Achieve Wealth Real Estate Investing Podcast

Mauricio is one of the premier syndication attorneys in the country helping real estate syndicators raise hundreds of millions of dollars to pursue their dreams of financial independence. Hi Audience Mauricio is the founder and CEO of Premier Law Group and spends 100% of his practice on syndications for real estate investors. With almost 20 years of securities experience, Mauricio specializes in Reg D exempt offerings and educates investors from around the world on how to navigate the complex world of securities laws.

Mauricio is one of the premier syndication attorneys in the country helping real estate syndicators raise hundreds of millions of dollars to pursue their dreams of financial independence. Hi Audience Mauricio is the founder and CEO of Premier Law Group and spends 100% of his practice on syndications for real estate investors. With almost 20 years of securities experience, Mauricio specializes in Reg D exempt offerings and educates investors from around the world on how to navigate the complex world of securities laws.

Passive investing in commercial real estate has increased in popularity, especially over the last decade. At the same time, the knowledge surrounding the space has not grown as quickly as the popularity for the investments has. This can be a cause for concern, as investing without prudent strategies is a great way to lose a considerable amount of money. Today we are going to discuss...

• Whether your cash flows are being counted as a return of capital or return on capital
• Where we get accurate underwriting standards if 98% of broker's opinions are useless
• If you are going to close 5 deals, whether that means you should underwrite 100 or not

Learn from an expert who presented directly to Fed Chairman, Ben Bernake during the last economic crisis? He even presents to Fed nowadays. Skip the CNN, FOXNEWS, and all other mainstream media to learn what's really going on with the economy by KC Conway, CCIM Chief Economist. We will hear about 1) How bad is the economic damage due to COVID19 2) Which asset class is impacted the most and the least? 3) How Multifamily is impacted due to COVID. 4) What Congress could do next and many more things.

Jeremy has been a real estate and business investor for over 16 years who left the corporate world in 2007 to become a full-time passive cash flow investor. He is currently an investor in more than 70 opportunities across over $500 Million worth of real estate and business assets. As Founder and President of Roll Investment Group, Jeremy manages a group of over 1,000 investors who seek passive/managed cash flowing investments in real estate and businesses. Jeremy is also the co- Founder of For Investors By Investors (FIBI), a non-profit organization that was launched in 2007 with the goal of facilitating networking and learning among real estate investors in a strict no sales pitch environment. FIBI is now the largest group of public real estate investor meetings in California with over 25,000 members. Jeremy has an MBA from The Wharton School, is a licensed California Real Estate Broker (for investing purposes only), and is an Advisor for Realty Mogul, the largest real estate crowdfunding website in the US. Jeremy welcomes e-mails ([email protected]) to network with or help other investors and to discuss real estate or business investments of any size.

Hi! Today my guest is Marco Santarelli is the host of the Passive Real Estate Investing Podcast and the founder of Norada Real Estate, a premier real estate investment firm. His mission is to help people create financial freedom by taking the guesswork out of investing, and he has been helping investors create wealth and passive income for the past 15 years. His team is dedicated to researching top real estate growth markets and structuring complete turnkey real estate investments to minimize risk and maximize profitability.

Let's dive deeper into what the actual tax savings that a W2 Passive Investors and Real estate professional get from Investing in Syndicated real estate Investments.

James: This is James Kandasamy from Achieve Wealth through Value-Add Real Estate Investing Podcast. Today I have Ashley Wilson from Philadelphia. Ashley is a specialist in Asset and Construction Management; she is an asset manager and also taking care of construction as well. So it's going to be a very interesting discussion. She has a GP in 350 units and also have invested as an LP and working on deals on her own as well, which is awesome.

Hey Ashley, welcome to the show.

Ashley: Thank you so much for having me.

James: Good. Have you been on podcasts before?

Ashley: Yes.

James: Okay. A lot of podcasts?

Ashley: Yes.

James: Okay, good. So it looks like you're going through that podcast circuit, I guess, right?

Ashley: Yes. I have been on the podcast circuit for a little while now, yeah.

James: Good. So a lot of times when I bring guests into my podcast show, I usually bring operators, which are people who buy deals, who does the raising money, who does the asset management as well and who also do the rest of the investor relationship as well. A lot of times some people do not do third party property management or in house property management. They are not [inaudible 01:18] integrated, but some are. You are special because now you are an asset manager, right? And you also do construction. Can you tell us a bit more about your role as an asset manager and construction manager?

Ashley: Absolutely. So what I like to tell people about operations on multifamily is operations are very important in a down market, they are the most important and what I like to specialize in is everything from once a property goes under contract, even prior to that looking at the numbers, making sure that we account for how things actually happen, as opposed to just accepted statistics in multifamily in terms of underwriting, because every market is different and the way in which you operate a property can be vastly different from market to market.

So being very well versed on what things work within a specific market accounting forward within underwriting, then verifying it during the due diligence process and then ultimately operating according to the business plan, or if the business plan needs to be adjusted to make better value for the property and an ultimately a better return for the investors is what I enjoy doing the most, the property, the real estate component of multifamily is what excites me. I know some people really enjoy networking with investors and going to dinners and doing all of those things while that can be very exciting, it's really exciting to me, the property and how much money I can squeeze out of a property. That's what I enjoy doing.

James: Got it. I'm an asset manager as well so I really appreciate what you're saying because you can go around and raise money from people. You do a lot of advertising marketing too to get people to give money to invest and a lot of people give up on that, right? But once you close on the deal, executing the business plan is the harder part, right? It's not closing the deal. It's easy to close the deal, especially pre-COVID and market-speak. There's so much money chasing multifamily. There's so much Bootcamp and so many people who want to invest right, everybody has this formal effect, right? But you're right, I mean, executing the business plan is hard, right?

And I've seen a lot of people who were very motivated before closing because they tell all the fun story but after closing, they're very quiet or they don't really talk about their performance on their property, right? Nobody really declares about their property performance because it's hard to really do post closing execution, right?

So let's talk about when do you come? I mean there's asset management fee and some passive investors, especially new one who comes in, ask me, why are you taking asset management fee, right? Why not an asset manager which is the same as the property manager? Can you differentiate between that? I can add my things and differentiate property management and asset management.

Ashley: Yes. So there are a couple of questions there. I think that investors seeking an answer to. The first being the difference between the two positions, property managers and asset managers, a lot of times when you speak to people who own multifamily, they see that a property manager works for an asset manager. I do not see that the same way, I see it as we're a team and we work together and the only way you can achieve your business plan optimally is working in conjunction in partnering.

And ultimately the asset manager has a different number one client that they're answering to, they're answering to the investors, the property managers they're answering to the tenants and they're making sure that the property is the best property for that particular tenant, that demographic and if someone doesn't really understand everything that a property manager is doing, a property manager, in my opinion, is comparable to a teacher.

