Today we’re talking with Kris Bennett about the beginner’s guide to self-storage investing. He talks about how he took his first acquisition from 70% to 90% occupancy in 60 days in one easy step, how to be as hands-off as possible in your investments, how he finds his deals even in a saturated market, and what specific metrics to look for to know you’re getting a good deal.
Kris Bennett Real Estate Background:
- One of two self-storage managing partners at PassiveInvesting.com
- 14 years of CRE investing experience
- Recently closed a 15,000 SF self-storage facility and adding another 150 units, or 22,000 SF of climate-controlled units
- Under contract on 2 self-storage facilities in NC and CO totaling $18 million in price
- Based in Vacaville, CA
- Say hi to him at: PassiveInvesting.com
- Best Ever Book: Principles
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Ash Patel: Hello, Best Ever listeners, welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel, and I’m with today’s guest, Kris Bennett. Kris is joining us from Chapel Hill, North Carolina. He’s a full-time investor and is a managing partner in a self-storage company. Kris has 14 years of real estate experience, which includes residential brokerage, multifamily and self-storage. He also launched a fund on CrowdStreet to buy smaller storage facilities and unman them.
Kris, thank you for joining us. And how are you today?
Kris Bennett: Ash, I’m doing well, man. Happy to be here.
Ash Patel: Thank you. Before we get started, can you tell us a little bit more about your background and what you’re focused on now?
Kris Bennett: Sure. Right now I’m focused on self-storage acquisitions; we have just launched a $50 million fund to go out and buy self-storage facilities across business-friendly states and growing cities and suburbs; Texas, Colorado and the South-East. So that’s exciting. We could talk more about that later on if you’d like to.
But I got started back in 2007, just as you mentioned, doing residential foreclosures and brokerage, which is probably the worst time to get started in the industry. And nobody knew what was coming in 2008, 2009 and 2010, so on and so forth. But it was interesting, because I did work in the foreclosure business, as I mentioned, doing actual evictions, working with asset managers and banks to get properties renovated and put back on the market. It was not a fun job, but at least that was a job.
I decided around 2011 that real estate really wasn’t for me, and I wanted to go do something completely different; I decided to go to school, go to college and try to make a career for myself in some other field. Coincidentally, got to UNC Chapel Hill, and the only job or internship I could find was actually working for a private equity real estate firm that was buying apartment complexes. And I had no idea really what they were doing, but they hired me on basically as an analyst to help underwrite properties or underwrite deals.
But long story short, I realized that you could purchase a property, commercial real estate, apartment complex with other people’s money and renovate it and hold it or sell it and obviously do really well for yourself. So at that point, I was hooked.
I graduated from school there and went on to work for an office in Raleigh, North Carolina, and we were doing multifamily acquisitions, ended up pivoting to self-storage. We couldn’t make some of the numbers work back then. So we pivoted to self-storage, and that’s where I learned about the asset class and the opportunity there. And fast forward and that’s where we are today with passiveinvesting.com/, looking to go out and acquire self-storage facilities, as I mentioned earlier on.
Ash Patel: Alright, let’s start at the beginning.
Kris Bennett: Yes.
Ash Patel: What was your first acquisition?
Kris Bennett: It was a self-storage facility in Charlotte, North Carolina. Oh, by the way, just real quick, a clarification; I do live in Charlotte, North Carolina. I’d lived in Chapel Hill previously, but first deal was in Charlotte, North Carolina, a smaller mom-and-pop, bought it for $1.3 million, had 40 units—I forget how many exact units there were. But 40 units needed to be trashed out or just cleaned out. The lady who owned the place had no idea who was even renting those units; they had no lease whatsoever there, they just had stuff in them.
So we ended up trashing those out, we took occupancy from let’s call it 70%, up to about closer to 90% within 60 days, by literally just having a website that people could rent units online. So that was the first deal, probably one of the best deals; it was the most memorable deal to me.
Ash Patel: Kris, the numbers on that, $1.3 million – where did the money come from?
Kris Bennett: That was the first deal that we did with the fund that you mentioned on CrowdStreet.
Ash Patel: Okay.
Kris Bennett: And that was with a different firm that we raised that fund. It wasn’t just me, it was all of us together. We raised that fund on CrowdStreet, and that’s where the capital came from. So we used them — this was in 2017; I think it was 2017. So we use CrowdStreet, and that’s where the most of the capital came from. And obviously we put in some of the money ourselves as well, and guaranteed the loan etc.
Ash Patel: What was that process like, raising money on CrowdStreet?
Kris Bennett: It’s a good question, a lot of people ask that. It was very easy to work with them. Now, I’m sure that they’ve changed some of their policies and costs and all that stuff since that time; it was four years ago now. But it was a bit expensive. So you pay for that upfront, but they are the ones—it’s almost like what Joe Fairless does and what you’re doing and others who start a podcast and put content out there… You’re essentially becoming your own CrowdStreet, right? You’re bringing investors in, educating them and then placing them into deals, the deals that kind of makes sense for those investors. That’s what CrowdStreet was doing. And obviously, they charge a fee for doing so.
