Why Invest in Self-Storage? And Why Now?

Clint Harris: 00:00:00

For me, based upon the returns that we're seeing, it is a perfect fit to get me away from hurricane alley to take the profits from my short-term rental business, drop into something else. That's highly profitable. That for me can be completely passive. And again, vertically integrated these guys own the construction. They're buying the building, they're running the analysis, they own the construction and they own the property management company as a business owner and a short-term investor. I understand the value of vertical integration and controlling every part of that. And also not paying the going market rate for construction and for the property management and everything else like that, that combined with the streamlining and automating and putting in touch screens and leveraging technology to reduce onsite staff, but still have high level of security. It's a no-brainer

Neil Henderson: 00:00:51

You want to build financial freedom for your family through real estate investing, but you don't have the time or the money or the knowledge you need to invest. We are busy parents just like you. Each week we interview successful real estate entrepreneurs about their chosen investment strategy and break it down by how much money it took to get started. How much time it takes and what kind of knowledge it took to get started? Or why passive investing might be right for you. Join us and let's hit the road to Family Freedom! In this, the second part of our interview with Clint Harris, we talk about his pivot into self storage, investing, why he chose to add self storage to his investment strategy. Why self storage and why now? So this is going to be a two-parter because we're going to of the things Clint and I are going to talk about is diversification, and pivoting into the kinds of things that he and I are doing now. We were talking about this right before we recorded and the importance of, we all know, you know, a lot of active, real estate investors, you know, short term rental people, you know, self storage, people, multi-family people, BRRRR investors, house flippers, all of them, active investors frequently become addicted to the returns that you're getting with an active investment. I know that I can take my $50,000 and I can, I can earn a 30 to 50% return, over the next couple of years. But that also means I'm doing a lot of work.

Clint Harris: 00:02:26

Right.

Neil Henderson: 00:02:27

Whereas one of the things that we're going to talk about here in just a minute is looking for ways to diversify out of whatever you're actively investing in and that could also mean your job. We know a lot of people who, who make a lot of money, but work a lot, work really hard to earn that money and you have to look for ways to passively invest or diversify away from, strictly investing in short-term rentals in a coastal community where you could be shut down by a hurricane or flooding or, a global pandemic, you know?

Clint Harris: 00:03:00

Absolutely. So, yeah, I've, I definitely recognize that. And I think it's something that I want to add in on top of that, as well as everybody typically is in the investing game, because we're looking for some kind of financial freedom and financial freedom is something that is very attainable, I think is something we should all be shooting for. But I think it's also a little shallow compared to what we need to be thinking about, like with my short term rentals and then going into property management, basically for a year, that was just a job for whoever was Sean and the people in the company like that was the job. And my job was to be working on the business and not in the business in a way that at the end of the day. And that's where we are now is that I don't have anything to do with it at all. My properties are being managed by a company that I own, and we've got complete control of everything there. So that, that is passive for me. Because financial independence by itself doesn't mean much to me, if it comes at the cost of time, dependence and location dependence, I think if you have financial independence built in such a way that you also have time independence and location independence, now you can go where you want. When you want with who you want and do what you want. You have the finances to do it, and that creates independence of purpose. Now, I think that's a lot more important than just financial independence by itself. So that's what I've tried to build our short term rental business into however, you and I both know that was short term rentals, especially short-term rentals in a coastal community. It comes with inherent risk. When COVID happened, we were shut down for two months. We had 28 grand worth of bookings. Cancel immediately. We also have hurricanes here that can shut us down for a month or two. At a time, we got hit with four hurricanes in three years. Now, luckily we were, one of them was pretty rough. The other ones weren't that bad and we were back up and running pretty quickly, but it can happen, right. And in a seasonal market, if you lose a big chunk of your season, It's a lot of risk. And so to have all of your eggs in that basket is a little scary to me. And so I think whatever, wherever you're operating short-term rentals, there's always inherent risk and it creates so much more value than you can get with any other type of rental that I still recommend people do it, but do it in such a way that you can take that revenue scale as quickly as you can, so that you can take that revenue and invest into an asset class or in an area. That's going to give you a lot of insulation, and save you in case something happens in that short term rental market that you're in. And that's what you and I've been working on.

