The Tax Advantages of Self Storage Investing | Marc Goodin, Storage Authority
Welcome to the SlashTax Podcast where we share strategies to cut your tax bill legally, unlock incentives, and invest smarter to build lasting wealth. Today's guest is an amazing industry veteran and one of the most respected voices in self storage. This is Marc Gooden, the CEO of Storage Authority Franchise, the only brick and mortar self storage franchise in The US helping busy professionals build significant income streams and long term wealth without having to reinvent the wheel. With more than forty years of experience as a civil engineer, a developer, and a self storage owner, Marc has been involved in every stage of the process from finding land, design, and permitting to construction, operations, and marketing. He's built and operated multiple facilities himself, authored two bestselling books on self storage development and marketing, and he speaks at national industry events.
Heidi:Through Storage Authority franchise, Marc has created a proven system that helps investors fast track their success in self storage, covering development, operations, sales, and marketing, all while avoiding the costly mistakes that can typically take years to learn. In this episode, we're diving into the tax benefits of investing in self storage, what Marc is seeing in the market now that the one big beautiful bill has passed, and where he thinks the industry is headed. If you've been curious about adding self storage to your portfolio, this will be a really great episode for you. So let's get started. Well, with that, Marc, welcome to the show.
Heidi:Thank you so much for being a guest on the podcast today. I'm really excited to have this conversation with you.
Marc:Thanks for inviting me. I'm excited as well. It's a great introduction to self storage for some of your listeners.
Heidi:Yes. Yes. Absolutely. So I gave a brief introduction about what you're doing and what you guys are doing with Storage Authority with the franchise side, which is really unique. You guys have a really cool business and you and I met, I don't even know how many years ago now.
Heidi:Kind of blows me away, but it's probably been like seven or eight years plus, that we connected for the first time in, in what you are doing and really helping people get into self storage. And I was fascinated, by that at the time. I've made a couple introductions to you. And, and you know, it's funny as I think about the idea of getting into my own property, I'm in some syndicated funds and I have other real estate, but I don't have my own personal private self storage property. And, you know, I've actually had those conversations with you about working with you guys to, to help into that process, especially for our first project.
Heidi:So anyway, that's kind of the background of how you and I have been connected and why I wanted to have you on here as really a trusted expert in this space. So with that, let's dive in and talk about your background in self storage and then how you got started in the industry and why at franchise. So let's, let's start there.
Marc:Awesome. You know, back when I was a young engineer, back in, I think it was in the early eighties, a gentleman came to our office and you know, if I designed a self storage for him. I said, of course I will. But you're going to have to explain to me what a self storage was, is back in the early eighties. It just wasn't a common business.
Marc:So he took me for a tour for one of his facilities. It was concrete block. You could actually see the block wood roofs and, you know, quite, quite different than it is today. And I designed a couple for them. Before you know it, I was designing them, for a lot of people throughout the state of Connecticut.
Marc:And then, you know, eventually, nationwide, people were starting to call me from from that work as my civil engineering business. And I noticed after a while, the the only guys that were were not going back to the, office after they came and reviewed a project with me was the self storage guys. You know, they didn't go back to work. Self storage was the work and it took a lot less time than the nine to five jobs. So at one point, I said, you know, I can do this for myself.
Marc:I've done it for so many other people. I built a I built a first self storage and then I built a second self storage, one right after another. Actually back in the recession of two thousand, you know, 06/2008 is when I built toughest times, the toughest times ever interest rates, 8%. People thought I was crazy. And, and then it was only a few years later I was age 50 and I retired from my engineering career because I was making double and triple from my self storage business working a quarter of the time.
Marc:Wow.
Heidi:So
Marc:I flat out retired. I enjoyed life for five years and my wife says, I'm not going fishing with you anymore, Marc. You better find something to do. And at that same time, a gentleman called me and said, you know, Marc, I took all these classes. I read all these books.
Marc:You know, I want to build self storage, but I still can't figure out how to do that development portion of it. I can't, you know, operation sounds like I can fumble through that sales of Marc, but I can't figure out how to build it. No matter how hard I try, will you help me with that? And I said, sure, you know, and he's like, charge it by the hour. And you know, after a couple of months he said, you know, you're probably giving the same answers to everybody that's building self storage.
Marc:It seems like there are some rules and regulations and guides that everybody needs to know. This would be perfect for a franchise. And his name was Scott House. And it just so happens that he was a franchise expert in the hotel world. Interesting.
Marc:Yeah. And once upon a time he was a top salesman when he was in that business. They said, Marc, let's start a franchise together. And I said, oh, okay. You know, got, my wife just told me I better find something to do.
Marc:So, so, you know, it took us a year. There's a lot of manuals, a lot of books, a lot of, franchise documents you got to put together. And sure enough, we put it together and we opened up. It was like we opened up in November and we signed somebody in November, December, and in January, I told Scott, all right, you take care of the franchise section in a matter of speaking, and I'll take care of the engineering, the design, the development, all those landmines. And he says, Marc, I can't do that full time.
Marc:I gotta, I gotta have a job and pay my bills. You know, I don't own a self storage like you.
Heidi:He's like, I'm not retired and fishing all the time.
Marc:Yeah. You know? So I said, what do you what's the plan, Scott? What is the plan then? And he says, he thought about it for a day or two and he came back.
Marc:I'll tell you what, I'm going to give you my 50% of the business. You know, and he put some money into to, to, you know, lawyers and everything. And you're going to help me build my first self storage, my original goal. So sure enough, that's exactly what we did. He became one of the second or third franchises that, you know, was, signed in and, and actually built.
Marc:He built one in Florida, you know, cost him about 5 and a half million dollars to, to, to build it. And he sold it two years after he built it for $13,000,000. Wow. I still talk to him once again every once in a while, and he just thanks me. He says, Marc, you just can't, you know, my life is different.
Marc:I don't have to go to work. I do some real estate dabbling with friends and everything, but thanks to you and self storage, I don't have to. And so that's how it's evolved. It was just pure luck. The idea came together.