They have more things on their plate than they have hours in a day. They are doing marketing; they're doing general service complaint calls, et cetera for the property. So they're managing the current tenant base while also trying to attract a new tenant base and also trying to execute a business plan for the ownership group. It is very difficult to do especially in terms of the metrics, the national metrics for number of property managers per unit; typically it's one inside one outside's per a hundred units.

So for example, a hundred unit property would have one interior, a property manager, and then one maintenance person on-site for every hundred units you have. That can happen on a property that is a stabilized asset, but a lot of times, especially the properties that I go after their value add assets.

So there are things firing on all cylinders because there's deferred maintenance that we're tackling, there are tenants that should not be in the property that was put in the property probably by pre-released ownership so they're really trying to tackle a lot of different things. The asset manager, on the other hand, answers to the investors. The asset manager is the person responsible for protecting your investment, they're responsible for maximizing every single dollar that's placed in that apartment, we want to try to get two times that dollar three times that dollar up, ten times that dollar, that's what we're trying to do, every single investment we make on a property. So what we're doing is we are the added layer of protection. We're looking to make sure that the day to day operations are not only executing that business plan that you have in place but also maximizing the investment.

And I say that, and it sounds like a broken record, but truly that is what an asset manager does and there are so many things to make sure that you're doing from vetting contractors, making sure that you're getting the best price on the renovation too. It's very strategic when you're doing renovations, how you should do the renovations, how much you should do, how little you should do, what rents you can charge, what's the absorption rate, what is the market comparables in that market that you can push the rents?

There are so many different components, I could probably talk for an hour alone on just different components that I look at even on a daily basis, let alone on a weekly or monthly or quarterly basis. So to me, it's a full-time job and that is why personally I've been able to execute business plans a lot faster than, you know, I've had two properties where I've had to execute a business plan on the first property. It was a two-year business plan with a refi in year three, and I was able to execute it all under budget within a year.

So I think that's pretty impressive and then on my most recent property, it was a four-year business plan that after we executed the renovation over four years, then we were at the end of three years, we would refinance in year four and we were able to execute the business plan in actually less than a year and also under budget. So that is the difference between having someone oversee your investment on the asset manager side and work in conjunction with the property management team. I've been very blessed to have an incredible property management team that I work with on these properties. So for us now we have systems in place to make it even easier to execute everything we do.

James: Got it. So let me summarize what Ashley just mentioned, right? So asset managers basically approve, execute property budgets. They look at property financial reporting and making sure that budgets are met and at the same time they also have to make sure that you are able to execute what you thought in the beginning, whatever performer and whatever the original sponsor has planned for that and they have to make sure they hit that, but as for the budget as well, right? So do you work any part of it as part of the investor side of it like investor tax document and any other things on the investor portal and all that, or is it all that a sponsor takes care of it and asset managers on the asset?

Ashley: Well, I also am a sponsor, I sign on loans, I'm not just doing asset management and I've also brought my own investors in, on deals as well. So in terms of being fully involved, 60 knots of whether or not we execute a cost segregation study, getting the K ones out, getting all the information, I provide all the reports to the investors. I'm the one who creates all the reports for the investors. So really I'm doing soup to nuts and I do it in a very granular fashion. So I'm a full-time real estate investor.

I think there are a lot of opportunities for people to get in multifamily while working at W2 and there's a point in which you absolutely need to transition. I don't know how someone could keep up with all the work that you need to do for an asset manager of a larger property. When you are also juggling a W2 on maybe a more stabilized asset you could probably do that, but in terms of the volume, if you want to scale, ultimately what you would be looking to do is to do it full time, which is what I do. So in terms of prepping everything that the investor needs for whether it's preparing their taxes or doing things for the property, I just really make sure that I'm the glue that puts all those pieces together.

James: Got it. So let's go a bit more technical here, right? So you have a plan from the sponsor, right? So when you're working as part of the sponsorship team as well, and now you said, Ashley, you're going to asset manage this, right? And we talk about absorption rate and renovation progress, right? So let's go into each one of those and you say like four to five key indicators that you look at. Can we just quickly summarize that? What are the four to five key indicators that you look on either daily or weekly basis?

Ashley: Okay. So first I also wanted to mention that despite how many properties I have, I also consult with other sponsorship groups. What they'll do is they'll bring me in and I will basically audit their property and I will point out all the things that they could improve upon. So there are things that I look at when I'm auditing other sponsors deals and then they're also things that I look at on a daily basis for my property, I can speak to the things that I think probably most people who asset manage. They don't have the time to look at things on a daily basis so they're probably looking at it more on a weekly basis.

So I'll share what I look at on a weekly basis because what I look at daily versus what I look at weekly what I look at monthly and quarterly are completely different.

So what I look at on a weekly basis is obviously I'm going to look at my traffic, I'm going to look at my occupancy, I'm going to look at move-ins and move-outs, I'm going to look at work orders. How many of those emergency work orders, categorizing the work orders, time of resolution, and then in terms of repeat work orders and or the reviews of the work orders. So in terms of whether or not someone would give the work order a five-star review or one star, those are things I'm looking at. I'm also looking on the traffic side- where's my traffic originating from, my source and what's my conversion rate on those sources. So that way, I know very thoroughly, which traffic sources are working, which traffic sources aren't. I also look at it on a weekly basis specials within the market to make sure that my property remains competitive.

I look at my renewal rate; I look at a lot of different things. I'm trying to see if I'm remembering every single aspect of everything that I look at, but ultimately what I'm trying to do is I'm looking at the property in such a detailed fashion as if I was operating the property with boots on the ground. So that way I can make little adjustments immediately when I see that there's a need, as opposed to waiting until let's say, for example, I've plugged a lot of money into a marketing campaign that I don't see working, three weeks in, I'm going to yank that marketing campaign as opposed to keep it running for six months and lose that investment when I could have plugged it into a resource, it's giving me a higher conversion rate and higher traffic.

So that's really the things that I'm looking at. I'm looking at how to influence the people who are coming into the property and how to influence the people to stay at the property.

James: Got it. So let's talk about renovation per unit, right? I mean, before you close on the property, I mean, let's say for example, 5,000 per unit, right? And post-closing, how's that 5,000 per unit budget being tracked? How do you know that it's very effective in terms of your rent growth and your annual growth and meeting your business plan?

Ashley: So when I go into a property, I know exactly what I'm going to do to that unit and day one, I pick every single finish that I want for that property. So that's inclusive of if I'm going to change the flooring, I pick out the exact flooring I want, I pick out the paint, I pick out everything and then what I do with my management company is because I'm not located in Texas and my properties are located in Texas, we've implemented systems where we have a tracking system so it initiates what units are available to be renovated and what condition they're in and then we put together a package on what that particular unit needs. So I know to a penny, how much that unit costs to be renovated and then ultimately what I do is then I track the progress of the unit through pictures before pictures storing and after pictures.

