Day 39 - Boat & RV 100: LIVE RECAP: Section 3

39. We are live again, day 39 of the Built-in RV 100 series. I'm Joe Downs with Storage Moguls. Um, and look, if, uh, give people a minute here or two to, to join. Look, if you've been watching this series and you haven't joined us yet, um, on storagemoguls.ai, why not? Today's the day. Um, People in our community, they're not waiting. They're, uh, they're out there. They're looking for deals. They're finding deals. They're closing deals between $400,000 and $200,000. And they're just like you. They're, um, they're husband and wife teams. They're 2 brothers. They're brother-in-laws. They're neighbors who, you know, kick ideas around, around the fire pit. Over some beers. They're they're doctors, they're lawyers. There are people that do it themselves as well. Don't get me wrong, you don't have to be a team. But the common thread, I guess, is there are people that are just looking for a better way. They're looking for they want to own their own business, but they don't really want to own a franchise. You know, maybe they've looked at that, or they're in real estate, but they're just tired of. I mean, you know, single families or even small multifamilies. Trying to— I'm scanning my brain for all the people that, that have come through our, our network and who we've had the pleasure of speaking in front of and, and educating through the Storage Academy, and, um, and who— some of whom we've become friends with and A lot of whom we've helped find deals. And, um, I mean, it's just the regular everyday people just like us. Um, so storagemoguls.ai. Um, I don't know what you're waiting for. Um, if you're waiting, it doesn't even cost anything. Just go register. Um, and then fill it out from there. If you are interested in taking steps beyond that, we've created it, obviously, um, and we would love you to join us. Well, you don't have to until you're ready, and that's, that's the beauty of it. All right, let's, uh, let me switch screens here and, uh, let's get into it. So As I was saying, we got the, um, day 39 Boat and RV 100 Series live recap tonight. Um, I've already thrown enough reasons at you as to why you should join us at storagemobiles.ai. It's up to you from here. But let's get back to today because, uh, the section 3 is the section where most deals either get done, um, Or fall apart. So let's talk about it, and we obviously will have time for some questions at the end. I did get a bunch of emails, or yeah, questions emailed into me. So appreciate that. Joe at storage moguls dot ai. In case you, I think I'm forgetting to say that in some of the videos. But Joe at storage moguls dot ai. If you do have questions along the way, feel free to email them in. And all right, yeah, let's get going here. All right, so let me walk through what we've covered so far. We did, uh, on 5— in 5 episodes, we talked about the 5 layers of the financing challenge specific to this asset class. Day 26, we set the frame, um, the lender problem, which is a huge problem, but it can be a problem. Most banks have never seen this deal before, this type of deal, boat and RV. It's not like storage. Um, again, we went over that on day 26. You can't just walk in cold. You, you're gonna have to educate them. But in that education process, first of all, it's good for you. It's part of your due diligence. But second of all, um, you get the ability to come in and look like a pro. Um, you know, lenders that close storage deals once a week, you're not gonna— you're not educating them. Um, if you were coming in with with a new business they haven't exactly financed— maybe they financed storage but not bought an RV— you come in dotting i's and crossing t's, which we show you how to do, um, makes you look like a pro. I mean, it makes— trust me on it. Uh, day 27, we gave you the package, the document that does the educating for you, uh, the market data, seasonal pro forma, the operator credentials. And this is what I'm talking about when you come in with this package. Uh, the lender gets a package like that, feels like they're dealing with, like I said, professional. Uh, day 28, 29, we covered the 2 most common lending paths, SBA and community banks. And the key distinction: SBA is when you need the guarantee, community bank is when you have the relationship or you can build one fast. Um, day 30 was the one that opened the most doors— seller financing. Uh, the structure that solves the equity gap and closes deals that conventional financing alone can't touch. And not to confuse people, um, seller financing is really— there's 2 ways to talk about it. One, I, I prefer to say seller carry, but a lot of people don't know what that means, so I say seller financing. Um, seller carry is really where I'm going and getting a first mortgage, maybe 50-60%. Uh, and then I've got the seller to fill in that gap, whatever. If it was a 60, maybe they're doing 30 and I'm putting 10 down, um, 10% down. That's a carry. The seller financing, just straight-up financing, there is no bank. The seller's the bank. Maybe they're financing— the seller's financing it to me at 90% and I'm still putting 10% down. You might— I know of people that have done 100% financing deals. It depends on the deal. Uh, it sounds great on paper, but might depend on the deal. I don't necessarily know that I always want that situation, but, um, that's seller financing. Seller financing is where the seller is the bank. Seller carry is where the, uh, there is a, there is a lender involved, and then the, the seller is taking the second. Again, we covered on day 26, 27, the seller has to take that. They have to