So it made life easy for us that we didn’t have to go out there and build the platform from scratch. But obviously, there’s a trade-off to everything; there’s a trade-off to that, there’s a cost to it in order to do so, to use their platform. But all in all, great experience, they helped us a ton, and it was just all-around fantastic.
Ash Patel: What was the vetting process like? How deep did they go into the deal or your background?
Kris Bennett: They do, pretty much I would say, what anybody else does; obviously, verifying backgrounds, criminal history, all that kind of stuff, financial, any issues there. But as far as the team is concerned, they asked about all the deals that we had done up to that point… Now I have personally had not done—zero deals. But the guys I’ve worked for had done a good number; I can’t remember the number now, but maybe let’s call it 15-20 deals in multifamily and some other smaller stuff.
So they vetted those deals to make sure that they were legit, that they were verified investors in those deals and actually owned the properties, which is pretty important… So they went pretty deep on all of it. I remember that they sent a ton of emails back and forth just trying to ask for clarification on our underwriting on that one deal, of course, for the fund. That was the first one going into the fund, so asking us questions about that deal and the whole team. So they did, I think, a very thorough process that you would expect from the platform like that.
Ash Patel: And you didn’t know the investors that raised capital here, right?
Kris Bennett: No, we didn’t know any of them. So they all came in — I think our minimum, it was either 25k or 50k. I think it was 25,000 if I remember correctly. And again, that was for the fund, of course. So our goal was to raise $10 million at the time. But yeah, we didn’t know any of them. They would send questions, they can communicate with us directly, of course. If they wanted to hop on a call, we can do so, there’s no issue with that. CrowdStreet would try to handle a lot of the questions as they could, but there’s always some that they can’t always answer. So it was very transparent. So it wasn’t like we were behind some curtain that nobody could get to us or something like that. No, we didn’t do it that way.
So we did talk to a few investors, but the majority just ended up investing with us just based on trust. And I think the CrowdStreet platform helps give you a little bit of credibility when you’re first starting out, because they do vet you before you actually get on the platform. Again, those rules have probably changed in the last four years and what they’re allowing on the platform, but at the time, that was what it was like.
Ash Patel: And would you use them again?
Kris Bennett: Oh, sure. I don’t think we need to, because we’ve built in the sense, quote unquote, “our own version of CrowdStreet with the podcast, YouTube channel etc, and doing interviews like this,” but would we use them in the future? Sure. If the cost benefit made sense, absolutely, because they’re a great platform.
Ash Patel: Good.
Kris Bennett: Yes.
Ash Patel: So Kris, you mentioned you took smaller mom-and-pop facilities and unmanned them. How do you do that?
Kris Bennett: That’s a great question, man. So there’s a couple of schools of thought – really only two, I guess you’d say, in the storage space; two mainstream thoughts. So either one is you’d have to have a manager on-site full-time, and that’s pretty commonplace; you go to a hotel, you go anywhere you see somebody there working there behind the counter. Storage was, for a very, very long time, like that when you get to the larger deals.
Now some of the smaller mom-and-pop deals, like let’s say it’s a 20,000 square foot deal, or let’s call it — a dollar amount, let’s say it’s under $2 million purchase price. Some of those deals, you can’t actually afford someone to be there full-time or you might have someone part-time, something like that. Or you say, “You know what, I have a full-time job, but I’m going to have someone there full-time anyway, or part-time and just pay them and just kind of bite the bullet.” That eats into your NOI, of course.
So the way you can operate them, in a sense, unmanned or unattended – the word nowadays is usually unattended, it’s become very popular now… But unattended, meaning you have a call center. So when someone wants to rent a unit, they find you online via Google or whatever, they make a phone call, it goes directly to the call center, and the call center is usually a third-party call center. So they handle calls for all kinds of storage facilities, not just yours. So there’s trade-offs with that, but the point is, is they call and ask questions to the call center, usually price, location size, availability of units, how the lease works, etc.
The manager is not there, obviously, to take calls. So what do you do when the person goes and shows up? Well, if they have questions of where their unit is or get lost or something like that, or have any other questions on maybe just access issues or whatever, “Where can I put the truck?” and all that kind of stuff, again, the call center answers all of those questions.
The trade-off with that, the biggest labor-intensive part of self-storage is actually overlocking people who are late on their payments. So in multifamily, you might obviously get a late payment and late notice, and then if it keeps going, you evict the person, right? Well, in storage, everything is locked behind doors. So when that person is late on their payment for the month, the manager goes out and puts an overlock is what it’s called… But it’s basically just another combo lock right on the little latch there so that the tenant cannot go and take their lock off and access their goods. Once they pay, the manager goes out, takes the lock off, and now the tenant can access their goods. So that’s a labor-intensive part of things. Well, how do you solve that issue as far as overlocking people and then taking the lock off when they pay, because people want access to their stuff?
