Day 2: Most Investors Get Self Storage Wrong — Here's What They're Missing

All right. Welcome back to day 2 of the Storage 100 series. Yesterday, we established why self-storage is an incredible investment opportunity right now. But today, we need to pump the brakes a little bit and get a feel for what's real here, right? Everyone's talking about self-storage, but frankly, most people are getting it completely wrong. You see the headlines, you hear the gurus, you start thinking this is some kind of magical You know, effortless investment. And I know this because everywhere I go and I tell people I'm in self-storage, it's all they want to talk about. It's so great. This is great. I'm getting into it. I heard it's great. I heard it's the greatest thing ever. And it is. I love it. But that kind of thinking is dangerous because it sets you up for failure. We are here to build a real business, not just chase a fantasy. So today we are going to separate the fact from the fiction, bust some of the myths, And set the record straight on what actually takes it, or what it actually takes to succeed in this space. So if you want to build wealth through self-storage, you need to understand the reality, not the hype. So let's dive in. By the way, I'm Joe Downs with the Bellrose Group. Probably should have introduced myself, but hopefully you know that from last night. All right. So biggest source of misinformation comes from the guru hype machine. I mean, you see it all the time out there. Look, they put out good information sometimes, but it's a lot of hype. It's a lot of promises of passive income, no work, instant wealth. They make it sound like you can just buy a facility and the money just magically appears in your bank account. And that's just pure fantasy, right? So the reality is directly owning a self-storage facility is a real business and it requires active management, especially in the beginning. Success in this industry takes education, takes capital, it takes consistent effort, it takes knowledge, it takes sharpening the saw, it takes Joining a mastermind and keeping up with what's going on in the business and the day-to-day and how you can improve your operations and become more efficient. All right, the returns are excellent. They are. We talked about the 30% to 50% operating margins yesterday. But they don't come overnight, and they're certainly not automatic. Can you get lucky? Yeah. But most of the time, we're working for it. It's not hard work. It's just work, right? And by the way, we love it. So, it's really not even that challenging or difficult or— You know, just work you hate to do. So, all right, let's spend the rest of this episode tearing down the 3 biggest misconceptions that the gurus love to peddle. And let's start with the most common one. Number 1 myth you're going to hear is self-storage is completely passive income. The gurus out there will tell you that buying a facility, or you buy a facility, hire a manager, and you just collect checks while you sleep. And that rest— that's just a recipe for disaster. It's not— doesn't work that way. Self-storage, it's a low-maintenance But it's still absolutely a business. So it's not no maintenance. All right. So for hands-on owner, you should expect to spend 5 to 15 hours a week, especially if you're optimizing and growing the business. Right. You still have to handle tenant communication sometimes. You still have to manage your marketing campaigns and you have to oversee maintenance and capital expenditures. Even if you're using a third-party manager, you got to manage your manager. It's not, it's not a set-it-and-forget-it business. All right. Beauty of self-storage though is that it's passive-ish compared to something like apartment buildings where you're dealing with emergency repairs or emotional tenants' problems in the middle of the night and constantly changing local and state and federal rules and regs. But you're still a CEO, right? So you have to make strategic decisions. If you treat it like a hobby, it's going to pay you like a hobby. And I don't know, if you treat it like a hobby, it could also You could destroy it. So let's talk about the second myth that keeps people from even getting started. All right. Second major misconception is that you can start with zero money down. That is, if you want to own a facility, I'm going to preface it with that. If you want to own a facility, that is an ultimate guru fantasy. All right. You know, they use OPM, other people's money, and buy a million-dollar asset without spending a dime of your own money. Look, creative financing is great. And we'll cover it in this series, but even the most creative deals require capital. We talked about yesterday the power of the SBA loan, which requires as little as 10% down. So for, you know, a million-dollar facility, you only need to put down 10%. Well, that's the down payment, but that's not zero money down, right? That's 10% down. That's $100 grand. And then beyond that, you have due diligence costs, inspections, appraisals, legal fees, surveys. That could easily run you 20 to 30 grand. Then you absolutely have, you know, depending on the facility, you might have operating reserves or capital expenditures. Again, this is if you're going to buy it yourself and buy it with the expectation to own and run it, right? So you're going to have those capital expenditures. You might have some marketing costs you need to set money, set initial capital aside for, you know, in the initial lease-up period, you might be buying something that isn't stabilized because they had no, They had no, you know, no website, no