Transitioning from Residential to Commercial Real Estate | Alex Pardo

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Speaker 4 What is up, the Science Flipping family? We are are back with another incredible guest and an incredible episode. This man has been in the game longer than I am.
So he's old as dirt.

Speaker 4 He's done this 19 years now,

Speaker 4 done roughly a thousand deals, and recently has made a major, major, major pivot from residential real estate into commercial. And so I want to pick his brain on why he made that pivot.

Speaker 4 Alex Pardo is here. What's up, dude?

Speaker 5 My man, I'm honored to be here, brother. This is gonna be fun, man.
It's gonna be a lot of fun. This is gonna be good.

Speaker 4 So let's go head on. You go from residential real estate into a commercial field, specifically storage.

Speaker 4 What was the purpose behind that?

Speaker 5 Man, that is such a loaded question.

Speaker 5 2018, I feel like I had a defining moment. My wife and I were on a cruise.
We loved to travel, two little girls at the time. And dude, I felt like I had created a prison called the business, right?

Speaker 5 Like I felt like I couldn't escape.

Speaker 5 There was fires going on. Deals were falling apart.
I had some turnover in my business. I had built a team of up to nine people.

Speaker 5 You know, the typical model where you have acquisition managers, disposition, the whole nine. And man, I had built a business that our overhead was about 40, 45 grand a month.
I know it so well.

Speaker 5 So, I had to do two deals here in South Florida just to break even, just to take care of my team and make sure that the lights are on.

Speaker 5 And I thought to myself, I told my wife, I said, There's got to be a shift. Like, this is not why I got into real estate.
Right. I got into real estate because I wanted cash flow.

Speaker 5 I wanted to build wealth. I wanted time freedom.
And brother, I just, I got tired of chasing deals. Yeah.
I felt like a hamster going after the next wholesale deal. And man, I shit you not, Justin.

Speaker 5 I genuinely got more joy and fulfillment when somebody would reach out to me saying, hey, thank you for this podcast because it helped me in this way than I did about the next $25,000 wholesale fee.

Speaker 4 Now, you do have a podcast. So let's shout out the podcast.
Thank you, man. Name of the podcast?

Speaker 5 The Flip Empire Show.

Speaker 4 The Flip Empire Show. Make sure to go to Apple, Spotify, all the other platforms.
Make sure you are going and listening to that show as well. He just featured me, so you know it's in Fire.

Speaker 4 He's had that a long time, too. So Flip Empire.

Speaker 4 So you you're getting fulfillment out of the podcast as much as anything else. Coaching.
Your passion's kind of dying with the act of investing, having to hustle, art of the deal, go, go, go.

Speaker 4 You're getting into coaching. You're making impact on people's lives.

Speaker 4 COVID hits, then what?

Speaker 5 COVID was such a blessing in this guy's brother because 2019 is when I said, you know what, I'm going to start to unwind this operation. But as you know, it doesn't happen overnight.

Speaker 5 I had a team of nine. I was really concerned about them.
Like, where are they going to go? So it took about a year to figure things out. And then COVID came.

Speaker 5 I'll never forget March 11th, 12th, wherever it was. I was actually in San Diego with Ryan Pineda, a few others.
We were in La Jolla.

Speaker 5 And then all of a sudden, we all started getting notifications. Like NCAA shut down.
NBA were like, this seems big. I don't know what's going on, but this seems big.

Speaker 5 Got back home from that mastermind and it was just a blessing, brother, because I said, you know what? God is throwing me a sign. Sure.
He's throwing me an alley oop here. Let me just take advantage.

Speaker 5 And so I started having real deep conversations with my team members, trying to work out a transition plan for them. And fast forward to May, June of 2020, I was officially out.

Speaker 5 Now, I didn't build a business that was sellable, but I was able to sell off some of the assets of the business.

Speaker 4 Sure. Right.
The buyers listed.

Speaker 5 Things of that nature. So I was able to monetize a bit.

Speaker 4 Do you mind saying how much you sold your buyers list for?

Speaker 5 I believe I sold my buyer's list for 12 grand. And then I sold a motivated seller's list for about five.

Speaker 4 Love that. So, you know, not much.
Yeah, you're not going off in sunset. No, of course not.
You have some assets that you built up. Correct.

Speaker 5 And and that's part of the reason, Justin. I feel like single family, you know, this man.
For me, it was challenging to scale. There were so many moving parts.

Speaker 5 And I always felt like I was one or two team members away from stepping back into a role that I didn't want to be in. Yep.

Speaker 5 And yeah, man, I felt like I was playing the wrong game. I was getting taxed at the highest tax bracket.

Speaker 5 You know, super grateful for the money I built and like the freedom it gave us, but it wasn't really freedom because I always have to chase the next deal. That's right.

Speaker 5 And I happened to be coaching somebody who owns storage. And dude, I saw an inside inside look into his business.
I'm like, this asset class has been sitting right under my nose.

Speaker 5 Like, why am I not playing this game? That's right. So, brother, I took six months off, just kind of enjoyed the fruits of my labor, so to speak.
I got a lot of clarity.

Speaker 5 I was able to reflect, focus on me. And then January of 2021 is when I dove head into storage.

Speaker 4 So there's a lot to unpack there because I think there's, you know, taxes being one of the things that we were talking about, right?

Speaker 5 Biggest expense.

Speaker 4 It's the biggest, right? And so as an active investor, you are wholesaling, you're flipping.

Speaker 4 It's all active income. True.
Right. It's going to get taxed at the highest tack bracket.
And this is something that I wish I would have known earlier.

Speaker 4 But last year, I had a very, very, very, very big IRS bill because my bookkeeper screwed me, frankly.

Speaker 5 I've been there.

Speaker 4 And my accountant calls and says, hey, you got about 30 days to fix this issue before

Speaker 4 you have a huge check to cut. I made one single post to social media, found an apartment to partner on to gain equity, to go cost seg so I could write off that entire year.

