Self-Storage, Country Subdivision, Contractor Flex, Belize - What If?

[Henry Clark]

Well, its Labor Day.  And I worked more today than yesterday.

Stopped to watch a couple of youtubes and they got me thinking.  Got a notification someone voted for a post I made; they were from New York City.   Both items brought back memories which good and bad, I relish.  

They made me want to stop and ask myself where am I. 

Yes, this is a Real Estate forum, so I will stick with Real Estate generally.  View this as a process to see where you are.  Each of us are at a different Risk/Reward position and also at different investment timelines.  It's not about being right.

I will use Maslow Hierarchy to pose the questions:

1.  Physiological- Loans, interest rates, terms, balloons, amort periods, insurance, development exposures, missed deals, overload of volume, 

   Status- 

A.  Our loans are with SBA- 20-year terms, Commercial bank 7-year balloon on 20-year amort, Life is good.  Hope Inflation increases and we pay with cheaper dollars. 

B.  Insurance- have plenty of coverage for Property and Liability.  Review this every year.  

C.  Development- Have one major project we need to get final County Board approval, then start marketing and see how it is received.  We went all cash on this project, so Banks aren't hounding us or us feeling th pressure.  

D.  Missed opportunities- Have a larger potential deal coming up in September.  Will probably pass due to its size.  Won't see another situation like this for another 5 years.  But don't need that Gorilla on our backs at this time.  

E.  Volume of business- we do more developments.  So, most of this is speed up, slow down.  We are in our slow down period, waiting for the dominoes to fall.  I kill time doing posts.  We could double our volume of business, but we are at a life stage and enjoying fulfillment.

F. Loss Harvesting- This is a financial term to sell off investments with losses and redeploy the funds, plus take the tax impact against other income. Last year we reviewed our REI and sold off one property to both lower our debt exposure but to also pull appreciated Gains off the table.

2.  Safety- What happens if interest rates go higher?  What happens if our occupancy drops?  What if our loans don't get renewed at balloon period.  What if contractors don't complete tasks on time?  What if, I missed an issue?

Status:

A.  If interest rates go higher, inflation goes higher.  We do great since we are in asset positions.  Have debt which will be paid with cheaper dollars.  Also, when rates get to 9%, we don't invest anymore.  Makes life easy.  At 7% we sharpen our pencils and do the deal analysis 3 times.

B.  What if our loans don't get renewed in 7 years, our earliest balloon period?  That would be really unusual.  Our one bank the owners are family friends for 60 years, one board member is a family member, the President, our sons did Boy Scouts together.  They know me.  Know our financials, since we give them monthly and quarterly updates.  Our other bank is your traditional Commercial relationship.  No personal ties, but we are responsive to them.  They understand our business.  It's simple.  And it's easy to crunch the numbers.  No magic sauce.     At 7 years our debt load will be about 30%, with equity of 70 %; no issues.  If we don't add.

C.  If our occupancy drops, we lower our rental rates.  Self-Storage is not a zero-sum game.  We cash flow positive around 50%.  So we could be full at 95% with rates at 50%.  Our occupancy could be at 50% at our normal rates and we are cash flow positive, including P/I; income taxes, etc.

D.  What if contractors miss dates?  None of our open projects are big enough to have the construction Interest expense impact us from a cash flow standpoint.

E.  What happens if I die?  We have 3 term life insurance policies.  If we were in the middle of a development and I could not finish, it would be worth pennies on the dollar.  Or if my wife was tired of the business and just wanted to sale at my death.  Or she didn't want to deal with cash flow versus loan positions.  We did 3 term policies versus one big one so we could cancel coverage as our exposure went down.  If you did one big one and you wanted to reduce coverage, would you still be in good health?   Bank accounts are on TOD- Time of Death.  Could you imagine having cash, but not accessing it to pay vendors and bankers if it was locked up in probate?  Trust- all of our assets have a home.  

3.  Belonginess and Love-  BP?  

Status:

A.  This might sound weird but your my real estate family along with 3 other forums.  If you haven't learned this by now, don't talk real estate with your friends, family, coworkers or even your spouse if they aren't into Real Estate.  They either can't relate or you're a snob.

B.  The thing I like about this forum we can have two opposing approaches and views and both be right.  Why?  Because it is our money.  Your always right when you put your time and money behind a decision.

4.  Esteem- feeling of accomplishment. 

Status:

A.  This is a tough one for me.  I like to always have several projects lined up.  One moves forward, another slows down, but in total they progress.  At this investment stage we are backing off on investments.  Just adding to ones, we have or doing very simple projects, which is still great projects.  

5.  Self-actualization- achieving full potential and creative activities.

Status:

A.  My son is in the Navy.  Doing his thing, which is the way to go.  If ever he decides to do Real Estate, I'll tell him to read my posts.   We would all like to reduce the learning curve, have your children not have to fail to learn, be successful.  But then they would miss out on all the joy of "Their" successes and failures.

B.  Today my creative juices were flowing on my wife and our discussion, do we buy a place in Sicily.  Also, a project down in Belize to build a Tilapia Pond on our new 25-acre site.  Do you know you can buy property in Italy for 2.5% up to 5% depending on city, today? But it is really hard to get squatters out of your house.

C.  Responding to BP posts.  I appreciate people posting their situations and trying to come up with an approach.  

Start small and Make Your Big Mistakes Early.