Mike Wagner Real Estate Background:
- Full-time real estate investor with 13 years of experience
- In 4 years he built a portfolio of 31 doors
- In 2011 he focused in self-storage making over $1.5 million on his first deal
- Based in Farmington, NY
- Say hi to him at: members.thestoragerebellion.com
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Best Ever Tweet:
“I am a low volume, high margin investor” – Mike Wagner
TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever; we don’t get into any of that fluffy stuff. With us today, Mike Wagner. How are you doing, Mike?
Mike Wagner: I’m very well. Thanks, Joe. How are you?
Joe Fairless: I am well and looking forward to our conversation. A little bit about Mike – he’s a full-time real estate investor with 13 years of experience, and in his first four years, he built a portfolio 31 doors, then he transitioned. In 2011, he focused on self-storage, making over $1.5 million on his first deal – we must talk about that – based right outside of Rochester, New York, in Farmington. So with that being said, Mike, do you want to give the Best Ever listeners a little bit more about your background and your current focus?
Mike Wagner: Absolutely. Very briefly, I entered the real world as a physical therapist, doing the 9 to 5 thing, and I spent six years and about a quarter-million dollars getting certified and trained to do that, and about six weeks after I started, I realized it wasn’t for me, and so that’s what led me to real estate in general.
Joe Fairless: How come?
Mike Wagner: I enjoyed being a therapist, but long story short, I wanted to be the one who is in control of my time rather than having a boss tell me how often I could vacation and when I had to be back, and all of that stuff. So I started like a lot of investors do and I bought a duplex, with your typical little money down, seller financing deal, and I rehabbed it and put tenants in, and then refinanced to pull my money. It was the BRRRR strategy before I had a lot of initials to describe it. And over four years, I rinsed and repeated, and as you mentioned, got up to 31 doors.
Long story short, my wife and I were actually down on a vacation in Costa Rica, and it occurred to me that that was the life I wanted to live, not the one where I was punching a clock, as they say. So the landlording, it worked okay, and a lot of people do it very well. There were parts that I didn’t love, but generally speaking, it worked. I was making money; it just wasn’t getting me where I wanted to go fast enough, so that’s when I started looking at alternatives and ultimately, what led me to self-storage.
Joe Fairless: So let’s talk about it. So the 31 doors was through the BRRRR method before it was called the BRRRR method.
Mike Wagner: Correct.
Joe Fairless: Okay, and then in 2011, that’s when you focused on self-storage, is that accurate?
Mike Wagner: Exactly. I had been poking around a little bit before that. I was intrigued by the idea, but I closed on my first property in September of 2011. It was 12 days after I turned 30. I really wanted to quit my day job before I hit 30 and I missed it by 12 days, but I bought that property at the time. I gave up my physical therapy income, roughly 75 grand or so, and bought the storage facility that, with my debt, was losing two grand a month. So it was essentially $100,000 swing in the wrong direction.
Joe Fairless: Huh. So it was losing $2,000 a month when you purchased it and you knew that going into it?
Mike Wagner: I did, and it was making ten grand before debt service, but clearly, with the debt I put on it, that’s what put us on the wrong side of zero. Most of your listeners are probably thinking, “Well, we should tune out now; this guy’s clearly an idiot,” but I promise you it worked out in the end. That’s the same deal that I ended up clearing over $1.5 million on while I owned it.
Joe Fairless: Please elaborate – business model and numbers and how that ended up happening.
Mike Wagner: Yeah, sure thing. At the highest level, I’m a value add investor. So I look for storage facilities that are underperforming, and quite simply what I tried to figure out are the answers to two questions. Why is it underperforming, and then honestly, am I capable of fixing it? If I can answer those two questions, I get excited. And this particular deal, it was actually less than half full from an economic standpoint. It was half full physically, but it had the capability of generating as it sat when I bought it $150,000 a year in revenue, yet the current owner was running it such that she was collecting about 50k in revenue. So clearly, there was a management issue, but what my job was to figure out, is that the only problem or is there some other fatal flaw I don’t know about? So through my due diligence, I just saw the answers to that question. Can I fix this and is there a fatal flaw? What I ended up concluding was that it was just a management thing and if run properly, I could turn it around.
So within nine months of buying it, I had an appraisal on that property for $750,000. I should tell you that I paid $350,000 for it. So that was our first equity explosion, and man, at the time, I thought that was as good as it could get. I had left a job and I didn’t go bankrupt in the process, I had turned the property around. But that was only, like I said, 9 to 12 months into it from there; we expanded, we tripled the size of the facility, and I ultimately sold that property in August of 2018. So we’re coming up on a year and a half, give or take, for $1.8 million.
