Are you tired of fighting for multifamily deals in a competitive market? Return guest Paul Moore suggests looking into self-storage, an asset class he believes is often overlooked despite its many advantages. Paul shares why he transitioned from multifamily to self-storage, how he finds deals, and how he’s grown his portfolio to where it is today.
Paul Moore | Real Estate Background
- Previous Episodes: JF809: Creating a $10 Million Fund, Building a Hotel, and Focusing on Multifamily | JF1594: Expanding & Growing Your Strategy When Deal Flow Slows #SkillSetSunday with Paul Moore
- Founder and managing director at Wellings Capital, a real estate investment firm.
- Portfolio: Invested $71.3 million with 11 operators and have a total of 229 assets across all combined funds.
- Author of Storing Up Profits: Capitalize on America’s Obsession with Stuff by Investing in Self-Storage
- Based in: Roanoke, VA
- Say hi to him at:
- wellingscapital.com
- Twitter: @PaulMooreInvest
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TRANSCRIPTION
Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed and I’m here with Paul Moore. Paul is joining us from Lynchburg, Virginia. He is the founder and managing director at Wellings Capital. His firm has invested 71.3 million with 11 operators, and has a total of 229 assets across all combined funds. He’s actually a third-time guest; he’s already shared with us in other episodes about creating a fund, building a hotel, and adapting your business model when the deal flow slows down. Paul, can you start us off a little bit more about your background and what you’re currently focused on?
Paul Moore: Absolutely. I sold my company to a public firm at 33 years old, and I thought “I’m a semi-retired investor now.” I was really an idiotic speculator is what I was, because I didn’t know the difference; investing is when your principal –I now know– is generally safe and you’ve got a chance to make a return. Speculating is when your principle is not at all safe, and you’ve got a chance to make a return. So I was a speculator, I lost a lot of money, I made some money along the way, I started investing in flip homes, then I started flipping waterfront lots at Smith Mountain Lake and Virginia, started a couple of websites, and I always wondered how to get involved in commercial real estate. I finally jumped into multifamily in North Dakota during the oil boom there in 2011, later wrote a book on multifamily investing, and since then, we’ve added self-storage and mobile home parks, as well as RV parks, light industrial, and similar assets to our funds. We manage five funds that allow investors to get a portfolio of recession-resistant assets with one investment.
Slocomb Reed: I understand, Paul, you’re more focused on self-storage now?
Paul Moore: Yeah. I did not have the success that Joe had in acquiring multifamily. We just got really frustrated, beating our head up against the wall, trying to find off-market deals and deals that made sense and penciled out. When we finally looked at self-storage after a couple of years of beating our head against the wall, we realized that — my multifamily book is called The Perfect Investment; a humble title, would you agree? I realized it’s not perfect if I have to overpay to get these deals. In self-storage, I found 50% of the owners were mom-and-pop single facility owners, and a lot of them didn’t have the knowledge or the desire or the resources to make upgrades, increase income…
Slocomb Reed: When was this that you were getting into self-storage?
Paul Moore: This was 2018. So I immediately started looking for every book I could get on self-storage. I didn’t find very many great ones out there, some self-published ones, so I decided to write one myself. I waited a couple of years until I knew more about it, but that’s when we jumped into self-storage.
Slocomb Reed: That book is “Storing up profits: Capitalize on America’s obsession with stuff by investing in self-storage.”
Paul Moore: Yes, that’s right. It was published by BiggerPockets in late 2021.
Slocomb Reed: Nice. The reason I asked, Paul, about when you got into self-storage is that it’s a much trendier topic now in 2022 than it was four years ago. Are you feeling that in the deals that you get to underwrite? Are you feeling like there’s a lot more competition now and that competition is driving up prices and compressing cap rates?
