In today’s packed episode of ‘Multifamily Real Estate Investments with Don and Eden’, we’re joined by Dave Zook- a successful business owner and an active real estate investor in sectors such as multifamily apartments, self-storage, and ATMs. He’s also written a book on syndication “8 Real-Life Lessons for Syndicators and Their Investors.”
In today’s episode, Don & Dave discuss the secrets to success, the do’s and don’t of the business, and the steps needed to have a strong foundation & longevity. Dave also touches on how a tax problem led to him dive deeper and deeper into the world of real estate, what he learned from watching his father and gives us an insight on this family modular storage sheds and garage business.
Highlights:
-Discusses his focus on Multifamily Apartments, Self-Storage, and ATMs
-Explains how he was ‘Chased into Real Estate.’
-What’s the Modular Storage & Garage Business?
-Current Projects & plans for the future
Contact Dave:
Email: info@therealassetinvestor.com
His Book: “8 Real-Life Lessons for Syndicators and Their Investors”
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TRANSCRIPTION
[00:00:08] Hello, everybody. I hope you guys are excited for another episode where you learn a lot about commercial real estate and real estate in general. I want to say personally that we are so grateful to have you guys as listeners and we work hard on these shows and try our best to give you quality content with as little fluff as possible. Doing this isn’t always easy and it requires a lot of time and energy. I’d like to ask you to give back by checking our new Website, which is being developed by my partner Eden. He’s the best at it. You can find ways to connect with us, learn about us and see what kind of properties we invest in. So the Web site address is DonandEden.com. Again, that’s DonandEden.com. No shocker there. And you can always send us an email at hello@donandedend.com. It’s Hello@donandeden.com. So thank you very much. We appreciate the feedback and you can take the time to do that. Our guest today on the show is Dave Zook. Dave invests in many asset classes as well. And his main focus is multifamily and self-storage assets, which is an asset class that picked up tremendously. So let’s hear more about it.
[00:01:33] Welcome to the Real Estate Investing Podcast with Don. Any time where we cover all aspects of real estate investing with special attention to multi-family apartment buildings and off-market strategies.
[00:01:51] Hey, Dave, welcome to the show.
[00:01:53] Hey, it’s good to be on your show.
[00:01:56] Thank you very much. How’s your day been going so far?
[00:01:58] So far, so good. It’s been very busy. But looking forward to talking to you and your listeners.
[00:02:06] Yeah. Thank you. So, yeah, busy is always good. So does first of all, so that we get to know you. I know a little bit about you, but our listeners don’t. So give us some background and tell us a little bit about yourself.
[00:02:18] So I was born into a very successful entrepreneurial family, very fortunate there. I grew up in our family business. It was a modular building business, still active in that business, along with my three brothers and my dad.
[00:02:34] I saw my dad invest in real estate as I was growing up and I saw him taking the capital that he was making from his business and put them in real estate. He was buying arms and land and as single-family homes, I saw him sort of self manage some of the single-family homes. And I just realized at an early age that I was not a path that I was interested in being on. So I started investing in businesses and started a couple of businesses.
[00:03:06] I partnered in a couple of businesses.
[00:03:08] I sold a few and got to the point number of years ago where I was doing well and I had to pay a big, big tax bill.
[00:03:21] At that point, I realized after doing some studies and reading a lot of Robert Kiyosaki his content, I realized that real estate not only can be a real wealth-building tool in the form of cash flow and appreciation, but it can also be a real tax protection vehicle. And that caught my attention. So I went from not wanting to have any real estate to want and all I could get my hands on. And the timing just so sort of aligned that the timing was great to be a buyer. And that was coming out in 2009. It started to allow timely real estate in 2010, 11. And so the timing was great and got myself in a position where I went from paying a half a million dollars a year in tax to pay zero federal tax and not so that was sort of the start. People asked me how I got and I got involved in real estate. I always tell em I got chased into it for tax reasons.
[00:04:20] That’s very interesting. So I already have a lot of questions to ask you about what you said. So the first question I have is what exactly is that modular business? So what does your company do? What do you guys do?
[00:04:30] So we build modular outbuildings, modular garages, and not necessarily homes.
[00:04:36] But think about this. So you as our customer, you’re getting up in the morning, going to work. We put in with a modular two-bay, two-story garage and we get to work. And when you come home from work, you’re ready to pull a car into your brand new car to the bay, two-story modular garage, which is a ton of them all over the country.
[00:05:03] Nice to see you guys also. You manufacture them and you deliver them.
