JF1681: Stop Trading Time For Money – Says This Self Storage Investor with Kris Benson

Kris has an interesting story we’ll hear on this episode, how and why he turned to real estate after a career in sales. The biggest reason for him was to quit trading his time for money and spend more time with his family. So how did he do it and how can you learn from his story and apply it to your own life? Tune into this episode to hear how he transitioned into real estate, we’ll also hear how the company he works for has become one of the 30 top commercial self storage operators. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“At some point you gotta get in it, you’re gonna make mistakes, but if you don’t jump in, you’ll never move forward” – Kris Benson

 

Kris Benson Real Estate Background:

  • CIO for Reliant Investments, a subsidiary of Reliant Real Estate Management
  • Reliant Real Estate is one of the top 30 commercial self storage operators in the U.S.
  • Based in Saratoga Springs, NY
  • Say hi to him at www.reliantinvestments.com
  • Best Ever Book: The Alchemist

 


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Kris Benson. How are you doing, Kris?

Kris Benson: I’m doing fantastic! How are you, Joe Fairless?

Joe Fairless: Well, I am glad to hear that. I am doing fantastic as well, looking forward to our conversation. A little bit about Kris – he is the CIO for Reliant Investments, which is a subsidiary of Reliant Real Estate Management. Reliant Real Estate is one of the top 30 commercial self-storage operators in the U.S., and he’s based in Saratoga Springs, New York. You can learn more about their company, we’ve got the link to their website there, so you can just click that and go check out the company.

With that being said, Kris, do you wanna give the Best Ever listeners a little bit more about your focus and a little bit more about your background?

Kris Benson: Sure. How far back on do you wanna go? My story is pretty interesting.

Joe Fairless: Let’s hear the interesting story.

Kris Benson: [laughs] Well, one, Joe, I appreciate you having me on, and congratulations to you and the Best Ever listeners. I think I looked — are you at over 1,600 episodes?

Joe Fairless: Oh, yeah. By the time this one airs, who knows where we’ll be.

Kris Benson: Congratulations, that’s fantastic. My background is kind of interesting; how I got to real estate – I had my first child in college; I know I’m starting early, but that obviously wasn’t on purpose, but it was a blessing in disguise. The upside, Joe, is that by the time I’m 45 both of my kids will be out of the house, which is fantastic. But what it made me do is grow up pretty fast.

The arena that I grew up in was business-to-business sales. I got my first job out of college with a company called ADP, a payroll company that you and your listeners may have heard of…

Joe Fairless: Sure.

Kris Benson: And I worked my way up through that business-to-business sales hierarchy. My last corporate sales job was with Intuitive Surgical; they’re the developers of the da Vinci robot. I was super-blessed to be a part of that company and the technology that they bring to market. For  your Best Ever listeners, just google “da Vinci robot.” If you don’t know about it, it’ll blow you away.

With that being said, at about probably 27-28 we were kind of always grinding, because we had a child very early, so we had to put food on the table and pay the bills… And by the time I was 27-28, I had made some money – I was a successful salesperson – and realized that that really didn’t make me very happy; what I really wanted was the ability to make money and not work my butt off for it…

Joe Fairless: Yup.

Kris Benson: …the idea that I’m sure many of your listeners and probably interview guests, of trading time for money, was not that fun. And it’s funny, I still remember waking up and thinking “How am I gonna do this the next 30 years?” It was at that point that I said, “Okay, I’ve gotta find a way of passive income.” I had never read Rich Dad, Poor Dad. I wish somebody had given that to me when I was 14, 15; I may have had a different perspective… But that idea of passive income started with that book.

So once I figured out “Okay, there’s an opportunity to do this a different way”, I chose real estate as the way to do it, because to be quite honest, I don’t know if I was creative or smart enough to build my own business. I think I’m more of an executer, and real estate is one of those things where it’s pretty black and white. It’s numbers, and you can choose numbers, and it doesn’t take a lot of comprehensive brain power…

So that’s kind of how I got started in real estate. Just a quick overview of how I got to self-storage…

Joe Fairless: Before you get into self-storage – and maybe you’re leading into this – but what did you buy initially, with real estate?

Kris Benson: Sure. Duplexes.

Joe Fairless: Okay.

