0054 - Buying Self-Storage: The Business With Real Estate Benefits

You can be the best operator in the country, but if I drop you into a bad market that has terrible demographics and the supply demand ratios off, you're going to struggle. In fact, you're probably going to fail. Welcome to Business Buying for Financial Independence. I'm Tim Delaney, and I help young professionals buy small businesses so they can escape the 9 to 5 and take control of their time, income, and future.

If that sounds like you, hit the subscribe button and let's get into it. Today's guest is Alex Pardo. Alex is a self-storage investor, coach, and podcast host that will be dropping a ton of knowledge on today's episode. Alex Pardo would love to know why self-storage.

- Well, first, my friend, it's great to ought to be here. I'm glad we got connected through a mutual friend and really looking forward to our conversation today. Maybe a better question is why not self-storage? I feel like we can talk about this asset class for a long time, but I'll give you I'll give you the 30,000ft view for me of what really attracted me to this asset class.

And it's the common things that you often hear about self-storage. No tenants, no toilets, no trash. But going deeper, as I started to really look at this asset class about 6 to 7 years ago, is when I really started to open my eyes to what's possible. I didn't realize that you could run and operate these storage facilities remotely, so I don't have any employees.

In my previous business, I had 19 members. My overhead had ballooned to 40, 45 grand a month, and I had to keep doing deals every month just to break even. And with self-storage, I don't have any employees now, and I own multiple facilities across different parts of the country. So that's one of the things that really attracted me to the business.

I also like the fact that it's a very sticky product. You know, generally speaking, when somebody moves into a storage facility, the average length of stay, Tim, at our storage facilities is around two years. And I think there's several reasons for that. But if you've ever rented storage, you know that it takes a bit of effort to move your stuff in, and it takes a whole lot of effort to move your stuff out.

And because what people pay for storage in rent is a nuisance expense for most people. You know, let's call it 50 to $350 a month. We're not talking about 3 or 4 grand in monthly rent. Oftentimes, I hear I can't remember the last time I've been to my unit.

I keep thinking of canceling, but I just keep paying. And so I like the fact that it's a sticky product. And then if we zoom out and we think about Americans, we just like to consume and buy things that we don't need. And I don't know about you, but like, I feel like my wife is constantly ordering things on Amazon.

I got packages coming to my door every day. And when the economy is doing really well, people keep buying and they need a place to store their stuff. And then when the economy contracts, what do people do? They downsize.

But instead of selling off the stuff they don't need, they go rent a storage unit for 100 or 200 bucks a month. And so those are just some of the reasons that I'm very bullish about this asset class. But I will end with this and then I'll kick it back over to you. Storage is a business.

So it's more of a business than it is an investment. And that's one of the things I love about it is that it's a business with the benefits of real estate. We get to enjoy all the all the reasons we love real estate, tax advantages and depreciation, appreciation, cash flow. But it's an actual business.

So those are just some of the reasons I really like this asset class. - I love that. And you really nailed the fact that this is a business. It is not real estate.

I've always, you know, looked at self-storage as a cool looking business from the outside. It wasn't until I got into the into the real estate game that I heard people talking about it as a real estate class, and I was confused at first because I always just, you know, I look at it as a business first and but you're right, it's got that those great benefits of real estate, you know, I have a business. And then I bought real estate for those benefits to help offset things. You just did it all in one transaction, In fact , it’s - - My very first transaction, as if anybody's like listening or watching, And they're like, is it really a business?

I got an 85% loan of the purchase price from the Small Business Administration. So my very first deal was a 43,000 square foot facility in Mississippi, and I got a loan for 85% of that purchase price, which was 1.6 million. That's evidence that it is a business, because SBA isn't loaning for you to go buy a single family rental property.

- Exactly. And generally nobody's giving you 85% on your single family rental property either. So you obviously no real estate as well. Let's maybe back up a little bit and and share your story with the listeners.

- Yeah. So, you know, when I was in college at Florida International University, I accepted a job with General Electric, and it was a rotational program in their financial management program was what it was called. And a couple months into that job, Tim, I quickly realized that I don't want to be an employee. I don't want to work for somebody helping them build their thing.

So I knew that I was wired to go off and do my own thing. I just didn't really have any idea what that looked like. And it was a two year program. So I finished it and I went backpacking around Europe for three and a half months, and me and a couple of buddies, we visited 53 cities and 22 countries.

And, and I mentioned that because that was such a pivotal trip and moment in my life, when I was on the train going from city to city, I started to just immerse myself in personal development books. One of those books was the classic book that you hear every entrepreneur reference at some point Rich dad, Poor Dad. And that opened my eyes to real estate. And so as I think it's God, maybe it's some people will say the universe, maybe it's some people think it's coincidence or serendipity.

But about a week later, I go into an internet cafe in Ibiza and a friend of mine sent me an email inviting me to a Marketing for Deals boot camp. It was basically a seminar teaching people how to market for real estate deals. It was $997. I didn't have a job.

I was going to be moving back in with my parents. So it may have been $97,000 for me, but I knew that I wanted to do something and real estate. I kept reading in all these books that most millionaires, a lot of their wealth was from real estate. And so I'm like, let's do this.

What do I have to lose? And super long story short, I went to that event and I used one of the pre foreclosure letters that came in the binder. I went to Kinko's, made a bunch of photocopies, and I sent out a direct mail campaign to pre foreclosures. And less than three months later, I'm closing my first real estate deal.

And between myself and a partner, we split $44,000. And that is the moment I basically became unemployable. That was beginning of 2006, and I haven't looked back ever since. - I want to touch on a couple things there.

First of all, you took a class seminar that you probably shouldn't have been able to afford at that point. Backpacking around Europe for three months. - No job. I put it on a credit card.