Joe Fairless: Wow. How much did you put into it?
Mike Wagner: We bought it for $350,000, and then through expansion, I was into it for a little over $800,000.
Joe Fairless: Okay, got it.
Mike Wagner: So the total profits when I quote $1.5 million, that is approximately a million in equity, and then over my seven years of ownership, about half a million dollars in positive cash flow.
Joe Fairless: Nice. What are some things that went wrong on that deal? I mean, clearly, all’s well that ends well, but what were some challenges you had to overcome after you bought it?
Mike Wagner: That’s a great question. I believe in finding the wrong in every deal because I make a mistake on every deal, and that’s where we learn the most. On that first one, I remember how devastated I was when it happened, and I thought the world was gonna end. I didn’t know at the time that a typical storage building, even if it’s not climate controlled, should be insulated on the roof to prevent condensation. So I had a day in January that was cold overnight, and then it got 70 degrees and sunny randomly, and that created quite literally a rain inside my buildings, and so I had to rip off 10,000 sqft of roof, put down installation and then reapply the roof over the top of them. I thought it was the end of me, and looking back, it was such a small blip in the radar; it’s comical.
Joe Fairless: It wasn’t when you got that first phone call though.
Mike Wagner: No, it certainly wasn’t.
Joe Fairless: Who called you? Was it a tenant of yours?
Mike Wagner: Yeah, it was a customer. When I said it was raining inside the unit, I was stealing their words. That’s how they phrased it to me.
Joe Fairless: [laughs] Oh, man… And in that scenario, you go there you address the problem. How do you handle that customer?
Mike Wagner: Excellent question. In the storage world, one of the huge benefits is that we don’t have liability for the belongings that customers place in it; it’s their responsibility to ensure those things. So from a legal standpoint, I didn’t have to do anything, but there’s a difference between being legally right and doing one, what’s human, and two, what’s good for business. So I made a business decision to pay her I think, out of pocket, I gave her $600 or $800 or something, in exchange for the understanding that we weren’t going to put this all over Facebook and the internet and whatnot. We had resolved the problem and I sought to keep it quiet.
Joe Fairless: Okay. And how many storage units were there?
Mike Wagner: When I bought it, there were 150 total revenue generating spots, half of those were traditional storage units and half of them were outdoor parking spots.
Joe Fairless: How did you find it again?
Mike Wagner: Believe it or not, that one was found as a listed property on LoopNet. The bank had actually strong-armed to the seller into listing it in lieu of a foreclosure, and they ultimately accepted a short sale on it.
Joe Fairless: That was your first self-storage property, and you’re buying it from a bank through a short sale. That’s a pretty sophisticated process. What was that like going into it as a first-time buyer of, I think, the largest property that you had bought to date?
Mike Wagner: That’s an excellent question, and there’s a couple of things that were at play. One, I was the beneficiary of the short sale being the bank’s idea, not mine, and anyone who’s familiar with short sales knows that that is a huge distinction. So I wasn’t fighting that uphill battle of convincing them of anything. They had laid their cards on the table and said, “We just don’t want to foreclose on this.” That being said, the bigger hurdle for me was finding the funding to get the deal done, because as you rightly pointed out, most of the banks, the first five to be exact that I talked to said, “Yeah, right, kid. You’re crazy. What do you know about renting garages?”
So I had to use each rejection as a way to learn and then preempt that objection with the subsequent bank, until the sixth one finally said yes, and what I did was just leaned on my experience in the residential world… And it becomes much harder for banks to question our credibility when we can convey to them that we’re an expert. Even if we don’t have experience, we know XY and Z about an industry, so I could lean on things like the income to expense ratio in storage being 30% to 35%, as opposed to the world I was coming from, landlording where it’s 50 to 55%. So there was a 20% margin of error that would 1) allow my inexperience to be compensated for and absorbed some of those mistakes I made, like buying a facility that wasn’t properly insulated.
Joe Fairless: So that was the first self-storage purchase. How many have you purchased since then?
Mike Wagner: That’s an excellent question, and I am absolutely a low-volume, high-margin investor. So I’ve been doing the storage thing for just about nine years now, and I’m on deal number five of my own. I help other people as minority partners in their deals, lending my experience to them in exchange for a small piece of equity, but as far as my own properties, I’m only on deal number five.