Speaker 4 Now, the apartment was an $80 million apartment, so it wasn't just your average apartment. But because I became a GP on that, I was able to do it.
I say all that to say,

Speaker 4 it is, I am now seeing the same light that you saw in 2019. Yeah.
Is I realize we're playing a different game. We are.

Speaker 4 Active income is great. Don't get me wrong.

Speaker 4 We have nice watches. We like nice things.
We live in fucking Miami, so we got to pay our bills, right?

Speaker 4 But

Speaker 4 the game starts to become, how do you not have to pay the IRS? Right. Right.
So let's talk about storage. You are heavy into storage.
I am.

Speaker 4 I love storage. I just told you I have my first storage for you.
Congratulations.

Speaker 5 I had no idea, brother. Yeah.
Awesome.

Speaker 4 Just like anything, you know, I found someone that knew it. They said, hey, here's an opportunity.
I need to raise a little bit of capital. Can you help? I said, as long as I can come into the deal.

Speaker 4 They said, yes. So we took a $2 million asset, turned it into a $4.4 million asset, did a cost say, got the tax write-offs, and just got my first distribution check.

Speaker 5 Congratulations, man. That's beautiful.
That's huge.

Speaker 5 What you just said is something that I really want to like dive deeper on because I think the audience can get so much value and benefit from the nugget you just dropped that may have gotten lost in the shuffle.

Speaker 5 Sure. You said somebody brought you in to raise capital.
So what I want people to know is that figure out what your strength is. Figure out what your assets and resources are.

Speaker 5 And money is just one asset, but like you might have a deep network. You can carve out a piece of these storage deals just by bringing some value to the table.
It could be bringing a deal.

Speaker 5 It could be bringing money. It could be connecting people.

Speaker 5 So there's a lot of different ways people can get involved in storage, but I think what holds them back is their limiting belief that they need a bunch of money to go buy these assets.

Speaker 5 When you and I know that I've done now, I'm under contract on a six deal. I haven't used one penny, Justin, of my own money to get involved in these deals.
That's right.

Speaker 5 So it's just, it's a knowledge gap for people.

Speaker 4 It is. And it's...
the belief factor, right? So I talk about like the four pillars of success, which is belief, hard work, failure, and persistence. Belief is number one.

Speaker 4 You need to believe this is possible. You need to believe Alex isn't special.
Justin isn't special. We've just done that longer.
We've made more mistakes. We've figured out there's a process.

Speaker 4 So let's talk about storage and why that asset class over, you know, Grant Cardone has obviously made apartments incredibly famous.

Speaker 5 Yeah, yeah, no doubt.

Speaker 4 But why storage for you?

Speaker 5 I mean, the obvious is we're not dealing with toilets. Yeah.
Right. Like we don't, we have customers.
We don't really have tenants.

Speaker 5 We don't have to to deal with long drawn out evictions yeah um and when i started looking at commercial in general the just commercial real estate i just assumed because i come from single family i'm going to transition into multifamily and then i realized that storage has a 30 to 35 percent operating expense ratio and then i started researching storage and it became it was i think it's the asset class that has the lowest default rate in the last couple decades It's a very recession resistant asset class because think of the consumerism society we're in.

Speaker 5 Like, I don't know about you, dude, but my wife, we get Amazon packages at our house every day.

Speaker 4 Multiple times a day, really.

Speaker 5 Multiple times a day. And I'm like, like, dude, what's going on here? Right.
And people need a place to store that stuff. If the economy is not doing well, what do people do? They downsize.

Speaker 5 They go rent storage. Yeah.
And then what I, what really hit me is that storage is a nuisance expense. So what does storage cost? $50 to $350 a month? Sure.

Speaker 5 Think of the time, energy, and effort, Justin, to move your stuff into a 10 by 20. What has to happen if you want to move your stuff out of that?

Speaker 4 You got to hire a moving company. Well, a lot.
Like, it's going to take a

Speaker 5 week in the fair, right? And so, people just, most of the tenants in our property have been with us for more than two years.

Speaker 4 And they just leave it. They just leave it.
They buy new furniture. They're like, I don't want to go do that.
So I'm going to buy new furniture.

Speaker 5 And people are hoarders, generally speaking. Like, they don't want to get rid of their stuff.
Yeah. So they just keep paying month after month after month.

Speaker 5 And obviously, that's great from a cash flow perspective.

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Speaker 4 Well, it's a, it's an insight to, I think I'm getting into storage now. Uh, it's an insight into like the idea of why people have such longevity with their tenant is because

Speaker 4 they don't want to do like I'm ultimately innately lazy. I don't want to go move my shit from storage if I have a store.
Who does? So I'm probably going to say, honey, here's the credit card.

Speaker 4 Go buy a new couch, right? Yep. And so you're basically highlighting like, this is why an asset class,

Speaker 4 beyond all the economics, and

Speaker 4 you have stickiness at a whole nother level.

Speaker 5 You hit the word on the, it's super, super sticky. It's a very sticky product and service.

Speaker 5 Here's the other thing we haven't even touched on: is that 20 years ago, I don't think it would have been possible for us to have this conversation because it was like the ugly stepchild of commercial real estate.

Speaker 5 Because of technology, 80 to 90% of this business

Speaker 5 is completely automated, completely automated. Like our tenants move in online.
Our tenants sign their lease online. If they don't pay, they get locked out because we have automated gates.
I mean,

Speaker 5 I don't have any employees and I have 838 units.

Speaker 4 Yeah.

Speaker 5 Right. No employees.
Now, juxtapose that to like my single family business, where I didn't have any doors. I had multiple employees.
And I had 40, 45 grand a month in expenses.

Speaker 4 So you're talking about a little bit more, like this less is more idea I talk about.

Speaker 5 For me.

Speaker 4 For me too. Okay.
Right.