At 10 Federal, they developed the DaVinci Lock, is what they call it, and basically, it’s a combo lock where on the lock itself there’s a serial number, you text that number to a phone number, and you’ll get the combo text right back to you, and you can take the lock off yourself as a customer. So you were late, you made your payment, you want to get that lock off so you can access your goods, text that serial number to the phone number, they give you back another number, which is the combo to the lock, and now you take it off and place it in the dropbox on your way out of the facility.
And then we hire a [unintelligible [00:10:17].28] guy or girl to go by and make sure the place is clean. They stop by usually once or twice a week to make sure it’s clean, in order. There really isn’t that much to do at self-storage to be honest with you. So they go by just make sure that it looks good. They do the rent roll check to make sure all the locks are in the right units, so on and so forth; answer any questions that you might have about, “We saw something on the camera, can you take a look at this thing?” or whatever it might be, or pick up that piece of trash; somebody left behind something, get rid of that and get it off the property.
So usually, again, institutional or larger deals, you handle them with a manager on site who handles all that stuff. Smaller deals, mom-and-pop deals, which was what we were doing, you can run it other ways like this, by using a call center and some [unintelligible [00:10:54].23] folks to run by and take care of your facility on a weekly basis.
Ash Patel: And there’s an automated gate?
Kris Bennett: Yes, there’s an automated gate. So when somebody rents a unit, they get their combo that gets them gate access, then they just punch that in, the gate opens up and get inside and do what they need to do and then leave. Yes.
Ash Patel: Can that be remotely managed?
Kris Bennett: The gate itself? Yes, absolutely.
Ash Patel: So you managing company can—
Kris Bennett: Yes.
Ash Patel: —open the gate for somebody.
Kris Bennett: Yes, if there’s an issue, we always get the gate open. And let’s say there’s a power outage, because sometimes that happens as well… We have a facility that’s happened to a couple of times – we’re replacing the keypad. But if there’s a power outage on the gate itself, all they do is call the call center and say, “Hey, I’m stuck.” On the gate itself, the mechanism that operates the gate, you just hit a little switch and now it becomes manual, and you can just open the gate and get out. So – pretty easy.
Ash Patel: Somebody doesn’t monitor those cameras, right? It’s only if there’s an incident?
Kris Bennett: Yes, it records, usually. But if there’s an incident—there’s a couple ways to do it, though. I know at another company, they own a large portfolio of properties; every single one of them is unmanned, and they have cameras on [Crosstalk].
Ash Patel: Unattended?
Kris Bennett: Unattended, yes. Sorry. Thank you for correcting me. Unattended, and they have a couple of security folks who actually work in shifts. Now this is a legit operation, right? They work in shifts, and they watch and monitor all the cameras. So they’re motion-sensitive, so they don’t actually keep running all the time, unless somebody trips the motion or maybe, I guess, a rodent or something that actually makes the camera turn on. But that’s how they operate. So there’s a couple ways to do it. I would say that’s the top of the food chain way to operate when you have 24-hour security guards watching cameras.
Ash Patel: Well, Kris, you make this sound easy. Should everybody go out and buy their neighborhood storage center when it’s up for sale?
Kris Bennett: I think they should, actually. It’s a little contrary answer, but I think they should. This is not a complicated business to get into. I was talking to someone earlier today, and they were saying, “Well, what’s the mousetrap here? It’s not like you’re doing anything new in the industry besides the management.” And in a sense, you’re right. So in apartments, what are you doing? You’re looking for an apartment complex, it could be a fourplex, a five, a 10, a 200 unit, whatever, but you’re going to buy it renovated, hold it or flip it in five years. Whatever the story, whatever that goal is.
I think on the storage front the opportunities even greater for the smaller investor to get into the business.
We had a really small deal under contract. This was a while ago, when I was doing stuff on my own with a partner. We had a really small deal. 2,500 square feet – that’s small. 22 units on an acre of land; you can do a lot more with that acreage; park vehicles, put more units, whatever, and operate the whole thing remotely. We had it under contract for $112,000, for 22 units here in Charlotte. So I absolutely think so. If somebody out there has some cash set aside and they want to jump into the business, 100%.
Now you should get some help doing that. There’s a lot of coaching and mentoring programs out there. I don’t offer anything, I’m not selling anything. But there’s a lot of programs out there that will help you get into the business and I think that’s actually very critical to help you get started. But yes, I think you should.
Ash Patel: So the secret’s out on mobile home parks, self-storage units. How do you still find deals in this market?
Kris Bennett: Well, there’s only one person to talk to, and that’s the owner of a deal. So you build your pipeline, you build your lead source, I guess you’d say your list. And then you go through that, and you can literally call or send letters. You’ve got to get in front of the owner in some way, or stop-by facilities. I’ve done that in the past, literally just popped in. Usually, a mom-and-pop owner will be managing it themselves. So if you stop by, there’s a pretty good chance, you’ll end up talking directly to them versus an onsite manager.
