Robert Leonard (04:24):

One of the things you tweet about is real estate. You’ve done a lot in business, you just mentioned it, but a lot of things you talk about, I found interesting. And I want to dive into a lot of those, but I want to focus a good portion of this episode on self-storage and really do a deep dive into it because it’s an asset class and a part of real estate that I’ve been interested in and I’ve wanted to learn more about it, but we just haven’t had a guest on the show yet to really dive into it. So to get started, we’ll dive into self-storage and then we’ll get into a couple of the other interesting concepts that I’ve seen you talk about.

Robert Leonard (04:56):

For someone listening who’s never heard of self-storage or maybe has just heard of the concept but doesn’t really know how it works, what exactly is self-storage and what does it mean to invest in self-storage?

Nick Huber (05:08):

So it’s a bunch of garages with overhead doors. We invest in row storage facilities, which means not class A multi-story climate-controlled facilities that you see in the city-owned by CubeSmart or Life Storage. We buy rural tertiary market self-storage facilities that have a sign out front that is generally owned by the sole proprietor of the business and they rent those individual storage units out for monthly revenue, like an apartment owner.

Robert Leonard (05:31):

I’ve been in the real estate game for, say three to five years now, it depends on what you consider as a starting point in real estate. But even for me, someone who’s done close to or just over 10 deals now, self-storage has seemed a bit daunting. You and your partner built an entire self-storage facility from the ground up back in 2016 at just 26 years old. And that amazed me because that’s how old I am right now and don’t think that I could imagine doing that. You didn’t buy an existing facility, which I think is daunting enough, you built it from scratch. So is my idea of it being daunting misguided? Is self-storage an asset class that is actually realistically doable for a new investor listening to the show today?

Nick Huber (06:12):

With some cash, yeah. Like most commercial real estate assets, the debt terms are not as good as single-family, so you’re not going to get 90% leverage on an asset. A small self-storage facility maybe $500,000, so you need one or $200,000 to get a deal done, which is a lot of capital. But as far as operating and putting the deal together, it’s a lot like many other forms of real estate. So definitely, not too daunting. We have 4,900 units right now under management, seven of those are multi-family, like apartments, and four of them are mobile home units. And I’d say in the last quarter, 30% of our emergency stress came from those seven extra units.

Nick Huber (06:51):

So self-storage is not an emergency business where you’re placing a boiler or appliances or something that you live in. We have people, the average visitor comes to our units once every two months and it’s a steel box with a door. So complicated from a lot of tenants, a lot of moving parts, month-to-month leases, new customers, phone calls, billing, but as far as maintaining and keeping the place clean, that part’s a breeze compared to a lot of asset classes.

Robert Leonard (07:13):

You touched on the financing piece not being as easy, and I want to dive into that because that’s one of the biggest components of real estate. How does financing work on a self-storage facility? What are the typical down payment requirements? What are the loan terms, etc?

Nick Huber (07:28):

We could go into the details of how we structure our real estate private equity company and raise money from outside investors if you want to go that deep. But from a basic standpoint, you’re looking at 60 to 75% LTV. So if you’re buying a million-dollar building, you’re going to need 600 to $750,000 of outside debt, that’s what you could achieve from a local bank. You generally have a 20 to 25-year amortization schedule instead of a 30 year that you get with single-family. And you have interest principal, you personally guarantee the loan, and you need to put a lot of cash down, obviously, if you’re buying a big building like that.

Robert Leonard (07:59):

What are the interest rates usually like on something like this?

Nick Huber (08:02):

Not as good as what you guys get in a single-family or multi-family space because it’s not government-subsidized or government secured in some cases with some loans, but 4.25% interest rate is what we lock in right now without prepayment penalties because our goal is to increase net operating income, make the facility more valuable and do a refinance a year or two years after. So we’re okay with higher interest rates without prepayment penalties. But if we were to lock in a five-year term with five, three, one prepay penalty, 3.75, 3.5% or so on a local [inaudible 00:08:35].

Robert Leonard (08:34):

3.75 to 4.25, none of that’s really that horrible. My first mortgage was 4.75, I think, and that was five, six years ago. A commercial loan at that rate, really not awful.

Nick Huber (08:44):

No, you’re right. It’s not bad at all.

Robert Leonard (08:47):

I want to dive into, and we’ll do this in just a little bit, we’ll dive into how to actually analyze a deal that you’re considering purchasing. But from a financing perspective, how is a bank valuing that business or that asset? What are they doing for an appraisal or something along those lines for a self-storage facility?

Nick Huber (09:06):

So it’s all on cap rates. It’s all about how much money the asset makes. When you’re buying a house, it’s all about the comparable transactions, meaning, you look down the street, what did that house sell for? That’s how you compare the value of different houses. Appraisers and bankers care about one thing in the commercial real estate world, and that is the profitability of the asset, net operating income. That’s the almighty figure. So there are cap rates, meaning like if you spend a million dollars on a self-storage facility and you bought it at an eight cap, it generates 8% of that million dollars in net operating income in a year, so $80,000 net operating. If it’s a five cap, $50,000 of net operating income.

Nick Huber (09:38):

The lower the cap rate, obviously, the more expensive the deal as far as how much it yields. But yeah, that’s how it’s valued. So the good thing for us, we take a small business approach to real estate. We focus on, “Hey, let’s make this thing more valuable by increasing the profitability,” and then you can put more debt on it or you can sell it or whatever we might want to do.

Robert Leonard (09:54):

So it is evaluated from the bank perspective just like you would any residential property over five units. That’s interesting. Now, I’m wondering, if I go to a bank and I say, “I’m going to buy this five, six, seven-unit property, anything over five units, they have a way of saying, “Okay, a two-bedroom unit should rent for this much,” and essentially getting comps for what rent should be. And then in my experience, they come up with what profitability should be, they don’t necessarily rely on specifically my numbers. How does that work in the self-storage space? Are they going out and getting comps for the different sizes of units that you have, or how are they coming up with those numbers?