Marc:It was an idea as time has has come. I mean, you can go out there and get a management company to run your facility. Not the same if you run it. You're going to pay more attention. You're going to do mark sales and marketing, which 70, which, you know, 90% of the self storages do no sales, no marketing.
Marc:You know, you're going to have a manager in there that's a best common denominator versus the least common denominator like the REITs might have. So, you know, you're going to do a better job and you're going to make double the profits. If you do it on your own with, with a, with a team of franchise like ourselves, we help them find the architect, the engineer, you know, all the things they need to do. We've got to set up for them step by step.
Heidi:So how many projects have you been involved with now? You know, here it is twenty twenty five. I mean, what's kind of the tally, notches in your belt?
Marc:Well, there's different kinds of notches in that belt. You know, I've literally helped thousands of people with many problems, many projects. People get in trouble all the time and end up with this, you know, half million dollar minefield. You know, I've had people buy a piece of property and then come to find out, you know, this zoning regulation won't allow it. And so, you know, I, I looked at that.
Marc:I understand planning and zoning because that's what I did for forty years. And so that's literally hundreds and hundreds over a thousand, that, that I've helped. Now that I've helped from A to Z, you know, it's closer to 30. You know, I've created 30 multi, multi, multi millionaires helping them from a to Z. Wow.
Marc:That's pretty awesome.
Heidi:So talk a little bit about like the area or regions. I mean, have you been relatively regional specific or like area demographically specific or are you working all over? Because that's one thing that I struggle with is like knowing where is the right area to build or develop a project and, you know, knowing the intricacies of that particular market. How are you handling that and what are you dealing with in terms of the clients you're working with?
Marc:Yeah, and that's a great insight and a huge problem. First, we have to understand the best area is not a state or a region. The best area is a three mile radius. Everything we do in three mile in self storage is based off the three mile population. How much competition is in that three miles?
Marc:What are the other guys charging in that three miles? So we're throughout The United States because most franchisees, oh, I'll build anywhere. No. If you're an attorney, you you don't want your attorney's office to be six hours away.
Heidi:You know, you want it
Marc:to be within an hour of your house. So most of the times we we pre pre qualify franchisees by, you know, by them themselves, but we also look at their area. You know, one side of town can be great and be because there's only one or two self storage. The other side can have eight self storages and it's over and the population's less and it can be terrible. We have to do that research into the three mile radius.
Marc:In general, you know, the best place for self storage is in the sun belts, both coasts. And then, know, Texas and Arizona. It's simply, that reason is, is because you can rent a unit for more money. You know, in Montana, you, it rents for less, you know, it might cost less, but it doesn't cost that much less because you know, like when you order steel, wherever you order steel and deliver it in The United States, it's very similar in price. So you might have some hourly rates that are less, but, but in general, you know, we're, we're trying to help people find locations that, you know, have higher rental rates.
Marc:Okay. Yeah. That makes, that makes sense. Yeah. So I'm I'm guessing you've got a process for identifying markets or areas, or or is
Heidi:it more like if you have an investor who's interested in developing a project, are you allowing them to say, hey, you know, I'm interested in in in developing something in this area. Can you help me see if, if or where in this locale is the best spot? Is that what you guys are kind of is that part of, I guess, what you're doing with the franchise?
Marc:One of the most important parts we do is, is help the franchisees find land, you know, because they have little experience in that. And the second part is go through the development because not everybody has major development experiences. So we help them find the land. You know, we, we have all kinds of, of, of calculators, all kinds of apps that we can use. We can go anywhere, anywhere in The United States and I can instantly tell what the population is in the three, four or five mile, whatever I choose.
Marc:I can tell how many square feet of self storage there is, how many self storage is coming in the pipeline, what their rental rates are, you know, what the population growth are. There's a lot of information that's out there, but we have to interpret it and make sure if a location is excellent. Yeah.
Heidi:That makes a lot of sense. Yeah. So let's segue into why self storage. I have my ideas. I've got some background just because we've really been supporting a lot of self storage owners over the years.
Heidi:When we look at the tax implications or benefits of this sector, it's pretty compelling. But before we even get there, I would love your take and for you to share with listeners, Why do you think self storage is such an ideal asset class over other property types? Right? We've got lots of investors looking at hotels or multifamily projects or office or, you know, whatever it may be. Why self storage?
Marc:Well, it comes down to the basics. First of all, self storage is the most profitable real estate business year after year after year, last twenty years. And, and you know, it, it, it costs less to build in a hotel and rents more per square foot. The same thing for multifamily housing and the same thing for, you know, retail. So, so it's very profitable, you know?
Marc:I think in the last couple of years we might've gotten beat out by these, Walmart, Walmart, $5,050,000,000 dollar warehouses. And now sometimes we're, we're getting beat out by some of these, $100,000,000, information warehouses. But most people don't, aren't ready to invest into a 100 or 200 or a billion dollar project. So, in my mind, it's still the number one, best value for your money and most profitable. Has the least amount of failure rate.
Marc:You go to any bank and list all the real estate and self storage is going to be right down here at the bottom. And it's, it's like, you know, minimal less than three percent, which is really incredibly low. But yeah, I'll tell you what, I don't think any self storage is is going to truly fail where you lose money. If you did everything wrong, all you're going to lose is maybe all that time you put in it because you put it up for sale, it's sold in thirty days, sixty days max. So, so, you know, and people do sell it because, you know, in the beginning they didn't have enough cash for that timeframe to rent it up.
Heidi:You
Marc:know, it can take a year to rent up that self storage and you, you start empty, but you got to pay your employees and your, your, your bank. You know, so some people don't even think about that. To me, it it's obviously you need to think about your carrying cost to break even. We put that in the loan. We have it as a line item.
Marc:So everybody's aware of that when we do our, our feasibility study, when we do our profit Yeah.
