BiggerPockets Real Estate Podcast - 286: $13M in Equity from One Deal & Cash Flowing Despite Being Comatose with AJ Osborne

Episode Date: July 5, 2018

Ever have a conversation that is just impacts your life so powerfully you wish you could share it with everyone? That’s exactly what our conversation on today’s episode of the BiggerPockets Podcast is! Our guest, AJ Osborne, shares an incredible story of building his real estate business — which focuses on self-storage facilities — as a way to transition his family from rich to wealthy (and yes, there is a difference!) This show is packed with insight from AJ, including: How a loss on his first deal directly led to millions of dollars in later profit How to find underperforming real estate deals How he made $13,000,000 in equity from a old Kmart building And the medical emergency that put his real estate to the ultimate survival test while AJ fought for his life (this story will shock, amaze, and inspire you!) This show is one of the most powerful episodes yet of the BiggerPockets Podcast, and we’re excited for you to dive in! In This Episode We Cover: His first deal that didn’t go the way he wanted… but the logic behind doing that deal (super important for every newbie) The difference between being rich and being wealthy Picking a wealth vehicle — and the difference between a Ferrari and a train How to find an underperforming self storage building and turn it around (applies to any kind of real estate) The Kmart story that helped him build around $13,000,000 in equity  Price / Convenience / Quality Coma: “One of the most incredible stories I’ve ever heard” Subsequent: Does your business survive “the coma test”? And SO much more! Links from the Show BiggerPockets Forums BiggerPockets Webinar BiggerPockets Podcast 245: Creating Wealth that Lasts Generations with Bestselling Author Ryan Holiday Books Mentioned in this Show The Essays of Warren Buffett by Warren Buffet & Lawrence A. Cunningham The Obstacle is the Way by Ryan Holiday Conspiracy Ryan Holiday Fire Round Questions What are the conditions that make for an ideal development opportunity? Is there any issue with renting out a storage unit in a self storage facility then subleasing it out to someone else? Is Loopnet the best source for self-storage deals or is there another website that focuses exclusively on self-storage? Managing Self Storage how far is too far? Tweetable Topics: “It’s not about overthinking things. It’s about finding things that work and putting them into action quickly.” (Tweet This!) “There’s no way you win in life without having your agenda and being purposeful towards your agenda.” (Tweet This!) “The economic downturn was my lucky break.” (Tweet This!) “Work ethic is not enough.” (Tweet This!) Connect with Aj AJ’s Blog AJ’s Instagram AJ’s Facebook Profile AJ’s Twitter Profile Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 286. You know, once I came out of my coma and once I finally got able to talk and able to move, everything like that, my assets all made more money than they did when I went into the hospital. They were worth way more money than when I went to the hospital. And I didn't do anything. I literally just lied there. I couldn't do anything. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small.

If you're here looking to learn about real estate investing without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. What's going on, everyone? This is Brandon Turner. Today's host of the Bigger Pockets podcast here with my co-host, Mr. David Green. What's up, David? What is going on, Brandon?

It is another beautiful sunny day in California. And we have a super cool and unique podcast today. We do have a super cool and unique podcast today. And it is not sunny here in Washington, which is pretty normal. That's all right. So yeah, today's show is fantastic. In fact, this is going to go down as like one of my top probably like three or four shows. I think we've ever done.

I actually ran into this guy in Hawaii. That's how we met. And he is just crushing it. But even more than crushing it, he has one of the most incredible stories. In fact, so while we're actually recording this, we were recording this episode, right? And David and I, like, we take notes of the things that we're talking about, so we kind of have an idea where we're going when we're recording. David wrote this phrase to me.

He wrote, quote, this is one of the most incredible stories I've ever heard. Like, you wrote that to me, right? And it is. And I told you it was incredible when I heard it. We don't talk about that until like a good, like, three quarters of the way through the show. So do not leave this show without hearing the story about his coma. He had a tragic medical emergency. happen that almost killed him. And it's unbelievable a show and how it ties into real estate as well.

So stay tuned for that. Make sure you guys also, he talks a lot about the difference between being rich and being wealthy. And yes, there is a difference picking a wealth vehicle, like the difference between a Ferrari and David Green comes in strong with the analogy for, you know, you'll see that. Also, like, just his entire niche of self-storage is fascinating. And it all applies whether or not you care about self-storage or not, it doesn't matter. Like, this stuff applies to all across the board. But yeah, it was super, super powerful stuff. And lastly, make sure you listen for his Kmart story and how he built $13 million in equity in one deal. It's completely nuts. So, yeah, I can't even say it. Like, you guys like this show is so good. You're going to love it.

So without further ado, we should just get into it. But before we do, it's time for today's. Today's quick tip. I was waiting for you. I was holding until you got in. You gave me a chance. I just missed the train on that one. It's a little too slow. Oh, look that. You guys will get that later. Today's quick tip is don't forget that real estate is a relationship business and the best deals come from the best relationships. Today's guest talks about some of the ways that he finds deals.

And we're talking about a person who created $13 million worth of equity on one deal, right? Relationships are very, very important. And again, it's from a relationship. Like that's, yep. So good. Absolutely. And he just, he is not afraid to get out, knock on doors, talk to people, meet people, become friends with them.

He's not looking for some software that's going to take the work out of real estate investing. He's okay to roll up his sleeves, get his hands dirty, and make insane wealth doing it. So if you're someone who's not comfortable with technology or you wonder why people keep looking for the easy way out, you're right. Building relationships, getting out talking to people, telling people what you want does work. It will build you wealth and you should be doing it. Deep, deep. I like it. All right.

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Baselane is a financial technology company and not a bank. Banking services provided by Threadbank, member FDIC. Again, today we're talking with AJ Osborne. He is a self-storage hero. He's my self-storage hero. And you'll hear why. It's an amazing story, absolutely crushing it. And just guys have a really good heart for teaching as well, this stuff.

So make sure you guys stay tuned to the end with that. Let's get to the show. All right, AJ, welcome to the Bigger Pockets podcast. How you doing? Doing good. Can't complain. Good. So we have a funny story about where you and I met.

We were at where the Disney, the Disney Alani resort in Hawaii. It was. Right? And I was sitting there walking with my buddy Enzo and who I, you know, we were, surfing that day and we were at the Disney resort watching the sunset. And I'm walking down the street, you know, in front of the water. And somebody turns around and he's like, hey, I know, what did you say? I know you. I was like, do I know you? I know. Yeah. And I was like, do I know. Yeah. And I was like, I don't know. And it turns out you did know me from bigger pockets. So that was one of those

weird times where somebody actually recognized me in person out in the wild, which made me feel like a celebrity. And we got to spend a romantic evening together in Hawaii. It was wonderful. The sunset and holding hands. It was fantastic. Yeah. Love it. Love it first beard site. There was.

It was. You had a much more epic beer back then. Apparently now you're looking more professional. I don't know. Apparently you use real estate on a fairly large scale. So, you know, got to impress the people. But that's what we're talking about today. It was actually the wife that was trying to impress.

She made me shave it. Yeah, I know how that goes. I have been resisting the wife's hints. Like, that beard's getting kind of long. How long are you going to do that for? Isn't that itchy? Yeah, isn't it? It's kind of scratchy, isn't it?

And I'm just like, no, no, it's like oblivious, right? I have no idea what she's hinting at. We'll see how long that lasts. Anyway, David Green is here too, and David was not in Hawaii that day. So you didn't get to meet AJ. But I don't know. I want to hear your story again and go a little deeper into real estate. You have kind of a fascinating story journey.

But why don't we start with, how did you get into real estate? Like, what got you into that business? You know, actually, that's kind of funny because I was always, in the insurance world. We ran a large, I ran a large insurance brokerage firm that my dad had started a long time ago. And we worked with consultation and we had clients and we had a lot of employees. But we never really were in the real estate game. We'd kind of looked at it from time to time, but things just didn't make sense. We didn't see a lot of opportunity there. Had purchased a few small properties just for, you know, little cash flow, little hedge. And in fact,

you know, we're in self-storage, but our first self-storage deal that we did didn't really make money. So it's kind of funny that we're in this world in a big way, but it really didn't. But when at some point in time, I think we all get to a point in life where it just became a treadmill. You know, we had to work every day. We had to go run out and get clients and the clients brought in the revenue, but clients can fire you anytime they want and they do. And so when trying to project project out our revenue and looking at mergers and acquisitions, it was unsustainable, really, and unreliable for a firm. We had no venture capital. We had no big money backing us. It was just us out there working. And it got to a point I think where it was like, this can't go on forever.

