Travis Baucom is the President of Balcomie Capital, a private investment group that partners with high-net-worth individuals who seek tax-advantaged investments to build generational wealth while providing passive income. In this episode, Travis talks about his investment journey from single-family homes to self-storage facilities. He discusses why self-storage is getting all the buzz lately, his due diligence process for purchasing a new facility, and why he chose to move away from the multifamily asset class.
Travis Baucom | Real Estate Background
- President of Balcomie Capital, a private investment group that partners with high-net-worth individuals who seek tax-advantaged investments to build generational wealth while providing passive income.
- Portfolio:
- 1,827 self-storage units
- Based in: Waco, TX
- Say hi to him at:
- Best Ever Book: Margin of Safety by Seth Klarman
- Greatest Lesson: Never give up. When things were super challenging in my life, I embraced the suck and learned from whatever I was going through.
Click here to learn more about our sponsors:
TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and I'm here with Travis Baucom. Travis is based in Waco, Texas. He's the president of about Baucomi Capital, which buys and builds storage facilities across the United States. They currently have over 1,800 units, all self storage; over 330,000 net rentable square feet, at a valuation of over $30 million. Travis, can you tell us a little bit more about your background, and what you're currently focused on?
Travis Baucom: Yeah, for sure. My background is 10 years ago, or I guess 11 years ago, I bought my first house. I started with houses, like the majority of real estate investors do. It was a HUD home; I didn't have a lot of money in the bank, because I [unintelligible 00:01:27.04] a few names here in Waco, I was able to get a pretty aggressive loan. So I would buy my first rental property, and then I was off to the races at that point. We ended up buying over 400 houses in five years., and then as many of the listeners know, I'm sure, that housing is a grind... In my opinion you can make a lot more money through forced appreciation with commercial. And so I came to the revelation in 2018 that I needed to find a different vehicle to make money, and so we sold all the houses; it took about two years to really strategically to sell them, and then we started getting into storage.
Slocomb Reed: Gotcha. So you talked about the stressors and the lack of scalability in the single family homes. Why self storage?
Travis Baucom: Self-storage tends to be the boring, unsexy asset class... It's started to get a little more buzz now, but not a lot of people are posting about their 300 units storage facility. "Look at this metal building I bought in rural America." It's not really as sexy as an apartment complex, or buying a Starbucks, and then going and getting a Starbucks as your tenant.
Storage, for our group - we love the really low-risk nature of the asset class. Primarily, in our smallest facility, we're looking at 396 units; we could lose 40 of those units and still have 350 tenants. The operating costs on this sort of facilities is a lot lower than it is on apartments; typically, around 50%-60% of whatever you bring in is going into operating costs, whereas storage it can be as little as 21% if you have a big enough facility, and you run it efficiently. Finally, maintenance, which is a make or break on all asset classes out there, is almost non-existent. Occasionally, we'll have a roll-up door that needs to get a new spring, which cost 60 bucks, or someone runs into a unit... But generally speaking, maintenance is just very, very minimal. And primarily because you're only dealing with a few pieces of building material. You're dealing with steel, you're dealing with concrete, and you're dealing with gravel, or some sort of concrete substrate to drive on. So both of those things are incredibly durable, and it allows the insurance to be really low, it allows maintenance to be non-existent, it allows the operating expenses, for the most part, to be really low.
Most of our facilities we run remotely. That's another benefit; you don't actually have to be there. We have cameras that we can look at the facility anytime you want... And we don't have to have anyone on-site, which means we don't have to pay $45,000 for someone who wants to sit there and play computer games all day until you get a tenant walking in to sign a lease.
Slocomb Reed: Gotcha. When did you first get into self storage?
