$160M In Self Storage Investment With Fernando Angelucci

Episode 550: $160M In Self Storage Investment With Fernando Angelucci

 

Self-storage is always an excellent investment choice. It has the potential to produce a massive revenue. In this episode, Fernando Angelucci explains that setting structures around yourself prevents you from falling, so commitment is vital in investing. He also explains that partnership plays a vital role, especially in the analysis paralysis side. Fernando shares some tips for making $160M in self-storage investing. Tune in to this episode and find out what these tips guide you in investing in self-storage.

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I’m here with Fernando Angelucci, which means angel of light. We’re all blessed because we got the angel of light with us. This guy has got an incredible front story. We’re going to get to the backstory because I don’t know the backstory. He’s got over $135 million worth of storage in hand and another $124 million worth of storage under contract. This might be old news because I’ve had this for a little while waiting for the date to do this. How are you doing, Fernando?

I’m doing well. Thanks for having me.

I keep thinking. It’s redundant for everybody in this show, “What’s the backstory? How’d you come up with it?” It’s important to know that so you can measure yourself or compare where you and this guy’s coming from if there’s a connection or if you have better odds or fewer odds than him. Tell us about life before real estate. How’d you come up?

I’m the son of two immigrants from Brazil. They came over to the United States with the old-school American Dream in mind, go to school, get good grades, go work at a Fortune 50 company for 40 years and then retire with a pension. That’s not easy to do anymore. When I was sixteen years old, a teacher gave me a purple book that changed my life. It was called Rich Dad Poor Dad. From that point on, I became infatuated with real estate and being a business owner. I went to my dad and said, “I’d like to do this real estate thing. I don’t know if college is for me.” He said, “Over my dead body.”

I still went to college. I’m glad that I did. That’s where I met my business partner, Steven, in his freshman year of college. I got an Engineering degree, which is what he wanted me to do, then I went on to work for a Fortune 50 company as an engineer with a pension. Within thirteen months, I realized that I’m not very good at having a boss. I quit and started doing real estate full-time. Steven did the same. We started combining his company with mine and the rest is history.

I remember listening to a podcast you were on. It was an Asian guy.

Steve Trang.

First of all, hats off to the immigrants. I read a couple of books that changed my life. One was Think and Grow Rich. I didn’t have a college degree. My friends were leaving me in the dust and I was starting to think that there wasn’t a place for me. I then read that book. A lot of multimillionaires and billionaires at the time were the wealthiest people. They didn’t even have an elementary school education. They had to get out and make a living, then figured out how to make a living, double and triple it. They were the 100% recipient of the game they were figuring out as they were going.

They had a lot of years to figure it out because when you start in the 7th or 8th grade, trying to fend for yourself, you get smart fast or you die. They had a whole fifteen years that were sitting around and having recess on a basketball court. They’re not teaching us anything about how it works, which pissed me off when I finally figured out, “Why didn’t anybody tell me any of this thing? What was I doing there? I need to learn how to add, subtract and read but everything else was crap.”

It’s my opinion. I didn’t go to college. I like to say I went to La Kalye U, the University of the Street. The most expensive college in the world. It will kick your butt down the street, spit on you and take everything you have when you mess up. I don’t recommend that. We have coaches and podcasts like this and we’re going to learn. Rich Dad Poor Dad is the one that got you in real estate.

From there on, I had such a voracious appetite that I bought every book I can get my hand on. Many of the books at the time were a little over my head. I still had them but I came back to them later.

I once went into a seminar with Peter Fortunato. I can understand when he was on the chalkboard saying it. I’d walk out to try to explain it to my friend or my partner and I couldn’t explain it. I wasn’t ready. I hadn’t gotten there yet. Fifteen years later, I thought, “I’m going to go back to one of his seminars and see if I get it.” I clearly understood everything he was doing and it was fine. What’s the biggest takeaway of Robert Kiyosaki’s book?

For me, it is like a story in and of itself in my life. I looked at my dad who is by all means successful. He’s an engineer and went to school. I was in high school during the ‘07 to ‘09 crash. I saw the economy coming unraveled around us. I got out of college in 2013. The job market wasn’t very great. It’s funny that when you tell people that you’re an entrepreneur or a real estate investor, one of the very first things I get is, “Isn’t that risky?”

I turned it right around on them. I was like, “Isn’t it risky that you rely on someone else to write you a paycheck? If that person does something, regardless of how adept you are at your job, that if they’re a Philander or if they have tax fraud, they could shut down their company and you’re out of the job?” They’re like, “I never thought about it like that.” You got to turn around these narratives on people that have been ingrained in them from birth and through the school system. Education is great. However, formal education is there to produce cogs in a machine.

We are both entrepreneurs, especially those who go through college and have to do some deep programs. It’s like realtors. They come over to my side. I’ve got to deprogram the hell out of them. It’s not against the law. They are not going to arrest you if you sell a house with owner financing. It’s okay. When you told your dad that after all that degree, deal, got the job, the pension, matching 401(K), car and the expense account, I would have loved to be a fly on the wall and record it for posterity. What was that conversation like? “I’m quitting this stuff and going in a different direction,” that doesn’t have anything to do with what you spend all your money on.

