I met Jon Farling in 2019 at the first-ever BiggerPockets conference in Nashville.
At the time, I was just beginning to learn about self-storage investing, and Jon had just purchased his second facility. His storage business was still in its infancy, and he was still working his W2 job, but I could see he was going places fast.
A few months later, we started a small mastermind group, and I continued to learn a lot from him and others in the group.
Jon fascinated me because he was a real person in the trenches. I didn't need an ‘expert' with a course or software to sell me. I needed someone to tell me the unvarnished truth about the highs and lows of the business.
Fast forward to mid-2022, and Jon has quit his job and now owns eight facilities with over 1,200 storage units. His life has changed dramatically in a good way, and I've been amazed at how far he has gotten in three short years.
In this interview, Jon will tell us how he made it happen, the best and worst parts of the business, and what life is like owning a business that makes a lot of money without requiring much of his time.
Links and Resources
- L4investing.com (Jon's Website)
- 051: How Mike Wagner Made $750K Flipping a Self Storage Facility
- 053: Mike Wagner Explains What NOT to do as a Storage Investor
- The Storage Rebellion
- BiggerPockets Conference
- How Does a HELOC Work?
- What Is a Cap Rate and Why Does It Matter?
- My Self Storage Facility Due Diligence Checklist
- The Best Websites to Bookmark in the Self Storage Industry
- Easy Storage Solutions
- What Is a REIT?
- REO Link Security Cameras
- Lorex Security Cameras
Seth: Hey, everybody, how's it going? This is Seth Williams, and you are listening to the REtipster podcast.
Today, I'm really excited because I get to talk to my good friend, Jon Farling. Jon and I, we go back. I think it was in 2019 when we first met, if I remember right. It was the first ever BiggerPockets conference in Nashville. And I didn't know Jon. I just showed up and I was looking for people. And Jon had sent out an announcement on the app saying, "Hey, everybody. There's a self-storage gathering over here." And like six or seven people showed up, including me and including Jon.
At the time I was just starting to learn about self-storage. I didn't know a whole lot about it, but I wanted to rub shoulders with anybody who was there. I got to toggle with Jon a little bit. And I think at the time, Jon, had you just bought one storage facility? Or did you have two at that point?
Jon: I think I had one. Yeah, one that I owned and then one I was under contract on.
Seth: Okay. Got you. These were not huge ones. How many units was each one?
Jon: First one was about 100 that I owned. And then one that I was in contract on was about 130. They're both around 12,000, 13,000 square feet. So yeah, not very big.
Seth: Got you. When I met Jon, the thing that struck me about him was that he was just a normal guy. Just a normal, everyday person working a job and he wanted to get into this business. He had a dream to go far with that and he was really doing it. He wasn't just learning about it and reading books. It's like he was actually making it happen. He just seems to have a lot of good practical knowledge, even in the early stages that he was in. And I was just picking his brain.
It was one of those interesting situations where I felt like I was getting more value just talking to him than if I was talking to some guru or course maker or something, just because he was just a real guy. I wasn't getting sold on something. I wasn't being told something that isn't true. I was just hearing the whole story from him.
So, Jon and I, we stayed in touch. We ended up forming a mastermind group together with a few other people. And I learned a ton of stuff from that. It was crazy how much I learned, which on one hand it's not surprising. I usually do learn a ton from mastermind groups. I still have pages and pages of notes from just talking to Jon, talking to the other guys that were in this group.
And fast forward a few years to now, and Jon, how many facilities do you have?
Jon: Own and operate eight myself, and then passively invest in two others.
Seth: And how many units is that?
Jon: About 1,200.
Seth: So, in the span of just a few years, he's gotten up to 1,200 units and you quit your job. And this was like a couple of years ago now when you quit your job?
Jon: Yeah, just about two years ago.
Seth: And I remember back when we first met, I don't want to put words in your mouth, Jon, but just from what I recall, it's not like you hated your life or anything, but like most people, you weren't super content with that life of just working your job. You wanted something more and you felt stuck and you wanted to get out. Is that accurate?
Jon: Yeah. This is being recorded. I didn't hate my job, but I wanted to definitely do more. I've always had an entrepreneurial spirit about myself. That actually fit in the job that I was in. But yeah, I wanted to go further. I had hit my ceiling there. I was there 11 years doing outside sales. I had hit my ceiling probably in year three. So yeah, I was ready. I started real estate investing in 2015 with a single-family rental. So, there's a lot of groundwork that was done before, one, I got self-storage, and two, I was able to even think about leaving my job.
I left my job in 2020. So, I had five years of trying to figure this thing out. How am I going to leave my job? Yeah, there's a lot of foundation work that a lot of people may not know about or realize. That's everyone's story, I'm sure. But yeah, there was a lot of foundation that had to be laid first.
Seth: Yeah. Maybe we should just go back to 2015 when you started it. So, you were doing, was it single-family or multi-family or the rental property thing as most people do, right?
Jon: Yeah. Actually, I was thinking about it this morning. Yeah, 2014 I was actually coaching basketball, and had to quit that lifestyle because our first child, our daughter was born, in March of 2014, and then the wheels start spinning. It's like, “Okay, how am I going to pay for her college education? How am I going to retire?” I remember all these thoughts.
Just doing the math and I'm like, “Well, one, I'm never going to retire if I keep this up, or I'll have to live off $30,000 a year.” And then going down the rabbit hole of how to pay for her education and that eventually led me to, “I need to do something else on the side.” And I've always had a bug for real estate. My parents were in it. They built spec homes as I was growing up. They had a few rentals here and there.
And looking back in 2014, I probably looked at no less than 20 houses, maybe 40. I wish I would've had enough sense to buy all of them, but at the time the rents didn't match up with what I would've been paying for them. But yeah, right now they're all triple the value easily.
So, I did end up finding one. I bought basically one per year, starting 2015. The first one I did all the rehab myself, which was good and bad. I was grinding, learned a lot. But you can't scale a business that way either. And that proves too, because I did literally one per year and then finally, I decided I wanted to get into something bigger and eventually found storage and was able to scale from there.
Seth: When and why did you find storage? What was it about the storage business that enticed you to pursue that versus the rental property thing? I know my reasons, but what were your reasons?
Jon: I looked at everything. I tried finding multi-family, and this goes back to 2017-2018. I couldn't find anything that made sense. I tried doing a mail campaign with single-family. It just didn't work. I wasn't doing the right things obviously. I didn't have the right systems and processes. I looked at small businesses to buy, Subway franchises, everything. Eventually, I found a car wash down the street from where we lived and found out I could get an SBA loan, which, for that deal, I think I could have brought 10% as a down payment, which to me excited me, because I could get into a larger asset, make more of a cash flow, better return with less money in.
The deal ended up falling apart. However, after that I did a little bit more research on SBA and found out I could get into self-storage with an SBA loan, and then start digging through there. And then that actually led me to Mike Wagner, who taught me storage and a bunch of other things too. But yeah, that's kind of how I got there. I was just digging through SBA loans, seeing how they worked, what they cover, and storage was a great fit.
Seth: I know for a lot of people who are curious about the self-storage business, the numbers are a big thing in terms of like, what does it cost to buy one of these things? How much money can you make from them? What kind of down payment do you need? And just that whole financing thing. It sounds like you were coming from this world where you had rental properties. So, did you sell off a rental property and use that for your down payment? Is that how you handled it?
Jon: I've done all my deals by myself other than one personal loan that I had, which basically was for repairs for one of my deals. But yeah, my first deal, what did we do? I think we had cash, but I think we technically use our HELOC. Second deal, same type of thing. By the time those two were rolling I was like, “I see the pot of gold at the end of the rainbow. It's time to get rolling here.” I started selling off my single-family rentals. Actually, I cashed out my 401(k) after I quit my 9-to-5. So yeah, I basically sold everything off and had some cash too, to be able to get in all these.
But yeah, the first two deals were using HELOC and leveraging that. We had some equity in our house. I was able to do that. It was the right timing. Things just lined up and were able to roll from there.
Seth: How did you find these first couple of deals?
Jon: Yeah. When I said I tried doing mail marketing campaigns for single-family and multi-family, it didn't work for me. It worked for me in storage, and the main reason why is because I went into these smaller towns and they had never received a letter before. So, I hit them at the right time in the right areas.
Now, only three years later, things have drastically changed. I get letters probably once a week at all my facilities. Whereas three years ago, those owners of the same facilities weren't getting any attention. So yeah, I was the only one. It was a good time.
