The Science of Flipping - Transitioning from Residential to Commercial Real Estate | Alex Pardo

Episode Date: May 3, 2024

Today I sit down with real estate expert Alex Pardo, who shares his journey from residential real estate investing to focusing on commercial properties, specifically storage units. Alex discusses the reasons behind his strategic pivot, the challenges of managing a large team, and the benefits of shifting to a less tenant-dependent real estate model. — Thank you to Property Leads for sponsoring today’s episode. Lamassu Leads, providing high-quality, motivated seller leads to real estate professionals. Go to www.lamassuleads.com — Connect with Alex! Instagram - @Alex Pardo Visit StorageWins.com for more information on getting started with storage unit investments. — The #1 training and coaching system to launch, grow, and scale your investing business! 𝐋𝐞𝐚𝐫𝐧 𝐌𝐨𝐫𝐞: http://www.thescienceofflipping.com Turn cold real estate leads into engaged motivated sellers on auto-pilot using the power of A.I! 𝐋𝐞𝐚𝐫𝐧 𝐌𝐨𝐫𝐞: https://www.rocketly.ai/ Have a question? Ask me anything at https://www.askjustin.ai/ 𝐀𝐛𝐨𝐮𝐭 𝐉𝐮𝐬𝐭𝐢𝐧: After graduating from UCLA in 2003 with an English degree, Justin went directly into business for himself. He has never had a W-2 job. In 2005 he got into real estate by co-founding a brokerage in the Northern California area. Quickly he realized that being a realtor was not for him. In 2007 he got into real estate investing full time. 16 years later, Justin has flipped well over 2600 properties, accumulated millions in rental properties, and is an active investor to this day. His success in real estate led him to start The Science Of Flipping podcast and education company, where he has coached and mentored over one thousand aspiring and active investors.  He is a nationally recognized speaker and is on a mission to educate as many people as possible on becoming a successful dynamic real estate investor. 𝑾𝒉𝒂𝒕 𝒕𝒉𝒆 𝑷𝒓𝒐𝒔 𝑯𝒂𝒗𝒆 𝑻𝒐 𝑺𝒂𝒚 𝑨𝒃𝒐𝒖𝒕 𝑱𝒖𝒔𝒕𝒊𝒏:  “Justin is one of the best trainers in this space. He really gives everything to his tribe.” – Brent Daniels (TTP)  “Justin’s ability to connect with people and help them understand what he is teaching, is unparallelled” – Kent Clothier (REWW)  “We have been in the trenches flipping homes in Phoenix for over a decade, he is one of the best to do it.” – Sean Terry (Flip2Freedom) 

All right, Science Flipping podcast listeners, as always, this episode is brought to you by Rocketly.ai. If you're looking for a seller lead generating system that has automation in AI bot and has sellers coming to you, then Rocketly.ai is your choice. Make sure you head over to the website, fill out an application and schedule a demo now to see the power of Rocketly.ai. What is up, the Science Flipping family? We are back with another incredible guest in an incredible episode.

This man has been in the game longer than I am, so he's old as dirt. He's done this 19 years now, done roughly 1,000 deals, and recently has made a major major major pivot from residential real estate into commercial and so i want to pick his brain on why he made that pivot alex pardo is here what's up dude my man i'm honored to be here brother it's fun man it's been a lot of fun this is gonna be good yeah so let's go head on you go from residential real estate into a commercial field specifically storage yeah what was the purpose behind that man that is such a loaded question uh 2018 i feel like i had a defining moment my wife and i were on a cruise we love to travel two little girls at the time and dude i felt like i had created a prison

called the business right like i felt like i couldn't escape uh there was fires going on deals were falling apart i had some turnover in my business. I had built a team of up to nine people. You know, the typical model where you have acquisition managers, disposition, the whole nine. And man, I had built a business that our overhead was about 40, 45 grand a month. I know it so well. So I had to do two deals here in South Florida just to break even, just to take care of my team and make sure that the lights are on. And I thought to myself, I told my wife, I said, there's got to be a shift. Like, this is not why I got into real estate. I got into real estate because I wanted cashflow.

I wanted to build wealth. I wanted time freedom. And brother, I just, I got tired of chasing deals. I felt like a hamster going after the next wholesale deal. And man, I shit you not, Justin, I genuinely got more joy and fulfillment when somebody would reach out to me saying, hey, thank you for this podcast because it helped me in this way than I did about the next $25,000 wholesale fee. Now you do have a podcast. So let's shout out the podcast.

