BiggerPockets Real Estate Podcast - 545: Self Storage Investing and Avoiding “Monster Houses” w/ Sergio Altomare

Episode Date: December 16, 2021

Sergio Altomare didn’t start out investing in self storage. He made a massive leap, making lots of mistakes along the way until he found this gold mine of an asset class. For years, Sergio was buying small multifamily properties, one of them being a “monster house” which he later had to sell due to some serious zoning issues. Once he was introduced to syndications, he knew he could take his portfolio higher, without the headaches of large multifamily. Now, Sergio has twelve self storage facilities, with a combined valuation of close to $40M. He’s been able to increase his equity by many, many millions with simple value-add strategies like increasing rent, paving parking lots, and installing key-accessible gates for his customers. This isn’t the regular value-add you’re used to with granite countertops and freshly tiled showers; self storage value-add can be minimal with massive results. Sergio also dives into his long-term exit plans—something every investor should be thinking about. Are you planning on selling your properties one by one to the highest bidder, or will you package them up and walk away with a huge payday? In This Episode We Cover: What a multifamily “monster house” is and why you should avoid them Zoning laws and how they can affect your long-term profit The pros and cons of investing in self storage facilities  What to look for in self storage facilities and other types of commercial real estate How to raise money for your deals (even if you’re a new investor) Defining your exit plan so you can walk away rich after building your portfolio And So Much More! Links from the Show: BiggerPockets Talent Search BiggerPockets on Itunes BiggerPockets on Audible BiggerPockets on Twitter Facebook Ads Google ads Radius Plus U-Haul's Facebook page Blackstone Open Door Capital Bird-in-Hand Self Storage The Real Estate InvestHER Facebook Community GoBundance Hearthfire Self Storage BiggerPockets Podcast 388: The 7-Step “Playbook” for Scaling Your Real Estate Business With AJ Osborne BiggerPockets Podcast 286: $13M in Equity from One Deal & Cash Flowing Despite Being Comatose with AJ Osborne Paul Moore's BiggerPockets Profile Ashley Wilson's BiggerPockets Profile Liz Faircloth's BiggerPockets Profile Check the full show notes here: https://biggerpockets.com/show545 Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, everybody. It is David Green here. As you all know, Brandon's stepping away from the show at the end of the month. Now, we have some great co-host lined up in the new year, and we also want to take this chance to get to know anyone else out there who's interested in contributing their talent to the BiggerPockets Podcast Network. If you think that's you, you can make a submission to our system at biggerpockets.com slash talent. That's BiggerPockets.com slash talent. You'll see a few questions and a place to submit a video reel of yourself. Again, that's biggerpockets.com slash talent if you'd like to lend your voice to the growing bigger pockets podcast network. This is the Bigger Pockets podcast show 545 where we sit down with our buddy of Sergio Altamare. When I'm looking at the guy that I'm competing with for a property, he might be looking at

the same property for a different purpose, right? So I can maybe even pay a bit more for it because it fits what I'm doing better. And that gives you a different advantage to get to the closing table and get more deals. What's going on, everyone. It's Brandon Turner, host of the Bigger Pockets podcast here with my co-host. Once again, Mr. David, second to the last time together, Green. What's up, man? How you doing?

That was a sad thing that you just said. Way to take the air right out of the room. I know, man. Second to the last time. We're going to do this right now, at least for a while. I'm today's Thursday. And on Sunday, our Sunday episode is the last episode that I'll be doing here in 2021. and the last one, maybe for quite some time.

I don't know. I'm going to take a little sabbatical. So for those who haven't heard, I'm stepping out for a while. I'm going to let David run with things for a while with some more guest hosts over the coming while. We'll see. What's up, man? I'll be taking that baton and I'll be running hard.

We're actually going to be putting out even more content than we ever have. So even though it sucks that we got to lose Brandon, it's cool that we're putting out more shows and different kinds of shows. So there's more information going on. Speaking of shows, today's guest was absolutely awesome. Sergio talked about everything. from the first house he bought being a Frankenstein or what do you call it a monster house type duplex and Brandon will describe what he means by a monster house and then how he got into small multifamily

and then bigger multifamily and then eventually self storage and then all the value add ways that they're making money and self storage. So this is one of those episodes that really highlights how the principles of real estate work regardless of what asset class you get into. That's so true. That's a really good point. Yeah, this is one of those episodes also triggers a little shiny object syndrome that we're all prone to it. I'm going to totally do that now. And I don't mean that a bad way. I think it's good to learn all the different types of real estate.

And this just might change the direction of your real estate. So listen up for all that and more. So that said, let's get to today's quick tip. All right. Today's quick tip is something I have not asked for in a while, but I'm going to do it again. If you've not yet left us a rating or review in iTunes or in Audible for any of the bigger pockets books you've read or for any of the podcast you listen to, please do Those things really, really, really help us out.

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That's hostfinancial.com. All right. I think we're ready to get into the interview with Sergio. Anything you want to add before we get started, David? No, let's do it. All right, Sergio, welcome to the Bigger Pockets podcast. I promised you on stage at that GoBundance event that I was going to bring on the show. And look at me fulfilling my promise.

What's up, man? Awesome, man. I appreciate it, man. So pumped to be here. It's been 10 years in the making, brother. Dude, this is going to be fun. So tell me about yourself. Tell us about how you got into real.

estate. What were you doing before? And how'd you get excited about the idea of investing in real estate? So my background is, is interesting and unique in the sense that I started. Like most people, going through the same path of life, high school, got a job. I was working for the Federal Reserve. I went through the career ladder, went through all the paces. Fast forward. And I met my now wonderful wife, Corinne, who's my motivation and my everything, met her parents and know of their family story of investing in real estate and growing wealth that way. They're entrepreneurs. And just started in my first false start was in 2007. I bought a duplex the day before the bubble burst. And literally, actually going back a little bit, I bought a duplex. It wasn't zoned as a

duplex. I learned a rough lesson there. So I had a full start in real estate, gave it a break after I got beat up on that deal. I met my wife, 2012. We just bought a, triplex for her to live in one unit and basically house hack is, you know, back then it wasn't called house hacking. But she essentially bought the triplex, you know, as we dated, was spent our nights and weekends, just renovating the apartment that she was going to live in. She moved into my place. Following year, while we eventually decided to just rent out the extra unit when we were done, my background is in IT. I spent a lot of years in technology, so I immediately put in a system to start doing the property management ourselves. The

following year. We bought another triplex together and read some books, got on bigger pockets. I was chasing you guys around Twitter and whatnot and just learning the ropes. And next thing, you know, we had a little capital and access to a lot more deals. So my father-in-law introduced us to the concept of syndication. Meanwhile, our property management started growing. My in-law sold some properties out in California, bought some properties where we were at in Delaware County, just outside of Philadelphia. We started managing those. We started syndicating multifamily. And then as I learned more, 2017, 2017, well, 2016, my wife quit the day job. 2017, I quit the day job. And then the priority was now we got us a legitimate business.

