Why Self-Storage Due Diligence Could Be Your Best Investment

Could a few thousand dollars spent on a Property Condition Report actually save your self-storage investment…and pay for itself many times over? 

Joe Downs and guest David Harkness of Fivefold Technical Consultants prove exactly why the answer is yes. 

This is the inspection tool that saved Belrose and their students over $200,000 this year alone. 

David brings his engineering expertise, drone technology, and boots-on-the-ground experience to every acquisition, and in this episode he reveals what he actually finds on site: failing metal roofs, catastrophic drainage problems, hidden vehicle damage, and deferred maintenance that sellers routinely underestimate. 

This is the self-storage investing intelligence that separates the investors who survive from the ones who thrive.

Listen For:

:12 What due diligence mistake turned a “$200,000 roof fix” into a $1 million problem?

1:50 What is a property condition report and how is it different from a home inspection?

7:07 What are the three most valuable things investors get from a property condition report?

17:36 Why did this Buffalo-area facility really need a full roof replacement?

28:25 What hidden self-storage issues help investors renegotiate major discounts?

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Transcript

Announcer (00:03):

This is the Self Storage Podcast with the original self-storage expert, Scott Meyers.

Joe Downs (00:12):

A seller looked a buyer in the eye and said the roof needed maybe 150 to 200,000 in work. That's manageable, right? You can budget for that, you move forward. But the property condition report came back at over a million dollars for the roof. That's not a rounding error. That's not something you budgeted for. That's a deal breaker you walk into blind, unless you know about the one due diligence move that most first-time investors skip entirely. I'm Joe Downs. This is the Self-Storage Investing Podcast, and today we're breaking down the report that saved us and our students over $200,000 this year alone. I've got David Harkness with us today from fivefold technical consultants, and he's the guy with the ladder, the drone, and the engineering degree who actually found that million dollar roof. So let's get into it. David, thank you so much for joining us here today.

(01:09):

Usually I see you on site at a property. Here you are on a podcast with us. So this is exciting and different, and I just want to welcome you.

David Harkness (01:17):

Thanks, Joe. It's great to see you again.

Joe Downs (01:19):

All right. Well, before we get deeper into that roof story, let's ground people here for a second. So for someone who's never heard of a property condition report, and maybe they've done some residential stuff, I mean, everybody's got a home inspection done before if they bought a home. Maybe they've done something with some multifamily, but that probably feels an awful lot like a home inspection too, because it's residential, residential, right? What is this thing, this property condition report? And what are you actually doing when you show up to a facility?

David Harkness (01:50):

Well, you're right. A property condition report is very similar to a home inspection. So they're very similar, but they're also very different. So with a home inspection, they tend to be very nitpicky. They're kind of looking at every single little detail of the home. Whereas on a commercial property, it's really geared towards finding what's wrong with the property, and most importantly, how much is it going to cost to get it fixed? Anybody buying a commercial property is probably buying it to make a profit and they want to understand the bottom line and how much they're going to have to pay out of pocket immediately or over the next five years to fix the property.

Joe Downs (02:29):

Do you find that these reports are required?

David Harkness (02:32):

They're not required.

Joe Downs (02:33):

They're not required. Right.That was a setup for you

David Harkness (02:36):

There. Well, occasionally lenders will acquire one, but I'm finding that's less and less common. So there's no law that makes you have to have it done. You can buy a property without having it inspected at all.

Joe Downs (02:50):

Yeah. And to me, that's just asinine. Because I've been on a number of these ... At Belrose, we've acquired 20 and I don't know how many we haven't acquired that we've paid you for. It's like a little shot at you there. No, it's not your fault. But my point intently that is, I've seen at least 20 and I don't know, maybe 10 that you've done that, give or take, somewhere in that number. So probably 30 of them. A lot of the times I've been to the property with you. Tell me what are you doing when you're actually there? Tell the listener. I know what you're doing. I've been with you. But tell the listener, what are the major components you're looking at and how do you go about inspecting them?

