The Ins And Outs Of Self-Storage Investing With AJ Osborne
Episode 404: The Ins And Outs Of Self-Storage Investing With AJ Osborne
Self-storage isn’t exactly the first thing that comes to mind when you think about real estate, but it is a pretty legit way to make passive income with less the risk that you would have to deal with in other properties. As with every other investment he has, Idaho entrepreneur and real estate investor AJ Osborne started small in self-storage, eventually founding Keylock Storage, which runs several facilities across the Pacific Northwest. When diagnosed with a rare autoimmune disease that left him paralyzed, self-storage saved his life and his family by providing a steady income stream while he was incapacitated. He shares this powerful story and how you can make it happen, too, in this insightful conversation with Mitch Stephen.
Watch the episode here:
I’m here with AJ Osborne. This guy owns millions of square feet of storage facilities. It seems to be a very romantic topic. I have some storage facilities, but this guy dwarfs me. You don’t have to be that big to make a great living in the storage business. As a side note, I’m always talking I do about 100 houses a year or whatever. You don’t have to do 100 houses to make a great living in the house flipping business. This is something I have evolved to many years. I’m excited to talk to AJ. How are you doing?
I’m doing great. How are you doing?
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TaxFreeFuture.com, check it out. AJ, thank you for giving me that time there. Let’s start out with this. I’m a high school graduate. I don’t have any formal education. I like to tell everyone I graduated from La Calle U. About 65% of my town in San Antonio, Texas is Hispanic and La Calle means the street. I got a degree from getting my ass kicked up and down the street. It’s the most expensive college in the world. It will take everything you have and spit on you instead of encouraging you. Talk about your beginnings.
I’m an Idaho boy. My father grew up in extreme poverty. When I say extreme poverty, most people don’t even understand what that is. He didn’t have running water. He ate his first meal from a restaurant or something when he was eleven. It was a hamburger from McDonald’s. That was the first time he’d ever eaten out. They ate by poaching. My mom was a farm girl. We grew up in little old Idaho. He got into insurance. I followed his way. He wanted to get out of that life. He started selling insurance. We moved to Boise, Idaho, which was the capital of the state. When I grew up, Idaho had something like 600,000, 700,000 people in it. That’s changed. It’s amazing how the economic changes that are going on in the United States. As you know you’re in San Antonio, the Exodus from California has exploded Texas and Idaho.
I hope they don’t California-cate us. They’re here for the right reasons. I’ll bring your guns and bring, bring your, bring your entrepreneurial capitalistic ideas and come.
You can bring the guns too. That’s fine by me. It causes a lot of friction here in the state because people are upset about it. I was living in a society that was changing. It was changing rapidly. We can’t house people fast enough here. As I was growing up and seeing this city, I hunted out of my backyard. I’d wake up in the morning, I’m hearing the geese fly in. I pull my shotgun out from underneath my bed. I’d walk up the back door and take my dog out to go hunt. That’s where I live. That same location is in the epicenter of the city. It’s the biggest road in the entire state. It’s the fastest growing area in the United States.
It has hit the top list six times, whatever. I grew up in an interesting area and that shaped a lot of things that I knew. I grew up and my parents didn’t put blinds in the house for four years because they didn’t think they could afford blinds. Even though my dad had a good job, we weren’t poor. I didn’t grow up poor. It was that mentality and this understanding. I grew up and got into sales. I wanted to follow my dad’s footsteps because sales gave me what I felt control. I could be control over my income. I came from this interesting background where I was never accustomed to any wealth.
We didn’t see fancy cars. That stuff didn’t exist. At the same time, I also grew up with a background that knew that sells, that I could make whatever money I wanted. There was no cap. That set a good foundation for me and my father, who’s now my business partner. We own multiple companies. I own three online businesses. I own a health and welfare insurance brokerage firm. I own a self-storage company, which comprises over $100 million in assets across five different states. This was all done by us, no investors. Let me take a step back. I got married. We were having kids and everything. I realized that sales was limited. I love the sales because I felt like there was no ceiling. I learned after doing sales, it was still a treadmill. I’m still out there selling. I got to sell.
My father was the same way. Maybe you have the same thing. They were Depression babies. They had this mindset that was ingrained to them for a long time of scarcity. We’ve saved every styrofoam cup that ever came from anywhere. We saved every pickle jar that we emptied. It was that mentality. My dad was in sales too. Talking about treadmill, he made a good living. He wasn’t capped, but there was a limit to where you could go. The biggest thing was, if you started making too much money, they would divide his territory in half. Tell him, “Start over again now and build this.” That got discouraging. When you get your income like, “I’m kicking ass.” The company goes, “This man is making a lot of money right now. We’re going to cut his region in half and make him start over again.”
There’s only so much time you got. I can only sell so many. What I’ve found and I learned early in my career was that sales, you can’t compound. I can’t compound sales because I have no control or ownership over that revenue. It’s a client and they can fire me anytime they want. I’m capped on time. This was the difference. Not income, time was limited only so much I could do. Once I started realizing this, I decided there is a ceiling. It’s not a self-imposed ceiling. It’s economic. That ceiling that I realized, and if I wanted to grow and plus there was a self-imposed force or mandate upon me for action.
