Tenants, toilets, and termites … real estate investing isn’t always pleasant.
But we have good news for you … real estate is more than just single- and multi-family properties (although we’re big fans of those investment classes too).
In our new Profitable Niches series, we’ll explore a variety of niches in detail so you can find the asset class that best fits your investing needs.
This episode explores a fascinating niche … self-storage properties. We’ll dive into the reality and myths of this tenantless niche with a multi-talented investor, Dave Zook.
In this episode of The Real Estate Guys™ show you’ll hear from:
- Your nice host, Robert Helms
- His niche co-host, Russell Gray
- Real estate investor and instructor Dave Zook
Broadcasting since 1997 with over 300 episodes on iTunes!
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How and why to invest in self-storage properties
He also runs The Real Asset Investor, where he finds and curates real asset investment opportunities for investors who want to build wealth.
Dave’s latest venture has been self-storage units, so we sat down to discuss some need-to-know characteristics for this asset class.
First, what should investors look for in a self-storage investment?
Investors need to make sure everything pencils out. Demand for self-storage units varies drastically depending on the market and its demographics … and demand and profitability also change over time.
Some markets are overbuilt. Investors need to do a comprehensive market analysis. Investors can look at population growth, strength of economy, and the local job market.
Dave Zook says his one go-to metric to figure out whether a market is over- or underbuilt is comparing the square footage of existing storage space to the square footage needed per person in the average market.
We asked Dave whether self-storage investing has gotten too hot for investors to get in. His answer is a definite “no.” “There’s still opportunity, especially in tertiary markets, to get in,” he says.
Like all real estate investing, there’s a smart and a not-so-smart way to go about investing in self-storage. Dave says that just like in multi-family investing, a key component of a profitable investment is purchasing a property with value-add opportunity.
For Dave, the best way to go is purchasing a property in a desirable location, whether unbuilt or with B- or C-class storage buildings, and then reviving the property and adding value and square footage.
How can investors choose what type of self-storage units to invest in? After all, there are a lot of options, including business/commercial storage and air-conditioned/climate-controlled storage.
A lot depends on the geographic area in which you’re investing, says Dave. For example, you’ll find far more climate-controlled storage facilities in Florida than elsewhere in the country.
We talked with Dave about what makes self-storage investing so great. There are several pros:
- Tenant/landlord laws don’t apply when your tenants are boxes. This changes your risk parameters immediately.
- Self-storage facilities are commercial spaces, not residential. It’s a lot easier to shut down a non-performing tenant under commercial rules.
- Self-storage renters tend to use spaces long term. Although the average self-storage tenant intends to stay 3 to 6 months, most stay between 28 and 30 months.
Another bonus? Self-storage investments are accessible to mom-and-pop investors who come in alongside a syndicator. In fact, Dave specializes in syndicating opportunities for smaller investors … read on for details about his syndication program.
Investing the Zook way
Dave follows the 10,000-hour rule. According to Malcolm Gladwell, it takes 10,000 hours of practice to be world-class in any given field.
How, you may ask, has Dave spent 10,000 hours learning the ropes of every asset class he invests in? The answer … he hasn’t.
Dave calls himself a generalist. He dabbles in many different areas, but when it comes to down-and-dirty details, Dave relies on a team of specialists to operate investment properties.
Dave says his “shortcut” to becoming a great investor is finding a team and rallying around them. “Doing business with a great team can turn your investment experience from a nightmare to something really enjoyable,” he says.
Currently, Dave partners with Reliant Real Estate Management to operate ongoing and future self-storage investment syndication deals. These experts have a proven track record of profitable management … a must-have for Dave and his investors.
Dave’s most recent self-storage deal is quite spacious … 70,000 feet. Dave is expanding the 526-unit property to add approximately 400 more units.
Dave purchased his latest property for approximately $8 million, with $4 million down. Once construction is completed, he and his team will be at about 75 percent loan to value.
Obviously, self-storage owners need to provide a mix of unit types and sizes. Although it can be a challenge to figure out exactly what you need, Dave says he relies on historical data … and expert analysis … to predict demand and occupancy.
Most investors aren’t going to buy a 70,000-square-foot property solo. So we asked Dave what is looks like when investors come alongside him in a syndication deal.
The timeline for Dave’s deals is typically 60 days from contract to close. The first 10-15 days are spent structuring the deal, and then investors typically have 45-60 days to join in.
Investors contribute a minimum of $100,000 and must be accredited.
It can be hard to find opportunities like those Dave offers, so connection is key. The best way to find deals is to connect with people entrenched in the space you’d like to invest in.
Looking for more information on investing with Dave? Listen in to the show to get access to a complimentary self-storage report from Dave Zook himself.
For a thriving portfolio, understand asset classes
There are a lot of ways to play the real estate game. For those just getting started, the wide array of options can be confusing.
And for established investors, it can be easy to choose an asset class and stick with it!
That’s why we created the Profitable Niches series … to break down the various types of asset classes in a detailed but understandable way so YOU can do the best deals.
Dave is a great example of someone who’s taken our motto, “Education for effective action,” and put it to work.
He’s also a great example of someone who knows he might not be the smartest person in the room when it comes to a particular asset class … and acknowledges the value of building a great team to fill in the details.
Want to be more like Dave … an experienced investor who has stayed out of the weeds and developed a diverse, thriving portfolio? Keep listening to the series!
Learning more about each asset class will allow you to do a thorough zero-based analysis of your current portfolio so you know whether you would do it again … and what you need to change to build wealth and satisfaction, your way.
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