Thank you, man. Name of the podcast? The Flip Empire Show. The Flip Empire Show. Make sure you go to Apple, Spotify, all the other platforms. Make sure you are going and listening to that show as well. He just featured me. So you know it's in fire. he's had that a long time too so flip empire um so you

you're getting fulfillment out of the podcast as much as anything else coaching your passion's kind of dying with the active investing having to hustle art of the deal go go go uh you're getting into coaching you're making impact on people's lives yep covet hits then what kovid was such a blessing in disguise brother because 2019 is when i said you know what i'm going to start to unwind this operation but as you know it doesn't happen overnight i had a team of nine i was really concerned about them like where are they going to go so it took about a year to figure things out and then kovid came i never forget march 11 12 wherever it

was. I was actually in San Diego with Ryan Pineda. A few others, we were in La Jolla. And then all of a sudden, we all started getting notifications like NCAA shut down, NBA. We're like, this seems big. I don't know what's going on, but this seems big. Got back home from that mastermind. And it was just a blessing, brother, because I said, you know what? God is throwing me a sign. He's throwing me an alley-oop here. Let me just take advantage. And so I started having real deep conversations with my team members,

trying to work out a transition plan for them. And fast forward to May, June of 2020, I was officially out. Now I didn't build a business that was sellable, but I was able to sell off some of the assets of the business. Right, the buyer's list, things of that nature. So I was able to monetize a bit. Do you mind saying how much you sold your buyer's list for?

I believe I sold my buyer's list for 12 grand. And then I sold the motivated seller's list for about five. Love that. So, you know, not much. Yeah, you're not going off on sunset. No, of course not. You have some assets that you built up over time. And that's part of the reason, Justin, I feel like single family,

you know this, man. For me, it was challenging to scale. There were so many moving parts. And I always felt like I was one or two team members away from stepping back into a role that I didn't want to be in. And yeah, man, I felt like I was playing the wrong game. I was getting taxed at the highest tax bracket. Super grateful for the money I built and the freedom it gave us, but it wasn't really freedom because I always have to chase the next deal. That's right. And I happened to be coaching somebody who owns storage.

And dude, I saw an inside look into his business. I'm like, this asset class has been sitting right under my nose. Like, why am I not playing this game? That's right. So brother, I took six months off, just kind of enjoyed the fruits of my labor, so to speak. I got a lot of clarity.

I was able to reflect, focus on me. And then January of 2021 is when I dove head into storage. So there's a lot to unpack there because I think there's taxes being one of the things that we're talking about, right? Biggest expense. It's the biggest, right? And so as an active investor, you are wholesaling, you're flipping. It's all active income, right? It's going to get taxed the highest tack bracket and this is something that I wish I would have known earlier but last year I had a very very very very big IRS bill because my bookkeeper screwed me frankly I've been there um and my accountant

calls and says hey you got about 30 days to fix this issue before you're in you have a huge check to cut i made one single post social media found an apartment to partner on to gain equity to go cost seg so i could write off that entire year now the apartment was an 80 million dollar apartment so it wasn't just your average apartment right but because i became a gp on that i was able to do it i say all that to say it is I am now seeing the same light that you saw in 2019. yeah is I realize we're playing a different game we are active income is great don't get me wrong we want to we have nice watches we like nice things we live in Miami so we got to pay our bills right right but uh the game starts to become how do you not have to pay

the IRS right right right so let's talk about storage you're heavy into storage i am um i love storage i just told you i have my first storage facility i had no idea brother yeah yeah just like anything you know i found someone that knew it they said hey here's an opportunity i need to raise a little bit of capital can you help i said as long as i can come into the deal, they said yes. So we took a $2 million asset, turned it into a $4.4 million asset, did a cost seg, got the tax write-offs, and just got my first distribution check. Congratulations, man. That's beautiful. That's huge. What you just said is something that I really want to dive deeper on because

I think the audience can get so much value and benefit from the nugget you just dropped that may have gotten lost in the shuffle. You said somebody brought you in to raise capital. So what I want people to know is that figure out what your strength is, figure out what your assets and resources are. And money is just one asset, but like you might have a deep network. You can carve out a piece of these storage deals just by bringing some value to the table. It could be bringing a deal. It could be bringing money. It could be connecting people. So there's a lot of different ways people can get involved in storage. But I think what holds them back

is their limiting belief that they need a bunch of money to go buy these assets. When you and I know that I've done now, I'm under contract on a six deal. I haven't used one penny, Justin, of my own money to get involved in these deals. That's right. So it's just, it's a knowledge gap for people.

It is. And it's the belief factor, right? So I talk about like the four pillars of success, which is belief, hard work, failure and persistence. Belief is number one. You you need to believe this is possible. You need to believe Alex isn't special. Justin isn't special.

We've just done it longer. We've made more mistakes. We figured out there's a process. So let's talk about storage and why that asset class over you know grant cardone has obviously made apartments incredibly famous yeah yeah no doubt but why storage for you i mean the obvious is we're not dealing with toilets yeah right like we don't we have customers we don't really have tenants we don't have to deal with long drawn out evictions yeah um and when i started looking at commercial in general the just commercial real estate i just assumed because i come from

single family i'm going to transition into multi-family and then i realized that storage has a 30 to 35 operating expense ratio and then i started researching storage and it became it was i think it's the asset class that has the lowest default rate in the last couple of decades. It's a very recession resistant asset class because think of the consumerism society we're in. Like, I don't know about you, dude, but my wife, we get Amazon packages at our house every day, multiple times a day, and I'm like, like, dude, what's going on here? Right. And people need a place to store that stuff. If the economy is doing well what do people do they downsize they go rent storage yeah and then what i what really hit me is that storage is a nuisance expense so what does storage cost 50 to 350 a month sure think of the time energy and effort justin to move your

stuff into a 10 by 20. what has to happen if you want to move your stuff out of that you got to hire a moving company well a lot like it's going to a, it's a week in the fair. Right. And so people just, most of the tenants in our property have been with us for more than two years. And they just leave it. They just buy new furniture. They're like, I don't want to go do that. So I'm going to buy new furniture. And people are hoarders generally speaking, like they don't want to get rid of their stuff. Yeah. So they just keep paying month after month after month. And obviously that's great from a cashflow perspective. This episode is brought to you by my friends and today's sponsor, LamassuLeads.com, the real estate industry's only enterprise level call center. If you're like me and you're tired

