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Active Commercial Real Estate Investing Show

Self Storage Investing for Beginners: What You Need to Know


In this conversation, Patrick interviews Powell Chee, a commercial real estate investor who transitioned from multifamily to self-storage properties. Powell shares his journey and insights into the differences between operating multifamily apartment buildings and self-storage facilities and why he ultimately decided to invest primarily in self-storage units. Throughout the conversation, Powell explains how to invest in self storage facilities for beginners and discusses everything from the various types of self-storage properties to the importance of market analysis and demand assessment when looking for new self-storage properties. Powell even goes as far as explaining his value-add strategy for increasing occupancy and rates in self-storage facilities. Overall, the conversation provides valuable insights for those interested in self-storage investing.

By listening, you’ll learn:

• How Powell transitioned from residential real estate investing to multifamily to self-storage investing.
• The different types of self storage facilities.
• How to analyze a self-storage business and its surrounding market
• The differences between operating multifamily apartment buildings and self-storage facilities.
• The most common self-storage operating expenses.
• Key value-add strategies for self storage investing
• And much more


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Meet The Expert

Managing Partner of Radiant Storage

Powell Chee purchased his first residential property in 2015 and transitioned to commercial real estate investing in 2017 when he purchased his first apartment building. He went on to acquire over 1,000 apartment units before deciding to shift his focus from multifamily properties to self storage. Powell is now the managing partner at his company Radiant Storage, which currently has 16 self storage locations with over 5,000 units.

Managing Partner of Radiant Storage

Powell Chee


Patrick (00:24)
Hello and welcome to the active commercial real estate investing show brought to you by the one and only School of Commercial Real Estate Investing. I’m Patrick and today we are joined with Powell Chi. Powell purchased his first residential property in 2015 and transitioned to commercial real estate investing in 2017 when he purchased his first apartment building. Since then, he’s acquired over 1,000 apartment units and during the pandemic, Powell actually began shifting from multifamily properties to self storage and is now the managing partner at his company Radiant Storage, which currently has 16 self storage locations with over 5,000 units. Powell, welcome to the show.

Powell Chee (01:05)
Hey Patrick, really appreciate it. Thank you for having me on the show.

Patrick (01:10)
Yeah, absolutely. Our pleasure. Noelle is sick today, so she’s not able to join us, but definitely excited to have you here and, you know, learn from your wisdom and the journey that you’ve been on. So can you kick things off with just an overview of how you got into residential real estate investing and what then tipped you to get into commercial?

Powell Chee (01:34)
Yeah, sure. Absolutely. Uh, well really quickly it was, um, you know, I had always sought out sort of alternative investments. And there was a time where, um, around 2015 was when I got my, got involved in my very first single family house. And I live in California. So I live in Southern California, which is uh, not cheap. Right? And so, I just really was struggling with the idea of like, how am I going to buy a house here? and then what am I going to do? Uh, fix it up and flip it or I don’t know. I was just like these houses at the time were like at least $500,000, right? and And I was like, you know That means you get I put down a minimum down payment of like a hundred thousand dollars just to buy it and get it fun You know get it get a loan on it. I Just didn’t really feel like that was really a an avenue that I could just go down, right? And then how am I gonna how many are gonna how many of them are good? Am I gonna be able to do a year? I don’t know. It just it just didn’t really feel like it was really that tangible and then I started learning about being able to invest outside of where you live. And that was just like a you know, mind blowing experience right there where I was like, you know, there’s a lot of people that live in a lived or, you know, bought a place in a certain area and then they moved and they just kept it as a rental. And so they were like, Hey, they lived in Ohio and now they moved to Florida and they kept it as a rental and they were able to operate these things, you know, across the United States. And, and I was like, wow. So I started really being keen on how to do that.

You know, what were the ways that they did that? And after a while, I just became really comfortable that I don’t have to live where I’m buying a place, buying a rental place. So that really started to open up the whole United States to me. And so I was like, I don’t have to buy something in Southern California, I can look all over. So I looked in Kansas City, which was where I bought my very first one. And that was, ended up being a really good property. It was a really nice one, had made some good returns. I actually never saw it, even though I bought it, held it for a while, and then sold it. I still have never set foot anywhere near the property. So, um, but that was a, that was a good experience. Uh, Although it was after I bought that one, I pretty much knew right away that this was not going to scale to the speed that I wanted it to. you know, I was in my head, I was thinking I was going to buy one house a year, take 10 years. I’ll buy 10 years and I’ll have 10 houses. And then I was like, well, 10 years and 10 houses, I’m making about $200 to $250 per month in like pure cash flow after all the expenses. I’m like, that’s still going to give me like $2,000 to $2,500 a month in 10 years? I was like, wow, that doesn’t sound like, that doesn’t sound like the speed that I want to go to. So I want to go a lot faster than that. So that’s what brought me to my next purchase, which was a apartment building. So I bought an apartment building in Indianapolis, a 40 unit apartment building in the very beginning of 2017. So about a year after I bought that very first house and started to just get into commercial real estate. Um, I was involved in a lot of, uh, so I bought that one. I bought another one the following year, 2018 with a small group of friends and family. In 2019, basically became a general partner on five different syndications that were a fairly large part of buildings all over the United States. And then when 2020 came was really COVID hit and made me put a pause on buying any multifamily at that time, if buying any commercial, I would say just buying any real estate at that time. I just thought that I didn’t want to bring my investors into what was a lot of uncertainty. Lending was uncertain. Getting paid was uncertain. Courts weren’t open. Delinquencies were going up and whether or not people were going to get some kind of check from the government, all kinds of things were going on. So I didn’t want to bring my investors into that.