Instead of what I thought was being financially free and having sky’s the limits, I realized I became a slave to my sales job. There was a huge cap because I couldn’t compound it. That’s what started to attract me to real estate because I could buy something, own it and then go do it again. Repeat the process and it stacks. The first things that I buy, the first things that I own are disassociated with my time. After that, it doesn’t matter. It has nothing to do with my time. I can keep bringing in the money and it’ll compound out.
I want the audience to pay attention now. He painted with a broad stroke right there. You can get into real estate strategies that are the same like wholesaling. You can do it once you got to do it again. You’re going to fix it up, flip it and get a check at one-time cash event. You’re still in that same situation. Even in real estate, you have to look at your strategies. If I make a good deal, makes money forever or until I say I want to sell it, or is it a one-time event? I got to go do it again and again. That’s more like sales. Make sure you’re looking at your strategies. In the beginning, we’re all flipping or trying to make some cash or get our head above water. After you get comfortable, it’s like, “Where are the strategies where I do one thing right and it pays forever or until I decide to sell that forever cash stream for a lot?” Be aware of the two different mindsets.
They go hand in hand. People that are wealthy, they do both. They use one to propel the other. Two, if you’re owning and holding and you have this compounding effects, not only does it build wealth while paying you, but the tax benefits are incredible. We started looking at this and I realized that if I made the exact same amount in real estate, as I did my sales job, I made twice as much. The reason being is taxes. When we started doing anything, it made a lot of sense. We went down that road. I started out. For a lot of people, we own some commercial, single family house things, but I was very used to businesses. I did B2B sales. I consulted with businesses and focused a lot on revenue management. I wanted to go into an asset class that gave me more levers to control the revenue. I felt very limited on certain types of real estate assets.
It’s different for everybody, but for me, self-storage made a lot of sense because operationally speaking, I could control a lot more. I could do marketing, revenue management, dynamic pricing. I could sell insurance. I could sell boxes, moving trucks. There was a lot of ways for me to improve the revenue of that business. In the early 2000s, that was my philosophy. Self-storage isn’t in a real estate asset. It’s a business that has all the benefits of real estate. Under that philosophical approach, we would buy real estate assets, turn them into well-run businesses. The income would explode. Alongside with the wealth, we’d refinance into non-recourse loans, take the money and do it again. We did this to over $100 million. We started doing this and it is going great.
It was awesome. I worked for a large insurance brokerage company based out of Chicago. I had this great sales paying job. Real estate was exploding. For any of your audience that have ever heard me on BiggerPockets or any other podcasts know that my treadmill, so to speak or my life stopped. One day out of the blue, my leg started to hurt. They stopped working and I couldn’t walk. Within 2, 3 days after that, everything stopped working. I couldn’t breathe. I was put into a coma. I was put on life support. When I woke up out of my coma, I was paralyzed from head to toe, staring at a wall on breathing tubes, feeding tubes, and every other kinds of tubes. That’s where I lied.
Can I stop you right there? I know this is not like right down the beaten path of what the topics supposed to be here, but how scary is that? What was going through your head when you wake up and you can’t move? You’re cognizant, but you can’t move. How do you deal with it?
It’s interesting because not only could I not move, but my entire body was viewing as it had been exploded. I was in immense pain that they couldn’t stop with painkillers. Most of the time, it was pure living hell. I couldn’t sleep. I couldn’t do anything. I couldn’t speak. I couldn’t communicate. I was stuck in a paralyzed body. All my nerves were ripped apart. They were telling my brain that you’re on fire. You’re blown up. Everything’s ripped apart. Every single one of my nerves and my body was telling my brain, “We’re in trouble.”
It was for ten weeks of massive pain and survival mode. It was trying not to die and waking up and thinking, “I’m not dead yet.” That went on for a long time. We got things a little more control. I gained after ten weeks a little power in my lungs to where they could change my breathing tubes that came out of my neck in a way that they trached. They cut my neck and put the tubes in my neck. They changed it so they could move the air and I could speak. They’d let me speak for a minute a day. We started to get into control. From there, you’re on survival mode. You don’t know what’s going to happen. Am I ever going to walk again? Am I ever going to be able to hold my children? Am I going to be able to do anything like that at all?
What was the name of this affliction?
It’s called Guillain-Barre. It happens to 1 million or 2 million people, something like that. It’s random. It’s not something you catch. It’s not an autoimmune problem.
Is it hereditary?
No. They don’t even know why the people that it happens to, happens to them. There’s no answers. That’s frustrating. When you’re in the hospital, will I walk again? They’re like, “I don’t know.” How’d I get this? I don’t know. I was paralyzed from the waist down. They wouldn’t admit me into the hospital. I couldn’t get her a room in the hospital because there was nothing wrong with me except for the fact that I was now paralyzed out of the blue. They couldn’t figure out what was going on. There’s nothing wrong with me. I sat in the emergency room for 24 hours waiting for them to try to figure out what was wrong. I wasn’t even in a hospital bed.
It’s not well known. There’s not a lot of answers. All they know is this, the white blood cells get confused. You can get it through a cold and infection. You don’t get it, but it’s triggered. That’s what they call it triggered by sour milk or immunizations. Any of those things can trigger your white blood cells. When you get a virus or an infection, your white blood cells kick in to go attack it. They get confused. They start attacking your nerves. They start destroying your body and they basically sever communication from your brain to your body. There’s 10% of the population that get Guillain-Barre, which is whatever that is. One in 1 million or 2 million, it’s very few.