So anyway, you’ve just got to do the work. And then people usually ask, “Well, how do you get a list? How do you put that together?” Well, we use a software data program called Yardi Matrix. Again, I don’t get paid anything for saying this stuff. But you reach out to Yardi Matrix and they will literally give you access, obviously, for a cost. And it gives you the names, numbers, addresses of every single owner of every single facility that you want to contact within your target market. And you can download that to an Excel spreadsheet. Day one, you can download the whole thing, sort it and remove the ones that are too big or outside your criteria or whatever, and boom, there you go.
In Charlotte, there are approximately 450 self-storage facilities. Let’s say about half of those might meet your criteria, about a quarter of those might be the ones that are true mom-and-pops who might be willing to sell… So right there, you have a list of, let’s call it, 100 people that you can start contacting to see, and from there, it just takes time to build it up.
Now what we’re doing – obviously, we’re working with brokers to do the same thing. So it’s either direct to the owner or you’re going to work with a broker who’s already gone direct to the owner, and has built a relationship of trust with the owner over time. And now that they’re ready to sell, they want to work with that broker. So that broker has a good relationship with the owner. So working with brokers as well, and we have relationships that extend back for quite some time with a lot of brokers, so it helps us get in front of those deals.
And we don’t win every single deal that we bid on, of course, but we’re usually in the top three or so and the brokers have gotten to know us and trust us over time. For them it’s a matter of can you close and do you have the capital? Are you going to make this a very difficult process? What does your LOI look like? Is it complicated? Is your contract complicated? They want to know some of those things upfront, because they’re going to position you to the seller. And so they want to know some of those things. So some of the relationships that we’ve built over time, the offers we’ve made helps position us usually within the top three or so bidders for a property.
Ash Patel: So you make it look easy, but you’ve put a lot of work—
Kris Bennett: No, this is—yeah.
Ash Patel: —into building network,
Kris Bennett: No. Yes. This is not easy.
Kris Bennett: Yes.
Ash Patel: Yes I know.
Kris Bennett: That’s exactly right.
Ash Patel: Kudos to you. What are some of the metrics you look for? I know with multifamily residential there’s a 1% rule, a 2% rule… What are some metrics that investors should look for on a high level, that states this is a good deal?
Kris Bennett: So forget those rules… Storage is a little bit different, forget those rules. If I’m looking at a deal in a bubble, I’m not looking at the market, I’m just looking at a deal, looking at OM or something like that. I look at those expenses. I might see the gross potential, that probably has a unit mix in there, and I’m using a broker package as an example here. I might have a unit mixed in there, with some gross potential, whatever, some pro forma rents, etc. That’s all great and dandy. What I want to look at is expenses – how are they operating this facility, and what ratio of expense-to-income are we getting in here? So in other words, for every dollar of effective gross income that we’re getting, that’s coming in, what percentage of that dollar, how many cents are going to expenses?
In storage, typically – it depends on the size of the facility, but typically, your expense ratio should be roughly 35%. So for every dollar of actual income, you spend about 30-ish, 35, maybe 40 cents on expenses. Now, if we’re above that, it could be a reason, because of taxes or payroll. Usually, those are the two biggest expenses, real estate taxes and payroll. Well, if I’m going to operate unmanned or unattended, then I can remove the payroll — or not remove it totally, but minimize it. So that maybe they’re paying someone $40,000 or $30,000 a year to be there full or part-time. Well, I can cut that drastically down to maybe even a quarter of that if I use a 1099 person to swing by. So right there, I’ve already improved the operations of the facility.
How are they doing their marketing? I should probably spend no more than maybe $500 to $1,000. It really depends on the size and location of the facility, but somewhere in that range on the marketing of the facility. If they do it a lot more, you’ll see some of these facilities that actually do yellow pages still… And I’m not kidding. Like, they’ll do Yellow Pages. They do these random things because they’re true mom-and-pops. So is that an opportunity for me to improve? What have they repaired recently? If they fixed the roofs and all that, and the gate, I really am not going to have that big of a cap ex budget, unless I want to paint the facility or something like that, and renovate the office; there isn’t that much that goes wrong at a facility.
So I look at the expenses of what I can improve. Where is that ratio? Is it 50? I’ve seen it 60% before. So okay, right there, I know in my mind, I can make those improvements. Now, again, that’s just looking at a facility in a bubble, in a sense. If I want to take a step back and look at the market as a whole, what am I looking for in the market?
Well, I’ve listened to Joe’s podcast a ton, and BiggerPockets, and all this stuff. They’re super smart guys and they talk about economic diversity of the market, job growth and all that stuff. And that is all 100% true, those things are great. But you can take a small facility—in fact, I know a guy who owns an institutional-quality portfolio in North Carolina, let’s say… I know this isn’t public information. It is public in the records, but it wasn’t blasted out there on social media. He bought a facility that was 14,000 square feet out in the middle of a [unintelligible [00:21:05].16] Now, why did he do that? Because it’s 14,000 square feet on roughly an acre and a half, and you can make a storage deal work in a rural market; the same rules don’t apply to every storage facility within this space as it does to multifamily.
