Day 76: How to Finance a Self Storage Deal: Every Strategy You Need to Know (Recap)

Howdy folks, and welcome to Section 5, the recap of the Storage 100 series, Section 5 that we just completed. I'm Joe Downs with the Storage Mobiles Mastermind, and we've spent the last 2 weeks doing a bit of a deep dive on financing. We covered SBA loans, local banks, creative structures. Pre-approvals and everything in between. Of the Storage 100 series section, and we just completed. So I don't know what kind of feedback we're getting here, but tonight we're gonna tie it all together. And if you've been watching the series and thinking I need a community around this, that's exactly what we built. Storage Moguls at storage moguls dot ai. Free to join. It's an AI-powered community with GPT tools and immersive multimodal learning across every storage vertical. So start your journey free and advance at your own pace. And I'm going to see if there is a way to stop this. Is there any tech help I can get? Let me see. Bear with me here, folks. Every storage vertical. So start Start your journey. Let me just see. I'm going to see if there is a way to stop this. Yeah, I'm wondering if there's— oh, all right, apologize. That was insane. And I— because it was insane, I will start over, I think, because that was not fun. So again, apologies everybody. Welcome to the Section 5 recap of the Storage 100 series. You probably did hear that I'm Joe Downs with Storage Moguls Mastermind. I'll skip over what I just kind of covered, but what I was saying was, if you've been watching the series and you think you need a community around all this, you want to join a community that is not a tech community, obviously, but a storage community, that's exactly what we're building at Storage Moguls, storagemoguls.ai.

It's—

I'm embarrassed to say we're an AI-powered GPT tooled community at this point, but we are. No, we seriously, we're leaning heavily into AI. It's driving not only how we're learning, it's a multimodal immersive experience where we're teaching folks how to— everything from start to finish in storage. We're just not a tech-savvy company. No, that's why we need AI. So Again, you can start your journey for free there, advance at your own pace. All right, diving into the recap, uh, what we're here to talk about tonight is go over the key lessons from the past few weeks, and then I have an incredible guest and we're going to open it up for questions, and I'm super excited for that. So because financing is often the biggest hurdle for new investors, and it's important to understand these concepts so you can confidently approach your next storage acquisition, so let's jump right into the core topics. Of Section 5. All right, again, we covered a lot of ground from the cash flow basics to advanced financing strategies. We explored different loan types, terms, and the critical difference between fixed and variable rates. And remember, understanding these elements helps you make informed decisions that impact your bottom line. We also looked at the process of packaging loans, putting it together, getting pre-approved as well, how to structure them. Why that's so important and how they can not only impact your interest rate and terms, but they also might be the difference between getting approved and not getting approved. So that loan package and business plan, everything goes into it, is critical. All right, let's flip over to some of the other impactful takeaways, starting with the first-year cash flow, because first-year cash flow is where the rubber meets the road, and it's often very different from your pro forma. Your pro forma shows potential, but the first year reveals the true operational reality. So it's vital to budget conservatively and always add that— remember that 15% buffer to your expenses if you're doing the back of the napkin math, because that buffer is going to protect you from unexpected costs and ensures you don't run out of cash. Underestimating expenses in year 1, common mistake, not a good idea. It can derail your All right, let's move to another powerful financing tool, which is actually kind of the subject of the night with our guest, the SBA. SBA loans are incredibly powerful, folks. They offer significant advantages. They allow for a much lower down payment, usually 10%, compared to maybe 20% to 30% or 35% even for conventional loans. Plus, you're looking at 25-year amortization.

Wow.

