Turn Extra Space into CASHFLOW with Jason Woodbury

A lot of times when we'll first start working with a portfolio, they'll tell us, we don't even have a ton of extra space. We always tell them, spend some time, find some, because you do have some. And they'll find some, they'll onboard it on the platform, get it rented out quickly, they'll start earning the income. And all of a sudden they go do a more thorough review of their portfolio once they start earning that income, and it turns out they have tons of space that they didn't even know about.

Hello and welcome back to another episode of Multifamily Strategy. I'm Christian Osgood, your channel host, today joined by Joseph Woodbury. This could be a really episode. We're talking about how to monetize spaces, how to push the income. We talk about 4 stages all the time of real estate: build, stabilize, optimize, and eventually, if you so choose, pay off the debt. This is someone who's figured out a different way to optimize real estate. I'm really excited to hear about this. Uh, Joseph, welcome to the show.

Hey Christian, thanks for having me.

So give us a— give us like a 30,000-foot view of your business, because I've learned about this about 5 minutes ago with you, and I think this is super exciting. Talk to me a little bit about the business that you guys have built.

Yeah. So we're a nationwide storage marketplace. So we take space that's sitting unused and we connect it to storage renters who need vehicle or parking or self-storage. And we've grown it to basically every city in all 50 states at this point.

So when you're taking individual spaces, so is this like I'm a single-family house with an unused garage or is this like I'm a 200-unit apartment complex that has 100 square feet of unused space? Or what does this look like?

So it's both. We, we do business both on the residential side where it's garages or driveways or sheds. And then actually a very large category for us are professionally owned properties. This could be a portfolio, a multifamily portfolio with 300 properties nationwide. It could be an owner of office, it could be an owner of retail strip malls, basically any space where, you know, extra NOI would be valuable to the owner of the property.

Oh, that's really interesting because this is something that happens to a lot of people, right? You buy a building, you optimize for what you have. So, so when I'm stabilizing a building, I'll come in and we'll make sure all the spaces are rented. We fix safety first. Then we do livability, and then we do aesthetic. If there's some unused space there, what is it that someone's looking for? Is it like just an extra, uh, parking? Is it like when you're— I'm just thinking how this plugs into a building. What is it that you are looking for specifically to monetize? What features would a building have, or situation would an owner have to push this NOI with storage?

Yeah, so I'll use multifamily as an example. If you have a 300-unit multifamily building, oftentimes the city required you to build a number of parking stalls. You don't end up using all of those parking stalls. So we take all the remainder, we rent them out to the community as vehicle storage. It's a great revenue driver. The second is usually in a 300-unit multifamily complex, there's going to be, you know, a couple dozen or so storage lockers that the owner of the property built as a tenant amenity. And in talking to owners, most portfolios, those lease up at about 20 to 30% occupancy. And we come in, we take all the rest of them, we get them very quickly to 90% occupancy by bringing in renters from the community. So on a, on a large multifamily portfolio, this can be 7 figures in ancillary income on an annual basis.

So this is— and you said you guys are the largest in the nation for this?

Yeah, hands down. I mean, there's, there's, we're basically the only company doing this and it's just exploded because it turns out, especially right now with interest rates where they're at, a lot of term loans coming due, rents are flat to down. And so, you know, if you're going to grow revenue 1% year over year, you can layer on Neighbor and we can actually be your number one growth driver. In a year. We have some of these public REITs where we are their strategy for growing NOI in 2024, uh, when rents are flat.

See, this is, this is really cool. So when you're, when you're dialing in real estate, this is one of the things that you really have to get good at, is you have to figure out the things that give you an edge. And a lot of us, we just think of like, okay, can we build an extra unit? Uh, can I add— if it's a smaller property, can I add an 80 an ADU? Can we add laundry revenue? Taking your unused spaces and having someone come in and help you monetize those, that just makes so much sense to me. That's a really cool idea. How did, how did this idea start?

