Acquisitions Anonymous - #1 for business buying, selling and operating - $900k Moving and Storage Company / $500k Rural Mini-Storage - e42

Episode Date: September 9, 2021

We're joined this week by Nick Huber (Twitter: @sweatystartup) and CEO of Bolt Storage (http://www.boltstorage.com).We review two small businesses for sale:- $900k Moving and Storage Company- $500k Rural Mini-StorageWe hope you enjoy!-----* Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.* Do you enjoy our content? Rate our show!* Follow us on twitter @acquanon Learnings about small business acquisitions and operations.-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#62 Two Landscaping Businesses for Sale - Mike Loftus CEO of Connor's Landscaping#66 Analyzing Software Businesses for Sale with Steve Divitkos, experienced industry CEO#61 Two Manufacturing Businesses for Sale - Brent Beshore - Founder and CEO at Permanent Equity#24 $5mm pool services and lifeguard staffing co / $2mm septic services business -  featuring baller @WilsonCompanies as a special guest!#45 $800k/yr cleaning business in Midland, TX / a $565k/yr window cleaning business in San Antonio, TX#48 Two Landscaping Businesses for Sale - Mike Botkin of Benchmark Group--- Support this podcast: https://anchor.fm/dealtalk/supportSubscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Welcome to another episode of Acquisitions Anonymous. My name is Bill Alessandro, and I'm here with my co-host, Michael Girdley and Mills Snell. Acquisitions Anonymous is a podcast where we break down small businesses for sale. We do it anonymously, so as to preserve the identities, the anonymity of the sellers and sometimes the buyers. So we are very excited this week to have a very special guest. Nick Huber, aka Sweaty Startup, is here with us. Nice to have you here, Nick. Thanks for having me.

I'm a big fan of all of your work. So this is a, I feel like I'm in the big leagues talking to you guys. Cool. Well, we'll try to live up to it. We feel the same. We are excited today. We got two exciting deals today, both of which are kind of in Nick's wheelhouse. So I think we're going to learn a bit from him about some self-storage and some moving.

But before that, a word from our sponsor. Yeah. Hey, so honored to be sponsored today by Tiny Acquisitions.com. So they are an online marketplace where you can go. buy existing businesses, focusing on very tiny ones. So their message for you is you don't need an idea to start a business anymore. You can now buy proven ideas for less than $5,000, pre-developed and ready to go. All you need to do is do what you do best and promote the business.

And Tiny Acquisitions is home to thousands of online businesses that sell for less than $5,000, one click, and you can be in business with one of their companies that they are a marketplace of in less than 24 hours. So go to Tiny Acquisitions.com today to try it out. So back over to you, Bill. All right. Thanks, Michael, and thanks to tiny acquisitions. We appreciate you. Help us pay for our editing. So we're approaching break-even for acquisition. All right. So, Nick, I'd love to just give you, before we get into your first deal, I'd love to just give you a couple minutes or seconds, how long you think it'll take. Tell our listeners who you are, what you do and where to find it. Yeah, so I went to school in upstate New York, started a small business with my business partner while we were juniors there. It was a pickup and delivery student storage company. We spent the first five years of our working lives. in warehouses, learning logistics, hiring, managing, firing.

Six full-time employees, about 300 part-time employees. We did pickups and deliveries in 12 states, you know, a lot of logistics. 2016, we got into the self-storage business with the proceeds from that, doing what I would never recommend to do, which is develop a self-storage facility

from the ground up as your very first go as a 26-year-old. That went well, though. We got bailed out once we got it open and operational, and we ended up selling our service business at the beginning of this year. And we're now full-time real estate private equity. And over the last 12 months,

we went from six self-storage facilities and a little under 100,000 square feet to over 650,000 square feet. And we closed on our 25th property on Tuesday this week. So we're growing really fast. And I love self-storage and real estate and also small business as well. So I'm excited to be here.

Awesome. Really cool. I'm always impressed when someone can put the pedal to the metal like that and to say this is exactly what we're going to do, hit the gas. to done 25 properties in less than a year, you say? Yeah, the data is coming in. The data's coming in quickly.

And some of our initial estimates of what was going to happen were nothing but wild guesses, right? In business, you're taking a lot of, you know, partial information and making a lot educated guesses. And it's gone really well. And we've outdid what we thought we could do. And we have some more data now. And we feel like we're on to a pretty unique opportunity to have a real estate play that's

not passive. It's very active. We manage it. And we feel like our management is our competitive advantage. And when we can do that and kind of properties are worth more to us than they are to other folks. And then Twitter kind of opened my whole world up a year ago where I began to meet mentors and partners who expanded my viewpoint and also investment capital. And we've raised almost $10 million now from 97% of it's from people that I met on Twitter,

which is kind of mind-blowing. And yeah, we're full scale, man. We're peddled the metal. So it's fun. That's very cool. Well, that's why I'm excited to have you here, kind of that blend of small. all business operations and real estate. I think it would be very interesting to us, at least, and hopefully to our listeners, too.

So we'll let you kind of kick it off. So are we going to kick off with Mills, I guess, first, and then we'll get into Nick's over home plate self-storage deal. So Mills has a moving storage company out of North Carolina for us. Yeah. So we have a moving and storage business, quote, with recurring revenue. Asking price is $900,000 on $305,000. in cash flow, revenue of $1.73 million, $1,730,000.

They don't list the EBITDA, they just list cash flow. And inventory of $5,000, the real estate is valued at a little over a million dollars and is not included in the asking price. The business has been around for over 25 years. Their reputation in the community is outstanding. Primary customer base of residential homeowners moving to and from the area. and just inner city moves. The limited competition exists within their growing market.

