If you’re curious about getting involved in real estate, but don’t want to stress about tenants and past due rent payments, then tune in right now. Today’s episode is going to inspire you. Fernando Angelucci is only 27 years old but he’s crushing the real estate market with his amazing investing strategy that focuses primarily on storage units.
Forget about tenants. Forget about multifamily. Fernando is breaking down the numbers so you can see how managing storage units can help you earn the income you deserve. His strategy kind of mirrors mine in the way that we both approach mom and pop owners, but he’s got his own perfected down to a science. Fernando is involved with both commercial and residential storage, and his technique works for both sides of the market.
This podcast is all about teaching and inspiring new minds to get involved in real estate. The hardest lesson Fernando learned is going to be an epic teachable moment for all of you listening right now. I invite guests onto this show so that they can talk about the tough times. That way we can all learn from them and better our own investment strategies. So if you’re ready to learn, check into the latest episode of the Real Estate Investment Profit Masters.
3:35 – How’s that polar vortex in Chicago treating you?
5:00 – Fernando’s unique real estate expertise
6:15 – What inspired Fernando to get into real estate investing?
8:02 – Robert Kiyosaki isn’t Fernando’s only influence
9:18 – A little bit about the Collective Genius mastermind
10:51 – Fernando’s experience with the 9-5 life
14:00 – A 13-month eviction of the tenant from hell
17:04 – Fernando breaks down his profit master strategy
20:03 – What attracted Fernando to storage units?
23:55 – Three key pieces of advice for new folks in the industry
30:03 – Fernando’s sheet of awesome storage unit facts
37:04 – The difference between residential and commercial storage
41:20 – We dig into a lot of the specifics with storage units
45:17 – Fernando’s favorite business quote
47:05 – Fernando shares TWO books that changed his life
51:06 – Fernando’s favorite app
52:50 – How does Fernando get MORE than 8 hours of sleep?
55:18 – His morning routine might hold the secret
56:26 – Why is reading so important?
1:00:47 – What is Fernando most grateful for?
1:03:30 – Visit Titan Wealth Group or give Fernando a call if you want to chat!
Links and Resources
Never Split the Difference by Chris Voss
Traction by Gino Wickman
Cory: What is going on my party people? This is Cory Boatright. I am your host of Real Estate Investing Profit Masters Podcast series and the founder of Real Estate Investing Profits. How are you? I hope you’re having a phenomenal, fun, productive, incredible day. I am excited about this interview with Fernando Angelucci.
He is out of Chicago right now. He has done some incredible things. He’s a young, incredible entrepreneur, real estate investor that you are going to take a lot of notes on this interview. We went over self storage, some of the benefits behind self storage. We asked some really great questions together on multifamily versus self storage, some of the experiences that he’s had, some of his downfalls, just horrible devastating things he went through on a 13-month eviction versus some of the big highs he’s had on closing 133 units and build another 80-100 units, a million dollar self storage deal, and everything in between. His favorite mobile apps, favorite business quote, books, everything. You’re going to love this episode. I am excited for you to listen to it.
If you haven’t already downloaded your “Down and Dirty” Ultimate Real Estate Investing Quick Start Guide, why not? Text the word PROFIT to 38470. Automagically, it will be downloaded to your favorite mobile device and you can get it there on a PDF. That is something you want to make sure you do. Also, if you are interested in real estate investing coaching, particularly for wholesaling, we do about 100 deals in the greater OKC area. I am starting to work with some other partners outside of OKC in different areas. Basically, we’re just duplicating some of our systems in different states.
I love to have a conversation with you if you’re interested in working together. Make sure it’s a good fit for you, make sure it’s a good fit for us. What you need to do is go to coryscoaching.com, answer a few questions there, watch that really short, less than two-minute video on wholesaling, and then we can go from there.
I am pumped about this interview. You are going to learn a ton. You’re going to love it. Without any further ado, here is Mr. Fernando Angelucci.
Fernando, are you there my man?
Fernando: I’m here. How are you doing, Cory?
Cory: What’s going on?
Fernando: I’m here trying to stay warm. It’s really chilly in Chicago right now.
Cory: In Oklahoma, yesterday it was eight degrees. Eight. It was in the single digits but you guys had one of the coldest times ever in February, right?
Fernando: Yeah, We had that polar vortex. We got down to -50 windchill. Unfortunately that day, I was working properties and I had a meeting scheduled. I couldn’t cancel. It was rough.
Cory: That’s brutal. So, Fernando Angelucci. Did I pronounce it right?
Fernando: Yeah, you’ve got it.
Cory: All right. Actually, you and I just met each other and I’m excited about seeing you come CG, Collective Genius, one of the awesome mastermind groups in the country for real estate investors. One of the things I’m pretty pumped about is your experience in self storage. I definitely want to get into that. I’m also really curious on some of the questions that we’re going to go over today on what some of your influences were investing and what not.Why don’t we go ahead and roll from there? Who are you and really, what would you say is one of your expertise in investing right now? I know you do things outside of self storage, too.
Fernando: Yeah. Based of out Chicago, Illinois.
Cory: Have you have that Gino’s Pizza?
Fernando: Oh yeah. I’ve had on Gino’s East […], every one of them.
Cory: So good but it’s like 10,000 calories a slice or something like that, per pair of pizza pie. Anyway, go ahead.
Fernando: Yeah, so based out of Chicago, started investing in the Midwest via wholesale at […], moved into buy and hold multifamily, and then we did flips. About three years ago, I started learning self storage investing, specifically value adding to existing facilities. As soon as I saw the light at the end of the tunnel, I started selling all my rentals, I stopped doing flips. The wholesale […] is still running, it’s going about 50 deals […] per year right now. We’re about to hire three new people so we’re looking to double that in the next 12 months. But the main driver especially for the passive income, the buy and hold if you will, and the fix and flip is the self storage facilities.
Cory: Got it. What made you want to really get involved in real estate investing in the first place?
