There’s an old saying “when the tide goes out you find out who was swimming naked”. And with all of the economic chaos in the U.S. right now, the tide certainly appears to be going out. In this Self-Storage University podcast we’re going to review strategies to not be caught swimming naked.
Episode 120: How Not To Get Caught Swimming Naked Transcript
There's an old saying that when the tide goes out, you see who's swimming naked. This is Frank Rolfe, the Self Storage University podcast. We're gonna talk about how to better ensure that you're not swimming naked. Because right now, more than has been in probably a decade, there's more uncertainty right now in the market than ever before. And as a result, you have to take some very planned steps to make sure that you don't end up being embarrassed or have some kind of economic catastrophe with your self storage facility. So here are some better, positive ways you can make sure that you're not found to be swimming naked. Number one is the old mantra of "Chainsaw Al" Dunlap. He was a corporate raider, very prolific back in the '70s, particularly. And he had a six-word mantra to how to solve any weak company's bottom line. Sell, sell, sell, cut, cut, cut. Increase revenue, basically, and cut every cost that you possibly can. And any good self-storage facility owner would obviously embrace this concept. Right now, you're seeing in the news all of this discussion of DOGE, the Department of Government Efficiency, and you're seeing all of this crazy spending the government has apparently been involved in for decades, or who knows, maybe a century.
But you need to apply a little DOGE to your self-storage property because I have never seen a property yet that you could not cut some of the costs. And I've also never seen a property that you can't increase the revenue on. It just does not exist. So sell, sell, sell, cut, cut, cut is a good mantra not only for a corporate raider but also for any storage property owner. Also, don't forget, kind of like Chainsaw Al found back in the '70s that higher net income and on property pretty much cures all ills. So as you get that property where it's got more net income, it means it has greater value, easier to get refinanced, more cash flow. Everything is better when you can raise the NOI. Another thing you can do to not be swimming naked is to reconnect with your lender. Many people, what they do is they borrow money from a bank and they never talk to them again. And then, possibly five or ten years later, when the loan comes due, they reach out and call the lender after all these years. And sometimes when they call, they find out the lender's not even there anymore.
The account officer they had the relationship with, well they're now, they're long gone. So, as a result, they just don't know where to even begin. And the loan is barreling towards them, they might only have 30 or 60 days before it comes due. It might take them a month to reconnect enough to get an answer on it. And then, how in the world will they refinance with only 30 days to go? Instead, reach out to your lender at least every quarter. Take them out to lunch if you're local. Bring them up to date on what's going on in the property. Tell them all the good things you've accomplished. Tell them the things you worry about. Get them on your team. That way, if you ever have a problem, and particularly if you wouldn't need to get a renewal on your loan, they're already completely up to speed, and you already have that relationship. Also, do all of your loan renewals at least one to two years ahead. Never let the clock count down and get closer than at least 12 months or more before the loan comes due. You're just asking for what's called a term default.
That means you can't find a replacement loan. So as your loan clocks down, if you can't find another loan and pay that bank off in full when it comes due, they'll take the property from you even though you made every payment in what's called a term default. And if you talk to people who've had term defaults with the trait, they all shared in common was procrastination. They did not start working on replacing the loan until it was way too late. So always start your loan renewals way in advance. And also, if you can't get your loan renewal done, at least if you start waiting in advance, you have time to sell the property off because that's where you're gonna go if you can't get a new loan. Rather than enter into a term default and let the bank take the property from you, you're going to want to go ahead and get that thing sold. Also, always acknowledge any problems you have early on and renegotiate your debt, et cetera, well in advance, not when the problem arises. Let's assume you've got a self-storage facility, and then there's one of these huge weather events we've seen all over the US, and something terrible has happened.
Maybe one of your buildings was destroyed in the tornado or in the flood. Go to the lender early on and tell them, look, I've got a problem. One of my buildings was destroyed. It's gonna really, really impact our revenue. I need to restructure my debt in the interim until I get things working in all eight cylinders again. And if you go to the lender early on, you're gonna get that accomplished. They're going to know about what's occurred, and they're actually going to admire your forethought to come to them before the problem really had materialized. But many people don't do that. What they do instead is they just let it fester. They procrastinate. They're embarrassed to go the lender, so they just let the clock keep ticking. And then, out of nowhere, they can't make the payment. Think how that looks to your bank. It looks like you are really not on top of your business. The guy that used to own Wendy's, Dave Thomas, he once wrote a book about managing Wendy's, and he talked about managers riding the wave, which means they had to have the forethought to not get in trouble.
As that Wendy's approached lunchtime, you knew you needed pickles for the burgers. What happens if there's no pickles? The people on the little hamburger assembly line say, Hey, Mr. Manager, we got no pickles. So then what's he do? He has to jump in his car and abandon the store in the middle of lunch hour. Meanwhile, none of the burgers have the pickles. Everyone's complaining. He goes out and gets them and brings them back. He was not on-site during the lunch hour. More problems happened. That's called bad management. Every day, you should think, well, let's see, lunch hour will be tomorrow at about noon. Do I have plenty of pickles? And if not, go out and buy them. When there's no one at the Wendy's, no one buying anything. That's what your lender wants you to be. They want you to ride the wave, understand your business, all the stress points, and manage it, and keep them informed. If you go to them well in advance, they're more than happy to typically work with you. But if you don't, it will be a complete catastrophe, and they'll lose confidence in you.
Finally, Winston Churchill once said, if you're going through hell, keep going. What that means is that typically, if you just keep doing the blocking and tackling of running your storage facility, over time, the crisis, the catastrophe ends. Let's say, for example, you bought a storage facility, and you financed it at a low interest rate. And now, as we know, Jerome Powell went on a rampage in Q1 of 2022, it started raising rates to 40-year highs. If you can buy time, then possibly the rates will come back down. That's why a lot of people have been doing things like extend and pretend, where the loan comes due and they'll extend it out a year, and the bank will say, yeah, yeah, you know, we're going to go ahead and do an extension, just a one-year extension on this. Which sometimes they repeat more than once. And as a result, if you hang in there, maybe eventually the rates come back down, or maybe in that interim period, you push your rents and your occupancy up enough to counterbalance the impact of the higher rates. But don't just quit. Don't curl up in a ball, don't give up and say, well, I can't fix this problem it's too big. That's the true disaster. So as Churchill said, if you're going through a crisis, the important thing is to keep going. Look at all the crises in world history. Look at World War II for Britain. Churchill hung in there, they fought, time went on. The US entered the war. The Germans were defeated. It looked very bleak for the British at one point, but later on, it was complete success. The bottom line to it all is that none of us want to swim naked. We all want to have good protections. We don't want embarrassment. And if you take some of these real-life steps to heart, you can do your best to make sure that when the tide goes out, your swimsuit is on. This is Frank Rolfe with Self Storage University Podcast. Hope you enjoyed this. Talk to you again soon.