133 Self Storage Underwriting with Fernando Angelucci Part 2

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133 Self Storage Underwriting with Fernando Angelucci Part 2

We introduce an old-time guest, Fernando Angelucci, The Storage Stud.

Fernando Angelucci is back, explaining his self-storage business, why he chose it, and why you should!

He tackled every factor to consider, how he’s handling deals himself to how he calculates the financials, conditions, and value adds of each property.

He’s back for part two with high-level deals he had done from the past, helping new investors raise capital!

Fernando Angelucci is the Founder, and President of Titan Wealth Group lead the firm’s finance and acquisitions departments. Under his leadership, the firm’s revenue has grown over 100% year over year since being founded in 2015. Utilizing his engineering background, Fernando approaches real estate investing with a keen analytical mindset that allows Titan Wealth Group to identify opportunities and project accurate pictures of future performance.

Watch the full video to learn more!

Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the “Small Builder” borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and “Ground-up Construction Loans” for investors only in NC, SC, GA, VA, and TN (some areas of FL, as well).

As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.

Bill Fairman (00:02):

Hello everyone. It’s Bill Fairman, Wendy Sweet and Jonathan Davis. Welcome to the Passive Wealth Show. We are Carolina Capital Management. I will get to the rest of the intro in just a moment, but we are going to do part two of Fernando Angelucci’s, walk through the underwriting of self storage, which was unbelievable. He kept me shut up the entire time, which is,

Wendy Sweet (00:30):


Bill Fairman (00:30):

Very, very difficult to do as far as you all know.

Jonathan Davis (00:32):

Looking forward to it today.

Bill Fairman (00:32):

So right after this, from our special sponsors, which is just our graphics we’ll get.

Wendy Sweet (00:48):

Yeah, yeah, yeah. Keep going.

Bill Fairman (00:50):

Once again, we are Carolina Capital Management. We are a lender in the Southeast for real estate investors. If you’re interested in borrowing money, go to our website, CarolinaHardMoney.com click on the apply now tab. If you’re an investor looking for passive returns, then click on the accredited investor tab. Don’t forget to share like subscribe, hit the button and.

Jonathan Davis (01:16):

The bell.

Bill Fairman (01:16):

We have questions and comments either on the right side of the screen or underneath, depending on the platform that you’re viewing from .If you have any questions, just post them in there. We will get to them. So without further ado, Fernando, thank you so much for joining us again, back to back weeks. It’s awesome to have you.

Fernando Angelucci (01:36):

Thanks for having me guys. Well, it’s a good time.

Wendy Sweet (01:41):

Can you repeat what you said last week?

Fernando Angelucci (01:46):

Yeah. I’ll give it a quick overview.

Jonathan Davis (01:48):

Yeah, no, it was, I mean there’s, listening to him go through, it’s just like, man, this is, this is great stuff. It’s so informative and I don’t know much. Yeah. That’s kinda what I got.

Bill Fairman (02:01):

What I gleaned from the majority of what you were saying is that there’s a opportunity and people think that it’s a saturated market because as you drive around, you see, you know, the larger REITs and other, just larger companies that are all branded. They don’t realize that there’s so many mom and pops that are filtered in and that your actual customer base is going to be within, you know, three to five miles. One to two, and then one to three. And then one to five, just depending on where you are, there’s still just loads of opportunity in there. Then you say that 70, some odd percent of the self storage that are currently out there are mom and pops?

Fernando Angelucci (02:48):

Right. 73%.

Wendy Sweet (02:50):

Wow. That’s huge.

Bill Fairman (02:51):

That’s still big opportunity for anyone to get into this business. And then we talked about the financing options that banks love them because they perform. SBA loves them because they’re not just real estate, they’re actual businesses that you can get so much more included in the financing. I think you mentioned that they’re including, operating costs in some of these loans that you’re seeing.

Fernando Angelucci (03:18):

Yeah. 10% down. They’re waiving all the closing costs. They’re even paying your first three to six months of PI payments as well.

Wendy Sweet (03:27):

That’s just amazing. So can we take like, just two minutes before you get into your screen-share? Jonathan was so interested, we all are that you actually sent him something to look at last week. What was your statement to him this morning? Just now?

Jonathan Davis (03:45):

Oh, I was just, it was a, it’s a great project and a great property. I, you know, for me, I’ve never done a multi or multifamily storage unit and there’s so much going on in that property. It’s like, I feel like, I’m, when I’m reviewing it, I’m like I’m swimming over my head here. So it was a lot to take in. You want to tell us a little bit about that project?

Fernando Angelucci (04:08):

Sure. It’s a multitenant self storage deal in West Virginia. So these are the types of deals that actually don’t like to hold long-term. So this project, not only did it have self storage, but it also had a carwash, they had mobile homes, they had a tobacco shop. It’s a little too small on the dollar, the dollar wise level for us to take down. But in the past we would do deals like this all the time. And what we typically like to do is we found that self storage owners are self storage owners. Car wash owners are carwash owners. They don’t really like to mix very much so on a deal like this. What I do is I take it down, you know, you’re walking into a really good cap rate about like that 8% cap rate day one. And then what I’ll do to pump up my return is the second I bought it out immediately list the carwash for sale at an immediate list that the tobacco’s store for sale at or immediately get rid of the mobile homes and sometimes that requires you to go in an, you know, subdivide the parcels, so that might take a couple of months to do. But then the nice thing is then you could sell off these additional assets that, you know, almost at fire sale prices, because that’s not what you’re looking to buy. And then that’s going to pump up your return on the self storage. So if you’re walking in at an eight cap, you sell off these, these additional assets that are not really generating a lot of cashflow. All of a sudden you can walk into a pretty high return. We’d actually did that with one of our facilities. Bought a lot. It had a, it was kind of like four quadrants. The back two quadrants had the self storage on it. And then the front two quadrants one had a Dunkin donuts that was already sold off and then the other frontage was an open retail area. So we got an offer on that one. We bought it at a 7% cap rate for about a million bucks. And then we got an offer on the front little parcel for 435,000, which then brought our, you know, brought our net purchase price on that deal to about 600, 650,000 making our cap rate just kind of jumped through the roof. So that’s what I typically look for on these type of value, add deals.

