Episode 424

Passive Storage Unit Investing with Tom Dunkel

With a background in corporate finance and 25 years of real estate and investment experience, Tom Dunkel brings extensive experience to Belrose Asset Management. Taking the company from start-up to world-class organization, Tom has specialized in discounted asset opportunities nationwide since 2006. His financial savvy, open communicative manner and integrity have seen him help alternative investors achieve their wealth-building goals.

As a dedicated mentor to investors and entrepreneurs, Tom has also taught classes on real estate and mortgage note investment at the CAMA Academy along with Belrose Asset Management co-founder Joe Downs.

Connect with Tom Dunkel: https://www.belroseam.com/

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"You can invest 10,000 hours and become an expert or learn from those who have already made that investment." - Jack

Transcript
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Welcome to the REI Mastermind Network where host Jack Hoss gathers amazing stories from leaders in real estate investing.

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In each episode, our guests will tell you what they're doing that works what they've tried that failed, and best of all, you'll learn actionable steps to take your real estate investing.

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To the next level now, here's Jack with another value packed episode.

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Tom Dunkel is here with me today, Tom, I appreciate you of being with us as we talk about storage units, and I know you and I chatted just briefly before we hit record here.

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That it seems like.

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Multifamily investing and storage units have been adding being able to add that to the list now of aspirational investing.

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So, this is going to be an interesting conversational conversation as we dive into this. But before we start, I want to direct everybody to your website, so it's Bellerose storage group.com.

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And I'll make sure to have that link.

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In the show notes.

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To make it easy to click through for everybody.

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So again, it's Bellerose storage group.com and Tom has been in this business now for 25 plus years, and with a variety of investment strategies.

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You're landing in storage units, and it'll be kind of interesting to understand how you ended up there.

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Sure, thanks for having me, Jack.

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It's great to be with you.

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And the listeners, yeah, I have had kind of a winding career through investing and finance, just.

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I'll give you the quick version, I tend.

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To get long winded so.

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I'll try to keep it brief, but for a number of years after finishing Business School, I was in corporate America doing mergers and acquisitions industries.

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Like aerospace software, telecommunications, third party logistics.

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Anyway, I did I've.

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Been doing a lot of deals in.

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A lot of different industries really since.

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1995 it's been a it's been a fun, windy Rd, but I always wanted to get into real estate and the early 90s if anyones out there is old enough.

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To remember was.

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Not a great time in real estate, so when I was finishing up my education, getting into real estate wasn't really an option, so I did.

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Get the corporate route.

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en I left my corporate job in:

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In fact, I was fired so it was just the kick in the pants that I needed at that time to really go out and do my own thing, which is what I had wanted to do.

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rets, even though starting in:

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So, I learned some really hard lessons those next few years.

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As I was trying to build a residential fix and flip.

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And wholesaling and rental portfolio business.

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So definitely had some tough times there, but had to persevere and got into some other areas within real estate.

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Mortgage notes still a business.

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We're into this day short term rentals.

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Hard money lend.

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We started a title company.

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And then as.

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We started getting around the:

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As far as being commercial real estate, but it's frankly a very simple business with very big net operating income margins as compared to some.

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Other asset class.

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This is so that's what got us excited about it, as well as the fact that it is a largely mom and pop in, meaning that it's not dominated by big players, and so it would allow a company like Bellerose storage group to go in and acquire facilities from these mobs and pops and turn them around because moms and pops unfortunately are not really running like businesses.

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And so, we've had a great run here in the last few.

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Years we've acquired by.

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The end of this year we.

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Only required about 1/2 a million square feet.

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Of self-storage, which I know there's plenty of players out there that are way bigger than that, but we're pretty proud of our accomplishments so far.

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And of course, we're doing a great job for our investors too.

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That's what it really boils down to.

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At the end of the day, but we're very.

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Excited where we?

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Are in our business growth path here.

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Let's back up there for a little bit.

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You said you were fired from your nine to five job and.

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That just reminds me.

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And it probably reminds a lot of people as the fact that nine to five job isn't as secure as we've been led to believe.

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That couldn't be.

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More true.

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Truth be told, it wasn't the first time I was let go or laid off from a job either.

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I know a number of people out there have run into the same kinds of things unfortunately, but that's the way the world works.

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Now it's.

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There's not really any job security.

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It's not a couple generations ago where you took a job, and you stayed in it for 30 plus years and.