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That's Lamassu, L-A-M-A-S-S-U leads.com. Well, it's an insight to, I think I'm getting into storage now. It's an insight into like the idea of why people have such longevity with their tenant is because they don't want to do... Like, I'm ultimately innately lazy. I don't want to go move my shit from storage if I have storage.

Who does? So, I'm probably going to say, Honey, here's the credit card. Go buy a new couch. Right? Yep. And so, you're basically highlighting like, This is why an asset class...

Beyond all the economics and you have stickiness at a whole nother level. You hit the word. It's super, super sticky. It's a sticky product and service. Here's the other thing we haven't even touched on is that 20 years ago, I don't think it would be possible for us to have this conversation because it was like the ugly stepchild of commercial real estate. Because of technology, 80 to 90% of this business is completely automated, completely automated. Like our tenants move in online, our tenants sign their lease online. If they don't pay, they get locked out because we have automated gates. I mean, I don't have any employees and I have 838 units, Yeah. Right. No employees. Now juxtapose that to like my single family business where I didn't have any doors. I had multiple employees and I had 40, 45 grand a month in expenses. So you're talking about a little bit more like this less is more idea I talk about.

For me. For me too. Okay. Right. So back in the day, you and I about the same age, about the same years in this business, it was definitely a show of flexing. How's your operation how many deals a year are you doing right we're in the same masterminds funny story about you and i we've circled each other in same masterminds we never really connected we have mutual friends literally lifetime fitness yep

this is why you join memberships at a high level that costs a lot of money because you're going to run into people that can afford it and that can change each other's lives right then we're going to do business together we're going to do storage together whatever it is that's why you join lifetime or fly first class all that yep i say that to just say that the flex for me is no longer that less is more if i don't have to have employees i don't want them that's right and i want to be able to maintain an incredible lifestyle does your units how many you've gotten can it king the income the active income from that yep where do you need to be to sustain that kind of like what you were when you were doing wholesaling and flipping yeah that's a really good question man and you know that that's one of the

tough things that i struggled with when i got into storage because I've always been good at KPIs, right? In my wholesaling operation, I knew how many like direct mail letters I had to send. I knew how many calls. I knew how many leads. Like I knew the conversion numbers. In storage, there's a lot of variables and factors, right? The market, the size of the facility, the occupancy, the rental rates. There's a lot of factors. So generally speaking, like, look, I have one particular facility, Amelia Personal Storage, which is like just north of Jacksonville. It's in a pretty affluent market. Once we stabilize that facility, we're right at about 65% occupancy. When we get to about 80, 85, that facility should spit off about 12 grand a month in cashflow after

debt service. Nice. Just net cashflow. Now that's one deal. I talked to a lot of people and for whatever reason, the magic number seems to be 10 grand a month for, for most people, for many people. Right. Maybe not for you and I, but like for a lot of people, you're not living in Miami. That is no, I mean, it's certainly not like this, like flashy lifestyle. Right. But I want to underscore something you said that there's so much wisdom in less is more bigger is not always better. Better is better. That's right. Right. And I'm not going to mention the mastermind because amazing mastermind, great people. But when I got into that mastermind, my vision wasn't to scale my operation and have all these people, but I saw

others doing it and I fell into that trap. Sure. And I didn't honor my vision. That's not why I got into real estate. Right. And you know what's crazy, dude? In 2019, I looked at my numbers. We did seven figures in revenue in 2019. I netted more money when I got started in the business than when I did in 2019. And I had this big team because my margins were like this. Say that again for people in the back. 2019, seven figures in revenue. I don't want to blow it up like we did like five, 10 million because we didn't, but we still did pretty well. And I netted more money as a one man show in 2006, a year into the business than when I did in 2019. That is the myth that we've all been told. The lie that we're being told about scaling a business, scale a business, scale a business. I will teach my students. I'm sure you're very similar. Go and put,

go get rich, go make a lot of of money don't talk about your gross revenue how many deals because it is irrelevant i had a very similar story i forget the year call it 2013 14 whatever and i had multiple seven figures in earnings uh nine percent net profit margin nine percent crazy man i made more doing like a quarter of the gross revenue. I made more in my own personal pocket. And people have just been lied to and talked about scaling and growing in this flex of social media. People got to shut that shit off. That's right. And most people talk in terms of gross and not net. Gross doesn't matter. It doesn't matter at all. It's net. It's what are you taking home and what are you keeping?'s right right so um so you went storage you didn't go