And so we started looking at alternative options. And we started looking at different ways that we could do business and where to put our money. And at the time, real estate, became very advantageous. I started looking at it really seriously in about 2012, 2011, when, you know, obviously during that time, there was a lot of market inefficiencies. And people were looking at money, cash flow is very, very high valued. And hard assets, they were attributing very little to any value at all. And so when we kind of looked at this, And I started coming up with this plan thinking we could move out of a high risk asset class, which was this business where 90% of our assets were people.

They went home every day. We didn't control or own our revenue. That was all controlled and ran by clients. And so it was fairly high risk. It was high cash flow. And we were paid well. We got paid well for our time. But at the end of the day, it was trading time for money.

I mean, I refer to it as a treadmill. I woke up every day. You had to go. You had to hit it hard, really, really hard. And the moment you stopped running, the money stopped coming. Yeah. And it was like, you know, at what point do you, you know, do you stop running? Because that's inevitable.

It happens to all of us. We all reach a point where we can't work to earn a wage anymore. Every single person. And it is like a, I love that you say treadno, right? Because like even when people are doing successful, like you're being a successful, whatever, real estate agent insurance guy, you know, celebrity, you know, like you're a musician, whatever. It doesn't matter.

Like, it's, it's so much of a treadmill. You have to keep performing and keep doing your best and keep, like, being awesome all the time. You're always on. And you might be making the world's best money, but at the end of the day, are you free or are you just trapped in a lifestyle? Exactly. You know, I like to compare it to, you know, I think rich and being rich and being wealthy are two very, very different things. Being rich means you earn a high wage. That could be millions.

That could be $200, $300,000 a year where wealthy means you don't have to earn a wage. And I started looking at myself saying, listen, my family, you know, we're rich, but we're not wealthy. And this game, this could end at any time. And that risk for me, you know, I was young. And I was looking at where do I want to be when I'm 40, 50, 60 years old. And I didn't want to be running that hard. I mean, I was, you know, killing it, waking up at five all day, all night.

And I loved it. I love working hard. I love getting up early. I love going all day long. But the problem for me was this was not a compounding act. action, as in it was simply trading time for money. The only difference is I was trying to increase my value, right? So if I could incrementally increase my value that people would pay me for that time being traded, I would earn more. But I couldn't take that capital, return it,

and get the same return on that capital. That didn't exist. So basically, you're trying to take that money and you're trying to stash it away in a bank account for hard times, which at that point, the government's taken half. So, you know, immediately your wage that you're earning is cut in half. And that's a hard game to play. And for me and my aspirations and what I wanted to build, it just, I knew that that couldn't take me where we were going. So I wanted to find a, you know, I call them financial or wealth vehicles, you know, the thing that's going to take you to where you want to go. And I knew that that vehicle, kind of like a Ferrari, it'd go fast, but it'd die hard. And it wasn't going to run very long. And I really wanted to compound my wealth. I wanted to build something

that was sustainable and can run without me. And every year would grow both in incomes and actual value. And so when we started looking, I feel like, so David here is a king of analogies. I feel like there's got to be analogies somewhere in there with like a Tesla self-driving, right? But a Ferrari is like a wealth vehicle that will go fast and then burn out, right? David, do you got any good analogies here? I'm putting you on the spot. I was thinking of one right when you said that, actually. What he's describing is that he took his time to build something that started very slow but would be able to run on its own for a long time, probably more like a train.

It takes a long time to get going. It's a lot of effort to get that thing. But once the momentum's going, it doesn't take much energy at all and it'll just coast for a really long time with very little work, as opposed to the sports car, which is what most of us who want to be rich do. And it's high performance. It's going very quick, but it takes all of your attention. You're completely focused on.

driving that car, keeping it on the road, getting the most performance out of it. It's very easy to crash. Whereas a train, shoot, it's on a track. It just goes. It goes in the same direction all the time. Once you have it moving, you can put your attention on something completely different

and not worry about it. That's what AJ's done. See that? You see that analogy. Yeah, that's great. We knew we could depend on David for something. It's a perfect analogy though, right? Because, I mean, trains aren't sexy.

They're not. But, you know, that sweet sport car. I mean, that makes you look good and feel good. that's what everybody wants. But, you know, for me, I always looked at it like looking rich is nice, but I really wanted to be wealthy. I didn't care about how I looked or how others perceived me. I wanted to be able to leave on vacation anytime I wanted and, you know, go and not even have to come back. And so I started to create a business model that would be conducive for those circumstances, that I would be able to have better control over capital allocation. So if, for example,

and insurance, when we gathered up our capital, we couldn't deploy it and get the same return or a known return at that rate. That didn't exist. So how did I get a return or a higher return? I worked harder. But I wanted to create a machine that when I took in that capital, I could allocate that capital out into the marketplace and get a known return. So every time I deployed that capital, that capital would do the same thing. Therefore, it would compound and build upon itself. And frankly, I could deploy that capital without even being there. And that was a hard switch because getting trains moving, you know, they're slow. And it's, that is. It's a, it's a hard switch to go through. And at the end of the day, you know, for me and my story, it kind of got proven as you know, kind of branded I told you

about because at some time you aren't able to run on the treadmill anymore. And I wasn't. I kind of, you know, I got stopped in a very, very real way a while back. And so it's really kind of made it so that I could survive challenges in my life and kind of get through things. And it saved my family's financial life by making that that move that was hard, risking everything that we'd already made, risking everything that my family had done. So, AJ, let me ask you, you went from the sports car to the train, but what was your train?

What vehicle did you choose to make this move? Okay. This was actually tough when you started looking at it because now you're talking about, I have a financial vehicle that I know that works, right? It's a Ferrari. I want to sell the Ferrari and get something else, right? But I know that it works. I'm trying to purchase something and I'm trying to build something that I hope works.

And for me, if you look at assets and if you look at trying to drive income and drive wealth, there's kind of a simple formula. And you can increase wealth by two actions. You can increase the amount of revenue that you gain or you can make that revenue more secure. That's pretty much all that you can. Sure. Increase benefits to shareholders or secure the benefits that are coming out to shareholders. When you have something like the Ferrari, it's easy for management to get involved,

really soup that puppy up and go. With hard assets, that change on the business model tends to be harder, right? There's not a lot that I can do because the value is placed more upon market conditions than it is a management team. I was used to be very hands-on and running a business, and I didn't want to lose that ability. So we tried to get the best of both worlds. I really wanted my cake and I wanted to eat it too. So we moved into a real estate asset class that ran more like a business than we felt that we could apply our skills and our talents of running businesses into a real estate asset and really make a change. And that was self-storage because when we went into it, it acts more like a retail business than it does any kind of real estate asset. You have customers,

you have, it's about revenue control and revenue management more than it is about real estate investing. And that was something that we excelled in. And that was something that I knew I could drive valuations. I could increase income, deploy more capital that could be returned to me, and then do it again. So we settled on the self-storage industry. So that's interesting, right? Because I don't, I don't think I've ever met anybody else who, like, started real estate investing and go, you know what? I think I'm going to go buy some self-storage. Like, I feel like that's like 20 years into a person's investing. They get into that kind of niche. But you started there. And you said it was because it had revenue control and revenue.