Wendy Sweet (06:18):

Thank you, Jonathan.

Jonathan Davis (06:21):

I wouldn’t do that. If someone would do it for me,

Fernando Angelucci (06:30):


Jonathan Davis (06:30):

Yeah, I don’t have the.

Wendy Sweet (06:31):

He has a real job.

Jonathan Davis (06:32):

Well, not even a real job. [Inaudible] Yeah. But no. And can we throw up Fernando’s contact information or his website, if you’re interested in a project like that, you can contact him. What is it? Titan Wealth Group or no Storage Stud.

Wendy Sweet (06:52):

Storage Stud.

Jonathan Davis (06:52):

That’s right. Storage Stud.

Wendy Sweet (06:53):

That’s awesome.

Fernando Angelucci (06:55):

The Storage Stud that is kind of like the content brand. And then we have a couple of other brands are buying hold brand is Impact Self Storage. Our wholesale brand is Titan Wealth Group. So we’ve got, it’s super confusing. I don’t know why we do that as well. Probably have to rebrand everything pretty soon anyway,

Wendy Sweet (07:11):

But you can get to it from the storage done. Right? You can get to all of.

Fernando Angelucci (07:13):

Yeah. So all my contact information is all over the internet. So if you just want to call me on my cell phone or shoot me an email, I can connect you. We got a lot of deals. I think we have just looking at the deal board here right now, six, seven, eight, nine, 10, 11, 12. We have 12 self-storage deals right now. I’m under a contract.

Jonathan Davis (07:33):

Do you get them mostly in the Midwest and the East, or kind of, where’s your concentration of, of, of the contracts that you get?

Fernando Angelucci (07:43):

Yeah, so we, I mean, we get them all over the place and we will only market to, you know, low property tax, low labor cost States. That’s where we’re actively spending dollars, but because, you know, we’re all over the internet and, you know, I help a bunch of people learn about it. Find the first deal. We get deals sent into us from partners from all over the United States. So, you know, for example, right now I have some in Louisiana, Illinois, Kentucky, New York, Ohio, Pennsylvania, and Nevada, Tennessee, Maine, and Kansas at the moment we got under contract one in Kentucky is in Louisville Louisville. Or Laville, let’s just say it, right?

Jonathan Davis (08:27):

Yeah. I’m from Kentucky. Well, I grew up there, but yeah, I was born in West Virginia, grew up in Kentucky.

Wendy Sweet (08:34):

He’s a Backwoods.

Jonathan Davis (08:35):

I know, I know. Right. It’s amazing. I can speak. And I’m wearing shoes.

Wendy Sweet (08:45):

That’s funny as from South Carolina.

Bill Fairman (08:48):

So barge and letters to Jonathan Davis.

Wendy Sweet (08:54):


Fernando Angelucci (08:56):

Yeah. So, you know, we really like in general, we really like the Midwest, the South, the Southeast, because you’re getting a lot of really good value. You can walk in at high cap rates. Cost of labor is really low. I have yet to get a deal under contract in California. Usually when deals come across my plate in California, they start off at like a 4% cap rate or a three and a half percent cap rate with the chance to value add up to like a 5% is just ridiculous. Same thing with, you know, around the large metropolitan areas, like Manhattan, you know, New York city. It’s tough. I really like upstate New York. There’s, it’s one of the most under-supplied markets in the United States is upstate New York. And they have a really good energy credits. If you want to combine storage with solar, which is what we do on some of these newer builds in conversion projects as well.

Bill Fairman (09:52):


Wendy Sweet (09:53):

Nice to know.

Bill Fairman (09:54):

And if you have a big enough lot. You can consider, I’m assuming that the cell phone towers and stuff, if they needed need them they’re in those particular areas. Right? So those company type companies.

Fernando Angelucci (10:09):

Absolutely. And especially because, you know, we make a lot of money on these tertiary markets, secondary and tertiary markets, you know, in the areas where John grew up. So we, sometimes the cell phone coverage is not the best. So we reach out to, you know, the top five, six brands and we’ll say, Hey, we checked on your website. It looks like there’s a gap in coverage. How would you like to, how would you like to put up some, some cell phone towers? Typically nowadays they would rather you build the tower and then they’ll rent space on the tower for you. There’s a whole bunch of, yeah, exactly. So, and it doesn’t take up that much room, especially if we have like a call it a multi-story development, you know, you can put it right on top of the building. Typically when we’re buying these facilities that come with a ton of land, I know you saw on that West Virginia deal. I had like all that land in the back mountain, there it’s like 30 acres.

Jonathan Davis (11:02):

Yeah. It it’s close to 30 acres.

Fernando Angelucci (11:06):

You get all that land for free.

Bill Fairman (11:12):

You might wanna do something with that. If you put it on top of a building, you don’t have to decorate it up like a stupid tree.

Fernando Angelucci (11:19):

Yeah. Palm tree at the end a few times.

Wendy Sweet (11:21):

That’s right.

Bill Fairman (11:23):

Yeah, we have a belt ling around in Charlotte and they decided to build this giant tower right off the road. And then it looks like somebody stuck a tree on top of the tower. So it’s the stupidest thing I’ve ever seen. It sticks out further than if they just left it alone as a tower, but they got, Oh, look, there’s a big, giant tree on the top of this tower,

Wendy Sweet (11:48):

I wanna get back to his power point.

Jonathan Davis (11:50):

And that’s what grinds Bill’s gears.

Wendy Sweet (11:52):

Just one. Just one of the many things.

Bill Fairman (11:53):

Right. So, we rambled on enough. I’d like for you to finish now.

Wendy Sweet (11:58):

Yeah. Finish.

Bill Fairman (11:58):

Give you an opportunity. So do you remember where you left off?

