Subscribe
Share
Share
Embed
Welcome to the Self-Storage University Podcast, where you will learn the correct way to identify, evaluate, negotiate, perform due diligence on, renegotiate, finance, turn-around and operate self-storage facilities. And your host is a partner in one of the largest real estate portfolios in the U.S. with nearly $1 billion of holdings, Frank Rolfe.
The term gaslighting is defined as a form of emotional abuse and psychological manipulation in which someone tries to make you doubt your own memory, judgment, or reality. And the sad truth is, in many American markets, brokers are guilty of gaslighting constantly when it comes to self-storage investing. This is Frank Rolfe with the Self Storage University podcast. We're gonna talk about the gaslighting that's going on in the brokerage community regarding the self-storage asset type. And let me first point out that clearly brokers have a job to do for their own self-interest, and that's to get properties sold. And like any good business person, they will do whatever it takes to make that happen. You can't fault them for that one item because they only get paid when the deal closes. And if they have to tell you something that may not be 100 percent true, if that's what it gets you to ultimately sign the bottom line and do the closing, then obviously that's how they're gonna try and steer you. So you first have to accept that there will always be gaslighting when it comes to brokers because that's part of their job. That's how they try and get things done. That's how they connect the dots, is they have to try and manipulate things to a certain degree to make you decide to go forward and to buy the deal.
But what are some of the things they're gaslighting right now regarding self-storage? Well, obviously the first one is cap rates. Cap rates on self-storage right now are rather high, higher than they've been in a long time. If you go back before the first quarter of 2022, interest rates were at an all-time low. And as a result, if interest rates on a self-storage facility were roughly 3 percent, you could still make a decent return buying something at a 4 or 5 percent cap rate. But those same interest rates today are closer to 7 percent, more than double what they were before. And that means the cap rates that you're gonna be able to buy things with and actually make money are also about double. So it's no longer a world in storage of people buying things at 4 percent and 5 percent cap rates. Today it's closer to 7 and 8 and 9 and 10. It's just a function of the math of the interest rates.
Now, brokers don't like that because to get people to want to sell their property and they bought it at a 4 cap, it's kind of tough to get them to agree to sell it at an 8. So rather than tell that person, "I can't list it, I can't get your price," they'll still take the listing, hoping they can gaslight the buyer into believing that those cap rates are in fact appropriate. But we know that they in fact are not. I urge you to look at the interest rates right now on storage loans and build in the fact you have to have at least a one or two-point spread to make any money, preferably three, and just take those interest rates and tack on one or two or three points and tell me what you're at. Yep, you're gonna be closer to 10 than you are to 5. And right off the bat, that's exact opposition to what a lot of brokers are trying to tell people. Additionally, when it comes to the self-storage industry, brokers are gonna try and gaslight you on where you need to be, what the future's in. I can tell you right now, and you should know this if you've listened to my podcast or read any of my articles for the last several years, don't be in urban markets. Don't be in those gritty urban centers where everyone built all of this climate-controlled high-rise stuff, because people are dying with those properties. They're not able to push rents. They're not able to increase occupancy. Instead, they're putting banners up saying, "Rent one month, get one free." The next guy says, "Rent a month, get two free." That is not the sign of a healthy market.
Where's the activity today? Well, the real place you wanna be are in suburbs and exurbs, out of those gritty downtown areas. The days of people buying old factory buildings and converting them to self-storage successfully, that's long gone. That pretty much died when interest rates went up. But it also died because American population today is leaving the big city in droves. Look at your population maps. Where are people going? They're moving away from the city, not into it. That began with COVID. People realized they didn't like living in the city center. They liked living out in the country where it had lower density and lower crime and better home values and more ability to enjoy life. Stick to those markets. Do not let brokers try and convince you to the contrary. The stats themselves do not prove it out. Additionally, look at what parts of America are hot today versus what's not. Brokers are still living in the past, trying to tell you that the hotspots for storage are places like California. There's almost nothing going on in California that makes it a hotspot on almost anything. All you have is population leaving. And also leaving the building are higher rents and decent occupancy.
Right now, the hotspots of America for storage and most any real estate sector are in fact the Southeast. Those are the states that most Americans are moving to, and that's where the opportunity is, along with the Great Plains and the Midwest. But pretty much anywhere that the brokerage community was telling you you just gotta be, this is where you gotta go to make money, you can disregard all of that. They're trying to gaslight the same markets that are dying, hoping that you'll be too stupid to figure it out for yourself. But look at the map. Look at population trends, because that's where the storage comes from, people moving in, wanting to store stuff. They're not moving into the markets that used to be hot. Look at Austin, Texas, for example. Austin was the poster child of growth. What's Austin doing today? It has the fastest declining single-family home prices in the United States. Got nothing good going on at all. So markets change over time. It's okay to go from hot to cold, but it's not okay to believe the broker who refuses to accept that that's the case. Also, don't let the broker try and convince you it's wrong to try and negotiate price down with the seller.
In today's world, with things being so difficult in the world of financing, it's back to the days of creativity. Successful buyers today know this. They're willing to throw out any construction that can make a deal work. Yet often the broker will try and stop you from that and say, "Oh no, you can't make that offer. It's embarrassing. I wouldn't even do that. That's just embarrassing." Well, I got news for them. Those embarrassing constructions are often what it absolutely takes to get deals done. And when a broker won't let you go to the seller with your construction that allows for you to actually buy it, perhaps containing seller financing, and whatever the case may be, that's just plain stupid. Since when can you not make the offer you want to make? It's not for them to decide, that's for the seller to decide. Many times I think the broker really is screwing over the seller because the seller is desperate to sell, and yet the broker is acting as a gatekeeper, trying to gaslight you that, "Oh no, the seller, no, he's doing great. He has no problem," when in only a few more months he'll be in foreclosure. The bottom line to it is don't look to brokers for direction. They're not gonna provide you direction. Brokers have only one goal, and that's to get deals closed. And if it takes gaslighting to do it, they'll be the first in line. And you have to watch out for that. You have to understand the product, and you have to believe in yourself and your own knowledge. This is Frank Rolfe with the Self Storage University podcast. Hope you enjoyed this. Talk to you again soon.