WS1977 Unlocking Investment Success: Tom Dunkel's SAFE Method Explained

Are you seeking insights into successful real estate investing? In today's episode of The Daily Real Estate Syndication Show, we welcome Tom Dunkel, Belrose Storage Group's Managing Director and Chief Investment Officer. With a vast experience of over 30 years in real estate and corporate finance, Tom shares his journey from overcoming corporate setbacks to achieving entrepreneurial success in real estate. His story highlights the essence of resilience and the importance of learning from adversity, offering valuable lessons for anyone looking to navigate the complexities of the real estate industry.

During our discussion, Tom introduced the SAFE method, a strategic due diligence framework designed to analyze alternative investment opportunities, emphasizing Sponsor, Asset, Financials, and Exit. This approach underlines the necessity of meticulous evaluation in real estate investments, from vetting sponsors to planning exit strategies. Tom also touched on the importance of transparency and active involvement in passive investing, providing a sneak peek into Belrose Storage Group's latest ventures in self-storage facilities.


Takeaways:

• Resilience and continuous learning are key to overcoming challenges and succeeding in real estate.
• The SAFE method is a crucial framework for evaluating real estate investments effectively.
• Transparency and active involvement are essential in passive investing.
• Exploring strategic investment opportunities, like those offered by Belrose Storage Group, can significantly enhance your portfolio.

Explore investment opportunities with Belrose Storage Group by visiting their website belrosestoragegroup.com and accessing their investor portal.

Learn more about building wealth through real estate syndications by subscribing to the Daily Real Estate Syndication Show. Visit lifebridgecapital.com to start investing today.

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Transcript

Tom Dunkel: So that allowed us to then go out in the market with confidence and acquire our first facility in 2020. And so since then, we've acquired 14 here soon to be 15 with one right behind that. So maybe before this comes out, it'll be up to 16 facilities across seven states.

Whitney Sewell: This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today, our guest is Tom Dunkel. He's a managing director and chief investment officer of Belrose Storage Group, a focus on Eastern US underperforming real estate, a background in corporate finance and 30 years of real estate investing experience. He was a president at Elbow Holdings for 17 years. He's in Wayne, Pennsylvania. And so Tom dives into a number of things are actually this specific method that he uses for passive investing. And I think I think it's a it's a great method, I think for any passive investor, just a simple checklist to go through that's going to bring out more questions, potentially, or at least red flags before you invest your hard earned money. Welcome to the show. Honored to have you on and us dive into self-storage and the business and all these things that listeners have questions about, including myself, right? And I know you're an expert in, I want to learn how you all operate and do it so well.

Tom Dunkel: So welcome to the show. Hey, it's great to be with you, Whitney, and all the listeners. So a pleasure to be here.

Whitney Sewell: Looking forward to our conversation. Awesome. Well, Tom, you have been in finance or real estate for many years and very experienced and so grateful again for your time. You know, give us a high level, you know, some of those steps, you know, you used to get to where you're at today and maybe something you wish you had known 20 years ago.

Tom Dunkel: Yeah, sure. Well, I'm well into my 50s now. So it's always dangerous to just give me kind of an open ended question with the mic because I could go on and on and on. I'm tending to get a little A little long-winded in my old age, Whitney, but no, I came out of business school down there in Virginia, where you are, at the College of William & Mary, and started out in the aerospace industry doing mergers and acquisitions and corporate finance stuff. And man, it was a really phenomenal foundation for my financial management and my investment. development, the experience that I gained there just really helped me to build a great foundation. I was working with Harvard MBAs, Wharton MBAs, ex-Marines, ex-fighter pilots, astronauts. I mean, it was really quite amazing. So fast forward to 2006, I had been doing corporate finance stuff here and there. I had moved back to the Philly area where I'm from. And 2006, that fateful day came when I got fired from my corporate job. And it was the third time I had lost a job in the past four years. And I was like, all right. something's got to change here. You know, the old Albert Einstein, you know, if you keep doing the same thing and expecting different results, then you're a little, you're a little cuckoo. So I was like, hey, let's take this opportunity. You know, the universe is kicking me in the pants to finally go out and do what I was, I feel like I was put on this earth to do, which is go out and do my own thing. and build a company or a few companies along the way. Of course, it was 2006, jump into the real estate industry. Of course, that was right before the Great Recession, and I proceeded to get creamed pretty good those first few years. I learned a lot of hard lessons, had to do a lot of soul-searching, looking in the mirror, looking at my young family, trying to make sure that I was going to keep things together. and not have a total disaster. So anyway, just learned, persevered, kept at it, got gritty, got educated, you know, just kept grinding. And thankfully today, that's 18 years ago, I've been able to build a A couple of really terrific businesses. I've had some businesses that have failed for sure, but those couple of wins have really helped to propel me and my family and those around me, and it's been a great experience. I wouldn't change it for the world.