They use their own fleet of vehicles, and the owner has invested in quality equipment to continue attracting new customer segments. With consistent revenue growth over its history and an established foundation, the business is primed to grow for many years to come. The owner's retiring and wants to responsibly pass the business to new ownership,

willing to offer attractive training period with a strong offer. keep that in mind. Employees have been notified that the business is for sale. The owner would prefer to sell the real estate with the business. So some highlights here are consistent and clean financials. They have recurring revenue elements. Real estate's available for sales, several opportunities for growth. Most business is word of mouth driven. They don't have any customer concentration, established reputation, not a lot of competition, high barriers to entry for storage and warehousing. The real estate is a standalone facility with warehouse space, staging area, shipping docs, overhead roll-up doors and office. Comes with an additional

one-acre lot for future expansion. If you're the buyer, you have to demonstrate that you have the ability to actually purchase the land. The business and real estate have been pre-qualified for an SBA loan. $100,000. Let's see. Okay, so they're basically saying there's an SBA loan package which you could buy the business, the real estate, and get $100,000 in working capital with approximately $315,000 down. So this seller, or let's see if it's a broker. Yeah, so there's a business broker listed on it. So they've done a little bit of homework for you to say, hey, look, here's the way that you could put the deal together and what you would need. Mid Street is the name of this broker.

They also are a real estate broker and a business broker, which is one of my favorite and least favorite things about dealing with brokers. one, so we'll do both. All right, that's probably enough of me. Yeah, no, I agree. Let's dive into it. I think, I think this is all repetitive after this. So this is mostly residential moving, as opposed to commercial-oriented stuff, it looks like. Yeah, I agree. Yeah. Super interesting. Moving business is tough. It's a freaking tough business. You're dealing with a lot of turnover. You're dealing with rough around the edges, individuals who are out, moving. I have 17 employees, I'm assuming two or three in management and the rest are running crews. It's tough. I mean, I wouldn't be surprised at the real estate's worth a lot more than a

million bucks, especially if it's a 15,000 square foot, you know, warehouse anywhere near Charlotte or some other major areas of North Carolina. A lot of times you'll find business owners that, you know, subvalue their real estate to sell their business, which is kind of exciting to me. But we tried to start a moving company in Boston with a lot of SEO, a lot of, you know, synergies, some warehouse space. And it was very, very, very hard to get our start. So I think the barriers to entry are a little higher than what you think. And these folks have a reputation and are getting, the first questions I would have is where are they getting their business? Who's sending it to them? Is it coming from online? Is it coming from realtors?

Is it coming from, you know, it might be business moves? We don't know. So I'd want to figure out how they're getting their revenue coming in. So Nick, I wonder if you could unpack that statement for me a little bit more. Because on one hand, I look at this business and I go, I could start this business tomorrow with a truck and a couple storage units, right? But on the other hand, you know, maybe it's more defensible than I think it is, you know, with a brand, with SEO rank, you know, is there a moat on an established moving business or is, are you just going to be dealing with whack-a-mole competitors coming in to underprice you at sub-scale, you know, all day every day? No, I think there's there's two different types of movers. I mean,

there's, you know, high class, pack it up, store it, move it, keep it in their warehouse. And then there's fly-by-night Craigslisters that show up and you don't know if they're sober when they arrive at your house, right? So there's a, there's a, there's a, there's a, there's a, there's a, going on in the business. And we tried to launch with a very good website, some awesome YouTube videos that we had produced and a pretty significant budget for both AdWords and mailers to people's houses who list their houses on the market. And we got absolutely a whole lot of nothing. And I'm also learning how to move these houses if you're not, never been on a truck, doing it, packing it up, moving high-end furniture, very tough.

Interesting. So how can you crack the code then? If it wasn't, that's what I would have gone to, great SEO, you know, great digital marketing and try to outcompete digitally for leads, but it sounds like it's not that easy. How did you end up making it work? We didn't. We shut it down.

We tried for six months. We invested 40 grand and trying to get some business drummed up and realized that, A, we had no idea what we were doing when we were trying to get in those houses and pack up nice furniture. Even though we moved 7, 7,500 college students. a year. We moved them in and out of their dorms. It's just totally different when you're dealing with nice furniture and houses. So, I mean, I think if you supercharge a company like this, the exciting part for me is adding those aspects, adding the polished website, adding the SEO, adding the

digital marketing. And if you have some good crew leaders, I mean, I'd want to get in and talk to the management. I'd want to get in and talk to the person who is running the crews, running the logistics, how long have the mover's been there? Sounds like they know that the business is selling. But if you have a decent management team, good trucks, good equipment, I think it could be a hell of a business. So I talked to a searcher who ended up closing on the deal here in my hometown, and he bought a business like this, first of all, to much better multiple. But we'll get to that later. But the bread and butter of his business that he bought was actually a lot of recurring and reoccurring commercial customers. And it seems to me this residential space is much more of a red ocean than kind of that commercial stuff.

like are am I just thinking about like the two different types of customer base is different and are those really the same business but they just feel different to me like is there a different thing going on there? High end customers put their stuff in storage and forget about it, whether it's a storage unit or a moving company warehouse. So I would also want to know of this 1.7 million in revenue how much of it is in your warehouse that you hit a credit card every month because that is valuable. The turnover is going to be quite sticky.

