Week 19

Self Storage Development
Fun week. It's clearly getting busier with both Building 5 in Houlton ready for the structure and Buildings 1 & 3 in Hudson ready to start the foundation. Lot's going on.
Hudson: The great news is that we were able to get our WI State review sped up to 8/27/18 and the review actually came through on Saturday. We already had the permit in hand for the foundation but now we are good to go on the structure too. Super great. In discussions with the builder (same for Houlton and Hudson) we've decided to push forward with the first building in Hudson so be able to start renting those out and THEN heading to Houlton for Building 5. And then finally jumping back to Hudson for Building 2 which is actually Building 3. With all the Hudsons and Houltons and Buildings, can you keep track? I sure the heck can't. Having phone conversations with my contractors is some sort of tongue twister/brain game.
Some minor issues in Hudson in that salvaging the existing gravel parking lot might be a little harder than expected. So that might raise our prices on the grading. We are going to have to figure something out because I could see lots of gravel in the areas where the first 2 buildings will go. These are all things that need to be worked through.
With that, the lot is cleared of trees, most of them burned, and the holes are dug for the first two building foundations. Next week will begin our construction.
Most of the rest of the week was spent stopping by marinas and attempting to connect on social media with marinas and RV people to try to get the word out that we'll be renting in Hudson.
Oh, and it looks like we'll be doing business as Storage Garages of Hudson in Hudson. We'll see if that will work.

Houlton update: We were getting very close to starting Building 5 but have a few things in our way. First, we want to get a building up in Hudson first and second, we're waiting for Xcel to move an overhead power line in our northernmost driving area. A bit of chicken and the egg here. We have all kinds of boulders in the way of relocating the overhead power line to go underground but we can't move the boulders until the overhead line is moved. We pushed the boulders out of the way so I hope that will suffice. Some of these boulders are probably 3000#+ plus they aren't dinky by any means. So we're going back and forth with Xcel to get the OH power line moved and this has taken since last October to get moving on. Here we are scrambling with a couple of weeks to go. I still need to grant them an easement to allow them to permanently put the power underground. Their OH line is grandfathered in so they don't have an actually easement for that line. Plus, the new line has to be redundant (two lines rather than one) which naturally adds cost. It's only 3x our original budget. Good thing we've saved a few bucks here and there throughout otherwise these strange little surprises might postpone construction until we found the funds. But my point is that easements don't typically happen overnight so it'll be interesting to see what the timeline is for this. This is another part of the decision to build a building in Hudson first.
Lastly, I've been trying to get a permit for a sign in Houlton. Apparently I'm pushing the envelope by attempting to have the sign attached to our fence. It's supposed to be freestanding. I'm not sure why this matters but I've been told the rules are the rules so I'll play along. Not much room for flexibility apparently. I'm a rule follower so away we go (within the rules, naturally).

Bye for now. I'll bore you again next week. Hopefully I'll have some more interesting pictures for you in weeks to come. Until then, here is what remains of our burn pile in Hudson. Progress?

Week 18: Engineer turned Real Estate Investor continued....