Joe Fairless: So let’s talk about deals two through five. What was the second deal?
Mike Wagner: That one was 20 minutes from my house here in Western New York. Very similar setup. I never thought it would be as good as that first one, but it was three buildings, 16,000 sqft, about half full, and very low rents, that I wasn’t sure I could improve, but I thought there was a chance I might be able to… And even if I didn’t, I knew just filling it up at least made it a double. It wasn’t a home run, but it was a double. So I went after it, and long story short, I paid $360,000 for that one, I sold it last year for $1.325 million. We had expanded it as well. So I was into it for about $650,000 or so at the time.
Joe Fairless: What was the business plan?
Mike Wagner: Very similar to the first one, people are always asking, “Mike, that’s incredible. You doubled the value. How did you do it?” It’s one of those instances where I want to make myself sound like some genius, but it’s just common sense stuff. We answer the phone, we treat customers the way they deserve to be treated. Storage, not quite as much today as in the past, but it’s still true in a lot of mom and pop locations, is it’s treated as a hobby or a secondary revenue stream by its owners, so they don’t do all of the very easy things necessary to optimize the value of the asset that they have. So that’s where we come in, we purchase it, and then we deploy some relatively straightforward and simple systems that allow us one, to maximize the value, but also do it with very little of our own involvement. I spend roughly three to five hours a week managing my three storage facilities that I currently own.
Joe Fairless: So let’s talk about the systems you bring in day one to maximize the value. What are the things that you make sure that you do?
Mike Wagner: That’s an excellent question. So the first thing I do is I prioritize the inefficiencies. So I say, “Alright, what’s wrong here and what’s the most important one to fix?” And then I just check those off one at a time. Generally speaking, the biggest thing is usually vacancy, so we’ll address that before we care too much about maybe inefficiency number two, which is collections… Because an empty unit is our biggest inefficiency. Collecting the money on a full unit might be number two. So systematically, we go in that order, but all of them are addressed, to some degree, by what I call my three-pronged remote management strategy, and this is what allows me to buy, regardless of how close a facility happens to be to where I’m living, and it also allows us to travel the country without negatively impacting our business.
In a nutshell, the three pieces of this strategy are cloud-based software – that our management software that’s embedded into a website that the customers can access and use on their own to rent units, pay their bill, update their account, do all of those things. So it’s a very user-friendly DIY model.
For those folks that aren’t wanting to do everything via the internet, we do have also a call center and again, it’s embedded. It’s not a glorified answering service like many call centers are, but it’s built into the back end of our software. So the folks that answer the phone can quite literally handle 90% to 95% of all customer needs that way, and when they can’t, they simply email or text me depending on the urgency of it, and then I just respond by email or text and have them get back in touch with the customer to handle the issue.
Joe Fairless: What’s an example of something they would email your text you that they can’t answer?
Mike Wagner: They don’t have the authority to issue refunds or to make exceptions or maybe make a payment plan for a customer who’s fallen behind and trying to avoid auction; those types of things. Sometimes it’s just a customer who, for whatever reason, is upset by something that’s occurred and they just won’t sell for anything other than speaking to the owner. So I’m not going to pretend I never talk to my customers. I would say maybe once or twice a month I’ll be on the phone with somebody. But more often than not, it involves payment of some sort.
Joe Fairless: Okay.
Mike Wagner: The third piece of the management strategy that we use is it’s critically important, but it’s far less cumbersome than most people think it is, and that’s the onsite tasks. I own property number three, I bought in Florida just about two years ago now, and it’s gone very well, and I haven’t been there in the last 18 months, and the reason is because I’ve hired somebody who serves the role of what I call boots on the ground. They are responsible for all of the physical tasks, which include things like pest control and lawn mowing, as well as probably the most management heavy side of things is they have to walk around the facility and take an audit of what units are rented and water available, so that we can reconcile that with our inventory that’s shown via the Internet to our customers when they come to rent.
But it is two to four hours worth of work per week, and because it’s so few hours, we can pay them extra in exchange for them really taking ownership of the place. I don’t hire somebody to mow my lawn. I hire the person who I know is going to treat it like it’s their own, and I pay them double what I should, probably to the tune of one $25 to $40 an hour for these $10 an hour tasks, because them taking ownership is worth its weight in gold to me.
Joe Fairless: Will you describe what you mean by that? I love using the example of the person mowing your lawn. What is the difference between them mowing it versus them taking ownership and mowing it?