Fernando: I was 16 years old and I was given Rich Dad, Poor Dad to read. I was kind of rebelling against my reading teacher and I said I don’t understand the point of reading fiction when there is so much we can learn out there. So, typical entrepreneur Type A response. I got that book, I went through it in three days as a 16 year old and then from that point on, I knew I was going to be a business owner. I was still kind of leaning on, “Am I going to be a real estate investor?”
I told my parents. Both my parents are foreign. They came to the United States, the typical American dream, Get good grades, get a good job, work there for 40 something years, retire with a pension.
Cory: Where did they come from, Fernando?
Fernando: Brazil. My dad was a full-blooded Italian but grew up in Brazil. My mom’s a full-blooded Brazilian. I’m a mix between the two. So, I told them what I want to do. He said, “Hey, go to school, get a degree, just so if it doesn’t work out you could fall back.” I ended up getting a bio-engineering degree, working for a Fortune 50 company, then moved me out to Iowa.
When I got out there, that’s when I started the wholesaling. All throughout college, when everybody else was going out getting drunk, I was also getting drunk in my room but I’d be drinking and reading Robert Kiyosaki books.
I remember this one time. I’ll never forget my now business partner, Steven walk in the room and I was reading a book called Tax-Free Wealth, on a Friday night. He was just like, “What are you doing?” I was like, “One day, Steven, one day you’ll thank me for this,” and now he’s my business partner.
Cory: There you go. You spoke it into existence. Who is one of your biggest influences for investing there? You keep talking about Robert Kiyosaki. Is that one of your?
Fernando: Yes. In the beginning it was definitely Robert Kiyosaki just because I was reading a lot of books from him. Then as I started moving on, I started moving to the podcasts and actually getting mentorships. One of my very first mentorships was actually another member in CG. It was Mark Wayne because I was in the same market as him in Des Moines, Iowa. He took me under his wing and he showed me how to wholesale my first deal. He did take 50% of the profit for that. At the time I was mad about it but today I realized, with the more abundance mentality…
Cory: Rite of passage.
Fernando: Right. How […]. I went on to Indianapolis to learn the turnkey model from a large provider out there. He had something like 600-900 doors, I can’t remember exactly how many at the time, opened up the wholesaling market in Indianapolis, and then as I started getting into the larger style deals, specifically syndication, Gene Trowbridge, awesome guy, has a bunch of material out there that’s really helpful. It’s funny. A lot of the guys I really look up to in the past five years that I’ve been doing this, are in our CG group.
Cory: I know. It’s great, right? It’s awesome. So, we keep talking about Collective Genius here, mastermind group that’s almost 10 years now. It’s getting really close to 10 years. My best friend, Jason Medley, started. Actually it’s funny. In the very beginning, first event, I brought some people in to that event and it’s just incredible to see how big that thing has grown. But it’s also stayed small, which is a really big challenge whenever you’re growing because you just want to grow for the sake of getting bigger, and there’s a sense that’s causing more impact and what not. But sometimes, if you grow without intention and purpose, then you actually are just creating more noise instead of more impact. That’s actually a big differentiator for CG.
I’ve been a part of mastermind groups now, I’ve been a part of a lot of them, and CG definitely is in a league of their own in terms of intention, the culture, and the values. Those things are super important to Jason and they’re obviously super important to the members of the group. I can’t say enough good things about it. I’m super pumped that you’re a part of it. Again, I’ve been there since day one, so it’s been awesome to see it.
Back to your investing years and what you’ve been doing, did you have a point where you had a breaking point where you said, “Enough is enough. I’ve got to get involved with this real estate investing.” I guess that will be pre-16 years old. What were you doing before then or were you just like, “I know I’ve got to get involved with investing.” Did you board a real job, Fernando?
Fernando: Yeah. My first real job was 14 years old. I was working as a bank teller and the 9-5 life. As a 14 year old, making $10 an hour is just pretty good. It’s funny because when I get my paycheck, first I was like, “Wait a second. I was making $10 an hour and here’s my paycheck. Where did it all go?” That’s the very first time I had experienced what taxes were.
Cory: We all have a silent partner.
Fernando: If you’re not creating jobs, you’re creating housing or energy, the government’s going to actually penalize you for that via taxes whereas if you do what we do, then you’re taxed accordingly. That was the very first foray into what is going on here.
But then, I think the thing that really spurred me into action was right when I graduated college. I was working for a Fortune 50 company, still doing exchange, time-for-money thing, and I start the wholesaling on the side. The reason why is, at the time, my day was pretty typical. How it started out was I’d wake up around 4:30 AM-5:00 AM in Des Moines, Iowa, jump in the truck after a quick breakfast and shower, then I drive all the way to the Mississippi river—it’s about three hours—meet my first client at 8:00 AM, then I would zigzag up and down the eastern part of Iowa hitting clients until about 8:30 PM, I would stop in Cedar Rapids, spend the night, do the same thing the next morning, make it all the way back to hopefully Des Moines.
I was on the road between 5:00 AM to 8:30 PM everyday. People don’t realize that driving and sitting down for that long it really does take an effect on your health, not to mention the crap I was eating. I just don’t feel good about myself. Once I started the wholesaling, I quickly, within six months, replaced my income from that Fortune 50 company only working nights and weekends. I was like, “If I could make this much money just on the side, why am I doing this 9-5?”
So I quit and never looked back. I’ve actually burned some bridges. I called my boss and said, “Hey, you’ve got two weeks,” and then three days later I called him again. I said, “Actually two weeks is too long. Meet me at the dealership. I’m dropping off the keys to the truck. If you’re not there, I’m just going to give it to whomever is around.” That was my last day. July 24th, 2014 4:00 PM.
Cory: 4:00 PM that’s awesome. What a great story. I think that takes some balls to be able to do that because you’re burning the ships and you’re like, “I’m all in.” You had the […] to be able to do that, but also, there’s probably even some challenges along the way. What were some of the challenges that you faced and how did you get through?