Heidi:Amazing. Well, speaking of that, you say or you describe your system as the secret sauce for success. What are the three core platforms that set Storage Authority apart? That's something you guys are really touting.
Marc:Well, first of all, it's our development platform. If you go out and buy a self storage right now, you know, it's got a cap rate of around five. That means you're going to make about 5% profit if everything goes right. And that's if you pay cash for it. Because if you bought it with a 5% cap rate and the bank loan is 7%, you're gonna lose 2% a year.
Marc:Now the REITs can do that. The big players can lose money because they know every year they can raise their rents two to 3% more, than than inflation. So they can afford to because they they know their profits are gonna go up two to 3%. So it could be zero this year, three, five, seven, nine, ten, you know? So, so our development platform, you know, you can instantly make millions, by building it, by finding the land, building it, and and going through the development process.
Marc:I'm a civil engineer for for forty years. I designed, like I said, over over, you know, hundreds of of self storages as a as a as an engineer. So and not only that, I've done over thousands of Walmarts and Dunkin' Donuts. You you name it. You know, I've done it.
Marc:So I know the dangers of development. You know? I know the landmines. There's not a franchisee out there that's gone through the development process. We didn't save them 3 or $400 3 or $400,000 in mistakes that they would have made without us.
Heidi:Yeah, that makes sense. Well, mean, that's, that's the biggest risk I think with, it's one thing to potentially buy a project, to dive into self storage as an investor who's not familiar with the space and really is not in that. You know, I guess in, in the sphere or that world of self storage, which is quite large. You and I both do some of the big annual conferences and it's pretty significant. But to think or consider building or developing your own project is such a huge undertaking.
Heidi:But I personally have seen such huge success rates, like the example you shared of people who have built these projects and then sold them for a really significant amount of money and profit with the upside, you know, just not to mention their profits and cash flow that's generating from the asset. So it's really striking to see how the industry continues to grow and expand and the benefits of the particular sector. All of that aside from the tax side, which is like, I think icing on the cake. And I, again, I wanted to have you on this show specifically because I deal with investors constantly saying, you know, that we'll have done cost segregation on a project, seen the benefits of it. The next question is, Hey, I need to buy something else this year or next year.
Heidi:I'm planning for how I want to build my tax strategy and my portfolio. What are the best asset classes or property types that I should consider? There are a few of them. I always say there's gas stations. There are car washes, which we're seeing everywhere and self storage and self storage is one of the most highest, highly performing assets when we, we consider depreciation and with the one big, beautiful built bonus depreciation because of how some of those buildings are treated.
Heidi:Now caveat is it depends on the type of building, the type of property, but how have you seen or what do you see as the biggest tax advantages of investing in self storage and how that correlates to the investment?
Marc:Yes. So self storage, you know, just, just like you talked about the initial savings in year one, two, and three, people don't realize, you know, you didn't make a lot of money in years one and two. You can take that depreciation, which is considered an expense against income and apply that towards your regular business income or your regular w two income. So, so that's incredible. You know, you just got to have a mindset.
Marc:Okay. I'm taking that savings and I'm using that or part of that if I didn't borrow from the bank to, to, to get me to, to, breakeven point. So, so that's a good, good point. You know, self self storage, you know, makes more money than some of these other businesses because, their assets are fixed. They only have two employees.
Marc:If you own a Dunkin Donuts or even a car wash, you've got multiple employees every year, their price, their price goes up. You know, when you have a lot of employees, a restaurant, it's just horrible. But we only have one or two. Our building and our land, that price is fixed. I, you know, I bought those back in 2008 prices.
Marc:Okay. It's, it's fixed there and it's never going to change unless I borrow against it. It's never going to change. You know, so, so my profits, everybody's income usually goes up in business every year, but their profits don't necessarily go up. Sometimes their profit, their income goes up a lot and they still making less money because their expenses went up.
Marc:Here, it's just the opposite. We make more profits every single year because our assets are fixed. I like to say build, borrow and die. You know, you know, if you build it and sell it, that's a business. It's not an investment.
Marc:But if you build it and then you borrow money from it, and it's still being paid back by, by the corporation. That's tax free money.
Heidi:Yep. Absolutely. So,
Marc:you know, I, I renew my self storage loan every five to ten years. Every time I do that, you know, I take out hundreds of thousands, if not a million or 2 cash, you know, that helped me build my second one, helped me build my third one.
Heidi:Yep. Right. Yeah. Cause I mean, you could sell for a large gain or like you're, you're saying, know, pull some of that equity out, roll that into the next project. And it just continues to grow and snowball, from there, especially, again, having that all be tax free income in essence, because of the tremendous benefits of the deductions and depreciation that comes from it.
Heidi:What's your read on the market right now? And I'll preface that question with the fact that again, I have, again, I have a lot of investors specifically looking for tax deductions and offsetting or sheltering really high income amounts or high income earners. And so self storage has become a category that is highly sought after. There seems to be a pretty dramatic demand for these projects. I don't deal with a lot of developers.
Heidi:Most are people that are looking to acquire a building as quickly as possible, and use the deductions. So given that, I mean, I have a little bit of a jaded perspective because I'm dealing with investors specifically looking at it from that perspective. You're more on the development side with people really building portfolios and really diving into real estate investing. But what are you seeing for the industry, for the market, and where do you foresee that going?
Marc:Well, I, I think over the next, few years we, we are going to see another peak in the self storage market. And like I said, I've been doing this a long time. I've gone through 03/03. I can remember, I think it was '79 when we got 21% interest on our money market accounts. Wow.
Marc:I was really young but I think, you know, we have some tough times going on right now, but I think it's the tail end of those tough times. And the people that get in now are going to be super excited. They did and they didn't wait. You know, like I said, when I built in the great depression, whatever it was, 02/2008, 8% interest rates, you know, that's just, that's just was horrible. But I was there and I was, you're able to refinance out.