David Harkness (03:34):

Well, what I do is I walk through the entire facility. I try to look as much as I can, especially with self-storage. I try to go into as many units as possible. Walk the entire site, either climb on the roof or fly my drone over the roof to see what's going on up there. And there's different portions of the inspection, different things we're looking at. So we look at the site, look at all the site features, the drainage, the pavement, the other major site features, the structural frame and building envelope. We look at the roof. The roof's a major part of the inspection. We look at all the plumbing, gas lines, water lines, sewer piping, HVAC, very important. They can be very expensive systems. So we look at the heating, ventilation, and air conditioning at the property. Electrical systems is another component we look at.

(04:30):

Vertical transportation. Occasionally, you'll have a multi-story storage facility that could have an elevator system in it that needs to be evaluated. And then life safety and fire protection is something you got to look at and consider the different aspects of life safety at the property. And then of course, the interior elements, the flooring, the walls, the ceilings, just the finishes on the inside. And then another thing we look at is compliance with ADA, the Americans with Disabilities Act, which is a minor concern with self-storage, but it could be a larger concern depending on how the property is designed.

Joe Downs (05:10):

Yeah. So a drive up non-climate control, you're probably not dealing with ADA, I'm guessing, but maybe a multi-story building with elevators and bathrooms, you probably are. Is that fair?

David Harkness (05:24):

Well, if the office is open to the public, it needs to be accessible. So here's-

Joe Downs (05:32):

Oh, good point. So even a drive up, if you have an office accessible but to the public, it's got to be ADA compliant.

David Harkness (05:38):

So if the property was built before ADA is a common problem. They have a slightly elevated building with a nice set of stairs leading up to the front door. And if it's expected that a customer arrives, parks, and then walks in to meet the property manager in the office where they have anything for sale in the office, which sometimes they would have some storage supplies, moving supplies up there. And you don't have a ramp, an ADA compliant ramp, you're in violation of ADA.

Joe Downs (06:06):

Interesting. I don't want to get too bogged down on the ADA component, because frankly, it's not something that comes up too much. I think you actually acknowledged that already. But I'm more interested or I want you to share with the listener more about what ... So you expect all these things from ... You mentioned roof and structure and drainage and HVAC and electrical and paving. If there is paving, could be out gravel, right? And what then do you do with that information? I'm your customer. What do I get? Obviously I'm getting a report. This whole show is about you and a property condition report, but what is the report outlining for me? What are my takeaways from this? Because I'm using this not only for due diligence, but also for managing this thing going forward and trying to understand what my capital expenditures, my maintenance costs, my CapEx costs are going to be going forward if I do close on the transaction.

(07:05):

So what am I getting from this report?

David Harkness (07:07):

That's a great question. So there's really three major things I think you get out of the property condition report. The first one is just informational. What am I actually buying? What all am I getting? Sometimes people have specific questions about piping sizes, electrical sizing, how much extra space is available on the property, but there's some standard things that we look at and put in the report. It's just FYI. This is your information. This is what you're actually buying. And that's good to know information. And then the two most important things you get out of it are what's wrong with the property? So we're going to make a list of all the significant issues that we found on site. Is there a problem with the roof? Is there a drainage problem? Does the plumbing need to be torn out and completely redone? Are there just a few minor issues that add up to a major issue?

(08:01):

Does the office need to be renovated? I mean, there's just any number of problems that can be identified on site. And then the next thing is, how much is it going to cost to fix all this? And that's

Announcer (08:14):

Probably

David Harkness (08:15):

The most important thing people want to know. I sometimes feel like when people get my report, they never make it past the cost table because that's one of the first things is they get to the cost table, which lists all the major issues and how much it's going to cost. And they may never even read past that because they're like, "Oh, it's going to cost that

Joe Downs (08:35):

Much." Yeah. Well, true. But like a home inspection report, is it fair to say, David, that there are ... So when I'm looking at this report, there are going to be immediate concerns. Obviously, every report's different. Every facility you inspect is different because every roof is a different agent and all that. But whatever, last one even you even want to, I would assume that you've done enough that there's always going to be a category of this needs to be addressed immediately, no different than a home inspection report. And then this is what it looks like you have left on this side. So in a home inspection, you might come back and tell me, "That's a 30-year roof, but it was installed 20 years ago. You probably still have 10 years left or 20 years," whatever it is. Your water heater, the average age is this that's been here for this long, you have this many years left, but everything's working.

