Walking Away From SFR And Into Self Storage

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Is self-storage worth it We have invited guests before who had talked about self-storage but still there s more to this space that many investors have yet to learn about Jay Bowman drops by our podcast to talk about his experience jumping from single family to self-storage He started his real estate journey by buying his first rental property for 11 000 Little did he know that it was a big mistake and his tenant moved out only after two months This misstep has prompted Jay to find other ways to invest in real estate which led him to the self-storage space He now helps his fellow investors buy self-storage properties through his company Beyond Storage 00 01 – 02 48 Opening Segment How Jay Bowman learned how to be a landlord really fast Here s his journey of how he jumped from residential to self-storage 02 49 – 10 56 Why Invest In Self-Storage The difference in evaluating between a single family and a self-storage property Here s the right way to evaluate a self-storage property before buying How should you set the prices for your properties Jay gives a sneak peek into their approach 10 57 – 15 21 Properties That Are Worth Investing Jay shares his thoughts about tenants leaving the properties Why do they leave in the first place If a property is 40-50 occupied is it still worth it Jay gives his thoughts The biggest surprise that Jay discovered after jumping to self-storage 15 22 – 17 38 Closing Segment A real estate mistake you want our listeners to avoid Not educating yourself before buying properties Your way to making the world a better place Giving back to the surrounding community Reach out to Jay See links below Final words Tweetable Quotes when you got 300 or 300 units in a facility and everybody s leaving a lot of times it s just because their usage is done – Jay Bowman you got to be educated you have to understand what it is that you are actually purchasing people are gonna tell you how passive self-storage investing is and whoever tells you that does not know what they re talking about – Jay Bowman —————————————————————————– Email jay gobeyondstorage com to connect with Jay or follow him on LinkedIn Are you planning to buy storage facilities in the United States Beyond Storage can help you with that Connect with me I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns Facebook LinkedIn Like subscribe and leave us a review on Apple Podcasts Spotify Google Podcasts or whatever platform you listen on Thank you for tuning in Email me sam brickeninvestmentgroup com Want to read the full show notes of the episode Check it out below Jay Bowman 00 00 When you re evaluating a business such as self-storage you re going in about how much net operating income it s going to throw off at the end of the day And so you re having to look at maybe an asset that is not being operated correctly or the rents aren t high enough or there s some other things that you can make changes to drive higher rents monthly to drive in the end your net operating income higher which therefore then increases the value of the property Intro 00 29 Welcome to the How to Scale Commercial Real Estate Show Whether you are an active or passive investor we will teach you how to scale your real estate investing business into something big Sam Wilson 00 37 Jay Bowman is a former buyer of single family rentals rehabs and flips and he has successfully transitioned to self-storage purchases Jay lives in Kentucky with his wife and two children Jay welcome to the show Jay Bowman 00 49 Thanks for having me Sam Appreciate it Sam Wilson 00 50 Hey man pleasure s mine There s three questions I asked every guest who comes on the show In 90 seconds or less can you tell me where did you start Where are you now And how did you get there Jay Bowman 00 57 I started here in Louisville Kentucky moved here in 2004 And started by buying my first rental property for 11 000 in a really bad area with one tenant And I thought Man this would be great I ll buy a house and there ll be a tenant in there and he ll pay the rent And two months later he moved out and I learned how to how to be a landlord really really fast Sam Wilson 01 19 Yeah And would you recommend buying 11 000 rentals Jay Bowman 01 23 I would not recommend that It was also the first rental property I ever got rid of It took me a while but I took a beating good enough and I sold it for cash as well at the same time Sam Wilson 01 33 Right Yeah you have to I have a story similar to yours in starting out and you go What was I thinking What exactly was I thinking That s really really fascinating Tell me where are you now Jay Bowman 01 44 We re based out of Louisville Kentucky Oh this where we ve always been all my portfolio is my single family portfolio is here But our storage portfolio is spread out We have units or we have facilities in Indiana Missouri and currently one under contract in Louisiana Sam Wilson 02 01 Interesting Okay so right So just to follow this transition you were in single family you started off obviously you know some really small stuff I m sure you ran the gamut in single family from me did you do everything you could possibly do in single family before you gave up on it and said Hey I m going into commercial Jay Bowman 02 17 Sure I started buying a small rental and then started wanting to do rehabs As everybody else in the brother did back in you know five six and seven got into that and then bought one in 08 couldn t sell