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Empowering Your Investors to Retire Sooner

By Dan Kryzanowski

Tips on Sponsorship and Syndicates

My Journey to Financial Independence

Who do I (or you) have more in common with, Joe Biden or Mitt Romney? Putting politics way aside on my response, my answer is both. Speaking with my business hat on, I morphed from Joe to Mitt.

The Early Days

While like Joe, I did grow up on the “mean streets” of Scranton, Pennsylvania. Actually, the streets were not so mean and life was wonderful as a child in the 20th century. I was also very fortunate that my parents had secure jobs – high school principal and social worker – with pensions in perpetuity! scranton-364185_1280 Grit was (and is still) a valued trait in northeast Pennsylvania (aka NEPA), with NEPA known as coal mining community with strong cultural ties and traditions. There was a solid deference to top-down organizations and assumption of middle-class comfort. In terms of real estate and investments, the primary residence was the only “alternative” asset for the supermajority. This held true for the single-earner family or high-flying businessman that made six-figures in the early 80s. That said, the immigrant sense of adventure shined with the true immigrants (i.e. first-generation Americans) born in the early 1900s. My great aunts and uncles strongly valued family gatherings, so purchased land and built houses outside of town. My entrepreneurial spirit flickered early, though primarily in the “non-profit” sense, to provide opportunities for my peers. I co-founded and stood up programming for a youth leadership group under Hugh O’Brian Youth Leadership (HOBY), and served as matchmaker years before LinkedIn and Facebook. Overall, life was wonderful as a child and teenager in NEPA in the 20th century.

Early Career

Sometimes it pays to be lucky, being in the right place at the right time with the right people. I spent college and my twenties studying and living in three countries (traveling to another 20), ten US states, and locations such as Martha’s Vineyard in the summer of 1998 to Austin, TX prior to the current (infinite?) population boom. I also picked up degrees at Wharton and Thunderbird and benefited immensely from a decade at Merrill Lynch and GE Capital. financial-2860753_1280 Life was good and I quietly built up a sizable 401(k) and healthy Roth IRA. Stocks trended upward, public REITs paid double-digit dividends and I could receive a whopping 6% on a risk-free Certificate of Deposit (CD)! I felt very “diversified” and sophisticated within the comforts on the Fidelity online portal.

Turning Point

While 9/11 was an obvious shock (I worked at 4 World Financial Center) and wake up call to potential horrors, day-to-day living (and investing) in the mid-2000s was quite comfortable. That, of course, all changed in September 2008. The curtain fell on the Wizard of Oz, and what was behind the curtain was not pretty (i.e. “trusted” institutions). Backing up a little bit, it should be noted that I rarely go against my gut feeling, and when I do it tends to put my entrepreneurial and investing endeavors on hold. Instead of remaining in Austin in mid-2008 to be at the forefront of the first true “organic” tequila, we ended up back in the northeast, paying $2,000 monthly for a condo with a view of a wall in Stamford, CT (when I literally could have bought a house in east Austin for $40K). Fast forward three winters, the reintroduction of state income tax, and dozens of pints for friends laid offer during the financial crisis – it was time to return “home” to Texas.

Keeping It Weird

austin-247_1280 Austin, and Texas in general, has a very educated investor base, with folks forming all types of syndicates to invest in everything from conservative multifamily preferred loans to restaurants that cater to dogs and comedy tours (“Ha”, said my CPA, when we wrote off this investment). I immediately cannonballed into both ends of the pool, opening a Self-Directed IRA (SDIRA) to invest in high-yield/low-risk real estate and effectively crowdfund some of my dividends and piggybank savings accounts into hotel/bar/restaurants across Austin, some of which we also own the dirt. Overnight, I morphed from Joe to Mitt. Regardless of deal type, what struck me most was the commonality and comfort of each deal lead to sponsor a syndicate. In the early 2010s this was still a grassroots effort, now aided by various Meetups and crowdfunding platforms. The wild card, though, which has yet to scratch the surface is the “green tsunami” of $10T (yes, trillion) that individuals will shift from stagnant, nameless mutual funds to sponsors/syndicates, with a strong percentage of these funds going towards real estate.

Storage, Baby!

storage-warehouse-1553550_1280 Raise your hand if you or somebody you know rents a storage unit. Raise your other hand if you would rather spend Memorial Day Weekend on your boat vs. changing storage providers if you monthly rate went up by a whopping $7. Now with both hands in the air (i.e. the universal “it’s good” on a PAT), you have a taste into the beauty of self-storage and natural attraction to invest in a storage facility with your friends and family. Pinnacle Storage Properties, founded by Uncle Bob’s veteran, John Manes, offers the simple blueprint on how to sponsor a deal. First, assuming you are liked – or of greater importance, respected – then you should have a natural following of 100+ interested individuals who will engage based on the high level of competency and character you exhibited throughout the years. Second, keep it simple. Unless a single person is willing to take all the equity off the table, then there should not be multiple share classes on your initial deals (or even on future deals or initial fund). Likewise, this eliminates the perception (and possible reality) of preferential treatment of your Grandma’s $50k on Day 1 vs. an ex co-worker funding the final $250k from her SDIRA. Finally, set parameters on commitments. Make it crystal clear that you need $X by Y date. That said, it is always best practice to communicate a “funds due date” a good 14-30 days before your true ‘D Day’, as is is very common for your next door neighbor’s check to get lost in the mail. Assume also that 10% of commitments will fall through, so either be oversubscribed or be prepared to front or possibly invest that final 10% of equity out of your own pocket.

