RG 313 – Investing in Self-Storage 101: Inflation, Cap Rates, Interest & More with Jacob VandersliceRG 313 - Investing in Self-Storage

Join me in welcoming another esteemed guest on the show, a fellow operator and the co-founder of one of the most successful self-storage companies in the country—Jacob Vanderslice.

Jacob is a co-founder and partner at VanWest Partners, a real estate investment company specializing in self-storage facilities and other opportunistic investments in commercial real estate. To date, VanWest Partners has deployed over $238 million in capital and manages 42 properties, 19,000 units, and 2.7 square feet of space.

Multifamily and self-storage assets are similar in quite a few ways, and Jacob is here with us today to go deeper into those similarities. If you’re interested in investing in self-storage facilities, Jacob also gives us a peek at what you can expect in self-storage investments at this time.

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We go over a lot of topics in this episode–cap rates, interest rates, current investment environments, and more—so buckle up, ready your notes, and let’s learn what it takes to invest in self-storage.

Key Takeaways

  • Once the government tamps down inflation, we might go back to a lower rate environment.

  • Your first line of defense against recession is creating a mode of cash flow. Cash flow is what will help get you through uncertain times.

  • Despite the rising rate environment, self-storage cap rates are continuing to compress, primarily due to liquidity.


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Podcast Transcript

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 multi-family 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 too 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.

Jacob Vanderslice (00:41):

One interesting thing we’re seeing, despite the rising rate environment, we are still seeing self-storage cap rates continue to compress. And I think the reason they continue to compress in spite of the rising rate environment is there’s so much liquidity out there chasing the space that wants to be in the space. There’s been a big rotation of capital from other asset classes into self-storage, especially as a result of COVID like a bunch of retail and hotel guys and hospitality guys, they’re not doing those like they used to, they want they’re flying to self-storage. So a lot of investors demand out there. Now, as cap rates continue to compress, at least they are recently, we’ll see how that trend goes and interest rates go up. Eventually that’s gonna break. Eventually deals are not gonna pencil anymore. You can’t, you can’t do the math on buying a deal at a five cap and having a 6% interest interest rate. You’re gonna have negative leverage, negative cash flow. Um, but we’re not seeing that matriculate through the market yet, but it just, the math says it has to eventually. And again, I think the reason it’s not yet is there. There’s just so much liquidity chasing the space.

Speaker 3 (01:56):

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 getters 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 (02:17):

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 every with us on the show. Now I’m glad that you’ve all tuned into it to learn from my incredible guests and each and every one of them are the cream of 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 the businesses here in the us, how they’ve created financial freedom, massive amounts of cash flow, 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, which are you guys to get off the couch and go and take massive amounts of action.

Reed Goossens (03:03):

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 bots. 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 Goossens. You can find the show wherever you podcast on iTunes, SoundCloud, Stitcher, and Google play, but you can also find these episodes up on my YouTube channel. So head over to Reed, goins.com, click on the video link, and it’ll take you to the video recordings of these podcasts. 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 (03:52):

Turn the show with the pleasure of speaking with you, Jacob Vanderslice. Now Jacob is the principal at vanwest partners, a Denver based real estate firm, focusing on acquiring and managing self-storage centers and other opportunistic real estate throughout the United States. Now vanwest has established track record with over 195 million in real estate assets, under management and Jacob and his partners. Success is driven by commitment to delivering an expertly executed adaptable strategy with an institutional investment approach. I’m really pumped and excited to have him on the show today to share his incredible knowledge, but enough outta me. Let’s get him out here. Hey Jacob, welcome back to the show.

Jacob Vanderslice (04:28):

Great intro reed thanks for, uh, thanks for having a song. Good to see you again.

Reed Goossens (04:31):

Yeah. And we were saying for the listeners, the, we were both losing our minds. We, you know, as I’m saying that intro, I’m like, we’ve, I’ve definitely said that three times now, if we think we, we think this is the third time, we’re finally getting lucky, uh, on getting you on the show and having you finally pushed out to the masses. I will say, after doing this for six or seven years, I’ve never had so much technical issues in the show that we had in this rescheduling. So well,

Jacob Vanderslice (04:57):

As we, as we discuss, you got your new MacBook in and you’re, you’re good to go now. No new problems. Absolutely.

Reed Goossens (05:01):

No, no, no touch wood, right. That wood. So mate, but with that being said, give a quick O uh, overview of your background, um, and how you started van west partners.

