Catching Underwriting Mistakes Self-Storage Investors Miss

What if the biggest mistake in your first storage deal is believing the appraisal? 

Joe Downs and Jack Pezzino reveal how one student nearly overpaid millions for a self storage facility after relying on the wrong appraisal method. 

They explain why income, not replacement cost, should drive valuation, why commercial appraisals differ from residential ones, and how inexperienced investors can unknowingly turn an asset into a liability. The conversation explores common underwriting mistakes, the danger of being either too aggressive or too conservative with assumptions, and why understanding the market is more important than simply analyzing the property. 

Joe and Jack also pull back the curtain on Storage Moguls' deal review process, showing how an experienced second set of eyes can uncover costly mistakes before an offer is submitted. 

Their biggest takeaway is simple: successful investing is less about having perfect information and more about validating your assumptions before committing to a deal.

Listen For:

10:03 Is seller financing the most dangerous trap in a mispriced self-storage deal?

12:22 Why do first-time self-storage investors underwrite themselves out of every deal?

20:24 How does Jack Pezzino calibrate the line between conservative and realistic in a storage underwrite?

27:17 Why is market underwriting the non-negotiable first step before valuing any storage facility?

33:58 What does Jack Pezzino say is the single move that separates investors who close from those who don't?

CONNECT WITH GUEST: JACK PEZZINO, VP OF ACQUISITIONS BELROSE STORAGE GROUP 

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Transcript

Joe Downs (00:00):

There's a facility out in the Pacific Northwest renting units at roughly 50 cents a square foot. After expenses, that means it has an in-place net operating income of $110,000. And if you look at it from an appraisal standpoint, the income approach means that facility's worth roughly $1.6 million. But the seller's appraisal was marketing the property based on the replacement cost number of the facility, which was 75 to $85 per square foot to rebuild it, which would mean the replacement cost value of that facility is 2.8 million to $3.3 million. Same four walls, same income, two very different values. Our student almost agreed to buy based on the wrong one. And look, nobody was lying here to anybody. But when you're new to the game, how do you know which one to use?

(01:10):

I'm Joe Downs. Welcome to the Storage Moguls Podcast. My company has acquired over 20 storage facilities and over 70 million in assets across multiple storage niches. Seen this business from every angle, educated hundreds of students and learned firsthand who succeeds and why. That's what drove us to build storagemoguls.ai, an AI-powered community with the tools, the structure, and the guardrails to teach people how to buy their very first storage facility. It's kind of like bowling with bumper rails. And that's exactly why we launched this podcast, to bring you the lenders, the brokers, and the industry pros, as well as the real people who successfully purchased their first self-storage facility so you can hear their stories and learn the business from the folks living it every day. And today, I have none of them here. Instead, I have Jack Pezzino. Jack runs deal reviews for storage moguls among other things.

(02:00):

He runs deal reviews for storage moguls with our students day in and day out. And he's the guy sitting across from those students before they ever put in an offer. About a dozen of them bought their first facility last year after going through this exact process. Today, we're pulling back the curtain on what actually happens in the room. Why you ask? Well, because that deal I just described is a real deal a student put in front of us and almost signed off on to purchase. And for that reason, I needed to bring Jack back on the podcast to talk about the near mistakes we're seeing out there, some of the ways to catch them, and why you should be a part of the storage moguls community so you don't go making those mistakes like our students almost did on this deal. Jack, welcome back to the show.

Jack Pezzino (02:50):

Thanks, Joe. It's good to be back.

Joe Downs (02:53):

I hope you have a better final answer for us this time around.

Jack Pezzino (03:00):

Don't worry. I'm sure I'll disappoint.

Joe Downs (03:02):

Well, I'm sure of that too. But I also know you've had a lot of time to prepare. So I'm anxious to see what the end of the show brings here. But let's get back to the appraisal. So Jack, same building. We didn't change the location. The income hasn't changed. How are we coming up with two wildly different numbers? And why, Jack, are they so different?

