All Forum Posts by: Josh Collins

@William Coit  The Master Lease Agreement is another interesting option.  Good for you for getting creative.  

@Jay Hinrichs  I'm not saying he'd use his credit for the SBA qualification.  You'd still need a partner who will put up the cash and sign for the loan.  My thoughts are that the OP doesn't have any money so that immediately disqualifies him for the SBA loan.  Haha.

I'm also surprised (maybe a little impressed) that he was able to get this far with the owner.  However, it may be a family friend or acquaintance.  Either way, I'll tip my cap to him based on the little knowledge I have of deal.  

@William Coit Sorry, I forgot to tag you so you know there has been a response to your question.  

@Michael Wagner had really great points, I just broke out the costs for his solution.  I didn't add anything new or unique to his thoughts.  FYI.

You can probably rule out a hard-money lender as they'll want to be able to own the property if you default and if the current owner has a $400K stake, that may complicate that. I'm with Michael in that you'll probably need to bring in equity partners. It looks like if you both take 50% of the deal, you would each clear $74,000/yr or a 14.8% return on the $500K. Now, with that said, what is the future value of the property going to be if you can get cashflow to $178K in year 3? This might be a $300,000 pot of equity gold at the end of 3 yrs. Split in half, that's $150K over 3 yrs or $50k/yr. That in and of itself is a 10% return on investment for a total of 24-25% ROI over 3 yrs not including principal paydown (which won't be that much with the $400K loan being interest only. Assuming a 20 yr loan, that is approximately $36k/yr bringing your portion of the profits down to $38K/yr cleared. But on a no money down investment, that seems pretty good. I must say that you'll likely have to structure the deal as a 10% preferred return for the $500k investor so he/she knows they are going to get paid first but if you are confident in the numbers, it seems like a pretty good deal for everyone.

Another option is to do an SBA loan and you'll only need 15% down, you'll probably get a better interest rate and 25 year fixed rate on 1/2 of the loan amount through SBA.  The other 1/2 will be variable with 5 year loan terms.  This would require you to find a partner who is willing to bring $135k to the table and use his credit and you would operate/manage the property.  This would amount to approximately a $5,000/month ($60,000/yr) payment and if you use 40% operating expenses ($59,200/yr)  you clear $28,800/yr.  If you split that 2 ways, you come up with $14,400/yr.  That is a 10.7% return for the $135K investor not including principal paydown.  You also only make $14,400/yr which is significantly less.  But, if you're looking to make a splash with the investor and provide a no-brainer deal, this is it....and here's why.   If you get the same $300k appreciation over the next 3 years, you are giving your investor another $50k of value each year ($150k/person divided by 3 years).  That brings their total return up to $64,400/yr or a return of 47.7% per year (I know, I know, I didn't factor in the increasing cashflow - I did that to be conservative).  Now that is a return that an investor could really get on board with.  It always comes down to what is the investor's philosophy - cashflow now or better overall returns later?  

With option #2, you might be inclined to take a "finder's fee" or whatever else they call it of 2% of the deal knowing that the investor is going to get killer returns.  With option #1, I feel like you're already asking someone to bring $500k to the table which would make it tougher to tack on a finder's fee.  Not to mention, with option #2, your investor only needs to bring $150k or so (with finder's fee) to the table which makes it easier than finding $500k.  Just a thought.  

Looks like a good project all around but you certainly need to present it professionally to get this kind of dough from someone especially if you haven't done this before.  Or maybe you give someone 15% of the deal (me! - JK) and have them help you present it professionally to investors.  There are some guys out there that have this process figured out and would probably be a good resource.  

Feel free to PM me to discuss further options.  Good luck!

@Doug McVinua  Why were these units vacant?  Did you have to do some rehab to get them rented?  This seems interesting.  In looking for investments with my Mom, it seemed that most everything seemed to be pretty well rented.  

