Clint Harris’s Journey to Financial Independence Through Real Estate Innovation- REIA-451

Welcome to Real Estate Investing Abundance, the show for busy, fulfilled professionals like you to learn how to develop financial independence built on solid passive real estate investments. Now, here is your host, Dr. Allen Lomax.

Hello, enlightened investors.

Welcome back to Real Estate Investing Abundance.

I'm your host, Dr. Allen.

And what a delight it is to have you with us once again today.

And I know you are going to be impressed with what we have to share with you. We're going to take a look at truly passive income utilizing self-storage syndication as the vehicle to enhance our financial wellbeing. With us today is Clint Harris, and he is an outstanding professional real estate investor, entrepreneur who handles capital raising and investor relations at Nomad Capital. Clint built a lucrative multifamily real estate portfolio, converted to high-performing Airbnb properties for diversification. Then Clint transitioned to self-storage investments, eventually joining Nomad Capital as a general partner, buying old, big box retail buildings and converting them to self-storage. So I'm interested in getting into our topic today. So Clint, uh, welcome to the show and just give us a little background on how you got started with particularly self-storage and what brought you to that. Yes, sir.

First of all, thank you for having me. I appreciate the time today. So I started off my career actually in medical sales. I spent 16 years implanting pacemakers and defibrillators. So, I worked in the hospital in the EP lab and the cath lab and the operating room. That's kind of a young man's game. I was on call a lot, working a lot of nights and weekends and dealing with cardiac patients that could be getting shocked in the middle of the night, 3 or 4 hours away. And so, I always knew that to be a job that as a young man's game, eventually I needed to build an off-ramp from that lifestyle. And my options were to try to save my way there, which I believe the ability to do that has been taken away from most of my generation. The other way is if you can't get there playing defense, is that I had to play offense. I had to create a vehicle or an off-ramp from that type of lifestyle, and I chose real estate. So, uh, my wife and I— girlfriend at the time, then fiancée and, and wife— started investing into single-family homes. We built up a small portfolio of, of 9 single-family rentals, and by then I figured out That's a very, very slow way to get ahead and it does not scale very well. In 2017, I took a promotion to move to Wilmington, North Carolina, where we currently live, still doing medical sales, implanting devices. And that was an opportunity where we moved to the beach. It was a place that, that had a lot of tourism and people coming to the coast. So we started, we switched from the long-term single-family properties. We started buying small multifamily properties, duplexes, triplexes, and quadplexes. and converting them to Airbnb properties. Uh, and we had a lot of success there that we have 14 Airbnbs that we still own that turned into a property management company that manages another 80 properties. And I was successful in replacing my income and achieving what I was looking for at the time, which was a level of financial freedom or financial independence. But what it did not accomplish was time or location independence because I was locked into one location even though I, I was, even when I wasn't working, I was basically still on call because I had my phone on me and, and I was in a location stuck there at least for the summers and the weekends. And I realized that we had built that portfolio the wrong way. We were focusing on that financial independence when we should have also been focusing on time and location independence, because those things together, I think, can give you an independence of purpose. And so we paused on that. We still own those facilities. But that took me in a journey to the aggressive pursuit of the most passive strategy that I could find. I took the lessons of multiple units and what I had learned from triplexes and quadplexes and multiplied that into self-storage facilities. And then I took the lesson that we had learned from buying small, nasty quadplex units that had long-term tenants and converting that to a different asset class and changing it to an Airbnb would 3 to 4x the gross rental potential. So I combined those and found some partners locally, and we specifically focus on— starting in 2021, we bought our first Kmart building. We buy old big box nasty retail buildings that nobody else wants because big box retail is basically dead. Amazon has killed that space. So we buy those building shells for pennies on the dollar compared to the replacement costs. We convert them to 500 or 600 or 700 climate-controlled self-storage units. And so that same building that used to work for that location to that community would drive to that building for their home goods. They don't do that anymore, but it still works as a great location for those same people to drive back to the same building, sometimes pay us to put the same stuff right back inside. So that's the short version of our journey towards, um, the aggressive pursuit of passive income and getting to a point where we're not trading time for money.

Yeah.

Well, I especially appreciate you mentioning the fact that you started out with single-family. And after, what'd you say, 8 or 9 units, I think you had, and you, you realized that that just wasn't a scalable strategy. And you didn't mention it, but I also suspect you discovered that it's not passive either. Yes, sir.