Jack Pezzino (03:28):

So in storage, it's important to make sure a person that's doing the appraisal has appraised commercial assets and commercial real estate before. In that example, it was a residential appraiser who looked up on AI or Google where it was just like, "Hey, cost of replacement for storage is roughly 75 to 85 bucks a foot. So we'll just take those numbers and we'll associate a value to it without even looking at the income." When you do something like that and you just kind of attribute to the cost of replacement over what the income is, you just end up not being able to service the debt.

Joe Downs (04:06):

Now let me ask you a question, and I hear you. Before we go any further, I feel like you're beating up the appraiser. I think the appraiser's job, first of all, is to provide three approaches. The sale approach, the income approach, and the competitive sale approach, the comps approach, right? The income approach and the replacement cost approach. And I haven't seen this appraisal, but I'm assuming this appraiser did their job, residential or not, and provided three approaches. I'm blaming. The whole premise here is we saved a student from making a mistake, right? And we'll unpack that. You seem to be taking the position that, well, the appraiser came up with this number and that's the value of the facility. Now, I haven't seen the appraisal, so I'm going to give you a little room here. Was that the appraiser's suggested value, opinion of value? Or did the appraiser provide all three, I'm sure, and the seller choose the highest?

Jack Pezzino (05:09):

So it's a great point. Within this appraiser, when you get somebody who has not done too many commercial appraisals, it's hard to find comps. I mean, sure, there's 75,000 roughly storage facilities in the country, but now you're finding a broker in a small town in the Pacific Northwest. There's not many comparable sales comps, and how far can you really go to get a comparable sale? So there was no comparable sales for storage. And if it was, it was in towns that were like 30, 40 miles away.

Joe Downs (05:42):

Okay. So we would all agree that would be, even if he had a number, that would be a less reliable number, right? Which leaves the other two approaches.

Jack Pezzino (05:52):

Yep.

Joe Downs (05:53):

Were they in there?

Jack Pezzino (05:55):

The income approach was not. The income

Joe Downs (05:57):

Approach

Jack Pezzino (05:58):

Was not in there, but the cost approach was. The cost of replacement.

Joe Downs (06:03):

So you've seen this appraisal?

Jack Pezzino (06:04):

Yes.

Joe Downs (06:05):

Okay. So you're taking advantage of the very little room I left you to not beat the appraiser up so much and are making me eat my own words, which is fine. Interesting. So it really was an appraiser problem because I just assumed you were being unfair to the appraiser and naturally the seller was just taking the highest number and listing the property for sale there. Well, it's still a seller problem for, it sounds like for not choosing a commercial appraiser. But yeah, that's interesting. Was there a reason the appraiser did not use the income approach?

Jack Pezzino (06:47):

I did not speak to the appraiser, but it seems to be like that it comes from lack of knowledge. I mean, they do a lot of residential and where it's a lot of cost comparison. Not many things that they were evaluating that produce income. Storage is interesting because it's a business in real estate. It didn't really take any of the value of the business.

Joe Downs (07:09):

Interesting. And there wasn't even an explanation provided as to why the income approach was not used.

Jack Pezzino (07:17):

Not that I read.

Joe Downs (07:19):

So there wasn't even an income value. I'm finding this so hard to believe. I'm going to question you right now while we're recording this. There wasn't even a value based on income? No.

(07:30):

Yeah, that is some shoddy appraisal work right there. Sorry to all the appraisers out there. Okay, so that is so interesting. So our student was left with, here's the income, the net operating income, which is what we teach everybody to value a facility on, at least at first. Then he's staring at this wildly different appraisal number, and when you're new, especially how do you argue with an appraisal? It's hard to argue with it, especially when you're new and you don't really have too many legs to stand on. And so you're looking at this deal going, well, the appraiser says it's worth 2.8 to $3.3 million in this case, so it must be. And how devastating would that have been had the student gone through with this deal?

Jack Pezzino (08:19):

It's pretty important to keep when you're acquiring storage to make sure you're acquiring an asset. Here, this would've been acquiring a liability because essentially going for debt, wouldn't have been able to service it because the income, it was bringing in roughly 50 cents a foot, a little less actually, once you blend it all together, where the income would not have been there to service the debt at the appraised value.

Joe Downs (08:41):

Although they would've run into an issue financing it potentially.