Paul Moore: Great question. Cap rates are terribly compressed. They’re just about the same as multifamily. The difference is — I recently wrote an article, “Call me a heretic, but maybe cap rates don’t really matter as much as we thought” on BiggerPockets. The point of it was, well, if the asset is completely mismanaged, like the deal we bought in Grand Junction, Colorado that had 80% delinquency, or the deals that don’t even have websites, or even signage hardly even, basically just completely mismanaged.
Then the cap rate doesn’t matter as much. If you tear down the cap rate and realize that’s the net income divided by the value – well, if the cap rate’s 2%, but the income is only half of what it could be, well, then the cap rate doesn’t matter as much. That’s why we really like these mom-and-pop self-storage and other assets in any asset class. They’re just easier to find in self-storage than some others.
Slocomb Reed: It sounds like you’re talking specifically about the cap rate based on the current performance of the asset when you purchase it, correct?
Paul Moore: Right.
Slocomb Reed: I predominantly concern myself with cap rate for two reasons. If I’m going to sell this, what can I sell it for, and what is my debt going to look like when I go for a refinance? I primarily personally focus on the cap rate at the end. I totally get what you’re saying though about not focusing on it on the front end. I will say though, when you find a self-storage facility that has 80% delinquent rents, and you find those kinds of opportunities, have you found that it is more difficult to secure bank debt for those, based on the current operation?
Paul Moore: When we dove into this, we realized we didn’t have the track record, the team, the technology we needed to do this right, so we decided to partner, as you mentioned earlier, with 11 operators over the last several years. They have such a phenomenal relationship with their banks and their track record is so solid that they have a leg up in that area. But we also give them enough cash so they can go buy these for cash, turn them around, and then refinance them.
An example is they acquired one in Beeville, Texas, 607 units, from five feuding siblings after the parents passed away. They wanted 5.5 million for it, but it was acquired for cash for 2.4 million. After three months (three months!) it got an appraisal of 4.6 million. We put 2 million in debt on that; that was a 43% LTV rather than 83, which it would have been, again, at the original price of 2.4. That asset was later sold for 4.6 million; it was like a 300% return on the investor’s equity. It’s hard to find deals like that. But again, the cap rate’s not that important when you’ve got to deal with that much upside. So investing with cash is definitely an option in those cases, and that was a very good question.
Slocomb Reed: Paul, you may have already answered this question at least partially, but why are you paying cash when you purchase?
Paul Moore: Well, the answer would be we wouldn’t want to pay cash, but in that case, there were these five feuding siblings, they wanted 5.5 million – they wanted a quick out; they wanted to end their misery. It was just easiest with that one to pay cash and turn around and finance it in three months. We started the financing process, I should say, in three months. So again, it wouldn’t be our normal practice.
Slocomb Reed: Gotcha. Were you direct-to-seller on this, or was this deal brokered?
Paul Moore: 93% direct-to-seller through this particular operator.
Slocomb Reed: Gotcha. Okay, so you went cash… Going direct-to-seller, of course, means there’s less competition. Is self-storage, a space where you have seen that being a cash buyer makes you more compelling in competitive offer situations?
Paul Moore: Yeah, absolutely. Actually, you didn’t ask this exact question, but it is interesting… In the mobile home park realm, a whole lot of the owners who are selling, who have been around for, let’s say, 40 years – they assume they’re going to have to owner-finance it to sell it. Because until Sam Zell, America’s most successful real estate investor, led the charge into getting financing for mobile home parks, they were very hard to finance in years past. That’s kind of a fun little fact – if you can go into one of these guys with cash or with your own financing, bank, or agency financing lined up, it can really help a lot.
Slocomb Reed: You’ve started five funds, you’ve said; you’re in a breadth of asset classes. You’ve invested over $70 million, and yeah, now you’re diversifying the asset classes that you’re investing in because it feels crowded, cap rates have compressed… Let me ask – when did you start raising capital to invest in commercial real estate?
Paul Moore: Well, I did my first one in 1999. But as far as raising capital for commercial real estate, I think 2011 or 2012 when we were doing the multifamily quasi hotel in North Dakota.