Nick Huber (10:28):

The comps are based on cap rates. So they look at other transactions from other self-storage facilities that sold at certain cap rates based on how much money they were making. But yeah, when we go to a bank to underwrite a new deal, we give them our full underwriting package of like, “Okay, here’s the rents now, this is what I want to raise rents to, here’s our market study, here’s our monthly revenue all the way up to 80 months, our monthly expenses all the way up to 80 months, how the debt’s serviced, where the sources and uses of the capital are coming from,” so that they can get comfortable with our business plan, our business model, and ultimately the profitability of the asset. That’s what they care about.

Robert Leonard (10:57):

I want to walk through that deal I mentioned a few minutes ago when you built a self-storage facility from the ground up, how did you find the property, the land itself, and how much did it cost to acquire just the land?

Nick Huber (11:08):

The land was $250,000. Nowadays, maybe 500 grand. It’s on an artery outside of Ithaca, New York. If you’re Google maps, you can search 1401 Dryden Road, Freeville, New York. But yeah, it’s pretty high traffic, 18,000 cars a day, but it had a pretty significant slope. We had to build our self-storage facility into the ground at the second level, meaning you’d drive up around back to get to the second level. [inaudible 00:11:29] building for $250,000 came in with a budget of 1.8 million to build it, but quickly went over budget and ended up spending 2.4 million to build the facility, go back to our investors to raise more money on the deal and finally get the doors open.

Robert Leonard (11:44):

What were you looking for in a location when you were searching for a piece of land to build on? Did the land need to have certain characteristics or was it a demographic database on the city or the area that it’s in?

Nick Huber (11:55):

Yeah. We cared a lot about the market in the area for self-storage. What are the competitors charging? How full are they? If they’re all almost full and they’re charging good money, then we figured we could compete and we underwrote those rents. And then yeah, we looked for a piece of property that was over five acres where it could fit all the storage we wanted to fit without going all climate-controlled interior storage up three levels.

Robert Leonard (12:18):

What are the zoning requirements or permits or things like that required for this? I know when I look for land to consider building something, I know there’s a lot of legal things that you need to consider. What are you looking for and what’s important for self-storage when you’re going to buy just a raw piece of land?

Nick Huber (12:34):

Yeah. You’re looking for light industrial zoning. And it all depends on the area. I do business in upstate New York, Pennsylvania, Ohio, where self-storage is frowned upon. Nobody wants self-storage in their backyard, nobody wants self-storage in their town and it’s not easy. So yeah, you find the light industrial zoning, which is a tight supply right now because all the zoning was created back in the ’80s when industrial wasn’t as big of a use as it is now.

Robert Leonard (12:58):

One of the oldest adages in all of real estate is location, location, location. I’m assuming it is the same, but do you find that it’s the same with self-storage? How important is location for self-storage?

Nick Huber (13:10):

We get about half of our are new customers online. So you can definitely operate a self-storage facility with a crappy non-high traffic location, and if the price is right, you can do it. But yeah, it still definitely matters. You want to be pretty close to a lot of people, so that’s what’s important. I’d say location is when you’re doing a new development or looking at an acquisition, it’s important. But now we do almost all acquisitions, we built our first facility, we bought 23 more since then. We don’t care as much about demographics or location, we care about how full the facility is when we buy it. We look for a 100% occupied facility with sub-market rents, that’s what we look for when we’re going to buy a facility.

Robert Leonard (13:46):

I mentioned that I’ve been interested in self-storage for a few years now. So every time I drive by and I see one, I tend to slow down and I check it out at least the best I can from a road. And then for the next 20 or 30 minutes of my drive, I’m consumed by thinking about why that investor chose that location or how they’re making money or what they’re doing to compete, just all the different business things you could think about. And I actually do a lot of driving through pretty rural towns to get to motocross races. I just looked up on the map while we were chatting to see where that Ithaca location was that you just mentioned because I was just out in central New York, in a town called New Berlin for a motocross race and that’s what was in the back of my mind.

Robert Leonard (14:26):

I’ve seen some facilities in towns where quite literally, I think that the number of cows and horses outnumber the number of people. And so I’m assuming that the answer is yes since people do it, but can money really be made in self-storage even in very rural areas like that when there isn’t a large population?

Nick Huber (14:45):

Every investor has a different philosophy. Some investors only want to buy in the top 50 major metros and they want to buy and grow in towns like Austin and Atlanta, and therefore, the yield in those towns is tight. You got to spend top dollar for properties in those areas. You’re buying at three caps, four caps, whatever it might be. We’re after cash flow. I don’t care where it is, if it cash flows, it’s an asset that I’m interested in. Obviously, we’ve looked at where we can buy the most affordable asset for the given cash flow that it has. So, yeah, we’ve bought some assets in very small towns. Shippenville, Pennsylvania, Newfield, New York, we’re talking under 5,000 people out on country roads. But when you’re buying an asset that already has a bunch of customers in it, it’s a lot less risky than building one from the ground up.

Nick Huber (15:23):

Ground-up development in a rural town, I don’t recommend it. But if they already have a bunch of customers and it’s cash flowing and you can have some clear value add when you buy it, that’s what I’m after.

Robert Leonard (15:32):

How are you finding those deals?

Nick Huber (15:35):

That’s the hard part about storage, everybody wants to own storage right now. We bought some deals off LoopNet. We’ve bought four properties off LoopNet. We bought six others from listed agents. It’s getting harder, so we’re doing a lot of cold calling. We called a facility, we send mailers to the facilities. We have acquisitions teams that literally pound the phones and call self-storage owners and say, “Hey, we’re Bolt Storage, would you be interested in selling to us?” That’s the way that we’re able to find yield right now, because once a deal hits the market, oftentimes we lose the deal. For on-market properties, we’ve sent 20 LOIs in the last two months and we’ve gotten one under contract. So we lose a lot of bids.