Jack Pezzino (08:45):

That's where the issue would've came

Joe Downs (08:47):

With

Jack Pezzino (08:47):

The bank. And that's also why you need to use a bank-approved appraiser because the bank-approved appraisers are going to almost always use the income approach and vastly suggest the income approach over the others because they're relying on the income of the facility to service the debt.

Joe Downs (09:09):

Yeah. So folks, had he been a cash buyer, it sounds like paid 2X for an asset worth half of what he paid for it. Had he gone to a lender, I think in this case he would've, all he would've found out a few weeks to months time is that he's wasted a lot of time and money on legal and third party reports, et cetera, to find out you're not financing this thing. In reality, that's how it would've gone down, right? He probably would've been out 10, 20, 30 grand maybe of expenses and maybe up to a month or two of time.

Jack Pezzino (09:44):

The scarier thing, this seller actually was offering seller financing. Your eyes light up and I mean, you may have been able to get close to a one-to-one debt service coverage ratio, but you would've been working for about six to eight years to get this the value of the facility.

Joe Downs (10:03):

That's actually the worst of all the scenarios. No. Well, paying cash might've been worse, I guess, but that's number two. Because in the scenario where you use lender financing, you walk away not happy, like I just said, wasting your time and probably out a good 15 to 20 grand between legal and third-party reports, et cetera. But my goodness, if you fall into the seller financing trap on this one, and I don't mean seller financing is a trap in general, we love it, trust me. But this would've been the fool's gold trap because you would've relied on the seller's appraisal because they're the lender. Correct. And you would've put 20% down, I'm sure, 2025. Yep. And been none the wiser.

(10:57):

Yeah. Oof. Well, we saved another one, Jack. All right, let's get into it. As you know, before we do, true or false. So true or false, Jack. At the peak of the last cycle, top self-storage REITs were collecting rent from existing tenants that ran more than 40% higher than the rate they were advertising to brand new customers. True. That is true. Per the 2026 state of the self-storage market report, existing customer rate increases, ECRIs we call them, compounded so aggressively at the top of the cycle that in-place rents exceeded advertised street rates by more than 40%.

Jack Pezzino (11:42):

I've seen some that are more than double.

Joe Downs (11:44):

Yeah. Which is exactly the kind of gap that makes a facility look like something different on paper than it actually is in the rent role. Jack, I want to name something a lot of people feel, but don't say out loud when they're staring at their first underwrite. Fear is I'm going to miss something in my own underwriting and turn a deal that looked great into a liability I can't service. That's it. So that's the fear that keeps a lot of smart people from sending an LOI. Do you agree with that? Do you see that? Do you encounter it? Do you run into it?

Jack Pezzino (12:22):

I see it a lot.

Joe Downs (12:23):

What's that look like? What's an example of that that you've run into?

Jack Pezzino (12:26):

You're looking at a lot of numbers and you're trying to see there's a lot of doubt because Bob's self-storage, if Bob operated the facility in one manner, why can't I do it that way? So there's just a lot of fear of making a mistake with the revenue and then having these people that have been in the business for a number of years then presenting to you like, oh yeah, all you got to do is whether it's insert story of increased revenue or decreased expenses, but there's no one there to basically sit there and question how. So you're going in and you're like, everything looks great on paper, but then how do you execute? And the execution aspect is storage has been marketed as, and it is one of the most recession resistant asset classes, but you still got to execute because there's still a business component to the real estate.

(13:18):

And it's what I see as the number one thing that's forgotten.

Joe Downs (13:22):

Are you saying is the message you're trying to send that just because the seller's operating in a certain way doesn't mean you can?

Jack Pezzino (13:31):

Correct.

Joe Downs (13:32):

Okay. And so I'm sure you see students just assuming you can operate it the same way. Do you see students then taking that information? Someone listens to this podcast and they take that nugget and they go, "Well, all right, I'm going to be more conservative everywhere then and make sure that I'll be able to run this no matter how bad I screw up. It's going to make money." Do you see people getting maybe too conservative with their assumptions?

Jack Pezzino (13:59):

Yep.

Joe Downs (14:00):

Jack, have you ever done that?

Jack Pezzino (14:02):

I don't recall, Joe. I plead the fifth.