I used that so I couldn't. I couldn't afford it. - But you did. You did do it.

And that's a huge mindset thing. I think for a lot of people, a lot of people have a hard time joining the program, paying for that education, paying to get into certain rooms, into masterminds, because it's it feels like a waste of money when you don't have any money coming in. How like, had you done things like that before? I mean, besides going to college, I guess is sort of like that too, but nobody questions that.

- No, it's such a great question. And you just opened up a can of worms that you might not even know. And I say that in a, in a good way to him. So I speaking, I have been, I want to say a risk taker, even though during this trip I bungee jumped and ran with the bulls and did a bunch of stuff that you couldn't pay me to do.

Now that I'm older and wiser, but I've - I tend to be more. You see something you want and you take action. And my faith is very important to me. So I've always had this belief that, like, God will see me through it.

Like I'll figure it out. No, that's not to say that I just do things recklessly, but I'm more of a ready fire aim, so I think I have that naturally wired inside of me. But for me, Tim, the pain of going out and working for somebody and working in corporate America, getting a job, the pain of that was greater than the potential pain of failing doing something for me. And so I was like, yeah, like I'm going to do it because like, what is the cost of inaction?

What do I lose if I don't do this? And I think oftentimes that's a question that want to be investors or entrepreneurs don't ask themselves is that they were like, okay, well, yeah, I cost 10, 20, 50,000 to to join this community or hire this coach. But they don't they don't ask the reverse. Well, what does it cost me and what can I stand to lose if I don't do this?

And that's a question I often ask myself. And, you know, the first couple of years I had the opportunity to hire a coach and I didn't. I was fortunate, and it was unfortunate in some regards that the first year and a half, I think I closed 12 or 13 real estate deals and I did really well, not realizing that I was benefiting from a market that was just going up and up and up. And then 2007 and eight came and I lost.

I lost my shirt between myself and a partner. We got involved in our first fix and flip, and we lost $102,000. So I lost $51,000 of my own money. And thankfully I was in a position where I could weather the storm.

But that was the I've done, I don't know, close to 800 deals in my career. That was probably the best deal I've ever done. And you would say to yourself, like, wait, you lost 51 grand? How could that be the best deal?

That was the catalyst for a mindset shift. And I said to myself, if I would have had a coach or mentor in my corner, they would have been able to read the tea leaves about the market and the shifts and the things that were happening that I didn't. I was too oblivious and ignorant to know. And ever since that momentum, there hasn't been a year where I haven't paid a coach to work with me and or been a part of a mastermind community, that's awesome.

- In those communities, those coaches are so important to businesspeople and real estate investors. And, you know, anything you're doing for yourself, it's great to have somebody else in your corner that is looking at things from a different angle and questioning you. And that's, you know, I don't want to go. We could go into this all day with this mindset thing.

But you touched on the fact that, you know that you see. Well, let me say it another way. Like I talk to people all the time who say, oh, business, going into business for yourself, buying a business, doing real estate, starting a business. It's also risky.

And to your point, I flip that question around and say, well, isn't working for your one employer relying on one paycheck also very risky? Like what happens tomorrow if they decide they don't need you anymore? What happens tomorrow if your new boss is a complete, you know, horrible person to work for? To me, that's a bigger risk than going out and betting on yourself.

- But I completely agree and I've asked people the same thing. Now, what I've come to realize, because I think because of social media and I don't know how you feel about this, but I think because of social media, being an entrepreneur is glorified in many ways. It's like the 30 years ago. I don't know if it was cool to be an entrepreneur or to go off and start a side hustle or start a business now because of a lot of influencers, I think it's glorified, but I don't know that everybody's cut out to be an entrepreneur.

In fact, I would argue that most, if not many, let's say or not, should not be. There might be better off being a number two or number five of a company or working for somebody. So I think you have to be wired for ambition and to want to create impact people and do something and let's not kid ourselves, Tim. You know this being an entrepreneur, man, sometimes it can be lonely.

Sometimes it can be really, really challenging. Sometimes you doubt yourself and you have a lot of like setbacks that you start to at least I don't want to project and speak for you. But those are some things I've experienced. Like, I'm not going to be the guy coming on this podcast as if I'm in the top of the mountain and I've, like, made it and figured everything out because I certainly haven't.

I have my Fisher challenges like anybody else. But to your point, I'm betting on myself. I'm I know what I'm the effort sacrifice I'm willing to put in. I know where my heart's at.

I know what my God given gifts and talents are. I'm going to bet on that and not put my future, my career, my family's well-being or livelihood and somebody else's hands that could decide to downsize or sell the business or whatever. And all of a sudden now you're back out into the workforce, except the later in life you go, the harder it may be to get a job. And so for me, that's the ultimate risk.

But I don't know, maybe that's just my mentality. - Yeah, I would agree with everything. There it is. Not everybody is cut out to be an entrepreneur.

But you know, thinking about the risk in a different way is important. And, you know, just because you're not a full blown entrepreneur doesn't mean you can't be a partner. And number two, with somebody else too, and still own a piece of what you're doing, you know, to reduce that risk. - To your point, that's it's one of the reasons I love self-storage is because depending on the size of the deal, the pie can be big enough.

Where to your point, you can be an employee. You don't have to go start a business, but use your earned income and invest in assets and invest in the right people and the right operators so that you're building something on the side while you're working your 9 to 5 or your 8 to 7 or whatever it might be. So you can to Tim's point, you can absolutely invest in people's businesses, invest in projects that give you equity and ownership without you having to be the main operator.

Now, that's probably a whole separate conversation. You got to make sure you're investing in the right people, right? I always underwrite the operator first, the person, their values. Is there an integrity alignment before I even look at the actual business opportunity or the actual storage deal, whatever it might be?

