63 Self Storage with Fernando Angelucci

https://carolinahardmoney.com/63-self-storage-with-fernando-angelucci/

Bill Fairman (00:01):

Hi everyone! It's Bill Fairman and Jonathan Davis with Carolina Capital Management. Don't forget that we lend money in the Southeast and we also have a fund where we, Oh and other opportunities as well, if you want to be a passive investor and you have, if you want to get into the banking side of things with your money, that's, if you're smart and is not in the stock market currently. For any information about that, it's CarolinaHardMoney.com. If you're a borrower interested in learning about our programs, again, we lend in the Southeast, but primarily in North and South Carolina, go to CarolinaHardMoney.com and click on the borrower tab. If you're interested in investing in our fund or being a one off lender, then you want to click the investor tab. Same website, CarolinaHardMoney.com. Don't forget to like, share, subscribe, all that good stuff.



Jonathan Davis (01:08):

All the good stuff. Yeah.



Bill Fairman (01:09):

So we're going to have Fernando Angelucci, join us in a little bit. Talk about self storage, but I really kind of want to cover what's going on currently in the single family market. So we've hit a third straight week of 6% to 7% increase in purchase money mortgage applications. And that's a big deal. People aren't going well. You know, it froze up for a little while, obviously. But if you're worried that people aren't going to be buying single family homes, as long as you have a job, and you can prove that you're getting an income, people are still wanting to buy homes. So what's happened since this, a lot of people that had their homes on the market, you know, pulled them off because they didn't want somebody that could potentially infect their family traipsing through their house, showing it.



Jonathan Davis (02:08):

Well, in the face of unknown. You usually opt for caution. Completely understandable.



Bill Fairman (02:13):

And at the same time you had people that were uncertain about their own jobs. If I list my house for sale, I might not be able to qualify for the next loan. But what that has done is it has decreased the supply of homes on the market.



Jonathan Davis (02:31):

Yeah, there was already a, you know, a shortage and now we have decreased the supply and we are not, I mean, unless you're seeing something different than I think most of us, the values are holding strong. And days on market aren't really that, you know, increased.



Bill Fairman (02:50):

Speaking of market, it depends on the market you're in.



Jonathan Davis (02:53):

Well. yeah. We're speaking of North and South Carolina.



Bill Fairman (02:55):

And I don't, you know, I'm not being political here. I'm just telling it like it is right now. But if you're in a state with a democratic governor, the restrictions are a lot tougher than it is when you're a state with a Republican governor.



Jonathan Davis (03:11):

Very true.



Bill Fairman (03:12):

And so there's a lot of people that are fed up with having to stay at home. And they're wanting out. Not to mention typically the taxes that are going to be a lot higher in those States. And there's a, there are people that are buying homes. And I heard this on one of the business channels. People are buying homes sight unseen on the internet just to get out of New York.



Jonathan Davis (03:38):

Wow!



Bill Fairman (03:40):

Part of it is the fact that, you know, they could be afraid because that's, you know, the epicenter for the disease, but...



Jonathan Davis (03:46):

What are they doing with their homes? Are they just abandoning them or...



Bill Fairman (03:50):

Well, I didn't ask them.



New Speaker (03:52):

Just curious.



Bill Fairman (03:52):

They didn't have a follow up on that.



Jonathan Davis (03:54):

They didn't have a Q and A, like we do where you can put your questions in and we can answer them right now.



Bill Fairman (04:00):

That's awesome. Thank you for bringing that up. Now we do have a chat box and if you have a question, you can type it up into the chat box there and we'll be happy to answer it. So back to the housing issue. So a lot of the States that were already booming, or at least there was a lot of people moving to those States. There is a housing shortage and there was a housing shortage at the beginning and it hasn't changed. It's actually gotten worse. I'm seeing bidding Wars on some homes, because again, there's a limited supply of homes available.



Jonathan Davis (04:43):

Yeah. I would, I would almost say, and I don't have the data compiled yet cause they're still waiting on all of that to come in. But from what I'm seeing on a day by day, week by week basis through our fund and our lending. I think that we have more payoffs occurring per week now than we did prior to this pandemic.



Bill Fairman (05:07):

Oh yeah. From our side.



New Speaker (05:08):

From ours, from the lenders. So, so that translates into retail buyers, right. Because that's, you know, fix and flip loans that got sold on the retail market.



Bill Fairman (05:16):

Well from a glass half empty gang and then also translates into no one being late on their payments, the animal off. I like to hear that part.



New Speaker (05:28):

Yeah, exactly.



