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Podcast Transcription
Dave Dubeau [00:00:09] Everybody day back at you with another episode of the Property Profits Real Estate podcast. And these days we’re hearing the big word recession floating around quite a bit, and a lot of real estate investors are wondering if their particular strategy is recession proof, recession resistant, what not? Our guest here today, Scott Meyers, is involved in a real estate investing strategy and a focus that he thinks, and I would tend to agree is as close, probably as close as it gets to being recession proof or at least very recession resistant, and that is with self-storage facilities. So, Scott, welcome back to the show.
Scott Meyers [00:00:52] Hey, Dave, good to see you again. How are you today?
Dave Dubeau [00:00:54] I am great. So if you don’t recall the last episode we did with Scott, make sure you check that out. But Scott is a very accomplished real estate investor. He’s been focusing on self-storage for years. He’s built up an amazing portfolio. They do it all. I mean, they buy self-storage facilities. They build self-storage facilities. They syndicate for self-storage. They teach train coach, mentor people who want to get into self-storage, you name it. When it comes to self-storage, Scott knows his stuff. So, Scott, let’s just jump right in. Why do you think self-storage is? Well, first of all, do you think it’s recession proof or do you think it’s recession resistant?
Scott Meyers [00:01:31] Yeah, I don’t think anything is recession proof. You know, there are certain parts of our economy that do better during a recession than others. But everybody gets affected by a recession in one way, shape or form. Let’s face it. So the fact that self-storage is recession resistant lends itself to a couple of different factors within the demand for self-storage. And that is, first of all, self-storage is its needs based. It is the demand is based upon a need. And people don’t just go out and say, hey, I think I want some self-storage today. Like they want to, you know, like a, you know, have to go to dry cleaning on a regular basis. It’s forced by a transition. So if you’re moving, you’re going to in your house, you’re going to put out there, the realtor says, to put a bunch of stuff in storage to make it look like there’s more space. And then when you move, you can put your stuff in storage, some of it to move to the next place. If there is a death, divorce, bankruptcy, you know, all of those involve a need for storage transition, people moving. The baby boomers are getting older, they are downsizing. And then when they go into assisted living, they downsize again. And when they pass on, their estate is settled and the kids divvy up, you know, what is left. And then they put stuff in storage because they don’t want it all in their house. So it creates another need, you know, basement floods or you’re just doing a general remodel whether you’re forced to or want to. You know, it’s going to create a need or a demand for self-storage. And so there’s a number of reasons why people utilize self-storage. What we saw during the pandemic is that, you know, when employers sent everybody home because they had a lockdown, while people had to create room for now another workspace in the home or two for the wage earners and then schools shut down as well. And so now we had to set up, you know, a makeshift classroom over here in the dining room or in the spare bedroom or in the basement or whatever, wherever that is. And so we saw yet again, you know, more needs based spending for self-storage and so, you know, a pandemic and or a recession when we hit a recession, people downsize, businesses downsize, when there is, you know, trauma in their lives or in their business, and then they put stuff in storage or things turn till things turn back around again. And so we see a spike in demand for self-storage during a recession. And at the same time, you know, the banks usually take a pause and they sit back for a little while before they begin lending again during a recession. And so we have, you know, a lack of development. So you have an increased demand for self-storage and a lack of supply coming online that, you know, that is a perfect storm. And so you’re right, Dave, it’s not just my opinion or why I think it is recession resistant, not proof, but the stats don’t lie. And recession after recession, this would be the third that I have gone through in self-storage. And if history repeats itself, we will see the same uptick in occupancy and rates and fewer folks, fewer facilities coming online. So we’re we never get excited about a pandemic or a recession, but we’re, you know, quietly cheering this on.
Dave Dubeau [00:04:13] It sounds like you’re excited to be his godson. Okay. Well, then let me ask you this. So in what way might self-storage not be recession proof? Because it’s sounding like it does pretty well. You say it does. It typically does better in recessions. What kind of scenario would it not?