Fernando Angelucci (12:02):

I do. I’ll give you a little quick recap All right. Let me know. Okay. So wonderful. So as you guys may have remembered, we were going through the act of underwriting of a deal. I purchased a couple of years back in central Illinois, who was Danville and the first five pieces that we covered, we went ahead and saw that traffic counts were a little bit lower than what we liked, but it’s still manageable. Demand drivers were also kind of right on the level. The competition study was extremely favorable. We had, you know, basically no competitors in a three mile radius. The closest competitor was not sophisticated. We’re actually buying them out under contract right now. The supply index in the smaller pockets and the three mile radius was, you know, a little bit, it need a little bit of mitigation, but in the five mile radius, it was very good and then the way we were going to mitigate that by was by buying it a higher cap rate, purchasing the closest competitor as well, which then finally brought us to the property analysis itself. So you guys ready to get started into this side?

Bill Fairman (13:12):


Fernando Angelucci (13:13):

All right. So let’s talk property, the property analysis. So very first thing we’re going to do is we’re going to look at the unit mix. We’re going to pull up the financials as well to compare them. We’re going to look at the condition of the property, and then we’re going to see what type of value add opportunities we have. So as you can see the photo on the right there, some people might be afraid to buy a facility like that. If I see a facility like that, I’m excited. I’m showing up with cash in hand to buy something like that, because that looks like money to me. Right. All right. So let’s go through it. So first unit mix, one of the things that is a little bit different than let’s say multifamily is that these self storage facilities have multiple types of unit mixes. And in some cases it can be, you know, 50 different types of units for the clean ones that you could tell the builder wasn’t kind of OCD like me. They may only have like four types of units. Everything’s pretty standardized. So the very first thing we’re going to do is we’re going to look at the unit mix and the rent rules. And what we found is that the smaller units are actually better for like urban core. You know, you’re close to downtown you’re in downtown whereas the larger units are going to be better for your more rural or exurban style neighborhoods. So what a small unit might be would be like a five foot by five foot unit only has 25 square feet. It’s kind of like a walk-in closet, if you will. The larger units in the rural areas are going to be like 10 by 30, right, 300 square feet, or a 20 by 30. It might be 600 square feet. These are things that you can park boats and RVs and you know, big toys into. The next thing is we’re going to look at what the rents that are being charged currently at the site versus what the market is charging. So what we found is that many of these owners, they have these policies of kind of you walk in 10 years ago, you rent a unit and that’s your rate for life, you know, just cause you don’t want to fuss with upset and your clientele. But what we find is that rents in the self storage realm are going up two to 3% per year in some markets like your guys’s market, you know, it’s going up five, 6% per year. It’s pretty insane, right? And so now all of a sudden, if you haven’t raised rents in in 10 years, then you can walk into as a buyer, you can walk into a deal and day one, when you go and send out your introduction letter and telling people where to pay their new rent at you can also Jack up the rent by 20, 25, 30%. And that all drops right to the bottom line, right? So this is the facility in Danville. You see that everything is drive up, there’s no climate control and there are some kind of funky sized units. But for the most part, there are the standard ones. We see the five by tens, the 10 by tens, the 10 by fifteens 10 by twenties, 15 by 2015 by twenties. Right? What we’ll notice here is that you can see in the fourth or fifth column, the rent per month, that they’re charging versus the market rents. So in this example specifically, there’s only one really subset of units that we could raise rents. And that’s in the 15 by 20 range. And the reason why is we bought this as a listed property. Now, granted it was listed by a residential broker. So they didn’t really price it well but right before they went to sell, they jacked up all their rates to market rates. So they did the right thing to get the most value on the sale. So not a lot of ability to raise rents there, but if you look at the vacant or 30 day plus late, there’s a lot of value add there as well. You can see there’s a lot of units that are not rented or they’re behind on payments. So that’s something that we can grab back to add value to them.

Bill Fairman (17:05):


Fernando Angelucci (17:07):

