All Forum Posts by: Jeff Hornberger

Quote from @Henry Clark:

@Zierry Eme Carl T. Tagbas

I will take it you are an experienced investor based on your background.  So, I am going to bypass any New Investor discussions.

Steps, I recommend:

1.  Finance- determine how much money you have available.  Then find a Bank that does SBA Loans or commercial loans, hopefully you already have a relationship with.  Ask them if they have a Federal lending limit of $5mm or greater.  This will determine your deal size you need to start with.  Example:  If you can pull together $100,000 then a 10% SBA loan= $1mm deal.  If you have $100,000 and do a Conventional loan with 25% collateral, then a $400,000 deal.  This will help to narrow down the deals and your investment strategy so you are not wasting yours and other peoples time.

2.  Self Storage- read/watch every book, post and podcast.

3.  Deal Analysis- do 5 different deal analysis.  Don't worry about size, its all scalable.  Go on Loopnet Self storage.  There are about 10 locations for sale in your larger area.  Pick the ones that are more traditional storage, not warehouses.  Do the first revenue and cost analysis and post here and ask people to analysis.  Don't worry about being correct.  Put ?? marks for data you don't know.  Do not try to get perfect or show how smart you are.  Just crunch it out in a week and post it.  We will help you expand the thought process and harden up your estimate.  Do this 5 times.  Even if you don't have the into, in your costing put the item and ??? marks next to it.  By the 5th deal analysis you will have a very good calculator and understanding of the deal.  You probably are asking can someone just give you a spreadsheet.  Don't do that.  Learn the hard way.

4.  Join- Your state self storage group, start pulling together your operating info:  a.  Contract, b.  Insurance, c.  Lien process, d.  Security systems, e.  Operating Software, f.  Website/Internet presence (SEO), g. Look around on this forum or others and join some groups.  Don't do this until you have done all of the above.   You should be bringing a lot of previously captured knowledge to the table, versus just asking help.  Start going to conventions.  Get on larger realtor listings for self storage.  Argus, Marcus Millichap, etc.  even if they are not in your area.

5.  Developer, Operator, or Syndication- determine the degree to which you want to invest.  Understand benefits and downsides to each.

6.  Market analysis- Sparefoot and Google search.  Pick a market.  Recommend within 60 miles of where you live, unless you decide to go into Syndications.  On both Sparefoot and Google Self storage search, pull up the maps.  You want to look for "Black" holes.  Where there are people, but little Self Storage.  This will help you determine a place to build if you develop or strength of market if you are buying.  Metro area population 590,000; this equates a to a market of roughly 36,000 storage units.  I see only 20 listings on Sparefoot for Spokane, with a total of 61 sites.  The other 41 (61 - 20)= are shown, but don't use sparefoot.

Sparefoot- lets say the 61 locations are all there are.  Market potential of 36,000 units divided by 61 locations= Say 600 units per location.  They aren't that large, thus way underserved market.  Most of these locations are less than 300 each per the pictures.

Google search- Look at the 3 top recommend sites, next to the google map.  Click on the "More Locations" below them and then count the number of sites listed, which means they have a website.  6 pages at 20 per page or 120 locations.  Sparefoot listed 61 above.  Now take the 36,000 market potential divided by 120 locations= 300 units at each location.  Again, most of those locations are not 300 units in size, thus you still have an underserved market.

Prices- Don't look at climate controlled, this is not your investment arena.  Pick an area of town or a smaller town on the outskirts.  List 10 locations in that general area and list their prices for 10/15/20 foot sizes.  Estimate the number of units by size.  Go to the Sparefoot Map, underneath it select (check boxes) just the 10 x15 size and drive up only.  This is your key size and competition for the investment you would do.  Then click on the map above.  Most in the City are running around $150 per month.  I only note 9 locations in Spokane having a drive up accessible 10 x 15 available.  Means there is a lot of unmet capacity.  Call around and see how many and how long to get a unit.  You have to learn how to ask, without asking.  You figure it out.

Your location- to buy or to build.  Again look for the "Black" holes in the Sparefoot and Google maps.

7.  Zoning- Go to your City and County and ask ( or check websites) for the following:  a.  Zoning map, b.  Proposed Zoning, c.  Zoning Matrix if they have one.  Look for all Zoning codes that allow Self Storage, that allow special/conditional use or are Mixed Use with a Self Storage exception.

