The School Of Cash Flow

With the state of the economy, going into real estate could be a big risk. That is why if you want an asset class that is stable and recession-proof, go into self-storage. It may not be as sexy as flipping, but the cash that you earn from it is sexier. Join Dale Corpus as he talks to Joe Evangelisti, who was once known as “The Flip King” and is now the host of The Legacy Blueprint podcast and a leading expert in real estate investing. Learn why he transitioned out of flipping and into self-storage. Find out how you can tap into the massive opportunities that are hidden inside the self-storage industry. Start experiencing less risk and more profits today!

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Less Risk, More Profit: Uncovering The Opportunities Of Self-Storage With Joe Evangelisti

I have another great guest for you on this episode. His name is Joe Evangelisti. We are exploring and covering more of the asset class of self-storage. Joe was once known as a Flip King of real estate before he discovered the overlooked profits hiding in the self-storage industry. He’s gone from flipping over 100 homes per year to making 10X more in profits from only doing 5 to 10 storage deals per year. In addition to self-storage investing, Joe is also the author, host of his own podcast titled The Legacy Blueprint and CEO of 2 other 7 and 8-figure businesses. Welcome to the show, Joe. How are you?

I’m awesome. Thanks for having me.

I’m glad to have you here with us. For my audience that doesn’t know you, whereabouts in the world are you located?

I’m in South Jersey. We are outside of Philadelphia.

How did you get into real estate? I read a little bit about your bio too that you were also in the military prior. How did you get to be where you are now?

I will give you the two-minute backstory, rather. I’m a product of the construction industry. My dad was a drywall contractor and turned general contractor when I was a kid. My parents were divorced young when I was probably two years old. I got to spend nights and weekends with my dad and stayed with my mom when I went to school.

It had exposed me so well. My dad was one of those guys seven days a week working on something, going to some project, and I tagged along with him. I loved learning the experience and seeing things turn into something or turning nothing into something or whether it was a kitchen renovation, an addition or eventually, new houses that he was building.

It was always in my blood. My dad was the first entrepreneur that was in my family. His parents came across the ocean from Sicily back in the ‘20s. He was the one in our family to say, “School is not for me. I want to build my own company, and don’t want to work for somebody else.” He figured that out at a real young age. If you had asked me when I was twelve years old, my goal in life would have been the take over the general contracting company, the family company but I got lucky in a lot of ways.

I also had this urge and need to serve my country. I happened to be working for a foreman of his right out of high school. I mentioned one day, “I’m going to join the Marine Corps.” He was like, “Why the hell would you do that?” Nothing against Marine Corps but he’s like, “You’re great at construction and you could do it in the military.”

I didn’t know that the military had construction forces. It turned out he was a retired Senior Chief in the US Navy Seabees Reserves. He turned me on to the Seabees. The Seabees are the Construction Battalions of the Navy. A lot of people don’t even know what they are. Essentially, I got to tour the world, go everywhere by air and never saw a boat. I got to build some cool ships in a lot of different countries, which eventually led me into to real estate.

When you first got into real estate, it looked like would you start off flipping single-family homes. Was that your first entry point?

My first inclination was to turn around and get into flipping homes. If you asked me and the year I started, I would tell you I would be doing that the rest of my life but I call it a lucky time because we got into that industry in 2007. I had taken all of my savings from the military and plunked it down on three separate flip houses in the course of a year. As they were coming online and getting ready to do something, the market started softening.

A lot of people might not remember this but the market softened all of 2007. It collapsed in 2008. We were chasing these price margins to try to get these flips to make a bunch of money. I thought I was going to retire young as a multi-multimillionaire. The next thing you know, I had to become a landlord. I had to put tenants in place. What I teach now is that I had to course correct or I had to pivot. I had to learn to be flexible because stuff changed. The market changed. That led me to become a broker, a real estate holder, a landlord and a lot of other things. A bartender, amongst other things, to keep the lights on. That was the ‘07 to 2010 timeframe going through all that.

When did you flip the switch from flipping homes to moving over to self-storage? When did you see the light? The grass always seems better but maybe for this one, it was better. They got the other side. How did you even discover all of that stuff, and what was that transition like?