marketing, SEO, none of that. Well, that requires some capital out of the gates. And by the way, that's why you're buying it. That's one of the opportunities. But you can reduce your capital requirement by bringing in partners. Sure. But even then, they're going to want you to have skin in the game. So stop chasing the zero-down dream. We'll talk about what that looks like in the form of bird-dogging or wholesaling. But even then, you probably still need some capital. But, but this whole dream of I can get into a facility with no money down, it's— come on. Has it happened in history? Sure. Is that really what you're, you're going to spend your time learning how to do? Come on, go buy lottery tickets. All right. So you really need to understand this is a $50,000 to $150,000 on the low end, uh, kind of capital business that you can start with. But that's actually less than most franchises. So I'm not trying to put— I'm not trying to crush your spirits here. But if you, if you're thinking about a side business, side hustle, you're looking at franchises, you're looking at other opportunities, multifamily, this is by far one of the best alternatives. But let's not go into it with this. I heard this guy on Instagram or this guy on Facebook tell me I can get in this business with no money down. It's— come on, it's a pipe dream. So speaking of reality, let's move on to the 3rd myth about where you should invest. 3rd misconception is a killer for new investors, and it's the idea that all markets are created equal. They are not. You hear people say self-storage works everywhere, and that is just flat out wrong. A great facility or a great manager, either or, or even both in a bad market is always going to underperform a mediocre facility in a great market. Right. So location matters, but you need to understand what's going on around that location. Right. So you need to look at population growth, among many other factors we'll cover in this series. If the area is declining, your demand will eventually decline as well. You have to analyze supply-demand, supply and demand ratios. We call it the supply index. If there's 5, as an example, 5 other facilities within a 3-mile radius and they're all big and a new one's being built, the market's likely oversaturated or about to be. Depends on the size of the facility and the population. That's the supply index. But, you know, my antenna's up, I'll tell you that. You also need to consider income levels, which determine the rent potential and affordability for your tenants, right? Their discretionary income. Storage is discretionary. Truth is, you need a market with growing population, low competition, and strong incomes with a limited new construction pipeline. That's your holy grail, right? And then, well, your holy grail is like 5 more characteristics of the facility, but that's the market you're looking at, right? So we— and by the way, we're going to dedicate an entire segment to market— or a segment, by the way, not just 12 to 15 minute episode, entire segment on market analysis. Okay. But for now, understand that location is critical and the foundation of your, of your investment. Understanding not just the physical location, but understanding everything around your location is critical. All right. So now that we've busted these 3 myths, let's look at the next one. We just talked about market selection is everything. The next big myth, location is all that matters. That's what I was just alluding to, right? So it's not just 123 Main Street or the corner of Main and Main that matters. All right. Location is nice, but location alone is not enough to fill your units. That's just lazy thinking. The idea that you can build a facility or buy a facility in a good spot, put up a sign, and tenants will magically appear is just dead wrong. Maybe that used to be the case. If that was ever completely true, I'm not sure, but it is not true today. All right. Success in self-storage is determined by your marketing and operational execution. You need to be a great operator. Not just a passive landlord. That means optimizing your Google My Business profile, for instance, so local searchers can find you first. It means using online rental platforms like SpareFoot effectively. It means having— it means spending money and having your own either paid-for organic SEO working. It absolutely means building local partnerships with movers and real estate agents who are constantly dealing with people who need storage. Great operators in the same market will always outperform average operators, probably by 15 to 30%. You have to work the business, not just own the asset. And that's a critical distinction that separates the winners from the losers. All right. Now let's tackle the next biggest piece of the industry BS. I'll keep it clean here. And that is, this is the one you hear everywhere, right? Self-storage is completely recession-proof. That is a massive oversimplification as it sets up new investors for failures all the time when they go into it without thinking. Self-storage is a recession-resistant business, but it is not recession-proof. There's a huge difference. You can absolutely lose money in self-storage if you make dumb decisions, and that's in any market. Overpaying for a facility will kill your returns no matter how good the economy is. Overleveraging with too much debt means a small dip in the economy can sink your whole deal. And poor management is going to drive tenants away faster than anything else. The asset class is resistant, yes, but that resilience protects the smart operator when they need to be protected in