The Most Profitable Self-Storage Investing Strategies for 2024 w/ Tom Dunkel

The three key lessons that came out of that read were number one is surround yourself with great people. That's super valuable. Number two is get educated, go to the conferences, read the books and put those lessons into practice. And number three is find a niche and really just go deep into that niche.

Welcome to Investing in the US a podcast for real estate investors, business owners and aspiring entrepreneurs looking to grow their wealth by investing in US Real estate. I'm your host, Reed Goossens and so far I've acquired over $800 million worth of investments on various properties across the United States. On this podcast, I interview go getters, risk takers and the best in the business to learn more about their investment journey and the cutting edge strategies they are applying towards building a legacy. For more on growing your own wealth and by investing in the U.S. visit www.reedgoosens.com.

Today on the show, I had the pleasure of speaking with Tom Dunkle. Now, Tom brings over 27 years of real estate finance and investing experience to his position as Chief Investment Officer of Bellrose Storage Group. Let's get him out here. G', day, Tom. Welcome to the show. How you doing today, mate?

Hey, Reid, I'm doing great. Thanks so much for having me. It's great to be with you and the listeners today.

Can you rewind the clock and tell me how you made your first ever dollar as a kid?

I was that kid in the neighborhood that was hustling, you know, mowing lawns, raking leaves, shoveling snow. So I was, you know, well known throughout my neighborhood as the kid that was always looking for a buck here or there. So that was pret much how I got started.

Nice. A lot of the American kids, you know, shoveling, stow, doing some hard, hard yucca as they say in Australia, to earn that dollar. But walk us through the story of how your life pre Bellrose because obviously there is a story, everyone has one. And what really got you in, you know, excited about becoming an entrepreneur, particularly a real estate investor?

Sure, yeah, I guess I always have had kind of an independent streak in me so, you know, shoveling those driveways and raking those leaves. And then I was a caddy for a while, but went through college, went to business school and I was in corporate America for about 12 years, which was actually an outstanding experience all in all because I, I started out doing mergers and acquisitions in the aerospace industry, which was a lot of fun, a lot of exciting times there in the, you know, kind of early in the mid-90s with the Internet coming on and, you know, a lot of, a lot of defense related companies were kind of taking advantage of that new technology and we were, we were one of them. So I was surrounded by some Amazing know, Harvard MBAs, Wharton MBAs, Chicago MBAs, X fighter pilots, and I even was able to have lunch with a couple of famous former astronauts. So if anyone wants to reach out to me after the show, I'll tell you the story about the astronauts that I got to hang out with.

So.

So it was just amazing. It just really elevated my mindset about what was possible in business because we ended up building a really nice company through acquisitions and. And then it was sold off to General Dynamics. But through that process, I just, I realized I was working really hard making other.

And yeah, I just felt like I wanted to go and do. Do my own thing. And so I got that opportunity when I was fired from my corporate job in 2006 at a different company. That just kind of forced me to go out on my own, which was something that I had wanted to do. But, you know, you're never really quite sure what the right time is. You know, I was married, I had young kid at home, but that, you know, kick in the pants really kind of forced me to play my entrepreneurship hand. And so, of course, 2006 wasn't the best time to start my real estate empire because a couple of years later, of course, the world changed dramatically. And I was not really prepared for that. Even though I had a great education and a great background in business and finance, being an entrepreneur and being in real estate was a totally new, different world. And as it was changing so rapidly during the crash, I learned a lot of hard lessons early on. But, you know, that was, you know, going on 18 years ago, Reid, and I'm still here breathing and living to tell about it.

I'd love to hear about the astronaut story, but let's fast forward to where you are today. So you've got Belarus Storage Group, right? So you guys are focused primarily on self storage across the east coast. Tell us a little bit about how that came to be with you and your business partner and why self storage?

