All Forum Posts by: Scott Krone

@D'vorah Nadel  When evaluating self storage it is important to look both at the operating statements as well as the tax returns.  I totally understand why they are showing loses, because they don't want to pay taxes.  It is important to underwrite it based upon actual expenses, not inflated expenses.  That is the art of underwriting a deal is getting to the accurate numbers on both the revenue as well as the expenses.  It will also help you determine how much to pay for it.

@Tanner Nelson Once you have completed your goals, two options would be to list with a commercial broker or advertise on Loopnet.

@Chris Lai I would offer that expectations are vastly different between residential and commercial.  It is assumed (rightly or wrongly) most people will buy a home.  The progression through life - graduate from school, get a job, rent an apartment, start a family, need more space, buy a house.  So, there is an underlying assumption, anyone can buy a home - be it to live in, rent, fix and flip, etc.  There are plenty of people to assist with that process - real estae agents, banks, repair people, etc.

However, when it comes to commercial there is a different expectation.  You know what you are doing, and you have your "act together".  There are other more profane was of saying the same thing.  So, yes there are all the things that others have noted above which all point to the same thing: knowledge and more importantly wisdom.  There are many in the forum which feel and promote that can be gained from reading posts, etc.  Others feel mentors and coaching are key means to accomplish this.  There is also the position that networking with local communities is a vital aspect in growth.  

It may be one, two, three or all the above.  For me, it was school, reading books (Paul Moore's book "Storing Profits" is great for self storage and applies beyond storage), mentor, and working for and in the industry all were vital in my development.  There is a significant difference between information, knowledge and wisdom.

We all have access to information - google, internet, etc.  Knowledge is applying information, and wisdom is having experience based upon knowledge.  I would encourage all to seek as many avenues as possible to not only gain information, but also knowledge and lean into others wisdom.

@David A Pennell - As an owner and operator of self storage, I would first recommending what type of self storage are you looking to own.  Specifically, Class C, B, or A.  Each has its own unique "issues", and require different skill sets.

Class C - "Mom and Pop" rurual facilities non climate controlled, smaller in size.  50 to 200 units

Class B - Second generation, suburban, may be climate controlled, mid sized.  200 to 400 units.

Class A - Urban, fully climate controlled, larger facilities.  400 - 1,000 units.

@Paul Moore attended for many months a Mastermind that @Scott Meyers, myself and a group of ~ 25 investors around the country.  All three asset classes are represented, and Paul's book (mentioned above) does discuss each of these asset classes.  

Once you have an objective for your acquistion, then determine what skills are required to meet your objective, and focus on learning more about those areas.  As one climbs through classes, marketing and competition come much more into play as it is a retail business in addition to a real estate investment.

@Kelly Oswald - if you buy in the winter you will be prepared for the spring market.  Spring is always the best market.

Quote from @Fernando E.:

Quote from @Scott Krone:

@Fernando E.

Not including the pandemic slow down, this is the 4th recession of my real estate career.  Unlike the previous recessions, this is the first one we have been planning for.  When I say that, it is because we have been building and developing a portfolio that historically does better during recessions, including the pandemic.  A reason for our strategy was we studied historical performances of various asset classes.  When compared GDP to Occupancy for self storage, we saw the resiliance of the asset class during recessions outperformed many others.  To answer our question, we are not changing our strategy.

However, if I were we were in asset classes that were not as recession resilient, our strategy would be to lock up longer term mortgages at at fixed rate, stress test the assets with respect to the DCR, and begin looking for opportunities. The other research we did showed how much more wealth was generated by buying in recessionary markets versus bullish markets.

 @Scott Krone I appreciate the insight and very interesting study. Curious if this resilience of the Self Storage asset class can be translated to other assets like Single Family Rentals (SFR) and Multi Family Rentals (MFR) or is this resilience only for Self Storage and in the case of recession, SFR and MFR suffer? Also this may be a dumb question so apologies in advance, I assume that the barrier to entry to self storage is much higher than other asset class, is that a fair statement? How can one start in this asset class? I will look into BP forums as well. Thanks for the response!