Bill Fairman (05:28):

But if you are in the fix and flip business or you're in the wholesale business, do not fret because there's still opportunity. The thing about it is you, you have to approach everything with caution. Of course, you're always going to do that. But you know, in our business, we're asking an appraiser to value of the property and based on what the future value Is going to be.



New Speaker (05:59):

And now even the future value, it's the subject to repair future value.



Bill Fairman (06:05):

Yes. The forced appreciation value...



New Speaker (06:07):

Based on...



Bill Fairman (06:08):

Of something that is going to, you know, it's going to be worth this in six months or 12 months based on information that is trailing.



New Speaker (06:15):

That is six months old.



Bill Fairman (06:17):

6 to 12 months, depending on where you are. So you're still going to have lenders that are going to be cautious and they're going to want a little bit more cushion. But at the same time, you should approach it that way as well. You need to have cushion by having some money in the bank. You need to make sure you're picking projects that aren't long in the tooth. So they need to be, you know, when we back in 2010, 2011, there was a, the low hanging fruit, as we like to say on the HUD home store and places like that, where you can easily grab a house off this home, HUD store, HUD home store. New roof, paint, downsize, carpet, maybe some counter tops, and then you were done. And you could sell it and make a lot of money. As margins got a little bit tighter. The only way you could make money was by adding square footage to force appreciation. And then, but that takes a lot longer. And there are so many things that can happen in that space. Right? Markets can change on a drop of a dime and we're all aware of that now.



New Speaker (07:38):

Very, very aware of that.



Bill Fairman (07:40):

But in the short term, and I'm saying in the next six months, I don't see housing prices really going anywhere, but at least slightly up in our market, I can't speak for all markets.



Jonathan Davis (07:53):

Yeah. I would say the same, you know, in the next six months, I can't foresee housing in North or South Carolina in the major Metro areas going down at all. I think at worst, they stay the same. Now beyond that six month mark, who knows, you know, what, you know, what things happen now that you know, affect past that. Cause we can only compare to what we know. And most people remember 2007, 2008. So they're still trying to make that comparison. And even though they're vastly different scenarios I think the cautious person who went through 2007, 2008 would say, yeah, we really won't see the bottom for at least 12 to 18 months because that's what happened then.



Bill Fairman (08:42):

Yeah. And you know, it's, it's going to depend on how quickly the economy bounces back.



Jonathan Davis (08:51):

I think I saw another 2.4 applicants for unemployment this past week. Yeah.



Bill Fairman (08:56):

And then the continuing applicants was up there around 25 million. So that's kind of distressing. We do have a lot of you know, the retail industries that are filing for bankruptcy. We've got hospitality, that's hurting now. Specifically in North Carolina, we do have a democratic governor here. He has opened up and it makes no sense to me at all. He's allowing hairstylists, barbers, people that do nails, tattoo parlors.



New Speaker (09:40):

The closed contact, yeah.



Bill Fairman (09:40):

And he's allowing those businesses to open, but indoor gyms are not safe. I don't know anybody in a gym that's touching me. And you're cleaning the equipment after each use and now people are cleaning it before they get on it and they're cleaning it when they're finished with it. So I don't see why gyms are not safe, but getting a tattoo is.



Jonathan Davis (10:08):

You know I feel like, yeah tattoo's a little bit closer than the gyms and I saw, Sohil put on their investors should be buying between 60% and 65% ARVs to be safe. Yeah. I mean we completely agree.



Bill Fairman (10:25):

Yeah. And that's listen, we've been in this business a long time as a hard money lender. Our maximum loan to AVR was ARV rather was a 70% at the time. And we had people arguing with us that they needed more money and we always argued you don't need to be in it for more than 70% anyway, because you're not going to have any margin. Hi, Fernando! I see you there on the background. We're just doing a little market update before we can get started. So we are going to have our guests come on here shortly. Was there somebody else that...



Jonathan Davis (11:06):

Let me see. Mary Floyd said I would be using the maximum allowable offer formula. Please explain it to your viewers. Basically you just back yourself into what your offer is going to be. You, you know, you say, okay, what's, what's my, what's my ARV. What's my holding costs going to be, what am I repairs going to be? What are my real estate fees going to be? Whether it's taxes, insurance real, you know, your real estate, agent fees, things like that. And you go ahead and back yourself into and say, what kind of profit do you want to make on this house? And then when you run those numbers, it'll tell you, and is this a good deal or is it not? You know, and everyone has to make that determination for themselves. We tell people what, usually you won't be making 20% margins on that. I mean, I would, I would say 20% is what I would tell most people.



Bill Fairman (12:03):

Well, they used to be a lot higher.



Jonathan Davis (12:05):

Well, they used to, well, yeah, they used to be higher, but I mean, we have people doing it at 15% margins, which is pretty thin to me.



