An introduction to note investing and self storage with Brian Hamrick

Brian Hamrick began investing in single-family homes in 2002. During the Great Recession, he purchased his first multifamily property and has since worked with private investors to acquire apartment communities, self-storage facilities, and non-performing notes. In 2012 he founded Hamrick Investment Group ("HIG") to help other qualified investors take advantage of the lucrative returns real estate has to offer. Self-storage properties enjoy high demand from Baby Boomers in need of extra space as they downsize and from Millennials who would rather pay less for storage than pay rent for more living space. During the last decade, self-storage investment returns have outpaced most other property types, which means investors should take note. Episode Link: https://www.higinvestor.com/ --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Brian Hamrick with Hamrick Investment Group and Brian is going to be talking to us today about note investing, as well as self-storage investing, two topics that are super interesting. I wish I could say that they are near and dear to my heart, but I'm a total newbie at them and have no experience. So really excited to chat with him about that. So let's get into it.   Brian, what's going on, man? Good to see you again and thanks for coming on the podcast.   Brian: Appreciate you, Michael. It's great seeing you again, too. Thanks so much for having me on your show.   Michael: No, absolutely. I think we're gonna have a lot of fun today as you are a very interesting person with an interesting background. So I'd love for anyone who might not be familiar with you. Can you give us quick insight who you are, where you come from, and what is it you're doing in real estate today?   Brian: Yeah, thank you. So my, my name is Brian Hamrick. My company is Hamrick Investment Group and what I what I am I started off as a multifamily apartment investor syndicator and over the years have also expanded into performing and non performing notes, self-storage, vacation rentals, office, a little bit of retail. Basically, if I have a rockstar strategic partner that I can partner up with, I'm the one who raises the money brings the equity and I partner up with someone who's got a great track record knows how to make money in their space and that's, that's kind of my business model for the past five years.   Michael: Right on and I don't know if I've actually met or spoke to anyone that got their start with multifamily syndication? Is that really where you got your teeth cut or did you start out with single family kind of like so many of us did?   Brian: Yeah, so going way back in 2001. When I first read Rich Dad, Poor Dad, I did get started in single family. I was living in Los Angeles at the time and everything in LA back then was way overpriced. So I started investing in a network that was investing out of state. So I bought single family in North Carolina, South Carolina, and Albuquerque, New Mexico and I got my portfolio up to seven separate single family properties and quickly realize, you know what, this is the very, very slow way to financial freedom and that's when I started looking into multifamily, because I realized you can get that economy of scale by having more units under one roof.   Michael: Yep, makes total sense. Okay, well, let's shift gears here entirely and talk about note investing and self-storage and if we have time short term rentals, because it's just like a super fascinating space and we always joke in the show that these podcasts are very self-serving, I hate to ask all the self-serving question. So talk to us what is note investing and what attracted you to it initially.   Brian: So I also host a podcast and just like you, I love talking to different investors, who have different asset classes, different skills and one of the investors who came on my podcast, his name was Jean Chandler and I was just so fascinated with his systems of buying non performing notes and basically a note is like a mortgage or a land contract or a contract for deed and you're so when you buy a note, you're not buying an actual property, you're buying the paper on that property, that the IOU, and there's a lot of value to those IOUs, especially if you can buy them at a discount. So let's say there's a property that is that has $100,000 balance on their loan, and you can buy that note for $80,000, you know, 80 cents on the dollar. Well, now, whatever that interest rate was that was being paid, you're actually making more than that interest rate and if that note pays off, you know, sooner rather than later. Well, I just paid $80,000 for $100,000 note that's $20,000 that I could profit.   So Jean and I , Jean Chandler, I had him on the show and I was just really interested in notes and I had a little bit of experience With notes previously, so I called him up after the show and first of all, I said, How many people have called you, since this show has come out to invest and he said, no one's called me and I said, well, that's interesting, because I'd like to invest with you. So we started off by buying 10, different non performing notes and a non performing note is basically, if someone's not paying their loan, that and over after three months, if they're not paying, it becomes non performing. So, the, the strategy that Jean had at the time was to buy these non-performing notes, like 30 cents on the dollar and the goal is to get them re performing because if you can, if as of note is paying, say 10%, and you buy it at 30 cents on the dollar, while your yield if you can get it REIT performing is going to be well above 30%.   