But if I was going to buy, let’s say, in a nice suburban market, where there’s some population growth etc, I would look for the occupancy of the competing facilities. I look at their rents and compare them to my subject property; non-climate controlled rents for a 10 by 10 unit. So 10 feet by 10 feet, 100 square feet, are roughly on average a dollar per foot. Now that changes to 100 bucks a month, that changes depending on where it’s located; in a rural market, you might get $60, in a better market, you might get $120 or whatever. The highest I’ve ever seen was in Colorado Springs for $180 for a 10 by 10, non-climate controlled unit, which that just blew my mind.
So that varies, but how do my rents compare to the subject property? And how do their occupancies compare? I want to mention this for your listeners. If anybody here knows about storage, has done some research on it, you’ve probably come across a number called square feet per person. And that is usually around six or seven feet is average according to who you talk to. So in other words, across the US, there is roughly 6-7 square feet per person self-storage in the US. So every man, woman and child can use 6-7 square feet per person as it stands today. Sometimes people will use that 6-7 feet per person number and they will apply it to their local market. So in other words, if I look at the market, and let’s say there’s 10 facilities, so my feet per person is 15 feet per person. You might think initially, “Oh, my gosh, we are oversupplied”, because we’re very far above that 6-7 feet equilibrium.
Ash Patel: Right.
Kris Bennett: Conversely, if I’m below that, “Oh, I’m undersupplied.” But what’s really important is occupancy. So I need to call the comps or visit them and ask them, “Do you have any 10 by 10s or 5 by 10s, or whatever, available this month or soon or whatever?” If they all say, “Yes, we have plenty”, now I know I truly am oversupplied. If they say, “No, we’re all booked up, we’ve got a waiting list”, now I know I am not oversupplied; I’m actually okay, even though the feet per person is telling me it’s higher than seven. It’s just like saying the rents for one apartment is $1,000 a month average or $1,500 bucks a month average across the US. That tells me nothing about rents in New York City or California or Texas. It’s just a number.
So I wanted to mention that for your listeners, that we don’t look at that in the market per se. Sure, we want to see population growth, sure we want to know what the number is and what the supply is, but want to know what demand is, what is the occupancy at those facilities. If they’re full, we’re going to be okay. If they’re not full, no matter what that number is, as far as feet per person, if they’re not full, we might have a problem.
Ash Patel: So much good advice. I would imagine being near a college town or having a lot of apartments in the immediate area helps as well?
Kris Bennett: Yeah, it does. It’s a different business model. So when you’re in a college town, college students when they’re in school, right, so for those two semesters they’re in school from September to May or June, or whatever it is. And then they leave and they go home or they go on internships or trips or whatever, then they want to put their stuff in storage. So they utilize all your space in the summer, and then when they come back, they take it all out of storage. Well, your prime leasing season is usually between March and let’s say September when people are, generally speaking, moving for schools and whatnot; you want somebody in there who’s potentially going to stay a lot longer than that. So it really depends on—I don’t look favorably personally on facilities located in college towns. It really just depends on the facility and where it is and all that. Now if there was a deal in Chapel Hill, for example, I would definitely take a look at that pretty closely, because it’s close to home. I love the area; but I would understand the business dynamic there.
So generally speaking, if it was me, I would probably shy away from some of the college town locations, just because of that.
As far as apartments, you’d be surprised. Most people that use storage actually don’t live in apartments, they live in single-family homes. So that’s where you want your facility to be. I want to see some single-family homes around there. Apartments are great, though I don’t have any qualms about that. If we’re in a place that has just condos and apartments, so be it, if it’s a good deal. But I do you want to see some single-family home development; I would prefer that, if possible… Just because people who have single-family homes, they usually own the home, they take care of the bills on time, they usually have a growing family, and that’s why they then need more space, and they’re willing to pay for it.
Ash Patel: That is so interesting.
Kris Bennett: Yeah.
Ash Patel: Busting a lot of myths here. So would you rather an area with older single-family homes, or newer ones? A lot of new development?
Kris Bennett: That doesn’t matter too much; it depends on the market. Okay, are we in the path of progress? Then yes, I want to see a lot of new developers coming in. So for example, the deal we did in Charlotte in March, if you drove by it, you wouldn’t think much of it. It’s an older facility, built early ’90s, and the homes around it are older homes. Let’s say, they’re 30 years old or something like that. So you drive around mostly one-story, single-story homes, that’s not like anything nice. And it’s kind of greener on this facility. But if you go down the street, about two miles, you have Meritage and D.R. Horton, two of the largest homebuilders in the US, building about 400 homes just down the road from us. So that’s helping us basically say, “Hey, yeah, we need to expand and build more buildings on our site”, which is what we’re doing right now. So we’re adding a 22,000 square foot building onto the property.