Scott Meyers [00:04:32] Mm hmm. So what we saw in the last recession in 2008 is that a huge once again, a run up in in occupancy and then a run up in rental rates as occupancy rises. But then as that recession and the way that it played out and how long and deep of a recession that was, you know, people were forced if they weren’t going back to work for a long period of time. Well, they put their stuff in storage and even if they didn’t move in with a friend or moved back home or a business that had to downsize and they put their inventory or maybe some of their office, you know, furniture, belongings back into storage until they were able to, you know, things turned back around again. Well, as the recession wore on. Maybe those folks didn’t go back to work. Or maybe the business, you know, the economy didn’t turn around and whatever that industry was that the small business was in. Well, the writing was on the wall and they decided, okay, now this is a budgetary item, even at $100 or a couple hundred dollars a month. They need to make a choice, and then they have to either give up Netflix and cable or they have to give up their storage unit and they’re never going to give up Netflix nor cable. So then they begin to decide, okay, I need to make some hard decisions here. And, you know, if they get multiple units, I need to consolidate or sell off some of this stuff and now it’s costing me money. And so that’s probably one of the main reasons as the length of a recession would cause occupancy eventually to dip, but certainly not competition.
Dave Dubeau [00:05:50] Okay. Well, that’s really interesting. So just out of curiosity, do you find that the longer the recession goes on, the more units you have to auction off because people just stop paying for them. They give up and they just abandon it 100%.
Scott Meyers [00:06:04] That’s very, very perceptive of you. Yes. After a while, then, you know, if those folks didn’t go back to work and they’ve been hanging out there for a while in our in the storage facilities. Yes. Our accounts receivable did go up. And we do our best to manage, too. And the goal is to have less than 5% or less of our rent outstanding beyond 30 days. That’s a kind of a benchmark in the industry. And in many instances where we’re at half that, we’re running around two, two and a half percent. But depending upon the demographics and what part of the city that you’re in and what type of a neighborhood you’re in, and the demographic of the renters there and or, you know, the type of manager maybe that was letting folks into the facility, you know, that’s going to change. But, yes, as the recession wears on and people don’t to take that stuff out that they only put in there temporarily until things turn around. Well, things didn’t turn around for them then. Yes, indeed. Our accounts receivable goes up and our auctions would go up as well.
Dave Dubeau [00:06:55] Hmm. Yeah, that makes sense. So the Scott for, for folks that are listening to this who aren’t super up to speed on self-storage facilities and the opportunity that lies within that asset class, what would you tell folks are the major benefits of self-storage investing? That’s a fascinating idea. Hold that thought for a second. Hi there. This is Dave Dubeau. And real estate investors hire me to raise capital the right way. Why? Because most of them are stuck with too small of a portfolio and they don’t know how to attract investors and raise money for their deals. So I help them to connect, capture and close their ideal money partners. Bottom line, when you’ve got a deal, you’re going to have the capital to do it. So go ahead and book a no cost capital clarity session with me at Book A chat with Dave dot COM. Again, that’s book a chat with Dave dot COM.
Scott Meyers [00:07:49] Well, it’s the benefits that we’ve been touting for years in our education and consulting business as to why people should take a look at this and maybe add it to their portfolio. And that’s because there’s no tenants, no toilets, no trash like the other types of rental real estate. We love real estate for all the reasons and all the benefits that it provides, and that is we can borrow money to buy it. You can’t do that with stocks or bonds or precious metals. I mean, you kind of can, but not really, not as collateral. It appreciates that it grows in value, either naturally or you force it by, you know, rehabbing it and improving the property. And then you can count depreciation against that real estate on your tax returns. There’s no other investment on the planet except for real estate that works that way. We like self-storage because of the fact that you have the hassles, the management, the time, the expense, the managing people, having people chasing them for money, and a court system which, you know, benefits and protects the tenants from the big, bad landlords who actually want to make a profit. You know, in self-storage, if somebody doesn’t pay you, you put an over lock on their unit on the six day. And then after 90 days or 60 days, depending upon what state you’re in, then you get to sell their stuff off and the unit opens up again and you’re able to move in the next person waiting in line, you know, in apartments and houses that we were in, you know, people destroy stuff. You know, they just neglect it or they destroy it. And so every time we go into for a turn, we have to place the carpet paint, clean carpet repair, you know, all the maintenance items that see in every single unit, you know, plumbing, I mean, you name it. And then and wait for 30 days or so until we move the next person in. And while that unit is down on self-storage, there’s really nothing that can damage. It’s a metal box on a concrete slab. You’re not living in it. So, you know, when they move out and whether we auction it off or if they move out and we take a blower and we blow it out and it takes 3 minutes to return to move in the next person waiting.
