Building Wealth Through Self Storage Investing

Steve Trang: Hey, everybody. Thank you for joining us for today's episode of Real Estate Disruptors. Today, we've got Fernando Angelucci with the Titan Wealth Group, and he flew in from Chicago, Illinois to talk about how he's done $50,000,000 in self storage in the last three years. If this is your first time tuning in, I'm Steve Trang, sales trainer for some of the top holes wholesalers in the country, and I'm on a mission to create 100 millionaires. Question I get all the time is how do I become one of the 100 millionaires?

The information on this podcast alone is enough to help you become a millionaire in the next five to seven years. If you take consistent action, you will become one. If you wanna get there faster, send me a DM on Instagram, and we'll see if we can help you get there just a little bit faster. If you get value out of the show, please tag your friend below or share this episode right now. That way we can all grow together.

And this is a live show, so please ask your questions for Fernando to answer. You ready? Yeah. Alright. So first question is what got you into real estate?

Yeah.

Fernando Angelucci: So when I was 16 years old, I read Rich Dad Poor Dad, and it basically changed the entire trajectory of my life. I came to United States or my parents came to United States. And because I'm the son son of immigrants, they wanted me to kinda have the old school American dream. So go to school, get good grades, go to college, get good grades, and then, you know, go get a job, work there for forty years, retire with a pension. Obviously, that's not the way it's working anymore.

So I I read Rich Dad Poor Dad. I went to my dad, and I told him, you know, I I don't know about going to school. I I kinda wanna do this real estate thing. And then he basically sat over my dead body. So I said, go go to school, get a a degree that can be your backup.

You can get any degree as long as it ends in the words engineering. So I did that. I actually did get a a job with a fortune 50 company with a pension, but then six months in, I, you know, I was working 5AM to about 9PM. It was pretty tough as salary, so they didn't pay me overtime at all. Yeah.

And, the

Steve: So the

Fernando: more you work,

Steve: the lower you got early, right?

Fernando: Yeah, exactly. So I'd, you know, I said, hey. This is probably gonna be the end of the road here. So started looking at different courses and books and, you know, going to RIA meetings, meetups, that type of stuff. And then around month thirteen is when I quit my job.

And then I had to figure out how I was gonna pay my more or my rent and my grocery bill for the next, like, six months. So the very first thing I did, which I don't recommend people do, is I applied for, like, 62 credit cards overnight. I got 12 approved. And when all 12 came in, I cash advanced about $96,000 off of them. And then that's how I paid for my real estate course.

Wow. And then started doing wholesaling on the side.

Steve: Yeah. Definitely not a recommended tactic. Alright. So you graduated okay. So you're 16.

Mhmm. And you said your parents are immigrants from what country?

Fernando: Brazil. Brazil. Yeah.

Steve: Alright. So Ancelotti and Brazil.

Fernando: Yeah. So my father is full blooded Italian.

Steve: Okay. It's

Fernando: because my great grandmother fled from Italy during the war and immigrated to Southern Brazil. So my mom's full blooded Brazilian, my dad's full blooded Italian, and they met in Chicago in church.

Steve: Got it. Makes sense. Alright. So, you grow up immigrant, get a good job, be an engineer. So you read the book when you were 16 Yeah.

And it altered your mind, but you still, I mean, at 16, you're still in high school.

Fernando: Right.

Steve: Which is amazing that you read that in high school. You graduate high school, you go to college. Right. Four year degree? Four year degree.

And then what was your major?

Fernando: It was ag bioengineering.

Steve: Okay. Interesting. Yeah. Ag bioengineering. And then you worked at a big company for how long?

Yes.

Fernando: I worked at Dow Chemical for thirteen months.

Steve: Thirteen months. And you were able to persist. I mean, were you like daydreaming about real estate? Like what was your thought process like as you're going through this whole process? Yeah, so,

Fernando: freshman year of college, to help kind of pay through school and get extra cash, I actually started a painting company. Some of those like College Pro or College Works, they call different names at different universities. So that was my first kind of experience with business ownership. And then at that point throughout college, I read every book that Kiyosaki put out, all of his advisor series. And then every once in a while, he'll do a book with, like, a different guru.

So then I start reading all of their books. I start going to seminars. So I did all that. I was ready to start investing by the time I graduated college. I just didn't have any money.

Steve: Mhmm.

Fernando: So I kinda put it on the shelf for about six months as I was getting onboarded at Dow Chemical. I was, out in Des Moines, Iowa. And then as soon as I realized, like, hey. I I'm not gonna stay here long term. I can't do real estate on the side and, do this 5AM to 9PM job every day.

That's where I decided, okay. I'm gonna quit. And so knowing myself and reading a lot of books on motivation, I realized that I needed to burn all the bridges or else I'd always have the, you know, thought in the back of my mind. I was like, well, if it didn't work out in real estate, I can always, you know, go back to our boss and see if he'll give me a job. Yeah.

So I I quit kind of like in a hail of, you know, fire, really. So I I called my boss. I said, this is my two weeks notice. Then two days later, I called him again. I said, actually, today is my last day, and meet me at the dealership tomorrow at 6AM.

I'm dropping off. They gave me a company car. So I was like, I'm dropping off my car. If you're not there, I'm just gonna hand my keys to whoever's at the dealership. So like really burned the bridges all

Steve: the way out. Oh yeah. So you're, at this point, you're how old?

Fernando: I'm 22. You're 22.

Steve: Yeah. And you're going all in. And not just going all in, I mean shoot, maxing out all these credit cards, which is a pretty high interest rate, I imagine.

Fernando: Yeah, the lowest one was 16%, and then the highest one was 23.99%.

Steve: Alright, so you shoving all your chips in the middle. Alright. How did you know that working at Dow was not for you? Because there are a lot

Fernando: of people that kind of think about quitting and so on. Yeah. So when I looked at it, you know, I already knew that when you exchange your time for money, there's always gonna be a ceiling. So I wanted to start getting assets that would cash flow and make money for me passively. While I was at Dow, I started to try to dabble on the weekends and at night, which is extremely difficult because I would I was a traveling salesman, basically.

I covered the Eastern Half Of Iowa. So I wouldn't be home. You know, I'd stay in hotels two or three nights a week. By the time I did get home, it'd be around 9PM, 10:10PM. So I'd only had a few hours before I'd go to sleep and start all over again.

Then I'd have the weekends to myself sometimes. And I just was getting beat. I mean, you know, we're in collective genius together. The the major wholesaler in our in Des Moines when I was coming up was Mark Lane. He was in the group with us.

So every time I try to get to a property, you know, on the weekend or after hours, Mark Lane would be there. Like, three other wholesalers would be there, and then, like, four cash buyers would be there. I'm just like and I didn't know what I was doing yet. So it it just wasn't gonna work out. So I at that point, I realized if I'm gonna do this and I'm really gonna, you know, change the trajectory of my life, I have to start now.

I have to put all my trips in because there's this concept that I've heard other people talk about where you start getting comfortable And you say, oh, well, I'll I'll quit when I match my income. But then every year you stay at your nine to five, your income starts slowly going up. So now your target to leave also starts going slowly up. Mhmm.

Steve: You know,

Fernando: I was 22, 23 years old at the time, so I didn't have kids. I didn't have, you know, a wife. I didn't really have anything that was kinda like I was responsible for. So I knew if, hey, if this doesn't work out, I can live in my car. That's fine.

Like, I can survive off of ramen for, you know, sixty days. It's not a big deal. Yeah. So I've just figured it'd be easier to make the switch now, as opposed to ten years into me being an engineer where my income, you know, doubled or tripled by the time.

Steve: What were we making at that time?

Fernando: So I came out of college. I was making 55,000 a year. They gave me a four zero one k match, a pension, and then a, expense account and then a truck. So it was pretty good pretty good job coming out of college. And

Steve: what was your first real estate deal?

Fernando: It was a wholesale deal. I got a deal under contract. Didn't know what I was doing. I was surprised I made any money. I couldn't find a buyer, so I actually called Mark Lane.

I said, hey, Mark. I know you're the big dog in town. Can you bring a buyer for me? He said, sure. So I found a buyer.

It was a $5,000 assignment fee, so I got to keep half of that. I made $2,500, and that was my like, that was the proof for me that it this this is gonna work. I just needed to scale it up so that I could start paying off these credit cards.

Steve: What What what was your monthly payment on those credit cards?

Fernando: It was a lot. So I I put together a spreadsheet based off of loan constant as opposed to interest rate. So loan constant is a calculation that takes into account your minimum payment in addition to your interest.

Steve: Mhmm.

Fernando: So you may have a deal that or you may have a card that says 0% interest, but it's a $500 monthly payment versus a card that's 24% interest, but the monthly payment's $50.

Steve: Mhmm.

Fernando: So I would attack the the higher loan constant deals or cards first. So my minimum net per month was like $4,500. But I was I was I was paying off at a a clip of about 8 to 10,000 a month.

Steve: That's awesome. So you got that first deal. Walk us through. What was that first deal like?

Fernando: Yeah. It was, it was a two flat. The owner lived in one unit. The other unit was in between renters. It needed a ton of, maintenance.

There's a lot a lot of deferred maintenance that was going on. And the owner wanted to stay in the property for a few months to get kinda like their things together, get some cash in pocket before going. So a lot of moving parts. Once I got under contract, at that point, I just realized I need to I need to basically tap some expert help. And that's when I brought in Mark, and Mark just kinda ran the rest of the deal for us.