Out of that 10%, there are people that get it bad. Your body is completely cut off. You can’t do anything. I was in that wonderful category because I’m so lucky. I was done. We had a long time where we didn’t know whether I was even going to communicate. My wife didn’t know if they were going to pull the plug. It was sit and wait. Even though, I was 100% conscious. I was there. I was looking around. We couldn’t communicate. We couldn’t do anything, but I’m there. This went on for obviously a long time. The day it happened I was out planting trees. By Christmas, I was sitting in the bed looking at the snow coming down. Christmas day was the first time that they let me go home for a couple hours.In sales, you don’t have control and ownership over revenue. In real estate, you can buy something, own it, and then do it again and again. Click To Tweet
Where was the breakthrough? Who figured it out?
The breakthrough came to figure out what I had. They were arguing over what it was and they didn’t think it was neurological. I used to live in Brazil. I was headed back down to go on a fishing excursion and I had to get those vaccines, the MMR, things like that. I got the MMR vaccine and they came back. My buddy called me and was like, “Didn’t you get vaccine immunizations like two weeks ago?” I was like, “Yeah, I’m paralyzed sent to the hospital.” He’s like, “Maybe you should tell your doctors that.” I hadn’t even thought of anything. I told him. Immediately it was like, “We know what now because those are triggers.” If I would’ve had the flu, they would’ve known too. The problem why they didn’t know was I was perfectly healthy. You don’t have an infection. You don’t have a virus. We don’t know what’s wrong. The virus had been put in me because that’s what it is. It’s not that the immunizations caused this. Any virus can do it.
It was a combination for you. Some people going to have a peanut and die. The reason why I want to spend some time on this is because one of the things about this podcast is, I like people to explore through other people’s adversity, how things get solved or how they go through. Making a living and being financially free is one thing. Sometimes we have to take care of some very basic stuff that could be tough as hell. I did want to hear about that story. You recuperate. What was the a-ha moment for you when you said, “Real estate is my deal?”
The light bulb goes off. For me, I am very fortunate that it was before this happened. Lots of times, they only figure it out after these kinds of things happen to them in their life. For me though, it was also caused the reversing. I’ve done a deal where I was trying to buy an insurance brokerage company and it went bad. We were frauded. The guy that sold it to us had his wife go out and take the clients. It went south. It was at that point in the middle of the lawsuits and this failing business and everything where you feel like, “I’m the stupidest person alive.” I realized, “I don’t own this revenue. I’m buying these streams of revenue that I don’t even own. They can go away at any time.”
I’m like, “This is a bad business model.” It was through that I started focusing on I need to own the source of the revenue. You mentioned about financing and how you own the debt or the notes. Somebody doesn’t pay you. They’re gone and you can sell those assets and those notes to somebody else that can pay you but you own it. That’s when the light bulb clicked on. From that point, it was 3, 4 years later after I went into real estate in a big way. I’d been into it. I couldn’t live on it or anything else like that. It was four years after that I became completely paralyzed. A few years later, I’ve been coming back strong.
It’s an interesting question, while you’re down, did your assets or your business cave?
They increased in value. When I got out, they made more money and were worth more money. I was fired in the hospital. My boss came to visit me in the hospital, “Sorry, you’re paralyzed. You’re done.” I wasn’t even out of hospital when I lost my job. It’s not their fault. I get it. You learn that W2, once again, you do not own that source of revenue. Sales is good, but a W2 is the worst thing in the world. You do all the work. Don’t own the assets and you have no legal right to anything. After I came out, I started 2, 3 other companies. I started a broker firm and things out of my wheelchair. I’ve been coming back good. I got out of my leg braces about a few months ago. My lower legs are still paralyzed. Nobody can tell at this point. I’m walking, things like that.
I can’t run, jump, nothing like that, but I live what most people would call a semi-normal life. I work twice as much as the average person does. I can do what I like and love, but that was afforded to me because of real estate. If I didn’t, my wife would’ve had it. I went home paralyzed in a bed. My wife had to take care of me. If not, we would have lost our house. My wife would have had to get a job. I don’t know what we would have done with our four children. We’d had a baby two months before I went in the hospital. Because of the real estate, we stayed home. I stayed with my kids and I got better. I had the ability to. As I was getting better, my income increased, the equity increased. I could start new businesses. I had more freedom. We are worth dramatically more now and make more money than I did when we went in.
Did you start out flipping houses or did you go straight into the storage business?
It’s straight into storage. I knew that’s where we wanted to be. We started small, 3rd, 4th, 5th tier markets. I started in a city next to the Canadian border that no one’s ever heard of an Idaho Bonners Ferry is like 5,000 people. There’s a gas station.
The thing was that’s a product that you could afford or that you could fathom achieving at the time. That’s the same with my storage places. Even in the houses, I started out in the cheapest houses I could find. Even though you learn later, it’s as much work to get a more expensive house. Your payday is bigger. Everything happens to me by accident. When it’s a bad thing that happens, I say, “How do I stop that from happening?” You evolve. When it’s a good thing that happens, you’re like, “How do I make that happen more often?” I bought fifteen units in front of a park where they park boats. I didn’t have any money, but they wanted $8,000 for it. I did the math.