apartments i didn't was there a reason behind that beyond just like you saw that the guts of a apartment or i'm sorry um a storage student in your life just makes more or is like a reason you didn't want to go to the apartment well justin for me man a storage just seemed easy like what we're talking about like metal steel on a concrete pad, we rent space. It just seemed easier. And there was so many more people, at least in my ecosystem that were in multifamily. It was getting very institutionalized. Sure. And I just felt like storage was just an easier play. I don't want to call it an untapped market because it's certainly become more popular, but I didn't feel like it was as saturated as multifamily. No doubt. Right. And so, yeah. And then again, I was coaching somebody who I happened to see the

inside of their business and I'm like, this is amazing. You work how many hours a week? A couple? Yeah. Right. I mean, it's like, this is everything I want in an asset class. Where did you learn the storage game? Yeah. So I hired, I preach what I actually act on, right? So I talk about mentorship, coaches, masterminds. I reached out to a buddy of mine, Mike Wagner, who owns the Storage Rebellion, and I got specific training from him.

That's great. So like I do, you cut a check to go learn. This is, again, what I think the newbies, the young people, whatever it is, they're scared to cut the check to learn the actual right thing to do. And they're just going to go to YouTube University to try to watch an episode like this where you hear Alex talk about it.

But we're not going to have, you know, 4.5 hours. We're going to have 45 minutes to talk about storage. Paying someone like Alex is what you need to be doing because he's actively doing it. He can show you the right processes, systems, strategy, etc. You just don't know what you don't know, right? Yeah. And everyone wants the easiest, freest way.

And it leads to dead end. People quit because they can't figure it out. Yeah, man. They need to get to the front of the line, right? Super quick story, Justin. In 2007, I lost $51,000 on my first luxury flip a house in Las Olas that was the of all the deals I've done best deal I've ever done in my life because from that moment I hired a coach up until that point I saw coaches and mentors and masterminds as an expense

like oh I don't need that I can figure it out sure now I'm so much wiser yeah that was my best deal because since 2007 2008 I've had a coach of course yeah it's something that is imperative i mean the the silly analogy everyone's heard is michael jordan kobe bryan tiger what like they have tom brady has coaches to the last playing day that's right that is why they are the greatest right i mean there's other things that play in but just because he won three super bowls didn't mean he stopped getting coaching. And, okay, I already have my three. No, he wanted to go get another three more.

Yep. Right? He got seven, I think. Yeah, he got four more, right? So people are so short-sighted with that, right? Get into the circle and the influence of someone who's been there, done that, and knows what to do. No doubt. So that being said, you pay for a coach.

You get in. When was your first transaction in the storage facility? Yeah. So let me humble myself and just call myself out. I got into storage overly confident. Borderline cocky. Because of the success and experience I've had in single family, I'm like, oh, this storage game is going to be easy. I got in beginning of January, end of March, I look up, I have zero results, like nothing, like not even like I'm not even working on a deal. And I had to be honest with myself. I wasn't putting in the time and effort. I thought I was just going to fall in my lap. Sure. I wasn't putting in the

effort. I recommitted to storage beginning of April, end of April. I went under contract on my first deal. What do you think the difference was between January and March to the end of April? I committed and I did the work. You did it. I did it. I did the work. It wasn't anything special. I'd love to share with the audience, hey, there was this magic postcard or letter, this script. It wasn't any of that. I just committed to do the work.

Yeah. That's it. Went under contract there and I think we closed September 11th. Did you buy that one? Yeah, bought that one. Nice. How much was that?

We bought that one for 1.592. Okay. We got 85% SBA financing. Nice. And then I brought it an equity partner to fund about 350 grand, which was our equity injection. We needed the 15%. Sure. And so that loan SBA that goes under your own personal credit, you're on the hook. Correct. Yep. We're on the hook for that. Now, again, we, I was, I had so much confidence going in because of how I underwrote the deal. I knew the numbers. I knew what I was getting. And I said, what's my worst case scenario on this thing? It'll still pay the

debt service. What's the upside here? And so, yeah, people have to be willing to take a calculated risk. And I think that's something that holds people back is that they're scared, they're fearful. And for many, it's fear of success, but that's a whole different conversation. That's a whole nother episode. That's a whole nother one. But yes, we SBA financing, and now we're under contract to sell that for $2.495. As of today, we're under contract. Congratulations, man. Thank you, man.

And this is the power of storage. I mean, I literally want everyone to go follow you on Instagram. Go to storagewins.com, right? And I say that because you guys need to start to see the power of storage. So you're selling, what is that now? Two years? You bought it two years ago? We closed September of 2021.

Okay. So, call it two and a half years. Yep. Yeah. Yep. So, that's great. So, you doubled your money. Yeah.