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Got your pension?

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Those days are long gone, so I.

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Think it's up to everybody to create their own, their own retirement, their own personal pension plan.

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By being good investors.

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And then you said you started in two.

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1006 so you saw like the.

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One of the biggest.

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Disruptions we've ever seen in the market.

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Let's say.

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I have to ask you.

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Do you see any similarities today?

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That's a really good question and the short.

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Answer is no.

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Back then, when we were going through that rough spot, there was no liquidity meaning there was really no money on the sidelines.

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Today there's trillions and trillions of dollars literally in cash on the side.

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Guidelines and the other thing is back then underwriting guidelines.

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For residential mortgages.

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We're pretty much out the window.

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If you could fog a mirror, you could get a mortgage.

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Those days are also gone for anyone who's trying to get a mortgage.

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It's definitely the credit quality these days, is much higher.

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So, for those couple of reasons, I think it's not going to be nearly the disruption that we.

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Saw at 12 years ago.

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So, you mentioned that you're looking for those mom and pop.

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Storage facilities that have been, frankly, they're little mismanaged or you're trying to find some sort of way.

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To add value.

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Where are you finding these opportunities?

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Could you dive a little bit into what type of value, or what changes are you making to turn?

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These places around.

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Sure, yeah.

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So, we built a great team here.

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At Bellerose and so the.

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How we go?

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About finding these moms and pops is.

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We have a.

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Lead generation engine and so we have virtual assistants who are making phone calls to our lists.

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We do which is through letters, postcards, those kinds of things, and then we have a whole process for when we find a sellers might be motivated with the whole process where we reach out to them, get the conversation started and really, we're just trying to help.

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Right, a lot of these folks maybe are just looking for some tips here or there, but then there are others that are at the end of their ownership lifecycle as we.

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Call it and they're wanting to make a change in so we come in and a lot of.

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Times because we do.

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Go to these steps of building.

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We're poor and just talking to them like real people.

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'cause we're not a huge organization.

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We're not closing 20.

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Deals at a.

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Time, like some of these huge real estate investment trusts out there.

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So, we do make that personal connection, and that's allowed us to beat out like we're about to acquire.

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Facility in New York where U-Haul was bidding. Of course, they're.

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Humongous company, but the seller decided he wanted to sell the last 'cause.

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He liked this.

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It's pretty, it's pretty.

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Simple, but as far as the value-add strategies go Jack they are in these moms and pops.

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Their primary goal.

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We found is to just keep the storage units fault, so to do that they keep their rents artificially low for that market.

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Because the last thing they want to do is.

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Have to do any kind of marketing plan.

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Or outreach or deal with the.

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Customer move in move.

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Out situation so they keep their rates low and that keeps.

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The tenants their problem with that is when we find this all the time, it's I'm actually really surprised how often we find it, but it's pretty routine that we'll find a facility where the rents.

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Are 25.

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530 even 35% or more below.

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Where the actual.

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Market is and this has happened especially recently in the last few years.

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on self-storage have gone up:

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Finger on the.

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Pulse of what's happening.

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They're leaving a lot.

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Of money on the table.

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What we do is go in that we do thorough analysis of the market so that we can see who are the competitors, what are their rates, what are the rate trend?

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Are they full?

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And so, will.

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We have a number.

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Of databases that we use to get that info.

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Formation, but then the last step in that process is.

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To actually get.

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On the phone, the good old-fashioned phone and go out and make those calls to those managers and just to verify what we're seeing in our third-party subscription databases.

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And so that's probably the biggest one.

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Jack is just getting those rates up to par, but other things we do are provide good security, lighting, security cameras.

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Make sure the fences are solid and working and the gates are solid and working.

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'cause as everyone knows out there these days, especially when this is the data talking, not me women.

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Or Nikki.

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The buying decisions in the household and so women that rents a storage facility.

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They want to feel safe there.

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So, they want the lighting they.

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Want the gates?

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They want those kinds of things, so we.

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Make sure that.

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We provide that for our customers and.

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That's not a big expensive undertaking.

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And then there's other things we can do.

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Add a tenant protection which is basically profit that just drops.

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To the bottom.

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Line, and so there's a number of other.

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Little Valley wrap things I'll throw in one more.

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I know I'm getting.

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Wrong with it here, but.

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I one thing we're really.