Michael: Holy smokes.   Brian: Yeah, so there's, there's so much value there and that delta between what you pay for note and what it's actually yielding anyway, we bought 10, non performing notes, and we lost money on two of them but our average return on all 10 notes was over 80%.   Michael: What?.... That's insane. Like, as you were describing the nonperforming of it, I'm sitting here thinking to myself, like, what do you guys like bounty hunters, you go out and they okay, you got to start paying your notes like, how do you what does that process look like to get a nonperforming to a performing because there's a reason that's being sold at a discount?   Brian: Yeah, exactly, exactly. Now, don't go out and try this on your own. That's necessary, have the experts on your team that know how to do it properly, because there's a right way to do it and a wrong way to do it but the what we're able to do as private investors quite often what Jean does, I, I leave the heavy lifting to Jean, but what he's able to do, quite often is contact the borrower directly and the larger institutions have guidelines and rules that they have to follow that, that basically puts all the borrowers in a certain box, and they have to be treated a certain way. But as private investors, Jean can call them up and just have a real conversation of person to person conversation and usually it starts with, do you want to stay in your home? Yeah, that's the first question he typically asked and then that's when kind of the guard comes down and they're like, nobody's ever asked me that before. So then gene can have a real conversation and say, Well, what is preventing you from paying your mortgage, how do we get you back on track, and sometimes that means might mean modifying the loan, so that their balance stays the same, or maybe there we take off some of the fees that have been charged over time but maybe we modify it so that their monthly payment is lower, you know, by stretching out the amortization, or we allow them to get caught up, because they just weren't getting anywhere with the previous servicer or lender.   So it starts with that conversation and quite often, that's a successful conversation and we've luckily been able to help a lot of borrowers who have had some sort of distress stay in their homes and that is our goal. But at times people go dark, you know, there's, believe it or not, there are people out there who want to be in denial, or just keep not even be consciously aware of what's going on around them and they either don't respond to us, or tell us that they're going to send us a check, and they never do. So they don't perform and in those cases, we actually go through with foreclosure and when you buy a non performing note, and we buy performing notes to but I'm focusing on buying non performing right now, when you buy a non performing note, there's two values that I like to look at. One is what's the what's the unpaid balance that is owed and then what is the actual cash value? So if you go through foreclosure, what would you sell that property for on the okay market and quite often, on average, over the years we've paid, we've paid roughly 45 cents on the dollar for the unpaid balance and 35 cents on the dollar for the actual cash value. So if we do have to foreclose, take something through that process, and then sell it. Quite often, we're seeing you know, 50 to 100%. In one case, we had a 550% return on a property we took through foreclosure.   Michael: That's on believable, Brian, I've got I have so many questions. Let's start with like, who is selling these non-performing notes? Are these coming from banks? Are these coming from other private lenders because you mentioned interest rates in the 10%? I mean, that's probably not your Bank of America, Wells Fargo type of loan, or are they?   Brian: Well, 10% is kind of the limit on that you can charge under Dodd Frank rules. So we're huge guy. Like, if we're striking a new note, it's 9.99 and the reason the reason people are willing to pay that is because these are our lower value properties, where the loan amount is under $50,000. So we're kind of in this market where the normal, the typical borrower can't go to a typical lender or bank, because banks don't want to make loans that are less than $50,000. It's the same amount of work on a loan, that they that would be a million dollars, and they make a lot more money off the million dollar loan than the 50,000 loan. So when you get to that price point, you're quite often dealing with four private company, private capital, that's making these loans. But a lot of our loans are trickling down, some of them come from Fannie Mae, and then they trickle down to hedge funds, who buy them up in bulk, you know, billion dollars to take up 1000s of loans in default are performing.   Michael: A big short, right, that's what the whole movie was about?   Brian: Yeah, exactly and yeah, and that, that that movie is a good kind of a good touchstone because a lot of the opportunities that we were seeing, and this was five years ago, that I started working with GE and a lot of those opportunities we were seeing had trickled down from the larger institutions, to the hedge funds to the private equity groups and then we were still picking them they had they had run got all their value out of them and we were then picking them up for like, 30 cents on the dollar. At that point.   