A Self-Storage Investment Journey – Conclusion
A Self-Storage Investment Journey – Conclusion
CHAPTER 5 RECAP
In the previous chapter, I wrote about the various ways of obtaining the capital required to purchase a Commercial Real Estate investment. I was also finalizing the due diligence on my acquisition and had a planned closing date of 3/19. I’m happy to write that the closing happened and this last chapter will focus on “what now?”.
Much like a home closing, the closing on this investment was an anti-climatic event. After meeting at the Title Company, signing the requisite documents and engaging in the gratuitous small talk with the sellers, I made my way over to the facility to meet with the on-site manager. Unfortunately, the sellers had chosen to keep her in the dark on the transaction so she was caught a little off guard when I announced that I now owned the property. My approach has always been to be upfront, blunt and candid with people and that was how I handled this conversation. Years in the IT outsourcing business provided me the experience needed for this conversation and the primary objective was to treat her with the dignity and respect she deserves. To complicate matters, she also lives in the apartment that is located on the property. I let her know that I was extremely sorry that she hadn’t been given prior notice of this transaction from her employer but I would work with her to make it as painless as possible. I did tell her that I was going to implement some technology features and automation that would allow me to convert the property into a remotely operated facility, which meant I would not have an on-site manager. I offered her a 1099 contractor agreement which would keep her income at the same levels prior to the sale, and would allow her to stay in the apartment rent free for 3 months. I expected the contractor agreement to last about 6 weeks, and would pay her a sizable bonus if she stayed until the site was converted to a remotely managed model. Overall, not an easy conversation but she had a terrific attitude about the situation. I got busy trying to help in her job search, and the following week she found a better opportunity just a couple miles from the apartment. Her last day was this past Friday, and she got her bonus. She also asked if she could rent the apartment after her 3 months of free rent was up because she really likes it there. We came up with a nice option for her on a rent amount, she signed a lease, and we now have a full-time tenant in the apartment. Things could not have worked out better.
FAST TRACK TO REMOTE MANAGEMENT
I had a plan that I wanted to execute that would drive our NOI significantly, so the faster I implemented the plan the faster we start making the money I felt this investment needed to make. There were several options that took anywhere from 1-6 months, so I chose the 3 week option! Here’s what I have done to date;
- Changed out the Internet Service. Sounds like a small feat, but this took planning and coordination with the ISP and, of course, still had issues causing a 2 day outage. Small price to pay because we cut $3,600 per year off our Internet bill!
- Implemented new management software. This was required to add the features we needed in order to run remotely. Because we couldn’t cut over on day one, it required that I negotiate a 2 month software license with the previous vendor which charged me the tidy fee of $800 for the transfer fee. It also required that I sign an incredibly ridiculous agreement with the merchant service vendor for that software so we could take electronic payments for the few weeks we used the software, and making sure the payments would actually make their way into our new bank account. This was a seriously painful experience because this software vendor and merchant services company have some of the worst customer service I’ve experienced in a long time, but it got done and worked ok. I’ve terminated the agreement but had to pay them another $150 fee to retain an archive history of the data, which is frustrating because the data is mine to begin with! Oh well….We are now on a significantly improved platform with phenomenal customer service, at a much more cost effective price point.
- Website build and go-live. One of the significant value-add opportunities with the property is that the previous owners didn’t have a website for people to rent units. They did have an online payment portal that allowed customers to pay online, but nothing they could use to market their property. The new software platform includes a really nice website that is built for the self-storage industry, and allows a customer to rent a unit and move-in in less than 5 minutes. It’s going to be a significant piece of our advertising strategy and the cornerstone of our remote management capabilities.
- Customer communications. When there is change, there is resentment. I’ve sent emails to customers telling them exactly what they need to do in order to set up their profile on the new system but people just don’t read. There have been plenty of phone calls from customers asking about things that were clearly stated in the emails, but we’ve walked them through the process and most have been really good about it. I’ve had one that is just a mean person and one who refuses to use email. My guess is those units will be available for rent in the near future. I’m going to continue to over communicate with our customers and hopefully they’ll realize how much easier things are with the new portal.
