Self Storage Investing and Avoiding “Monster Houses” w/ Sergio Altomare

David Greene:
Hey everybody. It is David Greene here. As you all know, Brandon’s stepping away from the show at the end of the month. Now, we have some great co-host lined up in the new year, and we also want to take this chance to get to know anyone else out there who’s interested in contributing their talent to the BiggerPockets Podcast Network. If you think that’s you, you can make a submission to our system at biggerpockets.com/talent. That’s biggerpockets.com/talent. You’ll see a few questions and a place to submit a video reel of yourself. Again, that’s biggerpockets.com/talent if you’d like to lend your voice to the growing BiggerPockets Podcast Network.

Brandon Turner:
This is the BiggerPockets Podcast, show 545, where we sit down with our Sergio Altomare.

Sergio Altomare:
When I’m looking at the guy that I’m competing with for a property, he might be looking at the same property for a different purpose, right? I can maybe even pay a bit more for it because it fits what I’m doing better, and that gives you a different advantage to get to the closing table and get more deals.

Brandon Turner:
What’s going on, everyone? It’s Brandon Turner, host of the BiggerPockets Podcast, here with my co-host once again, Mr. David, second to the last time together, Greene. What’s up, man? How you doing?

David Greene:
That was a sad thing that you just said. Way to take the air right out of the room.

Brandon Turner:
I know, man. Second to the last time we’re going to do this right now, at least for a while. Today’s Thursday, and on Sunday, our Sunday episode is the last episode that I’ll be doing here in 2021, and the last one maybe for quite some time. I don’t know. I’m going to take a little sabbatical. For those who haven’t heard, I’m stepping out for a while, going to let David run with things for a while with some more guest hosts over coming while. We’ll see. What’s up, man?

David Greene:
I’ll be taking that baton, and I’ll be running hard. We’re actually going to be putting out even more content than we ever have. Even though it sucks that we got to lose Brandon, it’s cool that we’re putting out more shows and different kinds of shows, so there’s more information going on. Speaking of shows, today’s guest was absolutely awesome. Sergio talked about everything from the first house he bought being a Frankenstein, or what do you call it? A monster house-type duplex.

Brandon Turner:
Yeah, a monster house. Yeah.

David Greene:
Brandon will describe what he means by a monster house and then how he got into small multifamily and then bigger multifamily and then eventually self-storage and then all the value-add ways that they’re making money in self-storage. This is one of those episodes that really highlights how the principles of real estate work, regardless of what asset class you get into.

Brandon Turner:
That’s so true. That’s a really good point. Yeah. This one of those episodes also that triggers the little shiny object syndrome that we’re all prone to, to be like, “I’m going to totally do that now.” I don’t mean that in a bad way. I think it’s good to learn all the different types of real estate, and this just might change the direction of your real estate, so listen up for all of that and more. That said, let’s get to today’s quick tip.

David Greene:
Tip.

Brandon Turner:
All right. Today’s quick tip is something I have not asked for in a while, but I’m going to do it again. If you’ve not yet left us a rating or review in iTunes or in Audible for any of the BiggerPockets books you’ve read or for any of the podcasts you listen to, please do. Those things really, really, really help us out. That’s how the podcast grows and reaches more people. The algorithms taken into account reviews more than almost anything else, so please do that and help us out, help us reach more people with this message of financial freedom, that you can live life on your own terms, that you don’t have to live the life prescribed for you. You can live the life that you define. I just find that so exciting to see what BiggerPockets did for my life, and I want it to do it for more people’s lives as well. All right. I think we’re ready to get into the interview with Sergio. Anything you want to add before we get started, David?

David Greene:
No, let’s do it.

Brandon Turner:
All right. Sergio, welcome to the BiggerPockets podcast. I promised you on stage at that GoBundance event that I was going to bring you on the show, and look at me fulfilling my promise. What’s up, man?

Sergio Altomare:
Awesome, man. I appreciate it, man. So pumped to be here. It’s been 10 years in the making brother.

Brandon Turner:
Dude, this is going to be fun. Tell me about yourself. Tell us about how you got into real estate. What were you doing before, and how’d you get excited about the idea of investing in real estate?

Sergio Altomare:
My background is interesting and unique in the sense that I started, like most people, going through the same path of life, high school, got a job. I was working for the Federal Reserve. I went through the career ladder. I went through all the paces. Fast forward, and I met my now wonderful wife, Corinn, who’s my motivation and my everything, met her parents and know of their family story of investing in real estate and growing wealth that way, they’re entrepreneurs, and just started. My first false start was in 2007. I bought a duplex the day before the bubble burst. Actually, going back a little bit, I bought a duplex that wasn’t zoned as a duplex. I learned a rough lesson there. I had a false start in real estate, gave it a break after I got beat up on that deal. I met my wife in 2012.
We just bought a triplex for her to live in one unit and basically house-hack, as back then it wasn’t called house hacking, but she essentially bought the triplex. As we dated, we spent our nights and weekends just renovating the apartment that she was going to live in. She moved into my place the following year while we eventually decided to just rent out the extra unit when we were done. My background is in IT. I spent a lot of years in technology. I immediately put in a system to start doing the property management ourselves. The following year, we bought another triplex together and read some books, got on BiggerPockets, was chasing you guys around Twitter and whatnot and just learning the ropes. Next thing you know, we had a little capital and access to a lot more deals, so my father-in-law introduced us to the concept of syndication.
Meanwhile, our property management started growing. My in-laws sold some properties out in California, bought some properties where we were at in Delaware County, just outside of Philadelphia. We started managing those. We started syndicating multifamily. Then as I learned more, 2017, 2018… Well, in 2016, my wife quit the day job. In 2017, I quit the day job. Then the priority was, “Now we got us a legitimate business. It’s time to throw some gas on this fire.” At that point, we were looking to get into larger multifamily. I did all my underwriting. I couldn’t make a deal work to save my life. Even today, I find it hard to believe how so many guys can make a lot of these apartment buildings work.
My underwriting was always conservative. We thought, having been working for the Fed for 22 years, I know economic cycles. 2017, 2018, we were in a 10-year expansion cycle. To me, it was an inevitable that we were going to have a downturn or recession or some shift. We were looking at, “What other asset classes can we get into?” and we shifted to self-storage. I looked at self-storage as certainly real-estate business, and then also technology, which is my wheelhouse. We pivoted, and then I learned the concept of who, not how, and how to build a team. Then building a team really essentially has started getting us to grow in multiples, and that’s how I’m here, brother.

Brandon Turner:
That’s awesome. Okay. There’s a million things I want to unpack on that.

Sergio Altomare:
Yeah, man.

Brandon Turner:
Let me just get to the end of your story real quick, and then we’ll go back to the very beginning. What’s your portfolio look like today? What do you have or assets under management or whatever? What’s your company like?

Sergio Altomare:
We are closing on five self-storage facilities any minute now, I expect. I was at a notary this morning, getting all documents signed. These are five properties in Indiana. In the self-storage, we went from property in 2019. We’re now at 12 properties overall. Portfolio is valued at about 40 million. We have 185 properties under our property management company worth about 15 million there. Self-storage, we are grossing annualized 1.2 million in revenue. We’re collecting over 4 million in property management and rents. Our portfolio, we continue to grow both arms. In the meantime, I started bringing in construction and maintenance in-house, because we were tired of chasing around contractors. Then along the way, I started a… in the process of launching a coaching company, and I started an RV rental business earlier this year.

Brandon Turner:
Wow. All right. You got a lot going on. Now, some people might be listening, going, “Well, that just sounds so overwhelming, way over my head.” I want to go back to the simple, the very first duplex you bought back in 2007, I think you said. You mentioned that it was not zoned for a duplex, and so you learned your lesson there. What happened there, and what advice do you have for other people? Why was that a problem? What happened? What’s your advice for other people in that position?