it So we just turned it into a rental and from there just continued the fix and flip rentals and then just started acquiring and going from there And then after a while around 2020 the transition to self-storage came available And after years of construction and heartache and pain banging your head against a brick wall we decided to make the transition to self-storage Sam Wilson 02 49 Tell me what was that process like Because a lot of people want to make that jump they want to say hey you know they re just like you just like where I used to be They want to say hey I want to get out of single family But I don t know how or I don t have the team or I don t have the finances or I don t X Y Z fill in the blank How did what were some of the things that you mentally said I don t maybe yet have the skill set to take that down but that you kind of had to fill in the gaps on what did that look like for you Jay Bowman 03 13 Really the biggest thing is you know the acquisition is very similar The only difference is being able to evaluate the property while you go into a single family you may say Oh hey this is 100 000 house when it s all well and done buying it for 50 It needs 20 Oh there s a 30 000 spread right Easy peasy That s pretty easy When you re evaluating a business such as self-storage you re going in about how much net operating income is going to throw off at the end of the day And so you re having to look at maybe an asset that is not being operated correctly or the rents aren t high enough or there s some other things that you can make changes to drive higher rents monthly to drive in the end your net operating income higher which therefore then increases the value of the property So its evaluation is completely different And I would recommend that anybody who gets into storage learns how to evaluate those properties Outside of that we do basic rehab stuff Same thing as houses you have paint you have some fencing you have things like that and then making cold calls and talking to business owners instead of homeowners It s still the very similar conversation It s just the operations of the business is different Sam Wilson 04 17 Right Talk to me if you don t mind take a few minutes and go in-depth on property evaluation You know when you look at a deal what are some high-level things maybe that you guys look at out of the gate and say Hey further interest or pass and then when you take the next the kind of the second round of underwriting what does that look like And you break down those kind of two phases for me Jay Bowman 04 35 Yeah sure So when we begin we want to discover what that seller is what his motivation is why he s looking to potentially sell And so we re talking to him about his or her personal situation You know a lot of these people are older people they bought these facilities in the 80s or 90s When they were 30 years old Well today they re 60 and 70 And they re still sweeping out units with a broom and they re still sitting in an office right Physical leases and they re getting really tired of that So we start talking to them about what their process looks like what their facilities look like you know what s your unit mix How much are you charging What s your occupancy Are you fence Do you have automated gates Do you have a website and we start to gather that information And we put that into our analysis and they would begin to compare it to what s going on in their competitors And what we do is we start with a basic target and we go Hey who are the competitors then zero to one miles then 1 2 3 And then three to five rarely we re going to go out and five miles because storage is very it s just very a local business Nobody says you know unless you re in the middle of nowhere when I m going to drive 25 miles to go to this storage facility you don t have a lot of that So that s our initial underwriting If we can see that there s value to be had there we re we re more than happy to talk to that seller about making an offer on that Once we do that that second round we re going to go to a site visit because you can t attend you can t go visit these things You know I m in Kentucky I m not going to drive to Memphis where you are to go see a facility just because I have a conversation with somebody So we need to get the details first And then once we have that property under a purchase and sale agreement we will actually go visit the physical property do a walkthrough identify any other issues that we may have and move forward from there because we need to be able to put our eyes on that property and evaluate physically Sam Wilson 06 28 Right Sure Yeah You want to make sure that there s no unknowns maybe that when after you re under the purchase sale agreement when you get there you might find some things that were lurking that weren t disclosed But then I guess on top of that let s ask because obviously this is all net operating income-driven That s how you decide this is how much we can pay for the property How do you determine in an efficient manner what going rent rates are without surveying the 135 mile every you know potential competitor in the 135-mile radius Is there a quicker way to do that than just actually getting on and writing them all down on a spreadsheet and figuring out what that looks like Jay Bowman 07 02 No I keep that you know we want to talk to those people we need to know what these other people are charging and how full they are So if all of your competitors are 100 full and they re bragging about how they