Dave Dubeau [00:09:38] Yeah. You’re not worried about paint? You’re not worried about any of that stuff. You don’t have to stage it. They get.
Scott Meyers [00:09:42] Nothing. So that’s, you know, just from a simplicity standpoint, we would rather manage people’s stuff than manage people. And we don’t. We can use technology to run our facilities. We have.
Dave Dubeau [00:09:54] That. That’s what that’s what I was going to ask you as well, Scott. So these days, with your portfolio of self-storage facilities, well, I know you got a ton. I I’m reading here you got over 14,000 units nationwide. What does that. Translate to as far as individual facilities.
Scott Meyers [00:10:10] Mm hmm. Well, each project is a little bit different in the way that we approach it. So the smaller facilities, they’re difficult to manage, you know, in your underwriting you a lot, so much towards management of a facility. If it’s a smaller facility, then you’ve only got somebody part time and you know what days of the week or what hours of the day just doesn’t make sense to do so. And so with technology where it is now, and not only in, you know, the environment that we’re in right now, as well as in self-storage, we can utilize a kiosk, which is basically just an iPad that is set up inside of a small area of vestibule or a small shack that literally outside of the fence of a facility with electricity running to it and a cover over it. And they can rent a unit just like they would a, you know, a Redbox movie rental at a grocery store. I mean, the transaction really isn’t that much more involved than that. They see a map of the facility, pick a unit to unit size. It shows what goes inside of it. You know, they insert their credit card, they scan their driver’s license, and they sign a lease that they’ve read, you know, with a signature pad and they get their access code after that. And we have everything we need. We get their thumbprint, too. And so we have everything we need. There’s nothing they can really damage or anything that can go wrong from that standpoint unless there, you know, completely nefarious and want to go in and, you know, put dents in up in a storage unit because they get their kicks out of it. But we got cameras everywhere. And so there’s we don’t worry about having a person there to show them, you know, this unit versus that unit, you know, they’re junk. I mean, they’re treasures. Don’t care if it’s closer to the to the lake slash retention pond, you know, what.
Dave Dubeau [00:11:39] What the view’s.
Scott Meyers [00:11:40] Like or anything, it doesn’t matter. So, yes, we utilize technology in many, many areas of our business. And even more so these days as people are getting used to using kiosks and technology for, you know, and all types of really low level transactions.
Dave Dubeau [00:11:53] So what size of a facility doesn’t make sense or any size does it have make sense to have somebody live in person there?
Scott Meyers [00:12:01] You know, it’s it is a function of size and also a function of how you choose to run your business. So, David, are our facilities, if it’s a larger facility that warrants having a full time manager there, which is usually 300 to 350 units or larger, usually around the 400 units is when you have somebody that is full time there who can also you can it depends on whether you decide to add all the ancillary income streams in place. So if you’re going to have a U-Haul truck agency in there, you have to have a person there that’s basically full time. Well, if you’re going to sell lots of boxes, moving supplies and have a retail center, you have to have somebody working that, you know, we can add these different profit centers like a ups and drop service and a pack and ship service inside of the office. It only takes a small area if you have boats in ARVs and you offer a concierge service or propane filling or, you know, anything detailing or anything that goes along with that. You know, essentially, you know, in most cases, medical records, you know, pulling files and pulling boxes and charging a fee for that. If you if you’re offering those services in almost all those cases and that all supplements the salary, but that pays for themself and it makes a profit on the small amount of hours it takes your person that is behind the counter to administer, you know, these various, you know, small little businesses within the business. Other folks, you know, it doesn’t matter how small or how large a facility is, it could be 400 units. And some folks say, I don’t want to deal with anybody. I don’t want to deal with any other businesses. I really don’t care for employees. And so I’m still going to put a kiosk in here and run it that way, and I’ll have a reduced payroll. And I don’t care about that, that ancillary income streams because I just don’t like employees. And so we’ll run it that way. And they may have a little lower occupancy than somebody who’s really selling, you know, and pushing the person for the rental that comes into the facility. But, you know, it is demand and need base. And so that really isn’t that much of a concern. So it’s a size as well as a difference in business model and philosophy that makes sense.