subordinate their second to the first. Um, both are phenomenal scenarios. Uh, I just wanted to make sure you understood the difference. Um, these 3 come up almost every operator call when we talk about financing. Uh, the lender said no. One no is data, by the way. Uh, what specifically did they object to? What is the asset class? Your DSCR calculation. All those things are important. Um, the seasonal occupancy pattern— each of those is a flexible problem, but you have to know which one it is. Uh, the down payment gap— this is where the seller financing changes everything. Uh, a seller holds a subordinated note for 20 to 25%. If you think about it, means you're closing with significantly less cash than a clean conventional deal requires. Again, we covered that on day 30. Um, And that's what I was just talking about a second ago. It's just you have that first— the lender loves it too, that because instead of them being at 75 LTV or even 80 or even 70, even they get to compress down to 60 or, or 50, and that puts them in a, a really comfortable position. Um, the low appraisal— boat and RV comps can be thin. So, uh, the appraiser may, may apply self-storage cap rates because they don't know what they're doing either. So think about it, if appraisal comps are thin, that means there's less appraisers doing appraisals, so they might not be as experienced with boat and RV. So you have to educate them as well. Go back and watch those videos if you missed them. Um, and you, in, in that scenario, you got to do the comp work yourself, so provide it proactively. Have a written reconsideration of value argument ready. I would definitely educate the appraiser before they go putting their stamp on it, because then, you know, they never like to walk it back, increase value, never like to do it. So better to arm them in advance than tell them they did a bad job and then go and then ask for them to, to increase the value if they undervalued it. Um, lender package is the thing that separates the operators who close from the ones who don't. Um, most people walk into a lender meeting with a spreadsheet, and that's just not enough. So you got 6 sections here, 6 jobs. Um, the seasonal pro forma is the section that does the most work. A monthly model with summer dip annotated— remember that? Something like literally a note, summer gap vehicles are in active recreational use, should do it. And again, a lender that doesn't understand this, now you're educating them. You're telling them what they're looking at. Um, and that annotation prevents the conversation where the lender asks why occupancy is only 70%, as if it's a bad deal. When they read that, they can read, oh, 70? Oh yeah, that does make sense. And then it's a non-issue. Uh, the operator credentials section is one of the is one of the most— is the one most first-time buyers skip. Um, in this vertical, lenders underwrite the borrower just as much as the asset. So even if you don't think your credentials are super specific, like I've managed boat and RV before, you still want to put your best foot forward, show them you're a professional somehow, you've accomplished whatever. So make sure, however you want to puff that up, puff it up. A lender who feels like they know you or understand you, um, is more likely to approve you. You know, if you look like a professional over here, and it's not a huge leap to get over here, and you've already bridged it by all the knowledge and the package that you've delivered. Uh, seller financing isn't unusual in this vertical either. It's very common. These are often operators who built their facility from scratch, owned it for decades, um, probably don't even have a mortgage on it anymore. And a lot of them don't need a lump sum, they need income. Some do, some need something, but a lot of them really want income. Same in, uh, a lot of times you'll find that true in self-storage as well, but particularly in boat and RV. So we sell our note at 6 or 7% over 7 years, secured by the property they built and know very well, is often a better outcome for them than taking a lump sum that they have to figure out what to do with after a massive tax bill all in one year. So some people have plans and don't trust you and whatever, and that's fine, but don't not have the conversation. Um, a lot of them don't even know it's a possibility, and might be open to come around to it again. That's the science part is in the math. The art, the the getting it done, that's an art form. And shameless plug right here: we show you how to do that. StorageMoguls dot ai. You got to frame it, frame it the way I just talked about it in that in the conversation. But we'll show you other ways. Key terms: seller note must be subordinated to the bank debt. Your senior— yeah, your senior lender will require it. That's in the seller carry scenario. Most sellers accept it when it's explained, so always include the right to prepay without a penalty as well. Um, I'm just trying to think what else you need to remember here. We are— something like, we are prepared to offer this purchase price with this amount down and a seller carry amount of X. Paid over n number of years. Ideally, you match it to the first mortgage. And then something like when you're presenting it again, we'll cover this storage models, but we're flexible in structure if the economics work for you. You don't want to seem needy, but if you say something like that, hey, here's an idea, or a lot of sellers that I've talked to. Wanted a structure like this. It's not you trying to pitch them on, hey, lend me the money, or I don't, I don't have the money. It's not you saying I don't have