With a start in construction, Joe Evangelisti now runs several self-sustaining self-storage businesses. On today’s #SkillsetSunday, Joe is telling us how he created efficient and scalable business models, why he skipped multifamily and went straight to self-storage, and why raising rents is much easier with self-storage tenants than multifamily tenants.
Joe Evangelisti Real Estate Background:
- CEO of 3 different companies. Legacy Developers (Self Storage Development), Mammoth Conversions (Digital Marketing), and Hero Home Buyers (Wholesale)
- Has been investing in real estate for 15+ years, actively and passively
- Focusing more on self-storage development with multiple Class A facilities breaking ground within the next few months
- Based in Haddonfield, NJ
- Say hi to him at: elevatewithjoe.com
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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, Joe Evangelisti. Joe is joining us from Haddonfield, New Jersey. Joe, thanks for joining us, and how are you today?
Joe Evangelisti: I’m fantastic, Ash. Thanks for having me on, man.
Ash Patel: Oh, it’s our pleasure. Today is Sunday, so Best Ever listeners, we are doing a skill Set Sunday, where we talk about a particular skill that our guest has. Joe is the CEO of three companies; a self-storage development company, a digital marketing company, and a wholesale company. He has been investing in real estate for over 15 years.
Joe, before we get into your particular skill set, can you give us a little bit more about your background and what you’re focused on now?
Joe Evangelisti: Yeah, absolutely. I’ll try to give you the two-minute version of it because I know this is a short one. But I’ve been in construction my whole life, Ash. I started out as a little kid, my dad was a general contractor, we would walk job sites when I was knee-high to him, I would hold on to his leg and worry about falling into the holes, but it’s always been in my blood. I love construction, loved the intensity and the work and the effort that it takes to make something.
But ultimately, I loved the conversion of taking something from nothing and making it into something awesome, right? Like, we’re building a new house or even if we’re doing an addition or renovation to a house. So I followed that construction journey into the military. I actually did six years in the US Navy Seabees, which a lot of people don’t know what that is, but it’s the construction battalions of the Navy. So we get to travel all over the world and do all kinds of really, really cool stuff. I had an amazing six-year tour, and ended up in my last tour working for General Tommy Franks in 2003, when we were invading Baghdad, and I built out the whole facility inside where he was operating central command from.
And then inevitably, when I got out, I always had this need, this deep-seated need of wanting to be an entrepreneur, because I saw my dad do it. And he was actually the first person in our family lineage since people came over from the boat from Italy to actually be an entrepreneur. So I was kind of knew I wanted to be an entrepreneur, but I wanted to serve my country first. Almost right after I got out, I jump right into being an entrepreneur, got into real estate, started flipping deals, and started buying houses in 2007, which is a whole nother story—
Ash Patel: Uh-oh.
Joe Evangelisti: —the best time to get involved in real estate… So eventually, it snowballed into all these other different things. We learned right away that we have to pivot and we have to create other opportunities for ourselves and for people around us… So getting involved in the first three houses, I did them all kind of the wrong way, I put my own money into them, I expected to flip them, I had all these grand plans, and then we got caught in the middle of kind of the bubble, where everything was starting to kind of tighten up… And I ended up becoming a landlord overnight, because I had to stabilize the asset and refinance the asset, put tenants in place.
Fast-forward a few years, now I have a real estate license and a real estate team because I learned to work for commissions while I was supporting my real estate flip business, and made all these transitions throughout the years to start to layer things on… But I got to the point where we are today where we have these amazing self-sustaining functional businesses that are really not about “me”, they’re about “we”, right? They’re about the team, and they’re about the teams that are running them and creating opportunity and creating purpose and results inside of that business for the people that are running the businesses. That was probably the major transition I made throughout my 15-year career was. I went from, “All me. I’m an island, I can do it all. I want to work 100 hours a week, I’ll do whatever it takes to be successful”, to realizing the power and the investment into people and creating amazing team structures with great people.
Ash Patel: Joe, take me through your evolution from 2007/2008 when you were stuck holding a bunch of garbage, to how you got to where you are today.
Joe Evangelisti: Well, let’s take it back a second. I wouldn’t say it was a bunch of garbage. Again, I’m biased—
Ash Patel: Bad choice of words.
Joe Evangelisti: And to your point though, because it was stuff that was sinking in value. But I think one of the things that we did really, really well at the very beginning was, I didn’t over-analyze or have analysis paralysis about things, but my entire real estate career I’ve always had a rule, and that was I would never buy something I wouldn’t live in, because I always thought, “Man, my fallback, God forbid, this thing goes sideways, I’ll move my family in here. I don’t care.”