And maybe depending on the product type, maybe lower interest rates, uh, maybe when we're looking at development stuff like that. So, uh, we also gotta remember we might have a longer approval process if it's a more complicated or complex loan like a development. Otherwise, you're probably looking at 60 to 90 days, maybe 90 if it's a little more complex. Um, the 90 to 90, uh, day timeline is a trade-off, right, for the favorable terms and lower upfront cash. Not that big a deal. And frankly, I'm not sure you're getting conventional on a complex or, or, um, development loan done in less than 90— I guess you can, but it's not like it's going to be crazy fast. Again, for most SBA-funded traditional value, uh, add type of investments, or just, you know, regular acquisitions, you're, you're not going to find— if you use a preferred lender, a preferred SBA lender like the guest we have tonight, you're gonna find there's absolutely no difference in timeline between conventional and SBA, um, if it's just a straight-up purchase. Um, I'm not gonna go too deep here because our special guest tonight can go as deep as you guys want with your questions, so I'll keep moving along. Um, next, uh, we looked at critical decision: do we go fixed versus variable interest rates? Remember, we decided between fixed and variable rates. The decision between fixed and variable rates depends entirely on your investment horizon. So we talked about if you want to hold a property for 10 years or more, maybe you go fixed rate, lock in your cost of capital for the long term, um, provide stability and predictability, protecting you from interest rates right down the line. But if you know you're only in this for 3 to 5 years, Maybe a variable rate could save you a couple bucks along the way, uh, and maybe even more if rates drop during that time frame. So remember to always ask about rate caps though on variable loans to understand your maximum exposure. So it's not, not always a go-to just if it's a shorter time period, but it's something you should look at. Choice, um, can significantly impact your long-term profitability, so choose wisely. Onward to the pre-approval. Which isn't just a formality. If you recall, we spent some time on this. It's a strategic move that can make or break your deal. Getting pre-approved before you even start shopping can show a seller that you're serious. It also could speed up the closing process significantly and helps you avoid wasting time on properties that just won't work out. So this was a lesson that helped you build on our previous discussions about understanding your financial position. Then if you remember, we explored how to get creative with your financing options, because creative financing can open doors to deals that you might think are out of reach. You don't always need a huge down payment to control the value of an asset. We talked about master leases, how they let you control a property without owning it outright. Talked about joint ventures can allow ownership without needing all the capital yourself. Um, and you didn't have to wait until you had hundreds of thousands of dollars saved just to be able to do all these things. Um, that approach can directly complement the pre-approval process, by the way, we just discussed. So, um, they're, they're tools in the toolbox. Um, remember though, the downsides to them— you get more complex legal documents, we gotta definitely bring in attorneys, um, and who knows how much we're giving up. Again, they're tools. I'm not saying they're bad, I'm not saying they're perfect, just saying they're tools. And every deal is different out there, so it's important to know. More importantly is what all the tools are, all right, including the SBA. So it's time for the main event. So in a second, we're going to open up for questions, um, and it's your turn to ask anything about anything we just covered in the last 2 weeks— financing, lenders, creative deals. Drop your questions in the chat right now. If you happen to be watching the replay, feel free to comment, but if you're watching live And you know you are if you had to just endure my lack of tech prowess. Um, ask, put the question right in the chat and we'll get an answer for you. Um, because remember, after this, after our Q&A, we're gonna come up, I'll give a little preview of what we're gonna talk about in Section 6. But for now, it is time to bring on our special guest, Anne Mino, who sits on Live Oak Bank's self-storage lending team. Which is a team that has done more self-storage loans. I should probably bring her in while I'm introducing her. Hold on. Sorry, Anne, I know you're listening, but you might as well join me. Join the tech mess here. Um, I was just introducing you, uh, as, uh, someone who sits on the Live Oak team, and you've done more— I'll let you expound on this if you want— done more. Um, your team has done more self-storage loans by dollar volume than any other SBA lender in the country. And folks, Anne is not just a lender, she's also a self-storage investor. She's got skin in the game. So when she's underwriting your deals, she's not just looking at it as a banker, she understands from looking through the lens of an investor. So, uh, an investor has money in this asset class. So, and I, by the way, I don't know who sees more deals than you do. I mean, we see a lot of deals at Bellrose, but Pretty sure you see probably more, a lot more deals than we do because you have so many clients and we know that because we send them to you. So, Anne Mino, welcome to the Storage 100 series.

Thank you. Thanks for having me.

Such a pleasure to have you here.

You know, it's my favorite thing to talk to people.

I know. So the way this works, when we're— when I'm not completely botching the beginning of it, is I like to let the listeners throw some questions up in the chat. I don't know if you can see the chat. I can. I can read them to you. Um, Dallas has a question. Oh, you can? Okay, well, I'll just— yeah, for anyone who's not paying attention to the screen. So if you don't mind, Dallas has a question. And for first-time self-storage buyers, what are the top 3 weaknesses you see in loan applications?

I love this question so much.

That's a good question.

I would say number one is incomplete application. So people maybe not understanding how to fill it out and not asking questions. So that's the first thing, because if you don't fill it out completely, if you— sometimes I call, I'll call somebody and say, hey, did you, you know, sometimes some people will put, fill out a personal financial statement and it's almost blank. So I call them, I say, are we missing things? And they're like, yeah, I didn't know you needed my spouse's information, or I didn't know you needed all my bank accounts, you know, that sort of thing. So that's— I would say that's number one. Um, number 2, not, not having your tax returns at your fingertips. I cannot tell you the number of times I'm working with a buyer, we're in a rush, and a CPA is on vacation. Not great. Number 3, let me think about— if I had to pick a 3rd weakness, I would say That's a really hard question. Maybe the business plan. And I give out business plan resources. I think that's a, that's a general weakness, um, for everybody, not just if you're— I'm not great at putting together a business plan, so I give out resources to my customers because that's a— your business plan is going to be read by your lender, your underwriter, and then your credit officer. You're putting your best foot forward. So it's a really important document, and I think that's probably the place that I see my borrowers being weaker.

So let me— that's great, great answers there and great question, Dallas. Um, let me— some follow-up questions. When we say, or when you say application, I'm assuming there's an, an actual Live Oak application that is— you email to the borrower and they fill out name and social and all that stuff?

That would be correct, yes.

When, when we say application though, do we just mean that document, or do we mean that document plus a list of items included in that document?

