The Framework For A Lucrative Self-Storage Investment with Jacob Vanderslice

Jacob Vanderslice  00:00

In our strategy, we try to create value through revenue growth. And then when appropriate, refinance, distribute cash back to investors. And eventually they have no capital accounting or so getting cash flow. We will sell these and monetize at some point. But this is not something we’re targeting doing anytime soon. And we’re still accumulating Welcome to the passive income

 

Greg Lyons  00:19

brothers podcast.

 

Tim Lyons  00:20

Here we take the fear out of real estate investing using real life stories of everyday successful investors. Let’s go Welcome to another episode of the passive income brothers podcast. My name is Tim Lyons and today I’m joined by none other than my brother Greg, how you doing today, buddy?

 

Greg Lyons  00:33

Tim, you become less than enthusiastic almost every time you say that. It is a great day to be here at the passive income brothers, that’s for sure.

 

Tim Lyons  00:42

Don’t let my lack of enthusiasm mask my love for you, buddy.

 

Greg Lyons  00:47

Oh, that’s nice. That’s nice. I’m feeling the love. But that

 

Tim Lyons  00:51

said we have a rockstar on the show today. Jacob Vanderslice, ven West partners. So welcome to the show, Jacob

 

Jacob Vanderslice  00:57

and Greg. Good afternoon. Thanks for having us on.

 

Tim Lyons  01:00

It’s our pleasure. So before we hit record, Jake and I were talking and commiserating because Jake is a former professional firefighter and arson investigator out of the state of Colorado. So I catch a lot of heat sometimes, Jake, the guys in the firehouse that are like Dude, what are you doing? How come you like we got a pension, we have a 457. We can work as much overtime as we want. Like, why are you doing this whole real estate thing? So I thought I’d ask you I started off this podcast by asking you, what made you go from professional firefighter into real estate take us through that journey? Well,

 

Jacob Vanderslice  01:37

as you know, being a full time firefighter, you get a lot of time on your hands. And I started doing some rentals and some fix and flips with a buddy of mine from college. On our days off, we do the tile the drywall, leads them out. And I’d always been interested in real estate. And I just got really busy doing that. And I made a tough decision. I wanted to be an entrepreneur, I want to be a full time entrepreneur, love the fire service, love, love the relationships, the experience, it was a ton of fun. But one day just decided that this is my path. And I put in my notice and everyone reacted like what the hell are you thinking? These jobs are hard to get? It’s a long, steady career. You can do all the stuff you want on the side with the 20 days a month, you don’t work at the firehouse. And yeah, I just kind of pulled the trigger and went off on my own and I miss certain elements of it for sure. I’d like to get back into volunteering at some point. But back in oh six and I’ve been gainfully unemployed ever since. You

 

Tim Lyons  02:36

know, I love that. Because first of all, let me back up. When I first got into the New York City Fire Department. A lot of the guys and girls had side jobs. That’s what everybody called it right? I got a side job. I do this. I’m a plumber. I’m a roofer. I’m a contractor. I’m a bartender, I’m a teacher, substitute teacher over here. I mean, so many people have all sorts of careers. And that was really intriguing to me, because I guess I didn’t realize that that’s how it was. And I became a ER nurse. And I did that for about nine years. Jake. So I was a firefighter, ER nurse, which was a great combination, a lot of synergy between the two jobs. But it came to a point when I after I had three little girls at home, and I worked overtime, 7080 90, sometimes 100 hours a week. And I’m saying to myself, What the heck am I doing? Like I’m spending more time away from my family than I am with them? And for what like what was the end goal, right? So I really that’s how I got that’s how I found my way to real estate was reading Rich Dad, Poor Dad. And then like so many other people have said, it’s true. Like I just had to have that mindset shift. And I think that’s pretty powerful that you were able to realize that at such a young age and early on in your career and say, This is what I’m doing. But with that said, can you let the listeners know a little bit about van West partners what you guys are up to, but I really love after that to dive into your story with a bit more about how you got started in real estate investing.

