RG 294 – Factors You Need to Consider Before Investing in Self-Storage with Paul Moore
Join me in welcoming an old friend to the podcast, none other than the great Paul Moore! Paul has been on our show a couple of times before in the early days, and today, he is back to share even more helpful advice on real estate investing—particularly, in the self-storage industry.
Paul is a seasoned real estate investor, the host of the How to Lose Money podcast, a regular contributor at BiggerPockets, and the founder and managing partner at Wellings Capital, a real estate private equity firm that helps investors grow their wealth through commercial real estate. With his extensive experience and proven expertise, Paul is one of the best people to when it comes to commercial real estate.
We touch on quite a number of topics on the self-storage industry today. Specifically, we talk about how it has grown during the pandemic, the advantages and the drawbacks, and the factors you need to know before investing in this asset class (location, traffic, visibility, income, etc.). More than that, we explore the operational side of the industry, particularly in terms of marketing, cap rates, management, and everything in between.
In short, we discuss what you need to know before investing in self-storage!
If you’re thinking of starting your own self-storage business, look no further. From the factors you need to consider to the operational techniques that will help your business flourish, this episode is definitely one you wouldn’t want to miss.
Real estate is like a team sport; you cannot succeed on your own.
There has never been a better time to invest in the self-storage asset class.
In self-storage, Paul believes that cap rates don’t matter as much as one would think.
- Contactless is the key to efficiency, especially in times of COVID-19.
Be Bold, Be Brave and Go Give Life a Crack!
Listen to Podcast
Reed Goossens (00:00):
Good Day, good day guys. Now, before we dive into today’s show, I want you to let you know that some of you may be aware that over the past eight years, I have built a substantial multifamily real estate portfolio here in the US worth over half a billion dollars. And in that time, my passive investors have received fantastic double-digit returns, and now you can invest directly into my deals for as little as $50,000. So if you’re an interested investor, head over to Reedgoossens.com To find out more that’s Reedgoossens.com. Now back into the show,
Paul Moore (00:41):
Self storage, uh, has there’s 53,000 or so facilities in the US. That’s about the same as all the McDonald’s subways and Starbucks combined. Wow. Fortunately for people in our space about 75%, about three out of every four are operated by independent operators. And about two out of three of those independents only have one facility. We call those mom and pop operators, mom and pops typically don’t have the desire or the knowledge or the resources to make changes, to increase income and to maximize value for the investors. So my favorite thing of out sell storage, frankly, is that the fact that there are all these mom and pop operators who leave all this intrinsic value for somebody else to pick up for their investors.
Speaker 3 (01:42):
Welcome to investing in the US, a podcast for real estate investors, business owners, and aspiring entrepreneurs looking to break into the US market, join Reed as he interviews go-geters risk takers and the best in the business about their journey towards financial freedom and the sheer joy of creating something from nothing
Reed Goossens (02:03):
Good day. Good day ladies and gentlemen, and welcome to another cracking edition of investing in the US podcast from Los Angeles. I’m your host, Reed goossens good as always Abby with us on the show. Now I’m glad that you’ve all tuned to learn from my incredible guests and each and every one of them are the cream are the crop here in the United States. When it comes to real estate, investing, business, investing and entrepreneurship, each show, I try and tease out their incredible stories of how they have successfully created their businesses here in the us, how they’ve created financial freedom, massive amounts of cash, and ultimately created extraordinary lives for themselves and their families life by design. As I like to say, hopefully these guests will inspire all of my cracking listeners, which are you guys to get off the couch and go and take massive amounts of action.
Reed Goossens (02:50):
If these guys can do it. So can you now, as you know, I’m all about sharing the knowledge with my loyal listeners, which is you guys, and there’s absolutely no BS on this show, just straight into the nuts and bolts. Now, if you do like this show, the easiest way to give back is to give us a review on iTunes and you can follow me on Facebook and Twitter by searching at Reed goons. You can find the show, every you podcast on iTunes, SoundClouds Stitcher and Google play, but can also find these episodes up on my YouTube channel. So head over to Reedgoossenscom click on the video link, and it’ll take you to the video recordings of these podcasts, where you can see my ugly mug, but the beautiful faces of my guests each and every week. All right, enough outta me, let’s get cracking and into today’s show
Reed Goossens (03:37):
Today. The show I’m the pleasure of welcoming back a good friend of mine and a good friend of the podcast, Mr. Paul Moore. Now over the years of this podcast, Paul has actually been on the show twice before, way back in the early days in episode 78. And that’s why like, I can’t even remember how far back that was. And more recently he was on episode 164, about two and a half years ago. And I highly re recommend for all of you to go back and listen to those episodes, to get a bit more of a feel of who Paul is. But for those of you who don’t know who he is, and I’m gonna give you a little bit of an elevator pitch. Now, Paul is a long time real estate investor. He’s a thought leader, he’s a podcast host, he’s an author and a top it all off.
