Self-storage facilities can provide lucrative passive income opportunities compared to other types of real estate investments. In this episode, Drake Massa, Director of Acquisitions at Nomad Capital, joins hosts Neil Henderson and Clint Harris to discuss self-storage investing.

Timestamps

00:00:30 – Drake provides background on his role at Nomad Capital

00:02:30 – Drake explains why self-storage is a good passive income investment

00:04:40 – Drake outlines the four main self-storage investment strategies

00:08:00 – Drake details the conversion strategy for self-storage investing

00:15:15 – Drake discusses projected returns and timelines for investors

00:21:40 – Drake explains the refinancing strategy in years 4-6

00:26:00 – Drake emphasizes the work required despite the passive income

00:30:50 – Drake walks through the deal funnel from start to finish

00:37:05 – Drake shares where he would invest $100k right now

Key Takeaways

  • Self-storage has outperformed all other commercial real estate over the past 5 years and leads most industries in growth over the past 25+ years,  even during recessions.
  • The four main self-storage investment strategies are: 1) Buy existing facility and improve operations 2) Buy existing facility and expand it 3) Convert other buildings into storage facilities 4) Build new self-storage facilities from the ground up.
  • Conversions provide the best risk-reward balance. Purchasing underutilized buildings for cheap and converting them into self-storage can generate huge returns.
  • It takes significant expertise and effort to find, analyze, negotiate, and execute self-storage deals, despite the passive income for investors.
  • Drake reviews 100+ deals per week, models 5%, negotiates on 1%, and closes nearly 100% once an offer is made. From contract to completion takes 6-12 months.

Resources & Social Media

LinkedIn: Drake Massa

Website: Nomad Capital

Email: drake@nomadcapital.us

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YouTube: Truly Passive Income

TikTok: @trulypassiveincome

Instagram: @truly_passive_income

Facebook: Truly Passive

Twitter: @trulypassive

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Transcript
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On this episode of the truly passive income podcast, we're taking a deep dive into the world of self storage syndications with Drake Masa of nomad capital. We'll uncover some of the ways he identifies finances and analyzes self storage opportunities as well as the time commitment involved for active versus passive investors

Neil Henderson:

Welcome to the Truly Passive Income Podcast. I'm Neil.

Clint Harris:

And I'm Clint.

Neil Henderson:

Our guest today is the amazing Drake Massa from Nomad Capital. He's the acquisitions director we keep changing your title, but you are the head of acquisitions at Nomad Capital, which full disclosure is mine and Clint's partner in self-storage. Drake, why don't you give us a quick rundown of your background.

Drake Massa:

Yeah, well first of all, thanks for, having me on the podcast. I'm excited to be here. I've listened to episodes in the past and they were useful and awesome, so I appreciate it for sure. you said it right, I lead our acquisitions. My name's Drake Massa. I guess my title per se is Director of Acquisitions and Capital Markets for here at, Nomad Capital. that's what I do for them. a simple term, what that means is, I do everything to finding these deals to underwrite these deals to, Hey, is this deal gonna make sense? Are we gonna make money or are we gonna lose money? When can we make money and, and then everything up to find a financing for these deals of, Hey, how can we afford these deals? Do we need to raise funds? How much funds need to raise? At what extent do we need to raise them? what debt we're gonna use or we're gonna use that. And, I, my goal is to set up everything up on a silver platter to make it easy for the, founders of Nomad Capital to make the best decisions for what's best for ourselves and our investors to, help people flip thematically passive income through storage.

Neil Henderson:

Gotcha. Real quick, so what is your background? Where'd you go to school and what'd you study?

Drake Massa:

Yeah, I graduated from North Carolina, Wilmington. and I graduated May 21 with a double finance and marketing strategy degree. So I finished up with two degrees from there. graduated on time was a good student. more about my background when I was in high school, I founded a landscape design company to pay for college. it allowed me to work very, small amount of times throughout the year I would work six weeks a year and it paid for my college in full, bought my house, my truck, and my boat. So I've always been around working hard and everything like that and like I wanna take the next step in that and figure out, hey, what's something I can do to put my money to work, to sit back and let it grow And to obviously still work hard, but live a good life.

Neil Henderson:

Gotcha. So for passive investors, new to commercial real estate, can you briefly explain the concept of self-storage facilities and why you might consider them a potential lucrative investment opportunity compared to other types of real estate from single-family to industrial to large apartments?

