We introduce to you an old time guest, Fernando Angelucci, The Storage Stud.
Fernando explains how he got into self storage business, why he chose it and why so should you!
He tackled every factor to consider and how he's handling deals himself, right from the underwriting self storage facilities, how to pull demographics, do competition study and supply & demand analysis.
He shared some of the high level deals he had done from the past couple of years and had given some rules of thumb for those people who are just starting a self storage business.
Timestamp:
0:01 - Teaser
0:50 - Intro
1:38 - Carolina Capital's guest, Fernando Angelucci
4:36 - Why Fernando Angelucci went into Self Storage
8:39 - Self Storage Underwriting Agenda
10:01 - Traffic Counts
10:30 - How to pull Demographics
22:10 - How to do Competition Study
29:00 - Supply Demand and Analysis
36:13 - Property Analysis
10:06 - Carolina Capital Management - https://www.CarolinaHardMoney.com
Fernando Angelucci, Founder and President of Titan Wealth Group, leads the firm’s finance and acquisitions departments. Under his leadership, the firm’s revenue has grown over 100% year over year since being founded in 2015. Utilizing his engineering background, Fernando approaches real estate investing with a keen analytical mindset that allows Titan Wealth Group to identify opportunities and project accurate pictures of future performance.
Watch the full video to learn more!
Favorite Quote:
"You Need Someone That Has No Stake In The Project To Look At It, To Make Sure That You're Not Missing Anything" - Fernando Angelucci (26:38)
Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the "Small Builder" borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and "Ground-up Construction Loans" for investors only in NC, SC, GA, VA, and TN (some areas of FL, as well).
As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.
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https://thealternativeinvestor.libsyn.com/131-self-storage-underwriting-with-fernando-angelucci
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Bill Fairman:
I don't know. I'm already getting him started. Hello, I'm Bill Fairman. This is Wendy sweet and that is Jonathan Davis. We are Carolina Capital Management. Thank you to the Pa-. Thank you to the Passive Wealth Show. Thank you for joining us on the Passive Wealth Show. Have any of you guys ever been interested in self storage and wondered how to underwrite a property? Is it going to be a decent value add or is it going, are you just buying something that's already performing,
Wendy Sweet:
It's a long teaser.
Bill Fairman:
Or are you're just going to, shut up. All right. Well, I'm just going to get to it then.
Jonathan Davis:
This is more life foreplay.
Bill Fairman:
We'll let you know, as soon as we come back, I can't, I can't work with these people.
Wendy Sweet:
Assuming he has no choice, right?
Bill Fairman:
I would leave have those locked in his room. All right. So we are Carolina Capital Management. We make investor loans in the Southeast. If you're a borrower interested in borrowing money, then go to our website, CarolinaHardMoney.com. Click on the apply now tab. If you are a passive investor, looking for passive returns, click on the accredited investor tab, don't forget to like share subscribe, hit the bell. Almost made it all the way through.
Jonathan Davis:
Hey, I'm here for you.
Bill Fairman:
So we have our good friend, Fernando Angelucci and we all love saying his name.
Wendy Sweet:
He was our good friend before we had our pre conversation with him after [Inaudible]
Bill Fairman:
So I built him up telling that he's on our top 10 and then I [Inaudible].
Wendy Sweet:
[Inaudible]
Bill Fairman:
But we do this because we love each other.
Wendy Sweet:
That's right.
Bill Fairman:
Actually, Fernando was, in statistics was in our top 10 of videos viewed this past year. So congratulations. So great to have you back. Look, the story. I love that.
Fernando Angelucci:
You all like that?
Wendy Sweet:
That's great.
Bill Fairman:
When did, that's, I love that. So are you using that along all your own podcast and videos?
Fernando Angelucci:
Yeah, so we figured that it'd just be easier to find the alliteration. So my business partner that does all the marketing came up with it, he thought it was a little bit less of a mouthful than a Titan Wealth Group and Impact Self Storage.
Wendy Sweet:
I love it, I love it.
Bill Fairman:
Yeah. What are we?
Wendy Sweet:
Lullaby lenders?
Fernando Angelucci:
There you go.
Bill Fairman:
Morons with some money.