Like I said, I started out doing residential real estate during the crash. And of course, when things went so sideways, I had to reinvent and so roundabout. That time I started hearing about distressed mortgages. And so I connected with my business partner back then in 2010, Joe Downs were still business partners to this day. And we said, hey, let's make a run at this distressed mortgage market. Because of course, at that time there were a lot of distressed mortgages out there. So we were able to scrape together $12,000 and buy six loans. And that was our first deal in that space. And then fast forward to today. We've now transacted on over 11,000 loans, close to $1 billion of UPB and we've generated $54 million of revenue in that business over that time frame, which is, which has been great. I mean we're really blessed to be in that right place at the right time, which has been great. The challenge with distressed mortgage debt industry is it's very volatile, it's very unpredictable. And me with my business school background and wanting to have a business plan and hey, these are our cape guys and this is, you know, the team we need to build, etc, we just couldn't really do that because the, the flow of mortgages is very lumpy and unpredictable. So even though we had success in that business, we were out looking for an industry, a niche where we could build a more predictable and sustainable business that would take us over the long haul. And so we looked at hard money lending and we failed at that. We did some more fix and flip residential stuff and failed at that. Then we, we, since we failed once already in hard money lending, we tried it again and we failed again. So anyway, then we started hearing about self storage in about the 2017, 2018 time frame. And Scott Myers, who's one of the gurus in this, in the self storage space, he came to Philadelphia, he had one of his two or three day workshops, we attended, we kind of got interested, we Got the Bug 2019, we started going to the conferences and joined Scott's mastermind group. And it was through that mastermind group that we realized like, hey, you know, Joe and Tom, like we can run the numbers, we can do the projections, we can raise the money, we can structure the deal. But we had some glaring shortfalls in our skill set and so one of them was finding off market deals. We tried, you know, through Scott's program, like we tried everything that he had suggested and we just didn't have that DNA. It wasn't, it wasn't something we were good at. So you know, like the book over your shoulder and the book over my shoulder, we said, hey, you know who can help us with this problem? So through our mastermind process we found Tim Kaine who came out of the residential wholesaling industry. So he, he had a marketing engine built and ready to go. We just had to point it at self storage. And, and Tim's challenge was he Wasn't really good at the financial side of things and the capital raising side of things. So it was a great fit. Now we can find the deals, we can do the due diligence, structure them, raise the money, close on them. Well, now we got to run the thing. So none of us had experience running a self storage facility. So again, through our Mastermind program, we were able to find Catherine east, who's a nationally known expert in self storage, operations management, auditing, et cetera. And so we brought her and her team on board and that gave us then the confidence because now we had the team, we had the plan to then go and execute. So we bought our first facility in 2020 and we've now acquired 14 facilities across seven states and we continue to grow our team and add to our team and we're just super pumped about the, the market. Even though we've had some challenges recently, again, we're in this for the long haul, so we're real excited.

That's an incredible story. First thing comes to mind is how many people you brought on early when you're such an infancy of the business. Right. Did that seem daunting to you to bring on other partners? Yes. You didn't have the skill set, but a lot of people would go white knuckle it and figure it out. Why did you decide to go and maybe extend payroll before you had the deals coming through the door?

I think it comes from just our experience in our past failures where we did try to just smash through the walls and figure it out ourselves. And it might have also had something to do with the fact that I turned 50 in that time frame. And I'm like, you know what, I'm done smashing down all these walls by myself. I'm going to go find some, somebody to help us out and give us a much better chance of going further, faster.