Seth: Why do you think that changed? Is it just because it's so hard to find deals these days? I've noticed that in the land business too and I have some theories as to why, but in terms of self-storage, why is it that it was something that wasn't done and all of a sudden everybody's doing it?
Jon: COVID, good and bad. Yeah. More investors came in because of COVID. Just a ton of reasons. COVID is supposedly recession-resistant. The lean process is easier. So, when we couldn't evict tenants in houses or multi-family, I was still evicting people in storage.
Well, you think about all the assets that kind of failed too, right? Office isn't doing very well. Retail. So yeah, you just had more people coming into the space. Technology has changed storage a ton over the past five to seven years. There were people coming in slowly and then COVID just dumped a bunch of people. Good and bad. It dumped a bunch of renters too. More people are using storage now, but more people are buying and developing storage as well.
Seth: Yeah. Now, if I remember right, didn't I hear you say that you were just cold-calling people in your area, like just Googling self-storage facilities and calling them to see if they wanted to sell? Was that something you did a lot?
Jon: Yeah. I did some of that, mails worked for me better. I don't really know why. I haven't called for a while, but yeah, that first year to two years where I was really hunting for deals, mail really worked for me. I got my first two deals off 60 letters, which is almost unheard of. Actually, you could probably say three deals because I think my third deal was in that campaign, they just didn't get back to me till later.
Yeah, my response rate was great because I was the only one that was fishing in this pond, but I did make some calls. I think more people are calling now than I don't want to say more than letters, but yeah, more people are definitely calling now. I don't get it as much because I have a property management company answer my phone calls. But yeah, people are calling now. It's turned into any other asset trying to find deals.
Seth: Do you think that's going to go backward? Say if, I don't know, office space suddenly becomes hot again, whenever that day is coming, do you think people will stop caring about storage again? I don't know, any theories on that?
Jon: That's a good question. Well, I know some markets are already saturated, which is going to affect things. We'll see what this downturn recession, whatever does. There are people that are definitely in too tight of deals. So, we'll see what happens. Yeah, there are stats that say storage is the least defaulted asset, but you look at it too. People have been, even myself, even three years ago, we were buying these for dirt cheap. So, the default rate is going to be less because we're buying them for dirt cheap. Things have changed. That default rate is absolutely going to go up. Where? I have no idea. I try to buy right the best I can, even in today's market. But yeah, there are people that definitely overpaid and areas that are saturated. So, we'll see. But you also have technology changing a lot of things in storage. I run all my facilities with no one on site. So yeah, it's hard to say.
Seth: Yeah. A couple of different lines of questions. I'm just trying to figure out which way to go first. So, you mentioned the technology. Maybe let's just jump into that. What are you using to manage these things and how does that work?
Jon: This is the thing I couldn't wrap my head around, because I had no idea what Mike Wagner not helped me the most with, but showed me the path. Technically, I have a property management company and what they do is they have a call center. They answer all the phone calls, during hours.
Then I've got a website through them at each facility. So, if someone wants to rent a unit, they can technically do it at the fence, at my gate. So, they can pull to the gate. They can either call the phone number within five minutes they can get into their unit or they can go online on their phone, rent a unit online and have access immediately.
Seth: Are there instructions at the gate that tell them this? Or would they have to go to the website and figure it out from there?
Jon: Pretty simple. But yeah, I've got signs that say, "Sorry, we missed you, call us or visit our website." You go to the website, you just click rent online and it takes you through the process. So, it's super simple. Yeah. There are people that need help figuring it out. But yeah, it's super simple.
Seth: Yeah. Because what you're saying there makes perfect sense, but for some reason, I don't know why I've never connected the dots in my head that I could literally drive up to a facility and rent it at the gate. There's this idea in my head like, “Okay, I got to go home. I got to open up my computer. I got to go. Then I can come back.” I don't know. I wonder if you could put a QR code at the gate, "Scan this and rent now," something like that.
Jon: Yeah. Some facilities are doing that. And in terms of technology, I'm probably 12 months behind. But the newer facilities, the Reeds, the bigger players, yeah, they've got QR codes. Some of them you'll walk inside and they'll have a tablet that you can rent your unit on and then they'll have a video that shows you, one, how to rent it, where your unit's at, all that stuff. So yeah, technology has changed storage so much. Even before all this, kiosks were a big thing. I'd say for the past decade. There are still people that still believe in those, I think, but yeah, basically our smartphones have taken over that kiosk.
Seth: And with the kiosk thing, it's basically the same thing as your phone. There's just a machine there where you sign it up. Do you get a lock from those kiosks too? Or you got to handle that on your own.
Jon: That's a good question. I don't know. I've never run one.
Seth: Maybe they work in different ways.
Jon: I kind of came in when those were being phased out. So, I don't know. I really know nothing about kiosks.
Seth: Those things are kind of expensive I would imagine, right?
Jon: I want to say $10,000-ish, in that ballpark.
Seth: Yeah. It sounds about right. Got you. And Easy Storage Solutions. Is that what you're still using? That's this company that handles all this stuff?
Jon: Yep. Well, another thing is it's moved. A lot of reasons. Technology has moved so fast. New owners have come into the space and then other, I guess, legacy owners, they're all rushing too, they've all found out, “Hey, I don't need to take the phone call anymore. I can use a third party.” So that's also helped or hurt companies like ESS, because they've just been inundated with business.
So, what's happening is that it's hopefully getting worked out because I've had some growing pains with them. But you also have other property management companies come on board where now you have other options. Those options are, I think within a year or two years, we're going to have some pretty good options. Right now, I don't want to say there are not great options, but everyone's trying to figure it out, trying to dial things in.
Seth: Yeah. I had always heard about that, the dangers of a company growing too fast and I was always like, “What are you talking about? How is that a problem?” But when I was doing my MBA, a number of years back, I started to understand the problem. I think this is probably a perfect example of how if you don't have the systems in place to handle all the new business, you can't deliver and people are going to get mad at you and then your reputation goes into the tank. Yeah, it can be really tricky when all of a sudden demand spikes like that. I know with Easy Storage Solutions, one of the issues I've heard of is that they don't take calls on Sundays. Is that accurate?
Jon: They don't. To me, that's not a big deal.
Seth: People don't call on Sunday?
Jon: People do. Not everyone has their facility set up like this, but I get an email with the voicemail. So, if someone calls in, and I have an operations manager he'll check the emails. If someone calls in, he'll call them back, and if they want to rent a unit, we'll try to run it to him, or just tell them to go online and do it. And that's for after-hours too.
But yeah, as far as growing too fast, they ran into the same issues most businesses during COVID, which was people. Their call center was fine. And without COVID, even with the same growth, my guess is they would've handled it better. But yeah, it was a people problem. They just didn't have enough people answering the phones, couldn't hire fast enough. And the quality that they were hiring was not very good. So same problems as any other business that's been trying to grow.
Seth: Is there like an alternative to them, like another company that does basically the same thing?
Jon: Yeah. And that's the thing, that's where things are getting better. I don't know if there's any company that has a software and call center that you can get together, but you can use their software and use a different call center. You can use other software and use whatever call center. They are great for, if you own one or two facilities. They're great. Their software is super easy to understand. You can plug anyone into it and within half an hour understand everything on the software.
I haven't changed just because for that reason. It's just super simple and having had enough pain point to change, but there's more advanced software I could change too. Better call centers I could change too, just haven't done it yet.
Seth: Yeah. It's like the blessing and the curse of having any company or software or whatever that does so much. It's such an easy, obvious solution when it's working well. When it doesn't work well, it's like, uh-oh, all of a sudden, it's a huge problem.
Jon: Yeah, well, they were… Yeah, and I don't want to…
Seth: Yeah. I'm not trying to single them out. Just in general, like anything in life when you rely too much on a single thing, there's some danger in that.
Jon: Yeah. Well, they were bought out by a large company too, which changed some things, I think. They're no longer the mom-and-pop company, which they were when I started with them. So that changed.
Seth: Yeah. I think you're right though. Just given where things are going, there has to be an improvement there. I don't know how it couldn't happen. Since the demand is there for that kind of service, whether it's with them or other companies doing better, whatever, but I'm sure it'll only get better from here.
Maybe we just look at that first deal, because I know that's always a big first step, the first deal in any new business. So, what were the numbers on that thing? How much did it cost? How much money did it make? How much cash did you have to come to the table with? Just walk us through that.
Jon: Yeah. And I'll kind of take you back even further. So, all four of my rental properties basically cash flow about the same, which was between $250, $300 a month. And each one I probably had between we'll call it $25,000 and $40,000 into each one of them. So, my returns weren't all that great. Obviously, I wasn't growing fast enough.
