JF2411: Changing The Niche From Residential Units To Self-Storage Facilities With Zach Quick

Zach started his career back in 2014 by purchasing a garage apartment. Over the next couple of years, he and his wife focused on small multifamily houses, building up their portfolio to 28 units.

When they were on vacation, Zach noticed a self-storage facility that gave him an idea for a new business. He got rid of all his residential units, and now he owns self-storage properties across 3 states.

Zach Quick  Real Estate Background:

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Best Ever Tweet:

“Listen to what you feel called to do and don’t fight that” – Zach Quick.

TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I’m Theo Hicks and today, we’ll be speaking with Zach Quick. Zach, how are you doing today?

Zach Quick: I’m doing great. Thanks for having me.

Theo Hicks: Yeah, no problem. Thanks for joining us. Looking forward to our conversation. A little bit about Zach — he’s a full-time self-storage owner and operator, with six years of experience, and his portfolio consists of 7 self-storage facilities in Arkansas and Missouri. He is based in Northwest Arkansas and you can say hi to him at his email, which is zach@zachquick.com.

So Zach, do you mind telling us some more about your background and what you’re focused on today?

Ach Quick:  Sure, real estate wise, my wife and I started more or less with a house hack, a garage apartment back in 2014. That was kind of our first purchase and foray into real estate. And basically, over the next two or three years, we went pretty heavily into residential, small multifamily, duplexes and the like, and got it up to where we had about 28 residential units, and then honestly, just felt stuck. Some of it was limiting beliefs at the time. And on a vacation, and basically decided from that moment where we saw these bright blue self-storage doors, and it struck me; I felt like God was tapping me on the shoulder. Then started doing a bunch of research and basically moved into self-storage full-time. Now we’ve sold all of our residential stuff and now we own 7 facilities in Missouri and Arkansas. And by the time this airs, I think we’ll have closed on one in Oklahoma as well. So we’ll be in three states in 2021. So happy to dive in on any of that that we want to.

Theo Hicks: Yeah, that’s interesting. So you essentially started off and grew up a pretty decently sized portfolio of residential units… And then you said that you felt stuck doing that, and then you transitioned into self-storage. Could you go into a little bit more detail and what that means? Because I guess the purpose is, maybe someone’s in the same situation where they’re like, “Oh, like, I thought that if I started investing in real estate, everything would be great, and now I’ve gotten to this point where I’ve got all these properties… Now, what do I do?” Can you walk us through what the stock was and then go into more detail on the transition into self-storage, any challenges you faced going into a brand new investment class?

Zach Quick: Yeah, and I’m not here to sell self-storage, so to speak, or say that it is the ultimate asset class… I think probably what I would more give advice to people is kind of listen to what you feel a call to do and then don’t fight that. So as I mentioned, we felt stuck at that point, and a couple of things that were why – more or less, we were out of money. We were doing deep value-ads on all of the residential stuff, doing the right things, and then eventually you run out of money. And we had done pretty much all of it just ourselves, my wife and I. We had W-2s, we were piling all of it in.

And one of the things that I was in my own way about was that we were going to do it on our own, we were going to bootstrap ourselves, so to speak… And you can do that, and there’s nothing wrong with that, but obviously, you’re kind of limiting yourself on how fast you can get there.

So we had a 12-unit apartment that we had basically gutted it inside and out, and our original plan was to basically get that up and going, sell that and then ideally 1031 it into maybe a 24-unit apartment or a 30-unit apartment, something along those lines. But for whatever reason, it wasn’t speaking to me at the time. I kind of wanted to get a little bit more involved. And self-storage for me was a little bit more of a mix of a business and real estate, and I liked that. It probably also didn’t help that I didn’t love my W-2 at the time… So maybe I wanted to just be a little bit more involved in the day-to-day.

So those are two of the things that — I just started doing a lot of research about self-storage. And again, it kind of felt like something that we should be looking into a little bit further.

Theo Hicks: So once you made that decision to transition, was it an immediate call your agent and sell all your properties and buy that first property, or was it a slower transition than that?

Zach Quick: Yeah, a lot slower than probably it sounds when I first said it. We probably did honestly a good year’s worth of research while we were just at the 28 units and really didn’t do anything from that point in time. So we just started listening to any podcasts we could, reading any books that were out there, and going through pro formas and just modeling out self-storage returns, so to speak, even though we didn’t know what we didn’t know yet.

And the goal again was, we basically pivoted from—we’d sell that 12 unit, and instead of going into an apartment, we ended up selling that 12 unit apartment into our first self-storage deal. So that was the first sale of the 28 units, and then we basically, over a course of two years, have sold the rest of the residential portfolio. So it was a gradual process, a lot of research before just completely diving in headfirst, so to speak.

Break: [00:05:27] to [00:06:32]

Theo Hicks: Let’s talk about the first self-storage deal. Where did you find it? What was the business plan, and was it just you and your wife still, or did you bring on some other help?