Not only was it that conversation of me leaving the job but in the same breath, it was also me going out, applying for 60-something credit cards, getting 12 approved and then cash advancing a $100,000 in credit card debt off as a 22-year-old to start the real estate business.

We have a similarity there. The skyline of my background is San Antonio, Texas where I live, which has been traditionally, one of the cheapest real estate markets in the nation with a no true big million 0.5 plus economy population. You can buy houses on the East, West and Southside, the lesser neighborhoods, borderline war zone but off the bottom for $8,000, $10,000 and $12,000 all day long in 1996, 2000 to 2001. Maybe it got expensive and they were $30,000 or $40,000 but it was incredible. I went out and applied for 65 credit cards when I learned this. This was back before they measured the amount of the cash advance you could get unsecured. Now they measure that.

They weren’t measuring it back then. If you had a good credit score and you sent in for a card, they sent you a card like you were Donald Trump with all your $20,000 cash advance and the whole thing, sometimes 0% interest or very low introductory offers. I sent off for $65,000. I didn’t tell my wife. I was sneaking out to the mailbox every day. I had $350,000 on credit cards but I had $700,000 worth of houses. I didn’t expect my wife to understand this because I had spent years growing the way boasts that it takes to make that move but I knew I was buying at $0.50. I have a 0% interest. I was like, “Here’s $10,000 on this card. I buy the house. I need $5,000 from this card. In the rehab, I’m going to sell it for $35,000.” I did the same thing.

People were appalled, pulling their hair out. I was working at a car dealership at the time trying to make ends meet. When I went to do my first house on our credit card, that house went through and I collected. I quit my job at the dealership and they all thought I was fricking nuts. Yours was even riskier because you were doing it to buy time and pay your bills until you figured it out, which is a whole other level of crazy but I get it. I’m familiar with that stress.

It was a tough conversation for my dad to read.

Was it one night’s disappointment or was he on your butt all the time?

He didn’t agree with me but he believed that I’d figure it out. Although he didn’t agree with my decisions, later down the line, he came back and told me, “I was worried but I knew that you’d get through it.”

The one thing is you had an engineering job when you left and you can go find another one.

That was part of my argument against him. I said, “I still have the degree. If this doesn’t work out, I can always go back with my hat in hand and start knocking on doors.”

You can't have one foot in and one foot out. You have to commit to self-storage investing. Click To Tweet

You couldn’t go back to that because in the interview I heard you burn those bridges severely on purpose. You cut them off at the knees. You gave them two weeks’ notice, follow up a couple of days later and said, “I’m going to meet you and turn in my keys at the dealership. If you’re not there, I’ll leave the keys with whoever’s there.” I thought that was super ballsy. “You burn that bridge. You’re not going back to that company.”

You can’t have 1 foot in and 1 foot out. You got to commit. Especially as I’ve gotten older, I’ve read a lot about how public accountability does help you achieve your goals and that everyone’s willpower, even the people that we think of being like the David Goggins of the world. Willpower is always wavering so you have to set up structures around yourself to make sure that you won’t fall into those needs.

I find it a public service. I was in a mastermind Multipliers, which was 50 very successful men and they met often to solve the problem of how do you keep from having all this success and weight on you and carry on all these people, employees or family. How do you keep from imploding? We read about it all the time. They’ve had enough. They’re 55, 60, 60 or 62 years old. They walk out, toss a match in the barn and burn it all down as they go out because they’ve had enough. The premise of that group was before you do that, can we sit down and have a conversation? You don’t have to burn it all down to maybe get what you want and straighten your life out. Don’t wait until you get to that point. That’s my public service. If you’re in that position, check out Multipliers.

It’s a good group. I know a lot of people in that group.

What was your first real estate transaction like?

In the very first real estate transaction, I lost a bunch of money. I paid for a bunch of marketing off of the credit cards. The marketing wasn’t good. I was trying to do a wholesale deal. I didn’t know how to do rehab. My rehab numbers were off. I ended up losing earnest money on that deal because I couldn’t sell it for what I thought I was going to sell for it. I try to renegotiate with the seller and she wouldn’t let me. That was tough.

In the next one, I made a little bit of money which was great. I got a duplex under contract in the South part of DeWitt, Iowa. It is where I was living at the time. I realized that I didn’t have any buyers. I reached out to the largest wholesaler that I knew in the area. He ended up bringing a buyer to the transaction. We ended up wholesaling for $5,000. I got a $2,500 check at closing.

If you’re new in this business, it’s not a matter of how much you make. It’s a matter that you have proof of concept. How much confidence does that give you?

Much. From there on, I was on a tear. I double down on the marketing and started looking at different ways to do marketing and different strategies. Not just wholesale but fix and flip. I did a couple of lease option deals. We started with the multifamily properties.

You become an expert at one strategy before you start bouncing around but it’s tempting with the shiny object syndrome and the next group coming into town. They all know how to pitch their product very well and everything that comes down the pike is the greatest thing in the world. I believe if you’re going to be a wholesaler, be a wholesaler until you’ve done 50 or 60 deals. Own everything you start moving around. How do you feel about that?