He said, “I got to get my money back in eighteen months.” I didn’t have the money, but I got a credit card. I went and got some money on my credit card. I went and bought it. I sent everything in. I started noticing, I said, “This is pretty cool because there’s not a hot water heater.” It was pretty damn simple. It had a dirt floor, chicken wire, dividers, and corrugated aluminum in two doors, one on the right and one on the left. You’d back your boat in and you close it and they would leave. They’d send me a rent check every month. I thought, “This might be better than houses because they don’t pay me. I keep this guy’s boat.” I’m not displacing a family. I’m not having to worry about someone out on the street or anything. It’s a toy that they have.
If they don’t pay me, I’m going to take their toy. It’s a lot different than a house. I decided early on that I was going to make my money by doing one-time cash events like fix and flips or wholesales. I was going to create cashflow by doing seller financing but all with other people’s money. When I had money, I was going to put it in the forever cash scenario, which was from East Oranges too. I said, “I’m going to put my money into storages,” which is the only rental I ever want to own. I didn’t want to own strip centers and commercial businesses. I’ve seen what happens in up and down economies. Houses were good. Apartments okay, but you’re dealing with people in an intricate part of their life, where they live, where their kids go to school, if it’s going to rain on them or not.
You live in Texas and I live in Idaho, which are friendly. Most of the United States, you’re talking about if you’re in half the United States, they got laws that you can’t kick them out. Two, that was something I never wanted to be involved in. I knew that if I didn’t want to evict a single mom with three kids out in the rain then I shouldn’t own it. That was my thing. If I can’t do that, I have no business doing that. Two, self-storage was easier to scale for me. K-Mart is turning them into storage facilities. We’re buying them all over the place. Thousands and thousands of doors, there’s a lot I could do. I could always figure out how to make the same asset, make more money. I didn’t see that in a lot of ways in a lot of other asset classes.
The better I got at what I did, the more money I could make. For me, I love it. It’s the best investment vehicle and to the economics behind it makes sense. That’s the thing that a lot of people don’t understand. This isn’t about people storing junk. The economics of the United States of people owning homes and having bigger homes. The economics to make building, housing more expensive are in full force and always will be. The economics to make consumerism, dispersing and dividing business last mile, point of sale, the things businesses have to do, those are all in favor of storage too.
We can own more. We can do more, but we need more space. Businesses are decentralizing. They need limited space, but they don’t want to pay for the high cost of real estate. They don’t to be in long-term leases. This all adds to storage and where it’s going. If those things end, if the economics of that change, then the United States is going to be in a whole lot of hurt. A storage isn’t going to be the thing that’s going to be hurt. It’s going to be everything. You’re talking about dropping houses and people can’t afford to buy anything. Products and sales are going up and businesses failing. Even when a lot of those things happened, storage did good.
I was going to talk about that. The banks and everyone were calling me during the recession in 2008 or whatever. To me, it lasted 5 or 6 or 7 years. We’re coming out as the last few years, but it was good few years. It was horrible. People were asking me how your storage is doing. I was wondering too how they’re going to do. What was happening was as people downsize, they’ll get rid of their house. They’ll downsize and move in with mom, but they’re not getting rid of their crap. They brought it right over. When people were growing, expanding, they had a lot of toys. They have a lot of stuff. They were in the storages. When people were downsizing and they didn’t have room for their stuff. We’re Americans. We’re not giving up our stuff. They will put it in there. I stayed pretty steady. I didn’t recognize a boom ever. I noticed steady growth. I’m sure you do the same thing. How many doors do you have?
I have over 8,000.
I got 1,300. The theory is the same. In my 1,300 units, everyone’s going up $4 or $5 a year. You start working it around. By the time, you get to the end of the list, it’s time to start over with the increase with the first guy you started with if they’re still there. I always like to raise my rents in San Antonio, Texas during June, July and August, where it’s 107. You raise your rents when it’s so hot in Texas, for $4, I’m not moving.
Nobody cares. That’s the thing. The economics behind it once again are favorable to the owners. When the downturn, there was this weird thing that banks, everybody thought that they’re like, “Nobody is going to foreclose on their house before they lose their storage unit.” They thought that was impossible because they’re like, “It’s not logical. You’re going to lose the storage unit,” which in retrospect, make no sense at all. I’m going to stop paying a $50 bill instead of a $1,500 bill. No. Losing the $50 storage unit has no effect on me losing the $1,500. At the end of the day, what happens is that the mortgage payment, the big debt, that’s the first go, because that’s what makes an impact on your finances.
The $50 isn’t your problem. $100 is not your problem. $150 is not your problem. If I’m going around 1,300 units in a year or on a 4-or 5-month period, I raised everybody $4, that’s $5,200. That’s $60,000 a year. I increased my income on one spin around the clock. I learned to recognize the storage business like there are a lot of little units and a lot of little incomes, but I can increase everybody a little tiny bit. It’s a big number. I could only imagine if I had 8,000, 9,000 doors. A $1 increase for you would change the whole financials.
When you’re talking about an 8% to 9% increase and you own an apartment building, that 8% to 9% increase is on $1,800. Let’s call it a 10% increase. That’s a big increase. My storage facilities on $50, it’s $5. Most of them don’t even know there was an increase. When you take that 10% across $100 million in assets, and millions and millions of revenues, that’s a big increase for you.
You can even compound it by the fact that this storage facility is not selling boxes. There’s a manager. How much does that increase?