Travis Baucom: We bought our first facility in 2021. We'd been looking for about 18 months and hadn't really found anything that we wanted to buy. And then due to selling a lot of those houses I was referring to previously, we had a huge tax liability that we were going to have to pay; it was like 137,000 bucks, and I was like "Man, I'm gonna need to buy something", [unintelligible 00:04:11.00] my taxable liability. So on December 30th, 2021, we actually closed on our first facility, and I was 48 hours away from having to write a $137,000 check to the government. So we were specifically looking at storage, but at that moment I was like "I'll buy anything", for the most part. Not to have anything cashflow, and not have to pay that [unintelligible 00:04:30.17]
Slocomb Reed: You had a huge incentive there.
Travis Baucom: Huge incentive.
Slocomb Reed: December 30th of 2021... We're recording in early 2023, which means in the last 18 months or so you've scaled that portfolio to over 1,800 units. I said 30 million in assets under management. You said that number might be old, and you're working on an $18 million development right now that you were telling me about before the recording, right?
Travis Baucom: Correct. Your numbers are accurate. We have grown pretty exponentially. Last year alone we bought seven facilities. And then this year, our goal is to buy or build a facility once a quarter, but the city and municipalities are really slow on those permits.
One of the things we are doing is we're building a brand new [unintelligible 00:05:19.19] Class A three story climate controlled storage facility in Austin, Texas. We're just about to start the capital raise for that. Pretty excited about that; we should be digging dirt around May. That's a dream come true for me. That's just putting myself in a place I would never ever, ever, ever would have thought I'd be able to build something like that.
In addition, as far as the 30 million, primarily the reason we were so ambitious and aggressive is we really feel like the multifamily space in 2012 most of the multifamily was owned by mom and pop shops, 70% 80%. And now, I'm sure Joe could confirm those numbers, or anyone at the Best Ever podcast could confirm those numbers, but now most of them are corporate owned, meaning a lot of the juices have been squeezed on the multifamily asset. I feel like the next asset for that happen will be self-storage. So I think self-storage is kind of like in a 2012 space; it's just now getting buzz as a safe, reliable, recession-resistant asset class, and we're gonna see it run up of a bunch of guys like me, buying facilities and syndicating facilities and getting them somewhere and exiting them after doubling rents, after improving the facilities. And so I think in another 10 years, a lot of the juice is going to be squeezed in the self storage space, and we're going to be looking at a lot more corporate ownership, as opposed to mom and pops, that sort of thing.
Slocomb Reed: That makes a lot of sense with also the reasoning behind your desire to scale quickly. I want to talk about that growth, the rate at which you have scaled your business, Travis. What would you say are the reasons why you've been able to scale in self-storage so quickly?
Travis Baucom: We have a decade of experience of buying real estate. And not only do we have a decade of experience of buying real estate, but we have a decade of aggressively buying real estate. As I previously mentioned, we went from buying one house in 2012, to buying over 400 by 2018. So I have a very aggressive personality. If there's opportunity out there, I want all of the opportunity; I want to fully take advantage of that.
I would say in addition to that, we have great limited partners. A lot of our limited partners have invested in every single one of our deals, and some they've shared with their friends, that sort of thing. So we've been able to get good traction on the hardest part of this business, in my opinion, which is capital raising. And in addition to that, banking relationships - we've not always batted 1000, but when we're striking out on houses, or we're striking out on things, we always made sure that our banks knew exactly where we were at, what our strategy was going to be to get out of it... And because of that, we have really, really strong relationships with banks, and then just from my history, I've got a great balance sheet, so I'm able to borrow a lot of money. So when you add borrowing money, and being aggressive, and being able to find the capital, and finding the deal, it allows you to really aggressively grow.
Slocomb Reed: You said there have been some deals that you've struck out on. Have any of those been self storage deals?
Travis Baucom: They haven't. We're actually really [unintelligible 00:08:15.17] self storage space. The deals that went wrong for us were things that were outside of our avatar, our average purchasing. So like back in the house days, if our average purchase was 100,000, and we'd put 50 grand in and sell for 200k, the ones that we lost money on were the ones that we ended up getting sandwiched on would be pay 300 grand, put 400 grand into it, and hoping to sell for a million, and we'd sell for 615k... So we'd lose our shirts so bad.