- Yeah, I would agree with that completely. That's important to know the people, the person more so than the deal, that's what's going to make or break in any way. So you have a big loss in real estate, 2008 nine somewhere in there. But that's not the point that you stop real estate.

Right? You kept going after that. - Just because I fail once doesn't mean I'm going to - I'm just going to like, stop and give up and quit. I'm.

Yeah. I just that thought never crossed my mind. Now, did I have moments where I questioned, am I making the right decisions? Like what - What's wrong?

What do I need to do differently? And then I learned as I grew that I was asking myself the wrong questions. But no, I didn't. I was able to weather the storm and it was.

It was a rocky three and four years. I'm not going to lie. It was tough. But I knew that the alternative was worse than me going through the fire.

And I just had this, this mindset that I was growing in the process. Like, yeah, it's not fun to take the L's and to go through these like, challenges. But I knew now what not to do. And I I've made quite a few mistakes in my journey, which we could we could probably do a whole season of podcast episodes on mistakes and lessons learned.

But you get better and you get. You learn and you grow, and you start to surround yourself with the right people, and you get wiser and more experience. And then so, so yes, no. To all that to say is the thought of quitting never, never really crossed my mind.

Yes. - But then let's fast forward a little bit. You said you had 19 employees. Sorry, nine employees.

And you're you've got a big overhead. But the thing most people think about with real estate is that it's very passive and hands off, and you don't have to have any employees. So how did you end up with that situation? - No, no, no, that is is a bold faced lie.

It's a myth. Now, look, I will say if you're investing like we just talked about, if you're investing in someone's deal as a limited partner, then yes, it can be 100% passive. Yes. But if you're the operator and if especially if you think that I'm going to go buy a rental property, and that's passive income, like talk to me in a year and see how that goes.

There is nothing passive about it. In fact self-storage, it would benefit me for people to think that self-storage is passive, but it's a lie. And I have to politely and respectfully correct people. And when I hear, hey, I want passive income, I would say, okay, invest in a deal.

But if you want to learn how to find and operate and manage these deals, it's an operator's business. Now, I do believe once, once you stabilize the facility and it gets to a healthy place from an occupancy perspective, it can absolutely be semi passive. About a year and a half ago I owned I since sold the part of the portfolio, but I owned 104,000ft². It was a total of 838 units.

And Tim, honestly, if I spent two hours a week on that portfolio, it's probably a lot. So it can be semi passive. It's certainly not full time work, but to think that you're just going to do something once and it's going to rain money and cashflow forever. No, that's not the reality of it.

- Yeah. That's unfortunately not the reality with any true business or real estate or pretty much anything in life. You know, even you mentioned passively investing as an LP in deals. You know, even to some extent you're going to you should be spending a lot of effort and energy vetting that deal in those operators, like we said.

So even that's not truly passive. It is. Once you put that money in, you're not going to do anything for a couple of years. But at some point, you're going to have to make a decision on what to do with the proceeds or what to do with the future.

That's right, that's right. Nothing in life is really passive completely. But so you decide to move into self-storage for all the great reasons that you you talked about at the top of the podcast, what was the first thing you kind of did when you decided, you know what, this seems like a smarter move for me? - Yeah, that's an easy one to answer.

I found the right mentor and community, and I paid a bunch of money to join it, so I've - I'm not shy to invest in myself and to pay for proximity and to pay for the shortcut, not shortcut. As if I'm thinking this is a get rich quick scheme, because it's certainly not. But why? Why try to figure it out yourself as my mentality, like I don't want to make an expensive mistake like self-storage is not rocket science.

Like, could I figure it out? Could you or anybody listening and watching figure it out? Sure. Like, information is not scarce.

We can jump on Claude or any AI tool. YouTube and all the information is there. In fact, it's probably too much information. But to take the time to piece it together and then are you going to take the action to do it?

And then if you get stuck, which naturally you are, are you going to then go research how to get for me, I'm just like, I'm going to pay for proximity. I know the value of being in the right room. So that's the very first thing I did when I finally committed and I said, okay, I'm going all in. I found the right mentor, I found the right community, I joined them, and then I did the opposite of what I coach our community members of doing is I - I almost came in, if I'm being honest with you, Tim, I almost came in overly confident because I've had a lot of experience in real estate.

I've done deals, and I kind of just I think in the back of my mind, I thought it was going to be easier than it actually was, and it wasn't because it was difficult. It was difficult because I wasn't putting in the work. I wasn't putting in the actual like - I just thought people were going to start bringing me deals. And that wasn't the case.

And I remember I was leading a mastermind group in March of 2021. And in the break, one of my members said, hey, I heard on your podcast that you've shifted into self-storage. How's it going? And I had an egg on my face.

I'm like, I had zero results. It wasn't going very well, and it wasn't because of the program or the community. It's because I just wasn't doing the work. And that was like a kick in the pants moment.

I got back after that, that event that I was putting on. A month and a half later, I was under contract on my first facility, which is that 43,000 square foot facility. So to answer the long winded answer is I joined the community, found the mentor, and then took me three months, but I actually started doing the work. - Yeah, yeah.

So that's a couple things there. First of all, not being afraid to pay for that self-education and that accountability and then that mastermind, I think you just show the real value of masterminds. I don't know if that was your intention or if that wasn't even what that mastermind was for, but the fact that somebody asks you a question and kind of, you know, not even doesn't sound like they were even calling you out like some masterminds will, but just a genuine question. And that is what unlocked your your thought of.

Yeah. You know what? I got to go do this thing. Like, what am I doing?