We sell insurance. We mandate insurance. Mandated insurance is $7 a unit. All of a sudden, you start adding in these little things then it becomes a 15%, 20% increase in revenue. When I buy facilities, within three years, I want 150%-plus return. I want my money out. I want it non-recourse. I don’t want risk. I want to repeat and do it again. That’s our model. We do it over and over again.
Talk to me about this non-recourse, what are you going to do to qualify for non-recourse money?
In commercial real estate, non-recourse is a lot easier, but it needs to be a desirable asset. That’s the thing. In non-recourse, you have to realize because they’re not basing it on you, it’s not dependent on you paying the bills. It’s dependent on the asset, paying the bills. You have to make sure that your asset is something that they want. If you have a decent asset, that’s commercial real estate that’s performing well then the bank’s going to go, “We’ll do a non-recourse.” If that asset fails, I give them the keys back. It’s a great way to lower your risk and build out your empire. We didn’t do that at first. We had to be on the note and everything. That’s fine. We’re in a position where 80% of our assets are non-recourse. If they fail, I give the keys back to the bank. It has no effect on me and I have all my money out.
I was hypothecating a bunch of notes. We were finished with a deal. I talked to my banker friend. I said, “What I got to do one of these days to be able to borrow money? Where do I got to be to borrow money and have no recourse?” He said, “If you’d have asked, you’re already there.”Self-storage isn't a real estate asset. It's a business that has all the benefits of real estate. Click To Tweet
It’s true. There are other ways you can go about it too. You’ll be amazed when you have assets, what banks will do. Two, you got to remember between credit unions, between local banks and between national banks, these guys are all competing for assets. Community banks, even financers, hard money, there are all ways you can go about this. Some of the big guys don’t do non-recourse, they do bonds. They simply take their assets, find investors and say, “I’ll pay you 4%. It’s backed by the assets.” If the bond fails, they will go find private investors that want to do it.
That’s exactly what I do with my houses. I go pledge a house. In the conversation, I have two rights every day, I have the right to pay as agreed or I will walk you over the deed to this place. The only time some people should be shot is when they collected money and then they don’t send on the payment. That’s bullshit. My deal is, if I ever can’t pay, which has never happened, I’m going to walk this deed over to you. You won’t have to take me to foreclosure. You won’t have to do anything. It’s yours. I’ll bring it to you. That’s my two choices every day.
If you don’t like the asset, don’t do this deal. I don’t borrow 99% of what that asset is worth. I never borrow more than 65%. My average borrowing is like 55%. That’s a large part why you go non-recourse is because you don’t know a whole lot. That’s a reason why I can have $26 million of private people’s money. I was selling them the same way you’re selling them. This is a perfectly good asset backing this up. If I’m not right, you’re going to get it. My personal word to you is you won’t have to fight me for it. If I can’t pay you, I’ll bring it to you.
If you come back on your word, which you never would, but if you did, they can still get it. It’s a no brainer. If you look at it too, this is the thing that people don’t understand is there’s this weird mentality. It’s like, “When I’m big like you, I’ll do that.” That’s not how it works. I love it when people say, “If I had millions of dollars, I would invest.” You’re like, “How do you get millions of dollars?” That doesn’t even make sense? The action equals the result. Even if you’re doing single family homes, even if you’re doing it, doesn’t matter, you can do things to make this work, the same principles apply. That’s how you get bigger. That’s how you get more. That’s how you’ve grown. That’s how you get 1,000 houses plus storage facilities.
Everyone I know started broke and including you. Everyone starts out broke. I’m a simple man. I have to have things simply put to me. I have to see things very simply, so that I can get out there. I’m not a genius, but I have huge amount of common sense. I have a huge work ethic. I have a huge integral part of me that won’t let me fail. I know if I give houses back to people, even though I have the right to, they’re not going to loan me money anymore. If I have a house that’s not working, I’ll write the check myself. I don’t need to damage my reputation with these people that are on my lifeblood.
Unless I got in a corner where I had to, but even then, I could walk up to those people and go, “We’re down to two choices. The money’s not coming in. I can hand you the deed or you could postpone some payments until I can get this crap straightened out.” All these doctors and lawyers goes, “Please handle it.” It wouldn’t be over a frivolous thing. It’d be because some economic situation caused it because I’m not causing it. That’s one of the reasons I liked non-recourse. I made it a stable to not have recourse money is. When you sign your name on that dotted line, you are signing for anything and everything that could happen in this world, including nuclear bombs from Kim Jong’s dumb ass, terrorism, planes flying into buildings or meteors.
Who am I to guarantee that? Are you kidding me? I can only guarantee so much. I set up my loan so that I only had the guarantee that so much, so that I can sleep. My biggest fear in the world was that I started with family and friends that I would let them down. I had to come up with a plan, where it was impossible for me to let them down. The nonrecourse loan was the answer to that. I could do one of two things. I’d pay as agreed or I can hand you the deed. Either way, it was right in line with our agreement. I know there are ramifications for handing out the deed, but at least my name was not besmudged.
At least they ended up saying no. I got the asset.
What happens is if it ever went upside down, they say, “I don’t want the asset by myself. We’re better off as a team. I’ll do my part and not require a payment right now. Let’s wait for it to turn. We’re in it together. They’ll work with you. The banks don’t even have the authority to work with you if you don’t have the agreement.