re they haven t raised their rates in the last 10 years and we re just charging ahead we know that there s room to grow how much room to grow and how high you can raise those rates is another is a different question So if somebody has a 10 by 10 for 70 and everybody s charging 70 and everybody s 100 full well then we know 70 is too low you know we want to see roughly anywhere between 87 and 93 occupancy on a unit mix And so that way as these people move out if they have cheaper rates we want to be able to charge a higher rate per month for that unit size what that unit what that is 75 80 85 what that market is willing to bear is the risk that you take So we never like to see that You know you have a lot of people who are 90 full and everybody s charging the same rates there s really no room to run there You know unless operationally you are looking to contain to drive you may drive your clients out if everybody s charging 80 And then I step in and I go Well we re gonna charge 95 we could easily lose those clients and drop below a threshold that we were really comfortable with Sam Wilson 08 22 So say that again if you see that it is 90 full and everyone is charging the same rates you say that there s no rent growth possible that what you just said Did I hear Jay Bowman 08 33 That s what that s us yeah So we re gonna look at that and go Well should we go in And should we charge an extra 5 Well if somebody else has 10 left to fill we may be pushing some of those people out It s usually not everybody s running for the door But you re always gonna have those people a lot of people just call and shop And if you have three competitors that are really close by and those are what your comparables are you need to proceed with caution in that scenario Sam Wilson 09 01 Right Yeah Because I mean if you re shopping and you re 10 or 15 bucks more a month and they re only 90 full that means they can just as easily absorb that person who s looking for a place to go Whereas conversely if you said if you shopped and you said that hey they re 100 full and they re all charging the same rates then you say Hey wait there s room to grow Jay Bowman 09 18 Yes exactly Because everybody it s full And they re all just taking waiting lists waiting for somebody to move out Well if we raised 10 and we have 90 of our people stay we re happy with that we ve increased our revenue pretty dramatically And then if there s everybody else is still full there s charging the same right We just go up a little bit more but we re the only ones with units available And so we re driving the market at that point Sam Wilson 09 42 Do you just kind of test this as in you know take a few units and say Okay we re gonna put this out there at 10 bucks more per month and just see what happens How do you adjust that dynamic pricing or testing model Jay Bowman 09 55 Sure the websites that we use software that we use we are able to set that up So we will take depending on how many units there are we will take that and say Okay once we hit a 87 occupancy we are going to raise the rate of this unit let s say a 70 unit 10 to 77 we re gonna raise a seven bucks oh but if it fills up a few more units and we hit 93 occupancy we re gonna raise it another 15 because now we re pushing that rate higher And then once if that starts to fill we re going to look at all those people who may be paying 70 But now the market rate is shown to be 85 And we re going to start to move them up to the market rate And maybe we don t raise them up immediately we do it in stage over a few months we will go from 70 to 77 or 70 to 80 Keeping them there And then we noticed storage is a high sticky factor we may not see a whole lot of people leave and then we ll just push them straight to market and then begin that process all over again Sam Wilson 10 57 Right that s really really intriguing What is that conversion ratio Or percentage of someone Maybe they came in at 70 How many people that you then raised 85 actually stick around or and then how many of them Do you find that lease renewal end up going somewhere else Jay Bowman 11 11 You know that would require a lot of asking why those people are leaving we don t do that when you got 300 or 300 units in a facility and everybody s leaving you know a lot of times it s just because their usage is done really you re gonna find a lot of people leave if you buy a value add facility at the very beginning And people are there for the value there for the cheap rates they re just looking to put grandma s dresser somewhere and you were the cheapest in town And when you step in and you clean up that facility and you go 40 rates going to 70 you re no longer that value that s not our client anyway we re not looking for that client there s another facility a couple miles away that doesn t do as great of a job it s a little rougher facility you re like hey they re right down the road you can head over there but we re gonna replace that 40 person with a 70 person that s what we re looking for When you ve already have when you have people who are operating poorly you know we re gonna go in and make value there Or if you have rates that are really good maybe the market rate is 60 But they ve got a lot of people at 50 it s not really value they just haven t done their job the operational side in raising the rents to the market because they re always afraid somebody is going to leave we re happy to invite them to leave because we know somebody else is going to fill them at 1015 20 25 higher right Sam