I decided at that time, let me, uh, spend some time to look at another asset class. And that asset class happened to be self storage. And from there, I thought, Hey, this, this looks like a great asset class. I want to move forward and go ahead and purchase one because you don’t really know until you actually own one. Right. It’s like, sounds good on paper. It sounds, it looks good on, you know, you hear it on a podcast and it sounds great and, uh, like I read in a forum, you know, it’s, it sounds amazing, but you know, until you own one, you don’t really know. So then bought a very first one in January of 2021. Um, and yeah, since then, you know, up to 15 more properties, so 16 total at this point of self storage. And so that’s what kind of brought me into my journey. I don’t know. I’m happy to fill in any blanks there too, as well.

Patrick (06:09)
Yeah, so one blank I would love for you to fill in is for that first apartment building, was that self-funded or did you do a joint venture for that? Because you mentioned that you didn’t do a syndication until you know your third or fourth one.

Powell Chee (06:18)

Yeah, that was actually self-funded. So, um, at, you know, one of those things, if I tell you the price of it, you’ll be like, wow, I mean, but back then 2017, you could get deals like that, right? And you’re like, wow, that was, that’s amazing. I would buy that deal right now. You know, it’s like, yeah, I mean, Back then you could. Um, so it was self-funded, but it was also, I would tell you that I ran that deal by myself for a number of years. And, and there, there’s kind of a sort of maybe a hope for a lot of investors that, hey, maybe I have to partner for a while, but eventually I’d like to just own everything in my whole portfolio by myself. And that’s very possible and very, it’s a great aspiration. But I would tell you that there is, from experience, there’s a lot of issues with owning a property by yourself. And it’s really because are you the jack of all trades that can handle every single thing, that is going to handle every single thing? Then I’m talking from finding the deal to running it to doing the due diligence to putting it under, loan, all the legal documents you have to go through, all the due diligence you’re going to go through, and then you’ve got to run it as an operator. So that requires, you know, project management skills, operational skills, contracting, you know, being on the phone with different vendors that you got to, that you got to have a relationship with your property manager and, you know, accounting, all that kind of stuff that goes through. And then if you want to do another one, that’s just one, one building. You’ve got to go do it again and do it, you know, have, you know, get another building. So, I just found that there’s certain things in there that I don’t like and I’m not the best at. And so I think it was in 2022, I believe it was 2022, I actually brought on a partner because there was things that I didn’t really like. And I wanted to bring out somebody who could help me. So I do have a partner in that deal now and it’s just him and I. And I guess funny enough, we’re under contract. And so hopefully that thing will actually sell in less than a month here. So one of those deals that can sort of come full circle at that point.

Patrick (08:23)
Yeah. Well, thanks for pointing that out because I think I agree there are a lot of people, you know, myself included who have had those thoughts about, oh, wow, it’d be great just to have full control over large buildings. Um, but I do think that the team component is very important, especially as you reach the efficiencies of scale and, uh, are dealing with larger properties. You can’t do everything and you can’t be everywhere at once. So really building that team around you is, is definitely an important lesson. So thanks for pointing that out and sharing that.

Powell Chee (08:48)

Patrick (08:54)
With the self storage, can you provide folks with just an overview of the differences in operating a multifamily apartment building compared to a self-storage facility. I know that in a lot of ways it’s a different business, like the tenants are different, the leases are different. Can you provide just kind of like a high level overview of maybe your first initial learnings as you had your multifamily mindset getting into the self-storage area?

Powell Chee (09:12)
Mm-hmm. Yep. Absolutely. And I can tell you a lot of it, what was the attractive parts of it too, right? Because coming from the multifamily background, I understand the idea of running residential real estate. And sort of the main differences are, well, there’s a lot of main differences, but in essence, they’re similar, right? You have income that comes in from rent, it’s paid monthly, and there is a little bit of other income that you can get from the different types of properties, right? In residential, if you run a nice property, maybe you might get something like, you get rubs or you get ratio utility billback system, or you have, maybe it’s like a trash valet. Well, in storage, you might have things like rental insurance, or you might have, you know, there’s like technology, like fees and things like that.

And so there’s, there’s differences in terms of whether the other income, but it’s in general, it’s like rental income. And then there’s a little portion of other income. And then a lot of the expenses are going to be, uh, have the same categories, but they’re just going to have weighted. They’re going to be weighted differently. All right. So I give an example of like utilities, like utilities in my apartment building. So like that apartment building we talked about, I pay about like $1,200 a month or something for water. Right. So it was like, okay, we’ve got to pay a common water or whatever. Water bills, $1,200 a month.

And it’s a 40 unit apartment building. Right. And then, and then when I go to self-storage, it was, I was very keen on seeing like, okay, what are the utilities going to be at this place? Right. Cause there’s no plumbing, right? There’s no, there’s no plumbing that’s going, you know, in the roofs or anything like that. And so we got our first water bill on our very first apartment, our very first self-storage facility. And so it was probably like February or March of 2021, our first water bill. And it was $30. And I was like, $30. Yes. Okay. That’s, that’s what I like to see. Exactly. You know, like utility costs way down, you know, I mean, yes, there’s some electrical, there’s no gas, you know, you’re not going to have gas there and there’s very little water, right. And it depends on how you run it and what type of facility, right. And so things like that are just weighted differently. Utilities in residential are going to be very high and you’re going to hopefully try to build back some of that from your tenants and utilities and storage probably going to be fairly low.

