\n<\/p>\n
Self-storage investing<\/strong><\/a> saved AJ Osborne\u2019s life.<\/strong> After sudden paralysis <\/strong>and being left in a coma<\/strong>, AJ was fired from his job<\/strong>. He couldn\u2019t work, walk, breathe<\/strong>, or do anything without assistance. Strapped to a hospital bed, with only the ability to blink \u201cyes\u201d or \u201cno\u201d to the doctors, AJ didn\u2019t have to worry about bills getting paid or whether his kids would have a happy Christmas\u2014self-storage took care of his finances while he miraculously recovered.\u00a0<\/strong><\/p>\n For this reason and many others, self-storage may be the best real estate investment<\/strong> on the planet. But you\u2019ve probably never considered it or looked into buying a facility. For less money, self-storage facilities produce more <\/strong>cash flow<\/strong><\/a>, less headache, and significantly lower risk <\/strong>than rentals. Even better? There are no clogged toilets or broken refrigerators. Just four walls and a metal door\u2014that\u2019s the entire investment.<\/p>\n In today\u2019s show, you\u2019ll be brought to the light side, seeing how self-storage<\/strong>, a traditionally unsexy asset class, beats <\/strong>rental properties<\/strong><\/a> in almost every way <\/strong>imaginable, plus how this asset was able to save AJ\u2019s life <\/strong>and financial future. AJ even explains why now may be the BEST time to get into self-storage<\/strong>.<\/p>\n Ashley: Tony: Ashley: Tony: Ashley: Aj: Ashley: Aj: Ashley: Aj: Tony: Aj: Tony: Aj: Ashley: Aj: Ashley: Tony: Aj: Tony: Aj: Tony: Aj: Tony: Aj: Ashley: Aj: Ashley: Aj: Ashley: Aj: Ashley: Aj: Ashley: Aj: Tony: Aj: Tony: Aj: Ashley: Tony: Aj: Ashley: Aj: Ashley: Aj: Ashley: Aj: Tony: Aj: Tony: Aj: Ashley: Aj: Tony: Aj: Ashley: Aj: Tony: Aj: Tony: Aj: Tony: Aj: Ashley: Tony: Ashley: Tony: Aj: Tony: Aj: Ashley: Aj: Ashley: Aj: Ashley: Aj: Ashley: Aj: Ashley: Aj: Ashley: Aj: Tony: Aj: Ashley: Aj: Ashley: Aj: Ashley: Aj: Ashley: Aj: Ashley: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is Real Estate Rookie, episode 340. My name is Ashley Kehr and I\u2019m here with my co-host, Tony Jay Robinson.<\/p>\n
And welcome to the Real Estate Rookie podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey.<\/p>\n
So today, November 16th, the day this airs is my birthday, and Tony got me the best birthday present ever Today our guest for my birthday is AJ Osborne, the self storage king.<\/p>\n
AJ\u2019s story is incredible guys. I\u2019d say maybe the first 20 minutes of this conversation we dive deep into AJ\u2019s background. And if you haven\u2019t heard the story, when we talk about motivation, when we talk about inspiration, AJ\u2019s story is that. You\u2019re going to hear a lot about the journey that he went through to get to where he is today. And then after that 20 minute mark is when we get really, really deep into the self storage 101. Everything you need to know if you want to get your first self storage unit today. And I literally ended this episode and you\u2019ll hear me say this at the end, that I now need to get my first self storage unit because that\u2019s how good AJ made self storage investing sound.<\/p>\n
But also a lot of the advice he gives is applicable to any asset strategy you are doing, especially in today\u2019s current market conditions. But before we bring AJ onto the show, I want to mention that BiggerPockets is doing a virtual summit. So this is taking place with Dave Meyer. You can join him for this four day summit virtually starting December 11th until December 14th. So get prepared to be successful in 2024. This is free for all BiggerPockets Pro members, so make sure you go to biggerpockets.com\/virtualsummit to get all the details on how to access. AJ, welcome to the show. This is your first appearance, I believe, right? On Real Estate Rookie?<\/p>\n
It is, yeah.<\/p>\n
We are so excited to have you. And as you may not be a rookie, we really wanted to bring you onto the show today to highlight some of the things you wish you would\u2019ve done as a rookie investor and advice that you have to rookie investors today. I recently listened to you on Brandon Turner\u2019s BetterLife Tribe podcast, and on that podcast you talked about when you got sick and some of the struggles you went through. I have a nonstop talking about that episode because there was some things I didn\u2019t even know about you that happened to you, and I sat in my car that day and I said, I suck at life. I am so lazy. And I was wondering if you could give a glimpse of just what you went through and what you\u2019ve still been able to accomplish because of that.
Because I think some days people need that awakening as to everybody goes through struggles, some struggles are different, but that shouldn\u2019t stop you from pushing and grinding and achieving things.<\/p>\n
It\u2019s funny because I\u2019ve actually actually gotten a lot of feedback, tons actually, on that podcast, because I was just more open. Because Brandon\u2019s like, is there something I should talk about? I don\u2019t, I go, no, you can ask me anything. Right? Which I always try to be completely transparent, but lots of times I just don\u2019t really get that deep into it. People see the surface level. In a nutshell everybody, just I became paralyzed out of the blue. Literally I was fine. I was planting trees in my yard and then my legs were hurting. I got in the bathtub because they were hurting and I couldn\u2019t get out. My legs stopped working. And within a few days I was being put into a coma. And when I woke up out of the coma, I was a quadriplegic on tubes. So I was on life support.
And this happened just, I was in my early 30s, I think 32, maybe 33 at the time. We just had our fourth child. So my baby Theo, who is now almost seven, he is six going almost seven. He was three months at the time. I didn\u2019t even really say goodbye to my kids. It was just obviously Tessa dragging out, my wife\u2019s getting me out and getting me into the car and going. I stayed in the hospital for months and I was on tubes for a long time. They actually moved me to what\u2019s called an LTAC. And an LTAC is a long-term care facility because there was no checkout date for me and there was nothing that they could do. Their job was to basically just keep me alive as my body, which was now completely paralyzed from the eyes down, was trying to get better.
It\u2019s something called, we call it GBS, it\u2019s called Guillain-Barre Syndrome. And almost all cases of Guillain-Barre are not that bad. So a lot of people get weakness, they do stuff like that, but it\u2019s actually not bad. But there\u2019s a subset which are just the really lucky ones, which is like a fraction, like a percentage or whatnot, which is me. And that\u2019s when our whole body, our nerves are completely destroyed. So my nervous system and my body had been shredded and my brain could no longer send signals to my nervous system to get my body to move. There\u2019s nothing to do to fix it. But we didn\u2019t know what was happening. Obviously they didn\u2019t even know in the hospital what was happening. It\u2019s rare. It\u2019s like one in a few hundred thousand people I think now that this happens to, and for what happened to me, it was even more, meaning I was on tubes for over two and a half months. I was on complete life support.
And when you\u2019re on tubes that long, the outcome, it starts to go downhill, obviously very quickly, meaning they were having at the time discussions of what are alternative options here? What are we going to do? Because if he doesn\u2019t come out of this, this is a very different thing. And so I was fired from my job in the hospital. I sold insurance and I made good money doing that. I worked for the second-largest group medical benefits insurance company in the world, and I was fired. And when I came out of the hospital, I was sent home, paralyzed in bed. So they let me go home, but it wasn\u2019t like I got better or anything, it was just they put me in a rehab facility where I had to relearn how to do everything. I couldn\u2019t even talk when I was on tubes because there was tubes going down my throat.
And so I couldn\u2019t speak, so I couldn\u2019t communicate. I communicated through these plastic sheets where I could see things and then I would blink yes or no. And when I went into rehab, we started to do speech therapy, occupational therapy, everything else. A lot of people look at that and they\u2019re like, that\u2019s hard to overcome and everything. And they\u2019re like, what were you thinking? One of the interesting things is it wasn\u2019t fun, but I was in complete pain the entire time. My nervous system had been shredded. And so the nervous system is now saying, we\u2019re destroyed. It\u2019s sending signals saying it\u2019s as if we\u2019d been blown up to bits, right? Because all the nerves are ripped. That\u2019s what happens. Nerve gets hurt, send pain signals. So my entire body was sending signals to my brain, we\u2019re on fire, we\u2019ve been broken, destroyed, and burned.