Michael: Oh, my gosh…   Brian: But yeah, so they're trickle down. We're buying them typically from hedge funds and then sometimes we're we've have situations where we're we are possibly taken up a property through foreclosure. In some cases, we buy these notes, and it turns out that they're Oreos, and we've bought notes that we thought were non performing, only to find out that they're Oreos, and we own the property. It's already gone through foreclosure. In those cases, then we can turn around and resell it and generate a new note.   Michael: Interesting. So talk to me again, about that the foreclosure process specifically, because you mentioned, being able to buy the note for 45 cents on the dollar, and then the physical property for maybe 35 cents on the dollar but if you buy the note and then take the property through foreclosure, don't you then own it or is there another step involved in that process something else you have to buy or pay for?   Brian: So there again, always have an attorney to help you take through go through this process. But yes, quite often, when we take a property through foreclosure, we will end up with the property and owning the property and then we can go ahead and just sell the property. Sometimes you do have to you know, it's not it's not an easy process, because sometimes the borrower might declare bankruptcy, and that sort of sets you back, you know, six to 12 months, or whatever it takes to work through that bankruptcy. Every state has different rules and laws, and sometimes different municipalities in that state have different rules and laws. So it's always important to have an attorney who knows those rules and laws in that state, working with you through this process.   Michael: Makes total sense. Okay, man, so now let's say you, you buy the note, it continues to nonperforming take you through foreclosure, they don't declare bankruptcy, everything checks out, you own the property. I mean, literally, like your name is on the deed and title now, or like whatever entity bought the note or took it through foreclosure. So like, it's yours, you can do whatever you want with it?   Brian: It's ours and yes, we can do whatever we want with it. Quite often, we find a local broker or realtor who can just put it up on the market and sell it for us. So we I'll give you an example, we had a property and this is kind of a general example that takes into account a number of different properties. So this isn't just one specific property, but it's kind of like the typical homerun scenario that we encounter, okay and by the way, we could buy 10 notes. Two of them will be complete dogs and losers. Six of them will be breakeven or make a little bit of money, but it's those two kind of grand slam home runs out of the 10 that really make the whole thing work. So some of the winners that we've had is there was one property where we bought the note for, I think that the balance was around $35,000. Okay, we bought the note for $20,000.   Michael: And it's not you got to pay cash for this right or is there a lending institution that I'll give you?   Brian: There's no lending institution where yeah, we're we are buying our notes with cash, we pay $20,000 for a $35,000. unpaid balance really just blows my mind, and I don't understand, but that we do everything we can to contact the borrower, we will call them, we will send them mail, through the post office, we'll do whatever we can, sometimes gene will even buy a burner phone and fax it to them. So that when they open it up, there's it says call me and there's the number, and then they'll actually call on the burner phone. So he will do everything bend over backwards to establish contact. In this case, we never established contact, they never responded to us. So we went through the foreclosure process. At the end of that foreclosure process, we showed up to the house, it was broom swept in incredible condition and we listed it for $125,000 and sold it for $110,000 and this is a note that we paid 20,000 for. So after legal fees, broker fees, we ended up with about $80,000 in profit, and our money back and our original $20,000 back.   Michael: That is mind blowing. So and let me know if this is like a legal question but I'm just curious from a high level, let's say we'll use this property as an example. Let's say they bought the property for 50 grand, they pay down their mortgage over the years. So they have 15,000 and equity for the 35,000. unpaid balance and let's say you could establish contact, you knew the person you'd but you still went through foreclosure does that person lose out on their 15,000 in equity or do you have to make them whole for kind of their ownership stake in that property, you know how that works?   Brian: Yeah. So they lose that you would you would hope that that $15,000 in equity that they have is enough incentive for them to try to get that loan re performing again, right and quite often that is the case and we will we will do everything we can to work with them to make that happen but sometimes, people just they go dark, and they bury their head in the sand. They don't respond and then they end up losing the property and the equity that they have in that property, which is unfortunate but it does happen.   Michael: Wow! Well, Brian, this like a blew my mind. But let's shift gears here because you also invest in self-storage, which is another really interesting asset class, and folks at the IRS Academy have expressed some interest in learning more about it. So can you give us the high level of again, what should we know about it and what attracted you to that investment class?   