[00:05:06] We do. So we’re one of the few companies here in Lancaster, Pennsylvania, that kind of focus on retail. We’ve got some other. This is kind of the hub of the modular storage sheds and garage business, Lancaster County, Pennsylvania. And so there’s a bunch of different builders in this area. But we sort of found our niche and that is we build. But we’re also the retail retailer. So most of the other builders in the county are, you know, primarily wholesale sell into and that network of dealers. And they may have 5 or 10 percent of their business may be local or retail. Yeah, we’re just the opposite. We’re 90 percent retail and 10 percent wholesale.
[00:05:52] So you’re able to offer better prices, better prices.
[00:05:56] We control the service quality. We’re the only person you’re dealing with. So you come into our facility, you get to tour the plant, you get to see firsthand where the more the buildings get built. You’re dealing with our salespeople and we bring the building out to you. And it’s a one-stop-shop.
[00:06:15] It’s very understandable why you guys are so successful because you have a great model. And it brings me to talk about the next thing that I wanted to ask you or not even ask more of a statement. So, you know, I talked with my friends and we always talk about business. And so we figured out that it doesn’t matter what you do, if you’re going to be successful, you’re going to end up in the real estate. So we’re all becoming real estate investors.
[00:06:39] We have no choice but to interact with real estate at some level.
[00:06:44] Yeah. If you are successful, then that’s what I figured out. You have no choice whether you made your money in retailing. You made your money in. I don’t know. Developing something or like like a patent or an idea. You’re going to end up making, you know, investing or parking that money in real estate. And I think that’s what your father understood.
[00:07:00] But he probably didn’t understand how to scale it up or how to make it work for you instead of working in it. So tell us a little bit more about your father’s experience and what was going on there.
[00:07:12] You know, it worked out quite well for him. I mean, he bought farms and land and single-family homes and, you know, 18, 15, 18, 20, 25 years later, I helped him transfer some of those farms that he bought and ten thirty-one, you know, ten thirty-one. Those farms there were kind of sitting there not making any sense, but they did have a ton of appreciation and you know, 15, 20 years in land value, in land value.
[00:07:39] So I then helped him rule those farms into multifamily apartments back soon after the recession. And we’re in the process now of selling one of those apartment buildings. We’re supposed to close tomorrow. Wow. And it’s going to work out quite well for him.
[00:07:58] So, you know, being able to get in, you know, the ground level on the front end and then seeing all that appreciation and turnaround into and rolling into an apartment building at the right time and to realize some more appreciation, it’s gonna work out well for him.
[00:08:12] Yeah. I haven’t met a lot of people that invest in real estate for the long term, and we’re not successful. I mean, maybe before the crash, people that, you know, we’re buying a lot of properties, right, Dan? But, you know, and any other scenario, I don’t see how, you know, where the compounding interest and the appreciation of real estate. I don’t see how you could lose long term. So what exactly you’re doing right now in real estate?
[00:08:38] So we’ve done we’ve bought a ton of multifamily over the last couple of years. We’ve accumulated well over 3000 units. I’ve syndicated most of those. I started out buying multi-family apartments on my own because I had a tax problem. Turns out there are a lot more people like myself that have tax problems that we’re looking to place capital and didn’t have the connections to do it. So what a lot of multi-family apartments, I haven’t bought any for the last 12 months, the very last apartment building we bought up and I believe last November. So, yeah, it hasn’t been real busy on an on the multi-family apartment stage, but we have accumulated quite a lot of self-storage in the last two or three years and still are OK.
[00:09:30] So.
[00:09:31] So between the apartments, self-storage, and A.T.M. machines, that’s kept us quite busy. We’re now the sixth-largest A.T.M operator in the country.
[00:09:42] OK. So I’m writing notes, as you can see because I always like to follow up on everything you say. So you’re also an A.T.M. investor, which is interesting. I would like to talk about that soon.
[00:09:52] But what I want to talk about first is your realization that multifamily is overheated and your shift to self is. So a lot of people make a shift, some sort of shift, and I’ve made a shift as well. I’m looking into mobile home parks, you know, besides multi-families. So let’s talk about that. Why haven’t you bought anything in the past twelve, twelve months? What are you doing with your investors? You guys bought three thousand units. I bet you have a lot of investors that you want to park their money somewhere. What? What are you telling them?
[00:10:28] So, as you know, there’s been a lot of cap rate compression. The low hanging fruit has been picked. Had we known exactly what was going on back in 2009, we should have you know, we should have bought a lot more real estate back then.
