Turning Vacant Retail Buildings Into High Cash-Flow Self-Storage

0:00And I would imagine you mentioned that it's so much easier than building ground up from a regula or from a city and bureaucracy standpoint. I would imagine cities are probably pretty excited for someone to come in and do something with this vacant property, right? So is the approval process to convert it to mini storage pretty simple or what does that look like? Yeah, some of the properties are need to be reszoned and subdivided and some of them just need to be subdivided. They're already zoned depending on what county or town you're in.

0:33Some commercial zoning regs say that you can have many stoages and some say you can't. See, but these are pretty easy to get approved because of the fact you don't see them. They're all inside. — Yeah. — You just got a nice neon sign out front. You got nice signage on the building. The the manager who's the white label is a management company like I mentioned there's I think they're number six in the nation. They have a unbelievable marketing program and through the internet and how they market and get the tenants in there. So it's not it it doesn't change anything to the to the site.

1:09You're not looking at a whole bunch of garage doors. — Yeah. — you got a garage door you pull in and you can drive through these buildings. That's just the other beautiful thing about it especially up north. You know, when you get the bad weather, you can drive in, pull over to the side, unload your your car or truck, and then take it to your unit and you're inside and then you just drive straight out. — there is in a lot of these cases there is some loading dock. So, we can do you can pull up to your loading dock at a U-Haul truck or a Rena truck or whatever or semi and unload right there.

1:40That is that is an option that a lot of mini stoages don't have because they don't build them that way. They just build flat on the ground and that's it. That roll up the doors. This because it's an existing retail store or J C Penney or grocery store or a big lots, they all had loading docks. — so we take advantage of that as well, which is a big plus. Big plus. — Absolutely. Yeah. And you mentioned you know that being around $50 a square foot to purchase it. What what's your estimated renovation cost typically to to build it out then per square foot?

2:19That's a good question. I have a total that's in my brain. I I I have would have to take it out the calculator. Like the one we're doing now, we're paying like $8 million for the for the site, which is including 400 plus,000 worth of income, — triple net day one. — and there's 61,000 of vacant space. It'll cost about all in with the soft cost and carrying cost, the closing costs, the construction costs about two.

2:51So you it it's a $10 million u investment total to to get it off the ground. And it's probably easily worth it'll appraise day one even before we break ground, meaning start putting the pieces together. It should appraise at least for 1617 million. Wow. — They won and then Yeah. Yeah. There's a lot of there's a lot of you know on a on a on a seven cap if you sold the whole if you held the whole thing for the whole two years it's worth about 25 million or better.

3:23The other key thing is because of the fact that we're buying it. So right we can rent to start filling it because and keep in mind I don't want to I don't want to buy green bananas at my age. I want I want I want I want to be able to sell these and not worry about it. So, in order to do that, you you got to have a marketing strategy which is priced, right? So, I'm pricing at a $1.70 a foot for rental with the with the the surveys and all my competition around me are between two and a quarter $2 and two and a quarter a foot.

3:58— So, I'm way underpriced. — My my cost is is is cost is cost. You can't change that. You got the management fees, you got the electric, you got the taxes and all that, but the heating systems are in, the the air conditioning systems are in, the bathrooms are in, everything, the sprinkler systems are, everything's there. It's just a matter of just maybe moving a couple items around. And so we can rent it pretty fast because of the fact that we're going to be so cheap compared to to your competition. And some cases, there's a big need for them.

4:31There isn't a lot of competition around. In some cases that that are really have too much density, we don't we don't go in those markets. We stay away from them. So, we we look for those criterias and and it's not a lot about four or five deals, four or five criterias fits the the mold. But u there's a lot of there's a lot to be made. — Yeah. And that that does bring up a great question or point like where does this work the best? Like where where are you buying right now and where where do you target where those four or five criteria do kind of intersect?

5:07— It's strictly a retail centers, main retail roads or malls that are somewhat closed because of the fact that they still have the traffic. Like I said, they still have the housing around there. They still have the in people still have the income. They just don't go to Big Lots anymore — or Joan Fabrics. They buy it all online. And they don't they don't go to Sears anymore, you know, they just so those there's nothing wrong with the locations. We're looking at suburbs of major cities like the one we're doing now is in Rochester, New York.

5:43— Okay. — Up in their suburbs. There's a there's a suburb called Greece, New York, which is really, believe it or not, is like the fourth largest city in New York State. — it's up north, you know, it's different than New York City. It's nowhere near that. It's five, six hours or better. It's up on Ontario Lake, so it's it's in a great market, great income, a lot of family oriented, gets what you need. A lot of rentals, you know, on a lot of apartments. That's what you need. And, we were starting off as small as like $50,000 investment.