the money but I want to buy this. It's a different approach. Framing it the way I just told you, it opens up the conversation without making it adversarial, or, you know, them putting their, putting their eyeballs up going, yeah, I mean, you know, you look risky in that, that way. All right. Your turn. Q&A. No question is too basic, especially the financing ones. Um, a lot of folks will ask in private but won't ask in public. By the way, this is public, but it's, it's private. I won't put your name up. How's that? Um, so fire away if you have any questions. If not, I can go over the questions that were emailed to me, and I might as well just start with them. Um, Joe, I have been watching since day 26. Well, why'd you only start on day 26? Go back to day 1. Um, I went to my bank this week and the loan officer asked me what the cap rate was on the facility and I didn't know what to say. Did I blow the meeting? Well, I don't know. How'd the rest of the meeting go? Um, Maybe you didn't. You could always fudge your way out of that because the— how do I say this— the what the seller is asking for and what the, the seller's NOI is, is, is the seller's, the list cap rate, right? It's a— that's an output at that point. Um, you— and maybe that's what they were asking. But you can fudge it because you can say, well, the seller's asking for this number on this NOI. There's one way to do it without saying what the cap rate is. Um, but you could also say, but I'm not, you know, I, I think it's, it's a little high. And if the lender in front of you says, well, that's a 6 cap, that's crazy, you say, yeah, I thought so too. Um, but this is also— it's, it's not a tight window on cap rates in boat and RV. So you can, you could get, you could— you probably didn't blow the meeting. You could get away with it. You could be vague because it is vague. Um, and then you can come back later, go watch all the videos, come back later with a package, and then they won't, they won't remember that you didn't you didn't answer the question directly. Um, uh, let's see what we got here. Um, Joe, I've been underwriting boat and RV deals alongside your financing playbook for a first-time buyer. What actually makes a lender comfortable enough to say yes on this asset class? Answer that for you in every video. It's not one thing, it's, um, it's a series It's a dom— it's a series of dominoes. It's, you know, uh, who are you as the borrower? Why are you professional? What does your pro forma look like? Is it seasonal? Did you, did you, um, did you map it out monthly for them? Did you show the dips? Um, do you have— let me read this again. If you said you're underwriting, so I'm assuming you have Um, either an OM or financials from a seller at that point. Um, how did they give it to you? Is— have you taken what they've given to you and asked for monthly so you can model it monthly, showing what they, they've been doing, what you've been doing? Did you annotate the dip, if there is one? You know, in here I'm saying there's a dip in the summer. There doesn't have to be a dip in the summer, especially if you, uh, you have people on longer leases and they're paying all year round, or, or they're just— the boat's in the water but they're paying anyway because they don't want to lose the spot. So there don't have to be a dip. But in these 15-minute video daily videos, I can't— you can't cover every scenario. So I'm giving you the worst case. Worst case is in a lot of these scenarios there is a dip. Uh, if there is no dip, then there's nothing to annotate. And then, by the way, that's fantastic. Um, So Dallas, it's really the full package. It's, it's everything, you know, it's, it's the comp section, um, before the appraisal comes back. Um, and hopefully you gave the appraiser that. It doesn't sound like you're that, you know, that far along, but, but you would, right? Um, if this was— this, you're just underwriting and getting ready, but if you were actually doing it, you would have a comp section Um, you know, your, your pro forma is done against monthly, at least 2 years. I like 3. There's no reason they can't give you 3 if they have 2. Um, you know, every— just, just go through the videos. Every, every section you want professionally done, filled out, and know it cold. And I wouldn't worry about first-time buyer after that, you know. And, and you're giving— again, remember who you are. You're going to puff up your little puff piece on what you— who you are and what you've been doing for the last 10 years, 20 years, 30 years, whatever it is. Obviously anything you've done successfully, anything you've done in business— doesn't have to be though, I'm just trying to put ideas in your head. Um, you've served on a board or whatever, it could be a nonprofit board. It just It just speaks as to who you are. The lender wants to get to know you as well as the asset. So you coming in with a little bit of a puff piece on yourself, and not so much a puff piece package but a complete package, that says a lot. That takes the first-time buyer off the table. Now, also wouldn't hurt if in your package you Um, list something like, I'm a member of Storage Moguls, I, I'm a member of whatever state association, um, or I went through this training, or, uh, or I plan on using, um, this third-party operator if that's applicable. Um, and you might even use— you might even say that I don't want to get anyone in trouble here, but you might even say that if you're not sure. Let's put it that way. If you're not sure if you're going to use a third party, put in your packages, these are the third-party managers I'm looking at. Um, why hide