Robert Leonard (16:09):

For those who don’t know that are listening, haven’t done commercial real estate, things like that, explain what an LOI is.

Nick Huber (16:15):

It’s a letter of intent to purchase. It outlines what price you would pay and what the main terms of the deal would be, and you sign that before you go into the purchase and sale agreement.

Robert Leonard (16:23):

What is the benefit to the seller for selling to you guys? Why are they willing to sell? If you can do just these small couple of things to make a business cash flow and make it work better, why wouldn’t they just do that themselves? Why are they selling it to you?

Nick Huber (16:35):

Well, that’s the question that all entrepreneurs of all kinds, why do we have a competitive advantage? And oftentimes it’s just doing simple things. And many owners of self-storage have a mindset of being 100% occupied is good. We want to have every single one of our units rented all the time. Well, if you know a lot about storage. You know that’s not ideal. Always, you want to have some vacancy, 92 to 95% is perfect. If you’re 100%, you’re not charging enough money. And oftentimes, they don’t use software, they keep handwritten ledgers. We bought 1,000 units in Elmira, New York, handwritten ledgers. When we acquired the assets, literally no software, even Excel was not used.

Nick Huber (17:07):

So yeah, just blocking and tackling of running a small business. Software helps, online payments help, automatic gates and text messages and stuff to make the customer’s life easier helps, and it also helps us save headcount and drive revenue. Maybe we’re buying at a five cap on the seller’s numbers, but we can turn it into a six, seven, eight cap for us because we can run it more efficiently.

Robert Leonard (17:27):

You mentioned that you went over your construction costs on that property you built. Walk us through why that happened, what some of the issues were, and what you learned from it.

Nick Huber (17:35):

Well, the main thing was I was 26 years old, excited, but basically ignorant of how any of this stuff works. And we went in, my dad worked for a construction company, and he’s an excitable guy, got us all pumped up. We went out and raised 500 grand in investor capital to put the deal together. We put in about 300 grand of our own cash from our service business that we had, and it got started. And when we got started, we realized that “Okay, there’s going to be overages. We bid it out wrong and spent a lot more money.” So we went back to the bank, asked them for some more money, went to each investor asked them for about 25% more money, finished the deal all in now for 2.5 million.

Nick Huber (18:08):

And once we got it open, we hit our stride. We started operating it really well. The net operating income went up and we opened the doors in 2017. In late 2019, we went back to the bank and said, “Hey, this thing’s doing really well. Could we do a cash-out refi?” And they said, “Yeah. So let’s get it appraised.” And it’s worth 5.2 million, so we pulled out $2 million of equity out of that asset and we got to keep it. So it was a phenomenal win for us and our team.

Robert Leonard (18:33):

I know you said you raised outside capital. How were you able to fund that and get that money from investors at 26 years old? Did you have a massive network? I’m sure putting up 300,000 of your own money probably helped ease some investors’ narratives, but walk us through that process of actually finding investors.

Nick Huber (18:48):

My dad put in 100 grand. That was probably a very unwise decision for him knowing his net worth. I went from neighbor to neighbor, to friend, to friend. The broker who was the realtor on the transaction invested 120 grand in the deal because I sold him. I was just going from table to table selling anybody that I potentially could on the asset until nine months later, we finally had all the capital we needed to make the deal happen.

Robert Leonard (19:12):

How were you able to structure that over such a long period of time?

Nick Huber (19:16):

Yeah. We used a standard real estate private equity structure, meaning like the LPs, the limited partners who invest, and then there’s the GP share, which is me, the sponsor. And we owned both share classes because we put some of our cash in as well, but the LPs were entitled to the first 8% of the yield and anything above that, we split 50/50 between the GP, me, and the LP, the investor. So we had to get them a return on their money before we as the sponsors of the real estate deal got to make a profit.

Robert Leonard (19:41):

How are those investors feeling when you had to go back to them and get more money?

Nick Huber (19:45):

I think they handled it well. I’m an over communicator and if there’s anything that we did well throughout that process, it’s to manage expectations and just be honest with them and not be afraid to share bad news and not try to sugar coat things. So, yeah, it was a tough time, very tough conference call that I remember vividly shaking before the call that we had with all these investors telling them what was happening, but they took it well, they put in the extra money and we got it built and it’s been a huge win. So it feels good now, but yeah, it was very stressful.

Robert Leonard (20:11):

What would have happened if you couldn’t have raised that money from those people, would you have lost the deal altogether? Could you have raised it from other investors?

Nick Huber (20:17):

No. Luckily, we kept about 200 grand of our own cash aside. So we had a fallback amount of money that my partner and I had on hand to get the deal done, and the bank did as well. Their choices were slim, too. It’s a half-built project or go-ahead and fund to the rest. So luckily, everybody put in cash, but we had a little bit of cash in reserve just in case.

Robert Leonard (20:38):

What do those investors’ return numbers look like today, given the success that you’ve had with that property?

Nick Huber (20:44):

I got to be careful about advertising investment returns on public. But yeah, it’s gone really well. We’re cash flowing at plus 10% year over year, and they’ve seen a lot of appreciation and some of their capital back too. So definitely, most of them went on to do additional deals with us.

Robert Leonard (20:59):

That was going to be my next question, is how many of those investors have actually one-up and come on to additional deals?

Nick Huber (21:06):

Two of the five, but I think the other three just didn’t have the cash to keep going. It was a pretty ragtag group of investors for the first deal.

Robert Leonard (21:14):

How have your money-raising abilities and processes changed from that first deal to what you’re doing today? How are you raising most of your money today?