 @Fernando E. - Very interesting questions. Based upon my experience, I would not suggest the full analysis can be translated to other asset classes. Are their similarities - perhaps. I would offer that interest rates have more of a direct impact on SFR and MFR than self storage. When interest rates dropped to historic loans less people rented because it was cheaper and more beneficial to own versus renting. Since 2008/09, the MFR market has not responded as it has in the past to low interest rates (lower interest rates people tend to buy, higher rates people tend to rent) due to the housing shortage. I would also surmise it is hard to collect data on SFR's due to the fact many are owned by smaller companies/individuals who don't necessarily report their data. For instance, my uncle in law owns 30 - 40 SFR in Florida for the past 40 years. Based upon knowing him, I am pretty sure he doesn't tell anyone his rental history!

@Fernando E.

Not including the pandemic slow down, this is the 4th recession of my real estate career.  Unlike the previous recessions, this is the first one we have been planning for.  When I say that, it is because we have been building and developing a portfolio that historically does better during recessions, including the pandemic.  A reason for our strategy was we studied historical performances of various asset classes.  When compared GDP to Occupancy for self storage, we saw the resiliance of the asset class during recessions outperformed many others.  To answer our question, we are not changing our strategy.

However, if I were we were in asset classes that were not as recession resilient, our strategy would be to lock up longer term mortgages at at fixed rate, stress test the assets with respect to the DCR, and begin looking for opportunities. The other research we did showed how much more wealth was generated by buying in recessionary markets versus bullish markets.

@Ethan Tomlinson - The federal government has encouraged house hacking with the tax laws.  If you are single and live in the house for two years, the income you make on the sale is tax free up to $250k.  If married, the limit increases to $500k.  As a result of this, my wife and I have implemented this strategy quite a few times.  We bought a pre-construction condo, lived in it for 2 years, and flipped it.  We bought another pre-construction condo, lived in it for a year, and flipped it.  We then bought a single family home, put a second story on it, lived in it for 2 years and flipped it.  We then bought a home destroyed by fire, built a new home, lived in it for 2 years, and flipped it.  We then bought a old barn/garage/house, tore it down, built new, lived in it, and flipped it.  We then bought a home, tore it down, and built new.

Each time, we got an interest only arm loan for 3 years.  Inessence, we were "renting" our home while getting tax deductions in the income we made, the interest we were paying, and the real estate taxes we were paying.  It was an effective way for us to build equity, and other goals we had.  I share this with anyone looking to build their equity.  It is still an effective tool.  Lending conditions have changed, but the concept still remains solid.  You just have to be willing to move every few years.  Many people don't desire that.  We just kept moving within a 15 minute drive of our end goal location.

@Connie Emmart - well done on rolling your MF projects.  Nice accomplishments.

There are rules for QOZ funds. They are very similar to self directed IRA's with respect to "disqualified investors". In this case, our understanding of the code, requires there be separate "entities" or "parties". Just to be clear, our understanding comes from directly talking with the IRS even before all the regulations came out. So, allow me to explain.

Party A (you) has capital gains and wishes to invest in an OZ fund.  Great.  That requires Party A to invest in a QOZ fund (Party B) not owned by Party A.  Once the funds are in Party B's fund/account, it can be invested into Party C's project.

If I understand your question correctly, you want to take your own capital gains (Party A), create your own fund (Party A), and then invest into your own projects (Party A).  From what the IRS told us, that would be a disqualified investment.  This was the reason we created OZ funds for our investors, so they would have a means to shelter their capital gains.  Our funds are distinct in that they are not a generalized OZ fund which invests in a wide variety of opportunities.  They are project specfic.

If you have more specific questions, please feel free to reach out.

@Natalie Godoy .  Interesting question.  Smarter all day long.  I am going to surmise that being smart allows one to have greater wisdom.  Wisdom is a combination of experience and knowledge.  So if one is smarter (wisdom and experience), then that will allow someone to act quicker because their experience and wisdom allows them to make decisions faster.