Drake Massa:

Yeah, great question. self storage as a whole, I mean, it's not as sexy as these multifamily or other. commercial real estate avenues. But, in terms from analytical standpoint, which is quite frankly, the difference between commercial real estate and residential real estate is, it's all, look at the numbers. It doesn't really care about the emotions as much. it's more analytically driven. self storage, the last five years, it leads every commercial real estate, in a streak and chunk of growth over this period. it also leads every. Industry realistically in the investment world, from mutual funds to mortgages, to industrial, to multi-family, to short-term rentals, during recessions as well. So it's not sexy, but it makes money and it makes it at a great passive way. on top of it. the expenses are drastically lower, than other avenues. that's a cool point. and the rents aren't too far off from other avenues. So for instance, the multifamily space, the average, multifamily, their rents around 20, 21 bucks a foot annually. the self storage space, it's about 16 bucks annually, so it's not too far off there. but the big difference and the big takeaway is the expenses. The expenses for these multifamily projects are about. Operating about 70% expense ratios and for, I mean for self-storage is about 30. So it's drastically less expensive. You're making drastically more of that rent that you're getting, and it's less of the headache. so yeah, that's about it.

Clint Harris:

So question that, so about the asset, obviously it's have a boom over the last five to 10 years and the expense ratio certainly explains a lot of that. We're a very consumer driven society and there's been significant growth, especially among the renter population versus homeowners over the last five to 10 years. I think it's really adding to some of the lucrative nature of the storage business. So that is an asset class. That makes sense. Explain a little bit, more about, not necessarily the asset, but the strategy of syndication and what you work versus, me going out and buying a self storage facility myself or partnering with Neil and us going and buy one versus the syndication model that Nomad'ss put together and what you go after, the margins that you have to look for because you know where the money's going. Explain that syndication model a little bit.

Drake Massa:

Yeah, that's a great point. it's also another good point you brought up is that another benefit of the self storage, aspect is hey, it's 80% retail investors. It's not as re oriented as other asset classes are. there's five REITs in this space. there's over 52,000 facilities. about 20% of those storage facilities, about 11,000 facilities are owned by the REITs. Everything else are owned by groups like us or groups a lot bigger than us, or normal mom and Joe's. So it's easier to, to get into the space in comparison to the multifamily space. but what the big benefit of the syndication group is, hey, you can allow someone that their full-time job, and as I always say, it's not really our hobby. This is our full-time job. It's to go out and find these massive value opportunities through these things. our principles, Erik Hemingway and Levi, they've been in the industry since 2005. So we got what, 20, almost 20 years of experience. In the self storage, industry. And we had that data for all of those 18 years. and so you get to team up with someone that, hey, they have this experience. They have the ability to do other skills that you don't have or maybe your skills as being a doctor and to saving patients lives, or maybe your skill is being a lawyer and, and being great words and, our skill is finding great value thru real estate and helping others now good or return their money and sit back and do nothing. our average returns are typically from an investor's standpoint in the low 20% IRR around 20 to 23%. they're great returns. Yeah. So then the second, aspect of what you brought up is a great point. And it's that we get to sit here and, our whole strategy is conversion. So we're gonna find ability that's tapped out on its limit of what it can do rent wise. for instance, the majority of the buildings we buy, they're former retail buildings. They're former big box retail, like a Kmart or a Piggly Wiggly. Or their former old warehouses that are very large and and for them their rent opportunity is tapped at that five bucks or 10 bucks a foot. so what we do is we buy it at a cheap rate cuz they've been vacant for so long and just sitting there and no one knows what to do cuz that industry isn't succeeding anymore as much as it used to. everything's online now. So we buy it for relatively pennies on the dollars in comparison to replacement cost. and then we change that asset class to a new industry where our ceiling cap now is in the 20. So we buy it based off the cap of five, and now the new cap is 20. But we get instead of the purchase price fee, from a ratio standpoint, we're getting it for pennies, not dollars. Is that. We use our in-house construction to convert for half the price of a new development realistically, because the bones of the buildings and the building itself are already there. and most importantly our lead times way less. So that's why we love the commercial space. We love syndicating for other people to, mutual benefit, everyone, that we can do more projects and focus more on things that we're really good at. it can also help other people, collect money to sit back and enjoy the life they wanna enjoy.

Neil Henderson:

So you, you mentioned conversions, and I want to dig into this just a little bit because there are, we talk a lot about sort of four core strategies that we have tried in some form or other at Nomad.