it? I, I would 100% make that part of my package, especially if I was a first-time buyer. I want to beef that thing up and remove as any doubts from that lender as I can. Great question. Um, All right, after watching day 27, I built out a lender package. Is this you, Dallas? But I only have one year— oh no, it's not. I only have one year of occupancy data from the seller, not 2. Is that enough to go with a lender? Uh, it depends. Why do you only have one? Um, look, you have what you have. Uh, You can't fabricate it. You just— if the, if the buyer only has only owned it for a year or a year and a half or something, you know, get every month. Um, but you can let the bank lender know, look, this buyer's only been here this long, or there was a fire and all the records are gone, whatever it is. I only have a year. I asked for 3. They've only— they've— they're only able to produce this amount. It's not fantastic, but— and, you know, in that scenario, I think you're probably going to be looking at a lower LTV from the lender because that's risk they're taking on, if— especially if they know what they're doing. And that's not terrible because that's an opportunity to go back to the buyer and say— or the seller and say, hey, look, you only gave me 1 year, and this is what the lender's saying, and this is— I understand it because Um, you know, they typically like to see 3 years. You're giving us 1. We don't know what happened 2 years ago. These— are these numbers— we, we have no basis to suggest that these numbers will continue next year. We, we only have this. So it's not ideal, but it is an opportunity to beat them up a little bit on price and certainly, um, seller carry for sure. Um, Joe, I've been looking at SBA, but every lender I've called says they don't do SBA on this asset type. How many calls is too many before I give up, try something else? Great question. So, and this is not only a great question for boat and RV, this is a great question for storage in general. And I know a little bit about this because in a prior life I have originated SBA loans. Um, as a correspondent? Uh, only the 504. I've never done a 7. We've borrowed 7. I've never originated one. So here's what I will tell you about that. There are a lot of lenders, big names, uh, big names you know, regional lender names you know, local banks who you know wherever you live. They will all tell you they can do SBA, and technically they probably can. That doesn't mean they know what they're doing. When you hear people talk about— when I hear people talk about the SBA and it's a disaster and it's awful and I lost my deal because of the SBA and it took 9 months, it's supposed to take 2 months, you know, and this and that, and they tell you this and then fees, and it's because they went to some— a lender who didn't Doesn't specialize in SBA loans. I wouldn't take this. Book this, write it down, take a picture, video, whatever you want to do. Trust me on this one: if you're going to use an SBA loan, go to an SBA lender. What does that mean? That means a lender who specializes. In lending on behalf of the SBA. That's not local bank and trust company. It's likely not local-based bank and trust company. That's not to say there can't be a local company that's a local bank that does specialize in it, but how many loans can they do in a year if they're a local bank? I'm— what I, what I mean is a lender who does volume, significant volume of SBA loans. Live Oak, for instance, is the number one SBA lender by volume in the country for self-storage, and they'll do boat and RV and they know it. So Live Oak, no-brainer. Bank 59 is another one, probably your top 2. Email me, joe@storage moguls.ai, if you have a deal, and I will connect you to one of the top lenders at Live Oak. If you have a deal, not I'm thinking about a deal, not I'd like to talk to the lender. They don't have time to talk to you if you don't have the deal. And that's not— they would probably say that nicer than I am. That's not to be rude, it's just There's only so many of them, and there's— it's such a powerful product that they need to spend their time with people who actually have a deal. If you want to learn about it, I'm actually going to be doing a, um, very soon, a SBA series with Anne Mino of Live Oak Bank very soon on this channel. Um, and you can learn the whole process start to finish. Um, if you have a deal, shoot me an email. We can talk about it and I'll connect you. All right, let me do, um, some of these are kind of overlapping questions. Um, I want to bring up seller financing, but the seller already told me that they have another offer. Does that mean seller financing is off the table? No. What's the other offer? Seller wants a million bucks, the other offer is $850,000. Maybe you don't know what it is. Um, look, one of the most powerful ways to use seller financing— and I'm gonna, I'm gonna give the disclaimer first— I am not telling you to overpay for a deal just because the seller will finance it. That's not what I'm saying. But a lot of times there are deals where Seller wants a million. Your underwriting is at $925,000. Not to— maybe you could stretch to $950,000 if you tweak this and tweak that. And I'm not saying just tweak things to make it work. What I am saying is sometimes you— your assumptions are assumptions and you just don't know because you don't have enough information yet. So, so we're, we're conservative all the way around across the board, which should be— which we, we teach. But if you're— let's say it's a million-dollar deal and you're 5 years, you're looking at, uh, you think this thing's going to be $1.4 million all