[00:10:42] Yeah, I bought as much as I thought I could at the time but had I known what was going to happen, I would have figured out a way to buy more. But no, I mean, I’m not saying there’s no more opportunity in the space. There certainly is. It’s just that it’s a lot harder. And the low hanging fruits, not there like it was a few years ago. So I’d never liked to chase an asset class. I never liked to. You know, it’s the numbers don’t make sense. I don’t want to go after it.
[00:11:09] And so I just decided to stop for now. I believe at some point I’ll be a multifamily investor again just now. It doesn’t seem to be right at the right time. I’m selling a few this year.
[00:11:21] Yeah, of course. You got to take advantage of the cycle of the market. If you have a multi-family that stabilizes and very operational, then you could sell it for retail. It’s an opportunity. You know, it’s something that you could do right now. I agree.
[00:11:33] It’s nice when you have the opportunity to buy and hold for the long term. What’s the matter with that strategy? At the same time, if you feel like you’re well at you know, maybe not at the top of the market, but high in the. The market cycle there nothing a matter of taking some profits.
[00:11:53] OK, so let’s talk about self-storage and in that space. So what have you found out over there?
[00:12:00] So over the last couple of years I’ve been talking to my ask my investor network has been growing. I kept hearing the name of this group over and over again and all I ever heard about them was good stuff.
[00:12:13] And it typically catches my attention. I’m much more interested when other people say good things about you. Then when you say good things about yourself.
[00:12:22] So I kept hearing this name and I eventually ran into this group and we called a meeting and one of the principals flew up to see me and I ended up taking him to a good friend of mine who’s sort of the Lancaster self-storage guy. And he was the chairman of the board of the National Self-Storage Association. And so I brought one of the principals up and took him to my friend’s office. And then they ended up knowing a lot of the same folks.
[00:12:58] And we interrogated him for a whole hour and a half. And then I ended up flying down to see their operation, meet the team, did background checks on him, but we ended up doing a deal with them, liked working with them, and liked the deal. We ended up in the last two years, two on eight different deals with them. And we’re right now we’re raising money in a self-storage fund where there’s going to be twelve assets in the fund.
[00:13:25] They’re all located and under some form of contract. But we’re raising around 50 million dollars. We’re well into the race where we’re heading for 40 million or somewhere between 30 and 40 million in the race. But it’s a great game. It’s a great asset class. I love the asset class. I like the asset class for a long time. It’s a recession-resistant asset class. The best performing is the best performing commercial asset class in the last decade. So there’s a lot to like about self-storage. And we’ve been very active in the space for the last couple of years.
[00:14:04] Yeah. I’ve been looking at them as well. You know, I’ve also looked at mobile home parks, as I mentioned. I haven’t done a lot of research on cell service, but I’ve heard a lot of good things from people. So I’m going to ask you a few questions about that. I’ve been inclined to invest in the mobile home park space for a few reasons. And the first reason is, as you mentioned, it is recession-resistant. And that’s because you can’t compress rents that much. I mean, that’s as low as you get.
[00:14:28] You know, a mobile home kind of venue. when you get kicked out of your mobile home building. The next stop is the street. Right.
[00:14:36] Or your car. So you can’t compress much of it. And the other reason is that as much as it’s bad to say that I believe the gaps between rich and poor is not going anywhere, it’s only increasing angry. Yeah. And they don’t make them anymore so they don’t zone for them anymore. And so you have a lot of manufactured homes. You being a manufacturer of modular spaces, you know, you have a lot of manufactured homes looking to park their home somewhere. And so the biggest benefit in mind, that’s the first time I talk about it here on the show, because I had people ask me why, why mobile home parks? What’s it what’s the point where you want to be a trailer park owner? And so I think the last thing that I want to talk about and we’re going to compare the two asset classes, is that mobile home parks when you buy them if you’re young. Right. And you have time, which I’m 30 years old. So at one point, the city is engulfing them all around them. And so you have on your right-hand side like a car dealership and then you’re on your left-hand side.
[00:15:38] You have a mall and you’re a mobile home park stuck in the middle. So you have these big guys coming over and offering you 20 million, you know, 4 like six acres because you’re in the city now. But when you bought it, you were in the suburbs. So that’s the appreciation that I’m looking forward to as far as the long term investment.
[00:15:55] I’m looking at the calls. And the cool thing about that is you’re not sitting there idly waiting for that to happen. You’re cash flow lives and making money.