new management, I think is what you said. What does that, what does that mean? So, okay, so we, uh, you know, we bought some small facilities a long time ago and it was funny. We actually, we bought our first facility in a place called Bonner's Ferry, Idaho. You don't know where it is. Nobody knows where it is. I don't know that the people in Bonner's Ferry knows where it is, but it's up by the Canadian border. And it was a little facility that had no real way for us to change the value outside market conditions. We bought it in the first part of 2008, right? Perfect timing. And we bought it as a safe place to go. And when we sold it, we sold it for like $50,000 less than we'd bought it for. But what we did is we learned a lot of things. And we learned about that at that small level,

we didn't have a lot of control over the revenue that we kind of needed to beef it up and we needed to move a larger side. But herein lies the beauty of real estate. So when we purchased that facility, it was 17,000 square feet, right? That facility we bought for 600 and about 65,000. We put down 275,000. We sold it at 625, right? So we made a loss on it. But we knew where that money needed to go. So we removed it. We deployed that capital into another area, which was a suburb of Boise, Idaho, where I live. And we used that down payment because we've been paying off debt. We took out 295,000. and we put it into an asset about 1.4 million. Within six months, we went in and we made a bunch of changes to the rental agreements,

to how management handled things. We looked at vacancy. We increased street rates. We increased the actual customer rates. And we drove that thing within six months all the way to a $2.2 million valuation. We turned around. We sold it for $2.2. Neted basically a million dollars.

then we turned around about another $4 million facility. And with that, did the exact same thing. Now that $4 million facility is worth approximately 7.5, and we have about $4.7 million in equity into it. So, you know, we were able to actively change $250,000 into $4.7 million and, you know, 10 years on just that one asset. That's what we were looking for. I wanted to really, really, really drive both revenue, but the valuations.

I wanted to have control over that. So here, there's a lot of stuff I want to unpack in there. But first of all, one thing I find fascinating is that that first deal, you lost money on it, right? So it's like, oh, well, that sucks. So now I'm going to quit real estate and go sit on the couch and watch TV because real estate doesn't work, right? I love that you took that attitude of, you know, like, great, I learned something. You know, we're going to take that money.

We're going to take the knowledge that we learned. And we're going to go put it in the next deal. I would say like, I was actually telling the guy yesterday on Instagram this, that like, if you do it your first deal, like the point of the first deal, we talk about this a lot on the show, the point of the first deal is not necessarily to get rich. The point of the first deal is to build three things, knowledge, experience, and social capital, which is like people knowing that you're good at this real, that you're in real estate, right? So you can eventually raise money or whatever. So you built all three of those things. Now, yeah, the fourth thing that would be nice is money, but that's far less important than knowledge, experience, and social capital, which is what you did. And then you took that and you dumped it into the next deal.

So can you, so first of all, nice job on that. I mean, I love that. I love hearing stories of people who struggle with the first, like, time into real estate, because we all do. Almost everybody struggles. All right. Not just the first time. We struggled through it through.

Okay. I want to get there too. But what was the difference between that first self-storage? And I do want to also revisit exactly what that even means a self-storage. So maybe we can hit that too. But what about that first deal that didn't work out so good was different about the second deal, which netted you a million dollars? Like, that's drastically different.

So what can you save where the difference was? Okay. So the difference is, to me, simple. It's volume. We all have to start small, right? And then you have to build your way up that. But you're trying to go from an investment to a business. Everybody is.

You're trying to scale, right? I think people want to invest in real estate. They'd love to have a duplex, but really people want 800 doors, right? I want three apartment buildings. I want to have enough cash to do whatever I want. keep going and I want to retire. That's really people are wanting to build an empire. And that or simply, they're trying to get enough to hedge or to retire on or whatever it is, but that's not one duplex. You know, you need more than that. So getting from point A to point B is a very interesting topic

for me. And when looking at it, when we came up with our financial plans and when we were kind of looking at how to go through this process, there's a lot, a lot in that. And we knew, though, understand how it was going to work out. That we just knew. I came up with, you know, all these financial projections. We spent months and months. I planned this for like a year. And even when we pulled the trigger, it was like, there's so much that I don't know that I don't know, right? I mean, it's just like infinite of what I don't know. And but we knew that our premise was true. And we knew that it could be done. And we felt confident our skills to do it. So we dove in. And We knew that our investment theory was correct.

So when we looked in and we wanted to create a real estate business and transfer, I knew basically we needed a few things, right? An investment, you buy and it pays you some cash, right? That's secure, right? But if you want to get, you know, to financial independence, you need to move over. And you can really do that. Let's say I have 10 duplexes and that creates, you know, some financial independence, right? But if I want financial freedom, I really need an operating business, which means a couple

of things. It has to drive revenue. It has to be able to pay me, but then it also has to give excess revenue that I can take back and deploy at a known rate of return, right? The only way to get there is through volume. And our margins on the less doors you have, the smaller your margin is, because the operations of a 10-door apartment complex are basically the same as a 50-door, right? It's the same with self-storage. Whether I have 200 doors or 800 doors, my expenses associated with that are fairly fixed. The difference isn't that big. The only difference is my margin. I knew we had to get as quick as possible to a larger margin business model to where we could have more cash to deploy quicker to scale our business faster. And that was why we made the switch.

The first one, we knew the economies, really when we're looking at markets and we're looking at business model. There has to be, we are a value at, we have a value at strategy, right? We look for underperforming businesses that we can take, apply our model to. It will increase the value and we believe increasing the value is done through increasing the overall revenue from the business, right? So I need markets that are conducive to drive the revenue growth. I also need assets that are underperforming in comparison to their peers in the market. So I have a benchmark of where I know that the revenue can be met. So I need to, we're not, you know, this isn't guesswork for us. We want to know exactly where that asset will end up and how far we can push the revenue from that asset.

AJ, let me jump in here. I want to make sure that our listeners understand exactly what we're describing because we've given a lot of good reasons why self-storage works, but we want to talk about what it is. So basically, you are buying big buildings where people go and they say, hey, I want to rent the space to put all my junk in. That's the gist of what you're doing, right? people rent the space from you to keep their things. And those things are valued as the very similar to how we value multifamily commercial properties. They generate a certain amount of income.

They have a certain amount of expenses association with it. You get a net operating income. You divide that by a cap rate. Boom. That's how much that things work. Am I correct? Exactly. Right on.

So what you're describing when you talk about the economics of an area is there are, this is this is an area where people are likely to have enough disposable income and have enough items that they're not going to want to keep in their garage that they're going to want rent a space from self-storage. Am I correct with that? Yeah, you know, self-storage demand there goes into a lot of things when you get into self-storage demand. First thing that you need to know about self-storage is we talk that it's more like retail. The reason it's more like retail is we sell lots of different products. I may have 15 different units sizes or types. So different customers come in with different needs that we're trying to meet. I also sell other things like products.

I sell insurance to our customers. So there are lots of different aspects of demand in the self-storage industry. One of the main one being that we like to target our businesses, you know, with lease rates rising and also though home businesses on the rise, lots of people, they don't want to build. It makes no sense to build it to $250 a square foot when I can rent, you know, at a fraction of that. And so a lot of people are moving towards running their business out of self-storage facilities. So we try to offer lots of options for those individuals. And when we look at a market, we look at our customers that are being, that are utilizing the storage. And lots of them we don't like.

So we will purchase underperforming facilities and we'll turn them around in lots of cases. We'll kick out 30% of the tenants because they are not the tenants we like or that we want to be. We're trying to target in on those high revenue customers that also give us the least amount of headache. Because we have people coming in every single day, all day long. So tell me, what do you what do you look for when you? you're looking for a low performing property, like an underperforming property. How do you know that? How do you recognize it?