It's time to throw some gas on this fire. At that point, we were looking to get into larger multifamily. I did all my underwriting. I couldn't make a deal work to save my life. even today, I find it hard to believe how so many guys can make a lot of these apartment buildings work. I mean, my underwriting was always conservative. So we thought, haven't been working for the Fed for 22 years, I know economic cycles, 2017, 2018, we were in a 10-year expansion cycle. And it was, to me, it was an inevitable that we're going to have a downturn or recession or some shift. So we were looking at what other asset classes can we get into? And we shifted to self-finding. storage. I looked at self storage as certainly real estate, business, and then also technology,

which is my wheelhouse. And so we pivoted. And then I learned the concept of who, not how, and how to build a team. And in building a team really essentially has started getting us to grow in multiples. And that's how I'm here, brother. That's awesome. Okay. So there's a million things I want to unpack on that. That was, let me just get to the end of your story real quick. And then we'll go back to the very beginning. So what's your portfolio look like today? Like, what do you have or assets under management or whatever? What's it? What's your company like? So we are closing on five self-storage facilities. Any minute now, I expect I was at a notary this morning, getting all documents signed. These are five properties in Indiana. In the self-storage,

we went from one property in 2019. We're now at 12 properties overall. Portfolio is valued at about 40 million. We have 185 properties under a property management company worth about 15 million there. Self storage. We are grossing annualized, you know, 1.2 million in revenue. We're collecting over 4 million in property management and rents. So our portfolio, we continue to grow both arms. And in the meantime, I started bringing in construction and maintenance in-house because we were tired of chasing around contractors. And then along the way, I started a, in the process of launching a coaching company and started an RV rental business earlier this year. Oh, well, all right, you got, you got a lot going on. Now, some people might be listening going, well, that just

sounds overwhelming, like away over my head. I want to go back to the simple, the very first duplex you bought back in 2007, I think you said. So you mentioned that it was not zoned for a duplex since you kind of learned your lesson there. What happened there and what advice you have for other people? Why was that a problem? What happened? And what's your advice for other people in that position? Yeah. So what I learned, I bought it from a friend of mine and it was converted into a duplex back in the 70s. It was in South Philly. It was in a row home block. And he had his family converted into a duplex to get some extra income back in the 70s. It was totally cool. Right. So the property stayed that way up until he said he was. He's basically a professional poker player, my buddy Chet.

And he moved out to Atlantic City, rented it out. So being that it was already a duplex and it had been to that way, I said, all right, no problem. I know it wasn't zoned properly, but I didn't think, hey, it's South Philly. What's the difference, right? Come to find out after I close on the property that a woman that lived two doors down was the councilman in part in the area's secretary. And they saw a younger guy buying this property. Naturally, I was going to be a slumlord. naturally I was going to sell drugs and God knows what, right?

Clearly. So it was reported and next thing you know, I show up with the property. I was doing some cosmetic renovations myself, spending my nights and weekends and I show up that big orange sticker on the door, zoning violation. You got 30 days to correct, blah, blah, blah. So I said, all right, no big deal. I'll just get the zoning changed. You know, I started going door to door, getting signatures, basically getting people to

approve the change in zoning. I show up to my hearing. I step in front of the judge. They said denied without hearing a damn thing. So the lesson there was I had no pull in there. There was so much uproar or the connected people were the ones that had the leverage there, which is obviously the name of the game when it comes to real estate. And there was no way for me to do anything with it. I ended up selling it to a house flipper who turned it back into a single family house. and he probably made a bunch of money. Wow. All right. So, yeah, there's a lot there.

But this is something that we don't talk about a whole lot, is that there are a lot of properties that are non-conforming or illegal, right? And sometimes it's okay. I mean, I have properties right now that are treated as a duplex or triplex in some areas that, you know, that's not zoned for it.

It was just a single-family house turned into a multifamily. Now, in the multifamily millionaire book that we launched this past summer, I call those monster houses because they're like Frankenstein's monster, like adding pieces on here and there and like you creating this like thing,

this large multifamily or small multifamily out of a simple single family. So it's very, very common. But what I've found is that in some areas, like when I lived in Grace Harbor, Washington, nobody cared. Like the local area, they didn't care. Every property was like that, not a big deal. When I got to Hawaii then, I bought a triplex. And I think I got a good deal on it. I renovated the whole thing. And similar to you, a guy across the street calls and reports that's been sold and it's not supposed to be a triplex, supposed to be a single family house. So for the past two years, I've been dealing with this issue with the county. and they will not approve the zoning change just like you. It's just been a hassle.

So I got a way through it finally. I'm going to rent it by the bedroom to traveling nurses, and it'll actually produce more cash flow than I originally planned. So I worked it out and turned it back into a single family house, but it was two years of hell. So that gets the advice then I'm guessing you would give us make sure your property's zone for what you want it to be before you buy it. Yeah, I mean, it's definitely that.

And then even if it's like in a situation where it's in an area where nobody cares, that doesn't mean that in the future, no one's going to care, right? So I bought a property that nobody cared about it being a duplex for, you know, however many years it was. But then when the change of ownership, then somebody cared, right? And even then, right, if I'm looking at multifamily property right now and it's not zoned properly, there's a value hit, right? If I'm looking at a property, then I don't even want to be bought it. The other part of it is that I've seen so many properties where people buy these larger multifamily

that at one point was a large single family. all hacked up, right? You get less rents for a property that just is awkward, right? You got this crappy kitchen where you got to duck the cook. You know, so to me, it's those conversions that if it's done properly, that's one thing. You want it obviously legal. I don't care where you're at. I mean, for me now, as long as it's conforming and completely legal or I can legally change it, there would be the only reasons why I would buy something like that. Yeah. In the beginning, I felt like I had to just go to those hacked up properties. But I didn't. Like you said, they rent for less. People stay less often, these little tiny, you know, crammed in the corner,

a dozen little units here and there. Like, they just like, they look on paper like they will work really well. They look like little mini ATM machines. But the reality is the capax, the repairs, the fact that you got to pay the water, because all the water lines are all mixed together. You can't sub meter the water very easily. You know, all that just drives these properties that look like ATM machines into debt collectors. It just, it drives me nuts. So I think there maybe is a time in place for them, but just understand they're not as usually. as good as they look. Yeah, I was going to say, the other part is the quality of the caliber tenant actually goes down as well. You've got these crazy properties where there's two thermostats,

one in the top floor and one in the basement, and you're either freezing or you're sweating in the wintertime, right? Well, who puts up with that, right? I mean, not the caliber tenant that I want doesn't feel well with that. So you've got to look at that as well. 100%. My experience with that is the first thing that I would say is you have to understand real estate tends to operate on a spectrum. And on one end, you've got profit. On the other end, you've got convenience. On one end, you typically will have cash flow and the other you have appreciation. Now, sometimes you get that awesome deal that can hit both of those. But in general, you're giving up one to get the other. That's how life works. That's how real estate works. If you want convenience, the best

tenant cash flow, you're going to have to go with the traditional small multifamily property, duplex, triplex, triplex, fourplex, because like you said, Brandon, it's set up already so the water is being charge to the person who's using it. Like Sergio mentioned, it's not this weird kitchen they created out of a walk-in closet where you're bending your head over so you don't bang it into things. But that doesn't mean that there isn't a time where that property could work for somebody. That is sort of the whole, you're trying to get your foot in the door, your house hacking, you're going to live in it. You're going to personally be managing it. So on that spectrum, you're giving up the passive side of real estate investing. You're not set it and forget it.

But oftentimes when you get more active, your income goes up. We see this with the short-term rental space. We see this with properties like this where if you will be actively engaged and running it yourself and maybe renting it to friends that you know or your handpicking tenants, you can still make those kind of properties work. The problem is when you get a person like Sergio with a big vision and big dreams and he wants to do big things. And then he's got this little paper cut that just won't go away that keeps requiring attention and the city's getting involved. So that's what I would say is just know what your goal is for that property and what your strategies will be should follow that. Well, and you know what hindsight for me, the pain that I went through with that duplex was better than inaction,

right? I don't care buy a property. I don't care what it's like, right? It doesn't matter, right? Education costs money, right? Whether you go to Harvard or whether you go to real estate school in South Philly, it doesn't matter. It's still cost, right? So to me, that action, I learned a lot from it. So to me, it was well worth it. And same thing with just getting started. A hacked up property is better than none. I was just going to say, Brandon really wants to ask you, Sergio, if you've ever invested in West Philadelphia. Born and raised. There it is.

On the playground is where I spent. No. No, I was not. I was not. David's making a French Prince of Bel Air comment. It might be my favorite show. Whatever. You know, don't judge me.

Here's what last point I want to make before moving on. Like, a lot of times I've heard people say, like, I never sell a property ever, right? Or I never sell. I've heard people say that before. You know, I just sold my very first duplex I ever owned. It was the Kirk Cobain House. And it still made a lot of money. I made almost $2,000 a month in cash flow off that property, that very first duplex.