Kris Benson: I thought I was gonna be a class B+ Plumbworld. My initial thought, Joe, was if I could net $200/unit at the end of each month, that was my plan to get me to replace my income.

Joe Fairless: Yup.

Kris Benson: And at  the time, my thought was if I could replace or get pretty close to that $10,000/month number, I was in pretty good shape for the lifestyle; we lived pretty modestly. It may have not replaced my income, but if I wanted to, I could have shut everything down and lived pretty much the same. So we did that, and we ended up with 22 units, all duplexes, not too far from where I live, in Saratoga County in Upstate New York. It was a nightmare. I realize very quickly I wanted nothing to do with that.

Joe Fairless: You had 11 duplexes, so times two, 22? Or you had 22 duplexes, so you had 44 units?

Kris Benson: Yeah, sorry. No, 22 units, across 11 buildings.

Joe Fairless: Okay, got it.

Kris Benson: I still own one of them, I’ve got one left… But what I realized very quickly – and I wish I could credit the quote who said it, but there was a quote that said “Big deals and small deals are the same amount of work, you just make less money on small deals.”

Joe Fairless: [laughs] Or you lose less money on small deals.

Kris Benson: Well, that part of it, too. But the effort that we were expanding – I realized that $200/month of net income, if I had to get to 50 units, I had to double what we already did, and I hated the people; I don’t mean to be elitist, but I hated dealing with the tenants. We had some pretty good management company structures in place, but the tenant aspect of it drove me nuts. So we divested. Fortunately, I have a wife who’s very understanding and risk-tolerant, so we sold them.

Interestingly, Joe, I decided that we were gonna build an apartment complex. I started calling around and got connected with a church member that I knew when I was a kid; I hadn’t talked to him in 15 years. He owned a construction company in the town I grew up in… I said, “Hey, I’ve got a little bit of money. I wanna build some apartments. What have you got?”

Timing is everything… He had just had a discussion with the municipality who had this parcel of land that they wanted to do something with, and long, long, long story short – we ended up building a 64-unit apartment community there. We actually just had a meeting with that municipality yesterday, and they’re asking us to do some additional development in the land behind it. So that was sort of my foray into commercial real estate, and that’s where the light bulb started to go off for me.

Joe Fairless: That’s jumping into the deep end, with barely knowing how to swim; and you might have some floaties on your arms, but that’s about it. That is incredible. So one not important question, but I’m just curious – why do you still have that one duplex?

Kris Benson: My brother lives in it.

Joe Fairless: Okay. And with the apartment complex – I’ll just ask, because I don’t know how to formulate the question properly, but how do you go from 11 duplexes to developing a 50+ unit apartment community?

Kris Benson: I had a great partner. What ended up happening with that guy that I called from church – and I’ll give him a little plug, it’s Buck Construction, out in Whitesboro, NY. So the answer is you do it because you’re stupid and naive. That’s why you do it. Because you don’t know how much you don’t know, until you get done and you kind of look back and say “Wow. That could have really gone the wrong way.”

What I really had was a partner who was full of integrity, and wanted to help. When you talk about the floaties and the deep end – he was the life jacket. I had a life jacket in Steve and his experience; he’s been a builder for 30+ years, has done a ton of apartments, usually for other people. They have a portfolio in the family that they’ve owned a long time.

There were some bumps in the road, but the answer essentially is he held my hand–

Joe Fairless: What were some bumps in the road?

Kris Benson: That list is long… The first one that we uncovered pretty quickly was we were over budget on our first phase by 6%. That 6% was on about a five million dollar development budget… So it was just over $270,000, and I was the equity partner, so we ate that. Fortunately, we were in a position to do it, and we were able to recoup it in another phase. We did them in 16 unit phases, so we did them slowly, and we improved on phase two and three, and subsequently four. But the first one — although he had a ton of construction experience, there were some macroeconomic things that sometimes go on that you can’t control for… So we ate those costs.

Joe Fairless: You do it in 16-unit phases because the lender required you to do it that way?

Kris Benson: No,  we did it — not to get too much in the weeds about the particular project, but I think the lender would have let us do the whole thing. We were more concerned with the market that we were going into. It was a really unique market, in that it was a town that had an air force base in it in the ’60s, ’70s and ’80s, and it was built around the air force base, and in the late ’80s the air force base left… So the community was decimated. 40% occupancy in their residential units. When Steve first came to me and told me where the land was, I said “You’re crazy. We’re not building there.”