So we look at the curb appeal, the physical asset. We're looking at the technology that is being used not only within like the property management system, but also the marketing strategy, how that's being deployed. We also look at the management as far as an employee level, right? So is this a hands off owner that's letting the employee do everything and they're not doing a whole lot. And we're trying to find those type of assets. They're really looked over. They're underperforming. The current management isn't very interested or doesn't know how to properly run it, which makes, you know, we have higher vacancies. We have what I call unrealized revenue, which is units that

are occupied, but the people aren't paying, which can, there can be a huge, we've had 10, 15 percent of occupied space that drives no revenue at all. So for us, those are all, you know, and then once again, too, are they selling other lines of service? Do they sell tenant insurance? Do they sell boxes? Do they sell all those other kind of stuff? And if not, for us, we can go into that facility. We can benchmark the other ones around it, but we know how our storage facilities perform, right? So I have an overlay of what my current facility is doing. And I take the numbers of that existing facility. I overlay it with our numbers and it spits out my value. Because for us, value can be, is relative, right? And there's a lot of ways that people come up with values. Most, as brokers say, the value is because Bob will buy

it at $5 million. That means that's what the value is. We disagree with that completely. That does not attribute price and value are not the same thing. They are not the same thing. And so we come up with the value on that facility that we're willing to pay. And the difference between its performance and our performance is our margin of safety. And when we buy it, we want it to be a wonderful, great performing asset. But we expect it to just be awesome when we're done. I'm looking for a 20% cash on cash return. And a lot of them, I'm wanting to pull my money out within, you know, two years and deploy it

elsewhere. So we're looking for pretty big changes in that facility to drive the revenue. I love that. One thing I really, I really like that you said here, because it applies to everybody, whether you're trying to do self storage or your first single family, you know, house or a duplex, is that there is that difference between price and value. You know, like, somebody will say, well, how much is the property priced at? Like, what's the price that? Well, that makes no difference to me, I mean, like, other than kind of gauging how competitive it might be. But like, I want to know what's it worth to me. I call that the home run number. I'm like, every property has a number that makes it a home run. That gives me my cash and cash return I want. That gives me my overall. you know, IRR, whatever. Every property in the world has that number. Now, you know, if you're in Detroit, there's a lot of those negative numbers. But like still, there's like a number everywhere, right? So your, our job as investors is to get good at finding that value. If we know how to identify what that value is, right? We can then go after it and we're going to get rejected left and right all the time. But we stick to our value. We stick to that number that we know.

And we get it. Is that kind of how you run your business then? No, I mean, I just could not agree, agree more. When we look at it and people are trying to tell us the price of the value, it's basically like you give us our numbers. I don't really care. I'll come up with it. Yeah. And then I will give you the price and whether that's okay or not. And two, we don't buy any on market deals because I don't believe that markets accurately value assets. Explain that. Explain that. Okay. So traditional theory is like, you know, you have like EMT, efficient market theory where all assets are priced according to the value or as well, worth at any given time because it's simply whatever the demand is. The problem with that that we have,

those markets aren't efficient at all. That depends on market sediment. That depends on future. That depends on capital. Is there enough capital in the market to make a market's efficient? And to say that an asset that I buy is worth $2.5 million and three years later, it's worth $10 million. That doesn't make sense. Yeah. That's just a ludicrous way to attribute value to anything. That's not how I buy my home. That's not how I buy, you know, anything. You know, when I look and I value a property, it's this value to me depends on what I can do. And this is important because when you have other buyers in the market, their value may be totally

different than yours, right? Brandon, when you buy a property, your price that you're willing to buy a property for may be totally different than my price because we are doing totally different things and we need totally different things. Perfect example. When we went into an auction, the state was having an auction because it took a over and bought a storage facility. It shouldn't have done. It shouldn't have owned it. It was competing with other businesses. And so they got in a lot of hot water and they had to sell all these things

at an auction. So everybody came into the auction and there was a lot of people competing for this asset. And we knew right where everybody was going to be at because they had an appraiser and the appraiser sent his thing that said it was worth $3 million. Well, we went and got a bunch of banks at a room and we told them, listen, that is incorrect. And they're like, what do you mean? And so we showed We took what the asset was doing at that time, which they had not had a rental increase in over 10 years. We had a similar asset, a mile down the road that's revenues were at 60 plus percent higher. Whoa. The exact same asset.

And so we went in and said this asset's value is actually much higher than that. And we're going to come in and purchase it at X or this is where we're going to go. We went in, we won the auction and everybody's like, how could you get so much higher than the valuation that they gave us? And well, that valuation is not our valuation. Of course, we bought it. The next month, we up rates, in some cases, it was 150%. And so it was 60 to 150% of the next month, immediately added millions of equity onto it.

And, you know, when you know what value is to you, that's when you find deals. So if I know what I'm looking for and what I can do, how I can turn that asset around, then I know what to go look for. But if I don't, then I'm sorry. simply waiting for brokers or banks to tell me what things are worth or what I can buy. I never let banks tell me what I can buy, how much I can lend, and I never let brokers tell

me what an asset is worth, ever. Yeah. It should be me because I'm me. I know my bank. I know my strategy. I come up with the valuation because I'm the one that's going to own it. I love that. I love that.

There's so much in there. I want to kind of take it from the self-storage and down to like something that a lot of a more listeners, maybe like a duplex, right? Or a single family house. here, here's how I see that in the same kind of way, right? Like, let's say I go out and buy a single family house. One of my little tricks that I do if I want to buy a single family house, I like to look for a single family house with only two bedrooms that has over a thousand

square feet because in my opinion, I know that I could easily add another bedroom in there somewhere. So in other words, like the value of that house to everybody else is what a two bedroom house is. But to me, the value is what a three bedroom house is. So like it doesn't matter to, again, go back to the price value thing, it doesn't matter what they priced it at. agent's going to price it as a two-bedroom house because that's how they think. But I think of like what could it be? You know, could we raise the rent?

Could we change something? Could we rehab it? What value makes sense to me? And when you look at deals that way like you're doing, like you said, that's how you find deals is by thinking outside the box, trying to figure out a different way to give value, maybe a different way to do the deal. In fact, I know one of your stories that we're going to get to here in a little bit is about the Kmart, right?

But we'll, which is a perfect example, I think of that. But before we get to that, I don't want to go too far yet. Well, I think I kind of want to hit on what you're talking about, right? Because it's a good point. When people ask me why I don't invest in single family homes or duplexes, I say it's simple. It's because of how the asset is traded and valued. So we're looking at housing right now, but it's multifamily. I want 10 plus units. And the reason being is when you have a duplex or a single family resident, that asset is traded on whatever the market deems it's worth, not on what it makes. So it's because Susie just loves the trees in the backyard. Yeah. That's wonderful for Susie. That has nothing to do with me as an investor, right? Now, Susie's not going to buy a 10-unit apartment complexes. So I tell people, you need to get in by good foundational assets, but you need to quickly, as quick as you can, move out into a more commercial asset basis. That's where you're going to find the deals. Because that's where you can

manipulate the value. I don't even want to say manipulate, but you can change the value. You can increase the revenue because those markets are trading based upon the revenue, not based upon how somebody fills or what they want. And, you know, that's a hard market to be in. And people that have got that down, they're really good at it. But all of a sudden, when markets change like in today, when there's lots and lots of buyers, prices skyrocket and they're unable to find deals very well. Well, in my market, I'm still easy for me to find deals because if this storage facility makes X amount, that's how much everybody wants to buy it off of. So if I can make it make, you know, 30% more than that, boom, I've increased the value.

Yep. That's why I love multifamily. That's why I've been buying mobile home parks and things like because I love that idea that I can add that value. I can find a way to add, you know, increase income, decrease expenses, whatever. I can pay market rate rate what every other investor is paying. But if I'm good at finding those hidden value things, like we're, we have an offer right now on a 61 unit mobile home park. And the units aren't submeter. The owners paying all waters who are garbage.

So first thing I'm going to do, switch over to make sure the tenants pay their own water sewer garbage. Instantly adds half a million dollars in value. Boom. Like that's what I'm like, that's why we like those larger properties. So I know you had a question, David, but I'm also wondering, I want to know how are you finding these deals? And then I'll let you ask yours, David. Yeah, how are you finding? Auctions is one of them.

You know, we've got a few different routes. We do have a connection with the broker that I made. I'm a really good friend of mine. We sat down years, years ago. and we just talked about what we're talking about today. We're talking about valuation, how values come up. And I mean, we first meeting, we had four hours. And he knew, first of all, I knew what I was talking about.

He knew that we could do what we said. And I let him know very clearly, this is what I'm looking for. You bring it to me, I buy it. You put it out on the market. We're not having that discussion because that's not how I value assets. It's not what other people buy, right? So when you come to me and say, it's worth $7 million because I got four buyers to $7 million, and I say, who cares? I'm not them. That doesn't matter. So he brings, he brought me off market deals.