Somebody said during the pandemic that adversity makes or forces us to do things we maybe should have been doing all along. We did a lot of fix and flips, and I built a big business but it didn’t serve me. I wasn’t passionate about it. I didn’t love the culture we had designed. I had amazing people but it turned out I wasn’t a great leader when it came to having 40 or 50 employees. A lot of it was introspection like deciding.

I wanted to find something, first of all, single-family is very transactional. When you are flipping houses, everything is about getting to closing on Friday. You got 2 or 3 closings. You got massive payroll, cash in and cash out. It’s very transactional that way. As the title of your show, Cash Flow is a lot more important than a cash register. We recognize that after about ten years of flipping houses, we could do this for the rest of our lives, and life is not going to get any easier.

It’s going to be a continuous transaction mode. We said, “We got to find something that’s more scalable. That we can be more effective and efficient with a smaller team, and we could touch more lives.” Basically, make a bigger impact. We started going down the commercial rabbit hole of like, “Do I do retail? Do I office? Do I do shopping centers? Do I do car washes?” This is pre-COVID. Again, the second lucky fall, I fell into self-storage. I had a couple of conversations with folks in self-storage. I never even thought about it as an asset class.

One guy changed my mind one day. He had the same background as me. He was in his fourth storage facility. He had flipped hundreds of homes. He had built track homes, built thousands of units and said to me, “Joe, I’m on my fourth self-storage.” It’s concrete steel and asphalt. He goes, “You build your first facility. You will never touch a house again. You will pay people to build your own house from now on, and you will be married to this.” There’s a saying, “Simple is not easy.” It’s a very simple business. It doesn’t make it easy. There are a lot of obstacles and hurdles we had to overcome to get there but knock on wood. We are twelve deals deep now.

For the types of self-storage deals that you do, are you doing ground-up construction with brand new ones or are you buying existing structures or a combination of both?

We do three things well. Number one is ground-up construction. A lot of that is through finding land that might not have been entitled to self-storage, so value-adding and improving the dirt. We do big box conversions. We are looking for your old Sears and Kmarts that are freestanding, abandoned, darkened, and haven’t been filled back up because, again, the big box is dying.

You have to take a look around to realize that eComm has taken over for big box. We can create an opportunity inside of there because those things are generally located where we want to be. The challenge is getting the zoning and municipality to approve it. Last but not least is a value add. Taking smaller, dilapidated they need deferred maintenance fixed, marketing, lead gen, security or an expansion to make a larger facility. Value add is the third one. We are going to go hard in value add in the next months because of the shift in the economy.

Out of curiosity, not as many people talk about self-storage as they do, for example, multifamily or even single-family. Why do you think everybody isn’t investing in self-storage? Do you think it’s because it’s not as sexy? Is it not as much people talk about it as much? What are your thoughts on that?

You nailed it. It’s funny. I use that word all the time. It’s not sexy. Why did I flip houses for 10 or 12 years? It was because HGTV made it so sexy. It was like you talked about a new kitchen or a new bathroom. You post that on social media, and everyone goes gaga. “The kitchen is beautiful.” You post a picture of a giant steel box with roll-up doors, and it’s not quite as sexy but the numbers are so much sexier than single-family. It makes us passionate that we can do things. Again, it’s going to impact thousands of families and create equity and generational wealth for ourselves and our investors.

Self-Storage: Self-storage is not sexy. HGTV made flipping houses so sexy, but a giant steel box with roll-up doors is not so sexy. But the numbers you get from self-storage are so much better than single-family

You had mentioned how big box conversions were one of the strategies that you go after, and you like the locations of where those are already located. Let’s talk about location. What constitutes a good location? What’s your target? What is your buy box?

We have this rule in-house, and it’s shifting slightly but we call it the 60/60/23 Rule. What that looks like is I want to be in a 3-mile radius, coming home backward. I want to have an average rent rate of $20 per square foot on a climate control unit. I want to have $60,000 of income and a 60,000 population in that same 3-mile circle.

If I can locate MSAs that are expanding, I like to be on the path of progress. In a lot of your cities like we are in Houston, I have four different sites. We are on the outskirts, where people are starting to move and spread to that path. In a nutshell, there are about 200 things that go into underwriting a deal but that’s the broad stroke.