Speaker 4 So back in the day, you and i about the same you know age about the same years in this business it was definitely a show of flexing how big is your operation how many deals a year are you doing right we're in the same masterminds funny story about you and i we've circled each other in same masterminds we never really connected we have mutual friends literally lifetime fitness yep this is why you join memberships at a high level that costs a lot of money because you're going to run into people that can afford it and that can change each other's lives, right?

Speaker 4 That we're going to do business together. We're going to do storage together, whatever it is.
That's That's why you join lifetime or fly first class, all that. Yep.

Speaker 4 I say that to just say that the flex for me is no longer that. Less is more.
If I don't have to have employees, I don't want them. That's right.

Speaker 4 And I want to be able to maintain an incredible lifestyle. Does

Speaker 4 your units, how many you've gotten, can the income, the active income from that, where do you need to be to sustain that kind of like what you were when you were doing wholesaling and flipping?

Speaker 5 Yeah, that's a really good question, man. And, you know, that, that's one of the tough things that I struggle with when I got into storage because I've always been good at KPIs, right?

Speaker 5 In my wholesaling operation, I knew how many like direct mail letters I had to send. I knew how many calls.
I knew how many leads, how many, like I knew the conversion numbers.

Speaker 5 In storage, there's a lot of variables and factors, right? The market, the size of the facility, the occupancy, the rental rates. There's a lot of factors.

Speaker 5 So generally speaking, like, look, I have one particular facility, Amelia Personal Storage, which is like just north of Jacksonville. It's a pretty affluent market.

Speaker 5 Once we stabilize that facility, we're right at about 65% occupancy. When we get to about 80, 85, that facility should spit off about 12 grand a month in cash flow after debt service.

Speaker 4 Nice.

Speaker 5 Just net cash flow. Now, that's one deal.
I talked to a lot of people, and for whatever reason, the magic number seems to be 10 grand a month for most people, for many people, right?

Speaker 5 Maybe not for you and I, but like for a lot of people.

Speaker 4 You're not living in Miami. That is true.

Speaker 5 No, I mean, it's certainly not like this like flashy lifestyle, right? But I want to underscore something you said that there's so much wisdom in.

Speaker 5 Less is is more yeah bigger is not always better better is better that's right right and i'm not going to mention the mastermind because amazing mastermind great people but when i got into that mastermind my vision wasn't to scale my operation and have all these people but i saw others doing it and i fell into that trap sure and i didn't honor my vision that's not why i got into real

Speaker 5 Right. And you know what's crazy, dude? In 2019, I looked at my numbers.
We did seven figures in revenue in 2019. I netted more money when I got started in the business than when I did in 2019.

Speaker 5 And I had this big team because my margins were like this.

Speaker 4 Say that again for people in the back.

Speaker 5 2019, seven figures in revenue. Yeah, I don't want to like blow it up like we did like five, 10 million because we didn't, but we still did pretty well.

Speaker 5 And I netted more money as a one-man show in 2006, a year into the business than when I did in 2019.

Speaker 4 That is the miss, that is the myth that we have all been, you know, told, the lie that we're being told about scaling a business, scale a business, scale a business.

Speaker 4 I will teach my students, I'm sure you're very similar, go and put, go get rich, go make a lot of money. Don't talk about your gross revenue or how many deals because it is irrelevant.

Speaker 4 I had a very similar story. I forget the year, call it 2013, 14, whatever.
And I had multiple seven figures of earnings,

Speaker 4 9% net profit margin. 9%.

Speaker 4 Crazy, man. I made more doing like a quarter of the gross revenue.
I made more in my own personal pocket.

Speaker 4 And people have just been lied to and talked about scaling and growing and this flex of social media. People got to shut that shit off.

Speaker 5 That's right. That's right.

Speaker 5 And most people talk in terms of gross and not net.

Speaker 4 Gross doesn't matter. It doesn't matter at all.
It's net.

Speaker 5 It's what are you taking home and what are you keeping? That's right. Right.
So

Speaker 4 you went storage. You didn't go apartments.
I didn't. Was there a reason behind that beyond just like you saw the guts of a apartment? or I'm sorry, a storage student.

Speaker 4 And you were like, it just makes more sense. Or is like a reason you didn't want to go to the apartment?

Speaker 5 Well, Justin, for me, man, storage just seemed easy. Like, what we're talking about, like metal, steel on a concrete pad, we rent space.
It just seemed easier.

Speaker 5 And there were so many more people, at least in my ecosystem, that were in multifamily.

Speaker 5 It was getting very institutionalized. Sure.
And I just felt like storage was just an easier play.

Speaker 5 I don't want to call it an untapped market because it's certainly become more popular, but I didn't feel like it was as saturated as multifamily.

Speaker 4 No doubt.

Speaker 5 Right. And so, yeah, and then again, I was coaching somebody who I happened to see the inside of their business.
And I'm like, this is amazing. You work how many hours a week? A couple? Yeah.
Right.

Speaker 5 I mean, it's like, this is everything I want in an asset class.

Speaker 4 Where did you learn the storage game?

Speaker 5 Yeah.

Speaker 4 So I hired,

Speaker 5 I preach what I actually act on, right? Like, so I talk about like mentorship coaches, masterminds.

Speaker 5 I reached out to a buddy of mine, Mike Wagner, who owns the storage rebellion, and I got specific training from him.

Speaker 4 That's great. Right.
So like I do. you cut a check to go learn.
Yep.

Speaker 4 This is, again, what I think the newbies, the young people, whatever it is, they're scared to cut the check to learn the actual right thing to do.

Speaker 4 And they're just going to go to YouTube University to try to watch an episode like this where you hear Alex talk about it. But we're not going to have, you know, 4.5 hours.

Speaker 4 We're going to have 45 minutes to talk about storage. Paying someone like Alex is what you need to be doing because he's actively doing it.

Speaker 4 He can show you the right processes, systems, strategy, et cetera.

Speaker 5 You just don't know what you don't know, right?

Speaker 4 Yeah. And everyone wants the easiest, freest way.
And it leads to dead end. People quit because they can't figure it out.
Yeah, man. They need to get to the front of the line, right?