Zach Quick: Yeah, so that first one was still my wife and I; the downpayment was the 1031 exchange from selling our 12 unit apartment. So in that research process we’d kind of built out our own database, basically trying to go direct to owner, send direct mail; we’d been fairly successful with that on the residential side, so we were doing the same thing, looking at a 2-3 hour radius of where we were living at the time. And we had sold the apartment, we were still in our identification period to figure out what we were going to roll it into, and got really close on a couple of other storage facilities; it didn’t work. And then we got a response to a letter that said, “Hey, here’s what I’d be looking for, here’s my price.” We went down and met with them and went from there and ended up closing that. And a couple of things that stood out and why we liked it – it was a very good location, which is obviously important in any kind of real estate that you’re in. There was a lot of value to be added; his rents were under market, just like anything you would look at. It was 100% full and a lot of the neighboring facilities were 100% full; there was no marketing, no website, no ability for tenants to click and rent online.  So we just felt like he was undervaluing what the facility could do.

So he actually owner-financed it, which was another nice perk… So we ended up putting 7% or 8% down. And then we learned a lot on that first deal. Actually, a year later, there was an acre of land, which was also a nice perk of the facility that was undeveloped. We went back to the same previous owner and said, “Hey, we’ve got this acre, we’re running well, we think that there’s room to expand here… Would you be interested in financing that?” And so he actually financed the construction as well, too… And then we’ve since refinanced him out with a bank.

So to be honest, the first deal went way better than we could have ever dreamed. That was kind of our first foray into self-storage. The other properties primarily come with joint venture and one syndication as well, where we’ve taken more passive investors with it where we’re handling the day-to-day. But yeah, that first one was just my wife and I.

Theo Hicks: What did your direct mailer say?

Zach Quick: More or less that we had a lot of residential experience and that we wanted to get into self-storage. We did mention that we were in a 1031 exchange, so I think that kind of helped show our motivation and that we were serious about moving forward with it. But we still do a lot of direct mail to this day, and they basically say the same thing along the lines of, “Hey, we own self-storage, we’re familiar with it, we’re not going to waste your time. Please reach out if you ever have any interest in selling.”

Theo Hicks: Do you do those manually, or do you use a website to do this?

Zach Quick: The Excel file that basically has all the addresses, I’ve kind of built that over the last 3-4 years. But Postalocity is one that I’ve used before, Click2Mail is another one that we used to actually physically mail the letters.

Theo Hicks: What types of returns did you see in that first deal?

Zach Quick: We bought the facility for $1.5 million and we put about 100 grand down, put another $30,000 or so of our own money into it. And then that construction that I previously mentioned was about $300,000 that he financed. Obviously, we paid a monthly interest, but we didn’t have to put another downpayment down so to speak for the construction.

So we were basically all in 1.8 or so, and then when we refinanced not long ago, it appraised at 2.52. So again, all in it basically 130 of our own money, and then we still hold that today. It’s a great facility, so I probably didn’t give you a specific answer on that, on the exact return…

Theo Hicks: What about cash flow though? This is a cash flow play, or is it an equity play?

Zach Quick: Yep. Yeah, we’re cash-flowing about $6,000 – $7,000 a month on it, too. So equity – we owe just under 1.8, and again, it’s worth about 2.5 within that as well.

Theo Hicks: Do you still work your W-2 job?

Zach Quick: No. Left that last June, so June of 2019. We had three facilities at the time, and then my wife was a teacher, she still had her W-2 up until, I guess, basically, when Corona stopped the school year in March of this year. She hasn’t gone back in August as well.

Theo Hicks: When you had 28 residential units, was that not enough to quit your job, or you just were not mentally there yet? What triggered you quitting your job? Was it, “I’m just done with this,” or was it, “Alright, I’ve reached this number. I’m ready to do this full-time”?

Zach Quick: Maybe both. Honestly, we were doing such — on the residential side, I don’t think we were quite there yet, to be honest. Maybe another purchase or two that we were close… But I think when you’re doing such deep value-ads and stuff like that, it’s just hard to actually even know at the time what we were doing, because we felt like we were still writing more checks than we were getting… And on some levels that was true, because if you’re rehabbing units constantly and things like that… But more to the point of a) I wasn’t exactly thrilled with what I was doing at the time when we did leave; and b) again, it felt like by putting all of my energy into what we were doing now, that the upside was a lot greater than what I could be doing maybe splitting my time, so to speak.

Theo Hicks: This is one of the main reasons why people get into real estate, because they don’t like their job and they want to get out of it.

Zach Quick: Sure.

Theo Hicks: And so what’s one – or a couple, but one big piece of advice you’d give to someone who came to you and said “Hey, Zach, I want to quit my job like you. I want to do real estate,” but they haven’t done any deals yet. What would you tell them?

Zach Quick: I think — this will be very generic, but only you know what’s best and how realistic you are and what your plans are. We had a pretty decent foundation when I did it, and honestly, I still felt like, even if I fall on my face in 3-6 months, I could probably go out and find a new job and we would still be okay.