Fernando: One of the biggest reasons I went into self storage was—this is another breaking point for me—on a multifamily property I had. We have just concluded a 13-month eviction. This was a professional tenant, she knew all the tips and tricks, and got all the rights groups involved. It was such a nightmare. That’s when I decided I have to get out of this.
Chicago is in Illinois, which is one of the most tenant-friendly states in the nation and then Chicago itself is one of the most tenant-friendly cities in the nation. Doing rentals out here, you have to be the best of the best or else the professional tenants will come around. We have no processes in place. We’re doing very well, but every once in a while you get somebody that just know the system. They probably hadn’t paid rent and unfortunately we inherited her when we purchased a multifamily property. We needed to select her and we had to clean her out. It was a nightmare. The amount of cross that went into that, the amount of loss, the rest of the damages that was done to the facility when we bought it, we had to take a loss on that property. It was just a nightmare.
Cory: That was 13 months of eviction?
Fernando: Yup. In Chicago, there’s a rule where if the temperature is below a certain threshold, they just stop all eviction proceedings right off the vat. As you guys know, in Chicago it gets cold a lot of the time.
Cory: Sheesh. And then the heat, and the gas, and all the other things that come along with that, right?
Fernando: We had probably $50,000-$60,000 worth of damage on the property because she started getting all the other tenants on her side in the building, and they started to stop paying rent, it was a cascade effect. At that point I said, “We’ve got to look for something different. We need to find something that’s a lot more manageable, that still produce the same, if not better, level of returns.
Cory: How many units did you have total on that?
Fernando: The total with 29 units. I have a few more properties to sell. I think we’re down to 16 units left.
Cory: Nice. We’re selling more of ours as well, just looking more in that multifamily route for more what we call legacy wealth, having one roof for 200 units versus 200 roofs. Anyway, you have a profit master investing strategy, one thing we call on the show, and basically it’s one of your strategies that just is crushing it right now. It’s one of the things that gives you that edge. If you’re willing to share, what would you say is one of the biggest and the greatest strategies that you were using right now that really affected your bottom line?
Fernando: On the self storage side of the business, what we found is approaching these mom and pop owners and actually getting seller’s finance loans put together. What we’ve found is, in the mid- to late-80s, there was the largest boom in self storage creation just because materials, cheap concrete, steel. What we also noticed going through the numbers that it’s a heavily fragmented market.
When you look at the market itself, the top 18% of owners are the six large REITs, publicly-traded companies. Run an additional 8% of facilities are owned by the next hundred operators. That means that 74% of all facilities in the United States are owned by mom and pop operators which we classify as people that own two or less facilities and do not use any type of sophisticated management or marketing techniques. These are guys and gals that are running this as a second source of income. Maybe they have some farmland, they built this, and all of a sudden over the last 34 years, cities have grown to envelope what was once farmland, so now they’re in actually very good locations, usually along these highway routes that have high vehicle per day counts.
We come to these guys and we say, “Hey, we want to sell your facility. We know that you build the same for $75,000. We’re looking to buy it at $500,000-$750,000. That’s a lot of capital gains. That’s a lot of depreciation to capture. Why don’t we spread the capital gains across multiple years?” Most of these guys are not very sophisticated, so they’re saying, “How is that even possible?” We’ll say, “Why don’t we do an installment sale? I would like to give you a premium on the pricing from what I initially offer as a cash sale, and then why don’t you hold the note for 5, 10, 15 years?” and it’s usually at phenomenal terms. I’m talking about 4% interest only for the first 4-5 years and then we have the option to refinance them out with no prepayment.
Cory: At any point during the time.
Fernando: At any point, yeah. There’s no yield preservation cost because I’m the one setting up the loan. I’m going to say, “Hey, is this something that will be doable for you?” and they say, “Yeah, absolutely,” because they have never been a bank. They have never been a lender before. To them, they don’t have all these intricate, “Oh, I need the interest reserved, this is going to be tied to prime, there’s floating rate, there’s flat rate.” “I pay every month. That way, you still get passive income.” Usually we start doing principal payments immediately. If when we’re turning around the value add, it starts producing a lot of cash. They get to extend that capital gains over a long period of time while also experiencing cash flow without any of the management.
Cory: I love that and just to expand on a little bit more, I think it’s genius and we do it in terms of really targeting from multifamily apartments, trying to find these mom and pop operators, essentially, and you’d be surprised on the sophistication level that you bias is on people that own 50-100 units, maybe on the 130 or 140 units. Some of them don’t even know what a P&L sheet is. Some of them don’t know what their total rents are. Some of them don’t know what […] is. Some of them don’t know and your bias is you know everything because you have that many units. We have to take the bias out the window and really challenge the bias by asking the right questions, that I think those right questions really come down to are they willing to owner finance?
Here’s the thing. If they’re willing to owner finance based on what you’re saying, Fernando, is this is such a huge piece of doing these types of deals, whether it’s self storage or apartments, because every dollar that they’re willing to owner finance, is less amount of money that you have to get from the bank, or less amount of money that you have to bring. If that bank is willing to bring 75 cents on the dollar and you’re supposed to bring the other 25, every single dollar amount that you’re supposed to bring, if you get owner financed, they don’t have to bring it because your LTV is getting basically better vantage for the bank and for you because you’re owner financing it with the owner. You don’t have to bring in as much cash. It leaves so many great ways to be able to work on both sides.
The other great thing is that because you’re owner financing, you built it on your positioning, it sounds like with the mom and pop, that why did they get involved with this in the first place? Probably to make passive income. So, they’re still making passive income, but there’s two little things that we always talk about, whether if it’s my price, then it’s your terms. If it’s your terms, then it’s my price. Meaning that, if they want a higher price, then that’s fine but it’s all going to start going towards principal. It will be based on your terms. If they want a lower price, then that would be okay, but it’s based on the opposite. I think it’s great, what you’re doing there and it’s genius. Has that been working for you to this point?