Joe Fairless: Right.

Kris Benson: And interestingly, what happened was the air force base had a whole bunch of federal grant money, and they build a bunch of tech incubator companies that have exploded, so now there’s over 6,000 people who work on the base, and most of them don’t live in the town, because the town doesn’t have any housing.

So when we built it, we were building, Joe, a business model that didn’t exist. Our price per square foot with the market comps was over by close to 40%… But we were the only place in town if you wanted granite countertops, hardwood floors and stainless steel appliances; you were only gonna find it at our facility. So we were able to charge a really strong rent premium over what the market has done, and we’d wanted to test it in small phases, to ensure… I was stupid, but I wasn’t that stupid; I wasn’t gonna put my life savings into something all at once. I was gonna do it over a period of 3-4 years.

Joe Fairless: How much did you initially risk in the deal?

Kris Benson: Before or after the budget issue?

Joe Fairless: Before.

Kris Benson: It originally worked out to be about 200k, the upfront equity.

Joe Fairless: So you doubled your upfront equity on the budget overage.

Kris Benson: Sure did. We made it up in the construction budget on further phases. Originally, that was the thought – hey, we can go through $200,000/phase.

Joe Fairless: Sure. But at the time, you’ve got 200k upfront, and then the first phase is over 240k, so now you’re in for rounding up half a million… What gave you the confidence to say “You know what – fine. I’ll go in for now almost half a million, and I trust that we’ll do better in future phases”?

Kris Benson: I don’t know if I ever thought about that. Naivety. [laughter] There wasn’t really a catalyst moment where I said “You know what, here’s why I’m gonna do it.” I think it was just kind of in the moment, “Hey, let’s borrow, beg and cheat”, and I did. I borrowed and begged to get the other 240k when we were over… And I don’t know if there was an actual catalyst moment other than we said we could do it, so we were gonna do it.

Joe Fairless: Alright, last question on this one, and then we’ll roll into what you’re doing now… Do you still have the property, and if so, how’s it doing?

Kris Benson: Yeah, we certainly do. We got two refinances since the original construction. I don’t have all my original capital out, but I got a pretty significant chunk. We refinanced it to CMBS notes, so we got some good non-recourse, long-term debt. The project is doing fantastic. I think we’re 92% occupied, with a waiting list of about five people, but here in Upstate New York nobody wants to move in the winter time, so we feel that we’ll be in a good position come spring, once the winter breaks here.

And then, as I’d mentioned, the municipalities – there’s some acreage behind where we built, and the municipality is asking us to look at it… They’re looking more single-family residence, just to fill some of their housing needs in the city, but they’re asking us to take a look at that now… So yes, that probably will be the best investment I’ve ever made. It will take a little bit of time, but ultimately that’s probably gonna be the best investment I’ve ever made.

Joe Fairless: So what are you doing now?

Kris Benson: Just to kind of interlude… Once I started the commercial real estate, my original goal was to syndicate my own projects… But that was really challenging to do with the job that I had. I had a little group that was kind of following me around investing, because they knew I was doing some investing, and when I realized that there were multifamily operators who would essentially allow us to raise money and earn ownership on the back-end, that’s where the light bulb really went off.

I’m a salesperson at heart, so we did some investing in some primary markets; we participated with some Ashcroft properties, as you know, and we’ve done a bunch of other ones… So once I realized that there was an opportunity to grow that investor base, and an appetite for these alternative type assets, that’s where I realized that was gonna be my path.

What happened was I didn’t like what was happening in multifamily, and I know as an expert in the field you know this – the cap rate compression has been very challenging to find value in that asset class… So I started looking at some other asset classes; the one that I really liked was self-storage. There’s some interesting statistics around it, but I’m gonna leave you and your listeners with one interesting one. If you look at the National Association of REIT Data – this is essentially all the publicly-traded REITs; they have all their historical data online… And you can go online and look at the performance of those REITs across a pretty large dataset. So I looked at data from 1994 to 2017, and storage performed at just about 17% a year.

Now, if I’m looking at apartments over that same 23-year period, apartments did about 13%, so both had incredible returns… But I was really surprised at what that asset class had done, and then more importantly, what it had done in the last recession; that last cycle of 2007-2009 storage was down less than 4%, and apartments were down just under 7% in that same category. So for me, it had that nice balance of a really strong return, and some recession resilience, so that was the opportunity I went to pursue.

