How to turn $1MM into a lot more:
Buy a $2MM self storage facility. You’ll need $600k cash.
Use $60k of your own cash (10% co-invest) and raise the $540k from limited partners.
You own 10% of the deal but 1/2 the upside (the carry).
Do this 10 times.
Buy a $2MM self storage facility. You’ll need $600k cash.
Use $60k of your own cash (10% co-invest) and raise the $540k from limited partners.
You own 10% of the deal but 1/2 the upside (the carry).
Do this 10 times.
With $20MM of self storage purchased it’s time to work your magic.
You didn’t use all of your money - you gave $400k left.
Invest 1/2 that in a few good management hires.
Keep the last $200k in reserve.
Drive revenue and cut costs by managing the facility really well.
You didn’t use all of your money - you gave $400k left.
Invest 1/2 that in a few good management hires.
Keep the last $200k in reserve.
Drive revenue and cut costs by managing the facility really well.
On each $2MM property you can raise NOI from about $150k (a 7.5 cap) to $180k (a 9 cap).
The 10 properties now generate $1.8MM in income.
Now it’s time to sell them all.
The 10 properties now generate $1.8MM in income.
Now it’s time to sell them all.
New buyers are interested because you have a bigger operation.
Bigger buyers who are willing to pay a higher price.
You get something called cap rate compression.
Bigger buyers who are willing to pay a higher price.
You get something called cap rate compression.
Instead of selling at the 7.5 cap you bought at you sell at a 5.5 cap.
$1.8MM / .055 = $32.7MM
You sell for $32.7MM.
After closing costs ($2.7MM) you walk with your original money + 1/2 the upside, or $5.6MM.
You pay 20% in capital gains taxes, and keep $4.48MM.
$1.8MM / .055 = $32.7MM
You sell for $32.7MM.
After closing costs ($2.7MM) you walk with your original money + 1/2 the upside, or $5.6MM.
You pay 20% in capital gains taxes, and keep $4.48MM.
$1MM -> $4.48MM.
Your investors are pumped. You made them money too. They want more.
This time you have more capital. So you go out and buy $100MM worth of real estate.
Sell again and clear $15MM this time.
And do it again and again until the world is full of tomatoes.
Your investors are pumped. You made them money too. They want more.
This time you have more capital. So you go out and buy $100MM worth of real estate.
Sell again and clear $15MM this time.
And do it again and again until the world is full of tomatoes.
If you need some help with a bit of the terminology:
https://twitter.com/sweatystartup/status/1398301921212088321
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