Bill Fairman (12:13):

If you're working six months and going through all the grief and you're going to walk away with a $15,000 check and you have all the risk, is it worth it?



Jonathan Davis (12:22):

Well, and here's the thing. If you're doing one project, that's not worth it. If you have eight going at the same time, that may be worth it. It depends on economies of scale as well. So if you're doing one project at a time, that's not a scenario that we would recommend.



Bill Fairman (12:38):

Yeah. We always like to talk about return on effort.



New Speaker (12:42):

Exactly. Yes.



Bill Fairman (12:43):

As one of our matrix and the more effort, the less we want it. But that's part of being...



New Speaker (12:50):

That's why we're lenders.



Bill Fairman (12:52):

Yeah. As part of being a lender, we do a lot less effort and make a lot more profit. Anyway. Let's bring Fernando on. He's patiently waiting there in the background. Good to see you, buddy.



Fernando Angelucci (13:06):

Yeah. Likewise. How you guys doing?



New Speaker (13:08):

Good. Good.



Bill Fairman (13:08):

So are you still hunker down in the basement?



Fernando Angelucci (13:13):

Not in the basement, I'm in the office upstairs today.



Bill Fairman (13:18):

I do feel sorry for you living in Chicago right now, because we were just ranting about our democratic governors and how they seem to be holding those States hostage right now. And you know, the rest of the areas opened up. Now we have a benefit here because we're right on the North Carolina, South Carolina line and our business is in South Carolina. I live in North Carolina. I've been complaining that my gym can't open in North Carolina because it's not safe. Although they're allowing tattoo parlors and hairdressers and nail salons to be open. But you know, you get touched so much by other people in the gym.



Jonathan Davis (14:02):

Not the gyms I go to.



Bill Fairman (14:05):

But fortunately for me, I also have a branch of that same gym here in South Carolina. So I'm cheating on my way home from work. And I stop by.



Jonathan Davis (14:14):

Well, let's let's introduce Fernando to everybody. Fernando Angelucci is with Titan Wealth Group. And you specialize in, what is it? Wholesaling, arbitrage, Airbnb and storage units. Is there anything else, anything you don't do? Yeah.



Fernando Angelucci (14:33):

Yeah. So South George is the main one. We have a small wholesale business in Chicago and we actually shut down the Airbnb business after this whole COVID thing. So...



Bill Fairman (14:44):

So were you having an issue with cancellations on the Airbnb thing?



Fernando Angelucci (14:50):

Yeah. And we didn't like the way that the company itself Airbnb was treating the host. So we just decided to, They just cut ties.



Bill Fairman (14:57):

Right. Now were those homes in the Chicago market?



Fernando Angelucci (15:02):

Yep. Right downtown.



Bill Fairman (15:05):

Yeah, that's tough. And like everything else you know, real estate is local. On the single family side of things, but I know you're, I'm going to get you to tell us your story here first, but I do understand that you were buying self storage all over the country, right?



Fernando Angelucci (15:27):

Yeah, that's correct.



Bill Fairman (15:28):

But mainly in the Midwest?



Fernando Angelucci (15:30):

So right now the majority of our portfolio is in the Midwest. But we do have properties kind of all over the place. Just bought one in your neck of the woods in Franklin, North Carolina. So not too far from you, a little bit of a hike still. Yeah, we primarily specialize in the Midwest just because there's so much more value in the Midwest. And then outside of the Midwest, we'll only stay to the very low tax States.



Bill Fairman (15:55):

Did you actually do feet on the ground in Franklin?



Fernando Angelucci (15:58):

Yeah.



Bill Fairman (15:59):

That's a neat little place in it.



Fernando Angelucci (16:01):

It's awesome. Great trout fishing, awesome streams. It's a beautiful place.



Bill Fairman (16:06):

Big equestrian community there as well. So I got some beautiful horse farms up there.



Fernando Angelucci (16:11):

Yeah, exactly.



Bill Fairman (16:13):

Awesome. All right. So I know when you were very young, you read Rich Man, Poor Debt.



New Speaker (16:19):

Rich man, Poor dad?



Bill Fairman (16:20):

Rich dad, Poor dad. Okay, sorry. See, I've been hunkered down in my basement awhile.



New Speaker (16:28):

I can't let him get away with too many things.



Bill Fairman (16:31):

So that kind of got you interested in investing and then you went to college and while you were in college, you did a little investing or did you wait until after you got out?



Fernando Angelucci (16:42):

Yeah, in caldera primary was just reading books and go into seminars and REIA groups. I didn't start investing until I got out of college.