Reed Goossens (04:17):
He’s really a down to earth, all round good bloke. I’ve known Paul personally for many, many years. And he’s just an incredible guy. He’s also a regular contributor to the biggerpockets, uh, forum, which I’m sure all of you know about, you know, producing blogs and live video content. And he’s also the PO the host of the podcast called how to lose your money and a top it all off. He’s a three time bestselling author with his recent book, which we’re gonna talk about. Storing up profits has recently been published by the bigger pockets platform. We’re gonna talk about that on today’s show, but I’m really pumped and excited to have him back on the show with us to share his incredible knowledge and his insight, but enough outta let’s get him out here, get a Paul. Welcome back to the show, mate, how you doing?
Paul Moore (04:59):
Hey, good day, mate. It’s great to see you again.
Reed Goossens (05:03):
It’s great to see you too. My friend and, and I truly do mean it when, uh, I was just thinking, as I was writing that intro, how many years we’ve been friends together? We’re obviously in a mastermind together. That’s been going from a very, very long period of time. I think the last time we met up was a couple years back where you here in Los Angeles on a bit of a mission based journey, uh, in and around people trafficking. We’ll talk a little bit about that in the future, but tell us what you’ve been up to mate, since you’ve been on the podcast last I know, I know, I know what you’ve been up to cause I talked to you every month, but what about for the, for the listeners give, uh, PHIS in?
Paul Moore (05:34):
Yeah, so, you know, we did not, our company Wellings capital does not have, did not have a great acquisition to team. I’m just gonna be really honest. And so it fit well with our podcast, how to lose money, thanks for being on that years ago. And, uh, we, uh, you know, our acquisitions team, uh, did not have a great inroad on getting great deals in the apartment sector. So I wrote this book, which we talked about on the first show, the perfect investment, which is about apartment investing. And I gotta tell you Reid, if I was going to pick one asset, I had to hold for a hundred years, like Warren buffet thinks about I would pick apartments. I mean, if I was gonna do commercial real estate, I, I think people are gonna be living in the apartments. They’re building around Austin a hundred years from now, self storage, mobile home parks.
Paul Moore (06:26):
I don’t know, you know, I don’t know how things might change and those assets might be different. But at any rate during those five years or so, I was beating my head up against the all, trying to find apartment deals. That made sense. We weren’t getting those inroads. And so I started looking outside of multifamily and I discovered that there are a lot of untapped intrinsic value in certain asset classes. There are certain asset types that just have a attracted mom and pop operators over the last say, 30 to 50 years. And a lot of those operators are older and they have a lot of untapped potential. They’ve gotten tremendous, uh, benefit from cap rate compression. They’re, you know, often mediocre assets are, you know, valued at about double what they were just from the cap, eight compression over the last, you know, 10 years and throw in a little inflation on top of that even more.
Paul Moore (07:24):
And so we discovered that in self storage and mobile home parks, but we had a problem. Not only did we not have a great acquisition team, uh, we did not have, uh, history in self storage and mobile home parks like I had in multifamily and hotel before. So we decided to be getting investing in other people’s deals. In fact, we became a due diligence partner for our, uh, investors. And we went out and we said, look, we’re gonna find the very, very best operators in self storage and mobile home parks. We’re gonna cut through a lot of the clutter. We’re gonna do a lot of due diligence and we’re going to find the very best, best investment opportunities we can. We eventually put those together in a fund and now we’ve rolled out five funds to allow people to invest. Um, in these asset types. Our goal is to give people diversification over, you know, these asset types and geographies and operators and strategies. And so that’s what we’ve been doing for the last three or four years.
Reed Goossens (08:24):
That’s awesome. And then it’s good that you had the self-awareness to know that where you are weak at, right? Like, and you could go and plug that and say, look, I may not be, have the best acquisitions team, but I know the value of providing to my investors’ good quality investments, right? So you went out and found good operators. And I think that’s a very good self-awareness that a lot of operators or a lot of people who aspire to be in this space, they think they can do it all. They think they can operate. They think they can find the deals. They think they can raise all the money. And knowing in this, in this game, in this sport, that it is a bit of a team sport. You need different players at the, at the table. So five funds, how much money have you raised in the last couple of years through your funds right now?
Paul Moore (09:05):
I think we’re at about 74 million last I checked. Wow. Last
Reed Goossens (09:09):
Month. That’s incredible. That’s incredible. And what’s, what’s the future hold for, for the funds. Keep, keep rolling over as, as, as opportunities come, come around.