(09:31):

However, this electrical over here is not going to pass inspection or this over here needs to be replaced immediately, or this is immediate concern. Is that what I get back in this property condition report as well?

David Harkness (09:48):

Yes. So I typically lay out the cost table with two different aspects. There's the immediate problems, and these are usually obvious. There's a wall that's falling down. There's a major safety issue that needs to be addressed immediately. There's something that's just a complete fail. It's just an immediate need for repair. And that's all pretty obvious. The stuff that's less obvious and sometimes more controversial are what I would call the near term repairs/capital needs. The best example of that is the air conditioning systems. So you have a self-storage facility, maybe you have one building that's climate controlled and we go on site and evaluate it. Everything's working fine. It's cooling, it's heating, it's doing everything it's supposed to do, but the system's really old. We're going to call that out and say, it's all working, but you need to be prepared to replace the entire system in the next five years because it's probably going to fail.

(10:49):

It's old, it's worn out and those systems are very expensive. So as a business person that's buying this property as an investment, you need to have that as part of your plan that, okay, in approximately three years, we need to lay out $500,000 to replace the air conditioning system.

Joe Downs (11:12):

Hello. I mean, my opening was about the million dollar roof. That's no joke either. I mean, is that something you're budgeting for? $500,000. I mean, I guess that's probably on an eight to $10 million acquisition.

David Harkness (11:26):

That would be a very large facility.

Joe Downs (11:28):

Very large. Okay. So let's rewind back to the facility you said one building might be climate. So that sounds like a drive up scenario where you have one building that's interior climate control. Let's talk about that HVAC system. Is that like a five to 10? Is that similar to a home HVA system then in cost? Is that a five to $10,000 scenario in the next three to five years?

David Harkness (11:51):

It could be. So that's

Joe Downs (11:53):

Why-That's reasonable number. And the reason I'm asking that is because I want to get to what do these reports generally cost? And that's a wide range too, right? So if I'm asking you to come inspect a two to 300 unit facility that might be four or five buildings, all drive up, non-climate or whatever, one climate control versus a four story 600 unit climate control class A facility. And no one listening should assume that whatever David's about to say is the number, but what is the range for an average range for that first scenario I painted and then an average range for that kind of much higher end scenario?

David Harkness (12:48):

Well, that's a great question. So let me give you the two extremes. So if there was a very small storage facility with maybe 10 units and it was just down the street from where I live, I would probably be willing to do that for 600, maybe $700.

Joe Downs (13:09):

You're going to regret you throwing that number out there.

David Harkness (13:11):

But if I was to go to a huge storage facility, and the biggest one I've ever seen, I think had like 600 storage units in it, climate controlled and it's really far away, that one might cost as much as 4,000. So depending on the size of the facility and how far away it is, and maybe a few other features of it will determine the cost of the inspection. Now, I do want to just jump in and say those numbers sound big and some people balk at paying that much for an inspection, but I can tell you that probably 90% of the time or more, we find repairs, deferred maintenance-

Joe Downs (13:55):

We're going to get to that. Don't steal my thunder here in my podcast. All right. Those numbers that you just threw out there, they did not include the phase one or a phase one, right?

David Harkness (14:08):

No. Phase one will cost more on top of that.

Joe Downs (14:10):

Okay. So if you layer to phase one into that, where do I adjust those numbers?

David Harkness (14:15):

A phase one is going to add anywhere from 2,000 to $3,000 onto the cost of the inspection.

Joe Downs (14:21):

That makes me feel better because I thought you were just overcharging us for inspections. So because I want to say, and folks, if phase one is your environmental, phase one environmental, and you're again, not always required. If you're using a lender, it's definitely required, and it's always a good idea. And the property condition report is always a good idea. I know none of our students would we allow not to get one. I think it's just suicide not to. It's insane. But David, I want to say of the 20 or pushing 30, whatever the real number is that we've had you inspect, I want to say we probably average three to five grand, 3,500, 5,500, somewhere in there with the phase one, including the phase one, you're always traveling to them. It's very rare that you're not traveling.

David Harkness (15:10):

Including the phase one?