Drake Massa:

Yeah. So the four buckets we call 'em, the four buckets of self storage are, they're pretty simple. the first bucket, per se, is just buy an existing facility and typically the way to increase value there is to increase the market rent or better operate the system, run the property management better than previously. and what that typically means is Hey, tenants are past due, or the market rates are behind or just rent squeeze, basically. That's all the rewards you'll see. and it's basically more off the purchase of that. And then how you can change bottom line through rent growth, and capped with that. Next bucket we call bucket two would be. Hey, the same principle we're gonna buy an existing facility, but now we're gonna expand it. so what that means is, we can either expand it by, if it's a place, we can add a second floor, do that and go from there. Or add a new building next door or add more units that way. Or just expand in a multitude different ways. Same thing. That one, you're gonna get a little bit more of a risk tolerance just because, now we're gonna throw in some development play to this and there's gonna be some more, risk allocated with that. but it's still safe because you have an existing facility already. and that's awesome because you're buying, your existing facility is doing well and. it's a little more expensive to buy than the next two, assets we're going to talk about because they are already storage and it's already producing money and we're just gonna expand on it. The next bucket is where we stay in the most. it's the conversion space. we get to purchase these buildings and these properties for drastically less. on average or all in all in cost post construction is about $65 to $80 bucks a foot here if we're buying a self storage as is, the purchase price is gonna be about $150 to $225, depending on per foot, depending on what it is. and then if it's expansion opportunity, it's gonna be a little bit less, but still on that north of $150 range. and then if we're gonna do a new development, which I'll talk about in a second, that's gonna be around all in cost of $120 to $200 depending on our land allocation. So the reason why we really like the conversion space is, hey, we're gonna buy a building that's been vacant for years and retrofit and renovate it. Be all in construction-wise for half the price it'll take us to build new and be all in opening. in half the time it'll take us from a new development. So obviously there's more risk with this conversion in comparison to buying an existing. it's a very calculated risk and it's, and the best thing is when we're buying these buildings that's been vacant, the as is value for these and those value we're buying them for. It's greater than what our purchase price is. and then after we finish construction-wise, it's drastically greater. I just ran model not so long ago, and internally we are, after we finish construction, we're loan to value for our current portfolio is sitting at like 58% after construction before we even rented unit. it's a drastic growth. and in comparison, if you're buying a property, It's gonna be at a 70%. So it's we get to force value to, our purchase through our construction. And then the final bucket is, is new development. So this is gonna be the longest, this is gonna be the most expensive from a construction standpoint. it's gonna have the most risk allocated cuz it's gonna take you, 18 to 24 months to do. it's gonna cost you in our eyes, double the cost. It costs us to do conversions. our number's a little different than the average Joe's because we do do construction so we can get to build differently. but also come up with some really big rewards too, if done correctly, and if you time it the right way. So those are the four buckets.

Neil Henderson:

All right, so the four buckets are, buy an existing facility and maybe it's an operational turnaround, raising rents, whatever. the other one is buy an existing and expand it, make it bigger, add more value that way. the third one is converting a building from something else into storage. And then last, we've got ground up development. And would you say that there's sort of a risk reward profile that starts at, on buy an existing, you've got the lowest risk, but also the lowest reward. Then you've got by existing and expand, you're maybe at, medium risk, medium reward, then conversions. You're also at sort of medium risk, maybe a little higher reward. And then finally, ground up development. You're dealing with the highest risk, but the highest potential reward. Is that a fair assessment?

Drake Massa:

yeah, Neil, that's a great, that's a great assessment. and also to that, I view the conversions and the new development, hey, their award is basically gonna be about the same. And if anything, the conversions, reward could be even greater because of the aspect that, hey, the barrier of entry is drastically lower, if that makes sense. Basis of what we own the building for would be cheaper than what we're developing for. So our award gets that much potential, more savings indirectly in terms of cost and obligation. So I view the rewards the same for, conversions and you development. and then you hit it exactly right with the other two as the lower the risk the lower the reward, and it's all about a calculated risk outputs on pay. What's the lowest risks we can do to maximize the highest reward. And for us, we believe those are the conversions.