Maybe even raise prices and some other things. But yeah, you're absolutely right. if it's almost all service and the warehouse is half empty and you use it to get your trucks prepped and a much different model. And you all keep in mind, we had a previous episode. I'm not sure which number it was, but we had a friend of mine here in South Carolina, Nathan Bocock, who owns, he's the largest franchisee for two men in a truck. So, you know, the other end of the spectrum in terms of size and scale and sophistication from this

type of listing. But my brother owns a business that's similar size to this here in Columbia. commercial and residential moving. They have like eight box trucks, you know, 25 to 30 employees at any given time. They don't specialize in college moving, Nick, but they, they found a really good niche in decorators. So it's truly kind of recurring or reoccurring in the sense that the decorator rent space in like a really nice area for their showroom. But then they're doing a house, right, that might be a, you know, a million, you know, a million dollar home, two million dollar home. They need to order 400 packages. And then my brother, as the mover, wants to make sure he gets the move

and can charge for, you know, receiving and storage. So he charges a per, you know, per piece, right, $20 a box, $25 a box, whatever it is to receive it. You can also pay more to have it opened, inspected, and then charges by the cubic foot per month to keep it there. So it's kind of the trifecta. That's a great. That is a great business. It's a great model. That's the way to go. he went from a 4,000 square foot warehouse to a 12,000 square foot warehouse and filled it up in 45 days. Just because people are like, hey, I need to move stuff from point A to point B, but my house isn't going to be ready yet. Do you have somewhere I can put it? And he always just had to refer it out to, you know, to the things like you own, right? No, I'll just move it into your, you know, whatever random storage unit you want.

And so now he gets to keep it. He's got a bunch of like vaults, wooden vaults that he can put stuff in and charge by the month. but you're right, getting into this revenue and figuring out what's the delineation between one time versus anything recurring? The other big question I have here is they're saying they have about $300,000 worth of furniture fixture and equipment. The condition of those trucks, I mean, it's very capex intensive at a certain point because you know, you're putting a lot of wear and tear and mileage on these trucks, especially if you're doing interstate moves. And the cash flow might be $300,000. But if you're having a lot of, you're having to be $1,000, but if you're having to repair, maintain, and replace, you know, a truck a year, you know, you're talking about

a pretty substantial haircut to the cash flow. Yeah, they're making $47,000 a day. Where's it coming from? What is it coming from moves? How many crews are out and how much of it's in that warehouse? Nick, is this a business that has any regulatory impact in certain states? Like, do you have to be licensed as a mover or any of that, or is this just pure labor arbitrage? You got to have a worker, workers compensation is absolutely brutal. So if you're paying an employee $20 an hour, you're really paying $27, $28 an hour after workers' comp and all the other things. So, you know, that's a big regulatory aspect. But, you know, you got to be bonded. You got to, you know, we got it done for under 10 grand in Boston. And I'm sure North Carolina is a little bit easier to get, you know, your,

your licensing in order. But I'd say that, I'd say the bear's entry is just those recurring, where is that recurring revenue coming from? It's really hard to crack. I wasn't able to crack it when we tried to launch. It does depend on the state. So in South Carolina, movers are regulated, because basically the way they get you is you're moving private goods over public roads. And so it becomes a regulated activity. And at least in South Carolina, it's regulated by the Public Service Commission. My brother, when he first got started, he didn't know this. So he was just moving for a family friend.

And this guy rolls up with a badge and says, hey, show me your paperwork. Basically, my brother's like, what paperwork? And he got dinged. And you have to go basically before a board on the, Again, this is only in South Carolina, but it probably happens in some other states too. You have to go and basically prove that there's a need for another moving company. And you can go on the public commission's website and find a list of every registered mover in the state. So it kind of cuts both ways.

You know, it has some advantages to create a barrier of entry, but there's still people who move all the time who aren't actually registered. In Massachusetts, you had to set your rates. So you had to set public rates and you can't charge. Yeah, Bill. Yeah, exactly right. it's a little bit tough cool that's interesting the three times asking price

seems high for this and maybe maybe I'm just jaded by the deals I've seen when people are in this space that they're trading closer to one one to one and a half times EBDA but I'm curious perspective on that if that warehouse has 40, 50 grand a month in recurring

that changes it right but yeah if it's all if it's all out there on the trucks moving people's stuff and you know two times EBITDA is about all I'd be interested in, right? Yeah. So it sounds like really understanding, there's some stuff in here to really dig into that you talked about, but one of those is like really like how much of this is truly recurring

revenue stuff versus, you know, hard earned dollars done via services. Yeah. Also, you know, we've done a couple equipment rental businesses on the podcast before. This one, too. They say they've got $300,000 worth of trucks. I'd want to understand, did you buy those trucks for $300,000? and now they're 15 years old, you know, because if in fact the market value of those trucks is $300,000, you know, that you can work that into the valuation. But I have a feeling that the

market value of those trucks is substantially lower than $300,000. Yeah, and what's the debt? And a lot of times you'll have them calculate the equity on the trucks. And even though they have a note for half the payments, right, it can be really tricky. But the tax advantages can be tremendous. I mean, Section 179, all those trucks year one, if you put $300,000 down, you could have a $300,000 tax deduction year one, which is a pretty big deal. Nick, we expand on that for 30 seconds for folks who... Yeah, so it's just like bonus depreciation in real estate, meaning like what's the active life spion of what you buy and you deduct that expense over the year.

So if you assign $300,000 of the purchase price to maybe seven or eight trucks, there's a tax code called 179 that allows you to deduct that all in year one over maybe a five or instead of a five or 15 year depreciation schedule where you write it off against your taxes every year. So, yeah, I mean, if you're in a high tax bracket and you need some writeoffs, $300,000 could save you. It could be basically a full year one right off and you own the business outright. Yeah. And you would get that same 300, maybe over 15 years if it were goodwill, but getting it all up front year one is obviously significant. But you go to sell the trucks in two years. You got a big income event, right? Then if you've fully depreciated them. So that's something else they consider.