So for the first three weeks I didn\u2019t even sleep. I would get rest by passing out on tubes, and that\u2019s how I got rest. They couldn\u2019t basically stop the pain. I was on fentanyl, methadone, oxy, morphine and everything else under the sun, and they just couldn\u2019t stop it. It was just too much. They\u2019d kill me if they tried to do anymore. And so the whole time it was like this every single moment that my body clicked back awake, it was trying to manage and get through this. It was very much survival mode the entire time. But when they got the pain more and more under control, it never ever went away, but they could get it more under control. And when I went to rehab and I had to learn how to do all these things, every single step that I took was like walking on shattered legs. So the progress was excruciating, to do the simplest things. And I was sent home, paralyzed, then in bed with all this pain, everything else.
It was like, what do you do with the guy? And then I would go to rehab from there. My brother moved into live with me and he would help my wife and he would take me back and forth to rehab and I would lie in bed. And that obviously changed my life greatly. But out of it, when I was in the hospital, I was sitting there and I realized when I was going to go home, as I was sitting there paralyzed, I was like, listen, there\u2019s two people that are going to leave this hospital. One of them is AJ in a wheelchair and the other one is somebody else. Now, I don\u2019t mean that I thought I was going to get out of my wheelchair. We actually didn\u2019t know that that would ever happen, but I meant mentally. Meaning that wheelchair was going to be me. That\u2019s it. I was now that, or it was going to be somebody else and that somebody else then I didn\u2019t know who they were and I didn\u2019t know what that looked like anymore.
I was a father, that hadn\u2019t changed, but what I\u2019d become in my professional life and who I was and all that work that I\u2019d done to become that, well, that was all gone. So even my core principle is who I was as a father to my children, that was all gone. I wasn\u2019t daddy. I couldn\u2019t go up the stairs to even put them to bed. I was now a patient in my own home. And that was devastating. Not that I was in that condition, but it was devastating that I had to see my kids look at me and know and see me like that. And so I was like, what do I do? How do I change this? And so then a person that came out of it, I didn\u2019t know what that looked like or would become, but I just started. I started multiple companies out of my wheelchair, which all or did well over seven figures in revenue. One of them has over 100 million in assets. And as I grew, the only thing I could really do was move. Literally it was just like I just got to do something.
And I would compartmentalize things and then I would work on things very short. I only had a certain amount of hours that I could even function. I would start out, and my days working was I would go into the office for 30 minutes or I would go and see people for two hours and then my brother would\u2019ve to take me back home, which I would fall asleep in the car on the way home because my body was obviously over exhausted. And so I had to start getting really good at prioritizing and figuring out the things that I could do or needed to dom because I didn\u2019t have time to do anything else. There wasn\u2019t any other options. And that\u2019s gone on now for over six years. I can now walk again, which I actually left rehab. They said, you\u2019re never going to leave your leg braces and your support system to walk. I\u2019d gotten out of the wheelchair, I had these leg braces, and then I had a cane and I had these arm braces that would allow me to walk.
And I\u2019d been going there for years. And they were like, AJ, we love having you here. It\u2019s been a great three and a half years, four years now, but you just need to know that you need to start accepting your new reality and you need to be okay with that. And you can keep coming if you want, but the reality is you\u2019re not probably going to progress anymore. And at that point I was like, there\u2019s no reason to be with people that didn\u2019t believe in me. And I went home. And the interesting thing was, especially my middle son, but my kids didn\u2019t accept this, meaning that he would say no. He was really young when it happened. So when I went into the hospital, he was like my little kid. He was three, four years old, daddy\u2019s little boy. He\u2019s holding him and running around playing and stuff. So when I got home, he would be like, dad, you need to pick me up. You need to carry me.
And I\u2019d pick him up and then he\u2019d be like, no, you need to do it like you used to, stop using these arm braces and canes. And so I would. I would never tell him no. And so I just kept doing it and trying and trying. And then he wanted me to take him to bed, so I had to figure out how to get upstairs and everything else. And it was like, I\u2019m not going to say no. I just didn\u2019t say no to anything. And it was like, no, if we\u2019re going to do this, I\u2019m going to do it. I\u2019m going to start a company. I don\u2019t know how this is going to work, I don\u2019t know if I\u2019m even going to be able to do this, but I\u2019ll have to figure it out. And I got really good at figuring things out in really bad situations and knowing that I couldn\u2019t do everything. So I got really good at finding people that could, getting help, asking for help and relying on others. And that I believe made me incredibly successful.<\/p>\n
AJ, thank you so much for sharing that story with us. And people that know you I\u2019m sure have heard bits and pieces. And the one piece that I hadn\u2019t really known about was that when you were in the hospital the whole time and even after, as to how much physical pain you were in. Because I think sometimes you hear someone\u2019s in the hospital, they\u2019re up on morphine, they\u2019re laying there like a vegetable or whatever, just hanging out and it\u2019s boring and all this stuff, but not thinking about that pain piece. And after listening to that episode, I think to myself now if I\u2019m like, I don\u2019t feel like doing something and I have to go back and think about you talking about that, and it\u2019s like, I can do that. I am not in that position. And I think that everyone listening today needs to take just that little thing.
There was so many mindset things you had to go through along that whole time, talking about your children, talking about trying to walk, all these things. But if there\u2019s one little piece they take away, I want them to understand that all of us may have struggles in different things, but you were still capable of even working those 30 minutes and making yourself go and do that. And I think so many of us struggle with that little bit of laziness as to like, it\u2019s okay, I\u2019m just going to binge in Netflix. I\u2019m just going to watch this. But if it is that important to you like it was that important for you to carry your son, then you will go ahead and you will get up and you will do those things. So if you have a why, if you have a dream, if you want to buy a property and is that important to you, you will get up, you will show up every single day no matter what you\u2019re going through, no matter what you\u2019re feeling to try to get that done.
And I hope that everyone saves this episode, saves this story so they can go back and re-listen to it every morning, every time they need that motivation to keep going.<\/p>\n
Well, and two, because I just want to add in there, it\u2019s interesting because I haven\u2019t woken up not in pain in six and a half years. I don\u2019t wake up by myself. It\u2019s not like I wake up, oh, stretch, I got a good sleep. No, I wake up as soon as the pain meds start to wear off to a point where I can\u2019t take anymore and my eyes shoot open in the morning and then I got to get my legs working again. It takes me a while to get moving in the mornings and it is constant pain. And it\u2019s not like I\u2019m saying that to pity on me or anything else. In fact, I think Brandon Turner\u2019s was the first time I\u2019d ever talked about it, because I didn\u2019t want people to look at me like that. I didn\u2019t want the pity obviously. And I only say that to say that it doesn\u2019t matter. Meaning it just doesn\u2019t matter.
So if I made a choice today to do things that didn\u2019t cause me pain, I wouldn\u2019t do anything. So that is the important piece I think, is that it\u2019s like this may be hard, this may hurt, right? At some point it\u2019s irrelevant. It just literally doesn\u2019t matter. And I had to really come to that conclusion. Where, am I going to accept that I could be now in pain for the rest of my life, and am I going to keep going or is that going to stop? And I saw people that it stopped them and that terrified me. I didn\u2019t want to be like that, but it didn\u2019t mean that I could necessarily choose whether I wasn\u2019t in pain or not. It just meant that I had to make the decision to go regardless of it. And I couldn\u2019t let that affect things. I couldn\u2019t let me being in pain now mean that I\u2019m grumpy or mean with my family. It doesn\u2019t matter.