8.  Loopnet- Once you understand zoning then go on Loopnet to get a sense of land value, whether you develop or buy.  I see one commercial location of 5 acres for $1mm under contract.  Check this land out and build a Cost analysis to build self storage there.  Check out the large location across the road.  See if they are land locked.  Your looking for lots in the 2 acre up to 8 acre in size.  Look in the smaller towns within 5 or 10 miles on the highway, also.  Might be easier on zoning and lower entry price point.

Normally, I say, "Start small and Make Your Big Mistakes Early".  

But Self Storage is very high priced right now, with a lot of buyers.  Finance- Determine your "Risk" tolerance.  Developer- Can you take a Mental beating and view each obstacle as just another hurdle.  Personal- do you personally have the time, to vet projects, 2 years of site Development and learning, or just want to be an investor (Syndication)?

Full Disclosure.  I'm in the process of Selling our best location, to reduce our Risk tolerance.  

Your market and "you are and experienced investor or realtor"; I would recommend Developing a 2 to 5 acres location.  Only build around 100 to 200 units first.  In your market this will take you about 1 to 1/2 years to build.  1 year to rent up to 50%.  After that recommend you list to sale after you have operated for a year (capital gains versus Personal tax rate).  Say you net $1mm and pay taxes, thus net is $750k.  Now take this and do all over again.  This time you can do two deals at Conventional loan Collateral 25% for two locations at $2mm.  This time keep them.  You want to be able to build at least 300 units or greater on these two locations.  The Big REITS haven't come to your town yet.  Put an office at each one, even though you don't use it.  Then sale to the large REITS, both locations at the same time.  Now you should gross $3mm profit before taxes.  Decide what you want to do after that.  This is a 4 year time frame.

Don't start down this road unless:

1.  You know you don't know; and are comfortable asking what is next and what did I miss.

2.  You can take everyone putting hurdles in your way and having to keep coming up with solutions.

Otherwise, buy an existing location or invest in a Syndication.

No matter what, you are in a great Market area to invest in Self storage, just need to make sure the numbers work.

Remember to think of snow if you develop.  44 inches per year.

 @Henry Clark what a great response. Thanks for this

 Thank you! 

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $580,000
Cash invested: $160,000

This was a fun project and my biggest project so far. I bought two 4 plexes. The pictures only show one here but there is another identical next door. I did the BRRRR strategy with these and now have cash back from the refi and have furnished 5 of the 8 units and cash flowing strong.

What made you interested in investing in this type of deal?

Location of the 4 plexes is high density and the future building potential and cash flow projections were great.

How did you find this deal and how did you negotiate it?

I have been eyeing these two for years. I was able to find out the owner was a property manager's mom I knew in town. As he got older and wanted to retire I helped him transition out of his business and it eventually led to selling these two 4 plexes to me. I bought both for $290K a piece on a seller Wrap.

How did you finance this deal?

I paid 290K per 4 plex. Put 25K down/4 plex. I asked the seller to pay my closing costs to preserve rehab money. I wrapped the sellers mortgage of 80K/4 plex. He carried 180K or so on an interest only contract with a balloon payment in 2 years. I prepaid the interest only loan payments 1 year in advance so that while I was rehabbing the property it would cash flow better.

How did you add value to the deal?

We force appreciated the property with 80K per 4 plex. This included full exterior rehabs, removing unwanted tenants and rehabbing each unit completely.

What was the outcome?

At this point I have 5 of the 8 units rehabbed, 2 units have original long term tenants in them and 1 unit is currently being rehabbed. We have since furnished 5 of the rehabbed units and have used furnishfinder.com (to find midterm 1-3 month traveling nurses) and airbnb to fill those units. Each 4 plex has two 2 bedroom units and two 1 bedroom units. From starting in March 2022 we have been grossing each month $2500-$3000 for the 2 bedrooms and $2000 for the 1 bedroom unit.

Lessons learned? Challenges?

By doing the managing of the projects myself I think it cost me a lot of lost time. It took a year and a half to complete the evictions/ rehabs. Had I put a guy on this, or let our PM company handle things I think I could have been cash flowing 6 months ago or better.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I worked this one with my amazing wife who offered a ton of support and understanding while I was out working late nights on this.