 

Jacob Vanderslice  04:02

We’re a private equity shop based out of Denver, and we focus on self storage, we do development and value acquisitions. We’re an owner operator. So we property manage our entire portfolio. Leading up to getting into self storage, we did a lot of different stuff in real estate we primarily did for the first part of our careers, residential fix and flips. We did Gosh, what well over 1000 of them over a long time all over the country, mainly in the Denver market. We did some adaptive reuse retail, some townhome development, and then we did our first storage deal in 2015. And like the first time you try something new, you never know where it’s going to evolve. It’s kind of like, it wasn’t we’re gonna go be a self storage owner operator. It was more like let’s go strata storage deal and see what happens. So we found a programmatic partner, and we built our first facility here in Denver, then we kind of kept going with them. And over time, we got to know the business better. And we liked the fact it’s historically downside protected, it’s scalable, durable, repeatable, and just kind of kept going So, as of next month, we’ll be at about 275 million in aum. That’s mostly value at acquisitions, we will have two development projects going starting in mid April, we have one going right now a couple others behind that. That’s a good space, what we’ll see how this economy affects it. And interest rates in the macro environment, which I’m sure we can touch on. But now we’re Self Storage guys. No longer fixin flippers.

 

Greg Lyons  05:24

That’s interesting, you know, like a lot of people hear about self storage as being a good hedge against inflation has good downside protection, doesn’t really have the fluctuations in a recession. Can you explain to people why self storage is that’s kind of the route you took. And when there is a slowdown in the economy? Why do you like self storage?

 

Jacob Vanderslice  05:47

I’ll speak to the first component of your question. First, I said first and twice in the same sentence, allow myself to introduce myself on the inflation hedge components. One of the reasons self stores is really interesting is all the leases are month to month. So you can respond in real time to supply and demand changes at the unit level, the facility level, if you have a certain unit type, it’s really full, you can raise rents, and probably not get a lot of move outs. And if you have a unit type, it’s lower on occupancy, you can drop rents below market and drive up physical occupancy. So the revenue management is very dynamic. And you can respond real time to changes, which is one of the reasons we like the business. And we also like the fact that revenue streams are very granular. So we have 17,000 units. So we’re relying on 1000s of people to pay us between 30 to 300 bucks a month, depending on the unit type. And the chances that a big portion of them are all going to roll over at the same time, or very low, right, we’ve got some retail here in Denver. And one kind of example in the opposite direction, we have a brewery that’s leasing space from us. And they’re paying us about 40,000 bucks a month in base rent and cam. And if we lose that tenant, for whatever reason, it’ll take us a long time to find a new lawn retails tough. And it’ll cost us a lot of money in tenant improvement allowances and broker commissions to source that new tenant. So if we lose a storage customer, we just overlap their unit, broom, clean it put a new guy in that it’s hopefully going to pay. So it’s granular revenue streams, it’s dynamic revenue management. And we’ll see what the economy does here. Obviously, everyone’s talking about a recession. But notwithstanding the recent bank failures, you look around, it doesn’t feel like a recession, restaurants are full. One in 10 cars on the highway, he’s got a temp tag, someone just bought a new car lately used car. People are traveling flights are false. So maybe recessions coming but we’ll see what happens. But one of the reasons the asset class is recession resistant, is historically when there’s a disruption event, meaning people start moving up and down the economic ladder, faster. Self Storage demand increases. So they’re getting married, getting divorced, you lose your job, get a new job and relocate to a different market and downsize your house from a two storey house to an apartment unit. Storage demand typically increases when there’s a downturn or disruption event. So it’s kind of counter cyclical to a degree. And during COVID, the industry could not have seen more tailwinds. People were clearing out that third bedroom for the home office. They don’t want to get rid of Grandma’s Hutch or heirloom furniture. So they put it in storage unit. I’m one of those people, by the way, I’ll pay to store that stuff indefinitely. Because I don’t want it my house. I can’t get rid of it. So there’s been a lot of demand of late, but consumer demands definitely normalizing. That’s kind of returning to seasonality, which is where it was before COVID. Well, we’ll see how this environment affects the industry. Yeah,

 