I'm saying I want it, I'm paying for it. I got to go take action now. - And Tim, not just that man, but like and this is difficult to admit, but like, I felt like a hypocrite because I'm this person's coach and I'm coaching them. And here I am, like, not drinking my own medicine.

And I'm like, wait a second. Like, I'm not operating in integrity here. Like to coach others on hey, you commit; you follow through. And I wasn't doing that and I was really honest.

And it was a it was a teaching moment for me to like, you got to live what you preach. And I went back and I did the work and, and it was great for now for me to be able to use that as an example and learning lesson for others like, hey, I've been where you are, where I've committed, and I haven't followed through. Here's what happens when you do commit. And it required focus, and the results came because you just you put in the work and it might not happen for you in a month or a month and a half.

But if you're consistent and you're putting in the work and you're not afraid to fail to a certain extent, right, we don't want to make a big mistake, obviously, then the results will come eventually. That's just my belief. - Yeah, yeah, that is true. The you know, the deal came to you once you started putting in the work.

You were focused on self-storage. So one of the things I talk a lot about with people that are looking for a small business to buy is our scopes of what we're looking for can be pretty broad, especially at the beginning. The fact I which you were focused on self-storage, that particular niche of small business, it only took you a month, month, and a half. Once you really focused in on it, or once you started putting in the effort, you already focused on what you wanted.

You just put in the effort. What were some of the steps that you started taking to find that? - Glad you asked me that having a clearly defined BUYBOX was so critical for my success, because not only did I develop a very tight BUYBOX about what I wanted and what I wasn't looking for, what I didn't want, but I started to plant seeds with everybody in my network, everybody in my ecosystem, anybody I talked to, I say, hey, I'm looking to purchase a self-storage facility. Here's exactly what I'm looking for.

I'm going to send you my BUYBOX and I'm going to follow up. Is that okay with you? And even if they would have told me it's not okay, I probably still would have followed up. But I just started planting seeds and having conversations.

And for me, one of the things that I always share with our community members inside storage wins is that relationship capital is the most valuable capital you can raise. It has nothing to do with money. It's about the people that you know, the people that know you, and building relationships and relationships are built on the back of having meaningful conversations. And that's what I committed to, is to just talk to people every single day.

And I'll never forget - But a gentleman I was working with inside of that community that I joined that I paid 20 grand for, he texted me and he said, hey, check your inbox. Based on what you've shared with me, this fits your BUYBOX, pulled up my Gmail, looked at it, and within 20 30 minutes I'm like, yep, I'm moving forward on this thing. At least I want to go through due diligence here. And that ended up being my first deal.

And it's only because - And by the way, Here's the punchline of this story. This particular guy that gave me the opportunity is very well known in the self-storage space. He could have gone to over 100 self storage investors, that many of which probably would have been interested in the deal. He came to me because I just, I was somewhat relentless with the follow up, not in a pest kind of way, but just I would drop in, I would check in.

He knew exactly what I was looking for. So like Dan Kennedy, the marketing genius talks about is like, we want to enter the conversation happening inside the minds of our prospects. That's kind of what happened here. Like, I entered his mind because I had been sharing with him, here's what I'm looking for.

And he saw it and he thought of me, gave me the first crack at it. - That's a lot of value right there between the following up, defining that BUYBOX very clearly. And that's one of the things that I talk to people about, is you can go and tell everybody in your network that you want to buy a business, but if they don't know what specifically it comes, it comes in and out of their head and they forget about it. When somebody actually does say, oh yeah, I'm thinking about selling my business.

They've forgotten about you because you weren't specific about what you were looking for. And then even within self-storage, like being specific, probably about the size of the facility, the location to some extent, the the price point that you're looking for - - The strategy value add. Yeah. What are we looking for here?

- Yeah, exactly. So the more details you can share with people in your network, the more likely they are to remember that you are looking for that thing and then following up like it's something personally, I am terrible at. It's one of my flaws. I try to get trying to get better at it, but for those that are good at it and remember to do it, that's sometimes that's all it takes.

You follow up with the right person on the right day and it's something just hit their inbox. They share it with you. Yeah. And 20 grand to join to join a community like that.

But it turns into a deal that's worth millions. It's, you know, a drop in the bucket. At the end of the day, it really is. - I think sometimes Tim, and it's unfortunate - Sometimes I connect with people.

And the first question they have when they're interested in storage and they know that I lead a community and I coach, it's like, what's the cost to get into the program immediately? I know that their mindset is off. Instead of asking, where's the value? Like, how can I benefit and grow from this?

If your first question is, what's the cost? I already know your mindset is off, and I feel like sometimes people like they see $100 bills on the floor, but they're tripping over to get to pick up dollars, and that's what they do by not investing in themselves. And I think it's equally as powerful with reframe to think about the fact that not only are you investing in yourself, but you're investing to be in a room with people you don't want to be with. And here's what I mean by that.

The people that are not willing to make an investment are not going to be in that room. You are surrounded by others who have paid 20 grand or whatever the cost, the cost, I don't know. That is the point of the story. It could have been a hundred grand, it could have been five grand.

But it's people that are committed enough that they're willing to part with their hard earned dollars because they're serious about it. There's value in that. Yeah, yeah. - And being around other people that are serious is motivating and can also lead to deals, as it did in your case.

And you know what happens inevitably. - And I know that you've probably experienced this. You show up as a different version had that community been free and it's like, oh, just join. I wouldn't have done the work when I got called out because it's free.

It's like, oh, I have every intention of like getting to it. But it's like when somebody gives you something that you don't really value, but when you've paid for it with sweat or equity, money, or something, you just value it more. So you show up as a different version of yourself. And I heard years ago, and I'd love to quote the person that said it, but like when you pay, you pay attention and it's the truth.