Jacob Vanderslice (05:12):

Yeah, we’ve been investing real estate full time. Since about 2006. We started off, uh, in the single family space. We’ve done over over a thousand single family fix and flips all over the country, mainly in Denver, but variety of markets. Um, and those are fun days. We would buy deals at the trustee sales with cashiers checks, we’d, uh, get possession, renovate, sell. Um, we got into commercial real estate, starting at about 13, did a number of adaptive reuse retail projects around Denver, basically repositioning old warehouses into multi-tenant experience based, uh, retail concepts like restaurants, breweries. Um, those were a lot of fun. And then we got in the self-storage space in 2015, and we had studied it for a while. We liked its historic, uh, recession resistance. It’s scalable, repeatable, it’s got durable income streams. And we started off with some ground up development projects here in Denver.

Jacob Vanderslice (06:01):

And we expanded into the Midwest into the Milwaukee market in about 2016. And we kind of kept going from there. All of our deals in storage leading up to 2019 were single assets indications. And we launched our first storage fund and, uh, June of 19, close that out in August of 20, uh, we launched our second fund in January of 21 and we closed out in Q1 of, uh, 22. And we’re in the process of launching fund three right now, as well as, uh, development strategy in addition to fund three. So mainly focus on storage. We’ll do opportunistic one off deals as we find them outside storage, but about, I would say 90, 95% of our bandwidth is, uh, is focused on self storage, acquisitions and operations.

Reed Goossens (06:43):

Yeah. And I, I’ve had a few people on the show talk about self storage and, and kudos to, to your background. I think it’s, it’s incredible, you know, story started since 2006 and moving up through fix and flipping and just keep getting bigger and bigger. And actually as a fellow operator, your, your transition into doing funds is, is quite interesting for me. So maybe ask a few questions about that, but, but in and around the self-storage space today, uh, for those listeners out there, or can you explain the listeners out there? How are you looking at supply, you know, walk us through the numbers of, and I’ve had, you know, other people on this show talking about the number of square feet per capita or something in a, in a, in a local radius. What does that look like for you in today’s economy when you are going hunting deals across the country?

Jacob Vanderslice (07:29):

Well, we’re, we’re recording this, this podcast on, on May 5th. And, um, it’s amazing how much the world has changed, uh, in the last few months, not, not only last few months, but this week to a degree. I mean, as we sit here right now, the Dow is down 1100 points. Uh, the 10 year treasury is up to its highest level since 2018 and spiked a lot today. So we’re in, we’re in uncharted territory here and obviously the threat of a pending recession. So not withstanding the turmoil in the markets will we’ll start at high level. One of the first things we look at in a potential self-storage acquisition is the supply ratio. And that’s the square feet per capita. As you mentioned earlier, nationally, there’s about seven or eight square feet per capita. Historically, if you’re over that number, you’re in a market that’s oversupplied.

Jacob Vanderslice (08:12):

And if you’re under that, it’s, undersupplied, uh, that rule of thumb is still a guiding principle, but we’ve become, we’ve. We’ve seen supply ratios become a little, little, little more of a flexible metric in the last couple years. And they’ve historically been. So for example, in a market with really low rents, say rents are 80 cents a foot versus $2 a foot, and that’s per square foot per month, that market can support more storage customers because of, of the price. So you might have a market that’s at 13 square feet per capita, which based on the numbers I mentioned earlier, seems like it’s oversupplied yet. All the facilities are full and that’s because rates are so low that more consumers can afford to store as opposed to being in a market. That’s maybe $2 a foot. That’s a much higher barrier. Um, as far as the cost of storage.

Jacob Vanderslice (08:58):

So supply ratios are something we look at pretty carefully and then just normal nuts and bolts, real estate fundamentals, population, growth location. We don’t track incomes as much in storage. We mainly look at density and rooftops. We want our deals to be in, in areas with lots of infill, um, residential housing, multi-family single family. Uh, we generally shy away from deals that are out in rural locations, just because the supply ratios get really thrown off if somebody builds a new facility. So yeah, those are really the themes, uh, supply ratios and just, um, good markets and good locations.

Reed Goossens (09:32):

That’s interesting. You mentioned, um, incomes because one of the big things I look at, uh, when I’m, uh, assessing a multifamily deal, actually just had a webinar last night for, for a new deal. I’m I’m chasing. And I really look at the sort of 50 to $70,000 household income, right? Cause that can then back into, you know, we, we talk in multifamily the, the times the third of your income can go towards rent. The third divided by, you know, $55,000 a year, roughly gets you to about 1500 bucks. And if you’re buying it a thousand dollars in place, you know, effective rents, you’ve got, you know, 50% growth margin. Um, so, so it’s really, it really does matter, you know, the, the local household medium income it, why doesn’t it matter for self-storage as much?