I'm in my late 30s, I'm still in the smash and grab mindset. So. But, but, but, but in saying that like it, you thought within yourself that you didn't have the skill set, even though you'd gone through all those iterations of those different businesses. Like, you know, one thing I will say doing this podcast since 2014 is like real estate's a catalyst to start identifying other opportunities. And the manipulation of a net operating income is really what is at the core. Whether you're selling self storage units or the widget is mobile home parks, or it might be pads, or it might be apartment buildings, or it might be you're selling a widget online. On E Commerce, you know, you to all about, about how you attract leads, you make sure your product is good and then how do you grow that revenue? Right? That's, that's really at the crux of it. So interesting that you had a couple of, you know, not necessarily false starts because you had that really awesome distressed debt business that you didn't seem to be, that you had like, you didn't think you had the confidence to go out and do it where I would have been like, oh you guys, on paper, you guys are great, let's go. So kudos for what you'd be building today. So let's, let's pivot and talk about the self storage world. Everyone knows we went from 0% interest rates in early 2020 and we're now over 5% in 18 months. Right. That has caused massive handbrake on the economy. And walk us through the same sort of things like have you been affected by the interest rates? Are you seeing floating rate debt being a problem? And then on the renting side, what are you seeing from migration movements across the US Because I know self storage is such tied with those migration movements 100%.

We've absolutely been impacted by the challenging economy the last couple years. So during COVID everyone had to turn their spare bedroom into a home office. So that created a lot of demand for self storage. So during, during the pandemic period of time our facilities were rocking and rolling and we were pushing rates and we were full and so for sure that was a great time. Now we're back to kind of the normal seasonality of self storage. Right. People tend to be more active with storage in the, in the warmer months and they're less active with storage in the, in the cooler months. And for sure we've seen softer occupancy over the past year. We've seen rates actually come down for sure. I guess one maybe difference from what you were describing in multifamily is when someone's renting an apartment, right. That's a significant chunk of their, of their monthly income. Whereas with self service storage it's typically not. So it's, it's, you know, a typical 10 by 10 storage unit is going to be maybe $100, $150 depending on, on what market we're talking about. So it doesn't quite have the same budget impact as renting an apartment, as putting a roof over your head. So that all being said, for 40 years self storage facilities across the country have generally been occupied at an 80 to 90% level. So if you think over the last 40 years, I mean, we've had all kind ups and downs and everywhere in between in the economy. So self storage seems to be a resilient kind of asset class. It certainly isn't immune to what's been going on out there like I just described. Our rates are down, our occupancies are down. Now they're starting to come back. But it is an asset class that seems to have some, some resiliency. And I think the reason is on the good side. When things are good, you know, the economy's good, people are buying stuff. Right. They're, they're buying the, the kayak and the mountain bikes and those things that typically end up in a storage unit. But when times are bad, they might be downsizing their house or they might be combining households, or they might be moving from one place to another, which is a big driver of self storage demand. And that's one of the reasons why our occupancy has been down is with the rise in interest rates, there's been way fewer. Like you're mentioning. The transaction volume has just fallen off the cliff, not only in commercial real estate, but also in residential real estate. So that lack of movement has definitely had an impact on storage, but we have some mitigation strategies that we're working on.

Yeah. And I want to hear some of those. But just. Are you seeing like we're seeing on the multisite and.

I know.

And other commercial real estate office space, are you seeing it being valued less today than what it was maybe two, three years ago, just. Just directly post pandemic?

Oh, sure, yeah. Yeah. All else being equal, properties are definitely trading at lower values today than they were. Yeah. Because. Because of the exact points you touched on, the rates are up and asset values go down. That's right.

Yep, yep, yep. So have you seen distress, like we're seeing distress in the multifamily space from operators who got choked on low interest rate debt with high leverages? Are you seeing the same sort of problems play out in the, in the, in the self storage space?

You know, Reid, I'm sure they're out there. We personally here at Bellrose Storage Group, we've not seen anything specific come across our acquisition desk in terms of, you know, hey, here's a distress property. One of the things to keep in mind, again, I think this is a difference between multifamily and storage is if $100 of rent comes into an apartment building, the taxes, insurance, utilities, maintenance, et cetera, that all adds up. To maybe 65, $70, give or take, leaving about 30 bucks left to cover the debt payment and hopefully pay investors. On the self storage side, that's the reverse. So $100 of rent comes into a self storage facility, and our, our property taxes, insurance, utilities, maintenance, etc. Typically is adding up to about $35, maybe $40, depending on the size of the facility. So it gives us a lot more cushion to absorb a difficult environment where our revenue might be coming down and still be able to service the debt. So I think that's why if you look up any commercial real estate database about default rates, you know, self storage really hardly ever makes a mark on that chart.