Wilson 12 33 What do you or how much time do you build in for we re gonna call it the lease-up phase or the release phase when you take over a facility Jay Bowman 12 42 Yeah so we usually look our market and have facilities where we ve had to experience that it s been about 2 5 a month That s a pretty good rule of thumb for us so far So and I m going to be really bad at doing the math here If we re at 65 occupancy when we take over facility we would expect in 10 months to achieve 90 And 2 5 a month that s really our that s what we shoot for when we do our pro formas And so say that like we know this one it s sitting roughly at about 40 to 45 occupancy and we re going to go in it s gonna take us a while to get that thing full But you have to go in and you have to begin advertising you have to set up the website you have to get the Facebook ads out there for these people who are searching for places to put their stuff And a lot of these older buildings that are run by people who ve had them for 30 or 40 years They re just not doing that And so we re going to go in and take advantage of that opportunity Sam Wilson 13 40 Does it concern you when you find a facility that s 40 to 50 occupied Like how do you know when you buy that that hey I can actually turn this around I mean other than just going hey I think I can or you know I mean what are some things when you look at those facilities that hey wait there is unmet demand here And I mean walk me through that that would be intimidating Jay Bowman 14 01 Sure So when we have other competitors surrounding us and we see those competitors are 90 to 100 occupied and then we re like Well wait a second you know the old Sesame Street thing One of these things is not like the other and we re going it looks good It s in the right location Everybody else is full So what s wrong here And you have to look at that and wonder why Well I mean it s pretty obvious when they re not answering the phone there s no website they re not running ads you have some management that s just not are owners who are not doing their job and are very hands off or don t care And so at that point we are very very confident that we can go in and increase that occupancy Sam Wilson 14 41 Got it Jay this is absolutely awesome What s been one of the biggest surprises you found personally going from single family into storage Jay Bowman 14 49 The biggest surprise that s a really good question Had I known the power of owning a business over owning real estate probably would have made this transition sooner The operational side is it well single family you re still a landlord you re managing people your oven is breaking your lawn needs mowing all of that I didn t realize how much I would enjoy the operational side or the investment side of actually buying a business that comes with real estate as opposed to just buying real estate itself Sam Wilson 15 22 Man that s fantastic Jay I ve certainly enjoyed this today Thanks for taking the time here to come on Next question for you What is one mistake you can help our listeners avoid and how would you avoid it Jay Bowman 15 31 Education You absolutely want to before you go out buying little bitty facilities we rarely work in the tertiary markets We re not buying in the middle of Louisville we re not buying in the middle of Memphis you know Class A facilities are not our thing We look for tertiary markets class beat facilities not trash but it s not super high end we re looking for value in those markets And to just go out and start buying that It s like handling a gun you got to be educated you have to understand what it is that you are actually purchasing It s not just a people are gonna tell you how passive self-storage investing is And whoever tells you that does not know what they re talking about There is operations to this and you have to understand what that is and how to do that effectively to be able to manage that business Sam Wilson 16 18 Right A lot of that What is one way you re making the world a better place Jay Bowman 16 23 You know when we go in and we buy a facility we immediately contact some charities and we donate a couple of units to them Sometimes if we don t have a fenced facility we re also contacting local police departments we re donating units to them as well And it s I m not gonna lie it serves a double purpose when you know you re saying hey we ll give you a couple units if you re happy to drive by once a week and do that but we always want to make sure that we contact those Sherry s and we want to make sure that they re they have a unit or two and begin to work with him Sam Wilson 16 54 Man That s awesome I love that Jay if our listeners want to get in touch with you or learn more about you what is the best way to do that Jay Bowman 17 00 Yeah you can find us at gobeyondstorage com That s go beyond storage dot com I m on Facebook I m on Twitter at Jay Bowman and on LinkedIn Sam Wilson 17 10 Awesome Jay thank you for your time Appreciate it Jay Bowman 17 12 Thanks Sam Sam Wilson 17 13 Hey thanks for listening to the How to Scale Commercial Real Estate Podcast If you can do me a favor and subscribe and leave us a review on Apple Podcasts Spotify Google Podcasts whatever platform it is you use to listen if you can do that for us that would be a fantastic help to the show It helps us both attract new listeners as well as rank higher on those directories so appreciate you listening Thanks so much and hope to catch you on the next episode Click here to visit this podcast episode