[00:16:04] Well, that’s while that’s going on your cash flowing and not only your cash flowing, you’re going to get to a point where the homes that you’ve brought in, you’re selling them as part of the contract for the land. So you have already there. So you let the people hold the title to the home. So you have no maintenance whatsoever. You’re just selling or you’re renting like a slab. And that’s what’s so amazing about it.
[00:16:31] But I’ve been debating, you know what to look after right now when the mobile multi-family is so overheated. And I chose the mobile home park space. But I want to know why you chose or why you’re investing in self-storage and why do you think this is the best asset class right now?
[00:16:48] For a number of reasons. Number one.
[00:16:51] If I can invest in an asset class that does very well, much like mobile home parks, it does very well and good times do even it can.
[00:16:58] It can be even better at performing in bad times. I like it. I’m always worried about the asset class that does very well in bad times and then it falls on its face and then it kind of time of recession or pullbacks in the economy. I mean, that’s fresh on our minds being only eleven, ten, ten, eleven, twelve years behind us.
[00:17:19] So anytime I can get in an asset class, it does well in bad times. I like it. Same as our A.T.M. machines. You know them.
[00:17:29] These our customers are the same kind of people that live in your mobile home parks. I mean they are you know, there’s a large portion of our A.T.M. machines were EBT cards, welfare is more than 50 percent of the activity in our A.T.M machines.
[00:17:49] So that tells you who our customer is and those customers, the US. That’s the fastest-growing. That’s one of the fastest-growing demographics in the country, sadly, but no reality. I like serving that asset class or that that that demographic.
[00:18:06] So you think that’s the same demographics that are in the space of their self-storage is not necessarily.
[00:18:12] I mean, self-storage is pretty broad. I mean, you can get super nice class self-storage facilities and then you can get, you know, class C, class D, self-storage facilities that serve a total other demographic.
[00:18:29] So, I mean, that’s kind of all over the board. I mean, there’s some of our prime location self-storage facilities were renting a 10 by 10 space for 350 dollars a month. And I just shared that with a seasoned self-storage investor here locally. And, you know, he was having trouble getting his mind around that, how you could do that. But, you know, it’s supply-demand, it’s the location. So you serve a pretty broad demographic. I mean, you know, most people don’t know that it would be a mobile home park resident who would be a heavy user of self-storage.
[00:19:10] But I’m sure there’s some.
[00:19:13] Yeah. So what would you say are the features of self-storage of that asset class? So what’s good about it? How is it recession-resistant and what makes it so good in your opinion?
[00:19:26] Anytime you have a disruption in the market, divorce, slowdown in the economy, job changes, people relocating, people moving out of their big house and moving into small place companies downsize and need to move, move and store documents. Any time you have any kind of disruption in the marketplace, self-storage shines.
[00:19:49] I see. And so what would you say? The expenses are the average expense, of course. Every property is different. But how much of an expense you have from your gross income when you’re dealing with an asset class?
[00:20:02] Very little. I mean, you’ve got electric. You’ve got, you know, a little bit of maintenance. Not much if it’s a manned facility, which all of ours are. You’ve got, you know, payroll typically know one person. That’s about it. I mean, the electric with, you know, through lighting, if you’ve got property tax, climate-controlled, if you got climate-controlled facilities, you got more. But that’s pretty much it. I mean, you know that in property taxes and insurance.
[00:20:35] And so let’s say that somebody would buy a self-storage facility. What would be the value add that they’re looking for? Would you say it’s the rents or is it something else?
[00:20:47] You’re selling a business. I mean, you’re selling based on an NOI the same as an apartment building. Yeah, you’re you know, there are different business models.
[00:20:55] I was at a conference last night and, you know, the guy that was presenting his model was buying hold, never sell.
[00:21:04] That can work great. You know, my. Our model is such that we’ll go in and buy an underperforming asset. We’ll get that asset to the point where it’s a read target, you know. And how do you get it to be a read target? Maybe add some square footage. We have a lot of our facilities.
[00:21:22] We have. We bought them at 50, 60, 70, five thousand square feet and added 25, 30, 50 thousand square feet to the project. And when you add scale and when you add some life into the project and when you get the work on an NOI and squeeze profits, raise rents, those kinds of things, you get that NOI up. And you and you know what the rates are looking for.
[00:21:46] You know, we’re buying properties at a six and three-quarter cap. We’re going in adding square footage. We’re going in and squeezing, you know, working on the NOI. You know getting the NOI up, I turn around and sell to a read a four and a half cap. That’s a little that’s a lot of margins.
