Friday, May 11, 2018

Keep your eyes on the prize!

I came to the conclusion that I was starting to think I was too big for my own britches.  I was starting to think I could do anything I put my mind to.  

For example, I went to the Minnesota Cup entrepreneurial competition info night to pursue some ideas I had about an off-the-wall business for rental equipment vending machines.  I thought my idea was so good.  I thought that my idea was hard to execute but doable.  Then I talked about it.  Out loud.  To other people.  That's when I felt like I was full of BS.   I mean, yes, I could probably see this through.  Yes, I could probably make a lot of money at this.  But the realization that I probably wouldn't want to swept over me at this MN Cup info night.  I suddenly got the feeling that I was out of my mind.  I know self-storage and railroad construction.  Why am I trying to go in another direction when I haven't tapped out the things I have real knowledge and expertise in?  Why?  I think it had to do with the idea in the back of my head that by venturing off on my own, the storage and/or railroad business would not happen fast enough to really ramp up.  Ironically, I thought something that I had no real knowledge in would move faster or equally fast.  Again, I realized that I was REALLY wrong.  

With that, I decided I need to concentrate on maximizing profits on my current projects and network.  I was hoping that if I networked more, I might be able to find more funding and potential partners for future projects.  So that's what I set out to do.  Within 3 weeks I have about 6 more leads on projects and 3-4 potential project partners and I can feel the momentum starting to snowball.  I just need to keep my head down, continue to meet and learn from other investors and this thing WILL happen for me.  I can see in my progress over just the past 3 weeks that this IS going to work the way I loosely envisioned when I gave my 2-week notice to leave my job.  

And maybe, when I get very comfortable with my current financial position, THEN I can start chasing other opportunities outside my expertise.  But not until my current expertise has run it's course.  

I need to FOCUS because I'm not as good as I think I am.  I have a long way to go before I get there.  

Tuesday, May 8, 2018

What to do with a windfall?

We received a windfall with the sale of our construction business in 2014.  We started to think of all the stuff we needed.  We "needed" a new car, redo our bathroom, redo the carpet in our house, redo the deck, redo the driveway, finish the basement, and so on and so forth.  After doing the math, we would have been left with about $25K for 3 years of sacrificing life to chase the dream of starting a business.  And you know what would have happened to the last $25K had we went this route, right?  Yup, it would have been frittered away too.  We came to the quick conclusion that trading 3 years of life for some material things was just plain stupid. 

We decided to buy a couple of rental properties (mini and maxi storage buildings) to preserve our principal at the very minimum.  We didn't know what we were doing other than not spending our capital and maybe making a few bucks every month to grow our next egg.  At the time, our thoughts revolved around paying off the mortgages in 10 years and being able to retire (whatever that means). 

Then I started researching how to become a millionaire and came across Robert Kiyosaki and the "Rich Dad, Poor Dad" series of investment/self-help books.  It started with a YouTube video of Robert or Oprah.  His philosophy on rich people spending their money on assets rather than liabilities was earth shattering for me.  I read everything in the Rich Dad, Poor Dad series and then decided to go after more properties.  This time with an emphasis on cash flow.  I also started listening to Bigger Pockets Podcast and Jason Hartman's Podcasts and I went down the rabbit hole. 

After that I was on the hunt for anything worth buying.  I found a 2000 SF retail property on a busy corner in Green Bay by Lambeau Field and rehabbed that with the help of a cousin.  We did a great job but got a lousy tenant.  Upon evicting the tenant and putting the building up for rent, we got an offer to sell from our neighbor.  We settled on a price that was good for both of us and we were able to sell with a nice profit.  It was a buy and hold property but realized it was a handful owning a property so far away.  Frankly, that was my fault for not turning it over to a property manager, but live and learn. 

About a year after we bought the GB property, we tried buying a self-storage in Houlton, WI which we got outbid for.  The silver lining was that we ended up buying the vacant property next door.  We tried a few things before landing on developing the property into large storage units that were big enough to accommodate businesses and the big stuff they have.  So with cash-flow in mind, we refinanced the first two properties to take out equity to develop the new property.  This was all done while holding down a day job. 

And on and on.  The interesting thing about all of this is that if we spent that money in year one, our life wouldn't be any different than prior to starting and selling our business.  But because we bought an asset rather than liabilities, our life has been changed.  We aren't exactly Paris Hilton, sipping champagne and hanging out on Yachts in the Mediterranean Sea, but we've gotten to the point where we might not need another regular job again.  That's the ultimate freedom. 