I went and found three self-storage operators that I really liked, because my original thought was to go do some investing with them, like I had done on the multifamily side… And essentially, long story short, I fell in love with one of them – it was Reliant; I’m probably giving away the ending… But I fell in love with Reliant.

Essentially, they needed help building the equity arm of the business, so how they raised money. In the beginning of 2018 I joined them as partner in Reliant Investments. Essentially, my role really is as part of the investment committee, doing some oversight in the acquisitions, but then also to build that investor arm of the business, where they can raise private equity for projects that they’re acquiring.

Joe Fairless: For the apartment complex that you wanted to develop you reached out to a fellow church member who owned a construction company, and you said “What have you got?” And then for self-storage you said you went and found three self-storage operators… How did you find them?

Kris Benson: There’s an almanac that comes out every year from a company called MiniCo.  They’re a self-storage industry publication. They rank the top (I think) 100 self-storage operators…

Joe Fairless: Based on what?

Kris Benson: Well, there’s two rankings. They have how much square footage they own, and then they have a second ranking based on how many properties or square footage that’s managed; there are some operators that do just third-party management. They don’t own the facilities, they just run them. And then there’s some operators that are vertically integrated – they own them and they’re running them.

Joe Fairless: Okay.

Kris Benson: So the first six are publicly-traded companies, companies that you and your Best Ever listeners would know about – Public, ExtraSpace, CubeSmart; the ones that you see up every highway intersection… And now that you guys are listening to me say storage, you’re gonna look out the windows of your car and see self-storage facilities everywhere.

So I went through that list and started calling them, and I got three calls back. Well, I think I went through the top 30, that’s where I started. So I just started digging through the ones that I could find easy contact information; that’s how I got in touch with them.

Joe Fairless: And your intention was to invest with them initially, or were you intending on doing more of a business partnership, so you were screening them for that?

Kris Benson: No, it was much more to find an operator that I could invest in, and then also opportunities for the group that had kind of grown organically with me alongside of me. The idea was “Hey, if I can come to you with equity for your projects, will you allow me to earn back an ownership interest on those projects?” And that was the goal, to build up enough ownership interest in enough projects, where the mailbox money or the passive income that was coming from that allowed me to kind of do whatever I wanted.

Joe Fairless: How did you transition from that conversation to now being the CIO for Reliant Investments?

Kris Benson: [laughs] It’s a long story… We had invested in two projects with Reliant, so  I knew how they operated, what types of projects they were doing, and I was actually in Atlanta with my job, with Intuitive Surgical; we have an office that’s 15 minutes away from where Reliant was at the time… And I met Todd for dinner; we were looking at a property together, that he was interested in acquiring… And if you knew Todd Allen, who’s one of the principals of Reliant, he’s a very upbeat, bubbly guy; he was just beaten down… And I said “Hey, what’s going on?” He explained some of the challenges they were having in their business model as far as acquiring properties, which specifically the issue was raising money was all falling on his shoulders… Which was incredible to me, because their track record is exceptional; they’ve been a beneficiary of a great real estate market, but they’ve also been a really good operator… So their track record is incredible. So for me as a salesperson it was hard to understand why they couldn’t sell this story. And the answer was because no one was doing it actively.

That’s what led to the discussion of — I told him what I was doing, and he said “Would you come work for me?” I said, “You can’t afford me.” That was my first start. I was trying to get in a good negotiating position… And we just kind of worked through how we could make it work, where he needed somebody to focus on this end of the business, so that he could focus on his expertise, which was operational. That’s his bread and butter, and what he does; he loves to dig into the nitty-gritty on the operations side of the business.

So it was sort of a random conversation, Joe. I know a lot of your listeners are trying to find things that they can use in their journeys… The one thing I would say is I’ve had the best opportunities given to me from cold calls. Just picking up the phone and asking. It’s amazing what kind of things come about.

We talked about the apartment community – literally, I hadn’t talked to Steve Buck in 15 years. I stopped going to church consistently (sorry, mom) probably when I was 15 or 16, and I hadn’t talked to Steve since then. And the same thing happened with Reliant. I’m at Reliant as a Chief Investment Officer because I called them and said “Hey, I’m interested in investing in self-storage. Would you be willing to talk about it?”