That's a great point. And what we're talking about is this idea of purchase price allocation. So at the end of the day, you know, let's just say, let's say this business ended up selling for $500,000. You and the seller have to agree and your attorneys and your CPAs have to all agree on how the purchase price gets allocated across that $500,000. You could say, hey, look, the name is only worth $5 and the trucks are worth $400 and the remainder. But it's basically every advantage you get from a tax perspective is a disadvantage to the seller and vice versus. So it's this point of negotiation that's very nuanced that people don't always talk about, but you can win or lose big time based on how purchase price allocation shakes out. If the owner has only $25,000 of basis left in his trucks or zero, he wants that purchase

price allocation of those trucks to be as small as possible, right? So it's a nuance. What sort of things would you do if you own this business tomorrow to turn it into a home run? It sounds like increase the recurring revenue stuff. What other things? come to mind and maybe adding maybe maybe maybe adding some structuring to how to buy the business would help as well some sort of earn out and and that sort of thing. The three the three to four back office staff inside there I would instantly replace with Filipino call center and admin for you know cut 50 to 75 percent off the labor cost there and optimize Google My Business location, get a great website built, get some SEO work

done, get some videography and really vet the business. management and see if you have anybody who, how are they running their logistics? Because when you got six trucks on the road every day, how are they prepping those trucks? How are they getting, how can they be more efficient so that those movers can spend their time moving and everybody else can spend their time doing what they're good at? Because a lot of these moving companies, the movers show up, their trucks aren't ready. They waste your guys who should be out making you money on the road and billing $50 to $100 an hour to the clients, they're in there looking for moving blankets. They're looking for dollies. They're getting things ready. Maybe they're driving at Chipotle every day for lunch. And, you know,

that's $200 that you could have built customers because you didn't get them catered lunch in a lunchbox ready to go out the door in the morning. So those are the little things that we did inside of our moving company that just helped us get more efficient. Yeah. Is there any way that companies like this align the actual like movers themselves, the guys in the truck around the interest of the ownership? I mean, I'm thinking like, you know, you see models where people with plumbers and whatnot are giving people incentives to generate more revenue. Did you guys try anything like that? Or is that something that just ends up with a lot of broken pianos in a business like this? No, I think speed should be rewarded and your best crews should be rewarded. So the more hours

they can bill in a month, the better, right? So tying it to revenue is great. I think people make a lot of mistakes on trying to tie compensation to profit and all these other crazy metrics that just become a giant cluster and a waste of time and a big mess for everybody. Compensation struck. are notoriously way too complex. But yeah, revenue-based bonuses, $200, $200, $500 can mean a big difference at the end of the month for a mover who paycheck to paycheck trying to take their lady out to a dinner that night. Nick, were you able to run, I'm trying to remember the timeline of when you owned your moving business and when you started buying storage. Did you run your business remote? Because I'm just thinking we talk a lot about on the podcast about

buyer business fit, which bills still needs to get some kind of intellectual property protection around that phrase. But like if somebody wanted to buy this business, do you have to be an owner operator? Do you have to be in there? I mean, probably right now the way it's structured, yes, but is it conceivable to run a business like this remotely? Or pass. So we were 20, yeah, it was 2013 or 14. The iPhone had just been in the pocket, become in the pockets of everybody under the age of 30. We were running a pickup and delivery, student storage business. in Des Moines, Iowa, Bloomington, Indiana, Champaign, Illinois, Ann Arbor, Michigan, you know, Washington, D.C., Boston, Philadelphia, all in the same week.

They were all, you know, me and my business partner could only be in one town. We had to have a warehouse rented, the boxes, the moving supplies on site. We had to have the employees hired. We had to have them trained. We had to have them have them have the right equipment and we had to have them show up at the right dorm at the right time to pick up the student stuff or they missed a flight. So you talk about the logistical challenges of what we did in that business, a crew that doesn't move every single day for a year. That's a dream compared to what we did in our business.

So I could, we would feel absolutely comfortable running a business like this remotely, but I don't recommend that to somebody without a lot of operational chops and experience, right? Yeah. I think if there's one thing that my service business did for me, I mean, yeah, put a little bit of cash in my pocket so that I could go to real estate. It taught me how to be an operator. And like, I'm so thankful looking back. I mean, yeah, the money was okay. We got it to where it was generating $200,000 a year, depending on the investments we made that year. But just what it taught us about managing hiring systems, we cut our teeth on the most logistically challenging business that I can think of.

Having college kids drive box trucks in the city of Boston with wealthy, angry parents whose kids are about to get on flights, that's some tough stuff. Yeah, not a lot of margin for air. Yeah, I don't love this business now. I mean, but it's a great opportunity for somebody who starts out. I mean, and there's people who have cracked the code. There's generational wealth generated in these moving businesses. So it's all in how you do it.

Cool. All right. That was a good one. Let's move on to Nick's bread and butter, self-storage. So we're going to change it up a little bit. Normally, myself, Michael, or Mills introduces the deal. But we've got a great deal here. It's outside of Charlotte, North Carolina.

Being that Nick is our resident expert, we're going to let him introduce the deal. and hit the salient high points and then we'll get right into analyzing. So you guys sent me this deal last night. My team underwrote this deal and put an offer in on this deal, right? So I know a lot about this property. And this is the quintessential self-storage facility. Mom and pop operator, 99% occupied, which you don't want to be in self-storage, right? You want to always have a couple units available or you're not charging enough money.

Small, 17,000 square feet was on the listing. But when you dig in and you count for parking and some other things, more like 11 to 12,000 square feet of rentable square feet. So you're not going to have any big players interested in this acquisition, this self-storage facility. You're going to have a lot of mom and pop operators, just like the person who's selling it who want to buy it and try to optimize it. And while it's a real estate play, self-storage is all about operations and marketing and small business. So this will be a good one to dive into. We have 69 units, five miles outside of Charlotte.

