Passive Storage Unit Investing with Tom Dunkel

Welcome to the REI Mastermind Network where host Jack Haas gathers amazing stories from leaders in real estate investing. In each episode, our guests will tell you what they're doing that works, what they've tried, that failed. And best of all, you'll learn actionable steps to take your real estate investing to the next level. Now here's Jack with another value packed episode.

Tom Dunkle is here with me today. Tom, I appreciate you being with us as we talk about storage units and I know you and I chatted just briefly before we hit record here that it seems like multifamily investing and storage units have been adding, being able to add that to the list now of aspirational investing. So this is going to be an interesting conversational conversation as we dive into this. But before we start, I want to direct everybody to your website. So it's bellrose storagegroup.com and I'll make sure to have that link in the show notes to make it easy to click through for everybody. So again, it's Bellrose storage group.com and Tom has been in this business now for 25 plus years and with a variety of investment strategies. But you're landing in storage units and it'll be kind of an interesting to understand how you ended up there.

Sure. Thanks for having me, Jack. It's great to be with you and the listeners. Yeah, I have had kind of a winding career through investing and finance. Just I'll give you the quick version, I tend to get long winded so I'll try to keep it brief. But for a number of years after finishing business school, I was in corporate America doing mergers and acquisitions industries like aerospace, software, telecommunication, third party logistics. Anyway, I did, I've been doing a lot of deals in a lot of different industries really since 1995. It's been a, it's been a fun windy road. But I always wanted to get into real estate. And in the early 90s, if anyone's out, out there is old enough to remember it was not a great time in real estate. So when I was finishing up my education, getting into real estate wasn't really an option. So I did go the corporate route and did corporate mergers and acquisitions. But then I did finally get my chance when I left my corporate job in 2006. In fact, I was fired. So it was just the kick in the pants that I needed at that time to really go out and do my own thing, which is what I had wanted to. But sometimes it's hard to take that leap when I got shoved out the door of my corporate job. It just forced me to just go for it and I certainly have no regrets. Even though starting in 2006 was a horrible time to get involved in real estate. So I learned some really hard lessons those next few years as I was trying to build a residential fix and flip and wholesaling and rental portfolio business. So definitely had some, some tough times there but had to persevere and got into some other areas within real estate. Mortgage notes still a business we're into this day. Short term rentals, hard money lend. We started a title company and then as we started getting around the 2018, 2019, we started really looking at self storage because it was just such a great asset class as far as being commercial real estate. But it's frankly a very simple business with very big net operating income margins as compared to some other asset classes. So that's what got us excited about it as well as the fact that it is a largely mom and pop, meaning that it's not dominated by big players. And so it would allow a company like Bellrose Storage Group to go in and acquire facilities from these moms and pops and turn them around. Because moms and pops unfortunately are not really running them like businesses. And so we've had a great run here the last few years. We've acquired by the end of this year we've only acquired about a half a million square feet of self storage, which I know there's plenty of players out there that are way bigger than that. But we're pretty proud of our accomplishments so far and of course we're doing a great job for our investors too. That's what it really boils down to at the end of the day. But we're very excited where we are in our business growth path here.

Let's back up there for a little bit. You said you were fired from your 9 to 5 job and that just reminds me, and it probably reminds a lot of people, is the fact that 9 to 5 job isn't as secure as we've been led to believe.

That couldn't be more true. Truth be told, it wasn't the first time I was let go or laid off from a job either. I know a number of people out there have run into the same kinds of things unfortunately, but that's the way the world works now. It's. There is not really any job security. It's not a couple generations ago where you took a job and you stayed in it for 30 plus years and got your pension. Those days are long gone. So I think it's up to everybody to create their own, their own retirement, their own personal pension plan by being good investors.

And then you said you started in 2006 so you saw like the, one of the biggest disruptions we've ever seen in the market. I have to ask you, do you see any similarities today?

That's a really good question. And the short answer is no. Back then when we were going through that rough spot, there was no liquidity, meaning there was really no money on the sidelines. Today there's trillions and trillions of dollars literally in cash on the sidelines. And the other thing is, back then, underwriting guidelines for residential mortgages were pretty much out the window. If you could fog a mirror, you could get a mortgage. Those days are also gone. For anyone who's tried to get a mortgage, that's definitely the credit quality these days is much, much higher. So for those couple of reasons, I think it's not going to be merely the disruption that we saw 12 years ago.

