All Forum Posts by: Neil Henderson

Talk to a local real estate attorney. Some states have owner occupancy evictions that break the lease, but I don't know Mississippi and things might be in flux with emergency orders due to the COVID-19 pandemic. 

Talk to smaller local banks. Search for banks in your area and look for the ones with the smallest number of branches. Call up their loan departments and talk to them about what you're trying to do.

Might be a tough road. Most banks will not loan on properties valued at less than $50,000.

Corinn Altomare is a self-storage operator in the Pennsylvania market. Look her up, she might be able to give you some insight into what types of facilities they are looking for.

People tend to have a mixture of these three things: time, money, and/or experience. If you are missing one, find someone who has that and find a way to add value to them. Sounds like you have time, so start going to local REIA meetings and meet the active rehabbers and flippers in your area. Get a feel for their criteria and area they like to buy in. Now, go out and start finding deals in that area that meet their criteria.

My first concern when I dig into Greensburg, PA is that it has had a very steady negative population growth for the last 30 years. That's an immediate red flag for me. Doesn't mean the market won't work, but there is increased risk with a declining market. 

The next thing to dig into would be how full are the competitors in the trade area? (1, 3, 5 miles from the subject property) How professionally run is the immediate competition? There is an Extra Space facility in the area. Are you going to be able to compete with them? 

Can the market absorb an additional 30,000 square feet plus of new storage? Secret shop the existing facilities in the area. Are they full, or are they offering concessions (First 3 months free) to get renters?

$1.9 million is about $45 per square foot. That's about the industry average to build a new facility from the ground up, not including land and entitlements. How much of the 5 acres is covered by the existing structures? Is there room to build additional square footage? Again, can the market absorb that additional square footage?

I like where your head is at. Finding a good deal can be a great way to get into the game, not sure if this is the one. 

Check the occupancy limits for the area and make sure you aren't overcapacity. Smaller properties will typically have higher occupancy but lower revenue. In many areas, a property that can comfortably (and legally) sleep 10+ people will be in a class by itself and able to command higher rates.

It really depends on the area, but that occupancy rate would not surprise me. More important to consider would be the monthly revenue, regardless of occupancy. Too many investors get caught up in occupancy management when they really should be focused on revenue management. I've run across so many short-term rental and self-storage owners who thump their chest about being 100% occupied. If you are 100% occupied, odds are you are charging WAY too little. 

Typically, larger homes will have a higher vacancy but much higher revenue. 

Has the potential manager shown you a market report for the address from something like AirDNA? Have they explained who the primary customer is? Vacationers? Traveling professionals? Have you confirmed that rentals shorter than 30 days are allowed in your area?

25% for a short term rental manager who is going to allow you to be completely hands-off is quite standard. 

Ok, there's a lot in here but I'll address the questions I feel qualified to answer. Mostly, the answer is, it depends. 

The BRRRR strategy, or value-add in general, is a very powerful strategy. It's what Warren Buffet has used to build his fortune. Find a temporarily distressed asset that can be turned around, add value to force the appreciation, and increase cash flow. Rinse, repeat.

The BRRRR strategy is not too good to be true, but it often doesn't work "by the book."

The financial barrier to entry is not quite as low as many would lead you to believe. 

In order to acquire a property, you are often going to need to act like a cash buyer, which means you either have the funds to purchase a property for cash, or you have access to funds that allow you to purchase a property like a cash buyer. If you are borrowing those funds, there is going to be a cost of capital. In order to refinance into a longer-term loan, the end lender is very often going to require you have reserves equal to six months of PITI (Principal, Interest, Taxes, and Insurance) on each mortgage. Depending on the size of the mortgage payment, that can be significant. If you have a portfolio of 7 properties with an average monthly PITI of $650/month, that means the banks are going to want to see about $27,000 sitting in a bank account somewhere as a reserve.

A BRRRR rarely goes by the book. A rehab could go over budget. An appraisal could come in low. A lender might see the market changing and require you to keep more money in the deal to protect their downside. A property might take longer to rent.

Achieving scale is the hard part and it's why we have transitioned away from building a huge portfolio of single-family BRRRRs and into self-storage. 

Traditionally, banks will let you, as an individual, acquire up to 10 Fannie Mae, Freddie Mac loans under your name. After that, you'll be looking at portfolio or commercial loans via cross collateralizing. Those loans are not going to be cheap, and they often won't have the traditional 30-year amortization schedules or terms of the agency debt (Fannie and Freddie).

I would not proceed unless I had the capital reserves to handle the unexpected, a good relationship with a lender who knew exactly what I was planning to do, and a rock star contractor who I trusted. A good lender and especially a good contractor will make or break your BRRRR.

None of the above should discourage you, but you should go in with your eyes open.

@Maria D'Aura When it comes to self-storage, it's all about supply and demand. Self-storage is as much a retail business as it is a commercial real estate asset. 

The markets are VERY localized and depend on a lot of factors. I would never recommend a newbie just up and build a self-storage facility from the ground up on any old piece of land. That's a recipe for disaster.

I would look for tertiary markets where there are few, if any, major storage players (Public Storage, Extra Space, CubeSmart, etc.), where there is population growth but not too much (too much will draw the aforementioned big players), where they is high demand for storage, indicated by facilities that are occupied and raising rates, and where you feel you could come in and improve an existing facility that isn't being operated professionally or to it's maximum potential (room to build).

Or, just invest in one or two via a syndication. Reliant is a very big operator of Self-Storage syndications, and Spartan Investment Group is another up and comer. 

I would recommend using the HELOC as short-term debt, no more than 12-18 months. This probably limits you to either flipping or BRRRR investing. I cannot speak about specifics in the Seattle market, but $165k doesn't sound like a lot to work with in that market, unless you are going to venture out into the tertiary markets well outside of the Seattle Metro area.

We used our HELOC, $175K, to fund the purchases of BRRRR properties out of state. In each case, we didn't have the funds from the HELOC tied up for more than 6 months.

Regardless of what you decide, if the strategy eventually involves placing long-term debt on the property to replace the funds from the HELOC, one of your first steps should be to TALK TO A LENDER about your plans. Explain to them exactly what you plan to do and where your funds will be coming from. Not every lender is going to be comfortable doing a cash-out refi or with you using borrowed funds from a HELOC. Plenty of lenders will be fine with it, you just need to ask around, but do NOT purchase a property until you have a lender lined out.

You should be talking to an end lender before you even go out looking for properties.