Well, and I'll just touch on what you said. Like, I think traditionally you could get away with that where you could say, I'm an— I invest in an asset class, I become good at an asset class, and that's all I ever think about. And you could generate solid returns off of that. These days, with real estate acquisition getting so competitive and, you know, so data-driven, you really can't rely on that anymore. The smartest operators are doing what we like to call full property monetization, where you have to think about your property as an asset, not just as an asset class. And I'm going to make as much money as I possibly can off of this property in a number of different ways. Those are the, the operators that are generating the outsized IRR, the outsized, you know, yield on cash returns right now is the people that are willing to think like a 2024 operator and get creative and be more forward thinking.

Well, and that's something that I really like sharing on this channel. This is why I've been so interested in this podcast is a lot of what me and my business partners, we started with no money. So we'd had a ton of creative finance, bought everything zero down. We've tailored the debt, and that's been my answer to being a 2024 investor is, yeah, you can buy these buildings, but there is a ton of data out there. You're competing with a lot of large operators to get in and compete. It's like, okay, we're optimizing everything, like every single piece of our debt stack to the interest rate, to the first and second position loans, to bring in equity partners, the actual deal infrastructure. Is something that we're really good at focusing on this channel. What we haven't talked about enough, maybe it's because my wife handles all of our, a lot of our maintenance stuff and contractors. It's, it's the like, okay, so when you have a deal and you've optimized your debt stack for cash flow, how would you come in and continue to push NOI? So how does a system like this work? So it sounds like you're arbitraging spaces. So you guys don't own any of your own space, correct?

No space. Our our job is, you know, you're the one that's selling the actual storage. Our job is to make that extremely easy because the last thing you want your property manager doing is, is spending time thinking about ancillary income. So we've built all the, the tools to where your property manager can plug in and we drive this, this income. We vet the renters, we do everything, we get them situated in the space. To where you're just getting a direct deposit into your bank account every month that's showing up. And I mean, you think about it's not just NOI, right? It's, it's property value as well. We're generating millions of dollars in excess property value for these portfolios because this is recurring NOI. So you can apply the cap rate to it as well and sell the building to the next owner and say, hey, this, this building is generating excess NOI.

So it's really not dissimilar from property management. It's a third party that is helping you rent out your spaces and optimize your property and run something better than you would be able to run it yourself.

That's right. Yep. We just plug into the ancillary piece. So you have your property manager run the multifamily and get those tenants, and you have us run the, the ancillary component of your business. And that way, you as an owner, you don't have to think about it. You're just earning more money.

Now, as one can imagine, I'm a huge advocate for owning real estate as a business. I am a huge fan of you not owning the real estate. You're not competing with your clients and you're, and you're focused on, okay, we're keeping the main thing the main thing. I share this all the time, but the biggest mistakes I've made throughout my relatively short time in business The biggest mistakes have always been when I step out of my lane and do something that I'm not the best at, when I focus on the things that are not in my wheelhouse. I'm like, I am good at value-add entry-level multifamily. I can do any size, and I'm really good at creative finance. Like, these are the, these are the things where I'm like, I should spend 95% of my time sitting in that pocket where we know how to operate. I love that you're like, okay, we are a plugin, we expand, we're national. If I'm an owner, What does this fee structure look like? Is it similar to property management where it's a, it's a monthly fee? Is it a percentage? If I'm— pretend I'm a client here, I own some multifamily. If I'm looking to hire you guys, what would the, what would the actual presentation look like for how this works for me as the owner?