- Tenant Protection (insurance). Our property insurance does not cover the contents of the tenants units, which is common in this industry. We decided to mandate tenant protection and auto-enrolled everyone when we converted to the new system. They can opt-out by supplying us with their homeowners policy number, carrier and agent name/number. Otherwise, it’s $9 per month. I’ve only had 1 person push back really hard, so I lowered her rent by $9 to offset the cost of the protection. People who think their homeowners policy covers their contents of the storage unit don’t normally realize that their deductible is probably much higher than the contents are worth, which means they aren’t covered at all.
- Gate Control System. In order to create a truly remote management system, we needed to switch the gate control systems with something that was cloud based and integrated with our new management software. This was a really big deal, and required new wiring to be run from the keypads, the gate opener and the control unit which is mounted in the office. It took 2 people about 10 hrs to do this work, and our gate was out of service during this time. This part of the conversation gave me the most heartburn because we had to time the new gate operating system with the management systems cutover because they work together. We had a couple of glitches, but it’s all working like it is supposed to now!
- Call Center. The real key to managing remotely is to have a great website, but also have a great team answering phones when people have questions or problems. One of the drivers behind our management system choice was that they also offer a call center based in Utah. They answer the phone with our company name, and are experts on our software. The implementation of this call center required us to write scripts, but also to port the existing number over to them and make it go-live the same day we cut over the management software and gate control system because they all work together in making it a clean customer experience. We now have expanded hours for people who want to call our facility, and they always get a human if they call during 8-8, Monday through Saturday.
- Advertising. Fortunately, the original owners had gone through the process of getting a verified Google My Business account and we were able to take control of that. They never used it, and I’ve been busy making sure all the information is up to date and have started my first pay-per-click campaign. We had 3 new rentals on Friday, so it must work. I’ve also engaged a company to help propagate our information across the internet and keep it in sync, which is quite the undertaking. Lastly, we will run a few ads on Facebook to help fill our facility. I’ve got a first year advertising budget of $600 per month, and I’m going to spend every penny.
- Signage. Since the office no longer has published hours, I had signs made for the facility with our new URL and the Phone number stating that we are now a contact free facility. We spent several hours hanging all the signs last week after making the software/gate cutover. Small detail, but important.
- Smart locks. Part of the automation of the facility required the implementation of smart locks that communicate with our software. This facilitates a customer move in, as well as our ability to over lock for non-payment.
- Training our Smart Hands. Even though it’s now an automated, remotely managed facility, we still have a need for “smart hands” to do the required on-the-ground work. This includes things like prepping a unit for move-in, making sure units are cleaned, keep the grounds looking nice and doing over locks. I’m extremely fortunate to have found some great local people for this role and spent a few hours training them last week.
All these tasks (and a few others) were done in the first 3 weeks of closing, and we are now a fully remote managed facility. These actions cut about $55k from our annual NOI, which not only significantly increases our monthly cash flow, but translates to about $720K increase in property value. Not a bad few weeks work. If we can fill the facility, we can add another $300-500k in value on top of that, which will make this a really nice investment.
The next few weeks will just be following up with customers to make sure they get their online accounts set up and the automated notifications are working as planned. I’ll also be working hard on advertising campaigns and SEO type work. It’s a process that is slow but pays off big in the long run.
I really hope these articles have provided you with some knowledge you didn’t have before, and encourages you to explore different types of investments for yourself. Don’t be afraid to bet on yourself and like I tell my kids, “don’t be afraid to be great”!
At this point, I might be addicted to the Self-Storage asset class and I am off to find the next deal. This one looks like it might turn out to be a home run, but I’ll settle for some doubles.
If you have an interest in learning more about what I’m doing, how I’m doing it and how an investment would work with me then just reach out and we can do a short zoom call for an overview of my methodology and process.
Good luck pursuing your own adventures!! It’s a fun time to be in this business!
I’m NOT an attorney or a CPA, so this isn’t advice. It’s simply a description of what “I” do. It suits my purposes, and that’s what matters to me.