All Forum Posts by: Neil Henderson

We, Nomad Capital, are currently buying vacant big-box retail buildings across the Southeast, from Virginia to Georgia, and converting them to climate-controlled self-storage. 

Spartan Investment Group is another self-storage syndicator.

Hi Paige,

Yours is a common dilemma. We work with, and I have interviewed, numerous busy medical professionals with the desire and resources to invest in real estate, but lacking the time and experience.

Yes, investing passively in real estate syndications is absolutely an option. It does take some education at the start but it's a very viable option.

If you are going to go the active route and try to invest out of state you have a couple of options:

1. Turn-Key Rentals. REI Nation (formerly Memphis Invest) is a great outfit IMHO. They've been in the business a long time and they are fully integrated top to bottom. They won't be passing you off to another property manager once you take over a property. They handle that in-house. There are loads of other very good Turn-Key providers, I would urge you to perform a LOT of due diligence on them before buying a property this way. The downside with this strategy is that it's not always completely as passive as they make it out to be, and the value-add on the property has very often already been extracted by the turn-key company.

2. DIY Long Distance Investing. You could set about building a team in a rental market that makes sense for your investing goals. David Greene literally wrote the book on this and has great action steps you can take. We also interviewed Antoine Martel from Martel Turnkey and he had great insights into who you should reach out to first in a new market. His advice differs a bit from David's in that he recommends reaching out to Property Managers first, not realtors. They are going to have a better feel for the good rental sub-markets in an area, and they are more likely to spend time talking to you if they believe there is an opportunity for a long-term relationship as opposed to the transactional relationship of a realtor.

Good luck to you!

@Nicholas Libertin One thing to consider in seasonal markets with AirDNA data; in seasonal markets many hosts will shut down their listing during the off-season. This skews the occupancy data making it appear a bit higher than it might otherwise be. Dig in deeper! Are there smaller listings that are staying booked throughout the year? What are the top 10 listings in the market doing? Taking the blanket market wide AirDNA data during your initial screening is fine, but you need to dig deeper once you’re closer to pulling the trigger on a property.

I can't predict the future and I gave up trying a long time ago. A major factor in housing prices right now is low supply and high demand. Not enough homes have been built in the last decade, Millenials have surpassed Baby Boomers as the largest generation in America and they are rapidly aging into housing formation age. Baby Boomers are also staying put in their homes and living longer for a variety of factors.

Rising interest rates, inflation, world events, economic instability, all are wild cards for the road ahead. 

Taken from another post on BP.

Welcome to a fantastic real estate investing asset class that also has a fantastic and supportive community along with it.

My self storage investing journey has been long and winding and many of the people on this thread have been witness and supportive of that journey.

I came from a short term rental and single-family rental background. I became interested in self storage investing after I sat down at what I call "The lunch buffet table that change the course of my life." At this lunch table and I sat down next to Erik Hemingway and his oldest daughter Maggie. When I sat down, Erik was telling the story of how he had built a self storage facility from the ground up in 2006 and then shortly after took his entire family of seven on a three-year sailboat adventure throughout the Mediterranean, they had their sixth child while on the trip, and finished off by crossing the Atlantic on the same route that Columbus took. Now, Erik's story is A LOT MORE complicated than I just described, but I knew in that moment that I had found someone that I wanted to get to know and that I wanted to know more about self-storage investing.

I was living in Las Vegas at the time and working a very intense W-2 job. I began the process of getting myself educated by consuming content from people like @Scott Meyers, Michael Wagner, AJ Osborne, etc. One of the challenges I ran into in the Las Vegas market, real or self-limiting, was that it is a primary market on an island with not many secondary and tertiary markets nearby. This made it a challenging market for a brand new self storage investor to break into by purchasing a first small facility. People have done it, I'm not saying it's impossible, but it presented a significant challenge to me with my specific circumstances.

Along way I met other amazing self storage investors like @Fernando Angelucci, @Paul Moore, Rob DuBroc, Frazier Robson, Tony Pernelli, and many, many more.

Ultimately what worked best for me was to take a leap of faith and join a team of experienced self storage investors already doing it. My journey came full circle back to the man who first inspired me to invest in self storage working with Erik Hemingway and his son Levi at Nomad Capital.

We have a number of existing self storage facilities already under management, but we specialize in converting vacant big box retail stores into Class-A climate controlled self storage. Last November we acquired an 87,000 square-foot vacant Kmart that is currently being converted to 60,000 ft.² of drive-through, climate controlled self storage. We have several others under contract and in the pipeline.

The point of my story is there many pathways into this business and don't be afraid to take a less common route.

"If you want to go fast, go alone. If you want to go far, go together."

First of all I'm not a lawyer, CPA, tax strategist, or SD-IRA expert, I'm just an investor who has used a self-directed retirement account to invest in real estate. I would seek advice from an expert like @Steven Hamilton II (taxes) or @Dmitriy Fomichenko (SD-IRAS). Be warned, we are entering tax season and these people are extraordinarily busy. Your primary options are a self-directed IRA or a solo 401(k). A solo 401(k) is only available to you if you have some sort of self-employment income. With either option there are three main rules that you must never break:

1. Disqualified persons. The self-directed IRA cannot do business with you, the owner of the IRA, beneficiaries of your IRA, or members of your immediate family. There's more to it but basically you can't do business with your spouse, your parents, your grandparents, great grandparents, children, grandchildren, etc. Seek outside advice from an expert for comprehensive list.