Steve: Got it. How did you this is while you were working, you already quit?

Fernando: This is while I was working.

Steve: Yeah. Okay. So cold call, direct mail, door knock?

Fernando: Yeah. So when I first started out, I lived three blocks away from the county courthouse in Des Moines. So every Friday, I would go to the courthouse, and I would manually they're they had no way to export any data from their terminals. So I'd manually write down, like, every probate lead that came in, cross check to see if they own property inside of the estate. And then I would hand write a letter and an envelope and mail them out and then have calls come in.

I didn't know how to skip trace at the time, so all I did was was direct mail.

Steve: But that's hustle. Right? Yeah. So Friday, go to the courthouse, manually extract the probate records, cross check it, and then manually write the mail and mail it.

Fernando: Yeah. I I was there. I was basically like George Costanza's wife, like, licking all the envelopes. I to this day, I still remember. I can do a 100 letters.

So print them out, fold them, stuff them, lick the envelope, address the letter, and put the stamp on. I could do a 100 letters in an hour and forty six minutes.

Steve: Dang. So you had it down to a science.

Fernando: Yeah. Well, because immediately, I'd said, okay. I can't do this forever, and I'm gonna need to start outsourcing this very quickly. So then everything from the beginning was process and procedure all the way through so that I could start scaling quickly. Got it.

Steve: How long from when you started going to the courthouse till you

Fernando: got your first deal? Probably about thirty to forty five days. So that's when I first got my my first call that came in. Well, actually, I'm sorry. It was my second call.

The first call I got was from the attorney general of Iowa because somebody reported me as being like a scammer, a scam artist of some kind. But the attorney general called me just trying to inquire, like, what's going on? One of my constituents said that you're trying to scam people out of money. I have your a copy of your letter in front of me, and I just had to, like, level them. Like, listen.

I I took out a bunch of credit card debt. I paid $30 for this real estate course. In the course, they told me to go to the probate office, download the list, send out letters, and then if anybody calls to try to offer them a cash offer and and then sell that contract to one of my investors in my network. And he said, alright. I mean, that sounds legal.

I'm like, that it for all I know, it's legal. And he and he said, okay. That's all I needed. So then the second call is when I got when I got my first deal.

Steve: And how long until you close your first deal?

Fernando: It took us about forty five days to close. Okay.

Steve: And I ask this because there's a lot of people that are frustrated. Right? I think we live in a microwave age where, like, if I start wholesaling today,

Fernando: I wanna close my first deal within thirty days. Not gonna happen.

Steve: Yeah. Right. So it took it sounds like forty five plus forty five, so like three months

Fernando: Yeah.

Steve: To get your first deal.

Fernando: Mhmm.

Steve: Got it. Alright. So then did you continue down that road? I mean, you're building out your process. Did you continue down this path, or did you alter your path?

Fernando: So wholesaling was always a means to an end. I wanted to build a passive income, but I didn't have the money to put down payment money down. So did a couple wholesale deals and then immediately bought my first multifamily property. It was, it was a tough property. It was about an hour and a half south of Des Moines in the middle of nowhere, a little town called Osceola.

I bought the five unit property for $40,000 using credit cards. Again Just swipe it

Steve: at the title number? Yeah.

Fernando: So bought that, and I actually came in with a partner. So I said, hey. His name was Paul. Paul, you use your credit cards. I will manage it.

I'll do the the improvement. I'll cash flow it, and then I'll pay you back. And then you'll get 50% of the cash flow on top of that. So two years in, it actually worked out. Bought it for 40, sold it for 48.

It cash flowed at about eight to 9% cap rate, month over month. So that was pretty good. But I learned a lot investing in that that was my first, you know, rental property, and it was class d, if I'm being, like, nice about it. But I learned a lot about, operating in challenging areas, and that later on helped out quite a bit because I started buying multifamily properties on the South Side Of Chicago, which is pretty tough area. If you if you don't know what you're doing, you can lose a lot of money.

Steve: What did you learn with the Was it Osceola? Osceola. Yeah.

Fernando: I learned a lot. So number one, always pay for a super thorough inspection of everything. I learned that the hard way because once I bought the property, I first of all, I bought it without an inspector. So by the time we got the property under control, we found out that basically the plumbing was like caulk tubes and duct tape. Literally, we found caulk tubes between, like, pieces of plumbing that were duct taped together.

The electrical was shot. There is

Steve: Did it work?

Fernando: It worked. But, I mean, like, there was water pouring somewhere into the basement. I I should have made sure that I looked at all the leases before I came in. I basically took the owner at at his word. And that was my first deal, and I'm one of those guys where I I learned trial trial by fire.

It's the fastest way to learn, I think. So, man, it was it was tough. Eventually, I hired a property manager on that deal because I just couldn't handle getting calls at, like, 1AM. I I have this one tenant that would go to jail, like, literally every 45 because he'd get picked up on some petty drug charges. And he would use his one call to call me at like one in the morning to basically tell me that he wasn't gonna pay rent that month because he was in jail.

It's like, oh man. So I learned a lot.

Steve: So get a real inspection. Yeah. Don't cheap out on it. Yeah. And re review your leases.

Fernando: Review leases. And then also that, you know, what you the rate on paper is not what you're gonna get. You know, when people are chasing yield, if you go to these more challenging areas, even though on paper, it says that, you know, you'll make a 10 or a 12% discount.

Steve: The pro form is great.

Fernando: Pro form is great, but then people don't pay you. Everything breaks, like and I didn't have any budgeting for that upfront. So learned a ton, and that was where kind of the the start of my transition away from residential rental and into something that did not deal with people, which eventually turned into self storage. Right.

Steve: I mean, I I still remember, like, looking at some of these as as an investor having realtors sending me deals, right, this is before I got on my own, I would look at these returns, like, these don't make sense.

Fernando: Right.

Steve: How could it be, like, twice as good as a good part of town? Like, do I just want to be a slumlord? And you find out you did not wanna be a slumlord. No.

Fernando: Yeah. At at the height of my portfolio, we had either 53 or 59 units, all in, like, class c, class d areas. Rural Iowa, rural Indiana, South Side Chicago. And it got to the point where the you know, they call it passive income, but nothing about it felt passive at all. I mean, I was working sixty, seventy hours a week just on our rental business.

And I I said, I don't want this. I we're done with this.

Steve: As one of the I don't want maybe lie is too strong of a word, but very misleading, in the education space.

Fernando: Sure. Right?

Steve: Let's go get this mailbox money and collect some passive income. No. It's not passive at all. If

Fernando: you know, the only thing that I'd really consider mailbox money in the real estate space is if you're a LP on a syndication, that's really about it. Any other type of real estate that you do, it doesn't matter if it's rentals, flips, wholesale, there's nothing passive about it.

Steve: Yeah. So then was there a point, one, you had all these properties on the rental side, multifamily and do the other parts of the country? Was there a point where you're ready to throw your hands in the air? Like, what the heck am I thinking?

Fernando: Yeah. So in 2016, I met a mutual friend of ours, Scott Myers, and, he started talking about self storage. And his tagline was no tenants, no toilets, no trash. And I was like, those are literally my three biggest issues right now. So I ended up re researching more and more about self storage.

And this was around 2016, and I I was telling people for last year and a half that the market was gonna crash in 2018. Like, I've been saying it for three years up until this point. So I started off loading a lot of my properties, starting in 2017. Most of 2018 is when I dispose of most of the multifamily, and then I had three more single family homes that I sold. That was the last rentals that I owned, and those were in February 2019.

So as I'm offloading all my properties, then I say, okay. Well, I have history as a wholesaler. We still have a pretty large wholesale operation in Chicago at the time. Maybe I can translate what I've learned on the residential space into the self storage space. I know if I can wholesale a self storage facility to someone else at a higher price, I'm probably running the numbers right.

Mhmm. The nice thing about self storage is the you know, it's it's all cap rate driven. So comps aren't really a thing. I don't have to worry about a wholesaler down the street knocking all the values down on one of my rental properties because somebody sold him at 50% off. Mhmm.

It's easier to get capital for commercial deals. The the banks are a lot more lenient when it comes to more complicated or complex equity structures or equity stacks. So I said, okay. Let's do this. Did exactly what I learned in wholesale and residential.

Pulled the list, did handwritten mailers, sent them out. The first list was, like, 7,000 people or 7,000 storage owners. And we got we started getting deals coming in. Still didn't really know what I was doing. So we're just underwriting, underwriting, put them under contract, then we wholesale our first two off.

And I was like, okay. Looks like I'm running these numbers right. The third one, I said, we're gonna keep this one. So found a kind of like a first base type of deal. It wasn't a slam dunk, but I I just wanted a deal that I could learn on that wasn't gonna have a lot of downside risk.

So we bought a facility in Yorkville, Illinois. It's about hour and a half, maybe two and a half hours at with traffic from Chicago. Bought it at a seven cap, 100% occupied, no security, no office, no utilities. The owner hadn't raised rents in ten plus years. So we came in.

We purchased it for about $1,000,000 and immediately raised the rents by 26%. Like, day one with the Estoppel letter sent out, like, your new rate is 26% higher. Then we started attacking the expenses, dropped the property taxes, dropped the property insurance, reduced the management costs, and then we leveraged technology to get the lease ups going a lot faster. And within maybe nine months, I had done the entire value add on that property and increased the value by over half $1,000,000. So that was the first deal that I bought, and I didn't wanna buy another deal until I fully grasped how to operate and manage that one.