Sergio Altomare:
Yeah. I bought it from a friend of mine, and it was converted into a duplex back in the ’70s. It was in South Philly. It was in a row-home block. His family converted it into a duplex to get some extra income back in the ’70s. It was totally cool. The property stayed that way up until, he’d say… He was best basically a professional poker player, my buddy [Chet 00:09:15]. He moved out to Atlantic City, rented it out. Being that it was already a duplex, and it had been that way, I said, “All right, no problem.” I know it wasn’t zoned properly, but I didn’t think, “Hey, it’s South Philly. What’s the difference?” Come to find out after I close on the property that a woman that lived two doors down was the councilman in the area’s secretary. They saw a younger guy buying this property. Naturally I was going to be a slum lord. Naturally I was going to sell drugs, and God knows why.

Male:
Right?

Brandon Turner:
Clearly.

Sergio Altomare:
It was reported. Next thing you know, I show up at the property. I was doing some cosmetic renovations myself, spending my nights and weekends, and I show up, that big orange sticker on the doors, “Zoning violation, you got 30 to the correct,” blah, blah, blah. I said, “All right, no big deal. I’ll just get the zoning changed.” I started going door to door, getting signatures, basically getting people to approve the change in zoning. I show up to my hearing. I step in front of the judge. They said, “Denied,” without hearing a thing.

Brandon Turner:
Wow.

Sergio Altomare:
The lesson there was I had no pull in there. There was so much uproar where the connected people were the ones that had the leverage there, which is obviously the name of the game when it comes to real estate. There was no way for me to do anything with it. I ended up selling it to a house flipper who turned it back into a single family house, and he probably made a bunch of money.

Brandon Turner:
Wow. All right. Yeah, there’s a lot there, but this is something that we don’t talk about a whole lot, is that there are a lot of properties that are nonconforming or illegal. Sometimes it’s okay. I have properties right now that are treated as a duplex or a triplex in some areas that’s not zoned for. It was just a single-family house turned into a multifamily. Now, in The Multifamily Millionaire book that we launched this past summer, I call those monster houses because they’re like Frankenstein’s monster, like they’re adding pieces on here and there, and you’re creating this thing, this large multifamily or small multifamily out of a simple single-family. It’s very, very common, but what I’ve found is that in some areas, like when I lived in Grace Harbor, Washington, nobody cared.
The local area, they didn’t care. Every property was like that, not a big deal. When I got to Hawaii, then I bought a triplex, and I think I got a good deal on it. I renovated the whole thing. Similar to you, a guy across the street calls and reports that that’s been sold and it’s not supposed to be triplex. It’s supposed to be a single-family house. For the past two years, I’ve been dealing with this issue with the county, and they will not approve the zoning change, just like you. It’s just been a hassle. I got a way through it finally. I’m going to rent it by the bedroom to traveling nurses, and it’ll actually produce more cash flow than I originally planned. I worked it out and turned it back into a single-family house, but it was two years of hell. I guess the advice then I’m guessing you would give is, “Make sure your property’s zoned for what you want it to be before you buy it”?

Sergio Altomare:
Yeah. It’s definitely that, and then even if it’s in a situation where it’s in an area where nobody cares, that doesn’t mean that in the future, no one’s going to care. I bought a property that nobody cared about it being a duplex for however many years it was, but then when the change of ownership, then somebody cared. Even then, if I’m looking at multifamily property right now, and it’s not zoned properly, there’s a value hit. If I’m looking at a property, then I don’t even want to be bothered. The other part of it is that I’ve seen so many properties where people buy these larger multifamily that at one point was a large single-family, and they’re all hacked up. Right?

Brandon Turner:
Yeah. Sure.

Sergio Altomare:
You get less rents for a property that just is awkward. Right?

Brandon Turner:
Yep.

Sergio Altomare:
You got this crappy kitchen where you got to duck the cook. To me, it’s those conversions, that if it’s done properly, that’s one thing. You want it obviously legal. I don’t care where you’re at. For me now, as long as it’s conforming and completely legal or I can legally change it, that would be the only reasons why I would buy something like that.

Brandon Turner:
Yeah. In the beginning I felt like I had to just go to those hacked-up properties, but I didn’t. Like you said, they rent for less. People stay less often, these little, tiny, crammed-in-the-corner… a dozen little units here and there. They look on paper like they will work really well. They look like little mini ATM machines. But the reality is the capex, the repairs, the fact that you got to pay the water because all the water lines are all mixed together, you can’t sub-meter the water very easily, all that just drives these properties that look like ATM machines into debt collectors. It drives me nuts. I think there maybe is a time and place for them, but just understand they’re not usually as good as they look.

Sergio Altomare:
Yeah. I was going to say the other part is the quality of the caliber of tenant actually goes down as well. You got these crazy properties where there’s two thermostats, one in the top floor and one in the basement, and you’re either freezing or you’re sweating in the wintertime. Well, who puts up with that? The caliber of tenant that I want doesn’t deal well with that, so you got to look at that as well.

Brandon Turner:
100%.

David Greene:
My experience with that is the first thing that I would say is you have to understand real estate tends to operate on a spectrum. On one end, you’ve got profit. On the other end, you’ve got convenience. On one end, you typically will have cash flow. On the other, you have appreciation. Now, sometimes you get that awesome deal that can hit both of those, but in general, you’re giving up one to get the other. That’s how life works. That’s how real estate works. If you want convenience, the best tenant, cash flow, you’re going to have to go with a traditional, small multifamily-property, duplex, triplex, fourplex because, like you said, Brandon, it’s set up already so the water is being charged to the person who’s using it, like Sergio mentioned. It’s not this weird kitchen they created out of a walk-in closet where you’re bending your head over so you don’t bang it into things, but that doesn’t mean that there isn’t a time where that property could work for somebody.
That is sort of the whole… You’re trying to get your foot in the door. You’re house hacking. You’re going to live in it. You’re going to personally be managing it. On that spectrum, you’re giving up the passive side of real estate investing. You’re not set it and forget it. But oftentimes, when you get more active, your income goes up. We see this with the short-term rental space. We see this with properties like this, where if you will be actively engaged in running it yourself and maybe renting it to friends that you know, or you’re hand-picking tenants, you can still make those properties work. The problem is when you get a person like Sergio with a big vision and big dreams and he wants to do big things, and then he’s got this little paper cut that just won’t go away, that keeps requiring attention, and the city’s getting involved. That’s what I would say, is just know what your goal is for that property and what your strategy will be should follow that.

Sergio Altomare:
Well, and you know what? In hindsight for me, the pain that I went through with that duplex was better than inaction. I don’t care. Buy a property. I don’t care what it’s like. It doesn’t matter. Education costs money. Whether you go to Harvard or whether you go to real-estate school in south Philly, it doesn’t matter. It still costs. To me, that action, I learned a lot from it. To me it was well worth it, and same thing with just getting started. A hacked-up property is better than none.

David Greene:
I was just going to say, Brandon really wants to ask you, Sergio, if you’ve ever invested in west Philadelphia…

Brandon Turner:
Born and raised.

David Greene:
There it is.

Sergio Altomare:
[crosstalk 00:16:04]

Brandon Turner:
Playground is where I spent… No.

Sergio Altomare:
No kidding.

Brandon Turner:
No, I was not. I was not. David’s making a Fresh Prince of Bel Air comment. It might be my favorite show, whatever. Don’t judge me. Here’s the last point I want to make before moving on. A lot of times I’ve heard people say, “I never sell a property ever,” or, “I never sell.” I’ve heard people say that before. I just sold my very first duplex I ever owned. It was a [inaudible 00:16:27] house, and it still made a lot of money. It made almost two grand month in cash off that property, that very first duplex. But sometimes like a property that meets you at one point in your life… David, you said there’s a time and place maybe for that hacked-up property or whatever.
Maybe it got you out of a job. Maybe it got you out of a 9:00 to 5:00 or whatever, but it doesn’t mean that it has to be there forever. It doesn’t suit you forever. It doesn’t stay with you forever. You can say, “Hey, that served me at this point in my life, but now I’m going to let that one go, even if it makes good money just to free up the mental energy of having to deal with that caliber tenant or that caliber of a property.” You can move on. Just those people listening who have properties that they’ve hung onto for 10, 20 years, you got this emotional pull to it, but it drives you a little bit nuts, sell it. It’s a good time to sell right now. Sell it and get something that fires you up because it’s not worth just being miserable with your properties if you don’t need to be anymore.