Mike Wagner: Yeah, that’s an excellent question, and I address this head-on during the interview process. When my potential hires ask about what’s involved in the job, I don’t say anything about the physical tasks – mowing the lawn, pest control, sweeping units. None of that comes until the very end of the conversation. What I describe for them is the ideal candidate for this job will treat this place like they own it, so much so that I as the owner can forget about it without any of my customers knowing that I’ve forgotten and that usually hits some people, like that gives me deer in the headlights and they’re like, “I don’t know what you just said, kid.” Other people, it just lands on them, and it sounds crazy, but that’s usually when I know whether or not I’m going to give that person a run at it.
The beautiful thing is for this role, you don’t need an A+ player. An A+ player will make it your life that much better, but you can quite literally get by with a B- or a C+. Now, after a couple of months of that, you’ll probably be looking to upgrade, but it’s a very easy onboarding and offboarding process. Oftentimes, we’re bartering living quarters or storage units for this work in addition to the pay that we offer them. So we never, never offer the living quarters until we’re sure they’re a more or less permanent fixture. During the test drive, they’ll have to work 8 to 12 weeks for us on a trial period before we’re going to make any long term commitments.
Joe Fairless: So I wanna make sure I got the three-part system. I got the cloud-based software, I have on-site tasks. Was the first one prioritize inefficiencies or was that something else?
Mike Wagner: No, I’m sorry, I wasn’t clear on that. So the first thing I do is I prioritize the inefficiencies; that’s just for more of a strategic level. The three prongs, you got two of them – the cloud-based software, the boots on the ground, and then the call center is the third piece.
Joe Fairless: Ah, okay. Got it. Cool. What is a URL to one of your storage facilities website?
Mike Wagner: You could check out bronsonselfstorage.com. That is the Florida property that I purchased two years ago. We just are in the process of listing it. We bought it for $465,000, all in. We had some repairs to do; we were at half a million, and now two years and one month later, I’m listing at this week for $1.5 and a quarter. So 1.525 million, just over a million dollars above what we have into it.
Joe Fairless: When you take a look at your experience, there’s got to be some piece of advice that like, “You know what? I wish I would have known this when I started.” So what is your best real estate investing advice ever?
Mike Wagner: That is a question I love and expected. So you’d think I’d have an answer on the tip of my tongue. What I will say is that my encouragement to my younger self for anybody listening is – listen, do what you need to to get smart, and don’t pretend that you’re going to have it all figured out, and then you get to make the first move. The analogy I use a lot of times is that of a staircase. A lot of us, especially analytical types, want to know and see very clearly all 12 steps and the top of the landing before we even take step one. But in my experience, the people that achieve success most quickly are the ones who are willing to take steps one and two, even if it’s still foggy at the top of the landing, and then improvise along the way. Now I am huge on risk mitigation, so I’m not, in any way, suggesting that folks throw caution to the wind, but nine times out of ten, I think folks move more slowly than they should, just because of that fear of the unknown.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever lightning round?
Mike Wagner: I am.
Break [00:22:20]:04] to [00:23:23]:09]
Joe Fairless: Best ever book you’ve recently read.
Mike Wagner: Eric Barker, Barking Up The Wrong Tree.
Joe Fairless: Best ever you like to give back to the community.
Mike Wagner: Lots of ways. I would say, right now, top of my list is working with a school Escuela Integrada down in Guatemala.
Joe Fairless: Best ever deal you’ve done.
Mike Wagner: It’s gotta be that first storage deal that we talked about earlier.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
Mike Wagner: I would ask them or invite them to come check us out. I have a new online community. It can be found at members.thestoragerebellion.com. Completely free to join, come hang out with us and talk storage. It comes with a seven-day workshop for you to get smart and see if storage is something you want to pursue. There’s no sales or anything like that in it.
Joe Fairless: Mike, thanks for being on the show talking about your experience, how you got going, and then how you pivoted to self-storage and have been doing so for the last nine years. The approach that you take and the three-prong approach – cloud-based software, call centers, online tasks, and the first thing is prioritizing the inefficiencies. I love a couple of things that you mentioned. One is you believe in finding the wrong in every deal. I think we should all do that… And then two is the two questions that you ask yourself when you’re looking at an opportunity. Why is it underperforming and can I fix it? Very straightforward questions and on the surface, it might seem obvious, but really, they’re powerful questions to ask whenever we’re looking at opportunities. So thanks for being on the show. I hope you have a best ever day. Talk to you again soon.
Mike Wagner: Thank you so much, Joe.
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