But sometimes, like a property that meets you at one point of your life, like David, you said there's a time in place maybe for that hacked up property or whatever. Maybe it got you out of a job. Maybe it got you out of a nine to five, whatever. But it doesn't mean that has to be there forever. It doesn't suit you forever. It doesn't stay with you forever. So you can say, like, hey, that served me at this point of my life, but now I'm going

to let that one go, even if it makes good money, just to free up the mental energy of having to deal with that caliber tenant or that caliber of a property. you can move on. So just those people listen who have properties have been hung on to for 10, 20 years, you got this emotional like pull to it, but it drives you a little bit nuts. Sell it. It's a good time to sell right now. Sell it and get something that fires you up because, you know, it's it's not worth just being miserable with your properties if you don't need to be anymore. Yeah, I'm a firm believer in growing in multiples, right? I mean, so all the properties I had for when I sold them and what I did with that money and growing my business,

in multiples, right? People will go by, hey, I'll buy one property a year and they do some crazy math over 10 years. Well, I'd rather buy one property than two properties, then four properties, sell the four, buy 15, you know, and just grow. And that's the growth mode. When you're, you know, I consider an investor versus a collector and different stage of life, like you said, if I was, you know, 65 and I was just looking for cash flow, I might buy, you know, have a bunch of duplexes or whatever, but I'm in growth mode right now, and growing the fastest way is just in multiples. So remind me of your story. You were in that duplex.

Then you did some like smaller deals, right, before jumping into the big stuff. Is that right? Yeah. We did triplexes and quads. We partnered up with a flipper in Philly that basically, you know, when it comes down to real estate, you want closers, right? I mean, agents, brokers, sellers, they want somebody that can close. And once we close the deal with it was minimal hassle, we bought the first tripefell.

from this guy. And then he was renovated, you know, flipping other multifamilies. I said, look, as fast as you can build them, I will buy them. And so from there, you know, obviously we didn't have all the capital to buy property after property. So it was natural to start pulling investors and bring that in. And that's pretty much what we did until it was time to pivot. Yeah. So how did you go from that? I want to, I'm going to talk about the mindset a little bit around I'm doing these deals myself to now I got to go out and raise money from people. Like today, it's probably a lot easier for you, money, you got a little bit of a brand, you got a little bit of a name, you got a little bit of a connection, you know, but back then you didn't have that necessarily. So how did you, like those

people listening, I'm asking for their sake, they want to start raising money from whoever to do some more deals. How do they do that? How did you do it? So to me, it's who you are as a person and can people trust you at the end of the day when somebody's going to invest in your real estate deal. I'm not FDIC insured, you know, there's not conforming to any big regulations or anything like that. We are now, but it's a trust game, right? And so who you are character-wise, and that's really ultimately what it comes down to. I mean, have a network. I was fortunate enough to be, you know, I've always been outgoing, always plugged into a lot of people and building a personal network of people that know me, trust me, certainly family, friends. They know that I'm a big, a student, and that I'm

going to best articulate what the idea is behind it and not just say, hey, at Thanksgiving dinner, come invest with this property, it's going to make a bunch of money, right? It's got to be well thought out. It's got to be well prepared. My first syndication deal, I, even though it was presenting it to friends and family, I took the time, put together a deck, went through all of the underwriting, the analysis. I wanted to put my best foot forward. So to me, that is paramount, is making sure that you can instill trust that you are going to be a good fiduciary of somebody else's money and do whatever it takes to make sure that nobody loses money. People invest now with us. because we have, now we have a track record, but they know the character of our collective team.

And they're like, I'll invest with you because I know who you are, know what you represent. Go Google, me, us, and you're not going to find anything but raving reviews. So you allow people to do their own due diligence. And that's the best way to get money. I mean, there's definitely a good deal that needs to be had, right? You're not just going to put something out there with pie in the sky. And I just tell people if you're going to invest with somebody, there's an element, of due diligence, and then there's an element of common sense.

Does this make sense? Does this deal make sense? And then from there, it's instilling trust that you know what you're doing. That's really good. Let's go moving on your story a little bit. So you got these triplexes, the fourplexes, all that. And then you decided to get into larger apartments. And you made a line about how, like, you underwrite pretty conservatively,

but you can't understand how other people are making these deals work. And I agree. I say it all the time. I look at people's deals. I'm like, I don't understand how that even makes zero dollars. I feel like that's going to lose money. Did you have some larger multifamily before shifting over to self storage? Or did you just jump right from those four or five, you know, four units into the self storage?

We jumped right from the largest property at a time was a four unit. And what I looked at it and even the way I look at it was in the cumulative portfolio, right? So we had six of these properties. So I wasn't looking at it as, hey, I got a four unit and a three unit or whatever, right? So when I made the exit there, we made a strategic decision that we were going to sell them all, right? And so when I put them all together, you know, I had a real estate license myself. Now I have a little portfolio to offload, right? Again, thinking in multiple.

So to me, that was where I knew that at that time where the market was, where the rents were, where these the neighborhoods where these properties were, that in aggregate, it was a large exit, right? All of these properties together. when I was looking at the multifamily, it was garden-style apartments, you know, 30, 50 units, that kind of thing. And we looked at a bunch of them. And if they didn't have a whole lot of deferred maintenance,

it was really trying to apply the most disciplined approach to underwriting these deals, meaning looking at all of the rules, right? Well, you know now, whether it's a 50% rule, whether it's whatever. You look at a deal. Once you're experienced with it, then some of those metrics,

you could throw them out the window, right? especially nowadays when you're talking about cap rates and this, that, and the other thing, they're not going to make sense. But at that time, I was following it very strict, right? These are the rules. And if I can't make these rules work, this deal doesn't work, right? And experience teaches you otherwise. So that was essentially what drove the pivot.

I saw self-storage. I saw the value add component being a lot less dials, a lot less levers to pull. And it was right in my wheelhouse when you talk about technology. Yeah. So I'll talk about self-storage. a little bit. Can you explain for those people maybe don't. I mean, I think most people know what it is, but kind of explain what it is that you're buying? Like what attracted you to, you kind of said a little bit, but to what makes self storage so cool? Like, why is it a worthwhile investment? And what are some of the

challenges with it? So the biggest thing compared to other asset classes, it's for the most part, you're talking about a fair amount of land, right? Call it two, three acres plus, right? And then it's asphalt, concrete pads, and sheet metal. So from a maintenance standpoint, there, a lot less to do there, right? From a value ad perspective, you don't have to remove a tenant to increase the value there, right? It's just driving rents. For me, the technology, it's more of a business. It's a good combination of business and real estate, right? The big thing with self-storage is if you don't know the business side of it and you can read the books and even the books will tell you, okay, you can increase rents, this percentage and that and do this, at this point in time,

But if you tend to question some of that, right? But for me, when I looked at self-storage, you're looking at properties that don't have a web presence. They're not maximizing revenue management. Revenue management is the concept of running it like a business where you can optimize your rent rates based on time of year day of the week. Like we raise rents on Thursday and we drop them on Monday, right? So you operate it as a business, right? And that's where the big drivers are. And then you want the turnover.

In multifamily, I would, I would, I would, you, in a lot of cases, you want the turnover there as well, except that vacancy loss is rough, right? You can move out a tenant in self-storage and same day put another tenant in at 40% higher rate, and we do that all day long. So to me, that's the business aspect of it. The levers that you pull do not require, for the most part, we've never had to remove tenants in order to get that value into it. It's a lot of what happens, the operations behind the scenes. Maybe there's some cosmetics, but for the most part, the pieces and levers that you get to pull are much different when it comes to a self-storage versus multifamily.

It sounds like what you're saying, Sir Joe, is there are less levers in general. Less levers, but the levers are bigger levers. So, like, I equated to, if I were to use, like, a DJ, right, a mixing board versus a vault door. And to me, the levers that I pull, like, you know, you look at the big crank on a lever, I don't know what the thing is called. that's what I get to pull, and that's revenue management. That is the secret sauce when it comes to self-storage is knowing how to manipulate that big lever in a particular market, particular area. And there's a lot more data that. I'm a data junkie and analysis and big data. I love that stuff.