- So what was it about this deal that caught your attention and made you want to move forward with it right away? - Yeah. And I'm going to answer. I'm laughing because that deal, there were a lot of challenges with that deal, which I'm happy to get into.

But initially the price per square foot, like the price, they were just the listing price based on the size of the facility. I was like, like, what am I missing? Like, where's you know, if you've ever seen the show Yellowstone? Beth, you know, she asks a question when she's closing a deal.

She's like, where's the rattlesnake in the deal? Right? It almost seemed too good to be true, but - But I went through the proper due diligence and. Yeah.

Initially, the price and the size is what attracted me to it, and it was a true value out opportunity. I think occupancy was in the 50s and the rates were far below the average street rates. So in commercial real estate for for those that might not know, the value isn't based on comparable sales like it is in residential or single family homes. The values based is determined by the net operating income.

Right? We have revenue minus expenses gives us our net operating income. The value is tied to that noise. So as a self-storage investor we can do something called force depreciation.

So if I can raise the rents and generate more revenue and increase the NY, it has an exponential effect on the overall value of the business. And I know that obviously you understand this, but for whoever just might not be sure how that works in self-storage and in commercial, that's how it works. So I knew that I could take the facility. I was buying it for 1.

6, and I projected it to be worth two, five, two six. So I felt like within a 24 month of 36 month, I could add about $1 million worth of value to the business. Now, what I underestimated and what I the rule that I broke that my nine year old daughter could tell you, like if I were. And I'm going to test you, Tim.

Right? Not as an actual test, but like, what is the three words that people always bring up, and it's the same word repeated three times when it comes to real estate, what's the most important thing with real estate? - Location, location, location. - And I did not, I didn't tell you I was going to ask you that question, but I feel like everybody, everybody knows that.

And yet, mind you, at this point, I'd been in real estate. I don't know how many years, you know, close to two decades. And I violated that rule. I bought a facility in a very, very rough part of town, and I thought that not that I could change the market, but I'm like, the operators are not doing a great job of operating like, I could fix this business.

And I now know and this is one of the things I coach our community members on is that, like, you can be the best operator in the country, but if I drop you into a bad market that has terrible demographics and the supply demand ratios off, you're going to struggle. In fact, you're probably going to fail. You could be in mediocre to average. Operator and if I put you in a great market with strong demographics that has more demand for storage and supply, you can suck as an operator, you're probably going to do very well.

And man, I struggled because there was a lot of break ins at that facility. There was a big homeless population not too far away, and so I violated that rule. Location, location, location. Now, I ended up selling that facility about a year and a half ago.

So three years of ownership and we sold it for 2.495. So basically hit the nail on the head of what I projected. So we did well, but it came with a lot of headaches.

And it was a heavier operational lift than what I wanted. That's not why I got into storage. I got into storage because I wanted more time freedom. I didn't want more headaches.

Yeah. And I realized that I couldn't fix the market. The market was the market. - Yeah, yeah.

Location is definitely important. No matter what kind of business or real estate you're operating, it's uncontrollable factor once you're in it. So you need to make sure it's a good spot before you go. Did you not connect the dots on that location issue during due diligence?

- I did, I did. I knew it was going to be a challenge. I just underestimated how heavy of a lift it was going to be. And there was a lot of things that the seller, I don't want to say was hiding.

And this is I'm not pointing the finger at the seller. This was my fault. I moved forward and I decided, and I don't have any regrets over it because I really cut my teeth. And I learned this business operating in that facility.

But there were things that maybe weren't disclosed that if I would have continued to dig a little bit more in due diligence, I probably would have uncovered there were things I could have done, like when I was on site doing due diligence. I should have talked to a lot of the local businesses in the area to really get, hey, what's going on in this area? Like, what are some of the challenges? Like, I could have dug in now, I did go to the police department and I checked on, you know, has there been any?

And I found a few things, but nothing that scared me off. I didn't anticipate the level of how the homeless population would affect the security challenges. Now, keep in mind that owner had onsite security, and that should have been a red flag for me, and I was never planning on having an onsite security. I was going to be remote management.

And so when I took off that security and I went remote management, you know, it was just a little bit of a free for all. So we had to install new lighting, new security, new automated gate. But then they kept cutting the fence. They kept manipulating the gate operator to leave the gate open, like those types of headaches that I just - That's not why I got into self-storage.

Now, I don't want to freak anybody out with self-storage. I own a facility in Amelia Island that I've owned for a little over three years. Ask me how many break ins I've had at that facility. - Probably not.

- Yeah, exactly. So again, location, location, location. - Yeah. Let's talk - You mentioned the SBA on that deal.

So let's talk a little bit about how you structured it, how you came up with the offer and the price and go yeah. - So the seller we negotiated a little bit on price. I was very close. The seller I think was asking 16.

5, 16.75, We ended up at 1.6. We ended up closing.

We got an $8,000 seller credit at closing 15.92. I got seller financing for 85% of the purchase price and then with 15% down payment, what they call an equity injection, the 15% down payment I needed, plus some money to put into the facility. It was about 350 grand.

I didn't have that money, but I knew who did because of that relationship capital I alluded to earlier. So I was able to bring in an equity partner. So I brought in a partner who was the capital partner. He injected the 350 grand into the deal, which covered the 15% down payment and money that we were going to put into the into the business.

And he got equity in the deal. Now I was the one that found it negotiated. I was the sweat equity partner. He was just the capital partner.

It was pretty passive for him outside of just, you know, once, once a month meeting and looking at the at the reports with me and all that. But yeah, that's how I structured it. So I got into the deal with no money out of my pocket, and I was the sweat equity guy. - That's a great way to do it.