Almost tripled your money. Yeah. Yeah. I mean, that is the definition of a damn good return. Yeah. Right there. Plus, you made money all along the money. Yeah. Yeah. I mean, that is the definition of a damn good return right there. Plus you made money all along the way. Correct. Cause we have cashflow every single month. Right. And by the way, we did a car not to get into the weeds with cost seg, but we did a cost segregation, which saved us six figures in taxes in 2022 on your first deal on my first deal. Let's

talk taxes because I don't think I talk about it enough, but this is a big reason why I myself are getting way more in a commercial storage. I bought three apartments this year alone, et cetera. Because even if someone's not a high income earner, let's just say you're making a hundred grand, which respectfully is, you know, you want to push your tax bill. So you pay no money anytime ever that's right and so let's just say someone was making 100 grand in your case you buy that property you do a cost seg and you get a multiple six-figure tax deduction because the cost seg right can you use it in multiple i know the answer audience now can you use it in multiple years do you use it all in one year how do you you treat that? So that's a really good question. By the way, the disclaimer, obviously,

like Justin and I, we're not like CPAs or anything's like, so consult with the pros, right? Like that's what I did. But yeah, so I had a really high income year in 22. And I talked to my partner and I said, Hey, like what cost segging, by the way, is just accelerating the depreciation. That's right. Right. That's, so that's what you're doing. You're basically like in one year, you're taking it up front. So we said, you know, we hired a company. I think we spent $3,500 to do a cost tag. It saved us six figures, about $100,000 and some thousand dollars.

And we just expect- On your active income. Correct. So Alex got, let's just say $100,000 of active income right off. It's a paper loss. That's right. It's a paper loss, right? So now I don't have it basically reduces my taxable right. It's a paper loss, right? So now

I don't have it basically reduces my taxable income. Now, to be fair, I'm going to have to recapture that. Because you're selling. Because we're selling. So now there's a recapture, right? So like we got to tell both sides of the story, but it still made sense to do that. Now, what I would have done differently is our plan then when we did the cost seg was to hold this at least five years. Of course. I would say if you're going to hold an asset for under three years, it might not make sense to do a cost seg. Again, consult with a pro. But that's what I didn't know then. Our plan was to hold this long term. Yeah. But we wanted to take some chips off the table and not get into a better market. Yeah. I mean, listen, the reality is now you have the IRS saying, hey, you owe some money.

Right. So as an expert, what are you going to go do? Probably go buy another deal to go get some more costs. Well, now we're having a conversation about cost segging the second deal that I closed on, right? Which is a long-term hold. And how much was that? What was that position? We haven't even looked into it yet,

but we're having a conversation now. Like, hey, does it make sense depending on how much money we make? No, but what did you buy it for? We bought that for 2.1 with 90% seller financing. Bigger purchase price, bigger cost seg. All of these things work. And this is why I'm so passionate about this side going in.

As you and I were talking offline, when people get started in this space, the transactional, the wholesaling, the flipping, that's great. But there is a breaking. And for me, it was too late. And I bet you would say the same thing. Don't you wish you knew this way earlier? A thousand percent, man.

I'm kind of smiling because like, I don't think I've ever seen somebody start with commercial and go back to single family, but I always see, and it's an evolution. It makes sense, right? But yeah, look, I don't regret anything because without that experience and that knowledge, who knows where I'd be today.

That's right. But yes, if I could go back what I have started earlier, a thousand percent. Yeah, you know, again, as long as someone can make a lot of active income along the way, then they should start where they can. I just think residential tends to be easier. Yeah. Low barriers to entry.

Lower barrier entry, wider net, right? I mean, it's literally every household in the US potentially is a wholesaler flip, right? Correct. But if you can get around Alex and start to learn the storage game, I'm going to impress upon everyone, storagewins.com to get around them, right? I have one, but I'm not a storage coach. He is.

But I will tell you, I want to do more deals with you. So what do you see the financial economy right now doing for you or against you or working with you? How do you see the real estate economy working for you or against you or working with you? How do you see the real estate economy working for you or against you in this space? Yeah, look, as it relates to the storage space, I'm not going to lie. Two years ago, it was much easier to find deals where the numbers made sense. Today, the challenge is finding the right opportunity. But it's just that bats. No matter what the economy does,

what I hope people get from this conversation is that it's just a matter of pivoting number one it's like whatever you believe is what's likely going to be true but you have to adjust that's why i'm such an advocate of like connecting with guys like you being part of masterminds because you kind of have your finger on the pulse test to what's going on and then i'm in communities where we have conversations about hey how are you pivoting like are we allocating more dollars towards marketing now because occupancy is tough to buy? Right? Like, there's all these different conversations we're having, but the demand for storage continues to get stronger and stronger.

Don't you think it'll always? Not always. What I'm seeing in the residential space, I'm still heavily playing there even though I do have an affinity now to commercial, people are just getting priced out. They're going to have to rent. So getting priced out they're gonna have to rent so if they're gonna have to go rent and they have to go sell their three bedroom four bedroom five bedroom house yeah where's their shit going not just that man but people are starting to like downsize more like people are living in smaller tighter spaces and bigger is not always better

than that too that's right that's right like people are realizing that hey with a big house comes a big nut you know and i know i have a couple buddies of mine that are in the process of starting to downsize yeah right just because they're trying to be more prudent with with the money that they have coming in of course not everybody's a super super high income earner yeah um and again they need a place for that stuff i would just say sell it most people don't do that they get storage but again that's another thing you have to do it goes back to the path of least resistance people right all right i'm just going to put in storage i don't feel like selling it right there's a pro and con of both in my mind but yeah yeah i mean at the end of the day i just i but i don't know what you know it seems to me storage is only going to become a

better and better investment because of what i'm saying in the real estate space that i'm seeing prices are getting you know that basically the whole whole state of Florida is getting to a point of being pricing people out. People are going to Alabama. They're going into Georgia, right? They're going into state South Carolina. They're like leaving the whole state because even the lower price points part of the state are starting to become not that low anymore. It's tough, man. Dude, I was looking at houses that we would wholesale for 40, 50, 60 grand in Opelika back in 2009 and 10. Those houses are like 350 grand now in the hood. Right.