So a great market, growing town. And it's just what a lot of investors have a lot of appetite for. these small self-storage facilities listed at $950,000. I know for a fact that this went above ask, it went under contract just north of a million and the self-storage market is changing month over month. I mean, six months ago, this is a $750,000 property and now it's north of $1 million just because I don't know if I'm tweeting about storage too much, but people, the appetite for this business and the way it's performing is out of this world.

So you have public storage and extra space storage releasing year over, year same store growth of north of 15%. They're growing like tech stocks and they have 20% leverage. I mean, the self-storage business is hot right now. So, everybody wants in. So Nick, what are, what are some questions? You know, as you look at a deal like this and you go, all right, I got to quickly decide what makes this a good self-store facility that's for sale or a bad one? You're like, what makes this a great deal? Something that makes you your. So the first thing I'm going to do is I'm going to dive in and figure out how well it's operated. And I don't necessarily care about revenue management, which is the most important part in

my operation model, how much are you optimizing revenue? I want to know if they're collecting rent, because many times you'll buy a self-storage facility from a small owner. Their husband had a heart attack six months ago, or they're wealthy and they don't really care, and they're just not collecting rent. Like, you'll see a rent roll with $10,000 on it, and you buy it and you figure out that they're doing $6,000 a month, and the rest of them need to be auctioned off and you got 40% vacancy, right? So I'm looking at that, and then I'm going to do a competition analysis and I actually did a competition analysis on this deal, and we have some reits in the area, which is good and bad because when there's reits in the area, I know what the true market rate is

for self-storage in that area. I like buying properties where there's no reeds in the area because only I know what the market rate is because I have data because I've bought 25 self-storage facilities. I know that, oh, they're charging $63 for this 10 by 10, but everybody in town is full. So I know the true market value is north of $100 for a 10 by 10. So I can underwrite that and judge on that. They're charging at this target facility. They're charging $74 for a 10-by-10. Storage Rintels of America, a REIT, $129 for a 10 by 10. Extra space storage, $131 for a 10 by 10. Then you got a couple mom and pops charging 65 and 60.

So that's drastic. That is a drastic difference in potential revenue when you're looking at a self-storage facility. So I'm figuring out right away, what's the revenue they're doing right now? In my back of the envelope math, when I'm underwriting a self-storage facility, if I can buy it at 100 times monthly revenue that they're achieving, that's actually going in the bank. I'm not talking about rent rolls, what the owner says they could potentially do. do if every unit's rented at 100%. I'm saying, what is the amount of money that you're putting in the bank? On this deal, it was $8,300 a month. So buying it back of the envelope math for $830,000

means I'm going to hit okay cash on cash returns. And I know it's going to be good. But yeah, I'm trying to figure out, A, how much can I raise rent? And B, what's going to happen when I raise that rent? So I underwrote this thing where we're going straight up to the reits. We're going north of $100 for $10 by 10 and we have massive tenant churn on day one. You send that letter out to those tenants and say, hey, I know your rent's $73, but we're going up to $129 because it's market. I'm really sorry. Half of them are going to leave. We always underwrite that about half of them are going to leave. In reality, it's about 10% because they all huff and puff and then they realize there's nowhere else to go. It's true market rent. So I got

underwrite when I'm trying to underwrite and figure out how much this business is worth. I'm trying to figure out how much is that work that I'm about to do worth. How much I'm about to have to buy this storage facility and take everybody from $73 up to $129. I'm taking. taking a massive amount of risk when I do that. So what's going to happen? And this deal I underwrote losing 45 of the 105 rentals. So 45 customers would move out when I raised the rents that much. And now I'm stuck at 61% occupancy. And I got a lease up. I buy it right before winter. I know nothing happens in January. I know nothing happens in February. So March, April, May, June. I'm going to lease up next year. Get back to 96, 95% by July or August of next year. And that's when

I'm finally making the money. And I'm doing about 11 to 12,000 to according to my. underwriting a month. So I'm taking a facility from 8,300 a month to 12 to 125, 128, and then trying to figure out what my returns are. And when I look at my overall cap rate, which is like an unlevered yield, if I spend a million bucks, what percentage of that is am I going to get back in cash flow every single year? 5.4% year one if I pay over a million dollars, which is what this thing went under contract for. 10% year two, which puts my cash on well north of 10%. But again, I've done a lot of work. I've taken a lot of risk. Probably not worth it for me. I'm out. Okay. So in this case, you think, you know, you kind of at first,

your thousand, your thousand times monthly rent. You said it's 800. 100. So that means it's worth 830 grand by roughly your back of the envelope math on day one. You think you take it to $1,000 or $12,000 a month. That makes it worth $1.2 million. You know, if after you do all your changes, et cetera. They're asking price on this thing is 900K. So kind of smack. And 50, yep. Back in the middle. So does that mean you feel like this thing was fairly priced, underpriced? How do you think about that? Yeah. So I think it all depends on the person, the nuance. This is where real estate is so individual specific. If you are a new investor, you only have 100 or 200 grand to deploy into real estate and you're trying to raise some family money and you can,

you get to do one deal in the next six months, then this is not the deal for you because, you know, it's average, right? You're buying it at an appreciated value already. You're going to add maybe 200 grand worth of value. After you have the transaction costs, you could sell it on that day and break about even, right? It's not that sexy. But if you have two to three million dollars in the bank and you need to buy a bunch of storage, this is a low risk deal for you because capital, you know, being well capitalized in storage is in real estate is what keeps you out of trouble. So if you have cash on the sidelines, you can take the risk of doing some work year one and not having any yield year one to have some upside down the road. And then you've got to think about growth outside of Charlotte, right?