Brian: Initially, self-storage, once again, is an asset class that I got into because I had a rockstar strategic partner who brought me a deal in self-storage that was just looked amazing on paper and the more I looked into it, and by the way, so this is my partner, Tim puffer in this case, he took Scott Myers course, okay, on investing in self-storage. I don't know if you know who Scott Myers is, but he's one of the trainers out there and he started cold calling self-storage facilities in the area and like the second call he made, he landed a property is 28,000 square foot with a 63,000 square foot office building and the owners were like, Yeah, we're thinking of retiring and moving to Florida. So Tim made them an offer of $1.3 million and we picked it up and we immediately a lot of times you look for the value add in self-storage and one of the value adds is when you buy a property that's been kind of mom and pop operated. You know, they've been proceeding with under the same systems for the past 10 years or so. Right. So they quite often they don't have like an online presence.   They're still doing like paper checks and mailing out bills every month. So right away, the first two things we did was we started bumping the rates up to market rate, okay, and we started putting in systems like having a website having automatic booking, you know, so someone could go to our website at 2am Lisa space, and at 2:30am, enter the their number on the keypad and get in and store their stuff. So we automated everything, so we don't need on site management. After a year of that we boosted the value of the property enough that we were able to tear down our office space 3000 square foot of office and put up another 15,000 square foot of storage, this is all drive up storage. So we brought our square footage up to 43,000 square foot, no money out of our pocket, we were basically pulling cash out from the value that we had added in just 12 months and that was about $700,000. So we got it up to 43,000 square foot and then with another two years go by this property we paid $1.3 million for we sold it for 3.5 million.   Michael: What…?   Brian: So our investors were very happy there.   Michael: That is outrageous, that's outrageous…   Brian: Yeah, self-storage is probably my favorite asset class just on the principles that it's very easy to manage quite often. Very, very, when you add value, if you have a clear path to adding value, you can add a lot of value and I liked that it's automated too. You don't have to have you. I know some people have on site people to maybe sell boxes and, and locks and stuff. But you don't have to have that you can automate that as well. So I really like self-storage from that those perspectives, that is   Michael: Just remarkable and how can people get access to those types of deals? I mean, can somebody go out and buy a self-storage facility and do this themselves? It is something that they should be thinking about doing with that experience, syndicator and operator? What are your thoughts there?   Brian: Yeah, so if they want to do it themselves, I highly recommend getting coaching from like a Scott Myers and I know there are other people out there teaching it, if they want to invest with experienced operators like myself, I'm there's a lot of us out there. So, you know, I wish I could say I have tons of self-storage opportunities. But sometimes I do sometimes I don't and I know there are other people out there who are who are buying self-storage as well.   Michael: Okay, and what are some, like canary in the coal mine type of things to look out for or red flags to look out for when it comes to both the self-storage facility as an opportunity, as in addition to the operators themselves because like, I don't know anything about self-storage. So other than someone's track record, if they're showing me their offering memorandum? I'm like, I don't know that sounds good. What should we be looking out for?   Brian: That's a good question. That's like, how do you judge someone like myself, someone like some of the other syndicators out there who are doing it, I think you need to look at the track record, look at their communications with investors really dig into that what is their expertise in that area and that's why I partner with people who really know their space. I, I don't claim to be a self-storage expert, but I partner with people who are self-storage experts. As far as the facility, here are the metrics you want to look at. Because you're looking at the square footage. First of all, how much square footage is available. A lot of people asked me well, how many units do you have and like I have no idea how many units we have because they're you know, some are five by 510 by 30s 10 by 40s 10, by 10s.   