Neil Henderson: 00:05:26

Alright. As you often hear us talk about on, on the road to family freedom, we love self storage, and Clint has, has become, uh, great friends and partners with, my partner as well. Eric and Levi Hemingway with now Nomad Capital. I think that's now their, the name they're going by. Our partners, Nomad Capital, and Elm builders, experienced self storage owners operators. Now they've been slowly building a personal portfolio of self storage facilities, but now they're looking to expand a lot in the next three to five years and you and I are a part of that and, hitching our wagon to them and helping, in the best way that we know how and, and, uh, there's benefit to us and there's benefit to our investors and things like that. So talk to us a little bit about. What you're doing? What and what drew you to it?

Clint Harris: 00:06:19

So the natural fit for me was knowing in the back of my mind, I've got to find a way to diversify away from the coast, take some of the profits that we're making here and put them someplace else. But I don't want to put it someplace where I want to be an active investor. I've worked really hard to get our business here, to the point where it's truly passive and I want to take the money I'm making and putting it into something else. That's also passive. If I'm diversifying away from where I am, then it needs to be something safe and secure. And so, you know, I got hooked up with the guys that were working with Nomad Capital through you, and I'm extremely grateful for that. And just talking a lot about the deals that you've looked at your ability to underwrite deals and understand the financials. It got me down the pathway towards self storage facilities, and it didn't take long for me to decide that that's the safest asset class that I could diversify into. And then with the partnership that we've got with Nomad Capital and coming together, these are guys that are looking to build facilities across the Southeast. We're in Georgia, north and South Carolina, Tennessee, Virginia, by definition, these are safe, secure buildings. The one that we purchased recently is an old Kmart. It's in a central business district with high residential density around there. The building's been there a long time. We're converting it to a drive in self storage facility with 485 units that building's not going anywhere. It's been there for a long time. There is zero climate right now for people to be buying big box stores. Big box retail is at an all time low. With e-commerce and everything else involved. We're buying the property for pennies on the dollar of what we could build it for. We purchased a building for 1.5 million. It would've cost us 6 million to build it. Now a couple more million goes into renovating it, but we're converting it into a drive in self storage facility. And then we have ambitions where we've got two more deals under contract right now that we're working on and we have ambitions. So when I say we, it's the collective, we were looking to do three to five deals per year for the next five years. For me, based upon the returns that we're seeing, it is a perfect fit to get me away from hurricane alley to take the profits from my short-term rental business, drop into something else. That's highly profitable. That for me can be completely passive. And again, vertically integrated these guys own the construction. They're buying the building, they're running the analysis, they own the construction and they own the property management company as a business owner and a short-term investor. I understand the value of vertical integration and controlling every part of that. And also not paying the going market rate for construction and for the property management and everything else like that, that combined with the streamlining and automating and putting in touch screens and leveraging technology to reduce onsite staff, but still have high level of security. security It's a no-brainer because it's what I'm doing and it's in a safe, secure environment. So that's why that's where we're going.

Neil Henderson: 00:09:15

I'm always struck a little bit by the similarities between the technological shift that's happening in short-term rentals and the hospitality industry in general and self storage. Self storage used to be a very, I would call it hands-on business, but the old school, you know, self storage facility that people think about is a bunch of garages. Maybe fenced off with a house, and an office there on site and, a kind of rough looking manager that sits behind the desk all day long and picks up the phone occasionally and, you know, rents garages to people. Well, in reality, the shift, the technological shift that's happening, is that, it's a lot easier to install touchless kiosks for people where they're able to just rent without ever talking to a manager. And, one of the largest consumer of self storage right now, demographically are millennials. They're the largest, the largest demographic population in the United States now, and they actually, also make up the largest consumer of self storage, which we never expected to see is not what we were expecting to see

Clint Harris: 00:10:22

one in three right now have a self storage facility here. That statistic blew me away.

Neil Henderson: 00:10:27

Yeah. And millennials don't like talking to people they want, they also are not, necessarily your traditional kind of self-storage user, the kind of person, I'm and I'm an example of this. You know, we rented a self storage facility when we were in transition out here in North Carolina. We never saw that stuff. We put it in and it sat there for a year and a half. And then we went and we picked it up. And the sad fact is we got rid of most of it. Except for the stuff that was really personal to us. Whereas millennials what's happening is they're moving into, urban cores and they're moving into smaller houses and they're using the storage as like a second garage, they're storing their storing their winter clothes there, their skis, their snowboard, all of their, their toys and things like that. And so they're accessing it a lot more. So they're visiting the site a lot more often. They want access 24 hours a day, and they don't want to have to talk to somebody every time they come in.

