REI179: Resilience and Triumph w/ AJ Osborne

25:36So our first facilities were very small and cities no one's ever heard of. We're talking about remote cities, up in the middle of nowhere, mountains. I often joke about one of our first cities, there's more grizzly bears there than there are people. And I actually think that's legitimately true. These were not bustling cities and we were moving big capital and turning around and not at all. And we learned the basics as we bought these little storage facilities, but there was no third-party management available that didn't even exist. So we had to figure out how to operate and manage it. That meant that we needed all the revenue to then spend on managing the asset.

26:17But we knew, oh, we could buy them up and then we can figure this out. We can get it going. And so we said, all right, well, we'll build management type stuff to do it. So then we went and also build the management company simultaneously. Because of that though, that meant I had to, and my dad had to keep working. We couldn't quit because the revenue had to go to the management. But we said, hey, there's a future where these will either pay themselves off and we'll have no debt on it, right? And then we'll just have all cashflow or we'll get enough income to where we can leave. but we have to be able to manage it.

26:49We focused then all our time and attention on two things, which became very, very important. We had to get that revenue up. It wasn't nice if we got higher returns. If we didn't get revenue up, we couldn't pay the bills to manage the thing. Then that also meant that if we sold it, we wouldn't have the revenue. So then we couldn't sell it, but we needed our money out so we could redeploy it. And so what happened is we're working and our strategy became, we're finding, and we got really good at finding really underperforming properties predicated on those inputs that we can change. We would buy those, change those inputs, it would go up.

27:28We would refinance to get our money out, but we would still have the cashflow to pay the management. That was the only way we could do it. So then our specialty over that time, and we're talking long time, right? 15, now almost 20 years, became revenue and capital management, finding the most upside and managing that revenue with the least amount of downside. Because if we lost it, it wasn't that we lost it on this business, that meant we lost it on the other business. So our appetite for risk was like nothing. We had to do what I call money on the table, meaning the upside, I have to be able to measure it and I have to be able to get that upside in today's market.

28:14It can't be dependent on the market rising. So if the market rising is what's going to make it eventually worth more, we can't buy it because I don't know if that will happen. This model that we built out of necessity, all of a sudden at 2008 came around everything else. We didn't lose any properties. We fixed long-term liabilities and everything because I can't be an event-based investor, meaning it's predicated on a sell, it's predicated on refinance, or it's predicated on interest rate change or anything else. So we had to lock in those liabilities for a long time. High cashflow, locked in liabilities, known improvements that can get us that increase in revenue.

28:512008 happened, we didn't lose anything. We had high cash flowing businesses, everything else. And then all of a sudden, the assets that could produce that predicated on the fact that their intrinsic value was solid, meaning that their cash flow in return was good, but the extrinsic value, their price started dropping way below the intrinsic value. So that spread is big money on the table, as I call it for us. So then all of a sudden, we started buying up a bunch and we realized we need to buy more. So we sold our benefits stuff. We sold our insurance stuff, which is something we've always done.

29:28I keep buying businesses and selling them to put them into self-storage. And we kept buying more and more and more. Our management company, though, this is the big thing that was different. Yield or that rate of return on that asset was so important that we pumped millions over this time into the management company. So we were refining assets, not buying other assets, and putting that money into things like technology and everything else. Why? Because the higher we could get that yield on that asset, the better it was for us. So what ended up happening is after 15, 20 years, we built this huge self-storage company that is not just about owning the assets, but it's a business.

30:07We have layers of tech. We have total operational efficiencies. We have branding. We can compete in ways that other people just can't. And that is where that came from. But it came out of necessity. It came out of long-term. It was like, choose the right horse and then train yourself to become the best jockey. And then don't do anything that would stop that along the way. It wasn't easy. Once again, me and my dad worked two jobs that were, you're talking, these aren't part-time jobs. These were beyond full-time jobs. I had clients. I had to run this firm from this big national company as well.