Paul Moore (09:17):
Yeah, we are doing that. We’ve got these five funds going, but we hit a little bit of a wall here. We always try to stay in compliance with the SEC as you do. And, um, we came to the conclusion that our best level of compliance as we want to grow much more than we have, would be for us to become a registered investment advisor and launch a public fund. So we are in the process of doing that right now. We expect by April 20, 22, to have a public fund that won’t be publicly traded, but it’ll be publicly registered. And that means it’ll be managed by a us as a registered investment advisor. Our goal is to raise about, you know, quarter billion dollars over the next three to five years. Wow. To invest in, you know, a diversified portfolio of these different asset types. That’s
Reed Goossens (10:09):
Incredible. And, and, and I, I’m just more interested in that. Why does the registered investment fund, how does that change in terms of what you’re doing now and what doors does it open for you to, to go from 74 million up to 250 million? Like,
Paul Moore (10:26):
Yeah. I don’t know that it’ll open that many doors, I guess it could. But, um, the first goal was to be in the highest level of compliance and, you know, make sure, you know, the SEC was happy with the way we were doing it. And for those of you who might be wondering, wait, is my syndicator in the best level of compliance, I’ll assure you that the issue here, um, like our friend hunter Thompson has brought out is that we’re a third party to the deals. You are not other operators. Other syndicators your listeners have invested with are probably not. So they don’t have to worry about this, but as a third party to the deal we’re coming under the, not the 1933 SEC act, as most of us are, we’re under that. But we’re also under the 1940 security advisors act, which means that we’re, you know, we’re more or less, uh, an investment advisor in a sense. And so that’s why we did it. I think it will, you know, we’ve been told it will open us up to opportunities, you know, to go out through the broker dealer channels and get additional investors, more family offices, more people who want more scrutiny, more eyeballs on it will have of a very intense S you know, audit audits every quarter. Uh, I mean, just, you know, all, all this, most of the stuff a public company would have to be subjected to, will be subjected to.
Reed Goossens (11:51):
Awesome. Well, look, I wish you all the best on that. And, uh, I’m sure we’ll get you back on the show in a couple years time to see how it’s all going and see your, your progress to the, to the quarter billion dollars. And I, I have no doubt in my mind that you’ll get there, but, but let’s turn to the, to the, to the latest book, which, um, we’re talking about now, storing up profits. And for those people who are watching on YouTube, you can see a copy of the book actually just purchased one the other day. A it’s a red book capitalizing on America’s obsession with stuff by investing in self storage by, by Paul Moore, founder and CEO of Wellings capital. If you haven’t got your hands on a copy of that, please head just Google, storing up profits, and you’ll find it. Paul Moore also check on the, uh, the bigger pockets publishing website. They’ll have it all there, but, but Paul let’s get into what, why self storage? You know, you, you mentioned earlier that you were in multifamily and you, you, you struggled to find deals in terms of acquisitions, but why did you pivot then to self storage?
Paul Moore (12:47):
Yeah. You know, self storage is a larger industry than many people would think the problem for most international folks is they don’t realize they don’t see a lot of self storage in Australia or Europe, or, you know, other places, but 95 to 99% I’ve heard of self storage is in the us and Canada self storage, uh, has there’s 53,000 or so facilities in the us. That’s about the sale is all the McDonald’s subways and Starbucks combined. Wow. Fortunately for people in our space about 75%, about three out of every four are operated by independent operators. And about two out of three of those independents only have one facility. We call those my mom and pop operators, mom and pops typically don’t have the desire or the knowledge or the resources to make changes, to increase income and to maximize value for the investors they don’t need to.
Paul Moore (13:48):
They’ve already had this cap rate compression, which I mentioned. And so they can continue to be mediocre and continue to have a fabulous, uh, you know, income stream and profit potential when they sell. So there’s that my favorite thing about self storage, frankly, is that the fact that there are all these mom and pop operators who leave all this intrinsic value for somebody else to pick up for their investors. Uh, this industry is largely recession resistant when, um, things are good. People are putting stuff in their Walmart or Amazon carts, and they need a place to store some of their stuff when things are bad and people are experiencing, you know, downsizing, dislocation, death divorce, the four DS they’re often needing a place to store their stuff. Nobody guessed COVID would happen, but two years ago when we were just learning about it, uh, people wondered if the world would end, if they would die, if you know, whatever, and people were wondering how all of our assets would perform.
Paul Moore (14:53):
Of course, nobody guessed at self storage would perform. They would just roar out of COVID as what wall street journal in New York times called the top producing commercial asset class. Since COVID a couple of the reasons, number one, there’s no eviction moratorium in storage. We’re only storing stuff, not people. Uh, second, uh, the, um, student housing, uh, students in colleges, right when COVID hit, there was a ton of uncertainty and Dow with, with the two weeks to flatten the curve really happen. Should I put my stuff in storage? Should I pick it up this summer? And will I be back in the fall? So a lot people put their stuff in storage, which gave a little bump, but over time, those other, you know, those four DS death, downsizing, dislocation, divorce, all four of those have kicked in at a higher level, sadly for America.
Paul Moore (15:44):
But it also means that a lot of people, for example, have been leaving places like Chicago, New York, uh, their places to move to Utah and Texas and Arizona and Charlotte and Florida. And so when they do that, they need a place to store their stuff. A lot of times, uh, a lot of offices have downsized. I have a friend who manages enormous amount of office space around DC. He said, a lot of people are breaking their leases and they put their stuff in storage restaurants and bars and other organizations that have closed down at least temporarily, if not permanently, they put their stuff in storage. So self storage has done really well during the pandemic. Another thing about it is the tenants are really sticky. I mean, these tenants are on a month to month lease. And if I’m renting in for a thousand dollars a month and you, my landlord raise at 6%.