Nick Huber (21:22):

It took nine and months to raise the $500,000 and a ton of meetings and traveling everywhere. To put it in perspective, we close on a deal tomorrow that had about $950,000 of capital needed to fund the deal, and we raised it in 30 minutes with an email to our LP list. So real estate is such a game of momentum that once you get trust and once you’ve done some deals and once people get a feel for you and your processes, if you deliver, then people really want yield. So it’s been a wild ride as far as LPs go, but it’s almost all from Twitter though.

Robert Leonard (21:52):

We’re going to talk about Twitter a little bit later in the conversation because I want to learn more about that. I consider my personal expertise in real estate to be deal analysis. My background’s in finance, accounting. I’ve just always been good with that kind of stuff. I believe that you can make an analysis for any real estate strategy, as detailed and complex as you want, but really for every strategy, at the end of the day, the goal is to forecast what you expect to bring in for revenue, payout as costs, and then set some money aside for reserves. The components that make up each of those categories, the different components of revenue costs and reserves vary depending on whether you’re flipping or you’re rentals, you’re doing self-storage, but those are always the variables that we’re trying to forecast.

Robert Leonard (22:35):

When it comes to self-storage revenue, how do you estimate what you’ll be able to charge for rent for each of the different size units that you have?

Nick Huber (22:43):

Yeah. I’ve underwritten enough deals now, I’ve probably underwritten two deals a week for five years. So I know enough of the details to know that, “Hey, if we can get a property that we’re looking at with pricing expectations under about 100 times monthly revenue, the deal is going to look good on paper if it’s full,” because I know that if a facility’s full, no matter what, no matter what town it’s in, if it’s 100% full, I can go in and raise the rents 10 to 20% right away on day one, no matter what. So yeah, you’re right, we have models that are extremely complex that model out our waterfall structure, our sources and uses and have 20 tabs and all the amortization on all the loans and when the debt gets paid off and all the exit assumptions.

Nick Huber (23:21):

But I can look at a property on Google Maps and get some basic rent roll information and I know down to about 5%, either way, what we’re going to need to pay to buy that asset.

Robert Leonard (23:31):

Same exact thing for me, almost to the T, because when I first got into real estate, I made the goal of… You said you did two a week for the last five years. When I first got started, I was super nerdy and I forced myself to analyze, and these are smaller deals, so it’s not as much of an analysis, but I was forced myself to analyze 10 deals every single day for six months straight. So I’ve analyzed probably close to 2,000 deals now. And like you said, those first ones had really complex models, and I can still use those to this day, but really if you give me a property, I can know in five minutes with an envelope whether I would buy that property and if I would, what I would pay for it.

Nick Huber (24:06):

Yeah, it’s fascinating. The complexity or the simplicity of the deal. We still do a full underwriting, but to get through the smell test phase of like, “Hey, this is a property for sale, we need to know if we need to spend the three hours to underwrite a deal,” we can get to that conclusion pretty quickly. So that’s a blessing. But I will say that the data coming in from facilities that we operate now, it’s changing everything. Just in the past six months, we’ve acquired 20 properties, and we’re seeing how it happens, seeing how the rent increase takes effect, seeing really what happens to the expenses, and having that data of actually a pretty large operating portfolio now, it makes it so much easier because before that we were shooting blind, just guessing what our expenses were going to be.

Robert Leonard (24:43):

One of the things that’s interesting, I think, that I bring to real estate is that my background was actually in stock investing before I got into real estate. So I was a big, big Warren Buffet fan, that’s how I got into stock investing. And so I apply a lot of Warren Buffett’s stock investing principles to real estate. And one of his principles is that he should be able to know whether he should buy an asset and pay what price on the back of a napkin, is what he says. And it’s the same idea.

Robert Leonard (25:05):

And I’ve brought that to real estate, it sounds like you do the same thing. And I think that’s super important because new investors specifically who listen to the show, I know a lot of them spend hours and hours, and hours analyzing every single deal, so they’re only analyzing one or two a week and wondering why they’re not finding any deals because you need to analyze 100 before you’re going to find one good deal.

Nick Huber (25:24):

Yep. That’s right. You’re right on the money, it takes practice.

Robert Leonard (25:28):

What are the major costs for running a self-storage facility?

Nick Huber (25:32):

The way our company’s structured is that each property is its own LLC, and we have a management company that answers the phones and charges the rent, and hires the contractors, and manages the actual property. So we pay a 5% management fee to that company, a little bit of onsite payroll, $500 a month or so per property, which is a lot lower than a lot of our competitors. That’s another one of our advantages. Then you have snow removal, lawn care, pest control, credit card transactions, capital reserves, and then utilities, marketing, things like that.

Nick Huber (25:58):

So generally speaking on a larger property, we’re around 25% operating expense ratio to our revenue.

Robert Leonard (26:05):

In residential real estate where I typically invest right now, the reserves part of a deal analysis is typically made up of an assumed vacancy rate to cover any lost rent that the property might have, CapEx, and repairs and maintenance. What reserves do you set aside for a self-storage facility, and how do you estimate those in your deal analysis?

Nick Huber (26:23):

If these buildings are fairly simple, they don’t have utilities, a lot of them don’t have electricity, a lot of them don’t have HPAC. So we’re looking at the roofs and we’re looking at the doors, and we’re looking at the pavement and the drainage because those are the big problems. The foundation can have problems, the roof can have problems, and the doors can have problems. And other than that, does the property drain okay? And how are the parking and driveways? So, fairly simple over the grand scheme, but yeah, old doors need a lot more CapEx, like overhead door companies are a pretty big expense, drainage problems can happen when it rains really hard, and water is the enemy of self-storage, obviously.

Nick Huber (26:54):

So I would say, doing drainage projects, replacing doors and the roof, steel roofs last 20 or 30 years, and you’ve got to replace those too.

Robert Leonard (27:03):

How about security? Is that a big issue for self-storage? Do you ever have issues with people breaking into other people’s units or even just outside people breaking in and stealing stuff?