6:16And what they they get is is is, just a strictly percentage, you know, 15% annually. And 100,000 gets a 19% annually. Wow. — 20, let me see, 150 gets you 21%. — 200 gets you 21% plus 5% of the profit once we sell it. — So that's a fixed rate annual return for your investors. — Yes. Yes. — Wow. — All all four categories. The first three don't get a percentage of the profit.

6:48Sure. Of of when we sell them, but they get an annual return of those 15, 19, and 21% on their investment. And they get paid semianually. The the ones who going in for more than 200,000 are getting 5% of the profit plus their 21% annual return. So see there's a lot of there's a lot of profit in this thing. So there's no sense of me being greedy. — Yeah. — Give it out and get investors and as soon as you do one or two I can't imagine 80% of them not going to want to do another one.

7:22— Right. Yeah. What's the the risk? What's the risk involved here? Like what's like what's the worst case scenario? Do you think there's a chance that these wouldn't sell that the self- storage or the the big, you know, the U-Hauls of the world wouldn't want to buy it or I mean, what's the downside? — Well, if someone didn't want to buy it, that's a good question. We got plenty income. We're running it. — Yeah. — It the price the the value of the property goes up every time you rent something.

7:54So every day when you rent an extra 10 more units, 20 more units within a month, your your your your appraisal and your value of the real estate goes up. There's there's no risk as I mean, there's always risk, but there's no big risk that you're not going to get your your annual return because we have rental income. And keep in mind day one in this particular one has the 400,000 triple net already as income. So there's that that takes care of the majority of the mortgage payment because when you borrow the the the difference between you know the 85% of the of the 10 million the mortgage payment is most of it's covered by the by the existing tenants.

8:41— Yeah. — So that that that cuts your risk down there too. The the big risk is I don't know. I guess they don't run any but that doesn't seem possible. — Yeah. Yeah. Yeah. And it's interesting that you you're talking about how self- storage has never really had a down year. I as I was thinking about it, I was thinking like the the just like the risk with self- storage seemed intuitively like well in a big downturn you would think that that would be an extra expense like people would get rid of their extra stuff.

9:14So that they don't have this storage fee anymore, you know, in in a really tight economy. Is that you didn't you haven't like that hasn't been the case when like 09 crash or stuff like that? — That happens. But you know what else happens at the same time? People that are in their houses or big houses are going to apartments and they got too much stuff so they rent the spot that they move out of. — Yeah, that's a good point. Yeah, — there's always a replace there's always a replacement person for that spot. When I built the ones up in in in Florida, up in Pasco County on the west coast of Florida near St.

9:49Pete and Tampa area, 40 years ago, there was a thousand units. The risk I took there was is there was a lot of units for that time. — It took a good two years to to stabilize that property. — that's the risk, but but because of the fact that we're going in different and that was it was a rural area at the time. I went up and looked at it after all these years about six months ago. They looked beautiful and on my way up on way back I counted about 40 or 50 mini storage units — that boy I was a way ahead of my time.

10:26Should have kept going but I didn't. I went I went the other way with my father's business but and I was buying shopping centers. But it would it's amazing how many more are are out there and they're full especially when they had a disaster like they did when they had the floods in in in St. Pete. You couldn't get a storage unit. — It wasn't to be had. — Interesting. — If you but anything that was salvageable in your house, you had to put it somewhere. So they put it in in the mini stoages. So, I was asking the manager of the units that I built that by the way U-Haul bought and run and still own them.

11:01They said that they were flowing. They're just starting to get some leeway where they have some vacancies where people can, you know, out their marketing and getting back to their regular normal day-to-day business. But I I just don't see a downside of this because especially with the the so-called boomers these days are not buying houses, they're renting apartments and stuff, you know. — yeah, — we've got storage for cars, you got storage for boats, you got you got all kinds of stuff. — — that's a good point.

11:33I — I just don't see it. I don't see it coming. — Yeah. And that's why I decided once I identify a location and I do the marketing study and then I do the budget and get the zoning and the subdividing and get the financing. It's it's just all on a silver platter. Turn it over to the management company. Let it run. — Yeah. — I don't think my time is best spent teaching you how to rent a 10 by10. I've done it. My time is best spent finding another location what I'm doing right now.

12:05Yeah. — So that's why I hired they're called White Label. They had they run about 200 units around the nation right in about 40 states. And they just it's a lot of it's virtual. You pull up, you pull in, you punch in this, punch in that, give them your card, they give you a unit number, go go in unit 202 and move your stuff in. Here's your code to get in. If you don't pay, if if your car doesn't isn't any good next month, it automatically locks you out. M — so collections are very little. It's just it's it's down to a science now.