And the data there is phenomenal. Not to mention being able to leverage the economies of scale, right? For example, in self-storage, I got six properties in Pennsylvania. I got two rock star, by the way, employees that run them all, right? And from that standpoint, I'm using two employees to run six facilities. And then I got technology to handle the rest, right? Online reservations, online rentals, online payments. So you make that part of the business easier. And then I'm building a brand now. So now I'm cobbling together all these properties individually. And now I create a brand. And so our long-term vision and exit is on the portfolio side, not on the individual property side. And you can't really get that in a lot of different asset classes,

like multifamily. Yeah, you could sell a bunch of properties together, but getting that one brand together is pretty killer. That's exactly our strategy with the mobile home park stuff. We want to package up, you know, 50 of them and sell them to Blackstone for a billion dollars. And with a brand, with a management company in place. And so we just actually are launching a management company right now for the same reason. Yeah, I'm right there with you. That's powerful. Why don't you guys go into a little bit more? Why is it that? you have opportunities if you're packaging together 50 mobile home parks or 20 self-storage facilities versus having just one or two to sell individually. So again, when I talk about the concept

of multiples, who's going to buy an individual properties? Like when I bought our first self-storage property, it was just under $2 million, right? I was at that level and can buy that, right? When I'm talking about $100 million exit, potential buyers are not going to be me when I was buying that $2 million property, right? So to me, putting that together and who that buyer is, whether it's a REIT, whether it's a big private equity firm, they're going to be looking for a different acquisition, right? For me, it's value ad. For them, I'm selling it stabilized, right? So stabilized has a different value. They'll buy it at a compressed cap rate. It's kind of like Class C in multifamily versus Class A. Class A is always going to sell for a higher amount.

So you aggregate them. So our value add is taking each individual property, them rolling them up into the platform, both online and physically branding, and then it changes my buyer. And that's to me is there's a lot of power there. And it gives you an opportunity to nail down, like Brandon said, your operations, your management, you get that all rock solid. And you're changing your buyer. Yeah, that's exactly what I would say is you're selling a business at that point. and they will pay a higher multiple for a higher multiple for a business or a lower cap rate for a business that's just well run. It's got everything taken care of because that's the type of buyer they are.

It's not the guy looking for a 22% cash on cash return because he needs to quit his day job. That's just a different type of buyer. I want Blackstone who's like 5% all day. I want that buyer who's good with lower turns. And if you look at just follow the news, right? And so I love following, I'm a news junkie, but you follow the news and you see. the patterns. And when you see a massive transaction, there's a press release on it, you'll look at the numbers and they're like, oh, they bought it at a three cap. You're like, what under what planet?

But they're like a re. They don't have to generate the returns that I generate. That's powerful. And so that's why when I'm looking at a deal next to the next guy, when I'm looking at the guy that I'm competing with for a property, he might be looking at the same property for a different purpose, right? So I can maybe even pay a bit more for it because it fits what I'm doing better, right? And that gives you a different advantage to get to the closing table and get more deals. I've noticed there's a couple principles when it comes to money and wealth that factor into why bigger ends up being better for you two. One is I've seen as deals get bigger, margins get smaller. You don't ever hear about someone who goes and spends $10 billion and still gets a 24% return with

very limited risk, right? That exists when you're investing 10,000 of your dollars into with an FHA loan into a triplex or something. You can hit those really big numbers, but there's a lot of work associated with it. When you see people that are investing large amounts of money, the return typically isn't being smaller. Now, that also benefits you when you're raising money, because when you're raising a lot of money, you can pay a smaller return to the people who are actually letting you borrow their money because they're investing a lot. So you see these hedge funds that can borrow money at one and a half percent, but maybe they only can get a five percent return on it. It still makes a lot of sense to them to get that spread when you're talking about billions

and billions of dollars. And I'm highlighting that because the average listener of this podcast hears this and they're like, why would I do a deal for 5 percent? That wouldn't be worth, what it really, they're saying is it wouldn't be worth my time, right? But when you're making hundreds of millions of dollars on that time at 5 percent, it starts to become worth it. So what you two are doing is actually really taking advantage.

advantage, Sergio, of what you described as those economies of scale, packaging something up for a big buyer who wants you to have done all the work. They don't want to have to step in and manage it and figure out how to make it profitable. They don't want necessarily the value ad because then they have to have some employee that goes and puts their time in figuring it out. We all know how employees never care as much as the person who owns the property. So it's actually part of like the healthy life cycle of a property for someone to buy it like that when we talked about in the beginning. The duplex, it's not really duplex. Get your feet wet, sell to somebody else, take that money, put in something bigger, make it worth more,

sell it to somebody else. And really, if you can get into that rhythm, you can scale to some the level that you two are doing. The other part of it is the risk margin, right? So those higher, you know, you invest in a REIT because conceptually, you're going to get a lower return, but you're also going to get a lower element of risk, right? The higher the return, when people are talking about like a ground up development has got a higher level of risk than what I do. So I like to play in range of risk reward. And I consider what we do. The downside risk is you don't lose any money.

The upside is a big chunk of money. And it's always about under promise and over-deliver. You know, when we go to make the exit, everything, all things being equal, the risk is going to be minimal. We will have done the work, like Brandon said. And they're just going to get over, get a cash flowing machine. And that's going to be where their investors are going to be from that end. There are two kinds of real estate investors, those who have reviewed their insurance,

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What size, what kind of return, what kind of location? Like, what's your criteria, your buy box? So the number one criteria that we look at is where can we move rates, right? We look at a market and we look at a given area. Self-storage is a very localized business. business, right? It's generally evaluated in three to five-mile radius. We like to play in secondary tertiary markets because they're away from some of the big boys, right? We like either a property that's going to be 30,000 plus rentable square feet or we have the ability to make it

higher, right, through an expansion, through modification, whatever the case may be. And then we look at what is the rest of that market doing, right? Where does the occupancy level of the competition? Where does the occupancy level of that given property? If it's on the high, side and we consider high 97 plus percent in terms of occupancy and everybody else is in that market, we know we can push rents. If we're going to push them up higher, then somebody, where are they going to go? They're not going to move in general. In general sense from self-storage standpoint, we know that people that come in, we know the statistics on how long they stay. So we don't expect them to leave for a 10% increase or whatever. We look at the demographic trends in terms of

is employment growth. What is the median household income? We don't like to be in areas that have a lower than $50,000 median household income just from a level of poverty. And, you know, you start introducing a higher risk of crime, that kind of thing. So, and then we look at what is the total rentable, what are the rents per square feet? Say an aggregate, it's getting nine bucks a square foot. We think that we can push that to $12 a square foot, but we look at it over the course of how many years, right? Five years. And then we look at what's happening right now. What are the trends in self-storage? Self-storage is on fire. We've had shifts in, it was growing before COVID, and then COVID forced a lot of people to create a home office. They created a home classroom. So now the demand has gone through the

roof, and now we're able to push rents at a really aggressive level. And through that, it gives us a different lens to look at it. So when we're looking at an area that's got a bunch of a mom and pop shops and then maybe one or two operators that are operating correctly. We look at who are the better operators, and those are the numbers that we know we can hit. And so from there, it's just execution. Where are you looking right now for properties? Do you pick like this, these five areas or our MSAs, or were you buy anywhere as long as it meets the criteria you want?

So our criteria right now is northeast mid-Atlantic. We want to be within, so we'll eventually start building out. I mean, we have a combination of in-house property management and third-party property management. We want to have it to where our team can get to it in a reasonable amount of time. We're talking five hours, plane ride, car, rental, drive, whatever the case may be to make sure that we can maintain that pulse. And then the other part is the economies of scale. I prefer we'll buy a single property in a given area, but like the portfolio we're buying in Indiana that we're closing on today, it's five properties, it's two owners.