Bill Fairman (16:51):

Okay. So when you graduated, you were, were you an engineer? Is your background and you were with the Dow chemical, right?



Fernando Angelucci (17:03):

Yeah. I usually say fortune 50 company, but yeah.



Bill Fairman (17:07):

Sorry.



Fernando Angelucci (17:07):

That's okay.



Bill Fairman (17:08):

I want to name names, but that's a pretty name, right? Yeah. All right. Well, yeah, so, so what am I, am I breaking a rule there? I'm sorry.



Fernando Angelucci (17:23):

That's ok.



New Speaker (17:23):

Well, at least you didn't say it.



Bill Fairman (17:26):

So what made you decide to make the switch over into being a full time investor once you started?



Fernando Angelucci (17:34):

Yeah, my biggest thing was, you know, the hours I was putting in at that fortune 50 company, I was, you know, I was working from 5:00 AM to about 9:00 PM each day and I was on a fixed salary. So the extra hours I put in, I wasn't getting compensated for it. I was making good money. I think, I think I was making 50 or $60,000 a year you know, right out of college. But I noticed that the amount of time I was spending was really, I mean, there wasn't there wasn't in return. The more time I spent and I found that working in the 9-5 life, there was a lot of red, red tape and not a lot of ability to create wealth quickly. So that's when I started investing in single family homes to begin with first as a wholesale investor. And then I started flipping those single family homes and then eventually holding them for rentals. And then from there, I, I moved up into multifamily and started doing the same thing, both flips and rentals as well. Now you kind of alluded to the fact when you live in a state that is very tenant friendly, let's say. It makes it very difficult to be an investor and not a lot of investors like to invest outside of their market to begin with. So as I was cutting my teeth out, just invest in my markets and we were having a lot of issues with not only evictions, but just the time it takes to go through that process in the States that we're in. I had an eviction that lasted eight months and that outside of the eight months, there was also a $25,000 in damage just on that one apartment unit.



Jonathan Davis (19:13):

What state was that in?



Fernando Angelucci (19:14):

That was in Chicago Illinois. And it was, I mean, that knocked out profitability on that building for like three, four years. Right. So we just decided after a while, you know, this doesn't make sense. We need something that truly is more of a passive investment where the laws are stacked in our favor as if, as opposed to being stacked against us. And that's when we found self storage.



Bill Fairman (19:39):

Well, you don't have anyone calling you in the middle of the night saying, my toilet clogged.



Fernando Angelucci (19:46):

No toilets!



Bill Fairman (19:49):

What do you mean? I can't put cotton towels down the toilet, right. Oh man. Is that frowned on?



Bill Fairman (20:01):

What kind of properties are you looking for and how do you determine the type of self storage properties you want to go after?



Fernando Angelucci (20:10):

Yeah. So before we even get into that, I'll kinda talk a little bit more about why we ended up going into self storage. You know, number one you know, I mentioned that as opposed to having to go through evictions, we go through auctions. So when a tenant doesn't pay, we actually have a lien on their property, in our storage units. And if they don't pay within 30 to 45 days, we're legally allowed to auction off those materials to satisfy our prepaid, you know, our back to rent. Usually when that happens, the buyer of the auction will actually come and clean out the unit for us or else he loses his security deposit. And literally the same day, we have a new tenant moving in. So the turnover, it is less than a day and there's basically no turnover cost actually in some situations. And the action might turn a profit on the, on the turns. The next thing is we really love, and this is now super relevant. Today is the recession tolerance or recession resilience of self storage. If you look over the last two, recessions self storage has performed exceptionally well and much, much better than the main real estate asset classes that people go into such as multifamily, single family industrial office. Now, because it has, you know, very low risk people usually assume, okay, that means that the returns must not be that high either. And actually what we find is the exact opposite over the last roughly 30 years, self storage has returned over double of what residential multifamily has returned in that same amount of time. So not only do we have decreased risk, but we also have a higher profitability on top of higher profit margins. Another thing we really like is the leverage that's offered to us by the banks has been phenomenal. Three of the last four deals we closed on were actually at a hundred percent financing.



Bill Fairman (22:03):

What?!