So you mentioned that you're looking for those mom and pop storage facilities that have been, frankly, they're a little mismanaged or you're trying to find some sort of way to add value. Where are you finding these opportunities? Could you dive a little bit into what type of value or what changes are you making to turn these places around?

Sure, yeah. So we built a great team here at Bellrose. And so how we go about finding these moms and pops is we, we have a lead generation engine. And so we have VAs virtual assistants who are making phone calls to our lists. We do letters, postcards, those kinds of things. And then we have a whole process for when we find a seller might be motivated. We have a whole process where we reach out to them, get the conversation started. And really we're just trying to help. Right. A lot of these folks maybe are just looking for some tips here or there, but then there are others that are at the end of their ownership life cycle as we call it, and they're wanting to make a change. And so we come in and a lot of times because we do go to this steps of building rapport and just talking to them like real people because we're not a huge organization. We're not closing 20 deals at a time like some of these huge real estate investment trusts out there. So we do make that personal connection and that's allowed us to beat out like we're about to acquire a facility in New York where U HAUL was bidding. Of course they're a humongous company. But the seller decided he wanted to sell to us because he liked this. It's pretty, pretty simple. But as far as the value add strategies go, Jack, they are these moms and pops. Their primary goal, we found, is to just keep the storage units full. So to do that, they keep their rents artificially low for that market because the last thing they want to do is have to do any kind of marketing plan or outreach or deal with a customer move in, move out situation. So they keep their rates low and that keeps the tenants there. Problem with that is, and we find this all the time, it's, I'm actually really surprised how often we find it, but it's pretty routine that we'll find a facility where the rents are 25, 30, even 35% or more below where the actual market is. And this has happened especially recently. In the last few years, rental rates on self storage have gone up 15, 20%. And so if there's a mom and pop out there that hasn't really kept their finger on the pulse of what's happening, they're leaving a lot of money on the table. What we do is go in and we do thorough analysis of the market so that we can see who are the competitors, what are their rates, what are the rate trend, are they full? And so we'll, we have a number of databases that we use to get that information. But then the last step in that process is to actually get on the phone, the good old fashioned phone, and go out and make those calls to those managers and just to verify what we're seeing in our third party subscription databases. And so that's probably the biggest one, Jack is just getting those rates up to par. But other things we do are provided good security, lighting, security cameras, make sure the fences are solid and working, and the gates are solid and working. Because as everyone knows out there these days especially, and this is the data talking, not me, women are making the buying decisions in the household. And so woman that rents a storage facility, they want to feel safe there. So they want the lighting, they want the gates, they want those kinds of things. We make sure that we provide that for our customers and that's not a big expensive undertaking. And then there's other things we can do. Add tenant protection, which is basically profit that just drops to the bottom line. And so there's a number of other little value add things. I'll throw in one more. I know I'm getting long winded here, but one thing we're really good at is cleaning up delinquencies so again, these moms and pops, they don't really want to make those calls because a lot of times they know their customers and they don't want to call up John and say, hey John, you're 15 days late on your payment again. And so their delinquencies tend to build up. And what we do is we go in and we clean those up right away. And delinquencies across the industry are generally around 10%. Ours, I'm happy to say, are about 2% across our portfolio. So that definitely helps keep the cash coming in so that we can pay our loan and pay our investors.

So what are some of the strategies you're using there then to keep it really?

It's just running it like a business. I think typically for a consumer, their 150 or 200amonth self storage unit, it's not one of the huge budget items in their month. So they are. A lot of times it's just administrative issue, maybe the credit card they're using expired, those kinds of things. And but our managers, they do, they make those calls and they do tell John that he's 15 days late. And then. And we. And one great thing to note too Jack about self storage, and this is much, much different from multifamily or residential is there are lean. It's governed by lien laws as opposed to residential landlord tenant laws. So when we have a customer who's behind, we get to that 61st day that they are delinquent and a notice goes out, we can start auctioning off their unit. The auction winner comes in, cleans up, they clean out the unit, we go in and sweep it out and put it back up for rent again that day. I know from my residential rental portfolio nightmares, I had to go to landlord tenant court. And that can drag out for months and months and a lot of times, depending on where you are, landlord has a tough chance even winning those kinds of rents. So it's a breath of fresh air, frankly, being in self storage in that regard and just really having the laws on our side so we can keep them again, keep the units full and keep the cash coming in.

Yeah, Ian, depending on the situation or what state you're in, in a residential situation, if you have people who left a bunch of stuff behind in some states you have to hold on to that for so many months before you can dispose of it. And then we're calling somebody like you to get a storage.