Wendy Sweet:
Money morons
Bill Fairman:
I love that. So, uh, I don't want to take too much away from, Fernando's stuff, but he's going to teach us how to, and this is going to be a two-parter. So we're going to have him back on another show. He's gonna kind of go through what all they go through in underwriting self storage properties.
Wendy Sweet:
Awesome.
Bill Fairman:
So, you know what? I'm just going to say, take it away my friend.
Fernando Angelucci:
Okay. You guys mind if I share my screen here?
Wendy Sweet:
Please do.
Bill Fairman:
Yup. Absolutely.
Fernando Angelucci:
All right. Just say it a little presentation built for you guys,
Speaker 2:
Unless I have to give you permission.
Wendy Sweet:
I think Cherub has to do that.
Fernando Angelucci:
There you go. All right. So as the wonderful people at Carolina capital management, just introduce me, my name's Fernando Angelucci, The Storage Stud and today I kinda.
Jonathan Davis:
[Inaudible]
Fernando Angelucci:
Lullaby Lenders, morons with the money, is that right? So like I said, you know, I'm a self storage investor. And the reason I got into self storage is because I was tired of the problems that came along with owning residential real estate. The tenants, the toilets, the trash. So what we decided to do was about four years ago, started selling off all of our single family and multifamily assets for something that was a lot easier to work with and provide a lot more upside then habitation real estate or real estate where someone lives in your property. So just as a rough recap of why I went into self storage, and this is a presentation I can do in depth at another time, but just quickly here cause I know everybody wants to get to the meat and potatoes. The reason that I went into storage as opposed to residential real estate was number one, historically it has higher returns than residential real estate and multi-family. Number two, it's a recession tolerant or recession resilient asset in the last, now four recessions, including the pandemic. It has outperformed single family and multifamily properties by about 4% with which compounded equates to about double your return in a 20 to 25 year period. Fantastic leverage offered to us by the banks. And the reason why is because it has the lowest default rates of any asset class that banks typically lend on. So they really want these loans in their books to stabilize the risk of their portfolio. Much easier management than multi-family and portfolios of single family homes by a factor of usually one fourth to one fifth, the amount of time needed to, to manage an equivalent sized portfolio on a dollar per dollar basis. Extremely fragmented market. About 73% of the 65, 70,000 self storage facilities in the nation are owned by mom and pop investors, meaning they only own one or two storage facilities. It's not all owned by these huge conglomerates. So there's a lot of value add opportunity out there right now. Extremely low break, even occupancies on an unleveraged basis. So if I buy a deal cash, I'm typically break even at about 35 to 36% occupancy. If I put debt on it, I usually break even around 65 to 67% occupancy.
Wendy Sweet:
Wow.
Fernando Angelucci:
Easy eviction. So, and I know this is something that is a kind of burns a little bit right now in the time that we're going through and the reason I put evictions in quotes is because in the self storage world, we actually are not, guided by landlord tenant law. We are actually guided by lien law, which means if you don't pay your rent, I sell your stuff. And then I put a new tenant in place. It has a very high sticky factor. So what I mean by this is if I were to raise the rent on a, let's say $150 a unit by 16%, typically my tenants would not move to go save that five or 10 bucks somewhere else. Whereas if you're in multi-family or single-family because you have larger rent numbers, if you raise the rent on a $1,500 apartment unit, 16%, you better believe that that, that tenant at the end of that lease, they're moving to a different, a different property, you know, across town. And then last but not least is they have ancillary profit center. So not only am I collecting rent, but I'm also collecting income from selling locks, boxes, moving supplies, moving trucks, insurance, premiums, cell, a cell phone towers, billboards, there's all these other profit centers that you can add on top of your rent and make these things cashflow even heavier than they already do.
Wendy Sweet:
Wow.
Fernando Angelucci:
Oh, let's get into the meat and potatoes here, unless you guys have some questions about those, those first nine points there.
Bill Fairman:
Well, I'm just going to make a quick comment. SBA loves self storage as well because it's not just real estate, it's a business and they will lend you money and a high loan to value based on the fact that it's a small business, as much as it is real estate.
Fernando Angelucci:
Yeah. My, I just got an SBA quote about three days ago, 10% down. They're waving all closing costs and they're also covering the first three to four months of principal and interest payments.