@Shiloh Lundahl

Thank you for the response.  It's nice to have someone who's really doing it, confirm or dispel my hunch.  Maybe this is some information that @Kantrell Bland can use.  

I'm going to piggy-back @Kantrell Bland 's question and ask about Apache Junction from a local perspective.  My mom has a small townhouse there (Apache Junction).  It's not the nicest area however it seems like it is in the path of progress and places seem to be pretty affordable.  Plus it's still only a 30-ish minute drive to Phoenix airport.  It's a fully developed town and all but it's a little run down.  But to the west is fully-developed Mesa which is really nice.  Last time I was visiting I noticed a lot of construction moving east into AJ.  Further east are pretty posh suburbs that are pretty much new construction.  I felt like AJ might be a great place to get in while the gettin's good.  This might be another option for Kantrell.  But, with that said, maybe the areas that @Kellen King mentioned are no-brainers and therefore should be pursued first.  Maybe Kellen can comment again.  Thanks.

I hope my last post wasn't too confusing (or seemingly off-topic from your original post).  I would probably look at all the minis in your price range in the geographical area you want to buy in.  I'm guessing the list isn't going to be super huge.  Then I would start with a quick glance of the numbers to make sure they aren't on crack, then I would immediately start analyzing additional profit that can be made - raise rents, outdoor storage, Uhaul rental, etc.  Then, lastly, I'd analyze the area.  Ask yourself, "Will this stay full?"  I think most markets have an under-served niche.  It's your job to exploit that!  Like other value-add items, this can make an ordinary property, extraordinary.   

In the end, if you buy an underperforming property, there is the risk that the area doesn't need storage rentals.  I think of some more rural areas where anyone can put up a pole shed in their backyard.  That's going to be a tougher area to rent up even if the numbers match Neil's numbers above.  Finding an underperforming, full property might be better for you.  

I know this is a little backwards and all, but we bought a small mini-storage with a maxi-storage with tenants and a track record.  We knew the rents were under priced.  That is a nice way to both earn more income and increase the value of the property.  The interesting part came while owning them.  When we advertised a unit on Craigslist or people just called the number on the sign, they asked for different things - sizes, outdoor storage, power, heat, water, etc.  When people start asking for the same thing, you might be onto something.  It might be worth trying to find a property that fits that bill.  The info that @Neil Henderson gave is spot on but it doesn't always help you figure out if you could rent up an open yard of RV and boat storage.  So, while I'd start with Neil's info, I'd start to think intuitively about the surrounding area and what types of other things you can do with the property.  Outdoor storage is a great return on little to no investment.  But you also have to check zoning requirements as not all places allow for that stuff.  I'm mainly mentioning this so that you don't get too focused on what you're looking for.  Maybe you can find a full property with too low of rents and a bunch of additional land that you can do outdoor storage and leaves you room to build more buildings in the future.  

I've always thought that if I could figure out a system to streamline small mom and pop storage facilities (under 100 units), you could probably kill it.  For one, you can buy and higher cap rates, you can probably raise rents, and they probably let things get a little run down.  However, small properties are as much work as large properties so keep that in mind.  I just think the returns could be better if you could systematize them all.  

Fun stuff!

@Adam Boonzaayer

I'm going to stick up for @Patrick Soukup a little in that I think he was just taking your direct quote and hoping that you don't try to hit a home run on your first swing.   Maybe he could have elaborated more but in the end, I think a lot of people have added a lot of good ideas that he may have decided not to repeat.  I like to think that most people on here would love to see you succeed and those who are doing know it can be a struggle to do two BRRRRs in a year let along 30 units worth.  With that said, I like (what seems like) a little fire so this is good.  

I too am one of the "take it slow" crowd, but what do I know?  I feel like one of those signs at hiking trails that says you can expect the hike to take 3 hours and you're back at your car in 45 minutes.  The learning curve is steep at the beginning and those on BP probably just want to see you succeed.  If not, ignore them and do it your way!  Me included.  Haha.