We finished up Building 5's slab in Houlton and are now ready for some structure. Luckily I stopped in before the apron got framed up and poured as it didn't have any gravel under it. We are having an issue with the apron in front of one of our other units and I think it's due to no gravel under the apron. So we put that on temporary hold. Grading contractor made a quick mobilization and took care of it for us. Thanks Total Excavating. So that is ready to go whenever the concrete guys come back to finish up. 
I spent most of the rest of the week working with Xcel Energy to get an overhead power line moved. I think this is going to be a reoccurring pain in my rump as I know this stuff doesn't happen in a day. I started the process in October of 2017 and I keep getting kicked down the road. So now it's going to be last minute and it may impact opening the building up for rent. Let's hope not. I really like the people I deal with at Xcel but they're overworked. Construction in western WI is going like gangbusters right now. We also found out that this is going to be about 3x as much as budgeted. We knew it would be more, but not this much. Reshuffle funds, reshuffle funds....
Oh yes, I turned in my sign permit application for Houlton. I originally submitted in June (actually, I think first contact was in March - I could be wrong though) and finally got some response from the County. Did I mention that western WI is super busy right now? I feel sorry for the staff....but need my stuff back too. Hopefully that will come back soon. Having a phone number up at the site would probably be helpful. 
We applied for our Footings and Foundation permits for Hudson Buildings 1, 2, and 3. I hope to get those back next week because....drum roll please....we started grading in Hudson! Well, not actual "grading" but site clearing. They started on Friday morning and got all but the SW corner of the property cleared. Pretty amazing for one day's worth of work. The lot looks so much larger without all the shrubbery. Next week (this week as you read this) we'll be digging holes for the foundation and off and running we go. I'll try to include pics of the site as we continue on because pics are more fun than text.
Interesting side note - we might have to change our name in Hudson. It turns out our neighbors don't like our name (their argument is that it's too similar to theirs) so we got a nice letter from their attorney. We'll have to resolve this to a certain degree. I don't think our name would be much of an issue, but I'm not going to call them crazy either. Hopefully we can resolve this like adults. By mentioning this I'm not saying I'm right or wrong, just trying to detail some of the things that come up when you're building stuff. 
Other stuff:
I was going to get into property management until we figured out that you need a real estate or broker's license to do this. Lame. I can manage 3 facilities without one but can't manage a friend's house? Sure, got it. A lot of sassy words were said over this rule and I had to leave a friend somewhat hanging. I don't like that at all. 
New opportunities/properties/networking. I have been talking with a number of people who are looking to invest in some deals so I'm searching for storage facilities and other properties that would take a little work to spruce up. I'm evaluating a couple properties to see if I can't figure out a way to make some additional income while helping others make some additional income. This is uncharted territory and I'm reading and studying this facet of real estate as fast as my little eyes can read. I'm ready to start small and help others find investments. I'll keep you posted (whether you like it or not)! 
I'll leave you with a parting shot of our soon-to-be bonfire pile. It's big, it's real big! I'd say it's 100'wide and 20' tall. S'mores anyone?

Live to invest or invest to live? That is the question.

It's been put another way.  Is RE (real estate) a means to an end or an end to the means?  In other words, are you trying to be a RE investor or something else?  The good news is that RE can be either.  If RE isn't your dream job, investing in it can provide you with the passive income to be able to concentrate on what you truly DO love.  Imagine if you had 8 hours a day to work on your passion rather than a job you don't really care for.  Or maybe you like it but would like to go to the next level but you need free time to achieve the next level.  This is where RE investing can be super valuable. 

What if you don't know what your passion is yet?  Great, get started in RE now so when you figure out your passion, you are financially free to chase that dream.  I can tell you if you don't have some sort of passive income, it's going to be much more difficult to chase after a dream.  Even if you don't replace your entire income with RE cashflow you might be able to get part of the way there and take a lesser paying job in the field that you want to be in.  Or you can work a part-time job and spend the rest of your free time developing your idea. 

I do know that if you need to work to make ends meet and you have a growing family, free time is tough to come by.  The good news is that RE investing can be pretty easy to fit into a tight schedule.  Plus, you only need to do one or two deals to get going and figure out if this is going to work for you.  I think you'll be surprised that it can be easy. 

Lastly, don't kill the golden goose.  Remember, you don't need a golden egg, you need a golden goose that lays endless golden eggs.  When you buy that fancy car or boat or ATV, you kill the golden goose.  If you put that money into RE, you have a chance at affording the fancy car, boat or ATV multiple times over.  When you spend that money, rather than invest it, it can only be spent once.  If you invest it, you can spend it over and over and over. 

Good luck!

Week 17 of Self-Employment:

Holy cow, I've reached the 4 month point already! And the interesting thing is that it's taken almost exactly this long to get to the permitting stage for Hudson Storage Garages LLC. But we're almost there. We have funding, we have plans, we have contractors, now onto the construction. 