So that was like the fifth deal ever, actually, the one I was just telling you about. And then we actually did buy an apartment complex. It was a 20 unit apartment complex, and we got a really good deal on it. $6,500 a door. I was bragging to all my friends about how I made one of the best purchases ever. And lo and behold, nine months after that, we kind of realized why; there's a lot of small businesses going on in that 20-unit apartment complex. There was a lot of rough stuff.
I think the energy didn't really escalate till about 3am every night, after a good amount of illicit drugs were used and alcohol was consumed. But we couldn't get good people in, so all we had was druggies, and homeless people, and prostitutes. It was just a disaster. That's also one of the reasons why I'm not in the multifamily space... It's just, I don't want to deal with that type of human ever again. And being in the single family rental space, being in the small apartment building owning space, I never really felt fulfilled... Even when we were making money, which wasn't that often, on the rental side of things, I never really felt like I'm doing a good thing for the world. And I feel like with storage the human element for the most part is eliminated. We're just an extra closet for somebody. Our facility in Oklahoma City that we have, we're just a place for you to put your boat, and a place to put your RV. And I just love that so much more, because you're not having to deal with people's life.
I remember getting a call at 7am - my first duplex, my third property to buy was a duplex, and the people that lived there called me at 7am on a Saturday, that the house was on fire, and they were just having a marital dispute, and wanted my opinion on it... I'm like "Don't ever call me again. Just pay your rent. I'm not your therapist, don't ever call me again." You know, it was just a disaster. And so eight years of that, you're just like, "I've gotta get out of that."
And so that's why we went into storage, because it seems like I had to find something that had a very low level of failure, for the most part, so that I could learn, I could get really good at it and take off on it. But the podcast isn't long enough to tell all the failures, but the one about the purchase for 300 grand, put 400 grand into it, hoping to sell for a million, but ended up selling it for 615,000 - that was the most painful one I had. It was a $228,000 loss on that.
And so another reason - if you look at that, the houses, those are all speculative; like, I'm hoping to sell something in the future for more money. Whereas storage, every month we bring this money in; sometimes it might go down, it might go up, but every month we can at least count on this. So it's more of owning a business, where I generally think house flipping is the most dangerous thing you can do as a real estate investor. It helps you get a little bit of money, but once you get a little bit of money, you really really need to move on to something other than owning houses, or flipping houses, in my opinion.
Break: [00:11:25.06]
Slocomb Reed: Transitioning the conversation back to your self storage investing, Travis, there are a few questions I want to ask. But I think where I want to start is, what do you think are the most important components to the due diligence process, when you're looking at either buying an existing facility, or when you're looking at land that could be developed into storage? Another way to ask that question is maybe not in your own experience, but where do you see the most mistakes made, or where do you see mistakes being the most costly in due diligence?
Travis Baucom: That is a great question. People don't need self storage; they need to live in a house. They don't need to store their stuff; they can put it in the garage, they can throw it away, they can give it to someone else, they can try to sell it at a garage sale... They don't need to store it. But for some reason, Americans hate throwing stuff away, so the self-storage industry is really big in America. And so in that thread, basically, the storage market, when you're looking at a piece of land or an existing facility, you want to see who are the competitors, and how full are those competitors.
So if you do a three to five-mile radius search, ExtraSpace says that they pulled most of their tenants through a four mile radius of where their facility is. So if their facility is here, they're basically taking tenants from four miles away on a radius of that. So you want to pull a four mile radius search of all the storage facilities in that area, and then all the population in that area as well.