Clint Harris:

Got it. So speaking about the conversions, it, it brings to mind, this is probably a bad example, but somebody flipping a house. The idea with flipping houses that you, you fix it up and you make it really nice and then you sell it. And the reality is you usually don't make your money when you renovate it for cheap or you sell it for high, you make your money when you bought it at the right price. And that's the beauty of that asset class is that these buildings oftentimes have been sitting empty for years and sometimes decades so that you can buy them correctly. The difference in a flip versus the conversion strategy is that with a flip, you get paid once, right? You fix it up, you make it nice, you sell the property and you're done with it. I like the fact that you're using multiple strategies to analyze and underwrite these properties. So if something comes across your desk, you may not even know which of those four bins it might fit into, and it certainly may. Not work for three of 'em, but it might work for the other, whether it's expansion or conversion or new development. And, you can only control your cost on a new development as far as like the materials or the material cost. The really only thing you can control there is the cost of the land versus with the conversion. The replacement cost on the building is off, honestly, sometimes two to three times higher than the purchase price. So it's, you're making your money there when you bought it correctly. But again, the same difference of in flipping a house, you're getting paid once versus this has a different outlook. So it syndication as a whole or a syndicate is where everybody's pitching in together and the whole truly is greater than the sum of its parts, right? So you have different investors pooling funds in to take on bigger deals and more deals per year than any individual could do on their own in that same period of time. So it has tremendous ability to scale as well as create tremendous velocity and leverage off of the initial amount that was invested. So with that in mind and with the multiple strategies, but specifically getting down to not getting paid once with the four different strategies that you've talked about, conversion all the way up through new development, expansion, whatever it may be. What does an average range look like for a return from investors? Someone come into your deal, not just dollar amount, but like from somebody that's thinking about a passive investment into a syndication deal. Give me a range of what kind of timeframe are we talking about? What kind of return is it? Are you selling the deals and they're out? Are these long-term holds? These are obviously very, you mentioned that they're recession resistant and inflation resistant assets. So we've talked sometimes about these type of assets that tend to have that stability, are often golden. Geese are, do you sell it? Do you kill the golden goose? or do you keep living off of it? So tell me about, depending on what the strategy is, Gimme a range of what the average investors return and the average re investor's timeline looks like.

Drake Massa:

Yeah, that's a great question. to go off your analogy of the home flipper, right? So what we're doing is instead of we're just the home flipper and we buy a home, we fix it and we sell it. What we do is. Hey, we're gonna buy a beachfront house. We're gonna convert it to a nine room hotel, and then we're gonna rent it out and then hold it long term. And then that conversion that we do it now changes it to a new asset class that, hey, now we're not valued anymore. well, we were previously, now we're valued as a new asset that's valued drastically higher. So to go off on that, How it looks for us is, hey, after we have doors open, we've created enormous value because now we're no longer that home anymore. We're now that hotel per se. We're no longer that empty vacant retail building that trades at 8 to 11 caps. We're now a luxury climate control self storage facility that trades on average 4.92 in the last two years, cap wise. So we change it and we drastically increase value that way. the next part of how it looks from an investment perspective, is in the timeframe of that is, hey, the day we get the doors open, we have drastically created so much value. that from a loan to value standpoint, when I was sitting in like that 55 to 60% loan to value. Awesome. A ton of value. Now we're gonna start leasing this up and we're gonna get some really good cash flows where I mentioned earlier on the conversation about how the rents on average are about, 16 bucks nationally, in a self storage, space. We make drastically more of that dollar because lower expenses, this is where we see those, our expenses in our internal portfolio on average are like 24% operation. the longer we hold a facility, the lower that number gets. Our longest facility we're sitting in like the 15 to 16% expense, ratio, percentage wise. So the longer we hold it, the more lucrative we get from a cash flow standpoint. and so how we get some of their returns back to the investors is, Hey, on year 4, 5, 6 3, 4, 5, 6, once we're finally stable, and the market dictates is, hey, we got so much value now created in this property because we've changed it from your example to single family home to the hotel. Hey, now we got so much value, our average deal at, stabilizations, is like 18 to 22%. loan to value standpoint, there's enormous value. So what we like to do, and into your analogy of a golden geese, we don't wanna sell this because it's printing cash like crazy. From a cash flow standpoint, there's a ton of value that when if we need to sell or want to sell, there's a ton of value we're gonna make. But why sell it? We can hold onto this and everyone wins and we match your terms that are gonna be better than the stock market or better than you actively investing And. Everyone wins. how our return outlook looks in a five year standpoint. we'll double your money in that, in that timeframe. Then over the 10 years, we'll quadruple it. So our normal deal and from a syndication standpoint, looks like, construction wise we're gonna have it open and around month eight to 10, depending on everything goes well. Then from there we're gonna be the definition of stable from the opinion of our feasibility expert is 12 straight months, over 92% occupy. Our average deal is in that 12 straight months of. 92% or greater occupancy is around month 24 to 30. that's our average deal that we do. so from there, on top of that, our break even point is around 40% occupied, on average. So we start collecting cash flows really early, 14 to 16 months, after we start the deal. and then from there, around year four, five or six, we choose to, hey, We don't want to sell this property, but we want to utilize some of this value you created. We can refinance and still keep our debt coverage. Our debt yields drastically, higher per se in comparison to other groups. because now we're sitting there with 80, 80 20 valued, flipped the other way in comparison to normal. so if we were staying those top two buckets of just buying existing, your value increased over the five years you're gonna be around like, Hey, we could. Our new loan to cost is now our loan of value is 60% or 70%. We're at 20%. So we have huge value. Then we're gonna refinance at a whatever rate we think is comfortable to not stress the deal too much cuz it is a golden goose like you, said. And, but keep on chugging and printing off cash. And then around here, 9, 10, 11, if we choose to sell. Or if not, do it again and keep on going.