@Colby Valladares

I’m in Spokane, currently own 13 doors and help run our family property management business of just over 400 doors or so. I’m connected with most property managers in this area and talk to them about strategies to navigate the changing laws.

Being a landlord in this state right now can be stressful. Mainly due to the unknown. Inslee just extended the moratorium 30 days and we’re not confident that it will be over after that.

With that said, the last bridge proclamation that came out allowed for a bit of breathing room that helped us landlords. Certainly not what we wanted to see but we’re finding ways to navigate.

I have sold a few Multifamily properties this years in Seattle, and Coeur d Alene. Out of those markets, cash flow is best in spokane. Spokane has seen tremendous growth in the past few years and was recently deemed one of the hottest real estate markets in the country. That primarily had to do with the single family home market but I’d say Multifamily was just as insane.

As of July 1 things have really started a to cool off here as is everywhere but signs of a cool off are good for buyers here both investors and owner occupied buyers. It’s a good time to start your research on the market if Spokane is somewhere you have your eye on.

The key to having a successful tenancy during these times is all about the screening of the applicant. Have an air tight criteria and do your homework on the applicants. Communicate well with your tenants and treat them fairly. The better relationship you have with your tenants the better off you’ll be. I understand this isn’t always possible but it’s been the key for us.

Happy to connect if you want to chat further. Good luck in your research!

What is your cost per lead? As things get more competitive I expect It to increase but I’m curious if anyone has been able to keep it stable or even decrease it? We’re primarily in direct mail which is getting so saturated these days. Our cost per lead has gone from $400 to $1000 in little under a year. Thinking of going PPC or telemarketing. I know we could always spend more to get more buys as this happens but at the same time is that the right call or should we looking at other media channels for our ad-spend? What are you experiencing in your market?

@Juan V Lopez

I struggled with this two as we bought 2 duplexes before buying our primary. I’ve always said buying the primary residence was the hardest for me. We had 2 girls and 1 on the way and living in a duplex wasn’t going to cut it for my wife too much longer.

I decided I would Atleast have certain criteria when I bought the primary. I wanted the area that I lived in to be in a great school district and to be in a neighborhood that was appreciating and offered bang for my buck. The house needed to have atleast 2 stand out features from the rest of the homes I was looking at. Maybe it was a large yard, garage or theater room. Etc. something that I knew buyers would like if I were to sell.

We eventually bought one and thankfully the market has only gotten stronger and we’ve seen good appreciation. We ended up pulling a heloc of 50k off the house to acquire more property or use the funds as rehab funds on them. I bought it with 5% down and asked the seller to pay all my closing costs. (I increased price to do this but wanted to save my capital)

With the heloc and earning more money we bought a duplex and 2 4 plexes on seller contracts.

My goal has always been for my rentals to cash flow my everyday living expenses. I’m getting close but still need to get a few more properties up to market rate. With a plan in place I would shy away from buying your primary.

@Wayne Brooks thanks for the reply! I figured it was as a whole but I guess I’m struggling to find rent amounts on the cpi website. I thought it would be pretty simple to find average rent rates by bedroom count based on cpi but not so much!

It looks like our state (WA) is restricting rent increase after the moratorium lifts. We can increase 3% above the current consumer price index. I’m struggling on finding where rent rates are found on the CPI. Anyhow know where this is found?

@Johnny L.

I think you’ve seen the writing on the wall with the other posts here but yea if I were to aspire to build and sell for a profit then you have to look at becoming the GC and sub everything out.

Most developer/builders I know that do this on a High level GC all of there projects. They have to do this so that there is enough meat on the bone on the back end. This allows them to either sell for a profit or refi into long term debt and do it again.

I agree with the others, the volume of homes would have to be substantial for a builder to reduce his costs at all. Even then you still probably wouldn’t think it was enough.

Best of luck to you!

@Wendell Butler

I house hacked two duplexes before buying a single family home for my family. I’m surprised to hear a duplex would be a break even point. Maybe your rents aren’t as High there. In any case I would stretch for a triplex if I were you. If you dont have kids and it’s easier to do in life now then make the sacrifice before ya do.

I will say if it’s the cost of a triplex that is concerning then try shelling out a little cash and write letters to owners of duplex and triplexes in the areas you prefer. Local title companies should be able to get that list.

Let the cash flow numbers dictate what route you go though.

Best of luck!