the down market like a recession, right? A bad operator will still fail even in the best— even if this is the best asset class, and I personally think it is. It's one of them, if not the best, right? But they will fail if they make all those boneheaded decisions when everything is going well, because they will be tested in the recession and they will fail at that time, right? A good operator who sticks to their principles regardless of the market you're buying in will manage their way through a recession. That's why it's resistant, right? It's not proof, it's resistant. So don't let the hype make you complacent. You still need to do the work. All right. So, so let's back up a second. All these myths are wrong. What's the truth about this business? Truth is simple. Self-storage is a real business. It's not a passive investment you can just set and forget. The rewards are absolutely real, but the work is too. So sorry if I busted these myths that it's this risk-free lottery ticket for you. It's not. That's the, that's the also the good news, right? So there's folks out there that, that think it is. And unfortunately for them, they'll either never get started or get hurt. You, because you're watching this, are going to get the benefit of education and opportunities to learn more. You are going to realize you have to learn market analysis. You are going to realize and understand underwriting is essential. So how to, how to operate a facility, the modern operations, right? That introducing technology into our operations completely changed self-storage from where it came from, where it is from where it used to be when I got started 7 years ago to where it is today. Right. You will know that you need capital even with creative financing, even with seller finance loans or SBA loans. You still are going to need some capital if you want to own a deal. And you now know that's on the low end, $50,000 to $150,000 for most deals, right? And you will learn if you stick with this series, you need consistent effort, right? We're talking about 5 to 15 hours a week managing your systems, not just checking your bank account balance, right? This is a business that runs on systems and processes, marketing, pricing, customer service. It's not magic. It's just a business model that works incredibly well. If you treat it like a business, it's not hard. We're not launching rockets to space or catching them back from space, right? It's it's blocking and tackling. It's simple stuff, but you got to do it. And if you do, you can be very successful. And again, this isn't eighty hours a week; it's five to fifteen hours a week depending on how many own and and how you're set up. So let's talk about the timeline for getting this business off the ground. If you think you're going to buy a facility and be cash flowing. 6 figures in 3 months, you need a reality check and you probably didn't finish this entire series. We just established that it's a real business and a real business takes time to build. All right. So the real journey from education to stabilized cash flow, all in from, you know, last night's opening kickoff to, or just, you know, if you're picking it up today for the first time, it takes 12 to 24 months before you're, you know, you're really feeling good about cashing those checks. And that's a 12-month window. I get it. Yeah. A lot can happen though on the front end, uh, as well as the type of facility that you buy. So that's why there's that big range. But, um, it starts with 3 months of kind of more education and market research and really drinking from that fire hose and immersing yourself in getting, you know, really understanding the business, um, because you need to know the fundamentals and identify your target markets and your target buying criteria for you as well as your personal target market. Meaning location geography, if you intend to be the buyer. All right. And we'll cover more on that later and we'll cover more on, you know, if you don't intend to be the buyer through the series. But then you're going to spend 3 to 6 months sourcing and analyzing deals, right? So they don't— yeah, there's going to be— I'll show you how to get deals in your inbox every day. But finding really good deals sometimes is finding off-market deals. All right. And this is where you're going to end up in this first 3 months where you're going to learn to underwrite, build relationships, find the right size kind of deal that works for you. Closing then takes another 3 months. We find the deal. Now we got to close it, right? So, we got a due diligence period. We got a financing period. In through all that period, we're doing legal work, right? So, that's roughly about 3 months. I mean, have we done it— have we closed them faster? Yes. Have they taken longer? Yes. And we're just talking about buying value-add. We're not talking about building it. Um, so that kind of brings you to a full year before you even take ownership. If you think about it from today to by the time you sign on the dotted line, right? So over the next 12 months, you're going to focus on— over the— sorry, after you buy it, the next 12, 6 to 12 months, depending on what you bought, right? And where, what its status is when you buy it, you're going to focus on stabilizing it if it isn't, and then optimizing it, right? Getting all your systems and processes in place. All right. So, because you're going to want to improve the occupancy, you're going to be hopefully at some point raising rents or at least preparing to, and then scaling that revenue and even adding other revenue streams. All right. But it's a patience