Whitney Sewell: That's awesome. Uh, you know, you know, it's interesting, you know, you mentioned a couple of businesses that failed, Hey, but you kept going, right? You, you, you found something else that did work. You know, what was, what was something during those times? It's like that, that kept you going, uh, to a start another business. Right. I think, cause I think, uh, it's hard on the whole family, right. It was spouse as well. And, uh, you, you emotionally and them and, you know, uh, so give us just a little insight there for the listener. Who's maybe on the verge of a business that's failing, but there's still a lot at the end of the tunnel.

Tom Dunkel: Sure, yeah. It was an interesting, almost surreal experience because when I got fired in 2006 and I was looking around for something entrepreneurial, like I said, I had a four-year-old and a two-year-old at home. And so I was the primary provider, so I needed to make sure I got something going. So to kind of hedge my bet, I did go on some interviews for some corporate jobs, and this one job in particular and this one interview in particular If you had seen me at that time, Whitney, and you had looked at my experience, what I was good at, and you looked at the job description for this particular opportunity, you would have been like, ah, this is perfect for Tom. He's going to be able to use his M&A experience. It's a global company, big private equity-backed, pre-IPO, all that stuff. I'm in the interview, and by the way, a big compensation package as well. So I'm in the interview across from the guy, and I swear, in the back of my head, I hear a voice just saying, don't do it. Don't do it. This is not the path for you. This is not the path. Do not do this. So I get home from the interview, I call the recruiter, I say, hey, I'm sorry, but I'm pulling my name from consideration for this position because I just have to go and do this entrepreneurial thing and see what I can make of it. And the recruiter says to me, he says, you know, you're their guy, right? In other words, it was my job if I wanted it. And I said, I said, I appreciate that, man, but I got to go for it. So it was just something, I don't know, it's hard to explain. I guess I'm just wired differently than some other people. I guess maybe a lot of entrepreneurs out there feel that same way, but that was a big turning point for sure.

Whitney Sewell: Wow. No, that's interesting. Those decisions that change everything the rest of our lives, right? When we accepted that big position or decided to go do something even bigger, right? At least the opportunity to do something bigger. That's right. That's right. No, I appreciate you sharing that. Cause I think we all, we all have those, those decisions that we have to make. Right. And whether we're going to, man, yeah, I don't know. I've had to do that a number of times at myself and, and especially becoming an entrepreneur and leaving that what we think are taught, you know, that secure JOB, right. See if you can actually go make something. But no, I appreciate you sharing, you know, but today you are highly focused on self-storage. Right. Yes, sir. And, uh, you know, give us a little overview, you know, of the business. Now you're all focused, maybe the markets that you all are in as well.