Marc:You can refinance out. So if you can make a profit at today's interest rates of six or seven or eight, depending on the bank that you use or however you do it, you'll be ahead of everybody else because you'll be organized. You'll understand marketing and sales. You have your team there. So when, when it switches, you're not going to be going out and looking and starting from scratch.
Marc:When that interest rate, if that interest rates comes down a half percent next week, that's going to be a sign for everybody to get back in the market. Cap rates are going to go back from 5% to 4%, You know, you know, the cost of land is going to go up higher. Everything is going to become more expensive when interest rates come down. So you have an opportunity right now. Right now as interest rates for the people that you're talking about, interest rates are, are high.
Marc:It is actually the best time to buy because what's happening is there are a bunch of people out there every year, a bunch of people that have right now, people that have 45% interest rates this year, a whole pile will come due to refinance at 8% or 7%. Next year, so the next three or four years, because like I said, most people have a five to ten year term. Very unlikely you have a term longer than ten years unless you get one of those SBA loans, or you have to, it's not like, like a home mortgage for thirty years. So we have a lot of people coming up to refinance that, that have to refinance. And you know, their term is up and they, they don't, they're, they're, they're, they're older people.
Marc:A lot of them in their sixties, ready to retire. So the combination, they're going to want to sell right now. Yeah. Once the rates come down, it's it's, you know, everything's going to cost more. So, you know, get that fixed asset.
Marc:Inflation, bad news is good if you own a self storage.
Heidi:Yeah. That's a, it's a great perspective. I mean, where do you see the biggest opportunities in the next like three to five years? Like in a particular area, in a particular region? You know, what, what do you think is going to provide the biggest opportunity?
Marc:Well, I think the biggest opportunity, you know, no, no matter what you make, you can make mistakes in businesses, but one opportunity that always cures it in self storages is areas where people are moving to. Okay. You know, if I'm going to build and I do everything great or I do everything poorly, I'd rather build in an area where the population's increasing one or two or 3% a year versus, versus California, it's losing 1% versus, you know, Connecticut that's losing or breaking even. I'd rather be in a state with no income tax than a state, you know, I built my first two self storages in Connecticut and I have to give them 5% of my profits, you know, because they give nothing to Florida. Florida gives me money practically.
Heidi:So. Yep. Exactly. Well, that's why I ended up moving to Las Vegas and it's unbelievable, you know, just the tax difference. It's compelling and yes, you're starting to see the migrations.
Heidi:That's a great point.
Marc:Yeah. And Las Las Vegas, don't ask me why, but some, some areas just use more self storage than others, you know? You know, one state might have, New York's got like two or three, two, two, two or three square feet of self storage per person. Las Vegas, I'm making the number up, I don't have it, but it's triple or double or triple that amount. You know, you can build a self storage on three corners in Las Vegas and likely you can build another one on the fourth corner.
Marc:Know, well, that's not going to be the case in Connecticut. You know, people use self storage more. I'm certain the businesses use self storage more because, know, down on the, main boulevards there, that that land goes for millions of dollars of square feet. So they need self storage just outside of town where it's half half price.
Heidi:Mhmm. Yeah. Yeah. What are some of the most common mistakes that an an investor would make and how can they avoid those if they're looking at or interested in either building or buying a facility?
Marc:Well, if they're buying a facility, what what you typically get is is a whole host of of documents from the seller, and his agent. And the biggest mistake is, is believing those documents. It says 90% rented. You know, it says these are my, these are my, these are my rental rates. Well, you've got to go to the facility.
Marc:If they've got a 100 units rented. You should be able to count a 100 locks. You know, that, that they're there. If, if, if, if they, they, they say they're renting at a $100, you should be a per for a 10 by 10. You should be a call up.
Marc:And if you say, oh, you know, dollars 100 sounds cheap. Well, what are you looking for? I'd like to get 80 and they sell it to you for 80. You know, there's something wrong there with it. You know, so, so you really got to check that information.
Marc:And when they're selling self storage, not only do they sell it at a low cap rate, but they sell it based upon next year's income. So the agent will say, when you start selling locks and boxes, when you start selling insurance, when you raise the rents to what everybody else is charging, your cap rate, you know, and your profits will go up. If it was so easy, why should I pay on next year's income if these guys didn't do it? But they're
Heidi:getting Yeah. And I've, I've already seen, well, the, the income opportunity at a 100% capacity is, or a 100% occupancy as X amount. Here's the revenue potential. And you're like, okay, but that's not what it is. You know, the appraisal could be based on actual income and you're only 80% occupied.
Heidi:So there's a pretty big segue. You know, I've seen some agents actually value properties at the list price based on a 100% occupancy and what revenue would be based on that. But yet it's not at full occupancy. So that's another one I've seen.
Marc:Right. And full, full occupancy and, and cell storage is 90% full by the way. That's what we consider a full. If you're at a 100% full, your rates are too low. You know, so if I catch one of my franchisees at 94% rented, we have a claw.
Marc:What's going on here? You're, you're losing money. Let's bring the rates back down to, 90% full. And we don't do it on a whole facility. We do it on size by size by size.
Marc:So there's some math to it. You know, something. Yep. Yep. And you, you had pointed out, know, what's, what's some of the minefields of buying a self storage.
Marc:When you buy a self storage, you know, make sure you're thinking of it and your attorney's thinking of it. You buy everything. You get the name, you know, you're the UTC filing, you get the website, you get the phone number, you get all that stuff because your customers are used to that stuff. You know, so, so there's a lot of, a lot of different things and you might not want to do it, but you should, you should pay a third party feasibility expert to go out there and evaluate it. We do that.
Marc:We do that with land, but they should tell you, Hey, you know, this, this guy, his rates are the highest. Don't think a lot of people go out and buy self storage thinking they can raise the rents. Yeah. The feasibility guy will tell you if he thinks that's true or not.
Heidi:Okay. Yeah. That's that's good advice. As far as how you are helping investors specifically, are you working on, I'm really curious, like primarily ground up developments from, you know, literally dirt to completed facilities. Are you working on some of these big box conversions?