So we ran that first facility for about eight months. And then the subsequent eight months, once I ran that facility, and I I almost treated it as if I had to go to an airport to get to that facility because I wanted to get out of Illinois. It's a really tough state to buy residential and multifamily properties in. Turns out it also translated to commercial as well. The property taxes are through the roof.

With storage, your two largest costs are labor and property taxes. So we ran it as if we had to go to a different state to operate it. So once we got that down in the first eight months, in the subsequent eight months, we bought another six self storage facilities out of state, outside of Illinois. And that's when we really started to kinda go up pretty quickly.

Steve: So the property taxes component. I know, here in Arizona, we don't really care so much about property taxes. It is what it is. Yeah. But in Texas, we had a rental property out there, and it's just normal that every year you just challenge your property taxes.

Fernando: Right.

Steve: Is that what happens here?

Fernando: Yeah, so we're doing the same thing. I'll give you kind of an example of how crazy the property taxes are in the Chicago land area. So I bought a the last three properties that I bought, that we bought them on seller finance from the the seller. I bought them each for about 45,000, 40 to 45,000 a piece. The final year when I decided enough is enough, let's sell these things, I got a new tax bill, and all the taxes were between 8 and $10,000 per property.

So I was paying almost 25% of the value of the property in taxes per year, and I said, it's not even worth it to contest it. So that's why we we started switching over. But the storage side is the same way. So there's two ways that we'll attack the property tax expense. The first is before we buy the property.

When we put an offer on the property, we'll actually separate that purchase agreement. Self storage, yes, it's real estate, but it's also a business. So there's there's value in the business side of that asset. So what we'll do is we'll go on the purchase agreement. We'll say, okay, I'm gonna give you let's say it's a million dollar property.

I'm gonna give you 60% or $600,000 for the land and the improvements there on all the buildings. And then the other 40%, I'm gonna give you as a business goodwill purchase agreement. So buying the business, the business assets, and the goodwill in that business. So ideally, when the property tax assessor goes to look at the transaction to reassess, all they see is the land and improvement purchase agreement at 600,000. I get taxed off that 600,000 amount as opposed to the million dollar purchase price.

Now the second part is right after we close on the property, we engage a property tax attorney. And usually, we want somebody that's been in the business in the local area for, like, twenty five or thirty years. He goes you know, his kids go to school with the tax assessor's kids. They know each other. That's the type of guy you wanna find in each one of these markets.

So we hired him, and then he went and contested the taxes, and he was able to drop them another 30%. Nice. So that's always, like, number one. So going back, you acquired the third one, but you had two beforehand that you wholesaled. Correct.

Steve: Tell me about that very first one that you found. How did you find it?

Fernando: What was involved in that? Yeah, I mean, same thing as you know, what all the other wholesalers talking on here. We we bought a list. I think I used InfoUSA for that first list. Sent them direct mail.

We hit each seller at once every six months. It was a, it was like a divorce situation where the the seller basically got it in the settlement from her husband, but her passion was the three hair salons that she owned, not the storage facility that she got as a settlement from her ex husband, but she just wanted to offload it. So we came in, we valued it, and, basically gave her gave her asking price, then wholesale it off to another buyer at $40,000 spread.

Steve: So what did you estimate that property to be worth if you recall?

Fernando: So we had it under contract for, I think, 650,000, and then we sold it for $6.90 with a terminal value. The nice thing about storage is you can turn the the value around pretty quick, usually in twelve to eighteen months. So I think at the end of eight month eighteen months, we value that thing at about $1,100,000 if you did all of the value add that was there.

Steve: Got it. So it was a good deal. The potential.

Fernando: Yeah. Right?

Steve: So you got this property, you say, okay, if we did this, this, and this, if this all works out well, then it should be worth this in twelve to eighteen months. Yeah.

Fernando: So at the time, for that type of product, it was a class c facility. It was a second generation self storage facility. We knew on the open market with a with a broker, it would sell for about six and a half, 7%. We got under contract at a 10% cap rate and sold it to our our buyer at about, like, a 9.4, 9.6, something like that. And then as long as he did the value add that we told him to do and then listed it with an agent, he would have easily been able to get $11,100,000.0 on the value.

Steve: You wanna elaborate on what a cap rate of 109% is?

Fernando: Sure. So cap rate is your net operating income divided by your purchase price. So with storage, like I said, it's not valued based off of comparables. It's valued based off the income generating potential. So we know very, very quickly you can take the property down.

You can raise rents. You can auction off the people that aren't paying. You can add auxiliary profit centers like selling locks, boxes, moving supplies, truck rentals. You can sell insurance and keep anywhere between 60 to 90% of the premium. So that's just on the income side.

On the expense side, I can drop the taxes. I can drop the property insurance. I can put in technology to help with the management so I can drop my labor costs from maybe one and a half or two full time individuals down to maybe one part time person or a lot of our facilities are unmanned completely because we fully automated them. What we realized based off of, let's just use a exit cap rate of eight percent, every $100 I either save or make per month increases the value of my facility by $15,000. So that's what I told all the managers.

That's what I told everybody in the company. I said, every dollar counts. Every time you save me a $100 a month, that's an extra $15 that goes on to the valuation.

Steve: Yeah. And that's a great baseline. So you y'all you say you may first forward in the first one. How about the second one? Do you remember that?

Fernando: Second one was a small deal. It was in Central Illinois. I think we only sold it for, like, a $30,000 assignment fee. Those were in the beginning when we didn't really know what we were doing. We didn't know where the market was.

We haven't developed we didn't develop a self storage buyers list yet. Once we started treating the storage business and its constituent parts, right, because we had the we had the basically the just like in residential, we had the wholesale lane in storage. We had the buy, fix, and and sell or the fix and flip lane. But the only difference was instead of it being a three or six month flip, it's a twelve or eighteen month flip. And then we had the buy and hold deals.

So once we started treating each one of those three separate verticals as kind of its own business unit and built up our self storage buyers list, we realized that there was a huge disparity in the market. Right now, for example, you look at any self storage listing that a broker puts out there from the big houses. Right? Marcus Milichap, new my new Mark Knight Frank, all the big guys. You're seeing deals at four and a half, maybe 5% cap rate with a pro form a of six and a half, 7%.

Mhmm. And we were getting these deals at 10% current with pro formas in, you know, like, the low teens, maybe high teens. So once we built out the the buyers list, then our wholesale spread started getting really big to the point I think the largest one we did was we put a $800,000 property under contract in rural Iowa, and then we sold it to a ten thirty one buyer for a million 32. So we made a $232,000 assignment fee in forty five days or so. That's awesome.

Steve: Yeah. So you wholesale two deals, acquire eight or acquire one, learn it, and imagine you're wholesaling the whole time.

Fernando: Right.

Steve: And then you acquire another eight.

Fernando: Yeah. So we started using just the wholesale proceeds to fund the down payment on the deals. We have three main funding sources. The if we if we wanna really tear our hair out, we can go SBA again because it's a business. We can get small business administration financing, which you can get into a self storage facility for 10 to 15% down.

And it's a twenty five year fully amortized loan. The second piece is going with our local banks. If they know what we're doing, if we have the track record, we'll use them almost as a bridge. We'll get, like, a five year balloon. We'll put anywhere between 20 to 25% down on a twenty five twenty to twenty five year am.

And then we have our hard money lenders, some of which are in Collective Genius with us. Right? Bill Fair and Wendy Sweet, Jonathan Davis, all really good guys. I've been telling them that they need to lend on storage for the last three, four years. They finally started to do a few with me.

That's been good. So we do all that as a bridge. So for our you know, we have our three different exit strategies. Wholesale. But when we put together our wholesale packages, because storage is such a large transaction, we usually have to do a lot more than a typical residential wholesaler would do.

So we have to get basically, start putting the loan in place for our new borrower or buyer. We put them in contact with all the the consultants they need. Right? Because you're gonna have to have do a phase one environmental report. You're gonna have to do a PCA property condition assessment.

You're gonna need to get, a commercial inspector to come through. So we basically tee it up just in case they can't close in time and we have to come back and buy. As you know, you know, your word is basically your bond and that's kinda your reputation. If we tell sellers that we're we're gonna close on a certain date and we don't, then all of a sudden our reputation goes down the toilet. And storage is a you know, real estate in general is very niche.

But then a niche inside the niche is storage. Right? There's only about 70,000 self storage facilities in the entire United States. Right? That's Yeah.

That's the amount of houses in a small town. You know what I'm saying? So, we have to we basically put the entire package together as if we're gonna close because sometimes we do have to close on the deal in case a seller backs up. The second exit strategy is the fix and flip. So that we're pretty good at.

We very easy to get in and out. We use the bridge financing, but then the last piece is that buy and hold. And with the buy and hold, I don't wanna stay in the SBA. I don't wanna stay with the bridge lenders at the banks. What I really wanna get to is the CMBS market, the commercial commercial mortgage backed securities market.

And for your listeners out there that don't know, the commercial mortgage backed securities market basically is these large bankers, investment bankers like JPMorgan or Morgan Stanley. They will put out a billion dollars of self storage loans. They'll wrap them together, and then they'll sell them off to Wall Street as, like, a coupon, right, to get paid four and a half percent or 6% on your investment. But to get those types of loans, they need to be very aggressive, especially in the storage space. So if we can get to that CMBS level, we're looking at thirty year amortized all the way up to forty year amortized loans depending on the investment banker that's putting together the deal.