I spent most of the week getting the schedules for Building 5 in Houlton and the new project in Hudson worked out. We are still struggling to get State approval for Hudson back in time to get started on construction in September. The good news is we have the Permission to Start in hand so we can get going on the footings and foundation for Buildings 1-3. We did find out that we can get an earlier review date of Aug 27th. That is a life-saver. Our original review date was October 2nd and that pretty much leaves us without any time to build the buildings before RVs and Boats are completely out of the water for the winter. We should be on target to get a building up by the end of September which is great news. It's going to cost us, but in the name of getting two buildings up prior to Winter, we'll take it.
Spent the rest of the week networking with a local real estate investor who is investing in the St. Cloud area. I think he has some really solid opportunities that he's looking at. We've both considered putting money into each others' deals if we're low on funds and it's a can't-miss opportunity. Very fun meeting and talking with a like-minded investor. 

With that said, I also appreciate non-like-minded investors too. I went to the Apartment Investing Meetup in Bloomington on Thursday. It's fun to get a few ideas, tips, tricks when it comes to RE investing that is different from what I do. These folks are still investing in commercial RE but it's fun to hear their stories. A person I met at these meetups was interested in investing in my Hudson deal. In the end I was able to go it alone but nonetheless we've kept in touch. He is now doing a deal in Houston, TX for a 600 unit apartment building. That's $25-30M baby! Wow. Pretty impressive stuff. It's just him and a number of friends in his IT consulting sphere of influence. They aren't going to bring all the money to the table but it's an impressive project to tackle. 

Next week we are starting the Hudson Storage Garages project. Can't wait for that. I'll likely have all kinds of lame updates for you! I'm hoping to take pictures from the same angle each day/week to give a bit of a time-lapse. Wish me luck.

Word to Commercial Realtors

I was recently asked to comment on a 12 acre property that could potentially be used for self-storage in a growing community.  There was an existing building that makes $150k in rent per year.  The asking price was $2M.  The ask seems steep if you're looking to build self-storage but you get a nice rent payment to help offset things so I was still interested.  There more I got thinking about it, the more I worried that said renter folds up shop and you can't re-rent the building for $12,500/month.  So, here was my response and I think it's an interesting thought process about moving forward on something because the numbers work today.  I know most gurus say that you should make sure the property makes sense from day 1, but in this case, you should also make sure that the property makes sense in day 1001.  (For the sake of this blog entry, assume 6 acres is developable and the rest already has a tenant on it including the existing building.)

Here is my take on this property:

There is a bunch of storage across 3rd Ave from this site.  The auto towing place and the place next door already have their properties purchased so putting up additional storage is a lot cheaper for them.  Not to mention they can do it and probably stay under the 1 acre disturbance which doesn't require stormwater ponds.  I'm also concerned that I'd only have one tenant in the existing building and if that tenant left, there goes $150K/yr in income.  That, right there, would probably preclude me from buying.  Now if the owner wanted me to manage the existing building and tenant and then build storage on the rest of the property (on their behalf), I'd be happy to work out a deal with them.  Either they could pay a development fee or cut me in on the equity.  I would even handle the management of the self-storage.  But, it's probably a little risky in that both opportunities I'd be looking to develop (small and large storage) are right across the street with more acreage to build on.  

I know you mentioned that your client isn't looking to take on more work so I understand if he'd rather not go there.  But I'd be willing to take care of all of the management which would allow him to kick his feet up.  And with that said, I realize that this deal isn't very favorable to you and getting your commission check.  So I would understand you wouldn't exactly want to guide your client down this avenue.  But....If you did connect me with the seller and we develop the property, we probably build something that actually clears him $2M on the property AND you would get a much higher valued property to sell (which equals a larger commission - value would be somewhere around $4-5M) plus a much more in-demand property to sell and therefore easier to move.  But, it's about taking the long vs. the short game and I couldn't fault you for taking either one!  

Lastly, this property seems like it would mostly be fit for an owner-occupant for the existing building.  But with that, why would they want a $2M property when they could just buy the building and storage lot for $900K somewhere else?  And I don't see a developer willing to take on a $2M tab while knowing that $150K in income could walk away in a year or less and then he has to replace that income somehow.  That's why this is a super risky deal for a developer/buyer on either front.  

I hope you don't think I'm a total jerk here.  I'm just trying to help you sell this bugger.  It's a nice property, but the ask is a struggle for either party who might want to buy it (owner-operator or self-storage developer). 

