Ep 73: In good times we make money – in hard times we acquire great assets

Houses in my town aren’t selling. As a matter of fact, houses aren’t selling virtually anywhere. Mortgage applications were down 90% year-over-year. Self-storage brokers aren’t able to sell most listings right now. Developers are going pencils-down on anything they aren’t pot committed to right now. I’m hearing the same lock-up news from virtually every real estate investor I know.

Acquiring real estate has come to a grinding halt

Last year we acquired $50 million worth of storage.

We’ve found just ONE deal in the past 3 months (worth $1.85 million). We continue to underwrite and analyze deals as well as reach out to owners and brokers but nothing is making sense.

Sellers haven’t been willing to meet the market so deals simply aren’t trading. Brokers are listing deals, they are sitting on the market and then they’re coming off the market unsold.

Interest rates have gone up from 3.5% 9 months ago to 7.5% today – so you need MORE cash flow to cover debt and thus you can afford to pay less for the same property.

We’re also beginning to see our first sign of operational weakness in the storage business. New rentals were down 20-30% across our portfolio in October. Our occupancy is dropping slightly and that is also the case at other facilities for other operators across our business – with the REITs down 2% year-over-year from an occupancy standpoint.

We’ve begun to cut asking rates across our portfolio – which we’ve done at about 40 of our 59 facilities (some as much as 50%).

Overall, our portfolio is still performing very well. We fixed all of our debt, we’re relatively low leverage, and NOI is still up 15-25% across our portfolio vs this time last year. We have very few loan maturities within the next 24 months and we’re closing soon on a big refi on one of our largest assets.

We’re in a great spot to weather the storm.

What does this mean for you?

In good times we make money. In bad times we acquire great assets.

Real estate is cyclical and we struck while the iron was hot with a slew of great acquisitions at the end of 2021 and the beginning of 2022. We know it’s a game of boom and bust – slow and fast.

Sometimes you lay on a rock and sometimes you get off the rock, go out in the field and chase down the gazelle. We killed a few gazelles and now we lay on a rock and wait.

I can sense that the opportunities to buy distressed self-storage units (and real estate of all kinds) are right around the corner. We’re seeing more and more listings at 50-65% occupancy that were acquired less than 5 years ago by the current owner. This is a sign that they bought it, have struggled to lease it, and are now trying to unload it.

They missed the top, these assets aren’t trading, and it’s only going to get worse for them as the operations continue to struggle this winter and they lose more and more money.

The opportunities aren’t here yet – so we’re focusing on our management and operations inside our business. Sharpening our iron and waiting for things to change…

If you’ve been trying to buy some real estate for some time – you should be excited and you should be working extra hard to underwrite deals and source them. Build relationships with owners.

Your time to shine is right around the corner!

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About Me

I started the Sweaty Startup in December of 2018 because I believe the Shark Tank and Tech Crunch culture is ruining the real spirit of low-risk entrepreneurship.