Okay. So now let’s run through the financials. So as a commercial asset, self storage is valued based on its income generating potential. It’s not really like single-family where it’s comps based. So, you know, in the single family space , you can kind of get dinged if your neighbor decides to sell to a wholesaler or decides to do a fire sale, just because they need the cash quick, that’s going to bring your comps down. With self storage, everything is based off of the income it generates and how we comp properties across areas is using their cap rate. So how do we do this? Typically we’ll request the last 24 months of profit and loss statements. And we asked for the trailing 24 months, which means it’s broken down by a month to month. What did it bring in January? What did it bring in February, what did it bring in March? And that allows us to see trends. It allows us to see if they jacked up the rents recently allows us to see if they’re trying to hide expenses most recently, when they went to sell, we’ll also ask them to, you know, if we go further down the line, we’ll ask them to actually verify these profit and loss statements with, you know, bank statements, tax returns, receipts for the expenses that they’re experiencing. And then we’ll, we’ll look at what direction those expenses and those income generating is what direction it’s going in and why it’s going in that direction. That’s extremely important. So on this property itself, we saw that the gross rental, the gross potential rental income was about 214,000. So that’s, if everything was at market rate and at a hundred percent occupancy, then they had about 21% of their population were vacant. So that brought the net rentable down to the net rental down to about 170,000. Now let’s look at the expense side. So this is the side that I always tell people to take with kind of a grain of salt, because what we’ll notice on the mom and pop side is there’ll be on either side of the extremes. On one side, it will be a solo operator. You know, he may have retired or she may have retired already. This is all they do with their time. So they’ll do all the work and they won’t put that in their expenses, right? They won’t put a, a manager expense, they won’t put a maintenance expense. They won’t put anything like that. Sometimes on the, what we find it’s on the opposite spectrum where, you know, they’re retired. They don’t want to deal with it. And they’re paying way too much for labor and maintenance and insurance. And there was a property I was looking at the other day, it was tiny property, maybe 10,000 square feet. You can run the entire thing automated. And yet they were paying two people, two full-time employees to run it. And they were incurring about $80,000 a year in revenue. It was crazy. So I like to look at the expenses. They usually take them with a grain of salt, but in general, if I need to do back of the napkin math, when I’m buying from a mom and pop operator, I’m assuming they’re going to be running at about 40% expense ratio. And that I will be able to get it down to about 28 to 30% within the first 12 to 18 months, depending on how quickly I’m doing the value. So as you can see on this property, it was actually run pretty well. They were right where we thought they would fall as far as our initial underwriting. So they were at about 40% expense ratio, as you can see here. But when I look at the expenses, I’m looking at opportunities to drop these in where I think I might be able to a good deal. So right off the bat, the first line item is going to be real estate taxes. This is an Illinois. Illinois is extremely high tax States. So how do we get these taxes down? And there’s a couple of ways that we can actually approach this. The very first way is by structuring the purchase agreement so that the success or the proper tax is set or only sees one portion of what you’re paying. So what we’ll do is we’ll actually send two purchase agreements on a self storage facility. One is for the land and all the buildings and improvements. They’re fun. That’s the one that the property tax assessor sees. And then we’ll send a second purchase agreement, but instead of it being a real estate purchase agreement, it’s a business purchase agreement and we’ll buy the brand in the Goodwill. And so that will not be reported to the property tax assessor. So depending on how aggressive you want to get, and if you have good CPAs, typically what I’m seeing in this realm is that you can write about 35 to 50% of the purchase value into Goodwill. And if you want to further solidify that you can do a cost segregation study, where an engineer comes out and actually give you the cost of each one of your, you know, improvements and all the things that are on the land so that you can even depreciate those on an accelerated schedule. So when we go to get reassessed, if it’s a County that reassesses that purchase, or if it’s a County that reassesses on a fixed schedule, like every two years or every three years, all they’ll see in their records is the purchase agreement for the land and the improvement. So that’s one way you can immediately drop the property taxes. The second way that you can drop property taxes is just by going after the County with a property tax attorney. And what they’ll do is they’ll usually you want to hire an attorney property tax attorney that’s from the local town. That’s has good connections with the zoning board and with the assessor’s board. They also are probably, you know, a little bit on the older side, they’ve had years and years to foster these relationships. And you want somebody that their main focus is property tax. You don’t want somebody that’s a litigation attorney that just happens to do some property tax on the side because they, they’re not going to know everybody on a handshake basis. And what they do is they’ll go and they’ll ask them the assessor’s office and say, okay, how did you get to this number? How did you assess it at this number? Show me the basket of properties that you’re grouping in for my storage facility. And a lot of the times what we’ll find is that the counties don’t know what they’re doing and they’ll group in like medical office building or regular office building, or, you know, farm buildings into our basket of comparables, which are not the same type of asset. They shouldn’t be taxed at the same rates and that’s another way to get, you know, a 20 or 30% drop on your property taxes. The piece is insurance. When I’m looking at the insurance number here, that’s really high for how small this facility is. And what we’ve noticed is a lot of these mom and pop investors, my pop owners, whoever did their car insurance, whoever did their home insurance, they just call that guy over at state farm Jake from state farm or whoever it is. And they ask them to get a quote on their self storage building. And the problem with that is if you do not go with a self storage specific insurance provider like Bader, for example, for example, B A D E R, they’re going to think that there’s a lot more liability coming from that building. They think that there’s a higher chance of some type of payout event happening some type of insurance claim. And that’s what, because with commercial property in general, there is this implied an express warranty of safety for their goods. And the laws are written in that way. Whereas with storage is the opposite way. At our storage facilities, the renters have to carry renter’s insurance for their possessions, the lease States that they cannot store over a certain value amount in their, you know, in their unit. They have to sign off on that for our facilities, it’s $2,500 and they have to sign off saying like, Hey, you know that if there’s an act of God or if, you know, the, the property gets broken into, or it catches on fire or a tornado rips off the roof, you know, you have insurance, that’s covering those things and we will not be liable. So immediately on this property, when we purchased it, we were able to drop the insurance, the $2,600 a year, as opposed to 6,800. So that was a huge savings just because the previous insured did not know what was not intimately familiar with self storage as an asset class and how the laws are written to offload the liability onto the tenants themselves. The next thing that I’m looking at here is management fee, payroll and benefits, and then the water phone, internet, gas, and electric. So these are kind of like the admin fees and the personnel costs, and those are all super high. There’s no reason you should be paying that much for internet, water and phone. There’s no reason you should be paying $3,000 a year for gas and electric. The management fee is 28,000 for someone that’s an unsophisticated owner that makes kind of sense for the payroll costs. But again, this facility is so small that you can automate almost the entire thing and almost not have a need for an office at all. So these are kind of the things I’m going through when I’m looking through the expense sheets to say, okay, where can I, you know, where can I add value? At the same time I’m looking at where are the things that they did not include, right? This is an Illinois, which means that there’s a lot of snow. So what’s the cost to plow all the time? Well, it turns out the owner was doing that and did not count it in the expenses. Same thing with repairs and maintenance. You know, these facilities, there isn’t a lot of repairs and maintenance needed, but every once in a while, you do need to do some touch ups, maybe paint, maybe fix a door spring, or fix a door that has a dent in it, these types of things. So that’s why I’m going to look at the trailing 24 month profit and loss to see, okay, did any of this come in, have there been any major capital expenditures that were missed captured? That’s what we’re looking for here. So let’s look at them together. There we go. So on the financials, they lifted this property at 800,000 with a residential broker in my underwriting alone, I thought it was probably worth about a million bucks at the second. We saw that. We said, Hey, we’re going to jump in the car today. We’re going to meet you down at the facility and I’m going to sign a purchase agreement right now. No negotiation, let’s do it. As you can see the NOI at 800,000, a hundred, 1000 and a Y. That was us walking into a 12.7% cap rate and day one. So when I saw that, we saw all those previous things on the agenda, how, you know, the median income, not that great. And the competition studies, all right. And you know, the cap rates, all right, this is how we mitigate against it by having a very high cap rate walking in. So even if I don’t do any value, add at all, if I’m walking into a 12 plus percent cap rate and it just sits like that for the rest of the time, I own it. I’m feeling really good. Right? The second thing that I’m looking at is my price per square foot. So in, once you get into the storage space, you realize that people don’t really talk in terms of units because units can have all different sizes. Most of your operators going to be talking in net rentable square feet, because then it puts everything on an apples to apples comparison to build these class C storage facilities. These first-generation storage facilities. It usually costs me anywhere between 25 to 35 bucks a foot, not including the cost of the land and all the site work and soft costs. So I’m already walking into this facility at well below replacement costs as is not to mention it’s got a great cap rate. So the reason I mentioned that is because sometimes there’s these value add deals that come across your plate, but because they’re so mismanaged and because the management staff is so terrible at what they’re doing, you may be walking in at a 5% cap rate or a 6% cap rate because they’re at 30% occupancy. But if you look at the price per square foot and you see that you’re in the 25 to 35 per square foot range, like that’s a really good deal. And there is the ability to go and value, add this thing up to a seven and nine 11 or a 13%.