And these are areas, when he says Opelika for you non-Myan, like you don't want to be in that neighborhood. Yeah, no. You're not walking in it. You're not wearing these watches. You're not in that neighborhood. And it's 350 grand to live there. It's insane. so i see this asset class is to me the the most sexy right that's why

i'm excited about this is i i do but i also see do you see the competitive nature of it now because i think i now know of more people now that are in this asset class than i've ever known before now maybe i wasn't asking the right questions but no, no, you're asking a perfect question. So I believe the number is there's over 50,000 mom and pop operated storage facilities. So small. When you think of all the storage facilities in the country, people generally think of like public storage or cube smart or extra space. Yeah. Those are not the types of class A facilities we're going after. Yeah. We're looking at secondary tertiary markets, small little towns where it's mom and pop run and operated right and there's so much opportunity out there justin so much opportunity what's the what's the avatar that you want

mom and pop they're in their 70s they've been operating the business for 20 30 years they're ready to retire what size square footage acreage whatever for me the bigger the better right and so like i like 25 to 75 000 net net rentable square feet. It's just as much time, energy and effort to underwrite and look at a deal that's 50,000 square feet as it is to underwrite a deal that's 10,000. 50,000 has more economies of scale. Now I can get third party management because the numbers can afford it. Whereas with a small facility, I can't. Now I have to manage it or I have to hire a boots on the ground. It's a little different. So I like bigger. How many do you own currently? I have 103 facilities, 104,000 square feet and about 838 units.

Is there, out of those three that you own, is there one that you're like, this is the better avatar for the business model? When you say avatar, you're talking about like from the seller? No, no, no. Square footage. Well, you know what's ironic? My best asset is the one in Amelia and it's also my smallest, but it's in an affluent market. Like the Ritz-Carlton is three blocks behind us.

Got it. We're like seconds from the beach. So I think one of the things I look for in storage is the population is increasing in the market and the average household income is at least 50,000. Where do you find those data points? Census.gov. That's it. You can find them both there.

Google's your best friend. Google Maps as far as like finding facilities. Census.gov is a free resource you can go and find out. But to give you an idea, just to like give you some context, Amelia Island, $143,000 I think is the average household income. So even though it's a small facility, our rates are a lot higher because of the market. Do you know how to find those facilities? Is it the same game that we play in the single family space where you're pulling a list and calling or texting or market email? Yeah. I mean, some of it translates. You're not door knocking storage

facilities. I mean, I suppose you could, but like, so my three favorite ways um cold calling okay direct mail and relationships okay right and relationships is like that's the long game that's like think of like seo sure right like it doesn't happen overnight um but cold calling and direct mail are that's how i've gotten five out of the six deals okay yeah that's great yeah man and so you talk about five out of six but you own three so So you've done what? You've sold the other two or three? Yeah, I wholesaled. Yeah. So that game is the same? Is that different? It's slightly different. But essentially, it's the same thing. You're putting an asset under

contract at a certain price, and you're marketing it up and finding a buyer. So there's a few nuances, but it's essentially the same thing. The last deal I wholesaled was in a little town called Natchitoches, Louisiana. The lady called me she kept my letter for two years and the reason she called me was because i put a picture of my family at the bottom of the letter and i ended up putting that facility under contract for 400 000 and then i sold the rights to my llc for 550. so i made 150 grand yeah like dude i would have had to have done five six seven single family deals to make that money like four or five years ago. Right. No, I didn't get into storage because I wanted to wholesale. In fact, I was trying to run away from wholesale. Right. But when there's certain deals that come inside our pipeline that don't fit my buy box, it's still an opportunity

to monetize it. So what is your buy box? So I'm looking for facilities that are at least 25,000 square feet. So this was less than that. Yeah, this was 24,000. Okay. But again, on the fringe and you're like, yeah, it was, it was like right on the fringe. Yeah. This is in a small town. Now I was in a season of my life where like I was about to run a mastermind. I'm in the process of selling my facilities. Like I had a lot going on and I looked at the opportunity. I said, this deal could be worth nine to nine 50, but it's going to take me 12 to 18 months to stabilize it and get it up. Let me just take the quick win now and keep it moving. Do you make those decisions? There's a couple of things to rewind in direct mail. I used to crush it in Phoenix for residential single

family. Cause I put a picture of the family. Right. Um, and by the way, I was single. Interesting. It was a family. Interesting. It wasn't my family. Got it. And I would have a much better callback ratio than anyone else I was doing direct mail. And it's because I knew this little secret, the connectivity of it. So that's interesting.