Sergio Altomare:
Yeah, I’m a firm believer in growing in multiples, so all the properties I had for when I sold them and what I did with that money and growing my business in multiples. People won’t go buy… “Hey, I’ll buy one property a year,” and they do some crazy math over 10 years. Well, I’d rather by one property, then two properties, then four properties, sell the four, buy 15, and just grow. That’s the growth mode. I consider it an investor versus a collector, and a different stage of life, like you said. If I was 65 and I was just looking for cashflow, I might have a bunch of duplexes or whatever, but I’m in growth mode right now, and that growing the fastest way is just in multiples.

Brandon Turner:
Remind me of your story. You were in that duplex. Then you did some smaller deals before jumping into the big stuff. Is that right?

Sergio Altomare:
Yeah, we did triplexes and quads. We partnered up with a flipper in Philly that basically… When it comes down to real estate, you want closers. Agents, brokers, sellers, they want somebody that can close. Once we closed the deal, where there was minimal hassle, we bought the first triplex from this guy, and then he was renovating, flipping other multifamilies. I said, “Look as fast as you can build them, I will buy them.” From there, obviously we didn’t have all the capital to buy property after property, so it was natural to start pulling investors and bring that in. That’s pretty much what we did until it was time to pivot.

Brandon Turner:
Yeah. How did you go from that? I’m going to talk about the mindset a little bit around, “I’m doing these deals myself,” to, “Now I got to go out and raise money from people.” Today, it’s probably a lot easier for you to raise money. You got a little bit of a brand. You got a little bit of a name. You got a little bit of a connection. But back then, you didn’t have that necessarily. Those people listening, I’m asking for their sake. They want to start raising money from whoever to do some more deals. How do they do that? How did you do it?

Sergio Altomare:
To me, it’s who you are as a person, and can people trust you? At the end of the day, when somebody’s going to invest in your real estate deal… I’m not FDIC-insured. There’s not conforming to any big regulations or anything like that. We are now, but it’s a trust game, so who you are character-wise, and that’s really ultimate what it comes down to. Have a network. I’ve always been outgoing, always plugged into a lot of people and building a personal network of people that know me, trust me. Certainly family, friends, they know that I’m a student and that I’m going to best articulate what the idea is behind it and not just say, “Hey,” at Thanksgiving dinner, “come invest with this property. It’s going to make a bunch of money.” It’s got to be well though-out. It’s got to be well prepared. My first syndication deal, even though I was presenting it to friends and family, I took the time, put together a deck, went through all of the underwriting, the analysis.
I wanted to put my best foot forward. To me, that is paramount, is making sure that you can instill trust that you are going to be a good fiduciary of somebody else’s money and do whatever it takes to make sure that nobody loses money. People invest now with us because now we have a track record, but they know the character of our collective team. They’re like, “I’ll invest with you because I know who you are, know what you represent.” Go Google me, us, and you’re not going to find anything but raving reviews. You allow people to do their own due diligence. That’s the best way to get money. There’s definitely a good deal that needs to be had. You’re not just going to put something out there with pie in the sky. I just tell people, “If you’re going to invest with somebody, there’s an element of due diligence, and then there’s an element of common sense. Does this make sense? Does this deal make sense? Then from there, it’s instilling trust that you know what you’re doing.”

David Greene:
That’s really good.

Brandon Turner:
Moving on to your story a little bit, so you got these triplexes, the fourplexes, all that, and then you decided to get into larger apartments. You made a line about how you underwrite pretty conservatively, but you can’t understand how other people are making these deals work, and I agree. I say it all the time. I look at people’s deals. I’m like, “I don’t understand how they even makes $0. I feel like that’s going to lose money.” Did you have some law larger multifamily before shifting over to self-storage, or did you just jump right from those four units into the self-storage?

Sergio Altomare:
We jumped right from… The largest property at the time was a four unit. When I looked at it, and even the way I look at it was in the cumulative portfolio… We had six of these properties. I wasn’t looking at it as, “Hey, I got a four-unit and a three-unit,” or whatever. When I made the exit there, we made a strategic decision that we were going to sell them all. When I put them all together, I had a real estate license myself. Now I had a little portfolio to offload, again, thinking in multiples. To me, that was where I knew that at that time where the market was, where the rents were, where the neighborhoods where these properties were that in aggregate, it was a large exit, all of these properties together.
When I was looking at the multifamilies, garden-style apartments, 30, 50 units, that kind of thing… We looked that a bunch of them, and if they didn’t have a whole lot of deferred maintenance, it was really trying to apply the most disciplined approach to underwriting these deals, meaning looking at all of the rules. Well you know now, whether it’s a 50% rule, whether it’s whatever, you look at a deal, once you’re experienced with it, then some of those metrics, you could throw them out the window. Especially nowadays when you’re talking about cap rates and this, that, and the other thing, they’re not going to make sense. But at that time, I was following it very strict. “These are the rules. If I can’t make these rules work, this deal doesn’t work.” Experience teaches you otherwise. That was essentially what drove the pivot. I saw self-storage. I saw the value-add component being a lot less dials, a lot less levers to pull, and it was right in my wheelhouse when you talk about technology.

Brandon Turner:
Yeah. Let’s talk about self-storage a little bit. Can you explain for those people that maybe don’t… I think most people know what it is, but explain what it is that you’re buying. What attracted you to… you kind of said a little bit, but to… What makes self-storage so cool? Why is it a worthwhile investment, and what are some of the challenges with it?

Sergio Altomare:
The biggest thing, compared to other asset classes, is for the most part, you’re talking about a fair amount of land, call it two, three acres plus, and then it’s asphalt, concrete pads, and sheet metal. From a maintenance standpoint, there’s a lot less to do there. From a value-add perspective, you don’t have to remove a tenant to increase the value there. It’s just driving rents. For me, the technology… it’s more of a business. It’s a good combination of business and real estate. The big thing with self-storage is if you don’t know the business side of it, and you can read the books, and even the books will tell you, “Okay, you can increase rents this percentage and that, and do this, this, that at this point in time,” but if you… You tend to question some of that.
But for me, when I looked at self-storage, you’re looking at properties that don’t have a web presence. They’re not maximizing revenue management. Revenue management is the concept of running it like a business where you can inc-optimize your rent rates based on time of year, day of the week. We raise rents on Thursday, and we drop them on Monday. You operate it as a business. That’s where the big drivers are, and then you want the turnover. In multifamily, I would argue in a lot of cases, you want the turnover there as well, except the vacancy loss is rough.
You can move out a tenant in self-storage and same day put another tenant in at 40% higher rate, and we do that all day long. To me, that’s the business I aspect of it. The levers that you pull do not require… For the most part, we’ve never had to remove tenants in order to get that value into it. It’s a lot of what happens, the operations behind the scenes. Maybe there’s some cosmetics. But for the most part, the pieces and levers that you get to pull are much different when it comes to a self-storage versus multifamily.

David Greene:
It sounds like what you’re saying, Sergio, is there are less levers in general.

Sergio Altomare:
Less levers, but the levers are bigger levers. I equate it to, if I were to use a DJ, a mixing board versus a vault door. To me, the levers that I pull… You look at the crank on a lever. I don’t know what that thing is called. That’s what I get to pull, and that’s revenue management. That is the secret sauce when it comes to self-storage is knowing how to manipulate that big lever in a particular market, a particular area, and there’s a lot more data that… I’m a data junkie. Analysis and big data, I love that stuff. The data there is phenomenal, not to mention being able to leverage the economies of scale.
For example, in self-storage, I got six properties in Pennsylvania. I got two rockstar, by the way, employees that run them all. From that standpoint, I’m using two employees to run six facilities, and then I got technology to handle the rest, online reservations, online rentals, online payments. You make that part of the business easier. Then I’m building a brand now. Now I’m cobbling together all these properties individually, and now I create a brand. Our long-term vision and exit is on the portfolio side, not on the individual property side. You can’t really get that in a lot of different asset classes like multifamily. Yeah, you could sell a bunch of properties together, but getting that one brand together is pretty killer.