Fernando: Absolutely. Like I said, when you find these people, they built it initially thinking it as a second income, as a passive income. What I found is a lot of these mom and pop operators don’t have a lot of management efficiencies in place. So it’s not passive. It’s actually active income.
Cory: It’s active income to them. Right. Which is another deal point, right?
Fernando: Yeah. You don’t have to do anything. Here’s my experience, here’s my credit score, it’s above 800. I’m a good bet. I have experience in the industry and all you have to do is just walk to your mailbox once a month, there’s going to be a check for you. You don’t have to do anything. No more calls, no showing up to the facility at 10:00 PM to let somebody in, lost their key. None of that.
Cory: Think about what you just said there and people listening here right now. He just positioned future tense. What did you want to have happened? Who doesn’t want to go to the mailbox and collect the check?
Fernando: Paint the picture.
Cory: Just paint the picture. I love it. That’s super exciting that you’re pursuing this. I can see why this would be something really successful for you. What’s the big lesson that you’ve learned up to this point that you could share, that’s really helped to get you where you are today, Fernando?
Fernando: One of the biggest headaches we had a while back and what caused us to switch over is when we bought this one multifamily. We weren’t thinking with the exit in mind. We saw a great cap rate, we saw a strong potential income. What we didn’t realize is that this was in a small community, there’s not a lot of investors around so how am I going to exit?
In these areas, housing is a lot more affordable. I realized that the only tenants that I had to pull from from the pool were paying cash, don’t know how they got it, I would get calls from tenants because they were in jail so they were going to miss their next month’s rent. I started off going into the C areas and making some good money on those areas, that multifamily, but then over time, I realized that again, this is not passive income. A lot of […], there’s a lot of headaches, I don’t want that.
We moved into the self storage space because of a few things. One of the main things is instead of being guided by tenant law, we’re guided by lien law or property law. I could be next to city hall in downtown Chicago with a facility and if somebody doesn’t pay on the third day they get overlocked—we put our second lock onto the unit—we put a notice in the legal newspaper. A week later, we put another notice in the legal newspaper. If they still don’t come clean, then we call the auctioneer. The auctioneer brings their own buyers and then it’s basically an episode of Storage Wars.
I usually get all of my money back that I lost in rent plus a premium, because of the fees I can charge for late rent, auction fee, and clean-up fee. Then I have a waiting list. Not even 28 days into the cycle, I already have another tenant moving in.
Cory: Do you get a chance to pick through the stuff that’s in the units or you don’t even worry about it?
Fernando: I don’t even mess with that. Usually it’s not anything great. There was a facility near Waukegan, Illinois up north from Chicago where we’re walking through looking at a potential purchase. There was an exact replica of the Knight Rider car in one of the units that had not paid rent for three years. I was looking at Steven. I was like, “We buy this. That’s my car.” But for the most part it’s junk. One man’s junk is another man’s treasure. So, old couches and sofas and whatever.
Cory: What was your unit that was on Storage Wars? Random doll that’s in the corner, that sold for $20,000.
Fernando: I’ve had my fair share of shiny object syndrome and now I’m getting very good at just focusing and saying no to a lot of things, a short few that can fit on a postcard.
Cory: That be great. Jim Collins, saying yes to great things and say no to the good. Those are great lessons, great things to share. If you have to start all over again, what is some advice for some new folks and what would you change?
Fernando: Right off the vat, I would have gone on and look for more mentorships immediately. Everybody when they start in this business, unfortunately they think they can do it themselves and they think that, “Hey, if I can keep 100% of the profits, that’s the best way to go.” It’s not. What I found is it’s better to have 20% of 10 deals as opposed to 100% of one. That’s one of the very first things I would change from beginning is start partnering immediately. I thought we’ve got to the point where we are now.
The amount of people that refer us to other investors is astronomical. I think just on our wholesale business alone, we have 60-100 files on our list in the Chicagoland area. That was in a few short years. I think we came to Chicago with less than 500 buyers and within 3-4 years we’ve got 60-100.
The second thing I would have done is take in some time to pick a strategy and only focus on that strategy until mastery. Not jumping from, “Oh I’m doing wholesale,” and, “Oh, I see multifamily property, I’ll do that one,” it’s like, “Oh, here’s the flip, I’ll do that as well.” Focus on wholesaling, run it for 3-4 years, really got it down. Once it’s got to the point where it is now, it’s almost completely automated, I don’t spend much time in the wholesaling business personally because I have a team and processes in place before moving on to the next thing.
The third thing which I know I keep hammering it, is I wish I would have just skipped over flipping and residential rentals altogether and just went into self storage. It’s a fantastic industry, I can go over some of the reasons why I love it in a little bit. The questions are a little bit more geared towards it.
Cory: That’s great. It’s one thing, like you said, shiny object syndrome, and you cannot be all things to all people. At some point, you just got to dig in. So, we’re discussing about this. Still, self storage is not something I put my emphasis on. I know enough to make me dangerous about it, but you and I both know. In fact, one of you mentors, Scott Myers, he doesn’t want me to get involved with it for years, but multifamily right now is where we’re putting our emphasis on it and having great property management companies that really, really know how to manage the asset is extremely key on that deal.
But I think that the self storage from me, from the returns that come from it, from the additional tax benefits that come from it, I don’t know on the banks. Are the banks more open to financing self storage?
Fernando: Let me go through my sheet of awesome self storage facts here. We just closed on a property about six months ago. It’s a mom and pop owner, small facility about a million dollars, 133 units of space and build about another 80. We have two banks fighting over us and we ended up walking out of the closing table with a 30-year fixed fully amortized commercial loan that they held on their own books at 5.25% interest. 30-year fixed.
Cory: Their own books.
Fernando: Yeah, and then they asked, they said, “Hey, you guys want it just only for the first year?” and I said, “Absolutely.” So that’s on us.
Cory: You want more cash flow?
