Epic Real Estate Investing - Recession Proof Investing with Self Storage | Scott Meyers | 991

Episode Date: April 17, 2020

In today’s episode, Matt is joined with Scott Mayers, the nations’ leading expert in the self-storage business and an architect of dozens of extremely successful real estate transactions that he has made since 1993.  Scott shares his experience with the past recessions, his wins & losses, and what big lessons he learned. Get a grasp on his decades-long experience and step into your REI completely RECESSION PROOF!   Learn more about your ad choices. Visit megaphone.fm/adchoices

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come. Here's Matt. Hey, Epic Investor. It's Matt Terrio from Epic Real Estate, where we show people how to invest in real estate with an emphasis on retiring early. All you got to do is this one thing, one time. Shift your focus from making piles of cash to creating streams of cash and you are on your way. This is the Epic Real Estate Investing Show.

If this is your first time here, really glad that you found us make yourself at home. If you like what you hear, make sure that you hit the subscribe button before you go. And if this is not your first time here, welcome. back. And thank you for sharing this with your friends and family. Really appreciate that about you. And I've got a great guest joining us today. He is known as the nation's leading expert in the self-storage business. He's been the architect of dozens of extremely successful real estate transactions since he began his real estate career in 1993. And he's not afraid to talk about his losses either. They've been invaluable lessons in every one of those making him a very

well-rounded investor in the area of what to do and what not to do, still actively investing and showing others how to do the same. Please tell me, welcome to the show, Mr. Scott Myers. Scott, welcome to Epic Real Estate Investing. Hey, Matt, thanks for having me. Good to see you again. Likewise. Likewise.

So, Scott, tell me, in quarantine, what does the self-storage business look like? What's business looking like for you? Yeah, you know, interesting, Matt. We've been preparing for, I mean, this will be my third recession. And we've been preparing for this since really 2011 in the storage sector because we know that storage always does well. I mean, next to basically liquor always does the best during a recession. Self-storage is always in the top five. And so we've been collecting our private equity partners and really gearing up for this.

The problem is we didn't think, you know, like in 2008, the economy was propped up by a, well, it was really a false economy in real estate. And once Lehman Brothers fell, we immediately went into a recession. We thought, well, that'll never happen again. And sure enough, this little whatever red or blue spiky thing that you see in our microscope caused us to go into a recession immediately. We went off the cliff again. And so we've been preparing for it, just didn't expect it to happen so fast. But now that we're in it, we don't celebrate recessions around here.

But again, so storage does extremely well. It does better during a recession because businesses downsize, individuals have to downsize, and they move in with each other or move back. home and that just creates a need for storage. And so again, recessions are no fun for anybody or in the economy, but the self-storage sector benefits greatly. So we're prepared. That's very good. So you use the big R word, recession. I don't know. What are you looking at? How do you know it's a recession or just not a temporary blip until we all recover and can stop our social distancing? Yeah. Well, certainly I'm not the first to say this. But obviously, we follow lots

of economists and we follow about two or three of them very closely. And when the economy takes a hit and businesses are just flat out close, there's going to be a whole lot of folks that are going to be able to go back to work when we're free to do so from the pandemic. But, you know, the economy is at a standstill right now. And we've seen in the past that, you know, this thing never starts up the way that it stops. And so it's going to be slow. It's going to be clunky.

It's going to be, it changes everything. This changes everything. and we also know that it's dependent upon consumer confidence. And there's a whole lot of businesses that are just gone and decimated from the landscape. Or as, you know, 2008 real estate got hit and then everybody else felt the pinch shortly after. Right now, we just got businesses. Income stream has been cut off and they are shut down. So I don't know.

I don't pretend to have a crystal wall. And even if I did, I wouldn't know how to read it anyways. But, you know, on the surface from what I've seen and the people that I look to, you know, this one looks to be, it could be more severe and last a little bit longer than the last one, but time will tell. Yeah, it's certainly well. I've been looking at it, even like when we first had the shutdown, I was like, people are not going to stand for it. I mean, this country is built to stay open. And I'm just like, well, yeah, I mean, for sure.

I mean, yeah, but I think that's a bad point. I think it's like we have a level of, I don't know, is the word entitlement, the right word or the wrong word. I'm not sure. But just, you know, we have our freedoms. we have our liberties and we take those maybe for granted sometimes, but when they're taken away, I think we just have the dynamic here that people aren't going to stand for it. And you can see it as recently as just yesterday. People are taken to the streets, right?