The kids don\u2019t understand that or know that. I have to be happy, I have to love them. It doesn\u2019t matter that I\u2019m in pain. I think a lot of us we do things predicated on conditions are right. I\u2019ll do it when the conditions are right, when I have more money, when I have more time, when the market\u2019s better. I love that one. I\u2019m going to do it when the market\u2019s better, right? I\u2019m going to do it when it\u2019s not so hard to find properties. I\u2019m going to find properties easy. And I just have never met a successful person ever that is successful because they do things when the conditions are right, when it\u2019s not painful, when it\u2019s not hard. That\u2019s not how it works.<\/p>\n
AJ, you mentioned a super important point about people waiting for the right time. I definitely want to circle back to that piece. I think that\u2019s a big topic we want to learn from you on. But just one last piece on your story that I want to touch on. First, again, I appreciate you being so transparent. But someone once shared with me once the saying, a smooth sea never made for a skillful sailor, and you can\u2019t build that grit, that resilience in life if everything is always easy for you. So the question I have for you, AJ, is do you feel that this challenge better equipped you to build these successful businesses? Do you think you would be the AJ Osborne you are today, had you not gone through that experience?<\/p>\n
Oh no.<\/p>\n
And how has that experience made moving forward with future challenges, either easier to deal with or just how has it impacted your ability to deal with those challenges?<\/p>\n
I completely agree with it. And it\u2019s funny because every once in a while it obviously gets hard, the pain gets worse and whatnot, and sometimes you get down, I\u2019m like, man, this stinks that this happened. I wish, maybe I could be doing better if it wasn\u2019t. My wife just looks, which that rarely happens everyone, I don\u2019t do that. I just want to make sure because I don\u2019t believe I can change what already happened or anything else. But my wife looks over and she\u2019s like, you know that that was the greatest thing that ever happened to you in most areas of your life, you are better off because of it. And it\u2019s true. And it\u2019s weird. It\u2019s weird to think that I should be grateful for this horrific thing. And it\u2019s not that I\u2019m grateful for it, but I\u2019m grateful for the outcomes.
And those outcomes are, first of all, it\u2019s really easy to get rid of your pride when you\u2019re lying on a bed and people are bathing you and rolling you over with rags and you just have to roll over because your limp body won\u2019t do anything, lying naked in a hospital bed. There is no pride left. None. I couldn\u2019t to do anything, couldn\u2019t go to the bathroom, nothing. All gone. And my understanding of other people, them working with me and accepting help, that is probably one of the biggest things that changed. And that\u2019s hard. That may sound easy. It\u2019s really not. That tends to be really hard for us, everyone. And it\u2019s a lesson that I forget all the time and I got to be reminded. But it made me also build and look at companies and building systems that aren\u2019t relying on me, because we know it can\u2019t be right.
First of all it can\u2019t be because I don\u2019t know that I can even be here or that I\u2019ll execute, but I am limited. I\u2019m limited. And that\u2019s okay, because the fact that I know that I\u2019m limited means that I can be unlimited in my outcomes. And that was a really big piece for me, is I had to rearrange my goals and what I wanted to do and who I wanted to become because all of those things that I thought before, oh, I\u2019ll just improve my this, I\u2019ll just improve this and I\u2019ll be better at this, everything. All of a sudden I\u2019m like I can\u2019t do those things anymore. So does that mean I give up on everything or do I adjust? I changed a lot of that. It obviously I think made me tougher. I think it made me have way more perspective. That was hands down the biggest thing. That was a wild perspective change. Gratitude and having gratitude when everything is just horrible and horrific. You just look back and say, yeah, it could be worse.
The things you guys that I was, the things that I was excited about, the things that I was like, this is the most amazing thing in the world, were so dumb. We have videos of me and the first time that I ate and everybody\u2019s cheering like I\u2019m a 2-year-old, they\u2019re all clapping. Everybody\u2019s like, yay, good job, AJ. And I\u2019m just looking around with the biggest smile. I\u2019m a grown fricking man with four kids, and I\u2019m so excited as people clapped, as I ate watermelon. That was amazing. And the first drink of water that I had, because I had tubes, I couldn\u2019t drink water, so my mouth was ripped and bleeding and swollen. To me, I was dying of thirst. And then I had that first drink of water in months and it was incredible. It was the most amazing thing ever. And so your perspective really, really changes those things. And that\u2019s something that I\u2019m trying not to lose, but it\u2019s really hard not to lose it because it\u2019s not how the world works.
We\u2019re not in those situations and we forget those things. We see other things we want and want to do more. The next thing was, it was just head down. I have to deal with what I have to deal with now. It\u2019s like this is what\u2019s going on. This is what I have to do, and all this other stuff probably doesn\u2019t really matter. Now, that may make it annoying for probably a lot of people, I forget things really easily because I\u2019m not focusing on them. Because I\u2019m just like, eh, it just really doesn\u2019t matter, so I\u2019m not focusing on it.<\/p>\n
When you forget to text me back.<\/p>\n
That never happens. That never happens, Ashley, I dare you. I don\u2019t feel like this weight in needing to do things that I think don\u2019t really matter. Now that can also come with downsides, which I\u2019ve had to obviously put into place to make sure I can be successful and take care of things. One of the simplest things is I didn\u2019t like doing emails. It took so much time and I had to go through all of this. And I looked at it and was like, first of all, even the ones that I needed to answer, most of it are junk, everything else. 80% of them I shouldn\u2019t be the one answering. And two, they don\u2019t actually need to be answered at all. And so I was like, I don\u2019t want to do emails. This doesn\u2019t make sense.
And so I set up systems and put things into place that would allow me to operate, focus on the big things and get rid of those little things down. And I\u2019m like, I\u2019m not doing them, because I can\u2019t, because they\u2019re not important. And that really was, all those little things, I felt like unleashing me. And it made actually with all of my shortcomings and chains that were holding me down from the medical stuff and not being able to, all of a sudden I actually felt more free than I had before, which is strange, but it\u2019s true.<\/p>\n
Tony, you recently did that too.<\/p>\n
Yeah, I was just going to say, Ashley and Eric, our producers, they know that I\u2019m terrible at email as well. And I have my assistant who handles pretty much 90% of my emails now. And we have a meeting every Monday, Wednesday and Friday where she reviews, say, here are the ones that I really need you to respond to. And even those, I still lag on responding to those ones, but at least now the majority of my emails are being processed by someone else. I have my inbox on my phone-<\/p>\n
I do same thing.<\/p>\n
\u2026 it\u2019s only filtered to the stard emails. I don\u2019t even look at the general inbox anymore because I don\u2019t want to see those things. I love that idea of the assistant [inaudible 00:25:02].<\/p>\n
I do the same thing. People are like, well, I always got to talk to your executive assistant. I\u2019m like, no, you get to, because if you didn\u2019t you\u2019d never get an answer from-<\/p>\n
You\u2019d never hear from me.<\/p>\n
The fact that you are talking to my executive assistant means that you\u2019re actually really important, because if not, literally you\u2019ll never hear from me or Siri. Literally she\u2019ll plan my dates. She\u2019ll plan time for me to go with my kids and things like that. Prioritize. Just because I\u2019m like this is really important to me and I want help and make sure that I execute it and prioritize, so I set those things up in place, so I make sure they happen.<\/p>\n
AJ, you said something that was super important, and I want to make sure that I circle back on that because it is an important point for people to understand. But you talked about perspective, and perspective is incredibly important because in life we all have some level of trauma. We all experience trauma in different ways. Sometimes it\u2019s big like what you went through, sometimes it\u2019s small, but everyone has some level of trauma, bad things that happen to them that they have to deal with. And the truth is that we cannot control what life does to us. There are certain things that are out of our control. So when you think about the big picture, there are inputs, what life does to us, and there are outputs, which is how we respond. But that middle piece is what\u2019s important, what a lot of people miss, and that\u2019s your interpretation of those inputs.
So two people could experience the exact same thing, but the outcomes for those two people could be incredibly different. And I read this story once where it was two twin brothers who grew up in an abusive household. The father was a drunk, was an alcoholic, was abusive, and they followed these two brothers, twin brothers, identical in almost every single way. And one brother, just like his father, became an alcoholic, became abusive. The other brother never drank a sip of alcohol. So when you ask these two brothers like, hey, why did you become an alcoholic? Hey, why did you never drink a sip of alcohol? Their answers were the same. Well, look at my father. How could I not have turned out this way? It\u2019s crazy to think that the same exact experience, but the interpretation was different.
So the reason I bring this up is because for everyone that\u2019s listening, it\u2019s incredibly easy to see these things happen to you and your interpretation be that you don\u2019t have any control over what comes next, when the truth is that you have all the control over what happens next. AJ, I think you were an incredible example of living that philosophy, and I appreciate you for that, man.<\/p>\n
Thanks. And too, though, I also want to point for all the listeners and everything. When people, I think it\u2019s actually funny, they may listen to it and they\u2019re like, man, what am I doing? I have no excuses or whatnot, my drama or whatever, my life is not bad. That\u2019s not how the brain works. And what I mean by that is some people, they have bad things that happen in their life, because we all do. And they think that it\u2019s like a size comparison. Well, your bad things are worse, so it should have affected you. That\u2019s not how the brain works, meaning that trauma and bad things are trauma and they\u2019re bad things. So just because, there\u2019s not a leveling system, it stops us and it holds us back the same way. You could have been in a divorce, you could have lost a parent, whatever it is. You could have been told that you were dumb all the time growing up.