What you’re saying too is important to understand and remember that it’s not even so much the asset that’s the value, it’s the relationship. Your incentives are on them. They’re the reasons you’re in business. It’s not even the houses, it’s them. You’re incentivized to make sure those people are whole. If you mess up or screw those people that are investing with you, then your business model is over.
Good news is, it’s a snail pace and bad news travels at lightspeed. One of my points was about being broke was when you don’t have money, you’re a professional deal finder. If you can go find a property at $0.50 off, and then you have to learn how to paper up that contract so that you have something solid. You have some rights with several days or months before you have to close. Now, you walk around with this fantastic deal over your head. You take your legs and you walk, and then you got your voice, like a megaphone going look, “I got this deal $0.50 on a dollar. Who wants to split the profit with me?” Someone say, “I want to. What do I got to do?”
You say, “Bring the freaking money. I got the deal. You bring the money. We’ll be 50/50. Fifty percent of something is a whole lot better than 100% of nothing. You don’t have to do it forever until you can start to choose whether you want partners or not. There were times when I could fund my own deals anyways, but I wanted the partners because it was a good choice. They had talents. They had resources. They helped lighten the load for me. They were a hedge against risk. They had certain talents. A lot of times when I could buy deals, even myself, I wouldn’t pick. Especially if it was out of my comfort zone or in a different genre, then I don’t want to go into a different genre by myself and have to learn everything from a guy who’s already been in the genre that already knows. I would rather partner with that guy. I learn and maybe next time I do something that genre, I don’t need the partner. By that time, things are running so smooth and you’re such good partners. It’s like, “Let’s do another one, together.”
When you look at two, you hit on something important that I tell people all the time, money is the least important part of the process. Money is the easiest thing to do. If you have a good deal, you can fund it all day long. If you’ve done the work and if you have a good deal or you can pull it off or whatever those things are, that’s what most people don’t have. Right now, there’s more money. Money is being invented every day and printed off. People have it stacked in computers endlessly. There’s no limit to it. There’s none. Zero, it’s infinite. It’s made up. There’s nothing to it. What’s limited is opportunity. What’s limited is deals. What everybody wants is those things. Money is how they acquire them. If you can bring that, you’ve taken care of the problem that everybody has.
I have a course called Private Money Changes Everything. The first thing that everyone has to solve is their mindset. They think, “I don’t have a degree. I haven’t been in this business that long. I don’t have a track record. Why would anyone loan me money? I’m too young. I’m too fat. I have bad credit.” There are all these reasons. I hear this all the time. I let them go on with all the reasons why they can’t and I said, “You’re done.” They said, “Yeah.” I said, “You give yourself way too much credit. No one gives a crap about you.” Charles Manson should have been able to get a loan on this place. I don’t care how many people he murdered. If Charles Manson doesn’t pay them, they’re going to get the asset. They don’t care what or who he was. Maybe that’s a little over the top, but do you know what I mean?
The point is true. I used to ask the same thing. I’m like, “How these idiots get money? Who’s giving these people money? These guys are morons.” They were going to screw them. That’s the reason why. If you’re a good person that has integrity and that will do good job, you have work ethic, then you’re going to explode like you have and like others have. It’s not rocket science. Don’t make it rocket science.
People say, “How did you get so much money for these houses?” I said, “I paid people back.” You wrote a book. It’s called Growing Wealth in Self-Storage. It’s one of the bestseller books.
It’s the ultimate playbook, The Investor’s Guide to Growing Wealth in Self-Storage. It’s blue. There’s another one out there that has a similar title, but mine’s blue.
AJ is not selling anything. You’re not counseling or anything. He may want to know about your storage that you’re trying to sell or you might have a deal on it. I don’t know. All his contact information, whatever he wants you to know will be over there. Your storage facility? How big or small, what was the first one like?
It was small.
Mine was fifteen units in front of an entrance to a Coldwell Park, which was on the lake where I live. The fishermen would store their little fishing boat, so they didn’t have to drag them around all the time.
It was at the place where we were. There are more grizzly bears than there are people there in Idaho. It was on some dirt. From there we kept moving up. I don’t want to make it more complicated than it is. That’s one of the big problems people have. They overthink it. Look at the numbers, the numbers don’t lie. If it’s a good deal, it’s a good deal. A lot of people don’t understand it. This is the weird thing you’re talking about this mentality part. Everybody’s like, “When I get big, I’ll go start buying big assets.” I got to tell you right now, it is way harder for me to find an 80,000-square foot, $6 million storage facility. That’s a good deal than it is if I went to find a 5,000-square foot storage and a third-tier market. That’s easy to find a good deal doing that. If you’re starting out, there are way more opportunities. You’re not competing with all the big guys.
I was buying the mom and pops Class-B, Class-C, and then I was improving or changing them. I’m putting in electronic gate, putting up a camera or whatever, bringing it up a little bit. You don’t go from $0 to a $10 million facility being real, but it’s easier to borrow $1 million than it is to borrow $100,000. Banks don’t want to dick around with a $100,000 loan. They want $2 million or $3 million loan. They go, “You’ve got my attention. What do you have?”