And you might even have the ability to offset some of that with, um, like there’s places that do solar, so you’ll put solar panels on, on the, in the, all over the whole roofs. And so perhaps you can mitigate some of that. Maybe you do in residential, but not too much. I don’t really see too many apartment builders using solar. Um, but there’s, there’s other things like websites. Your website on your apartment building is probably very, very basic. Probably not that good. Probably just very informational, like here’s our apartment, here’s some pictures. If you’re interested, call us or email us, right? That’s kind of like, that’s basically it, right? So you can pay like 50 bucks a month or something like that and have that website kind of hosted with Wix or whoever it is. But storage is the opposite. The storage is much more like the airlines. It’s where there’s dynamic pricing that’s involved, meaning that, hey, you go there one day, it might be…

Um, $90 to rent this 10 by 10, you go there another day and it might be $98 or it might be a hundred and $2, whatever. So it can go up or down depending on these different parameters that you said. So it’s, it’s much more dynamic. The pricing models are much more, there’s like algorithms involved in, and the website is much more important because you want people to be able to apply and rent online and then just kind of do, you know, do it as much as

Do it as automated as possible. So that’s just one of the bigger things in storage is that there’s, storage is farther ahead when it comes to technology. And there’s much more automation involved in storage, right? In residential, you’re not gonna just wanna say, hey, just apply online and then, I’m just gonna leave the keys underneath the mat and you just go in there whenever you want to, right? You don’t do that in residential. In storage, you do kind of say, okay, apply online, put all your stuff in there, put your credit card in there, and then here’s your gate code, and then here’s your gate code, you’re ready to go in, and just go ahead and here’s your unit number, right? And so those kinds of things are some of the main differences. Operationally, it’s gonna be, you’re gonna have different property managers are gonna be obviously doing similar types of things where you’re handling with tenants. In residential, you’re going to have a sort of a higher touch in storage. You might have a lower touch, but you just want to make it as efficient and as easy as possible. So, um, yeah. So a lot of minor, minor differences, you know, uh, there, there are some major ones, there are some big ones, um, not to go on and on, but you know, one of the things that just attracted me to, uh, to self storage was, uh, like the eviction process, right?

It’s a very controversial topic, right? You talk about evictions in California, where I live, very different than evictions in Indianapolis, where my apartment is, right? To Texas, to, um, to Virginia, you know, it could be, it could be all over the place, right? And, and, and a very hotly debated topics right now of like, whether or not you have the right to evict people or people have the right to live, you know, it’s just, it’s just a lot of controversy around that. Uh, well in storage, it’s like, okay, I don’t think there’s really hardly anybody in America that would disagree with this statement. Whereas if I have stuff, okay, I have a bunch of stuff, I have a desk and lamps and whatever, and I just have this stuff, and I put it on somebody else’s property, right? They have the right to, and if I stop paying them, they have the right to get rid of it or like make me pay for it, right? So I don’t just have the right to go take my stuff and put it on somebody’s property and then say, keep it there and don’t move it. Um, I don’t want to pay for it either. Right. Whereas that’s what’s kind of happening in residential. So in storage, nobody really, nobody in the, I guess in America really believes that you can just dump your stuff on somebody’s property without paying for it or for, without the owner having the ability to get rid of it. And so the laws are much more in your favor in storage where it’s like so many rents from you and they’re going to pay, they’re going to pay and if they don’t pay, then you have the ability to get rid of it a lot faster and you know, and just get rid of their stuff, which is basically an auction process. It’s not a, it’s a lien process. It’s not a, it’s not an eviction process.

Patrick (16:29)
And what does that time period typically look like?

Powell Chee (16:32)
The time period, it’s state by state, it’s different for each state, just like the eviction process is, but in general, I would say it’s about 60 days ish. Right? So it’s about, you do have some timeframes where you have to notify people, you have to send them certified letters, you have to contact them. Then you have to give them a certain amount of time. You have to advertise this in some type of public forum, whether that’s a newspaper or website or something, and then you give them a few days for the auction, auctions, maybe 10 days. And then after that, it’s like, okay, no, no response, no payment. Okay. Then let’s go ahead and send this to auction and you auction off the stuff. And then just, just so you know, like I can get into the details of it, but it’s like in a, in an eviction, right? When you evict somebody say anywhere, whether it’s California or Indianapolis, you know, your, your tenant isn’t very happy.

Patrick (17:13)
Okay, fascinating.

Powell Chee (17:28)
They’re probably not going to take care of your property for those two months that they’re being evicted and they don’t really care that, you know, eventually they’re going to get kicked out. And then if you have to force them out, that’s going to cost you more money. So you already have missing two months of rent, plus you’re going to have a damaged, you know, property, plus you may have to force them out, which is a higher cost, which is, and then you, you know, you got at minimum, you got to paint it and clean it, but in storage, you don’t, you don’t do that. Right. So there’s somebody rents and they don’t pay and you can send them to auction. Eventually you sell, you sell it at auction. The money at auction first comes to pay me as the business owner. Right. So if there’s anything leftover, it goes back to the person. So basically I get made whole first before the other person gets any of the money from the auction proceeds. So, and then it doesn’t take as much to clean it out, right? Like I don’t have to paint it in and do a thorough cleaning. I just need to basically clean it out, sweep it out, put a new lock on the door, right? It’s much easier.