Jacob Vanderslice (10:13):

I don’t wanna say it doesn’t matter, but it matters less. Um, there’s some theories out there that suggest that, uh, 2% of AMI, uh, can be self-storage rent in a given market. We’ve seen markets that are a lot less than that, uh, with low occupancies and we’d see markets that are higher than that is a percentage of AMI, uh, that have higher occupancies. So there’s a correlation with all these data points. It’s just kind of interpolating them, but I don’t think it’s nearly as important as workforce housing and self-storage. Customers are a lot more to a degree transitory than multifamily customers are or tenants. They’re not gonna, some of our customers stay for years, but a lot of people stay there for six months. And, uh, they’re not as price conscious if they’re only staying there for six months, I’ll say most of our customers that think they’re gonna be there for a short amount of time, end up storing for longer than they expect. It kind of becomes outta sight out of mind, it auto drafts on their credit card or their bank account every month. They don’t wanna deal with moving their stuff. So, yeah, it’s a little more of a transitory customer base than multifamily.

Jacob Vanderslice (11:09):

No. Why maybe as sensitive to, uh, to incomes.

Reed Goossens (11:12):

Right. Right. And, and what, what’s the type typically? What are you looking for from an occupancy point of view? Like, you know, is 80. Like I know when I’d take over a deal, it’s 80% multifamily. That’s really bad, but I don’t know if that’s bad for self-storage, given that it’s a lower rent, you know, all in rent for per month.

Jacob Vanderslice (11:32):

Yeah. We generally target 90% physical occupancy. Uh, as we, as we target stabilizing our properties and self-storage, if you’re, if you’re too full, you’re not doing a good job with your revenue management and said, otherwise, if you’re too full, it means your rates are too low. If you’re, if you’re 99%, you’re not a hero. You’re, you’re a bad operator. You need to increase rates to drive down occupancy a little bit. And the self-storage business churn is not a bad thing. Meaning customers constantly moving in and moving out every time a new customer moves in, it’s a chance to sell them, se ancillary revenue streams like boxes and tape, tenant insurance, one time administrative fee to move in. And it’s also an opportunity to increase your street rates. As your occupancy goes up, vacancy goes down, you can start pushing those hundred dollars units to $110 because you have more demand. But really the sweet spot in self storage is around 90.

Reed Goossens (12:22):

Right? Interesting. That’s that’s a stabilized, right? So you you’ll look to either bring it up or push it down depending on the deal itself. Correct?

Jacob Vanderslice (12:31):

Yeah. And, and we make distinctions between physical occupancy, which is the ratio of units that are actually occupied and economic occupancy. So you might buy a deal at 98% at acquisition and think, well, why are you buying this? Where’s the meat on the bone? Well, rates are too low. And when you mark the mark, when you mark the rates to market, your economic occupancy might be 70%. So you’ve got 30% of room to get those rents up and you might drive down occupancy, but you’ll still have a net increase in revenue. So for example, in Q1, in both of our fund portfolios, we had a, we had a nominal loss in occupancy, but we also had a meaningful gain in revenue because of rate increases. So it’s more of a revenue management gain. And we, we are, we care more about NOI and top line revenue than we care about physical occupancy. Uh, physical is very important. Obviously, if you’re, if you’re empty, we don’t have any revenue. Um, but we we’re trying to balance those different factors, um, every day in our operational life.

Reed Goossens (13:32):

Well, where you were going with that is really interesting because I do like, it’s the same thing in multi-families when you’re comparing asset classes to asset classes, if something is too full in multi-family to your point, they’re not doing a good job, um, of, of maintaining the revenue stream. And I like how you look at it. And it’s, I’m probably gonna take that use that, that snippet of when you have churn, churn’s not a bad thing. Cause you get to then, you know, add in the wash, at least on our side of the coin, it’s add in the washer dryer, add in the, the, you know, the trash, uh, trash file add in the parking fees where the person before that may not have been paying that stuff. So having churn on the multifamily side is good as well. I’m just trying to compare the two for the listeners who, you know, this shows a lot about multifamily having some self storage and, and understanding the correlation between the two is important.