But to where a lot of our assets come from, it's knocking doors. We're literally going into city and going from, you know, facility and facility. Hi, AJ Osborne. I love your facility. Why don't we talk about, you know, the industry. Why don't to talk about the market? Let's go out to lunch. You know, we met with banks that had underperforming assets. And we met with short guys that were happening to short sell. And, you know, we just, there was so many different things that, avenues that we've gone, but most of it's really hit in the pavement. It's going and meeting with people. It's talking to other people. And also, as you guys kind of said, you know, you do deals so people know you're the real deal. If you've never done a deal, most people that have deals are not going to

talk to you. Yep. Because they don't even know if you can pull the trigger. So we did have a little experience, even though the experience was not making money, right? Yeah. We lost money on that first deal. But we knew what we were talking about. And we were players in the market. And so we were, we were able to have those kind of conversations with people to drive deal flow. And most of it, those organic, even with the broker that's bringing us off market deals, I went out and found him. I made the call, right? And I built that relationship. But other than that, I'd say probably 50% of all our deals were us. It was knocking doors. It was meeting, shaking people's hands and getting to know the market. And once again, we've passed up endless amounts of deals across our desk.

AJ, how many deals do you ever, how many deals have you guys done since you got started in 2010? Oh, not a lot. 12? About 12 properties now and they're all self storage. Yeah. So we currently have 11 properties. So we've done actually more like 1415, but we sold a few of them as kind of the example that meant for. We have 11 properties, which is just over a million square feet.

And we have like 5,500 doors, four states, Idaho, Oregon, walking. Washington and Nevada. And two, when you're talking about like how we find deals and where we go, our underlying investment theory or philosophy has changed dramatically and is continuing to change. How we find deals today is nothing like how we found them four years ago. We've had to evolve completely. If I'm trying to get my return that I know that I need to meet, I'm having to do things differently, which kind of comes back to the super Kmart thing that we were talking about there on our romantic evening on the beach. Yes. Well, I think your struggles are very similar to every other investor's struggle. That's why

Brandon and I talk about in today's market. You usually need to make a deal. You're not just going to find a deal, right? It's not like going shopping. You're like, oh, look, it's on sale. I'll buy that one. You're hunting. So I want to hear about the Kmart, but before we do, can you briefly walk us through a hypothetical example of how you would find a deal, how you would fund it, what you would do to improve its value, what you would expect it to be worth. And then we'll talk about the super Kmart. Absolutely. So let's say that I'm going into a market. And for me, these things would exist in commercial. This would exist in multifamily. This would exist in storage anything we're doing, which we're looking at those other kind of deals. I'm going into a market where I believe I can be competitive. That's the first thing. I'm not walking into L.A. from Boise, Idaho, being like, I want your best deals talking to, you know, brokers. I'm not in that market. I don't know it. I don't know how to compete with those people. I stick to where I know I can compete. and where I know that my model can drive that value. So when we started out, we went and looking in strong second-tier markets in our areas.

So we'd go into a market. We'd list all the good locations. And then we would try to find all of the owners that were basically off-site owners, right? They were not, they had no idea. A lot of them lived in California. They hadn't even been to the site in four or five years. That's exactly what we want to see. That's first thing.

Then we look for, you know, taking care of assets. Most of the assets that we purchase, we put $100,000 into them right after we purchase. We want it to look run down. We want the curb of pill, good location, but not a very good curb of pill. Then we want stagnant rates.

We love the guys. When we walk in and somebody's like, we're 100% occupied and we've been 100% occupied for five years. We're like, can we buy you? Like now. I want to buy you right now. Because what that means is you're totally uncompetitive in the market. You should never be at 100% occupied.

That's a good point. And so, yeah, we walk in and I'm like, I would much rather be at 90% occupied with 40% higher revenue than 100% occupied, right? And then we look over it and we say, you know, how's your collection process work? And like, well, you know, a lot of these people are my friends and can do this, but we want a really loose collection process. And we want basically no online presence. So when we're looking at it, how are you getting your customers? The question is they walk in. That's what we're looking for. Like, you have no strategy. And then we look at like sales process. We look at overall process and procedures.

Do you have a manual on how you handle things? And when all those things come back is no, there's usually no extra lines of revenue, any of that. That is a prime, prime target for us. So then we list them. I put them in a database. And it's from there. Then we find out who are the owners. And then we start contacting them and reaching out to them. And a lot of times we'll say, listen, I'm going to pay you more than what your assets worth because it's true. If I'm going, I'll pay you a five cap when I should only be paying you an eight cap, but that's because to me it's a 12 cap. So I know immediately it'll be a 12 cap.

You bring up a really good point. People are always like whenever I talk about any deal, whether it's a larger multifamily or I bought an apartment complex or a mobile home park or whatever, people always ask, well, what kind of cap rate did you get on it? I'm like, it doesn't matter what I got it. It doesn't matter at all what cap rate I got because that's not the cap right I'm going to leave it at. Like I'm, so I might pay a two cap.

I might pay a zero cap. It doesn't matter. Exactly. It doesn't matter. Yeah. So good point. You know, when looking at this, and this is important, we always talk about occupancy and cap rates don't matter.

The only thing that matters is revenue. How much money you make and how much money you keep. That's it. So when I look at a property, how much money can I increase the revenue by at whatever price I buy it for? And then how much does that equal into my pocket? I don't care what a broker says its value is. I don't care what other people are willing to pay for it.

And I don't care what cap rate it is. I come up with my number. So we run it through our system and overlay it with what we know we can do. And I say, this is what I'll pay you. And some guys are like, this is like a four cap done. I'll take it, right? But then other times I'll do that. And I'm like sitting here going, whoa, you're asking so, so high that it doesn't even make any sense.

And there's nowhere to go with this. And we pass those up all the time. And it's funny because we see those eaten up all the time in the market. Yeah, we don't care. So we look at an underperforming business model that we can come in. Then, you know, kind of vice versa, when we take over the facility, you know, changes are made almost immediately. The personnel that's in, we barely, we rarely leave. And the main reason is is because they're used to having an underperforming business. And they're the on-site personnel that most of the time is at all the control because the owner is a hands-off owner living somewhere else.

That's not how we do things. You know, when we come in and they're, what we apply is usually too strenuous for them or they don't like it. And so we need to get rid of bad habits. So first thing, we almost always replace the personnel. We bring them in. We train the new people coming in. We have policies, procedures, manuals that we go over with them. We have a trainer that comes in, trains them. And we immediately come in and put a robust marketing strategy in because we know we're about to evict a lot of people. Not all tenants are created equal. Not all customers are created equal. That's just not how it works. There's, you know, we view it as there's three different levels.

You have people that are looking purely on price. You have people that are looking for convenience. And then you have people that are looking for quality. And what they're willing to pay is very much associated with those three things. We're looking for convenience and quality. We want all the price people gone. And so we usually get rid of all those people. And then we're bringing in new people that care about what we're doing.

We're turning the asset around. We're making it look better. And we systematically raise the existing rates of, the current existing customers, not just the street rates. We go in and we start raising existing tenants at rates day one to get them back in line with the market. You know, I've never heard it quite put that way before, but I love that you said the three types of people. There's people who care all about price, convenience, and quality, right? And that totally applies to every aspect of rental property investing as well.