Joe Downs (14:05):

Dr. Fauci now?

Jack Pezzino (14:08):

Yes, I used to do that a lot.

Joe Downs (14:10):

Yeah. Why don't you share with folks what you used to do when you were new? Because I want them to know it's okay. A lot of people put you on a pedestal incorrectly. No, I'm kidding. But a lot of people, certainly the students, they follow your advice and guidance because you've been doing this a long time. You've seen maybe more deals than most people out there, but you weren't always that way. Talk to us about your early beginnings and the beatings that we used to take.

Jack Pezzino (14:38):

Yeah. So we had this wonderful deal review that we had internally. We had yourself, Joe, and then we had our finance team, our operations team.

Joe Downs (14:50):

I was all you needed.

Jack Pezzino (14:51):

You were, but all of you had your little nuances. But one of my favorites, and I still tell the story to students actually, I don't mind sharing it where it was, we were looking at a facility, and this is again, while income is actually increasing by an average of probably six to 10% a year. We were looking at a facility and I believe I kept revenue flat and I increased expenses, I want to say by at least 20%. I increased marketing. I added a website for us.

Joe Downs (15:20):

I distinctly recall heavy, heavy marketing budgets with no increase in revenue.

Jack Pezzino (15:27):

I added even a payroll. We were going to have someone actually there. We were going to have a management company. We had it all. It was

Joe Downs (15:33):

Great. Just in case. Just in case.

Jack Pezzino (15:36):

We're going through the deal review and I vividly remember you kind of going through and you asked a lot of clarifying questions. So like, oh, so we're going to have third party management. Yeah. And then we're going to have an increased marketing budget. Yes. And then we're going to add a website. Yes. And we're going to have a call center. Yes. So we're drastically improving this facility. And then you have this CapEx budget where we're going to actually make this facility look more presentable and it's going to be more appealing to go. Yes. Then how is revenue flat? Why are we investing all of these dollars into this facility? A marketing, payroll, CapEx, and all these things? And you're going to tell me it's going to stay flat? Why? Why would we do that? Why would we do any of it? So I have to increase my spend by 20 plus percent and invest capital into the facility for it to remain flat.

(16:31):

What are we doing here?

Joe Downs (16:33):

I'm still waiting for an answer to that question.

Jack Pezzino (16:35):

I think I grew a little bit.

Joe Downs (16:37):

Yeah. So Jack, talk us through why you did that. What was going through your head? You were new, right? You didn't want to screw up.

Jack Pezzino (16:45):

There's a lot of zeros at the end of these deals.

Joe Downs (16:49):

Yo didn't want to miss an expense. You didn't want to miss an increase, right?

Jack Pezzino (16:53):

Yep.

Joe Downs (16:53):

And then you also what? You didn't want the deal to look too good. So you handicapped it at every turn. Little bit to here, a little bit there. I mean, you made it seem like they were big things. Adding a website is a normal thing. Having a marketing budget's a normal thing. So you weren't grossly overestimating these budgets. That actually wasn't the issue. Maybe you were slightly more conservative and a little higher than you needed to be, but it wasn't egregious. That was not the egregious issue. The egregious issue was the absence of common sense if all those things are happening. And it wasn't like they were happening in year one and then we made a change. The performer you had in front of us that day, it was here's year one and then we're going to grow those expenses year two and grow them year three and grow them year four and grow them year five, which is prudent.

(17:51):

And maybe you were growing them by too much each year. Maybe you rounded up instead of down or something. But to the point you just made a second ago, you also kept the revenue flat that whole time or barely grew it.

Jack Pezzino (18:06):

Barely grew it.

Joe Downs (18:06):

And the point I was making to you was that day, why am I spending all this money in year five if I'm finding out after year one it doesn't work? Because you didn't grow the revenue. I know in year one, if I did all these things and my revenue didn't grow or geez, I hope by year two I know. So then what's all these expenses in year three, four, and five if it's having zero impact on revenue? And that's something that either we rush to do it, we're overwhelmed, we want to make sure we're conservative everywhere. Or we just heard a podcast where they were talking about how utilities are going up next year. So we went back into our model and we made sure we added 10% to them. And then we did it over here and we did it there. And I suspect it's a combination of all three where it's we just want to be a little more conservative.