Wendy Sweet:
Wow.
Bill Fairman:
There you go.
Fernando Angelucci:
Fantastic leverage. And I think our rate was at four and a quarter. So just to show you. All right. So let's get into underwriting and self storage facility real quick and I'll kind of do high level, but I'll still give examples of a specific deal that we purchased a couple of years ago. The very first, what we're going to cover is traffic counts and location demand and demographics competition study, seeing what your competitors are doing in the markets supply index number, or what we call it, supply and demand analysis to make sure you're buying in the right place or building in the right place. And then last but not least actually looking at the property itself, looking at the financials on the property to see if it makes sense. All right. So first off. Here's the property that we purchased. It was in central Illinois, it's called American self storage. It was a class C facility. As you can see, no fence all drive up, no climate control had a little office in the front. There's the address. It had 194 units. It was drive up non climate controlled, had 12 buildings, one office, and then one home. It did have onsite management but as we operated the property and put in some management efficiencies, we're able to reduce the hours. Right. So here's what it looked like. As you can tell nothing special, you know, it's solid classy facility with a little bit of value that needed to be done. It's one of the reasons why traffic counts are still important for self storage is because the majority of your tenant base or customer base are coming from a small trade area. Typically a three to five mile radius around your self storage facility. What we've seen is that these tenants typically choose a facility that they've seen before. So they, they drive to, and from work every day, they don't really notice a self storage facility it's kind of in the back of their mind, but then all of a sudden when the need hits them, they're moving, they're changing jobs. They remember this facility that they drive past all the time and then go in to get our unit. Now with the advent of the internet, becoming more and more popular in these cell phones that have just insane computing power just in your pocket. What we've noticed is now the spread of people coming in is actually starting to move towards online. So in a recent study we did across our portfolio. We found that actually 60% of our new tenants, the ones that came in after we acquired the facility, actually found us on the internet. And not only on the internet, they found us through an internet app on their phone. So it was mobile based tenancy.
Bill Fairman:
Excellent.
Fernando Angelucci:
So what we look at is when we go to find these properties is their first thing is we will look at the market that they're in and we'll pull up the state department of transportation website. So because this was an Illinois, we went to I dot and then we clicked on their traffic count maps rule of thumb if this is your first investment, make sure you have at least 12,000 cars per day. That's really good start for your first facility. So let's look at the subject property. the stars where it's located, as you can see on the curb cut. It only has about 5,700 cars. So that's a little bit low for a first-time deal. Now this was not our first deal. So we weren't afraid of that necessarily. Secondary road had about 9,100. So getting a little bit better, but not still, not above the threshold for a first time investor. And then the last part was we look at the nearest highway, which here actually happens to be pretty close, had a highway count of about 25,000 cars per day. So that's starting to get into the realm that we really like. So on this property, traffic counts, not the best, but they're getting the trending in the right direction. The second thing we look at is demand drivers. So self storage, we're getting a majority of our tenant base from dense residential. So about 70% of our clients are going to be what we call residential customers. Now, when I first got involved in this business, I thought all the self storage users lived in tiny 300 square foot, you know, shoe box apartments with no garage, no attic, no storage space. But then when we actually did the numbers, we found that that wasn't true at all. Only 27% lived in apartments. 67% actually lived in single family homes. And of that 67%, 65% had garages. 47% had attics and 33% had basements. And I was scratching my head for a second. But then I started thinking about my own family and how every time we would we'd get a larger space to live in all of a sudden we magically filled all of that space, right? And that's what typically ends up happening with people. Now, the customer base that I really like are that the commercial-based customers about 17% of our customer basis is commercial. I like them because they have the longest average lease term about 25.2 months. They'll typically pre-pay the rent six to 12 months in advance. And they'll typically rent multiple units at once. These are going to be people that maybe they aren't to the point in their business yet where they can afford a warehouse. So they actually use us as a stepping stone up to those warehouses. And now during the pandemic, we've seen a lot of people getting out of their warehouse leases and scaling down, letting everyone work remote, and then using our facilities as kind of a hub. We had another company that was at a tortilla company and they would, this was a property in Illinois. They would manufacture the tortillas in the city of Chicago. They would ship them to our, they would truck them to our self storage facility. They had four units and then a semi-truck would come up to our self