Good question. Yeah, it's a couple forms to fill out, and then it's your tax returns. And if you own entities, it'll be entity tax returns as well.

Okay, so I want to be very specific here for the, for the listener, because— and I'm sure you'll appreciate this, I think— As the lender, what— when we talk to our students all the time about this, I try to impress upon them it's so important. Your loan will go as fast as you are good, as a good, thorough, and complete as a borrower.

Yes.

So that's why I'm trying to drill down on this application. When you say application, it's not just the forms we're filling out. that, that have Live Oaks logo on them, right? It's the attachments, the completion of—

Being expeditious about it and putting—

What you've requested. If you want 3 years' tax returns, you want 3, not 2. If you want bank statements, you want 12, not 6.

Yes. Right?

If you're asking for your— so when you say complete application, that's what you mean, right?

Yes. And I want to tag onto that because I think I know where you're going with this. If a borrower gives me a couple of documents and then does a slow drip of everything else, I can't— I really don't have a firm grasp of what the full picture is. So I may think things look really, really good, and then 2 weeks later I may get some piece of the puzzle that looks really, really bad. So, and that does slow down the process. So yeah, great question. Okay.

I hope everybody— so maybe my takeaway, if you're listening, is certain things will change month to month, quarter to quarter, like your— the cash in your account, um, values of investments, etc.

Yeah.

But folks, I would have a PFS done, your tax returns in a file. Like, there's certain things that aren't going to change. Have it ready to go. Like, Like in a holster, right? That's what you want to do when you submit a loan to any lender. But you got one right here in front of you telling you, give me everything at once if you're looking for speed, if you're looking for execution. And, and if you remember what we covered this week when we— or the last 2 weeks when we talked about the loan application, and I, and I, I talked about that night, I said it's— Got to be complete. It's, it's got to be a full package. And I even went on to say, and I even said it tonight, that loan application, which is, you know, Anne's really talking right now about the checklist, right? But also the business plan is part of that. If that— how you do anything is how you do everything. If you're demonstrating to a lender, I've got my shit together, here's my entire package, here's my business plan.

Mm-hmm.

And how do you— what's your initial reaction of that?

My initial reaction is I'm going to pay more attention. You're going to go to the top of my stack versus somebody that's given me one tax return and half of a PSF poorly filed.

But that's how you're managing your workflow. And then that's great inside baseball. Thank you. So you just got the cheat code, everybody, for how to get to the top of Anne's pile. But what does it say about me as the borrower if I give you everything well organized, well labeled, every PDF is labeled, not like with weird numbers, but actually says what it is. A concrete business plan.

That tells me that you're organized.

I'm gonna be a good owner.

You've got the eye of the tiger. You're probably going to be a pretty zipped up business owner.

Isn't that sway—

We're all making snap judgments all the time. So that's a, that's a great one. A clean, nice clean loan package is telling your lender that you're serious and you're organized.

And folks, this is low-hanging fruit. I'm not saying just because you put it together with a crappy deal and no credit, you're going to get the loan. But what I am saying is, why would you let something that you control like this get in the way of a speedy process? And, and I don't know if it affects your rate or where it gets you in the whole process, but it only can help, can only help. to be organized in every way possible, and you get to control it. All right, um, I'm gonna do something that is fun that I forgot I can do. I can show the question. In today's environment, and what DSCR are you targeting for self-storage deals? And let's keep this to the SBA.

Okay, so another great question from Dallas. Um, we will finance turnaround acquisitions I want to— in an ideal world, I want your acquisition according to your projections of what the business is going to do in that first year. I'd love to see you hit break-even. I'd love to see you hit 1.15 debt service coverage in year 1. Can I get you approved if you have a zipped-up, airtight plan if you hit 1.15 in the beginning of year 2?

Yes.

This is specific to me, my lending team at Live Oak. Can't speak for every other SBA lender, but if you can explain your path to profitability to me via the numbers and your assumptions, I can get comfortable with 115 at the beginning of year 2 on a turnaround acquisition, which for those that don't know what that means, it means your, your in-place cash flow, your seller's tax returns Great question, Dallas.

All right, and then from Russ Cannon, we've got, if I wanted to finance new construction facility and I've had a feasibility study, how much time is needed to close the loan with you? For my case, I need to update my feasibility study.

Great question. So this is a little pointed because I think I know Russ. So technically speaking, I need 60 days to close a construction loan. I am always waiting on my borrowers, not the other way around. We do want you to have your permits in hand before we close. I can get your project approved within 2 weeks of getting a feasibility study from you and a construction budget and your personal application. And then you can sit in closing knowing you have a bank behind you for as long as you need to. And technically I can close it in 60 days as long as you've got your permits.

All right. Um, I think there was a follow-up question from Russ, but I think you just answered it. I love how— by the way, Russ is not going to be the guy you're waiting on. I can tell already because he's on here.

Russ has the eye of the tiger.

Questions. All right. Uh, we got Crystal with a question. How important are having reserves, cash in the bank, after the down payment?