(18:59):

So we're not that guy that's going, how do we not budget for this? That's part of it. Part of it's renew. Part of it's we're overwhelmed. There's a lot of line items. And we tell people all the time, this is not rocket science, but it is new. And when you are new to something, there is a learning curve. Doesn't mean it's a hard one, just means there's a curve. So I suspect it's all three. I'm answering your question for you. What was going through your head?

Jack Pezzino (19:28):

So first starting and everything where it's just like you're going to spend, I think that the deal is probably two to three million, somewhere in that range, but it's a lot of zeros where it's just kind of like you don't want to make a mistake in that. And even working with a lot of these folks, it's just even 750,000, that's a lot of money. There's a lot at stake. So miscalculating something and having the bank come after you because you're signing a personal guarantee, even though it wasn't mine for the people that I was working for, it was like I didn't want to bring a liability.

Joe Downs (20:03):

Well, to your credit, Jack, you wanted to make sure that you weren't hurting those that you worked for. I wish I could say that for everybody that worked for us, and that's your credit. Everything you were doing was coming from a good place. It was just that you were underwriting us out of deals. And that's what I want to illustrate here.

Jack Pezzino (20:24):

It's like Goldilocks and the three bears. You can go too aggressive where things look really, really good and you're overprojecting a facility and offering too much, which I've seen time and time again. Then you can also be on the other end of that spectrum where it's just like how I was, where it was like you go conservative over every turn and now you're offering 10 to 20% less than what the market comps are coming in at, where you're never getting a deal and eventually you're being looked at as the guy who just always sends offers and never executes. And then there's that third scenario where it's just being, and the term we use here now all the time is what's realistic? I don't want to see too conservative. I don't want to see aggressive. I want to see what's realistic to today's market. And once you're able to be realistic and take that approach and have the real numbers that are going in there, there's some challenging conversations that we still need to have today.

(21:20):

Like Roy, who's in the Midwest in one of our deals in Minnesota that I looked at with a student where it was just like, Roy liked to plow the snow for the facility. That was a $10,000 expense that wasn't there. Does that mean it's not there? With someone that's four states over? No, you got to account for that. That's not being too conservative. That is being realistic, but it's a little bit more of a challenging conversation because you don't have a plow in the front of your truck or three states away that you can get there.

Joe Downs (21:48):

Here's the reframe I want people to sit with. Their fear is actually finding out after closing. The actual outcome for people who get a second set of eyes on their numbers is finding out before they make the offer while it's still flexible. And that's not investment advice, that's a sanity check. But specifically to catch the assumption, someone too close to their own deal won't question. And that's basically what happens in deal review. And that's what we do when we review deals. Folks, I don't make the model. Jack makes the model. I'm like 3M. I just make the model better. And everybody needs that. And that's what Jack is for our students. That's what storage moguls is for our students. All right, Jack, true or false? Self-storage requires less ongoing capital reinvestment as a share of income than multifamily, office, retail, or industrial real estate.

Jack Pezzino (22:41):

True.

Joe Downs (22:42):

That is true, Jack. Per the 2026 date of the self-storage market report, self-storage capital expenditures run about 8% of NOI compared to 11% for multifamily, 14% for retail at 18% for office. And it's part of why the expense side of storage underwrites looks so different from other real estate and why the ratios matter so much more than most first-timers expect. All right, Jack, let's get tactical and get the actual nuts and bolts of what a deal review looks at. First, what is it? It's a half hour to an hour session, sanity check, framing.

Jack Pezzino (23:19):

Yep. It's a half hour to an hour.

Joe Downs (23:20):

It's not investment advice, right? It's just -

Jack Pezzino (23:23):

No.

Joe Downs (23:23):

Yeah, walk us through. What does it look like?

Jack Pezzino (23:26):

The process that we have is you're going to send to me prior to the meeting, the market, a facility overview, the operational overview.

Joe Downs (23:34):

How are they sending that to you? Are they using the mogul financial model?