Direct mail is another parallel. I used to run heavy direct mail. Obviously, you still use direct mail within storage as well, right? It's a great way to find the actual owner. You know what the difference is? In 2019, we were sending out 35, 37,000 pieces of mail a month. Now I might send 5,000 a quarter. Like it's much more laser.

It's targeted. It's laser focused. Yeah. Does your message on the mailer say anything different or specific? Yeah. My biggest advice for people when it comes to like the copy aspect of a male is be yourself be authentic write it as if you were writing to like your grandmother sure right like you want to be relatable so i'm not saying hey i can buy cash

i can close quickly because those that might be a deterrent what if they don't want to sell quickly right what you know what i'm saying they don't want a big chunk tax right get taxes that's right that's right so i come across very uh it's not aggressive it's just very like hey i'm saying they don't want a big chunk tax right get taxes that's right that's right so i come across very uh it's not aggressive it's just very like hey i'm just a regular dude my wife and i are trying to buy a storage facility we have two little girls like i'm just being real yeah right i think that's the best way to come off because you look like you're trying to be an entrepreneur and i think people are going to be like oh i want to give this guy a shot he doesn't come off like some big company

trying to buy all the little mom and pops right exactly right i think that's totally congruent um so direct mail plays uh the family connectivity plays the long-term nurture game the people that you marketed them two years ago they come back into your pipeline similar experience right so all those similarities so how do how do you scale what you're doing? Yeah, great question. I think you have to get clear in your buy box, right? The bigger you can go, now you can get third-party management.

So I think the answer, one of the answers to your question is third-party management. So my three facilities, I maybe spend Justin two to three hours a week on that portfolio. The reason I'm able to do that is because I have third party management handling the operations.

So it's just a matter of finding better quality assets now in the right markets. What the hell do you do with all your time? Dude, the podcast, the mastermind, like, you know,

I do some lending, but I spent a lot of time with my family, man, travel, like again, like the business is meant to serve us. And I see too many people, and I'm sure you can attest to this. Sure. Too many people are working for the business is meant to serve us and i see too many people and i'm sure you can attest to this too many people are working for the business no doubt and now

granted there's a season of hustle but to me it should be a season not a lifestyle at least for me for sure well i think there's also multiple of those seasons i mean there's periodically times where i got to get back into the business for sure either make pivots right so when the economy like kovid was the grid i dove right back in so i'm like what the fuck is going on um but there's just seasons where you the thing that i realized and you can maybe appreciate this if you want a big great life spend all the time with family and all the things we're talking about there's a lot of that that you have to go big in work to get there as well, right? To really have that.

You also don't need that. That's right. Right? You also can live a really good life that is financially good in all metrics, but you don't have to slave yourself. The business, you don't, you know, the business doesn't have to work you to death. Yeah. And so there's a fine line on what you want to do, but it also is why I love commercial so much more.

Yeah, man. Right? The active day-to-day hustle to grind. We have, right now as I'm doing this, I think we have 28 or 32 single-family homes in construction. In construction? In construction. You're a beast, dude.

Yeah. I don't know how you do it. Well, I don't, right? So I have actually built a real business where I have a general manager oversee the entire company. He has a head of construction. He has a, you know, TC, the whole thing thing the only way to do it right yeah but still it's just nasty because even when i get on meetings every single week i'm like oh my god right

contractors are always a nightmare so let's talk about construction i think that's something we haven't hit on how much is there really super simple man super so that's so you asked i think earlier i don't know five ten minutes ago you asked about like what is your avatar what's your buy box i look for facilities that are pretty light lifts and what i mean by a light lift is i'm not looking to get involved in a six-figure like renovation what we call capex capital expenditures yeah i'm looking for things where like maybe we're adding an automated gate we're replacing some doors some hasp that's pretty much- Some cameras, maybe? Some cameras. We add cameras and lighting. So those amenities are really important in storage

because people need to feel like their stuff is safe. Ask me how I know because two of my facilities are in Jackson, Mississippi, which is a rough market. Different conversations. So I've really cut my teeth in the storage business operating a facility in a rough market. But outside of that, cameras, lighting, make sure you have an automated gate that's tied to your software system. Paint, make it look nice. Make sure it's kept clean. You have a good boots on the ground person

that keeps it clean. That's pretty much it. You're not dealing with any foundational woodwork and termites and floods. I mean, literally three of our flips that just hit the market, three of them, all three of them had roof leaks over the last week. I don't know what happened, but whatever.

So that is another appeal for those that are thinking about what vertical do you want to go into real estate? I don't want to say commercial or storage is harder by any stretch. To me, my argument is going to be if someone's breaking in, I just think go for the wider net first. Gain some experience, right? Because they are going to be going against someone like yourself that has 17 years of real estate experience. You have a lot more wisdom.