So you get your population, and then you get your storage facilities... You want to a secret shop them. So you call them and say "Hey, Slocomb, this is Travis. I'm flipping a house down the street. I need seven 10x10s to put my building materials in. Can you help me with that?" And if your response is, "Oh, yeah, we have plenty of storage for you here. You just come on down, we'll figure something out for you." So that'd be one of the responses. Or the second response would be like "Oh, man, seven? Uh..." You can tell it's kind of stressing them out. They're like, "All we've got right now is a 5x10." You're like "Okay. Alright, well, I'll call someone else. Thank you so much." And typically, those managers, if they're really well trained, they'll try to get you that 5x10. If they're not just sweet little grandmas just hanging out in those rooms, they're really good at helping people.
So one thing you learned is if all they have is a 5x10 is that they're completely full. And so there's probably enough demand for more units. And if you call the other seven facilities or whatever in that area, and those are also full, or maybe you can get on their website and you see that they're full, because their units available, or like -- you know, if it says 10 by 10, and it says waiting list, 5 by 10 waiting list... Then you know that there's probably some good opportunity.
Another way you could do that is hire a third party feasibility lady. And typically, a lot of banks require that; that's what we do, is if we think we find a pretty good property, then we'll hire a third party consultant for like 7,500 bucks to go in there and make sure that what we've found is the same thing they're finding. The person we use has 35 years of experience with storage. I'm 37, so she has been doing this since I was born, basically... So she knows more than I do about it. She's seen the trends, she's seen what happens, that sort of thing; she knows how to move things around and really pull the data correctly.
So that's one of the best things to do... Outside of that, if you're building, you really need a big square of land. We've attempted, and we're doing it, but it's a lot more expensive than you otherwise would. But if you can get a big square, your building costs could be a lot less than if you have a long narrow piece of land. So that will get you pretty far; that gets you a lot further than just wandering, scratching your head on if you have a good deal.
Another thing is on the subject property, you want to look to make sure it has somewhere around 90% occupancy or more. If it's like 94, 95, you know that you can probably raise rates without losing a lot of tenants; if you lose a little bit of tenants, you are still going to be at the 85% occupancy mark, which is basically -- I know in apartments or in multifamily 98% to 92% is considered stabilized; well, in storage, 85% is considered stabilized. So if they're above 85%, generally speaking, you can raise rents. If they're below that, we're increasing marketing to get that up to that 90%, so that we can raise rents.
Slocomb Reed: Travis, in the properties you're considering purchasing or in the markets that you're looking to break into, how much of a factor do you place on the possibility of new construction coming in and disrupting the supply and demand balance in that area?
Travis Baucom: Yeah, that's a tough one. There's a lot of storage being built right now. It really depends. So when we're purchasing land to build a storage facility, what we're really looking for outside of those metrics I was just hinting at is we're really looking at how difficult is it to build that storage facility from a planning and zoning standpoint. So since I'm so close to Travis County and Williamson County or Austin, Texas, and our new facility is going to be in Georgetown, Texas... Georgetown is an incredibly challenging market to build anything storage related, because one, city planners, they don't want storage; that doesn't really provide employment. Historically, it's kind of ugly. So we look for those that you have to get a special use permit, you look for those that's going to take a little bit to get the planning and zoning dynamics a little bit, meaning like 18 months to two years...
The reason why is if we go through this slog of getting that property entitled and permitted and ready to build, I know that there is a lot better of a chance that no one else is gonna freaking go through the two years of hell that I go through to get that thing built. So it's kind of an insurance policy, like "Man, this is kind of nice; we can actually, probably bank on the fact that there's not gonna be another facility just open right down the street from us." So that's one way we do it.
In some of the smaller rural areas, what I've learned is -- that was a huge fear of mine... But what I've learned is the people that are very practical, and they're not as ambitious, they're just kind of like, "Hey, we're gonna do what we do, and we're gonna continue to do it." There's a city in Texas where I own five of the six facilities, and the other owner - we had lunch, and we were talking about another gentleman who was thinking about putting storage up, and this 86-year-old man goes "I just don't understand why he would do that, because I don't think the city can handle any more storage." And he never built it, but generally speaking, it's just kind of a risk you take. But with that said, that's why underwriting it really well, purchasing it, being aggressive on your rents, and then staving off future rents is really important.