So you structured that as a just a general partnership not a. Yeah. So that equity partner do you. Would you mind sharing what you're how you came, how you decided to split the equity between the two of you?

- No, it was very easy. And it's the way I did. It is not the way that I would do it today. Knowing what I know now.

It was a 5050 split, 5149 on voting rights. So one thing that I would recommend for anybody who's doing a 5050 split is make sure that there's somebody who has at least 1% more of voting rights, because you don't want to be at a stalemate. You want to have an operating agreement. Of course, none of this is legal or financial advice.

Consult with the pros, right? But you want to have an airtight operating agreement that spells out, hey, this is what's going to happen if X, Y, or Z happens. But it was a 50/50 split at the time. I knew it was generous to offer that.

At least I felt. But I placed a lot of value on the ease of the capital. If I told you this, you might not believe me, but it literally was a couple text messages and 2 or 3 phone calls and the money was secured. So I really didn't spend much time or energy like having to raise the capital and having a million conversations with people.

Now, this is in fairness, this is somebody who I've done business with that knows me, trust me. And that's the reason the ease of capital was there. But yes, it was a 50/50 split. Knowing what I know now, I wouldn't have done a 50/50 split, probably would have been more like 70/30.

But that's what it was. - Yeah. I mean, you could beat yourself up. And I'm sure if we asked 99 people on this in the audience what they think a fair split was, we'll get 99 different answers because everybody has a different opinion on that.

There'll be some people that say, you're crazy. You should have got 99% of the deal. And there'll be other people that say, what, are you crazy? That guy put in all his money.

You should have only gotten 10%. You know, I think everybody has their own opinion. At the end of the day, you did the deal. You made money, your partner made money.

Everybody's happy. You have a great, you know, presumably still have a good relationship with that person. And that leads to more deals and more cash and bigger things down the road. So like Alex said, don't get caught up in in small details on especially on your first deal.

Do what makes sense to get it done, you know. That said, don't give up everything. You don't want to be working for free. But you know, make sure that you're you're being fair and reasonable and just get the deal done.

And then we're worried about future relationships in the future. - There's a lot of wisdom in what you just shared. And I just want to, like, piggyback on something I did. My mentality at the time was I was placing a lot of value into getting into my first deal because I had this.

I had this genuine belief that it would just open up more doors and opportunities. It would give me more credibility. Now my conversation with a storage broker, a storage owner to say, hey, I own this facility and I could point to it and they can verify it. I placed value in that.

Now, that wasn't to say that I was going to get involved in any deal just to establish credibility. I still felt at the time that it was the right deal. I knew I was buying it right, despite some of the challenges with the location. So I wasn't I didn't have the mindset that I'm going to try to, like, chisel him down on equity and try to get the best possible deal.

Because I was thinking long term, I wasn't thinking transactional. - Yeah, that's a great way to think in that proof of concept that like that legitimacy factor is important. And you're right. Don't just do any deal to so that you have that legitimacy.

If you're losing massive amounts of money, it's not worth it. But it does help going forward. And I guess maybe on that note, do you want to share how that might have helped going forward? Because that wasn't your only self-storage deal?

- Yeah. So you're asking like how it moved. Like how it opened. Well, the simple answer to that is the broker that was involved in selling us the deal.

So it came from somebody in the community. He got it as a pocket listing from a broker that he had transacted with. Well, that broker about a year later calls me, Tim. And he said, hey, Alex, how's everything going at American Mini?

We started talking about it. He goes, how would you like to own another 37,000 net rentable square feet of storage three miles up the road? And I said, okay. And this one was 43,000.

So this would give me 80,000ft² of storage in a three mile radius. I could manage it with the same third party management company. It could just give me a lot of scale. And in my mind it's like, okay, well, now I have a big enough footprint there where maybe I attract the eye of one of the rights like public storage, extra space.

And so I was like, Matt, I'm interested, like, what do you got? And super long story short, there's a company called Storage Rentals of America, S.R.O.

, a big, big company nationally that acquired a facility in this particular part of town as part of a bulk package of portfolio of. It's a portfolio asset that they just bought, and they came with a bunch and they didn't own any storage in this area. And the one of the guys that was really high up at SRO was an alumnus and part of the boosters program at Florida State University. So talk about check out this problem for tax purposes.

They donated the storage facility to FSU boosters program, and I ended up buying the facility from FSU's boosters program. It was a donation for tax purposes. The whole facility was donated. Like think about that as a problem.

- Yeah. That's crazy. - Don't you donate a seven figure asset? So I was able to buy it again if I bought the first one.

Really good. I bought this one even better. And as if I didn't learn my lesson the first time, I doubled down. And now, instead of owning 43,000 in a in a rough market.

Now I own two facilities in a rough market, so I thought the location was better. I ran into the same exact challenges, and now I'm really kicking myself in the book because it's like, what am I doing? Again, thank God it's been said that you make your money when you buy. You just realize it when you sell.

I experience that, and super long story short, I ended up, I hired a broker. It took a while, but we sold both facilities to the same buyer. That second one I bought from that broker, I bought it for 1.2.

I sold it for 1.99. So now, in all fairness, all that the 800 or so, that wasn't all profit because I raised private money for 100% of the purchase price. And so I had some cost of capital there, but I still did very well in the sale.

- Okay. Yeah. I was going to ask when you said it was three miles up the road, the homeless problem didn't didn't just move three miles up the road. It wasn't - - Still had similar issues, slightly better location, but we still had issues.

It was just a pretty depressed market. Like it's a bad market. It's an area where you wouldn't feel comfortable walking around at night. And again, I wouldn't make that mistake again.