When I found my first deal the owner wanted $375,000 for 12,000 square feet. And at the time, obviously, if you go further down the road, you learn more, but I just figured the same rental rates as what he was doing, the same sales, technically somewhat the same expenses and then I included my property management, ESS. I included their fees in there. And I knew I was going to cash flow at least $1,000 a month.
To me that was like hitting the lottery. I'm like, “Okay, I'm going from $250, $300 a month for each single-family rental. Now I can get into one asset for about the same amount of money.” So, with the SBA loan, I brought 15% down, which I think was roughly $50,000. So roughly around the same amount of money and I'm making almost three times as much per month. I'm like, “This is a no-brainer. Why would I not do this?”
And then once I got into it, I realized, “Oh, wow, I can make a lot more than that.” But yeah, that's the real numbers. I bought it for $375,000. Actually, my second deal numbers were almost identical.
Seth: Well, when you say the SBA loan, was this a 504 or 7(a) loan?
Jon: I always get them confused. And I just did one this year too.
Seth: Yeah. The 504 loan is where there's a bank loan and then an SBA loan. So, you got two separate loan payments. The 7(a) is where there's just one bank loan that's guaranteed by SBA.
Jon: Yeah. My first two deals were 504. My one this year was 7(a). So yeah, I had two bank loans. I've since refi-d both those loans, cash-out. But yeah, real numbers, sales for my first deal from the previous owner were about $50,000 a year.
Seth: We're talking about the first storage facility right now?
Jon: Yeah. For the first deal. Sales were $50,000 a year. Revenue was $50,000. I'm now at $90,000 to $95,000 a year. So, I've almost doubled that.
Seth: And how did that happen?
Jon: What's that?
Seth: Yeah. Did you add units or raise the rent or what caused that change?
Jon: I've added units, but that's only been two months ago. So that doesn't even include those units. Just raising rate, it's called rate management. But yeah, it's crazy how over time, the rates just increase. I also included or added setup fees. When someone rents a unit, late fees, auction fees, you get money from auctions, just all these little fees. I added six parking spots. All these little things just start adding up.
For example, I want to, say, for 10 by 10, when I took over, they were renting those for around $55 a month. I think I'm $90 to $95 a month. So yeah, you raise rates with existing customers and then really raise rates with street rates, and then over time the existing customers start to move out, you put people in with street rates and the revenue just keeps stacking.
Seth: Yeah. When you're looking at a new deal, I guess either back then or today, because I know this is a very common thing where you'll find these smaller mom-and-pop facilities that aren't really managed that well, they're not advertised well. The rates don't make sense. So, what are some low-hanging fruit opportunities that you're always looking for in terms of here's how I can make this thing worth more immediately by just flicking the pen and changing this here or there. What are some examples of what you would be looking for?
Jon: Rental rates. That's the main thing. What's their rental rates compared to the market? What's crazy is even that first deal, there's a REIT in town, which is a Real Estate Investment Trust. So, a large storage owner in that small town, my rates at times are higher than theirs. And their facility is obviously better than mine. I've got weeds grown that are hard to control. And it's almost leaving the city, going out to the country. And then you have this, we'll call it B-plus facility, that's asphalt, drive up. I don't want to say more secure, but it looks more secure than mine, someone on site. And yeah, there are times where I'm charging more for my units than they are, which is crazy.
So, if I get one- or two-unit sizes available, I'll really jack more rates. Because at some point someone's going to come by and say, “I need a unit. I'll pay whatever. Give me that unit.” That happens. So that's how over time these rates just keep increasing. And then if I have five units of one size become available, I'll drop my rates a little bit till it fills up. It's like the airlines, you're constantly moving rates based on demand.
Seth: I mean, just looking at these numbers, it looks like demand has gone up and up and up. I mean, it must be if rates are going up and up. What is making that happen and what would make demand go down? What would make rates go down? Does that ever happen? And if so, what causes that? Just a recession or something?
Jon: We'll find out. I haven't been in that long enough. Well, there are a lot of things going on. There are a lot of things going on. One, there are more people now than two years, three years ago that are using storage. One reason, people are moving. More people are moving right now and we'll see what happens with the housing market. Will more people be moving? Probably not as many. So that's one reason.
But then you may have a recession where people will downsize and need to store stuff. People are also buying more stuff right now. I don't know, I don't have exact stats, but people are buying more stuff now than ever. I think that's only going to increase with time. So, will we ever go back down to 2019, 2015 numbers of people using storage? I don't know. I think it's going to just keep increasing. It's going to come back down a little bit, obviously, it can't just keep increasing, but yeah, I think over time it'll just keep increasing as we, as people, just collect more junk.
Seth: Yeah. That whole issue of this being a recession resistant business, I've heard the rationale because even if people lose their jobs and lose their homes, they still got to store their stuff somewhere, that kind of thing. Which I get that to some point, but I look at states like Michigan. It's always been either a boom or a bust state for the most part. Either people are coming here in droves or they're leaving here in droves, for one reason or another, usually the auto industry.
But I don't know. I know I was actually closing SBA loans for my job back in like 2011, 2012, 2013. We did 504 loans for a handful of storage facilities and I saw the prices go way up just in my time there. I quit that job in early 2016. So, that was before all the growth that you saw.
I know values definitely do go up and down. It's not just a static thing and it is risk-free, but it just makes you wonder, what's the ugly side of this that we haven't seen yet? How could a person get burned? It sounds like, if you were to try to hit the reset button and do everything you've done so far, but starting right now, not back in 2018 or 2019, or whenever you started with the self-storage stuff, what would be harder about it now? Were the prices super advantageous? Were the rates better, like less competition? Just try to compare and contrast the two time periods.
Jon: Yeah. A lot of things. I'm in these smaller markets. For the most part, the population is under 70,000 in all my markets. No one was looking for storage facilities to buy in those markets, and or building. Well, that's the other thing. That's going to increase rental rates and saturation. These bigger markets, without a doubt, are areas that are going to be oversaturated.
Yeah, it is hard. I don't want to say it's harder. You're paying more now, but rental rates have also gone up because you've got more competent owners in a lot of these areas. So as time goes on, we're buying out Jim, Bob, and his cousin who were running their storage facility, but answering their phone once a week, didn't really care if they were making all the collections, would collect payments in cash.
Now you have more sophisticated owners that are buying these and have systems in place. So that also increases rental rates. Now, obviously, there's a ceiling, especially in these smaller towns, people are only going to pay so much. And in towns that I'm in, I'm still one of two or three sophisticated owners in town. So, I'm in the top 8% or eighth of the ownership in that town. But yeah, most of them are still running how they were 10 years ago, which is not the correct way. Yeah, I don't know if that explains everything.
Seth: It sounds like, I don't know if this was a conscious choice or just how it worked out for you, but this choice to pursue facilities that were pretty rural and just places that might not be the average person's first idea of where to start looking, it sounds like that's been sort of beneficial, right?
Jon: 100%. I owe that all to Mike Wagner. By the way, shout out to Storage Rebellion. It’s his company.
Seth: Yeah. I'll link to him in the show notes. We've interviewed him a couple of times on the podcast as well. I actually did a consulting call with him this past year though. He's a great guy.
Jon: Oh, nice. Yeah, he's awesome. When I found storage and was like, “Okay, let's try this out”, I bought a list and tried to do a marketing campaign. I live in Columbus, Ohio. I tried to do a marketing campaign in Columbus, Ohio. Guess what? No one called me, no one cared. Then Michael's like, “Well, I buy all my facilities in small towns, rural towns, whatever. So why don't you try that?”
I was kind of reluctant at first, but I was like, “Yeah, it makes sense.” In my mind, I'm still kind of thinking residential rentals. I'm not going to get appreciation and all this other stuff. But you're buying a business. It's not appreciating the same way. It's appreciating the way a business does. I'm not going to get a four cap where I'm buying. But yeah, that changed everything for me, going in these smaller towns. And again, no one else was looking in these small towns. No one else wanted to invest in these small towns.
Seth: Yeah. And you just mentioned four cap. I know that cap rates and that kind of thing is something, some people, depending on which niche of real estate you're in, that's very familiar and for other people, they're like, "What? What is that? And why does it matter?"
Cap rates. If I understand it right, a high cap rate basically means your return is pretty good. But maybe there's more risk associated with that deal. Like a competitor could show up right next to you because it's more rural and that kind of thing. Whereas a low cap rate, the return isn't as good, but there's also, I guess, more certainty to the deal. Maybe competitors can't show up just at the drop of a hat. I don't know, what is your assessment of cap rates and how important they are and why they matter? That kind of thing.