Clint Harris: 00:11:24

Right. And it needs to be climate controlled as well Um Correct. And think about it in the last year and a half to two years, how many people, started working from home and all of a sudden needed a home office. And if you didn't buy it with that in mind, because you'd never worked remotely before, where is that space coming from? Well, you got to find it someplace and that means something has to go. So exactly right. And, and you're right. It makes more sense for a lot of those people to pay for monthly storage unit than to upgrade to a bigger apartment and pay for that square footage when they can just relocate some of the furniture that they own and things like that and put that office space in their house. So the world's been turned upside down in the last year and a half and, the prices are going up and up. So millennials are exactly what you said. They're trying to have a smaller footprint and that's a good release valve for them to have that. And then, a combination of people working remotely, uh, it's, it's astounding. And a lot of times people are able to work remotely with the market up. People have been putting their stuff in storage, selling their house and bouncing around for six months. A lot of the people we get here in the off season, renting our properties are here for one to three months and just kind of moving around before they figure out where they want to settle down. Because they're location independent for the first time in their lives.

Neil Henderson: 00:12:36

Yeah. Well, and again, it comes back to a similar thing that's happening with short-term rentals and the hospitality industry, which is just touchless. You know, the technology has caught up, there was a period where there was a lot of, uh, kiosks and things like that. And in self-storage, it didn't work all that well. Uh, and in the same way that uh more traditional short-term rental operators, you had to basically call the office, Hey, I'm here. Can I pick up the key? Well now, you know, people have, uh, people are accessing the properties from their mobile phones, right? And the same thing is happening with storage. Everyone has a kiosk in their pocket, uh, and, and their, their self storage software. Now that allows someone to rent, you know, they've looked for it on Google. And it pops up and they go, oh, Hey, there's one right down the street. Oh. And I can book it here right online. And they go and they book it. They, you know, they sign up, uh, they put their credit card in, it sends them an access code and they go, and there's some that are even going so far as to have, specialized locks on the, on the actual self storage unit that are wifi or Bluetooth enabled. Um, but often, you know, we're able to do it in a little less high tech way where we would just have a vending machine onsite where someone able to basically, you know, pay for a lock on site and grab it. And off they go

Clint Harris: 00:13:55

That same transition that we've seen with in short term rentals that we've implemented in our company, that's drastically changed our profitability compared to our competition. It's the same thing happening there. And so that's why when I looked at looking around, where can I take some of this revenue and deploy it? Number one, the idea of being spread out across the southeast. In big, safe buildings, big box, you know, box retail stores that are being converted and Um was a no brainer. And then I instantly got the technology side of things because that's what I had to learn, the hard way with what we were doing. And I was like, this is a no brainer. So for us, I think we can all admit that, you know, currently right now, inflation is at 7%. Interest rates are still fairly road low for right now. I think this is a perfect time to go into acquisitions. It's really hard to do that with real estate residential real estate buying short-term rentals is very, very tough right now because the market is extremely hot. However, no one is in the market for big box retail stores. And I think that we are primed to pick them up for pennies on the dollar, by owning the construction, we can convert them into a giant climate controlled drive in self storage facility, leveraging technology to minimize fixed overhead, and then be diversified across the Southeast. It was a no-brainer for me. Yeah. Well, and as you mentioned, interest rates are historically low right now, and you have that transition from big box stores. There's so many big box stores coming available, you know, for the Kmart, that the deal that you worked on just recently, it was what, 87,000 square feet, 87,000 square feet, and uh 60,000 net rentable. And then another, the one that we have under contract in Virginia is another 87,000 square feet as well. But that one has a garden center as well for RV storage also.

Neil Henderson: 00:15:38

And Sears is not coming back. No, Kmart's not coming back. There's a good chance. Macy's is kind of probably go away, although Macy's is typically more in the mall space, you know, but you think about all these just big box stores, you know, these big old buildings that are in retail corridor, that are surrounded by, people who are already doing business. It's a prime opportunity to just swoop in and buy those up and convert them to climate controlled Class-A storage,

Clint Harris: 00:16:07

Absolutely, you know, back to what I said about inflation being 7% right now, every dollar that I have, I'm earning it and converting it into recession resistant real estate as fast as I possibly can because just by going and burying it in the ground or putting into the bank, it's going down in value constantly. If you look at these big box stores that we're shopping for right now and have under contract, they're there for a reason they're there because they're either in a central business district or a high residential density area. And if you want to think about it, like the irony is not lost on me. You've got 30 or 40 years of people in that community going and buying their junk from that building. And now looking to come pay to put it right back into the same building into storage. It's the reality of the shift that we've seen in our culture, we're consumer society. But right now people need a place to put that. And because we're getting the best deal on this because of the way we're buying it, the way that we control the fixed overhead for converting it, the way we control the fixed overhead for managing it. And then, uh, the value add potential here is astronomical. And, um, yeah, we've got a big future with this.