Tim Lyons  08:39

I mean, so Greg, and I, we have a strategic partner that we work with at cityside capital or our self storage. And we believe in it right? And I think you touched on the four DS, right? Death, dislocation, divorce, and that think it’s downsizing, right. And that’s a pretty compelling thing. And being in such a consumer driven society where we just buy a lot of stuff, and then we don’t want to get rid of it. It’s pretty compelling to have these nice self storage facilities. And they’re reasonably priced. And like you said, 30 to 300 bucks. So depending on the size and the climate control, I’m sure that has to do with your pricing. And it’s something that can be reset every single month, and a lot of our operators will do the automatic debits every month, right? So you’re not chasing people down for the rent, they put a credit card on file, it’s very compelling. And you know what, at the end of the day, if they don’t pay their rent, what do we do? You lock it up, you get the $10 an hour worker to throw everything out or donate it and then broom sweeping and you put it up for rent again, and it’s not a whole big value add you know, rehab project every time somebody moves out. So I love that little overview you gave and for the people who are in, say single families or one to four unit investing And now they’re starting to hear about commercial real estate or they’re getting nervous, right? There’s a recession around the corner or we’re in one who knows, you know, people don’t understand how commercial real estate is valued. So can you touch upon a little bit through the lens of a single family investor or a multifamily passive investor? You know, how is self storage? How can you add value? How is it worth more after a project is done? Well,

 

Jacob Vanderslice  10:26

self storage valuation, which I’ll speak to in a moment here, it kind of transcends commercial real estate asset classes and multifamily as well. But on a single family fixin flip, you’re looking at a few things, you’re looking at sales comparisons, you know, what is a fixed up brick ranch trading floor with granite, you know, white cabinets and hardwood floors and new windows, new roof. And that’s the value peg and you buy your deal and you back into your profit margin, you do your fix up and you sell it? Well, commercial real estate doesn’t really trade as much on a sales comparison approach. So you’re not necessarily looking at price per square foot you are as a data point or price per unit, it matters and it goes into your equation. But what’s more important, is commercial real estate trades on a multiple of the incomes that produces. And that’s called a capitalization rate. And we won’t go too far in the weeds here. But cap rates are basically a reflection of an unlevered return unexpected investor can expect to get by buying a given property. So if they’re generating 50 grand a year and net operating income, and they pay a million dollars for the deal, that’s a 5% cap rate. So capitalization rates and values have an inverse relationship. So the lower the cap rate, the higher the multiple the investors paying on that, therefore, the higher the valuation. So your value creation strategy in commercial real estate, is whether you’re building or buying a value at ideal, your strategy is to grow net operating income, and net operating income, or NOI simply gross revenue minus expenses. So as you grow net operating income to an above market cap rate, you can then monetize that at a lower cap rate or a higher value via refinance or sale. So commercial real estate, like all real estate is to a degree, but it’s all about cash flow. And it’s growing that net operating income figure, and tiny increases in net operating income, translate to exponential increases in value. And it goes both ways, right? If you have an noi target and five years have a million dollars in your ATM, you hit a 50 and no 101 50. That’s not too much of a difference. That’s an exponential Delta when you assign a cap rate valuation to that noi, on the total value of your project. So got a little technical there, but basically, it trades on a multiple of the income it produces. And

 

Greg Lyons  12:43

that’s great. It’s kind of a really good overview of kind of valuing Self Storage properties. I think a lot of our listeners are pretty familiar with multifamily. And when someone says value add multifamily. I think our listeners are pretty familiar with when a tenant moves out. You redo the flooring, the kitchen, the fixtures and stuff like that, then you could rent it at a higher kind of monthly rent. When someone says value add self storage. What does that mean? Because you can’t really renovate a storage unit. But when people say value at self storage, what does that mean? Overall,

 

Jacob Vanderslice  13:18

your business plan is not too dissimilar from a value add multifamily project. But the terms are a little bit different. So for example, about you buy 100 unit apartment building, it’s built in the 70s and hasn’t been renovated since 1985. you cycle through leases, you carpet and paint countertops, each unit, you move in new tenants, they come in at 500 bucks a month and the alternates were at 900. You keep doing that over and over again, you’ve added a lot of value. We’ve had a lot of net operating income and storage, excluding our development projects is development, right? You’re just building something new and you’re leasing it out. But on our acquisitions, there’s really a number of different levers that we pull to add value. Some deals will buy with really high physical occupancy. So we might buy a deal, let’s say 90%, full or even 95% full. And you might wonder, where’s the value creation there, you’re just buying something turnkey? Well, it’s really full because number one, the rates are probably below market. In many cases, the smaller operators don’t have a website so they don’t advertise there’s no marketing in place. And one big component of revenue and self storage is ancillary income streams. And ancillary income streams are things like late fees, tenant insurance, one time moving fees. And in our portfolio year today, ancillary revenue accounts for over 10% of our top line revenue. So if you buy a deal that’s full, their rates are below market, they don’t charge late fees, they have a high delinquency rate. They don’t have tenant insurance. You can immediately add value just by starting to charge late fees and starting to require your customers to have a 10 insurance policy. And then once you get those in place, you start taking them your customer base and looking at a rent roll and you look and say are this guests been here for five years? He’s been paying 100 bucks on lawns for five years market rates are 120, he needs a rent raise. So you’ll increase rates on existing customers and on one unit $20 A month may not seem like a lot. But when you amortize that across hundreds of units, units annualize that put a cap rate on it, you’ve created a lot of value. So other deals that will target our deals that are newer construction that just started leasing, maybe will buy in at 30, or 40%, physical occupancy at a pretty substantial discount from the stabilized value. And our value creation strategy there, as you might infer, is physical occupancy growth, right filling up those remaining units. And then in storage, once you get to mid 80s, or 90%, physical occupancy, that’s when you can really start tweaking your revenue management. And you can start increasing rates on the higher demand unit types. And that’s where the value creation really gets kind of turbocharged. So yeah, there’s really two ways you do it. They lease up a unit of facility that’s lower occupancy, or you buy a deal, it’s pretty full, and you increase rates and you layer in ancillary revenue streams. And you do all this through an effective robust operational platform, rebranding advertising, better website, better customer service. So high level, that’s, that’s how we create value and storage, and it’s not too hard for multifamily.