Slocomb Reed: So investing for over 20 years, raising capital for over 10 years… With your breadth of knowledge and experience, Paul, what’s the most crucial skill that you’ve developed over the years, that informs and empowers are investing today?
Paul Moore: I’ll tell you, it’s more of a mindset than a skill. I was listening to my first podcast ever when I discovered… I had heard “podcast” before, but I discovered that little purple icon on my iPhone, and listened to Richard C. Wilson tell the story about how you want to survive if you live way up North. This may sound silly, but it changed my life. If you live way up north in the wilderness and you want to survive, you want to live on salmon, you can either be a spear fisherman, which would mean you have to learn to shape the spear, you have to learn to throw it straight, you have to learn to retrieve the salmon, and you have to hope that a salmon swims by in that dark water. Hope is not a good business strategy.
The other strategy –this is kind of silly– be a grizzly bear in the waterfall, standing there with your mouth unhinged and waiting for salmon to jump into your mouth. That mindset means I’m creating educational materials. I’m becoming the go-to expert. By writing books, doing podcasts, doing webinars, doing videos, doing videos on BiggerPockets, by speaking at live events, all those types of things create a situation where people are coming to me to ask if they can invest. I think that mindset, more than a skill, has changed everything for us. We went from literally a handful of investors – and I mean literally five – to over 500 now since I flipped that mindset switch.
Break: [00:14:01] – [00:15:58]
Slocomb Reed: The mindset being that you’ve made yourself the grizzly bear standing at the bottom of the waterfall with the salmon investors coming to you… Because you begin by adding value, being the thought leader, educating, and you attract people to you with that.
Paul Moore: Right. That’s the goal.
Slocomb Reed: In all of your investing right now, are there any asset classes you’re avoiding?
Paul Moore: Oh, yeah. I’m writing a book called Warren Buffett’s Rules for Real Estate Investors, taking his principles and applying them to real estate. One of the things he said is “Successful people say no a lot.” The very most successful say no almost all the time. We have a whole lot more that we would say no to than yes, for a variety of different reasons. One that we like, we just haven’t found the right operator, would be senior living. We really like that space; there are five aspects to that — actually, six different strategies within that, and that’s something we’ll be looking at someday.
Another one that we’re not doing yet because we haven’t found the right operator – if you’re listening call me – we’re looking for great operators in the RV park space. People that have had years of experience, the track record, the team, and the opportunity to buy mom-and-pops and upgrade them for large profits. Hotels, retail in general…
Slocomb Reed: Hotels and retail are things that you’re avoiding right now?
Paul Moore: Yeah, we’re avoiding hotels and retail right now. We’ve got a lot of questions about those, and I think with the online economy we’ve seen, and then, of course, the damage from COVID, even if it was only for a year, the hotels just sort of kept us away from those. We certainly wouldn’t invest in restaurants. I know there are probably lots of other asset types I’m not even thinking of. Office scares me right now. I do know a company that’s doing a great job in office, but again, with a shift in American thinking with office, I think I’m going to hold tight on that.
Slocomb Reed: Hospitality, retail, office, you’re naming all of the stuff that was most impacted by COVID. Is COVID the origin of the reasons why you’re shying away from those spaces, or were you opposed to them prior to COVID?
Paul Moore: You know, I don’t want to sound like we’re some kind of gurus who knew the future, but honestly, we were squarely – and you can go back and look at everything we’ve said since 2017 – we were squarely in the multifamily, then self-storage, then mobile home park arenas for all these years. We weren’t really drawn to those other asset types, and COVID just kind of sealed the deal.
Slocomb Reed: You were avoiding them back before 2020 then?
Paul Moore: We’ve never invested in them, so absolutely, yes. There is a retail strategy I really like, and here’s the summary of it. Buying a strip center and then selling off the outparcels to pay back the equity quickly. That’s a strategy I really like. If there’s 30% equity and you can sell off the restaurant and the bank outparcels, let’s say, for 30% of what you paid for the whole strip center, that’s a pretty compelling strategy. I know people doing that that we would look at.