Tom Dunkel: Sure. Yeah. So we started looking at self-storage as an asset class, probably around 2017, 2018, just a short bit of background, just so you know. But when we came out of the great recession, I partnered up with Joe Downs. We've been business partners now for 14 years. And our first business was a distressed mortgage debt business, which It's called U.S. Mortgage Resolution, and that business has done really well over the years, generating over 55, $56 million of revenue over this time period. So that has allowed us to do some other things, right? So we looked at hard money lending, we looked at flipping houses, we looked at multifamily. We looked at being partners at a title company. We looked at all these things kind of in and around real estate. And we tried some of them. And those were some of the businesses I mentioned earlier where we failed, right? But 2017, we started hearing about self-storage. 2018, we start going to the conferences, getting educated. you know, learning more, going deep, doing the reading, doing the research. In 2019, we joined a self-storage mastermind group. And through that process, we realized we had some gaps in our team, right? So Joe and I are pretty solid on the financial side of things. We can analyze the deals, we can get the deals funded. we can get them closed, but we were missing kind of the front end and the back end. We were missing the lead generation aspect because of course, in real estate, finding those off-market deals is super critical. And then on the back end, once you buy the thing, now you got to run it, right? So we didn't have that operations experience either. So through our mastermind network, we were able to plug those two big holes in our team. And so that allowed us to then go out in the market with confidence and acquire our first facility in 2020. And so since then, we've acquired 14 here, soon to be 15 with one right behind that. So maybe before this comes out, it'll be up to 16 facilities across seven states. So we're big fans of self-storage. Happy to take a breath here and get into our investment thesis and what we like about it.

Whitney Sewell: Yeah, that's incredible. It sounds like you all had a big experience in real estate and finance. But even joining a mastermind, you all got around other people who were doing it and realized there were some holes that you needed to fill. And I think joining some groups like that have been massive, just pivots for me, right? In a good way, right? Meeting people. And, you know, we've partnered with people four and five years later who I met at a mastermind, right? You know, I mean, you know, many years before, right? And so it's, it's incredible to see those relationships and you gotta be willing to go out there and sometimes even pay for those groups, you know, to be a part. and willing to do that. But let's jump into some of the methods that you all use or some due diligence practices. And you and I were talking about that a little bit beforehand. I want to make sure we have time to dive in there on some of that, because I feel like that's going to be helpful for the listeners.

Tom Dunkel: Sure. Yeah, yeah, yeah. Let's do it. Yeah. Big, big fan of joining those mastermind groups and such. But yeah, so before we hit record here, I guess we were talking about a due diligence framework that we've developed here internally at Bellroy Storage Group that we have since turned into an ebook to help investors out there analyze their alternative investment opportunities. And it really came about through our own successes and failures and deals that we had looked at over the years. And we said, hey, you know, we should really put this down on paper to help other people, especially people who are maybe looking at alternative investments for the first time, and they're just not sure. where to start. It's pretty easy to analyze a stock or if you go on any of the stock websites, they've got research reports and all this stuff all over the place. It's a little more challenging in the alternative world. So we developed this framework and we call it the SAFE method, S-A-F-E. It's an acronym where it's just really a series of questions in each one of these categories. So S stands for sponsor. You really need to get to know who you are doing business with. And unfortunately, this is a big mistake I see a lot of high net worth investors make is they skip over this sponsor step because it's somebody that they were referred to or somebody they saw that had a great ad on Facebook or LinkedIn or their video looked great. And that's awesome. And we do that too. But you need to really get to know that person because if you're going to be handing over your hard earned cash, you gotta know where it's going. So we have a whole list of questions about how to really get to know and vet your sponsor.

Whitney Sewell: Maybe give us one or two of those questions that you'd recommend you gotta ask this or a good way to get to know them.

Tom Dunkel: Yeah, absolutely. I would say, what is your track record? And not just your track record generally, what is your track record in this specific asset class or type of deal? And they should be super transparent to share with you pretty much whatever you want. If you want to do a background check on them, they should be open to that. We're an open book here at Dollar Storage Group because we've been investors, we are investors, and we take very seriously the obligation and the responsibility of taking investor money. We're an open book, we share whatever people want to see. If you're a sponsor, doesn't give you that same level of transparency and candor, you might want to Go find another sponsor would be my suggestion.

Whitney Sewell: I would agree. I would agree. All right.

Tom Dunkel: Just something simple, Whitney, is Googling. Google the principles, Google the company, and then don't just look at the first page. Scroll back through. There might be something, you might find a lawsuit or something, but you have to go back to page five of the Google search or something. Ask me how I know this. Personal experience. I had money stolen from me from a guy that had I Googled him, I would have seen all this bad stuff about him. In my defense though, this was a good maybe 10 plus years ago when Google was not as prevalent as it is today. But anyway, it was a hard lesson that I hope somebody out there saves 50 grand by just Googling your sponsor's name.

Whitney Sewell: It seems so simple, right? But it can make so much is online now.