Fernando: Yeah. We picked on a small facility that these two banks are fighting over and here’s some of the reasons why. I’ll go down. You were talking about high return. From 1994 to 2017, storage return an annual average return of 17.43%. That’s average, including O7 and O9. If you would have put in $100,000 in 1994, never reinvested the cash flow anything, that would be worth around $4,026,000 in 2017.
The second reason why banks love us is we’re one of the safest loans. Between 2007 and 2009, self storage only drop 3.8% across all REITs that were surveyed while the SMP dropped 22%. Banks love it. Mortgage has dropped around 11%-12%. All of those defaults that did happen, the average loss to the bank was 1.52% per default. These are crazy numbers. So banks, they really do love self storage. That’s why these banks that I’m talking with, especially the local ones that have been doing it for a while, they have no problem holding on their books as a portfolio loan because they know we’ll pay out and if they ever have to come and take the property, they have a ton of equity built in.
Cory: It’s […] and it’s pretty easy to take over, right?
Fernando: Yeah. The management is super easy. That one that I was talking about that we bought for about $1 million, it doesn’t even have an office in place. Everything’s done via a management system. You can send Lisa’s designs via text message. They can buy their units, they can buy renter’s insurance, everything from their phone.
The previous owner ran it for 30 years. His idea was if you rented whatever your rate was today, that’s your rate for life. He never did any rent increases. We came in, it was 100% occupied. Rent across the board were 40% below market. He had no website, he had no internet presence, all the tenants the only way they can pay is by mailing in a check after he mailed out a physical invoice.
We immediately came in and just by doing those three things, raising rents, bringing up a way for people to pay with anything, debit, credit, ACH, whatever, and then putting a management system in place, we’re about to get this thing re-appraised here in about a month, do a […] refinance, and more development on that property, we bought it for a million, it will probably come out at about $1.6 million on this appraisal.
Cory: Did they just look at the appraisal from the NOI based on or did they look at other self storages that were around?
Fernando: Yeah. Because self storage is such a niche of a niche real estate asset class, the rental appraisal just comes off of net operating income, based on other commercial properties, not even self storage. We bought this at a 7.75% cap rate. We’re going to have an internal of around 13% and when they appraise this, they’re probably going to put us at 6%, maybe. Maybe they’ll leave it at where we purchased it at 7.75% but anyway we will be able to pull off all of our invested capital plus capital to develop the project.
Cory: Did you have self-financing on that one, too? Owner financing?
Fernando: No. this one was a straight deal. Actually, the way we got the downpayment was through a 1031. One of our partners, they had a bunch of inherited farm ground, wasn’t producing too much rental income. They did a 1031 from that farm ground into stable multifamily assets and then we used that multifamily asset as the 20% down payment on the self storage facility.
Cory: Nice. Like and kind still cover just fine. Interesting on the 1031. How many units was that last self storage that you just did?
Fernando: That one was a small one. That one was 133 units and that we’re going to add another 80-100 units on that one.
Cory: Okay, add another 80-100. Out of the 133 units, just for the listeners right now, give us an idea. Obviously, they can rent all over the place but what are those written for? Are they written for $50? $100 a month? What do they rent for?
Fernando: It depends on the size. The small units are these 5×5. They rent for $40-$45, and then we have these larger units as well that I call contract units. You just say go all the way up to 10×25 square footage and rent anywhere between $150-$250. The mix is very interesting. We did a deep dive into what our demand drivers was and we found that 70% of our renters were what we consider residential renters. They just live in a house or an apartment and they just need an extra storage space.
Now, this is one of those things where it’s so important to really look at your numbers because you might find some revelations. We thought that the majority of our renters would have been people living in apartments because they didn’t have a lot of room. What we’ve found out was the exact opposite. As a US average—this comes from the self storage almanac here as the source—27% of these residential tenants live in apartment buildings. 67% actually live in single family homes and of those 67%, 65% had garages, 47% had attics, and 33% had basements.
Cory: Basically over 50% all need storage.
Fernando: Yeah and they all need it.
Cory: I remember hearing some podcast of […]. Basically, they’re looking at these self storage almost like closets now. They’re getting so much stuff, Amazon is delivering so much stuff, they need to have room for it. On your renters, have you got a mix on that? Do you have a lot of millennials that rent out than the baby boomers? What is your mix there?
Fernando: It depends on the location of the facility. This one that we’re talking about is in a more rural area. Not really rural. I would consider an exurb, just outside of suburbs. We don’t have many millennials there but we do have some and what we’ve noticed is exactly what you’re saying. Millennials are using these—I’m a millennial myself—facilities as an extra closet. Instead of going out and either renting or buying a larger home, they’re opting to live closer to city center where there are more activities and restaurants. Because they’re not really spending a lot of time in their homes, they’re out, they’re about, they’re at work, it’s really a shift from a home life to more of a lifestyle-based living and they use these self storage facilities as, like you said, an extra closet.
What we’ve also noticed on the residential demand drivers is we have a lot of baby boomers that are now downsizing. Also, on the older end of that, they’re going to retirement facilities. Now this is not a lot of space and these are people that have accumulated a lot of things over the lifetime, a lot of sentimental things that they can’t part with, and they’re using these facilities for these type of supplies and storage what their needs are.
Cory: A couple of points. $45 let’s just say, let’s bump because some of them are $150-$200. Let’s just say on average $75 a unit for 130 units. It’s not a whole lot of income that’s coming in in comparison to the seven apartments, which basically for apartment renting now for $700 a month, is basically about 10. So for every 10 self storages, you get the same amount for one apartment in terms of the income that’s coming in, in terms of the rent coming in, but the return on self storage seems like is much higher but you’re going to have to get a lot more self storage units.
Fernando: It’s a little bit of a confusing stat there. Actually, when you’re looking at by the square foot, self storage facilities are one of the highest per square foot rents that you can get. Even higher than multifamily. Yeah, maybe you might have a 1000 square foot apartment building, but in that 1000 square feet, I can fit 5-8 units.
Cory: But my point is, you’re going to have to have a lot more self storage units. You have quantity more, right?