12:40When I first started, we had the gates and I would have to manually lock you out. — Yeah. — if you didn't pay rent, so you had but we we are going to have staff there in the beginning for the first while we own it. I want an extra manager on site. I don't want it totally virtual. Do do the because I want to rent and rent fast. — Yeah. And and because the faster I rent it, the more it's worth and the faster I can sell it. So, we're going to have two sets of managers basically, the white label will manage the guy on site or the girl, whoever it may be.

13:15They but there also be a lot of virtual rental. You can even do you can you could pull up nine o'clock at night and do it. — Interesting. Yeah. — It's all cameras. It's all lit. It's all cameras. It's all lit. It's all secured. So, it's it's an easy business once it gets going. — So, the the two that you have are in Florida now. Are you planning to continue in Florida or or I'm sorry, in New York? — The two I have in Maryland. — Yeah. — Yeah. I I I believe it or not, I tried to find Florida and I'm I'm in St.

13:47Pete right now. I stay here most of the time. — The problem with Florida is like I mentioned to you in the beginning is you got to buy it right. Yeah. — The prices in Florida for an empty box, they want 110 bucks a foot. The number doesn't work for me. — Yeah. — Up up north the num we still have plenty of population. We still have plenty of income, plenty of traffic and but the prices are half the price if not less. So we plan on going to Buffalo for two units and Syracuse for two units and do the six of them — right in that area.

14:19And it's easy because I have an office there, my son's there, the bookkeeping's there. It's two hours away for me on a flight. It's it it's so much easier to do to do it in in the those three cities to start them off with. But you know, you can do this any place. You can do this in Kentucky. You can do this in Virginia. It just needs to meet those criterias, which are four major criterias, which I've mentioned before. — Yeah. So, — and again, and we will look at those areas, right? If the if the propertyy's right. — Yeah.

14:50Yeah. So, so just to recap, the four criterias are buying it for the right price. There's enough traffic. There's obviously big box retail stores that are available and what else is it? — The traffic count. — Okay. — How much traffic goes in front of the building. — Okay. — The housing and the housing and income. — And the percentages of of many stoages around there. What is your competition? We get a list of all the competition.

15:21We know what they how many units they have, how much how they're full, the what's the percentage per capita. We need to stay under 8.9% cap per capita per square foot. The one in in in Greece, New York is in the twos. — It's a fabulous location. The one in Henrietta, New York is in the fives. Still way below the national average. Now that 8.9 is is is is the figure that the that that that the institutions Wall Street or the U-Hauls of the world will buy.

15:54— Okay. — Anything anything more than that that you're there's too much competition. — Got it. — So if you're in the game first, you're the leader. — Yeah. — If you're if you're in the game last, don't go there. — Yeah. Yeah. Yeah. And when it comes to the the the financing stack, then are you getting most of the capital from a bank loan, commercial loan, and then you're you're raising? Yeah. — I'm I'm guarant I'm personally guaranteeing a loan. Nobody else is. — the investors won't have to have anything to do with that.

16:27We we have options. We can get loans to several banks. And believe it or not, I I can't I'm getting quotes now because obviously they're getting ready to to to finalize these two deals. Pretty good rates as low as 6.5 6.1%. No prepayment penalty just when we can sell it. I could do SBA has a has a mini storage program where you can do 90% down and get it at six and a quarter. But there's a prepayment penalty.

16:5954321, which doesn't scare me because of the fact that if you remember I said earlier in my closing cost, I have built in 250 or $300,000 with the carrying cost. — I'm not going to be using it because I have revenue from the 400,000 coming in. I might use a fraction of it and then then you have revenue as you rent them out. — Yeah. — So you use less and less of that. So if you got to use part of that or the majority of that to pay a prepayment penalty to make3 million $4 million profit, what's wrong with that?

17:36— Yeah. — Again, that's a decision that even though the investors won't own the actual piece of the property, but I treat them as owners and I treat them as we'll get together, decide what's the best for all of us. Someone might want to say, "Hey, look, let's let me take out those other two investors and let's stay in, keep it." I don't know. There's, you know, the great thing about this is there's a lot of options. And when you do any real estate, I don't care if it's buying or building a doghouse, — you got to have options. If you don't have options, go away.

18:09Go do something else. — That is not for that's not not a good project. — You're going to buy a town houses, you're going to buy apartments, you got to have options. You know, you got to be able to renovate them. You can raise the rent. See, we're leaving a lot of meat on the bone for the the buyer because we're again, we're at a $1.70 a foot. They can raise it to $2 a foot and still be under the market that are getting two and a quarter for the same space. So there my projections are all blown out of the water. It could be worth a lot more. You got to leave got to leave some profit for the next guy if you want to sell it.

18:41If you don't want to sell, then just sit there and melt the cow. They're like I said, they're easier than even the mobile home parks because you don't have to deal with the tenants. Like my toilet's clogged or what? None of that. It's just — Yeah. It's clean. Just keep the hallways clean. That's all. — Yeah.