So I always bought B and A Class areas. I always bought appreciating areas. I always bought nice areas. So I never saw myself as a slumlord, or buying like C and D Class assets or, you know, fixing them up. I always saw myself as like, “Let’s buy really nice properties in nice areas”, and worst-case scenario, I never bank on appreciation, but it’s always a good fallback plan if other things go wrong. So I think that’s one of the things that really helped us out through our career, was that even the quote unquote, “bad ones” that kind of got tied into the first few years, almost immediately flipped back over and had great equity once we put tenants in place.
Ash Patel: Alright, so was your plan to flip those properties, and then plan B was to put tenants in there?
Joe Evangelisti: Yes, so I always had two exit strategies. I always knew that I wanted to be a flipper, that’s all I wanted to do. I really never wanted to be a landlord, honestly. It took me years to kind of come to terms with that. But the benefit was that the ones that we ended up having to keep were good assets. And then you know, as time went on, and I started to become more comfortable being a landlord and understanding the portfolio build and all that type of thing, we would just tend to acquire and add units every single year, through the fix-and-flip process, right? I had an amazing marketing team, which is probably the number one thing you have to have in this business. Like, people don’t realize that is you have to be a great marketer to generate your own leads, talk to sellers. We would have all this influx of seller activity and we would cherry-pick the ones that were great rental properties, and we would keep them for ourselves over the course of time, build this portfolio up, and then flip the ones that didn’t make sense for rental.
Ash Patel: Well, how did that turn into developing self-storage?
Joe Evangelisti: It was really twofold. One, it was a process of scalability. We got to a point, I keep saying four or five years; it might even be six years ago right now. Me and my business partner looked at each other – we do quarterly reset of our goals, but every year we’ll reset our big goals like, “What do you want to do next year?” And there was a point in time, it was like a late November and we were sitting down talking about what we want to do next year. And that year, we were on track to close at 88 flips. It was like, “What do you want to do? Do you want to try to cross 100? Do you want to get to 110? How do you think you want to scale this thing?”
And I remember he looked at me and I looked at him and he was like, “I don’t want to do 88 again.” And I was like, “Neither do I.” That was absolutely atrocious. That was so hard. It was so much cash in and out, so much unnecessary stress, and management, and overhead and just trying to keep 150 subs happy, and all this stuff. So that immediately sparked this thing in my mind, which was just like, how could we do what we’re doing? It’s like Pareto’s law, right? 80/20. A lot of people you’ll find, 80% of the revenue is coming from 20% of their efforts.
I do this a lot with my coaching clients, when we talk about controlling the clock, and creating more efficiency out of what you do in your day-to-day business. How do we start to create scalability out of this? Me and you are chasing our tails, we’re working our asses off, we’re trying to constantly chase the next deal. And we said, “Okay, well, the first thing is, I think we have to move into commercial. We need bigger deals where the control is under one roof, and there’s just more zeros on the back of it, but we’re not driving all over South Jersey trying to keep up with different flips, right? It’s in one spot.”
So we looked around, we thought about multifamily for a bit because everybody at the time was getting into multifamily. It was like this flood on multifamily. And I said to myself, “This is crazy. I don’t want to do multifamily.” One of my best friends is the multifamily dude right now; he was up on stage and he was literally crushing the multifamily industry. But he had built this army of bird dogs. And the reason he was doing it and being so successful is because he had so many people in the street doing it. And I said, “There’s no way I could compete with someone at that level. Let’s find a different industry that kind of competes with this.” And I fell into self-storage. I started having conversations, realized that it’s a very, very big industry, but it’s a very small industry in a lot of ways, kind of almost like a tight-knit family. Everybody seems to know each other, right? All the feasibility guys and the engineers and the designers, and like — it’s a very tighter community. And it allowed us to leverage; instead of flipping 100 homes a year, I could do one facility and make more money than if I flipped 100 homes. And immediately, the light bulb went off and I said this is the 80/20, right? I could focus 20% of my effort here and make 80% revenue, without doing hardly any of the chasing or the grind, as a lot of people call it, which I can’t stand.
Ash Patel: So you started taking down multifamily properties?
Joe Evangelisti: No, we skipped multifamily; we went right into self-storage development.
Ash Patel: Oh, okay. So when you say under one roof, you meant self-storage?
Joe Evangelisti: I meant under one big ass self-storage roof, under 100,000 square foot of roof, and having multiple tenants inside of there that can substantiate the NOI.
Ash Patel: Yeah. And did you start buying first before building?
Joe Evangelisti: Nope. We went straight to development.
Ash Patel: Whoa!