Reed Goossens (14:18):

Um, but it also goes back to cash flow management. Like these are, these are, these are cash flowing deals. You you’re trying to increase revenue any way you can. And your widget just happens to be a shed rather than a bed, right? So we, uh, we, we just sorted slightly different spaces, but, but fundamentally the, the economic drivers are the same and the same. We trying to look at to, to increase that revenue in the green room, before we press record here, we talked a, we spoke a lot about, and you mentioned earlier, the change that’s happened in the last, you know, since the beginning of the year, what are you seeing right now in terms of, are your pencils are down? Are you still actively looking? What’s your thesis at this point in time?

Jacob Vanderslice (14:56):

Yeah, we, we have a fair amount of deals in the pipeline. We have, uh, anywhere from, uh, income producing deals to certificate of occupancy acquisitions, to lease up to ground development projects. So we’re, we’re still on the market and we are still actively sourcing acquisitions. The environment though is changing by the day. Um, a couple things we’re seeing right now that are of concern. One interesting thing we’re seeing, despite the rising rate environment, we are still seeing self-storage, Capits continue to compress. And I think the reason they continue to compress in spite of the rising rate environment is there’s so much liquidity out there chasing the space that wants to be in the space. There’s been a big rotation of capital from other asset classes into self-storage, especially as a result of COVID like a bunch of retail and hotel guys and hospitality guys are not doing those.

Jacob Vanderslice (15:46):

Like they used to, they wanna, they’re applying to self-storage. So a lot of investors demand out there. Now, as cap rates continue to compress, at least they are recently, we’ll see how that trend goes and interest rates go up. Eventually that’s gonna break. Eventually deals are not gonna pencil anymore. You can’t, you can’t do the math on buying a deal at a five cap and having a 6% interest interest rate, you’re gonna have negative leverage, negative cash flow. Um, but we’re not seeing that matriculate through the market yet, but it just, the math says it has to eventually. And again, I think the reason it’s not yet is there. There’s just so much liquidity chasing the space. The rising rate environment is something we’re watching very carefully and all of us in the real estate investment space, we are all gonna be eventually at the mercy of a debt maturity, right?

Jacob Vanderslice (16:35):

If you don’t sell before your debt matures, we’re all gonna have to refinance whether that’s in three years, five years or 10, whatever it might be, debt will mature at some point. So operators who are making really aggressive revenue growth assumptions, they’re playing IRR games with a cash out refi on year two, returning capital showing that increased IRR and then showing a low exit cap rate on year three or four. I think there’s gonna be some pain that’s gonna come in the market, um, on folks that finance their deals with bridge debt, uh, with really aggressive assumptions. And I, I was, um, I was on a self storage mastermind call yesterday with guys from public Heman reliant, um, bunch of shops out there. And we asked ourselves our operators lying to themselves and their models. And why, why when we offer on a stretch price 25 million, how does that deal trade for 32 million a couple months later?

Jacob Vanderslice (17:31):

Like how was that happening? And a question that was asked was, is it aggressive modeling or is it a lower cost of capital? And our conclusion was that it’s aggressive modeling. Um, there’s guys out there with really low cost of capital, but no matter how low your cost of capital is, if you’re financing this with debt, you’re still at the mercy of the debt markets. And I think people just continue to put very aggressive assumptions into their models. And that’s gonna be, uh, interesting to see how that works its way through the system. The coming months in years,

Reed Goossens (18:04):

For those of you are interested in staying up to date with all the latest happenings 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’ll 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 and much, much more. So head over to reedgoossens.com and sign up date. Now back into the show,

Reed Goossens (18:38):

You mentioned two things there that I think just for the listeners to reiterate, um, refinance in years two, or at some point throughout, throughout the whole deduce the IRR I know from an I’ve admin operator for eight years now, um, had many successful exits I’ve always been taught, never, ever, ever have a refi in your model. If you’re having a refi in your model to get to a certain number is just way too aggressive. But the one thing I wanna do wanna pick up on, and then just to close that loop on that one, you mentioned low cap rates. You know, I, I would be I’m buying deals where my interest rates have always been a little bit higher or, you know, at par with my cap rates or, or maybe slightly negative because the in place rent is so low and given environments, which we have recently, I don’t know if you’re seeing this in the self-storage space, but I’m seeing at least in the multi-family space where my, you know, average rent for a two bedroom.

Reed Goossens (19:29):

Historically, when I first started looking in Texas and stuff like that was maybe eight 50 and that’s back in 2014, 15 over, you know, four or five year period. It grew to a thousand bucks in last, you know, and within the last couple years, that’s grown to, you know, $1,400 in a very short period of time. So there’s still, in my opinion, in growing submarkets where you can find low in placements, thus your low income, your cap, but you do have that, you know, we can achieve a high to have, we actually can achieve a higher market rate. Are you seeing that in the self-storage back to your, uh, you’re talking about your 80 cents a square foot? And so that’s, your cap rate would be a lot lower because you know, you could get a dollar 50 a square foot, um, once you stabilize.