Those limitations are not defined by the size of trauma. Things that I have to do, same thing that everybody has to do. So when I look at people and they\u2019re like, I shouldn\u2019t complain. No, that\u2019s not how this works. It\u2019s the same thing. It really is. It\u2019s not like our brain sits there and goes, oh, this is bigger, so I should react bigger to this. No, every day it\u2019s a struggle mentally, physically, and you just feel bad about yourself and you\u2019re like, I\u2019m not getting up. I\u2019m not doing things. I\u2019ve felt that way every single day. And think about how I felt. I\u2019m only up two hours a day. I am worthless. I definitely don\u2019t want people saying, I suck because I see what you\u2019re doing, because that\u2019s not true.
And because something that happened to me that you may perceive as worse, that\u2019s not actually how it works. Yours is just as bad and just as important and just as impactful no matter how small you may think it is. And you have to do the same things and we all do. So I just want to make sure that that\u2019s very, very clear.<\/p>\n
I felt that directed at me. And you\u2019re right. That is very true.<\/p>\n
Ashley, it\u2019s the same thing, Ashley.<\/p>\n
So did you actually start investing in real estate before this happened, or was this where you get out of the hospital and you\u2019re like, okay, I\u2019m ready to jump into real estate, I need another income stream? Talk about your start in real estate as a rookie investor.<\/p>\n
So you know what, that is the most important thing about my message, is I had invested in real estate prior, and I like to tell people, self storage saved my financial life. When I was fired, I didn\u2019t lose my house. In fact when I was sitting in the hospital, I was going to get to go home the first time, it was Christmas morning, and I was going to get to watch my kids open the presents on Christmas morning. They were doing an assisted visit for me to go see my kids and everything from the hospital. And that night, as I sat in the hospital, looked at the snow, I was so excited because I just knew my wife was going to spoil the kids, and I wasn\u2019t worried about us losing our home. I wasn\u2019t worried about the kids lives being shattered and upended, and it\u2019s like, we don\u2019t know how we\u2019re going to pay bills, and then my wife has to leave to try to get a job and have to leave the kids.
And I had that income coming in. And the impact at that moment for me was just almost overwhelming. It was like, holy cow, this isn\u2019t just, oh, yeah, I have more money or I\u2019m more wealthy. It is way, way, way more important than that. And I became so passionate about it, I was like, all right, I\u2019m going to actually teach this now. I felt like it was like my moral obligation. I\u2019m like, I\u2019m going to teach it. I\u2019m also going to let other people invest with me. Because what I did was, prior to it we were buying little storage facilities in the little towns. And I often tell this to people, because they\u2019re like, oh, that\u2019s commercial real estate. Oh, that\u2019s a lot bigger. I\u2019m not ready for that. And I\u2019m like, the vast majority of people that are either in my groups or when I started, what they\u2019re buying is smaller than a duplex in almost everyone\u2019s market. It\u2019s actually cheaper.<\/p>\n
Is that what you\u2019re saying, when you mean smaller, you mean less expensive?<\/p>\n
Less expensive, yes. There\u2019s actually more doors. They\u2019re bigger, but they\u2019re less expensive.<\/p>\n
I was like, are they buying a one unit self storage? It\u2019s smaller than-<\/p>\n
One little garage port everybody. Spend $1,000 and you can buy it. But they are literally, we had a guy in my group that went in, it was Colorado for $250,000 and there was 80 doors.<\/p>\n
Wow.<\/p>\n
He got 80 doors for that. And people think, they think, oh, that\u2019s big commercial real estate, everything else. And so first of all I got to preface it with that. So it\u2019s just not like, when we got started, we\u2019re talking teeny facilities in third, fourth tier markets. We didn\u2019t know really what we were doing at all. Not even close. We had no clue what we were doing, and there was no information even out there on what we were doing. So there wasn\u2019t books, there weren\u2019t podcasts. We didn\u2019t have access to things. Banks didn\u2019t like to lend on this asset class, so the financing was incredibly hard, and we were going in teeny cities and buying these little facilities and we were improving them.<\/p>\n
AJ, let me just ask, right? Because mentioned a few times about the small cities. How were you identifying? Because you\u2019re in Idaho. How were you identifying these other cities across the country? If I\u2019m a new rookie and I\u2019m doing this for the first time, how do I know what\u2019s a good city for self-storage?<\/p>\n
I can give you my actual playbook that works today.<\/p>\n
Yeah, please.<\/p>\n
This is exactly how I did it and how I think everyone should do it. I live in Boise, Idaho, and there\u2019s a freeway that runs around the Northern Rockies, which goes through Washington, Oregon, Idaho, Wyoming, and Montana. It makes a big loop around my state. So it goes around the mountains. Reason why this is important is I could drive to almost anywhere in that loop in one day. So what I did is I said, I\u2019m going to look at this loop, the Northern Rocky Mountain loop, as we call it, and I\u2019m going to find all the cities that are in this region, and what I\u2019m going to do is I\u2019m going to find very simple things. I don\u2019t want big cities because I was afraid of them to compete, everything else. I wanted under 50,000 people. All I wanted it to be was not a dying city.
And then from that, I took the top 10 cities, top 10 meaning they weren\u2019t dying and they may have even had a little growth, and I listed them. From there I went in every one of those cities and I found all the storage facilities in them, so three or four, and I listed those and I ranked those based upon the best location and the worst run. Then I ended up and I had a list of my top 10, and then in every one of those top 10 cities, I have a list of the top three. All it was is based upon location and the worst run. The top three cities, the top three facilities in each one of those cities predicated on the best market, the best location and the worst run. And just like that, within an hour, I had a complete hit list of all the assets that I would want and want to go buy.
And then we went out and just started building relationships with owners. I actually went to brokers and said, hey, I\u2019d love to get any of these facilities and tried to see what we could get. That\u2019s it. It wasn\u2019t complex. My business model that still works today was this. I like to think maybe that I\u2019m not completely stupid, but I wasn\u2019t smart enough to do anything very technical. Our model stood on three legs. It was the fact that we would answer the phone, we would actually make sure people paid their bill, and we would try to let people know that we were there. That was my business model and that was my value add system. And it works well, really well actually. And it was very simple. That was it. I do cities, sites, location, quality, what I could improve by simply answering the phone, making people pay their bills and letting people know that we were there.
Everything after that grew and just became fluff. Not fluff, it\u2019s actual strategies. Obviously now we have a lot of employees. I have corporate offices, we have sites all around the United States. I own seven to eight companies. I\u2019m actively the CEO and running four, five of them. I started up, I was the founder of almost all of those outside two of those that I owned, and I was a founding investor, and I sit on the board, and that all started from that very simple strategy and that strategy still works today. Everything else from there grew from something very simple. We didn\u2019t have access to a lot of capital because banks wouldn\u2019t give it to us. So guess what we did? We went and talked to the owners and said, I can\u2019t give money. Nobody can give money because you\u2019re a facility and nowhere town Washington, Idaho or Oregon or wherever. And so nobody\u2019s going to lend us money. No bank\u2019s going to.
Because this was prior to 2008 everybody, and self-storage, nobody knew. Nobody wanted to talk to me about storage. That wasn\u2019t a thing. It was like, oh, you own junkyards or something? It was looked down upon. Very different than today. But at the time banks looked at it and were like, this is a weird asset class, that literally thought it was a fad. They thought it was a fad. They\u2019re like, this won\u2019t even survive. And so we had to go to the owners and say, we can\u2019t get money, anything else. We need you to actually be the bank and we need you to help us with the banks to even get this done. And here\u2019s what I can pay you and here\u2019s how we can make this work. And so that\u2019s how we got the properties. And then we just tried to do the basics and run them better and everything was focused around revenue. That\u2019s it. And the best thing about storage is that it\u2019s not a real estate asset class. It\u2019s a business on top of a real estate asset class.