And these questions are on fire. I'm loving all of them. So cash reserves after your equity injection, after you've given the bank your down payment— cash is king. Cash is really important. We want to know— I'm not so worried that I want you to be able to make the debt payment for the facility because I'm expecting the facility to make that payment. I want to make sure if something goes bump in the night on— in within your household, you've got cash to fall back on. Your knee-jerk reaction is not, oh my gosh, we have to file for bankruptcy. So a good healthy amount of cash is 6 to 9 months of your living expenses. So that could be a really low number, it could be a really high number, depends on what your debt is and how many people live in your house with you. So cash is important, and cash to the bank is checking, savings, and stock. If we clear all that out for your down payment and all you have left is 401, that's not cash unless you can draw down on that 401 without penalty.

So 6 to 9 months of your living expenses, not the facility.

Correct.

Run, burn your living. So this goes back to— so folks who don't know, Anne and I, uh, did a podcast earlier today, so it's a 2-for-1 day for me here. which gets released, I believe, next Monday. And we had an amazing conversation which blew my mind because I didn't think— I thought I knew pretty much most of everything about the SBA, but I learned more today. And I think what you just said ties back to that subject of it doesn't matter how much you make, it matters how financially responsible you are with what you make.

So that 6 to 9 months of cash reserves It depends on if you're a big spender or a little spender.

Yeah, I mean, that's incredible. So I encourage you all to listen to that podcast when it comes out on Monday, the Self Storage Investing Podcast with Ann Mina.

And I don't think I said it, but let's talk about household need. It's not your children's, um, private school tuition. It's not your golf club tuition or your golf club membership. It's what shows up on your household credit report. So if you're married, I am pulling both credit reports, and that's what That's what I'm looking at to show household needs. So if you have really high credit card debt, auto loans, student loans, HELOC, all of that, that's all going into my 6 to 9 months of what I think you need in an income.

Awesome, great question.

Excuse me, in cash, not in income, in cash.

All right, we got Joshua James, who sounds— that sounds like a, um, a western cowboy. Joshua James.

Gunslinger.

Yeah, gunslinger. Can you, can you get a self-storage loan with no I'm assuming no self-storage experience is the point of the question.

Absolutely. For those of you who don't know, you absolutely can get a self-storage loan with no experience. That is what the SBA is built on. That's what our bank is built on. I am here to help you get it done. Uh, we love it when our customers come to us with some education. Doesn't have to be extensive, but hey, and I've listened to some podcasts, I really like the space, I'm learning how to underwrite. Um, you know, showing me that you've got some— you've put some effort into what you're doing. The bank's not going to underwrite it for you, by the way. We will check your underwriting and make sure we believe in it and make sure we agree with it, make sure you're not going to get in trouble. But you do not have to have self-storage experience, and that is a key difference between SBA loans and conventional loans. A conventional lender all day long is going to expect for you to have experience.

Let me ask you the I, I heard you but I don't believe you question. Um, because, you know, I'm just— I'm brand new, I have no experience. You know, to Josh's point, uh, or Joshua's point, I, it— I, it— I don't— my ears hear what you're saying, my brain is rejecting it, right? So— You're I submit my application, I check every box. You, you think I'm an eye of the tiger, but then you get to the, um, the section where it's experience and I have none.

Mm-hmm.

Just blank. Is there something I should put in there to make either maybe make me feel better? Because I don't believe that you're saying I'm going to lend you $1 million with no experience in this business.

Yes, I absolutely will do that.

Brain doesn't compute. So how—

Here's what I ask my customers to do. Your A business plan is going to have primarily 3 parts. The first is, um, tell us about the facility. What CapEx does it need? What are you— you know, how are you going to run it? What's your day-to-day operational plan? I want to know that you have a plan, then I want you to tell me what it is. Then I want you to tell me about your competition analysis to justify your rate increases and your occupancy increases. And then the third piece for people with no experience is I want you to tell me who you are. Everybody has life experience that they're bringing to the table. Even if you have only been out of college for a few years, you've probably had a job. I don't want you to regurgitate your resume. I want you to actually think about your unique talents and experience that are going to make you a good owner-operator. Guess what? It's not rocket science. That's the good news. I heard.

I heard use AI.

I was thinking that. I didn't say it, but I actually was thinking—

Write up something in that experience. I have no personal experience with this, but I'm great at running this or my job, or I did this, or I was the top salesperson, or I'm a doctor, a dentist, a lawyer, an engineer, uh, an accountant for X amount of years, and I've got this award and that award or whatever.

Yes.

Impress Anne Mino. That would be my prompt.

And it doesn't have to be long. You're not writing, you know, a novel. You're just giving us 3 paragraphs about who you are, what you're bringing to the table, why you want this deal, why you're excited about it. Tell me how you're going to run it. Tell me what your competition's doing. You know, this is the beauty of self-storage. It is really attainable for everybody.