You know, so they you can have any configuration of units, it's really the rentable square foot that you want to look at. So we always do a feasibility study because we want to look at how much square footage is in the facility that we might be buying or considering to develop and then what's our competition how much square footage is already available in that area and you want to look at kind of a one mile radius, a three mile radius and a five mile radius that's where most of your customers are going to come from and within that one, three and five mile radius, what's your competition look like? How much square footage is out there already? Then you look at how many people live in that area. What and then what is the square footage per person that's available in that area. So, these are kind of loose metrics not to be taken you know, as a hard and fast rule. But if you have, say, less than four square foot per person in those areas, then you're probably under supplied and you can compute on paper, how much more square footage can be absorbed in those areas. If you have over say, five, seven, you know, closer to 10 square foot per person, then you're probably over supplied, and the absorption rate is going to be a lot slower. The other thing you want to really pay attention to in the feasibility study is the income in the area, you know, you want to see incomes that are at least over 40,000 per year, on average, over 60,000 per year on average, then you're really in a good area to add more or to buy that buy that supply and then of course, you want to look at well, what might be coming online. So you want to check with the city and the municipal municipality to see what's been approved. That may not have been built yet, but it's out there waiting to be built and become a competitor to you.   Michael: Okay, I used to live down on the central coast of California and down there, there was like, tons and tons and tons of storage facilities. Is that bad business or is that common practice that were there's one, there's many…   Brian: You know, here's probably a huge density of population there. So there's definitely in some of the primary cities, you hear about oversupply, they're over building self-storage and hopefully, those are companies that are building the self-storage that have deep pockets, because eventually that space will lease up, and they'll meet their pro forma but it's going to take longer, because there is this oversupply. So that does it, it is justified, because you have more maybe you have more and more people moving to those areas, there's a lot of density. I prefer secondary and tertiary markets, where you don't have nearly as much competition. But you still be if you when you look at the demographics, and the absorption rate, and you know, the amount of square footage available. There's still a need. So we've recently bought some facilities and I have I have several Self Storage partners. I have another cell storage partner, his name is Charlie Gao and we bought a facility in northern Michigan, that was already 52,000 square foot, we immediately we purchased that, and then we bought 10 acres next to it and we immediately more than doubled the size of that facility and it just came on line two months ago, and it's leasing up three times faster than we anticipated and projected.   Michael: People got lots of stuff and they need somewhere to store it.   Brian: Yeah, they do. They say self-storage is good in all economies, when the economy is good people buy stuff and they need to store it. When the economy is bad people downsize and they need to store their stuff.   Michael: Yeah, I remember that.... My wife and I got a unit when we were traveling in our van because we had moved out of our primary home rented it out and then we were living in a van full time and we hadn't yet bought a new primary to move into so we got a storage unit and I walked into this facility and I'm like, these people are printing money and like I'm a tenant, I'm never gonna call landlord say my toilets broken or my lights broken or I have a clock. You know, like, so many of the problems that people run into or hear about traditional real estate. I don't think exist in self-storage. I'm sure it has its own sets of problems but like man to not have to deal with tenants in the middle of the night. Sounds awesome.   Brian: Yeah. Yeah, the calls we might get are the gate is stuck and I can't get out but no one's gonna say the toilets busted. We don't we there's no gas. There's no water and sewer, there's electricity and then there's security cameras and a gate and you know, it's so simple and done, right…. Self-Storage, I think is like an ATM machine. It just, you're right it just you print money with it, if you do it right…   Michael: Oh my god. I love it, I love it, Brian. We didn't have a chance to get to short term rentals love to have you back to chat more about that. But for those interested in your podcast in investing with you in reaching out learning more about you and your company, where's the best place for them to do that and what are the names of some of those things we just mentioned?   Brian: Yeah, thanks, Michael. So I also host a podcast and you're a guest on there. I'm not sure when this episode comes out, but your episode will come out sometime this summer. The podcast is rental property owner we're in real estate investor podcast, and I host that on behalf of the Rental Property Owners Association here in Michigan and then you can also go to my website to find out more about me. It's my company is Hamrick investment group and the website is H I G investor.com, that's https://www.higinvestor.com/   Michael: Awesome. Well, Brian, thank you so much for coming on here and helping me pick my jaw up off the ground from the things that you were sharing with us. Really appreciate you taking the time.   Brian: Thank you, Michael. It's been a pleasure.!   Michael: Likewise, take care. We'll talk soon.   Okay, everyone, that was our episode a big thank you to Brian, for coming on. If you're watching this on YouTube, you saw my jaw dropped several times. Super, super interesting stuff that Brian is working on and was sharing. So thank you again for coming on as always, if you enjoyed the episode, feel free to leave us a rating or review wherever you get your podcasts and we look forward to seeing on the next one. Happy investing…