I mean, like single family house, duplex, apartment complex, whatever. There are people who value different things. So what do you want to be? Do you want to be an investor who, you know, focuses on price? Then great. That's probably going to be the slumlords, right, that are offering the $200 month rent, you know, or by the hour. So like, or convenience, you know, you're located in a great area or quality. I feel like I've shifted from price, which is where I started, the cheapest rentals I can get, keep them as low as possible. I've shifted to quality doing the best work I can because I realized there was a void in my area for good quality rentals. So I said, well, what if I was

the best rental? Like, what if we made our houses look like age? GTV, would there be a market for that? And I found there was a tremendous market for it because people were really looking for that, that, you know, the husbands wanted to impress their wives. The wives wanted to live in a nice house, whatever. We found that. So again, I think that everybody should just rewind that last like five minutes and listen to that again. Because again, it applies to everything here. Super, super good. So I want to move on to the, I want to move to the Kmart thing. But before we do that, actually, can we, can we hit your story first on what, like, because that kind of plays into, I don't know which came first, the Kmart or the,

the story of your medical thing. Now, I want to hit that. So maybe, yeah, take it away. I want to hear about that. Sure. So, yeah, my story. So it's actually funny because, you know, it was not even a year ago, almost a year ago. But I was living in a pretty good, pretty good life at the time. I was running our state's largest brokerage firm. They paid me very well to do that. We got to travel. We lived a great life. We're building this huge real estate business. So in one week, we're down, you know, and at Naples, it's a PGA tour. We're taking clients down there and we're doing business meetings. It's just awesome. We're flying back and forth. I'm going to all the countries. I'm hitting my best friends, you know, wedding. We're at one of my best friends' weddings,

just partying, come back. I'm doing yard work with the kids. Life's just great. I just had a new baby. Our new baby was like five months, right? And just the best baby, the cutest thing ever. So I was at the top. I was just like, life can't get much better than this. I had four kids. and life was going really good. So I'd had a late night, and then we'd been planting all the trees. So I wasn't feeling on the top of my game anyways. I was feeling sick, but I didn't think it was much. But that night, I was like, I could, can't even explain it.

I was just not doing good. I was feeling really sick. So I was like, honey, you got to take me to the ER. This is crazy. No doctor's officer open. It's like 10 o'clock a night. Went to the ER and I'm in there and I'm like, something is really wrong. They did all these tests on me and everything and sent me home because there was nothing wrong.

So I went out in the parking lot, peaked in their parking lot for a while, then went home. And that night, my legs were just killing me. So I went and got in the tub just tried to soak them because they were so achy. And I was in there for a while. I think I may even fell asleep. But went to get out of the tub and my legs didn't work. And so I crawled out of the tub on my stomach, pulled myself out. And I called for my wife.

She came in and picked me up and drugged me to the car and got all the kids in the car and rushed me down to the hospital where I said, sat for a long time, as doctors argued over what was wrong, because I was in perfectly good health. There was nothing wrong with me besides the fact that I could no longer walk. And, you know, long story short, very, very soon, I lost my ability to do anything, including breathe within a matter of hours. And they had to trache me, put me under. And I was put into a coma. And when I woke up out of my coma, I was paralyzed from head to toe. I could not speak. I could not do anything. I was living off of tubes and the hospital was doing their best to just keep me alive. And I sat like that for 10 weeks of not speaking. And I was, they were on life support for three

months where I was breathing out of tubes and everything else like that because I was totally paralyzed. And then I slowly got stronger and trying to come my way. I, I, what had happened is I had something called Guillain-Barre. My immune system went not. and my white blood cells attacked my nervous system and it ate it. And so I could feel everything. Like you think you're paralyzed, you can't feel. No. In fact, it was the opposite. My nerves were on fire. I felt like I was being burned alive and crushed all at the same time. And I laid paralyzed, staring forward, screaming in my head, trying to tell people, you know, I'm dying, but I couldn't speak. I couldn't say anything. And this nightmare went on for weeks on end. I couldn't sleep. I

couldn't function. I couldn't do anything because the amount of pain. And you know, the story is important to me, not just because of obviously the reasons to change my life, but I lost my ability to work, right? So that treadmill that I was running on that was just awesome, right? It was great. I was on top of my game right into that. It ended. And I had no control over that. And I was a completely healthy guy. I'm big outdoors guy, big backpacker skier, a lot of fly fishing, you know. I'm out all the time. getting up at five, I go 100 miles an hour, you know, all the time. And that I wasn't used to not only not doing anything, but, you know, my life as I knew it stopped, ended. We were just lucky I didn't die. And my treadmill ended. I lost the ability to provide for my family.

But out of all the people, and we'd reached out across the United States, it's a fairly rare disease this happens to, not a disease, but it's a fairly rare thing that happens to a people. and one of the biggest concerns everybody has is that what am I going to do now? How am I going to make a living? And will I get better in time? I mean, at that. And, you know, honestly, real estate saved my family's financial life. My wife didn't have to go take a job. She could sit in the hospital and take care of me, four kids. And she didn't have to worry about that. And when I came home, she spent all her time making sure that I got better. And that's, that can't be put into words. Trust me, that's better than any Ferrari you could ever have. And it just, It's, you know, this stuff that we're talking about, it's real and it's really, really important. It's something that everybody has to do. Financial freedom isn't a good thing. It's not a choice. It's sometime your treadmill will stop.

I don't know if that's 62. I don't know that that's whenever, but how are you going to live when your treadmill stops? And people think because they're in their 30s or in their 20s that that's something that they worry about later on in life. That's not how investing and how these things work. So I've gained a whole new passion and a whole new view of passive income and getting off that treadmill. Let's just put it that way. That's remarkable. It sucks that you had to go through that.

But it is a very strong demonstration that everyone's treadmill does stop at some point. And hopefully it doesn't happen to our listeners the way that happened to you. I agree. But you had that backing. you could survive. And I think that's just so such a powerful illustration. So, but you're, you're doing better. Obviously, you're here. You're, you're, you're, you're, are you, are you, are you, are you, are you, are you, are you, are you, are doing better than when we, when we last saw each other. Yeah, you were, you were, you were, you were, you were, in a, in a chair,

but you had a stood up at some point. It's like that cool, red scooter. Yeah, that's right. Yeah, yeah, I'm pretty much out of my wheelchair completely now. I'm walking around. I got braces on my legs, but they're coming back. It's coming back strong. So I'm back to do things I love and working full time now and I'm just wanting to hit it all the time but I'm getting back slowly slowly but surely so I'm doing much better. That's fantastic.

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All right. So let's go to the Kmart story because this is something that just fascinates me. that what you did there and something that I totally want to repeat this exact same thing. So I'm going to learn from you. So what is the Kmart thing? Okay. So this was a very unique opportunity that we had. And one of the things that we look at when we're going out and we're trying to cultivate opportunities to invest in, we're once again looking at ways to drive the returns that we

need and marking conditions like this that's become harder. Now, there are some good things, though, about these kind of market conditions like demand is super high. We had done one development a few years ago, but we're not developers. That's not really what we do. We believe we do a good job running businesses. And we believe we do a good job at turning around failed assets, managing employees, that kind of stuff. But we had an opportunity. I met a guy named Reed, and he was out of Nevada. And he had come up with, I'm not even exactly sure how he found a super Kmart that had gone bankrupt. And he was working with the city to permit the thing and change the zoning for storage. And he came and he's like, hey, do you want to

come in? Do you want to do this with me? And immediately, we started looking at the area and everything at that. And this idea of a conversion had been interested us a lot, how to repurpose a type of asset that is no longer needed. Well, you know, for a facility this size, we're talking about, you know, 163,000 square feet. We could purchase this bankrupt Super Kmart. We sold off the parking to apartment developers that are going to build 400 doors. And we could do this for $3 million. We purchased the whole thing for which structures existing. And then we blew out the walls on the side of the super Kmart's. We made a road that runs through it. And with drive. piles that you can pull off the side, unload your stuff, take it down through. It has an office,

the works. It has RV back in RV parking. It's really, it's actually really cool. We had to install this huge ventilation, but all in and said, this huge facility, you know, we got this thing in and done. It probably was about $7 million all in, all set and done. But, you know, at a 90% occupancy at the rates that we're currently charging and starting to fill up at people now, it's worth probably $20 to $24 million. So it's a rare opportunity. that you can find it's right on the side of a ginormous freeway. And it's the population density around it is astronomical. And when we were looking at the demand on the market, we were going to our competitors, which weren't very good. And they not only had no availability at all,

when asked to be put on waiting lists or anything at that, they said, no, because I'm never going to call you. They just had too much room and were never going to have any kind of availability. So it was a very rare opportunity to purchase a distressed asset, convert it into a very high-use asset, and we could drive a lot of revenue from it, and in an area that had super high demand. So it was kind of the perfect scenario for us. So we dove all in, and we've been working on this thing for last while. They worked on it a lot while I was in the hospital. But I just got back from being down there, and it's looking amazing.