Very much so. If one property is maybe 1 or 2 headaches a year, and then you multiply that by the 9 that we had, It's not passive. And also, you know, one unit, every time one tenant moves out and there's damage to the property— I wasn't in Section 8, but it wasn't much better. So anytime one person moves out and there's a hole kicked in the door and the appliances are messed up and this, that, and the other, your capital expenditures can cannibalize an entire year of cash flow very quickly. And those properties are not appreciating fast enough for you to make up for it with appreciation, what you're lacking in cash flow. And just as you mentioned, it is certainly not passive. It's a very slow way to scale, because eventually you're going to hit a problem with your debt-to-income ratio, your, or your debt service coverage ratio. And it's just, it's not worth it. One at a time is, is not a way to get ahead.

Exactly. And I talked to investors on a regular basis, and, and it's not infrequent that they tell me that same story. Well, I really like the hands-on, and I really want to just stay with single-family investing. And some of them, you know, have done 1 or 2 properties like that. And I go, well, I wish you the best of luck. You will learn eventually.

Yes, sir.

So, thank you for pointing that out. So, you gave us a little bit of background on how you made that transition from single-family to small multifamily and from small multifamily long-term rentals to converting those to Airbnbs, and then also realizing from that, that gave you some financial independence but didn't give you the time or location independence. And so how did you discover the avenue and the route into the self-storage, and particularly the aspect of the redevelopment of big box facilities into, into self-storage.

So we've been doing real estate investing for coming up on 15 years. For most of that, I did it poorly or did it wrong. The few things that I got right was usually after getting it wrong several times in a row before I figured out what I did wrong. And could eventually do it right. Besides that, most of the success that we've had has come through podcasts, networking, or talking to other people more intelligent than I am.

Mm-hmm.

So when we got to the point of, we had already unpacked a single-family portfolio and 1031 into multifamily properties. By the time I knew that, I originally thought that was a destination, and by the time I figured out it was not a destination, it was just a stepping stone to what was next for us. In choosing what that next direction was, I went back to what had worked for me before, is asking people that are more intelligent than I am that have a lot more experience. So I looked around in my community, either people I knew or people that I looked up to and respected, to people that they knew. And I went and found the group of older, successful in life, successful in family, but also successful in real estate investors that I, that I looked up to, that they looked like they were living the kind of life that I wanted to lead. People that had the ability to go do what they wanted to. They had the time to do it. They had the relationships with the fam, their family that I craved. They had the emotional intelligence to Communicate with their community in, in the right way. And when I talked to those people that had what I looked like, looked to me like the level of success that I wanted, I asked them what was their journey and where did they land. And we all have this investor journey that you start out. A lot of people start as wholesaling and then flipping and then single-family rentals and then multifamily and then apartment complexes and eventually into syndication or passive strategies. There's this, this life cycle. And I wanted to know, okay, what's the end of that story? Can we fast forward here? Is there a way for me to cut ahead? And so when I asked those successful people the 3 things, and I'm sure it's market dependent, but the 3 things that I got were, it was hard money lending and note lending, and I didn't have the 7 figures it took to get started there. It was mobile home parks, which I had, I was already burned out on tenants because with short-term rentals you have 8 to 10 tenants a month per unit. And then the third thing was self-storage, and that really piqued my interest. And so I started educating myself on self-storage. I've always been big on networking and going to local meetups and regional real estate meetups, as well as listening to podcasts like yours and getting myself educated and trying to use that windshield time of when I was a medical sales rep. I was on the road all the time, so I was trying to use that time to invest in myself. So I met several local investors that did self-storage on various levels. And at one of the local meetups, I met a father and son team of Eric and Levi Hemingway, who are my partners. And they had a strategy of they had bought a couple old warehouses in town and converted them to storage. And that just smacked me in the face because it like, it really resonated with me because I was just wrapping up or still, I was still doing it at the time, but wrapping up the investment strategy of buying nasty quadplexes with bad long-term tenants in place that were chain smoking in the property that had been there. They're month-to-month tenants. They hadn't had a rent increase in 12 years. One by one, I'm the— getting those tenants out of the property, completely revamping the property, staging it, converting it to an Airbnb. And there's this phenomenon where if I went and bought 4 condos with 4 HOAs, 4 sets of utilities, 4 sets of fixed overhead and mortgages as 4 Airbnb units, they would break even because you have those individualized expenses. However, if I go buy one quadplex, I have one mortgage, one set of taxes, one set of insurance, and one set of fixed overhead. I could net $70,000 to $80,000 a year so that the unit density of, you know, you have to have a ratio of more rental units than you do to sets of fixed overhead. So the idea of buying an old nasty building that nobody wants, that you're not buying it on a cap rate, it's basically worth what somebody's willing to pay for it, and then converting it to a different asset class. You convert the formula by which the, the building is valued, and then you put 500, 600, 700 tenants inside of the building. It gives it great stability, a lot of inflation resistance. So the same lesson that I had learned from those small multifamily properties just jumped out at me when I heard their strategy. They were doing hotels and had decided they were gonna get back into storage. Because of my expertise with short-term rentals, I helped them in some big ways with their first hotel venture. And I said, look guys, here's the deal. I'll help you with this. I know that you're, what you're telling me. By then we'd met multiple times about this. They said they were getting back into self-storage in a big way. I said, when you do, I'd like to raise the capital. I'd like to invest. First of all, I'd like to bring capital from my community. And, uh, and they said yes. And so we bought a Kmart together as a joint venture. I raised money from a group of physicians that I'm good friends with because that's my background. We bought a Kmart together. 87,000-square-foot building. We bought it for $1.5 million because nobody wants that much space. It would've cost us $6.5 million just to build the shell. Then we converted that to a climate-controlled self-storage facility. That led to— they founded Nomad Capital Syndication that I'm part of. They invited me to join as a general partner. We ended up buying another Kmart, 3 warehouses, a grocery store, and then I left medical sales and cardiology behind in 2022. And I'm full-time real estate investor and general partner with Nomad. And, um, we've been doing it for, as syndication since 2021. And, uh, we had a, we just hit our goal of, uh, we had a 2-year goal of $100 million in assets under management. We just hit $150 million in assets under management at stabilization. Um, and we're, we got a 5-year goal of $500 million and a 10-year goal of a billion. So it, it sounds like a lot, but at one point in time there were over 1,200 Kmarts in the country and they're all gone. And if you think about big box retail, it has very good residential density in a 1, 3, 5, 7-mile radius. People all around there know where the building is, great vehicle count. And we have a housing crisis in America and people aren't buying, they're renting. When people rent, they typically rent smaller spaces and then utilize storage as an extension of the garage or extension of the closet. So it's, it's meeting a need that's definitely needed in our community. And, and we're bringing a lot of investors along with us for the ride. It's been a lot of fun.