Brandon Turner:
That’s exactly our strategy with the mobile home park stuff. We want to package up 50 of them and sell them to Blackstone for a billion dollars, and with a brand, with a management company in place. We just actually are launching a management company right now for the same reason. Yeah, I’m right there with you. That’s powerful.

David Greene:
Why don’t you guys go into that a little bit more? Why is it that you have opportunities if you’re packaging together 50 mobile-home parks or 20 self-storage facilities versus having just one or two to sell individually?

Sergio Altomare:
Again, when I talk about the concept of multiples, who’s going to buy in individual properties? When I bought our first self-storage property, it was just under $2 million. I was at that level and can buy that. When I’m talking about a $100 million exit, potential buyers are not going to be me when I was buying that $2 million property. To me, putting that together and who that buyer is, whether it’s a REIT, whether it’s a big private-equity firm, they’re going to be looking for a different acquisition. For me, it’s value-add. For them, I’m selling it stabilized. Stabilized has a different value. They’ll buy it at a compressed cap rate. It’s kind of like Class C in multifamily versus Class A. Class a is always going to sell for a higher amount. You aggregate them. Our value-add is taking each individual property, babying them, rolling them up into the platform, both online and physically, branding, and then it changes my buyer. There’s a lot of power there, and it gives you an opportunity to nail down, like Brandon said, your operations, your management. You get that all rock solid, and you’re changing your buyer.

Brandon Turner:
Yeah. That’s exactly what I would say, is you’re selling a business at that point, and they will pay a higher multiple for a business or a lower cap rate for a business that’s just well run, it’s got everything taken care of, because that’s the type of buyer they are. It’s not the guy looking for a 22% cash-on-cash return because he needs to quit his day job. That’s just a different type of buyer. I want Blackstone, who’s like, “5%? All day.” I want that buyer who’s good with lower terms.

Sergio Altomare:
Just follow the news. I’m a news junkie, but you follow the news and you see the patterns. When you see a massive transaction, there’s a press release on it. You’ll look at the numbers, and they’re like, “They bought it at a three cap.” You’re like, “What? Under what planet?” But they’re a REIT. They don’t have to generate the returns that I generate. That’s powerful. That’s why when I’m looking at a deal next to the next guy, when I’m looking at the guy that I’m competing with for a property, he might be looking at the same property for a different purpose. I can maybe even pay a bit more for it because it fits what I’m doing better. That gives you a different advantage to get to the closing table and get more deals.

David Greene:
I’ve noticed there’s a couple principles when it comes to money and wealth that factor into why bigger ends up being better for you two. One is I’ve seen as deals get bigger, margins get small. You don’t ever hear about someone who goes and spends $10 billion and still gets a 24% return with very limited risk. That exists when you’re investing 10,000 of your dollars with an FHA loan into a triplex or something. You can hit those really big numbers, but there’s a lot of work associated with it. When you see people that are investing large amounts of money, the return typically ends up being smaller. Now, that also benefits you when you’re raising money, because when you’re raising a lot of money, you can pay a smaller return to the people who are actually letting you borrow their money, because they’re investing a lot.
You see these hedge funds that can borrow money at 1.5%, but maybe they only can get a 5% return on it. It still makes a lot of sense to them to get that spread when you’re talking about billions and billions of dollars. I’m highlighting that because the average listener of this podcast hears this, and they’re like, “Why would I do a deal for 5%? That wouldn’t be worth…” What really they’re saying is, “It wouldn’t be worth my time.” But when you’re making hundreds of millions of dollars on that time at 5%, it’s starts to become worth it. What you two are doing is actually really taking advantage, Sergio, of what you described as those economies of scale, packaging something up for a big buyer who wants you to have done all the work.
They don’t want to have to step in and manage it and figure out how to make it profitable. They don’t want necessarily the value-add because then they have to have some employee that goes and puts their time into figuring it out. We all know how employees never care as much as the person who owns the property. It’s actually part of the healthy life cycle of a property for someone to buy it, like that one we talked about in the beginning, the duplex that’s not really a duplex. Get your feet wet. Sell it to somebody else. Take that money. Put it into something bigger. Make it worth more. Sell it to somebody else. Really, if you can get into that rhythm, you can scale to a similar level that you two are doing.

Sergio Altomare:
The other part of it is the risk margin, so those higher… You invest in a REIT because conceptually you’re going to get a lower return, but you’re also going to get a lower element of risk. The higher the return when people are talking about a ground-up development is you got a higher level of risk than what I do. I like to play in range-of-risk reward, and I consider what we do… The downside risk is you don’t lose any money. The upside is a big chunk of money. It’s always about under-promise and over-deliver. When we go to make the exit, all things being equal, the risk is going to be minimal. We will have done the work, like Brandon said, and they’re just going to get a cash-flowing machine. That’s going to be where their investors are going to be from that end.

David Greene:
Today, when you’re buying a self-storage unit, what are you looking for specifically? What size, what kind of return, and what kind of location? What’s your criteria or your buy box?

Sergio Altomare:
The number-one criteria that we look at is, “Where can we move rates?” We look at a market, and we look at a given area. Self-storage is a very localized business. It’s generally evaluated in a three to five-mile radius. We like to play in secondary, tertiary markets because they’re away from some of the big boys. We like either a property that’s going to be 30,000 plus rentable square feet or we have the ability to make it higher through an expansion, through modification, whatever the case may be. Then we look at, “What is the rest of that market doing? What is the occupancy level of the competition of the competition? What is the occupancy level of that given property?” If it’s on the high side, and we consider high 97 plus percent in terms of occupancy, and everybody else is in that market, we know we can push rents.
If we’re going to push them up higher, then somebody… Where are they going to go? They’re not going to move in general. In a general sense, from a self-storage standpoint, we know that people that come in… We know the statistics on how long they stay. We don’t expect them to leave for a 10% increase or whatever. When we look at the demographic trends in terms of… is employment growth, “What is the median household income?” We don’t like to be in areas that have a lower than $50,000 median household income, just from a level of poverty, and you start introducing a higher risk of crime and that kind of thing. Then we look at, “What are the rents per square feet?” Say in aggregate it’s getting nine bucks a square foot. We think that we can push that to $12 a square foot when we look at it over the course of, how many years? Five years.
Then we look at what’s happening right now. What are the trends in self-storage? self-storages is on fire. It was growing before COVID, and then COVID forced a lot of people to create a home office. They created a home classroom. Now the demand has gone through the roof, and now we’re able to push rents at a really aggressive level. Through that, it gives us a different lens to look at it. When we’re looking at an area that’s got a bunch of mom-and-pop shops and then maybe one or two operators that are operating correctly, we look at, “Who are the better operators?” and those are the numbers that we know we can hit. From there, it’s just execution.

Brandon Turner:
Where are you looking right now for properties? Do you pick, “These five areas are our MSAs,” or will buy you anywhere as long as it meets the criteria you want?

Sergio Altomare:
Our criteria right now is Northeast Mid-Atlantic. We’ll eventually start building out. We have a combination of in-house property management and third-party property management. We want to have it to where our team can get to it in a reasonable amount of time, we’re talking five hours, plane ride, car rental, drive, whatever the case may be, to make sure that we can maintain that pulse. Then the other part is the economies of scale. We’ll buy a single property in a given area, but the portfolio we’re buying in Indiana that we’re closing on today, it’s five properties. It’s two owners. I can again use the economies of scale, so when I’m underwriting, the next guy is underwriting an employee per location, perhaps. But because now I’m buying five properties, two smaller portfolios, I know that I can drive down my payroll expense by managing them as part of one little pod.
I like more properties in any given market, but I’m not picky. We will look at whatever market presents the greatest opportunity for our value-add strategy. A lot of that comes down to… is economies of scale that we can plug in. We’re not going to go, and a lot of it has to do with, “Does it fit our exit strategy?” That’s why I won’t look at a property that’s 10,000 15,000 net-rentable square feet because it’s just not going to fit the portfolio. Long-term though, you can sprinkle in a smaller property here and there if it makes sense. If I’m in a given market and another property that fits that portfolio pops on the market, I may buy it just to have another property in that market. But for the most part, we’re looking at minimal size that fits what our ideal buyer is.

