October 26, 2021

JF2611: Passive Investing in 2 Hours/Week with Fernando Angelucci

After graduating with an engineering degree, Fernando Angelucci only lasted 1 year before he dove into the investing world. But, when his passive investments didn’t feel so passive anymore, he made the switch to a new asset class and drastically decreased his working hours. Today, Fernando is sharing his 3 criteria for buying self-storage facilities, and his secret to get them cash flowing fast. 


Fernando Angelucci Real Estate Background: 

  • Full-time self-storage investor and syndicator
  • Invested $50M in self-storage throughout the last 3 years, all before turning 30 years old
  • Based in Chicago, IL
  • Say hi to him at: ImpactSelfStorage.com & TitanWealthGroup.com

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Deal Maker Mentoring

Deal Maker Mentoring


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, Fernando Angelucci. Fernando is joining us from Chicago, Illinois. He was a previous guest on a couple of episodes. So if you Google Joe Fairless and Fernando Angelucci, the episodes will show up.

Fernando, we’re glad to have you back. Thank you for joining us, and how are you today?

Fernando Angelucci: I’m doing well, Ash. Thanks for having me.

Ash Patel: Very good. Fernando is a full-time self-storage investor and syndicator. He has invested $70 million in storage in the last three years, all before turning 30 years old. Fernando, before we get into your particular skill set, can you tell us a little bit more about your background and what you’re focused on now?

Fernando Angelucci: Yeah. So I was the son of two immigrants. When I was growing up, they had the old-school American dream in mind. So go to school, get good grades, go work at a company for 40 years and retire with a pension. Obviously, that’s not how the world works anymore. When I was 16 years old—

Ash Patel: Wait, you’re smiling… So did you not get good grades either?

Fernando Angelucci: [laughs] I got all right grades. So I ended up graduating with an engineering degree. So enough to graduate.

Ash Patel: Got it.

Fernando Angelucci: But I read Rich Dad Poor Dad when I was 16 years old, and that’s when I knew I wanted to be a real estate investor. So I lasted in the 9-5 life for maybe 13 months, and I started investing full-time in single-family and multifamily properties. As time progressed, my passive income wasn’t feeling very passive. I was working 70-80 hours a week on my portfolio, so I decided to look elsewhere for a better way to do it, and that’s when I decided to start selling all of my rentals and reinvest into self-storage facilities.

Ash Patel: And what was your exposure to self-storage before that?

Fernando Angelucci: Not much. So we had a wholesaling business that ran alongside our residential rental business, just to supply the leads… And every once in a while we’d get a self-storage facility that would come in, but I didn’t give it much thought; we ended up wholesaling two of them. You can underwrite them very similar to a multifamily properties, income and expenses based valuation cap rate. And that’s when I ended up starting to really take a look at them. I went to an expo, connected with a bunch of other self-storage investors, started learning from them, and then went out on my own.

Ash Patel: So Fernando, your pain point was spending too much time in your portfolio, and I would imagine self-storage seemed like a way to spend less time. Is that in fact the case?

Fernando Angelucci: Yeah. So when I was—

Ash Patel: —[Crosstalk] on that first deal?

Fernando Angelucci: Yeah, so the multifamily properties I was buying – I was chasing yield. So I would go to Class C, Class D areas in some cases, and I’d buy pretty high cap rate deals. So those types of deals come with quite a bit of headache; chasing tenants for payments, dealing with challenging tenants… So what I realized is, even after hiring a property management company, I still had to kind of be on call with the property management company when things wouldn’t go right. And so that’s when I decided to look for something that was a little bit less management intensive, and also carried much less liability than habitation real estate.

Ash Patel: And was it in fact, a lot less overhead in terms of your time?

Fernando Angelucci: Yeah, absolutely. So my portfolio, after getting the property manager, I was still operating probably 40 hours a week. Once I got to the self-storage space, I was able to operate each of my facilities with roughly two hours a week of work. So I mean, magnitudes of difference in time for management.

Ash Patel: And what did you do with all that free time?