How are you going about finding land or finding these deals in general? Do you have people scouting out things for you or are these people all in-house on your team? Do you part with people outside your team to find stuff?

That’s our secret sauce. Our team is very adept at finding great off-market projects stuff that needs to be rezoned, reconditioned or reused. We’ve also created a platform called the Certified Field Agent Certification, where we train people to bird dog deals for us, essentially. They understand the rough underwriting process of it so that they can find deals that pencil in and make sense. They submit the deal to our team and earn a piece of equity and a piece of the fee upfront for taking that deal down.

Elaborate more. How does a certified dealer agent, is it a course? Is it a mastermind that you put together?

It’s a two-step. The CFA course itself is a six-week course. Not only a full intro but there’s physical homework and things like that to get you across the finish line. I want people to graduate with that knowledge, whether they do it with us or go find deals for other people. We keep it open like, “If, in the end, you want to work with us, great. Here’s how. If you don’t, that’s fine. You just learned how to find some of the best commercial assets off the market or in the country.” The next step from that is we do have a self-storage mastermind but again, I’m not tied to the outcome. If they learn it and they do it for others, that’s great.

What are the top markets that you are targeting even now? My next question is, has that even changed with the economy going through a downturn? Has that changed the way you are looking at markets?

It’s shifting. The price per square foot rent rates have been going up in certain areas pretty dramatically in the last couple of months. If you asked me this question months ago, I would say Texas and Florida are super heavy for us. Believe it or not, we have a couple of sites in Ohio. It’s the fourth fastest-growing state of the union. Not sure why but it is. Now we are starting to target more of those Midwest markets in Oklahoma, Indiana, and Wisconsin. As a matter of fact, we picked up a deal there.

It’s not terribly specific. In fact, my chief development officer who’s built about 400 self-storage facilities. When I first met him, he said, “Joe, you could take a dart and throw it at the map of the United States. You could build a self-storage there and be successful.” The idea is that we don’t want to do that. We want to be in the top 10% or 15% of MSAs and growth areas where your ramp-up is going to be much faster. Again, getting the cashflow.

Self-Storage: In self-storage, you want to be in the top 10-15% of MSAs and growth areas with high demand. You want to ramp up faster so that you can grow your tenant base quicker.

If I’m building development, I got that gap between the day I purchased the land and the day I take my first tenant where I’m not making income. The faster I can ramp up and the faster I can grow my tenant base, the quicker it becomes a cashflowing asset. We want to be in areas that are going to ramp up fast because there’s a high demand and areas that are going to command the highest rents.

What size of a facility do you typically look for? How big are you building? What’s your niche for that?

Our niche, and again, this is specific to us since I don’t recommend everyone do it this way but our niche is class A facilities for a purpose. I look at us as peer developers. I don’t want to manage the asset. I don’t want to learn that business after effect. I’m getting it underwritten upfront by CubeSmart, Extra Space and Life Storage. One or more of them have given us the thumbs up and said, “We like the area. Our closest competitive sites filled up well. They manage well or whatever.”

I want to be in areas where I can build a class-A site that the REITs want to manage and an area where they are giving us their blessing because it’s in that type of area. To answer your first question, 80,000 to 120,000 square feet is right around that. Class A is considered anything over 60,000 or something like that but we try to make sure we are in that zone of 80,000 to 120,000.

Is the goal to keep ownership of them or do you folks sell them when they are built? What’s the business plan there?

Own and have asset under management. Cube or Extra Space will manage them for us but our goal is to build 100 sites in the next ten years and keep as many of them as possible. We might sell off a few along the way if the numbers are right and it’s in a high-demand status. The goal is to keep 80% or more of those.

It’s always a talk that self-storage is one of those asset classes that’s one of the best at being recession resilience. Can you elaborate on your opinions on that? How is it an asset class that is able to withstand a recession?

I’m biased, but for some of the facts I’m giving you, you can research or google this. The industry itself has only been recorded for about 40 to 50 years. The reason is that before that, it was a mom-and-pop, built ten garages in their backyard or off to the side, and they rented them out. When the REITs started getting involved in the late ‘70s and ‘80s, we started tracking this stuff.