Slocomb Reed: Gotcha. For those of our Best Ever listeners, Paul, who are not newbies, they wouldn’t consider themselves amateur investors, they have some experience, have not yet succeeded at the level that you have, and they want to get under the waterfall and open their mouths themselves, what is your top tip for getting into thought leadership for someone who thinks it’s time for them to start raising capital or it’s time for them to start attracting partners to themselves?
Paul Moore: Joe Fairless wrote a little blurb for my new book, and I so appreciate it, so I’m going to throw it back at him right now. Joe Fairless gave I think us all the best tip on this, and I’m just going to do my best to quote him. I don’t know if this is exactly what he would say if you asked him, but I know what he told Whitney Sewell. He told Whitney, “Go out and start a daily podcast. While you’re at it, start doing other things, like social media postings, eBooks and books, and all that, but start a daily podcast first.” That’s exactly what Joe told Whitney. Everybody knows that Whitney, one of Joe’s star students, went from zero to hero in about three and a half years doing that. So I guess that’s what I would tell people.
Slocomb Reed: Start a daily podcast.
Paul Moore: Yeah. I think that’s what I would do.
Slocomb Reed: Awesome. Well, Paul, being that you are a repeat guest, you’ve been through the lightning round before, I just want to ask now, what is your Best Ever advice?
Paul Moore: My Best Ever advice is, going back to the beginning of this show, and that would be to say, please think hard about the difference between investing and speculating. By the way, it’s fine to speculate, it’s fine to invest in bitcoin. I believe true wealth is having assets that produce cash flow. Bitcoin doesn’t do that, and the value is very subjective as we’ve seen by Elon’s tweets a couple of times. There’s nothing wrong with that, but I wouldn’t make that my centerpiece for investing. My investing centerpiece would be boring assets. Think about self-storage; my goodness, four pieces of sheet metal, some rivets, a floor, and a door, but the value-add potential in self-storage is stunning. People just don’t realize that even though it’s boring, maybe because it’s boring. So I would focus on investing over speculating.
Slocomb Reed: Are there any asset classes you’re currently investing in outside of real estate?
Paul Moore: I just did a little Bitcoin with my IRA and a little other cash I had on hand about a year ago. It’s actually done okay. Even though Bitcoin itself has kind of really been up and down as it always has, my portfolio is up about 50% because I’ve got a guy managing it; it’s like multiple crypto assets.
Slocomb Reed: Gotcha. Tell us a little bit more about your new book on self-storage.
Paul Moore: Well, self-storage is amazing, because – think about it, if I’m renting you a $1,000 apartment and I raise the rent by 6%, you might leave rather than sign up for $720. That’s 60 bucks a month for a year. In self-storage, if I raise your $100 storage unit by 6%, you’re probably not going to get a U-Haul, get your friends together, pack up all your junk… Excuse me, your treasures, and move them down the street just to save six bucks a month. So you can do multiple increases a year and people will just gripe, but they won’t leave. 53,000 self-storage facilities in the US, that’s about the same as Subway, Starbucks, and McDonald’s combined.
The first third of the book is about that. It’s about the premise for why self-storage works so well. The middle third of the book is four strategies to build a self-storage empire. That would include buying value-add, buying stabilized, reconfiguring an old warehouse, or a Toys’R’Us, or a Sears building, and the fourth would be of course ground-up development.
The last third of the book would be why anybody wanting to get into any area of commercial real estate would probably benefit from, and that is seven different paths to becoming successful in commercial real estate. Whether it’s commercial multifamily, self-storage, mobile, home parks, whatever; it’s seven different paths to get to the top.
Slocomb Reed: Awesome. Well, thank you for sharing with us, Paul. Best Ever listeners, thank you for tuning in. If you’ve gotten value from this episode, please subscribe to our podcast, leave us a five-star review, and please share this episode and this conversation with Paul Moore with a friend so that we can add value to them with our podcast too. Thank you and have a Best Ever day.
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