 

Greg Lyons  16:18

I think the key with self storage is, when you’re raising rates, when you’re raising rent 10%, or something like that, it’s not $200, it could be anywhere from like six to $20. So it’s not going to totally cancel someone’s contract, oh, my gosh, this is too much money. But it’s so small, incremental amounts, six to maybe $20, that can have a significant impact on your value creation, or

 

Jacob Vanderslice  16:45

customers don’t look at their rent increases from a percentage basis, they look at it from a whole dollar perspective. And if they’re in whole dollars, they’re paying a very minimal amount per month, they can sustain a pretty substantial percentage increase, because the whole dollar increase is pretty small. So on our on our revenue management, or existing customer rate increases, we kind of balanced that percentage metric against the whole dollar metric to kind of forecast how many move outs we might get. But generally the customer base, you know, we’ve been in the business now for eight years. And early on, we were really surprised and how sticky the customer bases, you would think that these are month to month leases, people come and go constantly. And that’s true, we have a lot of move ins and move outs every month. But a lot of customers think they need storage for three months, two years later, it’s still auto drafting on their credit card with two rate increases. It’s out of sight out of mind, they don’t want to deal with their stuff, they don’t want to move it to a new unit. So it’s kind of remarkable how sticky the customer base is.

 

Tim Lyons  17:42

Absolute. Absolutely. I’m guilty of it too. I mean, how many times you sign up for something online, it’s like $6 fee. And like three years go by you’re like, I didn’t use that little thing at all. But I’ve been paying six bucks a month and we’re like Planet Fitness. 10 bucks a month. Right, Greg? Yeah. Go

 

Jacob Vanderslice  17:57

to the gym someday. Right? You gotta keep that membership. All right.

 

Greg Lyons  18:01

I feel like that was a pretty big backhand right there.

 

Tim Lyons  18:05

Come on, buddy. I you know, you know, I love you.

 

Greg Lyons  18:07

I did last week.

 

Tim Lyons  18:10

So Jake, you know, sometimes when we’re talking to investors, they are curious about who the end buyer is gonna be, you know, when you take somebody through a value add business plan or a ground up development, you know, they say, Oh, that’s great, you know, like, you’re gonna make these improvements, you’re going to add technology, maybe maybe you’re buying it from a mom and pop operation, you’re going to implement systems and processes. But then like, what are you gonna buy? Who are you going to sell to? So could you comment a little bit on that? Like, you know, there’s value added buyers, right? And then there’s, you know, stabilized buyers? So can you comment a little bit on that?