Brandon Turner:
When you say 30,000 square feet, what does that translate into a number of units, I guess? Because I’m a residential investor. I think of unit numbers. I know self-storage is different. How does that translate?

Sergio Altomare:
That’s a good question because it also comes down the unit mix. To give you an example, if you have a 10-by-10, it’s a 100 square feet. You have a 10 by 2,200 square feet, and that’s the net rentable. The aggregate is that net rentable amount. If you got 10-by-10s, you got 1,000 net-rentable square feet, so that, and then we look at the unit mix. If I’m in New York City, I’d want a unit mix that emphasizes a lot smaller unit size because dollar per square foot’s going to be a lot higher. A five-by-five in New York City is going to rent for a ton of money. A five-by-five way out in the suburbs is not because it’s just not enough space. You got to look at the unit mix.
Our first self-storage facility had a really crappy unit mix, a lot more five-by-five units than we would’ve liked, but what we did is we went in and just started ripping out the partitions in the middle and made them 15-by-five units. Now the rent per square foot might go down because it’s a bigger unit and the dollar for dollar versus a five-by-five might be adjusted, but I’m going to get it rented out so I can drive up the occupancy and I can still get the rents. Does that make sense?

Brandon Turner:
It does. Yeah. One of my buddies, AJ Osborne, who’s also in GoBundance, he and I talk a lot about the idea that one of the criteria, I think, he… I’m sure you look for this too. When you’re trying to buy from a mom-and-pop seller or whatever, he loves to look for properties that are… They have not maximized the unit mix correctly. They only have 10-by-10s, though you could turn them into 10-by-20s. There’s actually a real big market for 10-by-20s, but there’s not a lot for the 10-by-10s. But whoever built it or whoever is owning it right now just hasn’t thought that way. They haven’t thought about unit mix and what the demand… because the demand is different. Like you said, some areas might have a huge demand for the five-by-fives. Some might want a five-by-20. How do you know that, by the way? How do you know if there’s going to be a demand for the five-by-20 or 10-by-20 versus a five-by-five? Who tells you that?

Sergio Altomare:
One of the first things you get is a rent roll. You can see what’s occupied, what’s not occupied. Then you know a given market and a given area. Then you use a tool like Radius Plus to do a supply-demand analysis. You look at what the competitors have. In some cases, you just… having the experience. We got a rockstar team right now that can look at any given market, any given area, look at the population, look at the population density, and then be able to determine, “What is the right unit mix?” and look at, “What is the actual performance? How is this property actually doing?”
Then from there, you derive that. Now, if you’ve got an inordinate amount of odd units, like our case, the five-by-five units, and we see that a bunch of them are vacant, well, I got to look at, “What is my opportunity?” Now we’ve done a really good job of marketing those smaller units to different types of smaller business and an extension of a home closet. You got to use some creative marketing for those, but otherwise we’ve converted those to the larger units and gone about it that way.

David Greene:
Ignorant question here, Sergio, how impactful is the person who answers the phone or sits at the front desk or whatever, just asking them, “When people call, what are they asking for that we can’t provide?”

Sergio Altomare:
To be honest with you, most of our customer base is finding us online. They’re finding a, “Self-storage near me,” and then we have on our website, hfirestorage.com, we have on our website a little tool that somebody says, “Hey, I need to move a one-bedroom. I need to move a two-bedroom,” and then it dynamically will show you, “This is the right size unit.” But if they call, we have a call center right now, and generally speaking, they will talk through it. A lot of that is where there’s some price sensitivity. We always just tell the customer, “Just caution on the larger side. You may not need all of the space, but it’s better to go bigger than need another unit.” We have people that have just been cheap and say, “A 10-by-10 is fine,” and next thing you know, they’re renting a 10-by-10 and plus two other 10-by-20s. From that standpoint, once they’ve made a decision and they’re going to be your customer, then that’s pretty easy, but a lot of our customers are coming and finding us online.

Brandon Turner:
Are you utilizing like Facebook Ads or Google Ads at all, or are you relying mostly on organic traffic?

Sergio Altomare:
Minimal ads, and quite honestly, the properties that we’re buying now, we’re trying to drive rents to get some turnover. We’ve been really aggressive in raising rents, in some cases, 15% in one clip, to try and get some turnover because the real value is if somebody’s paying 110 bucks or 100 bucks a month in rent, and you increase it 15%, they’re going to pay another $15 a month. That’s not enough to make them get a U-Haul truck and come and move their stuff down the road or find a place to keep it. But the real beauty is if I have all those units full, then I can get $140. In some cases, I want some turnover. From that standpoint, we’re just driving rents. We want that, and we’re just going to be really aggressive in pricing.

Brandon Turner:
Yeah. Fascinating. How does financing work with these self-storage? Is it typical you go to a local bank or you get a broker? What kind of down payments are you looking at, and what kind of interest rates?

Sergio Altomare:
You’re going to get the best terms still from local banks. It’s not much different. You’re still looking at 60%, 65% LTV. You can go 70, 75. COVID has put a damper on a lot of those really aggressive loan terms. We’re paying three and a half points for where we’re going with these properties that we’re buying, 25-year amortization, five-year terms. The big part for us is the five-year terms so we can make sure that we can go full cycle and get out when we need. There’s some prepayment penalties, but you have some options to extend it. You’ll still get IO periods for construction loans. We build that in, any capex right off the bat. That’s a big beauty of what we’re doing, is if we have the ability to do some big conversions, some expansions, we bundle that in the loans, and we’ll use… Local banks are preferred, less loan costs. They know the properties. They know the areas. In some cases, we’ll even talk to the lender who’s got the existing note.

David Greene:
One of the things that I’ve thought about with properties like this where there’s continual value-add… We talked to Paul Moore about a very similar strategy of, “Hey, I can add a bunch of concrete, and then I can rent that out for boat storage. Then I can add a bunch more pads over here, and I can rent it out for RVs,” like you’re doing, Sergio. I had this thought, that if you get one of these things under market value, and you fix it up and then refinance it, so it’s a BRRRR, you get some cash back, which you then reinvest into the property. You add something to it that can generate more income.
Well, now you’ve actually increased the value of the property, because it’s based off of its income, which means you can refinance it again. You can take that money, and you can use it to build out the next extension of whatever you want it to do. With the right property and the right vision, you can actually get it to pay for itself to make it into something much more profitable. It’s much more difficult to do something like that with a residential property where the only way you can add value is by making it compared to a higher-priced comparable, as opposed to just adding revenue, like what you’re doing.

Sergio Altomare:
Yeah. That’s the name of the game, is the income. How do you squeeze all the income you can? For the properties that we’re buying, we look at all the ancillary income opportunities, whether it be boat and RV parking, whether it’s, “If they have boat and RV parking, can we add more units there? Can we add mobile units, fixed units? How does that affect taxes? How does that affect how the property will look?” We look at adding tenant insurance. We adjust our fee schedule. Less anymore is about merchandise, whether it be… We include a lock now, but before, we used to sell boxes.
There are those outfits that use U-Haul rentals and rental trucks. We look to rent out billboards. There’s even talk… we haven’t done it yet, but adding cell towers, because in essence, you don’t have people living there. The other big part of why the strategy is great for these times is that we’re not subject to landlord-tenant act. We’re subject to lien laws. It’s different. It’s stuff. It’s not people. During the height of COVID, we didn’t have any eviction moratoriums or anything like that. That’s a big play here. 60 days, depending on the state… 60 days, you don’t pay, we auction off your stuff, and we move on to the next renter.

Brandon Turner:
Yeah, man. That’s one of the things that really attracts me to self-storage, is just that you’re not kicking Grandma out of her house during the holidays, not that we kick Grandma out of her house during the holidays, but the possibility is there that Grandma’s going to stop paying. It sucks. We try to do evictions as little as possible, but when you own thousands of units, it’s inevitable. We evict people. The thing with self-storage is you don’t have to deal with that. Worst case, you’re going to auction off their stuff, but it’s a much more comfortable, freeing position to be in. Yeah, I’m definitely intrigued. I think Open Door Capital is going to be moving in that space in the coming years, but we’ll see. On that note, let’s talk about somebody who wants to get into self-storage. They want to buy their very first one. If you were mentoring somebody on, “Buy your first one. Here’s what you should do. Step one, do this. Step two, do that,” what would you tell me?