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Good at is cleaning up delinquencies so.

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Again, these moms and pops.

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They don't really want to make those calls 'cause a lot of times they know their customers and they don't want to call up John, say John you're 15 days late on your payment again, and so their delinquencies.

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Tend to build up and what we do is we go in.

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And we clean.

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Those up right away and and.

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Delinquencies across the industry are generally around 10% hours.

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I'm happy to say or about 2% across our portfolio, so that definitely helps keep the cash coming.

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Again, we can pay our loan and pay our investors.

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So, what are some of the strategies that you're using there then to keep?

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It really, it's just running it like a business.

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I think typically for a consumer there 150 or $200.00 a month self-storage unit. It's not one of the huge budget items in their month so they are a lot of times it's just administrative issue. Maybe the.

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Credit card they're using.

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Expired those kinds of things and but our managers they do.

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They make those calls and they do tell John that he's 15 days late and then.

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And we and one great thing to note to Jack about self-storage.

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And this is much different from multifamily or residential.

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Is there leave it's governed by Lin was as opposed to residential landlord tenant laws?

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So, when we have a customer who's behind, we get to that 61st day that they are delinquent and the notice goes out and we can start auctioning off their unit we, the auction winner comes in, cleans out they clean out the unit we go in and.

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We've been out and put it back up for rent again that day.

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I know from my residential rental portfolio nightmares I had to get a landlord, tenant court and that can drag out for months and months and a lot of times depending on where you are.

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Landlord has a tough chance even winning those kinds of events, so it's a breath of fresh air.

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Frankly, being in self-storage.

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In that regard, and just really having the lawns.

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On our side.

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So, we can keep again keep the units full and keep the cash coming in.

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Yeah, even depending on the situation or what state you're in in a residential situation, if you have people who left a bunch of stuff behind, in some states you have to hold on to that for so many months before you can dispose of it.

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And then we're calling somebody like.

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You to get a.

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Stretch track I.

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That's strange.

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Was just gonna say yeah.

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Now you're using a self storage.

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Unit no, it's crazy it we actually charge.

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Our customers, if they don't fully clean out and sweep out their unit.

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We actually have. It's in our contract. We can charge them like 50 bucks. It depends on the facility, but we can charge them like a $50.00 clean out fee or something so.

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Again, it's very tilted in the.

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No other.

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Favor of the self-storage facility owner.

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Just remind everybody head over to Bellerose storage group, COM for some more information about what Tom and his team are doing.

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But it leads me to the my next question.

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Tom, a lot of people who are looking into storage units are looking to tackle this type of project themselves.

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Can you brush on the concept of investing in this type of project directly versus?

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Being a part of a syndication such as.

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What you're running.

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Sure, absolutely there. There are certainly storage facilities of all shapes and sizes out there. There are facilities out there that can be found in the 102 hours.

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Three definitely under $1,000,000 kind of range, but that kind of facility might be great for an individual investor. Maybe looking to make a move from residential rentals to self-storage facility.

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But it does come with a.

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Small facility like.

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That you're not going to get the economies of scale right, so you're if you're.

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Gonna have to hire A manager or at least a part time manager.

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It's going to eat into your profit taking care of the grounds and all those kinds of things on a small facility can chew up, can chew up a.

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Lot of the budget.

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As compared to participating in a syndication like we do about a storage group, obviously I encourage anyone who's interested in building a storage.

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Business to go out there and do it and it's a great industry, but if it looks like too tall amount in the climb, there certainly groups out there like Bellerose storage group.

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We do syndications, so we bring in outside investors to participate in our deals.

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And so today our investors are enjoying some outsized returns because not only is the market been great, but we have.

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A great team.

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Of operations professionals.

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In fact, our operations consultant.

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Has been in the industry 16 years, so she's seen every.

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Little thing out there, and so she brings a ton of value to Bellerose storage group as does my partner Tim Kaine who's in charge of our expansion and development opportunities.

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It does take a team and I can't emphasize that enough.

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That's one thing we've been really lucky about here at Bella Storage Group is we've been able to assemble a world class team.

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Here again, we're not certainly not the biggest guy out there.

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And we don't intend to be.

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That's not our goal, we just want to do a great job for our employees and our teammates and our investors.

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But it's definitely doable for someone out there who has aspirations, but you just gotta get.

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Yourself around the right people.

