"A Self-Storage Success Story"
Real Estate Investing Expert
Episode 36: "Best Deals"
Listen to the Podcast Here:
On today’s episode of The Real Estate Nerds Podcast, our host and real estate attorney Scott Smith sits down with self-storage investor Hunter Thompson. Hunter is here to tell us about a uniquely good deal in one of the unusual asset classes he specializes in–self-storage. In addition to telling us about the deal, Hunter shares some of his overall strategies for success in his niche and real estate investing more generally. Tune in to Episode 36 of The Real Estate Nerds Podcast now to hear the full story.
Hunter Thompson on Recession-Proofing and Risk Management
Hunter joins Scott Smith to chat a little bit about his background, recession-proofing, and the unusual real estate niches that have allowed him to experience success and financial freedom.
[1:00] Hunter Thompson is an investor and the principal at Cash Flow Connections. He specializes primarily in mobile home parks and self-storage, but assists with many asset classes. He began investing in financial assets just before the recession, seeing opportunity when other investors panicked. The failure of the stock market piqued Hunter’s interest in real estate. He came to the realization that stocks were not a good vehicle for the type of investing he wanted to do just as the Europeacked. n financial crisis began.
[3:35] “Investors have every reason to be concerned about recessions,” Hunter tells Scott when asked about how he recession-proofs his own portfolio. “There are real estate assets that perform well during market corrections. The data is very compelling for mobile homes,” Hunter explains. He reflects on the 2008 correction and believes another correction is approaching. Yet Hunter is optimistic about real estate’s ability to weather future market corrections. He believes mobile home and self-storage have particular strengths in these types of wider market issues: “Mobile home parks are a great example of the worse the economy does, the better for the product.”
[5:50] Hunter elaborates on what makes mobile homes and self-storage excellent even in volatile markets and recession: “The most important part of any real estate investment is the debt. It’s the majority of the capital stack.” Hunter quickly explains the relationship between debt and capital, and how to avoid problems regarding debt attached to real estate. He points to metrics beyond simply loan-to-value ratios for investors to pay particular attention to, including loan terms.
[8:08] Scott points out that Hunter’s approach is balanced in terms of risk. Hunter points out the value of asset classes, such as self-storage, that have an increased demand from those who are downsizing in a bear economy. He uses Baby Boomers approaching retirement age as an example. Scott asks where listeners can hear more of Hunter’s insights, and he replies that The Cash Flow Podcast is the best way for investors to follow him and his ideas.
[11:35] Hunter points out the value of lists in managing time and productivity, challenging listeners to devote thirty days to creating and completing to-do lists to see how their priorities are affected. He touches on the many ways to add value to self-storage units, particularly in comparison to single-family homes.
Hunter’s Self-Storage Win and The Strategy Behind It
The two investors switch gears to telling and analyzing Hunter’s best deal story.
[12:40] Hunter sets the scene for his all-time best deal, beginning with the “10,000 foot view” Scott requests. Hunter was involved in hard money lending in Tennessee. During this time, he observed the risk-adjusting benefits of self-storage and mobile home assets and wondered where he could add value.
[14:50] Hunter noted that out-managing and out-competing single-family units was difficult, but that: “With self-storage, there are a tremendous number of ways to add value.”
[15:50] Scott observes that Hunter exploited “information gaps” in a case where knowledge converted directly to dollars. Hunter points to the property he is here to discuss today as an example of exactly this concept. The property was a massive 120,000 square foot self-storage unit in Fayetteville North Carolina. He points out that military personnel made excellent tenants, particularly since their deployments tended to be longer than the rental periods for Hunter’s units.
[17:30] Hunter points out how a relationship with a trucking company, such as UHaul, can add thousands of dollars of monthly equity to a storage facility.
[19:15] The lack of mandatory tenant insurance also became an opportunity for Hunter. By filling that “gap” himself, he directly fed his bottom line immensely.
[21:00] The two investors discuss that the major value of Hunter’s company is through his wide network and many solid relationships.
[23:30] Scott points out that Hunter’s depth of knowledge, ability to exploit knowledge gaps, and network are things that are very valuable but difficult to build. Scott believes these are critical things to look for in an operator.
[25:00] Hunter believes two things have created a “unique opportunity to mess-up:” the real estate market doing well over the last decade and the JOBS Act. He points out that this can create confusion between whether good results come from your own processes or the market correction. Scott highlights that this is an issue of “because of or in spite of.”