Jacob Vanderslice (20:13):

Yeah. And what I should have said when I mentioned cap rates, it’s it’s, you, you have to really put context when you’re talking about I’m buying it, whatever cap rate, right? Uh, we’re buying deals at negative cap rates, right? but they don’t have any occupancy. They lose money in the first year or two of operations because there’s not enough revenue to pay the expenses. And that’s by design. When I was referencing paying very low cap rates for deals, I was talking about deals without a lot of value creation, without a lot of meat left on the bone. You and I might deal by a deal at a two or three cap, uh, but we’re gonna stabilize it to a six or seven within some number of years. Right. And, um, I, I mean the fundamentals are there to get there, but, um, when you’re buying a deal at a four or five cap without a lot of room for growth, those are gonna be the cap rates are gonna be increasing. I think very quickly just given the cost of capital increase on

Reed Goossens (21:00):

The debt side. Yeah. That’s completely agree. And that’s the fundamentals of any real estate investment deal, whether you’re doing single families or self storages, you have to be adding value and forcing that appreciation, not rely upon the market, which is market appreciation. And we’ve spoken a lot about that on here on this show. So how are you then changing your underwriting these days in terms of sofa, curve, um, you know, changing, you know, rates going up, what are you doing differently today than what you’re doing say six months ago?

Jacob Vanderslice (21:27):

Well, our, our going in interest rates, especially on deals that we’ve brake blocked, they, they haven’t gone up, uh, catastrophically they’ve increased, but nothing, nothing that’s untenable. Um, the main thing that we’re scratching our heads about is if we’re buying a deal on a three year bridge loan, what are we underwriting to on our financing assumptions? When it, when it comes time to take it out mm-hmm and the answer is whatever we choose, we’re gonna be wrong, right? The rates are gonna be higher or lower than whatever we pick. Um, but we’ve been stressing our models up to a 6% interest rate and making sure that they still, they still work. Now, when I say they might still work at a six, what are your NOI assumptions? When it comes time to refi, right? Uh, a 6% rate might work if you hit your NOI growth targets. If you miss those, a 6% rate might crush you. So generally we’re being increasingly conservative on our takeout rate assumptions. And, um, I think that this, this market environment, the rising rate environment is gonna be sustained for this year. And I’m hoping that once the government tamps down inflation, that’s gonna return to more of a normal state. Uh, not that the last few years have been normal, but, uh, a lower rate environment. I think the government’s mainly focused on, Hey, we’re gonna risk causing a recession here in exchange for tempering inflation.

Reed Goossens (22:46):


Jacob Vanderslice (22:46):

Yep. That’s their main focus right now. And obviously the, the biggest tool in the toolbox to do that is, uh, is increasing the fed rates.

Reed Goossens (22:53):

Yep. No, and we, I’ve spoken a lot about this to many folks over the last little while, you know, um, my, my, my, my Aussie’s in me, but, you know, I keep going back to, to 2008, right. That was an American problem today. It’s, it’s a worldwide problem. We’re all the same starting blocks. Everyone’s got the one lever, you know, two levels really reduce liquidity or, or interest interest rates increase. I think it’s gonna be really interesting with the combination of reduced supply chain and lack of labor participation since COVID, there’s this like a combination and just the, the overall fatigue that everyone has of just the fatigue, you know, we, we don’t need to get into it. Uh, but, but the fatigue of COVID the fatigue of, you know, inflation, the fatigue of I’ve got a bloody recession. Like it’s just, people are gonna get sick, fed up with it.

Reed Goossens (23:41):

So I’m interested to see when they keep turning these knobs and not just here in the states, but you know, in Australia, in Europe, in, in Canada, in, in Japan, in Asia, you know, how do you solve the other issues that are affecting some of the inflationary environments that we face ourselves in, you know, the, the war in Ukraine and all that sort of stuff. And that’s gonna be, I, I, I sort of have this picture in my head of a cartoon, like jamming a lever, nothing happening , you know, and yep. I, I, I just, that’s the only other wrinkle to that, that I don’t know what’s gonna happen cuz given the so much weirdness has gone on wars, COVID inflation all the rest of it.