Wendy Sweet (29:28):


Fernando Angelucci (29:29):

Right? So once I ran it through our debt schedule, I’m very conservative on our debt schedule. So we’re usually running it at like five and a quarter percent interest rate with a 20 year amortization. You could see that even with that super aggressive loan, the cash on cash return was 35%, which means every three years, I get my down payment back, right? Now, the loan that we have on and now is a 30 year amortized loan with a 10 year balloon at 4% interest. So this cash on cash return just skyrocketed.

Wendy Sweet (30:04):


Fernando Angelucci (30:06):

Right. So I always get a lot of people asking, okay, you know, I’m new to this. I’m in various markets. It may not be the same market as you Fernando. How do I know if I’m getting a good deal or I’m getting a bad deal? So what I did is I looked through my last, like 50 to 60 deals that came in and the ones that we bought, the ones that we turned down and I built this matrix for people. So if anybody wants to screenshot this, feel free, this is typically what we’re seeing in the market. So let’s look at, you know, class A builds, class A facilities. These are, those are the multi-story facilities. They look like office buildings. They’re beautiful. They typically have like open glass panes that you can see these fake, you know, roll-up doors. If you guys didn’t know those aren’t real roll-up doors, they just an advertising for people. These things in primary markets like Chicago are trading for four and a half to seven, 8% canvas. As you go down to secondary and tertiary markets. And you’re adding about 1% onto that cap rate matrix of what is typical for the market. Now, if you go all the way down to call, see, you can see there is much more cashflow potential. You know, primary markets. We’re seeing these things go for six and a half to 8% in tertiary markets like this Danville facility, we’re seeing them go over eight to 12%. We actually did even better. So those are the types of things that you’re seeing. If you’re wondering what a class B facility is an issue, we put some photos on the Slack tier for you. A class B facility is typically a mix of a one or two story climate control with Outback. They have a bunch of drive up units, maybe it’s gated, it’s fenced. It hits, you know, keypad entry and exit. It’s got some, you know, some camera and security features. So as you can see, as an average class C facilities are moving at about 8% class A are moving at about 6.1%. And then if you look at markets specific, primary markets are trading at about 6% in tertiary markets are trading at about 8%. So pretty easy matrix to work on there. If you need an idea of, am I getting a good deal? And now, again, this is market what is trading on, you know, usually with brokers. So I’m trying to beat this by two to 3%, as much as possible, at least on the low side of the range. So we’ll just run through the numbers real quick, you know, purchase of 800,000 and a Y of 102, which means you’re walking in at 12.7 cap, the cash return on investment with a hyper-aggressive loan was 35%. It was a bridge loan that we used from a bank that we held other properties at. In general, at the bank, I tell them it’s going to take us 36 months to stabilize because I’m trying to get as much interest only as possible. I’m trying to get, you know, 12, 24, 36 months of interest only. In reality for us to do the stabilization, It typically only takes us nine to nine to 18 months, depending on how much lifting, heavy lifting we have to do. So at stabilization, the value of this thing’s 1.35 million NOI is at about 131,000, which then gives us an internal cap rate about 16.4% or a cash return on investment of 52.8%, which means that we get our earnest, or we get our down payment money back every two years.

Bill Fairman (33:37):


Fernando Angelucci (33:38):

And then if we decided to sell the net, proceeds to us would be about three quarters of a million bucks, just shy of that.

Fernando Angelucci (33:46):