It’s a hard thing to do, and I know you’ve done a lot of it as well, but boy, there’s incredible opportunities that rear their heads if you’re willing to do it.

Joe Fairless: Based on your experience in the different types of investing that you’ve done, what is your best real estate investing advice ever?

Kris Benson: I think I just said it… Did I blow my top there?

Joe Fairless: [laughs] As Tony Robbins says, repetition is the mother of skill.

Kris Benson: That’s true. That is true. I would say there’s two things. I would say at some point you just have to jump in. If you’re dipping your toe in the water, and trying — and I realize everybody’s life situation is different, so it’s easy for me to say from the outside looking in… But for me, fear was always a big challenge. I’m okay with risk, I’m not okay with not knowing what’s going to happen; in my personal make-up, that creates a fear that can paralyze me.

At some point I think you just have to grit your teeth and jump in, with the real estate piece, because you can only learn so much from listening to podcasts, going on Bigger Pockets, reading books. At some point you’ve gotta get in it, and you’re gonna make mistakes, there’s no question; and it’s gonna be scary… And it still is. Some nights I wake up still and I’m like, “Oh my gosh, everything’s imploding.” But until you get in it, mix it up, you’re not gonna move forward.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Kris Benson: Amen. Let’s do it.

Joe Fairless: Amen, that’s interesting, given your [unintelligible [00:22:20].15]

Kris Benson: That was for mom. That was for my mom.

Joe Fairless: [laughs] First though, a quick word from our Best Ever partners.

Break: [00:22:29].27]  to [00:23:50].23]

Joe Fairless: Best Ever book you’ve recently read?

Kris Benson: I just re-read an interesting book called The Alchemist, by Paulo Coelho. I think I’m saying his last name right… Really interesting life-story book. Everybody should read it.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Kris Benson: Hah! Along we got, Joe. A lot. I would say that one of the most recent ones, just because it’s top of mind, is we didn’t redo a comp study that was about three months old on a self-storage facility we were looking at. And we took it out to sell it to the market. One of our investors found two development projects that had been approved that we didn’t tell them about, so as you can imagine, when you’re predicting the market demand and supply and you don’t tell the investor that there’s two new projects coming on – that was a big mistake, so we had to revamp our entire process around how we execute on comps studies.

Joe Fairless: What’s the best ever deal you’ve done?

Kris Benson: I would say my first duplex, because it was the one that got me going. It got me off the sidelines and into the playing field. From a financial aspect, it’s gonna take a little while to do it, but that apartment community that we developed ultimately will be probably the best investment I’ve made.

Joe Fairless: Best ever way you like to give back?

Kris Benson: For me – we have two boys, 13 and 17. I would say it’s coaching. Our schedules are pretty crazy, so I have the opportunity to do some coaching with their athletics, and I really enjoy that. We’re losing one to college next year, but I’ve got a few more years with the 13-year-old, so I do a lot of coaching with whatever sports they’re in. The youngest one right now it’s lacrosse, so I really enjoy getting on the field with everyone.

Joe Fairless: And how can the Best Ever listeners learn more about what you’ve got going on?

Kris Benson: You can reach me — Joe, I think you said the link to our website will be there. Reliantinvestments.com is a great one. By all means, your Best Ever listeners are welcome to reach out to me via e-mail at kbenson@reliant-mgmt.com. I’d be happy to chat with them and share a little bit more about my story.

Joe Fairless: Awesome. Well, holy cow, what a ride from 22 units to co-developing a 64-unit apartment community, and how you approached it, the thought process and the 16-phase chunk certainly was helpful to mitigate some of the risk, whether or not that was a thought process at the time; we talked about that… But then also how you’ve transitioned into self-storage, really putting yourself in a position to really connect the dots for something that you were interested in doing, from reaching out to the owner of the construction company, to reaching out to the self-storage companies, simply by looking at an almanac, and then calling them up… And now fast-forward a couple years and now you’re the CIO for one of the top 30 self-storage operators in the U.S.

Pretty cool how you put yourself in a position in order to partner up with the right people, and then learn from them, but also help them with your skillset. Thanks for being on the show, Kris. I hope you have a best ever day, and we’ll talk to you soon.

Kris Benson: Okay. Thanks so much, Joe. Have a good rest of the day!

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