All right, I'm gonna Flip to a kind of a follow-up question here, which is— it's not a follow-up, but it's related. Uh, what are the requirements to get a 10% down payment loan?

Uh, it's the, it's the loan type primarily. So let me think about that. Let me make sure I answer this the right way. Requirements to get 10%. Okay, so SBA loans— there are 2 types of SBA loans. One is called a 7, one's called a 504. We typically use 504 for larger loan amounts, and those typically are going to be 15% down payment loans. Everything else, so $5 million and under, we're in the 7 world. The minimum down payment is 10%. I need to see that your property is going to pay back the debt without you having to dip into your pocket. So that's a different kind of way of answering the question. Um, it's— so it's loan product based, and then it's, does this property cash flow this much debt? So if we are doing a purchase price plus closing costs plus SBA guarantee fee plus $200,000 worth of working capital, am I still breaking even in that first year? If not, that's where we start to play with our leverage. I may come back to you and say, this feels really tight to me. I don't want you having to dip into your own pocket down the road. Let's put a little bit more skin in the game up front and lower your Debt payments.

All right, I'm gonna flash this question from Crystal, and then I'm gonna tell you verbally her follow-up question because it's funny. But at this point in the year, do you need your 2025 taxes filed?

You don't. So the bank can't require it until it's technically required by the IRS. If once it's required by the IRS, you get to file extensions. I think it was the last maybe 2 years the extensions went on for like ever, like the whole year. If you're doing a really large loan, let's say you're doing $4 to $5 to $6 million loan, $7, and then anything over that, the bank— and your first 3 years of tax returns, '23, '22, '23, '24, are lumpy. meaning they look really different year to year, a bank can require you to file your taxes. But not right now. They can't require anything until it's— yeah, until it's actually the IRS— what do they call that, Joe? The extension? I always file mine early.

The extension?

Well, the deadline.

Oh, the deadline. Yeah. So I'll answer this.

I just— unless your tax returns If you're like all real estate, no W-2 income, the bank's probably going to want to see your '25 taxes once they're available.

When they're available. But if you— so I was just asked for them today, actually. So I sent '22, '23, '24. It's not April 15th yet, so they can't ask me for an extension. But if I file, or if I'm applying for a loan between April and October when I file Because it's due in October. Um, uh, they'll ask me for my extension and my last 3 years.

Yes, extension. They're always going to have to get a record that you are actually are on extension. And all I'm saying is if you're doing a really large loan and your taxes are at all lumpy or question— not even questionable is not the right word, but a bank wants to feel really secure that you're not— we're not— you're not overlevered. So we kind of want to see what your businesses are doing.

All right, her follow-up question is, um, 3 kids— it's really a comment, and I agree with you, Crystal— 3 kids should count as management experience. That is harder than any self-storage facility. All day, every day, twice on Sunday.

If you are a stay-at-home mom and you manage your household, A, that is 100% a job. If you, if you wrote down everything you do in a day, I promise you it's longer than what your spouse does at their job.

Uh, utmost respect. I could not do it myself. Have been forced to for more than a few days, and going back to work was like going on vacation. All right, um, James, can you talk about 100% financing on expansion loans? Good question.

Yes, I love that question. That's usually, uh, when I speak in front of audiences, that's usually when people like— I genuinely get their most attention. Everyone puts their phones away. What is this 100% financing you speak of, Ann Mino? I will tell you.

Surely it can't be true.

Once you own a facility and you have owned this facility for at least 12 months and your ownership has stayed the same for those 12 months, you can come back to me and get another loan, 100% financing. It can be for an acquisition down the street. It can be to add on to your existing property. It can even be construction if you want to buy a parcel down the road and you want to construct. There's really no limit on what you use it for. The limitations are you have to have owned property A for 12 months, and that's kind of your— um, we have to show the SBA that you're matching resources. You're sharing branding, you're, you know, you're sharing your marketing person, your Maintenance person needs to be logical that Property B is actually an expansion of Property A, which is why ownership has to match. You can hold those in 2 separate entities, but your Entity A needs to guarantee the debt for Entity B because essentially it's rolling up to a parent company. So I do 100% financing. I'm not going to say I do it all the time because it still has to cash flow. But I probably do— if I do 30 loans in a year, I don't actually remember how many I do, but if I do 30, I'll easily do 8 that are 100% financing for repeat.

That's a— call it a 30-year business if you were inflating your—

I mean, this is how smart customers build wealth and portfolios using the SBA loan program.

You know what, you And we talked about that on the podcast today. Can you give everybody the whole rundown on that? I was hoping we could talk about that tonight.

