Day 37: Off-Market Self Storage Deals: Are They Really Worth the Hype?

All right. Welcome to day 37 of the Storage 100. I am Joe Downs, and today I want to tackle the topic that gets more hype than any other— off-market deals. And everyone wants the secret handshake to the deal nobody else knows about. I remember our first deal. It was a failed listing and not going back on the market. Total fluke how we ended up with it, but it proved the concept. We need to ask if these deals are truly worth all the hype they get. Short answer is yes, but the path to them is not what the guru tells you. So today we're going to pull back the curtain on what it really takes to find these properties, and we'll start by looking at the cycle of excitement and disappointment that most people go through. So the off-market hype cycle is a predictable path to failure for most investors. It starts with the guru promise that brokers are for suckers and you can find deals with zero competition. Sounds amazing, right? Then comes the attempt. You send out 50 letters, you get zero calls, and you feel completely defeated. And this is where 99% of the people quit. The reality is that off-market is not magic. It's a volume game. You have to stop looking for a shortcut and start building a repeatable system. And this is the cycle is why so many people think off-market doesn't work. But really, they just understand what they were actually chasing. So let's define what we mean by off-market before we go any further. So we got to separate first the fake off-market from the true off-market. I know it's ridiculous, but the fake stuff is what you hear about most often. And when I say fake, I— in parentheses, so, but because it could be true or not. But so this could include pocket listings, which sometimes could be brokers just shopping a deal to their VIP list before it hits the market. I know last or yesterday we talked about how that's not always the case. Well, here's the flip side. Or when a broker doesn't have a listing, but they know if they bring an offer price or an offer to the seller that's like way, way above what it's actually worth, then the broker knows they'll be able to get that listing. So they have an off-market deal that they know about, right? So those are the things you got to be careful of. So, but a true mark— true off-market is when you're just direct to seller. It's you and the seller, no one in between. And that means no commission for the seller. So that saves the seller 2 to 6%, depending on the deal, right off the top. And you're like, well, that's great for the seller. Well, that's good for you too, because that means you're going to do well in the negotiation because, you know, if it was a $100,000 fee, for instance, that they're not paying to a broker, well, now that's $100,000 of negotiating room there. You know, maybe you'll get it for $50,000 less. So anyway, most importantly, you're not buying a building. You're solving a problem for the seller. So it's more of a relationship game. And that's the key difference. So, but even if and when you find a true off-market seller, you may need a serious reality check on pricing. And we've run into this a lot. It is what it is. But here's the reality check. A listed seller has a problem, typically debt, divorce, sickness, death, or, you know, it's just time and they can't wait and they need to sell. So they're willing to accept a market price. They want to put it out there, Mark, and they're willing to accept that price. An off-market seller is completely different. They do not need to sell. They are happy to keep the property unless you pay them enough to retire in Fiji, for instance. You called them, right? You walked on their lot. They didn't have a for sale sign in the yard. So that's where the make me move price comes in. And it's sometimes double the actual value. So you see a property like, oh, I got to have that. And then they say, well, one of the lines we hear all the time is, well, I'll sell at the right price. And my response is always, yeah, and of course. And I would buy Buy at the right price too. So, but you're not competing with other buyers is the, is kind of the problem here. But you are competing with the owner's ego sometimes, or some fantasy price, or their make-me-move price. So that's why you have to focus more on the problem-solving aspect and not just the property. You need to understand the property, underwrite the property, know what the property's worth. But you really, to truly get an off-market deal done, you have to solve a problem. So let's look at the actual math behind finding these true off-market deals. So for the direct mail method, here's some of the hard truth of the math. You have to understand the volume required to get a deal. So you might send 2,000 letters just to get 20 calls back, which is a 1% response rate. And out of those 20 calls, you might make 4 or 5 offers. And out of those 4 or 5 offers, you might close just 1 deal. So, which I would argue is pretty good. So what is the cost of that one deal? If each letter costs you a dollar, you just spent $2,000 to get a deal. Or if it's $2, you spend $4,000. Would you pay $2,000 or $4,000 to buy a property that gets you a— that ultimately gets you $500,000 in equity? Of course you would. The problem is most people stop after sending only the 50 letters and spending $50 or $100 because they never get to the volume that makes the math work. And this is— volume is the requirement. So it's kind of why you have to add cold calling to the system. It's got to be a part of the system. And this is the brutal reality of the grind. You're playing a numbers game, not a skill game, especially when you start out. You have to dial 1,000 times just to get one deal. That means 999 people told you no or didn't answer or hung up. Right. Most people quit at dial number 50. Because they think it's not working. And the deal is almost always at dial number 882 or 999. So you have to commit to the volume and the consistency, and you got to push through the noise to find that one seller who's ready. And that's why you need a strategy that leverages both the volume and efficiency. So how do you make that relentless grind more efficient, you might be asking yourself? Well, you have to use the hybrid approach. You need to work with brokers and also pursue off-market deals. Brokers have the data and they control the inventory. They're the gatekeepers to the listings you do want. But off-market deals give you better pricing and let you build direct rapport with the seller. So the key is using your off-market efforts as a lead magnet for the brokers. Tell the broker you're marketing heavily in an area. If you find a seller who wants a retail price that doesn't fit your buy box, You'll refer them to the broker to list it. You're going to turn rejects into gold for the broker. And of course, then this will help you build a relationship with that broker, keeps you top of mind when they get a deal that does fit your criteria. And it's a hybrid strategy is how you're going to scale for your deal flow. Hybrid approach works well because it focuses your off-market efforts on the sellers who actually matter. And off-market usually only works in the In 3 specific scenarios. Um, could be more, but here's the most common. So the first expansion play, you already own a facility, let's say within 3 to 5 miles of the target facility. You can pay a little bit more because you don't need new staff or new software. You got economies of scale already. Um, so, you know, you're ready to receive the, the, the second facility. It's just a hub and spoke model. You don't even have to market differently. Um, the second would be the tired owner, right? This is the mom and pop who hates brokers and just wants an easy or private sale. They might value the handshake and the quick close over the bidding war, right? And then lastly, you're looking for the distressed seller, right? Because of death, divorce, debt, disability, disinterest. They might need cash quickly to solve a problem, and they're going to value speed over price. So if your seller doesn't fit one of these 3 buckets, you might be wasting your time on some off-market outreach. All right, let's wrap this up because we've covered a lot of ground and on the reality of the deal sourcing. Remember, the goal is to work smarter, not just harder. Stop chasing every shiny object and focus on the math and the 3 scenarios where off-market truly works best. All right, up next is day 38 tomorrow, and we are going to talk about writing a letter of intent, an LOI. as we call it, that actually gets accepted. So hit the subscribe button so you don't miss it. 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