So next time you get a windfall, don't buy stuff, invest in your freedom.  It'll come sooner than you think. 

The beauty of Meetups

I've been reading books and listening to Podcasts for a long time now.  They give me a ton of energy and get me all excited about real estate and investing in general.  I highly recommend this to everyone looking to get into a certain field or just learn more about something.  It's pretty safe to assume that there is a podcast about what you're interested in.  If not, maybe you should start one! 

At the beginning, podcasts and books (audio books included) filled 100% of my needs.  But now that I'm becoming more experienced, these shows only fulfill about 75% of my needs as an real estate investor/developer/professional.  Why, you ask?  It seems there are two main reasons for this: 1.) These podcasts or books only go so deep and it seems I'm getting to the same level of learning each and every time, and 2.) you can't ask that follow-up question when you're listening to a podcast or book. 

That's where Meetups come in.  I've been using with great success.  I've mostly done some local meetups here in the Twin Cities but I've also explored other cities in this manner too.  I'll get into that below.  Regarding real estate meetups, it's been so much fun.  It's refreshing to know that there are other people out there with LESS experience than you.  It's great to meet some people out there with MORE experience than you.  It's an ability to meet people you can help meet their goals.  Remember karma works in both directions.  I've also met people from banks and investment funds, people who syndicate deals, realtors who are also investors, etc.  It's also interesting to know that people are out there willing to pay commissions for you to find them deals.  There are also people out there who just look for deals for you (wholesalers). 

My biggest suggestion is to not be shy at these meetups.  I always feel like I'm putting myself WAY too far out there, but so far it's worked out well.  I've found an alternate lender for my deals, I've found a person who is, along with a few friends, looking for passive investments to invest in.  I've also listened to mortgage brokers talk about financing that I thought were only fairy tales.  I've also heard about a syndicator who brings deals to people who have money to invest. 

I've also attended a real estate meetup in Memphis, TN while on vacation and a running meetup in Madison, WI while in town on business.  I had been interested in learning about the Memphis market and this meetup was so helpful in understanding the market.  There were people with deals everywhere but in the end, I just didn't feel comfortable with the area in general.  There is no doubt money can be made in Memphis, I just had a hard time envisioning where I would invest.  Therefore, I've put it on the back burner.  Had I just jumped in and invested without visit the area and visiting with local folks, I probably would have made an investment I wasn't comfortable with.  I believe you can invest from afar, but you need to be comfortable with your decision. 

I'd say meetups are super valuable and if you are mildly interested in something, get out there and try a meetup.  I think you'll know pretty quickly whether this is your "thing" or not.  But if you don't try it, how are you going to know? 

Thursday, April 26, 2018

How to develop a self-storage facility - From Zero to Permitting

Here is a basic rundown of the process for developing a self-storage property:

Step 0.) Make sure the price of the property, rough price of the buildings, site grading, paving, etc. are included in your costs.  Can this thing make money???? Can you float the payment while it rents up????  Did you remember management and lawn cutting (snow removal)????  If yes to all 3, proceed to next step....
Step 0a.) How are you going to fund this thing?  Is it such a good deal people will fall over themselves to get a piece of the action?  Will a bank loan you the money for this thing?  Be REALLY honest with yourself on this.  Otherwise you'll spend approximately $50K on engineering and leg work, plus the cost of the property only to give it back to the bank.

Okay, enough soul searching, let's get on with it.