So that’s what I look at when I’m doing the financials. The next thing I’ll look at is the condition of the property. Where are the value? The physical value adds that I can do to bring up not only the NOI from a customer standpoint, they see a nicer looking facility they’re willing to pay more. Where can I improve certain physical things that allow me to drop the cap rate that the property is trading at? Meaning that I get a larger, multiple on my net operating income. So the things that I’m typically looking at when I walk the site, or if it’s far away from me, maybe pay somebody to go on Fiverr and take photos. I’m looking at the condition of the doors. You know, are they the self storage, corrugated steel roll-up doors? Or are they, you know, one step down and just like regular garage doors that are like three paint or four paint? Are they the worst of the bunch? And there are these, you know, these like OSB swing doors. We hate those because they break all the time. The next thing I’m looking at is if they have any vacant units, I want to go and mess with that door. I want to move it up and down, up and down. If it’s easy to move up and down, that means that the, the door Springs probably in good shape, if it feels like I’m lifting a giant steel piece of metal, which you are, that means that the Springs are broken and they’re not working, and you’re going to have to replace those. Now, it’s not a big deal to replace doors. You know, you’re looking at 250 to 450 bucks, depending on the supplier and the size door Springs. Each door has two Springs in it. Those are about 75 bucks for the Springs. And then, you know, maybe another, a hundred bucks in labor, I’m looking at latches, you know, are the metal latches? Are they solid or do they have any rust holes in them? Do they look like you break them pretty easily by, by kicking them in? I look at gutters, you know, because I want to make sure that I’m protecting my asset water, especially in areas where there’s freeze thaw cycles, where it drops below the freezing point, any water that gets under concrete or in cracks in concrete, as you freeze and thought that water freezes expands breaks a crack open, even more melts, allows more water to get in freezes, again, breaks even more. So you want to nip that in the bud. I’m going to make sure that they have bollards. Bollards are those concrete poles that come out of the ground. They’re usually painted yellow and that’s so that some, you know, someone that’s not paying attention backing up their pickup truck, doesn’t slam into one of my steel doors or into the corners, which is usually where we put the bollards. Doesn’t slam into the corner of the building. Now I have to go paint to, you know, remove that dense or even replace that sheet metal. I’m going to look at the condition of the pavement. The pavement is one of the lines, larger expenses when it comes to renovating these storage facilities. And then also another thing that comes into play when you’re going to get senior debt, non-recourse that, you know, on maybe the CMBS market or the life insurance company markets, some of these lenders will not give you non-recourse if your property is gravel, you know, so then you’re going to have to look at, does it make sense for me to put down a whole, you know, a whole level of asphalt or do I just, you know, if I know I’m going to hold this thing for a long time, do I just say, Hey, screw it on set of asphalt. I’m going to put down concrete, you know, that can cost a lot of money. So I’m looking at the condition of the pavement, or if there is any pavement, again, the bollards, if there’s any dents in the metal, I’m going to have to fix that. When I come in and buy a new facility, I want to hang a banner that says under new management, because they are jacking up around us as fast as possible. And if it looks nicer than it did before, then usually you can pull that off. I’m gonna look at the condition of the paint. You know, this is metal, usually the paints on metal. So it fades very easy in the sun. I’m making a mess scuffed so just putting a fresh coat of paint on a facility can do wonders for the new potential tenants coming in and their willingness to pay more than what they experienced to in the past. Oh, what are the typical types of value ads we’re looking for? So, first we start with nonphysical value ads. Rent increases below market rents. We’re looking at adding ancillary profit centers, decreasing expenses, increasing or creating online presence you don’t have one. Transition is one. I really love transitioning from cash to automatic payment methods. And I’ll cover all of these here in a second. We’ll start looking at doing physical improvements to the property cause it’s usually costs more. We’re gonna look at the amount of units we have. Once we get up to a stabilization or even putting down modular units, as opposed to permanent structure, we’re going to rectify any type of accounts, receivables hold auctions for the people that are [Inaudible]

Wendy Sweet (38:49):

Fernando, your sound is going in and out.

Fernando Angelucci (38:56):

Oh, I’m sorry. Let me see. How’s this? Is that better?

Wendy Sweet (39:00):

Yeah, that’s a little better. Yeah.

Fernando Angelucci (39:02):

Okay. And then, you know, the last one is I’m going to look at monopolizing the market. Once I have a foothold in that market, I’m able to pay more for subsequent properties because the economies of scale, especially if they’re nearby. If I buy a second facility, I may not have to pay for a manager because I already have manager for my first and then same thing with the third that I buy. The manager for the first you can manage the third. So all of a sudden, now I’m starting to be able to pay more than the competitors that are trying to get into that market with then in the end, selling off as a larger portfolio. So let’s go through some of these in depth. So let’s look at value and rent increases. You know, the mid eighties brought a huge boom in first-generation facilities, you know, think of these drive up non climate controlled. Maybe they’re not fenced, just the typical storage of what you think in your mind. Most common, like I said before, these owners had a, your rate when your rent is your rate for life strategy. So what we do right off the bat is the second we take over the facility, we send out the day one introduction letter already raising everybody’s rents up to 95% of market rate. Now, some people don’t agree with me on this. They say, Hey, you should stair-step it so that you don’t have a mass Exodus, but the way that I look at these deals, I’m trying to value that as fast as I can. So I can either sell immediately or pull all my money out with a cash out refinance. So I like to rip the bandaid off and just raise everybody up to 95%. So even if they are off that I doubled their rent because they’ve been there for 15 years. Even if they try to move to a different facility, they’re still going to be paying more than me.

Wendy Sweet (40:38):

That’s right. And it is a pain in the butt.

Fernando Angelucci (40:42):

Right? Do you want to spend the 300 to 500 bucks to rent a truck and miss work and spend two days and sweat and yell at your husband because he’s not moving fast enough or whatever it is, you know, nobody wants to do that. Any new clients coming in, we’re pricing them at a hundred to 105% of market rent. Specially if the competitors are above 90% occupancy. Ancillary profit centers, there’s a ton of them in this space. So this is all the things that you can charge for other than renting a self storage unit. Cars, RVs, boats, locks, boxes, moving supplies, renters, insurance, packing material, FedEx, printing services, scanning services, cell towers. Like we were just talking about, billboards. If you have billboards, or if you have large walls that you can paint and turn into a billboard, a wine storage, that’s a niche style of storage where you can charge three to four times by the square foot than what you can for regular storage. Truck rentals, private mailboxes, propane filling ATM’s and vending machines, right? These are all things that you can put in additional. You can get a bunch of additional cash with not much additional management. The only one I will give a caveat on that. I really don’t like is truck rentals. Like U haul and Penske. I don’t like that because it brings a logistics portion of your business. You have a lot more liability. Typically the manager is spending a lot of time, you know, working with the truck renters and making sure that the gas has filled up and washing it and sweeping. And also, I don’t like doing the Trek Reynolds, but all the other ones are really great.

