All Forum Posts by: Neil Henderson

@Cindy Coker Is the friend going to do all the work? Do you expect to make a profit?

I’m not a securities attorney but this smells like a security, meaning a syndication. You can syndicate it, but the cost of setting up the syndication will likely be more than the deal can bear, ball park, $12,000.

I’m not saying don’t do it, but realize there is a risk if it classifies as a security and you don’t set it up as such.

So great @Gary Crawford Well done!

Congrats @Spencer Cornelia 

@Justin Frank Heed the advice of @Terry Campbell He knows what he's talking about, especially the feasibility study. $5,000 is cheap when you consider the overall cost of the project. Also, Self Storage developments that don't do a feasibility study are the rare self storage facilities that fail. 

Some other things to consider: 

• Hallways will take up about 25% of the overall square footage of any building you convert. 
• Are the ceilings taller than 18.5 feet? might be an option to build two levels. 
• First question to ask yourself is: What's the demand for self storage in the area? Storage has very localized markets. 1, 3, and 5 miles. For rural communities, that can grow to 5, 10 and 20 miles. Use Google Earth to estimate the current square footage of storage in the area. Get an estimate for the population in the area. As a VERY general rule, the self storage industry considers 7 square feet per person to be market equilibrium. More than 7 feet per person is over supplied. Less that 7 feet is under supplied (this presents a possible opportunity).
• What's the median income in the area? General rule of thumb is you want it at least $45,000 a year but I'm seen people do fine in poorer markets. You just don't want to get into a situation where people might need storage, but they don't have the money to pay for it.
• All of these questions and many, many more are what the feasibility study will seek to answer.

Good luck!

I'll echo what @Pat G. is saying. Ask them what they plan to do with the money from the sale. If they don't know, explain to them the tax hit they could take by just taking a lump sum payment on the sale of a property. Explain that with seller financing, they'll be getting ongoing income from the property, without having to do any of the work. They can "chip away" at the overall sale price over a 3-5-10 year period of seller financing before you pay off the balance of the loan. 

Going to sound like a broken record here but The Best Ever Apartment Syndication Book by @Joe Fairless and Multi-Family Millions by Dave Lindahl

Disclaimer: I have more experience with self storage than I do with mobile homes parks. 

I would say there is a more robust third party management ecosystem out there for self storage. I'm sure there are third party mobile home park management companies but there aren't as many as self storage.

As a general rule, in order for third party management to make sense for self storage, you would want at least $20,000 a month in gross revenue. We underwrite our management expense at 5-6% but most professional managers have a minimum, typically around $2,000 a month. At 5% that equates to a facility grossing $40,000 a month. You can find a few management companies who will lower their minimum, but they are typically going to ask for a share of the equity in the facility to make it worth their while. 

The wisest real estate investors I know diversify across Asset Class, Geography and Operator. 

Even the successful active investors, house flippers, self managing single family and small multifamily owners are wise to eventually diversify their portfolio into more passive diversified assests like syndications and mutual funds. 

Asset Class: Multi-Family, Self-Storage, Mobile Home Parks, Assisted Living Facilities, etc. (four asset classes we prefer long term for a lot of reasons). If all your portfolio is in commercial industrial buildings and there's an event that severely impacts the demand for commercial industrial, your heavy exposure to that one asset class could really hurt.

Geography: Dallas, Cincinnati, Las Vegas, Phoenix, Jacksonville, Columbia, Birmingham, etc. If you aren't concentrated in one region of the country, you're less likely to get wiped out by a regional black swan event (weather event, economic slow-down, etc.)

Operator: There are a lot of good syndicators out there, there are a lot of bad ones. How good are you at picking out the good ones? We get a lot of repeat businesses from our investors, but even our happy ones eventually start rolling part of what they've made with us into other syndicator's deals. Even a good syndicator could have something unexpected happen. If all your portfolio is tied up with that one syndicator/operator, his misfortune could become your misfortune.

No one can predict what a market will do in the future, all you can do is protect your downside risk. 

Time is the investor's best friend. If you can acquire an asset and hold onto it for 20+ years, odds are pretty good you're going to make money, especially in real estate. 

The key is to never be in a position where you are FORCED to sell. How do you do that?

1. Invest for cash flow first! That doesn't mean you invest ONLY for cash flow. Cash flow is what's going to keep you alive, appreciation is what's going to build wealth. If you own a property that's negative cash flow and the market turns sour, you might not be able to hold on until it recovers. Some people are ok buying a negative cash flow property because they predict it will appreciate quickly and that time and the market will take care of the cash flow. See point 2 below.
2. Don't go in under capitalized. If you stretch to get into a property and put every last dime you have into buying it but you don't have anything leftover for repairs/rehab or other inevitable unforseen expenses, you're one bad month away from being forced to sell. Go in with a healthy reserve that allows you to weather the unexpected.
3. Invest with long term, fixed rate debt. How long do you plan to hold this property? Do you have a business plan to acquire it and add value by forcing the appreciation? (i.e. rehabbing, raising rents, cutting expenses) How long is that going to take? If your loan is due in 5 years and you expect your business plan to take 5 years to execute and something unforseen happens that makes executing your plan in 5 years impossible, you'll be faced with a situation where you're forced to sell or to refinance at terms that are not going to be favorable. Did you buy using an adjustable rate mortgage? It's unlikely interest are going anywhere but up for the foreseeable future. If the debt service (mortgage payment) is begins rising faster than your cash flow, you could be forced to sell.

Can’t wait! This will be my third time attending. It’s an aptly named conference.