Clint Harris:

So at that year, five mark, year four, five, with the refinance, that would be the return of everyone's initial capital plus another lump sum, or you just cash 'em out at that point?

Drake Massa:

Yeah, so what we typically do, obviously it depends on what type of deal. It's, if it's a conversion deal, we have enough equity that we can return the full capital back 100% plus an additional. We can call it. and then we still, and all that comes to version refinance, so it's non-taxable for our investors, which is awesome. and then on top of that, they still stay in the deal and collect future cash flows moving forward of based off their ownership percentage. so they'll sit there and collect another. Now 5% to 12% a year. but it's technically unlimited because now they're, now their money's out of the deal, so they can't have no cost basis that they're in on. They just continue getting more, residual moving forward. And hate be corny, but it's truly passive. You have no barrier of entry. Now you're just sending back and collecting that money to go sit on the beach or stop working or whatever you want it to do. and then when we choose to sell, you're gonna get another big payday that's gonna around double your investment because then the thing grew so much since then. So that, I hope that answered the question.

Clint Harris:

Yeah, it did. So the refinance that's coming back out, they get the return of the initial capital plus the refinance because their name's already on the deed the refinance cash event comes out as non-taxable income. But they are gonna have. assuming there's preferred returns and the cash flows coming out of the property, that is gonna be taxable. Talk to me about some of the offense and defense that you play with cost segs and accelerated depreciation and leaning on that defensive tax strategy to try to offset some of that.

Drake Massa:

Yeah. Great question right there. so in terms offensive and defense, the strategy we do is to, and this is another reason why I and Levi, we always say, Hey, this isn't a hobby for us, this is our full-time job, is it's our job to find the best way for us to help shelter, ourselves and our investors. And for that is, is we're gonna maximize the current tax code, which help them, CPAs, attorneys, so this is their professional job to, to maximize those things you mentioned of the business profits and proceeds that we have moving forward. So what we use is, We use cost segregation and bonus Depreciation and it honestly, it helps a self storage, space drastically more than a lot of other industries. because every individual unit is considered, furniture. So it is taxed on, I don't know for sure, either a five or seven year depreciable expense. So we typically about 50% around it, around 45 to 50% from our previous cost segs we've done, from 100% basis it's gonna tear down moving forward of our purchase price. That's a loss technically that our investors get to utilize. an example of that I to use is, Hey, we're gonna pay you double your money and then some in five years. And it's not gonna be taxable because of our cost segregations and in the way that we are turning money at the end. So I hope that answered it that way.

Neil Henderson:

Gotcha. Alright, I wanna ask some detail questions. what are the key factors that make a building suitable for conversion into a self storage facility, and how are you identifying those opportunities in the market?

Drake Massa:

Yeah, First off is the location. That's the most important thing for self-storage. According to Bob Copper, the feasibility leader in the industry. The number one reason why someone uses a self-storage facility is because they drive by it, and the ease of use. So for us, location's huge, right? We get to maximize some of these facilities that are not being used the correct way in good areas of town. our key markets that we buy, they're in typically a good area of town with high traffic count on in high, everything else. And I always like to think if I can't smell or see a McDonald's or a Walmart within range and maybe it's not the best location for us. so that's what we love to do. We love to find the best location and we can buy these buildings for drastically cheaper than the land value is. and for us, for a lot of people, it's scary because they don't. Buildings look ugly and they, they need a little tlc, but for us it's no big deal at all. the buildings bones are good. the storm water and all the underground earth event, which is about 10 to 20% of total new development cost is already done for us, practically free. the building location, which is, 30% of the all-in. budget per se for data development. It's already picked. It's already included for pennies on the dollar. and then the exterior of the building, for the most part these buildings are, they're concrete walls that are, ready to rock and roll and yeah, so they're awesome locations. the bones on them are typically really good. we come by fix up the roofs, fix up the interiors, add units, add, replace or we add to the electrical and HVAC and make it look pretty and open the doors and start leasing it.