We're looking at anywhere between five to ten year balloons, all the way it's we can go depending on how how much leverage, we can go 65% loan to value and get ten years interest only, or we can go all the way up to 75% loan to value and get no interest only. But the kicker is is that it's all non recourse. So you don't wanna buy a deal with a CMBS loan because it has some really nasty prepayment penalties. Basically, when they sell it off to Wall Street, Wall Street's relying on the income coming off of that loan. So if you wanna, say, you increase the value after getting that c m CMBS loan and you wanna get out or refinance it to a different loan, you basically have to pay all the interest you would have paid over that ten years.

So it only makes sense to go into those loans once you've done all the value add. And that's why we use, you know, the Carolina Hard Money's of the world. We use the banks as a bridge, stabilize it, and then refinance into the CMBS market. Typically with Morgan Stanley is who we use.

Steve: Got it. Alright. So

Fernando: have an

Steve: idea of why you switch into self storage. Would you care to elaborate other reasons why you wanna why someone should do self storage versus residential multifamily?

Fernando: Yeah. So I have a presentation that I I basically give to lenders and to prospective investors that are switching

Steve: Mhmm.

Fernando: From one real estate asset to storage, and it's nine main reasons. But for brevity, I'll I'll touch on some of the the key ones. Number one, in the last thirty years, it's had the highest average annual return of any other real estate asset class. Multifamily and residential has returned about 13% annual average return over the last thirty years. The S and P has returned about 8%.

Storage has returned about 17%. So that 4% difference between storage and residential multifamily may not seem like a lot, but you gotta realize that's 4% compounding over thirty years. So let's say thirty years ago, you had a $100,000 to invest. If you put that 100 into the S and P today, you'd have about half $1,000,000. You put into residential or multifamily properties, you'd have 1.7 to $1,800,000 So it's still pretty good return.

If you put that same 100,000 into self storage today you'd have a little over $4,100,000 So double the return of multifamily and residential because of that 4% compounded return. And that's appreciation? No. That's that's just average annual return. So that is that taking into account appreciation as well as cash flow.

Steve: Okay. But not depreciation?

Fernando: No. No.

Steve: So Alright. So we're comparing to residential, not that much difference in depreciation component, but we're comparing as a stock market. There's another bonus as well.

Fernando: Yeah. And on the depreciation side, we get an even larger bonus on top of residential and multifamily because of cost segregation studies.

Steve: Mhmm.

Fernando: So the way that self storage facilities are built, you can cost segregate a lot of that thirty nine and a half year depreciation schedule down to five, seven, and fifteen years. Got it. And then what you can do on top of that is you can take bonus depreciation on anything less than twenty years schedule. So there's deals that I bought for 800,000, and in the first year, I got a $160,000 back in depreciation just using that strategy.

Steve: So I think we should just clarify two things real quick. First was depreciation, and then let's talk about cost seg. Because remember the first time I heard it was like, what what are you guys talking about? So let's start with depreciation, and let's talk and let's talk about cost seg.

Fernando: Yeah. So depreciation is, in the government's eyes, the useful life of that asset. So residential, I believe, is twenty seven years. Correct?

Steve: Twenty seven and a half.

Fernando: Twenty seven and a half. So if you buy a property, say, for a million dollars, that's a residential property. Every you basically every year, you get to take one twenty seventh and a half of the value of that property to write off against your taxes. Same thing with multifamily. When you get into commercial assets, the timeline's a little bit larger, so it goes up to thirty nine year depreciation schedule.

And, same thing. You get one thirty ninth of that every year to write off against your income. It's like phantom loss, if you will. You're not actually paying the government. It's just what you get to write off.

Steve: Wear and tear. The expected wear and tear even though it doesn't actually ever happen.

Fernando: Right. But that that's a very crude method of figuring out how long an asset's gonna last. You're saying that everything's gonna last twenty seven years. Well, how about your carpets? We know every time you change a tenant over, you're gonna have to usually rip up the carpets or at least clean them.

You have to paint. You know, the doors get shot. So a cost segregation does is a civil engineer typically will go into the property, and they will literally break down every component piece of that property and say, well, you know, these rolling doors aren't gonna last thirty nine years. They're only gonna last seven. So we're gonna we're gonna reduce those to seven and then assign a value to those doors.

And, you know, all these trim and flooring, that's only gonna last, say, five years. So that we're gonna we're gonna break those down as well and assign a value. So then what ends up happening is you start moving a lot of property from, from real property into personal property is what they designated at. And those personal properties are, depreciated over five, seven, or fifteen years. And then because of the 2017 tax and jobs act, we also get a 100% bonus depreciation, which means that the the depreciation that we can take in the first twenty years, we can take it all year one and then take that additional 20 on top of that over the next twenty years as well.

Steve: Yeah. It's crazy what you can do. So then when you compare that again, comparing it to stock market, I don't think it's a fair comparison No. Whatsoever. Right.

Fernando: So that's reason number one, highest return. So you'd think, okay. It's got the highest return. That must mean high risk. Right?

High risk, high reward. But what we found in the data is that's actually the opposite. Self storage is one of the most recession resilient assets. Again, going over the last thirty to forty years, the last three recessions, it has shown to to outperform all the other real estate assets that we had out there. So the main things that we like like to look at are in tech solutions.

So they they do a a bunch of data and reports for banks and lenders. We also look at Trepp, which is another t r e p p. It's another research firm that does a bunch of kinda loan based, lender based research. And then we look at Wells Fargo Securities data as well. And what we found is self storage typically defaults at a rate of anywhere between 10 to 40 times less than multifamily over the last thirty years.

And when you look at recession specifically, during recessions, like 2007 to 2009, self storage was defaulting at a rate of, like, 1.1, whereas multifamily was defaulting at a rate of, like, 15.8% during that time. Wow. Then let's let's bring it up current. We just you know, we're going through a pandemic right now. It's been a weird you know, it's not the recession we thought was gonna happen.

It's more of like a k shaped recovery, but same thing. In the first three quarters of the pandemic, of the 1,700 loans that were made by the CMBS lenders, only three were more than thirty days delinquent. At that same period of time, multifamily was defaulting at a rate of 1800% or 18 times that of self storage. So downside risk mitigation, but also higher return. Yeah.

Steve: So you have 15 self storage facilities.

Fernando: 16 now.

Steve: 16. So the numbers have updated since you put in this information. Yeah. Got it. Impressive.

It's throughout the country, so then, you know, let's say I'm excited to do self storage. Listen to this. We've done this interview. I'm sold. I wanna do this.

Yeah. What's the first thing I do to buy a self storage unit?

Fernando: Get educated. That's always gonna be number one. You know, you wanna make sure that you're stepping into the arena with as much information as possible. So the things I usually recommend people, there are awesome self study courses online. Go on BiggerPockets.

There's a huge community of people on there that will help you do your storage deals. Facebook has a bunch of self storage kind of investors and operators groups as well that you can ask some good questions to. And then I've always been a fan of paying someone that is five, ten years ahead of me in my career path to teach me what I wanna do, and the caveat is five to ten years. The reason I say that is if you get if you hire a guy that's been doing storage for forty years, he's literally on such a different level that the things to him that are or her that are almost innate or in the back of the mind, they'll they'll never bring up to you because they they don't even think about it. You're gonna lose a lot of that information.

So don't pick a mentor that's too far ahead of you. Pick somebody that's about five, ten years ahead of you and where you wanna be. It's gonna help a lot. And then there's courses all, you know, all over the place. Scott Myers is a really good friend of mine.

He's in collective genes with us. His course is absolutely fantastic. It's the one that I started on.

Steve: Mhmm. You

Fernando: know, I it was like a home study course. You get, like, a binder with out of value self storage, and then it also comes with a ticket for, like, a three day, you know, live event, the Self Storage Academy. So I really recommend doing that. And then once you once you get through all that and you're educated, then start just start doing it. You know?

The problem that a lot of people face and myself included because of the engineering background is this analysis paralysis. You think that if only I had a little bit more information, then I'll be ready. But the problem is you'll never have enough information Right. To be ready. So you just gotta you just gotta go into it, and don't look for a slam dunk deal on your first deal.

Typically, those slam dunk deals have a lot of hair on them. And if you're not experienced enough to realize how to mitigate those, you can lose money. So on your first deal, what I typically recommend people do is find something within driving distance of your of your backyard. So three, three and a half hours driving time. As long as you don't live in a really tough state like California or Arizona.

Is it tough here in Arizona? It's to get storage out here, I'm paying three and a half percent cap rate all day. Okay. I'm just, like, really tough facilities. It's it's really tough.

Find something that is like a cross the base, you know, first base hit. Don't try to get a crazy high cap rate. You're probably gonna fall somewhere in the six and a half to 7% range. Get a class c facility, maybe a class d, depending on where you are, and then just start doing very basic value add. So nonphysical value add.

Raise rents, operate the facility yourself. If it's your first facility, I recommend you be the manager so that you later on, once you start scaling your business, you know what the managers should be doing and how long it takes and what is expected of them. Because if you don't have that piece, you're never gonna be able to manage managers. Yeah. And then make sure they have again, there's two parts to every deal, and this is something that I learned from, again, another mutual friend of ours, Eddie Speed.

There's the there's the deal, and then there's the financing. Mhmm. So make sure sure that you have really good financing. Again, because storage is super, lenders really like it because of the downside risk mitigation. There's really awesome options out there.