What that means is I can do very little things that actually improves the revenue, because I had a problem at the time where people talked about real estate and they said, because real estate, those that remember was a big deal in 2005 and six. People said, well, when I asked how do you make money? They said, well, the market makes you rich. And I\u2019m like, what do you mean? They\u2019re like, well, the market goes up and you make more money. And I was like, I don\u2019t get that. That doesn\u2019t make sense to me. I understand that may make sense to you, but actually that simple message to me was so utterly complex without answers that it scared me. When I looked at these little storage facilities out in the middle of nowhere, this was the answer. This thing has 60 units of, or let\u2019s use 100 units, 10 of those units are not paying today.
Of the rest of them, some of them are paying way less than their other neighbors are paying and they should be. Nobody is answering the phone. Nobody\u2019s doing anything. So I knew that I could buy it, and if I just made those 10 people that weren\u2019t paying, I just increased gross revenue by 10%. That means my net income went up by like 30%. I.e my value just went way, way up. That to me was actually a less complicated answer, very simple. Why? Because I could see it. I could measure it. Now if the market goes up and things go up, that\u2019s great. I\u2019ve obviously made a lot of money because the market makes us all rich as it goes up. It\u2019s not that that\u2019s not true, but I couldn\u2019t plan on that. I couldn\u2019t measure that. That wasn\u2019t real. Where storage facilities, I could look and I could actually measure what I was going to make, what that upside really was.
And two, I knew exactly how we were going to get it. It wasn\u2019t on future things that may happen. And so that meant I could plan and I could buy, and I knew what I was buying and I knew the upside I was getting from day one. And so it wasn\u2019t gambling and I didn\u2019t need to know all these complicated things about macroeconomics and how interest rates affect everything else. I was just like, no, we need to-<\/p>\n
Even though you do know all of that.<\/p>\n
I was going to say [inaudible 00:40:03].<\/p>\n
I studied that a lot, but at the time it couldn\u2019t be based on a lot of complicated information that I couldn\u2019t control.<\/p>\n
So AJ, what about now? You talk about starting out prior to 2008, right now should somebody jump into self-storage or did they miss the window of opportunity? What does it look like right now?<\/p>\n
You got to remember I went through 2008. We didn\u2019t lose any properties. I didn\u2019t go bankrupt, nothing. We came out of it, we bought more. And about three years ago when everybody was buying up real estate and interest rates were free and everything was awesome, I started talking about a commercial real estate bubble, and I started saying, guys this doesn\u2019t make sense because remember the fundamentals, these 10 people will pay. If they don\u2019t, I can\u2019t make money. And then all of a sudden everybody said, don\u2019t worry about the 10 people, just pay this high amount and the market will make you more. And I was like, I don\u2019t understand that again, so I can\u2019t buy this. And so we started talking about a whole bunch of stuff, which I don\u2019t need to get into here now. I wrote some papers on it, but I said, guys, this is overdone, we\u2019re going to go through a contraction, a readjustment.
I started to get our investors and I started to get a lot of people ready. Well, then interest rates went up and everybody all of a sudden was like, oh, well now I\u2019m scared, I don\u2019t want to put money into real estate. And I\u2019m like, this is literally what we\u2019ve been planning and getting ready for, because right now it is actually the best time that I have seen in easily eight years to be getting into real estate. And two, it\u2019s the best time if you\u2019re a beginner. Here is exactly why. I\u2019m not just saying that like it\u2019s like, oh, you should be investing, so if you have $10 million, lucky, you\u2019ll go do it. That\u2019s not what I\u2019m saying.<\/p>\n
You mean you\u2019re not about to pitch some kind of 20,000 coaching program as to now\u2019s the best time to join.<\/p>\n
And guaranteed you will be successful. All you need to do is watch an hour long course and you\u2019re going to be a multimillionaire. No.<\/p>\n
AJ, I\u2019m super interested in this as to, so please continue.<\/p>\n
It\u2019s way more for you, Ashley, if you\u2019re buying anything, but no. So when we look at the actual conditions that really make it worth it, it is based upon this. First of all, the market conditions that we have today, we have way less buyers because interest rates went up. Now you may say, as a beginner, interest rates going up hurts me, but actually that\u2019s not nearly as true as the big guys. Lots of times when we start out, we think that the big guys, they have advantages on capital, things like that. But right now you guys, that capital advantage is gone. Why? Because what they were doing was I can buy something at a five cap and I get 3% interest, and the spread on that money is how I make money. Those are called capital allocators. What they do is they place capital into assets and they buy things as long as that spread exists.
So when you come and you\u2019re trying to buy things, your interest rate was already higher than whatever theirs was. Right? Your interest rate\u2019s four, theirs is two. So you can actually never win that game. And so you may have access to money, but you can\u2019t compete with the other people that have access to money because you\u2019re paying double what they are. In times like we have today where interest rates go up, that money game, that spread and just throwing capital around, it\u2019s gone. Those guys, they can\u2019t do it anymore. It doesn\u2019t make sense anymore. So what we see in the market is that big deals, big portfolio deals and large asset deals, everything else, they just evaporated, because all the big money now can\u2019t allocate capital. It literally is just gone. And the small deals, there\u2019s nobody. And when you look at it, you go, okay, that doesn\u2019t change the fact, AJ though, that I\u2019m having a hard time getting capital.
Actually it changes the fact that the owner has to deal with it. I always ask people, they\u2019re like, oh, now\u2019s a tough time to get capital. I\u2019m like, oh, was it easy for you three years ago? Was a bank just like here\u2019s five million bucks? And the answer\u2019s almost always, well, no, a bank wouldn\u2019t give me a loan three, four years ago anyways. I\u2019m like, okay, so nothing changed. But in the buyer\u2019s mind, something dramatically changed. If I\u2019m a seller, in a seller\u2019s mind, if I\u2019m a seller and I have to sell, I don\u2019t have buyers that can get money now. They\u2019re going to get at 8%. That means the value of my property because they have to buy it at something that can pay that debt, just went way down. I have to pay you literally way less because this interest rate doesn\u2019t allow me to do it.
And the seller\u2019s like, I can\u2019t take such a big haircut. That doesn\u2019t work. Well right now, sellers are now open door to seller financing like we\u2019ve never seen, because if not, they either have to just lose tons of money or they can\u2019t sell their properties in small assets, in smaller markets, they have nobody and they need to sell. So all of a sudden we\u2019re going in and we\u2019re structuring these deals. We\u2019re saying, listen, we could pay you a higher price, but guess what? You\u2019ve got to be the bank. And they\u2019re like, great. What that means now is you\u2019re getting better prices and you also are removing the biggest barriers that you had, which by the way, the barriers that existed prior, you weren\u2019t going to win that game anyways. So that means it\u2019s all advantageous to you, and the big boys aren\u2019t going to work, because they don\u2019t get paid for work. You got to remember that.
They get paid for placing capital, not for actually working, not for actually finding deals. They don\u2019t want to find deals. They want a broker to give it to me and a third party manager to take it, and the price is only that spread, and I\u2019m buying it and walking away. They\u2019re not looking for deals. That\u2019s not how it works. And so you come in and you\u2019re willing to do the work, which that\u2019s your benefit if you\u2019re starting out. You\u2019re willing to do just a little work. You\u2019re going to buyers who have no options and you\u2019re saying, hey, why don\u2019t we look at this differently? And now all of a sudden you can buy deals that you didn\u2019t have access to prior. Because the sellers could have sold them at a high amount in the last eight years. And so they don\u2019t need to work with you and they don\u2019t need to lower the price. So you were just out of the game. That\u2019s changed and it\u2019s all in beginner\u2019s favors.<\/p>\n
Just so many good points, but the big ones you\u2019re harping on are less competition from other buyers and then more flexibility from those sellers. And we\u2019re seeing the same thing in our business. We focus more on the hospitality side of things, and we\u2019ve got a hotel, 13 units under contract right now in Utah, and same thing, seller financed at a really great interest rate, a 10-year term, and we think we\u2019re going to crush it, right? And same reason it was a smaller town in Utah that\u2019s in between some of those national parks. And buyer did a really bad job of keeping their books. So even if we wanted to go out and try and get some bank debt, like there\u2019s no tax returns, the P&Ls are written on scribbles of paper in their back office. So they understand that if they want to sell, they\u2019ve got to be flexible.