Dave Dubeau [00:13:51] Makes complete sense. And Scott, here, you’ve been in the business for a long time and even helping people get started in the business for a long time for a mom and pop real estate investor who’s maybe got some experience doing single family homes or a couple of flips or something like that, they’re going, Hey, this sounds great, but they’re accustomed to seeing these self-storage facilities that are absolutely huge with, you know, all the neon signs and yeah, lighting and all that kind of stuff. They might be thinking, Well, there’s no way in heck I could get one of these kind of facilities. What’s been your experience like? Like for a starter, a starter facility? What are people looking at? How much, give or take? I mean, every market’s going to be different, but give or take, how much capital would you need to get started in the business?
Scott Meyers [00:14:36] Yeah, so that that’s the same type that I had when I began looking into the business itself at the time, 17 years ago, 18 years ago now when I started in real estate and looking at self-storage facilities, you know, I thought, how can I break into this? Because all I see is, you know, the Taj Mahal that, you know, the three storey gleaming, you know, so storage facilities, there’s no multimillion dollars. Well, you know what? Those buildings are typically owned by the Ritz, the real estate investment trusts, you know, so that is the public storage is the you halls of the world, extra space, the store safe, you know, all the biggies. But they only at that time they only owned 10% of the market. And right now they’re just a little over 20%. So for all of those that you see out there, well, there’s you know, 80% of the industry are the mom and pop owners of similar facilities that are, you know, a couple of blocks over or, you know, down this way. And you don’t see them on those prime locations. So, first of all, they’re plentiful and abundant. So how do you find them and how do you get involved? Well, they’re in the secondary markets, the tertiary markets. So they’re a little further out and they are a little bit smaller. And like any other piece of commercial real estate, if you will, you know, roughly 20% down, 25% down. And getting a commercial loan is a typical structure. But then, of course, Dave, you and I both know, and I’m sure you’re chomping at the bit that doesn’t have to come out of your pocket as an investor, and that is to raise private equity and to partner or do joint ventures to bring folks in so that, you know, you put your 10,000 or 50,000 in alongside of your joint venture or private equity partners. And that allows you to buy that million dollar, that $2 million, that $3 million facility where, you know, many folks and maybe many people listening don’t think that they can afford to get into the commercial game because the lenders, they look more to the strength of the property than they do the strength of you as a borrower anyways. If they have to take it back and they see an income stream on it that’s making a profit, they’re okay moving it, they’re not okay. But you know, they move you out by way of foreclosure and they get the asset right. They’re not as concerned about you on your balance sheet and how much your W-2 income is or your other investments to cover that. So not as difficult to start in the commercial real estate and self-storage as people may think.
Dave Dubeau [00:16:35] It is always fascinating, Scott. And time flies when we’re having fun and people want to find out more. Connect with you, learn more. What should they do?
Scott Meyers [00:16:42] Yeah. All things self-storage at if we still say WWW dot but go to self-storage investing.com. That’s really simple. Self-Storage Investing.com all think self-storage. We get lots of free resources there to learn about the business, how you can come alongside and partner with us if you’re looking to invest passively or actively get into the business. As you mentioned, we teach people how to do that as well.
Dave Dubeau [00:17:04] Awesome. There you go. We’ll have make sure to have those in those links in the show notes. Scott, thanks so much and everybody, thank you very much for tuning in to this episode and we’ll see you on the next one. Well, hey there. Thanks for tuning into the Property Profits podcast. If you like this episode, that’s great. Please go ahead and subscribe on iTunes. Give us a good review. That’d be awesome. I appreciate that. And if you’re looking to attract investors and raise capital for your deals, that we invite you to get a complimentary copy of my newest book right back. There it is the money partner formula. You got a PDF version and investor attraction book dot com again investor attraction book. Dot com. Take care.