Patrick (18:29)
Yeah. Well, thanks for providing that overview of, you know, kind of the differences or the major differences and running an apartment building versus a self storage unit and some of the different weights and, and how they vary from one asset class to the other. I’m curious in self storage specifically, there are still different categories of properties, correct? So you could have like indoor units that are not climate controlled versus indoor units that are climate controlled versus outdoor units that are like RV or boat storage. Are there more than those three? Can you provide just an overview of that?

Powell Chee (19:10)
Um, there’s always a lot of different combinations of things because, uh, but in general it is, yeah, outdoor self storage, which is drive up self storage, right? Which most people have seen you just kind of drive up to your units. It’s an older model. However, it’s sometimes still preferred because, um, it’s easier to get to your units, right? Although it can be dirtier and maybe not climate controlled. Um, there are climate control, which are generally indoor and can be sometimes smaller units, sometimes a little harder to get to because you might need an elevator to get to them. So sometimes people do not prefer to have a climate controlled unit, although they will cost more. Generally the reason you’re providing them is because they will rent for a higher amount per month. There are also outdoor climate control, just so you know, or drive up climate control. So there are drive up climate control. We have a few units of them, not too many facilities have them. Those are the major ones within storage, but, but no, it’s like one of those things that storage is still much more. I guess fragmented as in terms of a asset class than multifamily. So you’ll find things like, uh, this storage facility also has a car wash like on it and it’s like a combination of this business. And it’s like, well, okay, this is two different businesses, but that’s the owner is going to sell it as one. And you’re kind of like, well, okay. Do I want a car wash business or do I want a storage business? Do I want both? Or do I want to split them? Uh, someone’s like a half mobile home park and then half of storage. Right. And so you, you have these kinds of weird combinations, uh, because there’s a lot of mom and pop owners out there.

Patrick (20:58)
Yeah. And, um, is there a particular type of property that you prefer to go after when it comes to like indoor outdoor RV, et cetera.

Powell Chee (21:07)
There isn’t a particular one. Uh, we’re open to most of them, right? We’re open to, uh, all the different kinds. And we have one, so we have everything from class a, um, five story building, a single story, single building with, you know, elevators, things like that. To a class B, which is, you know, smaller building. Um, uh, but single, single building as well, just a little bit older all the way to class C, which is all drive up built in 1980, 1990.

Uh, older models, you know, just, you know, just plain drive up, nothing fancy about them, but just, uh, you know, just places to store your stuff. So, um, I would say, you know, there, between those three, there isn’t really a preference that I have. Um, it’s, it’s more about, um, it’s more about what else is there. Cause sometimes your outdoor ones, um, don’t have, uh, paved roads, right? So the roads in between them are just grass or gravel or dirt.

Um, some of them are newer where it is paved and it’s a lot nicer. It’s like, you know, it’s, you know, paved in between. So it’s not so much about the actual structures. It’s more of like, what else, what else is there that I have to take care of? Do I have to repair these roads? Do these roads look good? Uh, what about the security, the lighting, the fencing, um, entryways, gates, you know, all of that is, is a little bit more of my concern rather than, uh, whether it’s a climate control or not.

Patrick (22:39)
Okay. Yeah. Thanks for, for shedding light on that. Now, when you go about looking for a new self-storage property, um, I know that you’re, you’re looking across the country. Are you looking at market specific properties or are you more so concerned about the, the property itself, uh, and, and the numbers wherever it is?

Powell Chee (22:47)
Yeah. I think these are two approaches that in general people will take. Right? Do I figure out what market is it that I want to focus on and then just buy properties in that market and become a market expert, sort of the rifle approach, right? Or high accuracy, high precision. Or do I take the shotgun approach where I look all over the United States and I’m really just kind of agnostic to whatever region it is. I take the shotgun approach.

And there, there is a reason for that in that stemmed from the very beginning of my investing in real estate, which was I live in California and I’m not investing in my backyard. Right. So now if I’m not investing in my backyard, does that mean that I need to want to tie myself to a specific, um, geographic area? Do I want to say, okay, you know what? Um, Salt Lake city is the area I want to, I want to invest in, and I’m going to spend all my time on figuring out that this area and knowing the brokers, knowing the area, like I’m a local. Um, to me that was like, kind of limiting. Like if I lived there, I would say, okay, that’s, that’s good idea. Cause I can just drive around to these places. But since I don’t live there, the difference between salt Lake city and Kansas city and, you know, uh, Dallas or, I don’t know all over the place was to me, it was like, well, it’s just a flight difference. So I don’t know. It doesn’t really matter to me of what, what state, uh, you know, what city it is. So, in that way, I feel like I can kind of reach out to the whole United States because our properties are, we’re in five different States in terms of storage. So Texas, Louisiana, Mississippi, Alabama, and Connecticut. And so, but we’re open to, you know, most, the majority of the United States. And that’s how I approach it. Um, I would tell you that the good part of it is that you have the whole United States as your place that you can buy from, right? You’re, you’re open to, uh, the bad part about it is though, if you want to really get into, um, going direct to seller. So people will ask you, how do you, where do you find your deals? Is it through a broker? Are you direct to seller? What are you doing? If you go direct to seller, um, you have too broad of an area, right? That’s like, I’m, I can’t use the whole United States and go direct to seller. That’s just too much. Um, because what happens is, is say somebody in, um, in, uh, North Carolina, uh, says to me like, yeah, you know what, I’m interested in selling, I sent them a letter and they say, oh, okay, great. I got your letter, says you’re interested in buying my storage unit. Um, won’t you come take a look and take a look at the property and see what you think and then, uh, then we’ll talk about an offer and I’m like, okay, so I got a flight in North Carolina to look at this property, to find out if it’s worth it or not, and then try to figure out if I’m going to make an offer. Um, to me, that’s a waste of time. So, um, I just, instead would rather not go to the, um, not go the direct to seller route and then just kind of use the whole scope of the United States. So kind of a long, long answer, but, uh, yeah, shotgun approach is what I do.