I can again use the economies of scale. So when I'm underwriting, the next guy is underwriting an employee per location, perhaps. But because now I'm buying five properties to smaller portfolios, I know that I can drive down my payroll expense by managing them as part of one little pod. So I like more properties in any given market, but I'm not picky. I mean, we will look at whatever market presents the greatest opportunity for our value ad strategy. A lot of that comes down to, is economies of scale that we can plug in. We're not going to go.

And a lot of it has to do with, does it fit our exit strategy? That's why I won't look at a property that's 10, 15,000 net rentable square feet because it's just not, it's just not going to fit the portfolio. Long term, though, you can think of it as you can sprinkle in a smaller property here and there if it makes sense. Like, you know, if I'm in a given market and another property that fits that portfolio pops on the market, I may buy it just to have another property in that market. But for the most part, we're looking at minimal size that kind of fits what our exit,

what our ideal buyer is. So when you say like 30,000 square feet, what does that translate into a number of units? I guess because I'm like a residential investor, so I think of unit numbers. And I know self-sourge is different. So how does that kind of translate? It's a good question because it also comes down the unit mix, right? So give me an example. If you have a 10 by 10, it's 100 square feet.

feet, right? You have a 10 by 20, 200 square feet. That's the net rentable. So the aggregate is what that net rentable amount, if you've got 10 by tens, you got a thousand net rentable square feet. So that, and then we look at the unit mix, right? I don't want, if I'm in New York City, I'd want a unit mix that emphasizes a lot smaller unit size because dollar per square foot is going to be a lot higher. So a five by five in New York City is going to rent for a ton of money. A five by five and way out in the suburbs is not because it's just not enough space. So you got to look at the unit mix, right? So our first self-storage facility had a really crappy unit mix, a lot more five-by-five units than we would have liked. But what we did is we went in and just started ripping out the

partitions in the middle, and now we made them 15 by five units, right? So now the rent per square foot might go down because it's a bigger unit and the dollar-for-dollar versus a five-by-five might be adjusted. I'm going to get it rented out so I can drive up the occupancy and I can still get the rents. Does that make sense? It does. Yeah, one of my buddies is AJ, you know, AJ Osborne, who's also in Go abundance. He and I talk a lot about the idea that one of the criteria I think, I'm sure you look for this too.

When you're trying to buy it from like a mom and pop seller or whatever, he loves to look for properties that are like they have not maximized the unit mix correctly. Like they only have 10 by 10s, though you could turn them into 10 by 20s and there's actually a real big market for 10 by 20s, but there's not a lot for the 10 by 10s. but whoever built it or whoever, you know, is owning it right now just hasn't thought that way. They haven't thought about unit mix and what the demand because the demand is different. Like you said, some areas might have a huge demand for the five by five. Some might want a five by 20.

And so how do you know that, by the way? How do you know if there's going to be a demand for the five by 20 or 10 by 20 versus a five by five? Who tells you that? So it's a combination of, you know, you can look at one of the first things you get is a rent role, right? You can see what's occupied, what's not occupied. If you've got, and then you know a given market in a given area, and then you use a tool like radius plus to do a supply demand analysis. You look at what the competitors have. And in some cases, you just, having the experience, I mean, we got a rock star team right now that can look at any given market, any given area, look at the population, look at the population density, and then be able to determine what is the right unit mix, right?

And look at what is the actual performance? How is this property actually doing? And then from there, you derive that. Now, if you've got anordinate amount of odd units, like our case, the five-by-five units, and we see that a bunch of them are vacant, well, I've got to look at it. What is my opportunity? And now we've done a really good job of marketing those smaller units to different types of, you know, smaller businesses and kind of an extension of a home closet.

So you've got to use some creative marketing for those, but otherwise we've converted those to the larger units and going about it that way. ignorant question here Sergio how impactful is the person who answers the phone or sits at the front desk or whatever just asking them when people call what are they asking for that we can't provide so to be honest with you most of our customer base is finding us online right they're finding a self storage near me and then we have like on our website hfirestorage.com we we have on our website kind of a size a little tool that somebody says, hey, I need to move a one bedroom, I need to use a two bedroom, or move a two bedroom, and then it kind of dynamically will show you this is the right size unit.

But if they call, we have a call center right now, and generally speaking, they will talk through it, and a lot of that is where there's some price sensitivity. We always just tell the customer, just caution on the larger side. You may not need all of the space, but, you know, it's better to go bigger than need another unit. I mean, we have people that are, you know, have just been cheap and say, ah, 10 by 10 is fine. and the next thing you know, they're renting 10 by 10 and plus two other 10 by 20s. Right.

So from that standpoint, once they made a decision and they're going to be your customer, then that's pretty easy. But a lot of our customers are coming, finding us online. Are you utilizing like Facebook ads or Google ads at all? Are you relying mostly on organic traffic? Minimal ads, and quite honestly, the properties that we're buying now, they're trying to drive rents to get some turnover. We've been really aggressive in raising rents, in some cases, 15%

and one clip to try and get some turnover because the real value is if somebody's paying 110 bucks or 100 bucks a month in rent and you increase it 15%, they're going to pay another $15 a month, right? That's not enough to make them, you know, get a U-Haul truck and come and move their stuff down the road or find a place to keep it. But the real beauty is if I have all those units full, then I can get $140. So in some cases, I want some turnover. over, right? And so from that standpoint, we're just driving rents and we want that and we're just going to be really aggressive in pricing. Yeah, fascinating. How does financing work with these self-storage? Is it typical you go to a local bank or get a broker? What kind of down payments are you

looking at and what kind of interest rates? You're going to get the best terms still from local banks. It's not much different. You're still looking at 60, 65% LTV. You can go 70, 75. COVID has kind of put a damper on a lot of those really aggressive loan terms. You know, we're paying three and a half points for where we're going with these properties that we're buying, 25-year amortization, five-year terms. We like the big part for us is the five-year terms so we can make sure that we can go full cycle and get out when we need. There's some prepayment penalties, but you have some options to extend it. You'll still get I.O periods for construction loans. We build that in, any CAPEX right off the back. that's a big beauty of what we're doing is if we have the ability to do some big conversions,

some expansions, we bundle in that in the loans. And we'll use local banks are preferred, less loan costs. They know the properties. They know the areas. And in some cases, we'll even talk to the lender who's got the existing note. You know, one of the things that I've thought about with properties like this where there's continual value add. We talked to Paul Moore about a very similar strategy of, hey, I can add a bunch of concrete and then I can rent that out for boat storage and then I can add a bunch of more pads over here and I can rent out for RVs like you're doing Sergio. I had this thought that like if you get one of these things under market value and you fix it up and then refinance it. So you're, it's a burr. You get some cash

back, which you then reinvest into the property. You add something to it that can generate more income. Well, now you've actually increased the value of the property because it's based off of its income, which means you can refinance it again. And you can take that money and you can use it to build out the next extension of whatever you wanted to do. So with the right property and the right vision, you can actually get it to pay for itself to make it into something much more profitable. It's much more difficult to do something like that with a residential property where the only way you can add value is by making compared to a higher priced comparable as opposed to just adding revenue like what you're doing. Yeah. And that's the name of the game, right, is the income.

squeeze all the income you can, right? For the properties that we're buying, we do have ancillary income opportunities, whether it be boat and RV parking, whether it's, if they have boat and RV parking, can we add more units there? Can we add mobile units, fixed units? How does that affect taxes? How does that affect how the property will look? We look at adding tenant insurance. We adjust our fee schedule. Unless any more is about merchandise, whether it be, I mean, we include a lock now, used to sell boxes. There are those outfits that use U-Haul rentals and rental trucks. We look to rent-out billboards. There's even talk of, we haven't done it yet, but adding cell towers, because in essence, you don't have people living there, right? And the other big part of

why the strategy is great for these times is that we're not subject to Landlord Tenant Act. We're subject to lean laws, right? It's different. It's stuff. It's not people, right? I don't, you know, during the height of COVID, We didn't have any eviction moratoriums or anything like that. So that's a big play here. I mean, 60 days, depending on the state, 60 days you don't pay, we auction off your stuff and we move on to the next renter. Yeah, man, that's one of the things that really attracts me to sell storage is just that

you're not kicking grandma out of her house during the holidays. Not that we kick grandma out of our house in the holidays, but the possibility is there that grandma's going to stop paying. And it sucks. I hate having to do it. We try to do evictions as little as possible, but when you own, you know, thousands of units, it's inevitable. We evict people.