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When somebody is trying to tackle self-storage on their own, they sometimes don't know what they're getting themselves into to.

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Let's just be frank, especially that first time could you brush on some of the pitfalls or some of the problems that they?

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Yeah, sure.

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That maybe you.

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Learned along the way when you're acquiring storage facilities.

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Sure, absolutely.

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For a single operator.

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In fact, I hate to say it, but we've acquired facilities from operators just like that who did get in a little over their heads and they weren't.

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Really sure how to handle the storage facility so at the end of the day there are a lot of the little details that are really important for managing your gate codes, right?

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Every customer if.

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You're running it the right way.

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Every customer is going to.

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Have their own gate code.

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So, when they go to punch in, when they go to enter.

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The facility it.

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The software will keep track of who's coming and who's going.

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So little things like that, the software and the management reporting.

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And the security and just keeping the ground up and making sure that the roof isn't leaking in on the on your customers' goods.

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So, there's there really is.

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A lot a lot.

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To do there and then of course.

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There's staying on top of the delinquencies like we talked about.

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Before, so we can quickly.

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Become a very big job.

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Maybe a mom and pop to handle on their own.

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And then to just keep.

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Track of what's going on in the market around you to see where are rates going.

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Are they going up or they going down?

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Is everyone folders?

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They're a big competitor coming into the market.

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These are all things that we're able to keep an eye on because we do have a team and those are the things that.

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We look out for.

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Right?

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I would imagine that one of the.

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Things that you I might be putting words in your mouth is the concept that you're probably updating some of the systems and processes as well.

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That, let's face.

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The fact when it comes to real estate investors and Realtors for that matter, we're behind the technology 8 ball there where we're just not up to date.

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What are some of the systems and processes that you're putting in place?

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To make management easier.

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That's a fantastic point Jack.

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And again, I think it goes back to the difference between a mom-and-pop operation and a professional operation.

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So, one big thing is software.

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Right?

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Software is a key component to how we are able to take over.

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And run a facility efficiently.

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We act we use something called easy storage solutions and a lot of times when we acquire a facility.

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Sometimes they do have software, but maybe they're not using it right, or the data that's in there is garbage.

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And then there's a whole transition process that we go through to make sure that that data is solid.

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ize of the facility. Can take:

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All of.

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That is up and running, but once it.

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Is then you then you really as a storage owner?

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Now I have nice visibility into what's going on at my facility.

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I can see the number of new vents and the.

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Number of move outs.

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On a daily, weekly, monthly, annual basis, et cetera, I can see how much money we're collecting and how are people.

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Auto paying with.

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Credit cards which.

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Of course, we love 'cause then it turns us into kind of a Planet Fitness model.

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Where people are just paying every month and they don't want to go through the bother of moving their stuff to another facility just to save maybe 5 or 10 bucks a month.

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But meanwhile it has a big impact on our business as an example, but we have we have whole we've processes around this arena.

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Read from the prior owner to us.

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We have systems around like I was mentioning earlier at the front, very front end.

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We have the whole acquisition process and then we have the whole closing process.

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Once we acquire the facility, we have the whole process we go through to get the facility up on the Internet.

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A lot of the moms and pops.

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They don't have a website or if they do, it might not be.

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To be, and certainly not a technological advantage in the market where 'cause, let's face it, everyone these days is using their smartphones right to rent everything, including self-storage units.

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So are our facilities manager and there and the operations team that they do that whole.

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Marketing aspect too.

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Or they're making sure that we're on Google and that our website is up to date and mobile friendly so that someone can rent a unit right from their phone.

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OK, awesome.

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Yeah, I'm curious.

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Since you're running a syndication associated with this, do you simply work with accredited investors?

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Or how does those investors?

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Yeah, good question.

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It's it varies.

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Hey, I hate that it depends answer but it does.

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It depends on the size of the race.

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So, like right now we have.

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A few different opportunities going.

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On some of them are smaller where.

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We have investors that we've worked with over the years who we have a relationship with, so some of them are non accredited because.

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Not to get too technical, but a 506B offering allows for up to 35 non accredited investors.

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So, if it's a.

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Smaller raise and we think we can do it with just our existing friends and family who've been with us for a while.

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We'll go that route and allow.

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Some non accredited.

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But we're actually.

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We also are doing a much larger raise.

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Right now, and we are going to have to go to a 506T which is for accredited investors only.