So I can see the progress of the unit and then I can see what the total cost of the unit, if there are any change orders, typically I don't have change orders unless there is something extremely grave at the property that is unexpected but I've been in construction long enough to know I'm raised by a general contractor who had his own business for over 40 years. I'm very well versed in construction that I know how to negotiate prices, I also have a lot of contacts so I can get prices down pretty well so in terms of verifying afterward, I then confirm the cost for the unit and then I have my own tracking system to ensure that I stay below budget and that's how I've been able to stay below budget on all of my projects.

James: So let's go into that process, right? So now you have a unit that you're going to renovate and I presume the property manager is the one that is going to give you the budget on the progression of whatever being spent on that unit. Is that right?

Ashley: Well, what I do is I package it. So I know, for example, there are two things in construction. It all comes down to labor and material. I know how much material it's going to cost me and we have a checklist on what that individual unit needs so I already know upfront what the material is going to cost me and then what it comes down to is what the labor is going to cost me and in terms of the price per labor, everyone should know how much it costs to switch out an outlet, how much it costs to switch out a fixture, how much it costs to paint a room.

I know all of these numbers. So if someone says to me, okay, this unit costs this much and it's over budget I can then question them and say, why is it over budget? And they'll say because our guys spent three more hours, so why did they spend three more hours on this unit versus another unit?

Oh, well there were some issues. Well, you walk that unit in advance, you knew what the unit condition looks like and let's say it's painting, you knew like unless I replaced like a put up a whole new wall or took out a wall and I reframed it like you knew what the estimate was, you knew the square footage of the wall that you were going to paint. We have it priced for rooms. So it's very easy for me to argue, because I know it's such a granular level that I can get the price down and that's how I confirm that I stay on budget is to know all of the prices to that level.

James: So you are assuming that, or maybe you already have a really good crew, which is working as what was planned, right? Otherwise, you're going to always question then why you guys are late because that's another variable, right? You have to schedule, right? I mean, you have your materials of labor cost, but they can take forever to finish one unit. How do you keep track of that one unit renovation?

Ashley: So we have, in terms of scheduling, we have certain times in which we release a certain amount of units and then they get them to renovate. I have worked with contractors for years now, across all different types of properties-single-family, multifamily. And if one thing I have learned across along that process is that when you work with someone for the first time, you're not going to give them an entire job, you're going to give them a piece of a job and they're going to have to prove themselves to get the rest of the job.

These contractors, when I have large multifamily properties, they want the entire job. So they're going to work very diligently at the beginning and hopefully throughout the entire project, but most likely they're going to work very diligently at the very beginning. So I will give them a little piece of what I need them to do in terms of the grand scope, but I'm not going to give them the whole scope of the project initially when I have no track record with someone.

So I'll give them a little piece of the pie at the beginning. If they prove themselves, I'll give them a little piece more. If there are any issues upfront, I just pull that crew and get a new crew immediately. So I minimize my risk of loss and I minimize my risk of loss of time. So it's a loss of time and a loss of dollar amount and honestly, time is also equitable to dollar amount too. So that way I just minimize the risks across both.

James: Yep. Well, that's exactly what we do as well. I mean, we usually hire for a few new projects. We hire like two, three crews, and give them a small portion and see who's doing the best and kick out the other two and keep one and keep on giving them the work, which is a good validation of what we do too, right? Thanks for that and how do you work with the property managers onsite? Because you can't be on site, so you need a lot of communication unless the contractor is giving you the data directly to you through some kind of Excel spreadsheet or you're having meetings with them. So you're doing both.

Ashley: Yes, both. So first before I got into real estate, I worked in pharmaceuticals, I worked in clinical research and development and I worked on global clinical trials. So I worked on studies all over the world and I had to leverage technology. So my entire professional career, entire working career has always been in a virtual capacity. I had become very well versed on how to work remotely and I've put into play different things to make it very advantageous for me to work remotely by leveraging technology, I've taken that same approach and applied it to multifamily. Before I got into multifamily, I built up a very successful high-end flipping business in the suburbs of Philadelphia, Pennsylvania and I did that whole business while living in Europe. So even though I lived in Europe, I created a flipping company while living back in the States, I've taken the same approach and I've done the same thing in Philadelphia suburbs now back living in the States and my properties are in Texas.

So to be honest with you, it was a lot harder when I was working in Europe, creating the flipping company that I'm faced with today. I already had all of the systems that I built up on the flipping company, and I've just been able to apply them on the multifamily side of things. Unfortunately, there's only an hour time difference as opposed to I had anywhere between a six to nine-hour difference because at one point I was living in Russia. So it's been very easy for me to make that transition. I have never had any single time where I said, oh, I wish I was like right down the street from the property, because the way in which I react and manage would not change by being on the property, you don't need to be physically at the property. Now, do I still go down to the property?

Yes. I go down to the properties quarterly to check on the property. Also, I think there's much to be said about the relationship that's built between your onsite team and the ownership group and I think it's really paramount if you want to run a successful business, which multifamily is real estate and business. So I don't discount that, but I definitely think that your operations, as long as you have an excellent team, which we make sure that we always put a really great team in place that you still can be successful.

James: How do you test rent growth based on the rehab?

Ashley: In terms of how much I can push the rent prior to completing the project or afterward for absorption?

James: For absorption. So basically, there's a certain limit of rent growth based on the rehab that you're doing, right? So how do you test that? How much you can get based on the rehab that you're doing?

Ashley: So I'm huge into understanding the market demographics. So what I do is I spend a lot of time researching market comparables. I look at if I was a prospective tenant, what properties would I look at and why, what property would attract me, would I be willing to pay an extra $10 more for property A versus property B? And what are their amenities? We live in an amenity based society right now where people love the bells and whistles that properties provide. They love having a pool, they love having laundry in their unit, they love having like in Texas carports or garages, there are certain amenities that based on the market draw people in and that changes by market. That doesn't mean just because you're in Texas everyone wants a carport, some places they don't care. They're not going to pay extra for, you really need to understand your market very thoroughly and then compete with what that market wants.

If the market is a tech-based market, maybe you should implement thermostats that are able to be controlled with your phone or laundry facilities that are able to be controlled by your phone. If you're not in a tech-based market if you're in maybe a secondary tertiary market, I'm not saying all the secondary tertiary markets, but I'm just saying, if you're not, as close to a major MSA or primary market, they might not be as well versed in technology and they might not see why they would pay extra.

It's really about understanding the market, understanding what is renting in a market, what properties have high occupancy, what their rents are at, what their specials are at, what amenities they have, and then trying to compete on that level. I walk the other properties. So when I go tour the area, I always make sure to tour other properties and see what their unit interiors look like, what their exteriors look like.