Fernando Angelucci (22:03):

Yeah, and that wasn't hard money lenders. We were paying 5.2% interest on that first year interest only. And those were five-year balloons on a 25 year amortization. So you're never going to find a loan like that for a single family or multifamily property. And the main reason why is when you look at the, the data surrounding, you know, coming from the banks, they've noticed that self storage as an asset class has the lowest default rate across their entire portfolios. And I'm getting data directly from Wells Fargo and in tech solutions. So these are major data providers in the banking space. Now, in the very rare chance that they actually do default. And so, for example, just as a rate, self storage will actually default or are out. I'll do it the other way. So multifamily will actually default 40 times more than self storage. 40 Times more than self storage. So banks love self storage to balance out the portfolio. The second thing is in the rare chance that there is a default, the loss that the bank or the lender experiences per default is also lower than all the other asset classes. Usually on the, the scale of about four to five times lower than what the loss of the deep experience in a multifamily or a single family property. So all those things really pushed us towards going into self storage. And another reason with just the management component, like you said, you know, getting calls in the middle of the night, because someone didn't know, they couldn't flush a cotton towel down the drain. With self storage it's very hands off. The amount of time you need to manage facilities is, if you're a solid operator, you should be able to manage one of these facilities with about four hours a week. Depending on the size of the facility and where it's located and what type of help you have on boots on the ground. But, you know, you can't say that with single family or multifamily. When I, my residential portfolio, before we decided to start selling them all, we got up to about 50 or 60 units and we were spending probably 60 hours a week managing those and that wasn't even a large portfolio. Right?



Bill Fairman (24:14):

Wow!



Fernando Angelucci (24:14):

So it was just one of those things where as soon as we saw this, we decided let's go into this space. And then we saw it as well. On the other hand, that when we're looking to acquire these facilities, the market is very fragmented. So what I mean by that is in the United States, there's roughly 52 to 60,000 self storage facilities. 18% of that is owned by the major six REITS, right? Your life storage is your extra space. Your, you Hall's 9% of that is owned by the next hundred largest operators, which means that 73% of all self storage facilities in the U S are owned by mom and pop operators, or usually not very sophisticated investors. Which allows us to enter into these properties at very high cap rates. Our portfolio average for a day one acquisition cap rate is at a 9.7%. And that's, before we do our value add once we value add them, we're usually experiencing 12% to 16% internal.



Bill Fairman (25:17):

Excellent. So I want to touch on two things. One is the financing that you are able to get. Are those typically community banks, larger banks or investment type banks?



Fernando Angelucci (25:36):

Yeah. So these are usually Luke local banks and community banks. And what we've been focusing on is finding those local banks in those community banks that are willing to lend nationwide once they establish a relationship with us. So for example, the last four deals that we bought, which were in Tennessee, North Carolina Alabama, and Iowa, all of those were went on by a local Iowa community bank.



Bill Fairman (26:05):

Oh, nice. Very cool. Yeah. Cause I mean, that's tough to do because a lot of them don't like lending out of their state, right. If that's where their, all their branches happen to be so kudos to getting them in the thinking outside of the box, but that's a lot easier to do with a community bank than it is with your, your bigger banks that they're stuck in their box. They, well, they're stuck in there with wet paper bags actually.



Fernando Angelucci (26:32):

Yeah. And that's what we noticed, you know, cause we will still talk to those guys, the chases and the bank of America. But the problem is they will try to just lump self storage and with all the other commercial assets that they lend on. So they're going to, they're requiring 30% down 35% down. Whereas when you show these local banks, the data provided by the big guys like Wells Fargo and you say, listen, like this is the safest loan you can make. And usually when you look at a bank's books, they're heavily skewed into the more risky loans, like providing 5% down FHA loans to homeowners or fix and flip loans at 125% loan to cost, you know, to rehabbers, you know, look at what's happening with those guys right now. Right? I mean, there's a lot of deals that are sitting on the market right now and they're paying the juice of the banks and the banks are trying to figure out, you know, the banks are not in the business of owning properties. They don't want to own properties. That's why, when you show them these numbers the banks usually come around and say, okay, this is your right. This is going to balance out our portfolio. This is something that we can.



Bill Fairman (27:36):

That's awesome. I'm going to have, Jonathan is going to ask you a question about the management side of things with all the automation in just a second, but we do have a couple of questions here. So Donovan is asking are you building from the ground up or are you acquiring the established units? It sounds to me like you're focusing more on the mom and pops that are established.



Fernando Angelucci (27:58):

Yeah. So we do a little bit of both. But because we are primarily focused on cash flow, we kind of have a 10 to one ratio, so we'll do 10 cash flowing assets for every one ground up development we do because usually for it to make sense, to do a ground up development, we're going to do a class A, regrade facility that we can sell to a public storage or a life storage. So for example, on my existing cash flowing properties, we're usually buying those at anywhere between one to $5 million a pop. The ground up developments. The lowest one that we've looked at and have started working on was a $12 million project. We have a few more in our pipeline that are in the 15 to $20 million range. So I don't want to skew a lot of risk towards the development side, unless I have the cashflow coming in from existing facilities to support the debt service.



Bill Fairman (28:49):

Right. That makes sense. So you're basically at 10 to one on your percentage.