Sergio Altomare:
For me, it starts with the education. Learn the asset class. Behind me, I got a bunch of books, even including AJ Osborne’s book, and a bunch of Mark Helm, different books on self-storage. Learn the asset class. Learn the industry. Get coached by somebody who’s done it. One of the reasons I love what I do is because I get to educate people on building wealth through passive investing and then also through self-storage and all that. Get the education. I’m a firm believer in acting on belief, so when you’re a believer in the asset class, and what’s your reason why to get in it? We all are in real estate because of wealth, but ultimately the big driver of getting off of your butt is going to be the why. What gives you that kick to take action?
It’s education, getting that why you want to do it, mentorship, the networks, and then scour the market, on market, off market, plug yourself in the network, identify, “What is your buying criteria?” and don’t limit yourself to say, “Hey, I got $25,000 in the back. I can only afford $100,000.” Well, that’s not true because you can use… The real estate… the beauty of it is leverage. When I started buying my smaller multifamily, I didn’t have the money to go out and buy all these properties, and that’s when I was able to bring in investors to be able to do that. In bringing in the other money, we were able to do that. Look at creative financing. When you do find a deal, it’s being disciplined. Underwrite the deal, know that you’re going to make mistakes, but once you recognize that an education costs money, then you’re going to go at it from a different perspective.
Target the markets. I would always say, “Stay local as much as possible so you can go look, see, touch, and feel.” Our first self-storage property, when we couldn’t get the right hire to work, my wife and I, we bought an RV and went and lived there to run it ourselves, just to learn that business. It was really important. Number one is I’m never going to lose an investor’s money, investor’s dollars. For us, it was important that we understand the business. The only way to do that is, “Immerse your into it, learn it, and know that you’re going to make mistakes, but you’re not going to stop at it. Continue to educate, tweak. Don’t go in with preconceived ideas.”
Then finding deals, it’s a matter of plugging into any and all opportunities. When something fits, you’ll both know it because the spreadsheet says it and you’re checking off a bunch of boxes, but then there’s that feeling that’s in your gut, that you’re going to say, “I’m going at this.” Our first property that we bought in self-storage was listed for 1.65 million. I paid 1.775 for it, and I kept going up because I said, “You know what? This is the one.” Now we we’re going to likely be exiting that property early next year. Right now, we think it’s worth about three and a half million.

Brandon Turner:
Wow, dude. That’s amazing. I love the fact that you said about living in the RV for a short while, not… Here’s the difference between people who are successful. One of the biggest things I notice is they’re willing to do what it takes to become great, that mastery. You didn’t dabble. You didn’t be like, “I’ll just buy this thing, and then we’ll figure it out.” Those are the people that fail, and then you go buy their properties from them because they were just all not serious about it. Because you committed to it, you said, “I’m in this thing. I will do whatever it takes. I will be successful. There is no if, and, or buts about it,” that I believe is what makes you successful. I just want to commend you on that. That’s awesome. I love it.

Sergio Altomare:
Yeah. To me, there’s a lot of people that I talk to that are really technical when it comes to real estate. They only look at a spreadsheet and numbers and that kind of thing. There is an element of the mindset. There is the discipline around it. I like to emulate and study the elite across any industry. I don’t watch football to see the ordinary quarterback. I want to watch Tom Brady. I want to study what he’s doing. Regardless of what your craft is, you have to study what those elite people are doing, read the books, emulate them. For me, it’s just as much technical execution as mindset as personal growth.
If you continue to put those things together and you don’t have a… Failure and stop are not in my vocabulary. I work daily, harder and harder every day to continue grow as a person, as a human being, because even if you make all the money in the world, whether it’s real estate or whatever, you got to be fulfilled in doing it. To me, when I’m raising money, when I’m deploying capital, they’re my family. They’re my sisters. They’re my friends. There’s a lot of people that trust, and I’m not going to let them down. I’ll lose my money before I’ll lose somebody else’s money, and I have. To me, that’s a big part of it.

Brandon Turner:
That’s awesome, man.

David Greene:
What I love about what you said, Sergio, is that when you look at enough deals, it stops being something that just intellectually you go, “That should work,” and you actually get that gut, emotional feeling, “This is what I want to go after.” I don’t know if there’s a scientific name for what that process looks like, but it’s exactly what you find in life. I’m new at jujitsu. Brandon’s new at jujitsu. When we get done, our instructor will be like, “Why didn’t you grab his leg right there?” We’re like, “That’s a really good question. I don’t know why I didn’t do that. I just didn’t feel that thing.” But you do it for long enough, and you start to see openings, and you feel momentum. Every sport has worked that way. Business is just like that. When you’ve seen enough properties, you get that, “This works for what I’m doing. It would fit really nicely with the other pieces.” You can see and feel the synergy.
I think a lot of new investors assume that their whole career is going to be this like, “I’ll cross my fingers and hope it works out,” and then when you’re in that place, you rely on the spreadsheet a little too much. You start looking at deals that have spreadsheet magic, but practically, they’re not going to work the way they did on the spreadsheet, where what you’re describing is, “Yeah, there is a component of that, but that’s not how I make my decisions. I’m actually seeing how this would fit into the whole thing.” Your gut helps you. Brandon, you and I have discussed that when we’re trying to teach somebody else something, what we’re really trying to do is get the algorithm that’s in our own head articulated into something that they can understand. I just want to encourage everybody that when you stick with this enough, and I’m going to give you the last word, Sergio, before we move on, it becomes easier. It just does. You just can tell, “That’s a good deal,” or, “That’s a bad deal for me,” and you know it.

Sergio Altomare:
Yeah. Through repetition and seeing patterns, your intuition gets amplified. When people say, “Think with your gut,” for me, it’s gut and heart. Something feels right, and you go with it. You’re disciplined and checking all the boxes, but ultimately what says, “Go,” is a feeling and what says, “Don’t stop,” is a feeling. We pulled out of a deal in North Carolina recently. It was another five properties. What we found is that it needed a lot more work than we thought. We could try and go back and forth and negotiate with the sellers, but ultimately, we just said, “You know what? There’s a lot to this deal. There’s too much risk. We’re out.” It was a feel. Any athlete that’s at an elite level will tell you they get in… They call it the zone. Get in the zone, you get that feel, and once you have that, man… That’s what I always like to say, is you just got to keep cultivating that.

David Greene:
Yeah. When you play a lot of sports, you start to recognize that maybe the amateur mindset says, “There’s five basketball players. They all score 20 points a game. That means that they’ll automatically have 100 points a game.” They’re just looking at the numbers, and they don’t recognize, “Well, this player plays this way. If you combine him with that player, he’s going to become much less efficient.” That’s sort how you’re describing your real-estate investing, is you can recognize, “Well, it’s in the same area that I already have this property management company, and it would work for these purposes. This feels right,” versus, “I could just tell this is going to be a headache, and we’re going to be fighting uphill the entire time,” but there is a feeling that a accompanies these decisions that I just wanted to highlight. It doesn’t stay ridiculously hard. I think, Brandon, you’ve hit that rhythm with Open Door Capital where you can feel good deal versus bad deal, and those decisions become a lot easier at that point.

Brandon Turner:
Yeah. Yeah, definitely. I don’t want to underplay underwriting that, Sergio, and I have to still do to make sure that I get pencils out, but you get a feel. That’s why we go and visit every property, or Ryan Murdock, that’s his primary gig these days, is he just jumps on a plane and goes and flies around. He can tell, does it feel right when he gets there? That will give us a ton. This has been awesome, man. I don’t want to get out of here yet, so I want to do a couple last segments of this show. Why don’t we move over and dig into one of your deals? It’s time for the Deal Deep Dive.

David Greene:
Deal Deep Dive.

Brandon Turner:
All right. This is the Deal Deep Dive. It’s the part of the show where we dive deep into one particular property that you’ve recently, or at some point in your life, bought. Sergio, do you have anything in mind we can dig into? We got about eight questions to ask about this property, but you got something in mind?