Yeah. Yes. So you're coming to me, you're going to buy your first facility, you have no experience, you put in your 10% equity injection, you wait your 12 months. Or maybe let's say if you've got— this is the example we talked about earlier— if you have $300,000 to invest, you still have your 6 to 9 months of living expenses, but you've got $300,000 to invest. You can either go get a conventional mortgage if somebody will give you one and spend all your money up front because it's 30 to 40% down, or you come to me. You could potentially get into 3 different properties that each have a $100,000 equity injection, 10%. And you can do this by yourself, right? Instead of having to have partners, then you're making— then you're in the driver's seat. If you're— when your child goes off to college, you need to sell one of those properties, guess what? You can sell it. Anyway, after 12 months on any one of those properties—

Whoa, hold on. Why did you say that if somebody goes off to college you can sell it? Are you saying because you might have used it for an expansion loan?

No, I'm saying the one of the benefits to owning your own facility versus owning with a partner—

Oh, you look at it without—

you need—

because you didn't have partners. Gotcha.

Right. If you need 30% down and maybe you don't have it, yeah. bringing in a partner, you all may want to sell at different times. I personally really like the idea of owning things by myself so that if a time comes I need that money, I can transact.

Got it.

So that's kind of where I was going with that. So you're using the SBA for a multitude of reasons. After your 12 months, you can start adding on to your portfolio again through acquisition, through construction expansion of that actual property, or you can do construction on a new parcel of land. It makes sense. We kind of want to see that the— it's a like-size kind project.

Mm-hmm.

So if you're all boat and RV and you have, you know, 200 units, you come to me and you want to build a 500-unit RV park down there, RV storage down the road, I might say, hey, I want you to put some skin in the game because that's— you're more than doubling your footprint. Technically, there is no SBA rule around that, but we want it to make sense. But if you're If you're just doubling your footprint via construction or acquisition, I'm here for it all day long. And I have a number of customers that have built massive portfolios now all over the Eastern Seaboard. So SBA is also pretty flexible with the geographic location. It doesn't have to be down the block. It can be an 8-hour drive away.

So you, so you want it to be a similar type of facility If it's storage, you want it to be storage.

It doesn't have to be.

I mean, you can't go storage and boat and RV. Storage, boat, and RV.

Yeah, I mean, if you— I would— I'd be comfortable if you own a climate-controlled, you know, traditional storage building and you just— well, first of all, if you wanted to add boat and RV, that's the easiest loan in the world to add boat and RV to your own facility. That's a no-brainer. Adding those same buildings to your property, no-brainer.

You're talking about expanding the existing property, right? Yeah, but you can even buy a parcel a couple miles away, an hour away, whatever. So we're okay, we just got to make a good case.

Not a lot of guardrails on it.

Yeah, okay. So it's— yeah, I was gonna say, it seems like it's interpretive for you guys.

It's interpretive dance here at the SBA world on the 100% financing.

All the more reason to make sure all your ducks are lined up and the application comes out of the holster and make Anne's life easier. It sounds like we could maybe get our loans done faster and better and with more approvals. So let's— I want to go back to your— because there were 2 things we talked about in the podcast which were mind-blowing for me, and this is one of them. So I can take you— I think you were starting to say $300,000 I could put a 10% down, $100,000 in each deal.

Now you're at 3 deals.

Now we have 3 deals. Fast forward, we're not buying them all at the same time, but if we did, 12 months go by, assuming we're operating well, we're checking all the boxes that make you happy, we can now do 3 expansion loans.

Yes. Right.

So I can take 3 deals and turn them into 6.

Mm-hmm.

And I can do that in literally under 18 months.

Over and over and over again.

Until I run out of my eligibility. Right.

You're— I was hoping you were going to bring that up. Your SBA runway, which is fine. There's no problem with it. It's just such a deep dive. Um, once you run out of this runway that you'll hear people talk about, then we move you into a different loan product. So you don't have to worry too much about it.

All right, forget I said—

Truly, I'll tell you what my savvy customers do that are building portfolios. They use the SBA as their little engine. They do as much as they can. When this elusive runway runs out, they start doing conventional refinances because guess what? Now I'm really attractive to all the banks. I can do a cash-out refi. Yep, I pull my equity out. I can pull my equity out and more, and then I can come back to Live Oak, and I can do it again and again and again and again. Yeah, that's the beauty of it.

It's, it's really how you're refiing yourself out of your eligibility so you can go use it again.

That's right. Yes.

You're just, you're clearing the deck for it. See, it's a good thing I brought it up.

You clear the deck. I like that analogy. That's right.

So that's what you, you said you have successful clients that have been doing this for not decades How long have— how long has it taken them?

Well, I would say my most successful— I mean, he's doing such a great job. He's been with me from the beginning. I've been lending, um, in this space for 6 years, and he was one of my first customers.

Okay, 6 years.

He now owns— he probably owns 15 facilities, and he's expanded all of them. So he, he only buys turnaround acquisitions in a certain, like, well, I said Eastern Seaboard. He's kind of Virginia down to Uh, where it's his lowest, maybe. I don't remember exactly.

These were mostly SBA loans? He started with one, I'm guessing?

Oh, it's just all SBA. He's the poster child. Once he— once we get to that, that $5 million mark where he can't go any further, he just does conventional refi and he comes back to me literally 2 days later. He's like, and I closed it out, I closed out my SBA loan, let's go back and do another one. I didn't even have his loan— his most recent loan had not even closed.