Enlightened Investors, if you haven't done so already, be sure and click that like button and also click that share so others can take advantage of the content. And finally, be sure to subscribe so you don't miss a single one of our upcoming episodes. We are talking with Clint Harris today, and you can get in touch with Clint. Actually, he gives— he's willing to give out his email. So that is clint@nomadcapital.us, and their website is nomadcapital.us. Clint, tell us, how can a person interested in getting into real estate, how can they actually move into it? without having to go through the lengthy process that you did? How can they get into real estate investing?

So in order to have success in any type of real estate investing, whether it's a single-family home or multifamily apartment complexes or whatever it may be, it ultimately takes 3 things, and it's time, experience, and money. A lot of, especially your clientele, like the people that listen to your podcast, these are highly successful A lot of people in the white coat community that are, that are busy. And typically those people, especially after they pay off med school debt, they have money, but what they don't have is time. And without time, you can't get experience. So if you're getting started or a younger person, or you don't have that high of a ceiling with what you're currently doing, then listen to podcasts, connect. If you want to flip a house or wholesale or anything like that, like, go for it. Like, learn those lessons. Because just like me, those lessons are going to carry forward into Bigger projects that you do later. If you're a highly successful individual that makes a good income and you've got a pretty high ceiling, I think most of the time the best thing is to keep the main thing the main thing. And if you know that it takes those 3 things, it's time, it's experience and money. Well, if you don't have time, you're not going to go out and you're not going to get experience. But if you have money, for that individual, I think that syndication is a great way to get started and a way for those people to partner their capital or their money. with someone else's time and someone else's experience. Because of my background, most of our investors— we have about 100 investors, and most of the ones that we started with were physicians that I used to work with— surgeons, cardiologists, ER doctors, etc. And for those guys, like, they're doing amazing things for their community and they don't have time for this. In fact, if for them to go be an active investor, you know, it makes more sense for them to cut the check and somebody else do the work because their time is worth significantly more than what they could pay for someone else to do a lot of those jobs. So in that situation, the idea is to take your capital, the extra money that you have, and invest it with someone else who's gonna pay a strong return so that your money is getting up and going to work for you. And eventually you get to the point where, you know, right now, even though it's a very high ceiling one way or another in, in a white coat position role, you're trading time for money and you're ultimately limited by the amount of time that you have to commit to your job. And typically that's time away from your family and what you want to be doing. So the idea is if you can take some money and put it to work, that money is out earning a return for you. And that's not trading time for money. It's disconnecting your trade of life energy in order to get paid for that. And I think syndication is a really good way for high-earning income individuals to find an operator and a deal that they like and partner on something like a self-storage, or it could be an RV park or a vineyard or a multifamily apartment complex. My job is not to sell my deals or what we do to anybody. What I do really like to do is educate on syndication as a whole. I like to explain our business model, and if it fits with somebody else and their goals, that's great. But if it doesn't, that's fine too. But everyone listening to your podcast, in my opinion, should be aware of syndication as an option because if they don't have the time to go out and get the experience or try a new strategy, That doesn't mean they can't still be involved. They can partner with someone else and they can be as involved as they want. They can read the monthly reports, go to the quarterly meetings, whatever they want to do. But you have to have those 3 things. If you only have 1 or 2 of those, you always have the option of partnering with an operator who has the pieces that you don't have. And that's a way for you to get involved with, and it may be something you want to get involved in heavily and do on your own and be an operator when you leave the medical field or whatever you're doing. But in the meantime, it's a way to get started. It's a way to get learning, and it's a way to— for your capital to get up and go to work even when you don't want to. The way I, I look at it is that money is going to work buying future days off for you, and eventually you get to the point where you buy enough days off, you don't have to go back to work. You're, you're— the idea is to build the off-ramp of a busy life of trading time for money the same way that I did. Now, I probably had a lot lower ceiling than what most of your listeners have, but the option is still there. And the sooner you realize that, you give yourself more time and it's easier to build that off-ramp.