Let me know if you think a sit down with the owner might help convince him to try the own, develop, and THEN sell, route or if you need some ammo to lower the price.  Don't worry, I wouldn't be so forthcoming in a face to face.  

Week 16 of Financial Independence!

Last week was slow, then crazy, then fun, then crazy again. 

We started off the week with a slow Monday. We were trying to get the "last" of the documents together for our Hudson Storage Garages loan closing on Friday morning. We got that accomplished and then tried to figure out how we are going to get the building permits for Buildings 1 and 2 in Hudson prior to the State review date on October 8th. This review date would then mean that we wouldn't get the building permit until October 22nd. That means construction is starting after boats and RVs are getting put away for the winter. No Bueno! So the rest of the week resulted in lots of emails and calls back and forth pertaining to this topic to figure out how we can speed this process up for Buildings 1 and 2. The Oct date for B3 and B4 is just fine but we need to get B1 and B2 up and available for rent or risk sitting pretty open all winter. And guess what, the credit union still wants their payments so this is a problem. To compound this issue, if we aren't starting until so late, and therefore renting up until later in the year, we don't want to start on B3 until B1 and B2 are rented up. That means we probably aren't going to start on B3 until later which pushed B4-6 back further. Then we run the risk of running out of time on our construction loan or doing extensions, or... It just really makes things messy and hurts our credibility with the credit union which we don't like. We want this to go swell for them so they want to continue to work with us. So we're going to pull out every stop to get B1 and B2 done. The lesson here is to change building designers if they can't commit to a date for getting your building design done. What I heard: "You're next in line". Reality: "You're in the next pile". Damn. More money and more time. 


Tuesday we did yard maintenance at our Hudson Storage Garages' office building to make sure that continues to look like a million bucks. We also hired a dumpster and some movers to clean out the tenant's stuff. That went really nicely. I didn't realized this but you can just hire a moving company to come and move your stuff from a basement to a dumpster. I just had it in my head that you have to have them move from House A to House B. Not necessarily the case. Thanks Daymakers! 


We found out on Monday that we needed estimates and contracts signed and notarized by our general contractor for the loan closing. This is always a problem for us because we have an Amish contractor so quick print and signatures is not always quick. Add to that the fact that our contact was on vacation and another layer of complication is added. In the end, our contractor's brother was working in Lakeland, MN and our credit union contact met him onsite and got the signatures and notarization that day. Whew. That worked out swimmingly. We definitely dodged what could have been a major headache. Surprisingly, what I've noticed is if you have the will, there's always a way. 


Wednesday was slow and a nice break from the action. Thursday was a little more paperwork and some figuring about our financial position. Review of our finances is probably our most common conversation as of late. After reviewing things, it gave us some perspective and allowed us to feel comfortable knowing we have some run-out and that this can happen with less stress than what it felt like earlier in the week. With that said, I decided it might be time to sell my car. It's less about the money and more about the "tone" I'm setting. I bought it when things were very comfortable and we had normal income from my job. Not things have a little less certainty and I see it as the cart before the horse. First things first. I feel like I have the car before it's really time to have the car. So it will be time to move on. No sadness or disappointment, just excitement that this is the right move as part of the journey. 


Friday morning came and we closed on our Hudson Storage Garages construction loan. Boats and RVs, here we come!!! We can finally start spending money that isn't ours for once! Now for the fun stuff. Hopefully in the next couple of weeks we will get the grading contractor onsite and progress will begin. I'll be sure to post lots of pictures so we can all keep up with the progress. 


The rest of the weekend was spent in GB with family and the Packers (wait, is that redundant?). Got to see my Grandma Marion and Uncle Mickey who are now living in TX and only get back to WI once a year (grandma) or less (uncle). The kids were able to play with cousins and friends that they don't see much and it was really a great weekend including Family Night at Lambeau. 