Nick Huber (27:12):

Definitely, it’s part of the business. Unfortunately, with self-storage, you deal with a lot of people in desperate situations who have just been laid off, fired, lost their house, whatever it might be, so you do have a little bit of an issue, with any business, you deal with some shady characters, but self-storage seems to have even more of them. So that’s definitely one of the struggles. So yeah, we put a security system onsite, very rarely does that actually help because the police can’t use video to do much of anything at all, but it’s a deterrent, and an automated gate helps a lot too.

Nick Huber (27:39):

And overall, it’s not a very big problem. We’ll have across 5,000 units, we’ll have one break in a month reported or so, so it’s not too bad.

Robert Leonard (27:46):

When that does happen, how does it work? Do you have insurance that covers it? And so the people stuff that was stolen, your insurance covers to pay it. Do they have to have insurance themselves? Are they kind of know that that’s a risk of having their stuff there and there’s no backing for them? How does that work?

Nick Huber (28:03):

We generally require them to have their own insurance, it’s like renting an apartment. As the landlord, your insurance policy is not going to cover the contents of that person’s apartment. So yeah, we require them to have renter’s insurance and have an additional insured on their unit, or they have to buy third-party insurance that we allow them to buy through our system for $9 a month.

Robert Leonard (28:23):

One of the big issues with residential rental real estate is sometimes squatters, how does that work in the self-storage facility? I think a lot of people have probably seen the TV shows, Storage Wars, and things like that. How real is that? What do you do with somebody that just is not paying and they’re not willing to move their stuff out? How does that eviction process work?

Nick Huber (28:43):

The eviction rules around self-storage are not nearly as strict as houses, which is good. If somebody stops paying their rent on a house, it may take six months to evict. If somebody stops paying on their storage unit on average in New York and PA, it’s 60 to 90 days to get them out. But you definitely deal with it, you got to go through the lien laws, you’ve got to post ads in the paper, you got to have an auction, you got to give them proper notice by certified mail. All the different things that are required to go through to make sure you have a legal eviction.

Robert Leonard (29:10):

How costly is that in comparison to a residential eviction?

Nick Huber (29:15):

I would say not nearly as costly because a self-storage facility has 300 units, so one unit being tied up for a couple months is not too big of a problem, but definitely, the auction is definitely not a profitable endeavor during the storage auctions. They make it look sexy on the TV shows, it’s a giant pain at the butt.

Robert Leonard (29:31):

You mentioned 300 units there, is there a point where self-storage starts to make sense? Like if somebody has an opportunity, they’re listening to this, they start to love self-storage, they’re like, “Oh, there’s a 10 unit storage facility down the street.” Is that too few units to be interested in? Does it have to be 50 or 100, or maybe 300 to even make any sense?

Nick Huber (29:53):

I would say to remotely manage one that’s out of town or to get an outside investor or to try to be able to cover some of those expenses like capital reserves and stuff you need, 60 units, maybe 10,000 square feet, but you can buy those all day for three to $500,000. So that’s the starting point. We now don’t look at any deals under 20,000 square feet, but one of our best deals ever was in Pittsburgh, it was a 66 unit, $472,000, I think we spent on it, and we’re about to refi it out at about a million-dollar valuation. So there’s definitely a huge opportunity in the smaller deals too.

Robert Leonard (30:23):

Are you more focused on square footage or unit counts?

Nick Huber (30:28):

That depends, there’s a balance between the two. Every unit has a price on it and that you can charge in rent, and if it has a customer in it, you’re getting that rent. So it’s a big math problem for us. I think our bottom line is about $10,000 a month in revenue right now, if a facility is not doing that, it’s not really worth our time to acquire, but we bought properties that were doing five, $6,000 a month and they’ve been really great. So I’d say, it’s more about revenue. So a mix between square footage and units.

Robert Leonard (30:53):

The return metrics that I personally focus on for my rentals are cash-on-cash return and net cash flow per door. Going back to what we mentioned before about how complex analysis can be, there are 1,000 different return metrics you could look at, but for me, I’ve simply boiled it down to those two things. In the self-storage world, what return metrics are you focusing on? And what do you find to be a satisfactory number for those metrics?

Nick Huber (31:18):

We’re looking for an 8% cash-on-cash yield first year, that’s what we need to make it work with our real estate private equity company, how we raise money from outside investors. So when you hit 20,000 square feet, you’re deploying over a million dollars, that’s our baseline, and any deal we buy, we want it to be a minimum of a million-dollar capital deployment. And 8% cash-on-cash with some appreciation as far as upside goes is what we’re looking to get in on a deal.

Robert Leonard (31:41):

Is cash-on-cash really the only metric you’re really focused on for returns?

Nick Huber (31:46):

I think the rest takes care of itself. Unlevered yield on cost is another one that I really love. If a facility costs a million bucks if we paid for it in cash, what would be our yield on costs? Meaning what’s the cap rate of the deal, 8% or better, 7% or better, 6% or better, depending on upside down the road is a solid metric. If we know we’re going to buy a bigger deal, that’s one or $2 million and it’s at a 7% Unlevered yield the cost first year, we know that that deal could work. We know our cash-on-cash will be eight to 12%. So those are the two metrics that I like most.

Robert Leonard (32:16):

I like how you said, the rest just takes care of itself. I say the exact same thing. And that’s why I boiled it down to these two numbers because I know if I meet both of my requirements for these two numbers, pretty much any other metric that I’m worried about, is taken care of, almost every single time that’s been the case. So I’ve basically said, let’s just simplify this analysis, get rid of everything else, and just focus on these two numbers and the rest will take care of itself, you said.

Nick Huber (32:39):

Yeah. Commercial real estate is a little tricky because we do shorter-term loans. You on your rentals, you may be able to lock in an interest rate. What’s your average, how long is your interest rate locked when you buy now?