Paul Moore (16:37):
Yeah. And I might not wanna pay 6% more. I might move rather than pay $60 a month or $720 a year on this one year contract, but self storage. It’s a month to month lease. And if I’m paying a hundred dollars and you raise my rent 6%, I might say, eh, it’s only six bucks. I’m not gonna spend a weekend, get my friends together, get a U-Haul to move my stuff down the street, just to save six bucks a month besides I’ll be leaving soon. Anyway, well, often that doesn’t happen. And so these are some of the reasons self storage is done. So well,
Reed Goossens (17:14):
Let’s talk about from a macro point of view, cuz you know, a lot of the listeners on this show are actually Americans. I will say, just given where we are with recording early January, I’ve just got back from, uh, three weeks into vacation in Australia. I’ve actually noticed more self-storage in Australia recently with, with people consuming more stuff. Now I won’t get into philosophical stuff of, of BS. And you know, we, we, we got this, you know, innate as humans, innate, you know, urge to spend money and buy crap. We don’t need, but in general, let’s take a sort of a, a macro look at, at the, at the market here in the United States. What type of markets are you investing in? You know, w I talk a lot about multifamily on this show, talk a lot about where people are moving to primary markets, secondary markets, tertiary markets. What are you, where are you investing right now? And why?
Paul Moore (18:02):
Yeah. So the biggest downside and risk in self storage is building a new facility or leasing a up a, a, you know, an unstabilized facility and then having a national competitor pop up down the road. So our most nail biting experience in this realm was investing in Florida, right in the middle of one of America’s top two fastest growing master plan communities, while it was a great place to be. There were houses and apartments and condos and town homes popping up everywhere. But this self storage facility is a large facility with over a thousand units in it was unstabilized because it was newer. We invested and right away, two things happened. First of all, a lot of the unit it suddenly became vacant and nobody came to pick up the stuff. Huh? I wonder what happened. Well, it appears though I can’t prove it. That the previous owner patted the numbers with lots of fake tenants to pad their, uh, you know, their income and make it look better than it was.
Paul Moore (19:08):
So that was a, a blow, but the bigger blow came when we found out that two national competitors were quickly building facilities right down the street. When those came in, I can tell you, they have better marketing than a typical regional operator. They have better property management. They can afford to take losses for longer. Uh, it, it’s very hard to compete with them. And even if you can compete on an equal playing field, and we’re just talking about triple the capacity for the same amount of users. And so it made it very hard. And so for the first three and a half years of that investment, we were supposed to get, eh, let’s say five or 6% a year after year two, we got a total of 1.8% in cashflow over that three and a half years. Fortunately they did get it righted. It was stabilized and the, uh, property sold for an 80% profit net to investors.
Paul Moore (20:07):
So we got our principle in 80% back in three and a half years. So it turned out to be fine. Well, over 20% a year in the end, but that points to the big issue here. And the question is, do I really want to be in one of these national locations where you’re gonna get a national competitor, especially when there’s development going on all around? No, maybe not. Uh, two of our most difficult investments have been in location like that, but what about ish ping Michigan? It’s in the, up in the upper peninsula of Michigan. It’s a town of about 3000 and there’s lots and lots of people around that area, but there’s hardly any storage we invested there in a very large facility and it’s full and, uh, it’s working out great or Beville Texas, you know, you’re involved in Texas, but I bet you haven’t been to Beville.
Paul Moore (20:55):
There’s 12,000 people there. Uh, we invested in a 607 unit, um, asset there. It was mom and pop had five kids, no marketing, no website, uh, 80%, uh, occupied, which isn’t horrible, but not great rates were way under market. And the kids were feuding and wanted to sell. Well, they didn’t get the 5 million they wanted, but our, uh, operating partner paid 2.4 million cash enclose, quickly. He did everything right over the next six months and got an appraisal of, remember he paid 2.4 cash. He got an appraisal of 4.6 million and he financed it at that level, taking almost all the equity off the table. And he sold it for that same amount, about a year later and paid us investors very, very well. So there’s a good argument to be made for going to a small to mid-size town. The metrics are still the same. And if you want, we can get into the metrics for what makes a great location. Well, you just
Reed Goossens (22:00):
Mentioned that, you know, 3000 people with 600 units. So what are you looking for? What are you looking for when you looking at a, at a facility in terms of sort of your 1, 2, 5 mile radius in terms of population? Yeah. And maybe in terms of, I don’t know, is it, do, do you look at drive by any sort of metrics on, on how many people are driving past the facility so they can
Paul Moore (22:21):
See it? Yeah. In the book, I talk about four major metrics for self storage location. So one would be the, uh, population in a certain radius. If you’re in a downtown location, you know, if you’re in LA and you know, there’s a public storage on lots of different corners there. Um, if you’re in a downtown location, you might wanna look at a one mile radius. If you’re in a very rural location, you might wanna be in a, you 10 mile radius, but I would, let’s just take a three mile radius, uh, typical suburban location. We wanna see seven or eight, uh, square feet of self storage per person for every man, woman and child in that radius, or less because seven or eight’s the typical average. So in low locations like Florida and Texas, California, where they don’t have basements very often and they, you know, they don’t use their attic cuz it’s hot.