Patrick (26:06)
Yeah, but yeah, helpful to hear your approach there. And so as you’re looking at different facilities in different markets, you know, I imagine one of the big things you look at is demand. Like, is there a demand for self storage in this area? What are the key things you look at to assess that?

Powell Chee (26:29)
Okay. And I’ll tell you that initially the, there’s a metric out there that’s called, it’s called square foot per capita, meaning how many square feet is there per person in this, whatever radius you’re seeking. So three mile radius, five mile radius, how many square feet is there of storage per person? And there’s generally sort of a, I don’t know if you’ve heard of it, but there’s a, there’s a national average or national mean of a little more than seven, about seven or eight square foot per person. So if you look at markets that have a lower number, well, that means there’s higher demand and that maybe is a better place. And you look at places that have like a score of like 11 or 12 square feet per person, well, you may say, well, this could be oversaturated. It sounds like there’s more facilities, more rental than there are than there are people or not than there are people, but just a higher amount. And, um, that was what I looked at, I would say in the beginning. And that was what I looked at. And I thought that was like the sort of magic number that everybody is trying to figure out and you can get those numbers. I mean, those numbers are available to, you know, if you subscribe to certain services, they’ll, they’ll give you those numbers. Um, however, that is, uh, I think that’s a rookie mistake. So that is what I did when I was a rookie. Um, and the real numbers you need to look at are occupancy levels in the area. So in a three to five mile radius, the occupancy levels. So what is the occupancy of your competitors? So your competitors are, you know, are they at 90%? Are they at a hundred percent? Are they at 70%? What is their occupancy levels? And then that, and then you’re trying to find out their rates too. Okay. So it’s a combination of their rates and their occupancy level. So if their rates are.

You know, um, say for a 10 by 10, it’s, it’s a hundred dollars. That’s a dollar per square foot. You’re kind of like, okay, is it a dollar per square foot for a 10 by 10? Is it below that? Is it $70? Is it 70 cents a square foot? Is it, uh, you know, a dollar 50 a square foot, and then you can try to judge whether or not, okay, this market, um, you can charge higher rents in this, in this particular market, but occupancy, you can get, um, those numbers, um, off of different places that you can subscribe to, um, in terms of like, what are the, what are the dollar amounts? Or you can even just, you can just go to the websites. And a lot of times people list their websites. Um, they’ll list what the prices are, right? Cause you’re, again, you’re trying to attract tenants and in order to, for a tenant to, you know, rent your unit, they need to know what the price is. So a lot of times it’s just listed right on the website, but occupancy levels are not, occupancy levels are a lot harder to get, and there is no, there is no quick, easy way to get it. The only way that sort of, I know how is either one, you’ve got to call and, um, make as many phone calls as you can and try to get through and try to get that occupancy level from, from the person that is, uh, you know, maybe on staff there. Or you have to visit and pretend like you’re a renter and, and do the sort of secret shopping and try to figure out like, okay, how many units do you have of this size? Okay. Well, how many units do you have of this size? All right. Well, I’m not, I’m trying to judge between what, what size I’m going to get. And, and, you know, you try to figure out like, uh, around what the occupancy levels are for that particular competitor. And those are the only two ways that, that I know to get it. There’s no database that you can subscribe to that will have that those, uh, those levels. And a lot of times they don’t want to give them to you just so you know. So it’s, it’s not like, Hey, let’s just, uh, put, put up our listing of what, uh, you know, what our occupancy level is at. So, um, so it can be a little bit of a, of a little more of a daunting, a little more, uh, of a, you know, tougher due diligence than just looking at square foot per capita.

Patrick (30:27)
Yeah, yeah. I appreciate the, uh, you know, the secret shopper tip there. I can imagine. So even you’ll do this remotely or just in terms of, if you’re exploring a property and doing your due diligence, you, you will call other facilities in the area and just say, Hey, I’m interested in a couple of units, you know, do you have X number of these, these sizes and just try to gauge how many they have left, um, and then run those numbers to yourself that way.

Powell Chee (30:54)
Yes, but we will go in person before we actually buy the property. So that’s part of our market study that we’ll do. And we also have a third party who will do it as well. So not only we will do it, we’ll have somebody else verify and verify what the numbers that they’re seeing as far as occupancy levels and, and rental, rental rates.

Patrick (31:16)
Yeah. And is there anything you look for in the city itself? Are you looking at other city demographics and data such as population growth and job growth and other, I guess, just general drivers that would suggest there’s going to be population growth, which would likely increase the demand for self-storage units?