Joe Downs (15:12):

Right. So folks listening, I'm going to just pick out a number. You said four grand.

David Harkness (15:18):

Yeah, that sounds

Joe Downs (15:18):

About right. For a high end ... But I want to say with the phase one, that's probably what we average, four, 4,500, something like that. Is that fair? I got to be within range. So guys, that's a couple thousand dollars, call it $4,000, $5,000. For a full engineering assessment on an asset you're spending hundreds of thousands or millions on-

David Harkness (15:41):

You're right there.

Joe Downs (15:42):

First of all, you should not be looking at that as an expense. You should be looking at that as an insurance policy. But what David was alluding to and trying to steal my show thunder here was how powerful that report is because you can use it to negotiate, especially that those year one can't close on this property, lender won't lend on it because we've now advised them that this is an issue over here and this is an issue over there. So let's go to the million dollar roof as an example, not exactly the perfect segue from where we came from. However, it is in that had we taken the seller's word that the roof was 150 to $200,000 patch job, which is what ... This was actually a Belrose potential deal. Had we taken their word for it, which obviously we wouldn't, but had we, and we were certainly underwriting it as if it was only 150 to $200,000 patch job because they seemed like they knew what they were talking about.

(16:55):

It seemed like they had some contractors out and had some quotes. And you can't do everything all at once when you're trying to underwrite a deal and evaluate it and negotiate it. And so we took their word for it and then we had David come up, I believe it was up by Buffalo, not far from Buffalo, New York. And wait, David come out, did the inspection. I don't remember what you said to us there, although you were making funny faces at me, so maybe you were just holding back.

(17:28):

Do you remember this property? Can you walk us through what you saw on site? It was a hundred thousand square feet. I know that.

David Harkness (17:36):

Yes. I remember that property. Well, it's a common situation. Yeah, it was a large facility. It was a large facility. It was an older building. There was a lot of history to this building and there was a lot of history to the roof. If I remember right, the facility was actually multi-segmented where it had been built at different times. So you had a core of the building that had been built in the 1950s, I think, and then

(18:04):

They'd added some sections onto the building. And so as they'd done this, they had different types of roof up there and all of it was pretty old and they had been struggling with roof issues and they knew it. When I got up there, I could see where they'd made some repairs, many repairs over the years. So they were taking actions to try to address the roofing issues. But when I did my inspection, I did notice that there were active leaks on the inside, so more work needed to be done. And I think they had acknowledged that, that they thought they needed to do some more

Announcer (18:38):

Patching.

David Harkness (18:40):

But after walking the entire roof and taking a close look at it, the two problems were that some of the repairs they had made in the past were very low quality repairs and some of the repairs were starting to fail, which was causing some of the leaks. And then there were areas of roofing that really hadn't been repaired that needed to be repaired and they were failing as well. And the long story short is basically the whole roof needed to get redone. You needed to hire a good quality roofer that could get up there, strip off a lot of what was already up there and lay down an entire new roof and get a warranty on that and just put these issues to bed.

Joe Downs (19:22):

Had we gone through with that? Let's say we bought that property and said, "David, you're always throwing in big numbers at us. We're just going to repair it. " Had we done that, what do you think in your estimation we would be looking at? This was over a year ago, so we'd be into this thing by now. What do you think in your estimation we'd be looking at right now?

David Harkness (19:44):

I see the situation all the time. It's almost like a mental bias where sometimes people don't want to believe that the entire roof has to be replaced. They want to believe that it can just be repaired and be repaired cheaply. And so with roof leaks, it's a very gradual failure. It's never a sudden failure. So you start out with a few leaks and then over time, the few leaks turn into more and more leaks and it just continues to get worse. So in that situation, you would've bought the property and you would've got a roofer to repair the active leaks that you identified. And then probably for a few months, everything would've seemed okay, and then you'd start to get new leaks because the root cause of those leaks is the failing roof membrane, and it's not going to heal itself. It's only going to get worse over time as it sits in the sun, as it sits in the weather and continues to deteriorate.