storage facility, load all four units, and then take that out to across the nation where they sold all their tortillas. So almost like a hub and spoke model, very interesting. The next major demand drivers students, students are great because if you're near a college, you'll always be able to find demand they account for about 6% of your population. The tough part about students is they have a very low average lease time. It's roughly about 4.2 to 4.6 months. And that's because they're typically storing their possessions from college on summer break because they don't live in the area. And then when they come back, they pull it out of storage and then put it into a new apartment that they're renting or the dorm, or what have you. And then the last, demand driver that we really look for all the time is military. Especially if you're around any type of military basis, these are great tenants. They always pay on time. When they have anything showing up, maybe they get deployed. They give you a letter well in advance. Really helps with the long-term tenancy. Their stay is a little bit longer as well, which helps kind of smooth out the move-ins and move-outs. Let's look at our subject property. As you can see the properties on the lower left hand side, you can see a large neighborhood over to the Northeast of the property. So that's very good for us. And then when you zoom out a little bit farther, then you see more of a luxury style development area around a lake. So typically people that are a little bit more affluent, they start storing things like boats. Big toys. RVs, four wheelers, jet skis. So we like that type of tenant base. They take larger units as well. How do we pull our demographics for a self storage facility? Well, like I mentioned before we create what's called a trade area radius and that trade area is going to change depending on how densely populated that that area is. So if we're in an urban core, like downtown Chicago, we're only going to look at about a mile, cause there's so many people packed into that one mile and they won't want to drive really more than that to get to a self storage facility, even if they'll save a couple bucks. So the example I always use, if you're in downtown Manhattan, you're not going to go three miles to save $5 because time is money to you, right? So you'd rather have something right around the corner. You can go get your stuff and it takes only 15 minutes. For suburban and exurban, we look at about a three to a five mile trade area. What I describe ex-urban areas is like the area between a suburb and rural. This is typically where your large home developers will buy a hundred acres of land and then put up, you know, 600 homes. These are the exurban areas. We like buying in these areas because land is cheap. The properties are cheap, but there's a ton of growth coming in our path of progress. And then rural properties, which we've actually made a lot of money off of rural properties. We'll use a five to 10 mile radius. If it's a hub city or hub town where maybe has like a super Walmart we'll even expand that trade area out farther, maybe 15, 20, 25 miles, depending on where people are coming from to use the storage or to shop at these super Walmarts, 90% of your tenants will come from this trade area. So it's very important to make sure you identify the proper one. So self storage is highly localized which gives us opportunities to find underserved markets. I always kind of chuckle when people say, Oh, self storage is so saturated. It's like, is it, where is it saturated? Tell me, wow. Well, I heard Chicago saturate. Like, okay, what part of Chicago? Chicago is massive. So what three to five mile area are you talking about that super saturated? We can be in a pocket that has so much supply that all the competitors are, you know, undercut each other, only 50% occupancy, but then you move five, six miles East or West. And all of a sudden, every facility's at a hundred percent occupancy with wait lists, rents are going through the roof and nobody's moving out. So it is a very high, polite hyperlocalized business. So how we usually do this is we'll use demographic software site. Wise Mobile is a free app that I've used in the past. We also use Esri data. And the things that we're typically looking for are going to be rent or population, total household income, total households in the area. And then we'll draw these tray trade areas using Google earth. Again, another free app that you can use. So let's look how we do this. Here's an example of Sitewise mobile. This is the subject property in Danville. So I just drop a pin on it. And I drew concentric circles. A one mile, a three mile and a five mile radius just to see what we have. And then here's all the demographic data that it gave me. What's the population? What is the breakdown of that population? Median, age. How many of those homes are, are owner occupied? How many are renter occupied? These are always going to help. Typically renters are going to use our facilities more often than homeowners. So we always look for a heavy rental population. So here's Google earth where I drew those concentric circles. And the way I do it is I just use the little measuring icon on the top there and that allows me to draw the certain mile radius is that we need. The other thing we look at, like I had mentioned before is any type of population growth or being in the path of progress. So when we purchased this property, we heard of this casino that might have been coming into town later on. It was that confirmed that this casino was going to be being built in the area. So that's going to drive a lot of transient population. A lot of people are going to come work at the casino, but not necessarily live in the area that