Robert Leonard (32:50):

So we’re doing five-year, 20-year amortization.

Nick Huber (32:54):

Okay. Wow. That’s aggressive. So it’s not like a 30-year fixed mortgage, but we’re in the same boat where three years, the interest rate is changing. So that makes a deal risky. If interest rates go up and all of a sudden we have to secure debt at 6%, 7% on a deal three years from now, that makes a deal risky. So for me, it’s all about risk-adjusted yield. So just going from a pure cash-on-cash perspective, doesn’t tell the whole story because you can structure a deal in a lot of different ways to make that cash-on-cash, this year you can do seller financing, you can get an interest-only period, whatever it might be.

Nick Huber (33:24):

We like to look at that unlevered yield on cost too, because then it’s like, “Okay, at 50% leverage, what’s the debt yield? At 75% leverage, what’s the debt yield?” Three years from now, we have an 8% interest rate, do we lose the property or do we keep the property? Those are things like worst-case scenarios that we like to analyze.

Robert Leonard (33:38):

When I mentioned the terms that we’re using, you mentioned that it’s aggressive, and I don’t disagree, but I’m curious if you find it less aggressive because of the asset class that we’re in. So I agree that it is a little bit competitive, but I’m not super worried about it because they’re single-family homes. And so the market, at least, and again, that’s right now, who knows if 2007, 2008 happens again? but at least I feel single families are relatively easy to offload, I feel like I could go to market and sell a property within 60 to 90 days, worst case scenario if I had to, and if I had to get out of that loan, whereas maybe with self-storage, three years, I don’t know how easy it is to sell a self-storage facility.

Robert Leonard (34:15):

And it might be a little bit harder than a single-family. So is that a dynamic that you think about when you’re considering these terms?

Nick Huber (34:21):

Oh, definitely. Yes. Commercial real estate takes six months to a year or so, and sometimes you can’t spell it. So if interest rates go up a lot, we have to be prepared to hold onto these assets through whatever might be thrown at us. You’re right, 100%.

Robert Leonard (34:34):

Yeah, exactly. And worst case five years come, I have to get a new loan, interest rates are super high, I’ll just sell the property and I should be able to liquidate it a little bit easier given it’s a single-family.

Nick Huber (34:45):

Will you take a BRRRR though, if interest rates are super high, you’ll sell for half what you paid for it.

Robert Leonard (34:49):

This is true. Yeah, absolutely true. But the liquidation process should be easier, I think.

Nick Huber (34:54):

Yeah. It depends on how much equity you have, I guess. I think the single-family rental space in some markets is good still, and in some, it’s just absolutely insane. And if you’re taking any leverage at all, it’s just a massive risk.

Robert Leonard (35:04):

Yeah, completely agree. One of the components that I think has made self-storage seem daunting to me has been the level of competition that I perceive there to be, at least where I live there seems to be self-storage facilities everywhere. And I actually go back and forth with myself on self-storage competition because we’ve talked about this, I buy residential rentals, which arguably, probably has the most competition of any real estate asset class. But for some reason, one of the limiting beliefs, I, personally, [that] have held me back from getting started in self-storage is the perceived level of competition.

Robert Leonard (35:37):

Maybe it’s because everyone needs a place to live, but not everyone needs to rent a self-storage unit, or maybe it’s because I’ve never actually rented a self-storage unit myself. So I personally disconnect with the need for a self-storage unit. How do you perceive the competition in self-storage? What are you doing to compete in such a competitive asset class?

Nick Huber (35:58):

One of my philosophies on business and in life is to compete with dumb rich people. If there are people who are doing really well and they’re just not that good at what they do, it’s a good place to compete. I’m not going to go try to go to the NBA because I know I’m going to compete with LeBron James and people who have dedicated their entire life to being the best of the best. I’m not going to go start a venture capital-backed tech startup because I know I’m going to have to compete against the Stanford Grads and the venture capital money. Self-storage is something that most people can’t buy because you need a lot of cash, so that takes away almost all the retail investors who need really good debt terms and have an extra 20 to 50 grand sitting around.

Nick Huber (36:31):

Nobody who has an extra 20 to 50 grand sitting around can put together a storage deal unless they go out and raise a bunch of money and understand real estate private equity and all that stuff. So there are a lot less players. And I look at how they run their business. Most of them have a full on-site manager, most of them don’t manage revenue, most of them don’t have a website. So I love storage because I feel like the competition sucks.

Robert Leonard (36:51):

How did you learn how to not suck?

Nick Huber (36:55):

I think it’s my SaaS business. I started that business in 2011 as a 22-year-old, and that’s what I credit… We did a lot of work to not make very much money in the grand scheme, but a mandate, it teaches me about managing people and marketing and dealing with customers and having the operational chops to build a company that can provide a consistent service to your customers. We just looked at the business and said, “Hey, what are these people waste money on? Hey, what are they not doing well?” And it turns out, they’re doing fine. They’re making really good money and they’re just not innovating. They’re still running it like it’s 1985 in a lot of places.

Robert Leonard (37:25):

I don’t necessarily win deals because of what you just mentioned, but I completely agree. And I always talk about on the show how technology is so lacking in the real estate space. A lot of mom-and-pop entrepreneurs and real estate investors just are not using technology, and I invest almost exclusively long-distance with my rentals and people are always shocked to hear that. And they’re in cities I’ve never been to, I’ve never seen the properties and they’re always amazed at how that’s happening, and the simple answer is technology, technology makes all of that possible.

Nick Huber (37:57):

Yeah. You can get to know a town by walking around on Google Maps and looking at the gas stations and hanging out virtually there.

Robert Leonard (38:03):

Yeah. And my agent will do a walkthrough on FaceTime and record the whole thing and send it to me. And that’s no different than if I’m there, really, for me, at least. When you were getting into this realm, how did you learn about private equity? You just said that people can’t get started if they don’t know how to do private equity and funding and all this. So if somebody is interested, they want to learn how to do that, what are the resources that they should look for? How did you learn about it?