Good insight there. So let's pivot and talk about how you're pivoting within the business and creating other verticals. Why are you looking at these other verticals? I think let's ask that question, then let's talk about what they are.

So, you know, within any industry, there's, there's niches within the niches, right? And that's one thing we found is a way for us to create value is to, is to really go into those niche places. So a couple things. First of all, we've gotten a lot more sophisticated around our marketing. So if you, if in the event that we aren't attracting the residential customers, we can target them through Facebook ads and we can be more aggressive about filling our units through outreach and marketing. And so we've actually gone through a whole branding exercise, et cetera. But as far as niching down into storage, there's really two exciting areas for us here at Bellrose Storage Group. One is RV and boat storage. So RVs, even though I'm sure the sales of them have dropped off a cliff just like everything else. However, there's still way more RVs out there than there are RV parking spots at these facilities. And a lot of homeowners associations are just really cracking down. They don't want RVs and boats parked in their neighborhoods. So these folks have to find someplace outside of their neighborhood to park these recreational vehicles. So RV and boat is, is an area. It's kind of the wild, wild west, like in self storage. Right. I'm sure you've heard of public storage and extra space and life storage. Well, there is no big real estate investment trust in the RV and boat space, so it's kind of a wide open, opportunistic kind of market that we're exploring. And then the other one is on tractor storage. So we kind of tripped into this by accident. We acquired a facility in, in Wilmington, North Carolina that has these larger format units. So instead of like a 10 by 10 or a 10 by 15, these units are like 15 by 30 or 18 by 38. And they have 14 foot roll up doors and 20 foot ceilings. And so these are rented out to contractors who are, they're storing their, their truck or their van and their equipment and their materials in these years. They're basically running their business out of these facilities. And so these are landscapers, these are carpenters, plumbers. In fact, the, the, the facility that we purchased was built by a plumber. He needed space and build this facility and then he brought all of his, you know, plumber and other contractor buddies in. And so so now we have a facility that's, that's full of contractors. So if you think about that from kind of a revenue mix perspective, contractors, you know, they're not impacted by the residential real estate market coming to a halt. Right. In fact, they're probably more busy because homeowners are staying in place and they're finally fixing up the bathroom or you know, fixing up the kitchen. So these contractors, I don't know if you've tried to get one at your house recently, but it's super, super challenging. A lot of these guys are super busy, so there's a big demand for that kind of storage and they can't, you know, maybe they've grown outgrown their home, but they're too small for like a big, you know, 15, 20,000 foot flex space warehouse. So we're really excited about that contractor niche as well.

That's actually a very good thing you bring up. It's nearly like a flex space or I've got a friend of mine who's an Australian who does X space. It's essentially a condominium style storage facility with a gantry or a mezzanine level where you can have an office, but you have a very, very tall ceilings and you have your workforce work space downstairs and it's for those small contractors. So I think that's an incredible little niche that you're getting into because you got it, you got to be out of pivot. What do you like to look for in terms of unit mix, like in the self storage space? You know, like if I, if someone came to me and said, hey Reed, build me a multi family project, I'll be like, okay, we're gonna need to set some studios, we're gonna need to have some one bedrooms, we will have some twos. But if depending on the area, we will probably skew more to the smaller side because, you know, it's more efficient to build a small square footage than it is to build the larger stuff. So how do you look at it and how do you back into demand when you're trying to assess these projects from a unit mix point of view? Particularly when you're looking at like a 30 by 10 by 12 store, 12 foot high.