It's like you're a drug dealer.

Another opportunity.

Yeah, he needs an SBA fix.

Um, so he, he gets the program. That's what I love about it. It's like the light bulbs went off and he gets— and he's building this for his sons. His sons work at the property. 6 years, 15 managed properties.

6 years, 15 facilities, all SBA. Started with one.

Yes. And we're talking his, his original down payment, or let's say his all-in investment. I'm, I'm guessing here, but Maybe $300,000.

Started with $300 grand and he turned that into 15.

That's not even what he started—

literally the example we just started talking about.

Over time, he didn't— you couldn't always do 100% financing. So in the beginning he was doing 10% equity injections, but he's not— he doesn't have to.

Wow.

Anymore. So that's, that's pretty amazing to turn $300,000 into 15 facilities.

It really is. Wow. Um, there are— how does— yep, let's go. How does Live Oak stress test storage, cash flow, occupancy, haircut, expense inflation, interest rate sensitivity?

Dell's coming in with the good questions. Okay, yeah, Live Oak stress test storage, cash flow, occupancy, haircut. Typically our acquisition customers are increasing occupancy. Expense—

what he's asking is how do you Well, let's make sure we agree with— let's do it 2 ways. Um, how do you— if I give you my pro forma, I think this is what Dallas is asking. If I give you my pro forma, what I think is going to happen, how do you stress test that? In other words, are you taking haircuts on that? I think we do.

We do, we do. So we do a couple things. We increase your interest rate by 25 basis points. So it's 0.25, we add that onto your rate. In certain rate environments, we'll add a whole point on. So like when interest rates were going up, we added a point. So your deal really had to work. And we said no a lot in that time. And people, I feel like, are grateful because—

Yeah.

I didn't put them in bad deals. Today we're doing 25 basis points. And then we also adjust your operating margin. So if you come to me and you say, Anne, I'm going to operate this thing, it's going to be manless, yeah, I'm just going to have an hourly person come clean out my units, I'm not going to have a lot of turnover, I'm going to operate at an 82% profit margin. I'm like, okay, I'm going to give it to the underwriter. The underwriter is going to cut that back to like 65-70%, which is just industry standard for storage.

Sure.

They may not give it that big of a haircut. But we always— what we do is we adjust the operating margin just to make sure there's what we call— we like to have skin on the bone.

So where I think that's really important is because we used to do this. Um, we used to submit loan packages that were not our pro forma. They were ultra conservative. So we took what we thought was going to happen and then we dumbed it down because we didn't want the lender to think these cowboys are crazy, we shouldn't lend to them, their projections are too, you know, rosy and aggressive. And they weren't, they were just realistic. So we would— yeah, we would put a haircut on ourselves only to find out later, well, the lender was haircutting—

Haircut it again.

Our haircutted haircut pro forma.

Yeah, so those were my—

to the point where deals weren't working.

Those are my favorite customers because I love somebody that's earnest, that is really like, and this is really what it's going to be. I sometimes— it doesn't really happen often, but sometimes I do have to go back to people and say, hey, I'm gonna also stress test this. Your leverage depends— it's completely dependent on your debt service coverage. So if you're overly conservative, you may need to more money into the deal. So if we have a conversation, you've told me you're overly conservative, I may say, hey, if you're comfortable, don't be so conservative, because I'm going to be conservative. And that will— we can— I can lend you more money. I always do this with truly the purest heart. It's not about lending more money. It's just—

It's just, it's, it's important to make sure you're on the same page. We need—

yeah, it's important.

Great question. We need to know as the borrower how you, how you look at what we give you.

And I would say every bank is different with that too. So I'm, I'm coming at you from my bank's lens, Live Oak Bank. That's a great question to ask your lender.

Yeah, I know, it really is. Um, all right, I think— I don't know, I don't see any other questions. Um, Oh, sorry, there is— there's another one from Dallas. For someone planning to acquire their first facility within the next 18 months, what should they be doing now to be fully bank ready? I like it.

Yes, get pre-qualified with a self-storage lender. Raising my hand, you're gonna get my email information. Get pre-qualified with a lender so that you understand where you stand with the bank, and then the bank will— can either give you— when people come to me early enough and they, they're not quite qualified, I'll either say, I want you to go find a partner, or I want you to save everything you can between now and 18 months from now when you think you're going to be buying something. People will ask me, Anne, can I— we really want to buy a new house, or I really want to treat myself to this fancy car. I'm going to be your friend and say, please don't go do that right now. This is not— If you want to buy a commercial real estate property, I want you to look as strong as possible. It depends on the situation. So you're— I say pre-qualification all day long. It's a short list of items that I collect. I do not pull your credit. Make sure you're very clear with your lender if you're not using me that they're not going to pull your credit. As long as you tell me all your assets and liabilities and I can see your tax returns, I can tell you exactly whether you're going to qualify or not. And then we can have a really good, hard, sometimes hard conversation. And my favorite thing is when I have hard conversations with people and I give them advice and then they come back to me a year later and they're like, and look how much money we were able to save.