Yeah. So the first thing we would do if, you know, you were demoing our product is we would get a list of all of your properties. And we would generate you estimated earnings for all those properties. We have this really great data now because we're in so many cities and so many states to where— and we get millions of renters to our site every year so we can plot your properties on a heat map and show you how much we know ahead of time, how much demand we're going to generate you. And we can say, okay, if you onboard X, Y, and Z property, you're going to earn roughly this much on an annual basis. We can help you set your prices as well. So it's up to you what prices you'd like to charge for each thing. That's not mandated by us, but we can provide you very solid guidance to where you're 90% more likely to get reserved if you use our prices. And so it's, it's, it's very custom tailored to you to help you feel comfortable. You can also tell us what types of items you're willing to allow in the space. You know, are you willing to go any vehicle where we can put trailers or boats or vehicles, or do you want to restrict it to just vehicles? We can provide that full customization to you. And then the fee structure is very similar to Airbnb. So if you've ever used Airbnb, we work the same way. You talked about incentive alignment like that. We do not charge you anything upfront. If, if, if you don't make money, we make nothing. We take a percentage just like Airbnb.

So this is interesting. So there's an acquisition that I did a while back and I love doing this. Sometimes I pick up like large pieces of land while picking up multifamily and I focus on the multifamily. So a while back I bought a sixplex, just three side-by-side duplexes, one lot, and it came with a 1-acre gated lot. Right now that just houses a ton of weeds to gravel a lot. And I'm hoping that the city doesn't come by and tell me that I need to chop those down here. We're probably at a code violation. There's so many weeds there. I have a huge 1 acre of unused spot downtown in a tertiary market. It's a city called Moses Lake. I'm curious, does this work in any market? Is this a core city thing? Does this work if you're out in a population of 30,000 people the same as it does in like a downtown Seattle. What is your ideal market for this?

So it follows population distribution almost exactly. We do very, very well in those dense urban cities. With that said, we have hosts generating income from renters in cities with 2,000 people today. And so we can work in almost any city in the country. A lot of times, you know, you look at places like Moses Lake and they do quite well because there's a lot of destination renters there trying to store an RV or a camper trailer. An acre lot like that, depending on the market, is, is, is potentially a six-figure NOI opportunity.

So that's super interesting. And if you can find these little things in your portfolio where you make more money, it just— it's basically the same thing as just like adding a rental unit or two. Or if you have a large lot, it could be a lot larger than that. You can get significant revenue streams in your portfolio if you do a good job of optimizing, it's almost like you bought another building.

It's, it's really funny. A lot of times when we'll first start working with a portfolio, they'll tell us, you know, we don't even have a ton of extra space. And we always tell them, spend some time, find some, because you do have some. And they'll find some, they'll onboard it on the platform, we'll get it rented out quickly. They'll start earning the income. The income is kind of addicting. And all of a sudden they go do a more thorough review of their portfolio once they start earning that income. And it turns out they have tons of space that they didn't even know about because it's not logged. You know, it's not, it's not, you know, it's not showing up in your Entrada or your Yardi account, especially these larger portfolios. We work with groups like, you know, EQR, UDR. They don't even know a lot of times what is available until they go do an inventory. And, you know, when you're earning 7 figures or, you know, then it becomes— there's a high incentive there.

Oh, this is, this is so interesting. And it is, it's a good drill for this. And there's a lot of other things that you do to optimize. These are the type of things as owners, and I absolutely agree with you in the 2024 market, these are the types of things where you're like, am I dialed in on my property? Now, if you're earlier in the investing game or you're in the build phase, This is my advice to you. Focus on buying the real estate to get to where you're trying to go, like build your portfolio. That is key. Some people start at optimize and then they end up buying basically nothing, or they end up with like 2 duplexes and they're decked out. Build your darn business first, fill it full of renters, get your core business rolling. The next step, the most important thing to do is when you stabilize it, instead of going out and going build, stabilize, build, stabilize, I've seen people build massive portfolios and they're, they're always running around with their hair on fire. They're like, oh, I got to get this project done. We got to do another acquisition. If you stop and take the last step and you optimize all of your pieces, everyone I know has done that. Those are the landlords who I'm like, okay, these guys are actually rich. They have cash flow, they have cash on hand, they have a ton of rentals. Their stuff is nice and it's optimized. And you get to do that when your property is generating excess cash flow. You talked about getting extra revenue in. As an owner, that doesn't just mean, yay, you're rich, you have more money. It means you can do better upgrades for your tenants. You can run a more stable business. I love everything about optimization. That's why I'm excited about these things. So when you've acquired your portfolio, you're looking for this and other revenue streams. This is something where someone could just call you and say, hey, I have I have 100 rentals, 200 rentals, I have 50 rentals. What's the right size client? Like, at what point in your portfolio would someone reach out and contact you?