Speaker 5 Super quick story, Justin. 2007, I lost $51,000 on my first luxury flip, a house in Las Solos.

Speaker 5 That was the, of all the deals I've done, best deal I've ever done in my life because from that moment, I hired a coach. Up until that point, I saw coaches and mentors and masterminds as an expense.

Speaker 5 Like, oh, I don't need that. I can figure it out.

Speaker 5 Now I'm so much wiser.

Speaker 5 That was my best deal because since 2007, 2008, I've had a coach.

Speaker 4 Of course. Yeah.
It's something that is imperative. I mean, the silly analogy everyone's heard is Michael Jordan, Kobe Bryant, Tiger Wood.

Speaker 4 Like they have, Tom Brady has coaches to the last playing day. That's right.
That is why they are the greatest. Right.

Speaker 4 I mean, there's other things that play in, but just because he won three Super Bowls didn't mean he stopped getting coaching. And, okay, I already have my three.

Speaker 4 No, he wanted to go get another three more. Yep.
Right. Get seven, I think.
Yeah, you got four more, right? So it's people are so short-sighted with that, right?

Speaker 4 Get into the circle and the influence of someone who's been there, done that, and knows what to do.

Speaker 4 So that being said, you pay for a coach, you get in. When was their first transaction in the storage facility?

Speaker 5 Yeah, so let me humble myself and just call myself out. I got into storage overly confident, borderline cocky.
Yeah.

Speaker 5 Because of the success and experience I've had in single family, I'm like, oh, this storage game is going to be easy.

Speaker 5 I got in beginning of January, end of march i look up i have zero results like nothing like not even like i'm not even working on a deal and i had to be honest with myself i wasn't putting in the time and effort i thought it was just going to fall in my lap sure i wasn't putting in the effort i recommitted to storage beginning of april end of april i went under contract on my first deal what do you think the difference was between january and the end of march to the end of april i committed and i did the work you did it i did it i did the work it wasn't anything special i'd love to share with the audience hey there was this magic postcard or letter i this script it wasn't any of that.

Speaker 5 I just committed to do the work. Yeah.
That's it.

Speaker 5 Went under contract there, and I think we closed September 11th.

Speaker 4 Did you buy that one? Yeah. Bought that one.
How much was that?

Speaker 5 We bought that one for $1.592. We got 85% SBA financing.
Nice. And then I brought in an equity partner to fund about $350,000, which was our equity injection.
We needed the 15%. Sure.

Speaker 4 And so that loan, the SBA, that goes under your personal credit. You're on the hook.

Speaker 4 Yep. We're on the hook for that.
Perfect.

Speaker 5 Now, again,

Speaker 5 I had so much confidence going in because of how i underwrote the deal like i knew the numbers i knew what i was getting and i said what's my worst case scenario on this thing it'll still pay the debt service what's the upside here um and so yeah people have to be willing to take a calculated risk sure right and i think that's something that holds people back is that they're scared they're fearful and for many it's fear of success but that's a whole different that's a whole nother episode that's a whole nother one but yes we got uh sba financing and now we're under contract to sell that for 2.495 like as of today we're under contract congratulations Thank you, man.

Speaker 4 And this is the power of storage. I mean, I literally want everyone to go follow you on Instagram, go to storagewins.com, right? Yep.

Speaker 4 And I say that because you guys need to start to see that the power of storage.

Speaker 4 So you're selling, what is that now? Two years? You bought it two years ago?

Speaker 5 We closed September of 2021.

Speaker 4 Okay, so call it two and a half years. Yep.
Yeah. Yep.
So that's great. So you doubled your money.
Yeah. Almost tripled your money.
Yeah. Yeah.

Speaker 4 I mean, that is the definition of a damn good return right there. Plus, you made money all along the way.

Speaker 5 Correct. Cause we have cash flow every single month.
Right.

Speaker 5 And by the way, we did a cost, not to get into the weeds with cost seg, but we did a cost segregation, which saved us six figures in taxes in 2022.

Speaker 4 On your first deal.

Speaker 5 On my first deal.

Speaker 4 Let's talk taxes because I don't think I talk about it enough. But this is a big reason why I myself are getting way more into commercial storage.
I bought three apartments this year alone, et cetera.

Speaker 4 Um,

Speaker 4 because even if someone's not a high-income earner, let's just say you're making a hundred grand, right? Which, respectfully, is

Speaker 4 you know, um,

Speaker 4 you want to push your tax bill so you pay no money anytime ever. That's right.
And so, let's just say someone was making a hundred grand in your case.

Speaker 4 You buy that property, you do a cost egg, and you get a multiple six-figure tax deduction because the cost egg. Right.

Speaker 4 Can you use it in multiple? I know the answer audience now.

Speaker 4 Can you use it in multiple years? Do you use it all in one year?

Speaker 5 How do you treat it? Yeah, so that's a really good question. By the way, the disclaimer, obviously, like Justin and I, we're not like CPAs or anything.
So consult with the pros, right?

Speaker 5 Like that's what I did. But yeah, so I had a really high income year in 22.
And I talked to my partner and I said, hey, like, what cost segging, by the way, is just accelerating the depreciation.

Speaker 5 That's right. Right.
That's, so that's what you're doing. You're basically like in one year.
In one year, you're taking it up front. So we said, you know, we hired a company.

Speaker 5 I think we spent $3,500 to do a cost egg it saved us six figures yeah about a hundred and some thousand dollars um and we just extended on your active income correct alex got let's just say a hundred thousand dollars right of active income write-off it's a paper loss that's right it's a paper loss right so now i don't have it basically reduces my taxable income now to be fair i'm gonna have to recapture that once you're selling because we're selling so now there's a recapture right so like we got to tell both sides of the story but it still made sense to do that now what i would have done differently is our plan then when we did the cost seg was to hold this at least five years.

Speaker 5 Of course, I would say if you're going to hold an asset for under three years, it might not make sense to do a cost seg. Again, consult with a pro.