over the course of three or four years, you might be able to drive revenue another 30%. I don't like to underwrite that stuff because it's pure speculation, but a lot of tailwinds in storage outside of Charlotte. So, you know, somebody buys this. They know what they're doing operationally. I would not be surprised in the least if three years from now it's worth $2 million. Interesting. So it's definitely been in the area in self-storage as well in the market. I mean, how in a self-sourge deal like this do you anticipate the potential for new entrance coming to the market nearby, right? At least where I live in San Antonio, like, even in the infill areas, people are still building, building self-storage. So, like,

how does that fit into kind of future modeling of a deal like this? Big time. So that's one of the reasons why I like to do business up in New York and Pennsylvania, because if I pull up my portfolio statistics here, let me just, I'll give you some accurate numbers on what we've been able to do from a going in cost basis per square foot. I look at price per square foot. I mean, this listing is at nearly $100 per square foot because when we dug into this, it said 1,700 square feet. It was actually only 11,000 square feet. I know that it's near $100.95 a square foot is what this is going to take to buy this property.

I know I can build storage for 50. So that's going to track developers. Developers are going to come in. They're going to build it. But then there's the different levels of an institutional class A three-story climate controlled building that does cost $100 a square foot to build. And as actually we're learning a pain in the ass for customers to take their shit up to the third level of a self-storage facility and these drive-up units that maybe this owner spent

10 or $11 to build 10 years ago. Now they're selling it for $100. They're going to make a good profit, but land is what you can't get a hold of around there. So outside of Charlotte, land is going to cost you $700,000 an acre if it's got some traffic. So I'm not as worried about development of drive-up self-storage in this market right here at $100 cost basis. And it's all about the cost basis. I mean, REITs get cheaper debt, so they need less returns. So maybe they can, charge the same as you at, you know, they spend $150 a square foot to get into a market. But yeah, there's just nuance around that. And in my portfolio, average cost basis over, we've deployed $37 million over the past 12

months, $55 a square foot is our average cost basis, which is about replacement cost, meaning we've bought full self-storage storage facilities that cash flow on day one about replacement cost. The market's changing. We have 250,000 square feet under contract, actually 387,000 square feet under contract right now at $73 a square feet. foot basis. So, you know, it's, there's a lot of nuance around it. But yeah, if you can sell full storage at $200 a square foot, the developers are going to run wild. Nick, you mentioned the term REIT,

real estate investment trust a few times. Will you talk about what their prevalence in the market looks like? And it, I mean, my understanding is there's pros and cons, right? They'll gobble up new construction. They help set pricing. But can you talk about some of that? The average Joe does not operate in the same asset class as the REIT's, in my opinion. A REIT is life storage. public storage, extra space storage. They buy 50,000 square feet and up, so five times larger than this, and they put a manager in every single unit at every single property. They have an office, they sell boxes, they do all this other stuff. They build the three story properties that you see going up everywhere, outside, and in all these towns. That is Class A, you know, REITs that operate those properties.

I do business with drive-up row facilities, remote managed, smaller, which I consider myself a totally different asset class than the REITs. So basically you have this publicly traded entity that has much lower cost of capital and much lower hurdle rates. And they're able to say, hey, look, to their investors, look, we have a 8% dividend yield or whatever it is, right? Very high. Yeah. So I'll give you some details. They pay three and a half percent dividend.

They're about 20 percent levered. And when you buy, when you, when you have a $3 billion portfolio and it's only 20 percent levered, that debt they get at, you know, sub two percent debt, interest only forever, right? So their cost of capital is so low. and they're promising a 3.5% dividend to their investors, they can buy four caps, three caps, all day long, and still make money. It fits in their model, whereas you and I, we borrow from a local bank. We're borrowing it for three and a half percent. We don't get interest only.

So our debt constant, our total cost of debts and you're 7%. We have to buy six, seven caps to make our numbers work because we're on a much smaller scale. Yeah, yeah. Can you talk about, you've alluded to it in some ways, but A, B, and C class property, you know, have a frame of reference for that in like, office or industrial. But for storage, class A is like you're saying, maybe multi-story climate controlled with elevators, with on-site staff, on-site store for shopping materials. Where does this property that we're talking about fit? I think it was listed as class C, but help us

understand the delineation between those. Is it like, you know, keyless access? Like, how do you think about different classes? Yeah, I think there's class A. That's the new climate-controlled multi-story buildings in and in near metros. There's class B, which is larger 50,000 square foot drive-up facilities that are large enough to support a manager, but too small or, you know, not climate control, maybe built 10 years ago or just no climate controlled. Class C and D is kind of a blurred line of everything else, which is small under 20,000 square feet, things like that. Okay. On a property like this, like would it have remote access in terms of people drive up, they type in a code and the gate opens for them,

but then all the locks are actual physical locks like padlocks. Yeah, so operational advantage, that's a big part of analyzing this deal. If an outside investor was looking at this deal, it has a current management company in place. You have to vet that management company. You have to figure out how they do business. I know that they don't do business well enough because they're charging, they're 100% full. They charge $74 for a 10 by 10 instead of $129, right? So I would get them out right away and I would manage this property.

And I would raise rents. I would do marketing. I would do some things that the REITs do. manage it well. But no, you use a software and the software, you pull up to the gate and there's a sign on the gate that says go to this website to rent a unit. There's nobody there. You go there. You sign the lease. You pay on your phone. You get a text. This is out works at all of my properties. You get a text message that says, okay, your unit number is this and your gate code is this. Punch it in and watch this little video. They click on their phone and watch a little video that shows somebody punching in a gate code and

going right to their unit. They open their unit and there's a normal physical disc lock on the floor. They use it to put on their unit. You don't need nearly as much technology. as you think to remotely operate these properties. And is that an off-the-shelf software? I mean, you didn't build that right for yourself. There's a hundred bucks a month. Yep. Yep. I'm a big fan of using what's already there.