I want to secret shop these properties because I want to understand what a prospective tenant is looking at. I want to understand how they are greeted by their staff. I want to understand if a market is Hispanic speaking, let's say right, and they want someone to greet them in Spanish and they want Texas, TAA contract in Spanish, like a Texas Apartment Association contract in Spanish, these contracts. So they're very little things, the devil's in the details. It's really important that you understand the details of the market.

And then you ensure that you are exploiting them on your property. So people want to live on your property. You're providing a better value than competing properties, and that's how he tests it. So then I can see, okay, this property, they're not doing granite counters, but they're getting a hundred dollar rent bump over what we had initially projected. So we don't need to go with granite counters, maybe our business plan had granite counters in it and we don't need to go with granite counters because I know the market will pay a hundred dollars more, even despite the fact that they have granite counters. So some people like to over-improve. It's no different in flipping people do the same thing in flipping all the time. You really need to understand not how little you can put in to get the maximum value, but in a sense, that is true.

James: I mean, follow up question to what I asked just now is like, for example, let's say an ownership group, come to you to do consultation and they said, hey, we plan for 3000 per door until rehab, and we want to get $150 a rent bomb and that was all planned and now you are coming in, how do you communicate to them that that $3,000 is not going to get 150 rent bump? I mean, have you been in that kind of situation?

Ashley: Yes. I have been in that situation and I've been in this situation where I've been given a business plan and I went down and did due diligence with this ownership group as a consultant and I said, hey, this is not what you want to do. You want to do X, Y, and Z and you're going to get this rent bump instead and it's a better return on your investment. So I think it's very hard to argue with numbers, right? So I understand underwriting very thoroughly and all I have to do is take their underwriting and plug in what I think the business plan should be and show them their underwriting versus mine and ultimately I think that kind of speaks volumes to speak in that language most people who are in multifamily, I would say, are very proficient with mathematics and finance and understanding underwriting, especially if they're the key principle.

So if you're dealing with the key principle, the operator you really just have to speak their language and ultimately they should want the best return on their investment. So I've never had anyone disagree with the strategies I've recommended. No one has really taken it negatively at all.

James: If they already closed on the deal and you're coming now, and you think that it's not realistic

Ashley: In terms of it not being realistic and squeezing the dollar out that really comes into a lot of people don't bring on a construction manager and I think that's a huge shortcoming on a team. I think that a lot of people try to shortcut that position because they think they can outsource construction management to a third-party vendor. I think third party vendors when you hire a construction manager, they're paid off of the cost of the total construction and, therefore, they are not motivated by the same reasons that your team is motivated, which is to get the highest return for your investment.

So ultimately my suggestion to them is that they need to bring on a construction manager if they don't want to bring on me, which I'm not doing this to sell myself, I'm doing this to help people. I find the more people I help, it comes back to me. I never have to worry about it. So I just say to them that I recommend bringing a construction manager who is motivated by the same reasons as them.

I get approached often to be compensated as a construction manager from a flat fee and my comment back to them is if I take this, then I'm a hypocrite because what I'm telling you is that you should bring someone on who is motivated by the same reasons. The only way you will find someone who's motivated by the same reasons if they have a piece of the GP equity, because then the more work they do and the more they put into it, the more they get on the back end and that's why you should have someone on the construction management side.

And the reason I propose having someone on the construction management side is those are the type of people who not only can negotiate something, but I've used this example in other podcasts where I call it the porch deck scenario or whatever you want to call it. But basically what I'm saying is that you can go to a property and on the property, you have a patio and on that patio, it's a second-floor patio and when you do the due diligence, you have a contractor come in and say, all of these have to be ripped down and they have to be report and the framing has to be redone and you need new posts, a new joyce, and new concrete slap, okay. That is one way to fix it, right? But there's another way to fix it.

And that contractor is not doing you just service by telling you that they're doing it because when they do their due diligence, they are not giving you advice based off of a hold period. They're not assuming that you're going to hold the property. They probably don't even know how long you intend to hold the property for whereas a member of your team is going to know, okay, we're trying to access this property in three years or exit this property in five years and really what could happen instead is you share up one of the posts or two of the posts, and you have all these cracks on the patio, but really it's a facade and it could be just resurfaced and it'll get you through maybe five to ten years, but you plan to exit the property in three years so it won't be that big of a deal and it won't be that big of a risk and you're talking the difference between maybe a 3 to $5,000 repair job versus 500.

So by having someone who not only understands the process of construction but understands the different mechanisms in which to solve problems and negotiate. That's what you're looking for in a construction manager. You're not looking for someone who's just good at managing construction and knows a very high level of construction. You're looking for someone who really knows the details of construction because that is the way they provide the most amount of value to you.

I mean, there's a reason why I've been able to save hundreds of thousands of dollars on cap X budgets, hundreds of thousands and it's because I know construction like this, and I'm not just saying like, toot my own horn. I'm saying you should seek someone if you're not going to seek me, you should seek someone like me who is going to save you hundreds of thousands of dollars and get the project done faster because at the end of the day if I can hit my business plan after year one versus year three or year four, that's a different exit opportunity or a different other capital event, which is a refi. So that gets your money back to your investors. It could drastically change your returns. It gives you a better track record. I mean, ultimately that is your ACE in the hole, so to speak of executing your property.

James: Got it. Yeah. Very interesting. I mean, construction manager or which whoever managing that construction budget it can give us a lot of benefit in terms of reducing costs and exiting the plan as quickly as possible, right? I mean who should be hiring a construction manager at how many units or what kind of project should they be hiring a construction manager?

Ashley: I'd like to say that someone on your team should be well versed in construction. If you plan to have any property that is multiunit even on a duplex or quite small multifamily, you want to make sure that you are either connected with someone or know someone, because the example that I like to always say to anyone who has ever owned a house, if you own one house, a single-family residence, right? And you've owned it for a year; I don't know anyone who can tell me they've owned a single-family residence for a year without needing some sort of work on that house, something. So when you extrapolate that across a hundred plus units across a three to five-plus year hold, you are magnifying, the need for someone of that skill set.

So maybe on the smaller properties, it's easy to like outsource it but when you get to larger properties and especially when you're taking in investors, I think it becomes more important that you safeguard that person's investment. That's why I think it's really important. It's an added layer of protection for people, whether its college funds for their kids, retirement money, generational wealth, it doesn't matter the reason you want to protect their investment. I forgot your second part of that question.

James: Well, the second part is like I'm missing that second part as well, but let's go to the next question because that was a long answer, but I have a follow up question to you. I mean, in terms of the most valuable value add, right in multifamily, I mean, you have done quite a number of construction projects on multifamily. What do you think is the most valuable value add for high ROI?