Tom Dunkel: Yep, yep, yep. And the guy was super charming. He had a great conceptually, the business model made a ton of sense. He told great stories. We had a lot of laughs. OK, did he play the guitar? He didn't play the guitar, but he did have like a little recording studio anyway.

Whitney Sewell: Inside joke for Tom. Yeah, that's right. Just kidding. All right, Tom, what's a.

Tom Dunkel: A stands for asset. What is it exactly that you're investing in? A lot of times when you're investing in a syndication, you're buying membership interests in an LLC that owns a particular asset. That's important to know because some people say, oh, well, can I 1031 exchange into a syndication? Not that way. You can structure it a little differently and you can, but you're becoming basically an owner of a business. You're buying stock, if you will, in an LLC that owns this asset. I would love for someone who's out there buying Dogecoin or something, what is the asset you are investing in? Because I haven't figured that one out yet. But it's important to not only know the asset, but, okay, so now you're part owner of this business that owns this property. Okay, well, where is it? What's that market like? What are the demographics? Is the population growing? Is it declining? Is it steady? What kind of area is it in? Is it in a nice area? Is it in a crime-ridden area? So you got to know where your money is. is going and then how is the value of that asset impacted? And what is the strategy for increasing that value over time so that you as an investor can get your return?

Whitney Sewell: No doubt, the asset is very important. And I appreciate though, even the order of these so far, the sponsor first, even before the asset. And so, all right, let's keep going.

Tom Dunkel: So F is for financials. You want to review the financials. And even if you're not a numbers person, you at least want to look at them and make sure that, you know, like the revenue isn't like a big hockey stick projection, right? Like, oh, well, the self-storage facilities throwing off 300,000 this year, but next year, because we're magicians and we can pull things out of hats, you know, it's going to be 600,000. Well, that just doesn't pass muster. That's one thing I learned a long time ago when I was in the aerospace world and we were raising money from private equity firms and big banks and such. I learned really early on in my career, it's best to be very tempered in your projections and your expectations, make sure those are numbers that are achievable, reasonable, achievable, and really beatable, right? Because we want to under promise and over deliver. There are sponsors out there who do the opposite. They over promise and under deliver. And then, which I don't understand that business model because we're looking to build partnerships with our investors. And the worst thing you can do is to over-promise and under-deliver because then that investor is going to be gone and it'll be tough to get them back. And we do a lot of hard work to build and get to know our investor database. So, we really try to do the right thing there for sure.

Whitney Sewell: Love that. Uh, I, I love how you just said, Hey, it's, you don't have to be a financial guru. Right. Um, if you just know a couple of things to look for, uh, at least it will prompt more questions. Right. That's right. And you know, if you had, you know, somebody that's brand new to underwriting, that's listening, what would you say, Hey, at least know this, or look at these ones, you know, this one or two things, what would you say?

Tom Dunkel: Yeah, sure. I would say, like I touched on, just unrealistic growth of revenue, maybe unrealistic reduction in expenses. Because let's face it, I mean, it costs money to make money, right? It costs money to run a business. You have to have people, you know, and of course, there's things you have no control over, right? Or little control over property taxes, insurance, utilities. I mean, those things are tough to manage, but here at Belarus Storage Group, we implement technology to execute our value-add strategies. So a lot of times when we acquire a self-storage facility, the expenses actually increase. because we're adding some of these technology aspects. And now over time, of course, we're investing that money to get the revenue going. And so over time, it becomes a more reasonable operating expense ratio. Sorry to throw out big finance terms there, but I would say just as long as you don't see any big jumps in numbers, if you're not a numbers person, I would say that's something, that's kind of a red flag to look out for, for sure.

Whitney Sewell: Yeah, no, I appreciate that. Cause it's, I know, you know, when passive investing, you know, myself as well, it's like, if they go with multifamily, if they're saying two and a half, 3% rent growth for two years, then all of a sudden there's 5%. I'm like, okay, what's, what's happened. Right. What, why that then, what are you expecting to be able to accomplish during this time? You know, it just allows you to ask more questions at least. Right. And probably, yeah, dig a little bit deeper than maybe you would have. And so, okay. The E.