Jon: To me, they matter when I sell. When I buy, I don't even look at it. And a cap rate is basically your return on your money if you pay cash for the entire deal. And it's changing because interest rates are changing. But the areas where I'm at, I could probably sell at best six and a half cap, six and a half to seven and a half cap price, somewhere in there.
Yeah, I don't look at cap rates going in. I may take a look if I'm bored. I don't judge what I'm buying off a cap rate at all. Actually, a deal I bought this year, I probably technically bought it, at their numbers, I probably bought it around a four cap, four to five cap and it's in a smaller town. But I knew there's value-add there to where I can go in day one, and I did, go on day one and raise rental rates. So, to me, it wasn't a four-cap. I was buying it at, whatever, probably a 10-cap because I was raising rates day one.
Seth: Yeah. And in terms of knowing that you can do that, that's just a matter of looking at occupancy rates and rental rates of the competitors in the area.
Seth: Is that what it boils down to?
Jon: Knowing the market, knowing the competitors. Yeah. Well, and I was talking to somebody the other day about this. And everyone's got their own strategy, I don't want to say there's no right or wrong. Now that I've learned, I'll usually find whoever's highest in the market, which is probably a REIT. And then you've got your next class underneath that, called B class. I try to follow their rates. So, if someone's running the 10 by 10 for $75 and the REIT is at $105, I'm going to come in day one, raise my rates to 75. And then you still have people that are still charging $50, $60, but I'll go to that kind of second-tier rate. That's where I'm going to put my current customer's rates at. And then my street rates are going to be higher than that. Probably close to the REITs.
Seth: Do you order feasibility studies for all these things before you buy them or ever?
Jon: I haven't. No. I think that's more important when you're developing or doing a conversion, in my opinion. Because I'm buying technically cash-flowing facilities, it's cash-flowing for me for day one. Someone built that facility for a reason, unless there's a bunch of development in the area, I'm not worried about that.
Seth: Yeah. And for those who don't know what a feasibility study is, I bought one or paid for one about a year ago and it’s $7,000. But they basically go in with all their tools and technology and look at the local market, figure out how much storage is there. What's the price of everybody's units, what's the occupancy rate? And I don't even really know how they know occupancy rates other than just calling them and asking them “What's your occupancy rate?” If a person doesn't want to tell you that, do you just guess at that point?
And also, what they did with mine in a way was they put together a cost assessment of what it would cost to build what I'm trying to do, which is just an educated guess. But it really just gives you a third-party assessment of, “Is this a smart move or not? Is this a good or bad market for you to try to do this in? Or maybe if you're planning this, maybe you should consider this instead, because there's no climate-controlled storage yet, just cold storage. So maybe you should go this other direction.”
But like Jon was saying, when you're building something from the ground up or adding a bunch of units that aren't there yet, it's kind of a speculation move. You don't know that. So that's why it's important to really look at this. Whereas if it's an existing one, you already have proof that it's working or how well it's working based on the current rent roll.
In terms of competition, I know we've talked a little bit about this with the REITs and that kind of thing. Has that ever been an issue or a concern for you? Are you ever worried that it will be? Because I know competition is one of those big things. It's one of the very few things that storage owners really don't have control over. I can't control if somebody is going to build a huge thing right next to me and that will definitely affect me if they do. So, is that ever a concern in your mind or do you not lose sleep over that?
Jon: Yeah. And I know why you're asking this question, because we talked about it before the call. But no, the deal that I bought this year, it's actually in my hometown where I grew up. I already own a facility in town. The deal that I bought this year were two facilities. So now I've got three facilities in the same town, different areas of town, which to me is beneficial. I was super nervous. I'm still a little concerned because I have, I think it's two owners that don't know what they're doing and just building storage because they're like, “Oh, storage is cool. I'm just going to keep building.”
Seth: Oh, no. Yeah, that's scary.
Jon: Yeah. Fortunately, one guy is on the other part of town where, I don't want to say he's not competition because I could pull some renters from there. But yeah, he's kind of in a different part of town. The other guy is a competitor of mine. Doesn't know what he's doing. Again, neither one of them. I won't say they don't know what they're doing. They're just shooting from the hip. They're not doing feasibility studies. I guarantee it. They don't do rate management. They don't do anything that you see that sophisticated storage owners do.
So yeah, I am a little nervous. I have to work a little bit harder in that town to rent my units. For the most part, I'm still okay. But we'll see over time if demand drops what's going to happen. Yeah, we'll see.
Seth: Yeah. On that whole issue, has low occupancy ever been a problem for you or even if it hasn't, but if it becomes a problem in the future, what levers do you have to pull to fix that? Is it basically advertising, lowering rent? The first month is free rent or anything like that? How do you resolve the occupancy problem? Especially if there's a huge competitor near you?
Jon: Yeah. Price wars. Yeah, right now I do have a special actually in that town, half off first month. Actually, the one guy that just built a ton of units in there, I guess he's doing, what was it? I think it's half off for six months. I don't know why he jumped to that. That kind of explains to you, he doesn't really know what he's doing. But yeah, price wars. You can go into probably any big city, especially areas that are saturated and just look at what those storage owners are doing. $1 first month, half off for the first three months, whatever. Yeah, you just run specials, you start dropping your rates.
Occupancy is the biggest thing because especially the big REITs, they just want to get you in there. Because guess what? Month two, month three, whenever your special ends, your rates are going up. So, you just paid $75 for that unit for month one. However, now it's $125 month two. That's what they do. I don't know if they do it that quick, but yeah, they raise your rates all the time. They just want to get you in there.
Jon: Because they know you're going to stay. It's a sticky business. Most people probably that rent storage probably say, “Yeah, I just need it for a month.” 20 years later now they've got three units. It's just what happens. It's sad. But it happens.
Seth: Yeah. What are the most effective ways to trick people? Like that first month is free. I've heard somebody say, they raise their rent $5 every month. So, it doesn't ever really feel like anything, but $5 month after month after month. I don't know. Is that a legitimate strategy people use?
Jon: I haven't heard that, but yeah, especially if they're set up on recurring payments. We all have some type of recurring payment, right? $5, we're not going to cancel anything for the most part. I'm sure there are people that do that. Yeah. I don't know. I usually raise rates. It depends on occupancy, but I usually do it maybe two to three times a year.
Seth: Yeah. I know when we were talking a few weeks ago, something that struck me was deferred maintenance and how much it's not actually a huge problem apparently. At least compared to multi-family residential properties. So, if you have a facility that's kind of run down, maybe it doesn't look that good. How important is it for you to get on that? Like paint the whole place, put new doors on. Does that really matter? Does that give you the ability to raise rent or is it smarter to be just like, “It's not a huge problem. It still works. It's just a storage room, who cares?” I guess, does the market respond much to that either way, or do people not really care? They just want a dry place to store things.
Jon: It's all about market demand. That's the basis. It's all about market demand. If there's a ton of demand and no units available, it doesn't matter what your facility looks like for the most part. You can get full, you can keep raising your rates, whatever. If doors don't work, that's a problem. You're going to have to fix that. Actually, I was at one of my facilities yesterday and I'm just looking around and I'm like, the colors are ugly. I'd love to paint it, but I just had an auction. So technically I'm not full, but my guess is in a month I will be full again. And not having to do anything like that. I do put more stone down. I try to make it look the best I can, but I was looking around and I'm like there are tons of corners that are bent, damaged, folded.
And this facility is ugly. It's brown trim, yellow walls, and then the doors are white and everything's faded. The latches are rusted and we're replacing the latches as people move out. But it's crazy. And this facility actually has interior walls that are wood, OSB. Very interesting.
Yeah, there's a ton of demand. Demand is the whole thing.
Seth: How much is it if you wanted to repaint that? How many thousands of dollars would that be?
Jon: One of my good friends owns a painting company. However, he lives three hours away. I think he did give me a quote for that facility. Everything, but the doors and that's 30,000 square feet. I think he was around $15,000 maybe, which to me, I want to do it. He just didn't have time. He did paint my second facility. It was all block. It needed it just because paint was crumbling off. It's actually a concrete block. I need to seal the concrete block. So, he did paint that one and it looks a lot better. But yeah, as far as renting, as long as there's market demand, it doesn't matter. Like you said, it needs to be safe and dry. That's the biggest thing.
Seth: When we talk about the management of these things, I know something that you have done, correct me if I'm wrong, but I believe what you've done is you've hired boots on the ground for each individual facility. A person who checks in, like, is there, I don't know how often they're there, how long they're there, but basically a person to keep the place tidy. If any issues come up, they can take care of them. They can clean out units. Is that accurate? Is that how you're handling it?