the casinos in perfect example of this is if you ever go to Vegas and you talk to anyone that works in Vegas, they typically don't live in Vegas. They live somewhere else. They fly in. So these people need storage. Let's look at the demographics of the subject property. So median household income, about 39,000, the population in the five mile trade area is about 35,000 people. Total housing units, 16,500. And there is population growth that's coming because of the new casino that was approved. The rule of thumb again for a first time investor is you want the median income to be about $45,000 or more. And the reason why is if you're too low, people don't have the money to afford, you know, additional rent on things that they don't need. If you're too high, these people typically have massive houses where they have all this storage that needs it. All of a sudden, you start getting into median incomes of 150,000, 200,000, maybe not the best place for storage. It has diverse industry. That's one of the things that we really like to see. I don't want to invest in a town where there's only one manufacturing plant, and then all of a sudden the manufacturing plant leaves and then the town collapses. So we're going to make sure that we're looking for diverse industry and job growth, and then a strong residential presence. So with those things in mind, our subject property, like I said before, the traffic counts are all right. The demand drivers are starting to get closer to the metrics that we need as a Ford first-time investor. So now let's look at how to do competition studies. So for us, one of the easiest ways to tell if a property is in an area that we want to buy in is to just call the competitors and see what their occupancies are. In general, in the self storage industry. If you have a property that's at 90 plus percent occupied, it is considered stabilized. It is full. And the reason why it's at 90% is because if you go above 90%, that means that you're not charging high enough rents. You can actually make more net income by being at 90% occupancy driving rents than you could be at a hundred percent occupancy. So one of the things we always look for. So, like I said, we use the Google earth to create that trade area. And then we identify the competitors within that trade area. We will secret shop them to find out what their occupancy is, as well as what their street rates are that their advertising. We'll identify, which competitors are expanding, which ones are stabilized, or which ones are struggling. Because just looking at occupancy, doesn't tell the whole picture. What if a facility two months ago just doubled the size of the amount of units that had online by building, because it was doing so well. And you notice that it's at 54% occupancy, that's not necessarily a bad thing. It's a bad thing if they've been around for 20 years, they've never expanded, but if they just expanded, that's good sign for you as an investor. But let's look at this. Here is our subject property, American self storage. And you can see as far as population, and as far as the breakdown of where the competitors are, we're sitting pretty. We have one competitor that's right up the road. We actually are under contract to buy that competitor right now and then the rest of our competitors are past the three mile radius range. So we're capturing a lot of customer base that don't have other options for storage, or maybe they don't want to go all the way into town to get their storage needs fulfilled. So there's the first competitor. And then here are the remaining ones outside of our three mile radius. How do we do this competition study? Well, we become secret shoppers. So very first thing is we're going to call the competitors. We're going to try to see how much information their manager is willing to give away to us without realizing what we're doing. We're going to ask everything from what type of units do you have? How many do you have occupied? What are the rates? What are the street rates versus what are the discount rates? You'll give people if you're trying to run promotions to fill up, and we're going to track all these things in a spreadsheet. If they're unwilling to give us those things over the phone, because their manager has been trained by the owners, like what we do with our company, never to give away these type of data. Then what we're going to do is we're going to turn into a, would be customer and we're going to show up at their facility and we're going to say, Hey, why don't you show me around the site? I'm deciding between renting and a few facilities just want to walk around and see, you know, what it looks like. And as I'm walking around with a manager, or if they let me walk around without the manager, I'm counting, how many locks are on every one of the doors I'm counting all the doors they have. I'm seeing which locks have the red manager lock over them, meaning it's either vacant or which units have two locks on them. Meaning that tenant is in a rears and hasn't paid. So the manager put an overlock on it. And then we double check the numbers by paying for a third-party feasibility study. Bob Copper is one of the ones that's known really well in the industry. Katherine D'Agostino is another one. These are third-party contractors that we have to pay them upfront and they are not getting anything from giving us a favorable or unfavorable, designation for this property. And that's just helps us double-check our numbers. It helps us raise capital from equity investors, and it also helps us get debt from, from local banks. So these feasibility studies usually cost around five to $10,000, depending on who you're going with and the complexity and size of the project you're you're looking at. Go ahead.