Paul Moore (23:17):
In some of those locations, the storage ratio might be more in places like the Midwest, like Ohio, Wisconsin, Illinois, Indiana, Michigan, they typically use their basements. So the ratio might be less. But if you can find a location, uh, to invest in, like we did that had about two square feet of storage for every person in that three mile radius, you might have a good location. A second factor would be the traffic. You want to get vehicles per day. You want to get a high count. So if that’s in a major Metro area that high count might look like 50,000 cars going by a day in a rural area or a smaller town, it might be 10,000 cars a day. Uh, we like to see a high vehicle count. The third factor is the, um, visibility. There is a self storage facility near me on a main road that I’ve driven by for six years.
Paul Moore (24:14):
And I don’t think I ever noticed though, it it’s a large facility, but it’s kind of hidden by behind some offices down a hill. And I just didn’t notice it. So you want good signage, good visibility on your, uh, you know, your location. The fourth issue would be income. You want to get an area that has medium to high income. You definitely don’t want a slum. Even if you’re one or two blocks into a bad crime area, people are not gonna want to drive there. They’d rather go two miles the other way to find a place to store their stuff. So take a look at the, the crime and all that. But you know, just look at the income in that immediate area. It’s a very, you know, micro market view. I can take you around Nashville Reed, uh, and show you how overbuilt that city is for self storage. But I can take you, you know, 10 miles south of Nashville to one of their suburbs, two of the suburbs, Bellevue Belmont, and they have virtually no self storage and a great demand for it. So it’s very, very likely.
Reed Goossens (25:22):
For those of you who are interested in staying up to date with all the latest happenings in, in my business, or to learn more about passively investing directly into my multifamily value, add deals, then head over to Reedgoossens.com and sign up for my monthly newsletter. By signing up, you will automatically be notified about my new up and coming investment opportunities. You’ll be able to stay up to date with all the latest real estate news here in the United States, much, much more. So head over to Reedgoossens.com and sign up today. Now back into the show, Going back to that, those, those metrics you just mentioned, cause I just wanna repeat them for, for people listening. You said seven to eight, uh, square feet per person in a, in a three mile radius, is that correct?
Paul Moore (26:10):
Yeah. And you would’ve thought it was a certain radius, but it’s any radius. So one mile, three mile, whatever, whatever radius is most relevant to your property.
Reed Goossens (26:18):
And, and when you say per person, so if you have say let’s just do easy math, 10,000 people in a one mile radius. And that’s probably probably a very built up area, but let’s just, just so you are looking at a 70,000 square feet of storage you need in that one mile radius,
Paul Moore (26:34):
Is that correct? Yeah, that’s right. And that would be one, you know, medium to large facility.
Reed Goossens (26:39):
And then, so then you would then look at, well, who’s the other facilities in the area, right. And you have to, you know, what’s coming online, who’s existing and, and that’s where you’re saying, cause you might not be buying a 70,000 square foot property or whatever it is, you might already be buying a smaller property or whatever. So looking at that demand and I guess that’s where you come into your, your, your, your second thing is around demand and looking at okay, if there’s 10,000 people in this one mile radius, but there’s, and that means there needs to be 70,000 square feet of storage, um, then, but we’ve only got, you know, you only identify one facility at 10,000 square feet. Well then, you know, there’s a Delta there, right. And that’s where you say, Hey, this is gonna be good for me because there’s just not enough in order to facilitate everyone’s need in the self storage space. Is that correct? Right.
Paul Moore (27:24):
Yeah. And there’s more to it than that. You wanna look at other radiuss while you’re doing that, but that’s technically correct. And there’s a wonderful tool called radius plus that has all that mapped out for you
Reed Goossens (27:36):
Radius plus, okay. Listeners will definitely have to go on, uh, uh, on the, on the website and get it. So then you talk about vehicles per a day and visibility. So you want to be on major thoroughfares, right. But you don’t want to be that, that, that facility tucked behind the office space, or if you are, you wanna have a good signage. So do you look at places again, going back to your smaller secondary tertiary markets? I would assume that those facilities are right on major the fairs to have that, um, you know, the decent eyeballs on it per day, correct? Yeah, that’s right. Yep. And then the final thing medium to high income. See what you’re probably looking at 50 to 80 or $90,000 in terms of median income in an area or higher.
Paul Moore (28:17):
Yeah. I mean, whatever the median income is more or less and higher. There’s no real top end. Got it for where you want to be. That’s right.
Reed Goossens (28:25):
That’s good. Okay. This is, this is great, uh, great metrics for everyone listening out there. So go out and find as many self stories deals as you can. Um, but let’s talk now about the operational side, because a lot of people want to come in and add value. So let’s talk about you figured out, okay, there there’s a need in this certain submarket. How do you know, you know, like with, with rentals, it’s very easy to go and find data for. What’s a one bedroom, two bedroom, three bedroom, but how do you know what’s, if a facility’s undervaluing their, their space, meaning, you know, I’ve got a a hundred square foot, you know, pod it’s renting at a hundred bucks a month. How do you know what ma metrics data do you look at to know if the rent is under or bought low? Oh, sorry. Above or under market rate for that area?