Like I said, SBA loans, I I will warn you, an SBA loan similar to, like, an FHA loan, they're gonna wanna know everything. They're gonna want tax returns with the seller. They're gonna want your tax returns. They're gonna want your blood type, your firstborn kid, all this crazy stuff. But you can get into a facility with as low as 10% down.

Can you

Steve: do an SBA loan with each for each facility? Yes. Mhmm. Okay. So that's big.

Fernando: Yeah. So they'll cap you out after a certain amount, but that cap is usually somewhere between 5 and 10,000,000 depending on if you go seven a or five zero four. And by the time you get to that cap, you're already able to roll the the original ones off to CMBS market, reset, and then start with another, you know, four or five loans from the SBA.

Steve: Got it. Alright. So then going back to me trying to buy my first one, obviously, no longer in Phoenix. So, what I mean, is there a list that I pull? I think you said InfoUSA earlier.

Is that the list that I'm pulling?

Fernando: So InfoUSA was good. It was expensive. I now so storage lists are not like residential lists where you can just go online and type into some widget, and it'll pop out a list like list source. Right? There's a lot more caveats to it.

So what I like to do is actually hire a data scientist. So someone that works for a list company, but is a one on one, you know, consumer customer relations, and will actually build your database for you as opposed to you just trying to plug some things in. Because the nice thing about these guys is they know how to manipulate the data in a way that wouldn't be apparent to us. So who we use now is Exact Data. They're out of Chicago.

They're on the Inc. 500 list. Their office is not too far from ours, Downtown Chicago. And what we do is we tell them a few things. Number one, I want self storage properties, and the easiest way to find those are based off of land class classification numbers.

So there's two main classification systems. There's the SIC codes, which are the old school way of classifying land, and then there's the NAICS codes, which is like the newer school way of classifying land. So I believe the n I NAICS code that we go after is 5531130. That's, lessors of mini warehouse. So that's like your starting point.

Then what I'll do is there's a lot of really good data out there that is free. So I'll go to the SSA web page. That's the Self Storage Association. They're the National Association of Self Storage Investors, and they usually will put out a list of the top 100 operators as well as the top 50 management companies. And then the second resource is the ISS inside self storage.

Their web page, they also print these top 100, top 50. So we'll get we'll download these lists and then send them to our data scientists and say, hey. I need you to scrub out all of these investors and these managers because our REITs not gonna sell to us at a cap rate we want. A third party management company is not gonna allow their client to sell to us at a cap rate we want. Usually, what will happen is these third party management companies are also operators.

So if they see that there's an offer on the table, they'll just come in and outbid you. So we don't even wanna touch those guys. Got it. So in The United States, there's about 70,000, 72,000 self storage facilities. Once we scrubbed out that entire list, and then we also remove Alaska and Hawaii because we don't market to those, we got to about 32,000 sellers to hit.

From there, then we scrubbed out the any type of, like, mistake listings. So there'll be people that say, oh, this is industrial warehouse, and it's not self storage, but it's classified under the same code. Yeah. Or it may be like a car wash or cold storage, which we don't do yet. Cold storage is for, like, grocery stores.

It's a, you know, hub and spoke model for grocery stores. So we don't need those types of properties. Once we do that, then our list comes down to about seventeen, eighteen thousand throughout The United States, and that's who we hit.

Steve: Got it. And when you hit your mailing, calling?

Fernando: Yeah. So we'll skip trace. So we'll run all of the list through LeadSherpa or Skip Genie depending on which is producing better. From there, then we'll send letters. We usually will hit them on a letter every three to six months.

And the nice thing about storage is typically the owner is a lot older. They've already usually retired once or twice. So the letter actually performed really well. The first campaign we did, we had about an 8% response rate. And then when we scrubbed out all the all the crap, if you will, we still are at, like, a 3.7 or 4% response rate of, like, true Wow.

Qualified leads. So the numbers were fantastic. Yeah. So then we'll also we up until recently, we also were doing text message campaigns. But now with the changes in the TCPA laws, we no longer do that.

We do have acquisition managers that do full cold calling. And then my favorite way of doing it is driving for dollars. Self storage, historically not classified correctly, and there's a lot of operators out there that don't treat it like a real business. So you can't even find them online. You the only way you can really find them is by driving past them or, believe it or not, we'll get VAs that will just pull up Google Maps and, like, survey sections of GPS photos to say, okay.

Oh, here's six buildings that are pretty long. That's per most likely gonna be a self storage facility, but I don't see that they're listed. So then the those VAs will give us that list, will drive those areas, and just hit them in person. Just go up, drop a card, say, hey. Looking to talk to the owner.

If it's the owner, half of the time, the owner is the one sitting behind the desk. The other half time, it's a manager. If it's a manager, we say, you know, we're looking to make an offer on the facility. Would you be willing to stay on as the manager? We always say that even though we always fire them.

The reason we say that is because then they won't be passing yeah. Passing our letter along.

Steve: Yeah. Alright. So you get a hold of them. And then is the rest of it, like any other wholesale, figuring out what the problems are, what their motivation is?

Fernando: Exactly. So you gotta what is what is the main issue? The the interesting part that is different from residential is that there isn't a lot of distress in self storage. It's such a cash cow that even if someone is really terribly managing their property, it's still cash flowing. Like, it's it's almost impossible to find distressed owners.

So it's all about getting more down to what their true motivations are, not really the distress. You know? Typically, the the people that sell to us, they're 65 years old. They've either already retired once or retired twice. And the main objection or it's not really objection, but the main thing that we usually get out of them is I'm tired, I wanna retire, and I wanna travel.

Those are the three main. The next two biggest ones would be, I wanna leave something for my grandkids, which then allows us to, you you know, open up some conversations for seller financing. Or they bought the facility and they had a family member managing it, and they don't have the heart to fire the family member that's not doing well, so they'd rather just sell the facility.

Steve: Yeah. So that's like the

Fernando: five main reasons. That one, I I can totally see that one. Happens all the time.

Steve: Yeah. So you got all these storage units. You're learning about the space. You're an expert now. Mhmm.

Fernando: What is

Steve: your opinion on Storage Wars?

Fernando: Yeah. So when I first started in storage, like, I was pretty pumped. I wanted to do, like, this whole Storage Wars thing. But technology has recently swept over the storage space, so all of our auctions are actually done online. It's like an eBay system.

So one of our managers or one of our maintenance people, they'll open the the unit. They're not allowed to cross the barrier, if you will. So they'll take photos of the stuff. They'll put it up online. People bid on it, and then they come and take their possessions.

This is another reason why I love storage so much. So the major difference between storage and habitation real estate is that there's no expressed or implied warranties of habitation. So because of that, all the laws are written in the owner's favor as opposed to with residential real estate where all the laws are written in the tenant's favor. So we we we don't even fall under tenant renter law at all. We actually fall under property law or lien law.

So when somebody wants to come and rent a unit from us, they put their stuff in one of our units. And by doing so, they automatically give us a lien against their possessions in case they do not pay. We usually have a five day grace period to pay. On the fifth day, if you have not paid, you are now automatically late. There's a late fee assigned, and then we send out a letter, which is an auction notice.

And we say, hey. We're going to auction off your stuff in thirty days. During those thirty days, we put two circulations in, like, a local newspaper or legal newspaper saying we're gonna auction off this unit at this facility on this date. And in that time, if they don't come current, then the buyer of that unit will actually have to put down a cleaning deposit. So they will come in, take all the possessions out, and if they do not broom sweep that unit, we get to keep that $100.

And then usually, the new tenant is there waiting for the buyer to clean out the unit so that they can get into the units. Our turnovers are super fast. Yeah. And there's no cost. Right?

There's no carpet. There's no paint. There's no marketing with a realtor and losing one month's commission. I mean, it's quick, and usually, we're able to you're not technically allowed to take a profit on the auctions. Any overage has to go back to the unit owner.

But what you can do in your lease is you can put a bunch of fees. So you can say there's a late fee. There is a lien fee. There's an auction fee. There's a Fernando's pissed fee.

There's a I wanna take my girlfriend out to lunch fee. And once they pay if there's anything left over on top of that, then we do have to send it to them or to a state unclaimed fund if they are not willing to, give us their forwarding address. The second thing is that the leases are absolutely phenomenal. So all of our tenants are month to month leases. And the way that all of the state laws are written is that if I take over a facility and I send out, hey.

Here's the new lease. They don't even have to sign it. If they do not agree to it, it automatically goes into effect, or they can move out before that lease goes into effect. All of the laws are written in our favor. It's fantastic.

Steve: Alright. So I'm totally sold now. Alright. So I'm gonna go, into some of these questions before I do that, guys. We do have a sales training event, this month, so check it out.

It's it's the twenty fourth. We're gonna go over how to close more deals, how to make sure that the sellers are not going dark on you. And it's we're spending so much money to get in front of these sellers. It's a waste. You're not locking up these deals.

So first question, queen elevated beauty, this is on Instagram, is what's an LP?

Fernando: So an LP is a limited partner. So when we go and raise capital for our self storage deals, specifically the larger ones that we do that are in the 10 or $15,000,000 realm, That's a lot of money to put down, and I don't wanna put down 3 and a half million dollars of my own cash on a deal. So what we do is we'll split up the ownership of that asset. We'll go to a syndication attorney. They'll file with the SEC for us, and then we'll raise capital from limited partners.