Fernando Angelucci (28:53):

Yeah. Eight to one, 10 to one. And it's usually, it depends on the size.



Bill Fairman (28:57):

Yeah. Right. Cool. And I know, Sohil wants to connect with you and then we'll get, we'll make sure we, we get down and all your contact information



Jonathan Davis (29:06):

And then what's your, so who wants to know what's your percentage on buying existing self storage? And I assume you mean the,



Bill Fairman (29:12):

That was eight one. So yeah. Do you want to talk about how to manage these properties with all the automation and stuff?



Jonathan Davis (29:22):

Oh yeah. That's, so my question is you have all of these facilities going on nationwide. How do you keep track of everything? How do you manage all these assets? Know what's going on, keep that data coming to you so that, you know, you know, the one in Tennessee is outperforming. The one in North Carolina or, or whatever the, you know, the deal is kind of walk us through. How do you do that?



Fernando Angelucci (29:48):

Yeah. So it first starts with the property management software. You want to make sure that you have a really robust system and that the software itself can provide some automation. So we use a product called storage is owned by site link, which is one of the large conglomerates in the space. They also own kind of the aggregators in the space as well called SpareFoot. That software not only allows us to have online portals where tenants can rent and buy insurance, but they can also do it from their phone. Their can sign leases from their phone. Cause nowadays this is what everybody uses, right? This is how they find you. This is how they communicate with you. This is how they pay for stuff. So that takes a lot of it. You know, a lot of the management off of what, you know, usually when we find an existing facility that we're going to do a value add on, we'll walk into these facilities and the managers basically using pad and pen to keep track of everything, or maybe some really old dos based management system on a, on a super old computer. So that alone will increase our efficiencies and allow us to increase our net operating income. Outside of the management software, then you can start looking at physical value as you can do to add automation. So one of the things that we always love to put in is an automated entry and exit to the facility. So usually it's a little key pad that you drive up to you put in your specific number that you're assigned. So we know when you're leaving and coming to the facility so we can track you. And then you also need that keypad to exit. So we can timestamp how long you're at the facility. On top of that you can put in kiosks. So these, they kind of look like little ATM machines. They're usually outside of the gated area. Someone could come in and they can, as long as they have a, an ID and a valid form of payment, it could either be cash credit or check that machine will take it. You could rent your units from there. You can look in preview, you know, certain sizes of units. And then it'll also allow us to sell auxiliary services, like a tenant insurance and, and locks and what have you.



Jonathan Davis (31:59):

Wow!



Bill Fairman (32:00):

Interesting. So how does, so you have certain number of units that are unlocked for display purposes only, or is there like a automated lock on there that just opens when that person gets to it or when you're viewing it?



Fernando Angelucci (32:15):

Yeah. It depends on the facility. So let's start on the, you know, there's a spectrum. So on the super, let's say not tech savvy facilities, usually what it is is just have a couple of units that are unlocked for people just to go in and check them out. And then usually we can either leave a lock in the back of that unit or a application for somebody to fill out. So that's super non-sophisticated. Right? Then we go all the way up to the, the sophisticated side where you have each one of the locks on each one of the doors are, are hooked up to the wireless system, the wifi, and they will unlock based on who's coming in and based on the inputs that are coming into that kiosk.



Bill Fairman (32:54):

Nice, nice.



Jonathan Davis (32:56):

Nice storage.



Bill Fairman (32:57):

And I'm thinking eventually you're going to be able to take that phone, use your app for your management company, and then just hold it up to the screen and it will unlock the gate for you without having to punch in a key code.



Fernando Angelucci (33:14):

Yeah. So that's, yeah, that's already here. It's a Janice and a few other companies have something called a No key system where you can unlock not only the doors leading up to unit, but the front gate as well. And then also your actual physical unit itself is motorized and you can open it just by clicking on your phone.



Bill Fairman (33:33):

Nice. So are there some value added services that you're not able to provide if you're totally automated, like, you know, renting you halls or, you know, Penske trucks and that kind of thing?



Fernando Angelucci (33:49):

Yeah. So what we found is that the truck rental is it's a lot of work and it, it causes your employee costs to go up substantially. So, you know, because self storage facilities have such low break, even occupancies, the two largest expenses are usually going to be property taxes and payroll. So we always try to run the front end to decrease those, you know, the, both of those costs as fast as possible. So the payroll aspect, you hit the nail right on the head. We usually will, if there's any you haul or truck rental existing on the facility, we're just going to get rid of that, especially cause the liability of brings and you don't know, you know, did somebody damage the truck and you prove that they damaged it. Am I going to have to pick up that bill? So we don't usually like to do the truck rentals, but there's a, there's a ton of different services that can be offered without having to increase your payroll costs. And that could be, you know, car storage, RV and boat storage, selling blocks, renters insurance, moving supplies, packaging materials, you know FedEx pickup and dropoff, drop-off printing services, cell towers, billboard advertisements, wine storage, private mailboxes, all these things you can add with that really increasing your manpower costs too much.