Paul Moore (29:10):
Yeah. That’s a little bit more subjective. It’s somewhat similar to the way, you know, apartments are done, but maybe not quite as many tools as apartments would have. Uh, you’re basically looking, you know, you’re looking at your rates, you’re trying to figure out how long since your rates changed, how much marketing they’re doing, what their occupancy is. And then you think through all that, then you go out and look at the competitors and try to think through something kind of similar for them. If all the competitors are the same price as you and they’re full. And there are mom and pops who aren’t doing any marketing, huh? That’s a good sign. But, uh, you know, if they’re all struggling to get, uh, you know, tenants and they’re doing a lot of marketing, well, that’s, you know, again, subjectively speaking, at least that might be a sign of trouble in your location. Got it. And what,
Reed Goossens (30:03):
What ranges are you seeing on a price per square foot or a price per pod or space, uh, per month? What, what, what are you buying in that and what do you want to like try and push it to over a period of three or five years? Yeah,
Paul Moore (30:16):
We, you know, for my sake, I don’t look at it as much that way. I just wrote a, an, an article on bigger pockets that sort of addresses that. And it says it it’s called, uh, why cap rates don’t matter as much as I thought, at least. And it’s talking about, if you can find value, add deals. Like the one I mentioned in Beville Texas, that’s just terribly mismanaged from a, you know, mom and pop operator. Even if you get a, I mean, I hate to say this, it sounds her, but even if I got a 0% cap rate, if the thing was so badly run, like the one in Colorado, the, uh, that we invested in that had 80% delinquency, can you imagine that Reed 80% delinquency,
Reed Goossens (31:00):
You don’t make, you know, paying you debts.
Paul Moore (31:02):
Yeah. Right. So, um, it doesn’t really matter because in self storage in one month, a good operator for sure, within three months can turn around delinquency. I mean, you just basically start, you know, giving people notice the day you take over, you can’t do this anymore. There’s a new sheriff in town. And so, um, yeah, we would look more at that cap rates for a stabilized asset. You know, we expect to sell a really beautiful franchised, you know, franchise model, stabilized asset at, you know, a four and a half percent cap rate, which is kind of similar to apartments. Uh, we would expect to buy, you know, if it was stabilized, we probably wouldn’t want to invest in it. But if it was somewhat stabilized, we’d hope to get it in the 6% range, but have it operating pretty quickly at what would look like, uh, eight or 9% cap rate, you know, by increasing income.
Reed Goossens (31:57):
That’s incredible. So that that’s, so you’re looking at buying in place, uh, around the four caps, four and a half caps from market rent, but you’re looking to push those stabilized rents. Once you do your value add in the order to six to 8% cap rates, is
Paul Moore (32:12):
That right? Yeah. And we’ve seen much, much higher than that, especially with these mom and pops that are poorly run and, and we’ve got, I mean, I laughed Reed when someone told me value, add self storage. I’m like, wait, we, where are the, where are the lighting and cabinets and countertops and, uh, appliances and fake wood floor and all that. There’s, you know, we, we don’t, I mean, we’re talking about four pieces of sheet metal, a floor, a ribbons and door. Right. But I was shocked at all the value add opportunities in self storage and it was just, it, it was surprising. So now
Reed Goossens (32:47):
Let’s, let’s pivot into the management side of it because I think that’s a really important aspect of any, you know, in, when you’re investing as a passive investor, into someone else’s deal, do most of your operator self manage or do they hire a third party to come in and, and take over, like you do? Uh, with multi
Paul Moore (33:05):
It’s very similar to multifamily. A lot of operators start out trying themselves, you know, and then they go to an outsourced property management company, and then years later they say, no, no, no, we’re pulling it back and have else. Now we’re big enough. And we’re knowledgeable enough to do it ourselves. So that’s kind of the pattern we see just like a lot of people see in the multi-family world.
Reed Goossens (33:28):
Got it. And in terms of turning around delinquencies in the management of that, I assume, because it sounds like you’re invested across many different MSAs across the country are, uh, a property management re regional, or is it more, more, you could have a, um, a property management company that covers a multiple states because I would also assume that in, and I just know a little bit about self storage. You are trying to get to a contactless type of solution where people can just rent online. They have a code, they come in, they, they get access to their unit and there’s really no, no interaction with any warm body, unlike multifamily, where you need a leasing center, you need a maintenance team, you need a community manager, you need someone to, to show and tour, um, the property, uh, and that just takes warm bodies. And that takes more, you know, more of a local touch. So how are you seeing with these third party property managers? Are they more regional or are they more, um, you know, covering multiple states?