So at some point, you’re going to have to take a risk and you’re going to have to take a leap if that’s what you want to do. But I do think that having some sort of foundation is only the wisest thing you can do. But I will say that the earlier you can do it, the better. They call them “golden handcuffs” for a reason, so to speak; the more you make, the harder it is to leave a W-2. Or the more successful you are in a career, the more your identity gets tied to it. So go for it, but I would also try and have as much of a foundation as you can before you do so.

Theo Hicks: Okay, Zach, what is your best real estate investing advice ever?

Zach Quick: On that same token, go for it and just don’t get in your own way. Sometimes we limit our own abilities and what we think we can do. “Oh, that deal’s too big.” “That’s only for certain kinds of investors.” So don’t get in your own way.

Theo Hicks: Do you have an example of you getting in your own way and it having negative consequences?

Zach Quick: Well, honestly, when I first started really getting into self-storage is — I would get responses on mailers or get direct leads, and I would have a negative stigma about a deal before I ever even look at it because it was a bigger threshold than I’d been used to. So you kind of have this going in like, “Well, they’re just asking too much.” And instead of truly going through the analysis and deciding, “Okay, is it actually a good deal because they’re asking X amount, or is it actually too much?” So I did that at least a handful of times, and then finally, to the point where I said, “There isn’t a figure that’s too much. Each deal should be underwritten and made sure that truly that’s the case; not just at this amount I can’t do that deal.” There are enormous deals out there. I’m sure that I lost one or two that probably had some real meat on the bone so to speak, because I was getting in my own way.

Theo Hicks: Okay, Zach, are you ready for the Best Ever lightning round?

Zach Quick: You bet.

Theo Hicks: Alright. First, a quick word from our Best Ever sponsor.

Break: [00:13:52] to [00:14:29]

Theo Hicks: Okay, what is the best ever book you’ve recently read?

Zach Quick: Profit First by Mike Michalowicz.

Theo Hicks: If your business were to collapse today, what would you do next?

Zach Quick: I think I would start a service-based business of some sort. I think that’s a faster way to cash flow, and then hopefully build that back up into real estate. But I would say a service-based business of some sort.

Theo Hicks: What service would you provide?

Zach Quick: Oh man, I’m not handy in any way possible… But maybe a garage door repair company, or something that’s non-Amazon replaceable.

Theo Hicks: Okay, what is the best ever deal you’ve done? This could be self-storage or residential.

Zach  Quick:  I would say honestly that first self-storage deal that we did, it’s probably the most full-cycle one that we’ve done, so to speak. So buying for 1.5 and really with about $130,000 into it, to where it’s worth a little over 2.5 today.

Theo Hicks: What about on the flip side? Tell us about a time that you lost money at a deal, how much you lost and any lessons you learned?

Zach Quick: Yeah, back in our residential days, I thought I would always buy right, but I would probably get a little bit too confident in our contractors and maybe giving them a little bit too much leeway… So we definitely over-rehabbed a house that — we didn’t have to write a check when we sold it or anything like that, but overall,  we probably lost $15,000 bucks. Honestly, we bought it right and then probably overspent $15,000 on the rehab.

Theo Hicks: What is the best ever way you like to give back?

Zach Quick: With our church, and then we have a local food bank here that we like to help and donate to as well.

Theo Hicks: And then lastly, what is the best ever place to reach you?

Zach Quick: My email address is great, zach@zachquick.com, or I’ve got a semi-unique name, so Zach Quick on LinkedIn, or BiggerPockets works as well.

Theo Hicks: Perfect, Zach. Well, thanks for joining us today and providing us with your best ever advice. The three things I think we’ve talked about the most would be number one, transitioning from one real estate asset class investment strategy to another one; you gave us advice on that, about how you’re going to have to do some research first, it’s not going to be immediate. And that seems like it’s more of an intuitive decision and it feels right, it feels time to transition, and it feels like I should transition into this thing; as you said, make sure you’re listening to yourself and not fighting that too much.

The second thing was about how you ended up quitting your full-time job and how it kind of came down to the realization that—first of all, you didn’t like it what you’re doing, but it kind of came down to the realization that if you invested all of your energy into real estate investing, the upside would be a lot greater than only spending a half your time there.

And then the third thing, which was also related to quitting your job, but also your best ever advice, which was about not getting in your own way and going forward, but if you are going to take a major risk, like quitting your full-time job, then make sure you have some sort of foundation first, and that means a foundation where you’re making money from your portfolio, but also like an educational foundation where you actually know what you’re doing, so you continue to repeat the success of your previous deals.

And something else you mentioned that I liked too was keep in mind that if you do quit and things don’t work out, you can still go back and find a job. I guess it depends on what you were doing before, but maybe even going back to the exact same job that you quit. We should talk about that, exactly how to quit your job when you’re talking to your boss; maybe next time.

So Zach, thanks again for joining us today, really appreciate it. Best Ever listeners, as always, thank you for listening, have a best ever day and we’ll talk to you tomorrow.

Zach Quick: Thanks, Theo.

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