And the crazy thing is that we\u2019ve seen that time and time again as we\u2019ve looked at a lot of these small mom and pop hotels and motels across the country. And what I\u2019ve come to realize over the last year of us hunting for these deals, is that everyone\u2019s always crazy about creative finance and they want to find seller financing, seller financing, but what they don\u2019t understand is that it\u2019s almost easier to get that on a commercial property than it is on a single family home for a lot of ways-<\/p>\n
Way easier on commercial.<\/p>\n
Because in a single family space, it\u2019s a more foreign thing to that seller. But in the commercial space I think they have a better understanding that it\u2019s a route they almost have to take to sell that property.<\/p>\n
100%.<\/p>\n
And they\u2019re more likely to understand the advantages of it too. Just the tax advantages of being a seller doing seller financing too.<\/p>\n
Yes, people may say that\u2019s overwhelming, right? I don\u2019t know anything about that, all that. And to which I like to say, why does that matter? When we first started doing seller financing, we didn\u2019t know anything about it either. I didn\u2019t know how somebody would be a bank or anything else. And guess what? I still don\u2019t, meaning I know the basics and everything, but you think I\u2019m executing on this stuff. I\u2019m not an attorney, I\u2019m not a CPA. All I\u2019m doing is saying very simple things, price and interest rate that I have to pay. So when we look at it, we do a three offer strategy. We say, all right, if I have to go get all the money and just cash you out, I can pay you a million dollars. Now, if you\u2019re going to come in and put some of your money up and I have to use a bank or I get some other type of debt and collateral, I can pay you, let\u2019s call it 1.2 million.
Now, if you\u2019re going to come in and seller finance the whole entire deal, I\u2019ll pay you 1.3, because if I go to the bank, I got to pay a percent interest rate. Now, if you limit that down, okay, well, I can afford to pay you more, but if you\u2019re going to come in and you\u2019re going to seller finance this at 4% now on recos and I have to put less down, I\u2019m going to pay you more. It\u2019s that simple. How much are you paying? What interest rate are they charging for what time and what\u2019s the liability? Meaning, is it we give them three options and they always want the higher one. They say, this one\u2019s more money, so I\u2019m going to take that one.<\/p>\n
Right. I was going to say, Ash, I know you\u2019ve talked about that strategy before too, where you oftentimes submit multiple offers when you\u2019re buying even the single family, small multi out by you. It\u2019s a strategy that works both in the commercial space and in the smaller residential space as well. But AJ, one thing I wanted to ask you is I think for a lot of new rookies when they think about getting that first deal, they think single family home, small duplex, et cetera. You already touched on the price point and why you can oftentimes buy a self-storage facility for less than a duplex. But what are some of the other advantages of self storage over a traditional rental, either single family or small multifamily?<\/p>\n
There\u2019s a lot, and the actual reasons why you may be scared, people are scared and they think about that, are actually the reasons why you should do it. Because you have to remember that at the end of the day, single family houses you guys are not investment products. We turn them into investment products, but that\u2019s not what they\u2019re designed for. That means the supply, demand and the pricing is not driven by the NOI, how much you make. So what you\u2019re doing is you\u2019re taking something and you\u2019re trying to turn it into an investment, and then you\u2019re trying to make it make money for you. When you go buy a small storage facility or any small commercial real estate at all, you\u2019re not doing that. You\u2019re only buying a business, money. So if that business doesn\u2019t make you money, day one, people don\u2019t buy it, because that\u2019s all it is. It\u2019s an asset. It isn\u2019t anything.
And then when you go to a bank, the bank says, this makes money. So you\u2019re all looking at it to make money. So the bank is not investing solely in you, they\u2019re actually investing in this asset. That means you actually have a lot of more options, because if you\u2019re doing it by yourself, it\u2019s solely predicated on whether you can get that money from the bank or not. With commercial real estate, they look at a lot of other factors. They look at, okay, how much does it make? Is this a good deal? What\u2019s your plan? Who\u2019s your partners? How you\u2019re going to operate it? And then they give you money and you may not even be able to qualify for a 30-year mortgage for a home. And so everybody looks at it differently. If somebody\u2019s going to sell it and it doesn\u2019t make money, all the buyers are going to say, why am I going to buy this?
It\u2019s got to make money. So you can look at it like that. The second thing is the actual upside. So once again, basic math, say $500,000 storage facility that you in a small market that you have 100 doors. All right, I can go in storage facilities and I can up rents like 20%. Why? Because 20% on a $50 rate isn\u2019t a lot of money. It\u2019s like what, a McDonald\u2019s meal? And so nobody caress, right? It really doesn\u2019t do anything. And they don\u2019t change it because it\u2019s not motivating and they don\u2019t want to move for a McDonald\u2019s meal. It actually costs them more to move than it does simply to pay the rate increase even at 20%. Now, what that does to you though, it means nothing for that tenant, but that\u2019s because they\u2019re one of 100. Now all of a sudden you just grew your entire revenue, the gross revenue by 20%.
If you had a 30% margin, you almost doubled your entire net income. And it meant very little to those tenants. And even if it does, let\u2019s say you took a whole bunch of people off and 10% of them leave. Okay, so you lost 10 people, 15 people, whatever it is, you just fill it back up, but you have lots of other tenants. Your risk is diversified. If I have a single family home and there\u2019s one tenant, one person leaves, that was all my income, all of it. And I hope that I can get somebody at that rate or higher, but if I can\u2019t, then all of a sudden all your revenue takes that hit. Where if I have 100 units and I need to fill up, I can actually discount one to get people to move in, but the other ones are still paying the same price. It didn\u2019t change any of that. So there\u2019s just more flexibility on what you can do with pricing. It\u2019s safer because it\u2019s more diversified.
You\u2019re buying it on the income you\u2019re going to make because an actual asset, which you\u2019re doing with a single family home or a duplex anyways, but that\u2019s not what it\u2019s meant to do. So all of a sudden you\u2019re doing the same thing, you\u2019re just getting more doors. It is more diversified, it\u2019s safer. Self-storage is the lowest defaulting commercial real estate of any. It\u2019s the highest performing in the last 26 years and it has a fraction of the default rate of things like multifamily does. And so all of a sudden you\u2019re in a safe asset, you have way more upside and you can give upside. And I don\u2019t know about you guys, but I don\u2019t really care about people\u2019s stuff. So if somebody doesn\u2019t want to pay me $10 more a month because they are storing all their stuff, I just say move.
And I don\u2019t have laws that say no, they get to stay in it forever. There\u2019s no toilets. Nobody\u2019s going in and flooding a toilet that I have to fix or anything else like that. That doesn\u2019t happen. CapEx is way lower.<\/p>\n
Actually AJ, didn\u2019t someone build a house inside one of your units once.<\/p>\n
That is 100% true. Somebody literally built a house, like multi-level and everything. And we\u2019re like, dude, we love the ingenuity. Amazing what you\u2019ve done here, but it\u2019s against the law.<\/p>\n
You got to take it down.<\/p>\n
You can\u2019t do that. Get out. I don\u2019t know what to tell you here buddy.<\/p>\n
AJ, I think given where we\u2019re at in the economy right now, there\u2019s fears about this recession that maybe is or isn\u2019t coming. Do you feel that self storage is, quote unquote, recession resistant?<\/p>\n
Yeah. Thank you for not saying recession proof. That\u2019s a trigger word for me. So a lot of people started saying things like recession proof, and that really triggered me. First of all, I\u2019m like you say that because you never went through The Great Recession thinking that storage and everything else did really, really well. That\u2019s not how it works everybody. Assets, there\u2019s no such thing as a recession proof asset, because every recession is different and it hits different assets. And two, you have localized things. So commercial real estate is way more localized than residential real estate or others. The reason being is it\u2019s predicated on those people that already live there right around them. It\u2019s not predicated on big migration patterns and what\u2019s going on. You have a three-mile radius, that\u2019s it. So I can see how it\u2019s doing today and what it\u2019s doing.
So all of a sudden, if you\u2019re buying and you\u2019re looking at those things in a really localized area, even if the overall markets change, it\u2019s just not nearly as impacted, because it\u2019s so localized. But real estate cycles go up and down. All of them do. Right? Now, it is more recession resistant though than most asset classes, for the things that I just mentioned and also for the fact that we can change and do things quickly. There\u2019s not nearly as many rules or laws. It is probably the best hedge against inflation of any asset class out there. Why? Because inflation goes up 8% one month and 5% the other. I can immediately give a rental rate increase. I can also immediately discount if I have vacancy and I can change those things like that. It\u2019s just really easy to do.
