Hey, it’s Saul.

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Do you sometimes catch yourself talking to yourself about the good old days? You talk about how deals were plentiful and how it's not like that anymore.

Well, I do catch it myself, especially when I dig into past deals that I want to use in my case studies.

For example, I can't believe I bought a storage facility for $35/sf in Machesney Park, IL almost 3 years ago. These prices don't seem to exist anymore.

Ah, the good old days.

Before we dig in, let me share a quick story.

A few years back, we had a mastermind with my real estate friends. One of our guys invited his mentor, who was one of the largest landlords in Chicago.

We did use the opportunity to ask questions about real estate and business in general.

One of the questions was, "When do you think is a good time to buy?"

I recall a brilliant answer:

"The best time to buy was 20 years ago; do you know what's the 2nd best? "

No answers...

And then he goes:

"Right now".

This stuck with me for the rest of my life. I'll come back to it in the takeaway section.

Now let's go back to the deal.

We bought the Budget Storage facility on December 31st, 2021, for $750,000.

It was 21,720 sf on a 1.52-acre site.

It had 103 units, 99% occupied. Total gross income was $72K, with a $40K in NOI.

It was a mom-and-pop business run by Vicky and her husband.

The facility was well-kept, built in the 2000s. Rents were way below market.

They had no website, no software management system, and no online marketing.

Also, they had a full-time person on-site, so their Opex was through the roof.

I underwrote that we'll get NOI to $99K, which will yield $1.32M in value at 7.5% in less than 2 years. 

Back then, one of our underwriting rules was that if we jumped on the deal, we must have a way to add $500K+ in value. We'd do this through renovation, improving occupancy, and getting to market rents.

It seemed light, straightforward deal and I said, "Let's Go".

The goal was to do this in 12 months or less.

Improvements, a.k.a. "Lift"

Here is what we end up improving it.

1. Installed automatic gates.

2. Implemented StorEdge software to automate payments and collections.

3. Built a website, Google My Business, and Facebook pages.

4. Set up Google Paid Ads and Sparefoot leads.

5. Removed on-site person. Set up remote management. Hire maintenance person to come in 1-2 times per week for $800-$1,000.

6. Sealed an asphalt.

7. Installed additional cameras.

8. Added solar-powered lights.

9. Replaced locks to DaVinci, which integrates with your software.

10. Added an extra 2,400 sq. ft. of portable units. We bought them at $27 sq. ft. with delivery, which is cheaper than our base acquisition price.

To summarize, we initially had only $50K in repairs. But, we ended up doing more than expected and spent almost $100K.

The jump in CAPex was because of extra square footage.

Revenue

When we bought the facility, we had $7,365 per month coming in. In our pro forma, we expected to increase it to $13,400.

The seller was charging $50-$55/month for 10x10s when the market rate was over $90/month. So I knew there was a lot of room to improve revenue.

Based on these preliminary numbers, I knew that we could almost double the value if we could get to market rates.

*Pro Tip: I made a formula to estimate the future value of self-storage facilities after improvements. This helps our acquisition managers quickly decide whether to continue negotiations with sellers. The formula is: market rate of a 10x10 unit in that area divided by 0.000073. To predict a facility's future value, check the price of 10x10 units nearby. Divide by our factor to get the value. This is assuming that improvements are made and market rates are met. If a seller's price is millions above this estimate, we move on. But if we spot a potential profit of $500K or more, we dig deeper.*

We stuck to the plan; we improved and increased pricing.

It's worth mentioning that we made one mistake along the way on this project, which we don't do anymore. We started increasing prices before we were 100% complete with the improvements. This pissed people off, and we had some negative reviews.

In the future, we'll wait on revenue management until we finish improvements. Then, tenants can appreciate them and push back less on increases.

As a result, our monthly revenue was $15,556. This was much higher than the projected $186,669 per year.

Exit

We end up selling it for $1.5M ($61/sf) at a 7% Cap in December of 2023.

With a physical occupancy of 92%.

It took us two years to do this deal.

It was pretty light on time and effort, with no major surprises.

Takeaways

1. We almost always lease for more than projected.

2. It almost always takes longer than expected.

3. We almost always underestimated CAPex.

4. Portable units are a super hack. They add new square footage below basis cost.

5. There is always going to be good deals if we believe in a better future where improved buildings command higher value.

P.S. Here is my latest video, which I wrote about in my last email. It is a 10-step process on how to supercharge your leasing marketing. Using it, my team and I have consistently leased 100,000 to 250,000 square feet per year.

P.P.S.If you like what you read, please share it with your friend.