The interesting thing is, if you look at the graph from the industry growth over the last 40 years, it’s linear. It keeps going up. Through a recession, sometimes it even bumps up because the reality of it is, why do people use soft storage? It’s because there’s some motion going on either they are opening a business or closing a business. They need files stored for their business. They are upsizing or downsizing in a house. Americans don’t get rid of their stuff. In good times, there are businesses that need inventory, and they need to store it.

In bad times, there are people who are closing down their businesses and need to store them. There are many different varieties of tenancy that makes up a storage unit, which also helps insulate the why. Other industries, I’m not mocking, all industries are great but in certain industries, you hit COVID. What happened to offices? People started realizing, “I can work from home. 6,000 square feet of office, I’m going to downsize 2,000.” That’s good for storage. What are they doing with all that furniture? What are they doing with all that equipment? They are probably putting it in storage somewhere.

That makes sense. In terms of leverage and financing, since I’m not as familiar with this space when it comes to leverage and financing. When you are doing this, I take that you folks are getting construction loans for this and that construction loan, later on, switches over to your longer-term loan. I’m curious. What terms do you folks get in this space? What rates nowadays, with rates having gone up, are you seeing out of curiosity?

That’s, again, going to be different for all of us. Depending on experience and level and all that thing. We closed the construction loan. My partner handles that side of it, so I don’t know what the rule is. These are generally construction term-to-perm deals. We are dealing with construction bankers that love to be in it long-term, so it will adjust to a term or a perm after it stabilizes and we get tenants in place.

Generally, one of the biggest changes that have happened in the last couple of months, besides the rate changes which have gone with the market but also the loan to cost. When we started, we would get a construction loan to cost offers of 90%. Now it’s getting 65% to 70% is the norm, it seems, which changes our capital stack and our investors. We have to dilute ourselves basically to increase the capital.

At the end of the day, I believe that this is one of those strong industries that can be very resilient to capital markets and interest rates because we are $0.60 on the dollar to build these things, so there’s a lot more room there to make sense of the whole thing. Don’t get me wrong. It still got tighter. Also, you look at rent increases. CubeSmart did their annual report. There was an 18% rent increase. In 2022, they are down to a 10% rent increase. That means they increased the value of their property by 10% in this last cycle through the rate increases. As money gets more expensive, I would like to be in an industry where the income starts, continue to go up and meet that demand.

In your space now, what do you see as the current challenges in self-storage?

As far as current challenges, it’s like the old adage with real estate. You got to buy right. There are going to be some challenges for folks that are overpaying for things or are not buying assets that can be built and maximized. We do value engineering on how big should we build something, and according to, “Can we build it and what’s the demand in the area for what we are trying to build?” Designing and buying them properly are probably two of the most impactful things that you can do when you are looking in the storage industry as far as developments are concerned.

I know you work with a lot of accredited investors. On your side, when you are ground-up construction types of deals, what does it typically look like from their side? I’m not sure if you guys do like a pref or if they are not getting any money that entire time when it’s being constructed or whatnot. Elaborate on how deals are set up like that with LPs of what they what their expectation should be.

We are offering between an 8 to 10 pref, depending on the deal. We pay monthly on our interest. That’s a massive pain in the ass but I also find it’s massively valuable to our investors. Some of these folks use this income to pay their car note or to pay for rental property. They like the cashflow perspective of it, so the monthly payment is good for them.

On that same note, we are opening a fund, and the fund works differently than that. The fund gets paid in arrears. You amass the interest that’s being paid but we can also use that interest money to buy more deals. When you are in a fund of multiple deals, it’s a little bit different than if you are in a fund of one deal because you want the whole entire fund to succeed to the max. That’s a different mindset of an investor as well.

In terms of strategies, I want to explore making sure that we cover this in full. What are the best strategies when investing in self-storage?

It’s very specific. It’s subjective. As far as passive investors, everyone seems to be looking for depreciation now. That doesn’t happen in the first couple of years of development. You got to get the property stabilized and start putting tenants in place to see that depreciation. However, the upside is that there are many seemingly higher returns when you are developing and building it as efficiently and effectively as we are. Your returns might be higher.