Joe Evangelisti: Yep. We went straight to development. Listen, after all, that was our backbone, right? I’ve been in construction my whole life. My partner’s the same way. My dad’s the same way. Like one thing we know and we’re confident with is construction. So it was an easy transition to say, “Hey, we’re going to go build one.” And at the time, and still at the time, we’re on our ninth facility now, and it’s still tough as nails to buy an existing self-storage facility. The big boys are bidding crazy numbers, buying at three and four caps. It’s still hard. But yet land, especially land that’s not entitled properly, that needs entitlements, that needs improvements and needs design work done in order to get it across the finish line – you could still buy that at a really, really cheap cost. So it keeps our basis super low. So even though it takes a little longer to construct and develop, the end game is that we’re going to be into these things for 50-55 cents on the dollar, and you just can’t do that with existing facilities.
Ash Patel: Joe, where was your first build?
Joe Evangelisti: It was actually about 20 miles away from my office.
Ash Patel: Why did you select that piece of land? Did you do huge studies on demographics, competition, all that?
Joe Evangelisti: Yeah, I did that, but I did that after I had it locked up. So first thing I did was — I always go to my network first. I think this is one of the simplicity pieces that a lot of people miss, is if you want to do something different, start talking about it.
So we decided almost on a dime, that self-storage is where we’re going to start to devote our efforts. And within a couple weeks of that decision, I was on the phone with one of my residential engineers, a guy who does a million surveys for me, and has been working for us for a long time, and I said to him, “I want to start developing self-storage; do you have any land that would make sense for that, that’s off-market?” Because these guys, you’ve got to think about, the engineers, they’re always talking to somebody, they’re doing work or surveying something. And he said, “Actually, I have a perfect piece. I have a piece of ground that I’ve been working on for eight years, that we had approved as a senior care facility. And I have X amount of dollars and time and effort into it, and I was getting paid at the closing.”
So in other words, he was doing work in progress for payment at closing. And he said, “Well, the closing got canceled, because the operator who wanted to build the senior care facility, sold his license to one of the local community hospitals.” So once you sell your license, you can’t operate two locations or two different locations.
So now they had this approved senior housing community, that basically was useless, because they don’t have a guy with a license to operate it or build it. So the land fell dormant for a couple of years. So my engineer says to me, “Look, I’m confident I can get this rezoned as self-storage, because the impact and the use is actually lighter than a senior housing community. A lot of people don’t realize this, self-storage get very little access, we’re talking about maybe 1-2 people per hour, in 100,000 square foot facility during the day. So it’s very low traffic, very low impact.
He says, “If I get this approved, all I would ask you to do is pay me for the design and pay me in arrears for what I missed on the senior community design.” And then we agreed to that. We said, “Yeah, it’s a no-brainer. Let’s do it.” And it took us 18 months to get approval because it was in the middle of COVID and we got jammed up in that whole settle sector. But we eventually got approval, and then we syndicated the deal, and now it’s 25% built; concrete’s in the ground and we’re in the process.
Ash Patel: Was that your first syndication?
Joe Evangelisti: That’s our first syndication and our first self-storage and we’re already nine deals into it. Because a lot of people think commercial is like, you snap your finger… It’s not a rehab, you can’t buy it and be working on it in two weeks, right? There’s a lot that goes into it; due diligence and prep and engineering and people involved. So we’ve really actually been in this business for three years, and we’re halfway through our first development site.
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Ash Patel: Joe, your history was flipping houses. How did you convince investors to put money into a new build self-storage facility when you don’t have a proven track record?
Joe Evangelisti: Yeah, it’s a great question. I think that a lot of things that people kind of sell themselves short on mindset when it comes to investors is that your history doesn’t define who you are necessarily. It’s, “Do they trust and know that you can do what you say you’re going to do?” So my history was, first of all, we did have a proven track record in the single-family homes. We did 1,000 flips in 12 years, so we had a pretty good built base of established history.
But it’s also more about selling the story, right? What is the story? Who is the team? I brought some of the most experienced designers, engineers and project managers in the industry on board with us. I got some of the biggest REITs that are out there, the Cube’s and the Extra Space and the Life Storage. We have direct contact with a lot of their people that are underwriting the deals for us ahead of time, and saying, “Yes, this is a good deal,” right? I put a lot of my money where my mouth was, I had over 150 grand of my own personal cash invested in due diligence to prove that this was an excellent site, before we ever asked anybody for cash.
So I think a lot of it is really your integrity, it’s how you handle yourself and it’s what you do when you’re in a jam, and how you solve problems. Construction, to me, Ash – I’m sure you probably have some background in construction if you’re on this show – is nothing but problem-solving every single day. So people say, “Well, what happens if you’re delayed? What happens if weather happens? What happens if the steel costs go up?” Listen—
Ash Patel: It’s not if, it’s when.
Joe Evangelisti: —it’s not if. It’s going to happen.
Ash Patel: Yeah.
Joe Evangelisti: You’re going to have problems every single day. Our job is to be a professional problem solver, and that’s what me and my partner Brian, do. We solve problems for a living. So if you want your money parked somewhere where people are actively solving problems every day to make sure you get a great return, or do you want to take a risk and throw it into the stock market and pray to God that the operators of those companies are doing the same thing?