Heidi:We're also seeing a lot of these big industrial properties or the, you know, the big, big box stores that are going out of business, retail, converted into interior self storage, or even buying existing self storage and doing expansions or renovations. Are you doing all of that, none of that? You know, one of those things. What's your primary focus?
Marc:We, we do all three of those. Okay. Now the primary, usually when we have a franchisee, they have a primary focus for one reason or another, you know, to meet their timeframes, like conversions of, of a, a big box store. It doesn't save you a ton of money, but it saves you a ton of time. Usually that box is located in that area of good traffic.
Marc:Usually it's located in an area of easy access, high population. So, so that it, you know, unless there's too much self storage and you know, it's easier approvals. And obviously it's faster to build because you just have to do the interior petitions. Another place that works extremely well is an area of a super high land costs. Because when the land is super high, they, they don't get the full value of that box on top of it.
Marc:Okay. So overall it can be cheaper to, way cheaper if the land costs are high. And when you think of big box, don't just think of big boxes. We've got one going on right now in Detroit, Michigan. It's an old furniture warehouse.
Marc:Oh, interesting.
Heidi:So, you
Marc:know, furniture warehouses, some of these smaller grocery stores that are, you know, 40,000 say you want to build 80,000 square foot building, about 60,000 net rentable. You build a grocery store at 30 or 40,000, has a huge parking lot. They've got 200 cars. We only need six spaces so we can convert that parking lot into phase two. You can open quick.
Marc:So don't always think of, gotta buy an old Walmart or Kmart.
Heidi:Wow. Yeah. That's interesting. Okay. So quite a few options.
Heidi:And that makes sense because I am located in an area where land costs are really, really high. Part of the landlocked issue that's affecting Southern Nevada. So talk a little bit about how you work with investors. So your franchise, your team, like, if I come to you and I say, okay, Marc, I'm really interested in getting into self storage. I don't know where to start.
Heidi:Where do we start? What does it look like? And walk me through that process.
Marc:Yeah. So, so first we, we have, introductory sessions where, you know, we've got a set of manuals, you know, Two manuals, you don't need it for a while as operations in sales and marketing, but we give those to you. So in the, we have five sessions with you where we go over those manuals, you know, and basically concentrating on the development manual. But after that, we kind of, the manuals are there when you want to do some reading. But after that, it's one on one, you know, we like to meet every week on a Zoom call, you know, because that way, you know, you just can't read a book and know how to do it, you know?
Marc:And not only that, not everything can be put in the book because there's so many variations that you'll miss. So we are with them every step of the, every step they take. Meet with them once weekly, they call us anytime they want. And we, you know, there's some people that say, I just want to meet once a month while I'm looking It takes them twice as long to find the land. We just know it.
Marc:They meet with us weekly. They follow the steps. They know they have to report. And not only that, you know, they, they, they can tell us a story and we can tweak it and tell them another story. My favorite stories over and over again is, you know, I'll give you an example.
Marc:We have a facility in Houston. Ed saw a gas station and it had a lot of land behind it, and and he went to the, the guy at the gas station. Hey. You wanna sell me the the five acres behind your gas station right next to it? It was on the four corners.
Marc:The guy said, no. Nope. Ed stopped in every time, every month for six months and asked him. On the six months, he said yes. Wow.
Marc:But half of our self storage is found that way on the second, third, fourth, fifth request. Are you sure you don't want to buy it? The more they thought about it, Oh, here's a million. It's going to pay me a million dollars for that piece of property. I thought it was worth 500,000.
Marc:You know, and eventually, so we don't find our land online. We find 80% offline.
Heidi:Oh, wow.
Marc:But people think they hire a real estate agent and they're gonna have a self storage tomorrow. It doesn't work that way.
Heidi:Yeah. Okay. Okay. So you are partnering with an investor and coaching that investor on essentially how to hit the pavement and do the work.
Marc:Yes. But we have a list of contractors. We have a list of architects, you know, even you use your own architect, we're going to give them a list of our standards that they're going to forget. You know, and the same as a civil engineer, civil engineers are local. They're always a local guy.
Marc:But we give them a list of, you know, a couple of dozen sheets of don't forget this, this, this, this, they were going to get about 60%, but they were going to forget, you know, the, the, the kiosks that we need and the, and the keypads and this and that. You know, so it's all on there. So first shot, they can get it. I'm a civil engineer. I can, I review the plans when they're done?
Marc:And it's kind of comical, you know, everybody misses something that's so basic. Know, you go out there in the world now. It's hard to find good health.
Heidi:Yes. Yeah. Right. Well, and self storage is really, really specific. I mean, it's like it's its own beast.
Heidi:It's not like other asset classes. So I think having the expertise and someone with the background in the industry is so vital because, I don't think you can even just go find any architect. Know, I think it's gotta be very specific for this industry.
Marc:Same with the contractors. If, if you haven't built 10 or 15 self storages, you haven't gone through the learning cycle yet. If you haven't designed 10 or 15 self storage in the last two years, you know, you don't know all the, the, the pitfalls.
Heidi:Yeah. Right. Right. Okay. So you are working with investors.
Heidi:So then let's say that that investor finds property, you know, and that let's use that example. You've got this guy that found a five acre parcel behind a gas station, convinced the guy six months later to actually sell him this piece of land. Where do things progress from there? You connect him, you've got a list of architects, engineers. How do you work with that investor through the process of then getting it permitted and getting to the stage of being able to actually build, which I'm guessing could also be a lengthy process.
Marc:Right. Even before they find the land, we help them build their team. So, you know, they're looking in Houston. We help them find a civil engineer and an architect and a contractor because all three of them have input onto, you know, looking at that piece of land. The contractor can tell us, you know, it's, it's like this.
Marc:We have to cut, you know, 50,000 cubic yards. How much is that going to cost extra if the land has to be filled or cut? So by having the team together, we get a faster start And too many people think I just go to my civil engineer and let them design it. But he doesn't know that a self storage building shouldn't be 67 feet long. Self storage buildings come in 10 foot increments.