(20:39):

And so you'd call the roofers back out and they would keep trying to repair the membrane and they would keep trying to patch it. And then after a year or two, eventually the problems would get so bad that the roofers would tell you that there's no choice. You've now got to replace it. And so now you're going to spend a million dollars to completely redo the roof after you've spent tens of thousands of dollars getting patched up temporary repairs.

Joe Downs (21:03):

We would probably be kicking ourselves and playing a patch game for as long as possible, but that patch game, if you do the math, even if it's 10 grand a year, which was probably more than that, but even if it was 10 grand a year at a seven cap, you just cost yourself 150 grand in value if you're constantly spending 10 grand a year. And if you double that, obviously 20 grand a year, it's 300 in value. So it's fool's gold. And folks, having someone like David just slap you across the face and say, "Come on, you're looking at a million dollar problem here, not a $200,000 patch job because that $200,000 patch job is going to be a 20 to $30,000 annual patch job until you face the million dollar balloon when it finally comes due, that check's going to come due." Having someone, a report and someone like David talk you out of that deal is worth every penny you spent on it.

(22:17):

We've done an episode recently, sometimes the best deals are the ones you don't do. This one didn't even make the episode, and now that I'm thinking about it, probably should have. This is probably the biggest dagger we avoided.

(22:32):

David, for the skeptical listener right now, well, of course you brought up a million dollar roof repair as your example. You inspect a lot of self-storage facilities, not just for us. Give me a stat if you can. You look at a lot of roofs. How many of them need attention in a year?

David Harkness (23:05):

Unfortunately, I'd say 50 to 75%. It's very common. And let me explain why. Your typical self-storage building is a metal building, it's pretty high quality construction, and it has a metal roof. And at first people think, "Oh, metal roof, it should be invincible. It should be able to last forever."

(23:27):

Unfortunately, they typically use the R panel metal roofing, and that metal roofing is fundamentally flawed from the moment it's put up there. It uses screws to fasten it down and underneath the screws, these little rubber grommets, these little rubber washers to keep the water out. And over time, they dry out and they crack and you start to get little leaks at the fasteners. And then the building actually moves a little bit over time as it heats up and contracts and it moves in the weather and it loosens up a little bit. And then you start to get a little bit of water intrusion at the cracks. And then over long periods of time, the metal roofs actually start to corrode. So the finish starts to come off the metal and it starts to corrode. And so eventually something has to be done with the metal roofs.

(24:21):

Self-storage is particularly problematic because even a roof that's only five, 10 years old sometimes, it starts to prematurely leak. And with self-storage, what I find is that you'll get roof leaks and the owner doesn't even know about them because they got somebody's stuff locked up in a storage unit. The customer only comes there periodically to see their stuff. So they might not have been there in months

Announcer (24:49):

And

David Harkness (24:50):

They don't even know the severity of the leaks. And it's doubly heinous because then you have a customer that finally comes to get their furniture or something out of storage, only to find that it's been being dripped on for two months and now it's damaged. It's a double

Joe Downs (25:04):

Whammy.

David Harkness (25:05):

Yeah, it's no damage. $2,000 table and they want compensation from the owner for the damage.

Joe Downs (25:12):

And the owner finds out they have a roof leak.

David Harkness (25:14):

And now they got to spend money to fix this roof leak.

Joe Downs (25:18):

For the listener, how could we break down ... I was trying to think as you were saying, what does the average repair cost look like? The million dollar one, I agree, is an outlier. That was a hundred thousand square foot building. It wasn't a metal roof. It was a different kind of roof and the whole thing had to be replaced. But if we're just talking regular drive up storage, metal roof, because they're metal boxes, metal roofs, you're running the mill, 300 unit facility might have five buildings, six buildings. The only good way to measure this is probably per square foot. Do you happen to know that number off the top of your head? Let's say you inspect it and it's fine, you can't see any visible leaks. What should I be budgeting for the leaks that are definitely going to happen?

David Harkness (26:05):

Well, my favorite solution is to put an elastomeric roof coating on the roof. They make, it's like a liquid rubber coating, almost like paint. It's very similar to that Flexseal stuff you see on TV all the time with the crazy guy that rides on the boats. It's very similar to that. And there's different qualities. There's a low quality coating and a high quality coating. The higher quality coatings usually come with a manufacturer's warranty. That stuff can be applied fairly cost effectively somewhere in the neighborhood of around $3 a square foot, often less if you can find somebody good to do it. And that's one of the best solutions because it's ugly, but you can paint it up on the top of the roof and it seals everything up, seals the fasteners and protects the metal.

