❓ Hoarding = Cashflow?

​[view in browser](=)​ This week we're covering a 6,000-year-old industry that turns people’s hoarding tendencies into your cashflow. Enter...the self-storage industry. ​ Sound compelling? We thought so too. That's why we're turning the how-to for self-storage investing and acquisition into this month's Contrarian Cashflow playbook! If you want the in-depth guide, live Q&A with Nick Huber, and a community full of support and encouragement, Cashflow is the place for you. And we MIGHT just make this playbook available for individual purchase on its own. Or all of them? Foreshadowing? I think so. Stay tuned. In the meantime... [Explore Cashflow]( --------------------------------------------------------------- Today in <10 Minutes We're Going to Cover: - Oldie but goodie: is there cashflow in a 6,000-year-old concept? - 39% COC on 'space': here's how we'd play it - An 11 step program: 11 steps to sourcing, buying, and running a self-storage facility --------------------------------------------------------------- Listen to the Audio Version of This Week's Newsletter! 🔊[How-to-turn-hoarders-into-cashflow?]().mp3[​](=)​ --------------------------------------------------------------- 6,000+ years ago, in ancient China, there were hoarders. ​ Well, I can neither confirm nor deny that. But I can confirm they at least used underground pits to store their excess things inside of pottery. Fast forward a couple of thousand years - storage of “things” is a [$50 billion-plus global]() industry. Despite that size, does anyone else feel like you can’t throw a rock today and not hit a storage business. We are on a mission to figure out, is there any opportunity left in this industry? Here's why I think this market is even worth paying attention to: #1 It’s growing. Self-storage was a [$48 billion market in 2020]() and may reach $64.71 by 2026. Driving this growth is: - More and more people moving whether great resignation, urban to rural or freedom states - Increased consumerism - Less travel equals more buying of playthings - Some of you, quite frankly, can’t seem to throw your crap away… #2 It’s fractured. There were 1.479 million storage businesses in the United States in 2020, [according to the Self-Storage Association.](=) That is the definition of an industry ripe for consolidation, aka too many small players that need to be eaten up by more efficient large players. We love industries that are unconsolidated, it allows you to do roll-ups, to consolidate and sell to the eventual conglomerates in an industry. #3 It’s often poorly run. From fax machines to no reviews, to no automation, to poorly designed exteriors, there are quite a few storage unit companies that could use a facelift. Turns out that even just painting the doors of a storage facility [can increase property value](=). ​ Here's how I’d make a 39% cash-on-cash return by storing stuff other people should have probably thrown away. Well, let’s be frank. I know little to nothing about storage, so I went to a friend to give us all his secrets. ​[Enter Nick Huber.]( If you haven’t seen his stuff, you probably haven’t been on Twitter. Nick’s specialty is self-storage. His company now holds $150 million in assets with 40 employees, 45 properties, and $25 million raised. Let’s have Nick walk us through a deal to see about his return profile. This deal was for a property he purchased for $472,000 + $10,000 in closing costs to total $482,000. He used leverage through debt, purchasing the property with around 80% in debt and 20% cash. - $385,000 in debt, 97,000 in cash ​ Moral of the story: He put $97,000 into the property and this year will have a cash return of $39,200 or a cash-on-cash return of 39%. That’s pretty spectacular. Now to be fair, those kinds of returns are not easy to come by but far from impossible. Here are a few more: ​ ​ Or this one... ​ ​ But how much work is it? Well before Nick had a team here’s his take on one unit he bought: For a small property, Nick visits it about every 3 months. They have about 2 cars come to the facility every day. All rentals are online and 89% of customers are on recurring payments. The customers are HAPPY because the prices are lower than every other storage facility, and the customer service is convenient and rarely needed. Nick’s end goal is for his partner and himself to own as many properties like this as possible, earning income with very little expenses, time, and energy going into them. How to build a team? Now Nick has a team but even the way he runs his storage business empire is interesting. Here’s his take: - 18 of our 40 employees are located in the Philippines. - Insanely competent, with great judgment, and $5 per hour. - If you run a small business and you don't have overseas help you're at a disadvantage. ​ --------------------------------------------------------------- We interrupt your current programming... “Can we invest in your deals, Codie?” There’s a reason I haven’t raised capital in the past two years. The market