Ashley: Before I got into multifamily, I used to think that the interiors were the most important part of the value add, because I thought that where someone lives, where they sleep at night, where they're raising their family I was like, okay, that makes the most amount of sense, but the more I'm in multifamily and just in real estate in general, I am more of an opposite opinion, which I think the exterior matters way more than the interior and I see that across multiple markets, I think if you were asking me for a specific market, what's the best ROI.

That might be a different answer, but in terms of just a general blanket statement, I think people are really concerned of the impression that they give off.

And I can tell you that I see market after market, where the exteriors are stunning and the interiors are horrific, and they have the highest occupancy and they're able to collect the highest rent bumps in the market and then alternatively, I've seen beautiful interiors, but the exteriors are really dated and those are typically the ones that are maybe a little bit more challenging, but they are definitely not competing with the other properties and I think people don't tend to look to do the exterior because the exterior costs more and it's a huge gamble and they don't see the added value but ultimately if you focus on the exterior, you impact the entire property.

If you focus on the interior, you're only impacting one unit at a time. So the bump in ROI is only when you complete an individual unit whereas bringing people on the property, to begin with, can be sometimes the hardest part. That's why even on single-family, they always say the exterior matters more than the interior, getting someone to visit that property, getting someone to tour it, they want to buy it. It's all about the facade. It's all about this illusion of the lifestyle that someone's living.

James: Maybe it's social proof, I guess, right? You live in a nice house too. You can show it to others, I guess, right? That's my apartment, looks really nice, but who cares about the inside, I guess, right? And I've seen a lot of times owners who have been doing this very long time. When they buy a deal, they just do exterior and they say interior somebody else can do it and they sell it quickly after they do the exterior. I mean, that's a very interesting perspective that you're able to get high occupancy.

You may not get a high rent bomb, but you may get high occupancy and stable demographic if you have a nice exterior, but the rent bomb comes from the inside, I guess, right? Interiors as well so I think the valuable side is more on the exterior side because that brings in people, right?

Ashley: Absolutely.

James: Got it. So let's go to your personal side of it. I mean, as part of your venture into single-family and multifamily do you have a proud moment that you can never forget? One proud moment that is going to be living with you throughout your life.

Ashley: I'm really just proud of the people I work with and I partner with. I have gone through some really challenging things with apartments and when I talk with other people, when I talk to owners and operators, who've been in multifamily for 10 plus years, they haven't even gone through half the things that I have gone through. And in the moment I'm like, Oh my God, what do I do? And a bit frustrated. But I think that experience has propelled me to the position that I'm in today and the fact that I've been through a fire, I've been through a gas leak and a line where it's a replaced an entire line, I've had to replace the entire sewer line from the building out to the street, I've been through multiple plumbing leaks, I've been through roofs coming up, I've been through incidences with the police being involved, I've been through a whole new rebuild of an apartment and a whole host of other things- depleting occupancy to 60% and then building it up to hopefully over 90, in less than a year is another thing I'm going to be really proud about and I'm just proud of the people that I work with. I'm really proud of the fact that we take a team approach, we're never pointing fingers and I also like to think of it if I had this same opportunity to mastermind with these same people, how excited I would be.

So just because I'm the one who's actually living in the moment of what we're talking about in the quote-unquote mastermind, I should just think about it from a different perspective. Think about it as I'm having such a great opportunity to learn from the best people in the business and people who are really supportive. I think that opportunity is something I will never forget for the rest of my life, that I've had this amazing opportunity to connect with people and to learn from people and to help other people. It's just been something that I'm really excited about and the other thing I'm excited about is something that I do on all of my properties is I really connect with the community.

I'm not into changing a property; I'm into changing a community. That is my goal on every single property that I'm a part of is to have an impact on the overall community, to whether it's by partnering with local nonprofits or school systems or helping provide food or gifts to children at holidays really it's important to me that you can be successful at business a lot of different ways, but to be successful and help someone's life is much more rewarding. So I really get a lot of joy out of creating change in a community, along with helping my investors either build or preserve their wealth for whatever reason they were doing it for. So I just really enjoy helping people.

James: Yeah, absolutely. I mean, we are all about helping people. We like to improve the community and really, we have a lot of initiatives that we do in our properties- we give school backpacks when they go back to school, we do many libraries follow communities. So we do a lot of things for our communities. I mean during COVID-19, we have a lot of people who lost their job and don't have food, we usually buy food for them, right? I mean, that's what you and I think the same, I guess, right? I mean, you can make money in many ways, right? But helping people, kind of come with you to the grave, right? So awesome, Ashley. So why don't you tell our audience about how to get hold of you and how to get in touch with you?

Ashley: Absolutely. You can follow me on badashinvestor.com on the website or badashinvestor on Instagram, my website badashinvestor.com. It actually links to all of my other companies. So if you're interested in learning about multifamily, I have a link there. My multifamily company is Bar down Investments. So it's very easy. All the traffic just goes through badashinvestor.com.

James: Oh, that's a nice catchy name. Awesome. Thanks for coming on the show.

Ashley: Thank you so much for having me.

James: Absolutely. Thank you. Bye.

James: Hi, audience and listeners. This is James Kandasamy from Achieve Wealth Through Value-add Real Estate Investing Podcast. Today I have Ryan Gibson from Spartan Investment Group. It's an investment group that focuses a lot on Self-storage. They have almost 4,000 units. They have a lot of units in DFW area and a few other States. I think Ryan's going to talk about in a short while, and they recently started to [00:32unclear] in a mobile home parks, which we'll touch upon in a short while. Hey Ryan, welcome to the show.

Ryan: Thanks, James, for having me. It's fun to get on your show. It's great.

James: Yeah, absolutely. Absolutely. So why not you tell about yourself and your company, things that I've missed out?

Ryan: Yeah, so we are based in Golden, Colorado, and we buy existing and develop self-storage properties. And we do all of our properties and projects through syndication. So we raised capital from private investors and we go out and buy storages that we can buy and get existing cashflow on. And then we can eventually either expand them or just improve operations to make additional income. We also build self-storage from the ground up and we do a little bit of RV park investing as well, but storage is the primary focus. So, you know, previously, we were land developers and built condos and flipped houses and focused on storage mostly just because of the recession resistancy, you know, during downtimes. And when we were first looking at the industry, that really is what you know, attracted us to jump into the business. Was the, you know, kind of how it performed during the last two recessions.

James: Got it, got it. Yeah. I mean, I did a lot of research of different asset classes. I wrote it in my book as well. Like how many asset class, six asset class for the past 15 years and just on my own, this is not from Marcus and Millichap or this is not from CoStar. I looked at all the asset class and was looking at all the past 15 years report, which that's a report called Integra Realty Resources. That's the report that all the commissioner pays us a report to, that's the organization. And I was looking at self-storage and multifamily and all that. I was surprised to see that self-storage did do well the past 15 years, even during the downturn. I know at the beginning, you know, 15 years back, they didn't really allocate a specific asset class for it, but they did talk about it. And in general, I didn't see any downturn, even though every other asset class goes up and down. So that's very interesting. And why do you think is that?