So if you take a facility and let's say it's $40 for a 10 by 10, and you slowly over a year get it to 65, to 70, which is totally doable, we've done that several times - two things have happened. One, we've increased the value quite a bit by doing that, because the net operating income... It's not like we had operating expenses on top of that. That's just all net operating income. And then two, if we had to lowball and really drop our rates, we have a good amount of bandwidth to do that, to take out the competition or to stave off the tenants leaving, that sort of thing.
But yeah, that is definitely a risk. It's not as practical of a risk as most people would think. We've never had any issue -- generally speaking, if you buy a storage facility in a population that's growing in populous, meaning the population increases every year, you're going to find yourself with plenty of tenants to put in those facilities. Nationwide, I think the historic four-year default rate is under 3%. I know during 2008 it was 1.96%. So it's super-low. So most of these end up working out, basically, it's a good way to think about it.
Slocomb Reed: That makes a lot of sense. Travis, are you ready for the best ever lightning round?
Travis Baucom: Sure.
Slocomb Reed: What is the best ever book you recently read?
Travis Baucom: The best book that anyone should read is a book called "Margin of safety." It's not in print anymore. You can find it on Amazon for 1,200-1,400 bucks, because it's that valuable of a book. Most investment bankers have read it, they know about it. But outside of the investment banking world, most haven't. But the reason why it's super-important that I think every real estate investor should read the first two parts - the third part is incredibly confusing. It's all about derivatives, and real estate investors don't have to do with it. But the reason why I think Part One and Part Two is really great and everyone should read it is because it talks about, everyone can get excited about buying an asset, or buying an investment, or investing into an investment. But people rarely, rarely think, "What is the downside? What is this thing goes bad? Will I lose everything?" And if you structure your investments with that premise, meaning "If all my expectations don't work, will I still be able to get my cash back?" you're gonna be so much further along in 10-year trajectory than someone who's like "I'm just gonna throw it, maybe make 30%, maybe lose 30%." And I think that's super-important, because real estate investors are visionaries. There's very few of us who are actually integrators. Most of us go "Man, we can take that piece of crap house, fix it up, make it look real pretty, and then list it on the MLS and make 30-40 grand." Most of us don't look at it and go, "Okay, well, I could also lose a bunch, because there's a homeless encampment across the street." So that'd be a book I'd recommend everyone read; it's one of my favorite books, that as I get older, I'll make sure my son reads, and my daughters read.
Slocomb Reed: And that's why Seth Klarman?
Travis Baucom: It is by Seth Klarman, who does not want to republish it. According to Wikipedia, he's worth $15 billion, so you can take the advice of someone who's worth $15 billion. The way I've downloaded it is you have to get on etsy.com, and there's a $9.99 version. It's digital, and then I had UPS sort of bind it, and that's how I read it.
Slocomb Reed: Wow. Unfortunately, we have to expedite the best ever lightning round... Travis, what is your best ever advice?
Travis Baucom: To never give up, really. I think there's plenty of times in my career where I could have given up and just went and worked for 75 grand a year, 100 grand a year. I would have probably been happy, but I'm so glad I didn't. When things were super-challenging in my life, just sticking with it, embracing the suck, making sure I just don't quit, really trying to learn from what I was going through, even though it was massively uncomfortable... I think that is some of the best advice you can give, is just don't quit, and learn from whatever the hell you're going through.
Slocomb Reed: Last question, where can people get in touch with you?
Travis Baucom: There's two places you can go. You can go to investwithTravis if you're interested in passively investing with Alchemy Capital. If you're looking to go from house flipping to investing in commercial space, you can go to [unintelligible 00:22:51.02]
Slocomb Reed: Awesome. Those links are in the show notes. Travis, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend that you know we can add value to through our conversation today. Thank you, and have a best ever day.
Website disclaimer
This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.
The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.
No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.
Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.
Oral Disclaimer
The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.
