On the show today we have one the real estate investor and pilot Ryan Gibson of Spartan Investment Group!
Notes from the show
Welcome Ryan Gibson Spartan Investor Group at Spartan-Investors.com
Ryan is hanging out in West Palm Beach FL for a work trip
Checkout Bongo’s if you like Caribbean food
Loved flying, became a pilot, owned a few crash pads for pilots (first real estate venture)
Waited for the market to bottom out and then bought their first house, where they did a complete gut job.
Found business partner walking down the street 🙂
Learned how to track down people to buy their houses.
Most of the people in investing these days… don’t want to do that much work.
Looking back… that was a very tough deal (especially for a first deal).
The market is getting harder and harder to find good deals.
You can invest with Ryan’s company, and not have to do all of the hard work. You can let Ryan do it!
It is hard to find a property that’s priced right in this market! We have a changing economy that’s definitely going to be different six months from now, one year from now, etc.
Make sure you do what you love in real estate investing, but you need to do bigger deals.
You will need other types of investments to avoid tax issues that come with fix and flip investing.
Julie LOVES brokerage and doesn’t have time to fly around the country to look for investments.
Ryan has a webinar coming up…
Spartan Investment Group
How long has Spartan Investment Group been in business – 2014
Now there is 5 full time people
The name comes from Michigan State Spartans. They thought about rebranding it, but after all these years people know they as Spartan.
Julie lived in Anarbor Michigan for a couple years after college.
Scott (business partner)
They started off by finding one property after another. Then early on decided that they weren’t going to do any properties that were 50% all in. They ONLY focused on quality, not volume.
They are really consecutive and super risk adverse. Because they had full time jobs they didn’t need to find a lot of deals. They could wait to find the best deals.
On their first deal they made a bunch of mistakes, but they were 50% in, and still made a bunch of money.
When you do a bigger project you can get rid of a lot of risk because they based the financing on the deal and not on you personally.
Buyers are afraid of buying right now in Seattle. Maybe consider… a middle ground between full flip and prehab. Let buyers think that they might be able to get some upside.
What are you up to right now?
We are focused on return on time. Looking at the self storage asset class.
When you buy apartments complexes you have a LOT of moving parts.
What they like about storage… is there are a lot less things to go wrong.
They just bought a place that has no running water. Running at 97% occupancy. Average stay is 4.5 years.
The lowest resting heart rate of any real estate business class.
They use a lot of different things to automate the business.
There is usually a customer service person to sell the units (if it’s a big enough facility).
Cost segregation – Investors will pay no taxes on their gain through the life of the investment. There is a paper loss.
The buildings are built as temporary structures.
There is probably some kind of ninja best way to build a building with the right kind of materials to use…
This is at the heart of where I spend my day.
You have to pay depreciation recapture when you sell a property.
Does the length of hold have to be considered?
They have to have a pre existing relationship with their investors.
Most of their investors are in the higher tax bracket.
If they can take a paper loss that year and pay the recapture later on… it’s a better deal over time. Plus you could do a 1031 exchange.
We communicate like crazy with our investors!
Do you have a break even?
Right now we are all cash which gives you maximum flexibility.
They have a sensitivity analysis for each property.
When your downside is bigger than the upside… don’t do the deal.
What’s your worst case scenario? You should always be looking at this first! Don’t look at the gain first!
You must be creative, but look at the reasons to NOT do the deal. Don’t take on risk if you don’t have to.
What does your feasibility team look like?
Strategy operations – knows a lot about development
Relationship guy – builds investor network, etc.
Looks at the 1, 3, and 5 mile ring around a population and then multiple buy a National statistic to determine how much unmet demand there is for storage. BUT just because there’s demand there doesn’t mean there are people willing to pay for storage.
Come up with a report that tells you what you need to build. They also hire another company to do a report. The banks require a 3rd party feasibility study.
As an investor you should get your own feasibility study.
A quick and dirty study will cost $500 bucks.
People listening could use a feasibility to provide better leads.
They offer feasibility to people, but it’s not their bread and butter.
They ONLY thing that matters is the demand. If there is not demand you cannot do what you want to do.
This is still a super competitive thing to get into! Just like everything else.
What is your acquisition criteria?
Ground up or value add is what we’re looking for.
We found an RV park while looking for self storage.
They have an intense API web scrubber in their Podio account. This led them to Lubbock TX. They didn’t do RV parks until they realized there was a 17% return. There was a ton of demand for RV’s in the area, and they could add more spaces. They bought at 8.5 cap.
Their site is littered with detached buildings and they asked the utility company if they would give up the easements so they could add more RV spaces and they said YES!
The value add is the fun part!
The day that you take it over you get some cash flow! And there is an upside to optimize the revenue! This gets investors super excited!
What is the most challenging part of self storage?
The 2 challenges are operations and development.
You can go through rezones and are preparing for the worst all the time. You go through every little thing that could go wrong.
Design review, permits, etc…
If you buy an existing facility you won’t have these issues.
Sometime you do have to chase around tenants to pay the bills. Because they self manage their facilities.
There are a bunch of great property management companies out there, but it’s hard to stomach the 6% going rate, so they decided to do it all in-house. This helps to control costs.
Aside from self storage what else are you actively perusing?
We have a 20 acre parcel where we are going to sell the lots off to a builder.
We will build out dirt into self storage.
The big thing that’s trending is CFO deals.
When they finish they have to lease up the building. This is where the money starts being made.
Are you focused on certain markets?
We look in growth markets. Atlanta, Florida is on fire, Crystal City Virginia (Amazon), Long Island City NY, Pacific North West, Bend OR, Boise ID.
Who rents self storage?
$55k a year income and up, but likes the older demographic. Baby boomers that have a lot of stuff and want to downsize.
Income levels and job growth. Population drives self storage! You can find the unmet demand.
50% of your renters come from drive by traffic.
If self storage is being built you might want to consider looking into other investment classes in that area.
They look at average rents in that area to see if they should build self storage.
Are you guys raising any money right now?
Yes, they are 506B. They must know each other.
Returns are 15-20% with a minimum of $50k.
You can send them an email (on intake form) that will enable you to start a relationship and get qualified to invest with them.
What are you goals for 2019
Put another $100 million under management. They have a few capital raises that will need to do.
We are hiring an acquisitions person right now!