The bigger the money is the easier it’s to get. The smaller the deal is the more opportunity there is to find them because opportunity concentrates. You get low cap rates because there’s more financing and more people want bigger deals. When I look at it and you start talking about financing and buying these smaller deals with facilities, I say, you go to community banks. You go to local city banks. You go to credit unions because they have a very good understanding of the area you’re in and the true value of what you’re doing. They’re looking at you the asset and they have to deploy money in that market. They have to do it.
When we started out and when we start looking at buying assets, the big national banks were like, “This is out in the middle of nowhere. Are you kidding? Do people even live there?” We go talk to the city bank or the local credit union and they’re like, “That’s a great piece of property you got there. It’s on the main road into the city.” It’s like you’re having two totally different conversations. You got to remember that there’s a model. If you’re in a small city and you have a doctor that lives in that city and a dentist, they want to deploy money next to them. They want to deploy a close by. They don’t want to go do all the work and they don’t want to run a storage facility.
They don’t understand it. If you’re right in the middle of the growth pattern, the city, and another 5 or 10 years, it’s going to be right there. That’s a good asset. Storage have been famous for holding land until the city got to it.We're Americans. We're not giving up our stuff. That’s precisely why the self-storage business will stay profitable for a long time. Click To Tweet
That’s how they started. It was a land hold. They were holding land until somebody was going to develop apartments, a hotel or something that was worth something as they used to think. Now, they’re incredibly valued. Look at your tenants. Who’s running out of that storage facility? If they got a nice boat and if they’re renting, they have some disposable income. I’m sure your tenants understand the value, but maybe they’ll lend you the money.
Some of my favorite tenants was the boat storage ones because the boats these days are $80,000, $90,000, $120,000, $180,000. They’re parked in there. If they don’t make their payment on your storage, you’re locking up this boat. A lot of times these things are financed and the bank has to pay the back rent before they can get their collateral out of your storage. You got two payers maybe. In Texas, we can foreclose on a storage on the spot and file the paperwork the minute that you can. We can foreclose on a storage in 31 days. We can be having an auction.
That’s most of the country. The laws for storage are extremely favorable. I tell people think about it like this. If your neighbor comes to you and says, “I need to put something in your driveway. I’ll pay you $10 a month.” You say, “Okay, great.” Three months later, you’re like, “Bob, I don’t want your stuff in my yard anymore, take it.” No law system in the right mind would ever think that guy has rights to your land. That’s how it’s viewed. It’s your land. They’re putting their stuff on your land. The moment you want them gone, you can get rid of them. That has been reinforced in the United States over and over again. You’re not living on it.
In some states, you got to go in front of a judge and justify why you’re asking these people out. No one gives a damn about storage. It’s been my experience and I got to ask you this. There’s not any been any coups in storage auctions that I know of. Everyone sees these Storage Wars and think there are all these monies in these units. It’s a bunch of crap most of the time.
If we got to take people to auction to sell the stuff up, we lose money.
We call them, “You owe $400. Can you give me $150 and get your stuff out?”
“I’ll take anything. Just get out.”
It’s going to cost me $150 or $200 to get it emptied and take it to the trash. I’m going to waste a lot of time. We’re curious and I do want to know what’s in the drawer.
People think like you make money by selling, that does not happen. You only lose money. You’ll lose money because they’re not paying you. You have to take care of it, which is expensive. If nobody will buy that crap in that unit, that’s the reason we auction it. We auction it so somebody will pay us to remove the crap. That’s why. The auction sells for a fraction of what they owe. For us, if we don’t have to pay more money, we’re happy. We don’t make money.
They say, “Isn’t there an income stream there?” I say, “It’s not what I do. That’s not what I do.” Let someone else buy that thing for 400. If they get lucky and they make $2,000 because I found a Rolex watch band or something there, good for them.
That’s the thing though. It’s like a myth. People don’t leave $2,000 in storage units. The Storage Wars stuff or anything like that, it’s fun. It’s not reality. I can’t tell you how many units I’ve auctioned out off, but I’ve never seen a unit auctioned off that had something that’s valuable.
I’ve seen it a couple where they got lucky on a couple of things. They had to go through a lot of units. They maybe they lost money on two. It’s like that gambler that goes to Vegas and tells you about what he won when he wins. He doesn’t tell you when he loses.
People do it because of the thrill, but they’re gamblers. They’re looking for buried treasure. It’s not a moneymaker for you as a storage owner.
Stay in your lane. Figure out what you’re dealing with. Someone will come up with another shiny object and another way to do something. If you’re doing good, multiply what you got, stay in your lane. It took me a long time to learn it. If someone reads this book, what are they going to get out of it?
I called it the step by step playbook for turning a real estate asset into a thriving storage business, because it is a step by step. I go over everything, conversions, building, buying, managing, operating. I give our checklists. I give how our value-add strategy, how to find deals, how to underwrite, how to judge markets, demand. It’s the largest self-storage book on the market. It’s the bestselling stuff. We beat storage books that have been on the market for several years in a matter of weeks. People are loving it. It has more reviews than any other book and has a perfect review. The reason being is it’s not a funnel. I’m not selling the book so you read it and have to buy something.
I’m selling it because I was sitting in the hospital and as snow was falling down and I was going to go see what my kids were getting on Christmas. I said, “I get to buy my kids Christmas. I have no job. I’m paralyzed. I’m going to write a book on the asset that allowed me to do that and why I get to do it.” That’s it. I know because I give and people read and receive, I get back. People have brought me deals. They go, “You’ve shown me exactly what to do. I’ve got a $6 million asset here in Kansas City. I’ve read your book. It fits your criteria. I can’t do it. How about you come and do this deal? I ride along with you.” I’m closing in a few weeks. There is benefit to me. I get more well-known people know my business model. They bring me deals.