And the the limited partners, the reason they're called limited is because they can only stand to lose the amount of money that they have invested into the venture. So that means they can't sign on the loan. There can't be any type of carve outs for them where if something happens to the asset, then the bank could go after them. The general partner, which is the sponsors or or my company, we are the ones that are on the hook for any downside risk. And the limited partners, they just it basically get to get mail mailbox money.

Steve: Yeah. The real mailbox money. The real mailbox money. Not the one they lie about at 03:00 in

Fernando: the morning.

Steve: Francisco Jasso, we're gonna answer this question where we're pulling this from. Matthew Jiao, have you ever used a no key lock on your unit?

Fernando: Right. So to explain what a no key lock is to the rest of the community, a no key lock is an automated locking system. So the old school way of storage is you give these disc locks. They're cylindrical locks. It takes about ten minutes to grind through them with an angle grinder if you need to cut them off.

They're super safe. But if someone doesn't pay, then I have to bring one of my manager locks to overlock a unit. So now there's two locks on there, so they can't get access to it. And then once they pay off their late due amount, then I have to hire somebody else to go out there and take the lock off so they can get access to their possessions. Wow.

Now what a Nokia lock is, and this is how another example how technology is sweeping through the self storage industry. A Nokia Lock is a lock that is hardwired into the unit. The tenants can open and close their unit with their phone. And if they don't pay, I have access to the Nokia Lock to overlock their unit with a dead bolt. And once they pay, I can automatically unlock that unit.

So we do like Nokia locks. I don't put them on any of my facilities yet because the cost is too high. I'm waiting for Janus. Janus is the name of the supplier that makes those locks. I'm waiting for them to drop their price or for more competitors to come into the space.

Right now, the last time we priced it out, it came out to somewhere between 300 and $500 per unit. It's on a thousand unit facility. That's a huge expense that in the timeline that I hold these things is not worth it to put into. Especially the the fix and flip deals. If I'm gonna do a buy and hold deal and I'll, you know, build it from the ground up and I'll hold it for fifteen plus years, then maybe that $300 a door makes sense.

But right now, for our company specifically, no key locks don't make sense to us financially.

Steve: And on YouTube, Candice Anew wants to know, are you working with cell storage or are you building storage?

Fernando: So we do both. So I started off buying existing facilities from mom and pop operators, turning them around, either doing a cash out refinance or putting them into portfolio and selling them off. Now, because I want larger and larger units or larger and larger facilities, I can't really go out into the market and buy those because the cap rates are so compressed. As soon as you cross over 50 to 60,000 net rentable square feet, then all the REITs are also competing against you, and they have unlimited money at basically zero cost of capital.

Steve: And they don't need to make money.

Fernando: And they don't need to make money. They're literally buying these facilities because they're sitting on so much cash that if they don't deploy the cash, it erodes to inflation. So as long as they can make a return that is somewhat equal to inflation, they don't care.

Steve: Yeah. You can't compete against the REITs.

Fernando: So that's why you see these REITs coming in here and especially in Phoenix and in the Arizona markets, and they're they're buying these 100,000 square foot facilities for three and a half percent, 4%, four and a half percent cap rate. I'm never willing to buy. At four and a half percent, I'd rather just put my money in the stock market and truly not deal with any issues. So I still wanted to grow our portfolio because our our end goal, you know, we we use traction in our company. Our ten year BHAG is to be a $1,000,000,000 company that has roughly eight and a half million net rentable square feet of property.

So I'm gonna have to hold some of these, and it's easier to hold larger facilities that are hundred, hundred fifty thousand square feet. But if I go out into the market and try to buy these, there's no way I can afford them or even win these bids. So what I found is if I build them, I could typically build them at a cost of nine to 10% cap rate internal. It equates to roughly a $100 a foot is what we can build them for. So, yeah, that's when we'll we'll build them.

Steve: Right. Instant equity, though.

Fernando: Oh, yeah. I mean, here's a perfect example. So I'm I'm still building one in the Chicago Suburbs right now, Southern Suburbs. Our total cost in the deal right now is 10 and a half million. We're gonna we're gonna get certificate of occupancy permit September, and we've already got an offer from a buyer at $17,900,000.

Yeah. That was the we were projecting to sell this thing at 17,700,000.0 in five years. So the fact that we're getting an offer at certificate of occupancy, we don't have to take any lease up risk, and we can not have to take any interest rate risk or any risk in the market and sell for above our target in five years. Our our LPs are are pretty happy about that. Yeah.

Steve: I bet. And then, you know, we were talking about REACH just a moment ago, for those of you guys that don't know, Real Estate Investment Trust, this is where a bunch of people pull money together on Wall Street to buy real estate. And I learned about not being able to compete against these guys when I was looking at commercial space for myself. Yeah. And I'm trying to rent space, and I'm trying to negotiate with the guy.

The guy's like, No, they're not negotiating. I was like, But the whole building's empty. And they said, Well, they don't care. I was like, What do you mean they don't care? It's like, They don't need cash flow.

Fernando: Right.

Steve: They're just buying properties just to have properties. Blew my mind. All right, so, how's it going? So Joshua came on YouTube. You mentioned that historically it's done the best.

Do you believe it will continue to do the best in the next thirty years? Absolutely.

Fernando: Again, it just comes down to my when I look at investments, my number one criteria is downside risk mitigation. And we've seen already over the last three recessions that it is the most recession resilient real estate out there right now. The second piece is the availability of leverage. This is why we all get got into real estate in the first place is to leverage bank money or other people's money to then take the benefit for ourselves. And self storage is one that has had the best leverage potential over the last thirty years.

And then you have the the legal risk. You know, everything basically starts on the West Coast, usually around San Francisco as far as tenant rights go. And then slowly, the wave goes east, and it starts hitting other states and other large municipalities like Chicago. And the way things are progressing with rent restrictions and Eviction moratoriums. Eviction moratoriums for eighteen months, but no tax payment moratorium or mortgage moratoriums.

Like, that doesn't seem fair. And we didn't experience any of that in the self storage side. So I will continue to invest in storage probably for the rest of the rest of my life, specifically for those reasons. And then it just comes down to headaches. Right?

I I wanna build a lifestyle business. I I I've done the grind. I've worked eighty, ninety hours a week, and it's tough to sustain that. And storage is one of those that allows you to really leverage time for the same amount of income that comes in. You know, our first facility that we bought, I did the math.

I was making about $2,008 per hour managing that facility. Whereas, when I was managing my rental property holdings, I was making about $47 an hour. So like, huge difference in time value of money for me. Right.

Steve: So then what do you think is the biggest bottleneck? Right? Like, you're you and Scott are obviously singing the choir of self storage. What do you think is stopping people from jumping into it?

Fernando: Yeah. So in general, it's just gonna be the larger purchase price amounts. You know, what I would consider a small self storage facility is a million dollars. So that means that you have to raise anywhere between a 150 to 250,000 as a down payment. But that's not necessarily the rule.

I've wholesaled much smaller deals. I sold a deal last year. It was a $100,000 self storage facility. Right? I wholesale it for $25.

So there are smaller deals. That's the price of getting into a rental property. I think it just comes down to there's not a lot of readily available information about it. And even when I was first starting out, everybody thinks that to get to commercial, you have to really grind in the residential first, and you have to buy a bunch of multi or single families, and then you go to some small one to four unit multi families. And then after twenty years, you trade all that up into commercial.

You don't need to do that. What I found is that every time you add a zero onto the deal, it makes it easier to close. It makes it easier to fund. Raising $50 is like pulling teeth. It's so difficult.

Whereas raising 500,000 is so much easier. Raising 5,000,000 is even easier than that. I mean, it's crazy how it works, but that's usually how it is. When people wanna cut checks to be equity investors, especially the guys out there that are doing this as a real business, they wanna cut big checks. And I can't tell you how many times I've had limited partners say, I don't get out of bed unless I'm cutting a $20,000,000 check.

And it's like, I I can't get you a deal that you would cut a $20,000,000 check on unless you're willing to do something that's programmatic and buy five to 10 deals with me at a time, you know.

Steve: I'm ready to spend $20,000,000.

Fernando: Let's do it.

Steve: Let's go. Let's go. So Candace Anew wants to know, how much does it cost to hire a data scientist?

Fernando: Yeah. So it's it's basically the cost of the list. I think we're usually paying anywhere between 30 to 50¢ per lead. But that's because we take pretty large volume. You know, I'm buying for the entire United States, minus Alaska and Hawaii.

The highest I've ever paid for, like, niche storage list was, like, a dollar 50 a lead. So it's not it's not too bad, but it's the thing that I I learned early on as a residential wholesaler is you're only as good as your data. Mhmm. So, yeah, maybe you're only paying 8¢ to list source per lead, but then half the leads are not deliverable. I'd rather pay a dollar 50 and get a 90% delivery rate as opposed to 8¢ and get, like, a 30% of it delivery rate.

Steve: Right. It's a totally different mindset, and and I think the way you answer your question, it just kinda shows how much further ahead you are. Right? Because she's looking at it probably as a wage. Gotcha.

How much do you pay a data scientist for a wage? And these guys are just per data. Right. And you're paying per contact info or whatever.

Fernando: Yeah. Because with these niche lists, they wanna get the list out the door and eventually get you as a full time, you know, someone that is a repeat customer. So they're not gonna charge you upfront unless you do a bunch of work unless they do a bunch of work for you, and then you never end up buying a list anyway. Then you might get a charge, but I've never been charged as, like, a a wage for this diet data scientist. Yeah.