2. You cannot invest for personal benefit. This means you can't use the funds to buy a rental property that then pays the cash flow to you, the cash flow must be paid back into the IRA. This also means you can't buy a vacation rental with your IRA that than you use part of the year.

3. Disallowed investments. You can't use a self-directed IRA to invest in collectibles, life insurance, or S-corporations.

Essentially, your self-directed retirement account is designed to be used to invest passively at arms length. 

The only way you could really do what you were describing above is by taking a loan from a solo 401(k) that then needs to be paid back to the solo 401(k) that it was withdrawn from.

So many of my answers to the above questions are going to be "it depends."

My first and absolutely the most important question I have for you is; have you commissioned a third party or performed your own feasibility study on whether or not there is demand for storage in the market where your potential facility will reside?

The days of build-it-and-they-will-come self storage are long gone. The biggest enemy of self storage is self storage. Some of the best opportunities over the years to buy a self storage facility have been because someone decided to take a piece of vacant land that they had and turn it into self storage without adequately researching whether or not there was demand in the market for self storage that would allow them to be profitable at the price that they purchased the land and built out the facility. Apologies for the run-on sentence.

The answer to question number two is "it depends". Does your feasibility study say that there is a huge unmet demand for storage in your market? If yes, do you have access to sufficient capital to build out the entire facility at one time? What are your investment goals for the facility? Would you want to leave some meat on the bone for expansion for a potential buyer down the road? Would you be more comfortable building in phases two test the market for storage demand without a huge capital outlay? Have you thought about building some fixed structures and then filling out the rest using portables or shipping containers?

The answer to question three is also I'm afraid "it depends." SBA lending can be a great option for self storage but it is a long process and you should be sure that the seller is OK with a longer closing horizon. I would be very surprised if any SBA lender would move forward without having a third-party feasibility study done on the site for self storage. You could do hard money if that aligns with your investing goals but chances are it's going to be expensive. You could use private money to finance a cash purchase with a plan to refinance into longer-term debt once the facility is stabilized. Do you believe that you have the experience and ability to execute on that kind of business plan that you wouldn't risk losing your private investor's capital? You might also consider approaching some small community banks.

The biggest land mine to avoid is building a facility in an area with not enough demand to support it.

This is a really difficult question to answer in a concrete way because there are so many variables. What you are essentially trying to come up with is the cost of capital, and that's going to be based on lot of factors.

The risk profile of your offering, your experience level executing on your proposed business plan, the amount of capital available seeking these types of deals in your immediate network, how well your potential investor knows you and trust you, how much of return is the overall deal going to put off, what other options for investing do potential investors have, what kind of returns are you competing against?

Just like a hard money lender is very often going to charge a lot more points and higher interest rate to an inexperienced house flipper that they've never worked with before, someone bringing capital to your deal is going to want a different return based on the above mentioned variables in order to be enticed to come into the deal with you.

We have a lot of experience doing these type of conversions and we are our own general contractors and property managers, so we are typically able to hold onto more of the general partnership than the average syndication, but even we are competing in the marketplace of Capitol returns against others syndicators. If the investors in our network are able to get a higher return from a comparable syndicator, then very often we aren't going to be where those investors choose to put their money. 

I don't know how many of these conversion projects you have done before, but someone who has successfully executed on three or four of these types of deals is probably going to be able to find investors who are willing to take a slightly lower return because of the lower risk of working with an experienced operator. Then again, perhaps you have someone in your network that knows likes and trusts you and has capital that they are really interested in putting to work. They might be willing to take a lower return.

At the end of the day, if this is one of your first deals of this nature where you are looking to raise private capital, my best advice would be to keep it simple and keep it clear for the investor. I don't think there is a need to create any complicated waterfalls.

"My goal is to give you X percent return on your money over the next X years. We plan to do that in X years or better. I need this much money, I’m going to hold it for this long, here is when I project you will start getting distributions (if at all), the distributions and reporting will be given out monthly/quarterly, and this is what I expect your total equity multiple will be at the end of the deal.“

However you need to structure your GP/LP side to provide those types of returns to your investors that will still allow you to make enough money that it was worth your time, I think there is where you will arrive at some type of answer to your question.

This is the first meet-up of what will be a monthly commercial real estate investing meet-up for the Wilmington North Carolina area. No speakers, no pitching, just lots of sharing of lessons learned, community, meeting fellow commercial real estate investors, and perhaps some good beer.

The first step before you do anything self-storage related is to pay for at least a desktop feasibility study to find out if there is demand for storage at that location. They run about $2,500-5,000. Bob Copper and Katherine D'Agostino are two people I know of who do them. No bank is going to loan you money on the deal without first having a feasibility study done.