Jack Pezzino (23:38):

Yes. So they're going to have their market analysis uploaded into there, and then as well as then a little blurb once they attach the mogul model to me where it's like, this is the market, here's what we like about the deal, and they're starting to begin their story. But it all starts with the market. The market is going to drive your underwrite. So if you're looking at a facility that has certain metrics, whether it's a stable population with a high poverty rate and you're growing rates by 10%, there's a sanity check there to just be like, "Hey, with the stagnant population and a high poverty level, is there the means to raise rates by 10% when rates are declining by X percent?" Where again, there's just somebody there to ask questions as you're going through to stimulate a little bit more though. Because again, a lot of these things are made to be very easy.

(24:27):

And the other thing is, and the more important one, one of the bigger mistakes that I see is you're going to have a conversation where I don't want to go too much in depth on this one, but does your capital stack fit the debt? So if you're going after a property where you're looking to offer X, but you don't service the debt service coverage ratio is not supported, should that really be your purchase price? And it's kind of explaining the in-betweens as to what happens when you can't service debt. And it doesn't mean you're going to get the loan and you're going to get approved and then you're going to go in there. It's more going to be like something you were saying earlier, Joe, where you're going to be in 10, 20, $30,000 into the deal. Find out once you're in the due diligence period and you get to that financing portion, the bank's not going to approve you.

Joe Downs (25:10):

So in addition, I'm going to jump in here too, because as you're talking, I'm thinking about when I participate in these, when I'm pulled in sometimes. Jack, I think you do a phenomenal job of what I'll call the line item by line item and the sanity check of how are you going to operate this thing? What are the expenses actually going to look like based on what the market's giving us? And there's certainly not investment advice given in those meetings, but there is structure. There's structured advice. If you really are going to take this deal down, how do we do it from a capital stack standpoint, from a debt standpoint? That's part of it. Do you need to raise money? How would a partnership look? A lot of that are things that we very commonly cover, especially with new students buying their first or even their second deal.

(26:01):

And I know from just the feedback we get from students, how valuable that is. I'm sure you do as well. Jack, when we're going through those meetings, is there a point at which, I know there's points because we talk people out of more deals than we help them buy, but how do you handle that when the student's in love with the deal and they're just not seeing that it's not a deal?

Jack Pezzino (26:26):

It's really going through each step where it's again, saying everything out loud. So again, using the example we were using earlier, so it's just like, okay, so we're looking at a stable population, poverty's like 25%. Rates in the market are declining by 10%, and you're going to raise revenue in the first year by 10%. Are we on the same page? And we'll ask clarifying questions. And most of the time at that point, it clicks where it's like, wait, rates are going down 10%. I'm raising more than 10%. There's people offering promotions too that it's two months free. So can I actually do that? It's like, well, how many facilities are offering those rates? And we kind of go into that. Where are you positioned in the market? And we go through the different stages of that.

Joe Downs (27:17):

I'm hearing a lot of market underwriting going on in those statements you just made there. And we preach it till we're blue in the face. And I don't think some people understand it, folks. You can't underwrite a facility if you haven't underwritten the market. I know everything about the market and every comp in the market because what Jack just said is so true. So on paper, on your performer, you just have to raise rents each year. Year one? Yeah. Okay, cool. What's going on in the market? Oh, your competitors aren't full. And they're not raising rates. They're reducing rates. So what does that do to your performer if you have to do that? So still will never understand how people are out there teaching this business without starting with the market. It's a no-brainer, but we encounter it every day. Jack, true or false? Banks currently provide the majority of financing for self-storage acquisitions in the US.

(28:15):

I'm

Jack Pezzino (28:16):

Going to say true.

Joe Downs (28:18):

Would you believe it's false?

Jack Pezzino (28:20):

I figured I was getting set up.

Joe Downs (28:22):

Per the 2026 state of the self-storage market report, which we are relying heavily on for this episode, banks drop below 50% of the self-storage lending market in 2024, a sharp decline from their historical dominance by regional bank failures and tighter capital requirements. You know who's funding? Debt funds, private credit, and CMBS conduits. I bet you there's some life companies in there, which is probably a CMBS conduit. It filled out a lot of that gap and filled a lot of that gap, I should say.