Steve: And then Mon wants to know, organizational structure of your of self storage, do you, I guess, you mentioned you have one person working part time managing a facility? Sometimes. So we have

Fernando: a lot of facilities that are fully automated. We'll use property management software that allows tenants to rent on the phone, allows them to rent on a website, and then we'll pay for a call center to answer phone calls. What we found is that about 60% of our rentals happen over the phone. So what we realize is there's really no need for an on you know, on-site office unless it's a big property. Right?

So these big, you know, class a, fourth generation, regrade properties that I build, that's gonna have a full time manager on staff. But that manager is not really a property manager. They're more of like a salesperson trying to upsell to get that lease up all the way. And then once we're at about 90% stabilization, which is considered fully occupied in the self storage space, then that person goes to part time or completely gets they get completely, removed from the operation.

Steve: Yeah. And then Queen Elevated Beauty, a follow-up question on this. This is where does one go about learning about all this? I mean, we talked about it a lot here, but if she wanted to become more proficient, where should she go?

Fernando: Yeah. So we recently kicked off a pretty awesome social media campaign. If you look up Impact Self Storage on Facebook or LinkedIn, we post three to four educational videos per day on how to do self storage. Everything from marketing, acquisitions, value add, development, management, syndication, and then your eventual exit. So I have about, I don't know, twelve hours of content that we've chopped up and we put onto our social media sites.

So if you guys wanna check that out, feel free. And then again, like we mentioned before, Scott Myers, really good friend, really good education program. You get a chance, buy his home study course, go to his his his courses and his summits. They're they're I still am a part of his mastermind. I I still show up to the self storage academies every once in a while to see if I can help out new guys.

And then the biggest thing that's helped me is always getting a mentor. You can either pay for the mentor or you can offer services for free. You know, there's there's people that will offer paid mentorship. There's also people that like our company, where if you wanna come and do a deal with us, you bring us a deal, we'll hold your hand all the way through and partner with you on that deal. So there's there's a ton of ways to learn.

The biggest thing is just get started. Do not wait. That's the biggest thing.

Steve: So you got 16 facilities. Who is operating above all the locations?

Fernando: Yeah. So we have, two offices. One in Chicago, one in Des Moines, Iowa. So in Des Moines, Iowa, we have a regional manager that oversees all of the properties, if you will. And then we have also started using third party management on a few of our facilities as well.

The problem with third party management is typically it's the REITs that you're competing against are the ones that wanna manage your facility. The reason they wanna do that is because they want a foot in the door once you are finally ready to sell. Smart. The problem with that though is that they usually charge minimums. So the minimum is gonna be usually 2,500 a month to 3,000 a month.

So they'll charge 5% or 2,500 a month. So, really, the only way that it makes sense is if you're bringing in about $50,000 a month in gross receipts to hire these large third party managers. I have been sourcing and talking to smaller third party managers, and we have a really good relationship with a good friend of mine, that's in a part of one of my masterminds. And he just started a third party management company for, the self storage space that is being neglected by these larger guys. And he he has no minimums, but he does charge anywhere between seven to 12% of groceries depending on the size of the facility.

So it really just depends on your goals. I really recommend on your first facility, you have to manage it yourself. You have to you know, I've known people that have literally set up a cot in the backroom of an office and have lived at their self storage facility for a couple months just to, like, learn it that much. I I would never do that, but, you know, to each their own. And once you get that management down, then it really decides it it base basically comes down to your your goal.

Are you looking to scale? Well, if you're looking to scale, management is the least valuable thing you can do with your time. The highest value you can do if you're looking to scale is getting deals under contract and getting them funded. That's that's basically where I spend all my time. I've been basically kicked out of every department of my own company, and all I'm allowed to do now is raise capital both on the equity and the debt side.

Steve: Yeah. Awesome. And then, Joshua Kim wants to know, what are the metrics you're paying attention to? We're divvying up the profits with investors, COC, IRR, equity multiple.

Fernando: Yeah. So it depends on the type of investor that you have. The more sophisticated the investor, so these quasi institutional investors, these can be things like registered investment advisers, investment clubs, small family offices, small wealth management companies. They're gonna be more interested in internal rate of return. Internal rate of return, for those that don't know, is basically a cash on cash analysis, but has an extra piece to account for time value of money.

A dollar today is worth more than a dollar tomorrow or a dollar a year from now. So those big guys are gonna be more on the internal rate of return and then also partly equity multiple. Once you go to the more of the less sophisticated investors, people that, you know, they may operate in syndications, but they're only cutting a $25,000 check or a $50,000 check here. To them, IR is somewhat confusing because it's a very abstract concept. So it's easier for me to raise money with those types of investors by just using a straight equity multiple presentation saying, if you give me a dollar, I'll give you $2 back.

Or if you give me a $100,000, I'll give you $200,000 back at the end of the at the end of the deal. So not a lot of cash on cash return investors in my world. It's either gonna be IRR for the more sophisticated and then equity multiple for those that are a little bit less sophisticated. Interesting.

Steve: Had no idea. So then

Fernando: for

Steve: you, what is your biggest struggle right now? Right? You've got all these things going on. What is what is keeping you up at night? What is what is the challenge for you?

Fernando: Yeah. Capital. Capital is our biggest issue. Again, these are super capital intensive deals. I have 12 properties under contract right now, and I don't have the money to fund all of them.

So right now, typically, I can get anywhere between on the low side, 80% loan to value, and on the high side, 90%, which means I still need to be bringing 10 to 20% to the table. And I have

Steve: deals.

Fernando: Yeah. And so I have 12 deals that totally the all of them together is gonna be roughly $50,000,000. So I'm gonna have to raise, what, like, 5 to $10,000,000. And that's, like, every quarter. Right?

So it's that's the biggest issue. And the we've been starting to change a lot in how we raise capital. I love bringing friends and family in. I love bringing in kinda less sophisticated investors, IRA, four zero one k investors because I'm how I'm truly helping them out. The the money that we make them, they can use that money.

It's substantial for them. And in in exchange for that, they're willing to take lower returns. I'm sorry. They're willing to take higher returns, but it comes with a that added difficulty of having to get a lot of small checks, a lot of $50,000 checks. On the opposite end, I can go to a, you know, a a family office that's willing to take a lower return, you know, anywhere between 12 to 16%.

And they are willing to fund all with one check. You know, they won't they'll write a five, a 10, a $20,000,000 check. But the problem is they want full control. So that instead of me being, you know, a fifty fifty split with my investors, all of a sudden, it's 95% ownership to the family office and then 5% for me and then all these complicated hurdles where, okay, once you get the family office 10% return, then instead of a 5% ownership, I go up to 15%. And then once I get to 14% return to them, then I go up to 30%, and then 18% return to them, then I go up to 40%.

It's like this super complicated structure that allows them to hold return and make sure that basically I'm taking all the risk and they're getting all the benefit. Right.

Steve: Like a hard money lender.

Fernando: Yeah. So it's it's it's, you know, it's both sides have their advantages. It's to the point now that we have so many deals coming in that I don't have time to raise capital from the mom and pop guys on every deal. So I'm gonna have to give up quite a bit of ownership on these deals so that I can get single check writers into the into the gates. So

Steve: what are you doing to generate more revenue or generate more capital, like to raise more private capital?

Fernando: So we're completely rebranding all of our companies and using basically a a super polished you know, we're paying third party consultants for our logo, our brand, our one liner, all of our social media sites. We've paid a bunch of money to do high quality content. Basically, becoming a thought leader in order you know, educate to dominate. Right? Mhmm.

You do a very good job of this, Steve.

Steve: Thank you.

Fernando: So we we just basically looked at people like you and some of the other, you know, friends that we have in our various masterminds that are raising money at this level and seeing what they're doing. We've also paid third party consultants that one side of their business is to help super ultra high net worth families set up family offices. And then on the other side of the office, they're teaching us how to go after those people. So kinda like an insider on on both sides. We probably won't be ready for the true institutional partners for another five or ten years.

This is gonna be your sovereign wealth funds, your insurance company. So right now we're kind of playing in the middle, kind of the mid market. Family offices, wealth management companies, registered investment advisors.

Steve: Incredible adventure you're going through.

Fernando: I know.

Steve: And then, how do you stay motivated? Because I mean, what do you got going on right now? I know you got a your goal is a billion dollars in control, but you could kinda take it easy. Right?

Fernando: Yeah. I mean, we could we could take it easy right now, but I've always been a super intrinsically motivated person. And I you know, for those that haven't read Traction out there, I really recommend you read it by Gino Wickman. It talks about how to run your your company on an entrepreneurial operating system. And one of the key points of that system is having goals that are smart, specific, measurable, achievable, reasonable, and timely, and then breaking them down over timelines.

So a ten year goal that goes down to a three year picture that goes to a one year plan, ninety day rocks, weekly scorecard metrics, and then daily you know, score personal scorecard metrics that everybody needs to hit. So when you're hitting those metrics, that's what's really good. And the billion dollar side of our business, that is not truly our ten year goal. That's just like what it would equate to. What our actual goal is to help a 100,000 families.

Right? And to do that, we're gonna do it via the self storage model, helping the local community. It's a hyper localized business. 90% of our tenant base comes from a five mile radius from around our facility. So if we're gonna be able to make money from a local community like that, we wanna be sure to give back to that local community.

