All Forum Posts by: Henry Clark

Quick answer:

Hire an Attorney who specializes in Trusts.  Not a regular attorney. Don't do the LLC yet. The Trust attorney will want all assets and accounts, under the Trust name. Also a bucket trust. Throw the "will" away, because you have enough assets to justify a trust. You don't want your estate to go through Probate because of a "will" and be tied up.

Long Answer:

All bank accounts, safety boxes, etc. Should have POD, payable on death to your brother.  Lawyer will have a long checklist of things that need to be re-named to the Trust.

Assign legal and medical power of attorney to your brother.

Assign End of Life to your brother.

Marriage- prenup definitely.  You can always adjust your Trust.  Also depends on the state.  

Your Trust Attorney will go through all of these.

Simple Answer #1:

Your time frame of interest should be your loan payoff or amortization period.  Lets say 20 years.

Self Storage will be a great investment for the next 30 years, at least.  There is really only 1 dynamic that can change that.

Simple Answer #2:

You could go broke in 2 years.

Lets narrow the discussion down just to "you."

What is the nearest town you live in?  I don't know where you live, but that is a great place to invest.

What is your financing mechanism?  SBA 10% down, SBA 20%, conventional 25%, Conv 35%, Conv 40%, owner financed.

How much money or collateral do you have?  Say $50,000;  don't really need to know, this dictates your search/investment process focus.

Size of investment you can do:  With $50,000 at 10% then $500,000 total project; 20% then $250,000.

Are you a financial investor or a entrepreneur business owner?

How much have you invested into learning Self Storage to this point?

There are two business models and two product offerings:

A.  Class A or institutional- 

Business model- 300 units or more, usually Climate Controlled, multi story, on site manager, higher land cost, higher population center, great SEO power, well financed and managed, newer REITS/corporations.  Project size- $2,000,000 and up. 

Product- Climate controlled, generally smaller units to make more $/sqft efficiency, elevator or cart, higher priced.

B.  Other-  

Business model- this is the greatest number of locations, not necessarily units or sq ft in the US, normally less than 300 units, lower land cost, anywhere, family owned, single location owners, lower to nonexistent SEO power, Project size- normally less than $1,000,000; usually underfinanced and managed, older owners. 

Product- managed, unmanaged onsite, security, no security, drive up, lower priced. 

Both of the models can exist within 10 foot of each other.  Both can be successful.  One can be unsuccessful and the other can be successful.  Your serving two totally different price points and products.

There has never been a better time to invest, than the next 10 years.  And I'm not selling you anything.

Start small and Make Your Big Mistakes Early.

@Chris Gossett

Might not have followed the above correctly.

a.  Did you do a down payment on the original loan? Example:  If you did not do a Down payment on the original loan and then turn around and have to do a 25% down, you may not be able to refi and pull cash out, even with appreciation.

b.  You could go for an SBA loan 10% and refi out cash.  But then it is almost impossible to pull cash out in the future with the SBA.  Plus you couldn't use any appreciation as collateral for another deal, unless it was with the SBA.

c.  Interest rate.  We currently are looking a fixed 2.66% on an SBA 20 year amort loan; 10% down.  But the participating bank, is on a 10 year fixed, then switch to a normal 5 year refi, on a 20 year amort.  Texas- we are looking at financing in Texas and the four banks we have talked with are way off.  They wanted 35 to 40% down.  SBA, they wanted 20% down versus 10%.  I can get 25% all day in Iowa and SBA 10%, but the collateralized asset is in Texas, thus looking there first for financing.  

d.  4% versus 2.66%, is worth refinancing, but you are having commercial appraisals at $2,500.  Refinance charges.  Is this without down payment, and then with down payment.  Make sure apples to apples.  I would be happy to pay 4% with no down payment, versus 2.66% with 10% or 20% down; from a Cash preservation standpoint.

e.  Cash flow- 35 storage units at $100/month= $3,500;  Warehouse 3,500 sq ft at $.85/sq ft= $2,975.  I normally use 90% occupancy, your using 100%.  Total monthly rental $6,475/month.  With the apartments, your cash flowing $2,000; this is after the P/I payment?  With the 3 efficiency apartments $500 each, say,  $1,500;  this is using the existing square feet within the building, thus your total Revenue might be $7,500.  What I'm trying to get to is how much money do you want to pull out, versus the Cashflow your getting currently.  How many months to accumulate that much cash.  Might not be worth "Refi" out to get that amount of cash.  You will need to crank the figures to see.

f.  Second lien position- I wouldn't fight the fight with the banks.  They are not going to take that path.  Pay the original owner off, to me would be the only avenue, I would go down; as part of the refi.

g.  1031- if/with a 7% commission.  After holding the property 2 years, with adds.  Don't know that you have enough equity to make it worth the sale.  Also will you get another good cash flow property, like the one you have "in hand"?  As you mentioned, 1031 into the high priced market. With the 1031 you will be on a clock watch, which doesn't make for a good buy.

Subject to crunching the numbers, to refi or sale.  Looks like you have a good cash flow deal.  Just sit tight and let it generate cash.

First thing, sounds simple, but there is YOU and there is HIM.  You have to think in those two terms.

YOU:
Why are you doing this?  How much are you getting paid?

Do you have a day job?

How much time does this take?

Lets say you do this for 20 years.  What was the value to you?  Just a paycheck or equity?