Yep.

You know, we put ourselves on a budget and we stopped dining out and we didn't go buy the fancy car that we really thought we wanted. They may close my loan and go buy that fancy car, and I'm fine with that.

Well, it's back to what we talked about on the podcast and that we a little bit talked about tonight, which is being financially responsible, right? Demonstrating a track record of financial responsibility Which you can't put numbers around necessarily, maybe ratios but not numbers, because we all make different amounts of money and different levels of liabilities.

That's right.

And so it's the people that, that aren't living paycheck to paycheck, I'll say it that way, because most of the paycheck is going to pay down credit card debts we've run up. And, you know, not just the car but also The second house, the boat, the RV, and the WaveRunner, right?

And let me say this too. I'm gonna interject here for a moment because this is an important distinction. I, I recently became friends with a mortgage— a residential mortgage lender. And so I was listening to phone calls about how, um, he would qualify candidates, and it was polar opposite of how we work. He would tell people, I want you— you have to, you have to pay off all this debt. And I tell people, no, no, no, no, no, please don't go pay off all your debt. Like, I want you to have cash in your pocket. The only reason I would ever want you to pay off debt is if you weren't hitting a certain debt-to-income ratio that we want to see. But even then, well, it's— for commercial lending, cash is king. Because what if something goes bump in the night? What do you have to fall back on? Only cash.

Yep. Love it. And I knew you were going to be an amazing guest, and sure enough you were, because this is a topic that people really don't understand as well as, as I want them to. So hopefully tonight they do, and whoever watches this later on, on, um, on YouTube does, because it's, it's one of the most important things to being able to get into this business. And once you get in it, clearly, as you've demonstrated tonight, especially with an SBA loan, You're not just in it one and done. I mean, you're in it to win it. You're in it to grow it, or you can be. It's up to you. You don't have to. But I mean, just look at, you know, you can't name your client, but look at your one client did, you know, 15 facilities in 6 years, all using SBA loans and starting with maybe around $300 grand, or maybe that's, you know, you build up to that. Who knows? And how can, um, people reach you? Um, I'm sure they're going to want to. So how do we email?

Let's do email. Do you want me to say it or you say it?

Um, go ahead.

Okay. Anne, A-N-N-E, don't forget the E, dot M-I-N-O, M-I-N-O, at liveoak, liveoak like the tree, dot bank. So that dot bank is really important. Don't forget that part. Anne dot Mino at liveoak dot No more .coms, people.

It's .banks, it's .ai these days. I love it. And thank you so much for joining us.

Um, thank you for having me, and thanks everybody for the great questions. This was a wonderful conversation that I haven't had before, and I do lots of public speaking, so this was fantastic.

Uh, yeah, uh, I am going to say good night to you and just, and just close it out here for another minute if you don't mind. But thank you so much.

Bye.

All right, folks, let me get my window back here. I think we're back. All right, cool. Um, so hopefully that was incredible for you. Um, and as I mentioned earlier, Section 6 is all about transitioning and managing your storage facility. Although I will tell you, weirdly, as this whole thing laid out The first 3 days of the next section, which is again about transitioning and managing your storage facility, is not going to be about that. Um, the first day, uh, well, I'll tell you in a second. Um, the section we're going to go into though, it covers everything. It's critical, the transition and management. So first 30 days of operations, we're going to dive into effective management, marketing strategies, and we're going to use them to build Uh, directly on the financial knowledge that we just gained in Section 5. So get ready to put your, um, financing to work as we move into that operational phase. And, um, and it starts tomorrow with Day 77, where— this is what I want to tell you, uh, I know the first 2 days, I'll tease them both. I can't remember the 3rd day. Um, Day 77, we are going to cover raising money from friends and family, right? That could go a couple different ways. Um, it's, it's— and we're gonna do it, we're gonna show you how to do it the right way. All right. Um, day 78, using your 401 to buy a self-storage facility. I don't remember what day 79 is, but after that we go into transitioning, managing. But in either case, please like this video if you, um, if section 5, uh, taught you something, especially tonight. Uh, hopefully you learned a lot about, uh, with Anne and the SBA. Subscribe so you don't miss the next section coming up. which includes the daily drops and the section recap, um, which is a live just like tonight. Hopefully I won't screw up the beginning though next time, uh, where you're gonna get to ask all the questions directly from a pro like Ian. It'll just be on transition and management, um, and I've got some great guests for that as well. Um, and of course, share this video with, um, someone who's learning about financing. They'll thank you later. Um, all right, well, that wraps up Section 5, Financing Deals. And again, next up we're moving into the real fun What happens after you close? Transitioning, managing, and operating your facility. If you want to stay ahead and engage with other operators who are going through the same journey, join them at the Storage Muggles community. It's free. storagemuggles.ai, not .com, not .bank, .ai. storagemuggles.ai.