I agree and disagree. The reason why I went on and took all these classes is that I realized I can wholesale these other structures to investors. It’s adding tools to my belt. For example, I had a lease option deal. I didn’t keep the lease option. I set it up and then wholesale the lease option to somebody else that was a lease option buyer in the market. The same thing with the fix and flip. It was tough for me to be wholesale in the beginning because I didn’t know how to get my construction numbers down.

All the buyers were like, “You don’t know what you’re doing.” I ended up partnering with a fix and flip guy and asked him to teach me, “What do I look for? What are the typical costs to get these done? What are red flags?” That way, when I got a deal that was a heavy rehab project, I could already put all of these things in front of our buyers. We’ve always been hyper-transparent in our business. Instead of trying to hide issues, if you can point them out immediately, that builds a lot of trusts and repeat buyers come in. Each transaction is easier than the last one that you did with them.

 

One of the things I learned in sales early on is to go to the worst problem first, get that out of the way and then start showing the pretty side, the upside and all that. If the house had a screwed-up garage door, go right to the garage door and say, “This needs to be fixed. We can figure out if you’re going to fix it or I’m going to fix it but let me show you the rest of the house.” Get it out of the way. How long were you in the house business before you found storage?

I shut down the house business in 2018 or 2019. We had some final deals that we were shutting down because it got to the point where we were wholesaling in 4 or 5 markets virtually, as well as our markets that we were in. It’s shiny object syndrome. I had five different businesses that I was running all at once and not giving each one the attention that it deserves. Once we finally realized that self-storage was the name of the game, we shut down the hard money business, fix and flip business, wholesale business and Airbnb business and then also sold all of our rental properties as well in multifamily and single-family deals. Once we did that, the self-storage business took off like a rocket.

I learned how to do self-storage in 2015 or 2016 but then we are prancing around with the idea and not giving a lot of time until we bought our first self-storage facility in August of 2018. Once we decided to focus, all of a sudden, we went from $1 million under management to $30 million to $100 million. We’re at about $160 million. That was the big thing to me. I still have all the skills and the networks. People will call me and say, “Here’s a house that I want you to help me with. You can make $50,000 or $70,000 out of it.” I can make that money easily but when you look at the amount of time that you’re spending to get that, that’s what’s not worth it.

What I recommend all your readers do if they haven’t done it already is a two-week time study and be brutally honest. We had an alarm and everybody in the company did it. The alarm would go off every 15 minutes and then you’d have to write down on an Excel sheet what you did for the last 15 minutes. At the end of the two weeks, you can see what were the activities that were revenue producing, not revenue producing and losing you money. That puts a lot of things into context.

In the past, I was always nickeling and diming. I didn’t want to pay for treasury management at my bank because I didn’t want to pay the $45 a month to be able to wire an ACH and then pay the additional fees. I was spending 4 or 5 hours a week driving to and from the bank. It’s like, “What am I putting my time value at if I’m not willing to pay $45 a month to negate that 4 to 5 hours of driving back and forth, getting things signed and depositing checks?” It was a very interesting study how efficient you’re being with your time and where you focus a lot of your energy.

I often tell people that could be thinking about hiring a VA, what do they do? I say the same thing, “Write down what you’re doing every half hour and it’ll all be in there what they need to do for you if they can.” What gave you the confidence to shut all that down and go on the storage when you don’t own any storage? Did you pick up a few while you were in the real estate game, get comfortable and then transitioned slowly out down and up, down on one side and up on the other or did you jump?

I wish I would have jumped but we had to have the proof of concept. I already owned a few. We’ve already wholesaled a few self-storage facilities before we shut down all the other companies. Those other companies were producing money. It’s not like they were failing companies. It was hard to shut down a revenue stream that you know is coming in. At the end of the day, it’s not about the money that’s coming in. It’s about the amount of time you spend to get that money to come in. When we looked at our time studies, 1 hour in storage would yield 10 to 40 times the return than 1 hour in residential, fix and flip or wholesale.

For one, you make a good deal on a storage complex that you’re going to own, manage and collect the money. Fix and flip is one-time cash. Storage is forever cash if you hold onto it.

Like with houses and other multiple strategies, you can do the same with storage. We wholesale storage facilities, buy and hold, fix and flip, sell or finance them both on the purchase side and the seller side. It’s another vehicle to do all of these investment strategies around. The nice part is what the readers learn, as they start doing larger deals, adding zeros on to things, the amount of work required is not 10X. It maybe only goes up by 5% but your return goes up by 10 to 100 times. For example, when I was first starting, with that first wholesale deal that I did, I made $2,500. We closed a wholesale self-storage facility where we made $2 million. It add a couple of zeros but it wasn’t 100 times the amount of work to get that done.

Who did you study? Anyone in particular?

It’s a good friend of mine. I’m in his mastermind. It is Scott Meyers. He has an intro self-storage course that I took. I took it in 2015. I saw him speaking at a real estate expo in Indianapolis. By the time he was done, I was power walking toward him with my credit card out saying, “Whatever you got I’m buying it.” It was a home study course. It’s all digital but it was a binder. I took that home. The binder also came with 2 tickets for a 3-day intensive boot camp. I went through the entire home study course and took a bunch of notes, then when I showed up at the boot camp, I was then able to go deeper into things that I didn’t understand or weren’t laid out very clearly in the home study course.