Bill Fairman (35:11):

Nice. I was thinking about the, if somebody does move out and they don't clean up, I mean, do you have to have do you typically keep some sort of manager or part time or whatever they can get out there and or, or is it more of a, somebody like a facility maintenance person that would just be available to you? Some sort of a service it's not really tied to yours, but is, you know, subcontracted.



Fernando Angelucci (35:45):

Yeah, exactly. So to keep the costs down, especially on these smaller facilities that are already stabilized meaning they're at 90% plus occupancy, you don't really need a full time manager and you can get by with what we call boots on the ground, or like you said, it could be a maintenance person or a subcontractor that, you know, they get paid maybe 250 bucks to 500 bucks a month just to go clean the facility, you know, check locks, overlock people that are not paying take off overlaps from people that have, you know, got caught up on their, on their back due balance and then also put auction tags on facilities on non units.



Bill Fairman (36:24):

Excellent. Yeah. Well, I know you have a pretty sophisticated way of finding properties. And you probably find some that are pretty good deals, but you have enough going on. Are you wholesale in any of this stuff?



Fernando Angelucci (36:41):

Yeah. So actually later today I'm jumping on a self storage mastermind with you know, a mutual friend of ours, Scott Meyers, and I'm actually going to be wholesaling six properties today. So we, you know, we're, we're looking at probably five to 10 new opportunities a week and a lot of them were getting under contract at really good prices. Like I said, we're walking in at eight to 11% cap rates day one, but it's getting to the point now in our business where we're growing so fast, that the smaller facilities are not really of interest to us any longer. So anything, you know, in the 40 to 50,000 square feet and below, we prefer to wholesale those to other investors. And then which allows us to focus on large portfolios you know, self storage, income funds, ground up developments you know, a thousand plus unit facilities. That's the stuff that we're really trying to go after now.



Bill Fairman (37:38):

And so those 30 to 40,000 square foot facilities , what are the general price points for those?



Fernando Angelucci (37:46):

Yeah, they're going to be anywhere in the one to three, maybe $4 million, depending on what part of the country you're in. In the Midwest values are a lot cheaper. In the East coast and West coast. You're going to be paying a premium for these types of facilities.



Jonathan Davis (38:01):

Excellent. Well, when you first started and, you know, you're picking these up, how did you, what was your due diligence process? How did you identify? I know you said like 73% of these are owned by mom and pops. How did you target them? Do you know, where are you sending out letters? How, you know, how are you identifying them and finding these deals?



Fernando Angelucci (38:20):

Yeah. So what we started with originally, because we came from the whole saler background, what we're really good at is sending out direct mail and talking to sellers, right? So we went to one of our data analysts and I can connect any of the viewers on here with him. And we said, Hey, here's what we're looking for. We look for mom and pop facilities in these 24 States, I want you to scrub out the top of 100 operators and that gave him a list of those operators. And then I said, I also want you to scrub out the top 50 management companies, third party management companies, because usually those companies are also acquiring themselves and they'll have some type of first right of refusal on their contract. So after he took that out, were left with about, I think on our first campaign was about 7,000 self storage facilities. And then we just started sending them letters, Hey, my name's Fernando, I buy self storage facilities. Here's two that I just bought in the last 60 days. You know, give me a call. If you'd be interested in selling. We can do it with no commissions, no fees, that type of stuff. And just people just start calling in. And then when they call in, it just is, it's all about, you know, building rapport, self storage is a lot slower on the acquisition side than say a single family home. So, you know, we can be just building rapport with the seller for maybe a month, you know, three to four weeks before we even start getting into the nitty gritty of pricing and you know, what the income's producing and proof behind the PNLs and the tax returns. And it's just for a lot of guys, it's their self storage facilities kind of like their baby. So they want to know that, you know, you're, you're a good guy before you allow, allow you to take it to the dance. You know, if you will in some, you know, some of these owners, the ones that we really like buying they've owned the facility for 10, 15, 20, 25 years.



Bill Fairman (40:12):

Yeah. It's their baby.