Tom Dunkel: E, yeah. E is for exit, right? How do you get out of this thing? It's not like you can go to Schwab.com and click, click, click and sell your position in your Belrose Storage Group syndication deal. It just doesn't work that way. As an informed investor, you need to be able to go into a deal understanding that your money is going to be tied up for some period of time. whether it's kind of a quick value-add deal, maybe it's two to three years. If there's a little more to the project, maybe there's a development aspect or an expansion aspect or some kind of lease up has to happen, then you're looking at maybe three, four, five years depending. But you want to go into that eyes wide open because if you have a big college tuition payment coming up next year, you can't have your money tied up in a syndication deal. So you just got to know that. going in. And the other thing that's important about exit is how is that exit going to come about? Are they selling the property? Are they refinancing the property? They, meaning the sponsor. Um, and have, have they executed on that kind of exit in the past? And then have they generated those kinds of returns that they're telling you they're going to return? Have they done that in the past? Um, so those are all things, um, to be conscious of, uh, with the exit. And then of course, too, the good news, bad news about the exit, right? Good news is you're exiting. Hopefully you're making a nice return. But now you have what? You've got reinvestment risk. You've got cash that's come back to you. So you already have to be looking out for that next opportunity because that's a big challenge in alternative investments is what they call a cash drag, right? So you have an apartment deal where you get your money back. Well, you don't want to then start looking for your next deal because it could take three, four, five, six months. And then that great 12% return you got is now down to six because you've been sitting on cash that's until recently anyway, earning zero in a savings or checking account. So you need to be, there's definitely an active component to being a passive investor. And that's one of them.

Whitney Sewell: No doubt about it. I appreciate your take on that as well. If you're not, it's almost like on the operator side too, if you're not constantly looking, like you don't know a deal when you see it, you know, on the passive investing side as well. It's like, if you're not just kind of constantly taking in opportunities, you don't know a good opportunity when you see it. All right. So don't wait till you have that capital just sitting in the bank is what I'm saying. Right.

Tom Dunkel: And we do that on the investor side too, Whitney. We don't just raise capital when we have a deal, right? We're constantly out looking to build our investor community. And so we're always putting value-add information out and nurturing and educating folks so that when a deal does come along, they can jump on it right away because they're educated, they know what we do, they know the kind of deal we're looking for. And when we find it, boom, they can jump right in.

Whitney Sewell: Tom, it's incredible. I love just the just how basic that can sound or, you know, is just breaking it down like that. Right. But yeah. And if investors did just looked at looked at just as thought through at least those four things, like they might have saved 50 grand. You know, or more. All right. So I appreciate just that method and thinking through it, laying it out like that. Uh, you know, we're going to end this segment here, but I want the listeners to know, Hey, you know, Tom's going to be back for another segment. You're going to hear him again tomorrow. We're going to dive into some of his specialties, uh, for sure. Uh, no, we're going to be beneficial to you, the listener, but Tom, where can they get in touch with you and learn more about you? Oh. And, uh, you also have a five Oh six, a C deal. I wanted you to be able to mention it on this episode as well.

Tom Dunkel: Yeah. Thanks, Whitney. Yeah. So I'm Tom Dunkel. I'm chief investment officer here at Belrose Storage Group. If you search for Tom Dunkel, if you Google me, which you should be doing, if you're checking me out, you'll find me all over social media, LinkedIn, Facebook, and then you'll probably also find our website, belrosestoragegroup.com. B-E-L-R-O-S-E. storagegroup.com and that's where you can see a lot of my podcast episodes and you can also get access to our investor portal where all of our offerings live and that's where the documents are, etc. We do have a 506c offering out there right now. It might be fully subscribed by the time this airs, but because our offerings do fill up quickly, but we've got a great deal down in Roanoke Rapids, North Carolina. It's just off I-95, just south of the Virginia border, and it's our fifth acquisition in the state of North Carolina. It's our 16th acquisition overall, and we're really excited about it because it's right in our wheelhouse as far as just a straightforward plain vanilla value-add deal that we've done many, many times successfully. So take a look out for that one when you reach out to learn more about me.

Whitney Sewell: Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to lifebridgecapital.com and start investing today.