That was where we went on. It’s funny a lot of people ask me if I do coaching and I don’t. My strategy is to typically give away all my information for free. The 1% to 3% that are self-starters go ahead and get to the point where they can start partnering with me on deals, as opposed to the other way around. I have a lot of friends that are in the info marketing business. They sell education. It doesn’t matter who it is. If it’s Than Merrill with FortuneBuilders or Robert Kiyosaki with Rich Dad, all the numbers in the statistics are the same.

Instead of trying to hide issues, point them out immediately. It builds trust and eventually builds repeat buyers. Click To Tweet

Usually, only 1% to 5% of the people that pay for those courses will ever even make their investment back. It’s not because the information is bad. It’s because the person that’s getting that information may not want to put in the hard work and then they start suing and are unhappy. I don’t like that strategy. I’d rather put everything out there for free. If you’re one of the 1% to 5% of self-starters, eventually get to the point where you’ll have deals that you can partner with me on. I’ll print capital, management, debt or whatever is needed.

I coached but I coach about ten people a year. I have an hour interview with them to see if I can take them to the Superbowl or not. I’m not here to have a split of fees. You have to have a game before I even want to talk to you. I’m talking to you to see if I can up your game enough to get your money back that you paid me and then go on. I’m looking for chinks that they’re leaving money on the ground. If I hear enough of that, then I go, “My hat is in the ring. If you want me, I can help you.”

That’s the difference because your main product is real estate investing. A lot of info marketing guys make 80% plus of their money by selling education. There’s a different meant reality when it comes to that.

At a certain point in life, it’s not about the money anymore. You got to have some relevance and a higher reason to do something. It makes me happy to change these people’s lives. I know I can, I see the ones that are ready and we get together. We always become friends. It’s a higher reason for me. The only thing is if you don’t charge for the coaching, you get a bunch of idiots that want to suck you dry.

The only reason I charge is I need to set the bar high so only certain people come. Let’s talk about the funding on your first deals. You have improved since the last time I wrote down $135 million on a contract and you said $160 million not under a contract that you own or participate in. You’re not funding that out of your pocket.

The very first deal that we took down didn’t have the money but what I found as a real estate investor is it’s easier to get the money once they have the deal in hand and not the other way around.

I’m glad you say that. I say that all the time and people don’t want to believe you.

That’s usually an excuse that people use because they want to procrastinate. They say, “I got to get all my ducks in a row. I got to get A to Z done before I do step A.” That’s not how real estate works. There are due diligence pieces you have to put together but you got to realize that if you waited for 100% of the material or the information, you’d lose every deal because somebody willing to execute at 70% of the information will get you beat every time.

On the first deal was one of our partners that we had worked with in the past on the fix and flip of houses back when I was still in Iowa, flipping and wholesaling houses. During the last couple of meetings at the REIA group before I moved back to Chicago, which is where I was born and raised, I told these guys, “I heard about these self-storage things. They seem pretty interesting. I’m going to start doing a deeper dive in there. Let me know if any of you guys have experienced that or like to learn along with me.”

Serendipitously when I got the first deal under the contract that I was going to hold, at the time I was thinking about wholesaling it, then we got a couple of offers from our buyers that said, “Let me sweeten the pot for you. Not only will I pay you a small wholesale fee but I’ll leave you with equity in the deal. That way you can participate alongside us and then hopefully treat me as a preferred buyer on your next deals.”

My partner guy was in town. He was a coach for FortuneBuilders at that time. That’s why he was in Chicago. We ended up getting breakfast and he said, “I heard you talking about these storage deals. Did anything ever come of that?” I said, “I got one under contract.” I started telling him the terms that some of these buyers were giving us and how they wanted to bring us on to the ownership group, cut down our fee a little bit but then give us equity in exchange for that. The guy said, “I’d be willing to do that. We have some money.”

That was my very first deal. Steven and I cut off the deal. It is a very interesting deal how we structured it. We got a wholesale fee of $30,000 and then $50,000 of equity in the $1 million purchase. On day 1, there was $50,000 equity. We got 35% of the cashflow and 80% of the appreciation and value because we were the ones that were going to be managing it. That’s what’s going to incentivize us to raise the value of the property. We sold that property. This was a good return for us. We sold it for about $1.8 million. Shy of four years was the deal.

 

I was interested in how much you made.

It’s hard to calculate that deal because we sold it as a part of a ten-property portfolio. There was an allocation. We’d sold the entire portfolio for about $13 million. I like to be the exact engineer so I don’t have the exact numbers in front of me. Sometimes I hesitate but I could pull them up for you.

I was wondering about the engineering side of you, does it fit? I thought that the engineer wouldn’t fit but I have engineers that work as house finders. For me, they’re the most successful ones. That spreadsheet balance attention to detail all works in their favor if they have a personality. A lot of engineers I’ve talked to are flat. That’s neither here nor there. You have the engineer with a personality and then it works because they can talk to people and make a sale or a purchase.

I’ll touch on that here but before I do, I pulled up the settlement statement. On that deal, our profit on it was $659,264.

What a great day. That was just the piece.

The interesting part is you’re right. Being an engineer, there is an analysis paralysis side of things that I have to constantly fight through. Sometimes I do try to gather too much information. However, I have external accountability. I’m the one that’s extremely risk averse. My partner, Steven is more risk-tolerant. When sometimes when I’m being a little too hesitant, he’s like, “This is a good deal. Quit splitting hairs. Let’s do this deal.”