Again, I love stable industries. There’s no more stable industry than the commercial real estate sector than self-storage now. That’s not me talking. Marcus & Millichap and Colliers, all these guys are releasing reports now and saying, “It’s one of the best asset classes to put your money in.” I look at stability. I look at what we are building and what is the use of what we can build. We are building big warehouses. God forbid, ten years from now, storage is not a thing.

I can climate and control it. I can turn it into offices. I can do a lot more things with an empty steel structure than I can potentially could if I had a 300-unit apartment building. There are a lot of things about the asset class that are strong and stable and make a lot of sense. Not least at which is the fact that, as you said earlier, it’s recession-resistant, and we don’t know if we are going to be in this for the next 6 months or the next 6 years but you still got to put your money.

Catching up, so when you are done finishing up the grand construction at that point, who ends up managing the facility? I take it you folks outsource all of that?

Everything from co-forward is pretty much outsourced. Our team still has to manage the asset itself but we turned it over to CubeSmart on a site in New Jersey 100,000 square foot site. They are ramping up now. In fact, they are moving in. We will be taking tenants by the end of the year.

Out of curiosity, you are going back to the fact that you came from the military from the Navy. Any skillsets that you picked up in the Navy that have helped you excel and be successful at what you are doing even now?

Number one, which is going to sound cliché but is discipline. What is the military known for? They put you in bootcamp, break you down, and rebuild you into the person that they want you to be. A lot of that is the discipline of understanding what works, what doesn’t, and what routines and rituals look like. It’s quite easy to carry that into the real world because you’ve lived it for so long. I consider myself a pretty structured and disciplined guy.

In terms of your team, I’m curious. You are running a pretty big business. How big is your team now?

Believe it or not, we are doing all this with twelve people.

You folks are in multiple states and whatnot too. It sounds like you got construction crews, and you are managing folks from wherever remotely, which is amazing. Some final questions for you. The first one is, what are you excited about in your business now?

I’m excited about the shift, believe it or not. I know it sounds counterproductive but I made most of my money the first time around between ‘08 and 2013. I know a lot of people say that. The truth is if you continue to move forward in a down market, you start to buy properly, use terms, and figure out creative ways of finding great deals, then you should never stop buying. The problem is that when fear is in the street, everybody starts to clinch and buckle down and go, “I’ve got to be super cautious.”

Self-Storage: Mom-and-pops still hold 70% of all self-storage in this country, but there are so many opportunities in self-storage to buy small ones, improve on them, and make more money. It’s an industry that’s really ripe for change.

Not that there’s anything wrong with being cautious. Be cautious but don’t stop. My team is excited now to start to do more, like I said, value-add deals. Once we get the fun going next month, a lot of that will be in value add, existing mom-and-pop, which incidentally is another good statistic. It’s 70% of all self-storage in this country is still held by mom-and-pop. You see all these REITs out there but there are so many opportunities in self-storage to buy the small ones and improve them. Correct and make them make more money. It’s an industry that’s right for a change, and there’s a ton of opportunity out there. That’s what I’m excited about now.

Whether personal or business, are there any big goals that you are working on for 2023 since we are already going to be 2023 already next month?

My big goal now I have been doing jiu-jitsu for about a few years. I don’t think I’ve shared this with anybody but my wife. I want to enter a competition in 2023. I’m hopefully still a white belt. That’s a big challenge and has been on my mind for a little while now.

I wish you all the best of luck on that. Right before we started recording this, I realized that we are both in GoBundance as well. Out of curiosity, GoBundance has been a good network for you since you have been part of it for the last year or so.

A great network. I love the guys that are in there. Not to brag but we have the strongest local tribe in the country. There are 50 or 60 guys that will show up to a meetup in our local area. I’m going to the Christmas party. There are 75 folks plus all their spouses or business partners. It’s an incredible crew. These folks genuinely care. People want to get things out of a group but they find that the more value they bring, the more they are going to get. Last but not least, it’s the idea of, which I’ve implemented in our mastermind the idea of pods.

I meet with our pod group every week. We talk, we b******t, and talk about life but we also talk about goals, health, and our journey. Let’s face it, depression and psychological. I call this psychological warfare owning a business. Having the right crew that you can lean on and talk to and work things through is paramount to success in this world.