Well, that's absolutely true. And I, everything you have said is, I think, something that a lot of people need to think about. And, uh, and they typically don't. I mean, a lot of people on our podcast are highly educated. They're just not highly educated in the world of money and finance. Most people think that money's a real thing. It's just a fictitious thing. And once you learn that, then it starts making a whole lot more sense than it really does otherwise. And I would just add to that that certainly there's a lot of individuals on our podcast or who tune into our podcast who are high-income earners, but There's a lot of people on our podcast who work in education and both secondary and higher education. They don't have to wait to be a high-income earner because most of those people have retirement accounts of some way, shape, or form or the other. And unbeknownst to a lot of people, those retirement accounts can legally and effectively and efficiently be rolled over into self-directed accounts and Rather than sitting there earning for maybe at best 5% interest, they can be put to much, much better utilization to provide much, much better returns. And they can do that through that syndication process. And you did allude to this, but even though those are passive investments, and it's great that they are because, I mean, I don't want people, I don't want educators leaving their jobs. I don't want physicians leaving their jobs. Dentists, so on and so forth. We need those people and they're providing a wonderful service, but they can do so and still enhance their financial wellbeing and they can do it passively. But the other thing is maybe they do want to become active investors at some point in time, and I don't know of any better way to actually learn how to do that and do it effectively. I mean, they can do the process you went through, single-family, and step that up and step that up, but that's time-consuming. And most professionals don't have that kind of time. Well, Clint, what is the benefit to self-storage syndication versus other types of syndication?

So, there's a lot of different flavors out there and everybody, first of all, should determine what their own goals are and that should determine what's the right choice for them. Self-storage across the board since the early '90s is the strongest performing commercial real estate assets that, that we have in the market. There's significantly less volatility there. The nice thing about storage is that what matters is about a 7-mile radius. That's about as far as people are willing to drive for storage. And if you think about it, there's really nothing special about self-storage. You are renting someone a box of air. That's it. But they're not looking at it as discretionary spending. This isn't vacation dollars or driving to the beach. This is typically a less expensive way to store things than buying a house with a garage or a basement or an attic. So they're putting things in there that hold certain value to them that they're willing to pay for. They typically put it on autopay. And sometimes we have people that, you know, we've all heard the stories of people that rent a unit and have never been there again for 10 or 15 years. The younger generation is using it much differently. The millennials now make up 34% of the population. but they're using 38% of storage. The reason for that is a little bit of a tragedy, is that in order to find livable space that makes sense for them, most of them are not buying, they're renting. Mm-hmm. When you rent, we alluded to this earlier, you rent based upon the size of the facility that you're renting. So instead of renting a 2-bedroom condo for $1,800 a month, a lot of times they'll rent a 1-bedroom for $1,300 a month and then get a self-storage unit as an extension of the garage, an extension of the closet. They still have mountain bikes and kayaks and winter clothes and fishing rods, and instead of paying for an extra bedroom to store that stuff in, they will instead just put it in a storage unit. So because of that, storage these days has changed a little bit, and it needs to be several things. It needs to be safe, secure, well-lit, easy access, and it needs to be climate controlled. They need to be able to use a QR code on the door or a touchscreen kiosk and get in and out of the facility very easily and quickly. They need to be able to show up on a Saturday morning, grab a snowboard and bibs, and get out of town. So the space is changing because the consumer is changing. So a lot of times we're having this population situation, especially across the Southeast, where people are getting pushed out of the more expensive markets like a Raleigh or a Charlotte and getting pushed into these small secondary and tertiary markets around there. These smaller markets are underserved for housing, especially underserved for storage. But in most of those little towns, the cute little downtown is going to blow up and start growing like crazy. And right in the middle, there's an old textile mill or a warehouse or a Kmart or a grocery store that's perfect for converting to storage that's been sitting there for 10 or 12 years. So to answer your question, there's not really anything that special about storage. In fact, If you and I wanted to go build a self-storage facility from the ground up right now, it's gonna cost us $120 a square foot for the construction plus the cost of the land. That's specifically why we buy old big box retail buildings and we convert them. My partners are builders with 30 years of commercial experience. They have built ground up before. But when we buy an old building and we convert it, the day we're standing there with the Chamber of Commerce, and we're cutting the yellow ribbon and we're opening the doors and we're renting out units and it's completely done and renovated, we're average $63.50 a square foot, completely turnkey. Because it— and that's the building, the conversion, the parking lot, all of it.