Powell Chee (31:36)

Um, yes and no, I would say yes, we are, but it’s not as important as it is in multifamily, those, those demographics that you mentioned, population growth, job growth, job diversity, um, you know, uh, affordability, things like that, that are super important. And you’re looking at an entire Metro, right? You’re looking at an entire Metro like, okay, how is this whole Metro doing? And what’s it doing in, gonna do in the near future.

In storage, it’s much more of a micro market because nobody’s gonna come from across the city to come all the way to your facility. They’re only gonna come within like a three to five mile radius. So that’s why I’ve mentioned that three to five mile radius a couple of times. Because most of your renters are gonna be in that radius. They’re not gonna come from across the city because there’s 10, 11, 12, 15, maybe 20 different storage facilities that they pass through just to get to yours.

So unless they have a reason for being there, it’s unlikely that they’re gonna come to you. So you need to look at your micro market in a much more, like that’s much more important to you than the overall market, right? Obviously those demographics that you mentioned are important so you don’t wanna go to a city that’s declining and things are just looking bad and crime rates are through the roof. And that would just be kind of a, you know.

That would not be proven to do that. But if it’s, you know, it doesn’t have to be growing super fast. It can be just a stable problem, stable, uh, location. Um, it doesn’t have to be, you know, like a crazy amount of job growth or anything. It could just be, you know, sometimes they’re just very small towns. Now we haven’t gone to a very, very small town. Um, but a lot of storage does very well in very, very small towns. And I mean like 10,000 people, right. And it could be even lower.

But storage can do well depending on what else is around that area. You know, if you’re by a lake or by the mountains or something, you know, you can, you can attract people that you’d be surprised that they’ll store their stuff there. Um, but yeah, I would say that in general, that micro market is a much more, you need to do your analysis on that micro market a lot more than the macro market.

Patrick (33:58)
So let’s say that you’ve identified a property that you’re interested in, you feel good about the micro market surrounding it and feel like there’s good demand there. Commercial real estate, as we know, is valued based off of the largely the NOI. And so I imagine there’s some type of value add strategy or approach you often take with these to be able to go in and both increase occupancy and increase rates.

Um, but I imagine similar to multifamily, there are ways to over improve a property to where you won’t get that, you know, much of a return on your improvements. Um, but I also imagine there are some key things that should always be in a place that you have confidence will indeed contribute to increasing the occupancy and increasing the rates. So do you have kind of like a go-to playbook that you look at when you’re analyzing a property and saying like, oh, you know, this is an outdoor facility and it doesn’t have paved roads in between. We could add pavement around which would increase the, uh, the rates we could charge or adding a gate with, you know, the, the lock box and all that type of stuff. Like what, what are some of those property improvements that you find to be your, your go-to improvements to help increase the NOI?

Powell Chee (35:22)
Yeah, that’s a great question. And I do get this question. That comes up a decent amount. And the way that I see it is that there’s four different areas of value add that we’re looking for. Okay. And these four are low rent. So we’ve, we’ve bought facilities before that are fairly full, right? They’re above 90% when we bought them. And, but the rents were really low, right? The rents were just really low in the market. The previous owner wanted to keep it low to keep the occupancy up. But the market had moved way up, um, in the last years and they just, they hadn’t raised rates in years. So low rent is one, um, low occupancy is another one, right? So there’s other ones that like, based off the RR occupancy studies, um, the occupancy is like 80% to 90% in this area. All the competitors are at 90% and then in the peak season and, you know, 85% in the off season.

But this facility for some reason is at 60%. You know, so we’ve bought facilities that are like that as well. Um, so those, that’s low occupancy. Um, there are, um, another value add piece is expansion. So how, um, how much, uh, how much expansion possibilities are there, right? Is there, is there any room to add things like portable units? Um, is there a way to organize the parking a little different to make it more uniform? Is there a way to maybe make covered parking there and charge more? Or do we have extra land? So we have ones where we bought where there’s extra land available. And then we’ve actually bought one where we bought some extra land. We bought some more land. And so it was just like, hey, let’s just buy an additional piece of land. And it was up for sale just like, let’s go buy this piece of land too. I mean, it just makes this whole property more valuable for whatever we want to do in the future. So that’s number three is the expansion piece. And number four is the operational inefficiencies. So basically taking the property and saying, what can we do to run this a little bit cheaper, right? And make it a little more efficient. So is it that we need to collect more? Is it something about like some of the ones that we run, we run them unmanned. And so when we run them unmanned, perhaps we’re not paying payroll costs from the previous owner, what they’re paying is payroll costs. And sometimes it’s other things like we think that we have either a better system for whether that’s advertising or maybe you don’t need the utilities like they were using the utilities, all different types of things as far as like in what ways can we cut costs.

So those are the four different areas, low rent, low occupancy, expansion, and operational inefficiencies. And we’re looking for any or any combination of those. And that’s what we look for is our value add in a way to increase our NOI and over increase the value of our property.

Patrick (38:32)
Thanks for sharing that. That makes it very straightforward to analyze a property, I imagine. Um, are there things like, do you have standard protocols for how you approach say security? That’s, that’s something that I’ve always been curious about with self storage, uh, property simply because there’s so much stuff, uh, just sitting there seems like it’s prime to be robbed and, uh, you know, an issue with theft. But how do you approach that? And do you have kind of like a standardized approach across all of your properties, or do you really assess it on a property by property basis?