Are their other siblings.  Are they/will they be treated the  same as you, even though you are taking care of the business assets?

Age- you want to grow assets and wealth.  He should want to protect and preserve wealth.  Two different objectives.

Him:

See my post on Trusts.

He should talk with a Trust Lawyer. All of the assets should be owned by a Trust. They will answer the LLC/S corp question.

Should separate the business, versus personal bank account.

Bank account, you need access and POD.

Age-  Develop an investment plan and goals.  He normally should not want to be expanding his portfolio if he is retiring. 

Insurance, both business and life if needed.

Legal- power of attorney for business to you.

Cash flow- if at some point he needs extra cash flow, then have him do seller financing to you.  

Stepped up basis- from a tax standpoint, it is best if properties are transferred at the time of his death.

Cargo Containers. Tiny House air bnb rental.  Self service.  Off grid (no water, compost toilet, electric, solar shower).  Or on grid.  Really depends on what your lands recreational value is.  Why would someone come to it, or that area?

Don't stack them tight.  Scatter them around.  Leave as many trees and brush as possible.

Costs:

Come in 8 x 20 ($3,100; $120 for two delivered; $80 set in place); 8 x40 ($3,900)  check local.  Regular height or high Ceiling.  

Road- rock, use skidsteer to prep site.  $????

Paint- $50, not including labor.  Make it fun, each one has a painted picture theme.  Example:  Yogi Bear, Sunflower, Buffalo, etc.

Product:

A.  Off Grid  $$$$$  No beds,  Rent $50/night, minimum 2;  Higher on holidays starting Friday.

B.  On Grid  $$$$$  Electric, A/C or Fan, small fridge.  

In unit Self Service (seal broken):

1.  Hammocks or fold out camp Cots- $10 per night.

2.  Firewood- $20 per package

3.  Water- $5 per gallon

4.  $100 if not swept out.

5.  Renters insurance.

6.  Prepay base rental.

7.  Fire pit and barbecue grill

8.  Fridge- $5 per night,

9.  Anything else people would need for camp out.  Self Service $$$ broken seal.

See my post on Cargo Containers.

Semi/Reefer Parking:

Depends on location, near town.  Lay some rock down and charge $70 per month, example.

@Tanh Truong

Day care buildings.  Industry is stressed and either the business and property will be for sale; or check with the owner of the building with their tenant going out of business.

Re-purpose to MFH depending on size and layout.  By default should be in a good location.  Obviously check zoning.

High end commercial, check on KinderCare locations.

Check both listed and off market.

@Jeff Halverson; everything @Austin Martel said.

Our appraisers have always done a best use section.

Also look up and down on Google earth for similar intersections and land, along your highway.  Look at those businesses and also contact them.  Don't re-invent the wheel.

Also your access will be key in what is possible. Turn in and out.  Crossovers.  Lights.  On/off ramps.  Side road access.

Tried looking you up.  All I saw was Western Michigan.  Used to work and live in Muskegon and Grand Haven.  Best beaches in the world.

Learn everything you can about the person before approaching them.  I personally have always approached the kids first in this particular situation (old person), then approached the person.  Look out on your city/county GIS tax map and get all of that info.  Then google and search out the kids.

I wouldn't bring up a number.  Let them know you will call back in a week.  Let the Kids "sell" the idea to their parent.  Give them the solutions below.

Offer them a "Solution".  If it fits your objectives.  What I am about to say is not necessarily to your benefit, but to theirs.  Why are you different from the other 30 people who have asked about the house.  You are offering Solutions.

1.  For them, it is best to sell the property after he passes away.  Stepped up basis.  He does not have to pay taxes on the increase in value.  Keep in mind the "VALUE Solution" you are offering them.  Example:  Built for $200,000 back in 1960.  Worth $1,500,000 today.  Your saving them taxes on$1,300,000 of gain.  Depending on their taxes, your offering them about a $260,000 cash savings.

2.  Sure he and they want an exit strategy.  Give them one.

3.  Buy the property and rent to him.

4. Buy the property and he moves.  Or don't know your life or his, you House hack with him.  

5.  Manage the property with an option to buy.  Put some money and a document in place, so you have first right of refusal at a known price.  Maintenance Solution.

6. If he goes to the Rest home in any scenario and he still owns the property.  You manage and rent out, until he passes, if they are waiting for the stepped up basis.  Management Solution.

7.  Seller financing, with a fixed interest percentage, they can't get on the market (Solution).  Say 4 or 5%.  They should not want to go to the stock market with these funds.

If you can put a business plan together, this becomes your business plan.  Identify elderly members who they and their family's need a solution.  This becomes a cookie cutter business model for you.

Why should they pick you to do business with, versus 30 other people that have talked to them?  Offer them a Solution.

Start small and Make Your Big Mistakes Early.

@Ed O.

Thanks for Comments above.  All of that is done.  We are in the Marketing phase.  You can look up Glenwood Iowa, then Journey's End subdivision to get in depth detail.

Thanks.

There is a group doing bimonthly zoom meeting more for developers doing Commercial property.  I'm not on it.  But someone might reference for you, if your interested.  They just started up.

Not included above. You could change the turnarounds from 50 foot to 35 feet. Or the roads from 25 wide to 20 wide. Also buildings could be 40 wide versus 30 wide. We traded off ease of driving versus more units.

Sorry about the spreadsheets not transferring cleanly.