1.) Select a property that is zoned appropriately.
2.) Acquire property.
2A.) If property isn't zoned properly, get property rezoned.  You will need steps number 3 - 5 done to have the property rezoned.  I suggest you buy the property contingent to the rezoning or risk total failure.
3.) Have site civil engineer do a preliminary planset (30%) for the site including:
     a.) Buildings
     b.) Office
     c.) Stormwater ponds
     d.) Pavement/Driveways
     e.) Offsets of buildings from property lines
     f.) Landscaping (if required by zoning ordinances)
4.) Have building engineer/designer put together a conceptual drawing for a building or two and the office (if you have one).  Some zoning ordinances have aesthetic guidelines.  Make sure you pass that info along to your building designer so they are incorporated.
5.) Get your costs dialed in for your construction.  Grading will be tough to estimate.  You'll probably want to discuss this with your civil engineers to get rough quantities (or figure them out yourself - Length x Width x Depth = Volume) to bounce off a grading contractor.  Or your civil engineer can assist you.  Most Department of Transportations publish a unit pricing schedule that tells you how much it costs to place and finish construction materials.  For example: gravel, pavement, concrete culverts, catch basins, common excavation, select granular, etc.  This would eliminate the need to pester a grading contractor prior to sending the plans out for bid.
6.) Have building engineer take plans to 100% and go before the City/County boards to get approval.
7.) Building designer will have to submit their plans to the State (unless the SF is under the State's threshold) for commercial buildings.
8.) Get approvals from local agencies and State (hopefully). 
9.) Have civil engineer submit plans to State for State approvals and DNR approvals.
10.) Have building designer dial in their design to submit to building contractors for bid and to the City for building permits. 
11.) Get hard costs on the building from contractors.
12.) Get hard costs on the grading from grading contractors.
13.) Get hard costs on the paving from paving contractors.
14.) You will also need plumbing, well, septic, and electrical permits for their respective trade.  You will also need to send the building design out to each of these guys if you're building contractor doesn't handle all of these items for you.  Remember, you'll probably pay a markup of 10% on each trade if your building contractor handles it.  It may or may not be worth the expense.
15.) Pull permits, schedule contractors and get started!

Like I said, be prepared to spend approximately $50,000 plus the property to get you to this point.  You may be able to wrap everything up into a construction loan, but it's likely you'll have to float the project for a while until you get full approvals.  Plus, the bank still wants interest payments on what you've borrowed while you are developing the property and/or getting approvals.  Be ready for this.  Don't go down this road with $50K and a dream.  You'll probably need $50k for the costs and another $50k to be comfortable.

Tuesday, April 24, 2018

How to Develop a Self Storage Facility - Second Step

I know I said step one was finding the property and making sure its zoning is appropriate but it's probably step 1A.  Step 1B (pretty much simultaneous with the property selection) is determining what kind of storage you're going to choose.  You can go with one story, multi-story, temperature controlled, lean-to, outdoor storage, large units, small units, etc.

We chose to go with large units that businesses could store their stuff in.  I had a construction company of my own and couldn't find anything on the cheaper side of the spectrum to keep my stuff covered.  I literally looked for 3.5 years and found nothing under $3500/month.  Most businesses in their infant stage don't need office space and fancy stuff, they just want somewhere to put their junk and make a small repair from time to time.

Side note: Originally we wanted to build individual garages on the property and sell them as part of an association.  We waited for 8 months to get a response from the County that this isn't possible due to a technicality in the ordinance.  The ordinance read something to the effect: Buildings must be broken up by partitions or walls.  In my mind I could then build a 4'x4' partition around the service door of the garage and then sell both units to the same buyer, it would be considered self-storage.  I think this could be a fight I could win but decided not to pursue this.  I liked the idea of building 1 building at a time and getting paid for it as soon as it was done, but in the end, you only make your money once.  So I wasn't too upset (other than wasting 8 months) that I had to build self-storage rentals.  I figure I'll eventually get the equity I built into the property when/if I sell.  So it's always still there and I basically get a return on that money each month. Moral of the story, know your zoning prior to jumping in.  I always knew that my backup plan was an acceptable option so I was okay pushing forward.

So we built larger units, 25'x50' an 50'x50' with 16' ceilings and 12'x14' overhead doors.  Each unit has a service door for access too.  Each unit has electrical and 2 buildings will have heaters for temperature sensitive items.  Painters particularly like these, by the way.

The zoning stipulated that businesses can't transact at our location.  Actually, it's more building code than it is zoning, but they go hand in hand.  So as long as they store things (they are allowed to make small repairs), they are okay.  Bathrooms must be on site however.  We've always wanted our tenants as well as our employees/grounds keepers to have a bathroom onsite so that was in the plan.  Let me tell you, that was a lot more expensive that it needed to be.  That's a topic for another blog post, however.

Anyhow, I think you need to consider what your uses are primarily going to be before/during your site selection process.  You have to think who your units are going to be for.  If you're in downtown metropolis, then small units will probably be fine.  If you're in a mid-sized city, you'll probably want more 10x25 units, for larger toys and larger houses getting moved.  If you're planning on having businesses store their things, you'll need large doors and large units.  Maybe you're in a boating town so 10' wide units are a waste.  You get the picture.

