Podcast Summary: Real Estate Investing School Podcast | Episode 251: Why Self-Storage Wins in Any Market

Host: Joe Jensen
Guest: Jacob Vander Slice, Co-Founder and Principal at Van West Partners
Release Date: April 7, 2025

1. Introduction to Jacob Vander Slice

[00:00-00:13]
Jacob Vander Slice emphasizes the importance of hands-on experience in real estate investing:
"The only way to learn is to go out and do it. You got to go out and take a risk. The greatest lessons you learn are by owning and operating assets or investing in assets."

[00:13-00:55]
Joe Jensen introduces Jacob Vander Slice, highlighting his extensive experience and success with Van West Partners, a Denver-based company that has deployed over $375 million in capital into self-storage facilities across the United States. Joe remarks that this bio only scratches the surface of Jacob's two-decade-long career in real estate.

2. Jacob’s Real Estate Journey and Pivot to Self-Storage

[00:55-02:14]
Jacob shares his entry into real estate around 2005-2006 while working as a firefighter with limited hours. He initially focused on residential deals primarily in Denver, dabbling in adaptive reuse retail, townhome development, multifamily, and land deals. In 2015, Jacob ventured into self-storage, not as a strategic pivot but rather as a new initiative. Over time, he and his team shifted to specializing almost exclusively in self-storage ownership and operations.

[02:14-04:09]
Joe inquires about Jacob’s prolific deal-making, noting over a thousand deals in 20 years. Jacob explains that their shift to self-storage was motivated by a desire for more durable, recurring revenue streams as opposed to the transactional nature of fix-and-flip deals, which he describes as "a cash production business, but it wasn't necessarily a wealth-producing business."

3. Investment Strategy and Metrics: Balancing IRR and Multiple

[04:09-07:00]
Jacob discusses the importance of transitioning from transactional investments to strategies focused on cash flow and wealth creation.
"We look back and we were overly transactional and our strategy now is much less transactional, more cash flow, wealth creating based."

Discussion on IRR vs. Multiple:

[07:00-10:51]
Jacob delves into financial metrics, particularly Internal Rate of Return (IRR) and multiple. He argues that while IRR accounts for the time value of money, it can be misleading if not considered alongside the investment multiple.
"We try to balance multiple and IRR together. And we don't look at deals just through the lens of IRR or just through the lens of multiple."
He provides an example of a Florida deal sold with an IRR of approximately 7%, illustrating the practical application of these metrics in decision-making.

Joe Jensen appreciates the deep dive into IRR, noting its complexity and importance:
"Those are the metrics I usually think of, so I like to kind of compare those to the ones you're using on a higher level."

4. Decision-Making: When to Hold or Sell

[10:51-16:14]
Joe and Jacob discuss the criteria for deciding when to sell an asset versus holding it for long-term gains. Jacob explains that while they have metrics guiding their decisions, there's also subjectivity involved based on the performance and market conditions of each deal.

Notable Quotes:

• Jacob Vander Slice [07:00]:
  "Would you rather put multiple in your pocket or IRR in your pocket?"

• Jacob Vander Slice [14:13]:
  "Generally, if we can hit our underwritten multiple sooner than we thought we could, that deal could be a candidate for a sale."

Joe emphasizes understanding the broader business context when making these decisions:
"Are we building this area? How are we paying back our investors? How are we paying our debts? How liquid are we..."

5. Market Conditions and Future Outlook

[16:14-22:55]
Jacob shares insights into the current market dynamics, including the impact of interest rates and investor confidence. Despite an active operations side with positive occupancy growth, their investment activity has slowed due to unfavorable risk-adjusted returns.

Key Points:

• Anticipation of a moderating interest rate environment.
• Potential increase in transaction volume if interest rates decrease.
• Challenges in finding deals that meet their rigorous criteria.