Ash Patel: Joe, 100,000 square feet. Is that interior corridors?
Joe Evangelisti: That’s net rentable square feet. So when we do self-storage, a lot of guys are like “How many units do you have?” Multifamily is a big unit game, right? How many doors do you have? Self-Storage is not like that. Self-storage is how many square feet of net rentable square footage do I have? So what we have here is — when you build a multi-storey unit, for example, you’re going to lose somewhere between 15% and 20% to hallways, corridors, elevator shafts, stairwells, offices, bathrooms, loading docks, all of this kind of stuff. And what you’re hoping to come up with is an efficient design that lets you closer to that 15 or less percent of waste. And if you can do that, then that’s technically good. That’s a value-engineered deal that, that makes sense for you to build.
Ash Patel: How much money did you raise for this deal?
Joe Evangelisti: $3.1 million, I think.
Ash Patel: And the question that I’m thinking that I’m sure your investors asked, why start with 100,000 square feet instead of 20, 30 or 40?
Joe Evangelisti: Yeah, another great question. Because I look at us as pure developers, okay? So I’m not looking to manage the properties, I’m not looking to understand necessarily the magic that goes into getting these properties filled up. Our one and only goal or exit strategy is to develop high-level relationships with the big REITs, the big boys in the game, create opportunities where they can come in and third party manage, get the property stabilized, and then one day, have facilities that are big enough—not saying we’re going to sell right away; we could hold them for 15 years… But one day be sellable to a REIT.
So I want to be desirable to the Blackstone, to the people would have billions of dollars to capitalize on. They’re not out there buying 20,000 square foot facilities, it’s just not happening, right? They’re looking at anything that’s 80,000 and above, or they want to have a combination of different sites that are within, let’s say, five miles; if you owned 200,000 or 300,000 square foot across five sites. Well, then that’s something that they would look at as a package, right? But I want to be buyable. At the end of the day, I want to be buyable. It’s not just about a cash flow for that one site, it’s about what we’re going to do long-term.
Ash Patel: Your business model is you build it and then have a third party company manage it.
Joe Evangelisti: Correct.
Ash Patel: So you just pay them a flat management fee, or some kind of scale.
Joe Evangelisti: Yep.
Ash Patel: And then you essentially get the bulk of the profits.
Joe Evangelisti: Yeah. Correct.
Ash Patel: Me and my investors. But I’ll tell you the secret, Ash. These guys dominate the marketing, they absolutely dominate the area when it comes to filling up facilities and how fast. If you put them next to a mom-and-pop, and you say, “Okay, big REIT is going to be a manager, versus” let’s call it, “Joe and Ash’s self-storage”, right? We’re going to go out there, and we’re going to do some SEO and some PPC, and we’re going to throw up some newspaper ads and some menus at a local diner, right? Whatever. The machine that they’ve built on the marketing side, is so intense; the way that they hyper-target, the way that they retarget, the way that they change pricing structure and specials and move in rates… They know to the day when you, as a demographic, are most likely to move in, versus a 55 year old single woman. There’s analytics about this, because they have thousands of units. So they’re just playing with algorithms and they’re playing with data all day long, and they know exactly how to dial in that one particular person who logged in and said, “I’m interested in a self-storage.” And so the competition is always going to go towards the REITs when you’re talking about empty facilities. And that’s why, for the most part, these guys are sitting at 95%-plus occupancy, on average, across the country.
Ash Patel: With that much expertise, I would imagine you’re giving up quite a chunk of your revenue.
Joe Evangelisti: No, you would be surprised. It’s a lot less than you think. It’s a lot less than what people are paying in apartments, for the most case. Yeah.
Ash Patel: What a great business model. So would you build self-storage facilities for other people?
Joe Evangelisti: We haven’t done that yet. What we will do is we will entertain joint venture opportunities; we have a lot of — we call them certified field agents. They’re essentially kind of glorified bird dogs; people that we’ve taught how to go find sites. And those people earn equity in our sites. Some of those people are starting to get to a point where they’ve earned enough equity and they’ve earned enough cash in the front side that they’re like, “Okay, I want to do this. I see the promise, I see the vision, I see the story. I’m going to do it by myself.” Those are the people that we would start to entertain those types of relationships with first, because they’ve learned our culture, they’ve learned what we look for, they’ve learned really what our model is. And if they wanted to take the risk on themselves to go invest in a deal, then we would partner with somebody like that first and help them build that deal.
Ash Patel: What are typical returns for your investors?
Joe Evangelisti: Generally, the preferred return – it’s a deal by deal thing, obviously, as you know – it’s somewhere between that 7% and 10%, and the preferred on the front side, and then they’re getting equity on the backend. So what’s happening is we’re actually piecing them in as LP partners in the deal, as you know, as syndicate works. But generally on the backside, because of how we’re positioned and how we’re built to refinance and then stabilizing the whole thing, you’re generally talking somewhere between 25% and 40% cash-on-cash.