The protests. And I'm really curious as to what that will mean as far as maybe a resurgence of the outbreak or, you know, will everyone kind of expose it for what it is and not that big of a deal? I don't know. Yeah. There's going to be a couple of events that I foresee that is going to, you know, cause some either blips or long-ranging recovery, and that is if there is a vaccine or something that looks to slow this down, not only will these restrictions be lifted, but then that'll give

everybody the freedom to, you know, take their hand off the pause button and go back. And whether that's a false sense of security or not, it doesn't matter. We know that recessions start because of consumer confidence and the end due to consumer confidence swinging in the opposite direction. And so it's going to take that before I think we really see some major changes in this. But again, that's just my take. Yeah, no, I think you're really, really close. I mean, I think obviously the jobs and everything have an impact,

but it really has to do with the behavior of the people, how they're going to act and behave when we come out of this. So with that said, is it, you know, you're saying that you're prepared for it, is it going to have any impact or change the way that you're doing business now? Yeah, so, you know, currently, you know, this is obviously thrown a monkey wrench in all types of businesses. The good news is for storage, you know, as I mentioned, You know, we do have a rush to storage, and we're going to see more of that coming, you know,

time will tell in May and June. But as far as operations right now, we're staying open and same hours. We haven't, we've got over 2 million square feet of self-storage, 13,000 units across the country, and we haven't reduced one hour payroll yet because we have a huge demand for self-storage right now. And we also have the opportunity in the fact that there's only two states right now that considering self-storage a not a business that is essential because of that reason. You know, we have been able to continue business as usual. And so far in April, from where we're sitting at the time of this recording, we haven't had any blips in our accounts

receivable. You know, people still pay for their stuff and there hasn't been any news or press stating that there's any relief for self-storage rents like there have been for mortgages and for apartments. So from that standpoint, we're in pretty good shape operationally. Now, we've been also, we know what happens in the recession. Businesses downsize, people downsize, and there are some folks that are ready to retire. They may be scared of a recession or it's time to get out. These are the owners of storage facilities.

So the mom and pop owners, they don't want to weather this. Or it came time for the novice investors that didn't build value into their facilities, and they bought it at an 80 or 90% loan to value. And now it's time to refinance. And the banks, you know, in a recession are only going to refinance at 65, 70, 75%. Well, if they didn't create value, they got to either come to the closing table with money or they have to come to the closing table with the keys and hand it back and do a deed in lieu or worse.

And so that's what we saw in 2008. And, you know, had we known ahead of time how many opportunities it would have been out there, we would have, you know, gathered a whole lot more private equity partners and lending relationships to take advantage of, you know, what we saw during that time. Well, we did. we saw and now we are ready. And, you know, we are not here to take, again, we don't like a recession. We don't like what's going on.

We're not looking to take advantage of people. But when people are ready to sell or if they have to sell, we are in a position in our industry to take advantage of the opportunity that the market is going to create. And we'll start seeing that very soon. When we already are, as a matter of fact, we're seeing our mailers are getting a 22% bump and a response rate. And a lot of folks are coming to us that are now looking at seller financing where they weren't before and a whole lot of other projects and shortfalls and they're coming to us to be

partners and to bring our private equity partners so we're we're getting ready right actually was fortunate enough to collect probably about 80% of our rents the last month for April we'll see what may hold but you've been doing this for since 1993 so you've been in the game for a long time you've been through three of these and I think this is a really good time for people that have been investing in, say, 10 years or less, is to align themselves with people that have been through this type of situation. There's a lot of, I don't know, gurus out there that have just been doing this for a few years and they'd know how to wholesale and that's about it.

And I'm really interested to see what happens there and what type of things they'll be saying and where their actual information comes from. But nothing beats experience. Nothing beats good old time-honored wisdom. Were you always in self-storage or how did you start? You know, it started out in single-family homes. I think like most folks, you know, God rest of soul, Carlton Cheats was the first home study system I ever purchased. So a little sad note earlier this year.

But, yeah, started buying single-family homes, renting them out. And the idea was you had to follow that model and buy and rehab and put tenors in on a lease-owned program. And hopefully they buy. And if not, then we keep the rental. Then we got into apartments and grew that side of the business. And so we had, we weren't very large players. We had about 80 houses and about 425 apartment units. And then, yeah, it was during the 99-2000.

The dot-com recession when the then the Community Reinvestment Act was put in place by that administration. And it was the first time in history that just about anybody that could fog a mirror could buy a home. And they did. And who could blame them? And so, you know, all our renters exited. And so we weathered that storm. But then realized that, you know, at the end of the day, I didn't really like tenants. toilets, trash.