Right. I was just going to say, yeah, now you're using a self storage unit. No, it's crazy. We actually charge our customers if they don't fully clean out and sweep out their unit. We actually, it's in our contract. We can charge them like 50 bucks. It depends on the facility but we can charge them like a $50 clean out fee or something. So again, very tilted in the favor of the self storage facility owner.

Just to remind everybody, head over to bellrose storagegroup.com for some more information about what Tom and his team are doing. But it leads me to my next question. Tom, a lot of people who are looking into storage units are looking to tackle this type of project themselves. Can you brush on the concept of investing in this type of project directly versus being a part of a syndication such as what you're running?

Sure, absolutely. There, there are certainly storage facilities of all shapes and sizes out there. There are facilities out there that can be found in the 100, 203, definitely under a million dollars kind of range. But that kind of facility might be great for an individual investor maybe looking to make a move from residential rentals to sel facility. But it does come with a small facility like that. You're not going to get the economies of scale. Right. So you're, if you're going to have to hire a manager or at least a part time manager that's going to eat into your profit. Taking care of the grounds and all those kinds of things on a small facility can chew up, can chew up a lot of the budget as, as compared to participating in a syndication like we do about a storage group. Obviously I encourage anyone who's interested in building a storage business to go out there and do it. It's a great industry. But if it looks like too tall a mountain to climb, there are certainly groups out there like Bellrose Storage Group. We do syndications so we bring in outside investors to participate in our deals. And so to date our investors are enjoying some, some outsized returns because not only has the market been great, but we have a great team of operations professionals. In fact, our operations consultant has been in the industry 16 years. So she's seen every little thing out there and so she brings a ton of value to Bellrose Storage Group as does my partner Tim Kaine who's in charge of our expansion and development opportunities. It does take a team and I, I can't emphasize that enough. That's one thing we've been really lucky about here at Bell Rose Storage Group is we've been able to assemble a world class team here. Again we're not, certainly not the biggest guy out there and we don't intend to be. That's not our goal. We just want to do a great job for our employees and our teammates and our investors. But it's, it's definitely doable for someone out there who has aspirations. But you just got to get yourself around the right people.

When somebody is trying to tackle self storage on their own, they sometimes don't know what they're getting themselves into. Let's just be frank, especially that first time.

Sure.

Could you brush on some of the pitfalls or some of the problems that they, that maybe you learned along the way when you're acquiring storage facilities?

Sure, absolutely. For, for a single operator. In fact, I hate to say it, but we've acquired facilities from operators just like that who did get in a little over their heads and they weren't really sure how to handle the storage facility. At the end of the day, there are a lot of the little details that are really important. Managing your gate codes right. Every customer, if you're running it the right way, every customer is going to have their own gate code when they go to punch in. When they go to enter the facility. The software will keep track of who's coming and who's going. So little things like that, the software and the management reporting and the security and just keeping the grounds up and making sure that the roof isn't leaking in on the, on your customers goods. So there's, there really is a lot, a lot to do there. And then of course there's staying on top of the delinquencies like we talked about before, so we can quickly become a very big job for maybe a mom and a pop to handle on their own and then to just keep track of what's going on in the market around you to see where are rates going, are they going up, are they going down? Is everyone full? Is there a big competitor coming into the market? Those are all things that we're able to keep an eye on because we do have a team and those are the things that we, we look out for.

I would imagine that one of the things that you, I might be putting words in your mouth is the concept that you're probably updating some of the systems and processes as well. Let's face the fact, when it comes to real estate investors and realtors for that matter, we're behind the technology eight ball there where we're just not up to date. What are some of the systems and processes that you're putting in place to make management easier.

That's a fantastic Point Jack. And again, I think it goes back to the difference between a mom and pop operation and a performance professional operation. So one big thing is software, right? Software is a key component to how we are able to take over and run a facility efficiently. We act, we use something called easy storage solutions. And a lot of times when we acquire a facility, sometimes they do have software, but maybe they're not using it right or the data that's in there is garbage. And then there's a whole transition process that we go through to make sure that that data is solid and that our reports are going to be accurate. But that's a whole job it can take, depending on the size of the facility, it can take 30, 60 days post acquisition to make sure that all of that is up and running. But once it is, then you, then you really as a storage owner now I have nice visibility into what's going on at my facility. I can see the number of new VINs and the number of move outs on a daily, weekly, monthly, annual basis, et cetera. I can see how much money we're collecting and how are people auto paying with credit cards, which of course we love because then it turns us into kind of a Planet Fitness model where people are just paying every month and they don't want to go through the bother of moving their stuff to another facility just to save maybe five or ten bucks a month. But meanwhile it has big impact on our business. As an example. But we have, we have whole, we have processes around answering a read from the prior owner to us. We have systems around, like I was mentioning earlier at the front, very front end, we have the whole acquisition process and then we have the whole closing process. Once we acquire the facility, we have the whole process we go through to get the facility up on the Internet. A lot of the moms and pops don't have a website or if they do, it might not be up to date and certainly not a technological advantage in the market where, because let's face it, everyone these days is using their smartphones, right, to rent everything, including self storage units. So our, our facilities manager and their, and the operations team, they do that whole marketing aspect too where they're making sure that we're on Google and that our website is up to date and mobile friendly so that someone can rent a unit right from their phone.

