How to Build a Self-Storage Empire with Scott Meyers

For this episode, I welcome a self-storage investing expert, Scott Meyers. Scott is the Founder and Owner of Kingdom Storage Holdings. He is also a leading expert in self-storage investments and owns and operates 3 multi-million dollar businesses. During his career, Scott has been featured on CNNMoney, Forbes, BBC, and many others.

Scott first shares his background story and how he got into real estate. After college, Scott started working for a Fortune 500 company. After getting his first paycheck, he started looking for ways to invest, and pretty soon he realized that real estate was the way to go. He bought his first house, fix it up, and rented it out. After that, he bought two more, but he wasn’t able to get the cash flow and the freedom that he expected, so he decided to give apartments a go. After building an impressive portfolio of 400 apartments in 2005, he and his wife decided that it wasn’t worth all the time that they were putting in, and their only two options (without tenants and toilets) were parking lots or self-storage. Today, they are approaching a number of 2.4 million square feet of self-storage and 14,000 doors.

We then moved on to discussing how one finds a self-storage facility that is a good investment. Scott explains that with commercial real estate, the value is based upon the net operating income, meaning how much money it brings in after you subtract expenses. Then you apply a market capitalization rate to it and that's how you get the value of commercial real estate. The first step in determining whether or not a self-storage facility is a good investment is looking at all the income sources. Next, you need to figure out what all the expenses are. And finally, you need to have an exit strategy and know how much you can increase the NOI (net operating income) after you purchase it.

Together, we then dive into discussing cap rates applied to self-storage facilities. Scott shares that class A facilities are two to three stories, all temperature-controlled, gleaming facilities that are right on the road in the major metropolitan statistical areas, all electronic; class B: usually single story, maybe on the outskirts, may have asphalt may have gravel, still has security professionally managed; and class C: rural, a little further out, less professionally managed, smaller, older, maybe some obsolete sizes, etc.

Scott then talks about the types of facilities that he usually invests in. He usually goes for the C class, buying a facility that's in the path of progress. Approximately a five-acre parcel that’s got buildings on three or four acres, not managed well, the owner hasn't raised rates in ten years because they like to stay full, they don't have a website, and they don't know how to market. He turns them around by reducing the manager's hours or his payroll hours, marketing the heck out of it, raising rates, and then adding buildings onto the additional four and five acres, continuing to raise rates, and eventually, he refinances it or sells it off to a bigger player.

Eventually, we discuss how someone, with no prior experience in real estate, can start with self-storage. Scott shares some good news, which is that when it comes to commercial real estate, banks look more at the strength of the asset than the strength of the borrower. Scott’s advice, for someone who is just starting out, is to bring in somebody, not necessarily to sign on the loan, but just to be a part of the LLC. They could have 2%-3% of the shares in exchange because banks just want to see that you have somebody on your team that has some skin in the game and that you have someone to guide you.

Scott then shares some of his deal-breakers when it comes to buying a self-storage facility. First on his list are facilities that are functionally obsolete, meaning a first-generation facility, built in the 70s or early 80s that is 5’ x 5’ (the most popular size now is 15’ x 10’). Next on his list of deal breakers are rural areas, simply because there is no activity and no competition. Simply put, he is just trying to stay away from the markets where he can't really drive the performance.

We also talked about other streams of income, other than the rent of the facility. Scott shares different ways to generate income other than the rent itself. These include a non-refundable move-in fee, renter's insurance, selling locks and moving supplies, and detailing services, for example.

Lastly, we discuss the future of self-storage and Scott explains why he believes that self-storage is very recession-resistant and inflation-resistant. He also shares how you can start investing in self-storage properties alongside him and his team, completely passively and still learn about the business while getting an ownership position that includes shares of the LLC, a percentage of cash flow, a percentage of the profits upon a sale, and a percentage of the depreciation.

Don’t miss this episode of the Just Start Real Estate Podcast that is filled with amazing advice from a true expert who is not holding anything back on commercial investing, Scott Meyers.

Notable Quotes:

“You know what? The richest people in the world don’t make their money in the stock market, they make it in real estate.”

Scott Meyers

“In the beginning, it was really just the skillset, understanding the business, and talking to as many people as possible.”

Scott Meyers

“It takes a village to raise a child and it takes a real estate community to raise a strong self-storage investor.”

Scott Meyers

“As long as we've got a rockstar team, which we have, and I got air in my lungs, I'm going to continue to create value and move that money.”

Scott Meyers

“Well, the good news is that banks look more to the strength of the asset than the strength of the borrower when it comes to commercial real estate.”

Scott Meyers

“If that's what you want, go straight toward that. Don't take a bunch of detours that maybe don't have to be taken.”

Mike Simmons

“I think that's where people make a lot of mistakes, they just get excited about it and they don't do their homework. They don't know what they don't know.”