It's a great question. And it's something that parallels multifamily like you were describing. It kind of depends on what's hot in that area, what's in demand in that area. Right. So, you know, if you're in downtown Manhattan, you know, you're probably not going to do two or three bedroom apartments there. So similarly we look at what's the demand like in the area. And so it boils down to kind of a revenue per square foot calculation. So we have a facility in Macon, North Carolina that came with about 7, 8 extra acres of land. And so our idea initially was, hey, we're just going to, we're going to gravel this, put up fence, security cameras and we're going to be able to fill this thing with, with boats and RVs. Because it was right near lake, right? Well, as we did our homework, we realized that maybe that wasn't such a great idea to do that because there is another boat and RV mostly boat storage facility across the lake that for some unknown reason was charging like ridiculously low rates. So that revenue per square foot, you know, using those as comparable ren sense kind of killed our, our project. So now instead what we're doing is we're gonna, we're still gonna do an expansion, but we're not going to do nearly as much boat and RV as we thought we were going to do. We're going to do. In fact, what we discovered through our homework was that it's really the larger units that are in demand there. So we're going to be building more 10 by 15s and 10 by 20s. We're really not going to be building any 10 by fives there because those, those just sit and they don't rent. So that's just kind of how we go about looking at, you know, what is what we should build or expand when we're looking to develop.

And I guess on a price per square foot, building a 10 by 5 versus a 10 by 20 probably doesn't cost you that much more, right? Because that's correct. You know, you're putting up the four exterior walls and then you're just chopping up the Interior and where you put those interior, you know, demising walls really, you know, do you put it 2ft one way or 3ft the other way?

That's right, yeah. No, you're sp. And one thing we were just talking about in this project in particular was hey, you know, why don't we, why don't we plan to do some 10 by 30s, but there's new building technology out there right now where you can have a non structural partition between units. So we could take a 10 by 30 and if the demand shifted or whatever, we could change that down to either a 10 by 10 and a 10 by 20 or maybe three 10 by tens with just by adding a wall.

I can already see it in my mind. You know, you're building two roller doors at either end and it goes, you could drive straight through with a truck or then you come in, you put, you know, some demising walls and come in from the north and south end or the bookends if you needed to access it that way, you know. I love it, I love it. My former structural engineer. Love that stuff. So cool, man. Well, coming into, as we like to wrap up the show, what's your plans for 2024 and beyond? What's the sort of audacious goals you want to go out and achieve?

You know, we're here at Belarus Storage Group. We're not, you know, we're not a huge household name or anything, but we call ourselves small but mighty. Our goal for 2024 is to acquire $30 million of self storage.

That's awesome. I think that's by the sounds of the team that you've got on board. I think it's going to be easily achievable. So mate, at the end of every show we like to dive into the top five investing tips. You ready to get into it?

Yes, sir. Let's do it.

Question number one. What is a daily habit you practice to keep on track towards your goals?

You know, my days get so hectic, you know, getting pulled here and there in this growing business. So I really get a lot out of my quiet time in the morning. Just gives me time to, you know, sit, reflect, have some gratitude and think about not only my long term goals, but my goals for that week or that day.

Yep. No, taking that time in the morning is so important. Are you a meditation type of guy or just you're purely sitting with a book and a journal more sitting with.

A book or a journal or you know, maybe listening to something inspirational? As I'm, as I'm as I'm walking or exercising.

Two birds with one stone, as they say. So that's right. Question number two is, who's been the most influential person in your career to date?

I've been so lucky to be surrounded by a lot of great people. Your friend Hunter Thompson has become a friend of mine. But I have to say, I'm a big Jim Rohn fan. I've listened to Challenge to succeed probably 40 or 50 times on my quiet walks and things in the morning. So he's been great. And of course Darren Hardy kind of took the torch from him as well as others. So, yeah, been very blessed to have a lot of very awesome influential people around me.

Going to Rise Fest 2024 this year.

Yes, sir. I'll be on stage.

Awesome. I'll see you there. I'll be on stage on Saturday as well. So we'll get to shake hands and maybe share a beer. So back to the lightning round. Question number three is, what's the most influential tool? And when I say tool, it could be a physical tool like your phone or your journal, or it could be a piece of software that you just can't run the business without. What is it?