 

Jacob Vanderslice  18:45

Yeah, I’m gonna answer your question by initially not answering the question and telling an unrelated story that will tie into your love that build. So we do a fair amount of online marketing for investors, we get a webform submission for 500 grand, and give the guy a call. And he sounds pretty old, not discriminating. It’s someone that’s elderly. But you know, we’re gonna hold these for a while. And I don’t want to necessarily take 500 grand from somebody who may not be here for very long. So I asked him, if you invest in real estate before, sir. He’s like, Oh, yeah, I’ve been doing I’ve been doing it for a while I got about 40 million worth of real estate and don’t know nothing on it. I’m like, wow, okay. Nothing at all right? This guy, obviously, he’s trying to put some money to work and maybe keep it away from the kids when he passes away and get it eventually. And he asked me a question, like how long and bow is going to hold these four? And again, our normal speech Oh, we underwrite a seven year haul and this IRR and this multiple. And he’s like, you know, the problem is selling right? And I’m like, No, what’s from the selling, you don’t own it anymore. That was pretty deep for me. problem selling is going on anymore. And this guy built his wealth by assembling this portfolio of real estate that creates cash flow over time, refinancing taking those proceeds buying something out he’s ever sold anything. So when you ask the question about exiting, we intend to sell, but our preference on an exit. Rather, the way we view an exit is not so much what we’re going to sell the asset base, it’s when can we get our investors money back to them. That’s kind of like a sale to a degree. So in our strategy, we try to create value through revenue growth, and then when appropriate, refinance, distribute cash back to investors. And eventually, they have no capital accounting or so getting cash flow. So we will sell these and monetize at some point. But this is not something we’re targeting doing anytime soon. And we’re still accumulating, we’re trying to build our larger moat of durable cashflow and larger asset base. But to finally answer your question, when and if we do sell, there’s a variety of different buyers out there. And the environment right now in self storage. I think like other asset classes and real estate, there is a very wide bid ask spread, owners are saying my property still worth what it was and early 2022 not selling it for less buyers are saying, well, now my interest rates seven, it used to be three and a half, I can’t pay your price. So transaction volumes going down. But even though volumes going down, there’s still a robust pool of self storage buyers out there. The REITs are still very active, extra space did a large acquisition a few months ago of a remote managed portfolio in Florida. There’s a number of shops out there like us that are kind of mid sized private equity, institutional capitalists enter the space in the last few years more than they ever have. Blackstone got in the big way with the acquisition of simply Bill Gates is in the business now. So there’s a lot of bigger sources of capital. And when it comes time to monetize our portfolio we underwrite a sale and evaluation is if we’re going to sell each property at a standalone cap rate to like a regional operator. But what our intention is, is to eventually monetize this asset base and aggregate. And that’s probably going to involve either a recapitalization or a sale to a larger investor could be a small pension or endowment could be private equity. But there’s a lot of different buyer types out there, we’re selling one single assets indication that we have Milwaukee has just kind of run its life cycle, we’re closing on that in a few months. And that’s a large private equity buyer, one of the bigger ones. So buyers are still active, but transaction activity has gone down because sellers who don’t need to sell are sitting this out until better days.

 

Tim Lyons  22:30

That’s the point I just want to drive home was a lot of the big pension funds, life insurance companies, private equity groups, the REITs, they don’t necessarily want to buy the mom and pop and do the value add and implement all the systems, they’d rather buy the stabilized asset that kind of, then West partners may have, you know, brought it up to speed and now it’s cash flowing. And now they can sell an entire portfolio of kind of stabilized product that’s cash flowing to a bigger name. And

 

Jacob Vanderslice  22:58

they’re expected to they don’t want to write small checks, if they’re gonna go out and do a transaction, they have to deploy a lot of capital at once and do a one off basis $5 million at a time, it’s a lot of a lot of money to us here on the call and all the listeners, but to a large institutional company, doing a transaction for 5 million bucks is just not worth their time. It’s not worth doing. So we’re hoping to kind of we’re hoping to create more value than the sum of the parts by assembling a portfolio. So

 

Greg Lyons  23:28

love that. And, you know, Jake, purchasing self storage is not I guess, as mainstream for the everyday investor, know how to buy a house, maybe a duplex and stuff like that. But when you talk about buying self storage, I guess it’s probably not as clear for people. So what are kind of the back of the napkin metrics you use? How many people are in population? Population growth? Is it how much existing storage is around? So what are those back of the napkin metrics you use in either evaluating a purchase or a development of self storage? Yeah,

 