Fernando: Right. Technical number basis of units, absolutely, but these units are a lot smaller. We like to look at it based off of just gross square footage and net rentable square feet with […]. When you look at it at that ratio, you actually need less self storage square footage than you do need multifamily apartments to get the same level of return.
Cory: Right. You just need more units. You have to build more units. On this case, you can pull basically almost double what you just got. 130 add another 100, close to doubling what you got. One question would be on the value add option, air-conditioned units versus non-air-conditioned units, heat control, what are some of the other perks? How long on average does someone spending time, let’s say a period of over a year, does someone owns a self storage? How much time are they actually at the self storage facility? What kind of other expenses are involved on running these in terms of maintenance for the units? Obviously, some of them aren’t heat-controlled. Do you have to have them heat-controlled or air-conditioned? What about storms and things like that? When storms chime in, are they more susceptible for uninsurances? Insurance higher or lower? I think we can dig into a lot more specifics about the self-storage business. It sounds like you’re on your game and I’m excited to see you grow this thing.
Fernando: Yeah and I can give you some just deep dive numbers. Our residential tenants, on average, spend about 13.4 months per lease term.
Cory: That’s how much time they spend on rent, right? Like for how long they stay. The attrition, how long they spent. How much time do they spend out of that 13 months, actually at the facility?
Fernando: Very little especially the residential tenants. Residential tenants stay stay on average of 13 months. They’re there usually once every 2-3 months to grab something, then they move in and move out. Our commercial tenants, their average lease term is 25.2 months and they’re there a lot more often because they’re using it as kind of a hub between. Maybe their warehouses as a midpoint or they’re using it for surplus materials when they buy at auction or larger.
Cory: Can you charge commercial more versus residential?
Fernando: Yes. There’s a lot of upsells that are available. For example, with commercial units, we can plug in electricity for them if they need it. We also have a lot of auxiliary income that we can offer that to upsell. For example, you have moving supplies, tenant insurance is mandatory at our units. If they don’t bring their own renter’s insurance, we can provide it for them and we can keep up the 90% of that as a commission.
Cory: That’s nice. Basically for that its like an extended warranty. For those that are listening, that’s like extended warranty for a product that you basically never use. Most of the time, insurance is not used, right?
Fernando: Right, exactly. A lot of these insurance providers on these renter insurance policies, they’ll allow us to keep anywhere between 50%-90% of the monthly payment as just a commission to us. Vehicle parking. We can do cell tower leases, billboards, advertisements. There’s so many auxiliary income streams that you really wouldn’t have in a residential rental scenario.
Cory: I would think also having digital billboards on your facility. The cool thing about that is you can now run multiple commercials on that billboard based on basically fractionalized basis. There’s a company called Blip that does this really, really well and essentially, it could do the same thing with self storage. We talked about this in apartments, too. There’s a lot of different things you can do.
Dog parks, actually. I was just talking to a friend of mine, had 1600 plus units. Dog park is one of the top three most compelling reason why millennials choose a place to live, if they have a dog park. Dog parks are actually not that expensive to create as well. They look like a playground and the insurance isn’t what you think. It isn’t like people and dogs are buying each other. It’s nothing like that. There’s a certain wait for the dog and there’s a psychology that goes into if you have a dog park.
There’s a lot of different value adds that come to it. I’m looking forward to going over more and more of these things. I think we probably will have a part two on self storage. I can tell that you have a lot more to give and I have a lot more questions to ask about. Let’s go into what’s your favorite motivational business quote, Fernando?
Fernando: This one I’m going to have to steal from Matt Terrio who was a mentor of mine as well. Also a member in CG in the past. “Go as far as you can see and once you get there, you’ll be able to see farther.” Basically, don’t try to do things with the end in mind because you’re going to get overwhelmed. You don’t need to know what title company you’re going to use at closing if you don’t even have a deal yet. Focus on, “How do I market?” Once you figure out how to do the marketing, focus on how to talk to the seller. Once you figure out how to talk to the seller, focus on how to do underwriting. Don’t worry about what’s way in the future because once you get to that point, you’ll be able to use what you’ve learned getting there to tackle that issue.
Cory: That’s so powerful. Matt’s a genius in his own right. Hello, Matt, if you’re listening to this. We know you will. He’s built just an empire and his systems and processes are second to none on how he automates things. This doesn’t surprise me that that quote comes from him. It so powerful, we often get overwhelmed with thinking about the elephant and that concept of just eating one bite at a time, and eventually you eat the elephant, compared to just sitting there and saying, “There’s no way I can down this thing.” You don’t think about downing the whole elephant. You’re thinking about downing the leg first, and then another leg. This is going to get weird.
I get what you’re saying and it’s a very, very powerful quote. Thanks, Matt, for mentioning that and Fernando. That’s awesome. What was another book you think has really changed your life? I know you mentioned Rich Dad, Poor Dad but outside of that one?
Fernando: Can I give two? I’m torn.
Cory: Yeah, absolutely.
Fernando: Okay. The very first one, I think everyone needs to read this. It doesn’t matter if you’re a real estate investor, if you do multifamily, it doesn’t matter. It’s called Never Split the Difference.
Cory: Oh, it’s awesome. Negotiation books.
Fernando: On the face of what looks like a negotiation book, but what it truly is is how to active listen, how to be an active listener. It’s not only good for negotiation, it’s great for personal relationships, it’s great for relationships with your significant other, where you are partners. It changed my life when I read it.
Most negotiation books, they always say, “Compromise, compromise, compromise.” That’s how you get a deal done. Never Split the Difference says, because Chris Voss was the lead FBI hostage negotiator, when he compromised, that means he will get half of his hostages back, which is a loss. The only way he would win is to key one completely, and it’s weight of change the frame to what you want is actually what I want. Let’s get there but I’m not gonna compromise what I need to get to get to that point.
That’s number one. Number two, this book alone, when I implemented it’s processes, it probably increased my growth revenue by 4X. It’s called Traction. I believe it’s Gino Wickman, right?