So that doesn’t matter as much as long as if we’re in the path of progress, I do want to see some development going on. If we’re in a densely located location that just has older homes around, that’s totally fine. We’re actually going to make an offer on a deal like that today, where the homes that surround this facility – it is built out; you’re not putting anything else there. It’s densely populated and the homes are just older, and that’s okay. This facility is about 90 something percent occupied, and the comps are all pretty well occupied as well.
Ash Patel: I would assume an aging population is more ideal, but my guess is I’m wrong.
Kris Bennett: It just depends. So if you go to the Myrtle Beach, for example, you have a lot of seniors moving there, relocating to that area, and storage is going to do really well there. Now, they’re a little bit oversaturated if you look at that foot per person number, that square feet per person number, but it really depends on utilization. And sometimes more senior citizens will utilize storage to put a few things in.
Generally speaking, it’s going to be — if we’re in the Charlotte market, for example, I’d rather have somebody with a growing family who has those needs to store Christmas decorations and family stuff and furniture and those kinds of things. Vehicles – I’ve heard of some folks storing four or five or six cars in a facility, believe it or not; so it really just depends. But a facility like that in a Myrtle Beach area or in another location that has a lot more senior citizens around, it should still do fine. But again, you want to do your homework and see, are the other facilities occupied? Are they doing okay? And what’s your facility? What does it look like? What does the subject look like, if you’re going to acquire it or develop there? What does it look like in that market? You should be okay. I don’t prefer one over the other, I might lean slightly more towards the younger generation, I guess you’d say, than the senior citizen.
Ash Patel: Interesting.
Kris Bennett: Okay.
Ash Patel: Kris, are there things that are immediate deal breakers?
Kris Bennett: Size and purchase price usually, and those two things go hand in hand. Also sometimes age, but you’d be surprised how far a coat of paint will go to spruce up a facility. Like that one that we did, the very first deal I did, we did the paint job on the whole thing – you would not know the difference between it being old and built in the ’80s and ’90s, and then it being built today. So a coat of paint goes a long way on metal and sprucing up facilities, but usually its size; nothing under $5 million. Because as your listeners probably know, if you’re buying a multifamily deal, if you buy a fourplex or a 400-unit apartment complex, a lot of the contract negotiation and title work and everything, it’s all the same. Now, the unit walks are taking a lot longer, but otherwise, it’s all pretty much the same as far as timing and required intensity of getting the deal closed.
So we’d rather go a bit larger, $5 million purchase price is about the cut-off of what we’d look at. And obviously, location. So we’re not going to go into unbusiness-friendly locations. I’m actually originally from California and I’m not going to look at any deals in California. I see them come across my desk and I just… Immediate delete. So it’s sad to say that, but that’s the way it is right now.
Ash Patel: Kris, do you run into any zoning issues? You mentioned storing outdoor RVs and whatnot. Has that ever been a problem?
Kris Bennett: That’s a great question. So we’re looking at a deal—I can’t disclose too much because we have it under contract, we just put it under contract last Thursday, but we were looking at doing a parking lot expansion of it. And we’re like, “Hey, this is great, we’ve got an extra—,” I forgot what it was, let’s call it an acre and a half, right? You can do a lot with an acre and a half. So let’s put some RV parking out there, because we called all the comps, and literally, man, I’m telling you, out of five of six comps, they were all full, practically with RV parking. So yes, this is going to crush it out here. We call the city and nope, you can’t do it out there. Because the zoning is an issue. When they built the facility, they got a special use permit that they could do it here. But since that time, the zoning has changed or whatnot, and we can’t do the parking there, so that’s causing an issue.
Now, we could do it if we did it a certain way, but it’s more expensive. So absolutely. Before you close, word of advice, if in storage value-add there’s a nuance to that, but a lot of guys and girls look for value-add deals, meaning it has three acres of land with an extra acre to develop; you can add more units or whatever. Before you close on that, really before you make your offer, you want to check with the county to make sure that it’s zoned, that you can do the expansion that you’re planning to do. So you always want to check on that.
But yes, it’s an issue, because a lot of municipalities don’t like the way storage looks. It’s just ugly buildings, it’s not fancy, it doesn’t bring in a lot of tax revenue… Some real estate taxes, of course, but it’s not an employment driver. And of course, if you’re running them unattended, it’s really not an employment driver there. So a lot of places don’t like self-storage, so they want to see it either really fancy… We’ve seen somewhere they’ve built them four or five stories up, literally, and they look like apartments or something, like Hogwarts or whatever; it is some crazy building, but it’s actually storage. Or they want you to do ground-level retail and the storage can be above that. They want you to do some sort of mixed-use there with that. So yes, great question, it could be an issue.
Ash Patel: And what are your thoughts on second and third-level storage?