has been inflated, companies were at all time highs and VC infusions of capital only benefited the companies not the investors. I believe we are now starting to see a change. There is an opportunity to invest in the infrastructure of small businesses while the rest of the ecosystem starts to pull back. Introducing Contrarian Thinking Capital. Our early stage fund that’ll invest in the picks and shovels of the small business world. My goal is that it’s the first fund raised entirely through our newsletter subscribers. A note, this fund is certainly not for everyone. It’ll be small, we’ll screen all investors and it’ll be long term. We just got SEC approval and we’re launching in 2 weeks. Be on the lookout because it’ll go to [Cashflow](members first and then all Contrarians. One of my bosses at Goldman Sachs said to me once, “We get rich quietly here.” I never liked that saying… I prefer, “We do it together.” Here’s to trying. Ok, on with the show… --------------------------------------------------------------- How do we Invest in Storage Today? While the market is tighter today than when Nick first started he is actively allocating to storage facilities as we speak. So we asked Nick for some rules of the road to investing in storage well. The most important piece of information from Nick in my humble opinion is this quote: "Everybody thinks you need a “secret sauce” to buy and operate real estate. How many times do I have to tell them it’s just hard work and brass before they believe me?" First, know the Market Today: - It is increasingly expensive. The biggest threat with that is over leveraging and not being able to control your portfolio debt. So Nick is securing debt at low LTVs on all new acquisitions and re-fis. Around 50-65% LTVs throughout depending on risk profile, etc. - Rates are increasing. Seeing rates 100 bps higher on 3-5 year bridge financing than they were 2 months ago means more people falling out of contracts and could lead to even better acquisitions. - It’s two sides of the same coin. Start Local: (From a Nick Huber thread) Step 1: First, get on Google maps and search "self-storage". Make a spreadsheet of all of the mom-and-pop facilities within 2 hours of where you live. Rural is fine. Suburbs are fine. You likely don't want to afford the ones in the big cities. - Is it within a city? People are not going to travel far for their self-storage needs, so what’s the population density within 3-5 miles of your facility? That’s your potential user base. - Competitive landscape? You don’t want to compete with [Public Storage]( if you don’t have to, you don’t necessarily want to be in tier 1 cities. - Huge oversimplification - 2nd or 3rd-tier cities with facilities that are less technologically savvy within 3-5 miles of a dense area are your targets. Step 2: Call them up and say - "My name's Nick and I'm interested in making you an offer to buy your facility. I'm not a broker and I don't need much information to make you an offer. I'm not trying to lowball you or waste your time." - Ask them for the unit mix (how many of what size) and the current revenue per month. This will give you enough info to do some basic "back of the napkin" underwriting. - You can also start with online sales; some big brokers are [Argus](=), [ListSelfStorage](=), and [Crexi](=). But, don’t be afraid to make phone calls where you are looking to buy. The best sales here are happening off the internet. Business brokers are another powerful asset in your corner. Step 3: Get pricing expectations from the seller. If it is over 125x monthly revenue, it isn't worth your time pursuing any further unless there is a ton of opportunity to add value. - I wouldn't recommend a heavy value add deal on your first buy. - If it's around 100x monthly revenue E.G. doing $5k per month in revenue with an asking price of $500k, it might be a decent deal and worth your time to dig deeper. - Over $15k per month of revenue and it's more valuable to more buyers (like [Nick]( - send me a DM if you find one) so the sweet spot for first-time buyers is around $3-5k per month of revenue and a $300-600k purchase price. Too small for big guys and too big for small guys. Step 4: Calculate how much you can drive revenue by doing a market study. - Call the competitors and act like a customer. How hard is it to rent a unit? - Really hard? You can probably raise rents by 10-20% or more. Step 5: Calculate your new property taxes after purchase (online) and get a quote for insurance. - Set $500 a month aside for Cap-ex reserves. - Budget $2-300 per month for google ads. - Same for onsite labor to sweep units. - Same for software/bookkeeping. - Same for lawn care. Step 6: Most small facilities like this operate at about a 40% expense ratio. - Meaning $2k in monthly expenses for every $5k in revenue. Larger facilities with more revenue can operate as low as 20%. - Portfolio-wide he operates around 35%. Step 7: A local bank will probably only finance 60-70% of the purchase price. - SBA loans can go 