Nick Huber (38:26):

I learned about it a lot through Twitter in the last year. We were using a creative deal structure for our first deals, we’ve moved to a more traditional structure now, we’ve looked at a lot of deals from sponsors. The best way is to go on CrowdStreet and go on fundraise and look at the deals and download the packages, and just analyze the hurdles, and where the money goes after the hurdles. And then you got one tab open on Google and you’re Googling, what is a preferred return? And on the other page, you’re looking at a deal on fundraising. It says 8% pref, 50% promote, what does that mean? Well, the 8% pref goes through the LPs because they put the cash in, the 50% promote is how the cash is split up after that.

Nick Huber (39:00):

So the waterfall structures can get complicated, but it’s preferred to turn and to promote, is what the main concepts are. And once you understand that the people who put in the cash are entitled to the first X% of yield that that property produces, you can think about what you might be able to sell investors on and what might make it worth it for them.

Robert Leonard (39:16):

We talk frequently here on the show about focusing on one strategy in real estate versus dabbling in many different strategies. There’s the philosophy of the one thing from Gary Keller and Jay Papasan. And then on the other side, there’s the philosophy from Gary Vee, who talks about how he loves trying to juggle so many balls at once. One of the reasons I like to talk about this on the show and ask a lot of guests about this topic is because it’s something that I personally struggle with myself, I always have a lot of different things I’m working on. And I wonder if I’d be better off and more successful if I just shut down some of them and really focus on one.

Robert Leonard (39:53):

Recently, an apartment developer named Moses Kagan tweeted saying, “When I see jack of all trades or generalist in a young person’s bio, I die a little inside. The world rewards specificity and focus with compounding skill, knowledge, relationships, and personal brand. Jumping around among industries and roles breaks the compounding.” And you responded and quoted the tweet and said, “I’ll take the other side of this. I was a generalist dabbling in 20 things as a 20-year-old, which served me very well. My fourth business finally got some traction. I’ve been focusing a little more every day since then. Jumping to a different ladder is the best way to climb a little higher.”

Robert Leonard (40:32):

None of that is specifically real estate related, but it can be used in that context, as well as many other contexts. Talk to us a bit more about your thoughts on this dynamic of focusing on one thing or one strategy versus working on many different things at once.

Nick Huber (40:46):

I think there’s nuance here. I’m an entrepreneur, I’m trying to do unique things, I’m trying to build businesses, I’m trying to build generational wealth and I take a lot of risks. So for me, I have to know a little bit about a lot, I have to be a generalist. But many people don’t go that way, maybe entrepreneurship is not for them, maybe they are looking to survey really significant need for a small group of people, and being focused serves them. Obviously, if you look at doctors and lawyers and things like that, the people who really need to be specific, scientists, that’s on one side of the spectrum. On the other end of the spectrum is a guy like me who tried selling t-shirts.

Nick Huber (41:20):

I tried starting a track and field camp business, I tried a lawn care company, and then the storage company came to me on a whim, started it, figured it out. I didn’t know much about hiring, training, marketing, finance, tax, any of it, learned a little bit of everything, onto the next business. And then as momentum grows, you can focus more when you figure out where the opportunities are. And part of it is at 20-year-old, I had no idea what I was good at. I had no idea what I wanted to do, I had no idea where my talents would be best served. So I’m really glad that I experimented and tried a lot of stuff, or I never would have found that.

Nick Huber (41:47):

I think people are trying to be different and people who have the entrepreneurial bone, they need to try a lot of stuff. You have to try a lot of stuff. You have to throw spaghetti at a wall and see what fits. But I also had the discipline to stick out of business that was not fun for three years. I stuck out the student moving and storage business when we were making very little money in a family, it was like, “Nick, what the hell are you doing with your Ivy League degree? Are you really moving boxes around?” I stuck it out, even though a lot of people would have quit. And I’m really glad I did.

Nick Huber (42:13):

So, I think there’s nuance there, but to do something spectacular, you have to be pretty good at everything, because if you’re going to run a company and be an entrepreneur, very soon, the company will outgrow whatever your one skill set is. You have to be able to guide that company through a lot of different stuff.

Robert Leonard (42:28):

You’re clearly a busy guy building real businesses, yet you still make a lot of time for social media, specifically Twitter. At least it seems like it from the outside. Why is that? What impact does growing a large social media following have on your businesses?

Nick Huber (42:44):

It has supercharged my career. It has given me access to capital. We’ve raised $7 million for self-storage deals in the last six months, all $7 million of it came from people that I met on Twitter. So that is supercharging. My real estate, private equity company become more of a teacher, and when you teach, you have to really be clear, and you learn a lot about yourself. The best way to become a master of something is to teach it. I know online courses have a lot of negative connotations, but I wrote a real estate course and sold $300,000 of it in a week, and I got a lot better at real estate in the whole process. Done 150 grand worth of self-storage consulting in the past six months.

Nick Huber (43:16):

It’s supercharging my network. I can’t believe what it’s doing to the people that I know. And even me and you right here are connecting because of Twitter.

Robert Leonard (43:24):

Let’s go back to the focus vs. diversification. There are so many different social media platforms, the only one that I personally see you super, super active on is Twitter. Is that by design? Is that strategy? You pick one platform and focus on it? Talk to us a little bit about how you think about that?

Nick Huber (43:41):

I was on Reddit for a long time. That’s where I was trying to… I run a podcast called The Sweaty Startup Podcast that promotes entrepreneurship and sweaty, small business, and a lot of real estate too. And I got on Reddit to try to promote that to the entrepreneurship community. And it was worth it. I was able to get a little bit of traction behind my brand, but I wasn’t building real connections. Everybody has an anonymous name on Reddit, the BMS don’t work very well, it’s confusing. Twitter is in my experience where a ton of really smart people hanging out who are making deals. So I’ve just met a lot of really bad-ass entrepreneurs and real estate professionals on Twitter.