Fernando Angelucci (40:14):

It's, yeah, it's their baby. So when it comes to the underwriting of these things after we find them, you know, we're looking at a few major things right on the head that's going to be, what is the supply in the area? You know, is it an oversupplied areas? And undersupplied area. We usually like to go into the under supplied areas for obvious reasons. We will look at what the competitors are at, what are, what are they charging? Are we well below market rents, which is usually the case when we walk into these mom and pop facilities, just cause they don't have anybody on staff to be running competitor data on a daily basis. Right? We will look at the traffic count on the curb cuts because self storage, even though right now, about 60% of all of our clients come from us using a phone, they'll usually find us on Google. You still have a solid 40% plus of people that they'll drive past your facility every day. And they won't even recognize it for five years. And then all of a sudden when the day comes that they need self storage, your front center, cause they drive past it every day to work. Right. So they'll stop in and then they'll rent. Another thing that we really like to look at is what are the value add opportunities as far as expansion go, can we put up additional units? For example, the one I purchased in Franklyn North Carolina we're tripling the size of that facility. We were able to buy not only the existing facility, but then it also came with an additional four acres of land. Right. So, yeah, so we're, we're going to be building on that one as well. And then once all of those things check out, then we actually will start diving into the actual financials of the facility. It's usually the last thing that we'll look at before making an offer.



Jonathan Davis (42:00):

Gotcha. Now, before now, cause you all obviously have relationships with banks where they can give you a hundred percent financing. When you're first getting started. How did you finance these deals is like for someone who's maybe trying to get into it now, how, what are some creative ways to finance these?



Fernando Angelucci (42:18):

Yeah. So in the beginning, you know what I recommend people that ask me for advice. I recommend that they start small and they start with something that they can drive to within two to three hours, right. Something that's somewhat nearby. My first facility was a $950,000 facility. It was about two hour drive from where I live. But that's even already on the upper end of your starter facility. We just wholesaled one for 125,000 to an investor. You know, you can get, you can get into a facility for less than a house, right. And you can usually assume if it's going to be your first loan. The bank will require 20% to 30% down, which is typical as in a commercial loan. As you start to show that you have experienced and you can show your track record and your profit and losses over time, then the banks will start getting much, much more comfortable, especially with the way that these appraisals are working. So here's an example of another one, not too far from Franklin, North Carolina, we bought a property in Hampton, Tennessee just over the border and that property we purchased for 725,000. But the appraisal that the bank ordered came back at 1.2 million. So I, we went to the bank and we're basically like, you know, you're crazy. If you think I'm putting any money down on this property, you have all your protective equity right there. If you don't want this deal. No worries. I've six other banks that are willing to take this deal and they make the banks play against each other. Yeah, so that deal, we, we actually had a cash out purchase. The property, it was, it was 725, but the purchase price that needed about 65,000 in rehab and our loan was written for 825. So we actually walked away from closing with a $96,000 check $65,000 of which we put into rehab. And then the remainder we just put in our pocket,



Bill Fairman (44:19):

It sounds like the commercial version of a VA loan. Yeah. That's pretty funny. That's pretty awesome. I want to go ahead and get your contact information there for folks. And you do have a fund for accredited investors as well. So if you don't have $900,000 to buy a facility with you have a hundred and your accredited investor, you can do it passively, right?



Fernando Angelucci (44:45):

Correct.



Bill Fairman (44:46):

So what's a good contact info for you to, for people to follow you?



Fernando Angelucci (44:55):

Yeah. So easiest thing is to check us out on our website, TheStorageStud.com. You can also, you know, at me at any of the social media outlets at The Storage Stud. That's, Facebook, LinkedIn, Twitter, Instagram all over there. You can also check out our investor based website, which is TitanWealthGroup.com.



Bill Fairman (45:18):

Excellent. I like the "The Storage Stud." That's pretty, pretty unique. You've been gracious enough with your time today and you're being gracious to join us in the one o'clock hour where we're having a panel discussion. And I don't know if you know this or not, but Scott Myers is one of the panels.



Fernando Angelucci (45:39):

Oh, Great!



Bill Fairman (45:41):

So listen, I appreciate you coming on. We're, you feel joining us here in about 10 minutes or so for the, for the next round. That'd be awesome.



Fernando Angelucci (45:53):

Absolutely!



Bill Fairman (45:53):

Folks, thank you so much for joining us again. You can find out information about borrowing money in the Southeast for fix and flip and buy and hold temporary cause we're still doing fix and flip pricing, right? So if you need a bridge loan and you're in the Southeast, CarolinaHardMoney.com, if you're looking to invest in our fund again, CarolinaHardMoney.com, just click on the investor tab. If you're a borrower click on the borrower tab, don't forget to subscribe and share and like, and all that good stuff as well. Fernando, thank you so much for joining us. And we'll be in a few minutes.



Fernando Angelucci (46:31):

Talk to you soon.