It’s a good sounding board, and I finally found people to who I could relate. I feel like you relate to yourself the way you are talking and whatnot. I finally have people that understand what I’m going through and also level me up when I realize that some of these dudes are doing amazing things. I don’t see it from one dude.

Everybody is doing amazing things. It also showed me the potential of what I can do, which opened my eyes. I appreciate the group for all of that stuff. The other question is, I always like to ask what people’s superpowers are. What do you think are your superpowers that’s contributed to your success so far in life?

My real unique ability, I look at as I’m a great team builder. I bring people together. Again, I know that sounds silly but I can’t build a self-storage facility by myself. I can’t pick great locations by myself. I can’t underwrite design deals by myself. I’m not going to the municipality and asking for approval. I’m not general contracting. I’m not doing any of this stuff.

What I’m doing is I’m orchestrating the best development team that I know how to build in this entire country that can go out and build 20 or 25 of these a year. When you find great people, you got to find a way to create value to keep them onboard and around. That’s the concept of legacy developers is creating legacy wealth for many people where we all can succeed together.

Any final words, advice for investors that are reading or anything that I should have asked you that I didn’t ask you yet?

They are great questions. As far as investors, what I see now is a lot of people sitting on the sidelines, fearful. Warren Buffett says, “Be greedy when people are fearful and fearful when people are greedy.” I see a lot of people fearful now. Honestly, that makes for an amazing opportunity to get involved. I had the opportunity to meet Daymond John. He came to a local meetup in our town. He talked about this exact same thing.

He’s like, “Now is the opportunity. Get off the cash is trash. Sitting on it in your checking account isn’t making you money. In fact, it’s losing money every year. Get involved in some asset. I don’t care if you are buying watches, cars, real estate or businesses. Buy something that’s going to appreciate because that cash sitting in your account is literally losing 8% to 10% a year. Why not put it to work? Find good operators and put it to work.”

Last question, how can somebody get ahold of you?

The easiest way is my website. It’s InvestWithLegacy.com. If they figure out how to spell my last name, it’s JoeEvangelisti.com for the coaching side. Pretty easily accessible. You could look me up on Facebook or LinkedIn.

I appreciate your time, Joe. For the folks, that’s a wrap. That’s the time we had. Thanks, Joe, for joining me on this episode. I picked up a lot of valuable information from you. One of these days, I know I’m going to bump into you over the GoBundance event. I would love to meet you in person. To my readers, feel free to reach out to Joe directly if you have any questions about him or if you want to know more about his investment opportunities. Also, thank you for checking out this episode of the School of Cash Flow. Remember to leave a podcast review on iTunes, as it helps me attract even more great guests like Joe. Until the next episode, live life abundantly. Thanks, Joe.

Thanks for having me on.

Important Links

• The Legacy Blueprint
• Certified Field Agent Certification
• CubeSmart
• Extra Space
• Life Storage
• GoBundance
• InvestWithLegacy.com
• JoeEvangelisti.com
• Facebook – Joe Evangelisti
• LinkedIn – Joe Evangelisti
• iTunes – The School of Cash Flow
• Joseph.Evangelisti@Gmail.com

About Joe Evangelisti

Once known as “The Flip King”, Joe Evangelisti is now the host of The Legacy Blueprint podcast and a leading expert in real estate investing – specifically in the self-storage industry.

After experiencing “burn out” from chasing single and multi-family deals, Joe walked away from his wildly successful flipping empire and transitioned to the world of Self-Storage.

Today, Joe’s mission is to show others how to tap into the massive opportunities hidden inside the self-storage industry. Opportunities that require far less time, less risk and exponentially more profits than any industry in real estate.

In addition to The Storage Syndicate, Joe also serves as the CEO of three 7 and 8 figure companies.

Prior to building his business and real estate empire, Joe served in the military as a Builder in the US Navy Seabees. He holds Letters of Commendation from the US Navy and The White House, a Letter of Appreciation from President Clinton, and numerous service medals. Joe lives with his wife Ashley and their 2 girls in beautiful Haddonfield, New Jersey.