Sometimes I need Stephen to talk me over that shelf. It’s good to have good partnerships. Some people have been burned with partnerships and some love them. Whatever you are out there, readers, take what I’m saying with a grain of salt. If I didn’t have Stephen, I probably would still only have 1 or 2 self-storage facilities because I’m too hesitant.

My best partners, I’ve always grown into them. I didn’t pick them. It became apparent that this is going to turn into a partnership. I never went outside of looking for a partner, “You have money. I have the whatever. Let’s be partners.” No. We were doing deals where they were loaning me money the relationship grew together. Is that how yours happened?

Steven and I met freshman year of college. One of the funny things that I always tell people is I’ll have entrepreneurs call me that a little bit older and have kids that are getting to the age where they’re going to go to college and say, “Do you think it’s a good idea for me to send my kids to college?” I say, “Yes, but not for the reasons that you may think. It’s not for education. It’s for the network building and getting them out of the protection of their home so they have to start acting like an adult and taking responsibility for their actions.” The network is the biggest piece that you gain when you go off to college or university.

We are randomly assigned roommates. We become best friends. After we graduate, I’m in Iowa. He’s in Chicago. He’s working a marketing job in the city and I’m at Dow Chemical. Once I started investing in real estate to how you nudge your friends and mess with them, I’ll take pictures of the checks at closing that I was getting. I texted them to him and say, “How much did you make? This is how much I made.”

It’s probably 3 or 6 months. He said, “Either you teach them how to do this or you stop sending me these to me.” I was like,” I would love to teach.” I showed him how I built my business, gave him my numbers and metrics and he 10X it right out the gate. He sent out his 1st mailing campaign with 40,000 letters going out into the mail in 1 day which caused a whole slew of problems on the backend for fulfillment. Within a year, we got together and said, “Why don’t we combine businesses?”

That’s one thing with my partner. By combining, not only did we have different skillsets but we were at different times in our lives. When I met him, I was 50 and he was 25. He was a student. The guy was a deal magnet. He reminded me of me full of piss and vinegar. He is very honest. He wouldn’t cheat you out of a dime. He will never ask you for the $100 he spent on science. To make a business run with his skillset and mindset, we built an infrastructure that would take a lot of load off of both of us. It never ends. It’s constantly being changed, improved, downgraded or getting rid of this.

In real estate investing, it's easier to get the money once they have the deal in hand and not the other way around. Click To Tweet

This guy was such a deal magnet. He’d go to sleep and wake up with houses to the side of his face. We did 33 deals together before my company was getting so screwed up with my bookkeeping that we finally said, “Either we got to form a different corporation and be partners in that or you need to come and be my partner. We’ll figure out how to get it all in what I’ve already got.” In the first deal, you made a small amount of money. It’s the same thing with raising private money or finding the money guys.

Once you find one for any amount of money, it opens that gate. Nothing happens until you find a deal because the deal makes it a lot easier to find the money. Short of that, after you master finding deals or master what you’re doing, you have to figure out how to find the private money or the funding for this. It never ends. It’s every day. You’re constantly monitoring everyone around you and all the opportunities because the art of raising private money at rates and terms that fit your business will never end unless you decide to quit growing.

On the first deal, it was serendipitous but then all of a sudden, our investors started telling their friends and family. They start investing in us. Our family started asking what was going on and started investing in us. What I found helped us take off is getting our platform out there, not necessarily asking for money but educating the public about what we’re doing.

Educate to dominate your market. Doing the thought leadership, going on the podcast, showing my expertise and my prowess, all of a sudden, I have people calling me that I’ve never even met in person asking to give me money because they heard the returns from our podcasts or other investors that they’ve talked to in the past. That’s what helped. The interesting thing is whatever your minimum is, that’s what equity investors are going to give you even if they have hundreds of millions of dollars. They got to prove the concept.

They always start small. They want to test the water, see the paperwork and make sure that you’re the guy that you’re saying they are. That’s why you don’t delay with paperwork for your new guys especially because this is the proving ground. People say, “If you’re successful, why are you still doing this show?” One, it keeps me sharp. I get to talk to people like Fernando Angelucci. I get sparked. I was like, “Why don’t I have $135 million worth of storage?” Also, my show brings in untold private money for me. We don’t go out asking for money. We tell people how our business operates. It operates with private money.

This is how we handle the private money side. People call up and say, “Can I be one of those guys?” Whenever you ask someone directly, unless you have some relationship, “I’d like to talk to you about borrowing money tomorrow at lunch. Can you go to lunch?” They were in a boxing position. They have 100 reasons why they don’t want to go to that lunch. I hardly ever asked for money. I know I’m doing it. They don’t know what I’m doing. If they’re interested, they’ll let me know.

We’re getting a little bit larger so we’re starting to attract the attention of some non-retail investors. Retail investors are what I call your country club money. This is your friends and family, private investors but eventually, it gets hard to raise $10 million with $50,000, $250,000 or $500,000 checks.

You become a hedge fund or something like that.