Well, look, you know, we started on the residential side with single-family properties, and this is just an individual, just like Airbnb, that maybe has a driveway or a garage and they're renting that out. On our platform. So we can go as small as a single home. We actually have a whole business that supports that. At the same time, we're working with several of the largest owners of multifamily in the country. Big public REITs held the big public standards that need us to plug into their software in very, very specific ways. Um, you know, groups like Equity Residential. Uh, and, and so we can work the gamut. Really anyone can sign up. We have self-service tools. For those with smaller portfolios where they can just self-manage on our platform. And then we have large enterprise tools where you need permissioning and you need sign-off from multiple levels and different people want to see different financial reports. That's all built. We, you know, you talked about core competencies and focusing on that. Our core competency is technology. Like we're, at the end of the day, we're not a storage company. We're a technology company. And we build technology that empowers people to get access to the storage economy. You know, you think you mentioned stabilization. I completely agree with that. You've got to focus on getting your core renters into the units because that's where you're going to earn the bulk of your money. And then what we do is we access— we let you as an owner access the wallets of non-residents. And so you're not capped to just the wallets of your residents and trying to increase rents on them. Now all of a sudden, when you're at stabilization, you can start to expand and access wallets outside of the doors of your multifamily complex.

Starting in single family. So you guys have scaled to be huge. That my initial thought is that sounds brutally difficult to scale. How did you scale it on the, on the single family level? When you're, when you're going, is it just like one house at a time? Was there a mass marketing strategy? Was there a point where you jumped and said, hey, commercial is actually a lot easier to scale? I'm just curious, like going all the way back to the origin story of the company, how do you scale a single-family service to what it is today?

You know, we started this business because we had the problem ourselves. My co-founder was trying to get a storage unit and had a just absolutely terrible time doing it. All of them were full because nationwide occupancy rates are like 95% in the storage industry. And he was going to have to drive to the next city over and pay, you know, $300 or $400 a month for a unit. And he was like, I'm not going to do that. So he found a friend that let him store in his garage. And after he got done storing, he just thought, this was such a no-brainer. I felt so much more peace of mind in a nice garage in a neighborhood I trusted. Plus, I saved a ton of money.. And then he made money instead of some storage company. So that's where we started. And really it's a word of mouth play. One host, one property owner starts to earn meaningful income that's paying down a decent chunk of their mortgage every month. And they're going to tell their friends about that. And it just spread to all 50 states. And, you know, we can do education too. Like we've, we've done things to help people know that they can monetize their space. Through social media platforms and things like that. The commercial side, the large property owners, like the large multifamily owners, the large retail owners, that really started in earnest with the pandemic is we saw an opportunity where commercial real estate was in trouble. And, you know, we thought, how can our platform help these guys meet their obligations? You mentioned optimizing your debt stack. Well, a lot of debt stacks that were very, very optimized are now very, very unoptimized. And this income can make the difference between, you know, a lender taking over the property and you being able to ride this out. Because if you can just ride this period out as an owner, you're going to come out the other side looking like a genius and getting all your returns while a ton of other operators lost their shirt during this period. So that's where we saw the opportunity. And man, commercial, these larger property owners, they're growing faster than the residential side of our business.

That, huh. Well, that makes sense. So when were you guys founded? What was, what was the year that you started this idea?

We kicked this off in 2017. And so, you know, by 2020, we were already digging deep into the commercial space.