Jon: Pretty much. Yeah. Boots on the ground. Most of my guys are retired, semi-retired. Some of them are still working. Their main duties are, when someone moves out, they need to go get the unit rent ready. So, sweep it out, spray the springs. And then we put a combination lock on the unit. They pick up small trash around the facility and then anything on top of that, I'll pay them extra. If I need them to empty a unit, because someone left a bunch of junk behind, I'll pay them extra for that.
But yeah, two main things are getting units rent-ready. Letting us know if they find another unit that was emptied that we didn't know about, the person didn't call in. And then picking up small trash. Then I'll use vendors to mow, take care of snow, fix any maintenance issues, stuff like that. My boots, they have a pretty simple job. It’s to keep an eye on the place. And I try to overpay them for that so that they take some type of ownership in the place.
Seth: And what does that look like? How much do you have to pay them for this?
Jon: For the smaller facilities where I have lower turnover, they're there maybe once a week, like quick in and out, just picking up little trash. They're getting around $100-ish, $150 a month. Some of the guys I've gone to more of an hourly rate because it's higher turnover, and it makes more sense for both of us to do that. So yeah, it's probably anywhere between $150 and $350.
Seth: Say when they're cleaning out a unit, can they just keep whatever they find? Is that part of their compensation or do they have to just chuck it into the garbage or how does that work?
Jon: If it's an abandoned unit, yeah, they can take it because it's abandoned, we can throw it away. If it's an auction unit, they don't even see it. Right now, I'm actually doing the auctions myself. But yeah, if it's abandoned, yeah. It's technically trash and more likely it truly is trash and they don't want anything in it.
Seth: With this auction process, how does that work? How much money do you make on those? Is there a website you do this through? Walk us through that process.
Jon: There's a few websites, storageauctions.com is the one that I use. Every state has its own lean laws that you have to follow. For me, in Ohio, I believe it's 60 days. And then you can start the auction process. I usually wait until I have a decent amount of units. We'll call it double digits basically. And then I'll do an auction. I don't want to do an auction for two units. It's just not worth my time or anyone's time.
Yeah, I'll usually wait till double digits. I have to send out a certified letter. I think I got to give them a month from the time I send a certified letter, give them a month to pay. If they don't pay, cut their lock, put it on the auction website, auction it off. It's pretty simple. We call them, we text them, we email them, we try to get ahold of them the best we can for them to pay. Most people that start going down that road, they are never going to pay. Yeah. And as far as banking, I don't make much. I've had one unit go for a significant amount. Everything else is like $20, maybe $80, here and there.
Seth: Oh, really?
Jon: Yeah. So not much. When I started, actually one of my boots on the ground is an auctioneer and I had him doing in-person auctions and was making, I don't want to say a decent amount, probably making at least three times what I make now. But it was such a hassle and you'd have like 50, 60 people show up at the facility. It was too much. But yeah, in-person auctions, I was making a lot more money. Just wasn't worth the hassle.
Seth: Has anything of significant value ever been found in one of those abandoned units? Like bars of gold or anything like that?
Jon: I wouldn't know. About the only store I have, I thought it was an auction unit. I went to cut the lock, open up the door, and there was like a 1980s Jaguar car in there.
Seth: Oh, nice.
Jon: And I was like, “Oh, I don't want to auction this off.” Long story short, I was able to track down who the owner was. He had another unit. He didn't realize he had two units. He was an older gentleman. He was paying for one, wasn't paying for this one. So, he caught up on payments. Everything was fine. But yeah, that one would've been… Auctioning vehicles is a whole different animal.
Seth: And that was just you being a nice guy, right? You had every legal right to just take that car if you wanted to?
Jon: To auction it off I would've to go through the process and would've found him eventually.
Seth: Oh, I see. Got you.
Jon: Yeah. I found him before I basically went through the entire auction process. I thought it was an abandoned unit. So, when I was cutting the lock, I didn't think anyone was even renting it.
Seth: With the locks? So, do people bring their own locks or do you provide locks for them?
Jon: Yeah, for my facility I have people bring their own locks. Yes.
Seth: Okay. But earlier you were saying, when they clean out an abandoned unit, you have your boots on the ground put a combination lock on there when it's cleaned out. So, when the new tenant comes, they just take that off and put theirs on it? How does that work?
Jon: Correct. Yeah. They're basically chintzy combination locks that I have found over time to be useful because we're locking vacant units. My first deal, I had squatters. People living in my units. I would go there to open up a unit because there's no lock on it and there's someone sleeping in there. I was kind of tired of that. Now yeah, it's a real simple combination lock just to lock those. Unfortunately, some people do continue using that lock. That's on them. I'd rather them not because then I have to buy more locks, but yeah, we recommend everyone bring their own lock. And we put those just on vacant units.
Seth: Do you make people sign up for renter's insurance or something or at least give them the option to?
Jon: The option. A lot of people are trending towards forcing it. I haven't done it yet. Something I probably need to do, I just haven't yet.
Seth: And forcing it why? Just because they can make more money from it or is there a liability on the owner in some way if they don't get the insurance and something bad happens?
Jon: Talk to your attorney, but there's basically no liability for the most part, as long as your lease is in place for the storage owner. But yeah, tenant protection helps the tenant, protects the tenant, and owners also make a cut of it. So, it's another value-add piece that if you're making even a dollar per unit, you're forcing people to sign up, you're making money. Now you're making people sign up, you're making more than that. More than likely. Or if they're not signing up, they have to provide proof of renter's insurance, some type of insurance that covers them.
Seth: How much is that for them to get renter's insurance?
Jon: Renter's insurance, I'm not sure. For TPP, tenant protection, it varies. I want to say between… I think it starts at $6 or $8 up to like $20-ish, I think. Somewhere in there.
Seth: On that note about people living in the units, do you have security cameras at all these facilities currently? Can you see if that were to start happening, you would know and you could stop it?
Jon: I do have security cameras at all of them. When I started, I watched them way too much. I almost watched them like a sitcom.
Seth: Yeah. I could see myself doing that.
Jon: Yeah, I don't anymore. I'll get on if I need to check on something. I don't say it's easy to find someone living there, but for the most part, you find out pretty quickly. Boots will tell us. Yeah, there's a bunch of different ways to find out if someone's living there. You just find out.
Seth: What kind of security camera system are you using? Do you like it?
Jon: I've got three different kinds. I've got a really good installer that I met at my first facility and he travels. He travels the nation. So, if you need him, anyone else needs them, let me know. He's really good. Right now, the latest ones he installed are Lorex that you can just buy at Costco. But I've installed Swann, Reolink. I think mainly of those three.
Seth: Which of those three do you love the most and least?
Jon: I had issue with Swann cameras. For the most part, the DVRs, the apps are relatively the same, but the Swann cameras seem to take on water more and I've had issues with that. Reolink, knock on wood, that was my first facility that I installed, Reolink. I've had no issues with those cameras. Even the Lorex, I think I've had a couple take on a little bit of water. Yeah, they're all relatively similar but Swann, and I don't even know if Swann is really making any more. I know their customer service is awful. I tried getting the camera swapped out under warranty and couldn't get ahold of anybody.
Seth: I have the Nest Cam thing for my house. Is it a similar thing where like there's an app, it records events that happen like if there's movement or something, you can watch a history of it. It stores it in the cloud. Is that what Reolink and these others do?
Jon: Yes. But you don't have to pay for it. So, you're paying upfront for the cameras and DVR system. But you're not paying a monthly subscription.
Seth: This DVR system…
Jon: Yeah. It's recording.
Seth: Got you. The DVR system, do you have to store that somewhere or is it stored in some cloud somewhere?
Jon: It's in the cloud somewhere. Yes.
Seth: Okay. Got you.
Jon: Cameras are nice to have an extra eye on your property, and it is good for security, but there's not… How do I word this? I've had break-ins and the cameras don't really help. I can kind of see, “Oh, this is how they broke in” and then kind of correct the issue so it doesn't going forward. But other than that, you're not going to see someone's face on the cameras. At best, maybe you'll get a license plate. But otherwise, yeah, they've got a hoodie on and you can't see anything. You can see what units they go to. But they're nice to have. I like them, I'll always put them in, but they're not a necessity.
Seth: Got you. Sounds like you've had a couple of crazy stories with people living in their units and people breaking in. Any other bizarre stories that the average person wouldn't believe or anything like that?
Jon: You name it.
Jon: You name it. I've had everything.
Seth: What's some crazy stuff that's happened? Because I think a lot of people think of self-storage as a drama-free business. But it sounds like maybe that's not the case.