Ash Patel: And what is the hold period?
Joe Evangelisti: Generally, three years. It depends. So again, from ground-up construction, where I’ve got to knock down trees and level things out and start building from construction, we’re going to be 36 months on that, because we have to give ourselves a buffer. It shouldn’t take that long, but of course, you’ve got to build it, you’ve got to stabilize it. Then it’s a little bit less on ones where we have a facility up in Ohio right now, which is an existing 75,000 square foot structure that we’re going to recondition the inside of it, we’re going to fit it out for self-storage, and then we’re going to build a little addition on the side to make it 100,000 square foot. That investment period might be closer to 24 months when we’re all said and done, because the physical structure exists, right? All we’re doing is fitting out the inside. So instead of 13 months of construction for a new facility, it might take us six or seven months to do a deal like that.
Ash Patel: And there’s a period of time where the investor submits their funds, and they get their first return.
Joe Evangelisti: Correct.
Ash Patel: And then the return comes from operating margins.
Joe Evangelisti: The return comes from an escrow, an interest in escrow that we set aside at the front side in order to pay the current investors on the capital that’s out; new construction – there’s no cash flow. That’s the difference. We’re not buying an existing asset that has cash flow to pay bills. We’re basically taking all that money, escrowing it upfront to stabilize us throughout the course of construction, so that we hit that big payday at the end and refinance; everybody gets 100% of their money back, plus the bonus, based on how much they’ve invested. So what we do – we hold an interest reserve for the interest that that money we borrow would cost us over the course of that 36 months.
Ash Patel: Okay, so when you do the refi is when the LPs make their money.
Joe Evangelisti: Well, they’re making their preferred return during the process. We’re still paying out. Some deals are monthly, some deals are quarterly, but they’re still making the pref paymentl they’re still getting their preference return during the course of the construction.
Ash Patel: Right. Interesting. I’ve talked to a number of homebuilders that take on investors and they don’t get paid during construction.
Joe Evangelisti: Look, it’s like a couple of different ways to slice the apple, right? But I’ve found that – let’s face it, most people are getting into syndications. You’re not getting in syndications with your cousin and your uncle and your brother anymore. You’re going to accredited investors you’ve never met before. So the best way to, again, build rapport with an investor in my mind is not only do what you say you’re going to do, have integrity, follow through, answer their calls, but start paying them. So—
Ash Patel: Send them a check.
Joe Evangelisti: If I give somebody 100 grand and it takes them three years to give me my money, I’m going to constantly worry about that money. If I got even something in the mail as an interest check, I’m like, “Okay, these guys know what the hell they’re doing.”
Ash Patel: Yeah, that’s good. And then once you refi, is the investor still in the deal?
Joe Evangelisti: This is the beauty of it – we have a buyout option, which allows us to basically overpay them for their equity if they want out after the refi. But if they don’t exercise that buyout, then they get to stay in for perpetuity. So this is like at the refinance stage or the stabilization stage, they’re literally getting 100% of their initial investment, plus their percentage of refinance proceeds, which are tax-free, because their refinance proceeds. Again, check with your accountant, check with your attorney. I can’t give you legal and tax advice, right? ..but that money comes back tax-free, plus the initial investment. And on top of that, you’re still an equity owner. So you’re going to get this mailbox money every single quarter from cash flow from the NOI, from the building stabilizing itself and having this free cash flow. But let’s say, we sell the building 10 years from now; the equity day one on most of these deals—and again, I’m using kind of a broad range, but on $100,000 investment, the equity leftover is going to be somewhere between 60 and 80 grand day one.
So if we sold the property day one for what we thought it was worth, they would get an additional $80,000 on top of the money they’ve already made. But that’s not something we would do. Let’s say we sold in 10 years, we’re going to have debt paid down over the course of 10 years, which is massive, because we’re only going to do maybe a 25-year amortization… So take 10 years off that lifespan, plus the appreciation and the increased NOI over the course of 10 years, the self-storage industry continues to go up, and you can raise prices quicker than you can a multifamily (we could talk about that in a minute), but 10 years from now that $80,000 in equity you started out with could be worth $200,000. So imagine if you had zero investment in a deal at that level, and 10 years later you just got a check in the mail for 200 grand and it said, “Thanks for playing along.” That’s what’s so cool about it for me, is we’re actually helping people not only get a great return on their existing capital, but build long-term wealth.
Ash Patel: Why can you raise rent prices faster on self-storage than multifamily?
Joe Evangelisti: Alright, this is a good one. Are you ready for this?
Ash Patel: I’m ready.