Marc:The civil engineer won't even know that. Oh, 67 feet fits in there. I'll make it two sixty seven feet when it should be two seventy or two sixty. So you need a team day one. So we put the team together with them day one, and we set up those same regular calls.
Marc:It's amazing how the civil engineer will do his own thing and then the architect will do his own thing. The doors don't match. The handicap doesn't match. There's no place for the air conditioning units. Nobody, you know, or they're showing on the architect does that, but you know, the building's two feet off the property line.
Marc:There's no room to put them behind the building. We get the team to work together early on. And we go through that, that process.
Heidi:Okay. So then they, find the land, you've got a team, you do the design, get permits, and it's time to break ground. Now what? This is the scary part. Think you got your financing, start, you start building.
Heidi:How are you guys involved in all that?
Marc:Yeah. Well, before they break ground, you know, you sign a contract and everything and you've got a set of plans. We go so far as, okay, part of your contract is here's a list from storage authority. It might be in the plans. It might not be on the plans, but people, even if it's on the plans, they miss it.
Marc:They'll argue all that, you know, self storage guys, there's, I'm not gonna do your assignment. That's that's not part of, you know, your your sign out there. We don't do that. We don't do your access control systems or your cameras. They're, they're, they're known for saying that's not part of the deal, but not saying it until they got the job.
Marc:So we, we put together a contract addendum that lists. So it's black and white. They cannot say some of the things are on the plans, but you know, civil engineer will, will, will say, Hey, I'm, here's, here's a gate. He won't say how big the opening is, the brand, that it's got battery backup. What if you don't have a battery backup and the power's out and somebody's locked inside your self storage?
Marc:That's exactly what you will get if your architect, engineer, and contractor don't work together. But if it got missed, our addendum will put it on there. And that's from my experience and our team's experience, what happened. And then, then, then it goes to construction. We, we, we are still there.
Marc:You know, we, we actually break from different staff members, you know, but I'm all the way through construction. Halfway through construction, it gets another storage authority person preopening preparations, you know, because there's a lot to do. You got to order supplies, you've got to get insurance, you've got to get signage and you know, it's massive. So you get a person that's an expert in sales, marketing and operations.
Heidi:Nice.
Marc:And you always have a backup person, you know, Marc's on vacation. Well, you, you got Garrett's phone number and if Garrett can't answer it, Garrett can call me on vacation. He knows I'm gonna answer my phone. You know, there can be emergencies. You have a change order in construction and it takes you two weeks to get it worked out.
Marc:Well, it takes four weeks of lost time. Whatever it takes to do a change order, it's double in lost time to the completion date. Wow. And every month you don't open, you lose about $55,000 in income by opening.
Heidi:Wow. That's a big number. That's compelling.
Marc:The reason it's so big is because people stay for a year. So, so it's amazing. You know, and so we're there. We're there. And it's actually a good thing for the contractor.
Marc:You know, we don't tell the contractor what to do, but we'll, we'll meet with the contractor and owner and we'll give an answer immediately. Okay. Sometimes they have to call their engineer. It's a week before you can get it figured out. No, no, just this, this is common sense.
Marc:Do this. Everybody agrees. It's done. Didn't spend two weeks figuring something out. Right.
Marc:So,
Heidi:so you go through that process. I mean, that you're a franchise, are you the branding the whole facility as a storage authority property?
Marc:Yes. It's a storage authority with, with a, a identifier under it. We have a facility opening, later this week or next week. It's storage authority, Buck Road.
Heidi:Okay.
Marc:So usually it's storage authority and some, you know, airport, you know, SRQ Airport or something. So it's an identifier that helps people understand where it's located.
Heidi:Okay. And so then how are you structuring that financially? Obviously there's a cost to having you guys involved in doing the franchise. Can you explain the financial piece of working with you guys?
Marc:Yes. And to get the full financial data and all the other data you get from us is something that's called the franchise disclosure document, which has the franchise agreement in there with all the math, all of your responsibilities and my responsibility. And I'm saying that cause I'm going to tell you a portion of it, but you, you can't base anything on a portion of it. You've got to go look at it the same on our website, storageauthorityfranchise.com is FAQs that goes over all the common questions like how much is your royalty fees? So it works this way.
Marc:There's a one time franchise fee. And that covers you from the day you start all the way through that development and, and, and, and it, and it all the way through, preopening preparations, training your manager and, and then assisting you ongoing forever. But it's a one time time fee and that, that is $69,000 Industry wide that is relatively cheap because the hotel guys or McDonald's, those, they'll charge you the same, but they don't guide you through construction. Long before we're long before you open, we've spent that money twice. We just have.
Marc:Because it's so important. We tried to let developers do it on their own and it just, it was too hard for them. Yeah. So we only want successful developers, of course. So that's a one time fee.
Marc:Once you open, there's two more fees. One is a marketing technology fee. And we're different than, say McDonald's. They use it all on advertising. We use that money towards your store on things that would just be a lot of work for you to do compared to us.
Marc:We do your website for you. You know, if you did it, it wouldn't be SEO compliance. It wouldn't be updated monthly. It wouldn't be correct. You know, we provide your text module so, you know, so we can set it up automatically.
Marc:Somebody's late, they get a text five days, seven days. So a lot of it is, is we, we, we buy and operate for you. Things that would just, just, you'd be pulling your hair out.
Heidi:Okay. Well, that makes a lot of sense because like, just for example, you know, I deal with a lot of the marketing here at ETS, you know, just the texting module. As a standalone small business that can actually be very expensive, to get numbers, to be able to text clients and do some of that stuff. So I'm sure if you're able to roll that into your franchise where you're more grouped into a network, then really the cost of doing those things is, is so much better for everybody. So, so that's, that's a really nice service to have.