Jon: You have to get kind of callous to it. And I will say Reynolds helped me a little bit just with kind of getting to be callous to dumb things people do. I bought my first facility in June of 2019, somewhere in there. We went on vacation a month later. Fortunately, I had my boots on the ground, my local person already in place. But while I was on vacation for that week, I had three or four break-ins. Our boots found two people living in units and drug paraphernalia all over the facility. I thought that was like the worst thing in the world. How is it ever going to get worse than that? Well, this year, I, unfortunately, had a long story, but I had someone take their life in one of my units.
Seth: Are you serious? Oh my gosh.
Jon: Yeah. It can't really get worse than that, but that was, yeah, that's obviously awful. That's as bad as it's going to get.
Seth: Did you have to discover that or your boots on the ground did?
Jon: The sheriff called me and they kind of knew what was going on, I believe. They wanted access to the facility, so I gave them access and I was watching the cameras. More cops showed up, not a lot was happening and then the ambulance showed up and kind of figured everything out from there.
Seth: Oh, man. That does sound horrible. I can't imagine it getting worse than that.
Jon: That's about as bad.
Seth: I mean, maybe it can. That's horrible.
Jon: You see everything, that's obviously super rare, but as far as people live in units, it happens. People break in, it happens. Drugs happen, especially if you have an undated facility and it's dark and people realize that and they'd go by one facility, that's what people would do. It was a dark facility, not gated. And people would go to the back of the facility and sell drugs or do drugs and or all that stuff.
Seth: You said that was not gated.
Jon: It was not at the time. Yes.
Seth: Does the gate and the fence, does that solve many problems or is it just like a perception of security when it's not actually that secure?
Jon: It definitely does. In fact, when I have a gate go down, I have many panic attacks. Because it's like, I need that gate working now. During the day, not so much, But at night, yeah, definitely. Obviously, people can still get in, they can hop the fence, they can cut the fence and I've had that. I've had someone literally cut down the post, I don't know what they're called, but then cut the fence. Just the links that attach to the post, peel back the fence and roll side by side out. So, people will get in if they want to get in. But the gate definitely deters the majority of stuff.
Seth: I've heard that, there's actually a guy, one of my neighbours, he does commercial property management for a company that handles it. Anyway, he was telling me that gates are the number one biggest maintenance issue all the time when they exist. Just because they go down and everybody is stuck. So, what causes a gate to go down and how do you get it fixed? Could that really screw things up for days on end possibly? Or what does that look like?
Jon: Great question. I don't know. I need to find out from my gate company why my gate keeps going down.
Seth: Is it like snow or something or it just breaks by itself?
Jon: Snow can, ice can. There are so many reasons. You can get condensation on the reflector and or the photo light that shoots the beam across the reflector. Sometimes you just need to reset the breakers to reset the software. I don't know if it's software, whatever, reset the mechanical system and then it'll work. But yeah, snow and ice are a big thing. Especially if you have freezing rain, it'll get all over that chain and you literally need to melt the ice off the chain.
Seth: Like with a hair dryer or something? How do you melt that off?
Jon: Anything. Or wait a few days. You're up in Michigan. So, you get worse weather than I do, but yeah, this last winter we had at least two or three… Well, no, maybe all the gates at one point were frozen shut. Now, during that time, as long as it warms up within a day or two, you're not going to have anyone go out there anyways. And that's what I was banking on, the sun to come out, melt the ice and it'll work.
Seth: Yeah. And I guess that was my other question was like, how big of a problem is it if all of a sudden nobody can get in or out? Is it the end of the world or is it like, “Ah, that's inconvenient, but whatever, we'll be fine?” Is that usually how people treat it?
Jon: Mostly, it's just inconvenient. In my mind, it's the end of the world, but it's just inconvenient. Because yeah, people too will complain to complain. And also, I kind of hope that they get, “Well, give me half off for the month then since your gate's not working.” We'll get that which will work with people. But yeah, I think it's more of that. There are very few people, unless you're running a business out of that storage facility, there are very few people that need in there right now.
Seth: Yeah. Because I remember one time, I was helping my brother move and I had to drive like hours to get to the place where his stuff was stored and the gate was busted and it was a huge problem because I'm not coming back here, this needs to work now or you're up a creek. I was replaying that scenario in my head. It actually is a huge problem if it's broken, but it sounds like most of the time it's probably not a huge issue.
Jon: Yeah. Most of the time it's not. And I don't want to say all of them, most of them have a safety feature that if it's stuck closed, you can push it open.
Seth: Oh, I got you. Unless it's frozen.
Jon: You still can, you just have put some muscle behind it.
Seth: If you are Arnold Schwarzenegger or something like that.
Jon: Right. Yeah.
Seth: I know you've definitely gone through a journey, anybody who starts something like this, their first facility, first time dealing with all these different issues that can come up versus somebody who's been sort of callous to it and they've been in it for several years and they've kind of seen a lot of what's going to happen. So, when you go back to your first year, what was the hardest part of the business in that first year? And then fast forward to now, today, what are the hardest things about the business with your current situation and your current mindset?
Jon: Yeah. To tie both those together is when I started, I didn't have systems and processes. I did, but I was the business plus the property management and the software, but any issue that came up, I had to either take care of it or delegate it.
Now I have systems. So, for example, when I was on vacation, when I had all those break-ins, all those issues, fortunately, my boots were there. However, I didn't know how to take care of the situation. I didn't know the system to take care of it. Neither did he, so I couldn't delegate that to him. So, I had to take care of the issues when I got back. And that's when I found out, “Okay, let's lock these vacant units.”
So, over time I've gotten these systems and processes in place. I now have an operations manager that takes care of it, he delegates everything, the boots on the ground. He communicates with them. He deals with emails from the property management company. I'm kind of overseeing all that. So yeah, systems and processes, taking yourself out of the business is huge. And you can't scale if you don't do that.
Seth: Yeah. How many units did you need before you could justify hiring this guy to basically replace you?
Jon: Everyone's got a different answer.
Seth: I know. I'm just thinking, like your situation, when were you like, “Okay, now it makes sense to do that?”
Jon: Here's the thing. Over time, my rates keep going up. My income also keeps going up. So, it's more based on that than units. But yeah, I could have on my fifth facility. I hired someone technically when I got my sixth facility. And that was about six months after I got my fifth facility. And it's a part-time gig. The way I run everything, it's not full-time. It’s part-time. My current guys may be doing 10 to 15 hours a month, maybe. Technically, he's kind of on call dealing with emails, but he's got his own business. He's able to take care of both at the same time.
Seth: How much do you have to pay that guy?
Jon: It varies. Since I've taken on new facilities, he's around $1,500 a month. For his time, he's making good money. I'm also giving him more work, and then I pay him hourly for that extra work. I'm trying to have him grow with the company too, to put some things in place there with that.
Seth: Yeah. And to manage him, what does that involve? Just kind of standing over his shoulder at various times to be like, “Is he doing what he's supposed to be doing?” How much do you still have to communicate with your individual boots on the ground if he's supposed to be doing that?
Jon: My operations manager is awesome. He was our first mastermind. I've known him for a while. He's younger, he's mid-20s. But we have similar personalities and he's going to find a way to get it done. That's what I found. I had an assistant technically last year for eight to 10 months. She was a great person, did great work, but as far as figuring things out, I had to answer a bunch of questions. With my current person, when he took over, I may have answered one question in the first two weeks.
Seth: Wow, man. How do you find a person like that?
Jon: It was more seamless. He's going to figure it out. If he can't figure it out or doesn't want to completely screw something up, he'll reach out to me, but it's still rare. He figures things out. That's the biggest thing. And I think that's also missing in this world today. Just people being resourceful, just do it, just go figure it out. Don't ask me. I have faith in you, do it. Even if you mess up, we'll figure it out.
Seth: Yeah. The only thing that should be standing in your way is gravity and law enforcement. Otherwise just do what you got to do to get it done.
Jon: Right. Yes. And it's hard to find those people.
Seth: In my own experience, kind of just being self-critical on that. I think one thing I've learned is that the person standing in my shoes or in your shoes in this case kind of has a role to play in that too, in terms of empowering them to do it. Say, if they do something and your response is, "Oh, you should have talked to me about that." Then guess what? They're going to ask you about it next time. They're going to make it a lot harder. So, if the person at the top is a micromanager, they're going to make it much harder for themselves and for that person to get the job done. It probably has a lot to do with the tone that the person at the top sets and the expectations.