So our revenue is, we can change it. We have an actual power effect. That means we have higher margins because there\u2019s lower CapEx and lower operations. Storage facilities on average have a 40% margin, the highest in real estate. That means we can actually have cushion and we can survive more. It\u2019s a cashflow game and that\u2019s what we\u2019re playing here. So yes, it is way more recession resistant than most other assets. I just always preface that because it doesn\u2019t justify you guys going out and doing a dumb thing. Don\u2019t be like aah, I can\u2019t [inaudible 00:57:33].<\/p>\n
Still be smart about it.<\/p>\n
Yes, exactly.<\/p>\n
That 40%, talking about cash cow, that\u2019s 40% is a liquor store. The markup on liquor is usually 40%.<\/p>\n
40%. So more liquor stores and more self storage.<\/p>\n
More self storage.<\/p>\n
But I do think just even common sense thinking even during a recession say that people start to downsize, where are they going to put their stuff? In self storage. So even if people start moving out of some of the bigger single family or multifamily stuff, self-storage might benefit from that.<\/p>\n
Change is good. Change is good. And that was something people, literally prior to 2008, people were like, no one will ever default on their house and pay a storage bill. That was so contrary to logical thinking. But here\u2019s the problem, if I\u2019m in a tight spot, do I care about a 50 buck or $100 a month payment or a $2,000 a month payment? The storage bill makes no difference whether you\u2019re going bankrupt or not, none. It has no effect on it. So all of a sudden what they found is actually people will default on their home, move everything into storage units, and then they\u2019ll go rent or they\u2019ll downsize, because it\u2019s actually cheaper to pay for a storage unit than it is to buy more house, than it is to rent a bigger house. So it\u2019s actually an alternative option. And that\u2019s the thing about storage. I got to make sure everybody knows.
A lot of people think storage are popular because people are hoarders, right? That\u2019s not true. It\u2019s actually an economic function. Yes, people are hoarders, but the reason why though is real estate has gone up in price so much that it\u2019s a revenue or it\u2019s a cost per square foot problem. First of all, in the United States, we have a lot of regulations on our lands, HOAs, government regulations. When I was growing up, if we wanted more space, my dad built a shop on the side of his yard. You can\u2019t do that anymore. And two, even if you wanted to, that not only the HOA, but the city wouldn\u2019t let you, even if you wanted to, that is going to be so expensive today. So if you just add on space, the cost of it is huge. Whereas if I can go rent a storage facility, all of a sudden it\u2019s really cheap.
So I can\u2019t do it because the laws won\u2019t let me. So I need something to do with my stuff, but also it\u2019s cost prohibitive. So all of a sudden you have businesses that are saying an office space to hold files is $200 a square foot a year for me to hold files. Where I can go put all those files in a storage unit and it\u2019s 20 bucks a year. When then I turn that office space into revenue producing. Now it makes me $200 a year. That\u2019s a $400 swing, and a storage unit costs 20 bucks. It\u2019s an economic output. That\u2019s why people use storage. I have some facilities that 30% of our tenants are businesses. It\u2019s just we live in a world where space is expensive and it\u2019s restricted. That\u2019s why storage people use it and that\u2019s why it\u2019s popular.<\/p>\n
AJ, you\u2019ve got me foaming at the mouth now about trying to get this first self-storage facility, my own portfolio. I\u2019m going to have to replay this episode. But the last thing I want to hit on is the actual cashflow. We talked a lot about why self-storage is easier to get into, the financing, the cash, the ability to increase rents, but at the end of the day, maybe even give us numbers on one of your earlier deals, but if I go out and I buy 100 units somewhere in that north rim of the Rocky Mountains that you talked about, what kind of actual revenue and potential profits could I see on one of those deals?<\/p>\n
All right, I want to be careful about talking about this. Because obviously this is, but let me put it first. We do value add. I\u2019m buying them and I want to turn them around and measure it. So I\u2019m like, okay, when I buy it, I want to see what I can get and then I want to get it out of it based upon measurable things. That usually takes me two, three years. So generally when I buy them, I\u2019m not looking for lots of cashflow upfront. Why? Because I\u2019m changing signs. I\u2019m doing all those things. I don\u2019t plan on getting huge upfront cashflow or distributions or anything else like that. Why? Because I\u2019m actually trying to take that income from here to here. I\u2019m not just milking it. So generally when we do that, and two, when I say value add, this isn\u2019t like multifamily people. I\u2019m not going in and putting tons of capital in.
I\u2019m talking like operations. We do better things online and we train things, right? We\u2019re not injecting huge capital and we\u2019re hoping that the market accepts this new offering. That\u2019s not what we\u2019re doing.<\/p>\n
So it\u2019s not capital improvements.<\/p>\n
Yes, not capital improvements. We have those, but it\u2019s way smaller. We may have paint, you may have a reseal on the pavement and we will maybe if there\u2019s an office space in it, we may do some things to the office and we have to change the sign. Maybe there\u2019s a broken gate. That\u2019s the most. If we did all those things, that\u2019s a full rehab. You\u2019re done.<\/p>\n
And how many people hate rehab, the process of finding a good contractor, managing them, all those things.<\/p>\n
I do. So when you look at that, our assets that we buy, our model is, before I get into numbers, so you understand our model, I buy, I simply take what I call that money on the table, means I can see, it\u2019s measurable. We go through. We get it off the table. That improves that net income, and then we refinance it, get our money out, and then we redeploy it and we still own the asset and then we just keep doing it. That\u2019s how we actually grew to 150 million in assets without any investors. Before I went into the hospital, I never had an investor. It was me and my two partners, my dad and my brother-in-Law. We never had investors. We built up ourselves. All the companies we owned were ours 100%. And so by doing that, we just kept building, and kept compounding it. We knew we could get to the refinance point by what we could measure, so to us it was like a known thing.
We just had to do the work to get it, and that\u2019s what we still do today. We still do that exact same process. Our long-term hold strategy, really unique, we do it based upon our return stuff, and I\u2019m not going to go too far into that because it\u2019s more deal. But with that said, so far our average has all been a 30% internal rate of return, north of that, I don\u2019t think we\u2019ve had any that is under 30% by the time we\u2019ve got to that point. A lot of them we\u2019ve had our money paid back completely in four years without even doing a capital event. We are looking at high cash flow, ability to improve. Now, during those times, some years there\u2019s good years, some years there\u2019s bad years. That\u2019s how it works, which we\u2019re fine with. We expect it and we actually structure our deals so that the market can change and move.
I don\u2019t expect the market to make me, but I know the market can kill me at any time. And so we make sure that we can survive and our assets can survive, because the goal is to do improvements and make it better over that set period of time. If the market goes up, great. But even look at this year, so this year it was hard in commercial real estate and numbers were coming back down to earth off of COVID, and we saw reductions in occupancies and even rates across the board on every single asset. During that time, every one of our assets revenue went up. Every one. Even though in some of our markets we had a contraction of like 20% on market rates and we\u2019re up. And so when we look at it, predict it, even when times go up and down, we\u2019re moving within it. It\u2019s that long-term. I don\u2019t think five years is long-term, but it\u2019s more of that long-term trend.
So we want to have cashflow and everything by year two, just we\u2019re getting cashflow and distributions. And then as those distributions and cash flows that we have, they grow. We need to do a capital event where we get our money out. If not, we run into a problem where you have an equity to income problem. That means you have all this equity and the income you\u2019re making is disproportionate to the value of your investment, and that means your investment\u2019s actually not making a good return. Even though you\u2019re saying, I\u2019m getting a 15% return on my investment, that\u2019s a great return. And you went, yeah, but that 15% now means your investment that was $100,000 is worth $300,000. So you\u2019re not getting a 15% return on that investment because your investment also changed.
We want to make sure that the return is high, but that you\u2019re getting a real good return. That\u2019s why we want our money back and get it working again while we\u2019re still getting that return. We call it stacking. We call it our stacking method. And what we do is we just stack assets and we stack cashflow and we keep our money, the original money just keeps going and just buying and building us more. So that\u2019s what we do. That\u2019s how we do it. We did it through 2008. We\u2019re doing it through now and we\u2019ll keep doing it. We\u2019ll always do it. I have a whole portfolio of companies now that that\u2019s all they do. I have an architecture firm, a debt brokerage firm. I own a tech company. We own and operate the assets. That\u2019s the thing I want to make sure is very clear here. I\u2019m not a syndicator, I\u2019m not a capital allocator. I am not even an investor. I am an operator. I build and run my businesses.