Jonathan Davis:
Sorry. Would you recommend that to a first time?
Fernando Angelucci:
Absolutely. Yeah, absolutely. Because what ends up happening is when you're running your first deal, you start getting something. I have a business partner, he calls it Cocaine Brain where you are so you are so interested in buying your first property that you start looking past all the negatives and only seeing everything through rosy colored glasses. So you need someone that has no stake in the project to look at it, to make sure that you're not missing anything. And what we'll do is we'll do this in stages, right? So first we'll do our desktop on the right, which we're going through right now. If it makes sense, then we'll send it to a lender and then the lender will underwrite it. And then we'll go ahead and then pay the five or $10,000 for a third-party feasibility study. When we know, you know, at right about 90% sure that we're going to close on this deal. So with our subject property, here's the competition studies we did. I basically write them down based off of location and how far they are from our facility. As I said before, you can tell if they're stabilized or if they're expanding, and then I go and get the occupancy counts. So as you can see those first three, the closest ones to meet they're all at 98 plus percent occupancy. That is a great sign for us. That means either they're not charging enough or they have wait lists. But it means when we buy this property, the subject property, we have the ability to raise our rents. We have the ability to add additional units. Then you see these two units, these two facilities below they're at 31.8 and 20% occupancy. And that might scare you. But then again, because we look to see what was going on the whole picture, we noticed that the one at 31.8%, they tripled the size of their facility within the last year and a half. And then the one at the bottom extra space storage was actually a new development by one of the large REITs in the United States. So that's also a really good sign because rates typically develop on a 30 year timeline. Whereas us investors, we will usually buy on a five to a 10 year timeline. So if they see future growth in the market where they're willing to cough up the big bucks to build these massive facilities, that's good news for us. All right. So rule of thumb, if you're a first time investor. You want to see competitors all at about 90 plus percent occupancy with unmet demand. You want to see new developments by large REITs, because that is saying that they believe in the market on a long-term basis. You want to see that existing competitors are expanding. That means that they filled up all their, their units, and there's still unmet demand in the area. So now that we've finished that, we know that traffic counts are all right. Demand drivers are also all right. The competition study is extremely favorable for this pocket in Danville, but the next thing we're gonna look at is let's get really fine tuned into the supply and demand analysis. So this is something called the supply index number in the industry or a supply and demand analysis. All right. So what is a supply index number? We supply index number is the measure of supply and demand within your designated trade area. It's measured by the amount of net rentable storage per person in that trade area. And the reason I say net rentable is because when you have certain buildings that are, let's say climate control, where all the units aren't inside, you may lose 25 to 30 of your square footage, to hallways and offices and bathrooms and mechanical closets. So this measurement is made on a net rentable basis, the actual square footage that the facility is renting to customers.
Bill Fairman:
Right.
Fernando Angelucci:
So this is the equation right there. It's net rentable square feet divided by the population in that trade area. National equilibrium is 5.8, three square feet per person. Now this is a national average. These numbers change significantly depending on where you are. So for example, if you look in Texas, Houston, if you look at Dallas Fort worth, if you look at the Carolina's another super hot market for self storage right now, these supply index numbers may actually be in the 10 or 12, you know, square feet per capita in the reason why as the population is growing so fast, that they're not being, there's not showing up in the census data yet. So just because you have a high supply index is not necessarily something to be worried about. Specially if you're in a high growth market, like you guys are in the Carolinas but if you're in a pretty stabilized market, something that's old and not growing, or even contracting a little bit, then you're going to start paying more attention to this supply index number. And then when you look at the differences between density type in a city center versus a rural area. So if you look in downtown Chicago, a one mile radius may have hundreds of thousands of people because you have skyscrapers that go up a hundred stories, right? Whereas if you're in a rural area in a one square mile, you may have one person because that person owns the entire acreage in that one mile area. Right? So things just to offset the supply index number again, you've got to look at it globally with context clues, not just as an absolute number. So typically when we're developing properties, we aim for sub five square feet per capita. When we're buying, we're willing to go a little bit higher than that, especially if it's in a fast growth market slam dunk deals for us are sub three. If we could find sub three, I'm trying to buy literally any land for sale in that area and put up as much self storage as I can in a shorter period of time as possible
Bill Fairman:
Nice.