Clint Harris:

alright, Drake, so you make this sound really easy and really, really cheap. So it's obvious that everybody should jump into this asset class right away. So talk to me a little bit about, look, the podcast is called Truly Passive Income for a reason. There is nothing about what you're doing. That is passive. Certainly nothing. That sounds easy, and honestly it doesn't sound cheap either. So explain a little bit. I think you've given us a real good idea of what goes into that. I would love to hear how much it costs you to do some of that underwriting and how much time it takes you. it's obviously you spent a lot of years leading up to this level of expertise to get here, but from the standpoint of the truly passive investor, Talk to us about that a little bit, what it looks like and, the type of people that are investing in your deals.

Drake Massa:

No, you're totally right. It is not easy and it is not passive for me. it is for y'all. So what we do and why we like syndication is we can allow you to utilize our experience and utilize our ability. I was a construction estimator for our company for two years leading up to this and ran project management jobs for them. I know how the construction space works. I can utilize that experience to figure out, Hey, how much is this gonna cost moving forward? And our helps to do it internally is even better because we've been builders for the last 25 years. the due diligence process isn't cheap. It doesn't sound as easy. My job is to make things sound easy or look easy, for people to come in and to make passive money and sit back and do nothing, but it's nothing like that at all. So mean, I'm searching now 40 hours a week to find these buildings. They don't just pop up outta nowhere. And, it's really hard to find these buildings and to negotiate these buildings. now I've learned how to become a really good negotiator through this process, Hey, a building that we recently locked under contract is 50% cheaper than what he was asking for. So learning how to negotiate and be an effective negotiator and to figure out salary and what needs that the sellers want, and how we can help them get to those points. in that regards, it's difficult. Then during the, once we're locked up, moving forward to due diligence period. You gotta put a decent money, potentially non-refundable that after a certain period, if we choose it doesn't work out, we gotta leave. and we lose that money. and the same thing on top of that is, hey, during the due diligence period, we're gonna spend on average 50 to $75,000 to make sure this building works on a go to this building multiple times. I wanna show up with my, construction team of about 12 to 15 subs. We're gonna make sure everything works on, get there with my. engineers make sure that the floors can withhold storage, make sure the roof can with withhold the industrial needs, and it needs to, figure how much is gonna cost and, and go from there. And then also the lovely pains of dealing with the zoning and the planning and dealing with people who don't really like their jobs. They wanna make it miserable for you too. it's not really fun dealing with those people, but that's what I do and that's what I enjoy to do. and I enjoy finding good value and helping people, receive that value and seeing an old, ugly building turn into a cool, pretty-ish into a cash cow.

Neil Henderson:

I want to go back a little bit and un. Sort of underline some of the stuff that you talked about and give people an understanding of what they would need to be. You and I would say one, they need experience as a construction estimator. they need experience, underwriting, self storage, and also have the past data of other storage facilities to back up those assumptions that you're making. They need time to search for, analyze and underwrite a massive amount of deals each week, and they need to learn how to negotiate with recalitrant sellers. Would you say that's pretty accurate?

Drake Massa:

Yeah, it's very accurate, and that's just a brief summary of what it entails. so yeah, I mean, it's exactly right. it's spending the hours on end underwriting these deals, figuring out, Hey, what's the demand and supply in this area? And for storage, right? Do we need to put storage there? Can this market hold an extra 500 to 800 extra storage units? Also, if they can't hold it, at what price? At what price can we effectively fill these units as quickly as possible? So I really pride myself in that. every time I, bring a property to view to the principals and we put it on our contract and we get our feasibility study back, Now I'm always more conservative and right online to a t exactly how the indirectly the feasibility expert comes back as well. it's definitely not something that I just learned overnight. I've spent hours and hours and hours on end to craft this skill. and it's my full-time job. it's what all I do is sit down and look for deals, find the deals and, I can tell shortly now and explain it shortly now to make it seem like it's easy come, easy go, but that's because I have hundreds and hundreds of hours on end of looking on these deals to tell right away like, okay, is this gonna work? Is this not gonna work? that's I guess, in, in regards to that.