Sergio Altomare:
If it’s in self-storage, we don’t have a full cycle. If it’s small or multifamily…

Brandon Turner:
That’s fine.

Sergio Altomare:
Do you want to do self-storage?

Brandon Turner:
Let’s do self-storage, and yeah, it doesn’t have to be full-cycle. That’s fine.

Sergio Altomare:
All right, let’s go with Bird-in-Hand Self-Storage.

Brandon Turner:
All right. The first question is, what type of property is it, and where’s it located?

Sergio Altomare:
It’s self-storage, about 25,000 net rentable square feet, in Bird-in-Hand, Pennsylvania, which is near Lancaster.

David Greene:
How did you find this property?

Sergio Altomare:
It was listed, broker listed. I made connections with a company called Investment Real Estate there in Central Pennsylvania. That’s all they do, is self-storage properties. I connected with a guy, an awesome guy. I still talk to him from time to time, a guy by the name Kevin [Bludso 00:56:12] who is in the industry. After looking at some other deals that we made some offers, couldn’t get one over the finish line, this hit a sweet spot in terms of it was the right size. It was the right location, about an hour and 20-minute drive for Corinn and I to go take a look at it.
The raise was about 700,000. We felt comfortable with it, went out there, looked at the property, met the owner, which is another element of when something feels right, is talking to the owner, when we were talking earlier. Meeting the owner, knowing his circumstances, and why he wanted to sell, it really felt good. It checked off all the boxes that we needed. Essentially, we made a hard run at it. Once I got to a certain point where it felt right, there was nothing that I was going to do to not get the property.

Brandon Turner:
All right. What was the original asking price, and what’d you end up paying for it?

Sergio Altomare:
It was about 1.65 million, and we ended up paying 1.775 million.

Brandon Turner:
All right. 1.775. All right.

David Greene:
How did you negotiate that price?

Sergio Altomare:
It was a lot of back and forth. Our initial offer was about $25,000 over list. I accompanied it with a letter basically because I knew the circumstances of the seller. I knew his circumstances, so I accompanied it with a letter and basically just said, “I want to treat you and your wife to a vacation.” I added $25,000 in a cover letter. It turned out that some other people wanted it just as bad. It went back and forth a couple times, and they asked for best and final. I went as high as my underwriting would allow me to go, and that’s pretty much how the deal was accepted. The letter and presentation that… and talk… and me getting to meet the owner, making him feel comfortable really helped as well. Awesome guy, by the way. Yep.

Brandon Turner:
That’s great, man. I love that. I love the attention to detail on those different negotiation pieces. It shows it’s not always just about number, but that’s a big piece of it. You went up to the number you could do, and you got the deal. Very cool. How did you fund it? What’d you do for financing?

Sergio Altomare:
We funded it with a local bank. Essentially, we were just looking for the best terms. How we actually found the bank, I’m not 100% sure. I don’t remember. It’s Univest Bank, who we’ve done a lot of work with since. We’ve actually gotten to be buddies with the lender, and we have some contacts there. The rest of it was we were parlaying the exits of our multifamily, so we knew that we were returning over a million to our investors. Assuming we didn’t have a whole lot of drop off and people that took money and run and spend it, we knew that we would have the capital to bring to the table there. My wife and I, we typically invest in all of our own deals as well, so I always like to bring money to the table, and now somebody on our team is always bringing money to the table. That was pretty much how we got the financing, a 25-year term, 25-year amortization, a five-year term. I think 3.5% is what we got.

Brandon Turner:
Very cool. Very cool. You raised the down payment from your investors. This is getting a little in the weeds here, but was this like a 506(c) or 506(b), or what kind of syndication was it?

Sergio Altomare:
It was a 506(b). Up until now, we’ve only done 506(b) raises. We’re actually going to be shifting to 506(c) going forward, but that was a 506(b) raise.

Brandon Turner:
For those who might care, do you want to explain the difference real quick? I know it’s, again, a more complicated topic, but…

Sergio Altomare:
Yeah. 506(c) deals are essentially limited to only accredited investors, accredited investors who make… What is it? 200 or 300 with a wife, 1,000 dollars a year, have a net worth of a million dollars, not including your primary residence. 506(b), you’re allowed to raise money for up to 35 friends and family.

Brandon Turner:
Perfect. Perfect. Yeah. I’ve only done (c) because I want to be able to talk about it and advertise, and so I can do that with a (c), but I can only do take accredited. It’s sad. I have a ton of friends that would love to invest with me and I’m like, “Sorry, I can’t take your money unless you go make… Go make 200,000 a year or 300,000 a year. Then we can talk.” All right, next question, David.

David Greene:
Next question, what did you do with the property once you bought it?

Sergio Altomare:
The business plan that we had in place was going from paper ledgers. They literally were operating it with paper and pen, so paper ledgers, implementing the backend platform. We’re using SiteLink on the backend storage. Facility Management System is what it’s called. The technology piece was the first thing that we did, so implementing the technology, getting people to start using online rent payments. We implemented an online portal for that, electronic leases. The big, main project up front was a technology overhaul. From there, our business plan was to repave the lot. There was some potholes. There was some overgrown grass where some parking was. We redid the parking. We upgraded the gate system. The gate system, you had to literally go up to the keypad to program, provision, or de-provision a gate code.
The first time I did that, I said that was the first thing to go, so we ripped that out. We implemented a gate system that allowed it to be integrated with the software, so now instead of taking two minutes… Literally, if you typed the code incorrectly, you had to wait three whole minutes to do it again. It was a nightmare. We did that. We converted. This was over the course of probably a year. We implemented our business in record time, with the exception of the paving. Paving got held up by COVID in winter, but we repaved the lot. When we repaved the lot, we added an extra 10 parking spots just for being better organized and re-striping the lot. We converted some inside units to climate-controlled. We changed out LED lighting. From there, it was just a… put a new brand, logo. From there, it was just onto revenue management. There was no tenant disturbed during this whole time.

Brandon Turner:
Very cool. Was it basically cash flowing the entire time you were doing this thing, or was it losing money until you got it up and running and increased rent?

Sergio Altomare:
Well, if you’re going to go conventional or traditional financing, it’s got to cash-flow. We got a debt-service coverage ratio that we had to meet, so one in a quarter. Now, granted, some of it is based on… They want to look at the tax returns of the facility, as well as our proforma or underwriting. We knew that we could hit. You don’t want to buy a property if it’s not cash-flow, unless you got a business plan that’s predicated on that. But anyway, we had the debt-service coverage ratio from the get-go, and then from there, it was all about maximizing it. The first month that we took over the property, it was generating about somewhere between $14,000, $15,000 a month gross, and now we’re at 25,000 to 27,000 a month.

Brandon Turner:
Wow. Dude, that’s awesome. Well, the reason I asked that question about, “Was the cash flowing?” and I love that you emphasize this… It’s like, “If you’re buying a commercial property like this, the bank’s going to want to see it cash-flow right away.” It’s just the difference between buying… If I go buy a duplex, chances are I’m going to have to renovate it, kick out the tenants, or wait until they leave. I’m going to be losing money six months to a year, and then I finally get it rented out. There’s a degree of risk there. But what’s fun about the commercial stuff that we’re buying, whether mobile-home parks, apartment complexes, whatever, is they should cash-flow from the beginning. They’re designed to do that. That’s the very nature of multifamily. When I say multifamily, I’m including self-storage and mobile-home parks. They’re designed to do that. I don’t know. It blew my mind when I realized that, that that was a thing. I didn’t have to just lose money every month for a year while I renovated, so anyway, big fan. All right, man. Last question, what lessons do you feel like you learned from this deal?

Sergio Altomare:
Well, the number one lesson that I learned was executing the business plan specifically around the revenue management is the most critical part. We were really slow out of the gate. We were always afraid. People say, “You raise rents 3%, 5%, 7%, whatever.” We did that really slow because we were afraid, “What if everybody leaves?” Right?

Brandon Turner:
Yeah.

