Growing Through OPM: Finding and Nurturing Backers for Your Self-Storage Investments

If you’re looking to invest in self-storage or grow an existing operation, there are many places to find funding, such as banks, credit unions and insurance companies. However, you can also explore the possibility of using other people’s money (OPM) to amplify your opportunities. In fact, it’s a common financial practice for professional real estate sponsors. In most cases, pooling capital from multiple sources can result in a greater amount than you may be willing or able to invest on your own.

Let’s say you have the chance to buy a self-storage facility for $1 million. Instead of providing the full amount yourself, you could put in $100,000 of your own money and encourage nine other people to invest the same. Now you’re still able to participate in a lucrative deal without putting all of your own eggs in one basket. Plus, as the sponsor providing a valuable service to other investors, you can earn fees and profit splits. Let’s look more closely at how to leverage OPM to scale your investing.

The Benefits

Having this type of financial leverage offers multiple benefits for self-storage investors. Here are a few of the most prominent:

Portfolio diversification. Unless your last name is Buffet, Gates or Musk, your financial resources are finite, meaning you only have so much of your own capital. But when you combine it with that of other self-storage investors, you’re able to stretch it further.

Let’s go back to our example from above and say you found nine other backers for your initial investment, so you only had to put in $100,000 of your own money. That means you still have $900,000 to participate in other opportunities. Rather than put all of your available capital into one site, you’re diversifying across multiple self-storage facilities.

Diversification is still the cornerstone of smart investing when it comes to self-storage and other commercial real estate. Why? Because it creates a financial cushion in case one or more of your deals underperforms. No matter how much research and due diligence you do, no investment is guaranteed to succeed. An asset may fail to produce the desired returns for many reasons, some of which will be out of your control. Rather than assume you’ll never fail, build a safety net. Diversification makes it possible to offset negative results with positive returns in other areas of your portfolio.

Flexibility to pivot. One of the great things about OPM is it allows you to access and move more of your financial resources when new opportunities arise. Tying up all of your capital into one or two investments may help you generate desirable returns, but it also means your portfolio is fairly illiquid. If a new deal comes up, you may not have enough cash to participate. Having the ability to tap into OPM helps you to take part in more transactions.

Community support. People who invest in self-storage on their own may feel isolated, as they don’t have a reason to regularly connect with other investors. But when you grow your network, connect with like-minded individuals and share your experiences, you expand your knowledge base and gain new, valuable relationships. Some of my most meaningful relationships, including long-time mentors and valued partners, have come from efforts to meet new investors.

Having a community of educated and experienced self-storage professionals at your back can also help you determine which opportunities are most likely to yield positive results. If others aren’t willing to put their capital into a certain deal, it may mean there are red flags you’re missing. The opposite may also be true. If others in your network are excited about an opportunity, it can help reaffirm your own due diligence.

Goodwill. Of course, investing with OPM isn’t just about your own benefit. It also allows others to participate in self-storage deals they might not be able to find or manage on their own. Experienced sponsors often have greater access to off-market deals or are well-connected in the community. Someone who’s just dipping their toes in the commercial real estate waters likely won’t have those connections or know-how to manage a sizable investment.

Connecting With Other Investors

Obtaining capital for self-storage is a people business and a numbers game. The more folks you’re able to add to your professional network, the greater the likelihood that you’ll find the right backers for your next investment opportunity.

Think of your network as your net worth. The more you expand it, the greater the opportunity you have to grow your portfolio. And you can’t successfully invest with OPM unless you put yourself in front of other qualified investors.

Now, your first inclination is likely to reach out to your “warm” network—friends, family members, coworkers, etc. While this may work for some, most of you don’t have accredited investors just waiting in the wings. More likely, you’ll need to expand your network through cold outreach. That said, it isn’t enough to simply connect with potential stakeholders at local events or send out a bunch of LinkedIn requests. Those are good first steps, but you must continue to “warm up” your network and move those who are qualified closer to your end goal.

In a way, raising capital depends heavily on your ability to successfully market yourself. You need to be approachable, informative and willing to put in the work to build trust with many types of investors. Being a real estate investment sponsor isn’t a sales job, but the process looks remarkably similar to a traditional sales funnel in which you convert prospects into paying customers. In this case, the inverted triangle includes:

You’re going to lose people at each step of the process, and that’s OK. It’s why we call this a numbers game. If you start by building a network of 5,000 people but only 1% of them become investors, you’ve still gained 50 backers. Fifty people contributing $50,000 each is $2.5 million in equity.

When done right, investing with OPM can help you significantly scale your own self-storage portfolio, unlock new opportunities and help others achieve their investment goals. Just be aware: If this is something you’re interested in doing, you must consult with an experienced securities attorney to draft the appropriate disclosures and ensure you’re following compliance regulations.

Tom Dunkel is chief investment officer for Belrose Storage Group LLC, which offers passive investment opportunities and specializes in self-storage acquisitions and development nationwide. With more than 27 years of real estate, finance and investing experience, Tom manages the firm’s financial underwriting and plays a critical role in creating winning deal structures that ensure achievable investor returns. To reach him, email [email protected].