Neil Henderson:

I wanna try and get people sort of a, an understanding of maybe what the funnel looks like, from the number of deals that you're just glancing at on a weekly basis, down to the ones that you're maybe doing a little bit deeper of a dive to the ones that are maybe becoming candidates to then negotiating, to getting under contract, going through due diligence. Walk me through sort of what you would say those stages are and then out the other end, what the timeline of, okay, now we've. Now we've acquired it. Now what does that timeline of getting it to operational look like?

Drake Massa:

Yeah, that's a great question. I mean, I'm literally looking at hundreds of properties a week, if not a day. I got to the point where originally when I started this, I was underwriting a lot more of these properties in depth in my full model. that's about a five to six hour time period realistically. but now I can look pretty easily and get some. Pretty good understanding cause I've done so many of these, of, Hey, what's gonna work? What's worth me spending more time and what isn't worth it? So I would probably say on a good week, or we're looking at realistically about a hundred deals of that a hundred, probably 5% if that. Maybe even less. I'm gonna actually run a model on, of the ones in my models on, I'd probably say 5% if that. We, I contact the seller and start negotiating. of those, I'd probably say again, about 10% of those that we actually start negotiating and actually are doing something about. we submit an offer on, and then my, our track record, hey, once we set an offer on, once we find that point that both sides mutually agree on, we're going all in on it so that if we're moving there to four, it's gonna take about. Two, two weeks after that to get under official PSA contract, we're have to bring in our lawyers and bring in about basically five to 10 grand of lawyers expense, potentially. and then moving forward from there, we got about a list of 63 items on my, due diligence list that I gotta knock off that all in, all over the course of the next. 60 to 90 days during the examination period. Or you'll knock up about $50,000, give or take. and then moving from there, typical closing terms, you're gonna be 60 to 90, due diligence days and additional 60 to 30 days after that will close. and then during that time period, we're gonna have multiple site visits where we're gonna bring our construction team to get it a really good estimate. We're gonna take my initial estimate, which has just gone through pictures and virtually and through my three years of experience. And then we're gonna be there in person and actually hone in of Hey, we need more, we're here, less, we're here X, Y, Z. and then from there we gotta deal with all of the planning and zoning. That's never typically too fun. A couple weeks, getting your zoning letters and everything along those lines. our environmental studies are gonna take about 15 to 21 days, so our feasibility studies are gonna take about five to 10 days off. The surveys are gonna take about two weeks to a month, realistically. handful of other surveys then to be done of other, supply and demand analysis that needs to be done, figuring out. How much we can charge for these units. figuring out how much is gonna cost us insurance wise. I guess those are just the handful of things that are done for the due diligence period. it's not really the full-time job. It's very easy for things to slip through. I know our due diligence list is 63 items. I know. another group that we inspire to be Spartan Investment Group, they're at 600 items, give or take. so I mean, there's a ton of things that we gotta do and, Investment wise in terms of due diligent search. And on top of it, I didn't talk about the capital market aspect of, hey, now we've gotta deal with the lenders and deal with the banks, and hey, what's the climate to lending debt these days? If we're not going to raise the funds internally by cash, which doesn't always happen. So if we gotta use leverage, how are we gonna use the leverage at what cost we're gonna use the leverage, and go from there. And just dealing with the bank that's gonna take about three weeks to a month, they get their term sheets. and then on that, the appraisal, when all of the underwriting they're gonna do is gonna be another week or two, the appraisals, another two weeks or so. and then their lawyers come in, do what our lawyers and all of a sudden they have lawyer talk wise takes another month. Yeah. it's a lot. It's a lot during the process. and for me and our team, we really enjoy it. it's something that we have fun doing and, and it's awesome.