Lastly, filling in the gaps, I found time to listen to podcasts and read books. I'm still reading the Miracle Morning. It's under 150 pages but it's taking me forever. I gotta get on with it as I have other books in the queue. Also still pursuing some other deals with some friends and hearing about other friends' adventures. I have a friend who is likely picking up and heading off to Europe for a job. Super exciting. I may be managing their house as a rental while they are gone. This should be a fun opportunity for me to do a little more residential real estate to see if we'd like to get more deeply involved in that more common real estate niche. So far storage has been very good to us but there aren't many deals to be had with smaller dollar amounts which limits are ability to pursue them. So we continue to look for the next deal.

Multi-storied, climate controlled self-storage facilities

I got this really interesting question from a guy (I won't share his name in case he'd rather stay anonymous) on Bigger Pockets after we connected on a Self-Storage investing thread on their forums.  I certainly don't have all the answers but I thought it was interesting banter and his question probably provided more info that my answer, which also is unique.  For reference, he is from a small market in the midwest.  Similar to, if not slightly smaller than, Des Moines, IA in size and stature. 

Question or discussion point: Anyway, wanted to see if you have any experience or knowledge of companies that specialize in conversion or construction of multiple story climate controlled facilities? want to start doing some due diligence on trying to develop one in my market.

My answer: This is an interesting question you are presenting regarding the climate controlled storage.  I don't have much in the way of experience as I've never built anything quite that complicated.  It feels to me that you have to have a couple things working against the self-storage market before considering this option.  1.) property values have to be quite expensive, 2.) it has to be hard to build self storage, and 3.) there can't be any larger warehouses that could be converted into this.  

1.) It doesn't make sense to go up if property values are cheap enough to go sideways. 

2.) This means that only the determined can succeed in getting new self storage built and therefore it's worth buying expensive land and building expensive buildings because you'll get top rents.

3.) In the end this is what I wanted to talk about the most.  If there are large warehouses or old retail buildings sitting vacant, they might be a better buy and rehab project than a new construction.  You might be able to get the best real estate as there aren't many old Kmarts on crappy corners or out in the country.  Also, there is a number of these conversions in the Twin Cities now and I helped a friend move into one.  Seems like very simple construction methods and pretty cheap way to build units.  All of the slab/foundation is already in for you and you just attached walls to the floor.  All other infrastructure is in too - heat/AC, sprinklers, lighting, etc.  

So in the end, I'd explore the existing vacant large buildings/warehouses to see if you could retrofit one of them first.  If not, you might be well-served to head to an industry trade-show to see who'd designing and building these things.  

Do you mind if I ask why you were thinking the multi-story option would be best for a future project?  I've been there a time or two and it seemed that there was plenty of industrial/commercial land where storage could get built without having to go the more expensive route.  But if you can get a premium price for a premium product, more power to you, for sure.  

Feel free to email or call to discuss more.  This is an interesting subject.  I've mainly been building larger-scale storage units for businesses and people with large items - boats, RVs, heavy equip, etc.  Therefore, I haven't really thought about the multi-story climate controlled units all that much, to be honest.  But I do know there is a certain client that is looking for climate controlled and it isn't as simple as what they want to store.  It seems like more of a value proposition for them.  If they see the value in it, they'll pay for it.  And that's whether they really need it or not, which is the ironic part.

Material Costs - Up, up and away!

Prices for materials have been going up and up.  To the tune of 50% increase from December 2015 (1.5 years ago).  That is definitely starting to affect the returns.  I'm actually going to be keeping a very close eye on this over the construction of our newest facility.  If the numbers get out of whack, I may pull the plug on future buildings.  I'm wondering if this is going to have a positive affect (for me anyway) on rents in that rents will go up to catch up with demand due to less construction or more costly construction of storage units.

A 50% increase in material costs seems extreme too.  I need to start getting additional bids on the material prices.  From what I've heard, steel and timber have only gone up 20% in that time.  So something doesn't add up at the current junction. 

This will be interesting to track going forward.  I'll try to keep on top of this for you and report back from time to time.

With this being said, it might be a time to buy pre-existing storage facilities.  You might be able to buy cheaper than develop.  If that's the case, why put yourself through the headache of starting from scratch?  Obviously the numbers still have to work but if they work at $25/SF to build, they sure the heck work at $20/SF to buy.  Why not capitalize on that delta?