Jacob Vanderslice  24:04

it varies a little bit between development and acquisitions, but a couple of metrics that are still storage specific. And then we’ll talk about metrics that kind of transcend all the real estate asset classes. One is supply ratios. And supply ratios are expressed in square feet per capita. So self storage is very supply sensitive. Nationally, there’s about eight square feet per capita in the US. So that’s kind of the sort of the benchmark on a balanced market. But supply ratios are really market specific. So there’s a there’s a town south of Denver called Colorado Springs, and Colorado Springs has 12 square feet per capita storage. And you might think, Gosh, that’s 50% higher than national average, they’re over supplied. Well, all their facilities, not all but most of them are full like occupancies in the mid 90s. And I think a large reason for that is their rents are lower. So if you have a lower rent market, more customers can afford to stay or so that market can support more supply and more inventory. If you go to a market like Seattle, where rents are 253 bucks a foot per month, you know, Denver’s a buck 50 bucks 75 fewer customers can afford to store because the gross dollar expensive, storing is much higher. So supply is a little more sensitive. So supply ratios is the first thing they look at the other not really a metric. But the other data point we look at is the subjective and objective risk of the introduction of new supply to that sub market. So what are the chances someone’s going to build near you or next to you in the foreseeable future. And we analyze that by looking at zoning, how many parcels are zoned for storage that are big enough, that would make sense. We’re looking at building permits and concept reviews, who’s in for a concept review, who’s pulled a building permit or a new construction project. But we also analyze cost per square foot on acquisitions versus building, let’s say by an acquisition for $80 a square foot, it’s going to cost somebody substantially more to build a new facility near you new construction, and their rents are going to have to be incrementally higher than yours to support the same yield on cost. So if you do get a new competitor that builds near you, ideally, you can keep your rents lower than they have, because your cost basis is lower. So those are really two of the big things. You look at supply ratios and the risk of new supply. And also within those two data points, how much new supply could this market support before it becomes oversupplied? So with that you look at human cell forecasts that right, all forecasts are wrong, including ours. But you look at forecasted population growth. And you analyze the square feet per capita, and you determine how many square feet can be built over the next 10 years in the sub market before it becomes kind of out of balance. So those are a few things we look at primarily as relates to self storage. Other metrics, though, again, these are universally applied across real estate, is the deal we’re buying does it have rents that are below market is the market 120 bucks a month for a 10 by 10. And this guy’s charging 100. That’s a big thing we look at. And similar to multifamily to one, I guess risk and storage, your leases are full service, which means that the tenants just paying their rent, and in the case of multifamily, their rent and their utilities, but one big risk is property tax accruals. So if you’re not accruing accurately, for a worst case scenario, increase in property taxes, you could have a material Delta, not only in your cash flow, but in your valuation. We talked about NOI and cap rates and the relationship earlier. Imagine getting 50 grand a year less than noi because of the property tax accrual you didn’t think about. So that’s a big thing we look at, and you cannot be too conservative on those rules. Because if you’re wrong, it’s a big problem. Beyond that, just population density. There’s not really a rule of thumb on population centers necessarily, we don’t like to buy in really small towns, we got some stuff, it’s kind of on the edge of suburban and rural. But we like population centers nearby. We’d like rooftops, good demographics, a story for population growth, story for wage growth, jobs are going there are states that have governments that are a little more business friendly, which is countries kind of go in these two directions right now with that. So yeah, a couple of self storage data points we focus on but we’ll have is just real estate analysis, rents, some markets, demos, are all things that kind of underwriting in our acquisition decisions.

 

Tim Lyons  28:31

So this is why we are so passionate about really understanding the operator that you’re working with, and figuring out the team that you trust, you know, like and trust them, they have a track record, they are doing the thing that they say that they’re doing, because everything Jake just said, right. And you know, a lot of it is kind of high level like you know, but it’s great information. So if you don’t understand it, rewind it, get the notebook out, start taking some notes, because these are the folks that you want to surround yourself with. When you have money to deploy into real estate. Everybody goes through the same kind of lifecycle. One of our guests likened it to the life cycle of a butterfly, right? You start off as a little nothing, and they turn into this big beautiful butterfly. But we don’t want to do the thing ourselves, right? We want to walk the property want to do the Self Storage deal. We want to be the guy we want to make decisions. But there’s a lot that goes into it. And if you’re not full time, if you’re not going 110% into this, it’s not that you can’t participate, right, but you can participate by surrounding yourself with a great operator like Van west. So Jake, talking about passive investors, what are some of the conversations you’re having these days about maybe some of the macro headwinds that the markets are facing? Or you know, are people just holding tight with their capital because of the uncertainty? What are some of the conversations that you’re having with investors these days? There’s

 