Neil Henderson: 00:17:11

The Kmart in North Carolina, he bought the building for what, 1.5,

Clint Harris: 00:17:16

1.5.

Neil Henderson: 00:17:17

And you said you're putting, you know, we're putting probably another 2 million into it.

Clint Harris: 00:17:21

Yeah. Cost of steel went up a little bit. So I think we're at $2.1 million.

Neil Henderson: 00:17:25

So Clint. I don't have a million dollars to put down a down payment for, the purchase and the, and the build-out of that kind of facility. Who are the types of people that are investing in this?

Clint Harris: 00:17:39

Yep. I don't either. That's the power of a syndication model, uh, is what we're doing here. So basically, Neil and I are working together with Nomad C apital and Elm builders. And we're getting a group of like-minded investors to put in various amounts of money each for different amounts of equity in the deal. And so you don't have to have a, a million dollars. I certainly don't most of us don't, but I do think that by getting in on this right now, that I think we're going to create that wealth fairly quickly. But basically we're pulling money together from a group of investors to go after and take down these properties and trying to do three to five a year for the next few years. And we have some pretty lofty goals. I'm happy to go over that. Maybe not in a podcast with each individual, because those goals tend to be changing pretty quickly as we're scaling, we're getting to some, some pretty impressive numbers. So, um, basically that's the format that we're doing it. And I put my money in and I know the Neil's, you know, that's the way that we're doing is we're investing on individual levels because I believe that when it comes to things like that, again, like if you want to go fast, go alone. But if you want to go far build a team. And in situations like this, especially when it comes to self storage, that the whole is definitely greater than the sum of its parts.

Neil Henderson: 00:18:51

Gotcha. All right. As you often hear on this podcast, if you have an interest in self storage and you want to hear more about it on the active side, the passive side, whatever. I have had a lot of conversations with people who are more interested on investing in storage on the active side, and several of them are now self storage owners. So I'm more than happy to have those conversations with you. But, I can tell you it takes an enormous amount of work, and if you're already somebody works for a living and earns a good living, and is probably better served by continuing to do that for the time being. I'm more than happy to talk to you. Clint's more than happy to talk to you about investing on the passive side. Just go to roadtofamilyfreedom.com/storage and set up a time to talk. There's no pressure. It's just a chance for us to get to know each other and, and talk about our individual goals. So, all right, man, it's been a pleasure as always, and we're going to have to do this more often. Just like I I'm, I'm, it's fun sitting here on a, on a Sunday afternoon. I mean we could be watching NFL playoff football, but I enjoy sitting down and just geeking out about short-term rentals.

Clint Harris: 00:19:58

And I can talk about this stuff all day and it's a problem I'm trying to work through that, but it's crazy. The last time we did this, we were like 2000 miles apart had never actually met in person. And now we live two blocks apart. On the beach, by the way, Neil is closer to the ocean than I do. I'm two and a half blocks away. He's across the street just to rub it in.

Neil Henderson: 00:20:18

Yeah. I, uh, he, he told me when I moved in here, he Clint owns a boat. I don't own a boat, uh, that I was going to have to, he was going to call me for, to check the sea conditions every once in a while. Oops. Uh, and uh, I called him this morning and said, uh, it looks bad.

Clint Harris: 00:20:33

Yeah. I, I appreciate your input, but I didn't need you to tell me to know that it was a, we got seven to nine foot seas today with this, uh, this NorEastr blowing in.

Neil Henderson: 00:20:42

That's pretty bad. So, but normally, normally it's gorgeous. It's beautiful. And, uh, we're loving life out here, so. All right. Thank you, sir. Yeah. Thanks for having me, man. Fun to do it again. Can't wait to do it again soon. Hey, before you go. If you like the show we would be delighted if you'd head over to pod chaser and leave us an honest review. And do let us know why you like the show, how long you've been listening and in particular, what you find really useful or entertaining. And let us know if there's anything you think we should do differently. Also, if you have specific questions about real estate investing, especially self storage or short-term rentals. Shoot us an email at info@roadtofamilyfreedom.Com. And we'll be happy to answer your question on the show. We might even turn it into an entire episode. Thank you for listening. We'll see you again on the next episode of the Road to Family Freedom. Safe travels.