Ryan: Because it relies on life events and life events never stop happening. No, I'm serious. You get divorced, typically, stuff goes in storage. You renovate your house, stuff goes into storage. In times of good times, stuff goes into storage and times and the bad time, stuff goes into storage. When you get downsized, when you move, when your job relocates, when there's a disruption in the market that triggers self-storage events. And added onto that, businesses use it because not everybody can park their work truck in their HOA driveway, if they're in a covenant restricted community and not everybody can have all their utilities and supplies in their house. And so, you know, simpliest way to say it, you know, for an extra 50 bucks a month, imagine having a whole other room in your house. And that's really been a big driver for demand and self-storage.

We like it because unlike other asset classes, when a customer comes in, we have a lien against all of their stuff. So if they don't pay, we can auction that off for a profit. So, you know, the revenue loss is much lower for you know, the potential when a tenant doesn't pay. With COVID and everything, there was still a rental rate, great increases. We still had high occupancy. We still can host auctions and have people move out if they don't pay. We held back on that in a couple of properties and a couple of markets, but for the most part, you know, we didn't have the government restrictions that a lot of other asset classes had on that kind of stuff.

James: Got it. Well, I mean, I'm sure the audience is thinking why not James jump on self-storage. So but let me tell you why I didn't, you can always debate this. So one thing I didn't jump on self-storage at that time. I mean, of course, for me, focus is very important. I mean, every asset class has so many nuances in it. I mean, it's not easy, even though self-storage is like four walls and there's nothing in it, but there's a difficulty in finding the deal and difficulty in executing the business plan and turn around and, you know, disposition and all that. So, I mean, but I didn't do it because at that time there was not much of nonrecourse loan available, I think, unless you go really low on the leverage. So how is that right now?

Ryan: You can get a non-recourse right now on ground-up construction

James: On ground-up construction. Okay. Got it. What about on the...

Ryan: Oh, and of course you know, that would be rare in our industry. Of course, on buying existing self-storage properties, non-recourse is widely available.

James: Got it. Okay. So now it's available right now, at what leverage level?

Ryan: It just depends. I think we just tied up a deal that around 70 to 75% non-recourse institutional loan. So, you know, it just depends on the lender. Depends on the deal. Depends on the play.

James: Oh yeah. I had a friend who was like 85 years old. He's a broker, but he's a very healthy guy. And he said he started multifamily and moved on to storage and he owns a lot of storage unit and I was calling him and he said, maybe at that time, he said, yeah, it's hard to find non-recourse loans. The other challenge in storage is, you know, I mean, anybody can build a new self-storage development in front of your storage unit. It's very easy to build

Ryan: Maybe. Yeah. So, you could say that as a general statement, that wouldn't apply everywhere. So there's a lot of moratoriums on storage. There is a lot of restrictions. Some communities don't have zoning for it. Some cities quite frankly, would not allow you to use it at all. So, you know, it just depends on where you are. Some jurisdictions it's, Oh yeah, come build it. No problem at all. So you just need, you know, it just depends on the market. You know, we have markets where there's no zoning and we could build whatever we wanted and there are markets where it's taken us 40 years to get a permit. So it really just depends. And then there are some markets where you get your permit and then they slap a moratorium on there and you can't build your storage anymore. That's happened out here in Washington and a few places.

So you really got to pay attention. And, you know, and I think really if someone was like, what's the one thing that I could take away from talking to a storage operator? It's the market study. It really comes down to: do you have the demand and is there the supply of people and demand essentially in the market to fill up your property or execute your business plan? It's huge. You know, someone might say, is storage a good play? I don't know, make up a city, Austin, Texas and I will say, well, generally, no, it's not, it's actually a terrible market, no offense, but it might be good on one side of the town and catastrophic on the other side. It's a three-mile business so it's like whatever's happening around in that immediate micro-market is really what it comes down to. So some markets are generally better, some markets are generally worse, but at the end of the day, it's right in that five, 10 minute drive time of the property. In the market study, that makes the difference.

James: So, all your details that you're telling me right now, that's why I say there are so much of nuances in any asset class that outsiders may not know. I mean, it's easy to say, you know, it's easy to build but there's so much of a market research knowledge that, you know, only the operators who are specialized in it knows about it. So, and I do have a lot of respect for every asset class operators. There are definitely people who are really good at that. So let's walk through a deal in self-storage. So not in terms of deal underwriting, but let's look at the demographic of that storage. Let's say you found land in a city. Walk us through the steps you would take to say whether this is a good site for a self-storage facility?

Ryan: So a couple of things. The first thing I would look at is what's the population. So I would drop in on the facility, we have data and maps that will show us the drive times. And then based on those drive times, we'd get the population within the drive times of the property. And then we would look at saturation levels.

James: And what are the drive times? Minutes?

Ryan: Yeah, four minutes. I think we use eight minutes and 15 minutes. Think of it this way. If you're in an urban core, you're not going to drive 15 minutes across town, you're going to drive eight minutes so that there's relevancy to where you are in the market. But what we look at is, you know, we'll look at what are the comparable rent comps to what our subject facility is charged. So, you know, we might be getting $15 a square foot on the average but it's important to know kind of what type of facilities those are: three-story glass, Class A facilities, are they first-generation roll-up metal buildings, you know, big difference. Is it non-climate controlled is it climate controlled and in that market, is it a hot market, like a warm climate that likes self-storage to be climate controlled? Or is it a market that prefers drive-up or, you know, climate control would be overkill and people would be unwilling to pay the extra money for that.

So we look at price per square foot, you know, probably just like multifamily. And then, for Spartan, we look at the ability to add onto that property, you know, can we expand it and what is the existing dirt that's there? What is it? Is it flat gravel? Are there stormwater requirements, setbacks, easements restrictions, how usable is that land, and how much would it take to get the land pad ready? Cause we're developers. I mean, we take properties and develop them into bigger...

James: What about zoning?

Ryan: Zoning is important. That's kind of a little bit further down on the checklist. The top thing is demand. Cause you know, you could have, Oh, this is a zone for self-storage. And of course, everybody knew that. And then everybody built, a bunch of storage is there and there's no demand.

James: But is it easy to change as zoning from, let's say in multifamily to self-storage?

Ryan: Ah, that's a loaded question.

James: Maybe not multifamily. I know residential has a lot of high priority in terms of city development. Let's say, commercial office building, commercial land to self-storage.