Joe Evangelisti: Let’s say you have a 100,000 square foot apartment complex. Nobody figures those numbers out, but let’s just say that that there is that. 100,000 square foot, let’s say you’d probably have, let’s call it 100 tenants. Cool? And let’s say that in the same exact facility, I have 800 tenants, because I have about 800 doors in this facility we’re talking about… And let’s say you wanted to raise the rent 10%. How much kickback would you get from your apartment tenants if you raised 100 units, 10%? Let’s say they were paying $2,000 a month.
Ash Patel: You get 100% kickback.
Joe Evangelisti: Yeah, every one of them would be like, “You must have lost your damn mind. I’m not paying an additional $200 a month. I’m going to go find somewhere else to live.” Okay. Now, I have 800 tenants, and let’s just say my average rent is—not even average, but you got to look at the difference in dichotomy and the splits… Like there’s so many more small facilities, big ones, the whole thing. Let’s say, the average person who was paying 85 bucks a month for their facility just got a bill and now it’s going to be $93 a month, right? So $93 a month… Are you going to take the effort to go to your storage facility, pack up all your shit in a moving van, drive four miles down the road – if there’s an availability at the next self-storage facility, because there’s usually not, they’re usually over full – and reload all your stuff into another 10 by 10 unit?
Ash Patel: That’s a good point. How long do people keep stuff in storage on average?
Joe Evangelisti: This is like one of those Rubik’s Cube kind of questions, right? The cool thing about the self-storage industry is it’s so diverse in the demographics it serves, right? So I’ll start with this… You have contractors who are keeping extra materials, right? You have attorneys and insurance companies that have to store files. You have your typical mom-and-pop upsize, downsize, “I moved my house, I put my extra stuff in storage.” You have your small businesses that are literally running, not physically in there, but they’re running their inventory out of a storage locker. You have hobbyists, obviously, they’re keeping their hobby and stuff there. And so there’s all this crazy diversification of demographics that rent storage facilities, and this is what makes it so powerful.
In an up economy or a down economy – let’s say the economy starts going down and the contractors don’t need the extra storage, because they’re not busy anymore, right? Well, other people need it, then now you have — okay, let’s just say worst-case scenario, the housing market shifts and we have another massive bubble. I don’t see that happening, but let’s just use that for an example. You have a bunch of people, what are they doing in a downturn? They downsize, but they don’t get rid of their crap. So you’ve got a guy who might be paying $4,000 a month for his mortgage, he gets laid off, he has to short-sell his house, and he’s going to go move into something that’s $2000 a month because he got a new job, and that’s affordable for him… But he’s not going to throw away half of his belongings. What he’s going to do is go spend 100 bucks a month to keep them on storage until he gets back to that next house, or he gets back into that bigger property, right? So people will justify their stuff being in storage.
So really, to answer your question, there is no really specific number; I’m sure there’s an average across the nation that the feasibility guy could probably stick in there for you… But the reality of it is, it’s probably longer than you might think.
Ash Patel: Yeah, because once it’s there who wants to move it?
Joe Evangelisti: Nobody wants to move it.
Ash Patel: Yeah. I can tell you a cool story about that too.
Ash Patel: Go ahead. Let’s hear it.
Joe Evangelisti: So one of my investors early on, he’s a doc. And he says to me, “Here’s why I’m going to invest in you.” I’m like, “Okay, great, doc. Tell me why.” He says, “12 years ago, my ex-wife died, and my two boys were in college. And I made them a deal that I would put all their mom’s stuff in a big ass self-storage facility and I would pay for it for five years. Because five years later, they should both have jobs and be established and have a life and yadda-yadda,” right? He goes, “Five year anniversary, I got a calendar thing.” I said, “Boys, it’s your turn.” They said, “No problem. Dad, send us the bill.” He goes, “She’s been dead 12 years. I don’t think they’ve ever, ever been in that locker. There’s probably two inches of dust on top of her stuff, because they don’t even want to go deal with it. Right? We put it on storage, it’s there, right? But they pay that bill religiously every month, because that’s mom’s stuff.” And he goes, “For that reason alone. I’m in. I have a personal story of 12 years of self-storage, paying $100-and, whatever it was, $159 a month for 12 years, and I’m confident they’ve been raising this rent for 12 years. But they’re not going to go in there move mom’s stuff.”
Ash Patel: Joe, I know with, for example, car lots, no municipality wants a used car lot. So they don’t get approved very easily.
Joe Evangelisti: Yep.
Ash Patel: Is that the same with self-storage? Do municipalities fight additional self-storage spaces?
Joe Evangelisti: They do, but you’ve got to know how to position it. There’s one thing that’s happening right now that’s big time in the self-storage industry, Ash, and that is that people are moving from wanting self-storage or having self-storage in an industrial park down the dirt road out in the middle of nowhere… That’s where self-storage has been traditionally for the last couple of decades, right? It’s been off the beaten path. And what’s happening is it’s starting to become more mainstream, it’s starting to become more retail. And what we’re finding is consumers want a place that’s right off of Main Street, right off the highway, that’s easily accessible, that’s well lit, that they feel safe going there by themselves and getting their stuff.