So the thing of cell storage is you don't have to deal with that. Worst case, you're an auction off their stuff, but it's a much more comfortable, freeing position to be in. So yeah, I'm definitely intrigued. I think Open Door Capital is going to be moving into that space in the coming years, but we'll see. So on that note, let's talk about somebody who wants to get into cell storage. They want about their very first one.

Can you walk us through maybe like, if you were mentoring somebody on like, buy your first one, here's what you should do. Step one, do this. Step two, do that. What would you tell me? So for me, it starts with education, learn the asset class, right? I mean, behind me, I got a bunch of books, including A.J. Osborne's book and a bunch of Mark Helm, I mean, different books on self-storage. So learn the asset class, learn the industry, get coached by somebody who's done it.

One of the reasons I love what I do is because I get to educate people on building wealth through passive investing and then also through self-storage and all that. So get the education, right? And I'm a firm believer in acting on belief. So when you're a believer in the asset class and what's your reason why to get in it, right? We all are in the real estate because of wealth. But ultimately, the big driver of getting off of your butt is going to be the why, right? What gives you that kick to take action? Right. So it's education, getting that why you want to do it, mentorship, the networks, and then scouts. the market, right? On market, off market, plug yourself in the network, identify what is your buying criteria and don't limit yourself to say, hey, I got $25,000 in the back. I can only afford $100,000. Well, that's not true, right? So because you can use, I mean, the real estate, the beauty of it is leverage, right? When I started buying my smaller multifamily, I didn't have the money to go out and buy all these properties. And that's when I was able to bring in investors to be able to do that. So in bringing in the other money, you're able to do that. Look at creative financing.

When you do find a deal, it's being disciplined, underwrite the deal, know that you're going to make mistakes. Once you recognize that an education costs money, then you're going to go at it from a different perspective. Target the markets, I would always say stay local as much as possible so you can go look, see, touch, and feel. Our first self-storage property, when we couldn't get the right higher to work. My wife and I, we bought an RV and went and lived there to run it ourselves, just to learn that business, right? So, I mean, it was really important. Number one is I'm never going to lose an investor money and investors' dollars. And so for us, it was important that we understand the business. And the only way to do that is immerse yourself into it. Learn it and know

that you're going to make mistakes, but you're not going to stop at it, right? Continue to educate, tweak, don't go in with preconceived ideas. And then finding deals, it's a matter of plugging in to any and all opportunities when something fits. You'll both know it because the spreadsheet says it and you're checking off a bunch of boxes, but then there's that feeling, right? That's in your gut that you're going to say, I'm going out this, right? Our first property that we bought in self-storage was listed for like $1.65 million. I paid $1.775 for it. And I kept going up because I said, you know what, this is the one. right and now we're we're going to uh likely be exiting that property early next year and right now

we think it's worth about three and a half million wow dude that's amazing i love the fact that you said about living in the RV for a sure while like not like and here's what the difference between people who are successful one of the biggest things i notice is like they're willing to do what it takes to become great right that mastery uh it's like they're you didn't dabble you and be like oh i'll just buy this thing and then we'll figure it out right like those are the people that fail and then you will buy their properties from them because they're They were just all like not serious about it. And so because you committed to it, you said, I'm in this thing.

I will do whatever it takes. I will be successful. There is no if and or buts about it. That I believe is what makes you successful. So I just want to commend you on that. That's awesome. I love it. Yeah.

And I think it's about to me, there's a lot of people that I talk to that are really technical when it comes to real estate. They only look at a spreadsheet and numbers and that kind of thing. There is an element of the mindset. There is the discipline around it. Like, I like to emulate and study the elite across any industry, right? I don't watch football to see the ordinary quarterback. I want to watch Tom Brady.

I want to study what he's doing, right? Regardless of what your craft is, you have to study what those elite people are doing, read the books, emulate them. So for me, it's just as much technical execution as mindset, as personal growth. And if you continue to put those things together and you don't have a failure in stop or not in my vocabulary, right? And I work daily harder and harder every day to continue growing as a person, as a human being, because even if you make all the money in the world, whether it's real estate or whatever, you've got to be fulfilled and doing it, right? And to me, when I'm

raising money, when I'm deploying capital, you know, they're my family, they're my sisters, they're my friends, there's a lot of people that trust, and I'm not going to let them down. I'll lose my money before I'll lose somebody else's money, and I have. So to me, that's, that's, That's a big part of it. That's awesome, man. What I love about what you said, Sergio, is that when you look at enough deals, it stops being something that just intellectually, you go, oh, that should work. And you actually get that gut, emotional feeling.

This is what I want to go after. I don't know if there's a scientific name for what that process looks like, but it's exactly what you find in life, right? I'm new at Jiu Jitsu. Brandon's new at Jiu Jitsu. So when we get done, our instructor would be like, why didn't you grab his leg right there? And we're like, that's a really good question. I don't know why I didn't do that, right?

I just didn't feel that thing, but you do it for long enough and you start to see openings and you feel momentum. And every sport has worked that way. And business is just like that. When you've seen enough properties, you get that this works for what I'm doing. It would fit really nicely with the other pieces. You can just sort of see and feel the synergy. And I think a lot of new investors assume that their whole career is going to be this like,

cross my fingers and hope it works out. And then when you're in that place, you rely on the spreadsheet a little too much. and you start looking at deals that have spreadsheet magic, but practically they're not going to work the way they did on the spreadsheet, where what you're describing is, yeah, there is a component of that, but that's not how I make my decisions. I'm actually seeing how this would fit into the whole thing, and your gut sort of helps you.

Brandon and I, you know, Brandon, you and I have discussed that when we're trying to teach somebody else, something, what we're really trying to do is get the algorithm that's in our own head sort of like articulated into something that they can understand. And so I just want to encourage everybody that when you stick with this enough, but I'm going to give you the last word search here before we move on. It becomes easier. It just does. Like, you just can tell that's a good deal or that's a bad deal for me and you know it. Yeah. To me, it's, it's in, it's, it becomes when you, through repetition and seeing patterns, your intuition gets, gets amplified, right? And

ultimately, that's when people say, oh, you know, you know, think your gut. For me, it's gut and heart, right. I mean, something feels right. And you go with it and you, you know, you know, disciplined in checking all the boxes, but ultimately what says go is a feeling, right? And what says, don't stop says a feeling. I mean, we've had a deal. We pulled out of a deal in North Carolina recently. It was another five properties. And what we found is that it needed a lot more work than we thought. And we could try and go back and forth and negotiate with the sellers. But ultimately, we just said, you know what, there's a lot to this deal. There's too much risk. We're out. And it was a feel, right?