And I think we built some software for our small business back in 2012-13. Software quickly becomes a massive liability that you have to maintain apps. Everything's changing. I'm not a fan, right? I want somebody else to do that maintenance and I want to pay them $150 bucks a month. Yeah. If you need a guy in the field, right? Like, let's say something happens, right?

And somebody has to go out to the property. You just source a person in every market who can go cut a lock, go repair something that got dinged or whatever. Yeah, my company, we have a team of folks in one American, one Colombian, and one Filipino that work in the maintenance division, which is keep every property clean and well maintained. And when somebody moves out of a unit, get a new lock in there, sweep it out, make sure it's ready for a new customer. And, yeah, that involves six or seven vendors at every location. You need a lawn care. You need snow removal. You need a cleaning company to come in, open the unit, sweep it out, do the checklist,

you know, overhead door. A locksmith is outsourced. So if a customer has a problem with their lock, they step on it, they break the key off in it, whatever it is. If our customer service rep can tell them to go to a little box on site to get a new lock, if that's how it works. But if it's stuck on the unit, they got to call a locksmith. You know, you just build systems with vendors for all this stuff.

Yep. What you said about software reminded me of one of the great piece of business advice I got that I tried to keep in my mind, which you just, is for every area of your business, ask yourself, can I compound this area faster in my business, or can someone else, can an outside vendor? And in the case of software, it's like the classic example of that software vendor, whoever you pay, 100 bucks a month, they've got a team of engineers. It's all they think about. They're making that software better every day, day in and day out. They're compounding that area of your business. Every time they release a new feature,

you get it. There's absolutely no way you could outbuild them. because you're trying to run self-storage. So I think it's a perfect example of for everything. I mean, even if you're an e-commerce business, ask yourself, can I compound fulfillment faster than, you know, Amazon FBA? Hmm, probably not. Yeah, there's been, there's been 50,000 hours put into my software. Am I in the software business? No, why would I try to replace a team of 50 folks out in Provo, Utah, who built this software? I'm not in the software business. I'm in the real estate business. Yeah. So you want to rent that software and own the real estate rather than, own the software. Yeah, if you try to do innovative, innovative entrepreneurship, what we did in our

pickup and delivery students storage business, there was no off-the-shelf software for what we did. It was a little bit different. It's another reason why I don't like innovative entrepreneurship. Operational, excellent entrepreneurship. When you're buying a property like this, you've obviously got a lot of reps on this. If somebody's doing this for the first time, what should they expect in terms of loan to value and actually financing the transaction? And what's, as you, as you you've kind of been in the path of progress, right, and gotten momentum, how have your terms and underwriting and covenants of the lending that you're getting? How have they changed? Yeah, so I think as I build a real estate private equity company, what I look for and how my

business works is different. We have AUM fees. We have management fees. We have, you know, different overhead that it takes to run a property. So under 15 or 20,000 square feet is very rarely worth it for me now. A starter, and we get, you know, 60 to 70% LTV. We're putting in more equity, our average deal is $2.5 million. Whereas a starter, some of our deals, Danny and I did way back in the day, 2019, I say way back in the day less than two years ago, right? We were literally acquiring $450 to $1 million properties. And that's where a lot of value is. Because anybody at any scale like me, too small for me, right? But the REIT's obviously way too small for them. So you're competing with a very limited pool of buyers who, A, have one, two, three,

400 grand cash to buy a $1 million property. You're generally going to have 30% that you need to put down in cash plus closing costs, plus 20 grand in an operational account, very, very capital-intensive business. So if you don't have any cash, this is not for you because the smallest viable self-stores facility is going to be half million bucks. And you're going to need 200 grand to close, and you're going to need another 100 grand in reserves. So if you don't have $300,000, then this is not the business for you. So, but there's a lot of value in those. If you don't have a management fee, if you're going to answer the phone, if you're going to going to go sweep the units, you can operate some of these things for $1,000 a month,

and they generate 6, 7, 8. So it can be very, very lucrative for a small proprietor. Cool. What else should we know? What happened we hit on the self-storage deal? It's a really tough business right now to find deals because the amount of capital chasing self-storage is intense. So our entire bottleneck is with acquisitions. I spend 75% of my energy as a CEO of our company trying to find deals, trying to build systems to find deals. I'm working with three full-time acquisitions folks who are the highest paid people in our company who cold call owners, right? So once we buy this thing, it's blocking and tackling.

It's not easy. The operations is never easy, but it's making sure you have a clean property and making sure you're going to answer the phones. The hard part is finding the deals because self-storage, while it's a great business, if you overpay for it, it's not a great business, right? So you would, what's interesting is I think a lot of people go looking for self-storage and they kind of put it in this class as sort of like value-added real estate, where it's like real estate plus, right?

So they're very tempted to go, oh, this is a passive investment, right? I can buy a self-storage. I put in all the software, as you described earlier, and then I'll just sit back and collect the mailbox money. But it sounds like that's the trap of self-storage and that this is not passive real estate. This is a business. We buy facilities from people who bought them five or six years ago thinking that it was a passive investment in hiring a low-budget management company to not drive rents for

them. And yeah, imagine if you paid $5 million, but I'll tell you what would happen. If you paid the million dollars for this property and you did not raise rents, your cash on cash would be three percent. Not worth it. So if you if you don't know how to manage, if you do not. And how would you know that you can raise rents $50 a unit? People would laugh at you, right? You'd be like, are you really going to raise rents? 50 bucks? You're crazy. If you don't know this business and you don't understand how the models work, it's really, really hard to compete right now as a buyer. So it's tough. Makes a lot of sense.