Fernando Angelucci:
All right. So how do we pull the supply index number again, we're going to go back to our trusty friend, Google earth to do the desktop underwrite refers, going to find the net rentable square feet of each competitor using a measuring tool. Now this is a free way to do it. There's also paid ways to do it by going to these aggregator websites, such as radius plus Yardi matrix, a REIS data. These subscriptions usually cost 15 to $20,000 a year. It's not typically worth it for a first time investor, but once you start catching steam, you're like us where you're buying 10 to 15 of these self storage facilities per year, 15 grand really isn't that much. And we'll save you a lot of time on this underwriting, but because this is geared towards the first time investor, I'm going to show you how to do it for free. It just takes a little bit longer. So we're going to pull up our competitors on Google earth. So this is the closest competitor. That's about a half a mile up the road called Hilary storage. We're going to look at the buildings and we're going to use this polygon tool. That polygon tool is going to allow us to measure each one of these buildings. It'll tell us the square footage of that building. So then we take the total square feet. And then we know that because this is a drive-up building. It's not climate control. That facility, that number is the actual number, right? There's no hallways in these buildings. And you can tell based on just the, what the building looks like when it's these row buildings, these are typically non climate control. You just drive up to your unit. So each one of these units have about 4,500 square feet per. Like I said before, with some of these REITs and some of these larger climate control facilities, you actually lose about 25 to 30% of the space to hallways and common areas. So let's do an analysis on one of those types of buildings. Let's go to that REIT that's in the market, extra space storage. It has about a gross square footage of 78,000 square feet, which means the net rentable square sheet should be roughly around 55,000. So here's the polygon I drew. The reason I cut out that little piece is because I actually drove the facility and realized that they rented about a fourth of that building to a gym. So DRO wrote out that polygon. That's how I got that 78,000 square feet. And then we did the equation to figure out what the net rentable was. All right. So I do that with all the facilities and here you can see the numbers. This allows me to get all the square footage I have in the trade area and then divided by my population that I have in that area. So when we did that, you can see here is our supply index numbers. So because it's a more rural property, we're going to be looking at the five and the 10 mile numbers. You can see a 6.1 to a 5.1. So still pretty good, a little bit higher than what we see for development property. But because this isn't a stabilized market and it's an existing facility and all the competitors are fully occupied. We're very comfortable with this property here. Why is the three mile supply index concerning well it's because our closest competitors, half a mile away from us. So how do we mitigate against that? By exactly doing what we're doing right now, purchasing out our competitor. And we're able actually to pay more than what we were able to pay on the subject property, because when you aggregate self storage, when you go to sell or go to refinance, you get better terms and you get lower cap rates on your sales. So we're actually able to pay more. Once we've established a foothold in that market.
Wendy Sweet:
Wow.
Fernando Angelucci:
Second way to mitigate is to just buy at a high cap rate. You know, if we can buy it at a high cap rate, I don't care if this thing's not going to value add because it's going to cashflow day one, it's going to pump out a lot of cash. All right. So we saw the traffic counselor, all right. Demand drivers also, all right, competition study, extremely favorable supply index, good but needs a little bit of mitigation. And when we look at supply index, we're always giving, waiting to not only the supply next, but also the competitor. So we'll typically give a 50 to a 75% weight on the competitor occupancy and then a 25 to 40% weight on the actual supply index number itself. So after we've decided that the market is good, then we look at the property. So I don't look at the numbers on a property first. It doesn't make sense because if the numbers on a property look good at first, but it's in a market that's sliding, why am I going to buy there for the longterm? So we don't do the actual property analysis until we hit each one of these funnels. And this is how we pre-qualify all our deals so that our underwriters aren't wasting time on deals that they don't need to be looking at cause we know the market's gonna be bad. So once it hits the top four criteria, then we'll actually start reviewing the property itself.
Bill Fairman:
Excellent.
Wendy Sweet:
I think this would be a really good place for us to stop.
Fernando Angelucci:
Okay.
Wendy Sweet:
Continue on our next one.
Jonathan Davis:
This is great stuff.