And you're going to go after the same target avatar that they're likely going to go after. I would say if somebody is listening to this and they have no money and they're just trying to get out of their 9 to 5, 100%. Single family, especially wholesaling, the barriers to entry are so low. Like you can, you can get a check a lot quicker in that game than you can in storage. Generally speaking, do you have the one-offs to like, you know, get lucky and find a really good deal? Yes. But, um, but once you have a certain baseline to me, the quicker you can transition, depending on your goals. I wish I would have done it sooner. Well, listen, let's talk to the people that might even have a job, but have a good little bank account. Yep. I mean, good God, wouldn't you love a phone call that says, Hey, I have a quarter

million. Do you have a, can you bring me in on ownership? Can I get some of these tax write-offs? I'm making 500 grand a year. I need, you want that call. Yeah. So my, my partner on my first deal, the guy that funded three 50 is a good buddy of mine, high income earner. That's exactly what he does. He earns a lot of money in his job and then he puts that money to work into investments. Right. So if you're sitting here listening and like you make money or you have some savings, put that money to work. Like now the biggest thing is to trust the operator. You have to, you have to trust the operator. And then obviously you have to understand the investment. I'm, I'm the type of guy of guy that i'll tell you like i wouldn't put money into something that i can't

explain the back of an apkin yeah that's just me though smart yeah well because it's easy for everyone to understand just because the operator has the experience everyone needs to understand the model to me too i'm the same way right that's why i'm in real estate real estate's not that difficult to understand right it's not it's kind of numbers so a mentor of mine told me a while ago he said business is simple owners are complicated sure and we tend to complicate things we'll make things extremely complicated to feel good that we overcame that and really it wasn't that complicated simplicity is what scales that's right 100 um what do you what do you see probably the next 36 months for you in storage? Like, do you think interest rates will play a big game in that? Because if you are going to get bank lending,

I mean, we just literally, we were talking to a loan broker an hour ago together. Yesterday, points were raised a full point, like a full point. Like, how does this all play out for the commercial side? Get educated with creative financing seller financing is becoming such a valuable tool it's always been a valuable sure i mean i i i don't care about price i'll pay whatever price you want let me just set the terms sure right and that's what we did in amelia right we just got incredible terms so as interest rates continue to hover or or rise um you got to play the seller finance game yeah and that's one of the offers that we're always introducing to sellers we're not just coming in with cash like a lot of wholesalers do but we're understanding like what is it they ultimately want right sometimes sellers will say oh i'm looking for 2.5 on my facility well what is it they really want you got to go deeper

in the conversation yeah that's why just strong communication skills sales skills are so important because you can't just take the surface level answer. And when you understand their needs and greeds, what do they want? It allows you some opportunities to creatively structure something. Now, I'm not telling you seller finance is going to work for everybody. It's not. But it's certainly a conversation we explore. Yeah.

What's your kind of sales script? Maybe not the script, but like how do you sales in, in this vertical versus what you may have been doing in the residential? It's no different. It's really no different. You know, we set an advanced agreement. We try to just get buy-in on how long we're going to talk. One of the things I love to do is just like, if somebody is getting started, I love the approach of, Hey, I'm really interested in self-storage. I'm in the single family game. How can I get involved? Do you mind if, if like, could you share your experience with me? Just open up a conversation, right? I'm not asking them, hey, do you want to sell your facility? No one's feeling

away about that question. Just a soft landing. But be genuinely curious. Don't like BS the person. Like be genuinely curious. Like, hey, could you tell me about your experience in storage? I'm looking to transition into storage. I find that most storage owners are so much more friendly and willing to share. Sure. The conversation between, by the way, motivated homeowners and storage owners night and day. Yeah. You're dealing with a professional who's mom and pop. They got a thick accent from the South. Yeah. It's just a chill conversation. Well, have you come across a motivated storage facility owner? Not really. I wouldn't say motivated in the truest sense of the word. Not the way that we think.

Not the way we've been doing it. No, no. But look, I've come across storage owners that like they're done with the business. They're burnt. They're fried. But they're not like tripping. They're motivated in a different way. In a different way.

They're ready to hang it up. Correct. It's not like you're trying to fire sale a thing. They know what they have. Yeah. But it's motivation in a different way to your point. Wouldn't that also allow them to want to stay in more? And that's where you get the creative finance deals.

Because like, hey, you don't really want to sell, but you don't want the headache. So how do we work this out where you don't have to sell in the traditional way. You still get some upside or whatever that is. Yep. Sometimes we educate them on, hey, like, have you thought about your tax implications if you were to sell this asset yeah sometimes they have sometimes they haven't well what if i could give you your price but over a period of time oh what do you mean

well basically like you're like the bank yeah right like you have a note we pay you everything and we just try i try to simplify it i'm not i'm not using big terms i'm trying to just break it down for them yeah um sometimes it's just about educating and planting a seed. Love it. They might not be ready, but that's where follow-up comes in later on. Yep. Dude, thank you so much for blessing us with some storage information. I want everyone to go to storagewins.com. I want them to follow Alex Pardo on all social medias. Where else can they find you? You have a podcast? Yeah, the Flip Empire Show. I've been doing that for eight years, man. I get so much joy and fulfillment from like, this is

what fires me up. Yeah, these conversations, storage and real estate. It's a tool to vehicle. It's great, for sure. But pouring into people man giving back having conversations like this, like this is what I really enjoy. Dude, thank you so much for being a leader in the space helping other people out find success. Enjoyed having you dude. Thank you, brother. Honor. All right all right y'all that is it for the

science flipping we will see you on the next episode with another guest peace