Wendy Sweet (42:28):


Fernando Angelucci (42:30):

Like we were talking about before on the value add for just decreasing expenses, I’m immediately going to look at the property taxes, get them contested or split up the purchase agreement. I’m going to get multiple insurance quotes from people that do self storage only, or that’s all, they do the most of their business and self storage. I’m going to remove anything that the manager doesn’t need. You know, my ma I can’t tell you how many times I’ll walk into a facility and they’ll see a $500 per month TV budget. And I’m like, what is this? And it’s like, Oh, well, my manager wants to watch cable when nobody’s there. And I was like, if your manager has time to watch cable, they shouldn’t be in the office. Right? So I’m removing the cable, the dial down internet costs, I’m removing any physical phone lines. And I’m just, I’ll give him a cell phone with a couple of CallRail numbers. And then utilities. You know, if every unit has a light in the unit, that’s just another thing that someone could forget to turn off. I’m just going to rip all the electrical out. I’m going to get rid of any type of utilities that are not necessary. This is one of the ones that I love to do because in the mom and pop space, I can’t tell you how many facilities you can’t even find on Google. And nowadays where 60 per tenant is finding you on a mobile phone. If you don’t have a website, let alone, it’s mobile optimized, you’re missing a huge influx of tenants, right? So the very first thing I’m going to do is I’m going to create a website with a payment portal that allows them to pay on the website with a credit card, or, you know, a checking account. I’m going to allow them to do online reservations and check availability. So I’m moving all of that labor that I’m paying for off and putting it onto the tenant themselves. No longer accept cash. And we actually will incentivize people to not pay us with checks and money orders. So, you know, we’ll give them a couple of grace months and then say, Hey, you know, going forward, if you would like to use a check, it’s gonna be an extra $5 or the way that we phrase it is if you’re willing to pay with a credit card or debit card, we’ll give you $5 off your rent. But it’s the same both ways. Recently with COVID. That has been a great excuse for us to not accept anything. We’ll say, Hey, our managers aren’t touching anything anymore. No cash, no checks, no money orders, nothing. You have to go online. And then we always push them to add automatic recurring payments, a set it and forget it model. Can’t tell you how many times I’ve bought a facility sent that day, one letter. And all of a sudden, I get someone calling me back saying, I don’t have a unit at your place. And I’m like, well, sir, if I check the financials, it seems like you’ve been paying $40 a month for the last 10 years on your credit card. And they’re like, Oh, I didn’t even know that. You know? So always trying to push towards the automatic recurring payments. Now let’s get into like some of the physical value adds that we like to do. Now, again, we’re always going to try to make the place, look nicer, make it look safer. So we’re going to add security fencing. We’re going to add a key pad entrance and exit. So now I can track when people are in and out of my facility, in case something happens, I can always look at who entered and who exit. And it’s all timestamped. This also allows me to move a lot of that labor that a manager would have to do coming in every morning to open and close the gate. Now it’s all automatic. We’ll even add these little payment kiosks that you see here on the right-hand side that allow a tenant to walk up to the facility, go inside of this little box and then get a unit, look at the sizes of the units, you know, select how they want to pay. They can buy a lock. They can buy renter’s insurance, right from that little kiosk. And the coolest part is to use these kiosks. I mean, they get everything. You have to scan your ID. You have to take a picture of your face. It will take a picture of you to put into the tenant profile. And some of them now are even requiring thumbprint so that you have some type of fingerprint data in case anything happens at the facility.

Wendy Sweet (46:34):


Fernando Angelucci (46:35):

And then we’ll do, you know, pavement paint, bollards, roof, signage, these types of things. One of the things I like to do once I’ve extracted the most value out of the unit I have is to add additional units. So I love these modular units. They literally show up on the back of truck beds. You can put this one in this photo is being put down with the crane, but now they have these that they’re built and you can actually take them off the truck beds with forklifts. It’s fantastic.

Wendy Sweet (47:10):


Fernando Angelucci (47:11):

And the cool part about it is that it adds immediate revenue because this is considered equipment. You can get equipment financing at a hundred percent and because it’s not a permanent structure, it does not increase the property taxes. So it’s like a triple win. It’s like a win-win for these. And then it allows you to test the market to see if there is more demand. And if there is, then all of a sudden you can start putting up permanent structures in the areas that were the modulars were. And so what we do is we will put modulars on a site. If the modular start renting up, then we’ll put on a permanent structure and then move the modular that was where that permanent structure was to another site. And just kind of keep rotating them from site to site. It’s pretty awesome.

Bill Fairman (47:52):


Fernando Angelucci (47:56):

And then last but not least, you know, we’re going to look to rectify accounts receivable. A lot of mom and pop owners are really lenient on money owed. So we always ask them to sign over their accounts receivable. Sometimes they ask us to pay for it. We’re fine doing that. Sometimes they don’t, you know, we’re always going to pay for it at a super steep discount or not paying anything for it at all. Um, and then we’re going to start looking at the statutory maximum that each state allows us to charge. And that’s going to be in our day one packet with our new lease, you know, strict, late fees. If it’s not on the sixth, you’re getting charged, I’m going to do it to the highest the state will allow me to do and the best part about this is that some of these States allow you to charge really, really high, late fees, extremely high late fees. So, you know, we’re going to make sure that if you’re going to be one of those tenants, that’s going to make our life a living hell. We’re going to make money off of that.

Bill Fairman (48:59):

I get it.

Fernando Angelucci (48:59):

Right. And then the final thing is going to be monopolizing the market. Like I said, here’s example of our facility we were underwriting the closest facility. There is Hilary mini storage. So we’re actually under contract to buy that one right now. And we’re paying more than what we paid for American self storage on a dollar per square foot basis. But that’s because we don’t need to hire another manager. We don’t need to add all these additional services that you’d have if you were in a standalone market. Right? So that allows me to raise my market rents because now, you know, we’re the two closest ones to you. It allows me to drop my operational costs as well. So in summary, traffic counts were all right, demographics and demand drivers were all right. The competition study was extremely favorable. Supply index needed a little bit of mitigation, but then we were able to do that with a very favorable property analysis, by walking into this value, add deal at a super high cap rate. That’s me.

Wendy Sweet (49:56):

It’s amazing.

Jonathan Davis (49:56):

That is awesome.

Bill Fairman (49:57):

Well, the first thing I see out of this, in the expense part of it and adding value is the taking of auto payments. And then having the kiosks along with the key pads, because they don’t pay their code, won’t work. I mean, automatically, that’s going to keep you from having accounts receivable issues then

Fernando Angelucci (50:24):

Yeah. They can’t even get into the facility if they’re light.

Bill Fairman (50:28):

And you know, maybe they don’t show up, well, they’re going to get notices that, you know, your stuff is going to be sold here shortly. And if they don’t show up, then you just auction the stuff and you put somebody else in there. So it’s pretty easy. It sounds like.