Clint Harris:

I think at this point people are probably why we invited you to come on and speak on the Truly Passive Income podcast, because that sounds unbelievably labor intensive. But the reality is this, we have people coming here looking for truly passive investment strategies. And here's the cold hard truth. There's no such thing as a free lunch. There is no investment strategy that by itself is truly passive without doing a little bit of work. Now, the beauty of this is, investors can come in and saddle most of that burden on Drake, on Levi, on Erik, and on the rest of the team, the asset management team to do that work for you. that's the whole idea. And so if all of what you just described, the last 15, 20 minutes is required to have success in this strategy, what's required from the potential partners, the investors that are coming in as limited partners into the deal? And it's two things. Number one is capital because every deal has to have a combination of capital, time and experience. And the second thing is to review the documentation by the time it gets in front of an investor, you've done the lions share of the work you've done, the underwriting, the construction, consultation, the engineering, the phase one, the phase two, anything else that needed to be done. By the time it makes it thru underwriting to an investor, their job is to look and see how much capital they have to invest. Review the offer memorandum, review the legal, spend the amount of time, whether sometimes that might be 20, 30 minutes if they have a relationship with the operators. Sometimes it might be a few hours or a few days to talk to financial planners or whoever else may be involved. But it's an injection of time to underwrite the deal and the operators after that it's an injection of capital. And then sit back and look at the monthly updates or get your quarterly distribution. Everything that you're talking about has to be done for the deal to have success. The difference is it's lopsided to your side of the deal in terms of the amount of work being done, and from the investor's standpoint, it's a minimum investment of time and then a capital injection. And that's the fuel that makes the whole thing run.

Drake Massa:

That's exactly, you've summarized that perfectly.

Neil Henderson:

So we're running long on time here and I want to finish off by asking a question that we're trying to ask every one of our guests. this is not investing advice. I wanna make this clear. Drake, you have a hundred thousand dollars cash right now. It's April of 2023. Where are you putting your money?

Drake Massa:

Yeah, that's a good question. I, I'm actually the point in my life right now, I don't have that. I have less than that and I'm trying to scrape up every penny that I own to find a way to throw into our next deal. And I'm not just saying that I actually believe that. The deal that we're currently under contract on right now, it's my favorite deal. and I'm trying to find ways to, be part of those capital investors that put money back in and then to obviously sit back and reap the rewards of the hard work that I worked and the team that ourselves, that we have to do. so for me, externally, that's what I would do. if I'm not that way, I would find ways myself to be more actively, I come from entrepreneur. Background. but that's a lot of work. I don't know if I wanna do that. So that's where I'm sitting back and I'm trying to find every penny I can to put work with operators that I know I can trust, and I know that, have the experience and the track record to, to allow me to sit back and to make about the same amount of money that I would actively, but way less work and way less time restricted and to, to reap the benefits of the reward and to with the lifestyle that I want with. And, I really enjoy the line of work I do, but not to be restricted by working and having to come to an income. And even if money won't be an option for me one day, I would still do what I do cause I enjoy it. it won't be that I have to come to work. It'll be that I'm choosing to come to work. And that's going to be a cool moment. And that's what I'm gonna try to do passively. And that's why I really enjoy y'alls podcast is it talks about different ideas, how we can be truly passive and create that income to do such things.

Neil Henderson:

So thanks so much for coming on the show today. I think, I hope people are coming away with a 35,000 foot view understanding of what's involved with self-storage, underwriting, and acquisition and construction estimation. Obviously, we could stay here and talk about this for another four hours and people would still have only a small glimmer of understanding of what all's involved with it. Drake, we really appreciate your time sharing with us today. If people wanna find out more of what you're all about and contact you, what would be the best way for them to do that?

Drake Massa:

Yeah, I'm gonna try to be a little more active on my LinkedIn, so it goes to my LinkedIn, it's Drake Massa I got a page for Nomad Capital as well. I'm gonna try to be more active on that as well, and be more aggressive on that. So check that out as well as just Nomad Capital page. and other than that, just feel free to shoot me an email or text whenever I'm a normal guy. who loves sports, outdoors and just talking real estate in general. So my email is you know, is drake@nomadcapital.us, we Love America. yeah, I would love to talk more about any strategy or you're on Wilmington area, or I'd go to, I'm a season ticket holder for the Braves,. So if I'm in Atlanta watching the Braves, you, we get a beer, talk more about it. or worst case, just talk about life. So that's the way to handle me. I really appreciate, again, Neil, honored to be on the podcast and all. I'm excited for the future.

Neil Henderson:

All right. Thanks, Man.

Drake Massa:

Bye.

Neil Henderson:

Thank you so much for listening and watching the truly passive income podcast. If you liked the show, if you think it would be useful for someone else, the greatest compliment that you could give us would be to share the episode, leave a comment down below. Or leave us an honest review. If you have any questions, don't hesitate to let us know down below and remember with truly passive income comes freedom of time, place and the freedom to pursue your higher purpose.