It makes me think, Grant, be sure has this saying that he used to use a lot of, I don't like to compete with doctors. So like in looking at deals, right, we don't want to bid against somebody who just has more money than they have maybe sense or expertise, right, on a specific asset class. God,

that is so applicable to what we do. That is so applicable to what we do. I don't, I agree. I don't want to compete with doctors, but I don't mind being on the other side of the trade from a doctor. Right. I had a friend who bought an asset that a dentist was like, oh, I could totally buy this thing and

run it passively. And then a year later was like, this is the most non-passive thing. I can't run my dental practice and this business. And then got out for one time's EBITDA, you know? A lot of very, a lot of wealthy doctors and lawyers hire me to consult on a self-storage deal that they're looking at. And I get on the call with them and I talk about the operations and I talk about the nuance. And by the end of the call, they're like, what the hell am I doing? This is not the business for me. Yeah. Yeah. Yeah. I think so many people are out there. I mean, I even see it in tangentially to my business, e-commerce, the FBI roll-ups are so hot, right? And so people think, oh, Amazon does all the fulfillment, all the customer service.

You know, I just like bring it in from China, send it straight to Amazon, and I don't even think about it. It's passive. And it's the same thing, doctor or equivalent, somebody comes in, they pay five times you get that off for this business. And they go, oh, it's 20% on levered cash on cash yield, right? I can't lose money. I can't lose money on it. And then, you know, I see it a year later, the business is down 50% and they're losing money and it's a complete disaster. I'll say that I don't want to scare people off from this too much. We don't have, we don't have

toilets, we don't have carpet, we don't have appliances, we don't have boilers. I mean, once you acquire an asset and if you acquire it right, it really is very, very simple to operate a self-storage facility. It's a steel box. At some of our small 11,000 square foot properties, we get three phone calls a week, three phone calls a week, and we send out somebody every two weeks to do about a two-hour checklist. So, you know, if somebody wants to get in self-storage, I would say have a little bit of operational chops and call around in your local town and talk to these owners. And if you can find a decent deal at a hundred times monthly revenue that they're doing right now, it's worth looking into more and maybe getting some consulting or dive into the deal. Totally. But the funny thing is,

aren't there two types of people? There's two types of people who go, oh, three phone calls a week. That's nothing. That's great. That's passive. And then there's another type of people that go, three phone calls a week, that's way too much, right? Like, I don't want to think about this at all. So you got a, Bill, that is a very interesting concept because I think the level of stress that we dealt with in our first business where we had employees driving on Staro Drive in Boston where trucks are not allowed and ripping the whole top off our truck. You know, that was stress, right? A warehouse maybe floods, part of it floods and you have a real problem. Some people really get stressed about small things that are not stressful to folks who have dealt with real stress. Yeah, that's fair. So stress is a relative term. Very passive. If you're an ex-entrepreneur, it probably feels pretty active if you're a REIT investor.

Very well said. Very well said. Yeah. Well, that was awesome, Nick. Thank you. We've loved having you. I'd love to give you just kind of, you know, where can people find you, you know, follow you on the internet, you know, find you and learn more. Yeah. So I have a lot of stuff. I have the Nick Huber show, which is a real estate focused short form podcast, about 10 to 15 minutes of me talking about things I'm learning as I build a real estate private equity company, a lot of self-storage. I have a real estate community that's paid. I have a blog, Swety Startup. I have a small business podcast called The Sweaty Startup. And I do self-storage consulting. If you want to DM me on Twitter, which is at Swety Startup. And you can email me as well, Nick at Swetystartup.com. I put myself out there a lot. So I think it's pretty easy to find me. But I also,

I do a lot of stuff. You have more than 24 hours in your day? Nick, just asking, because if there's a way to do that, I would love to. You know, I'm all about super efficiency. So like you guys, one take, send it to my editor, get it up. You can accomplish a hell of a lot if you're really efficient. And I'm the kind of guy where I'll do, I'll get it 80% of the way there with 20% of the effort and ship it, right? I'm not, I'm not going to try to make things perfect. I love that. I love that. And I spend almost all my time recruiting and hiring right now. It's a lot of my focus. So my job as a leader is not to tinker in the business. My job is to find people in place some that can really help me grow and scale. So it's just four months ago. I hired a CFO that is

just blowing me away. And I'm so excited about that. So he's doing my job better than I was at the real estate private equity company, which is liberating and exciting as we grow in scale. So I still do have some time to hang out my family and friends and play little golf. It really does become all people and strategy and systems once you get some scale. I wish I could have asked you all more questions about your experience because I hate that I get come on these things and it's all about me when I'm the fourth smartest person in the call here. Boy, we got you fooled. Cool.

And shout out to our sponsor, Bill. Tiny Acquisitions.com. I was going to shout out Tiny Acquisitions again. Yeah. Thanks again for helping us get to the point where we're not losing money on this podcast, which is exciting. Yep. Yeah.

Appreciate your tiny acquisitions. Tiny Acquisitions.com. Buy software business for less than $5,000. Cool. Well, that'll wrap it up for today. Thanks for coming, Nick. It was awesome to see you. This is a really fun discussion.

We'll have this posted soon. Hey, a disclaimer, I'm just a guy, just have one way of doing things. And I'm learning every single day. You talk to me six months. I may disagree with a lot of what I say here. So don't take it as fact, right? That's right. Right on.

Yeah.