day long in 5 years because you're going to do this, that, and this is what you know about the market, and seller's not operating the right way, yada yada, right? You're comfortable with a million bucks today, uh, or your underrating says $925,000 today, but you know all day long $1.4. And maybe your financing, you're running up against the DSCR. That's another reason. Maybe you could go to a million, you think it's worth a million, but the DSCR won't let you get there the way you're trying to finance it, whether it's SBA or local bank, whatever. Seller financing gives you the opportunity to give the seller what they want. So Maybe that other offer is $850,000. If they know what they're doing, they're probably not more than you, because if you're one of our students, if you, if you came through Storage Moguls, you know what you're doing, you know how to underwrite, and you— and we might have even looked at it for you. So you're probably— that's— so that, that other offer, probably the same ballpark as you. You can use seller financing to go to $950,000. $975,000, maybe even $1 million. Because if you're telling me it's worth $1.4 million in, you know, 5 years, 4 years, whatever, you're gonna lose that deal over that when the seller's willing to finance it for you? They get what they want. And by the way, I don't even know what the terms are yet. What if it's, I want $1 million and I'll finance it at 4%? Well, that's— do a discounted cash flow on that. That's, that's probably worth closer to the $925,000 number you're at, even if they accepted $925,000 and you got a bank loan for 7%, right? So the terms matter. What if it's, uh, what if they amortize it over— what if they do interest only? Well, what's that worth? What if they amortize it over 25 years? What's that worth? Yeah, it's So no, uh, seller financing is not off the table. I would go back to them and I would say something like, well, you have another offer, that's great. Um, my, my, um, underwriting is only taking me to here. You know, maybe if we could talk about, um, some creative ways to finance this thing, I could go higher. But you probably already have an offer that's better than that, and you know, it's probably full, you know, all cash. And I would say something like that and let them respond. They might come back with, oh no, no, it's— yeah, it's not all cash. Um, you know, it's, it's, it's, it's a little more than yours, but it's not much. Because that's what I'd say as a seller. I'd say it's more than yours, but it's not what I want, is what I'd say. Well, now you know. And now you just opened the door. Well, you know, would you— what, you know, I know you told me you want a million. Should we get creative? Here's some— I could, I could potentially go to the lender and get this loan if you would hold a carry. Of course, they would have to approve it and make sure it's worth that. And, you know, we could go through that route. Or, you know, I was planning on putting $100,000, $150,000 down. Would you, would you be the lender? You know, that way you don't have to pay all the taxes in one year. You know, have you ever thought about that? A lot of sellers I've talked to have done that. So you can, you can have that conversation that way, and, uh, and who knows where it leads. But no, you're not— it's not off the table just because there's another offer. Um, all right, I think, uh, no more questions. Let me, um Let me keep moving here because there's a couple more, a couple more things I want to go over with you. Because Section 4 opens up tomorrow with Day 40, the— and, uh, first 30 days takeover playbook. Uh, first months set the tone for everything: tenant retention, operation rhythm, amenity condition, the relationship with the community you just inherited. Uh, we're talking about growing your portfolio, when and how to buy the second facility. Hiring versus managing gate technology. We're gonna we're gonna get into it. Here's the frame: financing is a solvable problem. It's not easy. I think it is. I think for a lot of people it's not. I actually think it is. It depends on how you look at it. Either way, it's solvable, and the operators who close are the ones. Who prepared the right package, to your question, Dallas. They found the right lender and treated every obstacle as a specific problem with a specific solution. If you take that approach, I think financing— actually, I think it becomes fun. And because it's fun, I find it easy. It might not seem easy if you don't know what all the options are, if you don't have the playbook. I know it's a term we throw around, but we truly do. We give it to you inside of Storage Muggles. Um, so Section 4 is where we can put you— is where in Boat and RV where I'm gonna put you to work. Uh, so we will see you tomorrow. Next up, as I said, Day 40, Growing Your Portfolio: When and How to Buy the Second Facility. This is the portfolio building episode with the question most operators ask at the wrong time: when do I buy the second facility? Now, for a lot of you, that's not a problem yet, and I hope to make it one. And if you join Storage Mongrels, it will become one. Wondering when to buy that second facility. Please like and subscribe if the financing playbook gave you a clear path where you didn't have one before, and share this with someone trying to figure out how to finance their first boat and RV deal. Send them day 26. That's where the Section 3 starts. And of course, storagemoguls.ai has lender package template, seller financing framework, and operators who've been through this process. And it's free to join. So join Storage Moguls, build the package, close