Fernando: Wonderful book. A lot of entrepreneurs, we just fly by the seat of our pants. We put together a process for how to do short sales. We put together a process for how to run a rental property. What we don’t have a process for is how do we run our organization. What are the processes for having meetings? For keeping people accountable? For score cards? These are the things that are super important. Before you should do everything else, you should figure out a way that you can systematized just the running of your company, and that’s how Traction changed my life.
Cory: That’s a powerful, powerful book. The level 10 meetings, everything that comes into basically […], Traction’s a book that’s heavily mentioned and used. I’ve actually brought some people in from Traction organization. You can have some other people come in and work on your systems and processes.
That’s awesome. I love what you said about Never Split the Difference, active listening. Active listening is basically saying, “What I hear you saying is X, is that correct?” So, basically you’re validating whenever someone is saying something, which is incredibly crucial because often when we think we’ve heard something, we didn’t hear it the way that the person wanted us to hear it. That’s a very important part.
Fernando: What I’ve found is, when people say they’re listening, they’re not really listening. What they’re doing is they’re already trying to formulate a response. That takes away from actually absorbing what the other person is trying to say. If you listen carefully, you can always find ways to get what they’re trying to get done and get a mutually beneficial result just by really breaking down what they’re saying, using mirroring, using labeling, accusation audits.
These are all great things to do when you’re talking, not only when you’re negotiating against somebody or with somebody for a real estate deal but even when your kid is throwing a tantrum and you need to figure out what’s going on, or when your significant other wants to talk to you about something that’s stressing him or her out. These are huge skills to learn and that will benefit you in every part of your life, not just your real estate investment career.
Cory: That’s so important. I love what you said about with your spouse as well. Very cool angle to use that book. Do you have any mobile apps that you use on a daily basis? What’s some of your favorites?
Fernando: The number one that I’ve been using quite often here, it’s an app called Scannable. It’s owned by the Evernote company. It’s an app that allows you to take a picture of a document. It will automatically turn it into a PDF scanner. You can email text. It’s great for when you’re trying to get contract signed on the spot, […], purchase agreement, send them a copy, send a copy to the attorney, to the title, if you get everything rolled. It gets super fast. I don’t have to carry around a giant scanner with me, which we used to do for a field acquisitions kit. It’s an awesome app that we’ve been using quite a bit. The other one is just DocuSign. The DocuSign app has been awesome.
Cory: Love DocuSign. Love Scannable. Having a mobile app business for a long time and go back in the day, I had to test all kinds of different apps. It’s funny you mentioned Scannable. There’s another app called CamScan. If you haven’t checked that out or if you have, it does batch scanning. That’s pretty cool, too. I love that app. Every time we get a contract right in the driveway, we actually scan the contract and send it to a title company so they can start working on title right there. That’s an awesome app and DocuSign, who doesn’t love to sign digital documents? Saves you a ton of time.
You get eight hours of sleep a day? You’re pretty driven. It’s not like you get a lot of stuff accomplished, you’re pretty put together and tight on systems and processes. Do you burn both ends?
Fernando: No. I used to. I really like to read and once I started reading about health, then also productivity and those high performers out there, the Ray Dalios and the larger investors out there that are billionaires, what I found is that sleep is one of the most important things. If you’re sleep-deprived it’s the equivalent of being legally drunk with your mental capacity. As real estate investors, we have to make quick split-second decisions. If we’re, for lack of a better term, drunk, we’re not going to be making the most opportunistic decisions, we’re not going to be making those decisions quickly, and that could lead to a lot of issues. I actually get 8½ hours of sleep. Here, I’ll show you. I have my timer set up.
Cory: Check that out. What mobile app is that?
Fernando: It’s just on the iPhone. It’s called Bedtime. […] 30 minutes before it’s supposed to go to sleep, and then it wakes you up gradually. It’s awesome. Another thing is what I tell people. Not only is the amount of sleep is important but the setting is extremely important.
Cory: Like REM sleep versus that kind of sleep where every three hours you get REM sleep.
Fernando: Yes. For example, if you have a TV or if you have lights in your bedroom, even the digital LEDs from an alarm clock, that can affect your sleep pattern because that is light. Our eyelids are very thin. We can actually perceive what’s going on while we are sleeping. Any type of light in the room will actually cause the quality of sleep to go down. I have blackout curtains, I try to sound-dampen my room as much as possible. They have these things called float tanks. They are like sensory deprivation.
Cory: They’re amazing, yeah.
Fernando: They said sleeping in one of those for 3½-4 hours is the equivalent of having a full night’s rest because you’re truly drowning everything out. Sound, touch, the air flow, light, everything.
Cory: I do one usually a month but it’s only an hour. I haven’t done three hours before. That’s intense.
Fernando: On the next house I build, I will probably install not only a sauna, but also one of those sensory deprivation tanks.
Cory: Yes, that’s awesome. What’s your morning routine?
Fernando: I usually wake up anywhere between 6:00-6:30. Up to an hour, I wake up slightly before my alarm clock, just my body naturally does it. […] I go and I make either tea or coffee, and then I sit down, I do maybe 5-10 minutes of meditation, I write a little bit in the journal, just to get my thought process straight, and then I read.
I think it’s super important that not only I wake up early. I’ll say why. The reason I like to wake up early is because by the time 8:00-8:30 starts rolling around, your phone starts blowing up. If you’re like me, you have everybody and their mother needs to talk to you because you’re the business owner, you’re the decision-maker, plus you’re also doing the networking, you’re doing the relationship-building. So it’s good to have time for yourself. Not only get what you want to do down on paper so that you’re efficient throughout the day, but then you also can focus on priorities as opposed to jumping from fire to fire to fire. You don’t get things done that way.
I think knowledge is power. That has been abundantly clear in my life. And reading is one of the best ways that you can do it. I don’t care who you are. I don’t care if you’re a genius or not. The man that is well-read will always be smarter than the one that’s isn’t. I read about everything. I read taxes, real estate, negotiation, how to talk to people. I don’t read much fiction. I needed to get back into it. I’ve read some studies about why it’s important.