Not that large. The group that I’m about to talk about I call the Quasi Institutional Investors. These are going to be your family offices, registered investment advisors, small wealth management firms and some small private equity firms as well. These are going to be your larger check writers. They want to cut on a minimum side, $5 million of equity and on the high side is $50 million equity.

They probably won’t go above that amount. You get a good track record with them for 3 to 5 years and then you can start going after the institutional investors, which are your pension funds, hedge funds and life insurance companies. Those guys are a lot harder to deal with because they want total control of the deal. You take all the risks, they take all the upside.

It is a different mindset that you need to get into when you do those deals. Typically, I’m used to splitting deals with my investors 50/50. When you go to these insurance companies, it’s like 95/5. They get 95% ownership, you get 5% and then they allow you to increase that ownership at different hurdles like at 12% internal rate of return, 16%, 20%, 25% and then 30%. Maybe the best that you can get is a 70/30 split or a 65/35 type of deal. It’s a little bit more complicated structure but the golden rule is he with the gold makes the rules.

Let’s talk about storage and then the ebb and flow of economies. You’re in it real heavy. What about the impending recession?

 

Self-storage is a recession-resilient asset. If you look at the last four recessions that the United States has gone through, self-storage was one of the best-performing asset classes throughout every one of those recessions. Let’s look at the last two that everyone’s fresh in their mind. 2007 to 2009 was a pretty tough time for a lot of people. The S&P 500 dropped 22%. Multi-family and residential dropped at about 7% and that’s if you are a real estate investment trust.

I know a lot of individual investors that lost everything during ‘07to ’09. Self-storage only dropped about 3.5% to 3.8% in value. When you look at COVID, the pandemic, with the 1,800 or 1,700 CMBS loans, Commercial Mortgage-Backed Security loans that were made to self-storage investors, the first 3 quarters after the pandemic was raging in 2020, only 3 of those were delinquent more than 30 days. That’s a 0.17% delinquency rate. During that same time, multifamily was defaulting at a rate of 1,800% higher or 18 times the default rate of self-storage.

Here’s a stat from our business. If you look at self-storage and how it performed over 2021, it was the best year on record. Rents were increasing 6.7% month over month. In some facilities, we had an increase of anywhere between 75% to 100% in gross revenue by raising rents every couple of months on those facilities.

It’s one thing I like about storage facilities. You have $1,000 or $10,000. You’re raising everybody $3, $4 or $5. It’s not enough to make them go get a truck and move out but you go around the horn and 1,000 times $5 is a lot of increase in payment.

The example I always give is let’s say you have a customer renting a unit for $150 a month and you decide to increase the rent by $20. It’s a little bit larger than what you’re talking about. Typically that $20 is not worth the $500 plus for them to go rent a truck, take time off of work and move to a new facility but that $20 represents a 13% increase in the bottom line.

Let’s say you have an apartment or a house and the rent is $1,500 a month and you raise the rents on them by 13%. That’s a $195 increase in their monthly rent. Do you think they’re going to go search for a new apartment to live in? Probably. That’s a big cost absorbed but it’s still a 13% increase to the bottom line. It’s an interesting concept in storage, not only the fact that everything’s on a month-to-month tenancy but there’s this very high sticky factor people do not like to move because it’s a pain.

We do our rate increases down here in Texas around August and July 2022 when it’s $107. No one’s getting out there to move over $10. If you’re in the Northern states, you’d want to do that when the snow is 10 feet tall. I have my theories on why fly storage is so resilient. Tell me if you can add to it or if you agree or disagree. My thought is we’re Americans and we’re not giving up our crap for one. That’s the baseline. We’re all hoarders in our way. It depends on your fishing, canoeing equipment or office equipment.

In the good times, you’re accumulating more of this stuff and you can’t add to your house so you’ve got to go get the thing. In the bad times, people are downsizing. They’re bringing their office to the home but they not going to throw away all that office furniture, file cabinets and the whole thing. They’re not going to part with their stuff. Is that why it’s resilient? What do you think?

That’s one of the reasons but there are a lot of reasons. In good times, people are buying more stuff than you need to store things. In bad times, they don’t want to get rid of those things but they’re also typically downsizing. They’re going to smaller units or searching for better job opportunities causing movement. They’re going to go back and forth between a couple of states. They’re putting their possessions in storage.

You also got to realize that it’s also a smaller monthly nut. If there’s a lot more pain writing a $2,000 check each month than there is writing a $100 check each month. That’s much easier to swallow. Typically when people are tight, instead of paying the big expense that they need upfront, they will rob their savings. They’re usually going to pay all the smaller bills first and then try to figure out a way to pay the big bill because of the way our psychology works. That’s one reason.

I also think if you look at the generations that use self-storage, two of the largest generations that have ever been. The Baby Boomers are retiring in mas. 12,000 to 15,000 people a day are retiring and leaving the job force. A lot of those people are empty nesters. They have a 3 to a 5-bedroom house. There are no more kids in the house. They don’t need that. They’re going to go into a 1 or 2-bedroom condo. They’re not going to want to throw away all their stuff, especially if it’s sentimental things.

One of the things that I always talk about when I’m presenting on stage is I ask people to raise their hands and say, “How many people in the room have kids?” All these hands go up. I say, “Of all those people that raised their hands, how many of your kids are grown adults?” A ton of them stays up. I say, “Of all people here that have adult children, who still has all the little drawings that your adult children made for you when you were 2 or 3 years old?” A ton of hands stay up. They don’t want to throw away those paper-mache. It’s the sentimental stuff that people don’t want to get rid of. Those are the Baby Boomers.

