All Forum Posts by: Michael Margarella

Great post! My reason for believing in REI is because it is the only inflation-resistant investment - specifically self-storage. With month-to-month leases, operators can more frequently adjust pricing to pace inflation.

One of the drivers of self-storage is the “four Ds”: downsizing, displacement, death, and divorce. All of those things, unfortunately, increase during a recession, providing a safer base case for self-storage than some other assets. Storage occupancy rates during past recessions has remained relatively stable. For example, during a recession, when folks downsize from a 3 bed/1 bath to a 2 bed/1 bath, those people, historically, keep their belongings and put them in storage.

With this, we pivoted to self-storage a few years ago. Now we syndicate larger self-storage deals and work with passive investors.

These syndication can provide an 8%+ cash-on-cash return - providing you monthly cash flow - and a 15-20% IRR over the length of the project.

Great post. Another thing you might consider is commercial real estate, which is certainly a wealth driver.  

We pivoted to self-storage a few years ago. One of the drivers of self-storage is the “four Ds”: downsizing, displacement, death, and divorce. All of those things, unfortunately, increase during a recession, providing a safer base case for self-storage than some other assets. Storage occupancy rates during past recessions has remained relatively stable

For example, during a recession, when folks downsize from a 3 bed/1 bath to a 2 bed/1 bath, those people, historically, keep their belongings and put them in storage. 

Also, during inflationary times, self-storage operators can better manage rates because most leases are month-to-month.  We're thus able to evaluate our rates, and keep pace with inflation, on a monthly and quarterly basis. 

Now we syndicate larger self-storage deals and work with passive investors.

This isn’t a direct answer to your question, but one thing I found useful when making new broker contacts was calling those who had properties listed/recently listed and try to organically build a rapport. Takes a bit more legwork but another tool for the tool belt.

I started investing in some fix and flips and some smaller residential properties from traditional BRRRs. And I just quickly found out that I wanted something with a little more scale and a little more meat on the bone. So we went into the commercial space and pivoted to self-storage. We like self-storage because even if there is a recession, and people downsize, those people will have a need for self-storage, as evidenced by storage occupancy rates during past recessions. And during inflationary times, our rental rates increase. We're also able to evaluate our rates, and keep pace with inflation, on a monthly and quarterly basis because of shorter term leases.

Now we syndicate larger self-storage deals and work with passive investors. These syndication can provide an 8%+ cash-on-cash return - providing investors monthly cash flow - and a 15-20% IRR over the length of the project. I'd be happy to connect.

While there is no such thing as “inflation-proof,” self-storage is inflation-resistant. With month-to-month leases, operators can more frequently adjust pricing to pace inflation. 

One of the drivers of self-storage is the “four Ds”: downsizing, displacement, death, and divorce. All of those things, unfortunately, increase during a recession, providing a safer base case for self-storage than some other assets. Storage occupancy rates during past recessions has remained relatively stable. For example, during a recession, when folks downsize from a 3 bed/1 bath to a 2 bed/1 bath, those people, historically, keep their belongings and put them in storage. 

With this, we pivoted to self-storage a few years ago. Now we syndicate larger self-storage deals and work with passive investors. 

These syndication can provide an 8%+ cash-on-cash return - providing you monthly cash flow - and a 15-20% IRR over the length of the project.

I agree with some of the other posters that investing in a syndication or fund could be a good fit given your situation.

We pivoted to self-storage a few years ago. Even if there is a crash, and people downsize, those people will have a need for self-storage, as evidenced by storage occupancy rates during past recessions. And during inflationary times, our rental rates increase. We're also able to evaluate our rates, and keep pace with inflation, on a monthly and quarterly basis because of shorter term leases.

Now we syndicate larger self-storage deals and work with passive investors. Feel free to reach out.

Quote from @Edna Salinas:

Wondering which class assets syndication provide the better tax benefit, ie paper-loss in year 1.  I'd like to offset my capital gain tax but not wanting to do 1031.  Mobile Home vs Storage vs MF for that specific purpose.  Thank you. 

We conducted cost segregation studies for some of our storage facilities last year and earned our limited partners a deduction worth ~40% of their initial investment.

Unlike some mobile home parks, we own all the structures on the property, so we were able to account for all that in our studies.

Quote from @Chris C.:

Quote from @Evan Polaski:

@Chris C., could be my personal experience, but I feel strip centers have been "hot" for a while. Specifically, necessity based retail.  

Retail, like all real estate and any business, has its own networks and nuances. To me the "hottest" play is the one you know.  

One thing that I didn't catch in this article: what happens to retail when you are in a recession?  A lot of the data seems to be backwards looking, with a little current day quotes.  Not to say this isn't a good sector.  I am an LP in a neighborhood center fund.  To be clear, I signed my commitment over a year ago.  To date, they have called about 30% of my commitment. 

I say this because: this isn't a 2023 hot trend.  This has been a popular asset class for several years now.  I still believe in the asset class, but there are a lot of nuanced risks.  Additionally, there has not been a lot of syndicators come up in this space, like multifamily and residential has seen with influencers peddling their master classes and consulting programs.

I am glad you shared. Again, while I work in multifamily and invest in it, I always like when posts are made like this reminding this community that there is more out there than buying a SFR, Airbnb or investing in a MF syndication.

 Evan,

Thanks for the extensive reply. I always appreciate someones time they take away from their own stuff due to the fact it's all of our most valuable asset. That being said given your statement "the hottest play is the one you know" I agree with however I'm curious your opinion for people who don't have experience.

I have some experience dealing with long term SFR tenants but not much in CRE but am interested in getting into it. My goals are to have scalable assets that have cash flow, appreciate, depreciate, and I get all the best tax incentives with as little overhead, and oversight as possible. I'm looking at self storage very hard in this regard. Do you feel that's the right fit in your experience?

We pivoted to self-storage a few years ago. We like self-storage because even if there is a recession, and people downsize, those people will have a need for self-storage, as evidenced by storage occupancy rates during past recessions. And during inflationary times, our rental rates increase. We're also able to evaluate our rates, and keep pace with inflation, on a monthly and quarterly basis because of shorter term leases. 

Quote from @Chris McAdams:

Gotcha! definitely will compare from around town. Do you have a good way to explain to people why I am raising the prices? especially to the ones who have been there for over 7+ years?

I was just planning on saying those prices are way below market value and I know the place needs a little work, but I am fixing it up back to good condition.

We write a brief letter to all tenants explaining that we purchased the facility, intend to clean it up/fix it up, and must keep our rent prices in line with our other inflated costs.  You should take a look at your market prices and occupancy.  If most places are full and have higher rents, you can feel better about ”ripping the bandaid off” and increasing rents soon after closing, whereas, if the market isn’t as strong, you may want to consider gradual increases over time. 

We pivoted to self-storage a few years ago. We like self-storage because even if there is a recession, and people downsize, those people will have a need for self-storage, as evidenced by storage occupancy rates during past recessions. And during inflationary times, our rental rates increase. We're also able to evaluate our rates, and keep pace with inflation, on a monthly and quarterly basis because of shorter term leases.

You could also consider passively investing - whether in multifamily, storage, or another commercial asset - so you can continue focus on the business that is generating $30k/month.