All Forum Posts by: Michael Margarella

This is state-specific so it is likely best to check with your state’s SSA (self-storage association) or, if you really want to insulate yourself, consult a storage attorney.

0 Votes

Houston, Texas

Go bigger now! It sounds like you have a solid base and it’ll take you a similar amount of time to close and manager a larger deal.

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.

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

1 Vote

Dallas, Texas

Quote from @Mitchell C Johnson:

Hello! I am seeking to acquire a medium (50,000+ SF) value-add self storage facility in the following areas (in preferential order):

1) Woodbury
2) Maple Grove
3) Lakeville
4) Blaine
5) Rochester
6) St Cloud

Ideally, I would like to keep the purchase price under $1 million.

Has anyone worked with a commercial broker that specializes in self-storage in those areas? Thank you in advance!

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.

2 Votes

Minneapolis, Minnesota

Quote from @Nathan Lacey:

Quote from @Lane Kawaoka:

@Michael Hyun

I took a look at your journey so far, and I must say, you're doing a great job. Moving quickly and all. You're probably making good money at your job, so here's my suggestion: why not skip the whole hassle of buying individual rentals and go straight to syndications and private placements? I know it sounds crazy, but trust me, I've been there. I bought a bunch of rentals between 2009 in Seattle and up to 2015, had 11 of them out of state, and let me tell you, it's just not scalable. So many legal liabilities and headaches. I'm just trying to save you from all that trouble - plus its going to hard to be to unload them on RS.

Now, the real challenge is finding other truly passive investors like yourself. It's not easy. You won't come across them on internet forums or local real estate clubs. But once you do find them, it's a game-changer.

Regarding Real estate professional for the tax benefits. I get where you're coming from... But when you have your own direct ownership portfolio, you'll still have to recapture the depreciation eventually. All that hard work you put into it will need to be unwound. Let me know if you would like to chat more.

Can you please explain what syndication and private placements are?

I authored a few blogs about syndication structure and tax benefits, which may be helpful.

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

1 Vote

Great post. Commercial real estate 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.

1 Vote

Quote from @Cal Hollow:

I'm new to the commercial side of investing, and have been researching and doing my homework on Self-Storage facilities. I had talked to a few guys in my local area and tried to pick their brain to see how they liked this side of investing and running the business of self-storage facilities that they have, and was under the impression that they didn't want to let anyone in on their experience with owning and running them. I shut down the topic and avoided asking anything else after I felt they didn't want to go in-depth. So, that's what brought me here. I'm just looking to connect with someone that has some experience in the self-storage side of things from the ground up or with the purchasing of one. I'm very willing to offer something to them on any level that I can best help them, I'm definitely not expecting handouts or to not hold up my end of the bargain. I appreciate it, and would love to learn more about this. Thanks!

I’d be happy to connect. 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.

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

2 Votes

Quote from @Tamer Shalaby:

@Michael Margarella, where can I find self storage vacancies historical data? Which states are investing in or recommend for self storage?

Marcus & Millichap published an outlook of the self-storage industry that you may find helpful:

https://www.marcusmillichap.com/research/market-report/multiple-markets/2023-us-self-storage-investment-forecast#

0 Votes

Quote from @Tamer Shalaby:

Hello All,

Please help decide or expose my blind spots.

I have 3 rental properties in Sothern CA, Orange County area. I have low debt on all of them. I am 45 and have a career, I do not depend on RE for income. I am debating between two ideas, A) cash out from existing properties and buy 1 more residential property or B) sell all and 1031 into a commercial property. My commercial top choices are storage, medical offices, or retail.

My theory is that rents cannot continue to climb that high in So Cal. Home prices continue to climb but I cannot imagine rents going much higher. Meanwhile if I 1031 into a commercial property I can leverage my equity and hold it for 5-7 years and repeat.

Plan A Pro and Con

Pro -

- maintain lower taxes.

- Properties are in affluent neighborhoods, easy to rent.

Cons

- low cap rates

- lose low interest rates when I refi to cash out, and cannot increase rents.

Plan B

Pro

- leverage more

- commercial rents have 3% increases baked in

Con

- Higher tax and interest

- Recession and high vacancy.

Summary of Inv

Prop A - 1.5m - 250k loan - 5500 rent - 150 HOA - 3300 mort+tax - cap 3.6%

Prop B - 800k - 293k loan - 3300 rent - 500 HOA - 2600 mort+tax - cap 3.4%

Prop C - 500k - 113k loan - 1900 rent - 500 HOA - 1100 mort+ tax -cap 2.5%

Total Value = 2.8m, Total Debt 660k

Cash left after sale and RE commission = 2m

Future Property

Fut Prop 3.5m - loan 1.5m - 35k taxes - 2400 ins - 120k mort only - 180k rent - cap 4%

In 7 years @ 3% appreciation and rent increase and 1% tax increase

7 Year 4.3m - loan 1.4m - equity = 2.9m

Which plan would you pick and why?

Thanks

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.

0 Votes

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

Pick solid operators and solid asset classes. We syndicate self-storage projects. 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.

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.

0 Votes

New Orleans, Louisiana

Quote from @Henry Clark:

Not in a sarcastic sense but I don’t care. We don’t own an office skyscraper, our banks are secure (top 25 safest banks in the US). All three have high equity clientele and recession/inflation safe businesses (food). If a bunch of banks and even insurance companies go bankrupt someone else will pick up their assets. The fact JP Morgan or someone else’s gets rich I don’t care. The fact we the US citizens get the shaft, you get what you vote for. As a developer it’s just another hurdle. Tell me what I need to do and I’ll do it or pay it.

We are developing a 75 acre, 22 lot country subdivision. There is a shortage of houses, we are good. The more it hits the fan, we are good, people want to move to the country side. 25 minutes to 1mm metro area.

Our Selfstorage good and bad economics are great for self storage. We sold our brand new location to pull our largest debt of the table and to drag profit off the table. Decided to pull back in risk and take some reward. Took the cash and paid debt down and bought two properties to hold waiting to develop. See how the economy goes.

Our commercial loans were on 5 year balloons on 25 year terms. We refi’d them a year early. Lost 1% of lower interest for a year, within 6 months rates shot past that. Our banker without asking took us from 5 to 7 years on the balloon due to our relationship.

To me , before asking about the economy I would look at my personal position. Sell off your dogs. I would say hold the cash and don’t pay down debt unless you’re refinancing. Or redeploy into a commercial product that is a sure thing. Even in a bad economy.

Agreed. And as to self-storage,

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. Downsizing, displacement, divorce, and death are, unfortunately, all drivers of self-storage.

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.

1 Vote

All Forum Posts by: Michael Margarella

Michael Margarella has started 2 posts and replied 161 times.

Post: Death of tenant

Post: Making the move to multi-family/commercial space

Post: Self-Storage Broker Referral - Minnesota

Post: The best investment strategy for W2 part time investor in 2023?

Post: 9 Fun Facts About Commercial Real Estate

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Post: Stay in residential or buy a commercial property

Post: Stay in residential or buy a commercial property

Post: I will have $2M in Cash best way to get 9-10%

Post: Preparing to capitalize on the next market collapse