Fernando Angelucci: Went out and bought more storage. [laughs]

Ash Patel: Going from 40 hours a week to two, that must have felt great. Where did the money come from for your self-storage deals?

Fernando Angelucci: In the beginning, it came from our own capital. So we sold a bunch of multifamily and single-family homes. We also shut down wholesaling and the hard money lending business. So we took all that capital and put it into our first couple of deals, and tested the model ourselves. After running those facilities for about 18 months, I started to see that the model was working, and told a bunch of my friends and family, and very soon they wanted to get in on the deals with us. So we started doing 506(b) syndications. And then from there, which stair-stepped into 506(c) syndications.

Back in the day, it was my own capital, then transitioned to kind of mom-and-pop investors, and now we have a blended approach of mom and pop investors as well as some of these quasi institutional parties such as family offices, small wealth management firms, registered investment advisors. We’re not quite to the point where we’re going after the institutional qualities, endowment funds, and pension funds, but probably in the next year or two, we’ll start going after them as well.

Ash Patel: Fernando, the difference between 506(b) and 506(c)?

Fernando Angelucci: Yeah, with 506(b), there’s a few differences. The first is that you’re allowed to take up to 35 non-accredited investors. So an accredited investor is someone that makes either $200,000 or $300,000 a year for the last two years if they’re married or single, and/or they have a million-dollar net worth not including their personal residence. So that’s an accredited investor.

With 506(b), it allows me to take some mom-and-pop usually, friends and family that aren’t at the accredited stage, it lets me go up to about 35 investors. The one caveat is that you have to have a previous existing substantive relationship. So you have to have documented relationship that goes back prior to you raising the capital.

506(c), unlike a 506(b), allows you to generally solicit to people that you don’t know. So I can get a billboard and talk about my deal. I can post it on Facebook, I could put it on BiggerPockets, anywhere I can disseminate the information to find investors. However, with 506(c), I can only take accredited investors.

Ash Patel: Thank you for that. $70 million in self-storage in three years. You make it sound easy. How do you find these deals?

Fernando Angelucci: So I’m going to tell you right now, it was not easy. It just came down to really being thoughtful of how we built the company. So all the companies that I have run, we follow the traction model, from Traction by Gino Wickman; I believe it’s called EOS (Entrepreneurs Operating System).

And what I’ve realized from beginning of getting into real estate is that you really need two companies – you need your real estate operations company and then you need a real estate marketing company. So coming from the wholesale world and the residential world where you have a much higher transaction volume, we learned how to build up a pretty hefty marketing platform, and then went and brought it over to the self-storage side, so that we didn’t have to rely on brokers to do that marketing for us, and then having to compete with all the people out in the market compressing cap rates.

So 93% to 95% of the properties we buy nowadays come direct to seller, and the way we reach those sellers are through kind of the traditional channels, so sending them direct mail, text campaigns, cold calling, driving for dollars, relationships with providers that may have access, for example attorneys, CPAs, things like that. We also go to Self Storage Association Trade Shows, any type of state chapters as well, to find sellers that may be interested in getting rid of the property without having to pay fees to a broker.

Break: [08:18] to [09:51]

Ash Patel: What is your criteria for taking down a self-storage facility? Is it minimum number of units, city center, close proximity to whatever?

Fernando Angelucci: We have three main verticals, so each of them have a different purchase criteria. So the oldest and the first one is buying mom-and-pop facilities. These are typically owners that they’re on their second or third career. They treat the business kind of like a hobby, if you will. They’re typically smaller facilities, but they’re up and running, and they’re cash-flowing. With these types of facilities, in the storage space we don’t really talk to unit numbers, because you can have a five by five-unit or a 10 by 40 unit. So we talk more by net rentable square feet. So I like to buy things that are 35,000 net rentable square feet or larger, with the ability to expand up to 60,000 to 65,000 square feet, once they’re stabilized; then what that does is it allows me to put together regional portfolios that I can then spin the debt off, refinance into the CMBS market or the commercial mortgage-backed securities market, to get some non-recourse loans and get longer amortization periods in the 30-year range. So that’s one side.