Ryan: I mean, it depends. I know you don't like the word, it depends, but it depends. So like if you are looking in a market where, you know, we entitled the self-storage project in a city that had no zoning for storage. So everything was a conditional use permit. Everything was a public hearing. The public had come in, the city had to make a recommendation to a hearing examiner. Huge process. We've taken a residential land and rezoned it into commercial so we could build self-storage. We had to go in front of the board of county commissioners. We had to go in front of, you know, there had to be room for public comment. There was opposition, but we were successful and got the land entitled, but every jurisdiction is just a little bit different.

We've bought properties that are zoned for storage and we've gotten the entitlements and they can take anywhere from two to six months to get it, it's a building permit, you know, depending on how fast you're pushing and assuming no closures in the city and things like that. It just runs the gamut. You know, as I said, I have colleagues in the industry that have bought property, they got the entitlements. So yeah, you can build storage here. And then the city puts a moratorium on storage and now they can't build anything. So they bought this land, they got the entitlements, they've spent all this money, now they can't even build it.

James: How do you prevent that kind of thing from happening?

Ryan: You don't.

James: Because you've already bought the land.

Ryan: I mean, you could negotiate the contract to close upon building permits, but then you've got to find a willing seller and you know, of course, that's always a negotiation.

James: It's too messy, I guess.

Ryan: But yeah, when you develop, I mean, it can be riskier and there's a potential for a bigger return but you also introduce a lot more risks. So yeah. I mean, is it easy to do? It can be, and it can be very difficult to the point of being impossible so it really just depends.

James: So when you guys raised the money from your investors, have you already done that, let's say for a [13:57unclear] project. Have you already done that part or are you are still looking at that entitlement?

Ryan: Yeah, we've really learned our lessons through the year. So you know, we bought a storage property and when the rezone of the land from, you know, so you have kind of a couple of different phases of development when you're doing like the paperwork to get it ready to go vertical. So the last thing you get is their building permit. So your building permit is pretty straight down the fairway; that is meeting building codes, getting your building permit, not a lot of risk in that - a risk, but there's not a lot of risks. But the phase just before that might be your entitlement so that you can actually do what you want to do, or might even be some type of site plan development where the city has to approve your site plan but you don't necessarily have your drawings done for the buildings they've just approved. Okay. Building here, building here, building here, this is your height. This is your step back. This is how much square footage you're going to deliver and a site plan approval. And then you have the zoning that might be before that. And it might already be zoned that that might be your first step. You know, do I meet the zoning if I don't, I might have to rezone that could take years.

So, you know, we just kind of look at the projects and negotiate with the seller to buy the property. You know, when it hit a point where we're comfortable with closing on the land, and then we negotiate the purchase and sales agreement as such, and then we do the raise in accordance with how we feel our comfort level to be. Because we don't want to raise the money until we know we can do what we want to do. And you know, we've really refined our processes for that over the years to know that, Hey, we can close. And we've gotten better at negotiating. Like how can you expect me to buy this land and I don't even know I can do what I want do with it? If it's a hot market, you know, make a decision; you either want it, or you don't. If it's a property that's been sitting on the market for a year, you can come up with some pretty creative ways to keep the property tied up while you go through that process.

James: So how many percents of these 4,000 units were developed versus how many were bought from....?

Ryan: 25%

James: 25% newly developed. Okay. Are you guys more trending towards development rather than buying?

Ryan: That's a great question. I would probably say we're buying more than we are developing right now for no reason other than our development pipeline is full enough. Development is expensive and development requires a lot of cash and you don't want too many of them going on at one time. So we have two very large, about $22 million right now with development. Actually, no, we probably have about $30 million in development right now and that's about our comfort level. That's our spend for 2020 for development and we really don't want to get much past that. We also only develop in the states that we live in so Washington and Colorado. Adding onto a property is not a big deal, but we don't like to do ground-up development where we go through the whole process if we live out of state, because inevitably if you want to get things done, you gotta be down at the county, down at the city hall, down at the office, all the time. You're going down there all the time. Oh, you want this? Okay. No problem.

James: Otherwise, it's going to just take forever to get a project done.

Ryan: And who wants to fly an hour and a half somewhere to drop off a piece of paper and then fly back? I mean, it's just not efficient. So we just like to be in town. I can't tell you how many times I've gone down there to, you know, shake the trees and get progress.

James: Yeah. I've done a small land development beside my apartment. We were converting it. We were combining the adjacent plot of land into the apartment. And that itself was a lot of work already. But the city was supportive and it went through well by just the amount of paperwork, the amount of bureaucratic process that you have to go through. So, absolutely. What about a demographic? I mean, we talked about demographics. How do you say that this particular submarket is a good demographic for a good self-storage business?

Ryan: We like at least 1% growth. We like to see trending growth. We like to see 50,000 income. We like to see saturation levels like a seven square foot per utilization for storage.

James: How do you get that data? Seven square feet per utilization?

Ryan: We have Radius Plus and we use a couple of different programs. Radius and there's one other program that

James: So Radius is a software for self-storage investors?

Ryan: Yes.

James: Okay. For them to see the demand, I guess.

Ryan: If you gave me an address, within 20 minutes, I could tell you what's the drive time around it. I could tell you the demographics. I could tell you the demand. I could tell you all the permits in the pipeline. So that's another thing. This is great. I can tell you everybody who's building, everybody who's applied, who's canceled, who is coming. And then of course we do our boots on the ground research where we go knock on doors and go to the city and ask them like, Oh, Hey, you know, is anybody else? Oh yeah, John, you know, he was over here last week. You know, that doesn't show up on record but the intent. And then you go talk to John and you say, Hey, you're really going to do this because we're thinking about doing it too. And we've got into situations like that and you know, either we've given up or they give up or whatever, and we just move on to a different market if the market can't supply all that additional.

James: So does the self-storage purchase involves stringent requirements or stringent terms like what multi-families like day one, hard money, you know, very tight on inspection, do due diligence process?

Ryan: It's extremely competitive. And it might be as competitive or more competitive as multifamily. Because when people think of storage, they're like, Oh, I've never really heard of that. I don't know what that is. And then they do multifamily and they're like multifamily is really hard. You know, there's always people doing it and Oh my God, there's so much competition. Maybe I'll go try storage because it'll be less competitive. And then they go over to storage and they're like, Oh, there's a lot of people that do this. But what the difference is there are so many multifamily properties in the United States. Self-storage, you can't even hold a candle to the wind. I mean there are 50,000 facilities total in the entire United States. So yeah, when you're talking about competition, if you're looking at a property that's a million dollars or less, no problem. You can go bid on it as a mom and pop.

When you go a million to maybe 6 million that you can reposition or that, you know, show some signs of a mom and pop operations, you're competing against the best of them. You know, the all-cash, close in 30 days, 60 days, whatever it might be. But generally what we do is we do about 10% earnest money deposit...sorry, not 10%. On a $6 million facility, we might put up anywhere from 25 to 50K. And that doesn't go hard until due diligence is completed and signed off on.