Jack Pezzino (28:53):

I though banks were around 40-ish percent, so I thought they still held the share, but I knew there was a bunch of others that were in there, but I didn't know if anyone totaled more than 40%.

Joe Downs (29:03):

And that's the whole industry, right? Yeah. I'll bet you if we talked about only the segment that we teach, the kind of 400,000 to two million, that kind of sub 35,000 square foot facility range, I'll bet you banks are higher there, but that's also where seller financing really picks up too. All right, which brings up a question I get constantly. Jack, where do people even go to learn this stuff before they ever talk to a bank or a reviewer? So let me shift to something practical. What's actually available to somebody who's never underwritten a deal in their life? And I know this isn't a pitch, this is the stuff we built because we kept seeing the same mistakes over and over. There are free resources out there for learning how storage actually gets valued in the first place for someone who's never underwritten anything. Where else can they go, Jack?

Jack Pezzino (29:58):

So there's AI tools out there now That depending on the level of subscription you have in ChatGPT, Claude, Gemini, whatever you're using, there's a lot of programs out there that can help you underwrite. You can also hire other folks out there to underwrite deals for you, as well as looking up how to create your own spreadsheet and how to create your own analysis to evaluate deals. Or if you wanted to have those guardrails, there's education companies out there like storage moguls that give you the guardrails along the way, whether it's you're looking to do it for free, where we emphasize the market, the mid-level tier where you're getting more into the evaluation or the top tier where you get the one-on-ones and go through the deal reviews with the team and have more guardrails.

Joe Downs (30:41):

Let me repackage that too. What you said is true. Folks, we live in the free information age, or you can know anything you want for 20 bucks a month, a subscription to ChatGPT or Claude or whatever. We live in that age now. It's virtually free. Anything you want to know, you can have these models built for you. All of that's true, but you're going to end up in the same place we were just talking about, which is how do you know the assumptions that you came to and used and the outcomes that your AI-driven performa is spitting out? How do you know that's accurate? And that's where wisdom comes in. And one of my favorite sayings about that is if I asked you, is a tomato a fruit? And you said yes, because it is, then that you've demonstrated that you have knowledge that tomatoes a fruit and AI could tell you that it's a fruit as well.

(31:39):

But wisdom is knowing not to put a tomato in a fruit salad. Now you could argue AI would know that as well, and I would agree with you. However, it's not going to be able to underwrite a deal and look at the market and question you and question your sanity on the assumptions you're making without the experience that people like Jack and I have. It's not going to happen. That's what you get in communities like storage moguls. It's that wisdom. As I said in the beginning, I think as Jack just alluded to, that's the bowling with bumper rails. You're still going to bowl the ball. We're just going to keep you out of the gutter. And I don't think AI can keep you out of the gutter at this point. So folks, none of this requires you to already be an expert. It just requires you to be willing to have your numbers checked before you financially commit to them.

(32:31):

And that's, again, the community we built. All right, Jack, true or false?

(32:37):

Self-storage can reset its rental rates within 30 days, which is faster than multifamily office retail or industrial real estate. True. And that is true. The self-storage rate adjustments happen on roughly 30-day cycles compared to annual adjustments for multifamily and at renewal adjustments, often three to 10 years apart for office, retail and industrial. So it's the single biggest structural advantage storage has as an asset class. And most people outside the business have no idea it's true. It's actually one of the things that I loved about it right out of the gates as well, because I had a little bit of experience in multifamily and a little bit of experience in hotels actually. And hotels, I mean, your nightly rates, right? Daily, nightly, whatever rates. That is extremely operationally intense and multifamily's annual. And it's not as intense obviously, but you can adjust to the market as quickly as you can in storage.

(33:36):

That's what I loved about storage. It's 30 days. It's not so operationally intense, but it's also not so unwilling to respond to the market. So that flexibility is exactly why this business rewards people who get their numbers right early. Jack, before we wrap here, what is one piece of advice that a listener could do to make things go faster? One piece of advice.

Jack Pezzino (33:58):

Have an accountability partner and someone who's in the business that has done it, made mistakes, and can help you not make the same mistakes they've made along the way. The sanity check is incredible. I see it in multiple asset classes where those that go far have that extra set of eyes.