I have to say it's our core values. Here at Bellrose Storage Group, we have five core values and I think about them all day, every day. As we're transacting our business and growing our team and thinking about the future, I think it's really important for us and the team to all be on the same page as far as our values.

That's the first time anyone's ever said core values. That's really good. I think that's really important as a tool in the business. If you don't have those core values, you become rudderless and you don't have a direction right. And you can't get buy in. So I think that's, that's really, really important. So well done. Question number four is in one sentence, what's been the biggest failure in your career? What did you learn from that failure?

Speaking of Raise Fest, I was on the stage at raise fest 23 and I gave a talk in front of me 5 or 600 capital raiser real estate guys. And you know, I talked about my mistake of. I described early in the show about, about just getting into entrepreneurship and trying to build my real estate empire and just getting creamed those first few years because I, I just, I. As much of an education as I had, it just, it wasn't the right education. So the three key lessons that came out of that read were. Number one is surround yourself with great people like we just talked about a minute ago. I think that's super valuable. Number two is get educated, go to the conferences, read the books and put those lessons into practice for sure. And number three is find a niche and really just go deep into that niche. Because like I said earlier about failing with the hard money lending business, I mean you've been here, Philly, right, doing a fix and flip, you know, you can't swing a dead cat without hitting, you know, 10 hard money lenders. So it's super competitive and just, just a tough, tough business. And so it wasn't niche enough for us. So that's why we're excited about not only self storage, but contractor storage and boat and rv.

Love it, love it my friend. Last question is where can people reach you to continue the conversation that'll be in your sphere? Where do they go?

This has been great. Reed. Again, I'm Tom Dunkle, I'm the chief Investment officer here at Bellrose Storage Group. That's Bellrose with one L. And you can go to bellrose storagegroup.com or you can search for Tom Dunkel on Facebook or LinkedIn. We've got lots of social media and videos and such out there. But I'd love to, love to talk to anybody individually wants to talk about, you know, the astronauts or storage or syndications or golf or whatever.

I'm going to definitely take you up on the astronaut story when we see each other at Ray's Fest 2024. But mate, want to thank you so much for jumping on today's show. Just reflect some of the things that I took away. I think what you just said there was really concise in that you've identified areas looking back on where you failed and around being niching, developing core values within the business. I think that's helped you create guide rails for you and you know, as you've moved forward and, and I think also the other, the self awareness that you had early on where you know they're talking about the ripping down the walls and starting again, you're in, you know, you, you turn, you said you turned 50 and you're like you, you'd got to a different chapter in your career where you'd done that, you probably made those mistakes and now you're like I don't want to do that any again. And so I think that's, as a younger entrepreneur I'm like that's good, that's, that's good stuff there guys. So re. Listen to that, you know, rewind that and listen what Tom said. Because a lot of people want to smash and grab, right? And we can figure it out on our own and there's, there's an element in our lives where you want to do that and it's good to do that and you can be successful and, you know, it's just, you know, white knuckling it. But I think this listening to the older folks in the room, so surrounding yourself with people like Tom is really, really important. Thanks again for jumping on the show today. Enjoy the rest of your week and we'll catch up very, very soon. Soon.

It was my pleasure.

Well, they have another cracking episode. Jam packed with incredible stuff from Tom, huge amount of knowledge. Definitely recommend checking him out again. I'm going to Repeat that. Bellrose storage group.com that's with one L B E L R O S E storagegroup.com you can check him out at tomdunkle across all the social medias and on LinkedIn and maybe if you get to Racefest 2024, you might even see him in person. So remember, go and check him out. If you do have any questions from today's show, you can always reach out to me. I want to thank you all for taking some time today to tune in to continue to grow your financial iq because that's what we're all about here on this show. The easiest way to give back is to give us a five star review on itunes and we're going to do this all again next week. So remember, be bold, be brave and go give life a crack.