And that's what really keeps us motivated as a that's why we're called Impact Self Storage, because we wanna make an impact on the local communities that we invest in.

Steve: That's that's awesome. What is your superpower?

Fernando: I think my superpower is I got a big mouth. I can work a room pretty pretty easily. I I I'm my PI is a three sigma captain. Gary Harper called me a power networker. So I think that's my Three Sigma captain.

Steve: So is the a is off the charts?

Fernando: A is off the charts, and then I have a a cutback d. It's a very small corporate hook.

Steve: Got

Fernando: it. But it's three Sigma

Steve: off. Interesting. Alright. So there you go. Is there a book you've gifted more than any other?

Fernando: Oh, man. I knew you were gonna ask this question. Can I can I give three answers?

Steve: Of course. Okay.

Fernando: Number one is Principles by Ray Dalio. Absolutely fantastic book. Ray Dalio runs Bridgewater Capital. It's one of the largest hedge funds in the world.

Steve: One of the most successful track records.

Fernando: Yeah. It's the most successful track records. And the way his book is fantastic because it's broken into three parts. You have the first part, which is just like his autobiography. He in the book himself, he tells you to skip that portion.

I don't I tell you don't skip it because it it teaches you a lot about it.

Steve: Give me the context.

Fernando: Yeah. Then he has his principles for work and then his principles for life. And the part that really made an impact on me was the principles for life side. I my work world is extremely structured. It's, you know, process, and procedures.

But then I realized in my personal life, I have no processes or procedures whatsoever. So I started using his book to help me with that. The second one is Never Split the Difference by Chris Voss. He was the lead FBI hostage negotiator for ten years. His book talks about tactical empathy and how to really be a good listener.

Actually, before I came on the podcast, Steve actually gave me a book on tactical empathy and how to be a good listener. So it's right here next to me. Absolutely fantastic book. It's not all about business. You can use what you learn for business, but the part that I liked is that it made me a better listener, not only around my friends, but my families, my significant other.

It it affected all sides of my life. And then the third one, I'm torn. Recently, I've been reading a lot of autobiographies, and I I read both Sam Zell's book and Steve Schwarzman's book. So what it takes or whatever it takes, I think, is Steve Schwarzman, and then Sam Zell's is Am I Being Too Subtle? Both real estate, you know, conglomerates, if you will, some of the largest companies in the world.

And it's so interesting to see that the principles that they distill down over fifty, sixty years of practice and how you can implement it in your own life. Here's a perfect example. In Steve Schwarzman's book, there's one line that stuck out to me that said, time hurts all deals no matter what. So if if you have a deal, if you just let that deal sit on the shelf, it starts getting worse and worse and worse and worse no matter what. So we implemented based on that book in our company that as soon as a deal comes in, we're doing everything we can to get it to the finish line within thirty to forty five days.

Because the longer it takes, then all of a sudden things start coming up and issues and sellers start getting skittish. It's just not Isn't it funny how that works?

Steve: If you can just close them fast, you know? Yeah. Close it as fast as possible. And I mean, some of the favorite words I've heard, right? If we're doing a flip or as a listing, it's like, will you take cash?

Yes. Can we close early? Yes. Right? Like it's always been and I've had deals that died because literally somebody died.

Yeah. There you go. Right? Right? Like, as soon as and that's always been in the back of my mind.

So it's always been like, can we close early? Yes. Like, what? So I'm gonna

Fernando: Go right now. And then even after the closing side, let's say it's a deal that you're holding or you're flipping or you're rehabbing. Like, for example, that deal that I'm building in Chicago right now, our monthly interest payment is $56,000 a month. So, like, every one month delay is an extra $56,000 of expense that we just got hit with.

Steve: Or every day is $2,000. Yeah. Exactly. Exactly. I I got this question from Joshua Kim here on YouTube.

I think it's a great question. Is, what did you what makes you such a great networker?

Fernando: So believe it or not, when I was younger, I was somewhat of a shy person, and I didn't like how I was timid and not able to really be fluid in my environment, especially when there's other people around. So I focused heavily in high school on basically bettering myself. That's actually how I found the, Rich Dad Poor Dad book in my school library. I went to, like, the self help section, if you will. I started taking out every book that I could find.

So one of the books that I read was called How to Talk to Anyone by Leon Leon Landes, I think. The other one was, the definitive book of body language because, you know, there's two sides of it. It's what you say, but then it's also what you show. And then on on the flip side, it's what you hear from people, but then also what you see. Yeah.

And sometimes those can be different. And people with their body language, they may show you what they're truly feel feeling, but then say something different to either, you know, beat around the bush or to mislead you. So those two things helped quite a bit. And then just understanding just the social dynamics of, you know, how we communicate. And nowadays, it's getting even harder and harder because we're going to social media, and everything's not a real connection.

Malcolm Gladwell wrote a really good book on this called, Talking to Strangers. So I think what makes me a really good networker is the ability to connect with someone very quickly, identify what is important with them because of, you know, the things I learned with those books, tactical empathy, actually listening and then seeing how I can add value. And then the flip side of this is if I realize I cannot add value to them or they cannot add value to me very quickly, I cut off that interaction in a polite way. I say, hey, it was really nice meeting you. You know, if there's anything in the future that you think I may be able to help you out with, let me know.

But for right now, I'm gonna go ahead and and start making more connections in the room. And so I'll work you know, I'll get through forty, fifty people in about an hour at a networking event.

Steve: Really? Yeah. So I got asked then, on the b on your PI, where is that?

Fernando: It's right behind the a.

Steve: So it's right behind the a. So you are super social.

Fernando: Yeah. Yeah. Very social. Interesting. That's the part that, like, was hard for me because in the beginning when I would go to these large, you know, conferences and networking groups where you only have fifteen minute bathroom break to talk to somebody, like, I would I would see myself getting caught in a conversation with someone that I knew wasn't going anywhere.

You know, they do, you know, I don't know. I don't even have a

Steve: good example. Have the same interest.

Fernando: Yeah. We don't have the same interest. There's no way I can add value to them, and there's no way that they can add value to me. Yet, we're both of us are, like, sludging it out for fifteen minutes because it's awkward to say goodbye. Like, just get over that and just keep moving.

Steve: I ask this question because for me, my A is really high, right? I'm a two sigma, one or two sigma A, I think a one. One sigma A and then negative one sigma on the B. Oh really? So I'm antisocial, Right?

Fernando: You're more task oriented than

Steve: Yeah. So like I'm totally fine walking away from conversation, and I'm pretty good at reading body language. What I'm really bad at is not recognizing how I'm hurting someone in a conversation. You're walking away. Yeah.

So that's where my weakness is, but that's that's why I asked what the b is because that's that's me. I'm gonna so Joe says great interview. So thank you, Joe. And then Joshua has a question for me, which is unusual. What's my biggest takeaway from interviewing you?

And I would say that I have a blind spot for self storage. I was actually excited about doing this interview because we've had almost I'm trying to think of everything real estate we've talked about Yeah. Except for self storage. I'm trying to think anything else that we haven't talked about, maybe property management, but that's not really an exciting topic.

Fernando: So

Steve: I think we've talked about everything in real estate except for self storage. So, Joshua, to answer your question, I've got this massive blind spot for self storage where I'm gonna have to definitely pick your brain more when you're back here in a few days. Few days. So he's flying back to Chicago to do a charity event Correct. And flying back on Sunday

Fernando: Right.

Steve: For CG Collective Genius on Monday here in Phoenix. That's right. So I want to think about what you wanna leave the listeners with while I make a couple of quick announcements. Guys, if you got value today, please like, subscribe, share, comment. I say this every show, but I really mean it.

I'm looking over here. We got 16 likes, guys. I need you guys to like, subscribe, share, comment because it really does help us help more people. Fernando's got a core value of Impact. He's named his company Impact Self Storage.

I wanna create a 100 millionaires, but I can't do it alone. I need your guys' help. We do have our all day sales training. Again, September 24, that's Friday, three Fridays from now, 08:30AM, 05:30PM, and teach you everything that I know about how to close more deals. People consistently tell us that they're closing 30% more transactions after working with us.

If your business is like mine or like yours, 30% increase in revenue Huge. Is almost a 100% increase in profits. Yeah. Right? You guys can't afford not to come.

And then we got Faquan Bilal. Next week, we're gonna be talking about tax liens and notes. Last thoughts you wanna leave

Fernando: the listeners with? Speed of implementation. Don't don't get stuck in the analysis paralysis. If you wanna do storage, get out there and start talking with brokers today. Literally just Google self storage brokers in your market.

Steven, go buy them a cup of coffee, sit down and pick their brain, and then start making offers.

Steve: That's awesome. And there's no shortage of self storages

Fernando: Right.

Steve: Nearby. If someone wants to get a hold of you, how can they get a hold of you?

Fernando: Yeah. So, you can go to our website, impactselfstorage.com. That's also our social media handles. You can impact self storage on Facebook and LinkedIn is where we put a lot of the, educational content. And then I I don't do this often, but I realized that a lot of people don't take me up on this.

So it's I'm not too afraid. I'll give you guys my cell phone number if you guys wanna reach out. Area code 630 Steve's smiling at me like, don't do this. Area code (630) 408-8090. (630) 408-8090.

That is my cell phone. If you text me, I will respond. That's awesome.

Steve: I think you're gonna regret that, but that's awesome. Thank you guys for watching. Appreciate it. Thank you very much. Thanks, Steve.