I'm glad I went through it because I grew and learned a lot, and fortunately I was profitable on the other side of it, but not the reason I got involved in self-storage. And I certainly don't want to come on here and scare anybody from self-storage. I just bought in the wrong market. That's the punchline.

- Yeah. And yes, it might have been the wrong market. You might have had more hassles and struggles than you would have otherwise. But to your point, that first deal unlocked this other deal and you still made money.

At the end of the day, it's maybe, you know, you could argue, was it worth your time, hassle, and energy? You know, I'm guessing still probably probably got a decent check. - It was, it was. And not just that.

Like I still have that broker reach out. Reaches out to me from time to time and, you know, throws opportunities my way. And so yes, all in all it was a net positive. And then.

Yeah. And then it's interesting because I this is something I share inside the storage wins community. But once you close your first deal there's a saying in storage that says once you buy your first, you're halfway to ten. And it's just all of a sudden you just have more opportunities.

It's like the it's like you hear the funny story of, like the guy that gets a girlfriend and all of a sudden, like, all the girls are interested in him, and then he breaks up with a girlfriend and like, he can't hit the water if he falls out of a boat, you know, it's I don't know, you close a facility and all of a sudden you have all these, you have more opportunities coming your way. And maybe it's because you're just confident now and you have the proof of concept, and maybe it's how you show up.

I don't know, but I just had more opportunities as a result of that. - I yeah, I think there's the opportunities go to the proven commodity. So in this case, you were a proven commodity. You had closed on a facility.

You know, people could objectively see that you were willing to do it. You made it happen. You're somebody that closes. So now they're going to reach out to you and bring you more opportunities.

It's, you know, rather than deal with the tire kickers that are knocking on their door that they don't know if they're going to close or not. So. And you just want to touch on the financing for that second one there. You said you raised 100% financing from other people.

So this was like all debt from other people. - It was all debt, no equity. Yeah. It was three private lenders.

I paid 12% interest only. And the great thing is that because all the private lenders funded it from their self-directed iris, their self-directed accounts, I didn't have to pay monthly interest. All the interest was accumulated, and it was paid along with the principal on the back end. And that was super helpful because that facility that I bought, occupancy again, was in the 50s.

It if I had the monthly debt service payments, it wouldn't have cash flowed. In fact, I would have been out of pocket. A reason I was able to make the deal work was because I was able to get the private lenders to agree to basically just have the interest only be payable along with the principal once it's paid off. - Yeah, those are great debt structures when you can get them.

And that's usually a private. Lenders are the ones that are going to entertain that type of thing where you don't have to make those monthly payments, or at least for a period of time, and pay them all on the back end, because you save yourself all that cash flow and you can hopefully make enough and probably reinvest a little bit there in that facility and marketing or whatever it was, I'll tell you. - I'll tell you one thing, because I'd be I kick myself if I didn't share this because it was a big, big learning lesson for me.

And if you haven't noticed him, like whenever I come on here, like I always tell myself, like, just be real with people, like, because they'll appreciate it. And we all here and we hear the success stories and it's like as if nobody, everything they touch turns to gold and nobody makes any mistakes. One mistake that I made when I did structure that deal, I did a lot of things right. But there was a few critical things that I've learned from.

Never put short term, never, never shorten the term of the debt on an on a commercial asset and overestimate or underestimate how long it's going to take you to sell that asset. When I bought this facility, I knew my plan was to package it up with the other one and put it right back on the market. And so that private money, it was a 12 month term. And initially I was like, okay, I, I'm pretty confident I could sell this facility in 12 months.

I wasn't able to sell it in 12 months. For the first time ever, I had to go back and get an extension on the note I was, fortunately, because of the relationships, I did pay a point in order to do that, but I was able to get, I don't know if it was a six or a 12 month extension, but it gave me just enough time to get it sold. And that was a big learning lesson for me. Has never put short term debt on a long term asset like self-storage.

Like give yourself time because if that clock runs out and you haven't found a solution to sell or refinance that property and pay off your lender like you got a problem. - Yeah, yeah. And that's you know, I've had that happen with a real estate asset luckily, you know, like you had a good relationship with the private lender. So it wasn't a huge deal.

But you still feel bad and you feel guilty and it's not good for anybody. So always push for the longest terms that you think you're going to need. And then probably a little bit longer as well. Yeah.

Yeah. And the other thing I wanted to touch on, they're kind of like that partnership split on the first one. There would be a lot of people listening saying, well, 12%, what are you crazy? That's a lot of interest.

That's a lot of money. But when you, you know again, Alex got the deal done with it. He made some money on it. It's doesn't you know, at the end of the day it didn't matter a lot.

And when you actually factor in the fact that he wasn't making monthly payments, that real interest rate was probably significantly lower because of the lack of monthly payments. - So and Tim, and that was also relatively easy money to raise maybe a handful of conversations. And I remember a zoom call with the lenders and just in talking about the structure and how everybody was in first position because everybody knew each other. So they kind of came in the way that that the paperwork was, was structured.

So anyway. Yeah, look, I think that's you bring up a point that we talked about earlier sometimes don't trip over ten, 20, and $100 bills to pick up pennies. Like what's the difference if I'm paying 10% interest or 12% interest if I project X amount of profit in a certain like, it helped me get the deal done. And look, could I have taken more time and found 10% money?

Yeah, probably. But I value the 12% with no monthly payments. Then I do the 10% where I'm making monthly payments. - Yeah, exactly.

I feel like we're I could talk to you forever about self-storage and business, but I know that your time is limited and my time is limited. So are there any other self-storage deals that you've done that you want to talk, that you want to kind of share their interesting they're helpful for the users? - I'll share - There's several I could. One thing I'll note, and just in the interest of time is oftentimes I ask people that reach out to me because they either see my videos on YouTube or on the Storage Wins podcast.