Kris Bennett: Oh, it’s fine. We have a deal under contract now, it’s a three-story deal, 80,000 gross square feet, 500 plus units. Love it, man. Love that kind of construction. If you’re looking to acquire it and, let’s say, you want to run it with a person there, obviously that makes a lot of sense. If you want to run it unattended, it can kind of take a second to get your brain wrapped around that… But really, you’re concerned with safety of course, maybe the elevators break or something like that. Well, if the elevator breaks and the manager is there on-site, he can’t do anything anyway; they have to call the fire department, the police—there’s always a call button in there that works to call them directly, so to get them out of the elevator. You have cameras in there, you can view and see everything.
Some people feel like “Oh man, if there’s nobody on site, do I feel safe there?” If you’ve ever been to a storage facility after 9:00 pm, they’re kind of scary, no matter how clean and nice they are, because they’re just like cavernous buildings. So generally speaking, people go during the daytime to get their stuff out, or put their stuff into a facility. But three-story deals, climate control – love them, they’re fantastic facilities.
Ash Patel: Great arguments you just made. Have you ever built any ground up?
Kris Bennett: We’re doing one right now. Actually, my background is all acquisitions of existing, and then we might do an extension or expansion on something. So we’re doing that right now, a 22,000 square foot expansion. It’s about 150-170 units—it always gets mixed up in my head, but two-story [unintelligible [00:35:12].21] So basically what that means is the slope of the land allows us to do access to both the first and second floor from technically the ground level. So it’s a fantastic deal over there in Charlotte, North Carolina.
Ash Patel: Interesting. What are the returns for your investors on storage investments?
Kris Bennett: We aim for a 7% preferred return for our investors average over the hold period. So let’s say we’re modeling a five or seven-year hold, so 7% return. So of course, years one and two are going to be lower than that; years three, four and five, obviously, we catch up at that point in time. Anything beyond a seven, we split that up to a 13, and beyond a 13 is 50/50, so…
On the exit, we’re aiming for a mid-teens IRR, 15-18 percent, somewhere in there. Obviously, if it’s better, more is better, it’s great. We think the assets that we’re buying are going to have nice cap rates in the future, and they’re well-located deals that are going to be in demand, we think. So that’s what we look for right now.
You’ve kind of got to be in the business, and talking to people and talking to brokers and all that stuff. The Wall Street Journal, as of this interview—today is July 7th, 2021. So as of this interview, the Wall Street Journal just put out an article yesterday on July 6th, 2021, literally stating on their front page, if you scroll down on the website, “Self-storage weathers the pandemic better than other asset classes”, something like that. And the article goes on to talk about how self-storage performed during the COVID-19 pandemic and then coming out of that into this year.
So when articles like that get out into the world and other investors read that kind of stuff, they realize, “Oh, my gosh, this is a great investment, a great opportunity.” Well, what happens if there’s less perceived risk – your return goes down. So that’s where we’re at right now in this space. It’s happening in mobile home parks, it’s happening in nice class A, class B apartment complexes, and it has been happening in the self-storage industry for quite some time now. We aim for a 7% preferred return, and then the other metrics I mentioned from there.
Ash Patel: Yes, and a great hedge against the looming downturn—
Kris Bennett: Yes, absolutely.
Ash Patel: —of the economy.
Kris Bennett: That’s the idea. If I feel like this asset class is less risky than stocks or whatever else it’s going to be, that’s going to drive down the return, drive up the price, because it’s going to be more in demand from investors, supply-demand equilibrium there, so it’s going to drive up the price, drive down the returns… But if you feel comfortable with the asset class, you understand it as best you can, then you know, “Okay, I’m buying into something that not just weathered one pandemic or one downturn, but two.” Also in 2008, 2009 and 2010, self-storage performed really well during that time.
Ash Patel: What is the biggest pain point in managing self-storage?
Kris Bennett: Well, we don’t manage anything ourselves; we have a third-party management company that does all that. I would say the biggest pain point is working with and talking to tenants who want to rent and just that side of things, I’ve done that in the past. What we’ve done before is, before we actually close a facility, I will start a Facebook page for the facility, instead of a Google number, and put that as the number to call to rent a unit. And we usually let the seller know this, and they can call and see. And I’ll just run it separately from the website; I don’t like linking back to the website or anything. I just want to see who’s searching for storage in the area. And I’ll handle those phone calls and I’ll talk to those customers. And it can be kind of tough getting them to understand how storage works – sometimes, not all the time. But I think handling those types of calls and then obviously overseeing the manager who goes there as boots on the ground – you want to make sure that they’re doing a good job, picking up trash and getting the rounds clean, etc.
There’s always trade-offs to everything that you do. So the trade-off for an unattended facility is sometimes people will leave stuff there because they know no one will come and get it and no one’s going to tell them not to leave it there, by the dumpster or whatever. So that could be kind of a pain in the butt trying to get stuff hauled off and cleaned up at the facility.
Ash Patel: You make this sound really hands-off. How often do you hear from your property manager?
Kris Bennett: We were just on the call with them the other day about something unrelated, but we do an asset management call about every two weeks with them.
