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SHOW NOTES FOR EPISODE 133: INVESTING IN SELF STORAGE FACILITIES
Real estate investing has many different asset classes but there is one where rental income is generated with no tenants. In this episode, Hunter Thompson, podcaster and founder of Cash Flow Connections, examines the inflation-resistant benefits of self-storage facility investments.
What You Will Learn
- Why self-storage is recession-resistant
- What other real estate investment is recession-resistant
- What makes self-storage one of the best real estate investment classes
- Parts of the U.S. that are especially good areas to invest in self-storage
- Proven ways to add-value to a self-storage facility investment
- Physical signs that show a self-storage facility is a good investment
- The importance of safety and security
About Our Guest
Hunter Thompson
Hunter Thompson is a full-time real estate investor and founder of Cash Flow Connections. Since starting CFC, Hunter has helped investors allocate capital to over 100 properties, which have a combined asset value of more than $350,000,000. His experience includes investments in self-storage facilities, residential mortgage notes, mobile home parks, single-family acquisitions, hard money loans, office buildings, and multi-family real estate syndications. In connection with these investments, he has worked with some of the most experienced and well- respected asset teams across the United States and Canada.
Hunter is also the host of the Cash Flow Connections Real Estate podcast, which helps investors learn the intricacies of commercial real estate from the comfort of their home.
More About Hunter
- At a young age, sold books, tapes, his own burned CDs
- Sold parking spaces at his home for nearby concert venue
- Studied economics in school
- When 2008 happened, he knew that an opportunity was happening but didn’t know what it was
- In 2010, he realized it was real estate
- He heard at that time about if the Greece bind yields went below 7% the S&P would crash
- It let him focus outside of stocks into real estate
Move into Being a Lender
- Saw that lending had tightened up
- Started lending to flippers at the time at a low LTV
- Started lending in Memphis, TN
Started Investing in Other Asset Classes
- In 2013, still wary of market shifts, he wondered what assets would have a demand during tough times so he sought out recession-resistant assets
- Mobile Homes
- Self-Storage
Self-Storage
- Demand is extremely stable
- Can increase during recessions
- When do people use self-storage?
- There is some kind of change:
- Moving
- Getting laid-off
- Foreclosures
- Strong need during recessions
- There is some kind of change:
- From mid 90s to 2010, storage facilities increased from 20,000 to 50,000 – demand grew, rental rates increased
Self-Storage as an Investment
- He invests in other people’s facilities
- He invests in the person (best in class) and looks at their track record
- Do they under-promise and over-deliver
- Likes the Southeast (Florida and the Carolinas)
- Tenant base is sticky – easy to increase rents
- Many mismanaged facilities
- Can add value quickly (i.e. allow U-Haul trucks on facility that can be rented out to tenants where you get paid commission)
- Looks for top tier sponsors that have been in the industry for decades, 100s of millions of dollars transacted, with on and off-market transactions and a strong history of success
Finding a Good Property
- Finding a good deal can be deceiving
- You can find a property where most experienced investors will say, “Where’s the value-add here.”
- On-market transaction in a market that’s 90% occupied market where you can get 91%
- There’s a difference between physical occupancy and economic occupancy
- Best deals are found without looking, for example
- When you see a facility that doesn’t have U-Haul
- Facility that does have mandatory tenant insurance (renters insurance)
- Can add hundreds of thousands of dollars of equity to a property without capital expenditure
- When you have many properties that have those things added to see the economies of scale
What kind of a Return is Expected
- Great long term investments
- 7-10 year time investment horizons
- Low to mid-teens annualized return
Other Value-Add Features
- Can add climate controlled facilities (can store family heirlooms)
- U-Haul trucks
- Mandatory insurance
Dealing With Tenants Who Don’t Pay
- Mismanaged property can turn around quickly, within 6 months, by just implementing stricter late-pay penalties
- Institute 5-day late penalty fees
- Tenants gone within 30-90 days if still no payment
- Investor needs to know that some states, like with other rental property classes, are more favorable for tenants, over landlords – you need to know the good states for landlords
Security & Safety
- He only invests in “class A” facilities, which have
- 24-hour security tapes
- 24-hour lighting
- 24-hour on-site property manager
- Hidden visibility – covered RV storage spaces
- Women make up the majority of tenants
- They want to feel safe
Odd Things People do With Mismanaged Self-Storage
- Set-up their own gym and sell access
- Can prevent with 24-hour property management presence
Biggest Challenges
- Being consistent on rental increases (fear of losing tenants)
- Need for additional properties (creating competitive advantage)
His Business
- Cash Flow Connections, his business, is a vehicle where they allow investors to leverage the relationships his team has built over the years investing for their own portfolio
- He became a full-time investor in 2011
- Sought to diversify his portfolio
- As he developed relationships with sponsors and put an infrastructure in place (due diligence and underwriting properties), he created opportunities for other people to invest capital
Rap-It-Up
- Favorite real estate books: Rich Dad Poor Dad by Robert and the Millionaire Real Estate Investor by Gary Keller
- Favorite business book: The 4-Hour Workweek by Tim Ferris
- Most valuable web site for success (other than your own): Dr. Housing Bubble
- Favorite app: Uber
- Favorite quote: “Buy the ticket, take the ride.” Hunter S. Thompson
- If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? Would spend the money to get in front of people to sell/present a product that he’s very passionate about.
Best Way to Reach Hunter
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