We're super excited about it. And we are looking for more opportunities to convert retail space that is now, you know, mostly unused. People aren't building big box stores and now cities have these massive, empty retail centers that they don't know what to do with. The city doesn't know what to do with it. Investors don't want it. It's not like, you know, toys or us is going to go buy it because they don't exist anymore

either. So now all of a sudden, how do you utilize this huge empty box than nobody wants? and we feel that we've got a pretty good option and alternative for the cities. It looks nice. It's really, really well built. They were very, very happy to let that in. And read the guy we worked with, he did all the permitting and worked on it. And that's key too for us.

You've got to find the partners you can work with. That's not our strong suit. You know, I'm not good at the zoning and the permitting. He lived there. He had the opportunity. He could do it. He needed somebody that new storage and could run it. And that wasn't him.

He didn't own storage facilities. He couldn't run it. So it worked out to be a pretty good partnership. That's so cool. And so many good points there. I mean, like there are a lot of problems. These retail stores left and right are going out of business because of Amazon and online shopping and all that. And you were able to find a way to use one of these assets to something that probably I can't imagine going away.

I mean, like people increasingly have more and more and more and more junk all the time. Like that's not getting better from what I've seen. And so like. And two, also, if you look at other markets, like second tier markets like Nevada, things like that, compared to first tier markets, the discrepancy of price per square foot for building, buying everything like that is astronomical. So as these second tier markets have lower wages and prices going up, we're actually seeing higher and higher rental use. We're seeing people are building smaller homes because it just, you can no longer, you know, a dollar doesn't go as far as it did. and people are downsizing, but yet at the same time, but things are getting cheaper, right? So it is way cheaper to buy consumer-oriented items today than it ever was in the 90s or the 80s, right?

I mean, there was no special financing for your motorcycles then. There was no financing for, you know, a new fridge. None of that stuff existed, where now you can finance everything. And too, we make it and wherever, China or somewhere else, and it's cheaper. It's even cheaper now because of Amazon, so our consumer. is actually rising. And two, it's easier to start businesses with the advent of the internet. And people don't want to go and lease really expensive space. So people are using storage facilities where we can do it on a large scale and you get the volume discount. You get the

benefit of that. So it's actually a really good model for people coming in. The downside to sell storage is, you know, it's not incredibly passive as most people would like it. It's a, you know, it's an actual business model that's running. We have employees, you know, in our holdings company that have to run all the managers. I mean, we're up to, you know, 30, 30-something employees. And so you got to run a business. But if you put the right management team and the right policies and procedures, I mean, at that, then you can leave.

And, you know, once I came out of my coma and once I finally got able to talk and able to move, everything like that, my assets all made more money than they did when I went into the hospital. They were worth way more money than when I went to the hospital. And I didn't do anything. I literally just lied there. I couldn't do anything. So I think we're going to, we're going to call this the coma test. It's like if you went to a coma for 10 weeks in your business or for six months,

if you went into a coma, would your business thrive? And I think 99% of our audience would say no, it would probably fail. And I think that's a really good thing to aim towards. Like let's say let's like the coma test. Maybe that's insensitive. I don't know. But it's like, right? Like that's where we want to get our businesses too.

I think every like I love working. You love working. David loves working. We like working, but we need to have the ability to go into a coma for six months or go travel the world or spend time with your family or your friends or your, you know, kids, whatever. Once again, you need to be able to. So the return on your time and return on your money is what this is all about. You're trying to get more for the time that you're spending. So I love working, but I just want to be able to compound. So my time is more effective. Every single year, I want my time to be more effective. I want the returns to expand and grow.

when I was on that treadmill, that changed very little. And I can't run that treadmill anymore, quite literally, I cannot run on a treadmill. But I can't do that anymore. But yet I could still maximize my time. So I could still maximize my return. I built a financial vehicle that when it pays me, I can take that return capital and deploy it again at a known rate of return. It's not like I'm, well, now I'm going to invest in the stock market and I hope it goes up. No, it's not how it works. I know when I take how much of return on that money I'm going to get, when I'm going to be able to pull my money out and reinvest and do it again. I can compound my time. And that's really what I want. I want to be able to grow exponentially. I am a huge believer in progress. And when you're on that

treadmill, man, does that really get frustrating when you just, you're running and you're running, but you're not going anywhere. And that wasn't okay for me. I wanted to, you know, I wanted to move. I wanted to go further in life. Yeah, so good. So good. good. And I love you mentioned exponential growth. I just did a video I released it a few weeks ago, depending on when this episode airs, but a few weeks ago over on the Bigger Pockets YouTube page. It's all about, yeah, some people grow linearly and that's fine. But if you want to achieve financial freedom fast, you've got to grow exponentially. So everybody, go check it out on the bigger pockets, YouTube page, YouTube.com slash Bigger Pockets. Now with that, I want to transition.

This has been unbelievable. Your story is fantastic. I'm learning a ton off this self-storage stuff. I've never done self-storage. Now I want to. It's like the shire. tiny object thing. I get it every time. But super cool. All right. So I want to transition to go to the fire round, which today we've got some questions that are related to self-storage. So let's head over there now. It's time for the fire round. All right. Let's get these fire round questions. Again, these come direct out of the bigger pockets forums. So they are real life, real estate investors that are in our forums, asking questions. And specifically, let's get some self-storage questions. Number one, this is related to a storage thing, but what are conditions that make for an ideal development opportunity for self-storage?

Is there a pro and con versus just buying an existing facility versus building one? How would you approach that? Yeah, the thing that you have to remember with self-storage and the good things about it is you can really drive value. The bad side about it, though, is value can erode really quickly. It's not like an apartment. Once you fill it up, you have leases, right? where these people are in for a certain time, so you have this guaranteed cash flow. Self storage is month to month.

So people can come in, they can leave that next month. And you could even give them a month free and they can come in and leave. So when you're developing, you need to be very, very knowledgeable about what's coming up around you. Because if you develop and three other projects come up, well, you can either lose your existing tenants or never get them at all. You know, demand is finite in self-storage. You know, if you look across the board, historically speaking, on average, self-storage demand has never really gotten to 10% and never really gone above it across the board.

That's just never changed. And there's a lot of economic reasons why. But when you're going to develop a storage facility, you need to analyze, first of all, the demand and then you need to really understand those market rates. Because today, you're buying and you're developing at a cost basis that is much higher than the people surrounding you than they did. So you have to charge a rate that is higher than your competitors to make the same returns that they are. The question is, can you? Is there enough demand that you can drive that rate and not sit empty? And so when I look at it market, that's the first and foremost.

I'm looking at high demand and I'm making sure that I'm going and down and I'm talking to the city and I'm saying, what areas are permitted for self-storage, what areas are zoned for this and who's looking at it? Do you have anybody that's building now? And I'm getting really cozy with the building department at the city, trying to understand what's going on. And then I am going and I'm talking to all the competitors. Are you building more? Are you expanding?

You know, what's going on in that? The last thing you want is to be at a cost basis that is much higher than your competitors. You build and then you're not filling up. And that's a dangerous trap that self-storage people can get in. Too much building goes on. Then you have a massive contraction in that local market. And you have a massive increase in, vacancies and you then have to also cut your rents to try to increase your occupancy and your

revenue starts to really go downhill. Yeah, that's a good point. Okay, on that note of vacancy being a problem, can you talk to me about the abandonment mate? R is your abandonment rate and that's being defined as how often do folks put stuff in storage, pay for the first quarter or year and then disappear? So abandonment rate, that really varies math. massively. Ours isn't high. So we collect, we, I look at it as this is what amount of revenue are you not collecting? Ours is at three or four percent. When we started, it was like six or 10 percent. And a lot of facilities are even higher than that. So those abandoned units, that unrealized potential revenue that you're not collecting, that can be high depending on your tenant.

Now, we have very strict guidelines, policies, and procedures for our managers that they have to abide by. And our late fee policies are very, very strong. I mean, you're coming in. We're hitting you hard with late fees. We do not want that kind of behavior. The main reason is, is we always lose. If someone abandons their unit, no matter how much late fees we charge them, we always lose. The reason being is we can only collect the rent due. Anything above that, we actually have to give back to the tenant. You don't get to keep that. And so if we sell off their unit and we only collect $100, all, we collect, you know, $1,000, but their rent due to us is $200. We get that $200, but then we have to clean it out.