Jacob Vanderslice  29:56

a lot of fear and uncertainty out there, obviously, and they can views mind makes no decision, right? And so my cash I’m gonna wait this out. A lot of people are asking questions like, why would I just buy treasuries which are a risk free four or five and liquid, versus having no liquidity and hoping for 15 or 18% return and a two multiple. That’s an attractive return, obviously, but there’s a lot more risk to it. So people aren’t sure what to do with their capital right now. And my thesis in our shops thesis really, in general, is relates to acquisitions, there’s never a good time to buy, there’s never a bad time to buy, there are good deals, and there are bad deals. And the best market and the worst market ever. There’s always a good deal and go out there and buy. So if we’re not finding deals that we love, we’re not closing, we bought eight deals last year, we’re two and a half months into 23. We bought one deal so far, just because we’re not seeing stuff that we love. And this is kind of a often said comment, but we cannot time the market, we can’t do it. A lot of folks are saying should I sit on my cash and wait to buy when things bought them out? Well, I’ve been doing this for a while I went through the Great Recession, very actively investing COVID, whatever little blips on the radar between those two. And you never know you’re at the bottom until it’s far in the rearview mirror. Right? You feel like you’re getting a good deal on this. But you don’t know until it’s way behind you. That was just like the stock market, right? March of 20. Right? It absolutely cratered. A lot of us thought it had a lot more room to go down. It didn’t stop and start going back up. You just can’t time that. But I think if you’re sitting on the sidelines, waiting for the perfect deal or waiting for the market dip, you’re missing out on an opportunity. And that opportunity is time, the way you create wealth in real estate is deploying capital and having that capital out for a while. That’s wealth creation. And you can’t do that if it’s sitting in your bank account. Especially with inflation, right? Your 100 grand is not going to be worth what it is today, in a couple quarters from now.

 

Greg Lyons  32:02

So true, it’s never black and white, right? It’s never the buying season right now, or it’s not the buying season. We’re in a high interest rate environment, maybe in a recession. But it doesn’t mean you shouldn’t still be looking, right? It’s good deals are out there. But they probably have to be uncovered a lot a lot harder to uncover these days than maybe two years ago when interest rates are low. And you can make really anything work because there’s always a chance to buy and I think that people have to stick their head in the sand right now are probably they’ll probably miss out a little bit on something. But you know, that’s again, it’s human nature. There’s fear in the streets right now. So, you know, let’s just take the head in the sand. So it’s, you know, keeping your wits about you when you’re a real estate investor. aligning yourself with the right people, the experts is really really important. Tim, this has been a pretty good class on self storage. If I do say so myself,

 

Tim Lyons  33:03

Greg, I have a 32nd timeout. Yeah, go for telling dad that you use his keep your wits about you line. Oh.

 

Jacob Vanderslice  33:14

That’s a deadline. Well, I’m

 

Tim Lyons  33:15

gonna, I’m gonna tell on you. And I’m going to tell dad that you sit on a podcast, keep your wits about you. Because that’s his classic, classic line. Right? The

 

Greg Lyons  33:23

good news is he still is and how to work as a podcast player. So he can’t listen anyway. So it doesn’t really matter.

 

Tim Lyons  33:29

That’s it. So with that, let’s jump into the last three questions. So Jake, the first question is when you’re at a cocktail party, or you’re at a your kids soccer game, whatever it might be, and someone says, Hey, Jake, you’re in real estate? Isn’t investing in real estate is so risky? How do you respond to something like that? Gosh,

 

Jacob Vanderslice  33:48

that’s a I’ve done a few of these podcasts. And that’s, I’ve never gotten a question like that. That’s great. Don’t know, I usually usually try to have a short answer and move on. Just something like that. It’s probably just not gonna understand. I guess my response would be yes, it’s it’s risky. And we’re, we’re pretty worried.

 

Tim Lyons  34:11

Yeah, I mean, look, I mean, I It’s funny, because, you know, I, in the beginning of my journey, I would spend time, you know, three hours trying to convert that person into why real estate is so awesome. But you know, then I had to realize that you’re just not going to convert everybody. You’re not gonna if people don’t are not ready, or they’re not willing or whatever, it’s just not gonna, it’s not gonna work. So,

 

Jacob Vanderslice  34:31

ya know, if it’s gonna work out for us, pretty scared and

 

Greg Lyons  34:36

move on. It’s kind of like politics and religion, you’re probably not going to change your mind. So probably not. Probably not. Yep, agreed. Well, that’s good. Well, at least he gets to watch more of the game or, you know, deal with that. Right. That’s right. That’s right. Move on to the next person. I will move on to the next question here. And this statement is from Robert Kiyosaki, and and he said that savers are losers, and debtors are winners. What does that statement mean to you,