To summarize, construction, use, and location should all be considered together.  We chose large units, large doors, power, and large driving lanes (60' between buildings) to provide a convenient home for business storage.  We knew that some renters would want heated but we also knew that few would pay the premium for that.  We completed our heated units in the month of May.  If I were to do it over again (I am), I would build more unheated to be done in May and then build the heated building to be done closer to October when heated units (we are in Minnesota after all) are in more demand.  We sat on a pretty empty building most of the year and then October came and the heated units were in huge demand.  So if you are offering a mix of heated and unheated, learn from me, have you unheated finished in spring and your heated units finished in fall.

Friday, April 20, 2018

How to develop a self-storage facility - First Step

Here is my round-about story on how I developed my property. 

I put in an offer for a mini-storage facility in what I determined was an up and coming area (new bridge crossing into a largely undeveloped area other than a few small towns).  I lost out on the mini-storage but came across property that was for sale next door.  I know what you're thinking, direct competition.  Nope, I'm building larger sized self-storage units for businesses to store equipment and materials (and people with a lot of crap).  And you might ask, isn't that place directly across the street with large storage units direct competition too?  Nope, my units are bigger, my driving area is wider (for trailers and large vehicles) and I'm putting electric in all units and heating some units.  I'm really creating something new. 

Getting back to zoning.  Our property was unique.  The front half was zoned commercial and the back half was zoned residential.  The residential zoning es no bueno.  We had to get that changed in order to build self-storage on the back half.  Time to pull up my britches. 

We did some digging and found that the comprehensive plan had the property guided to be zoned commercial.  This was HUGE.  Without that, we probably wouldn't be able to build storage on the back half.  We'd still be able to do something, but certainly not the original plans.  So we went through the process to get the back half rezoned.  We had some opposition from neighbors but the fact that the comp plan guided this property (the entire property) for commercial was a huge factor.  Also, we found out old documentation when the property was originally subdivided that said the property we owned was supposed to be commercial.  It was signed by one of the neighbors who was opposed to our rezoning.  The other guy was a fella who was friends with the neighbors and used our property to ride his tractor back to see his friends.  As an aside, he also thought he had unlimited future access on an old easement on our property to visit his friend. 

So while at the meetings to get our property rezoned, we were asked a million questions.  We also had to have a rough plan for our project up front.  Keep that in mind.  I didn't really have a great plan but I was able to figure things out.  For things like this, it's good to know what other requirements you'll need to do, like a berm or visual buffer, etc., to properly our property.  That helped answer questions.  I guess I could have just said I'll follow all the ordinances, but I felt like it helped to be able to talk the talk. 

While at the meetings I realized that a couple engineering firms were repeatedly there presenting plans and certified survey maps.  I read between the lines and realized I needed to hire these guys to put my plans together and negotiate the town board.  This was a very important revolution.  If I did it again, I would probably just call the township and ask them if anyone is at town board meetings a lot.  If  you don't feel comfortable doing that, look at past meeting minutes.  It shouldn't take long for you to figure this out.  I wish I got them involved earlier.  I would have paid them a little more money than doing it myself, but I would have had a coach and I had to have someone draw up the plans anyhow. 

So, to summarize, make sure the property can be used for your intended use in the first place. 

- Happy developing.

Monday, April 16, 2018

Never a good time?

Yes, it's true, there is never a good time to start a business (or have a kid).  But you have to push through.  You have to be persistent.  Actually, I feel persistence is the most important trait you can have while starting out on your own.  Hell, it might be the ONLY trait you need to get started.  You can pick up the rest as you go. 

Anyway, getting back to it's never a good time to get started, here is how it went down for me:

I worked 80 hrs per week (40 hrs at my day job and 40 hrs on the business) to write my business plan and get the new business figured out for about 8-9 months prior to going out on my own.  This was while we had a toddler who was just starting to toddle.  Then, about 1.5 months before I was to quit my job and start off on my own, my brother passed away in a motorcycle accident.  That was another life-altering experience.  When I got home from the funeral, my wife gave me the news that she was pregnant with #2.  My head was spinning and self-doubt was definitely creeping in.  But after talking with my wife some more, we decided that this was truly what we had to do for our family.  No matter how hard life currently was. 

It seemed like bad timing on all fronts but what were we going to do, wait until the kids were out of the house?  Nope, we just knew we had to work harder to make it work.  We had to continue to trust we were doing the right thing.  Trust your plan.