Jon: And how you train them. With my first person, I did not do a great job training. I thought I covered most bases. I didn't cover everything and I needed to cover everything times 10. I didn't. With this person, I knew going in what questions and issues he may have. So, I covered that. I basically gave him a small training manual, but more or less a FAQ page. If this happens, do this.
Seth: You just have a quick auto reply that just says “Figure it out” and that's your reply to every question.
Jon: Yeah. Right. Basically.
Seth: No, those are really good insights. So, how many hours per week do you have to work now? How busy is your typical week? It sounds like this is pretty hands-off for you, right?
Jon: Do I have to work? Technically I could put one person. I could hire my CPA and say, take care of my QuickBooks and I'm out. I enjoy what I do. Every day is different and I'm trying to get in some other areas too. I remember talking to Mike Wagner, first one or two times I talked to him was I enjoy rental real estate. However, it's almost too passive. I enjoy running a business too. So, that's what I like about storage. It's both. It's real estate and it's also a small business. I enjoy keeping my hands on things, dealing with rental rates, rate management. I enjoy all that stuff. So, I still have my hand on things, but yeah, if I wanted to, I could go away for a month and nothing would change.
Seth: And just to recap, I don't even know if we talked about, when was it that you bought your first facility? What month and year was it?
Jon: June of 2019.
Seth: Okay. And we are in July of 2022. Was that three years? Yeah. Dude, so, in three years you went from basically nothing in storage to a full-blown legitimate business that you are not stuck in the day-to-day of. You don't have to get into specific numbers, but when you look back, when you were just working your job, when that was your main income and whatever dollars and cents were coming up from your rental properties, versus your financial situation today, how does that compare? How much better off are you now versus then?
Jon: I can't compare. I can't even compare. And I made pretty good money at my 9-to-5. Yeah, I really can't compare. I've even gone through a big cash-out refinance that we bought our house and the house that we can probably call our dream home. Yeah, I've been very fortunate. Timing was right. A lot of things lined up. But yeah, I can't even compare income compared to what I made before. And the freedom. The freedom is the biggest thing. And I'm sure you can speak to this. To me, the income is great, but the income is for the freedom.
Seth: Yeah. Are you making like three times more, five times, 10 times?
Jon: I've done a big cash-out refi, which changed things a little bit. Because then my monthly expenses went up for my new loans. It's over three times as much. Yeah, maybe four.
Seth: When you say cash-out refi, you mean for one of your facilities you basically refinanced and pulled much cash out?
Jon: I did that for five of them.
Seth: Five of them. Okay.
Jon: I went pretty hard at this. I sold everything off basically and used all my bolts in my chambers for the most part. I was equity rich and cash poor. I had to do something. I've gone about a little bit different than some other people. Some people syndicate private money, I've used all my money. So that changed things. I needed to pull some cash out for a rainy day and yeah, not to be so cash poor. So yeah, I did a refinance, pulled cash out of five facilities.
Seth: And was that for what purpose? Buy more facilities or just to get your equity out of your properties and have the cash? What are you doing with the cash?
Jon: All that. I bought a house in cash. The down payment for the deal I bought this year. And yeah, hopefully to buy more deals too.
Seth: What does this do for your tax situation? Do you have to pay a lot in taxes or do you write a bunch off at appreciation with all these facilities?
Jon: Yeah, a lot of depreciation. The cash out refi was tax-free money. All the money that I took out from that was tax-free. Yeah, depreciation is great. I could go further with it and do a cost seg. I haven't done that yet. Because at some point you're going to pay it anyway. I'm okay with where I'm at right now with the tax bill. Well, relatively okay. Never okay paying taxes, but yeah, relatively.
Seth: But you're not paying zero taxes, right? You still have to pay some income tax. Got you.
Jon: Yeah. Yeah. And I hear real estate investors all the time say “You shouldn't be paying any taxes.” Well, you're coming from a multifamily where you're not getting the returns that I'm getting. You're not making the same amount of money, and I'm not saying in an egotistical way, but it's completely different. You may be making, what is it? I think the general rule of thumb is $100 a door if you're buying an apartment. Well, the returns, I can't even compare the returns with storage. So maybe I'm making 10 times that in storage. Of course, I want to pay some taxes on that, unless I do the cost seg. If I did the cost seg, then yeah, I wouldn't have to pay taxes right now.
Seth: Got you. What is your plan at this point? Do you want to buy more facilities or do you want to just kind of coast and get into some other business altogether? I don't know, what do you see your one or three- or five-year plan looking like?
Jon: I definitely don't want to coast. I've struggled with this. Because you hear some other people talk about “Well, you get to a certain point, you don't have to worry about income. You don't have to worry about finances and you can just enjoy life and spend 100% time with your family.” I love my family. I want to spend as much time as possible, but also for me to be a better person and to be better for them, I need to also fulfill myself by growing my business, helping people. I enjoy helping people. I enjoy talking about this stuff.
So yeah, I just want to keep growing personally, professionally. It's hard to sit still and just do nothing. I've done that. I tried it because I was listening to the other people kind of, and I'm like, no, this is horrible. So, yeah. I just want to keep growing, whether it's in storage. I still look at small businesses. Yeah, I just want to keep growing.
Seth: Yeah, I know what you mean. I've experienced this probably not quite the same as you, but this idea, what sort of informed or motivated me to make certain business decisions years ago, was to get to this place where it's like, “Okay, I'm comfortable. I'm secure, the money is there. I'm all warm and cozy. This is what I dreamed of.” But you get there and it's like, “Well, this doesn't really fulfill me.” I guess it takes care of my needs, so to speak, but this isn't everything. I'm not actually happy about this. There's got to be more than just getting to a place and then just sitting there. Because it's like, “Hey, where is my purpose now? I want to feel like I'm growing, like I'm doing something, like I matter still. I'm still relevant.”
So, I can totally relate to that. Not that I've gotten to a place where I'm just sitting around, but I don't know, it's kind of just this realization that what you think you want, may not necessarily be exactly what you want. It's just not that simple.
Jon: I completely agree. Actually, myself and a buddy had this talk yesterday, and there's a group out there that I think a lot of people misconstrue. And I'm not going to name the group. We kind of have this idea of we're going to get to a certain spot and now we can kind of coast. Maybe I'll buy a deal every once in a while, once every three years. In my opinion, you've got to find, and everyone's different. We all want to get here for a reason and more likely, it's probably a big reason, it's because of family. We want to have the freedom to spend time with our family. But where's that equilibrium? How much time do you really want to be with your family and give them your all too? For me, it changes day-to-day.
Some days I can only work an hour and be good with my family the rest of the day. Some days I need 6, 8, 10 hours’ worth of work to be able to plug in my family 100%. Every day is different. But yeah, I think we can't just stop, especially anybody that's kind of… “make it” is the wrong word, but accomplish your goal to get to somewhere. You're a producer. You need to keep producing, you need to keep making this world, this place, a better place to live. That's my whole thing. I don't like the fact that there are people out there that are like, “No, I'm comfortable now. I'm good. I'm just going to retire and do nothing. I'm 27.” No, you're a producer. You need to get out there and you need to keep producing and make this place better.
Seth: Yeah. I know people like that in my life whose goal is to do nothing. They cannot wait until they can just sit around and play video games and watch TV all day. And just like that idea, it depresses me just to know that that's somebody's existence. That's really your highest and best use? That is what you aspire? It’s to just sit and do nothing? It drives me crazy, but I don't know.
Jon: And they'll never get there. They'll never get there. Because those people don't have that drive to get there. The people that have the drive are the ones that make it and they may get confused for a little bit and be like, “Okay, I'm retired.” But eventually, they're going to get either depressed or tired. Something. Something is going to kick them in the face and say, “No, I need to keep going here.”
Seth: Yeah. I know when Tim Ferriss's “The 4-Hour Workweek” book that I read a decade ago, that was one big thing he talked about, is how this idea of just retirement in general, doesn't work. And he gives a few reasons. But one of them was that, just this idea that if you're somebody who can make enough money in your working life to get there, the reason you are able to do that well is because you were driven and you wanted to accomplish things. And by the time you get there, it's a paradox. It's like, that's not what you even want to do. So, why would that be your goal? You'll be so bored you'll want to stick bicycle spokes in your eyes, I think is how he worded it. Yeah. It's all making sense.
Cool, man. Well, this has been fascinating. Thanks a lot for doing this. At the end of a lot of our shows, I like to ask three final questions. So, I will ask them now. Question number one, what is your biggest fear?
Jon: Biggest fear. That's a good question. You didn't prep me for these.
Seth: Yeah. And it's interesting because I don't want to speak for you, but given just how much your life has changed over the past three years, maybe this has changed a bit. Maybe your fears today are different than what they were three years ago. But as of now, what would you say your biggest fear is?
