Self Storage Investing On The Rise In 2023 w/ Scott Meyers

We have our very special guest, Scott Myers. How are you doing?

I am doing fantastic. Good to be here. Thanks so much for having me.

You are new to our show, and a lot of our viewers might not know who you are and exactly what you’re mastering. Can you give us a little bit more details on what you’re doing?

Maybe mastering the art of being humble. How’s that? I don’t know if I ever pretend to be a master with anything or a superpower. We’ve been at the self-storage business for quite a while. We’ve taught more people across the country how to get into this business than anybody else, and we can talk a little bit about self-storage, where I spend on my days in the industry. We’ve been investing since 2005, been in real estate since 1993, and chose self-storage after being tired of the tenant’s toilet and trash scene and never turning back.

Since 2005, all we do is now buy existing self-storage facilities. We develop them, and then convert industrial buildings and repurpose all types of real estate into self-storage. We do it all across the country, and we’ve been teaching people how to do this since 2007. We’ve had an opportunity to not only teach many people how to get into the business, and consult to do feasibility studies and joint ventures.

That has allowed us to grow our investment side as well. When we teach people our best business practices, then lo and behold, years later, when they’ve got too many deals that they can handle or maybe too big of a deal, then we have an opportunity to work with them as well. It’s been good. We are very excited about 2023, and the prospects ahead of us in self-storage.

You have a long time in the self-storage space, for sure. You’re probably one of the originals from what I’m aware of, and I’ve been here for a long time.

OG has a different connotation to it. I’ve walked into a couple of rooms now, and they say, “That’s Scott Myers. You’re the OG of self-storage.” That’s right. I am the Original Gangster of self-storage.

You are. I almost said the OG, too.

You need to own it, Scott.

I’ll own the Original Gangster, but the other, I don’t know. We’ll see. Maybe not just yet.

Right now, we’re in a different economy. Most would say we’re in a recession. How do you see the self-storage industry right now compared to prior? Do you see a significant change?

This is one of the reasons why I love self-storage and why we made the pivot. First of all, there’s no business now and certainly nothing in real estate that is recession-proof or inflation-proof. When the economy’s going well, self-storage does well because people buy more stuff, and they put more stuff in self-storage. When the economy begins to sour, and we head into a recession, self-storage also benefits because people downsize. They’re moving back in with their parents or friends. Businesses downsize. Inventory goes into storage. This is a very inexpensive warehousing space for when times are tough.

We saw that in the pandemic. Being in the business for a number of years, we have seen that in the past two recessions. Going back to 1999 and 2000, that recession, I was not in self-storage, but I saw what the folks in self-storage were doing, and I thought this was a business I needed to look at. I finally did in 2005. In 2008, I wish I had started sooner because I saw my compatriots around me doing extremely well. We bought, built, and did extremely well during that time period. Ever since then, we recognize that we need to get as many lending relationships in place right now secured and as much private equity and sources for that, and cash for the next recession.

We all know that that can was kicked down the road about 4 or 5 years late, but here we are. This is our Super Bowl, and we’ve been preparing for this since 2009. We have a number of private equity relationships and lenders, so we are poised and ready. To specifically answer your question, we’re starting to see the effects of the recession right now. To your point, 2/4 of negative GDP growth defines a recession. Other folks will say that when RV sales are down for 2/4 in a row, or however you slice it, jobless rate and unemployment, we’re in a recession. We’re certainly in a slowdown, and we’re heading into one. Let’s face it.

We don’t see too much blood in the water yet. There are not a lot of failed projects out there, in terms of an opportunity for us on the buying end when lenders are not refinancing some of these projects from some of the folks that have been in the industry for a number of years. If they didn’t create value in their facilities, they got a loan at 90% LTV, they didn’t create enough value, now they have to refinance it at 65% LTV, and they can’t because they didn’t create enough equity or the interest rates are so high that the numbers don’t work. We see a few of those, but not a ton.

Development projects that are slowing down, we’ve seen some troubled projects. It’s when we get into a full-blown recession where then, all of a sudden, everybody’s strained, and unemployment is rising, the stock market tanks again, because everybody’s pulling back and waiting and holding their breath. That’s when businesses and partnerships struggle, and then we see the opportunities come into the marketplace. Longwinded answer to your question, we’re starting to see it right now, not as much as I like, but we are ready when the floodgates open.

I appreciate that feedback. That’s really good feedback. As I look at it with self-storage investing, it seems to be one of the options that’s longer term cashflow or ultimately be forever cashflow. In that sense of an opportunity, do you find a lot of your students and people that you work with are prone to doing it for that reason? Is that one of the main reasons you find that a popular niche for that purpose?

You asked for my opinion, and it’s based on experience. I don’t give opinions and advice. I’m a living example of that. We had been through lots of houses and apartments. With a buy-and-hold strategy with retailing and wholesaling, you name it, and you got tired of the transactional piece to it. Self-storage is commercial real estate. It’s a rental real estate. You buy it once, and you got multiple clients that are in and out of these buildings that you have purchased. For us, there’s not much maintenance in between. We blow them out or sweep them out, and then move to the next person waiting in line.

There are not many moving parts and operations from a maintenance standpoint, upkeep, and apartment turns or housing turns. We’re not as affected. We’re affected in a positive way by the recession. If you want to talk about an asset class that you’re investing actively, there are not as many moving parts, and it’s not as active as many of the other asset classes in real estate. Certainly, it’s not passive. Passive investor means just that. You invest, you write the check, and then there’s an owner-operator that’s handling everything else, and then they send you a check.