Wendy Sweet:
I'm telling you. Great stuff. It's really good, it's really good. It's so detailed. I even texted one of my business partners and said, you need to get online and watch this. Really, really good.
Bill Fairman:
Yeah. So Scott made a smart comment. I've never seen Bill so quiet for so long.
Wendy Sweet:
It's really incredibly good.
Bill Fairman:
I do have one quick question for you when you're talking about the income for that area. The median income. Are you also looking at a cost of living index so you can kind of keep the same margin, you know, depending on where you live. Cause obviously, you know, when let's say in Winston Salem, North Carolina, you're probably going to be in the 32 to 36,000, And then, you know, obviously closer to Chicago at 42, you're actually going to, it's going to cost you more to live there. So are you looking at any of those kinds of indexes to offset that?
Fernando Angelucci:
Yes, absolutely. And so when we go into our actual underwriting, it gets a lot more granular, but I just wanted to present kind of high level for everybody here, but that's a great point. You know, if you have a property in Connecticut, you know, the cost of living is high and the median incomes are very high. And just like you said, you know, I may buy a property say outside of the city of Chicago where the median income may be 30,000 but just to live there, you're spending 18,000 to 20,000 a year just on housing, you know? So these are the factors that we're always going to mitigate against. And we usually do this by categorizing the area based on a primary, secondary or tertiary market. And that usually helps as well when we look at the cost of living index compared to the median income.
Bill Fairman:
Excellent,
Wendy Sweet:
Good stuff. Unbelievable, good stuff.
Bill Fairman:
Yeah. And I'm sorry that we, you know, we have to stop, but we're running out of time on this one and I want to make sure we tease it for the next time you're up.
Wendy Sweet:
Yeah, for sure.
Bill Fairman:
Do you you have any idea when you're on the calendar? Cause I forgot to look.
Fernando Angelucci:
I don't know. Scott, you know?
Bill Fairman:
It's going to be soon.
Fernando Angelucci:
It's going to be soon.
Jonathan Davis:
I can't wait. I'll get into the property analysis.
Bill Fairman:
I think we tried to do it as back-to-back as possible. So Theresa's got that information and we'll definitely promote that as we send these announcements out to our list.
Wendy Sweet:
Yeah. For sure.
Bill Fairman:
Fernando, you did an awesome job. Thank you so much, Storage Stud.
Wendy Sweet:
He is the Storage Stud!
Bill Fairman:
Yes, he is.
Wendy Sweet:
It's true!
Bill Fairman:
Folks, thank you very much. You can add some questions here and we'll keep our eye on it and you can add your questions over to the, in the chat side and we'll make sure that the, Fernando can answer those on the next show. Okay? So thank you so much for joining us on the Passive Wealth show.
Wendy Sweet:
Can't wait til next time.
Bill Fairman:
What?
Wendy Sweet:
I said, I can't wait until next time.
Jonathan Davis:
I know, yeah.
Bill Fairman:
Stop interrupting me, I have a hard enough time saying all this stuff.
Jonathan Davis:
He hasn't talked in 40 minutes. He's
Bill Fairman:
Don't say it. We are Carolina Capital Management. We are a lender in the Southeast for investment properties. So if you're a borrower, go to CarolinaHardMoney.com, click on the apply now button. If you're a passive investor, looking for passive returns, click on our.
Wendy Sweet:
Accredited investor.
Bill Fairman:
Accredited investor tab. Don't forget the share, like subscribe, hit the bell, all that good stuff. Don't forget that we have a link there into the quest con event coming up, April 17th and 18th of use the link that's in the chat. You get a half price on your tickets.
Wendy Sweet:
It's all about lending.
Bill Fairman:
It's all about lending this time. There's anything else again?
Wendy Sweet:
That's it.
Jonathan Davis:
No, you did great, Bill.
Bill Fairman:
Thank you. I finally get to talk again.
Wendy Sweet:
It's exploding.
Bill Fairman:
Fernando. Thank you again.
Wendy Sweet:
Awesome stuff.
Bill Fairman:
And we'll have him back shortly with the second half and I can't wait. It's great. Great information. Yeah, we may deal with her. Alright. Everybody have a great day. We'll see you next week.
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