Jacob Vanderslice (24:20):

Yeah. Uncharted territory. But I will continue to believe. And a lot of economists believe this either in an inflation as well, um, in an inflationary environment, controlling hard assets that produce cash flow is a good thesis. Yeah. And that’s what we’re trying to do. And that’s what you’re doing too. That’s

Reed Goossens (24:34):

Exactly right. That’s exactly right. Well, so, so where are you focused only, you know, the next 12 months you said you got stuff in the pipeline, you you’re being a little bit more, you’re being more conservative. You’re looking, you’re stressing it. You’re looking at sensitivity tables. You’re probably looking at what it looks like over a five year hold rather than a shorter year hold. Like what, what other things are you doing to, to prepare for a softening slash recession?

Jacob Vanderslice (24:58):

Well, a lot of, um, a lot of real estate investors use this term, but I, I think your, your main line of defense is creating a mode of cash flow and that cash, that cash flow mode, that’s always our target on every deal we do is that that mode of cash flow and whether the deal’s producing cash flow today, or it’s not, it’s still our target in the end and cash flow is how you get through uncertain times. You’re the, or one certain times you, the value of your properties can go down. Cap rates can increase as long as you’re not staring a, a major debt maturity in the face, in the midst of a meltdown. You can survive if you can hang on. And the trick to hanging on is cash flow. So that’s the main thesis in focus within our self storage practice and investing business, uh, is just creating recurring, durable revenue streams that will sustain, uh, a softening.

Jacob Vanderslice (25:41):

And on a more granular level, we stress our portfolio with occupancy loss with higher than forecast forecasted negative net rentals. Make sure we still have a good debt coverage ratio. And, um, I think a lot of things would have to go wrong before we’re in a position where we can’t make our mortgage payments, right. There’s, there’s a lot of fat baked end, but you never know how bad this could get. Um, every investment’s got an element of risk to it. Uh, but what I like about real estate is it’s not gonna go up 35% in a day, but it’s not gonna go down 35% in a day. Like Netflix did a couple weeks ago and like various stocks right now are doing as we speak. Um, so yeah, that, that cashflow mode is our, our main line of defense in uncertain times.

Reed Goossens (26:22):

And is this the pitch you’re using for investors who are, who ultimately probably picking up the phone and giving you a call and saying, Jacob, what’s going on with my portfolio, uh, and having to sort of educate them a little bit more about the differences between physical assets and paper stocks.

Jacob Vanderslice (26:35):

Well, we, we approach our capital raising as I’m sure you do, um, in a very educational way. Um, it’s more of, this is what doing, this is the asset class. Uh, we don’t say, Hey, give us your money right now or the deal’s gonna close. Um, so the theme that I’m getting from a lot of our investors right now is really what we’re discussing during this conversation is the interest rate environment and the cap rate environment. And I have one guy asked me this guy’s salty. He’s been around for a long time. He just sold a massive rental portfolio that he’s owned for 10 years in Florida. He’s made a lot of money. And he asked me a, a question that, um, I didn’t have a good answer to. And his question was, what do you guys do if you’re financing a deal with a five year loan, your debts amount to mature and the debt markets are totally seized up and you can’t source new debt.

Jacob Vanderslice (27:23):

And that’s a tough question, right? Um, I don’t know what the answer is to that. And I, I guess my, the best response I had was, well, if that happens, we might have bigger problems in the world than, than refinancing our debt out of the storage facility. Uh, you know, we, we could be in the back of our trucks with a, with a 50 cow mounted, uh, trying to, trying to source jugs of water and gasoline . Um, but you know, that happened in 2008, right? It wasn’t, it was a big meltdown, but you know, there wasn’t blood in the streets literally. Um, but that’s, that’s what people are thinking about these days is just how uncertain the future is and navigating that and trying to be defensible.

Reed Goossens (28:02):

Yep. I think the, the other thing to add to that is, you know, we talk about liquidity and, and, and, and debt markets drying up, which is an effect of that. But everyone looks at 2008, have a lot of scars from 2008. You also have to remember what triggered that through bad lending practices and that, you know, formulated it percolated around the world. I think today you look at the lending practices and the, you know, the debt coverage ratios and the debt yields and all that sort of stuff, and the qualifications. And we’re just not in, we’re not in that same space, at least from what I’m reading. I’m not an, I’m not an economist, but, um, that the, but it does doesn’t mean we can’t be affected in another way that we haven’t even seen. Like we didn’t even think about COVID could, could affect us and the way it has, you know, from walls or whatever.