I didn't like the contractors and babysitting even property managers at our apartments and begin to look into self-storage because I realized even through all that, through that recession, I just thought, you know, you looked at the business model and the economy and it all kind of pointed back to the business model with tenants. And so no matter how good the cook was, the recipe was bad in my book. So we went and begin to look into self-storage. And when people don't pay, we, we overlock their units and they can't get their stuff out until they pay us.

And if they don't pay us, then after 90 days, we sell their stuff off. recoup our money and I thought well now that's the way it should be and so the more I looked into the business the more I like the numbers and looked back historically as to how well storage does during a boom time when people buy stuff and they need to store more stuff and we're a nation of pack rats but more importantly you know which is pertinent to the timing of where we are now is that self-storage actually does better during a recession that it does during a boom time and so that caught my attention so begin investing in self-storage facilities and yeah so here we are 2005 is when I got into self-storage and we sold off all our houses and our apartments and went in full bore into self-storage and never looked back and then created our education company, as you mentioned, as well.

And now we teach people how to do the business and we partner with them as well. That's awesome. One of my favorite TV shows is Storage Wars. Have they ever filmed at one of your facilities? You know, they have not, but I've got some clients and some business associates that have had the benefit of those folks. coming on site and filming the show. That's great. So you get to sell their stuff.

What's the coolest thing you ever found doing that? Gosh. You know what? It was in a facility that we bought, but it was prior to us owning it. And the rumor has it that the folks that owned it like two owners ago, they had a unit that they were, you were able to buy those units as an owner. You can bid on it on your own if you want to. And they did and they won this unit.

and it had a coin collection in it that was estimated to be valued over a million dollars. And so that was one of the real ones. As far as interesting things, we had some facilities that were over by the, live in Indianapolis and so over in Bromsburg, Indiana is where all the NHRA teams are. And one of the units that came up was basically overflow. I mean, we could see the NHRA funny car and drag racing park right across the street from us. And one of the units had a bunch of engines and parts in it from race cars. and that we opened it up and saw that,

and I didn't have enough money to buy it. Somebody else got it, but they got a good deal on some really fun stuff. So for us, race fans, yeah, that was a good one. So a couple of interesting stories here and there, but it's not as interesting as the shows, but I don't want to burst your bubble. Not everything you see on the show is real life,

which, you know, reality TV isn't always real. I thought you might say that. Yeah, that's all the planned stuff on there. But anyway, I bet you get that question all the time, though, right? I get that question all the time. And, you know, it's whenever when somebody asks me what business I'm in, I, you know, I tell you about I need to come up with something better because then that's what I always get next is, you know, if I'm on the soccer sidelines, you know, ask what I'm doing and what kind of business I'm in.

I'll tell them that I said, oh, so you buy those units and you sell all this stuff on eBay? I was, no, no, I own the facilities. Oh, I get it. That's great. Hey, you know, you said, this is what I'm curious about. You said that your direct mail has gotten a nice little bump. Yeah. So do you market for self-storage units in the exact same way that you market for single families?

Yeah, we really do. You know, we create, it's commercial real estate. So we create relationships with the commercial brokers. And there's many of the big brokerage houses, CB Richard Ellis and Marcus and Milachap, they have a self-storage arm. And so, you know, we network with those folks and small business brokers because these mom and pop sell them through the small business brokerage network. But at the end of the day, you know, there are partners, but we really want to beat them to the punch. And so, yeah, we have direct mail that we sent out to the owners and the letter even states, you know,

hey, call us before you call it broker and, you know, save yourself the commissions. And so, yeah, we do have campaigns sometimes very active and other times not. As soon as we buy a facility to market, then we double down and try to buy others to get economies of scale from a management and marketing perspective. But, yeah, just recently, I think we finally have seen, so perhaps like yourself in the apartment world, that, you know, these owners that, you know, continue to hold out for whatever reason, either for a higher valuation or maybe just timing, that they started to get scared. And now they thought, oh, I don't want to write another one of these out. And for, you know, any other reservations they had in the past are now gone.

And so now they're starting to call and saying, yeah, I think we're ready to talk. And so, yeah, we've seen a big uptick. And I didn't expect that because I thought all the low-hanging fruit was gone. But lo and behold, yeah, we got out, the phones are ringing again, which is good. Yeah. Yeah, you know, it's one thing I kind of recognized or, you know, you hear about all the time that, you know, Americans are just, you know, one paycheck away from being homeless. And I've heard that stat forever. And, you know, I didn't know if it was true or not how they know.