90% (He doesn't recommend this approach but many have succeeded). - He doesn't believe in over-leveraging real estate - too risky if times get tough. - Closing costs, cap reserves, and operating capital will be another $50-60k on a $500k purchase. Attorney fees, transfer taxes, appraisals, inspections, cost seg studies, new signage, gravel, repairs, etc. Build out the sources/uses on your acquisition like this: ​ Step 8: So to buy a $500k facility you'll likely need $200k in cash to close. - And another $100k on the sidelines in case a surprise arises. Remember the golden rule of real estate: If you run out of cash, it's game over. - You can raise money from investors (he did on the first deal) using a private equity structure. Step 9: Due diligence is important and includes two main things: - Make sure the rent roll is accurate and the money is actually coming in. And make sure the property is in good shape. - Get management reports. Dive into the rent roll during an owner interview. - You'll often find 10 or 20 units that aren't paying or are full of junk that the owner hasn't done the work to empty. - Get an inspection with an in-depth inspection report. Consult a contractor as needed. Step 10: Build an 84-month proforma to estimate cashflow, future revenue, and expenses. - You'll need this to present to the bank along with a market study of the competition. Step 11: Close and optimize. - Get the units clean and a website built, optimize your google my business listing, and go. Add value through increased revenue and low expenses. Refinance 12 months later to pull your cash out. Rinse and repeat. - It is old & boring? Aka - is it using outdated operations technology. If they require a paper contract rather than digital sign-up and a manual lock rather than a key code, you may have found an interesting trigger. - Non-tech enabled? Do they have a CRM for relationship management with their customers? How about a hiring flow? Do they pay their employees with Gusto? Consider ‘upgrades’. - Get a CRM. Some [well-regarded]() ones are [6Storage](=), [CallPotential](, and [RapidStor](=)​ - Plan out your revenue management. Maintain parity with the other storage facilities in your area. Sure, you could charge less for some period of time, but ultimately your revenue will be harmed and could turn cashflow negative. - Are only some of your units climate controlled? Consider that mix and adjust according to demand in your area. - Curb appeal. Consider things that will make your users more comfortable (well-lit is a must at minimum) renting from you and for potential customers to notice you. - Look at your spend and what it’s doing in terms of lead conversion. Don’t let other people’s junk NOT make you money, Codie ​ --------------------------------------------------------------- The Not-So-Boring Section - Team>>: Want to build a team like Nick’s? [Support Shepherd](), they source, provide quality candidates and help you through the whole process. - Musk v Twitter: Unless you’ve been living under a rock (whether it’s a jpeg one or IRL), Elon Musk acquired a 9% stake in Twitter. He refused a board seat and already[stirred up some controversy along the way,]( including renaming to Titter? Hmm, no thanks. - Out of this world: This is [one of my favorite sci-fi short stories](. It’s a total mind reframe. --------------------------------------------------------------- Mind-blowing Lessons From 2 Ex-CIA Spies... A couple of people in my network are ex-CIA spies. I spent two days with them, and what I learned blew my mind. ​ Join me behind enemy lines as we explore these lessons that completely reframed my thinking, and taught me decision-making in life (or even death) scenarios. [Discover the Secret Lessons](=) --------------------------------------------------------------- ​ Share Contrarian Thinking, Win Cool Stuff! Now you can invite friends, family, colleagues, ANYONE to read the newsletter. When someone you refer subscribes to the Contrarian Thinking crew, there are awesome prizes that await you! Taking 30 seconds to share will bring you more chances for exclusive access to content to make your bank account grow faster. [( [facebook](=) [twitter](=) [whatsapp]() [email](=) PS: You have referred 0 people so far [⚡️ Powered by SparkLoop](=) ​ ​ --------------------------------------------------------------- What Did You Think of This Week's Newsletter? ​[😍]()​[😐]()​[😡]()​ ​ --------------------------------------------------------------- Disclaimer – This is the “Be an adult” section. Everything mentioned above isn’t advice, just a recount of what I did. That said: This article is presented for informational purposes only. The opinions stated here are not intended to recommend any investment or provide tax advice. Neither are they an offer to sell or the solicitation of an offer to purchase an interest in any current or future investment vehicle managed or sponsored by Codie Ventures, LLC or its affiliates. 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