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And that's because we need to throw a much bigger net out there to get that level of investment in the door so we can close that deal.

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So that necessitates us.

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Having to do a fighter.

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See Recredit only then through the FCC rules.

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Not our rules.

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I'd love to bring in anyone who's interested.

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Those are the rules that.

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We have to live within.

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And a lot of people will, especially if you're in real estate investing. You probably have a self-directed IRA, and you have.

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It sounds like you've really built your team.

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To accommodate some of these investors, so can you walk us through the process?

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Do you have somebody on your team that helps people that maybe they have some self-directed IRA funds that they want to do?

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To invest.

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Sure, yeah, Sir.

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You're looking at him. I've run our capital raising operation and yet we have plenty of self-directed.

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rected IRA Ray investor since:

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Through my self-directed IRA so.

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We're very familiar.

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With how those work and that we're quick to handle.

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Those investors for sure.

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Since you've been on both ends, you probably have a great.

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Perspective on this you I have any questions that somebody should be asking a syndicator or a storage unit management company such as yours.

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What are some of the questions they should be asking to?

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Make sure it's a good fit.

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I want everyone to know Jack that he we didn't talk about that question before.

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Or did we no OK because you just tied?

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Me up perfectly for a resource that we offer at Bellerose storage.

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Group.com

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It's for free to the investor community out there.

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It's just our way of giving back a little bit, but it's I actually have it right here.

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It's called the safe investing method and basically, it's an ebook for passive.

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Investors gives them just a series of questions and really a framework within which to conduct their due diligence on a deal so real quick.

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It's called safe investing.

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S is for sponsor, who's the spots are running the deal?

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What's their background?

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How long have they?

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Been doing this.

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All those kinds of questions.

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As for asset, what is the asset you're investing in if you do?

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Uh, if you invest in a self-storage syndication deal with belrose, you're going to be purchasing membership interests in an entity that owns the self-storage.

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So, it's.

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Love for some people out there who might be investing in crypto.

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What is the asset that you're investing in?

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I don't know.

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Maybe they're smarter people out there, but I think it's important to know the asset that you're investing in and know everything you can about it and be able to explain to your mom or your kid or your mother-in-law.

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You know what you're actually investing in 'cause.

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That way you'll make sure you know.

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For sure Athens.

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For financials.

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What are the financial projections?

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What are the returns?

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Does this investment fit your goals of most investors have a goal of.

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Income growth or capital preservation, or two or all.

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Of three of.

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Those things, and so you just need to make sure that.

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The investment is meeting your goals.

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And then E is for exit.

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How do I get out of this thing? It? Unfortunately, if you're a ballad storage group investor, you can't go to schwab.com and click sell your position whenever you want to.

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You need to be comfortable.

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Whether it's our deal or somebody elses deal with the exit strategy.

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When does that take?

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Place what needs to happen for that to happen and look for that exit to come around and are the has the sponsor executed on this kind of exit strategy before, so those are the basic questions, but again, thank you for teeing up that that great question Jack.

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I'm glad that was an easy one for.

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You one more time Bellerose storage group.com is that where they could get that download.

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It is absolutely just good.

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OK.

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That's our homepage.

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You can just scroll to the bottom and download it.

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You don't need to give a name, e-mail or anything, but I would encourage folks together as well to sign up at our investor portal, because that's where folks can learn about our upcoming opportunities.

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Tom, I have a few rapid-fire questions for you if you're ready.

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For him, So what?

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So, we're all familiar with a lot of the real estate investing promises that we've been we've seen through late night infomercials.

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What is one of those real estate investing myths you'd like to?

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Bust your dad.

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Oh boy, that's a good one.

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I think a lot of people think it's a myth that you can buy real estate with no money down and, but that actually is true.

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I always thought it was a little hokey sounding, but it is true so I can't.

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Really blow that one.

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Any of those say any of those?

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Promises that folks hear about in the.

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Late night commercials I

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Think a lot of them are probably achievable.

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If and this might be where they lead you a little astray if.

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You have the time.

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And the inclination and the team around you to be able to really grind through and make things happen.

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'cause I know I'm certainly guilty of.

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Uh, buying a?

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Book or a tape or something and and having it sit on the shelf.

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And it wasn't that the system didn't work, it was that I didn't work.

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So, I think it's.

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Important for folks.

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If you are looking.

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At getting investing.

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Whatever it is, residential self-storage multi.