Okay, awesome. Yeah. I'm curious, since you're running a syndication associated with this, do you simply work with accredited investors or how does those investors.

Yeah, good question. It's, it, it varies. I hate I hate that it depends answer, but it does, it depends on the size of the raise. So like right now you have a few different opportunities going on. Some of them are smaller where we have investors that we've worked with over the years who we have a relationship with. So some of them are non accredited because not to get too technical, but a 506B offering allows for up to 35 non accredited investors. So if it's a smaller raise and we think we can do it with just our existing friends and family who've been with us for a while, we'll go that route and allow some non accredited. But we're actually, we also are doing a much larger raise right now and we're, we are going to have to go to a 506C which is for accredited investors only. And that's because we need to throw a much bigger net out there to get that level of investment in the door so we can close that deal. So that necessitates us having to do a 506C for accredited only. Those are the SEC rules, not our rules. I'd love to bring in anyone who is interested. Those are the rules that we have.

To live within and a lot of people will. Especially if you're in real estate investing, you probably have a self directed IRA and you have. It sounds like you've really built your team to accommodate some of these investors. So can you walk us through the process? Do you have somebody on your team that helps people that maybe they have some self directed IRA funds that they wanted to. To invest? Sure, yeah, sure.

You're looking at them. I run our capital raising operation and yet we have plenty of self directed IRA investors. I myself have been a self directed IRA investor since 2009. So I've actually I've been an investor in a self storage fund and I've also invested in multifamily and all kinds of other things through my self directed ira. So we're very familiar with how those work and we're equipped to handle those investors for sure.

Since you've been on both ends, you probably have a great perspective on this. Do you have any questions that somebody should be asking a syndicator or a storage unit management company such as yours, what are some of the questions they should be asking to make sure it's a good fit?

I want everyone to know, Jack, that you. We didn't talk about that question before, did we?

No.

Okay. Because you just teed me up perfectly for a resource that we offer@bellrose storagegroup.com it's for free to the investor community out there. It's just our way of giving back a little bit. But it's. I actually have it right here. It's called the Safe Investing method and basically it's an ebook for, for passive investors. Gives them just a series of questions and really a framework within which to conduct their due diligence on a deal. So real quick, it's called Safe Investing. S is for sponsor. Who's the sponsor running the deal? What's their background? How long have they been doing this? All those kinds of questions. A is for asset. What is the asset you're investing in if you do it? If you're. If you invest in a self storage syndication deal with Bellrose, you're going to be purchasing membership interests in an entity that owns a self storage facility. I'd love to. For some people out there who might be investing in crypto, what is the asset that you're investing in? I don't know. Maybe there are smarter people out there but I think it's important to know the asset that you're investing in and know everything you can about it and be able to explain to your mom or your kid or your mother in law, you know what you're actually investing in because that way you'll make sure you know for sure. F is for financials. What are the financial projections? What are the returns? Does this investment fit your goals of. Most investors have a goal of income growth or capital preservation or two or all of three of those things. And so you just need to make sure that the investment is meeting your goals. And then E is for exit. How do I get out of this thing? Unfortunately, if you're a Bellrose Storage Group investor, you can't go to schwab.com and click sell your position whenever you want to. You need to be comfortable, whether it's our deal or somebody else's deal with the exit strategy. When does that take place? What needs to happen for that to happen and what for that exit to come around and are the. Has the sponsor executed on this kind of exit strategy before? So those are the basic, basic questions but again thank you for teeing up that, that great question Jack.

I'm glad that was an easy one for you. One more time. Bellrose storagegroup.com Is that where they could get that download?

It is absolutely. Just go to. That's our homepage. You can just scroll to the bottom and download it. You don't need to give a name, email or anything. But I would encourage folks to go There as well to sign up in our investor portal because that's where folks can learn about our upcoming opportunities.