The Takeaway: Better Thinking Leads to Better Investing
Hunter and Scott wrap up the show with the most important take-away our listeners can learn from Hunter’s story. They both agree that Hunter’s success hinged on his ability to think deeply about the problems and information gaps inherent to his investment and implement the strategies to solve them.
[27:00] Scott points out that Hunter’s ability to think deeply through his problems. The two investors agree that thinking makes the difference between success and failure in the long run.
[29:00] Hunter concludes his story by sharing that he sold the property he bought for $6.4 million for $9.1 a mere three years later. While this deal had many good things going for it, Hunter explains: “The true key to why this was a great deal is the lack of capital expenditure risk.” Simply implementing better strategies led to success in Hunter’s case.
Connect with Hunter Thompson
Connect with Hunter Thompson via the Cash Flow Connections website or email him directly at firstname.lastname@example.org. Send Hunter an email to get a free copy of his book on due diligence for real estate investors.To hear even more great tips from Hunter about investing and the self-storage asset class, check out his investing and finance podcasts.
Thank you for joining us on today’s episode of the Real Estate Nerds Podcast.
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About Hunter Thompson
Hunter is a full-time real estate investor and founder of Cash Flow Connections (CFC), a private equity firm based out of Los Angeles, CA. Since starting CFC, Hunter has helped more than 200 investors allocate capital to over 100 properties,which have a combined asset value of more than $350,000,000. While assisting with these investments, Hunter has worked with some of the most experienced and well-respected asset teams across the United States and Canada. In 2017, CFC purchased more than $21,000,000 total of commercial real estate.
Hunter is also a podcaster, contributing to several valuable real estate and finance shows. He hosts the Cash Flow Connections Real Estate Podcast, which helps investors learn the intricacies of commercial real estate from the comfort of their home, car, office, or anywhere else their life takes them.
When making business decisions that affect your long-term goals, like what types of investments to make with your retirement dollars and which vehicles to use, it really is best to be aware of all of your options. We frequently talk about the Solo 401(k) and Self-Directed IRA as tools for funding your retirement. But what about life insurance? And what about the stock market? What if we told you there is a tool that allows to to reap some benefits of both? It’s called Indexed Universal Life Insurance–and some investors have found it a useful addition to their retirement plans.
What Is Indexed Universal Life Insurance?
Indexed Universal Life Insurance (IUL) plans are a variety of permanent life insurance plan that features a cash-building element. One primary benefit of these plans is that the policy holder gets some of the gains of being associated with the stock market without all of the risk Wall Street is famous for. This is in no small part because of how these policies are designed. IULs earn in part because they are directly linked to a market index, such as the Dow or the S&P 500. Any gains remain within the policy, albeit a cap rate will limit how much you can make. However, you are protected during a particularly bad year for your index with an IUL. The worst case scenario with these plans is that you make nothing, but you never actually lose money no matter how poorly your index performs. The protection of your principal is actually derived in part from the same cap rate that limits your gains.
How much money do policyholders stand to make? Historically, returns run between 5-9%. The S&P Index has actually returned at 9-11%, but the upside limit on UILs stems from the account’s cap rate. For this reason, many advisors argue that the UIL can make a wise addition to a retirement or estate plan once more traditional and self-directed accounts are maxed out.
Tax Benefits of Indexed Universal Life Insurance (IUL) Plans
There are three key tax benefits of IULs. First, you may pay into the policy with pre-tax or after-tax funds. Withdrawals from the policy may be made tax-free if you are under 59 1/2. Such withdrawals are regarded as loans, with your death benefit serving as collateral. Any funds paid out to the beneficiary are also tax-free, including normal benefits upon your passing. This is true regardless of their value.
Ask the Experts at Royal Legal Solutions About Your Retirement Planning Options
Regardless of where you are in the retirement planning process, Royal Legal Solutions an assist you. We have extensive experience educating investors about self-directed investment options. Many of our investor-clients love our Solo 401k information, product, and compliance services. Our Self-Directed IRA services can also be helpful for retirement planning, as the SDIRA is yet another vehicle that allows you to diversify and take total control of your investments. To determine which of the available retirement planning strategies are best for you, consult with one of our experts at Royal Legal Solutions. You may also contact us with any questions you may have about your options.