Ash Patel: Okay. So your PM companies are so good that they can handle all the trash?
Kris Bennett: Yes.
Ash Patel: The weeds?
Kris Bennett: Yes.
Ash Patel: The nuisances?
Kris Bennett: Yeah. This one’s local. So I was there about a month ago, took some pictures because the grass had kind of grown up in some spots. So we just sent those over to the property management company and said, “Hey, let’s get this taken care of.” And so they sent it over to landscapers, and the landscapers went out there and sprayed. So we went back out there and saw that it was all [unintelligible [00:39:15].09] to make sure that get those things cleaned up.
This is not hands-off, by any means. So we had to renegotiate the one that we have, it has a warehouse on it that’s being leased. I’ve never seen this before. The warehouse is about 2,500 square feet, you go inside and there’s a couple different rooms, but the main room in the middle is a giant professional poker table with a monitor [unintelligible [00:39:35].08] They’ve got the camera on the dealer. Behind me is a TV with security camera feeds that come in there. So anybody playing the game can see who’s out the doors and the entrances to the warehouse.
They’re just good old boys. We’ve met them to talk to them. They’re actually all retired guys. I guess you go there and play high-stakes poker, I don’t know. We just kind of leave them alone. But we had to renegotiate the lease on that to get it up to where it was market.
So some of those things we do get hands-on with ourselves and that’s okay. But generally speaking, that’s what you’re paying the property management company to do. They’re taking the calls, they’re dealing with the issues, they’re dealing with the overlocks, they’re dealing with the auctions, if somebody doesn’t pay overtime, they’re dealing with taking late payments. They’re reminding them on when their payment is due, reminding them if they’re late… They’re the ones who are handling all that stuff.
Our management company – I’ve heard some horror stories out there. And I mentioned Copper Storage Solutions, we don’t get paid anything for saying that. Okay, Copper Storage Solutions; if anybody’s looking, wondering who we use, Bob Copper and his team over there have done a great job. Selfstorage101 is their website. Anyway, they did a market study and on one of our asset management calls, he said, “Hey, guess what? Good news, we raised your rents on everybody who’s been there for over,” —I think was like six months or a year, “We raised them 9%”, because they found out the market could sustain that and they could sustain that as well. And if they move out, that’s okay, because there’s enough demand that we feel pretty confident we can backfill those units.
Ash Patel: That’s incredible.
Kris Bennett: We’re like, “Okay, cool.” Great, I don’t need to think about that. I’ve heard horror stories where the management company is asking you what you want the rents to be raised to. And it’s like, “You tell me. You’re the management company, you do all this stuff.” So anyway, so they do a great job for us.
Ash Patel: That is incredible. Kris, what is your best real estate investing advice ever?
Kris Bennett: Be open to changing your mind when presented with new advice or new information. This applies I think, not just to real estate, but in our lives, right? So we might have a preconceived idea of something, whatever it might be. For example, self-storage is the best real estate asset class you can buy, hands down. Well, maybe you’re presented with new evidence that says a mobile home parks are actually better, apartments in certain markets are actually better. So we should be willing to change our mind when presented with new evidence or new information.
Ash Patel: I love that. Kris, are you ready for the Lightning Round?
Kris Bennett: Let’s do it, man.
Ash Patel: Let’s do it. Kris, what’s the best ever book you recently read?
Kris Bennett: Oh, man, I’m reading right now Ray Dalio’s Principles, and then before that was Stephen Schwarzman’s What It Takes, I think it is, and that was a great book on building a fantastic business, I thought. And then beyond that, I think Gary Keller has some really good stuff; The One Thing, which I’m sure has been mentioned numerous times, and then The Millionaire Real Estate Investor. I think he has a pretty good blueprint in there of what you need to do in order to build wealth in this business. So I really liked Gary Keller.
Ash Patel: Great recommendations. Kris, what’s the best ever way you like to give back?
Kris Bennett: Doing our webinars, actually. So we do a webinar weekly on every Tuesday and alternates between myself and the other partners on the self-storage front. So we get on there and try to help folks answer any questions that they might have. We talk about a topic as well. So I think mine for next week is just basically some mid-year encouragement for self-storage investors. Previous to that we’ve done development, we’ve done some underwriting case studies, we’ve done how to find deals in your market, how to vet a deal; all kinds of stuff like that. How to find a good partner, etc. So we try to give back in that way.
Ash Patel: Kris, how can the Best Ever listeners reach out to you?
Kris Bennett: I’m on social media; LinkedIn, Facebook. LinkedIn is a really good place to reach me. And then you can always email me, email@example.com.
Ash Patel: Kris, I feel like I went to a self-storage bootcamp today, and a mastermind, all in one. You’ve given us a tremendous amount of value in how to find deals, how to run them. Thank you so much for sharing all of your great advice. Best Ever listeners, thank you for joining us as well, have a best ever day.
Kris Bennett: Thank you so much, Ash.
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