 

Jacob Vanderslice  35:05

savers, kind of a point made earlier, you’re sitting on cash, you’re in an inflationary environment, your cash is just going to be your cash. That’s all it’s going to be. It’s, it’s there if you need it someday. But you’re not taking a risk to go out and make a return on the debt. So debt is a beautiful and a terrifying thing at the same time. Debt, when used responsibly, can really increase your returns, right? Because we’re using cheaper money, you’re bringing equity at the table to fill up the balance of your capital stack, the return your equity goes up versus if you bought a deal for cash. The problem with debt is one, you gotta pay it back. And two, if you bring a lot of debt in, your deal doesn’t go well, you got a big problem. So leverage when used responsibly, I think is an appropriate vehicle to bring to bear in real estate investing. And even if interest rates are high, that capital is still historically relatively inexpensive. We often say we marry the deal, and we date the debt, right? We just got a loan at like 6.75% On a recent acquisition. And that’s a high rate, we’re gonna love that rate. Historically, it’s pretty cheap. But compared the last couple years, it’s a lot of money. Well, we’re not going to have that rate forever. At some point, I don’t know when interest rates will moderate and simply create some value, we’ll pay that off with a cheaper loan and hopefully pull some proceeds out. So deck could use your returns. A deck can get you more deals and a larger asset base. But that can also cause you to completely crash and burn. And if you do crash and burn in real estate, it is almost always because of a debt problem. So be careful of your debt.

 

Tim Lyons  36:48

I love that. That was a great answer. I love the third question, Jake is from one of our de facto mentors named Jim Rohn. And he says that a formal education will make you a living and a self education will make you a fortune. And I feel like this is a perfect question for you.

 

Jacob Vanderslice  37:07

Yeah, I, my now wife in early 20s, broke up with me towards the end of college. And I was kind of down. And I was like, Oh, I’m gonna go be a firefighter. And I’ve always want to do this. And I’ll finish college later. Well, one year turned into five turned into a lot more I never finished. And college was fun, from a social experience being out on your own meeting lifelong friends. But I didn’t learn anything in college about what I do in business right now. And I also didn’t learn anything that I do in business right now, by reading it in a book, or going to a class I learned and my partner’s learned by failing. That’s how we’ve learned we remember our failures like they were yesterday. And our successes, we chalk up to luck, and we forget about him pretty quick. But we’ve learned what not to do over many, many years. And the way you learn how to invest in real estate, is to go out and do a deal. Buy a fix and flip, buy a rental, investment, syndication or fund and talk to the sponsor, monitor their performance, make sure you understand the metrics they’re reporting on. You learn real estate by doing a deal. You’re not gonna learn real estate in class. And of course, you learn vignettes on podcasts, of course, and I listened to lots of podcasts. I learned something every day when I do. But your education, if you want to be in this business is going to be you going out and taking a risk.

 

Tim Lyons  38:34

Dude, I love that answer. That’s awesome. Yeah, I mean, it’s what Greg and I always talk about it’s education times action, right? You can have the Ivy League degree on your wall and you can love what you do. But if you are not going to go all in on real estate, there’s still options for you. But it’s really being educated and getting yourself in the right rooms with the right people. You never want to be the smartest person in the room right? Because there is a son of throwing all That’s right. So listen, Jake, thank you so much for making the time to come on to the passive income brothers podcast. I feel like we’re gonna have to have you back on because there’s just so much that’s going on right now the markets moving quickly. And I just want to congratulate you guys and Vin west on your success up until now. If people want to learn more about you what you do your your your company, your active deals you have going on how can they do so?

 

Jacob Vanderslice  39:34

Well, we always love to talk shop about real estate. Folks can email me Jacob at Van West partners.com Then go to our website van West partners.com Or hit me on LinkedIn. Jacob Vanderslice.

 

Tim Lyons  39:47

Love that. So we appreciate all your time this week hanging with the passive income brothers podcast and we look forward to serving you again next week. Thank you for listening to another episode of the passive income brothers podcast. We would be grateful for your support of our podcast by giving our show a five star rating and review and subscribing to our show on your favorite podcast platform. Don’t forget to take inspired action after listening to this show, so that you can start building out your passive income streams. Finally, head on over to cityside cap.com to connect with us and find out more information about how to get started passively investing in real estate