Paul Moore (34:27):
Yeah, there’s regional and then there’s some national, I mean, you know, the, there there’s some REITs that do third party management and then they own their own, and there are some real risks with that, by the way. But, um, at any rate it could work, uh, the there’s some regionals and then there’s some there there’s lesser, you know, known local property managers, you know, that would only do, uh, let’s say a few small towns or whatever. Those are typically apartment managers who just do self storage on the side though. Um, as far as contactless, I think that’s one of the, uh, things about my book that I don’t like, and that is a, I didn’t cover much about contactless in there. It was written, uh, before COVID really slammed us. And so, um, COVID has it, there’s really interesting discussion about how it’s affected self storage, but I can tell you that, um, the, I, I mentioned in there that contactless is it, it, it the best time in history ever, I’m telling you Reed to do contactless because not only do we have the COVID experience, but we also have the technology just a few years ago, people were paying 30 to 35,000 for a kiosk at the, you know, front of the facility to allow people to have a gate code and to allow them to rent and put their credit card in, and sometimes even get other stuff like a lock right out of the, uh, kiosk.
Paul Moore (35:51):
Now, I mean, just a few years later, you know, we’ve got iPhone technology and Android in technology, that’ll allow them to do that right on their phone, except for the lock of course. And, um, the, uh, technology is there to do contactless better than ever. And the desire for folks in the millennial category, uh, to actually, you know, go ahead and rent online, even if they could walk in you is stronger than we had seen in the past. Now I will say there are some downsides, one example. I mentioned a lot of value add opportunities in self storage. One obvious one is renting U-Haul or rental trucks out of the front. I mean, let’s just do the math on this. You know, we all know that residential real estate based on comps, commercial real estate based on math and that formula is this, the value equals the net operating income divided by the cap rate, just like it does in multifamily.
Paul Moore (36:50):
So if you can drive up the NOI, uh, with the same cap rate, you can significantly increase income. And even more, when you add some leverage into the mix, well, if you add U-Haul, you can add, say one to $5,000 a month in commission. So you have U-Haul contracting with you. You’ve already got an employee there, and I’m talking about a fully manned facility. Now, now you can rent U-Haul. They fill out the contract when they sweep it out and they set it back in front of the store. Well, that can add $3,000 a month. Let’s do the math on that $3,000 a month equals $36,000 a year, 36,000 a year added to the bottom line, uh, with no significant outlay of any capital or any of additional labor divide that by let’s just conservatively say a 6% cap rate, 36,000 divided by 0.06 is 600,000 added to the value of the facility.
Paul Moore (37:51):
Reed, if you buy a $2 million facility, and if you leverage it at, let’s just say 75, it that’s about, you know, half a million out of pocket to get in there and a million and a half in debt. The banker doesn’t share in that 600,000 increased value, the investors do, you basically just doubled the value of the equity by signing a contract with U-Haul and setting up U-Haul S in front of your shop. I mean, it’s pretty powerful and there’s lots of other value ads like that, like selling lots boxes, tape scissors, upselling, all kinds of things that can only be done with a live person. That’s, that’s incredible. And there’s so many nuances.
Reed Goossens (38:35):
To all of it in your new book of storing up profits, which is now available on the bigger pockets publishing website. Again, all for those people, looking at us on YouTube, you can check it out. It’s a lovely red book with a big box on the front cover, but Paul, um, just a little bit of a segue before we get into the final lightning round. Um, and wrapping up the show here. What have you got, uh, in store for, for 2022 and beyond both personally and professionally?
Paul Moore (38:59):
Yeah. Um, well, we are, uh, like I said, we’re gonna be launching this, uh, publicly registered fund. Uh, and I am, uh, excited about that. I plan to continue to do more blogging, uh, probably get more, more into, uh, the speaking realm in the, uh, more on the, um, uh, medical side, really tapping into more dentists and medical professionals who really need better investments. Uh, that’s one thing for me personally, uh, and the company, um, as far as, uh, personally, I’m actually in the process of hiring an executive assistant right now, and I’m really excited about that. And I’m, you know, kind of trying my wife and a couple people close to me are saying now, I, I mean, if you gain an extra 20 hours a week from having this high powered assistant, are you gonna add 20 hours of doing more? Are you gonna slow down a little? And I’m a high energy entrepreneur
Reed Goossens (40:10):
That’s awesome. My friend, well, look at the end of every show, we like to jump into the top five investing tips. You’re ready to get into it.
Paul Moore (40:17):
Yes, let’s do it, mate. What is the daily
Reed Goossens (40:19):
Habit you practice to keep on track towards your goals?
Paul Moore (40:22):
Yeah, one thing I do is just quiet solitude time in the morning. I like to have a journal out. I like to have a little, at least this time of year, have a heater blowing on me and, uh, a little light and I like to journal and think and pray and, and, and just really just try to slow down because I know once I open my laptop, it’s gonna be a hard run until at least dinner time.
Reed Goossens (40:47):
Yeah. I, I completely agree. And having those moments in the morning of reflection and quiet time helps set the mind up. And I’m, I’m sure you’re the same as me when, if I, if I a day and I don’t do it, uh, my whole day is ruined because as you said, you can get the emails are someone else’s problem, trying to get you involved in it. And it’s, you gotta avoid it as much as possible. Question number two is who’s been the most influential person in your career to date.