We’re active investors, but we still have to mind the store. We walk the four corners of it, and we’re involved in the day-to-day operations of marketing and everything else. There are just fewer moving parts. No surprises. It’s a very simple, predictable business model. I can take off, and we go on the mission field as Julie, and we spend many time building houses. I go to Uganda, and I’m off the grid for a week at a time, ten days at a time, and my business, nothing skips a beat. I have people in place, even if they get sick.

These are metal boxes on concrete slabs where people move in and pay using a kiosk. It doesn’t involve us that much by us from that standpoint. For an active investor, it truly is this lifetime cashflow that, if you mind the business, doesn’t require having your hands on it every day. When you move to the passive investor mode, and you truly want to retire, then third-party property management companies can pick up the ball, and you pay them a fee to run it, and there are just not a lot of difficult decisions to be made at that point.

Before you got into any type of investing, before you got into the fix-and-flips and dealing with trash and toilets, what were you doing before then?

I worked for AT&T, which then became Lucent Technologies. This is going back ways. I was in Corporate America in telecom. At that point, I was looking at real estate as a way to hedge for retirement. Peter Lynch and many investors during that time talked about ways to invest in the stock market and how to make money in stocks and bonds, the usual ways, maxing out your 401(k), and reading and listening to all the financial gurus.

In every book that I read, every guru talked about, “By the way, you can also invest in real estate.” Once I started to dig into that a little bit more, I realized that the richest people on the planet back then as well as now, made their money in real estate, not in the stock market. All you have to do is look at the averages. S&P, over the past several years, only averaged 7%. Ain’t nobody getting rich off of 7% per year, especially when inflation is at 16%.

That just piqued my interest. You begin to look at real estate and all the benefits. Not only does it appreciate, but it depreciates as well. You write it off for tax purposes. You can force that appreciation. You can borrow money to buy in. You can leverage. If you put people in it, whether it’s an assisted living facility, mobile home parks, apartments, or self-storage, they pay down your basis, and they pay it off. You own it free and clear, and you get that income stream. That is passive at that point. You can’t do that with stocks, bonds, or mutual funds. It doesn’t have any of those benefits.

It’s clear that real estate was the path to be able to create wealth. When I began to look into it and went to a local real estate investor association meeting where Mr. Ron LeGrand showed up, he piqued my interest. I read Rich Dad Poor Dad, that’s the one-two punch, and I was hooked. Carleton Sheets showed up on TV from time to time, and I began to dig into these guys, and what they were doing in the business models. It just made sense, and that’s when we launched.

Now, you’re doing self-storage, and you’re teaching other people how to do it, but how do you feel investing in self-storage has truly changed your life?

Ask my wife, and she’ll go on for hours because we couldn’t go onto the mission field. We couldn’t go on vacation prior to that. We couldn’t go on a cruise ship, and be out at sea because we had 400-plus tenants and toilets, and there was always an emergency. If it wasn’t an emergency with the tenants, it was the contractors or people who were stealing all the construction materials in our rehabs. Even though we had staff, property managers, and property management companies in place, they didn’t handle all the problems and didn’t write the checks when all those issues arose. It was a challenging business that we didn’t enjoy too much.

We were still hands-on, and we were growing the business. I don’t know at what level or how many units or what that looks like before you’re truly passive, but that have to be multiple layers in the tenant, and toilet side of real estate before that truly happens. It takes its toll. You lose it. When you’re in rental real estate long enough, you lose a little bit of faith in your fellow man and woman after dealing with people, and you’re just like, “Really? Didn’t your mama raise you any better than that?” You don’t pay me, which is stealing in my book. The courts call it non-payment of rent. No, that’s stealing.

You pick a claw hammer and drag it down my drywall on the way out the door because you’re mad because they kicked you out because you didn’t pay me. The courts also say, “That’s just excessive wear and tear.” I said, “No, that’s vandalism, and these people should go to jail for stealing and vandalizing.” You realize that the best cook in the world can’t fix a broken recipe. After a while, we just got tired of that and decided that there’s got to be a better way. That’s what led us to self-storage. At that point, when we sold off all of our houses and all our apartments, my wife said, “Do you recognize anything different?” That’s a loaded question when your wife walks in and says, “What’s different?”

I was like, “Beautiful dress, your hair, you’ve lost weight.” It’s all that. She goes, “Quiet.” I’m like, “You’re right. It’s quiet.” There’s a flurry of issues, problems, and challenges that we had to take care of. We had a sizable portfolio of self-storage that we were building up while we were getting rid of the apartments and everything else. That was the main difference. To answer your question, it allowed us to focus on the business rather than having to spend so much time working in the business.

Keep peace for sure. With the self-storage business, do you see more opportunities in 2023 as the years go on? Interest rates are going down with title companies. We’re seeing a little bit of traction there, but what do you think?

We’re all entrepreneurs here, so we’re always optimistic. Tell us what the rules are. We know how to play the game as long as we know what the rules are. We just move forward in a different fashion. That’s no different. All we’re doing is inserting’s cost of capital in our underwriting models. If the spread’s there, we buy it, or we develop it, so nothing has changed from that standpoint. I see more opportunity only because there are more folks that are running out, that are scared because they don’t know how to navigate this, and they don’t have relationships with lenders and private equity like we do. As I mentioned, we’ve been preparing for this.