The other side is – we realized that to get to our 10-year goal, which is to have 8.5 million net rentable square feet of storage, we needed to acquire larger and larger properties. The problem is, as soon as you eclipse over that 60,000 to 65,000 square foot range, now you’re competing against REITs and pretty large private equity firms, and they start to drive the cap rates down to 4%, 4.5% or 5%, and I’m just not willing to buy in those ranges.

So what we figured was that to get properties that were that size, we’d have to build them. So on this side, we’re typically looking for land, anywhere between 4-5 acres if we’re going vertical, putting up a three or four-storey property, or 8-10 acres if we’re going horizontal. We’re looking to be able to put up anywhere between 100,000 to 150,000 net rentable on each site, and we’ll typically buy those properties in the $1 to $4 or $5 a foot range, or anywhere between 50,000 to 250,000 an acre.

But recently, with the pandemic and the cost of materials going through the roof, namely steel, which is what we primarily deal in – steel during the pandemic went up 300% to 400% almost overnight – we decided to pivot to our third strategy, and that is to take advantage of the failing big box retail market, and go in and acquire these old stores that were Sears buildings or Circuit Cities or Kmart’s or Walmart’s, what have you, and then convert those into storage.

The reason we like using that strategy is now I can walk into a shell that is anywhere between 100,000 to 150,000 square feet, I can usually take them down between $10 to $20 a foot, and then build out the inside.

Now that allows us to do two things that’s really advantageous. The first is it’s weathered in already, so we don’t have to deal with weather conditions. In the Midwest, it gets too cold sometimes to pour concrete, down in the South and the Southeast sometimes it gets too hot to pour concrete, and that can stall our projects. A typical ground-up development takes 12 months from shovel to certificate of occupancy, whereas these conversion projects or adaptive reuse projects take us about 6-7 months. So that’s number one.

The second piece, it also drops our total project cost by anywhere between a third to a half of the total project cost. So I can put up a Class A regrade facility, anywhere between $100 to $115/foot. That’s the total project cost, that’s land soft, hard costs, financing the whole deal. With these conversion projects, I can usually keep them in the $60 to $70 a foot range, but still sell at around the same multiple or the same cap rate that it would one of these larger ground-up development. So those are kind of the two main advantages when it comes to buying those conversion projects.

Now, as far as the location goes, we’re looking to be surrounded by our demand drivers. So we want to be on high-traffic count areas, we want to be surrounded by dense residential. We want people to be in the kind of that middle to upper-middle class range, they have disposable income, but they don’t have enough room to store their possessions. So that’s typically where we’re looking to go as far as location goes.

Ash Patel: Fernando, what’s the smallest big box you would build a facility inside of?

Fernando Angelucci: I like to have at least 80,000 net rentable square feet, and the conversion or the efficiency ratio is typically 75% to 85%. So if I’m able to buy 100,000 square foot big box, I can fit 75,000 to 85,000 net rentable, because I lose some space to hallways and office bathrooms, mechanicals, closets, things like that.

Now, it doesn’t necessarily need to be 100,000 square feet. If we have a clear height, the height to the bottom of the rafters, if you will, of 20-22 feet or better, then I can actually buy smaller footprints and create a mezzanine level on the inside. So I can buy a 50,000 square foot big box retail store, and then double the square footage I’m able to put in there because I put two layers on the inside.

Ash Patel: What does zoning think of taking a beautiful JC Penney building and turning it into self-storage? What does the city say?

Fernando Angelucci: Typically, the city welcomes us with open arms, because by the time we’re able to get these properties at the prices we want, they’ve probably been vacant or dormant for four or five years; the seller cannot find somebody to re-lease them, and they usually start becoming blighted. And the city doesn’t want to have that blighted property. It’s a huge property, it’s a large building, and it’s usually on major thoroughfares. So when people drive through the commercial thoroughfares of that area, they constantly will see this property that’s falling apart. So they usually welcome us with open arms.