James: Oh, okay. So that's not bad. It's not like day one hard money, like what's happening in multifamily, right?

Ryan: No. And if we were in that space, we wouldn't play that game. So yeah, whether you think it or not, you're competing with yourself at that point. You're worried about losing that money. I mean, we have a 100% contract-to-close ratio, so everything that we've put under contract we've purchased. I mean, we had a bank pull out three days before closing, we went and raised a private loan. We did our own deal. So we've done everything to really help get the deal closed and we've got that reputation to close. And I think that people value our relationship a lot more than they do necessarily how much earnest money we put up. And we've had a broker bring us a lot of deals and just keeps bringing us deals because we make it real simple on them. You know, it's a very simple process with us. We get everything on the table. We are very transparent and as you know, in multifamily that'll go a long way. Any business, right?

James: Yeah. That's true. That's true. Yeah. I mean, brokers, love people who are easy to deal with. Because you know, this is just multimillion-dollar deals and you do not want to have a tough person to work with when you're going to such a big transaction. So at a very high level, what are the value add that you usually do in self-storage?

Ryan: Cameras for security, rental rate increases.

James: So what, you put a camera and you get higher rental rate or it's just...?

Ryan: People walk in and they want to feel secure. So our target customer is a 70-year-old woman, that's who rents our properties. So when they walk to your property, is it dark, are there cameras, is it secure? Does it feel like the fence is going to fall over? So we take the properties, we'll put in a new fence, we'll put in new cameras, we'll paint all the doors, we'll replace doors, we'll rehab the office, we'll put in notary services, we'll put in ice and vending machines.

James: Why do you need a notary service in a self-storage facility?

Ryan: Convenience. So we like to be a shop of convenience. So if somebody has got an Etsy, Amazon, they have a home-based business and they can come to our storage facility, they can drop their FedEx/UPS deliveries off at one of our properties. They can get their items notarized. They can ship, they can store. We even have a car wash at one of our properties. So, we try to be a place of convenience for people. Not that we were going to make any money on it. It's just a place where people can go and know that I rent my Uhaul truck to move my goods somewhere. At your property, I can notarize my documents, I can store my belongings, I can do a lot of different things to transact and do my business obligations. And so what we try to be kind of a helpful facility. Not all of our facility does that because not every facility even has an office. But the ones that do, you know, we sell retail.

We start, you know, people pay cash, we get rid of cash payments and we go to as many automated payments as possible. We enforce the lease. You know, a lot of these facilities we take over, tenants might not even be on adequate leases. So without being on an adequate lease, you don't have an adequate lien against their belongings. You can't do an auction.

James: Have you guys done auctions?

Ryan: All the time.

James: It's like Storage Wars on TV, right?

Ryan: Yeah. Yeah.

James: That really happens?

Ryan: Yeah. The semantics are true or the actual process is true, but the way that it's carried out is not true. So nobody goes in person, you know, there are some old school places that still kind of do that, but we do them online. So you can go to selfstorageauctions.net, you can register. And then in your neighborhood, there could be a storage auction and you get alerted like, Oh, Hey, this unit is going up for auction. You can kind of log into your account and see, Oh, what's in there.

James: All right. I can see all our audience and listeners are doing that right now. I didn't even know that. What was the website?

Ryan: I think it's selfstorageauctions.net. And so as a company, what we do is we say, you know, that the storage auctions is revenue producing or whatever. They're not really revenue-producing. They're basically just to get you to get out and get a new customer in. Like we clear out the, you know, and it's the threat of losing your stuff, right? If you don't pay, you lose your stuff.

James: So it's like an eviction process, I guess.

Ryan: Right.

James: Except the government can put the moratorium like what they did in multifamily right now.

Ryan: The government hasn't touched us. So usually within 30 to 60 days, if you're not...so let's say, your rent is due today. If you haven't been paid in five days, you get a late fee and your unit gets locked automatically. So the gate code that lets you into our properties, the revenue management system will automatically turn the gate off.

James: Really? [26:40crosstalk]

Ryan: We over-lock your unit. You can't even get into your unit.

James: You don't pay your rent and after five days, it locks by itself?

Ryan: Just like that. And then we'll over-lock you. So we'll put a red lock on your unit as well. Some of our properties will have the smart locks where it'll lock behind the door so you can't get in, you can't get into your stuff. So if you don't pay after five days, you're automatically locked out. So we liked that. We don't have to really manage that too hard. I mean, there's, you know, we have property managers are onsite staff that deals with that, but the gate code, that's automatic. And then once you pay it, we'll let you back in. But if you don't pay, you're locked out. So now you don't have access to your stuff and after 30 days we do our notices, our legal notices and then, we can take pictures of your property, do our publications and then it goes on this website and then people can buy your stuff.

And then you know, any earned income from that auction goes directly to us first, to recoup the costs of whatever the tenant owed us and then any costs of legal fees associated with it. And then anything that's left over after all of our money has been recouped, goes to the tenant, you know, cause they gotta be compensated for their stuff. So, we get paid first and then, but most importantly, we get our unit back and in multifamily or residential, they might trash the place. They're gonna do whatever they do. In storage, I mean, you can try to trash the place, but I mean, it's a box. And you know, we just sweep it out. They moved their stuff out and they're gone. And then, you know, for us, we just get our unit back and we let our customers know when they book, you know, Hey, sign up for our online auctions. You know, so they can bid on stuff and they can also know that, Hey, we do online auctions.

So a lot of places we take over, I mean, the delinquencies are a mess when we take over and that's a way to increase value. So we took over property last year, for example. And I just heard from our management that, you know, auctions were like, I mean, there were people that were 180 days delinquent and the manager just wasn't collecting on the units, they just weren't enforcing the rules. So we'll come in and we'll just follow the rules. You know, your lease says this, if you don't pay with this, you go to auction, you know, and then we make money on late fees. And some facilities that we take over don't charge late fees. I mean, if you don't pay on time, you should get charged a late fee. So there's a lot of different things we can do. You know, and plus we'll repaint, we'll redo the doors. Some doors of the old cabinet doors, you know, to open up the lock, the storage locker, we'll put the roll-up doors on them. We'll improve the lighting, we'll redo the asphalt, whatever it might be, we just get it nicer so that the customer feels safe and secure and they feel like they're getting good value for their money.

James: Got it. Got it. Got it. All right. Why don't you tell our audience how to get hold of you and your company?

Ryan: Yeah, sure. So my email is [email protected]. Our website is spartan-investors.com.

James: Awesome. Thanks for coming in and adding tons of value to our listeners and audience. Thank you.

Ryan: Yeah, you're welcome. It was nice meeting you, by the way.