But it's kind of revealing itself a little bit. People are, we had three deals, like just from the day that our state was shut down, we had three deals just following our lap. Hey, can you help me find a buyer? I got to get rid of it. Like, the panic was just like. It is. It is. You know. Well, I think one of the other stats I heard was that most small businesses, or I think

the average small business has 27 days worth of savings so they can weather the storm. And so, you know, here we are 30 days into it. And the business shutdowns, closings are astronomical. Yeah. So, yeah, I think the most bits are true. My wife, she's in an entrepreneur mastermind group. And it's a few restaurant owners in her group. And boy, I don't even think.

I think they had 27 days. I think they had like seven. Yeah. It was amazing how thin their, their profitability and how they're just so dependent on the next weekend's dinner service. Yep. Yep. So let's see.

If there were a risk in your business or in the future, what would it be and how are you preparing for it? Well, you know, this one did catch us out. We had some development projects in the works. We buy existing facilities and we try to buy ones that are better. you add where they also have a development component where we can add more buildings to it. That's the safest and the cleanest and the easiest to finance. But we also have development projects.

And during a recession, we know that banks always, you know, they hit the pause button, you know, and they hold their breath. Right. And so, you know, everything shakes out a little bit. And so we had some of those projects that we had to wind down and we did hit the pause button. We didn't lose too much money and I don't think really any of these things start back up again. But that's kind of the biggest threat. I think in the industry, if there's folks that are nothing but developers, and there's a lot of folks that are merchant developers, they don't own or operate anything.

You know, they're just, they build for folks like us to buy them from, and those folks got really caught out. And so there's some of those folks in our industry that they didn't do so well. But, you know, I think as we seen the last time, you know, these folks that they didn't, you know, they bought it as a hobby and they heard self storage was easy and it was a set it, forget it business. And if they're not mined in the store and creating value when it comes time to renew that debt at not so favorable terms,

those are the ones that get caught out. So, you know, all and all, it's the same, Matt. It's, you know, if people don't do their due diligence going into a project, no different than a mutual fund or stock or a house or apartment, and, you know, they don't dig into, you know, what could be the potential threats, and then they buy it and then they, you know, take their hands off the wheel and just expect it to perform,

you know, the ones who treat it like a hobby and don't walk the four corners of the business, You know, those are the gotches. I mean, if you know your stuff, you do your due diligence. You don't, brokers are great. Not that we don't trust brokers, but you don't trust the broker numbers because they only come from the seller. And that's another area where I see so many people get in trouble. So it's just, it's just good business. You know, it's the basics. It's a whole lot of it. You know, it's maybe a hundred of the basics. But you just kind of, you just got to walk through that step by step. Yep. I've always said passive income doesn't mean uninvolved income.

Yeah, yeah, right? There's no such thing as mailbox money in this business. Yeah, I mean, you can certainly put multiple forms of leverage in place to make it a whole lot easier on yourself. But you got to watch it. You can't take your eye off it, right? Totally agree. So you might have just said, you might have just answered my next question, but, you know, you being in the business for almost 30 years now. Isn't that amazing when we start talking in decades?

Yeah, it is. You really make me feel old. Don't say that again, okay? No, that's why you're here, though. So as you've gone through a few of these downturns, what's the biggest mistake that you see people make during this time? Oh, gosh. I mean, you know, businesses in general,

I think they do get scared. And yes, you have to look at the P&L and eliminate anything. And isn't an interesting also, Matt, that we don't do this ahead of time. Why is it always take something like this to force us to do the things we should have done anyways? But in their slashing and slicing, they slice their marketing. you know, or there's salespeople, you know, depending upon the business. And that is the absolute wrong time, especially when marketing is so cheap.

So you got to keep income coming in, and that only happens with marketing and good salespeople. So I think that's one of them. And then, you know, as people get a little further into it, and if, you know, perhaps they're on the ropes, not communicating with lenders or equity partners, you know, the debt partners or whoever that is, and see if there is some type of a workout or a pause or a way that we can, you know, handle this differently. You know, they just, they hide, they bury their head in the sand and expect it all to happen or they're embarrassed and they don't, you know, dig in. We've heard this a lot on probably other podcasts and articles. You know, we've got two choices right now and that's to fight or

flight, you know, or just, you know, which it really means just kind of rolling over and let the economy do what it's going to do to you and take it and say, oh, well, you know, we're all in this together. It looks like everybody's failing. And I refuse to do that. And isn't it unfortunate? because I've seen so many times where people, if they would have just, if they would have dug in, made the right moves, you know, stood up, put their shoulders back and, you know, get up a little earlier in the morning and communicate with everybody and figure it out piece by piece, they wouldn't have had to lose their business or lose some properties. You know, that's, I mean, that's probably the overarching answer.