And they I ask them like, what? Why do you want to get involved in self-storage? Cash flow is what I hear most of the time, and cash flow is fantastic. However, it's only one.

Cash flow is only one way to generate income off of self-storage. Like I have wholesale storage facilities for six figures. And when I say wholesale, I mean like you control it with the paperwork and you find a buyer to step into your place. And there's a lot of different ways that you can generate an income.

So I've done quite a few of those. So don't box yourself into thinking that the only way to do self-storage is if you buy, manage and operate, because I can tell you that there's probably people listening that don't have an interest in being an operator, but they're more interested in either being an LP partner. The point is, leverage your strengths to figure out how you can get involved in these deals. Maybe you know how to find deals.

Maybe you have a deep network and you can access capital. Those are all valuable things you can contribute to get ownership and equity in deals. But I'll quickly mention this I love seller financing. Anytime I can get seller financing, I'll give a seller more times than not whatever price they want, within reason.

Of course, as long as I can dictate the terms. Tim, I'll give you your price. If you let me dictate the down payment, the interest rate and the length of the term and that facility I referenced in Amelia Island, which Amelia Island is a very a fluent area. Think of it like the Hilton Head of Florida.

It's just north of Jacksonville right in the water. Great location, strong, strong demographics. Well, there was the seller that we bought that from was an attorney that lives in Ohio. And his sister was running the facility and they weren't really treating it like a business.

It was part of their family for a number of years. They owned it free and clear. Great people, super smart. It just wasn't their primary thing.

And the rates hadn't been increased in years to the point where we literally bought it and we doubled the rates within a 60 day period, like literally doubled. And so we added significant value. But what's cool about this deal is that we paid retail on the price tag, but he financed 90% of the purchase price. We got a 3.

25 fixed percent interest rate for five years with a one year extension, and then we got no payments for 12 months, zero payments for 12 months. So the first payment started month 13. And then in commercial real estate, usually you amortize these loans over 20 or 25 years. We were able to advertise it over 35 years, which lowered our debt service and maximized our cash flow.

So and then the 10% that I needed to get into the deal, I got it from a private lender who I paid 10% interest to. So another deal that I was able to structure creatively got into it with no money out of my pocket, turn the seller into the bank and it was a win. I was able to go in. It was a light operational lift.

We've added significant value to that facility, and I found that deal from a simple direct mail campaign, just a very simple direct mail campaign. That's it. - That's amazing. There's a lot, a lot in there from, you know, just simply sending out letters and finding the right buyer.

You know, that 35 year loan that you didn't have to make payments on for the first year, and then such a ridiculously low interest rate that's there you go. Simple letters. Yeah. That's you know, so in reality, you're not really you're probably not paying much principal down in that loan in the 5 to 6 years that you're correct.

You're paying that. But at the end of the day it doesn't matter because just by doubling rents overnight, you mentioned earlier the noise, you almost doubled the value overnight just by raising by double. - I did multiple six figures of value to that facility. - Yeah yeah.

So when it comes time to refinance with a bank, you're going to have a much higher valuation and not have a problem getting a loan. That's incredible way to structure a deal. And these are the kinds of things from my perspective, that are much more possible in businesses than, you know, they happen in real estate too. And businesses with real estate attached makes it a little bit easier because lenders have that hard asset to back themselves up.

But business owners will be creative. They'll be willing to work with you on different factors of the deal so that you can avoid banks altogether. Or you can work together with the seller and the banks to find terms that work for everybody, so that you can get the cash flow that you need to sustain what you're trying to do. So that's incredible.

That's right. Yeah. - And the only reason I got that is because I asked a simple question. And that's one of your most powerful tools when you talk to sellers is ask questions and listen.

They should be doing 80% of the talking and you're doing 20% of the talking. And I uncovered by asking questions that he was concerned about capital gains taxes because he owned the facility free and clear. And so the light bulb went off and I asked them, hey, would you would you consider if I could, if I could get you your price for close to it, would you consider taking payments over time? And it was a win-win.

He generates more money today, truly passive as the bank you want to talk about passive being. The bank is pretty passive for the most part. Once we did the deal, he makes more money now passively than he did operating the facility, and he doesn't deal with the customers or the management, or the taxes or the lawn or the insurance like, great deal all the way around for everybody. - Yeah, and that's a great pitch to a seller who's a little bit hesitant on seller financing.

Two of, you know, hey, you, you could very well stand to make more money every month than you have been with no hassle. Being the bank is the probably the closest thing to passive that exists. Like you said, that's a great way to put it. Alex, I can't thank you enough for sharing all this information.

I think there's a ton of value in this episode. Where can people find you and learn a little bit more about self-storage? - Yeah, absolutely. If you head over to StorageWins.

com, I have like free - If you want to learn how to analyze and underwrite these deals, I have a free tool there. All you got to do is give up your email and happy to send it over to you. I also put out a lot of content on my YouTube channel, so if you just search by my name, Alex Pardo, or go to any of the podcast platforms and look up, storage wins and you'll find you'll find all my episodes there. And then on Facebook, if you send me a friend request under Alex Pardo 15, I put out a lot of content on my Facebook page as well.

- That's awesome. So if you have been thinking about self-storage as an asset class or a small business that you would like to get into, make sure you reach out to Alex, check out his stuff based on the value he's dropped here. I'm sure that there was way more value on his channels as well. Alex, thank you very much for being here.

Look forward to talking to you again in the future. - Appreciate you, Tim. - Thank you everybody for listening. We'll see you again soon.

Cheers. Thanks for listening to Business Buying for Financial Independence. If you're serious about owning your time and building long-term wealth, make sure to subscribe so you don't miss the next episode.