We have to evict them. Our manager has to spend all the time. And then we have all that unrealized potential revenue when it could have been rented out to an existing customer. So trying to lower that down as much as possible and being very actively involved in having policies and procedures that are set in place to and having contracts that are really, really strong and have strong language on that will really, really help you out. You need to drive that number down into the low single digits. It really needs to be under 5% of uncollected revenue.

And that advice applies to everybody, again, landlords as well, right? Like if vacancy and evictions and people just not paying rent, like all those things will kill your business. Like I see it over and over, landlords who are not strict enough. They don't have the processes, the procedures, they don't have a written, they don't have a good system for collecting rent. And so they just let things slide and you do a little bit, a little bit more, a little bit more. And before you know it, you lose all your properties to bankruptcy because, like, you have to be strong about that. But the nice thing is it doesn't take that much work to set up some good systems. And once it's there, they just kind of run. You just got to do it. It's like the biggest difference I see

between failed investors and good investors is probably the one of the major differences, they have good systems and processes or they don't. That's really large of it comes down to. I agree. Once again, it's the difference of running a business or simply investing. Yep. You know, which one are you doing? Yep. Yep. Really, really good. All right. Next question for the fire round. I'm taking a cursory.

How do you say that? Curcery? Curcery? Look at a boat and RV. I don't know. Storage facility. So far, all the numbers look fine. I'm waiting through due diligence, et cetera.

The only thing I'm concerned about is the distance from my home city. The facility is three hours from my house. Is it practical to manage a facility of this type from that kind of distance? Okay. That depends on the person. So for us, yeah, we have four facilities that are. or probably within an hour. All the rest of our 11 facilities, though, are basically fly to them. I would always take a better deal that is farther away than are not so good that it's close,

always. But once again, I have the structure to manage and handle that, you know, that asset, that storage facility. So if you have never done this and you really don't have any policies and procedures, absentee owners and owners that live in other states are usually the ones that we purchase from because they're getting used and taking advantage of a lot. And so you really need to be able to have a close eye looking. We see managers that will be on site that will be renting out units and they're paying the manager. They're not paying the business. So the manager's got 10 units that they're making money on every month and the owners don't even know it. One of the hard things with boat and RVs too is it's harder to keep track of. So depending on your system of how they

access, how they leave, and how do you keep track of that? Are they putting four cars in? Or are they putting one? How much space have they rented out? You really need to look at how you're going to manage that. How I would do it is I would find a local business and I would contract with them to do all the on-site management. And so you have eyes and ears on the ground that can go over and they can do inventory, say we have this much space rented out. And they literally walk around and check all the numbered spaces. And they say, yes, this is all these spaces are occupied and the ones that aren't occupied don't have cars sitting in them. Yes. I don't think I would, yeah, I don't know. I was going to say, I don't think I'll ever get into that. But then I never thought I'd get in

self-storage or mobile home parks. And I've done a mobile home park now and do self-storage. So yeah, good deal. All right. All right. All right. Let's, we got to move on. And we're going to shift gears here and head over the last segment of the show, which we lovingly refer to as our famous for. And now let's get to the famous four. These are the same four questions we ask every guest every week. We want to see what you got to say. Number one, what's your current favorite real estate related book? So this is kind of tough one because it's not really real estate related, but I think it is.

The essays on Warren Buffett. And the reason why is it goes a lot into valuation. And it looks into the metrics of how you evaluate any asset. I don't care if you're buying a business or whatnot. And I really like the breakdown. in there in his discussions on how to develop investment philosophy, how to stick to it, and how to understand what value truly is. And for a real estate investment, that's the name of the game. So nothing else is more important than that. Yeah, I like it. What is your favorite business book?

I think right now my favorite business book is The Obstacle is the Way by Ryan Holiday. Yeah. For obvious reasons. I've got a lot of obstacles lately. And so I'm trying to really look at, you know, how those apply in my life and in my business and how to really take those things and develop strengths out of them and move you to the next level. So, yeah, I think that's right at this moment. I'm going to go with the obstacles the way. Nice. And Ryan Holiday was actually a guest here on the Bigger Pockets podcast back, I don't know,

six months ago, maybe a year ago. So if you guys want to check out that episode, just go to the show notes for this show. You can get at BiggerPockets.com. So show 286. And then I'll put a link in there to the interview with Ryan Holiday or just type in Ryan Holiday bigger pockets into Google and you'll find it. All righty. But yeah, I love the obstacles away.

I actually just got finished with Ryan Holiday's other, his newest book, Conspiracy, which is about like the Gawker, Hulk Hogan, Peter Teal, like the mess. I don't know. It's unbelievably good book. It's like, it's fantastic. It reads like a John Grisham book, but it's like true. Anyway, I highly recommend it. It's called a conspiracy.

But anyway, all right. Nice. Yeah, really good. Number three. David, your question. I don't want to steal it. What? I appreciate that.

You're quite the Thunderstealer. That's why they call me. Just mute it. What are some of your hobbies? So I like anything outdoors, big skier, backpacker, flyfisher, man. Right now, skiing and backpacking are on hold until I figure out how to walk again. But I have to get out and doing some fly fishing. But, I mean, those are my ones that I like to get out in the outdoors, get out with my kids.

That's really what I like doing. get out and spending time with my family and kids. And the outdoors seems to be a good way to get away from screens and everything else like that and really connect with my family. So that's what I like doing. All right. Well, good deal. Last question of the day. What sets apart successful real estate investors from those who give up fail or never get started?

So, you know, I think about this a lot. And I think it kind of comes down to grit. You know, I'd say desire to because you just kind of got to. to keep going. It's not going to be fun. It's not always going to be what you want, what you're looking for. And you're going to fail. So, what's just part of it? And so the people that are able to just stick with it and learn are the ones to figure out how to do it. Once again, when we started out in self-storage, we didn't know how to really do it. We had a lot of good investment theories and we had a lot of good ideas. But it's, we are who we are now today. Oh, we would just laugh at who we are when we

started because it just we'd be like you are so terrible at this because we were and uh we've you know but all our strengths now were because we every time we messed up everything time somebody went wrong well there's a new policy there's a new procedure and um that's how we got to where we are now so i think grit just sticking with it and keep keep going very good answer very good all right last question of the day i'll let you take it david where can people find out more about you and your fascinating story. So you can go to cashflow to freedom.com. That's cash flow with the number two, freedom.com. And it's a little blog I have. It started when I was in the hospital because I had nothing else to do. So I started looking at things I was going to write, things like that. So you can go on there.

It's got my email, contact form, everything like that, Instagram, Facebook, all that. You can find me on there and just shoot me along. Very cool. And I think I actually saw your, your Kmart to self-storage on your Instagram the other day, right? Didn't you put it on there? I think I saw a video or a picture. I did. Yeah, that's what I thought.

I was putting a bunch of videos and it's kind of showing how it works and the new technology we're putting into it that is very different than anyone's ever seen. So it's pretty cool. Yeah, that's awesome. That's awesome. So, yeah, go follow AJ over on Instagram.

All right, y'all. Well, AJ, this was fantastic. Thank you very, very much for this. You know, good luck healing up the rest of the way. You and I'm going to run a marathon together someday, I'm sure. And yeah, we'll see you around. Thanks. I appreciate it, guys.

Thanks for your time. Good job. All right. And that was our show with A.J. Osborne, fantastic. I love that conversation. So many good things in there. So, yeah, AJ, you rock. Thanks for joining us.

And with that, I'm just going to take this episode out. David Green, you have anything you want to say before we leave? I'm still, my mind's reeling from AJ's incredibly inspirational story. I mean, that was like one of the coolest things that I've ever heard. and I'm so happy to see that this person who went through that is now doing so well. Everybody else who's got excuses, you just lost any validity you had to your excuse after hearing about the person that was bedridden for weeks in complete pain and couldn't tell anybody. So put that in your pipe and smoke it.

And with that, this is David Green for Brandon Thunderstealer Turner. Signing off. You're listening to Bigger Pockets Radio. Simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. Thank you all for listening to the Bigger Pockets Real Estate podcast.

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