Speaker 5 But that's what I didn't know then. Our plan was to hold this long-term.
Yeah. But we wanted to take some chips off the table and not get into a better market.

Speaker 4 Yeah. I mean, listen, the reality is now you have the IRS saying, hey, you owe some money.
Right. So as an expert, what are you going to go do?

Speaker 4 Probably go buy another deal to go get some more cost segments.

Speaker 5 Well, now we're having a conversation about cost segging the second deal that I closed on, which is a long-term hold.

Speaker 4 And how much was that?

Speaker 5 What was that? We haven't even looked into it yet, but we're having a conversation now. Like, hey, does it make sense depending on how much money we're going to do? No, but what did you buy it for?

Speaker 5 We bought that for 2.1 with 90% seller financing.

Speaker 4 Bigger purchase price, bigger cost sag. All of these things work.
And this is why I'm so passionate about this side going in.

Speaker 4 As you and I were talking offline, when people get started in this space, the transactional, the wholesaling, the flipping, that's great. But there is a breaking.
And for me, it was too late.

Speaker 4 Now, I bet you would say the same thing. Don't you wish you knew this way earlier?

Speaker 5 A thousand percent, man. I'm kind of smiling because, like, I don't think I've ever seen somebody start with commercial and go back to single family, but I always see sing, and it's an evolution.

Speaker 5 It makes sense. Yeah.
Right. But yeah, look, I don't regret anything because without that experience and that knowledge, who knows where I'd be today? That's right.

Speaker 5 But yes, if I could go back, would I have started earlier, a thousand percent?

Speaker 4 Yeah, you know.

Speaker 4 Again, as long as someone can make a lot of active income along the way, then they should start where they can. I just think residential tends to be easier.

Speaker 5 Yeah, low barriers to entry.

Speaker 4 Lower barrier to entry, wider net, right? I mean, it's literally every household in the U.S. potentially is a wholesaler or a flip, right?

Speaker 4 But if you can get around Alex and start to learn the storage game, I'm going to impress upon everyone, storagewins.com, to get around him, right? I have one, but I'm not a storage coach. He is.

Speaker 4 But I will tell you, I want to do more deals with you.

Speaker 4 So,

Speaker 4 what do you see the financial economy right now doing for you or against you or working with you? How do you see the real estate economy working for you or against you in this space?

Speaker 5 Yeah, look, as it relates to the storage space, I'm not going to lie. Two years ago, it was much easier to find deals.
where the numbers made sense.

Speaker 5 Today, the challenge is finding the right opportunity. Right.
But it's just at bats.

Speaker 5 Like no matter what the economy does, what I hope people get from this conversation is that it's just a matter of pivoting.

Speaker 5 Number one, it's like whatever you believe is what's likely going to be true. But you have have to adjust.

Speaker 5 That's why I'm such an advocate of like connecting with guys like you, being part of masterminds, because you kind of have your finger on the pulse test to what's going on.

Speaker 5 And then I'm in communities where we're having conversations about, hey, how are you pivoting? Like, are we allocating more dollars towards marketing now because occupancy is tough to buy? Right.

Speaker 5 Like there's all these different conversations we're having,

Speaker 5 but the demand for storage continues to get stronger and stronger.

Speaker 4 Don't you think it'll always, not always.

Speaker 4 What I'm seeing in the residential space, I'm still heavily playing there, even though I do have an affinity now to commercial.

Speaker 4 People are just getting priced out. They're going to have to rent.

Speaker 4 So if they're going to have to go rent and they have to go sell their three-bedroom, four-bedroom, five-bedroom house, where's their shit going? Yeah.

Speaker 5 Not just that, man, but people are starting to like downsize more. Like people are living in smaller, tighter spaces.

Speaker 4 And figure's not always better than that, too. That's right.

Speaker 5 That's right. Like, people are realizing that, hey, with a big house comes a big nut.
You know, and I know I have a couple of buddies of mine that are in the process of starting to downsize. Right.

Speaker 5 Just because they're trying to be more prudent with the money that they have coming in, of course. Not everybody's a super, super high-income earner.
Yeah.

Speaker 5 Um, and again, they need a place for that stuff. I would just say sell it.

Speaker 4 Most people don't do that, they need that storage, but again, that's another thing you have to do. It goes back to the path of least resistance.
You're right.

Speaker 4 All right, I'm just going to put it in storage. I don't feel like selling it.
Right. There's a pro or a con to both in my mind.

Speaker 4 But yeah, I mean, at the end of the day, I just, I, but I don't know what you know.

Speaker 4 It seems to me

Speaker 4 storage is only going to become a better and better investment investment because of what I'm saying in the real estate space that I'm seeing.

Speaker 4 Prices are getting, you know, basically the whole state of Florida is getting to a point of being pricing people out. People are going into Alabama.
They're going into Georgia, right?

Speaker 4 They're going into state South Carolina. They're like leaving the whole state because even the lower price points part of the state are starting to become.
not that lonely.

Speaker 5 It's tough, man. Dude, I was looking at houses that we would wholesale for 40, 50, 60 grand in Opa Laca back in 2009 and 10.
Those houses are like 300, 350 grand now

Speaker 5 in the hood.

Speaker 4 Right. And these are areas, when he says Opa Laca for you non-Miam, like you don't want to be in that neighborhood.
Yeah, no, if you don't. You're not walking in it.
You're not wearing these watches.

Speaker 4 You're not in that neighborhood. And it's 350 grand to live there.

Speaker 5 It's insane.

Speaker 4 It's crazy. So I see this asset class is to me

Speaker 4 the most sexy, right? That's why I'm excited about this.

Speaker 4 I do, but I also see, do you see the competitive nature of it now? Because I think I now know of more people now that are in this asset class than I've ever known before.

Speaker 5 Now, maybe I wasn't asking the right questions, but no, no, you're asking a perfect question. So I believe the number is there's over 50,000 mom and pop operated storage facilities.
So small.