Powell Chee (39:10)
Yeah, for us, the way that we do it is property by property. However, some properties have gone through a significant amount of security enhancements and some have not. And so we just kind of take it as it goes. And so we kind of lean on our previous experience to say, OK, that this is going to how about we do this at this property, how about we do this at this property? But if they don’t need it, then we don’t necessarily want to just, you know, just go spend money on doing something that we feel like is unnecessary. But I will tell you that some of the most important things when it comes to security are lighting. Okay, so you gotta make sure your lighting is good and you gotta make sure you’re lit up bright and people feel safe and there’s not a lot of dark corners where people just aren’t sure what’s around the corner. So you don’t want that. So you want it to be lit up very well. And just so you know too, the studies of who is renting? There’s actually more females that are renting than males. Although it’s probably males that maybe visit the facility more often, but in terms of who is actually doing the renting, there’s a higher percentage of females than males. And when they pull them, security is number one issue. Is the place secure, clean, right? Security and cleanliness. So lighting is one. Cameras are another thing. So you want to, if you feel like there’s a need, cameras are important where you can, you know, there’s a lot of different camera systems now that can set up and record things there. You can, you can look at it through your phone. You know, you have access to your phone. And you can even have monitoring systems out there that will monitor that these, the cameras 24 seven, if you need to, or a certain time if you need to. Right. It’s not cheap, it can cost quite a bit, but if you need somebody to monitor them, they can monitor them and they can put loudspeakers where the cameras are so that they can talk to people and tell them like, hey, I see you over here, you shouldn’t be here, you should get out before the police come, I’m calling the police, whatever, to make sure your facility is secure. Also fencing, so depending on where you are, inside of an urban area, fencing was probably just the norm.

However you want to make sure it’s, uh, adequate, right? So if it requires fixing or adding, um, some, something to, to reinforce your, your fences, uh, that’s important. But then when you get to some rural areas, um, sometimes there is no fencing. And these are just facilities that are just wide open. So anybody could walk into the facility from any direction. And so you have that, um, that is a possibility that you might need to put a fence around it. So those are, I would say the major ones is that, you know, lighting, cameras, fencing, those are the major things when it comes to security for your facility.

Patrick (42:16)
Yeah. And if there is ever an event that is security related, I imagine those are probably your property managers that are handling that situation as it comes up.

Powell Chee (42:28)
Yes. Um, so they’re, you know, we have a third party property managers and they will, um, they will be the ones that will handle that kind of on a day to day basis, you know, of whatever’s needed, you know, where the issue on camera, what do we see, what’s, what’s the complaint? Um, yeah. Um, or there’s certain things that need to be fixed. The fence needs to be fixed. Let’s, uh, let’s get a quote or let’s put a fence in. We don’t have a fence. And if we’re going to put a fence, we need to put a gate.

And we need it to be an automatic gate. And, um, yeah. Uh, so some of the things when you do have an automatic gate, the good thing is you have a code, um, and you give that gate code is a personalized gate code. All right. So, so when somebody signs up, somebody comes to your facility, say they just drive up and they see their facility, they’re outside the fence and it says, okay, here’s our website, go to our website or scan this QR code and you can sign up. They scan it. They go to the website. They put in all their information.

And then they hit submit, they get emailed and then texted. They’re like, you know, here’s your lease. Here’s your, um, here’s your agreement. Here’s your gate code. Um, and then here’s your unit number. Right. And so when they punch in their gate code, it is specific to that person. So we know if that person is trying to get in late at night, uh, when they shouldn’t be, or they’re using the wrong code for some reason, or whatever it is. We know who, and then they’re like, well, I’m just going to come in and grab my stuff. And then I’m going to jam out before I, so I don’t have to pay this month. Well, your gate code is, is no longer working. So I’m going to go ahead and say, Hey, I’m going to go ahead and grab my stuff. And then I’m going to go ahead and grab my stuff. And then we see you punch in your gate code and then you, and you basically, you know, it says like invalid or something. And then you call up and say, Hey, well, how come my gate code doesn’t work? Oh, you know, your credit card, you know, expired. So we need your new credit card. Oh, okay. Well, if you want to get in, put in your new credit card information. So, um, so yeah, uh, that’s the benefits of having like a gate code and, uh, personalized, uh, personalized codes for, for your tenants is that, you know, you know, who is in your facility at all times.

Patrick (44:56)
And so it sounds like on the backend, you are automating this. Are there a few softwares? I imagine there are a couple of competitors that do similar things on that front. But are there a couple of softwares that you have looked into and would recommend to investors that are looking in the self-storage space?

Powell Chee (45:12)
Yeah, I would tell anyone there’s a number of different softwares and it depends on what you’re looking for. Right. If you’re looking for somebody that is a, say you’re on the sort of lower end, maybe you have a smaller facility. If you have a smaller facility, you might have to run it yourself. So you might have to be an operator yourself, right? You might not be able to afford a property manager in there. So in those cases, they have certain software that’s a little bit more like, Hey, this is the box, right? You’re just, you’re buying the software in the box. It doesn’t do much outside of the box but it can help you put up a website, it help you manage your units and give you sort of a standard view of how to manage it with the software. So yes, there’s things like that are cheaper and there’s ones that are just more expensive and they can do more and they integrate with your gate code and they integrate with other things that you have, payment systems and all kinds of things like that. So there’s a number of different ones. If your audience wants to know they can just reach out to me and I can I can shoot them like you know who I would go to sometimes I don’t like to give it just on right here just because sometimes you’re I don’t know like right now I’m in a dispute with one of them and so I’m like uh well I do use them but I don’t that doesn’t mean I’m gonna give you an endorsement so um you know so yeah but they can just let me know that there’s a few options um out there.