Joe Downs (26:55):

So if I'm buying a 30,000 square foot facility with 30,000 square feet of roof, you're suggesting that I budget at acquisition for CapEx about 90 grand when I buy this thing, just coat this roof and be done with it. And how long does that last me for?

David Harkness (27:11):

You can get up to 20 years on these coatings, probably in reality about 10, but you can always just recoat it sometime in the future.

Joe Downs (27:18):

Okay. That report is going to tell me, well, certainly that's just prudent, but you get up there and you see that this needs to be done. Have we had any students, to your knowledge, and I'm only asking about students, but you can talk about any other clients that have had these issues that you've ... And it doesn't even have to be about the roof. It could be ... Because really the property condition report isn't just about a roof. It's about drainage, termites. Well, obviously roofing issues, grading issues. What are some examples where either of your clients or of our students that you can think of, and I know a few, if you want me to spur some examples for you or put some examples in your head here, but what are some examples that you've come across recently where you saw, "Hey, this has to be fixed now." You armed me, my student, another client with the report, and we've gone and negotiated X amount of dollars with the seller.

(28:24):

Can you think of any examples? Do

David Harkness (28:25):

You want me to help you with some? Yeah. I'll give you some examples of stuff that's not obvious because there's problems that are obvious when you first walk on the property, you can see the damage to the side and you're like, "Oh, that's got to be fixed." I'll talk about some stuff that's not real obvious that I've seen recently that is fairly common, unfortunately, for self-storage for some reason. So the first one is site drainage. I don't fully understand why site drainage is a bigger issue. It's self-storage versus other properties I see. I think it has to do with the unique shape a lot of self-storage facilities have. A typical building is just one building in the center of a parcel and the contractors really know how to build those things to where you slope the water away from the building. And with self-storage, you tend to have multiple buildings often close by with aisles in between.

(29:19):

And so what happens is they have to design a plan for site drainage and they often get it wrong. Site drainage is as much an art as it is a science and it's very common. Unfortunately, it's something I look at very carefully when I get onto these self-storage properties because the problem keeps coming up over and over that they don't have good drainage and then some of the storage units have flooding issues. Some of the key giveaways are watermarks inside the unit, watermarks and rusting up on the side of the storage units. And again, just like with The roof leaks, this is a big issue because you've got customers that have entrusted you with their property and then they end up with two inches of water at the bottom of their unit and it ruins their $2,000 furniture, whatever they've got

Announcer (30:13):

Stored

David Harkness (30:13):

In there. And of course they're going to be very upset about it. And so you want to get ahead of those. And with site drainage, of course you can go back and redo the site drainage. You can add more drainage, you can add channels. There's a lot of things you can do to get the water under control and positively remove the storm water away from the building.

Joe Downs (30:34):

Yeah. And I want to say we had a student recently that renegotiated, I think it was Tony and Kevin. I think they renegotiated about $100,000 over site drainage. And I think you were a

David Harkness (30:46):

Direct

Joe Downs (30:46):

Reason for

David Harkness (30:47):

That. That property was particularly bad. Part of it had to do with the unique site features. It was sort of on the side of a hill. It was right next to a hill. And so they had a lot of issues with just water from another property that would run off the side of a hill under their property, which should have been anticipated by the designers. And they did put features in place to try to handle that. But I think they'd started to doing some construction war on the adjacent property, which then resulted in the stormwater flowing a little differently. And then I don't agree with some of the design choices they made. And the bottom line was that it wasn't working right.

Joe Downs (31:29):

Yeah. Yeah. Well, to your point about multiple buildings then being hard to drain, I'll bet you it doesn't help that a lot of times we stick self-storage on odd shaped, weird shaped, topographically challenging lots, topographically challenging for anything else, lots because it is so, I don't know, customizable when you design it because it's fluid the way we can design these things and we try to shoehorn them into these odd shaped lots because we can. And because we're buying ... A lot of times these lots, you couldn't put anything else there, but self-storage. So that probably does lead to more drainage issues as well. So roofing, major problem, you see a lot. Drainage, major issue you see a lot. How often do you see that? What percentage of the time?