So like if you have a divorced woman, for example – single, wants to store her stuff, downsizing, upsizing, doing whatever, right? She doesn’t feel safe driving down the dirt road, accessing the push button keypad on a gated facility, driving into the dark facility that’s down the dirt road, and then getting out of her car and moving her items back and forth, especially if it’s not a manned facility, right? Even if it is, let’s face it, 100,000 square foot, that one person at the front door isn’t really going to know what’s going on when you’re back in your locker, right?
But if you can create an atmosphere where you’re right off the highway, it’s well lit, she can pull in, she has electronic gated access… It’s something where you walk down the hallways, the LED lights are going on, there’s cameras everywhere… It’s a more modern assessable facility that’s secure, right now she feels a lot more comfortable to say, “Okay, I could easily come here. This is way nicer. I feel a lot more comfortable. I’ll be here for a while.”
So what’s happening with zoning offices and the different municipalities is they’re starting to recognize that, that storage is becoming more of a mainstream piece. And it couldn’t happen at a better time, because what’s happening in our world right now is big-box is disappearing, right? Circuit City is not coming back—Sears, Kmart, all these big-boxes are disappearing, and municipalities need someone like us to come in and fill these empty spots, because it’s a blight in the community. And you and I if you have one of these empty Kmart’s near your house, you’d rather have a self-storage in there than have an empty 100,000 square foot building with cardboard out front, because there’s no tenants that want to take it over. Look, Circuit City’s not coming back guys. I don’t see any big-box chains coming back anytime soon. So we actually offer an ability to create something out of nothing, and I think that’s what makes us unique.
Ash Patel: Would you consider renting 100,000 sqft. facility? Or would you only buy it?
Joe Evangelisti: No, not personally, but that’s only because I’m a real estate investor at heart. To me, this is the big play. This is kind of like McDonald’s, right? The idea is, I have a cash flowing business on the front side, but where’s the real money getting made? It’s getting made in the dirt. I’m controlling hundreds of acres of real estate all around the country, and I’m developing Class A 100,000 square foot facilities. And a lot of these facilities, they have offshoot pad sites, they have retail associated with them… So it’s just a way for us to diversify our holdings, as well as create this opportunity in self-storage. So the real estate piece for me is the key to everything. I wouldn’t do just a self-storage rental in there.
Ash Patel: Joe, the army of soldiers that you have out there looking for land sites – what’s some of the criteria they look for?
Joe Evangelisti: They’re looking for a lot of things. We have a whole four-part video training series that they actually have to watch, and then take a mini quiz on, in order to get qualified to do exactly what you’re asking. But I’ll give you some high level stuff, right? We’re looking for stuff – generally, six acres or more, right, especially if it’s rural. Obviously, the more urban it gets, the more that that’s going to get condensed, right? You’re not going to find six acres in the center of Chicago. They’re looking for things that are well-trafficked. I think about access, right? I think about boots on the ground, because there are sites that look really good on paper, that might be six acres, and they might be surrounded by shopping centers and apartments, and they’re just really, really good, and then you get there and you find out that the highway is an overpass and you can’t get down to the ground without making the jughandle and coming around. So I want stuff that’s easily accessible off the main road. I want to be on that main road or right off of it, and I want to be able to pull right into our facility. So a lot of times it’s the physicality of the actual site. Does it make sense for self-storage? But I named some of the other stuff, right? I want to be around other retail, I want to be around other competitors. I want to be around a lot of residential housing, and/or I want to be near housing that’s being built. So if it’s in the process of being built, I want to be near there as well.
So what we’re trying to find is a dense population, with a higher than average income level, in a place that’s a growing market… So for that reason, we’re doing a lot of work in the southern states right now; Florida, Texas. We’re looking at sites in Georgia, Arkansas, Kentucky… We have a couple in Ohio – this statistic blew my mind; it’s the fifth quickest growing state in the union, is Ohio.
Ash Patel: It’s where we live.
Joe Evangelisti: I have no idea why that is. So we have a bunch of sites in Ohio, it’s a very popular area right now for self-storage development… So I want to be MSAs that are growing, that are getting bigger, obviously not ones that are shrinking. I want to be where the action is. It’s a lot of Southern states right now.
Ash Patel: Do you yourself invest in syndications?
Joe Evangelisti: Yep, I’m in my own, as well as others. Yeah.
Ash Patel: What others do you invest in?
Joe Evangelisti: Mostly multifamily. I’m excited about the prospect, I should say, about when we have JVs that have their own syndications, because I’m looking forward to putting my own money into the people that kind of grew up with us or kind of raised up with us and know our tactics, and want to go do it themselves. I look forward to investing more into stuff like that.