Sergio Altomare:
In every text you read, and you tend to… like, “That doesn’t sound right,” and so you didn’t do it. We weren’t aggressive with our rent increases out of the gate. We didn’t hire right out of the gate. We were just trying to get a body in place until we eventually said, “Okay. Well, how do we really hire properly?” The biggest thing was the revenue management, getting that piece of the business plan. The property’s doing phenomenal. It’s a home run right now. Had we done that right out of the gate, this thing would be even operating at an even higher level right now.
But again, that’s a valuable lesson that we got going into it. The hiring piece was more difficult. It took us quite a while to get the right person in there, but that’s where we had take a step back and run the place ourselves, because we didn’t know… When somebody’s not running it correctly, if you don’t know what you’re doing, and you’re the one who’s supposed to be training them and giving them the awareness, then that’s on you. We had to run it. Yeah. Otherwise, it was awesome all the way around, and it’s still kicking butt now. It’s still our baby.

Brandon Turner:
Very cool, man. I love it. That’s the one you said was worth three, three and a half, or is a that different project?

Sergio Altomare:
No, that’s it. It’s worth about three and a half now.

Brandon Turner:
Okay. Awesome.

Sergio Altomare:
It’s phenomenal.

Brandon Turner:
There’s still plenty of room to run with it. That’s the wild thing. When we sell the property, it’ll probably still be a value-add. But at this point, when we look at the IRR and returns, we’d be foolish not to optimize and get the returns for our investors.
I love it, man. Very, very cool. I love it. I love Deal Deep Dives because I’ve not done self-storage, so to hear the numbers, how it plays out, and what’s possible, it’s a lot of fun, so thank you. With that said, we got to move on to the last segment of the show, and that is our…

Speaker 5:
Famous Four.

Brandon Turner:
This is the part of the show where we ask the same four questions to every guest every weekend. We have done so for over 500 episodes. Sergio, favorite either all-time or current favorite real estate-related book?

Sergio Altomare:
I would have to credit my success to the Principles of Real Estate Syndication. This is a book my father-in-law gave me that introduced me to the concept. It was written in the ’60s or ’70s, highly technical, but that blew my mind. I’m not going to give you the same corny answer, Rich Dad Poor Dad. Those were all part of it. But the one that really got me to think in multiples and understanding leverage, that was the book.

Brandon Turner:
Very cool.

David Greene:
What is your favorite business book.

Sergio Altomare:
Right now, I would say Traction. We are implementing the EOS with our company, and really understanding roles, responsibilities, and everything associated. Then I don’t know if we would classify it, Who Not How was really a mind-blowing book for me to really get me to change my approach to business and understanding building a dynamic and rockstar team really makes a big difference.

David Greene:
When you’re not doing real estate, what are some of your hobbies?

Sergio Altomare:
My wife, daughter, and I, we like to travel. Everything we do is for experiencing life in its fullest. I love giving back. We’re very big into education. My wife, Corrine, who I love dearly, she’s big into education. She leads Philadelphia InvestHER community. She’s written a book, The Only Woman in the Room, a chapter in self-storage, along with Ashley Wilson, Faircloth, and a number of ladies there. It’s about giving back. We love educating our friends, family. I like the finer things in life, and I don’t mean stuff. I love a good meal where a chef puts a lot of attention to detail. The RV business started from a passion of just getting out and going camping and buying an RV and experiencing that. I’m like, “Man, I got to get more people to be part of this.” The biggest thing I needed with that was a place to store the RVs, and I know a guy with a self-storage facility, so it kind of worked [inaudible 01:08:05].

Brandon Turner:
I love it, man. Very cool. All right. Well, my last question of the day, if you really had to boil it down, what do you believe separates successful real-estate investors from those who give up, fail, or never get started?

Sergio Altomare:
It’s about, “How deep is your belief? Why are you getting involved in it?” If you’re just chasing money, you can do that, and you can buy a bunch of properties. To be successful is really believing what your why is and then adjusting your strategy. You develop a strategy that’s for any given time, whether it’s… For me, it was buying multifamily. I wanted to grow my own personal wealth. Then it was, “How do I pivot my strategy?” Our strategy went from individual investing, syndication in multifamily, then self-storage, and now it’s exponential growth in self-storage and private equity. It’s about knowing your strategy and then having the why behind it that is going to make you successful. There’s all the books and knowledge and continuously educating yourself. You can never stop learning in this industry. I’m fortunate enough to have a background in technology where you have to continuously learn, but the same thing with real estate is you have to continuously learn and never stop.

David Greene:
That is awesome. For people that want to know more about your fascinating story, where can they find out more about you?

Sergio Altomare:
Invest with Sergio. There you can get redirected to all of our companies and our syndication platform. There’s links to my bio, my team’s bio. I work with a lot of phenomenal people. I’ve been fortunate enough to know where my limitations are and connect myself with a lot of awesome people, so I look at… Our company is not just about me. It’s about the guys behind me. Through our platform, you can connect with us, whether it’s LinkedIn… I think even my email and whatnot is out there.

David Greene:
Awesome, man.

Brandon Turner:
Well, thank you for joining us today. It’s been phenomenal. It’s been a long time coming, so I’m excited to kind… It was good to dig into your story and learn a bit more about self-storage because this is a fascinating industry. I feel like it’s me with mobile-home parks four years ago. I’m super into it right now. It’s fun to learn more. Thank you, Sergio.

Sergio Altomare:
Absolutely, man. I appreciate you guys. I’ve been a fan a long time, man. You guys are the rock stars in real estate, so thank you.

Brandon Turner:
Thank you, dude. That was our episode with Sergio Altomare. I actually don’t know if that’s how you say his last name. Sergio, I apologize if it’s Altomare or Altomare or something. I don’t know. I know you’re Italian, so maybe there’s a fun… You got to do that with your hand, like, spaghetti, Altomare.

David Greene:
That’s right. Yeah, anyway.

Brandon Turner:
Sergio, you’re the man. I loved talking with you, dude. Yeah. Sergio was actually on the show because I was on stage at a GoBundance event. GoBundance is the group that David and I are in. I’m on stage at this event telling my story and how I built Open Door Capital and all that. Afterwards, we did some Q&A. Sergio gets the mic. The room is 500 people. Sergio just goes into this story about how BiggerPockets was there at every single stage of his career and how it helped him so much. We didn’t want to dig into too much of that today because I didn’t want this to just be like, “Go BiggerPockets,” but I will just say it was cool to hear just what the impact of BiggerPockets, from the books to the blogs to the forum to the podcast, has had in shaping him as an investor.
Anyway, the question he had to ask at the end of that was, “So when are you going to invite me on the podcast?” At that moment, of course I’m going to invite him on the podcast, not because there’s a room of people watching, but because I love stories of people who were going in one direction and then BiggerPockets went in and changed the direction. It is a pivot company that can change the direction of a life. Like I asked in the main show, don’t be afraid to share. Like, review, and comment and such on the information, but then share this with somebody you think would be excited to hear about having a different life than the one prescribed for them. Good stuff today. David, anything you want to add?

David Greene:
Well, I think it was a cool blend of seeing how somebody was the GoBundance, “Get out there and do it,” mindset paired with the BiggerPockets of, “I want financial freedom, and I’m going to build it for myself,” married together and created this awesome trajectory. Like you said, he grows in multiples. Sergio’s taking really big, big chunks. What I’ve seen him do over the years has increasingly increased. A terrible way to say what I’m saying, but I think you know what I mean.

Brandon Turner:
Yeah. I totally got what you mean. Yeah. Scaling was definitely the theme of today into those larger deals, and I love hearing that. With that said, we got to get out of here. David, it’s been a pleasure.

David Greene:
Let’s do it.

Brandon Turner:
We got one more episode coming on Sunday, and then it’s time for me to take some time off. It’s going to be great. I’m looking forward-

David Greene:
You may be taking time away from the podcast, but you’re never getting away from me because-

Brandon Turner:
No, I know. You’re [crosstalk 01:12:41].

David Greene:
Your bobblehead will sit over my shoulder.

Brandon Turner:
You’re probably going to come hang out with me in a month.

David Greene:
That’s exactly right.

Brandon Turner:
We’ll hang out. All right, dude. Why don’t you get us out of here today?

David Greene:
This is David Greene for Brandon, trapped him in a corner, and you can weasel your way into the podcast, Turner signing off.