Fernando Angelucci (50:44):

Yeah. It’s great. And nowadays you don’t even need to spend the 12 or $15,000 to get a kiosk. Cause you can do everything on your phone, just based off of the mobile optimized website you can rent on here and here you unlock your in it. If your late, everything happened from your phone. Fantastic.

Bill Fairman (50:59):

So do those allow for some sort of an app where you can just, I’m assuming if you just pay it on your phone, it’ll clear the pad and now your code works automatically.

Fernando Angelucci (51:14):

Right. It’ll do it all automatically. There’s a bunch of really great service out there. And especially on the automation side, there’s a service we’re looking at right now called the jan is noke system. N O K E. It allows to use their phone to go get into the facility, even open up their unit. That unit is motorized and they just use the Bluetooth on their phone to open up. So it’s completely touchless operation through a facility. So now in this kind of pandemic times, that’s been a huge sell.

Wendy Sweet (51:45):

Wow, that’s amazing.

Bill Fairman (51:47):

That’s awesome. And you know, you can track them on their phone because they have GPS. So, you know, if they’re in there or not,

Fernando Angelucci (51:54):


Bill Fairman (51:55):

If they’re still on the property, whether or not they’re in their unit or not.

Fernando Angelucci (51:59):

Yeah. And all the units themselves with those noke systems, they can track when people are walking past them. They can also, they have a safety feature, which is also a security feature where if the door closes and it realizes that there’s a heat signature or there’s movement inside the unit, you can say, okay, if somebody’s trying to break in and steal stuff or on the safety side, that somebody, you know, have a heart attack, it needs to be attended to. These are the things that we really like about kind of the, the new technology that’s hitting the self storage industry now.

Wendy Sweet (52:33):

Wow. That’s amazing.

Bill Fairman (52:35):

Well, what we love about this is that there’s plenty of value to be added in the mom and pop space. There’s plenty of mom and pop space to actually get into. I mean, if it’s 73%, that’s a huge market share.

Wendy Sweet (52:51):

And self storage is not a saturated market.

Jonathan Davis (52:55):

Maybe we should do that one. The one we looked at. The one in West Virginia.

Wendy Sweet (53:06):

No doubt,

Bill Fairman (53:07):

Fernando, thank you so much.

Wendy Sweet (53:09):

Good stuff.

Fernando Angelucci (53:09):

You’re welcome!

Bill Fairman (53:09):

Put, Fernando’s info up here again, real quick. If anybody,

Wendy Sweet (53:16):


Bill Fairman (53:16):

Now you have a wholesale, a retail and then you have a fund where people can invest in being a part of buy and hold side of things. Correct?

Fernando Angelucci (53:28):

Yeah, that’s right. So, yeah, we have a multiple verticals. So we wholesale the smaller deals that are a little too small for us now where we are in our career to new investors starting off, we’ll even offer to consult with them and show them how to get the value add from, you know, day one to day, 180, whatever it is. We do have multiple syndications. We always have new properties coming up that will raise money for busy, you know, from busy professionals to help them get some passive returns without having to, you know, go to go to a storage facility every day, if they don’t want to do the actual work themselves and then we partner, you know, we always partner with other investors, especially investors that may be sophisticated in a different asset class. So they’re already a successful real estate investor in their own right. But they want to get involved in storage, you know, in a couple of the masterminds that we’re both a part of, I’ve already partnered with people in collective genius on deals together that they may have sourced, but they didn’t know how to walk through the first, you know, 18 months of doing the value add and pulling all their money out so we love partnering with people. We love hearing from people. If you have any questions, let us know, reach out. Always, always happy to help.

Wendy Sweet (54:35):

That’s awesome.

Bill Fairman (54:36):

And you know, for those who are truly passive investors they can invest in the fund and know that they have somebody that is doing all this due diligence and.

Wendy Sweet (54:50):

That’s right.

Bill Fairman (54:50):

Knowing that they’re doing it the right way and taking advantage of what the market’s giving.

Wendy Sweet (54:56):


Jonathan Davis (54:57):


Wendy Sweet (54:57):


Fernando Angelucci (54:58):

Yeah. Absolutely. We’re always, we’re always looking to partner with investors. We have probably close to $40 million in deals right now, so a lot of opportunity out there.

Wendy Sweet (55:07):

Awesome. That’s great.

Bill Fairman (55:08):

Fernando, thank you so much for joining us. We are a little over our normal time, but you have great info.

Wendy Sweet (55:15):

You’re worth it.

Jonathan Davis (55:15):

Oh absolutely.

Bill Fairman (55:15):

I hope you got a little spring weather coming your way soon.

Fernando Angelucci (55:23):

We do.

Bill Fairman (55:23):

And we always have it here so that this is why it’s a great area to be

Fernando Angelucci (55:29):

I’ve been barbecuing up a storm. So I’m going to have to test out my Carolina style barbecue. Next time I come up and see you guys

Bill Fairman (55:38):

Looking forward to seeing you.

Fernando Angelucci (55:40):

Right. Sounds good.

Bill Fairman (55:41):

Thanks so much for joining us again, if you want any information on self storage, I highly recommend, contacting Fernando and, I know Scott Myers also has courses on this as well. And I say that because Fernando is friends with Scott as well. We’re all in a community of giving more. What do we call it?

Jonathan Davis (56:10):


Wendy Sweet (56:10):

Operating from abundance other than scarcity.

Bill Fairman (56:11):

Absolutely. Absolutely. We will all be investing with each other at some point. That’s the way we look at it.

Bill Fairman (56:18):

Right. Thanks for joining us on the.

Wendy Sweet (56:22):

Passive Wealth.

Bill Fairman (56:22):

Passive Wealth Show. Thank you. We are Carolina Capital Management. We are lenders in the Southeast for real estate investors. If you’re looking to borrow money, CarolinaHardMoney.com click on the invest. I’m sorry. Apply now tab. If you’re an investor looking for passive returns, we also like you guys to so click on the accredited investor tab. Don’t forget the share, like subscribe and hit the bell. Have a wonderful day. We will see you guys next week.

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