Mm-hmm.

It's kind of like when you make your money flipping a house, you don't make your money when you renovated the house and you don't make your money when you sell the house. You made your money when it smelled like dogs and cats and you bought it for dirt cheap. We buy the dog and cat buildings because of that. The reason I've chosen self-storage, specifically the conversion strategy, is because, because our cost basis is so low. When we hit stabilization and we— the property's 85% full or higher, we're usually sitting around 30 to 35% loan to value, which means we don't have to sell the asset in order for the investors to get a payday. We can refinance. to 55 or 60% LTV. Like on average, we're buying a building for maybe $2 to $3 million and we're putting $2 to $3 million into it. So we'll be into a project for $4 to $6 million. But as a stabilized asset, they typically appraise between $13 to $17 million, which means we can refinance to, you know, $7, $8, $9 million, pull out enough to pay off the debt, pay all of our investors, do the best we can to double their money. Pull out enough to keep the lights on at Nomad, but then we keep the asset. All the investors stay in. We continue to hold it long-term.

Mm-hmm.

That's the idea of why we want to get to $1 billion in assets under management. So everybody gets a relatively short-term payday, but then we keep the assets. We continue to carry it forward. If we're just buying facilities and say we buy an apartment complex and we fix it up and we make it nice, and then everybody has to— you have to sell it for everybody to get a payday. That's just a glorified house flipper, and we're right back to trading time for money. And your listeners are specifically listening to your podcast because they're probably trying to find an occupational shift that's an option for them down the road where they can stop trading time for money. So why would you move to a real estate strategy where ultimately for everybody to get paid, you have to do that? The only way to have a strategy where you can break the connection between time and money Is to have a huge enough value add that you can do a cash-out refinance to give everybody a return of capital plus another big chunk when you do it by way of refinance. By the way, that's not a taxable event because you didn't sell anything.

Hmm.

From there, everybody got a payday, but we keep the asset, the investors stay in, and we continue to hold it long-term. Self-storage is incredibly inflation-resistant, pandemic-resistant that we've just seen, and recession-resistant. Those rates can go up and down with inflation from month to month, whereas if you got a 10-year commercial lease or something like that, you're kind of stuck for a little while. So because of that, I love self-storage, but specifically the conversions is because it allows us to pay out our investors and keep them in the deal. That's why our syndication is called Nomad Capital, because a nomad is somebody that goes where they want, when they want, and does what they want. You don't get that if you just get paid once. You have to have that continued truly passive income carrying forward.

Yeah.

Well, interesting. Very, very informative and an overlooked asset class. I mean, self-storage is, is, has gained a lot of attention in the last few years. And but there's few people who are doing the conversions. So thank you for being with us today. It's been very informative, Clint. And we are speaking today with Clint Harris, and you can find Clint at nomadcapital.us. Thank you so much, Clint, for being with us. And enlightened investors, thank you so much for being with us once again today. I know you've enjoyed today's show, so please take a moment to like, share, and subscribe, and go to your favorite podcast app and We would be eternally grateful if you would leave us a rating and a review. Until next time, live abundantly in all areas of your life, and we'll see you in the next episode.

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