I mean, it's like any athlete that's at an elite level will tell you they get it. I mean, they call it the zone, right? Get in the zone. You get that feel. And once you have that, man, that's what I always like to say is he's got to keep cultivating that. Yeah. And there's a, when you play a lot of sports, you start to recognize like the, maybe the

amateur mindset says, oh, there's five basketball players. They all score 20 points a game. That means that they'll automatically have 100 points a game. They're just looking at the numbers and they don't recognize, well, this. player plays this way. And if you combine him with that player, he's going to become much less efficient. And that's sort of how you're describing your real estate investing is you can recognize, well, it's in the same area that I already have this property manager company and it would work for these purposes. This feels right versus, I can just kind of tell this is going to be a headache and we're

going to be fighting uphill the entire time. But there is a feeling that accompanies these decisions that I just wanted to highlight. And it doesn't stay ridiculously hard. And I think, Brandon, you've sort of hit that rhythm with open door capital where you can feel good deal versus bad deal and those decisions become a lot easier at that point yeah yeah definitely i mean i i don't want to like underplay the underwriting that sergio and i have to still do to make sure like it pencils out but you kind of get a feel and that's why we go and visit like every property or ryan murdock that's his like primary gig these days he just jumped out of plane and goes and flies around and he can sell like does it feel right when he gets there and that will give us a ton so this has been awesome man i i don't want to

get out of here. Yes. So I want to do one last, or a couple last segments of this show. Why don't we move over and dig into one of your deals. It's time for the deal. Deep dive. All right, this is the deal deep dive. It's the part of the show where we dive deep into one particular property that you've recently or at some point in your life bought. So, Sergio, do you have anything in mind we can dig into? We got about eight questions to ask about this property. But you got something in mind? So if it's in self-storage, we don't have a full cycle. If it's small or multi-family, if you want to do it. Do it. self-storage? Let's do self-storage, and yeah, it doesn't have to be full cycle. It's fine.

All right, let's go with Burden Hand self-storage. All right. So the first question is, what type of property is it, and where's it located? So it's self-storage, about 25,000 rentable square feet in Burden Hand, Pennsylvania, which is near Lancaster. And how did you find this property? It was listed, broker-listed. I made connections with a company called Investment Real Estate there in Central Pennsylvania. It's all they do is self-storage properties. I connected with a guy, awesome guy. I still talked to him from time to time guy by named Kevin Blitzow, who was in the industry. And basically the deal, after looking at some other deals that we made some offers, couldn't get one over the finish line. This was hit a sweet spot

in terms of it was the right size. It was the right location, about an hour and 20 minute drive for Corinne and I to go take a look at it. The raise was about 700,000. We felt comfortable with it. went out there, looked at the property, met the owner, which is another element of when something feels right. It's talking to the owner when we were talking earlier. So meeting the owner, knowing his circumstances and why he wanted to sell, it really felt good. I mean, just it checked off all the boxes that we needed. And essentially, we made a hard run at it. And once I got to a certain point where it felt right, there was nothing that I was going to do to not get the property. I thought what was the original asking price and what did you end up paying for it?

It was about $1.65 million and we ended up paying $1.775 million. All right, 1.775. How did you negotiate that price? So it was a lot of back and forth. Our initial offer was about $25,000 over list. I accompanied it with a letter basically because I knew the circumstances of the seller. I knew his circumstance So I accompanied it with a letter and basically just said, you know, I want to treat you and your wife to a vacation. So I added $25,000 in a cover letter. And it turned out that some other people wanted it just as bad. So it went back and forth a couple times. And they asked for best and final.

So I went even higher than I went as high as my underwriting would allow me to go. And that's pretty much how the deal was accepted. The letter and presentation that in talking, getting to meet the owner, making him feel comfortable really helped as well. awesome guy, by the way. That's great, man. I love that. I love the attention to detail on those different negotiation pieces. It shows it's not always just about number, but that's a big piece of it. And you went up to the number you could do and you got the deal. So very cool. How did you fund it? What did you do for financing? So we funded it with a local bank. Essentially, we're just looking for the best terms.

How we actually found the bank. I'm not 100% sure. I don't remember. It's a bank that Univest Bank, who we've done a lot of work with. We've actually gotten to be buddies with the lender, and we have some contacts there. And the rest of it was we were parlaying the exits of our multifamily, so we knew that we were returning over a million to our investors. So assuming we didn't have a whole lot of drop off and people that took the money and run and spend it, we knew that we would have the capital to bring to the table there. My wife and I, we typically invest in all of our own deals as well. So we always would like to bring money to the table. and now somebody on our team is always bringing money to the table. And that was pretty much how we got the financing, 25-year term,

25-year amortization, five-year term, I think three and a half percent is what we got. Very cool. Very cool. So you raised the down payment from your investors. Was this a 50, and it's a little in the weeds here, but was this like a 506C or 506B or what kind of syndication was it? It was a 506B. Up until now, we've only done 506B raises.

were actually going to be shifting to 506C going forward, but that was a 506B raise. For those who might care, do you want to explain the difference real quick? I know it's, again, a more complicated topic, but. 506C and deals are essentially limited to only accredited investors. As a credit investor, you make, what is it, 200 or 300 with a wife, $1,000 a year, have a net worth of a million dollars, not including your primary residence, 506B, you're allowed to raise money for up to 35 friends and family. Perfect. Perfect. Yeah. So I've only done C because I want to be able to talk about it and advertise.

And so I can do that with a C, but I just, I can only take accredited. So it's sad. I mean, I have a ton of friends that would love to invest with me. And I'm like, sorry, I can't take your money unless you go make, go make 200,000 a year, 300,000 a year that we can talk. So all right. Next question. Next question. What did you do with the property once you bought it? So the business plan that we had in place was going from paper ledgers. They literally were operating it with paper and pen. So paper ledgers implementing the back-end platform, we're using SightLink and on the back-end storage. So it's facility management system is what it's called. So we implemented the technology piece was the first thing that we did. So implementing the technology, getting people to start using online rent payments. We implemented a online portal for that, electronic leases.

So the big main project up front was a technology overhaul. Hall. From there, our business plan was to repave the lot. There was some potholes. There was some overgrown grass where some parking was. So we redid the parking. We upgraded the gate system, the gate system. You had to literally go up to the keypad to program provision or deprovision a gate code. First time I did that, I said that was the first thing to go. So we ripped that out. We implemented gate system that allowed it to be integrated with the software. So now instead of taking two minutes, literally, if you typed the code incorrectly, you had to wait three whole minutes to do it again. And it was a nightmare.

So we did that. We converted, and this is over the course of probably a year, we implemented our business in record time, with the exception of the paving. Paving got held up by COVID in winter. But we repaved the lot. When we repaved the lot, we added an extra 10 parking spots just for being better organized and restriping the lot. we converted some inside units to climate controlled we changed out LED lighting and from there it was just a you know put a new brand logo and from there it was just onto revenue management so there was there was no tenant disturbed during this whole time very cool so was it was it basically cash flowing

the entire time you were doing this thing or did you have to was it like losing money until you got it it you know up and running and increase rent well if you're going to go conventional or traditional financing, it's got a cash flow, right? So we got a debt service coverage ratio that we had to meet, right? So one and a quarter. Now, granted, some of it is based on, they want to look at the tax returns of the facility as well as our pro forma or underwriting. So we knew that we could hit, I mean, you don't want to buy a property if it's not cash flow. I mean, that's, I mean, unless you've got a business plan that's predicated on that. But anyway, we had the debt service coverage ratio from the get-go. And then from there, it was it was all about maximizing it. The first month that we, took over the property, it was generating about somewhere between $14,000, $15,000 a month, gross, and now we're at like $25,000 to $27,000 a month. Wow. Dude, that's awesome. I mean, that's, well, the reason I asked that question about the was a cash flow,

and I love that you emphasize it's like, if you're buying a commercial property like this, the bank's going to want to see it cash flow right away. So it's just a difference between buying, like, if I go buy a duplex, chances are I'm going to have to renovate it, kick out the tenants if they're, or if they're, you know, wait until they leave. I'm going to be losing money for six months to a year, and then I finally get rented out. They just did a degree of risk there,

but what's fun about the commercial stuff that we're buying, whether mobile home parks, apartment complex, whatever, is they should cash flow from the beginning, like, they're designed to do that. That's the very nature of multifamily. And when I say multi-fam, I'm including self-storage and mobile home parks. They're designed to do that. So it just, I don't know.