Ash Patel: What are some of the things you’ve learned, that multifamily syndicators can do better?
Joe Evangelisti: I don’t know what they do.
Ash Patel: Well, did you just say you invest in multifamily, or you invest in self-storage?
Joe Evangelisti: I have, I have invested in multifamily syndication. My whole life and my whole surrounding right now is in the self-storage world though.
Ash Patel: Okay. What do you do differently that multifamily syndicators can learn from?
Joe Evangelisti: Again, I think it’s a tough one. I don’t study outside industries, man. I keep it in my zone. But from the few things that I do see in the multifamily sector – because I see deals come across quite a bit – is that I’m a big fan of the development and the value-add piece in the self-storage business because of the opportunity of cost of construction versus NOI. And I think that one of the things that’s kind of choking out the multifamily industry right now is trying to create that value-add and like squeeze in that juice, right? Like, you see a lot of syndications come across where you’re getting a good preferred return, which is great, but the refi is so small, or the projected refi is so small, there’s no cherry on top. So you’re not creating enough of a gap in the cost versus reward sector… So that’s why, again, I love the development, it takes a little longer, but I’m going to be 55 or 60 cents on the dollar… Where a lot of people I feel like in the multifamily sector, they’re trying to squeeze the 5% or 10% out of a gap, where we can be 20% or 25% in a gap.
Ash Patel: What’s the hardest lesson you’ve learned in the self-storage space?
Joe Evangelisti: I’ve learned a lot of hard lessons, Ash. I don’t think I’ve learned any really truly hard lessons in self-storage yet. I’ve learned that banking is a massive pain in the ass; expect it to take a lot longer than you think. Expect the relationships to take a lot longer to develop than you think.
But the reality of it is – it’s just like any other business; you keep putting one foot in front of the other, you keep taking action, you keep doing the right thing, you keep doing it with integrity, and it’s going to build over time. I think that a lot of people go into something and they expect immediate gratification. This is not one of those industries, definitely.
Tony Robbins has that great thing, he says that, “People always overshoot what they could do in six months, but they way, way undershoot what they can do in five years,” or something along those lines. It’s not the exact quote, but you get the idea.
I think in self-storage, especially for people that haven’t done it before, it’s expected to take longer than it will. But also, once you get that momentum rolling, it’s almost like an unstoppable force; our team, our ability to go out and create and develop sites – it used to take us 6-7 months to do due diligence; my team does it in six or eight weeks.
Ash Patel: How can somebody become one of these bird dogs for you?
Joe Evangelisti: So the best thing they can do is join our Facebook group, it’s called Our Road to Ten Million in Self Storage. And inside of there, we talk about deal flow, we talk about analysis, we talk about how people get involved in their own deals… And then we spin-off from there into our certified field agent board, which we only open it up probably twice a year, where we allow people to come in and get qualified… Because truly and frankly, you’re working one-on-one with my team. So we can’t have more than, at any given time, more than 15 or 20 active CFAs in there who are going out and finding deals, because my team underwrites every deal they find. So I need in there really active participants who want to make real money.
But to give you a quick example, the last person to close a deal, which was last month, he made $40,000 cash on the front side of that deal, and he got 3% equity in a $18 million deal when it’s done. So for doing probably eight hours worth of work, that’s a hell of an ROI.
Ash Patel: That is great. Well, Joe, I’ve got to thank you for taking time out of your day and sharing your journey with us, from construction at a young age, construction in the military, flipping houses and then finding the world of self-storage. You’ve had a great rise to success my friend. How can the Best Ever listeners reach out to you?
Joe Evangelisti: Yeah, they can find me on Facebook. Also Instagram, @joeevangelistidotcom, I think is my instagram handle. Facebook, is just Joe Evangelisti, my name. And then also if they want to get involved in either the coaching aspect or they want to get involved in the self-storage development aspect, I offer all the people — listen, Ash, I love having conversations with young entrepreneurs, I love having conversations with business owners… Even if you’re a doctor, an attorney, an insurance broker, and you want to figure out how can you create more out of life, how can you create more with your business, how can you create more financial freedom and wealth… I love having conversations.
So on legacybuilder.coach, which is our coaching website – we actually offer a 15-minute consultation with me, and I’ll spend some time with you talk about what you got going on. What are your obstacles in front of you? How’s the potential for us to help you remove those obstacles? And at the end of the day, if we work together, that’s awesome. If not, I just love having conversations with people and trying to create opportunity.
Ash Patel: That’s awesome, brother. Thank you again for joining us.
Joe Evangelisti: Yep, absolutely. Thanks for having me.
Ash Patel: Best Ever listeners, thank you for joining us and have a best ever day.
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