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If you look at the lower ends of the generations like the Millennials and Gen Zs, they’re not doing the same thing as their parents did. Their parents right out of high school are buying a house in the suburbs with a lot of land and space. The younger generations want to live in the middle of the action. They want to live downtown and have nightlife and restaurants. They’re opting for much smaller living space, 500 to 700 square feet in a high-rise tower with not a lot of storage. They’ll use a self-storage facility almost like an external closet. That’s where they’re going to keep their bike, kayaks and winter or summer clothes.

I know people that change their clothes. They go move the winter clothes in and the summer clothes out. It’s also a lot easier to foreclose on storage than it is on a house or apartment. I don’t like to rent things that people live in. I want to rent anything else. I like semi-truck parking. I have semi-truck parking. It’s great. We’re parking 211 trucks and adding another 150 and then another 100. I like semi-truck parking. It’s neat.

This comes down to the way that the laws work and how the laws are written in the favor of the owner of the asset when you have non-habitation-based real estate like truck parking or self-storage versus when you have habitation-based real estate where someone’s living in your asset. Instead of us being guided by landlord-tenant law or foreclosure law, we’re guided by lien law or property law.

When someone stores their possessions in our storage unit, they are defacto giving us an automatic lien against their possessions in that unit. If they do not pay and they do not pay when we give them the grace period, we can start the auction process. Typically, we offer grace to our tenants. If we were to go by the letter of the law, we’d be able to have a new tenant or customer in that delinquent unit within 30 to 45 days of the original delinquency so we don’t lose rent. No turnover costs are doing the carpet, painting and all that type of stuff. It’s a much faster industry to replace non-paying customers.

In Texas, if you’re joining on the spot, we can hold an auction on the 32nd day their past due. It’s pretty fast and not a lot of resistance. The truth of the matter is we’ve all seen storage wars and all that. It’s all fabricated. From my understanding, every one of those units is staged. Those are all actors. When I look in these units, it’s usually a bunch of trash. Ninety-seven percent of this stuff is almost too much work to liquidate. Hauling off the trash is a big expense. There’s a lot of trash in these units. Those storage wars are glorified gamblers.

They are gambling that there’s going to be a Rolex watch in the bottom of those Chester drawers or something. They want the surprise. It’s Christmas every day for the storage-auction buyer guy. He’s opening up boxes all day long, wondering what he got. I have so many people that want to know, “Do you ever find any good stuff in there?” I say, “I don’t even look anymore. I’ve been through enough units to know and seen what these guys buy.”

In a lot of states, it’s illegal for you as the owner to bid on the unit or take anything that’s in the unit. You’ve got to realize that as well.

You’re not allowed to take anything. It’s their stuff. You have to have the auction. If they make enough to pay you, then you get your money. If they make more than what it costs to pay, you’re supposed to give them the difference. They settled up. Also, people don’t understand that in those storage units, there’s a lot of dust. If you go into a unit before an auction, these guys are pros that are bidding.

They can tell if you’ve been in there and move boxes around or open things up and then you’ll lose all your viable buyers. Personally, instead of having that option over there, if I can, it’s like, “You owe $400. Give me $200 and get the hell out of here. Can you be out by this weekend?” I can talk to you about this forever. I’d like to know how many people are on your team.

We have sixteen people on our team.

What kind of divisions is that? There are some office personnel or a receptionist.

We don’t have an office. We’re a decentralized company. Everybody works out of their houses. We have quite a few employees out of the country in the Philippines. They work hard. Our company is broken apart based on how typical real estate companies break up. We have sales and marketing, which covers acquisitions, underwriting, dispositions, the marketing of those facilities and getting those facilities. We have a debt and equity department that deals with banks and brings all those people together, then operations and back end, which is IT and accounting.

 

Before we wrap it up here, I want to ask if I haven’t covered anything important that you want to say or if I’ve missed anything, we can talk about this subject for days.

Maybe I can come on again.

I’d love to have you. I would like for you to tell us, if you had it to do all over again, starting with zero, what would you do? If you had it all over to do again and you had $100,000 or $200,000, what would you do?

If I had to start all over again and I had no cash, the very first thing I’d do is join a self-storage mastermind. You’d probably use credit cards to get in through the entrance fee. You’re talking about Napoleon Hill, Think And Grow Rich. These are the people that are going to excel you. I cannot tell you how important being around other people doing your industry is. To bounce ideas off of people and have multiple heads trying to solve the same solution that has the industry knowledge is what I do immediately. Offer to do the sweat equity for them, get equity into deals or start the wholesaling side.

If I came into the business and had a couple hundred thousand dollars, the very first thing I’d do is I’d go to the SBA, apply for an SBA loan, Small Business Administration and buy my first facility. With $200,000, in the SBA, you can get into deals with 15% down. That’s a sizable facility. You can buy a $1 billion to $1.5 billion facility with that.

When you look at these storage places for sale, they want 4% or 5% cap rates. Who’s buying those things at a 4% cap rate? It’s big hedge funds. They’re happy with this tiny return or trying to place money. Why are they buying these things in that kind of return? It doesn’t seem like enough.