The last deal that I did, about two months ago, on the conversion side, I went through zoning in 15 days; I had one meeting over zoom, and they approved my zoning change within 20 minutes.

Ash Patel: That’s wild, I would have thought the opposite. They want something for the community. A park… you know how typical zoning meetings go?

Fernando Angelucci: Right.

Ash Patel: So that’s fantastic to hear. So you don’t have much resistance at all?

Fernando Angelucci: No. And we’ll preflight a lot of deals as well. So if it’s a municipality that records their open sessions, we’ll read through those and see how much of an appetite they have for conversions and self-storage in general, we’ll see what the reaction of the community is… So if we walk into a site where — from the get-go, I usually call the Economic Development Committee, I’ll call zoning before I even tell them what property I’m looking at and just try to pick their brain, “Hey, how do you feel about storage in the area? Is this something that you’d be interested in, class A? We haven’t picked a site yet.” If I already start feeling any type of resistance, I’ll just move on to the next deal. Because we have a very efficient marketing engine, we’re looking at anywhere between 10-15 deals per week. So we’re just going to take the low-hanging fruit, right? If anything is going to have a lot of resistance, we’d rather just walk away and go to do a deal in a different area that will welcome us there with open arms.

Ash Patel: Yeah, that’s still shocking. I thought you guys were like used car lots, where no municipality wants them, especially in their city center.

Fernando Angelucci: And that’s a piece of education that we have to give them, right? When I say self-storage, a lot of local municipalities, they think of the old school gravel, all drive up, no security—

Ash Patel: Barbed wire fence, right?

Fernando Angelucci: Right. That’s not what we build. What we build, it looks like Class A office building from the outside, it is really gorgeous. So what we’ll do is we’ll send over PowerPoint decks that show, “This is what the old one looks like. We don’t build this. Here’s what our facilities look like, and here’s the last 15 that we’ve done. Feel free to look them up on Google Maps, here’s photos, here’s drone photos that we have, videos of each if you want to see what they look like”,  because that is one of the pieces that we have to get through with them. It’s just changing that mindset about the asset class as it’s changed over the generations.

Break: [18:19] to [21:00]

Ash Patel: Alright. Now you’re starting to sell me. From a syndication perspective, what types of returns do your investors get?

Fernando Angelucci: It depends on the type of asset, right? So if we’re buying a mom-and-pop facility or portfolio facilities that are already cash-flowing, that’s going to have less risk. So the internal rate of return is going to be between 16% to 20%. The equity multiple is going to be anywhere between 1.6 to two times the money; our syndications are typically set up as five-year deals.

On the other side, if we’re doing a ground-up construction or adaptive reuse – those deals, they take a little while to hit cash flow positive. So on those ones, we’re usually shooting for a 20% to 25% internal rate of return, and a two to 2.5 times equity multiple.

Ash Patel: It’s great that you gave investors two different options, ones that want cash flow, and others that just want total returns.

Fernando Angelucci: Yeah, and that’s what we found. Some people they’re investing to live off the cash that their investments make, while others, they may have the exact opposite problem; they have too much cash coming in, it’s really affecting their balance sheet, it’s affecting their taxable events, and they want more depreciation than anything else, which self-storage lends itself to well, because of the use of cost segregation. So we’re able to typically, especially for building it from the ground up, for every dollar invested, we can typically offer $2 back and depreciation and net loss carry forward.

Ash Patel: I like that. And what’s the minimum investment to get in?

Fernando Angelucci: 50,000 is the minimum on most of our deals. Every once in a while we’ll do smaller one-off deals for friends and family, and the minimum on those are usually 25,000.

Ash Patel: For somebody in your shoes that gets tired of multifamily, tired of working 80 hours on their portfolio, what advice would you give them?

Fernando Angelucci: If you approach your business as a true business and really focus on the processes and procedures from the get-go, even when you don’t need to, that’s going to put you so far ahead of the curve. If you haven’t already read Traction by Gino Wickman, I really recommend it. The E-Myth Revisited is another great one that talks about systems and processes. And then I wish I would have hired an executive assistant earlier on in my career; I think that is the number one hire everyone should make. They help you with the personal side, they help you with the business side. They’re almost like a ninja that is able to move between departments and do the things that are lower value activities that you don’t necessarily need to do yourself.