That was so, so the timing of the pandemic was kind of extremely fortunate for you. I feel like a lot of spaces in the commercial side. So we're talking like office, industrial, retail, outside of just your commercial multifamily. A lot of spaces magically became very available very, very quickly. Um, did that have a very direct impact on your business? Like, when that hit, did you guys branch harder into the office side, or is it still mostly residential and multifamily?

Yeah, it absolutely had an impact. And like I said, we, we're kind of agnostic to space. Like, the oftentimes asset managers, asset owners, they care very much about their vertical and expertise in their vertical. Whereas we as a technology company, we care very little about the vertical. It's all to the renter. The renter, they view it the same whether we're using a parking garage at a multifamily complex in downtown DC or the parking garage at an office building in Manhattan. The renter views it the same way.. And so we work with a wide variety of space types and we're kind of agnostic to what type of space it is as long as it fits within the parameters of what the renter wants.

I love these. I love these podcasts that get me thinking. I keep pausing, thinking about, wow, where in my portfolio could I use this stuff? I know I have that one lot, but yeah, you start thinking about it and it's like, wow, I do have extra storage here, or I do have extra parking on this property. And it's, you know, some of my stuff is downtown now. I invest in tertiary markets, but not in tiny tertiary markets. You know, we're talking 30,000 to 100,000 people. You have some downtown properties where you have some unused space. This is really interesting. This is something where you really could— it's just a business that makes sense to me. As you guys took off, and it sounds like the answer might be you're really good at tech, but what is it about you? Like, if there's one thing between you and your partner that you guys are like, we are the best in the world at doing this one thing. What's that one thing that's your superpower and how did that help you guys scale this business as quickly as you did?

So you're right that our, our core competency, our, our advantage is technology. But I'll go further than that. It's using technology to, to really make the operator's life easier. So what we're really good at is getting close to that property manager and saying, we want this, this to be the most passive income you've ever earned. How can we use technology to make that possible? We want the person reporting to their owner saying, we just added $25,000, $30,000 in ancillary income to this property. That's, that's an extra $500,000 in property value. I just added $500,000. It's taking almost none of my time. And that's because we've used technology to automate that process for you and to keep track of it. Some, some people will use SaaS, they get plugged into our platform and they're like, your modern, you know, parking management tools, this isn't even your full business and it's better than any tools we've seen on the market that are actually dedicated to this space. So getting really good at technology, but specifically supporting the customer and knowing what the customer wants and building what they want.

What was your background to get that good at that? To be good at the actual customer engagement, to understand the technology integration with properties. There's some technical there. Where were you at before building this product that gave you some skills that were translatable? Because I imagine there was a, there was a little bit of backstory here from going from like, hey, I want to rent a garage to we have a software that, that is nationwide and kicking ass.

So, so I was rescued from the, the boring world of professional services. You know, I worked at a investment bank and a private equity fund and worked at Bain Company, the consulting firm.

Yeah.

And then I just saw this amazing problem, this amazing market, and it's like, okay, storage has the highest occupancy rates of any real estate asset class and other asset classes have need. Why don't we let those asset classes tap into this asset class? And that, you know, it's a, it's a half a trillion dollar market that they can tap into. And, you know, the technical component you mentioned, yeah, my only contribution to that is I've hired really phenomenal engineers. You know, we've got engineers that we've hired from, from Amazon, you know, Microsoft, etc., a lot of the best tech companies in the world to come build software in order to make this happen.

Oh, that's fantastic. So get really good at hiring if you have a big vision. Be amazing at hiring. Where did you build that skill, by the way? So you went from working for these companies to— I mean, in a relatively short period of time, you've built a large company yourself. Where were the skills built? Was that something just from observing? Did you go to school for this? What was the—

where did you build? Well, you know, I think really competent— and you probably know this from your own experience— really, really bright, sharp, motivated individuals, they want to work on big projects. They want to work on big challenging projects. They're like searching for that their whole career. And so I don't know if it's so much, you know, that I'm necessarily super competent at this. Like, you know, I, I try to be helpful where I can, but it's about this vision that we're working on where we're building the most important tool in a half a trillion dollar market. This is the next Airbnb in this market. And that, that tends to attract individuals that want to build something world-changing and really impactful, more so than, than, you know, some cult personality or something like that. Intelligent individuals, hardworking individuals, they want to work on the big thing.