Paul Moore (41:12):
Yeah. You know, it was actually somebody who was not an entrepreneur. He never thought about it owning his own business. Uh, he was a W2 employee all his life, but it was my father because he taught me the value of keeping your word. He taught me the value of commitment to your family, my wife and I haven’t always had an easy marriage, as I mentioned before, but he taught me that to stay committed and to hang in there and to love your wife and your kids, and, and really just stay in there and put, you know, family before work and really invest in them. So I, I just owe him an eternal debt of gratitude.
Reed Goossens (41:51):
That’s awesome. I, I, you having a, yeah. Growing up with, with good with parents who bestow upon their children, wise wisdom, words of wisdom, wise ethics and all that sort of stuff helps produce men and women and, and, and adults that we all aspire to be. So, um, so thanks dad.
Paul Moore (42:27):
Well, our business has lots of software that we really love. Um, but one that, you know, I mean, lots of us know about CRMs like HubSpot and things like that. And I love that. But one new one that we’ve been using for about six months is called Asana Asana a, and it’s a scheduling, not really a scheduling, but it’s a project management tool. That’s easy enough for some, unlike me to be involved in, but workable enough that, you know, the extreme project management types can still get a lot of benefit. And we’ve been using that in conjunction with being part of AEOS type of, uh, consulting in the last five months. And it’s just been revolutionary for us. That’s
Reed Goossens (43:15):
Incredible. I, I’m also reading the book traction at the moment and, uh, getting a lot of, uh, a lot of good tips out of it and definitely something I’m headed into here in 2022 as well. But yes, I agree. Asana is an incredible tool for those people who don’t use it, definitely check it out for pro for project management stuff and also for scheduling. So awesome stuff. Uh, Paul, in one sentence, question number four in one sentence, what is being the biggest mistake you’ve made in your career? And what’d you learn from that?
Paul Moore (43:42):
I think it was failing to differentiate between investing and speculating. You know, investing is when your principal is totally safe or mostly safe, and you’ve got a chance to make a return. Speculating is when and your principles, not at all safe, and you’ve got a chance to make a return. And, uh, I did not differentiate those, uh, very well early in my career.
Reed Goossens (44:04):
Yeah, that’s a good, good piece of advice there for those people who are getting this started in the investing world, understanding the difference between investing and speculating. And I’m sure we could have a whole podcast on just that topic right there. But Paul, my last question is where can people reach you to continue the conversation they wanna be in your sphere? Where do they go?
Paul Moore (44:21):
Yeah. Um, you know, I spent years in residential and tried to figure out how to get into commercial. And so, uh, I know a lot of people felt that way. So I created a tool. Uh, they can use, it’s an eCourse, it’s an audio course, and it’s a special report. It’s all the same material though. Uh, it’s at Wellingscapital.com/resources. That’s WELLINGS capital.com/resources and all that’s free for anybody who will wants to, uh, take a look. We also have a special report on self-storage there.
Reed Goossens (44:55):
Wellingscapital.com. Awesome stuff, mate. Well, look, I wanna thank you so much for coming back on the show today. I just wanna reflect some of the cool things that I took away from today’s show. I think it was, I’m a real numbers guy being a former structural engineer. I love getting into the numbers. So I’m understanding that seven to eight, um, square feet per, uh, household or per person in a, in a radius. And, and just to clarify on that in a more dense market, that that ratio comes down to two or three. Um, no,
Paul Moore (45:23):
Actually it should be seven or eight per any radius, because even as you change the radius size, you change both metrics, you know, both on the Nuer rate and the nominat equally. So I was just saying that, um, in a, uh, underserved market under, you might find two to three square feet, for example, oh,
Reed Goossens (45:42):
Of existing product. That’s what that’s right. But, but your benchmark, you wanna be around the seven to eight is sort of the national average to service a, uh, community or, or MSA. I thank you for clarifying that. I also loved, you know, talking about the vehicles per day, being on a, on a good thoroughfare and then all in and around about, uh, property management and understanding all the different ways you can manage an asset, which is very similar to multifamily, but under, you know, having making sure that that person or that team member, if you are looking, invest in self-storage, making sure that, um, the operator has that solve because a lot of people get into self storage, not really understanding that the value add is there, but you need the people to execute on that, that strategy. And if you don’t have the right people on the team, then you’re not gonna be able to make any money so people can learn all about that. If your book called storing our profits capitalizing on record obsession with stuff, by investing in self storage, check it out today. Paul, I wanna thank you so much again for taking some time a day to jump on the show, uh, enjoy the rest of your week. And we’ll catch up on our monthly mastermind here in a couple of weeks.
Paul Moore (46:45):
Time. Thanks so much, Reed. I really appreciate, and really honor to be here again. Awesome stuff.
Reed Goossens (46:50):
Well, there you have an in cracking episode, jam back with some incredible advice from Paul. Remember head over to Wellingscapital.com to check out all the things that Paul’s going on. Also just Google Paul Moore, PAUL MOORE. He’s go. You know, he’s across the internet across biggerpockets. He’s got some incredible content out there. Check it out. I wanna thank you all again for taking some time outta your day to tune in, to continue to grow financial IQ, because that we’re all about on this show and we’re gonna do it all again. Next week’s remember, be bold, be brave and go give life a.