Ash Patel: Yeah, that’s great advice. And for a lot of these Best Ever listeners that are inundated, I’ll also recommend doing a time audit, where you – maybe in 20-minute increments – write down where your time goes every day, and you’d be amazed at what you can systemize and offload to different people and especially an executive assistant. So that’s great advice.

Fernando Angelucci: In our company, we have a mandatory two-week time audit once a year, and we go — every 15 minutes the alarm goes off. So the very first thing we look at is, what can we eliminate before we even try to automate or delegate? And once you eliminate, then what can you automate? And then things that you can’t automate, then you delegate to another physical person.

Ash Patel: Wait a minute, explain that. So every 15 minutes, I have to record what I did for the last 15 minutes?

Fernando Angelucci: Yep. So everyone sets an alarm on their phone, it goes off every 15 minutes from the beginning of the workday to the end of the workday, for two weeks in a row.

Ash Patel: And do you think that makes people more efficient? Because it’s similar to tracking calories or what you’re eating. You don’t want to screw around, because you’re like, “Oh, my God, what do I put down after my 15 minutes?” Have you seen efficiency go up during that two-week period?

Fernando Angelucci: Absolutely. The old saying is “What gets measured gets done” and it’s also helpful. The way we tell our employees, “This is not something to punish you. We really want to help you. So be hyper-transparent, because we can find things that maybe we can eliminate, or maybe we find some processes that aren’t very smooth and we need to edit those processes.” And sometimes, just recently, we find that some of our roles are inundated and they actually need support themselves. So then we’ll bring in a junior member to sit underneath that role to take off a lot of the lower-level activities.

Ash Patel: Fernando, do you wait until the end of that two-week period to tabulate the data and analyze it?

Fernando Angelucci: They’re uploaded in spreadsheets that are saved in our company Dropbox, so anyone could go in and see anyone else’s scorecard on a daily basis.

Ash Patel: Wow. I love that. What a great idea. Fernando, what is your best real estate investing advice ever?

Fernando Angelucci: Put yourself out there. This is a business that is built on networks, and the old adage is definitely true, “Your network is your net worth.” You never know who you can help out in the space; lead with contribution, and just let everyone know what you’re trying to do and what your goals are. I already slipped it into this podcast, right? I’m trying to get to 8.5 million square feet by the end of the 10-year period since we started this business… And people will respond to that positively and they’ll try to help you out. And in turn, maybe you can help them or you could do joint venture partnerships or strategic partnerships.

Ash Patel: Such great advice. Fernando, thank you for being on the show today. You’ve given us a tremendous amount of advice on not just self-storage, but running your business. We appreciate your time. So thank you.

Fernando Angelucci: Thanks for having me, Ash.

Ash Patel: Fernando, how can the Best Ever listeners reach out to you?

Fernando Angelucci: I do something that’s a little different… So I can tell you to go to all, like, the generic websites and social medias, you can go to impactselfstorage.com or titanwealthgroup.com or all of the social media handles attached to those… But what I found is the more barriers I put in place for people to contact me, the less likely they are to contact me, so what I’ll do is I’ll give you my cell phone number. My area code is 630-408-8090. Again, that’s 630-408-8090. That’s my real cell phone number. You can text, you can call me. I’d love to hear about what you’re doing, and if you’re getting involved in the self-storage space and how can I help you out.

Ash Patel: You’re blowing me away. Does that go to your assistant or does that really go to your hip?

Fernando Angelucci: No, that goes right here. That’s my cellphone.

Ash Patel: Wow. That’s incredibly gracious. Well, Fernando, again, great talking to you and thank you again for all of your advice.

Fernando Angelucci: I really appreciate you having me on, Ash.

Ash Patel: Thank you. Best Ever listeners, thank you for joining us and have a best ever day.

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