Reed Goossens (28:44):

So it’s interesting, but hopefully the fundamentals, not hopefully the fundamentals of real estate cash flowing real estate, um, do, uh, our recession pro recession proof and keep cash flowing through those bad times. It will be interesting, um, to, to see maturities. Uh, I know, and you’ve been around long enough as I have that, even in 2014 and 13 and 15, everyone thought, oh, you know, these short term loans are coming to an end and there’s gonna be crisis on the streets. I remember this they’ve said that for years. you probably said, you know, like, so I think you’ve been around, you know, a little bit more gray hair than I do, but I, I it’s, it’s maybe the same spooky thing that everyone, you know, thinks about and it, it, it hasn’t knocked on what hasn’t come true yet. I don’t know if there’s, that’s really a question. It’s more of a statement, but I I’ve heard this same line for the last 10 years as well. You know, shortterm rates, shortterm rates, short, shortterm, it’s gonna come to a maturity. You’re gonna be screwed when you can’t get, you know, you can’t get yourself out of it.

Jacob Vanderslice (29:44):

There, there, there’s always a doomsday story. And one big concern, uh, where we are at today is this era of expansion has lasted a very long time. Mm-hmm

Reed Goossens (29:55):

Jacob Vanderslice (29:55):

Yeah. The wheels come on off the bus in oh eight. The market began recovering to a degree in oh nine and 10. And from there just kind of kept going and time eventually is gonna temper that. Yep. And the question is what catalyst is gonna cause that, well, we had a pandemic, it hurt hospitality to hurt retail and employment went up. Um, but generally, uh, real estate values, instead of going down, they all went up. They all went way up. Look at the residential space right now, especially the single family residential space. It is more on fire and irrational in our Denver market than it was in even Q4 of last year, exponentially more so. And we talked about fundamentals and normal underwriting, figuring out what a deal’s worth by looking at comparable, uh, sales, you know, price per square foot bed, bath count, finishes, lot size.

Jacob Vanderslice (30:43):

Those fundamentals have been uncoupled, uh, in, in Q1, going into Q2. People are bidding on properties that are, they are not worth what they’re paying. Um, and 20% appreciation on year on year is not sustainable. Uh, you can’t continue that. You can’t keep just 20, 20. You just, you can’t do it. Eventually. It becomes even more irrational. And I don’t, I just don’t know what that, uh, that mechanism is gonna be. That’s gonna cause, uh, the market to soften the decline in values to your point earlier on debt, contrary to 2008 lenders actually verify you can pay the debt back today. And they were doing that 10 years ago, 10 plus years ago. So yeah, it’s gonna be, uh, interesting. And we all have to be well positioned to not only defend against it, but, uh, potentially capitalize on any pain in the market, uh, might produce.

Reed Goossens (31:30):

Yep. And the same story’s happening in Australia. I’ve talked to, talked to investors back there. I talked to investors in England, it’s rising, you know, rising interest rates. So rising house costs hard to get into the market coupled with, you know, and unprecedented growth in rates and, and values. And it was just in Canada last week when he’s with a real estate buddy of mine, he’s he is, uh, he buys up there SA same exact thing in Vancouver going through the route. Like it’s just insane what they’re paying for condos up there. Um, so it’s it’s, if it does something does happen, it’s gonna be massive blood, not only here, but, uh, around the globe. So, um, yeah, it’ll be interesting to see. Well, mate, look at the end of every show, we’d like to dive into the top five investing tips, ready to get into it.

Jacob Vanderslice (32:14):

I’m all set,

Reed Goossens (32:14):

Mate. What is the daily habit? You practice, you keep on track towards your goals.

Jacob Vanderslice (32:19):

So I do, um, not every day, but I do a lot of journaling. It’s kind of a brain dump, um, all journal when I’m like 15 minutes between one call to the next, it’s not enough time to, to, to accomplish a, a big task. So I’ll just kind of brain dump on what’s going on. Um, that’s kind of therapeutic and it’s cool to look back like a year later and see what you were thinking about what you were working on, where your mental state was. Another thing I try to do, which I don’t always accomplish is get my most undesirable tasks outta the way in the morning. Just go address that big task you have to do. That’s painful a bunch of analysis you might have to do or report. You have to write up. Those are two things that I’ve found, uh, very helpful and you know, to a degree therapeutic.

Reed Goossens (32:59):

That’s awesome. Uh, question number two is, uh, who’s been the most influential person in your career to date.