I\u2019m speaking from ground up building and running them. I\u2019m not just out, there\u2019s a big difference between that. I actually see the assets, I\u2019m underwriting them or buying them, and my companies are changing them and moving them up. So it\u2019s not like I\u2019m just saying this stuff out of fluff or we got lucky or something like that. We just created a process that we know doesn\u2019t work out every time because you\u2019d be crazy if it did. With that said, I\u2019ve never had an asset fail or not perform under that, but that doesn\u2019t mean that obviously it\u2019s guaranteed. We do things and set things in place to make sure that we are not subject to short-term things like spikes in interest rates, which get people in trouble and all of a sudden the market doesn\u2019t deliver high occupancies. It delivers lower occupancies and lower rents, because that\u2019s how it works and that\u2019s okay.
And people, you shouldn\u2019t think that because those things happened, you shouldn\u2019t be investing. That\u2019s not true at all, because it\u2019s actually part of it and it\u2019s an important part of it. If it didn\u2019t happen, it would actually be really bad. Then you would have a total market collapse like 2008. You need to know how to work and build during those times and that\u2019s what makes you wealthy. It\u2019s not a quick got lucky over a four-year period of time, that doesn\u2019t do it.<\/p>\n
I think one of the key points that you touched on there is the operations piece. Even if you are seeing yourself as an investor and you\u2019re buying multifamily, single family or whatever asset you are buying into, there is some piece of asset management and that is part of the operations. I think that\u2019s actually where a lot of money is left on the table too, because everybody\u2019s so focused on, I need more, I need more. I need more units. That\u2019s how I\u2019m successful. Instead of going back and looking at your properties and being, how can I restabilize them? How can I cut my insurance costs by quoting my insurance? Doing all of these big picture items and then getting into the details of the actual property and then how you have your systems and process. You go in and you\u2019re like, this is the operation method we have. This is the process we\u2019re using.
And that is part of why you have been so successful and been able to keep a strong portfolio, is because as you mentioned in the beginning, there was those three things. The quality, just answering the phone even, making sure people know you are there. That is a huge part of a lot of strategies. And Tony, even more for short-term rentals, customer service is a huge thing, and having those operations put together and if you can really take the time to put out those systems and processes, that is going to bring you more money than just buying, buying, buying.<\/p>\n
100%.<\/p>\n
We had a guest recently on that did short-term rentals. And she said, we\u2019re not buying anymore right now. We\u2019re going back to the current rentals we have. We\u2019re adding a hot tub, we\u2019re adding a sauna. We\u2019re seeing how we can add value to the current properties we have already, because we\u2019re going to see a larger, we take 20 grand, we put it into our current property, we\u2019re going to see a larger increase in revenue than if we went and bought a whole nother property where we have to set up another whole set of operations, we have more overhead now. And I think that\u2019s a big piece that\u2019s forgotten. Everybody just talks about the acquisitions, acquiring and the operations is almost set aside sometimes.<\/p>\n
And it did because the market was so good, nobody had to do it. And two, frankly, everybody got lucky. So everybody, all these capital allocators and everything, they were just like, oh my gosh, we\u2019re just getting the benefit of this upside. Nobody thought about actually running it. Why? Because you didn\u2019t need to. Occupancies were so high. Rental rates were just going up regardless of what you did. And that\u2019s great in the moment, but that\u2019s never a long-term trend, that will always reset. Always. The market will get rid of bad performers and owners and bad assets. That\u2019s an actual inefficiency in the market if it doesn\u2019t do that, right?
So when we look at it it\u2019s really important, I love what you said, Ashley, because the goal is not to have doors. The goal is to have money. And so I\u2019m not trying to have the most doors, I\u2019m trying to have the most money. Most people think that just because someone has a lot of doors, that they actually own those things, which actually is most of the time completely not true. I would rather buy something at 30 bucks a square foot and have it be worth in 10 years 300 bucks a square foot as opposed to just having that much more doors, but not getting that lift. You\u2019ll make more money.<\/p>\n
That much more of a headache too.<\/p>\n
That much more of a headache and a not profitable one. Then you\u2019re burn out everybody. And I talk about this a lot, most people buy themselves a job. That\u2019s what they do. They buy themselves a job. And two, it doesn\u2019t actually create them financial freedom. That\u2019s not how it works. You can\u2019t just buy something and it just works and it doesn\u2019t have, you\u2019ve got to build a structure on it. You have to build a business, even if that\u2019s one property everyone, one property. And two, I\u2019m not saying you build anything. You don\u2019t have to property manage, you don\u2019t have to do anything. You still have to build a business. So I\u2019m my property manager, I have my broker, I have my bank, I\u2019ve got my, maybe even an asset manager, maybe you\u2019re the asset manager. I got my insurance guys, you\u2019ve got your whole team.
What are the processes? What are the reports? That property manager, I need to know what they\u2019re doing and I need to know if they\u2019re doing a bad job or a good job. So I need to learn how to operate a real estate asset, not because I have to do it, but because I need to know the right questions to ask or I\u2019m going to get reports and I\u2019m not even going to know what they mean. So you are running a business even with one property, and even if you\u2019re doing zero of the work, it\u2019s still a business and you\u2019ve got to treat it like that. And then from there you can also figure out how to grow more, because a lot of people aren\u2019t going to like this guys, but one duplex isn\u2019t going to make you financially free. It\u2019s just not going to do it. You\u2019ve got to have more than one.<\/p>\n
Maybe if you want to live in your mom\u2019s basement and she cooks sell you meals.<\/p>\n
I like ramen noodles. I\u2019m okay with that, but you need to buy more than one. So you need to figure out, understand what you\u2019re doing. Take your time. You don\u2019t need to do the work, but then you need to figure out how to repeat that. And it\u2019s not about owning 1,000, it\u2019s about owning enough to hit your goals and having a good way that you\u2019re operating it and that those things are building wealth and income for you. That\u2019s what it\u2019s about. And you need to do that good and right and take your time. So many people, you guys are just in a rush because so many people made so much money in the short term and now they think that they need to do it. They saw all these guys that just went and raised a bunch of money and put it to work, and now they\u2019re saying that they own 1,000 doors and they\u2019re just like, wow, I suck at life because I\u2019m not doing any of these things.
Meanwhile, they actually make more money at their W2 than that guy does with his 1,000 doors. That\u2019s actually quite common. And so I think bring it down to earth. Don\u2019t beat up on yourself. Focus on the long-term and build correctly, even if you\u2019re not doing it. Do it right.<\/p>\n
AJ, what a great note to end on. And Ash and I were chatting on the side over here that we could just listen to you talk real estate all day, man. We just need to have a segment of the Rookie podcast just like AJ\u2019s musings. That way me and Ash can just keep picking up on all these nuggets, but so many good things around this conversation, brother.<\/p>\n
Thanks guys, I appreciate that.<\/p>\n
AJ, where can everyone reach out to you and find out some more information about you?<\/p>\n
So Self Storage Income, anybody interested in self-storage, learning about it, how to do it, Self Storage Income, the podcast. I have a new book coming out. It might not be out when this comes out, but it\u2019ll be out shortly. So if you want it, everything I\u2019ve talked about in depth, how to do everything, step by step. And you can go to selfstorageincome.com and we actually have a spot that you can go in and we will get the book to you. It will be coming out this month. So Self Storage Income for education, if you want to look at investing with me or what we\u2019re doing, my private equity company is called Cedar Creek Capital, so you can go there. But Instagram, ajosborne. Social media, that\u2019s the easiest way. But investing with me, Cedar Creek Capital, that\u2019s my company. The educational stuff for storage is Self Storage Income.<\/p>\n
And even though AJ does not drink, he is also a member of the podcast Drunk Real Estate. So you can check out that podcast.<\/p>\n
Yes, I am.<\/p>\n
I knew I would get yelled at if you didn\u2019t mention that podcast.<\/p>\n
That\u2019s right. Jay, it was mentioned. Guys, we did it.<\/p>\n
Well, AJ, thank you so much. It is always a pleasure and you are just incredible and we love getting any opportunity to speak with you, so thank you so much for taking the time today.<\/p>\n
Thanks guys, I appreciate it.<\/p>\n
I\u2019m Ashley @wealthfromrentals and he\u2019s Tony @tonyjrobinson on Instagram and we will be back with another guest. We\u2019ll see you guys then.<\/p>\n