and persistence game. That's what wins. We'll be here for you to encourage you not to— help you not get discouraged if it takes time. And that— but that's the realistic timeline for building Real wealth and self-storage. So today, I'm wrapping up here. I want you to think about what your your key takeaways are from today. Please drop them in the comments as well as any questions, right? If you have key takeaways or questions that you have, you're not sure about something I said, I'll have an answer for you. I'll read the comments. I'll answer them for you the next time I go live, which will be after each segment. So each segment's gonna be roughly about every two weeks. First segment, you know, as I mentioned, I'm gonna I'm gonna talk about the state of the industry, the industry in general. Then we're gonna get into sourcing, and we're just gonna go from there. So stick with me. But before you click off, just give me sixty more seconds. This is not your typical, you know, most most well, I guess it's kind of a podcast. It's a Storage 100 series, but sometimes it's a podcast. Most of them end with. Subscribe, like, and share, whatever the saying is, right? I'm not going to end like that. This is not your typical subscribe and share throwaway finish because I want to explain exactly why this matters for you strategically. First, yes, I want you to hit the like button. And I'll be honest with you, that's for me, right? We're on day 2 of a 100-day journey. It's actually a couple more days than that with the lives. So this is a marathon for me, not a sprint. Every like you give, you know, it's gonna help my dopamine a little bit, right? This is a long journey, so do it for me. That's all I'm asking for you. The rest of this is free. So it's fuel for me for the next 98 days. Simple as that. The next 2 are for you. Subscribe. This one's easy and it's for you, and here's why. First of all, hit the subscribe button. You'll get notified every time we drop an episode, which will be every day. Plus, more importantly, The lives are gonna be at night. The recorded episodes like this one, I'm dropping 6:00 AM in the morning, right? So it's available to you all day, but you'll get that notification that, you know, it's ready. But you don't wanna miss the lives. They're gonna be Tuesdays and Thursdays. It's not exactly 2 weeks. It depends on how long it takes me to finish a session or a segment of the business. It's gonna be Tuesdays and Thursday nights at 8:00 PM to recap what we just went over for the last 2 weeks. So especially if you didn't get a chance to watch one, Try to watch them all. And, and we'll be able to do Q&A on there. I'll do a live Q&A for you. I'll try to answer all your questions. So if you don't subscribe, you might miss them, right? So it's pure value for you. Now, this one's even bigger than you think. The share. All right. This is the tallest order. It's really not just share it, right? But hear me out as to why this is for you. It's for you and your network. So here's what most people don't realize. You've got friends out there who are also interested in self-storage. But they just haven't talked to you about it yet. So why not share it with them and give them a chance to see it too? It's kind of for me, kind of for you. But here's the real strategic play here, and this one's brilliant. When you share these videos on whatever social media platform you choose to share them on, and I don't care if Facebook, Instagram, LinkedIn, YouTube, you really should actually do it on all of the ones you're on. You're indirectly— and this is why— you're indirectly letting everyone know in your network that you're friends with or LinkedIn with or whatever. that you are involved in self-storage in some capacity. Do you get that? You're actually positioning yourself very subtly, slowly and subtly, as a self-storage expert in your circle of associates. Why does that matter? Well, fast forward a few months from now when you find a deal and you're looking for capital partners, right? Do you want them thinking you just dipped your toe in self-storage yesterday? Or do you want them remembering, oh yeah, he or she's been at that for months now, posting about it and sharing and this and that. They must really know this space. They must really be involved, right? Trust me, it's the latter. And it's because it will feel like years that you've been doing it, not months, right? When I first started, I was posting for, you know, here and there, dropping things for a couple months. In my first year, people thought I was in self-storage for years. So trust me, sharing these videos is you planting future seeds, right, for future dealmaking. It's strategic networking disguised as helping your friends. And the bonus is later in this series, big bonus, I'm going to show you how to actually use that as another anchor. All right. So tomorrow, day 3, we're going to head into— or I'm going to show you how self-storage Goes head to head very nicely, goes head to head against apartments, residential, right? Which actually makes more money. And the numbers might surprise you, so don't miss it out. Also, check the show notes for a link to our next live storage event. You're not going to want to miss it. It's another reason to subscribe. We're going to have those from time to time. And if you're subscribed, you will be notified about them. All right. So again, thanks for watching. And now that you know why And have a purpose. Now please, please go ahead and like and subscribe and share. So like for me, subscribe for you, share for your friends and colleagues. They will thank you later.