I just, it blew my mind when I realized that, that was a thing. Like, I didn't have to just lose money every month for a year while I renovated. So, anyway, big fan. All right, man. Last question. What lessons do you feel like you learned from this deal? Well, the lesson, the number one lesson that I learned was the executing the business plan, specifically around the revenue management is the most critical part. We were really slow out of the gate. We were always afraid, like people say, oh, you raise rents, three, five, seven percent,

whatever. And we did that really slow because we were afraid, oh, what if everybody leaves, right? And in reality, the, and every text you read, and you tend to like, that doesn't sound right. And so you didn't do it, right? So we weren't aggressive with our rent increases out of the gate. We didn't hire right out of the gate. We were just trying to get a body in place until we eventually said, okay, well, how do we really hire properly? So the biggest thing was the revenue management, getting that business plan, getting that piece of the business plan. Had we gotten that in, I mean, the property is doing phenomenal.

It's a home run right now. So had we done that right out of the gate, I mean, this thing would be even operating an even higher level right now. But again, that's a valuable lesson that we got going into it. The hiring piece was more difficult. It took us quite a while to get the right person in there. But that's where we had to take a step back and run the place ourselves because we didn't know when somebody's not running it correctly. If you don't know what you're doing and you're the one who's supposed to be training them and giving them awareness, then, you know, that's on you. So we had to run it.

And yeah, I mean, otherwise, it was awesome all the way around and it's still kicking butt now. It's still our baby. Very cool, man. I love it. And that's the one you said it was worth like three, three and a half or is that different project? No, that's, that's it. It's worth about three and a half now.

Awesome. It's phenomenal. And there's still plenty of room to run with it. That's the wild things. When we sell the property, it'll probably still be a value add. But at this point, when we look at the IRA and returns, it would be foolish not to optimize and get the returns for our investors. I love it, man.

Very, very cool. I love deal deep dives because, you know, like, I'm not done self-storage. So, like, to hear the numbers, how it kind of plays out and what's possible, it's just, it's a lot of fun. So thank you. With that said, we got to move on to the last segment of the show. And that is our famous four. This is the part of the show where we ask the same four questions to every guest every weekend. We have done so for over 500 episodes.

So Sergio, favorite, either all-time or current favorite, real estate-related book. So I would have to credit my success to the principles of real estate syndication. This is a book my father-in-law gave me that introduced me to the concept that was written like the 60s or 70s, highly technical. But that like blew my mind. I'm not going to give you the same, you know, cornyance, rich that I'm bored out. I mean, those are all part of it. But the one that really got me to think in multiples and understanding leverage, that was the book. Very cool. What is your favorite business book? Right now, I would say traction, we are implementing the EOS with our company and really understanding roles, responsibilities, and everything associated. And then I don't know if we would classify it. Who Not How is, was really a mind-blowing book for me to really get me to change my approach to business and understanding, building a dynamic and rock star team really makes a big difference. When you're not, doing real estate what are some of your hobbies my wife daughter and i we like to travel everything we do

is for experiencing life in its fullest i love giving back we're very big into education my wife karenne oh i love dearly she's big into education she leads philadelphia invest her community she's written a book uh the only woman in the room chapter and self-storage along with ashley wilson a number of fair cloth and a number of uh ladies there it's about giving back uh we're We love educating our friends, family. I like the finer things in life, and I don't mean stuff. Like, I love a good meal where a chef puts a lot of attention to detail. The RV business started from a passion of just getting out and going camping and buying an RV and experiencing that.

And I'm like, man, I got to get more people to be part of this. And the biggest thing I needed with that was a place to store the RVs. And I know a guy with self-storage facilities. So kind of working with a man. I love it, man. Very cool. All right. Well, my last question of the day, what do you believe, if you really had to boil it down, what do you believe separates successful real estate investors from those who give up, fail, or never get started? It's about how deep is your belief, right? Why are you getting involved in it, right? If you're just chasing money, you can do that and you can

buy a bunch of properties. To be successful is really believe in what your why is. and then adjusting your strategy, right? So you develop a strategy that's for any given time, whether it's for me, it was buying multifamily. I wanted to grow my own personal wealth. And then it was, how do I pivot my strategy? Right. So our strategy went from individual investing,

syndication and multifamily, then self-storage, and now it's exponential growth in self-storage and private equity. So it's about knowing your strategy, and then having the why behind it, that is going to make you successful. I mean, there's all the books and knowledge and continuously educating yourself. You can never stop loaning in this industry. I'm fortunate enough to have a background in technology where you have to continuously learn,

but the same thing with real estate is you have to continuously learn and never stop. That's awesome. For people that want to know more about your fascinating story, where can they find out more about you? Invest with Sergio. There you can get redirected to all of our companies. and our syndication platform, there's links to my bio, my team's bio, work with a lot of phenomenal people. I've been fortunate enough to know where my limitations are and connect myself with a lot of awesome people. So I look at our company is not just about me. It's

about the guys behind me. And through our platform, you can connect with us, whether it's LinkedIn, I think even my email and whatnot is out there. Awesome, man. Well, thank you for joining us today. It's been phenomenal. It's been a long time coming, so I'm excited to kind of, it was good to dig into your story and learn a bit more about self-storage because this is a fascinating industry. I feel like it's me with mobile home parks four years ago. I'm like super into it right now. So it's fun to learn more. So thank you, Sergio.

Absolutely, man. I appreciate you guys. Been a fan a long time, man. You guys are the rock stars in real estate. So thank you. Oh, thank you, dude. And that was our episode with Sergio, Altimer. I actually don't know if that's how you say his last name.

So Sergio, I'll apologize if it's Altamare, or. Altomere or something. I don't know. I know you're Italian, so maybe there's a, there's a fun, like, got to do that with your hand, right? Like spaghetti. Altamore. Yeah. Anyway, Sergio, you're the man. Love talking with you, dude. Yeah, so Sergio was actually on the show because I was, so I was on stage at a Gobundance event. So Gobundance is the kind of the group that meet David and I, David and I are in. And I'm on stage at this event telling kind of like my story and like how I built Opener Capital and all that. And afterwards, we did some Q&A. And so Sergio gets the mic, the room like 500 people. And so, and so Sergio gets the mic, the room like 500 people. And, and so. And so, And Sergio just goes into this story about how bigger pockets was there at every single stage of his career and how it helped him so much. We didn't want to dig into too much of that today because I didn't want this to just be like, go bigger pockets. But I will just say like it was cool to hear just what the impact of the bigger pockets from the books to the blog to the forum to the podcast has had in shaping him as an investor. And so anyway, the question he had to ask at the end of that was, so when are you going to invite me on the podcast? And so at that moment, of course, I'm going to invite him on the podcast. not because there's a room of people watching,

but because I love stories of people who are going in one direction and then bigger pockets went and change the direction. It is a pivot company that can change the direction of a life. So like I asked in the intro, don't be afraid to share,

you know, like, you know, review and comment and such on the information, but then share this with somebody you think would be excited to hear about having a different life than the one prescribed for them. So good stuff today.

David, anything you want to add? Well, I think it was a cool blend of seeing how somebody was sort of like the go abundance, get out there and do it mindset, paired with the bigger pockets of I want financial freedom and I'm going to build it for myself, sort of married together and created this awesome trajectory. Like he said, he grows in multiples. Sergio's taking really big chunks,

just what I've seen him do over the years has increasingly increased. Terrible way to say what I'm saying, but I think you know what I mean. Yeah, I totally got to what you mean. So, yeah, scaling is with definitely the theme of today into the loose larger deals. And I love hearing that. So with that said, we got to get out of here. David, it's been a pleasure. We got one more episode coming on Sunday, and then it's time for me to take some time off. It's going to be great.

You may be taking time away from the podcast, but you're never getting away from me because... No, I know. Your model head will sit over my shoulder. And you're probably going to come hang out with me like in a month, so... That's exactly right. We'll hang out.

All right, dude, why don't you get us out of here today? This is David Green for Brandon. Trapped him in a corner, and you can weasel your way into the podcast, Turner. Signing off. Thank you all for listening to the Bigger Pockets Real Estate Podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday.

I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calicoke content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.w.w.w.w.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk.

So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. Bigger Pocket's LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.