Patrick (46:28)
Hahaha. Perfect. Yeah, that’s fair. That’s fair. Wonderful. And then you mentioned a handful of minutes ago, high season versus low season. Is this something that is applicable across the board in any market you’re in, or is this something that is more applicable to a facility that is in a tourist town or a mountain town or somewhere that has got very seasonal activities associated with it?

Powell Chee (47:03)
I would tell you that it’s a little bit of both. All right. So sometimes facilities have specific seasonality that may be a little bit different than the general self-storage seasonality. So I’ll give you an example of one. So we own one that’s in a college town. All right. And it’s a big college town, a big football school, and we’re about six blocks away from that football stadium.

And, uh, you know, it’s the university of Alabama. So if you’re a sports fan at all, you know, the university of Alabama is a huge football team, you know, program there. So we’re really close and, uh, and, uh, and so that, um, that, uh, facility has a certain, uh, peak time and like rental season, which is follows students being out of their dormitories or out of their, uh, you know, other places that they’re renting their house that they’re renting. So once they get out, they need to store their stuff. Right. And so that place fills up quick, very fast with all these students. Um, and that is a little bit of a different cycle than the, say the rest of the self storage, um, which is a little bit more of along the same lines of, of residential, you know, like you’re going to have your high seasons. When, again, when students aren’t in school, so you’re kind of like late spring to summer is going to be your prime renting seasons. In the winter time, just like in residential, not many people are trying to move their stuff during the holidays. It’s not the time that people are thinking about going to their storage unit to get some to move stuff or to move into a storage unit. They might go get their Christmas tree out of their storage unit and their Christmas lights or whatever like that. And they might go to you go to it, but you know, you don’t have a lot of people moving in and out, moving in and out of at that time. So it follows the same sort of cycle that, that residential does on, on a sort of a industry standard, but there could be different peak times, off season times with a specific location that you have.

Patrick (49:19)
I appreciate you walking through the differences and how, you know, the immediate area can, can definitely impact the, the operational flow and, uh, occupancy in general of a, of a particular property. So thanks for doing that. Um, I know we’re coming up on time here, so I want to be mindful of that. before we wrap, as you look back at your journey, starting in single family, working your way to multifamily now with the focus on, on self storage.

Powell Chee (49:32)

Patrick (49:47)
Is there a lesson that you’ve learned that you didn’t know at the beginning of your journey that has been a paramount shift for you and something you regularly keep in mind as you acquire new properties now?

Powell Chee (50:04)
Yeah. I mean, I would say the very first one was the one I kind of mentioned before about that you can invest outside of where you live, right? That was, that was a huge one for me. And as I was starting out, um, maybe that’s more common now, but like, you know, I guess, uh, almost 10 years ago, it wasn’t so common that, that people were talking about it on podcasts, right? Or we’re talking about how the own properties, you know, in other states. Um, but it’s a lot more common now. And that was, that was a big shift for me. The second one really is understanding that if you get involved on the active real estate investing side, so if you are, say you’re doing a syndication, um, and you want to be a general partner, you want to be one of the people that is on the active side, not just a limited partner, but an active partner, or you’re doing a joint venture. You’re one of the active partners or you’re buying the property yourself. There is a lot. You are basically running a business. Okay, you’re not necessarily passive investing. You are running a business. And as a business owner, as somebody that is doing business, you need to sharpen your other business skills, which include things like, um, you know, it’s not, well, it’s, it’s not just, Hey, I just, um, I tell the property manager to collect rent and they just collect rent and then I just get a check. And then that’s, that’s all I’m doing as a general partner. It’s like, you know, you have to be aware of all the accounting. There’s a lot of accounting things that go on and like, you know, you got to learn.

What’s the difference? Are we using cash or are we using a cruel basis? It’s like, well, I don’t know. I’m not an accountant. I don’t know that. But you got to start learning that stuff. You got to start learning how to do this. How to categorize this. Why are we categorizing this as capex versus an operational expense? And how does that affect our taxes? And how does that affect our bank account? And then there’s a lot of little things of like, okay, should we do this? Should we do that? A lot of it is a business. So you run it like a business. Where are all your documents at? Where you have sort of a vault of your documents throw them all in your email or just in your Google Drive. You got to organize this as like a business that if somebody else comes in, they can kind of plug in and understand, hey, okay, they have a system of how to do these things and I can understand it rather than it’s just all in my head and then wherever it’s these contracts and I don’t know, I guess I got to look at my email for these contracts and I don’t remember where they are. Things can become overwhelming pretty quickly. So as you’re scaling, as you’re growing up and growing up, really got to take this on as like understanding, like there’s certain principles of running a business that are very applicable to running a successful self storage portfolio or residential portfolio or whatever it is, any kind of real estate portfolio. So I would say that one is a something that I learned and I’m consistently learning.

Patrick (52:45)
Yeah, thank you. This has been a fantastic overview of self storage. And I know there seems to be growing interest in the asset class in general. So thank you for sharing your experiences and your journey. I’m sure there are lots of people out there that will gain immense value from this. So thank you. We will definitely include your social media links and a link to your business in the show notes. If people wanna reach out to you, I encourage anybody listening to reach out to Powell if you have any questions. And thank you again, it’s been a pleasure having you.

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