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Family, you need to treat it like.

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A job for sure.

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I don't know if that was.

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The answer you were looking for.

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Jack no, I love that answer I.

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That's where I left it.

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And I in fact.

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I'm going to probably use that as the quote.

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For this show, it's.

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OK, good.

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Not the system that doesn't work is that you didn't work.

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Right?

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That's that.

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That's a great quote.

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You're not allowed to say rich dad.

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Poor dad OK.

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Or I'm going to add 3 think and grow rich because I'm tired of hearing those recommendations.

::

But what book would you recommend?

::

Or what are you?

::

Reading again, it's at risk of sounding like a broken record straight right here over my shoulder.

::

You can see who, not how.

::

So, it's a great book, and in fact it's a great.

::

Philosophy or mindset because so often, entrepreneurs like we like to run around and bang our heads and skinned our knees and figuring stuff out.

::

'cause it's just how we're wired.

::

But when you come up against a problem in your business or a challenge or obstacle, you shouldn't think about how.

::

Can I overcome this?

::

Uh, that's not the right question.

::

The right question is who do I know, or who can I reach out to that knows how to get around this obstacle?

::

'cause, let's face it, there aren't too many new business problems.

::

Right so if.

::

It's a technology issue or a marketing issue.

::

Or whatever, and there's plenty of books and resources.

::

And gurus and.

::

Such out in.

::

The world, so I would say.

::

Get who not how.

::

And implement that into your into your business life and.

::

Maybe even your personal life.

::

What is the biggest real estate investing mistake you've made and what did you learn?

::

From it, good.

::

Question we'd say I.

::

Like all these questions seem to be coming back the team but.

::

We went.

::

I've been business partners with my partner Joe Downs for 12 years.

::

We've done a lot of this stuff that I mentioned earlier together, and we went into fixing and flipping houses.

::

Or in the Philadelphia.

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Market and we just went too far too fast, and we just really messed that up.

::

And so again I think it was because we didn't quite have the right team around us to really execute that strategy properly.

::

So that was a rough time.

::

OK.

::

And if you could go back into time and give your.

::

Younger self one piece of advice.

::

What would that be?

::

I would love to have.

::

Gone back Aw geez, this is a tough one 'cause I'm not a regretful kind of person.

::

I'm really happy with where I'm at in life and how I got here, but I would say maybe go bigger earlier.

::

I think residential is a great place to start for a lot of people.

::

It's a good place to just learn transactions and how a real estate deal works, but.

::

I think if I had gone.

::

Earlier, earlier on in my real estate career, if I gone for some of the bigger transactions, I think that would.

::

You would have been my advice.

::

I know it's scary.

::

Think again.

::

Go back to the team.

::

Sorry to repeat that over and over.

::

I think if you I had built the right team around me early on.

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I think I could have.

::

Gone for bigger deals.

::

And just gotten further, but I'm super happy with where I'm at.

::

Tom, is there a question or concept you wish we would have?

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Covered here today, I.

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I think we I.

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Think we covered a lot of great stuff.

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Jack, I know one thing.

::

That's on a lot of.

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People's minds right now.

::

I'm not sure when people.

::

Are going to be viewing this, but it's early September and inflation.

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Has been a big topic.

::

In the news and it's been impacting businesses for sure, and all the supply chain issues and things like that.

::

I think we could probably do a whole episode just on that, but I would say just quickly cover that I think.

::

And it's one of the things we really love about self-storage is we're able to adjust quickly and so we.

::

Inflation has actually been mostly a good thing for us because our leases are month to month.

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So theoretically we could change our rent.

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Every single month.

::

Now, of course, that's not going to that.

::

Customers aren't going to like that, so we don't do that, but we could because we have that kind of ability.

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But we do have projects and expansion projects that have been impacted by supply chain issues and our costs have increased while we're waiting for the supplies to show up.

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They get more expensive, so we've had to juggle some things there to make those deals happen.

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But those macroeconomic issues are just a part of the day.

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They life of being a commercial real estate investor.

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So, we keep a good close eye on this.

::

Well, Tom again it's Tom Dunkel. Head over to belrosestoragegroup.com I'll make sure to have that link in the cereal notes, but Tom, I really appreciate your time again and I hope you'll consider coming back sometime.

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Yeah, let's see Jack.

::

This is been great.

::

Thank you so much.

::

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