My first storage deal - part 2

So, we had presented a model to the owner, drafted a “master lease” type agreement, with a purchase option, fully executed those docs, and taken over.

How did we do this?

Sometimes I hear people, especially the biggerpockets types, talking about the "Master Lease Option" or "MLO" like it's some sort of common acronym that is widely known in real estate and a normal thing to do.

It's not widely known, and it's not a normal thing to do, and I think I'm the only person I know who's done it. Probably won’t do it again.

I was in a day job at the time where we were negotiating purchase options on $50+ million apartment complexes, and those documents were drafted by some of the most expensive real estate attorneys on the planet, so I stole a bunch of that language. Here is a link to the final document, which was recorded at Davidson County in its entirety so it’s public information anyway:

https://drive.google.com/file/d/1znv_d8aaWCcaQm2HPNZ2Gvk6efNQh0HG/view?usp=drive_link 

A sort of cinematic moment was my partner throwing a slew of stolen items into his trunk on his last day at Extraspace before driving off. Wall pack lights. Locks. First Months’ Free banners. We had nothing, we were nobody, and honestly nobody at EXR would've given a shit.

In addition to cash, I contributed a monitor I took from the REIT that I worked at and a $500 home depot card that was given out instead of a bonus.

Side note on the pro forma. I’d said in my previous note some of my assumptions were silly. Someone asked me in a follow-up, why, what was silly?

It wasn’t that silly, just a couple minor things (such as a 4% PM fee totaling $300/month) make me LOL these days. Here is the actual P&L at stabilization, so you can compare. Shockingly, we nailed it as far as total income and total expenses. One expense that was obviously greatly understated was the amount of time Andrew spent on-site. It was like having Leonardo DiCaprio from Catch Me If You Can managing that whole thing for $0.

This whole time I’d been telling him it was silly for him to be spending so much time there. I did not tell him to quit his job at the beginning, but he wanted to. And his live-in girlfriend had a good-paying job.

But what was REALLY silly in terms of underwriting was how much CapEx went into getting it to the state it was in @ sale vs our original budget. I had a feeling we were underbudgeting capex, but Andrew insisted on doing it on a shoestring:

I see in an old e-mail that he was realizing that most of these capex items would have to be performed by him for this to make sense. Not the doors; he had a guy named John who did door repair at the various Extraspace facilities who cut us a deal on installing and fixing those things because they are tricky, but a huge amount of work was done by Andrew himself.

The gate is not in that budget because we knew it was a huge item and would have to be dealt with later. In the meantime, he opened and closed the gate every day by hand.

If you’re paying attention, you’re probably realizing that Andrew is doing fucking everything and I’m not. I was doing what I could from Atlanta where I kept my W2. For example, the hole you see in the ground in the picture above. The electric company created that hole and it took endless harassment to get them to come back and wrap it up, and I could do that with just a phone and computer 250 mi away.

Sure I sourced the deal. I structured it. I did the bookkeeping. I did social media marketing and online ads. When it was time to sell, I put our own OM together and found the buyer. So I added some value. But before we started on this venture, we knew it would be mostly him, so we agreed to split profits 60/40.

And in fact, by the time we exited, he ended up getting more than that, but more on that next time. Because there’s so much more that happened. The shitshow had just begun.