I don’t care what the cap rate is when I buy it. What I care about is what is the cap rate going to be once I stabilize it. If it’s a 4% stabilized cap rate, I’m not your buyer for that. That’s going to be your hedge funds and private equity funds. I’ve bought multiple deals that were losing money. They were negative cap rates. Within 12 to 18 months, I was able to turn these things around and they’re at 7% to 12% internal cap rates to me.

You’re looking at something that has an upside. You could go clean it up, manage it better, lease it out, advertise better, add boxes, blocks or whatever your add-ons. I like to put propane gas stations in front of mine. They make an extra $100,00 to $200,000 a year.

Those are great cell towers and billboards. There are all these different types of sillier profit centers as you could put on there. You could sell locks boxes, moving supplies and renters insurance. You could take a premium on that, ATMs and vending machines.

What’s your opinion on U-Haul?

I am typically not a fan of U-Haul or any truck rentals because it brings extra logistics and liability to the business, as well as additional people needed to operate those. In most of the facilities that I’ve ever seen that have U-Haul in them, the additional cost for the labor typically cancels out the additional profit you bring for the US.

They’ll see how you come out. It’s like they’re getting a free piece of land to park their stuff on the way I saw it right off the bat.

 

The only time that I would say that’s not the case is if you have one of the larger U-Haul operators. If you’re in the top ten U-Haul operators in the state, those things print cash because everyone knows there as a U-Haul and you have plenty of trucks. If you’re only renting a couple of trucks a month, it’s not worth it.

You could rent that space to open a parking boat or make $65,00 a month and don’t do anything, besides the initial contract and the goodbye letter. That’s how I saw it. What about insurance? Do you force people to buy insurance in your units?

We do.

It’s a requirement that you have. Do you offer an insurance company that you get some residual off of in addition to accepting their own, if they have it?

What we say is, “You have to have renter’s insurance at our facility. You don’t have to buy ours but within 30 days of moving in, you have to send us a certificate showing that your possessions are insured. If they are not, within that 30 days, we’ll automatically put insurance onto your unit. It’s going to be added to your monthly bill.” Usually, the insurance providers we work with will give us anywhere between 60% to 90% of the monthly premium as our cut.

That’s very lucrative. It solves a lot of problems when people get broken into or there’s an inadvertent leak. I’ve had people get mad at me, “Your place is leaked.” “There’s no way for me to know there’s a leak because I can’t get inside of it. It wasn’t leaking when I rented it to you. When did it happen? How did it happen?” “I don’t know but I can’t get in.” They want to do some lawsuits. What are the other income gems besides insurance?

Cell towers are fantastic, especially with the 5G. You need more of these tiny cell towers located around because it’s higher energy frequency, as opposed to the old school cell towers where you’d put some giant monstrosity in the air and it would cover a couple of mile radius. They need cell towers every 1/2 mile for the 5G connectivity. These things can produce serious revenue. I had a guy look at six properties that we’re buying. He said that we could probably pull another $1 million in revenue off those 6 properties with 5G towers.

They don’t have to have heights anymore. They’re the line of sight of a highway so you don’t have to have the highest hill or peak. People ask me all the time, “Why do you do this?” I say, “I learned something about my storage facilities. Maybe I can increase my revenue by $500,000 or $700,000 a year by seeing if 5G is needed at my sites.”

Connect with my guy.

Let me know what insurance guy or company you use because we’re trying a couple. Some of them are very cumbersome.

As long as you get through it, the key is making sure that you have a manager that knows how to sell it, first of all and then explains the benefits to them.

I appreciate you coming on. It’s time to pay the bills. Everybody, thanks for stopping in to get you some Fernando Angelucci, the angel of light in the storage business at least. I’d like to thank LiveComm. It’s all about text marketing. It has a 95%, 96% and 97% open rate if we do it right and we stay within the laws. It’s a direct hit right between the eyes. Check it out. My days on market, my houses, the last 200 on average 4 days on the market, I don’t put any signs at my houses, not even one sign on the front yard. I can show you how that works.

If you need some coaching on owner-finance real estate, give me a call. We’ll do a little consultation. I want to see if we’re a match. If we’re not a match, I’ll tell you. There are some other things to do, lesser expensive stuff and we’ll figure it out. We’ll recommend you to somebody who’s maybe good in your niche, market or strategy but I’m not going to sign you up if I don’t think it’s going to work for you. Let’s have that conversation. We’re out of here. Thanks a lot, Fernando.

Thanks, Mitch.

 

Important Links

• 1000Houses.com/tff
• 1000Houses.com/VAHelp
• 1000Houses.com/100

 

About Fernando Angelucci

By the age of 30, Fernando Angelucci has built a portfolio of over $150,000,000 in self-storage assets across the country within the last 4 years. Fernando diversified his investments between purchasing existing cash-flowing assets, building ground-up REIT grade facilities, and utilizing adaptive reuse conversions of big box retail stores into class A self-storage. In addition to his own acquisitions, Fernando provides other self-storage investors access to off-market facilities at drastic discounts, capital for strategic partnerships, and opportunities for passive investors to participate in self-storage syndications

 

 

 

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