[22:55-24:13]
Jacob contrasts the performance in investment business versus operations:
"Our investment business was better in 2023, but the consumer side was pretty anemic."

6. Operational Insights in Self-Storage

[28:14-37:24]
Jacob addresses common misconceptions about self-storage being a "passive" investment. He clarifies that self-storage operations are intensive, involving:

• Managing security issues, such as theft and illegal activities.
• Handling daily operational challenges with a dedicated team of 90 employees.
• Dynamically managing revenue through month-to-month leases to respond to market demands.

Notable Insights:

• Self-storage is supply-sensitive; new constructions can impact rents and occupancy.
• The granularity of revenue streams offers resilience, as income is diversified across thousands of small tenants.
• Operational strategies like requiring tenant insurance can significantly enhance net operating income (NOI).

Jacob Vander Slice [34:32]:
"We have 90 employees just out there solving problems, making our customers happy. So it's definitely not a fire and forget business by any means."

7. Advice for Aspiring Real Estate Investors

[39:53-43:14]
Jacob advises intermediate investors looking to scale:

• Take Action:
  "The only way to learn is to go out and do it. You've got to go out and take a risk."

• Understand Fundamentals:
  "Know what it’s worth once I make it better, what's it going to cost me to make it better."

• Balanced Approach:
  Emphasize both multiple and IRR while making investment decisions.

Joe echoes the importance of learning the language and metrics before taking action:
"Learn the language and learn the lenses. Learn how you're looking at these and what metrics are and when you should buy and sell."

8. Common Mistakes and Lessons Learned

[51:22-53:44]
Jacob shares two significant mistakes:

1. Shipping Container Homes:
   They attempted to build houses from shipping containers, expecting faster and cheaper construction. The project resulted in a substantial financial loss due to delays and higher costs.

2. Pressure of 1031 Exchanges:
   Under pressure to defer taxes through a 1031 exchange, they invested in a suboptimal self-storage deal in Iowa which underperformed, highlighting the dangers of making hasty decisions under external pressures.

Jacob Vander Slice:
"If you're doing a 1031, be careful about the pressure of that exchange and having it cause you to buy something that you otherwise probably wouldn't buy."

9. Conclusion and Personal Insights

[54:15-54:37]
Jacob expresses his love for real estate due to its transparency and tangibility:
"I like real estate investing because it's simply understandable. If your real estate deal is not going well, you can generally go out there and do something about it."

[54:40]
Joe Jensen commends Jacob for simplifying complex concepts and expresses interest in having him back on the podcast.

10. Additional Resources and Recommendations

Book Recommendations by Jacob Vander Slice:

1. "Midnight in Moscow" by John Sullivan
   A memoir detailing the experiences of the US Ambassador to Russia, providing insights into diplomatic challenges and interactions with Russian officials.

2. "In the Kingdom of Ice" by Hampton Sides
   Chronicles a 19th-century sailing expedition that becomes trapped in Siberian ice, offering lessons in perseverance and leadership.

Key Takeaways

• Self-Storage as a Resilient Asset Class:
  Offers diversified, granular revenue streams and operational flexibility, making it a robust choice in varying market conditions.

• Balanced Investment Metrics:
  Successful investing requires balancing IRR with investment multiples to ensure both time efficiency and substantial returns.

• Operational Excellence:
  Active management and attention to detail are crucial in self-storage operations, dispelling myths of it being a passive investment.

• Learning from Mistakes:
  Emphasizes the importance of reflecting on both successes and failures to continuously improve investment strategies.

• Action-Oriented Approach:
  Encourages investors to take calculated risks and gain hands-on experience to build wealth effectively.

For More Information:

Visit VanWest Partners or connect with Jacob Vander Slice on LinkedIn for insights and investment opportunities.

This comprehensive summary encapsulates the insightful discussion between Joe Jensen and Jacob Vander Slice, providing valuable lessons and strategies for both novice and seasoned real estate investors interested in the self-storage sector.