Speaker 5 When you think of all the storage facilities in the country, people generally think of like public storage or CubeSmart or extra space. Yeah.

Speaker 5 Those are not the types of Class A facilities we're going after. We're looking at secondary, tertiary markets, small little towns where it's mom and pop run and operated, right?

Speaker 5 And there's so much opportunity out there justin so much opportunity what's the what's the avatar that you want mom and pop they're in their 70s they've been operating the business for 20 30 years and they're ready to retire what size square footage acreage

Speaker 5 whatever the for me the bigger the better right and so like i like 25 to 75 000 net rentable square feet it's just as much time energy and effort to underwrite and look at a deal that's 50 000 square feet as it is to underwrite a deal that's 10 000.

Speaker 5 50 000 has more economies of scale now i can get third-party management yeah because the numbers can afford it yeah whereas with a small facility, I can't.

Speaker 5 Now I have to manage it or have to hire a boots on the ground. It's a little different.
So I like bigger.

Speaker 4 How many do you own currently?

Speaker 5 I have 104, three facilities, 104,000 square feet and about 838 units.

Speaker 4 Is there, out of those three that you own, is there one that you're like, this is the better avatar for the business model?

Speaker 5 When you say avatar, you're talking about like from the seller?

Speaker 4 No, no, no. Oh, square footage.

Speaker 5 Well, you know what's ironic? My best asset is the one in Amelia, and it's also my smallest, but it's in an affluent market. Like the Ritz-Carlton is three blocks behind us.
Got it.

Speaker 5 We're like seconds from the beach. So I think one of the things I look for in storage is the population is increasing in the market, and the average household income is at least 50,000.

Speaker 4 Where do you find those data points?

Speaker 5 Census.gov.

Speaker 4 That's it. You can find them both there.

Speaker 5 Google's your best friend. Google Maps, as far as like finding facilities.
Census.gov is a free resource you can go and find out.

Speaker 5 But to give you an idea, just to like give you some context, Amelia Island, $143,000, I think is the average household income.

Speaker 5 So it's an inside, even though it's a small facility, our rates are a lot higher because of the market.

Speaker 4 Do you know how to find those facilities? Is it the same game that we play in the single family space where you're pulling a list and calling or texting or market email?

Speaker 5 Yeah, I mean, some of it translates. You're not door knocking storage facilities.

Speaker 5 I mean, I suppose you could, but like, so my three favorite ways: um, cold calling, okay, direct mail and relationships. Okay.
Right. And relationships is like, that's the long game.

Speaker 5 That's like, think of like SEO. Sure.
Right. Like, it doesn't happen overnight.
Um, but cold calling and direct mail are, that's how I've gotten five out of the six deals.

Speaker 4 No kidding. Yeah.
That's great. Yeah, man.
And so you talk about five out of six, but you own three. So you've done what, you've sold the other two or three? Wholesaled.
Yeah. A wholesale deal.

Speaker 4 So that game is the same? Is that different?

Speaker 5 Is it slightly different?

Speaker 5 But essentially, it's the same thing.

Speaker 5 You're putting an asset under contract at a certain price and you're marketing it up and finding a buyer.

Speaker 5 So there's a few nuances, but it's essentially the the same thing. Like the last deal I wholesaled was in a little town called Natchitus, Louisiana.
The lady called me.

Speaker 5 She kept my letter for two years. And the reason she called me was because I put a picture of my family at the bottom of the letter.

Speaker 5 And I ended up putting that facility under contract for $400,000. And then I sold the rights to my LLC for $550,000 so I made $150,000.

Speaker 5 Like, dude, I would have had to have done five, six, seven single-family deals to make that money like four or five years ago.

Speaker 5 No, I didn't get into storage because I wanted to wholesale. In fact, I was trying to run away from wholesale.
Right.

Speaker 5 But when there's certain deals that come inside our pipeline that don't fit my buy box, it's still an opportunity to monetize it.

Speaker 4 So what is your buy box?

Speaker 5 So I'm looking for facilities that are at least 25,000 square feet.

Speaker 4 So this was less than that.

Speaker 5 Yeah, this was 24,000.

Speaker 4 Okay. But again,

Speaker 5 it was like right on the fringe.

Speaker 5 This is in a small town. Now, I was in a season of my life where like I was about to run a mastermind.
I'm in the process of selling my facilities. Like I had a lot going on.

Speaker 5 And I looked at the opportunity. I said, this deal could be worth $9 to $9.50, but it's going to take me 12 to 18 months to stabilize it and get it up.

Speaker 5 Let me just take the quick win now and keep it moving.

Speaker 4 Do you make those decisions? There's a couple of things to rewind. In direct mail, I used to crush it in Phoenix for residential single family because I put a picture of

Speaker 4 the family, right?

Speaker 4 And by the way, I was single.

Speaker 4 Interesting. It was a family.
Interesting. It wasn't my family.
Got it. And I would have a much better callback ratio than anyone else.

Speaker 4 I was doing direct mail, and it's because I knew this little secret of the connectivity of it. So, that's interesting.
Direct mail is another parallel. I used to run heavy direct mail.

Speaker 4 Obviously, you still use direct mail within storage as well, right? It's a great way to find the actual owner.

Speaker 5 You know what the difference is? In 2019, we were sending out 35,000 to 37,000 pieces of mail a month. Now, I might send 5,000 a quarter.
Like, it's much more laser, it's targeted, it's laser-focused.

Speaker 4 Yeah, does your message on the mailer say anything different or or specific?

Speaker 5 My biggest advice for people when it comes to like the copy aspect of a mail is be yourself, be authentic, write it as if you were writing to like your grandmother. Sure.
Right.

Speaker 5 Like you want to be relatable. So I'm not saying, hey, I can buy cash, I can close quickly because those, that might be a deterrent.
What if they don't want to sell quickly? Right.

Speaker 5 What, you know what I'm saying?

Speaker 4 They don't want a big chunk tax

Speaker 4 going to hit, get taxes on. That's right.
That's right.