Joe Downs (34:14):

So second pair of eyes on what you're doing. What's the old saying from great, you can't check your own work, right? You have to have someone else read your paper. It's the same thing with the models here, folks. You got to have someone sanity check this thing for you. And by the way, we can help you with that at storagemuggles.ai. All right, Jack, are you ready?

Jack Pezzino (34:32):

Nope. We're going to make it.

Joe Downs (34:34):

I've been looking forward to this for weeks now. You know the question. Have you read the book yet?

Jack Pezzino (34:39):

I have.

Joe Downs (34:40):

Okay. So you should be better prepared. Or did you already read it the first time?

Jack Pezzino (34:45):

I read it the first time too, to be fully transparent here.

Joe Downs (34:48):

Oh my goodness. I'm not expecting much from this folks. Here we go. Jack, you are familiar with Mr. Beast in the book. Be your future self now. You know what he did. He recorded the four videos, released them out in the future, six months, one year, five years, 10 years. It was the equivalent of Cortez burning the ships. He set public goals that he had to go achieve. Jack, I'm going to even ask it slightly differently.

Jack Pezzino (35:20):

Perfect.

Joe Downs (35:21):

If you got in your hot tub time machine, or if you prefer the Michael J. Fox DeLorean, and you go five years into the future, you're having an out-of-body experience because you can't be there, you can only observe. You find Jack Pezino. Where is he? What is he doing? What is his life like?

Jack Pezzino (35:42):

Oh boy. I have thought about this. All joking aside, it is one of those things that in five years I'll be running storage moguls and continuing helping people get into their first facility and multiple facilities as building that community is something that I thoroughly enjoy. And I'm actually even getting into my first facility. So I'll also probably have in the next five years, at least five facilities as well that I own. And just again, loving this space. It's one of those spaces when I go to the shows and I stay connected with a lot of different facets of the industry. You think that storage is this incredibly large network. And I've been in multiple asset classes where it's the most tight-knit. It's not huge. It's relatively small and everybody's willing to help everybody, which I love and I'm going to continue to do to where that's where I'll be in five years.

(36:37):

So I don't know if I did that right this time, but it's at least an attempt there for you.

Joe Downs (36:43):

Jack, you have left me unhappy because I was going to take great pleasure in pouncing on you for a horrible answer, and you actually gave one of the best ones so far.

Jack Pezzino (36:58):

Look at that. I recovered. It's like I learned.

Joe Downs (37:02):

It's a lose-lose for me, but I'm happy for you. Folks, here's what I want you to take away from today. And seriously, that's a great answer. It was very well thought out. You have vision, you see yourself. I forgot to ask you the second part. What are you doing today? But I know what you're doing today. You're building storage muggles, you're buying your first deal. So congratulations on that, by the way. Not that you're not an owner in other deals in Belrose, it's just you're actually personally taking ownership now. So I'm very happy for you. It's awesome. Folks, here's what I want you to take away from today. The difference between a deal that works and a deal that wrecks you is rarely the deal itself. It's whether somebody caught the wrong assumption before you signed, and that is available to you. You don't have to be an expert.

(37:46):

You just have to be willing to get checked. Every week on storage moguls, we are covering as much of this full storage vertical as we can. So far it's been self-storage. We will be getting into boat and RV, pro storage, industrial, outdoor storage, truck parking, small bay flex, light industrial. It's all coming soon. The guests are lining up and it's going to get interesting very soon. Please like, subscribe, and share. Here's why that share matters. And I've said this every week. When you share, it's actually for you. You are broadcasting to everybody in your network, wherever you're sharing, that you're in this business, and that signal to them is going to go a long way and come back to you when you need it. Share this episode, by the way, if something hit you today as well, but share, make it a habit of sharing.

(38:34):

It's better for you. We're doing all the hard work, but you get more out of it than we will. But we still appreciate it. And if you've got a deal, you're second guessing right now, go get it looked at. Join storagemuggles.ai. Folks, there's a seller out there right now who's ready to sell, so stop watching, start moving, drive for dollars, send the LOI. We'll see you next week.