Nick Huber (44:14):

I don’t know if it’s the same on Instagram, or TikTok, or Facebook, but Twitter is where big deals happen when it comes to small businesses and real estate.

Robert Leonard (44:23):

It’s funny because if you think about professional networks, I think the first one most people think of is LinkedIn. That’s the professional social network, yet, I agree completely with what you just said, my opinion and my experience, Twitter is what has the highest level of professionals, I guess, using the platform. If you go to Instagram and TikTok and Facebook, I think that the level of quality people that you’re interacting with is a lot lower than what you find on Twitter. And it’s just really interesting to see that.

Nick Huber (44:51):

LinkedIn is like a resume. People can make a resume. Look, have you ever seen a bad-looking resume? I haven’t. Every resume look makes everybody who’s semi-competent writing a resume look good. Instagram is photos. Can you really learn a lot about somebody by what photos they take and how good those photos look? I can’t. Twitter is a look into somebody’s mind. Twitter gives you a look into how they think, how they write, how they formulate their thoughts, what they’re working on, what they’re doing, what excites them, how they handle people who are jerks. You just get to see it all, you get to look into somebody’s mind.

Nick Huber (45:20):

So there’s no better way to learn and to learn a lot really fast than following smart people on Twitter in my opinion, because you get to look into their minds. It’s a blessing and a curse. You see how crazy our politicians are when they get nuts on Twitter, but you also see how brilliant our entrepreneurs are when you see how they think and how they share, and what they’re sharing. And you also get tons of feedback from all those smart people. So me now with 130,000 followers, I can tweet about one of my real estate deals and how I’m thinking about structuring it, and I guarantee you, every single tweet, I’m going to learn something because somebody really smart out there is going to read it and say, “Oh Nick, have you thought about this?” Or, “Why didn’t you explore that?” Or, “The seller financing terms on this deal wasn’t quite right.”

Nick Huber (45:56):

Because I share my deals way out in the open, I’m building in public, I’m learning about everything. So when I start to tweet about my deals, I get challenged and the blind spots show up and people are like, “Hey Nick, you didn’t think about this, that, or the other.” And I get smarter. So it’s an amazing place. I’m so thankful for it.

Robert Leonard (46:10):

How do you respond to those comments when somebody points out something that you didn’t think of? You’re putting a deal out there, you’re the one putting this deal together, you’re assumed to be the expert, but somebody finds something that you didn’t know. How do you respond to that?

Nick Huber (46:23):

Obviously, the ego takes a hit, you got to swallow the pride. But if you have an open mind and you have strong opinions that are loosely held, there’s no better way to get smarter. So I love it. It makes me better when people challenge me and we iterate, and I feel like I can get smarter faster when other people are critiquing the way I think about things constantly.

Robert Leonard (46:44):

And you mentioned jerks too, that’s a piece of social media, it’s a part of podcasting. It’s a part of putting anything out in the public. How do you deal with that?

Nick Huber (46:53):

I think one of the unfortunate truths of humanity is that a good chunk, what percentage, we could argue, but I’d say 50% of people in this country are just not happy people. They’re not happy, they don’t like where they are, they feel like they haven’t accomplished what they should have accomplished. And so they’re pissed off at the whole world. They’re pissed off at successful people, they’re pissed off at happy people, they’re pissed off at anybody they’re seeing doing better than them. And it’s not a world of abundance for them, it’s a world of scarcity. Meaning, there’s only so much, and if somebody is winning, they’re taking from me, and it’s true those people who are doing well.

Nick Huber (47:20):

And just understanding that those people are there and they think that way, and you can’t change their mind, and it’s best not to engage with them, and it’s just an unfortunate part of life, I think once you come to terms with that and don’t take it personally, it gets a little bit easier. But it’s always hard when people are really mean, they’re brutal.

Robert Leonard (47:37):

Whether it’s about life in general or investing in real estate, self-storage-related, what piece of advice have you received that has really had an impact on you and you continue to use it and think of it to this day?

Nick Huber (47:50):

The new idea, revolutionary, you got to be way better than everybody else to succeed is just such bullshit. I think if you can find simple things that other people are already doing that are just proven ways to win, and if you don’t try to overthink it, you don’t try to overcomplicate it, you can do well. Look at me, I’m sharing my entire playbook online, telling everybody how I do everything, and yet we’re buying $50 million for the self-storage every six months. And we’re not doing anything special, anybody could do what we’re doing. Yeah, it’s hard. We have some really good people on our team who are helping us, but I just think the people who are trying to reinvent the wheel, new ideas, entrepreneurship, trying to find a super competitive advantage, are just in the weeds.

Nick Huber (48:32):

I think there are tons of competitive advantages in really simple industries that people overlook.

Robert Leonard (48:37):

As we wrap up this episode, I want to give you a chance to tell the audience where they can connect with you after the show.

Nick Huber (48:44):

You can follow me on Twitter, it’s @sweatystartup. Also, I have the Sweaty Startup Podcast, and sweatystartup.com with a lot of cool stuff on real estate, small business, and entrepreneurship. But you can also email me, nick@sweatystartup.com is my email if you want to connect. Always looking to grow my network. And I do a lot of trying to give back on Twitter a lot of things I know and the things I’m learning along the way. So I think that’s the best way to connect with me.

Robert Leonard (49:05):

I’ll be sure to put a link to all of the ways you can connect with Nick below in the show notes for anyone that’s interested. Nick, thanks so much for joining me.

Nick Huber (49:12):

Really appreciate it, Robert. Thanks so much, man.

Robert Leonard (49:15):

All right guys. That’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.

Outro (49:20):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday, we teach you about Bitcoin, and every Saturday, we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. The show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.