Jon: Actually, this is an easy answer now that I somewhat thought about. Something happening to my kids, to my family. That's my biggest fear. Everything else I think you can figure out, but yeah, something happening to my kids. Biggest fear.
Seth: I get that when I'm watching movies or something and something bad happens to a child. Back before I had kids, it didn't affect me that much, but it really disturbs me when I see that kind of stuff. It's interesting.
Jon: You can't watch… Liam, what's his name? Liam Neeson. You can't watch his movies anymore. Taken.
Seth: Yeah, exactly. My kids are currently five and almost eight. Whenever I see a kid in that age range or younger that I've experienced, that's when it really hits home. But yeah, like in the Taken movie, for example, when my kids are teenagers, I'm sure that'll hit home even more. So yeah, I hear you.
What would you say you are most proud of? And this doesn't have to be business, but it could be.
Jon: Most proud of. Well, I'm going to cheat and use my family for every answer here. I'm most proud of my family. That's an easy answer. Secondly, would be to kind of pat myself on the back a little bit, just figuring things out with storage, with everything. It's been a crazy ride and it's been so short so far, but yeah, I'm proud of what I've done and where I've come. A ton of people and you're one of them that have helped me get here. Yeah, it's crazy.
Seth: When you look at what you've been through here, there are a lot of people who want to get where you're at or someplace similar to that, but that's kind of where it stops. They want it, but they won't actually do anything or they don't know how to do it. But when you look at your experience, how much of it would you say is like luck and timing and that kind of thing versus, “No, I actually really busted my butt to get here. I worked really hard and that's why it happened?” What would you say is the mix of luck versus effort on your part?
Jon: Luck and timing will find you if you're putting the work in. I was putting the work in. Like I said, I've kind of fast-forwarded from 2015 to 2020, but I was grinding. I rehabbed the entire house by myself and it took me four or five months. At lunchtime every day I'd be over there, on weekends. So yeah, it's just grinding.
Seth: Interestingly though, I hear you, but that rehab is not really what played such a pivotal role in this. Maybe as a first step to get some equity, but that's not really what moved the needle. When you say grinding, I guess maybe when we start in 2019 going into the storage world, what did grinding look like? How many hours a week was that or how stressful was the work?
Jon: The grinding looked different. That was more physical and a good way to start, but then it transitioned into focus. And really learning where I want to go, how I was going to get there, and also surrounding myself with the right people too, the bigger mindset. And things start to just line up. But yeah, when I say grinding, when I was basically hunting for my deals, my storage deals, I had a plan and I had goals. Goals were probably the biggest thing that got me, and still get me to where I'm going.
But every night, for about two hours a night, once the kids got to bed, I would work out for a half hour. I would then work on either my mailer list, my marketing list, or write letters to these storage facilities. So, those two hours a night I was working out and then hour and a half, I would work on my business to try to grow it. And I was religious about it. Just hammered it and kept grinding.
Seth: Yeah. Actually, one more tangential question about that mailing thing I was going to ask you earlier, but I forgot. Your list, for example, when you said you mailed out to 60 people. Were you using some data service for this or were you just literally hunting and pecking for storage facilities on Google Maps? How did you compile this list of people?
Jon: Google Maps. Because if you think about, especially the towns that I was looking in, there are not that many storage facilities. Maybe between 6 and 20. So that's pretty easy to find. Then I just looked up the owner's address and mailed the address. Owner's address.
Seth: And you looked that up? How would you do that? Was that a data service or just the township website or something?
Jon: I use the county auditor's website, which I think most counties in America have and will give you that information. But I know that people are smarter than me that know how to pull that stuff easier, phone numbers, all that stuff. But yeah, that's how I did it.
Seth: Yeah. That's interesting. Because I know a lot of people, at least from the land investing world, they just see a data service as the answer to everything. But there are a lot of times those facilities don't show up, like the zoning isn't right. Or even when you Google “storage facility on Google Maps”, sometimes a lot of them won't show up there either. These people literally do not advertise. It's like their goal is to not be found. So, sometimes they're hiding.
Jon: They are. Yeah. I would even almost drive Google Maps to try to find buildings that look like storage and then look it up and see if it was or not. Because yeah, most of them did not have a Google listing. You couldn't find them on Google. But yeah, in these smaller towns, it's pretty easy to spot the storage buildings.
Seth: Okay. Final question. And it sounds like maybe you're figuring out this answer right now, but the question is, well, we'll see. Suppose you got $100 million dollars wired to your bank account and you're not allowed to stay on your current career path. So, no more storage facilities, no more real estate, but you can do anything else you want to do for the rest of your life, what would you do?
Jon: I'm probably donating a lot of that. Some type of service business, which I've been looking at. Maybe even some type of coaching too, which I'm kind of getting into as well. So yeah, I don't know. I'd chase whatever shiny object that would pop up that day.
Seth: Yeah. When you say service business, what is an example of that?
Jon: Like HVAC, electrician, something like that. And I'm somewhat interested in that. We'll see. I also don't want to lose my freedom, so it has to be the right fit.
Seth: Yeah. There's a company near me, it's a very well-known landscaping and lawn mowing service. If anybody thinks of it, it's like the most well-known brand in West Michigan. And I know a couple of people that work for that company and they were telling me that this guy, it's actually just like a hobby for him. It's like not even a serious business. He just didn't know what else to do so he started this company and it's huge. Like the biggest one. His actual business is a real estate developer. But I don't know, just when I heard you said that, it made me think. Maybe one of these guys who are just like, “I'm bored, I'll start a business, it's going to blow up and be huge. And I'll just make that my little pet project.” Some people are gifted like that and maybe they just get lucky or land on the right thing.
Jon: I think there are more people that are trying through educators and communicators like you. I think there are more people trying to find assets and not a ton of people are looking at businesses as assets. I think that's kind of a big wave that's coming. We'll see. And that's another reason why I've been looking, I kind of want to hit the next wave before everyone else does.
Seth: Yeah. I know we had talked about that a little bit in our mastermind was one of the people in the group was trying to find ways to just squeeze more cash flow out of the facilities he owned. And that was when it occurred to me, I know for a lot of people real estate, it's not necessarily a huge money maker. It's just a place to park cash, get some tax write-offs, make some cash flow, but if you're just going to buy single-family rentals and that's it, it's going to take you a long time to get to where you want to go with that, unless you get super lucky and write a huge appreciation wave.
But if you want a money machine, that's what an active business is, whatever that happens to be. But self-storage, it's a weird hybrid of the two because it is a business, but it's also kind of a sort of passive-ish real estate, depending on how you manage it. So, I don't know. It's just interesting how you'll probably make more than the average real estate investment, but it's also not as much money as you could make if it was serious… Well, I don't mean to say not serious, but a business that exists to create products and just make as much money as possible. So, it's just an interesting kind of hybrid between the two.
Jon: Yeah, yeah. No, it is. Well, yeah, there's some retail in there. You don't need storage. Not everyone needs storage. And that's what concerns me about storage too. Not everyone needs it. You need a house, you need somewhere to live, you don't need storage. So yeah, that's a concern of mine.
Seth: Yeah, man. It'll be interesting to see where the business goes and it sounds like wherever it goes, you've had a good three-year ride so far. So, I'm excited to see where it goes for you.
Jon: I have. I appreciate that.
Seth: If people, you don't have to do this, but if people want to reach out to you or I don't know, learn more about you or whatever, is there anything you want to share like a website or connect with you somehow? Totally optional.
Jon: I'm late to the game, but I'm working on that stuff, but you can find me on Facebook, Jon Farling. It’s pretty easy to find. Probably the only one. Yeah, hit me up on Facebook, I’d love to chat. But yeah, I'm working on that whole funnel, I guess.
Seth: If you do end up, I don't know, making some website or something for coaching or whatever, let me know what it is and I can retroactively go back to the show notes for this episode and add that in there.
Seth: So, this is going to be episode 138. If you guys want to go to the show notes, it's retipster.com/138. You'll find links to a lot of different things we talked about in this conversation. And if Jon ever gets his act together with his website or whatever, I'll be sure to go back and throw that in there too. But in the meantime, thanks a lot, Jon. It was great to talk to you again and hear about your journey. Yeah, I can't wait to see how things pan out for you.
Jon: Yeah. Thanks for the opportunity and thank you for doing this podcast. You're obviously helping people nationwide, so it's an awesome thing.
Seth: Yeah. Awesome. Absolutely. Thanks, man. Talk to you soon.
Jon: Thank you.
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