Tom, I have a few rapid fire questions for you if you're ready for them. So what? So we're all familiar with a lot of the real estate investing promises that we've been, we've seen through late night infomercials. What is one of those real estate investing myths you'd like to bust here today?

Oh boy, that's a good one. I think a lot of people think it's a myth that you can buy real estate with no money down and but that actually is true. I always thought it was a little hokey sounding, but it is true. So I can't really blow that one up. Any of those things, any of those promises that folks hear about in the late night crazy commercials. I think a lot of them are probably achievable if, and this might be where they lead you a little astray if you have the time and the inclination and the team around you to be able to really grind through and make things happen. Because I know I'm certainly guilty of buying a book or a tape or something and, and having it sit on the shelf. And it wasn't that the system didn't work, it was that I didn't work. So I think it's important for folks if you are looking at getting, investing, whatever it is, residential, self storage, multi family, you need to treat it like a job. For sure. I don't know if that was the answer you were looking for, Jack.

No, I love that answer. I and I, in fact, I'm going to probably use that as the quote for this show. It's not the system that doesn't work, is that you didn't work.

That's right.

That's a great quote. You're not allowed to say rich dad, poor dad.

Okay.

Or I'm going to add think, think and grow rich because I'm tired of hearing those recommendations. But what book would you recommend? Or what are you reading?

Again, it's at risk of sounding like a broken record. It's right, right here over my shoulder. You can see who, not how. So it's a great book and in fact it's a great business philosophy or mindset because so often, especially entrepreneurs like we, we like to run around and bang our heads and skin our knees figuring stuff out because that's just how we're wired. But when you come up against a problem in your business or a challenge or an obstacle, you shouldn't think about how Can I overcome this? That's not the right question. The right question is, who do I know or who can I reach out to that knows how to get around this obstacle? Because let's face it, there aren't too many new business problems, right? So if it's a technology issue or a marketing issue or whatever, there's plenty of books and resources and gurus and such out in the world. So I would say get who, not how and implement that into your. Into your business life and maybe even your personal life.

What is the biggest real estate investing mistake you've made and what did you learn from it?

Good question. I would say. I. All these questions seem to be coming back the team. But we. We went. I've been business partners with. With my partner, Joe Downs, for 12 years. We've done a lot of this stuff that I mentioned earlier together, and we went into fixing and flipping houses. We're in the Philadelphia market, and we just went too far too fast, and we just really messed that up. And so again, I think it was because we didn't quite have the right team around us to really execute that strategy properly. So that was a rough time.

Okay. And if you could go back into time and give your younger self one piece of advice, what would that be?

I would love to have gone back. Ah, geez. This is a tough one because I'm not a regretful kind of person. I'm really happy with where I'm at in life and how I got here. But I would say maybe go bigger earlier. I think residential is a great place to start for a lot of people. It's a good place to just learn transactions and how a real estate deal works. I think if I had gone earlier, earlier on in my real estate career, if I had gone for some of the bigger transactions, I think that would have. Be. Would have been my advice. I know it's scary. Think again. Go back to the team. Sorry to repeat that over and over. I think if you built the right team around me early on, I think I could have gone for bigger deals and just gotten further. But. But I'm super happy with where I'm at.

Tom, is there a question or concept you wish we would have covered here today?

I think we. I think we covered a lot of great stuff, Jack. I know one thing that's on a lot of people's minds right now. I'm not sure when people are going to be viewing this, but it's early September and inflation has been a big topic in the news and it's been impacting businesses for sure and all the supply chain issues and things like that. I think that we could probably do a whole episode just on that. But I would say just quickly cover that I think. And it's one of the things we really love about self storage is we're able to adjust quickly. And so we in inflation has actually been mostly a good thing for us because our leases are month to month. So theoretically we could change our rent every single month. Now of course that's not gonna, the customers aren't gonna like that. So we don't do that. But we could because we have that kind of ability. But we do have projects, expansion projects that have been impacted by supply chain issues and our costs have increased while we're waiting for the supplies to show up, they get more expensive. So we've had to juggle some things there to make those deals happen. But those macroeconomic issues are just a part of the day to day life of being a commercial real estate investor. So we keep a good close eye on this.

Well, Tom, again it's Tom Dunkle. Head over to bellrose storagegroup.com I'll make sure to have that link in the show notes. But Tom, I really appreciate your time again and I hope you'll consider coming back sometime.

Yeah, I'd love to.

Jack.

This has been great. Thank you so much.

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