I mean, there's a lot that goes into that. But there's people that have lost properties or businesses that didn't really have to if they would have just, you know, stood up and fought for it. Mm-hmm. Mm-hmm. You said if they make the right moves. What's the right move right now? Well, that depends on each business.

I think the right move is if there's an area of your business, and probably the most important is your P&L, you know, if you've got multiple properties or even one property and you haven't taken a good, strong look at your P&L and now forecast what lending is going to look like and if you've got to restructure your debt somehow, some way in the near future, project that out. and what does that look like?

And are you going to weather the storm? And then, you know, there's a whole lot of things after that. But I think that's the main thing because there are, unfortunately, as you know, there's a lot of business owners out there and folks that are in real estate that they, the numbers scare them. You know, I'll just keep doing deal after deal and the pile of cash comes in and somebody else takes care of that. My wife, my bookkeeper, you know, whoever that is.

But they need to take a step back and take a look at their business and understand exactly what it looks like right now. And if it can weather this storm. and then, you know, determine on their own, you know, what are the shortfalls? Is it an income issue? Is it an expense issue? Is it both? I mean, all are on the table right now to take a look at.

But I think, you know, know thy numbers. You just, you have to know the numbers. Yeah. As they say, all progress begins with the truth, right? Getting clear with where you are, even if it's painful. Yeah. What's your baseline? Yep, totally.

I think another thing you said is really important. And we've actually done this over here as well, is being proactive with the communication of the people that depend on you. You know, whether that's your employee or a vendor or, you know, your own landlord or, you know, just anyone that's pending on you for something. Yeah. In communication as soon as you know something, we've gone through, you know, everybody like that made those phone calls and saying that, hey, we're cool right now.

It's all good, right? But there's a lot of uncertainty in the air. So we'll see how it plays out May 1st. We might have to have an uncomfortable conversation. then based on what we hear because the news changes like by the day. Who knows what we're going to be even, you know, we're just halfway as we're recording. That's only halfway through April. So who knows what happens in the next two weeks.

Yeah. He just had our first death what, you know, not even was 45 days ago. Was it March 1st? Yeah, go figure. Wow, in 45 days, look what happened. Mm-hmm. So who knows what happens the next two weeks. But this is great.

We've never had anybody on Scott that talks about self-storage that we're pretty much a single family type focus here. But I like all real estate. I think it's a great place to, I think it's the best place. Yeah, I agree. I agree. It's an honor to be the first. Thank you very much. Yes. Thank you. And I'm sure we've piqued some people's interest in how does this work? What is that? That sounds pretty good. No tenants. I just have to, and I get to buy stuff when people default. They get to raid their lockers. No, but if they wanted to learn more about it and learn more about you, what would be the best way for them to do that? Yeah, best thing, all things, self-storage is to go over to self-storageinvesting.com.

That's self-storageinvesting.com. And we also set up another URL, self-storage investing.com forward slash mat. And we've got a downloadable PDF of the seven mistakes that investors make when getting into self-storage. And so along the same line of questioning that we just had, we are here to make sure that people don't make the mistake and assume that it is an easy business. do the due diligence. And so, you know, we cover those top seven. So if somebody is interested in going out and dipping their toe in the water and self-storage during this time, that they don't make a mistake before they do so. So that's my gift for your folks today.

Awesome. Forward slash Matt. Yep. With two T's. You got it. All right. Well, that's a pleasant surprise. I didn't know you're going to do that. So thank you very much. My pleasure. And yeah, let's check in and talk about this again before the end of the year. Sound good? Yeah. Fantastic, Matt. having me. Good catching up again. Yeah, likewise. Take care. You too. Uh-huh. So if you found this episode valuable, there's a good chance that you know someone else who might find it as valuable as well. And if that name comes to mind, if you think about it, share it with them and ask them to click the subscribe button when they get here. I'll take great care of them. All righty. That's it for today.

God loves you. And so do I. Peace, health, blessings, and success to you. I'm Matt Terrio. Living the Dream. This is a cash flow. Yeah, yeah, we got the cash flow. You didn't know, home, boy, we got the cash flow. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.