lock. The kiosk is tied to the Internet and there is a call center to answer any questions.
People want something close to home, simple and secure. We give them a website to get the info and 70% have found us on Google. They can go on their laptop, phone, or computer. I have one student that has 7,000 units and zero site managers.
There are 40 different profit centers: locks, boxes, & moving, record storage and shredding, billboards and cell towers, temp control and wine storage, Ebay vendors, renters insurance, vending, pack and ship, truck rental, etc. You can double your cash flow and multiply your profits times ten. The increased income increases your Net Operating Income and your property value.
“I started with no money and poor credit but found a partner with good credit and borrowed my down payment, and so can you,” exclaimed Scott.
Sparefoot is an Internet aggregator. You can research the average cost of rentals in your area and determine the NOI. The average cap rate for self-storage units is 9%, so you can determine the value of the property before buying it. 91% of all units marketed are small mom-and-pop units and those are the ones you are looking for.
Why is now the time to invest? 100% occupancy. “We are buying vacant land by railroad tracks, cold storage warehouses, and outdoor storage lots,” advised Scott. “We can put some buildings or use vacant warehouses, big and small. We repurpose them for cheap: mobile home parks with land, cellphone towers with land, motels, and retail strip centers.”
How to quickly build out? You can pay $2,500 for 40’ steel containers with two doors, and they will rent for $150 per month. You can even lease them, finance thru SBA, and depreciate over 7 years as business equipment. They are scalable and portable, and you can add units as needed. What’s the benefit of portables? Reals estate taxes are lower because the units are not fixed real estate.
Where are the best places? Shale plays and fracking areas are good and, in port areas, shipping containers are cheap because of a five-to-one receipt from China, and the land is cheap.
Why Self-Storage? The greatest number of opportunities, highest demand, fastest growth, easiest financing, highest profits and cash flow per square foot, recession and inflation proof, easiest to manage, highest return on investment with no tenants, no toilets, no trash.
My system is a complete business plan and a blueprint for building a business in self-storage. A special bonus includes a webinar to show you how to evaluate and buy, where to buy, and how to evaluate your market. Your market is within a three miles radius, so we are undersupplied. We also include virtual assistants free, a three-day hands-on conference in Tampa on Jan 21, 22, 23, 2016; Indianapolis on Aug 13, 14, 15; Dallas sooner.
At our meetings you get my team, get to see private lenders, syndicators, property market analysis, learn crowdfunding for your deal, buy and hold business models, $0 down developments, partnering business model, site tour and even wine tasting. We have student partnerships where you find the deals and we find the money.
Then Scott talked about a couple of his students that have created profitable businesses and how they grew their businesses. He explained how he wants to partner up with only a few in Tampa because he wants to work in this hot market. Scott stayed to answer questions and we appreciated his help.
Scott answered some questions. One was regarding the break-even point for the number of units to support installing a kiosk; it’s about 200. Smaller units can be managed by call centers or people next door. The average tenancy is 13 months but, once filled, there is not much to do.