You’ve got outstanding credibility. What I love about you is what a red ass entrepreneur, he’s paralyzed in bed. He says, “I got to do something with this time.” He writes a book that furthers his career. Maybe never would have written a book in his life, except he got put in that corner where there wasn’t anything else to do about it. I don’t know about you. My book’s not been sold nearly as many copies of whatever, but I know that writing this book took me a completely different direction. It took me in places I would never go. I met people I would never would have met.
People know my name from one end of this country to the other. It’s not that I’m famous by any stretch of the imagination, but I can go places and people say, “I read your book.” There’s a connection. I have private money come from miles away. There are thousands of miles away now. The last one was in Tennessee. He says, “I read your books that made me follow you on the podcast. I feel like I know you. I feel like you’re consistent because when we talk about right or wrong, you always take the high road. I feel like I know who you are.” I said, “If you’ve read my books and listen to my podcast, you do know who I am because I’m not fabricating myself. I’m being myself.” He flew. The next day he’s in my office and loaned me $1 million.
If I tried to sit down with thousands and thousands of people and explain my strategy on investing in self-storage, I would never be able to do anything in my entire life. I’ve already completed that in two months. There is over 5,000 people that in five weeks completely understand my strategy, what I like and what I’m looking for in self-storage. It condenses time and it gets your word out. It lets you know what you believe in, who you are and how you do what you do. That’s beneficial.
Say something to the people out there that own a business that had been contemplating writing a book, but they haven’t got off their asses to do it. What do you say to them?
Do it. It’s hard. It’s not easy. It takes a lot of time, but there’s a process in writing the book that creates, conceptualizing, putting into words and drawing a roadmap that helps you more than it helps the readers.
You straighten your own crap out. If you’re thinking about writing a book, I didn’t do this. I should have. I took a course from a guy named David Essel, who I’ve interviewed. He’ll talk to you about writing a book. The guy wrote a lot of books, but you got to spend the upfront time is on the outline. You have completely mapped out. If you needed to get to a certain place, you wouldn’t start driving without looking at a map. You’ve got to map out where you’re going in this thing and then rearrange it. If it’s in timelines, make sure your timelines are right. If it has to do with monetary progression, make sure that’s in order, but bust your ass on the outline. A chapter and then the 5 or 6 points that you’re going to write about in that chapter and the next chapter. Once you have that straight that’s half the battle of writing a book. My friend, you’ve spent a lot of time with me. I don’t want to abuse you here, but you sound like a fun guy. Do you ever come to San Antonio?
I do occasionally. I like San Antonio a lot. My actual name is Austin James Osborne. Even though if you called me Austin, I would have no idea. I wouldn’t even respond to it in a room. I was named after Austin, Texas. My dad wishes he was a Texan.
I’d like to thank everybody for stopping by to get you some AJ Osborne. I’d like to thank you for taking the time and hearing what he had to say. Please check out his book. Storage is a fine business. I did it on the side forever. I wasn’t paying attention. I would throw it over there. I’d buy the next mom and pop place and then I would run away and start doing houses. I have some money and I’d go do an expansion on one of the places and then I’d run away and I go do houses. I looked up one day, it was what was making my financial. My sideline had become the biggest part of my everything. It happened.
I wasn’t even focusing on it like AJ has. I was doing it as a side job. I have about 1,300 doors that send me on an average $100 a month. That’s $130,000 a month. Now I don’t get to keep it all, but I get to keep a crap load of it. I’ve been doing it since 1991. A lot of that debt has gone away or expired. I’m not one to borrow up for no reason. If I borrow up, I’m buying something else that’s going to pay for that debt. It was a great lifestyle. It’s a relatively simple business to sub out. It’s not rocket science or I like to say, it’s not rocket surgery. Even someone like me can do it. It’s pretty well A, B, C, D, E, F, G on most all situations.
Only thing I would tell anybody that was going in new or anything, make sure you have some wrongful disposal insurance in case. You get rid of the wrong unit, someone accuses you for getting rid of the wrong unit or you don’t foreclose and you get rid of something. That would be the only thing. One time I said, “I need you to empty out unit number nine.” He thought, I said five. That’s why they say niner in the military because “ni” gets confused with “fi.” I told him empty out unit nine and he went and emptied out unit five. John Lennon’s one photo of whatever worth $1 million was in there. There was 27 Rolexes in there and there was a gold thing off at King Tut’s was in there.
You make a mistake and that unit had $1 billion in it.
I appreciate your time. I like to thank TaxFreeFuture.com for being a sponsor. Please go see TaxFreeFuture.com. You won’t believe what your financial advisors are not telling you. We’re going to tell you what they’re not telling you. We’re going to tell you why they’re not telling you. You can do with what you want with that information. It’s a real eyeopener. If you’ve never known about these kinds of tax free or tax deferred accounts to grow your wealth in. Thanks a bunch.
About AJ Osborne
Over 15 years of experience purchasing and building storage facilities across multiple states.
Own over one million square feet in real estate. Best selling author. Survivor of Guillain-Barre Syndrome