Speaker 5 So I come across very, it's not aggressive. It's just very like, hey, I'm just a regular dude.
My wife and I are trying to buy a storage facility. We have two little girls.
Like, I'm just being real.

Speaker 5 Yeah.

Speaker 4 Right. I think that's the best way to come off because you look like you're trying to be an entrepreneur.
And I think people are going to be like, oh, I want to give this guy a shot.

Speaker 4 He doesn't come off like some big company trying to buy all the little mom and pops, right? Exactly right. I think that's totally congruent.

Speaker 4 So direct mail plays, the family connectivity plays. the long-term nurture game, the people that you marketed them two years ago, they come back into your pipeline.
Similar experience, right?

Speaker 4 So all those similarities. So

Speaker 4 how do you scale what you're doing?

Speaker 5 Yeah, great question. I think you have to get clear in your buy box, right? The bigger you can go, now you can get third-party management.

Speaker 5 So I think the answer, one of the answers to your question is third-party management. So my three facilities, I maybe spend just in two to three hours a week on that portfolio.

Speaker 5 The reason I'm able to do that is because I have third-party management handling the operations. So it's just a matter of finding better quality assets now in the right markets.

Speaker 4 What the hell do you do with all your time?

Speaker 5 Dude, the podcast, the mastermind, like, you know, I do some lending. Yeah.
But I spend a lot of time with my family, man, travel. Like, again, like, the business is meant to serve us.

Speaker 5 And I see too many people, and I'm sure you can attest to this, too many people are working for the business. No doubt.

Speaker 5 And now, granted, there's a season of hustle, but to me, it should be a season, not a lifestyle, at least for me.

Speaker 4 For sure. Well, I think there's also multiple of those seasons.
I mean, there's periodically times where I got to get back into the business. For sure.
Either make pivots, right?

Speaker 4 So, when the economy, like COVID was a good example, I dove right back in. So, I'm like, what the fuck is going on?

Speaker 4 But there's just seasons where you, the thing that I realized, and you can maybe appreciate this, if you want a big, great life, spend all the time with family and all the things we're talking about, there's a lot of that that you have to go big in work to get there as well, right?

Speaker 4 To really have that. You also don't need that.

Speaker 5 That's right. Right.

Speaker 4 You also can live a really good life that is financially good good in all metrics, but you don't have to slave yourself.

Speaker 4 The business, you don't, you know, the business doesn't have to work you to death.

Speaker 4 And so there's a fine line on what you want to do, but it also is why I love commercial so much more. Yeah, man.
Right. That the active day-to-day hustle to grind.

Speaker 4 We have, right now, as I'm doing this, I think we have 28 or 32 single-family homes in construction.

Speaker 5 In construction?

Speaker 4 In construction. You're a beast, dude.

Speaker 5 Yeah.

Speaker 4 I don't know how you do it. Well, I don't.
Right. So I have actually built a real business where I have a general manager oversee the entire company.
He has a head of construction.

Speaker 4 He has a head, you know, TC, the whole thing. The only way to do it.
Right. Yeah.
But still, it's just nasty beating because even when I get on meetings every single week, I'm like, oh my God. Right.

Speaker 4 Contractors are always a nightmare. So let's talk about construction.
I think that's something we haven't hit on.

Speaker 4 How much is there really?

Speaker 5 Super simple, man. Super.
So that's, so you asked, I think earlier, I don't know, five, 10 minutes ago, you asked about like, what is your avatar? What's your buy box?

Speaker 5 I look for facilities that are pretty light lifts. And what I mean by light lift is I'm not looking to get involved in a six-figure like renovation, what we call capex, capital expenditures.

Speaker 5 I'm looking for things where like maybe we're adding an automated gate, we're replacing some doors, some hasp.

Speaker 4 That's pretty much cameras, maybe some cameras.

Speaker 5 We add cameras and lighting. So those amenities are really important in storage because people need to feel like their stuff is safe.

Speaker 5 Ask me how I know because one of, you know, two of my facilities are in Jackson, Mississippi, which is a rough market. Sure.
Different conversations.

Speaker 4 So I've really cut my teeth in the storage business, operating a facility in a rough market uh but outside of that cameras lighting make sure you have an automated gate that's tied to your software system uh paint make it paint make it look nice make sure it's it's kept clean you have you have a good boots on the ground person that keeps it clean that's pretty much it you're not dealing with any foundational woodwork and termites and floods no i mean literally three of our flips that just hit the market three of them all three of them had roof leaks over the last week i don't know what happened where but whatever yeah so that is another appeal for those that are thinking about what vertical do you want to go into real estate.

Speaker 4 I don't want to say commercial or storage is harder by any stretch.

Speaker 4 To me, my argument is going to be if someone's breaking in, I just think go for the wider net first, gain some a little bit of experience, right?

Speaker 4 Because they are going to be going against someone like yourself that has 17 years of real estate experience.

Speaker 4 You have a lot more wisdom and you're going to go after the same target avatar that they're likely going to go after.

Speaker 5 I would say if somebody is listening to this and they have no money and they're just trying to get out of their nine to five, 100% single family, especially wholesaling, the barriers to interest are so low.

Speaker 5 Like you can, you can get a check a lot quicker in that game than you can in storage, generally speaking. Do you have the one-offs to like, you know, get lucky and find a really good deal? Yes.
But

Speaker 5 once you have a certain baseline, to me, the quicker you can transition, depending on your goals,

Speaker 5 I wish I would have done it sooner.

Speaker 4 Well, listen, let's talk to the people that might even have a job, but have a good little bank account. Yep.

Speaker 4 I mean, mean, good God, wouldn't you love a phone call that says, hey, I have a quarter million. Do you have a

Speaker 4 bring me in on ownership? Can I get some of these tax write-offs? I'm making 500 grand a year. Yes.
I need, you want that call. Yeah.

Speaker 5 So my, my partner on my first deal, the guy that funded 350 is a good buddy of mine, high-income earner. That's exactly what he does.