And it's a really humble take on that. It's not that you're the best, it's that you have a great idea and that great idea can attract great people and great people want to work. I love that. Speaking of humility, the biggest stupid tax in building a company, what I've found is everyone has to pay some price for what you don't know, you don't know. It could be the biggest monetary expense. It could be a personal expense, could be a friendship lost. But what was the highest stupid tax that you had to pay learning how to be good at this game?

Oh man, it's really— we're a venture-backed company and so we've raised venture capital dollars from, you know, some of the best in the industry. Andreessen Horowitz, Fifth Wall, who's one of the top VCs in the real estate industry, CEOs of DoorDash, Uber, etc. And That's exciting that they buy into the vision and these guys that have built similar products to us, that they're excited about the product. At the end of the day though, you're running a business and that business has to be operated to traditional business principles. Even a marketplace where you think about us as having two customers, both a renter and a host on our platform, We're really just like any other business that has inventory and has a customer. And probably the biggest stupid tax I've paid is getting too wrapped up in that. And I think a lot of people did in the craze of 0% interest rates and basically free capital and not remembering that you really have to operate to these traditional business principles that drive solid profitability and unit economics for a company and growing responsibly.

That makes sense. How did that, how did that really affect you? Like your, your overfocus on that piece? How did that end up affecting your businesses and what would you do differently now?

Well, it caused us to get really smart about our customer base. You know, there's this principle that people talk about of going after your white hot center. And, you know, in some ways it was advantageous that we went really broad. We acquired basically every type of property owner in every city in the country. What that did is it gave us a lot of data and we were able to leverage that data to go back through and say, okay, who's working the best in, in what types of city, you know, different types of city, different things work really well, different types of property owners. And so now we've gotten much better at honing in our customer segment, going after them, which makes the, the dollars we spend to bring those individuals to our platform much more efficient. Not to mention that it helps them. It's a better experience for them because when we're bringing on the right people, they come on the platform and they're earning lots of money. And when they're earning lots of money, they're really satisfied. And so it's, it's kind of a mutual beneficial thing that we're able to just get more, you know, more, uh, serious about who those target customers are and where.

I love it. And that's one of the things that you have to get really good at. You said one of my favorite things, which is that focus on the white-hot center. Like, yes, you, you get a lot of knowledge from going broad or from doing other things. So there is, there is value even in the mistakes that you make along the way. There is value and you learn and you get better. But when you stick to that white-hot center, your core business, that is really where I see people take off. That is, that is really exciting. If someone is looking to find you online, where would they go to, uh, learn more about you, learn about more about your company?

We try to make it as easy as possible.

Neighbor.com.

We're also the top, you know, storage app on the App Store if you search boat storage or car storage or whatever you want. And then feel free to reach out directly to me on LinkedIn if you're a large owner of a multifamily platform, you can reach out directly to me. You can also go to neighbor.com/business. That will give you more information about these large portfolio owners. The thing I'd say to remember is no commitment to reach out, little to no lift from your management team. We don't charge any upfront fee. There's no capital improvement. This is just an opportunity to make more money.

We're not selling anything. Cool product, excellent business idea, excellent business operator. Everyone, Joseph Woodbury, thank you so much for joining us today, man. This has been an awesome episode. I hope everyone is thinking about different ways that they can be optimizing their real estate. This phase is something we don't talk about enough, and it is the part where you actually buy the real estate, you stabilize it, and you start making real money. This is exciting. Joseph, thank you so much for joining us on Multifamily Strategy. Everyone, we'll see you on the next episode.