Cory: Yeah, and it helps your creative and your front, yeah.
Fernando: Exactly. I tell people, “You got to read,” and people always respond, “I don’t have time to read.” It really comes down to do you prioritize that or not? Imagine just reading 10 pages a day. That takes 10 minutes, not even. 10 pages a day, in a year you have read 3650 pages, the equivalent of 10 books if your average book is 350 pages. Like you said, small bite, one bite at a time as I eat an elephant, right?
Cory: That’s it, absolutely. It’s funny you mentioned this. On my audible, if you see this, I’ve been listening to a book a week. You can see where it says ‘finished.’ A book a week for the last four years. The cool thing is, if you don’t like to read, on Audible you can speed up the time for listen back speed. If you said you don’t have time to read, well if you have a book and let’s say it’s going to take two hours to finish the book, you can speed it up. If you read about this, you actually retain more the faster you listen to something because of the way your mind things.
An average person’s speech is between 200 and 300 words a minute. Your mind thinks between 400 and 500. As you’re talking, you’re thinking about lunch tomorrow, what the kids are doing, whatever else. You’re thinking about you’re having two conversations, which by the way to your point on active listening is why it’s so hard to active listening because as you’re “listening,” you’re also thinking about these other things and what you’re getting ready to say back to this other person, only halfway listening.
So, whenever you’re listening back on these audio books, if you speed it up and you put your headphones in, that’s the power of podcast because you’re focused in on what’s going on in that situation, you’re hunting out all the other noise and you’re just listening to the book or the words. You can actually retain more and you can get through a lot of books.
I also think that what you just said on reading 10 books 10 pages a day, is incredibly powerful. This is one thing we went over a long time ago about how to read a book in a week. If you don’t want to listen to a book the way you can read a book in a week, just take the whole book. If it’s 200 pages—a lot of books are about 200 pages—divide up those pages by seven or six, depending on how many days you want to read. Just read that many pages and you stop.
The challenge is a lot of people don’t like to stop. They just keep going and then they say, “Well, I didn’t finish the book.” They’re trying to finish the book in a whole day. They’re trying to eat the elephant in a day. But like you said, if you just read those pages and you stop, you divide up the book by six—for that case it will be about 30 pages, give or take—if you can read 30 pages and stop, then you can get through a whole book in a week.
I think what you said is right on point. A person that reads is going to be ultimately in the know of different things and especially if you’re reading about specific things that you want to learn and dig deeper into.
Cory: I love it. That’s awesome. What are you most grateful for?
Fernando: First and foremost, it’s my health and the health of the people around me. It’s funny. Every once in a while, when I’m starting to get real stressed in the business or my partner is getting real stressed in the business, or one of my employees, I will stop and say, “Hey guys, is anybody going to die or is anybody going to go to prison? The answer is no. Why are we stressing about this, right?”
The reason I’ve gone to real estate investing is because I wanted to do what I wanted to do, with whom I wanted to do it, and whenever I wanted to do them. For the most part, that has been the case. I’m most grateful for the fact that I have all my friends and family around, I can spend time with them, I’m not locked to a 9-5 job, I can see them whenever I want, and spend time with them. That’s the whole reason I do this. It’s not to make a bunch of money. That’s a great side effect of it but it’s to be able to enjoy our time with the people we most love.
Cory: Yeah. If you have to summarize why you do what you do?
Fernando: Time, freedom, and the ability to do what I think is the highest value activity from me as opposed to somebody telling me what my most high-value activity is.
Cory: So, just having that personal control?
Cory: That’s awesome. How old are you, Fernando? You strike me as someone pretty young.
Fernando: I’m 27.
Cory: You are so bright beyond where your years are right now. I’m inspired to hear what you’re getting into, your experiences working at 14 as a bank teller. How do you know if I could actually get a paycheck? I was working at 13-14 at Taco factory, bad baseball cards, and selling curvy home playing systems.
Fernando: There you go.
Cory: Yeah. Door-to-door seriously. It’s just inspiring to see at your age, how you are getting more involved with real estate, specifically on self storage. At the rate you’re going, you’re just going to crush everything in sight. Good on you for really taking the time to invest, having the discipline because that is a big part of it, and getting your priorities lined up. I’m excited to see your future, your efficacy.
Fernando: Me, too. I appreciate the kind words. Thanks, Cory.
Cory: Awesome. All right, if we want to get in touch with you, if anybody listening right now wants to reach out to you, have a conversation, maybe they have some opportunities that would interest you, what’s the best way we could serve you?
Fernando: My partner hates it when I do this. I am super abundant with my time, especially people that want to learn what I’m doing. I just tell people call me on my phone. My number is 630-408-8090. Text message is the easiest way to contact me. If you’d like to go something a little bit more traditional route, you can go to our website at www.titanwealthgroup.com or find us on social media, Titan Wealth Group. We’re on almost all the platforms there. Just feel free to reach out. Call me, text me, I’m always around.
Cory: You’re the first person I’ve ever had on here that actually give out your personal cell phone.
Fernando: I swear to you that’s my personal cell phone. You can shoot me a text right now and it will pop-up.
Cory: That’s insane. That’s great. I appreciate having you on here. Obviously you’re servant-hearted, obviously you know what you’re doing, and you got the force, you’ve got momentum going right now. It looks like we’ll probably have you on a second time to dig deeper into self storage. I think a lot of folks right now are typing in your number and texting you. I’ll throw everything everything in the show notes. This has been an awesome episode. I’m super pumped to see you in a couple of weeks.
Fernando: I appreciate it. Thank you for the time, Cory.
Cory: All right. I appreciate it. Remember be a servant. Thanks for being on the show and make sure that you attend our next Real Estate Investing Profit Masters Podcast. We’re going to bring some amazing investors like Fernando and we’ll make sure that we serve you the best, highest information to help you on your investing journey. Talk to you later. Bye now.
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