Marc:Yeah. And it's, you know, they don't have to go out and research which texts do I use? I can tell you what we've been in the history. We've been through four different ones, but each one's gotten better. Now the one we use could actually allows them to pay.
Marc:You know, you get a text, you're late right there on the, they can, they can pay on the text, you know, it's worth that. It's worth that because once somebody is late for two months, they don't want to pay up and you got to bring them too much. Yeah. So all that technology, you know, most self storages spend about 10%, a month of their budget on, on, on marketing. We do two and a half percent and you'll probably do another two and a half.
Marc:So we cut your marketing budget way down because, you know, we help set up your newsletter. We help set up your Facebook. We've got, you know, for your electronic sign, we give you 200 sayings that are perfect for it. When we're doing it for person after person, it's not so expensive, but if I were to do it for one person, it would cost them a half million dollars. Yeah, absolutely.
Heidi:Yeah, for sure. Okay. Here's a totally, I think funny question. And you may, you may kill me for asking this. You make money, any money on selling the stuff in a storage unit when someone defaults?
Marc:No,
Heidi:no. I always think of like storage wars, right? You see these auctions, these people are coming in. They're like, okay, what's in the unit? What do we got?
Marc:Well, I'll tell you the, the, the, the reality is now. Now 90% of the people do the auctions online. A lot easier, a lot cleaner, a lot smoother, a lot time consuming. You know what the purpose of doing that, and here's where the money, there is a moneymaker. You have to do it.
Marc:There is a moneymaker. Say I have five people that are ready to go to auction. I could call them. They're not going to pay me. But when they get the official notice, July 18, your units are going up for auction.
Marc:They're going to be up for auction for one week and they're going to be sold to the highest bidder. Out of those five, four will pay me, including the $200, fee for the auction. One will go to auction. So we make a lot of money because A, the tenants pay up and B, we keep the tenants. Interesting.
Marc:Yep. So what some self storage is, because in self storage, once they're thirty days late, you can give a thirty day notice and have an auction. Some, know, and so at that point they might owe $400 Other people let them go six or seven months when they owe $3,000 You have an auction then, you sell it for $400 because nobody has 3 or nobody has 3 or $4,000 to pay their self storage bill. We just had an auction at my wife's unit. My wife has one facility because she wanted to be in charge and she's in charge of them all, but she really wanted to be in charge.
Marc:She has one. The lady, the lady gave her a call and said, okay, okay. And my wife said, nope, nope, there's nothing we can do. And she goes, all right, I will pay you because I'm getting my paycheck on Thursday. My mortgage is due and this is due, but I'll pay you guys first.
Marc:The mortgage, they can't kick me out. We, in self storage, believe it or not, we get paid before they pay their mortgages. Know, it's it's reality because our bill is less and they they know we can kick them out immediately. Whereas mortgage, yeah, It's not a good thing to miss, but.
Heidi:Interesting. Are there different rules in different states that, you know, like, like I think about multifamily, right? I mean, there are different states that are considered to be, landlord friendly versus tenant friendly, where it's like impossible to evict somebody. Is it pretty standard across the board in The US for states for being able to to, you know, essentially auction off someone's belongings if they don't pay within a short period of time or are some areas worse?
Marc:No, it's actually across the border, pretty simple. There are a lot of different rules and regulations. You know, some really friendly states allow you to send an email letting them know. Sounds a little rough to me. Other states, you got to put a certified letter and you got to put it in the newspaper.
Marc:Putting it in the newspaper is expensive, but you know, and especially since there are no more newspapers compared, but they haven't changed their laws yet, you know? Okay. So there are different rules.
Heidi:Okay. Interesting. Yeah. I was just curious if it's like that where we see, you know, landlord friendly states versus others. Was curious if it's like that with self storage, but, well, before we wrapped up, probably the last question I have for you is really relating to who is the ideal candidate and what makes sense for someone to reach out to you?
Marc:Well, the, the ideal candidate often is, you know, first of all, you know, you're going to be an entrepreneur. So you got to understand that, Hey, I'm going to put some effort in and someday, some weeks I'm going to put in a lot of effort. So you gotta be a person that, you know, can put in consistent effort through the development process. We like to say, you know, it's going to take you on average eight hours a week above and beyond your job. So you got to make a commitment and be consistent.
Marc:Other than that, we've founded it's business professionals. We we've got, you know, we, we've got developers who, who, who, who sold their business. We've got architects, we've got engineers, attorneys, dentists, you know, we've got some IT people. So usually people that, you know, make a good income, but they spend that money as well. You know, they, they look, they're looking ahead for retirement.
Marc:Know, even if it's a dentist that makes $600,000 you would think they'd have 2 or $3,000,000 in the bank. They don't. They're just like you and I. So they've done well at something and they want to do something on the side and it's hard to make a good income on the side. So they, they think self storage.
Marc:It does take some money and it does take some energy. If you want to build a large self storage, I'm saying 80,000 square feet, you know, that can cost you a million and a half dollars of your own cash combined with $7,000,000 bank loan, let's say. Okay. You know, so, so it's a big business. Don't let it, it's, you know, dollars 39,000,000,000 and growing, but where else, you know, when you're ready to retire, can you sell it for $10,000,000 profit seven years from now?
Marc:That's a lot of profit in seven years. Yeah. Or don't sell it. What's the point? I mean, get, I get a check from each one of my self storages every month.
Marc:I haven't, other than my one that's close to us here, two of them in Connecticut, which we no longer live there. I haven't been to them in four years, you know. I pay another family member a thousand dollars a month to go check on it. You know, so it can be a residual income with minimal work, you know, once you learn the business. It takes time to learn it, once you learn it, you can read a few reports, you can have a conversation, you can get an end of day email and you can spend an hour a week and run your self storage business.
Heidi:It's interesting. Okay. Well, that's good. I mean, those are good parameters. So to sum it up, mean, you saying that kind of an average property right now is going to be somewhere between maybe 7 to 10,000,000 if we're looking at a new development and that really someone's going to need to have probably 1 to $2,000,000 in cash to be able to put into that for equity?