David Harkness (32:25):

25%, unfortunately.

Joe Downs (32:27):

This is a big number. What else?

David Harkness (32:30):

It is.

Joe Downs (32:31):

What else sticks out at you besides roofing and grading or drainage?

David Harkness (32:36):

Car damage. Self-storage facilities are unique in that they just absorb a lot of vehicle damage. I think the issue that drives that is just you have a lot of amateur truck drivers that they rent a U-Haul, they load their stuff up to it, had never driven a U-Haul before, or maybe only once before. And now they're trying to navigate these tight aisles. And so they back into the building and they cause a lot of damage. So one of the things I always look at is one of the best practices is to put steel bollards on the corners of all the buildings just to try to mitigate the amount of damage the cars do. Luckily, you can usually see most of the vehicular damage.

Joe Downs (33:19):

And so that's something, folks, that the roofing and the drainage and stuff like that, those are obviously very critical, but those are things I think you can negotiate. In fact, we have students successfully negotiate them all the time. I mean, and I mentioned Tony and Kevin renegotiated a hundred grand. Another student, Jeff, recently, it was a little different. I think it was termite damage. Renegotiate 30 grand off the purchase price. We had another student, $50,000 roofing issue, $15,000 grading issues. These are all renegotiated. Bollards, that's more, I think, business decision, but equally as important for me to know that I need them and what they're going to cost to install and what it's going to cost me if I don't install them. So in terms of not just bollards, David, what would be some ... I'm asking some kind of phase two and phase three questions here.

(34:26):

So what I'll call phase one is immediate. I'm not buying this unless we renegotiate. You got to come down to price because I have to make these drainage changes or roofing changes or whatever. Those are kind of have to haves. Then you've got the business decisions of be nice to haves, right? Or probably not going to get the seller to pay for it, but I should probably include this in my CapEx and immediately do it. So bollards being one, what are some other issues that the property condition report and you see while we're there on site that you're pointing out to me while I'm walking with you, I don't know if you're going to negotiate this one, but you need to account for it right away.

David Harkness (35:12):

Let's see. Office renovations is a common one. A lot of times these self-storage properties have been owned by a mom and pop kind of couple for many, many years. And so they got the original flooring from 1975 down and it looks very dated and it probably looks fine to them, but to a more recent or a more modern person, it looks very dated. So a lot of times you have to plan for some kind of renovation or maybe make the decision that we're not going to have an open office anymore. We're just going to try to do everything remote and utilize technology and that's something you want to know about.

Joe Downs (35:51):

Thank you. I mean, this is invaluable information if you're listening. And folks, please implore you do not buy a self-storage facility without getting a property condition report. Whether you're on your first deal or your fifth, a PCR, as we call them, is one of the highest ROI moves you can make during due diligence. It costs you a few thousand dollars. It has saved our students tens of thousands to hundreds of thousands of dollars. And in one case, for us, saved us for making a million dollar mistake that would've sunk us, maybe even our company. Who knows? So you don't have to do it, but you should. David, where can people find you? I'll throw out your website for everybody because I want to make sure they get it right because it's a little different. So it's fivefoldservices.com, but it's the number fives. That's right. So www.thenumber5 and then fold, F-O-L-D, services.com, fivefoldservices.com.

(36:45):

David, how about an email?

David Harkness (36:47):

Info. I- N-F-O@fivefoldservices.com.

Joe Downs (36:52):

Is that what they call you back at the shop?

David Harkness (36:54):

Yes. They call me Mr. Info.

Joe Downs (36:57):

All right. So info@fivefoldservices.com. Share this with someone looking at their first self-storage deal. This is the stuff that separates the investors who survive from the ones who thrive. David, thank you so much for your time today and thank you for saving us and our students so much money and sometimes actually even keeping us in the game, saving us from ourselves. So thank you folks for listening to the Self-Storage Investment Podcast. We will see you next week.

David Harkness (37:26):

Thank you, Joe.

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