[00:22:04] That is a lot of margins. And I don’t think you get the opportunity in multi-family right now, at least not as easy. So when you said properties are underperforming, what exactly how would you define that? So 80 percent occupancy or what?
[00:22:19] So we’re buying a lot of mom and pop assets. And when I say underperforming, the property is not in bad shape, but it may be owned by a mom and pop for the last 15 years. And I’ll just give you an example.
[00:22:33] One of the properties that we bought in the fund was owned by the same sort of manager that that, you know, they built to project, you know, whatever, 10, 15, 15, 20 years ago. He proudly told us that the tenants, the resident or the tenant said that came in when they first built the project. He never raised the rents on those tenants. While that does is it sounds like music to them because we’re raising our rents every six months. And, you know, on an annual basis, we’re getting double-digit rent increases, something that’s free and, you know, something that would be hard to do in the apartment space. But we’re raising rents, double-digit rent increases every year. And so to be able to go into a mom and pop owned assets, that they sort of fell asleep at the wheel or they’re just not operating at. Most of these self-storage assets are owned by an individual and it’s their only self through asset. And so the knowledge of the industry professionally manages it, learning how to, you know, get that NOI number up. You know, that’s all the things that we kind of specialize in and often things that the mom and pop investors or owners ignore.
[00:23:54] Yeah. So let’s talk a little bit about buying this self-storage. I know I live in Fort Lauderdale. So the Miami metro area. And so here there’s been a lot of chatter about the fact that you want to buy somewhere close to the ports. If it’s the airports or if it’s the port itself because a lot of products are being sent from overseas and then Amazon and then you went out.
[00:24:21] You want to be able to hold facilities where, you know, you have storage and self-storage spaces.
[00:24:27] So how would you say that Amazon affects the demand for self-storage is or that the fact that we’re able to buy everything with a click of a button, you think that affects the economy and that asset specifically?
[00:24:45] That’s a good question and one that I haven’t thought of before.
[00:24:50] I think Amazon affects probably would affect more the industrial warehouse space and not so much self-storage units, although you could make the argument that, you know, with the click of a mouse, with a click of a mouse, you can buy more junk.
[00:25:12] Yeah. But you don’t need it. And that’s how we do it, which you driving in and which you’re gonna have to store.
[00:25:17] Yeah. So yeah. You could make that argument. I don’t know. I don’t have data behind that to say. Well yeah, that’s true.
[00:25:25] But I do know that it’s easier than ever to buy stuff and you know, that’s what we specialize in storage space to store your stuff.
[00:25:35] Yeah. So how big of self-storage facilities are you guys buying? I’m sure there are. There are some sites that you’re not interested in too small or too big.
[00:25:46] So it’s all over the board.
[00:25:47] But typically, we’re not too interested in anything that’s much less than fifty thousand square feet. Normally we’re purchasing fifty thousand and up to one of the very first ones we did a couple of years ago with this team was a seventy-five thousand square foot facility.
[00:26:03] And then we turned around and added another fifty thousand square feet onto it. We’re now in the stabilization phase where we’re we’re in the lease-up.
[00:26:10] So normally north of 50000 square feet.
[00:26:14] Yeah. So when you’re saying a team so you have a team of investors that you partner up with and you become the equity partner and they’re the experienced investors that had done this before. And so that’s why your team up with them. Am I right?
[00:26:27] Yes. I like to do business with people to have their 10000 hours and who do it. You know, guys, guys who have a reputation for delivering and doing it. Well, OK.
[00:26:37] So, Dave, thank you very much for all that knowledge and participating in the show today. We appreciate your time and coming here. And I want to wish you success in your future ventures.
[00:26:48] Thanks for having me on the show. I enjoyed the conversation.
[00:26:52] And if you would like, I have a little book that I wrote up has to do with syndication. “8 Real-Life Lessons for Syndicators and Their Investors”
[00:27:04] And if your listeners would like a copy of that, I’d be happy to send it. All they gotta do is reach out to us at info@therealassetinvestor.com and we’ll make sure that they get a copy of that.
[00:27:19] worth a read. OK. So thank you very much. And you have a great rest of your day.
[00:27:24] All right. You, too. Thanks. All right. Bye-bye.
[00:27:30] Thanks for listening to the Real Estate Investing podcast with Don and Eden. Stay tuned for more episodes. Till next time.