Jacob Vanderslice (33:05):

There’s been a number of them. I’ll I’ll name two. One guy was, um, uh, he’s a, he’s a good family friend. He’s outta San Francisco. He, he runs unsuccessfully against Nancy Pelosi every year for Congress or every two years. And I remember I was skiing with him back in like 2004 and he was on his windows mobile phone with like a stylist and he was closing being a real estate deal on the chairlift. And I remember thinking to myself, man, I wanna be this guy. I wanna be in real estate. I wanna do real estate. So he was kind of the catalyst got me interested in. Um, but the other big influence of course is my wife. She, um, my income just like yours is very lumpy wheel, right? It’s uh, some, some quarters you you’ll have a liquidity event, but you have to go co-invest into your next deal. And she’s kind of the rock that’s, uh, kept the family cash flow up, uh, with that strong, that strong bank W2. And, uh, she’s got an entrepreneurial spirit as well, but she’s, um, you know, be a lot of sacrifices to allow me to do what I do.

Reed Goossens (33:59):

That’s awesome. Yeah. Having a good partner in life is, uh, really, really important. Uh, question number three is what’s the most influential tool in your business could be a physical tool, like a phone, a journal, or it could be a piece of software that you just can’t run the business without.

Jacob Vanderslice (34:12):

Yeah, only two. Um, one of them is slack. All of our Intercom communications are on slack. We have different channels for different things. It’s hugely helpful. It eliminates email traffic. The only thing I don’t like about it is you can’t really, uh, easily flag something or archive something and deal with later. Um, it’s more of like a texting format. So we use a lot of slack. Um, our entire operations team around the country is on slack. Our, our Denver office, that’s been a really useful tool. And the second thing we use has been really useful is, uh, our CRM called HubSpot mm-hmm does all of our investor updates, investor marketing emails. Uh, we have a really handy little call scheduling link in there that integrates with the CRM, like a customized branded webpage, like talk with fan Wests with their logo on it. So yeah, those are kind of two that come to mind off the top of my head HubSpot and, um, slack are two.

Reed Goossens (34:58):

Great. Yeah. Love, love those things. It such such more increas your efficiencies, uh, across multiple markets across multiple team members. So awesome stuff. Um, in one sentence, what has been the biggest value in your career? What’d you learn from that value

Jacob Vanderslice (35:11):

Value wise? I, I would, I guess I’ll answer the, the, the question with experience and I guess the most valuable experiences I’ve had are my failures. Mm. Um, I, I remember the failures like they were yesterday and the home runs are just so easily forgotten. You can chalk it up to luck. You can chalk it up to market timing, but just remembering what it was like to be going through 2008. Um, I think about that almost every day and how I apply that to our investing thesis and defense ability today. Um, I also learned, uh, don’t build a single family home outta shipping containers. uh, that’s, that’s all, that’s all I learned. Just, um, you know, just, just don’t do it. Um, so that’s another little takeaway there.

Reed Goossens (35:53):

Awesome stuff, mate. Well, last question is where can people reach you to continue the conversation they wanna be in your sphere? Where do they go?

Jacob Vanderslice (35:59):

Yeah, folks can go to our website, uh, Vanwest partners.com. They can email me Jacob van, west partners.com or hit me on LinkedIn, Jacob Vanderslice.

Reed Goossens (36:08):

Awesome stuff, mate, look, I wanna thank you so much for jumping on the show today. I just wanna repeat some of the stuff that I took away from today. So I really liked your in depth, you know, breakdown. And thank you for that for talking about how you’re looking at vacancies, how you’re looking at the supply rate for self-storage, how you’re looking at the different types of cap rates in terms of adding value and how that correlates to your, um, investment thesis, not only, but also to your interest rate your variability over the, the life of the loan, uh, and the life of the deal. Um, then also, you know, we dive deep dive deep into the, the, the economy and what, you know, what, what could be coming around the corner. We don’t know. We all don’t have a crystal ball and we’re just trying to be active in the current and market situations, uh, mate, but to leave anything out.

Jacob Vanderslice (36:49):

I don’t think so. Yeah. Good summary.

Reed Goossens (36:51):

Awesome stuff, man. Well, look, I wanna thank you again for taking some time outta the day, enjoy the rest of your week and we’ll catch up very, very soon.

Jacob Vanderslice (36:58):

Good to see you

Reed Goossens (36:58):

Reed. Same with you. Well, then have another cracking episode jampacked with incredible episode from Jacob. Please remember to head over to Vanwestpartners.com to check him out. Uh, Jacob is also all over LinkedIn. So checking out over there as well. I wanna thank you all for taking some time outta your day to tune in, to continue to grow your financial IQ, because that’s what we’re all about here on this show, and we’re gonna do it all again. Next week’s remember, be bold, be brave and go give life a.