🧰 Netting $20 Million In Cash

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Today you will learn how in 20 months, the “Sultan of Storage” quit his 9-5, bought 7 self-storage facilities (earning him $400,000/yr), and never has to work again.

Very few businesses have the leverage and passiveness of self-storage facilities. They’re also recession-proof. Demand grows as people downsize to cut expenses.

To most, the crappy self-storage facility you see on the outskirts of town doesn’t look like a goldmine. But after reading this, you’ll wish you had one.

"From 20 Months Of Work, I Never Have To Work Again."

In 4 minutes, you’re going to learn:

• How the “Sultan of Storage” plans on making $30M+ from self-storage.

• The step-by-step plan to get your first property

• The strategy needed to run the business

• And how much money this all costs

The Sultan of Storage - Building A Storage Empire:

Because the Sultan of storage is super open about his money, he doesn’t share his name (he’s like batman). But here's what you should know about him:

• He earns $400,000 in semi-passive income

• Bought 7 self-storage facilities in 20 months

• Doesn’t ever have to work again

• Plans on buying $30m of storage by 2030

• Cruises the mountains on his bike in Colorado

Let’s get into it!

The $20M Self-Storage Playbook

Here’s the step-by-step process to get started:

1. Hunt for “crappy” storage facility

2. Diligence the deal

3. Get approved by a bank

4. Add value to the property

5. Modernize your systems with software

Let’s dig in!

Step 1: Build A List of

The hardest part of getting into the self-storage biz is finding a deal.

To start, you need to build a list of self-storage facilities near you.

Remember, you’re trying to make money here. So remember this:

• Crappy is good - they are probably neglecting things (like increasing rent)

• Small is good - Optimize for small towns near you. Big cities are costly.

On Google maps, search for “self-storage” and start building the list.

This is what happened to the Sultan:

11/11/2020 - He listened to the MyFirstMillion podcast about self-storage with Nick Huber and was inspired.

He immediately went home and started building a list of self-storage facilities.

How?

First, he searched for “self-storage” on Google maps (simple enough).

He created a list of 50 self-storage facilities that met his standards—Aka, crappy looking & cheap (not marriage material).

Using the County Assessor data & Secretary of State sites, he would find the owners and their contact details (this is widely available).

11/14/2020: He had a list of 50 storage facilities and the owner's details. He wrote a letter, printed it, then headed off to the post office and sent them off.

Here’s the note he sent...

He did not call them “crappy storage owner” - just protecting their privacy.

Then he waited…

11/27/2020: The phone rings! The owner called and was looking to sell.

They were asking $1.1 Million.

The storage unit had 200 units and was 98% full.

It made $153,000 in revenue and $74,000 in Net Operating Income.

Cool…deals were coming in!

Now what?

Step 2: Diligence The Deal

Every industry has its ligo.

For self-storage, here are a few you need to know:

• Cap Rate: The 1-year yield of a property. For example, a property worth $1 million generating $50,000 of income (NOI) would have a cap rate of 5%. The cap rate varies depending on the market.

• Net Operating Income (NOI): Income after operating expenses are deducted before deducting interest and taxes.

• Rent Roll: A complete list of rental rates for a property's units.

• Occupation Rate: The occupancy rate of the storage facility. If 90 of the 100 units are rented, you have a 90% occupancy rate.

These are important, but the most important thing to remember is that the properties should have value-add potential (we explore that in step 4).

Step 3: Financing The Deal

The Sultan had ~$1.5M in cash to invest. He was cash rich after 15 years of being super frugal and stacking savings.

He thinks self-storage is a great way to compound your wealth but not the initial way to make money.

So what do you need to know about debt?

Banks need to lend out money, and self-storage is a safe asset for them. They’ll give you 75%-85% of the total cost of the property.

This means you must come up with 15%-25% with your own money.

Loan Options - Both can be great.

• SBA Loan - these loans typically have better terms and lower down payments but can be costly to refinance.

• Traditional - these loans may require higher down payments but are typically more flexible with refinancing early.

Let’s look at a deal:

He purchased his first property with $275,000 of his capital, and the bank covered the rest ($825,000).

It’s important to understand your debt service coverage ratio (DSCR)

DSCR is a ratio of income (NOI) to debt payments.

This first property made $124,000/yr, and debt service cost $60,000/yr. So the DSCR was 2x.

A bank won’t lend on a deal where DSCR is less than 1.25x (too risky).

This is precisely why adding value is so significant. If you can purchase an “eh” property and turn it into an “ok” property, you can make a lot of money.

So how do you add value?

Step 4: Add Value

Adding value is how money is made here. So, how can you add value?

There are only 2 ways to increase the value of a property:

Lever 1: Increase Revenue

• Increasing rent to market rates

• Building more units

• Providing additional services

• Marketing better to increase occupancy

Lever 2: Cutting Costs

• Using better software tools (e.g., digital payments vs. cash)

• Using a virtual service model (e.g., no on-site staff)

• Switching to lower-cost services (e.g., accounting, marketing, etc.).

Increasing revenue is the most potent lever - this is why the Sultan looks for crappy deals where the previous owner hasn’t increased rent in years. He can immediately increase rent. You’re golden.

In only 10 months of buying his first property, the Sultan increased the property by $1M in value.

Step 5: Operationalize

The Sultan has perfected the art of buying mom & pop storage facilities, modernizing them with software, and managing them remotely.

If you plan to scale your portfolio, it makes sense to assemble your own team. This allows for more control over quality.

Because he manages all of his storage facilities virtually, the sultan only needs a virtual team of 3 to help him scale his operation - primarily for customer service, marketing, and day-2-day operations.

He uses an off the shelf software to manage the facilities. There are many out there, like Sitelink & Storable.

What’s excellent about self-storage is you don’t need a large team and can manage the business with relatively low overhead.

Once the properties are stabilized, you can either hold on to them and live on the cash flow or sell them and use that capital to buy more assets.

Step 6: Repeat Until Rich

The sultan has one regret…that he didn't start buying cash-flowing assets sooner.

In 2021, he bought $3.1M of storage.

That real estate is now worth $4.9M (a $1.8M gain).

In 2022, he bought $4.4M of storage, which will soon be worth $6.6M (a $2.2m gain).

He plans to rinse & repeat the plan we outlined above to net $20M in cash by 2030 (check it out below).

P.S He’s found some cool stuff in abandoned units. Check out this Corvette.

I hope this got you thinking. See you next week!