Six Figures in Six Minutes

businessman-4279253_1280 Did you know you can get 6 figures in 6 minutes? Yes, it’s true! As referenced above, assuming you have a reasonable number of potential investors (e.g. 100 or more), then a simple email or mention in your deal packet should bring you a few checks from your investors’ “forgotten trillions”. In every deal I sponsor, and even when I do not have a live deal, I always educate any potential investor that s/he may use their retirement dollars to invest in my upcoming deal. Tommy Prate of Magnify Capital is a longtime evangelist of enhanced retirement accounts (Solo 401(k), SDIRA), empowering both his investors and ‘Magnifiers’ (those sourcing deals with boots on the ground diligence) with the knowledge that they may invest in his current/next deal with their retirement accounts. Manes/Pinnacle also regularly receives 15%-25% of equity raise from Self-Directed accounts. The added bonus, and ease, of “selling” the concept of retirement accounts is that these dollars are likely locked up (i.e. cannot withdraw without early distribution penalty) for the next 5-25 years, so the investor has no urgency of receiving (~demanding) his principal back. Secondly, with a checkbook controlled SDIRA, the investor can easily reinvest dividends or have a bit of fun investing smaller checks in other real estate and private deals, while maintaining all the benefits of a traditional retirement account. Play this to your advantage, and you will literally get 6 figures for 6 minutes of your time.

Playing the Mitt card to Financial Independence

When on the campaign trail in 2012, Mitt Romney was asked how his ROTH account could be in the Millions (actually $102,000,000!) when the maximum ROTH contribution was only $5,000? While Mitt took advantage of other types of enhanced retirement accounts (with 10x contribution limits), the takeaway here is that he invested via a post-tax account and will not have to pay taxes on this balance during his golden years. Stated differently, would you rather pay taxes today on a small seed or the full evergreen tree in the future? I opted for the former, now very confident that my seed will replicate many times over until I elect to take my first distributions in my 60s.


Dan Kryzanowski

Dan Kryzanowski

Executive Vice President

Rocket Dollar

dan@rocketdollar.com

512.779.0843

Dan serves as EVP at Rocket Dollar and Capital Partner for Pinnacle Storage Properties. Dan has raised “six figures in six minutes” numerous times across the self-storage, multi-family, and residential worlds. His profession mission is to guide individuals to take back control of their retirement dollars and empower sponsors raise more money faster. Visit with Dan at Family Office Connect on May 21st in New York City.

mini-storage-A

Uber of Self Storage

By Anita Cooper

“A house is just a place to keep your stuff while you go out and get more stuff.” – George Carlin

If you want to build wealth through investing it’s important not to become myopic when thinking about what you’ll invest in.

As a seasoned real estate investor, developer, and property investment educator, Scott Mednick has a keen sense of the marketplace and the foresight to keep ahead of changes in the market.

“I’m kind of new…I started about 30 years ago and I started in Commercial Real Estate with – back then it was Coldwell Banker, today it’s CBRE – selling apartment buildings. I did that for a few years and then sort of got the bug to work for myself, so I started building custom homes back in the 80s…

“My timing was not good.  I got right in before the market crashed, so my home building career didn’t last long.  I started working for banks as a general contractor, fixing up the REO properties for them. I remodeled about 2500 houses, here in Southern California, and in 1997, the market changed pretty quickly; at that point, I started buying and selling houses myself and have been flipping properties for over 20 years now.

“I’ve been investing here in Southern California as well as Florida, Texas and Las Vegas, but I primarily invest in  Southern California – as I like to stay close to home where I can keep an eye on my projects.

“I’m  a licensed real estate broker, so I often broker my own deals. However, even though I am a general contractor, I do hire a GC to run my projects.  It’s been a long road, but it’s been a lot of fun…”

Using knowledge and experience gained from years of investing, Scott helps other investors do what he’s done.

“I train investor’s how to buy and sell houses. Having done hundreds of flips – there’s not much I haven’t seen.  I have over 30 years of real estate experience and I manage a fund buying value-add self storage properties across the United States.”

Just as he helps investors learn how to buy and flip properties, he’s helping them build up their portfolios through investing in storage facilities.

In case you were wondering, the self-storage industry is no small market…

According to Self Storage Association – a not-for-profit advocacy and support organization for the self-storage industry, there are approximately 49,000 primary self-storage facilities.

The total amount of storage space among these facilities is estimated at 2.6 billion square feet, generating approximately $32 billion in revenue each year.

Other fast facts:

  • Facilities across the nation are about 90% occupied
  • There are, on average, about 540 units at each facility across the country
  • The percentage of households in the U.S. using these units is estimated to be about 9.3% (as of the first quarter of 2018)

Through his company Square Storage, Scott buys self storage properties located in diverse markets, buying only those facilities where there’s an opportunity to add value and the demand for storage, retail and housing are strong.

Some of the reasons why a self-storage facility may be doing poorly include:

  • Mis-management
  • Under-capitalization
  • Not enough storage space
  • Insufficient or ineffective management tools

Anyone who’s been investing for a while understands the need to diversify their portfolio. Self-storage facilities are the perfect accompaniment, either through ownership, as part of a REIT, or other investment vehicle.

Says Scott, “It’s also the perfect business model, because in a down market when homeowners loses their house, they put their stuff in storage and they move in with mom and dad.

“And then, the economy comes back, they get a new place, they get their stuff. But usually when the economy comes back they’re so happy to have money again they buy too much stuff, so the extra stuff they put back in storage…so it’s the perfect cycle.

We are seeking accredited investors to partner with us in the self storage business. If you want to be a part of the next commercial real estate boom, give us a call and we can explain why self storage is the next big thing. This is your chance to get into the Uber of real estate.”

 

Scott Mednick

Founder

SquareStorage.com

949 632 2600