Marc:Yeah, that's a long, you know, big overview. If they own the land, we count the cost of the land of their equity, you know, any loan they have on it. You can build these things in phases instead of building it all at once. You can build half at a time. You know, so it costs less money.
Marc:But when you build half at a time, you're, you still have to pay overhead of the manager. You still have to pay overhead of that one kiosk, the sign out front. So when you build it in two phases, and I did this in both my facilities because I didn't have any money at the time. You don't make much money at the end of phase one, you make a $100 at the end of phase one. It's not going to make you wealthy, you know?
Marc:But when you build phase two, it costs less to build because the payment, the infrastructure, the office costs less to build for per square foot. And and, you know, you know what you're doing. It's it's gonna be more profitable. So you can do it with less than those, but it takes a longer time because you have to start all over again. When phase one's about 70% full, you wanna start phase two.
Heidi:Okay. Yeah. That makes sense. That makes sense.
Marc:Yes.
Heidi:All right. Well, Marc, this has been amazing. I mean, I could sit here and just, you know, continue to ask questions for an hour. I know you said you've got an FAQ sheet as well, which, you know, if listeners wanna gather that, we can probably even direct them to that or, direct them to you. What's the best way for people to get in touch with you?
Marc:The best way is simply my my email and it just my, my first name at, @storageauthority.com. So it's Marc, M A R C. Get the C there, marcstorageauthority dot com. Send me an email. We can have a call after that.
Marc:You know, I can, some, some people want to do some reading on their own. I can send them the books. I can send them the information. I can send them the, the, to certain places so they can get to the next step before they're ready to talk business. So we'll meet them wherever they're at.
Heidi:Perfect. Well, I have kind of walked the line with you a little bit and kind of considered this over the last couple of years. I'm always, my wheels are always turning because I'm, I'm at a lot of these store self storage events and I see the opportunity. So was I really excited to have you on. And again, for listeners, depending on the type of construction with the one big beautiful bill and bonus depreciation for many storage type properties that are made out of metal buildings, kind of those drive through facilities, it's really impactful because we are seeing that those projects are really considered to be equipment, which typically qualify for full bonus depreciation.
Heidi:And so for high income earners that are in a tax state where they're paying hundreds of thousands of dollars, if not more every single year, these projects can generate millions of dollars of deductions as soon as they are placed in service, which to Marc's point earlier can actually offset some of the w two, if not all of the w two ordinary income on the tax return for active investors. And so this is a really profound opportunity to build wealth, to build real estate portfolios, and to generate significant income from these projects that, you know, again, to Marc's point, have been shown to be some of the highest producing assets of any asset class when we look at commercial real estate. So it's really excited to have you on, Marc. I love what you guys are doing. I believe in what you're doing in terms of supporting investors and really walking alongside them for people who have not been in this space, and it's a totally new concept for them.
Heidi:So thank you again for being a guest on the podcast. I hope our guests our our listeners enjoy it. And we will share all of your contact information in the show notes.
Marc:I appreciate it very much. It was a lot of fun. And I do want to say just to, to the component depreciation and you taught me this. If it's starting to get near the end of the year, we work hard with our guys so they get that CEO or temporary CEO so they can get the tax deductions. If they open January 1, they missed a whole year versus the December.
Marc:Exactly. And I recommend every one of our franchises talk to Heidi to learn more about all these tax advantages because there's more than you can, you know, put in a couple minutes here, but it's incredible how much money I am not paid in tax. I mean, the only person I really tell is my wife and she can't believe it because it doesn't make any sense. I don't understand it. Well, you know, how, how can I pay less than the guy that makes a $100,000?
Marc:And it's because I've got that write off in the component depreciation. When I first did my facilities, they didn't have this bonus the first year, you know, we had to break it down in, I think, five, seven and twelve years. Yep. But even that paid off for a long time. So the laws are always changing, but it seems to always be in our favor, one way or another.
Marc:So get with Heidi because that depreciation in your first year can be more than your than you than your income.
Heidi:Yeah, absolutely. Yep. Especially as you're phasing up that project, you know, it's really a tool. And then it converts over into those cap rates, and the returns on those assets when you factor in all of those savings and essentially generating all of this totally tax free income because of those deductions. So it really is.
Heidi:Have so many people that are like, this cannot be legal and this can't be real. How is this possible? Our tax code is really built to incentivize people who are willing to take risk because there are always risks with investing. Certainly risks in any type of real estate or business or entrepreneurship. I mean, that's just inherent with, with with diving into your own investments.
Heidi:But, I think, Marc, what you guys have built really helps investors come alongside someone who has the experience to mitigate risk and, create some really significant opportunities. Real excited and I will be sharing this with a lot of people that I know have interest in working with you guys.
Marc:Absolutely. And, and we'll keep sending them your way. When it comes to the tax, I just want to say one more thing because people just don't get it. You know, you can't go to your CPA. It's just, can't go to them.
Marc:It's period. It doesn't work that way. There's a whole bunch of laws, restrictions and proof that somebody that, that has that certification, it's, you know, it takes engineers, it takes certain technicians and certain laws. So you've got to go to an expert and Heidi is the best that we know.
Heidi:Thank you so much. I appreciate that. All right, Marc, thank you again so much. I hope you have a fantastic day and to the listeners, we will share all of his contact information in the show notes.
Marc:Okay. Well,
Heidi:that was a fun conversation with Marc. For listeners, if you're ready to learn more about self storage investing and the storage authority franchise or how Marc's system can help you fast track success, check out the links in our show notes. You'll also find Marc's contact information and a link to his bestselling books. If you enjoyed today's episode, please subscribe to the SlashTax Podcast, leave us a review, and share this with someone who's ready to invest smarter and keep more of what they earn. This is Heidi Henderson, and I'll see you next time, helping you cut your tax bill and grow your wealth with smart strategies.