Speaker 5 He earns a lot of money in his job and then he puts that money to work into investments. Right.

Speaker 5 So if you're sitting here listening and like you make money or you have some savings, put that money to work. Yep.
Like now the biggest thing is to trust the operator.

Speaker 5 You have to. You have to trust the operator.
And then, obviously, you have to understand the investment.

Speaker 5 I'm the type of guy that I'll tell you, like, I wouldn't put money into something that I can't explain in the back of a napkin. Yeah.
That's just me, though. Smart.

Speaker 4 Yeah.

Speaker 4 Well, because it's easy for everyone to understand. Just because the operator has the experience, everyone needs to understand the model.
Me too. I'm the same way, right?

Speaker 4 That's why I'm in real estate. Real estate's not that difficult to understand.

Speaker 5 It's not.

Speaker 4 It's 10 numbers.

Speaker 5 So a mentor of mine told me a while ago, he said, business is simple. Owners are complicated.
Sure. And we tend to complicate things.

Speaker 4 We'll make things extremely complicated to feel good that we overcame that. And really, it wasn't that complicated.

Speaker 5 Simplicity is what scales. That's right.

Speaker 4 100%.

Speaker 4 What do you see probably the next 36 months for you in storage? Like, do you think interest rates will play a big game in that? Because if you are going to get bank lending, I mean, we just.

Speaker 4 Literally, we were talking to a loan broker an hour ago together.

Speaker 4 Yesterday, points were raised a full point, like a full point.

Speaker 5 Like, how does this all play out for the commercial side get educated with creative financing seller financing is becoming such a valuable tool it's always been a valuable tool sure i mean i i i don't care about price i'll pay whatever price you want let me just set the terms sure right and that's what we did in amelia right we just got incredible terms so as interest rates continue to hover or or rise,

Speaker 5 you got to play the seller finance game. And that's one of the offers that we're always introducing to sellers.

Speaker 5 We're not just coming in with cash like a lot of wholesalers do, but we're understanding like, what is it they ultimately want, right?

Speaker 5 Sometimes sellers will say, Oh, I'm looking for 2.5 on my facility.

Speaker 4 Well,

Speaker 5 what is it they really want? You got to go deeper in the conversation.

Speaker 5 Yeah, that's why just strong communication skills, sales skills are so important because you can't just take the surface-level answer.

Speaker 5 Yeah, and when you understand their needs and greeds, what do they want? It allows you some opportunities to creatively structure something.

Speaker 5 Now, I'm not telling you seller finance is going to work for everybody, it's not, but it's certainly a conversation we explore.

Speaker 4 Yeah, right. How do you, what's your kind of sales script? Maybe not the script, but like, how do you go about sales in this vertical versus what you may have been doing in the residential?

Speaker 5 It's, it's no different. Okay.
It's really no different. You know, we set an advanced agreement.
We try to just get buy-in on how long we're going to talk.

Speaker 5 One of the things I love to do is just like, if somebody's getting started, I love the approach of, hey, I'm really interested in self-storage. I'm in the single family game.
How can I get involved?

Speaker 5 Do you mind if, like, could you share your experience with me? Just open up a conversation, right? Yeah. I'm not asking them, hey, do you want to sell your experience? Super soft.

Speaker 4 No one's feeling okay about that question.

Speaker 5 Just a soft landing, but be genuinely curious. Don't like BS the person.
Like be genuinely curious. Like, hey, could you tell me about your experience in storage?

Speaker 5 I'm looking to transition into storage. I find that most storage owners are so much more friendly and willing to share.
Sure. The conversation between, by the way, motivated homeowners.

Speaker 5 and storage owners night and day. Yeah.
You're dealing with a professional who's mom and pop. They got a thick accent from the south.
Yeah. It's just a chill conversation.

Speaker 4 Well, have you come across a motivated storage facility?

Speaker 5 Not really. I wouldn't say motivated in the truest sense of the word.

Speaker 4 Not the way that we've been doing it. Not the way we've been doing it.

Speaker 5 No, no. But look, I've come across storage owners that like, they're done with the business.
They're burnt.

Speaker 4 They're fried, but they're not like true. They're motivated in a different way.
In a different way. They're ready to hang it up.

Speaker 5 Correct. It's not like, it's not like you're trying to fire sale a thing.
They know what they have. Yeah.
But it's motivation in a different way, to your point.

Speaker 4 Wouldn't that also allow them to want to stay in more? And that's where you get the creative finance deals. Because like, hey, you don't really want to sell, but you don't want the headache.

Speaker 4 So how do we work this out where you don't have to sell in the traditional way? You still get some upside or whatever that is.

Speaker 5 Sometimes we educate them on, hey, like, have you thought about your tax implications if you were to sell this asset? Yeah. Sometimes they have, sometimes they haven't.

Speaker 5 Well, what if I could give you your price, but over a period of time? Oh, what do you mean? Well, basically like you're like the bank. Yeah.
Right. Like you have a note.
We pay you everything.

Speaker 5 And we just try, I try to simplify it.

Speaker 5 i'm not using big terms i'm trying to just break it down for them yeah um sometimes it's just about educating and planting a seed love it they might not be ready but that's where follow-up comes in later on yep dude thank you so much for blessing us with some storage information i want everyone to go to storagewins.com i want them to follow alex pardo on all social medias um where else can they find you have a podcast yeah the flip empire show i've been doing that for eight years man i get so much joy and fulfillment from like this is what fires me up yeah these conversations storage and real estate, it's a tool, it's a vehicle, it's great for sure.

Speaker 5 Um, but pouring into people, man, giving back, having conversations like this, like, this is what I really enjoy, dude.

Speaker 4 Thank you so much for being a leader in the space, helping other people out, find success. Enjoyed having you, dude.

Speaker 5 Thank you, brother. Honor.

Speaker 4 All right, y'all. That is it for the science flipping.
We will see you on the next episode with another guest.

Speaker 2 Peace.

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