Investing HomerunOct 04, 2022
How did we turn $200,000 into over $5 million? It's an interesting story and I'm really excited to dive in because it shows the power of real estate and the power of self-storage. What we were doing, and we didn't know a lot when we got started. That's an oversimplification we didn't know what we were doing at all. We had purchased a small storage facility in a rural town, and we had bought it for $665,000. We put down $200,000 on it. It paid off debt and the customers took care of everything. This was a small facility, with a gravel drive. There was no real operation…it was unmanned, and we were operating it remotely. It was very far from where we lived and at the end of the day, we decided we didn't know where this was going to go. I think some of our assumptions were wrong, so we sold it.
We sold it for $40,000 less than we bought it for, but because it paid off debt, we still made a profit, which is great because what happened next was incredible. We took what we learned from that asset and said,
“Here's where things went wrong.”
Then we asked,
“What would make this asset work really well in a different place?”
Learn from Mistakes
This was honestly what really made the money. It was the education that we got from this first deal. We took that $200,000; we found a spot that had better demographics where we thought there would be larger areas to grow. We could probably boost revenue in this area. In addition, this was a 1031 exchange, so we paid no taxes, and we rolled it into another facility at $1.4 million, and we put $290,000 down. After closing costs and everything else – that includes the amount of debt that had been paid off, plus we had to put in a little more for closing costs – we closed on it at $1.4 million. We worked on it, we turned it around, we got rid of delinquencies, we raised up prices, and it was within the same year that we turned around and sold it for four million dollars. We found out things we didn't like about that asset; things where we said,
“Hey, these strategies would work a lot better in a different scenario. We don't want to be stagnant. We can get a higher price.”
We got a million dollars out of it and within a year, we did a 1031 exchange. We put those million dollars into another facility. This facility was a much larger facility. It cost four million dollars, we put one million dollars down on it. It was roughly about 65,000 net rentable square feet. Now, on this facility we worked hard to increase prices. Things didn't go as we thought they would. There was office space we lost. We lost a bunch of office tenants which we had to try to make up, and it was office space that was approximately 10 offices within the storage building. We don't do offices, so we just kind of let them go.
We made up for that revenue with our rate increases and running the storage facilities well, but we also lost revenue on a U-Haul dealership that was on it that they had multiple people running it. It was kind of a mess. It didn't make a lot of money, but when you're paying for an asset and you're getting twenty thousand dollars in revenue and you're buying it on a cap rate, that's a lot of money. That's hundreds of thousands of dollars of value that we lost, so we had to make up for those things in our rental process by getting new tenants, by increasing the rents. We did that. We came in with our operations, we focused on marketing, we focused on training the manager at this location. We boosted that revenue up.
In fact, we got it up enough to where we could expand the facility. There was an old shop and some vacant land on it. We tore that down; we added another roughly six thousand square feet of storage. We knew which units were in high demand and on that one we did more of an automation system so anybody could come and use it any time of the day. We used a “no-key” touchless technology, and we could automate that whole entire operation. We could charge higher prices for that luxury.
So, where does it sit now? This was a seven-year process. Today we're at seventy-one thousand square feet, the gross monthly revenue alone is at $61,000. That means that from one year’s revenue, we're making over seven hundred and forty thousand dollars on that property in gross revenue. Our net is right at $490,000.
Now, remember our down payment on our original facility was $200,000 a year. At that price, even conservatively, that asset is now worth over eight million, so we now have right around three million dollars in debt. That's five million in equity that we can now use to go and buy another facility. That’s what we did. Now, I’m not going down that road and I’m not going to include all of that because then it's not actually 5 million. It's more than that original $200,000 it made us. That is incredible! We’re talking about almost eight hundred thousand dollars a year, not including all the other assets that we purchase, by putting down payments from the equity and tax-free from this asset. That is the power of real estate. That is the power of making good decisions. When you know that asset's not going anywhere, don't hold it. Cut your losses and take what you learned and use it to compound your money!