30:43So I had to manage clients' money. I had to run this firm for this national company, which they paid me to do. And I also had to be buying assets and work then also on a management company. It was a lot. It was a lot of sacrifice, but it paid off in the end. Were you bringing in outside capital or was it just you and your dad at that point investing your own money? No outside capital and we scaled to 150 million. With no outside capital? Yep. And talk about that. Were you churning properties? Were you upgrading? I know you were doing a lot of value add. So the only thing we did, the original small ones in small towns, we realized could never get us the yield that we needed to do our system.

31:24We sold those off. After that though, we didn't sell anything. It was only through the refinance and putting that money back. So that tells you how much we had to get. For example, if we look back, those properties have given us a 22 % annualized average rate of return on cashflow. That's not refinance. That's not selling. That's on cash flow. That means with our refinances, our average is over like 500 % return to us. That's how we were able to compound and do it. You're doubling money every three or four years at that rate. Yeah, exactly. That's exactly what happened. Our portfolio was doubling every three to four years, all on our own.

32:07Pretty wild. We've got a lot of beginning and intermediate investors, it's kind of somewhat hard to relate to a guy that's got 150. Now you've got what, 300 million under management, I believe. 300 plus. Yeah. Let's take a quick break and hear from today's sponsors. Even Einstein had blind spots. That's why modern science is built on the idea of peer review. Investing may be more art than science, but that doesn't make peer feedback any less valuable. The tricky thing is finding qualified people who are interested and willing to help vet your investment ideas. That's why we built the Intrinsic Value Community.

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35:12And for a limited time, you can use code stocks15 for a 15 % discount at checkout. All right, back to the show. Talk to us about how a regular person can get started in self-storage. Your book is fantastic. it kind of lays out the playbook. And as I said, I would highly encourage anyone to buy that book and study it, but talk to us for listeners. And it's meant for beginners. And this is the thing that I try to stress to everyone. First of all, I know when people look at us today, they're like, you own a tech company, you own development company, architecture, lending companies, all of this around storage.

35:49Oh, I can't do this. Okay. Hold your horses here. First of all, let me tell you a few things. So self-storage offers the best opportunity for any investor in any commercial real estate asset class, hands down. And I will argue that till I'm dead. The reason is this. And I use this example, funny enough, on Instagram, but we had a 60-door property that we sold to somebody in our group that for$200 ,000, I think it was$60 ,000,$70 ,000. And I ask people, how much are duplexes in the area that you live? Well, where I live, they're not$250 ,000. They're$400 ,000. And this is 60 doors. All of a sudden, 10 % delinquency, maybe.

36:31You can get rents up. You're diversified amongst all these doors. Your upside potential is huge. You have 60 different doors. That could add, if you could add, let's say, make people do insurance or even just add a fee, I have 60 different revenue sources that I can now increase. And two, if market goes down, if I lose one door on duplex, I lost 50 % of my revenue. On this, well, you're talking about the difference of a rate increase for me and a duplex. My rate increase is a McDonald's meal. Your rate increases the difference for those people going out to eat that month or not. It's not the same impact.

37:09So it's a lot lower default rate. It's the best performing asset in 23 years, the lowest defaulting asset. And the reason being is the impact on the customer is so low. And the economics that are driving the need keep going up. All of a sudden, you get a far superior asset, diversified risk, and lower risk, lower cost basis going into it. And guess what? People are like, oh, I don't understand it. People can relate to maybe a duplex because it has toilets, things like that. And I'm like, exactly. The reason you don't understand it is because it's simpler. It's a metal box. And guess what? If I want to kick somebody out, I just do it for whatever reason.

37:46I had a customer that was at one of my big facilities that was not treating my manager right. I literally just called him and said, get out. Like, we're done. You're over. Get out. If you don't get out, I'm selling all your stuff. You can't do that in housing. You can't do that in these other asset class. You have long-term leases. You have tons of rules. So for an individual, a newbie, what is better? Your risk is way lower, right? It's actually easier to understand if you get a few of the basics. And here's the best part about it. The vast majority of these assets are owned by mom and pops, which means you have something to buy.

38:20When you look at multifamily and a lot of these commercial real estate assets, 90 % of all of them are institutionalized. So that means 90 % of the assets are owned by big institutions that make me look small. When I looked at that landscape in real estate, I'm like, I can't compete with them. I don't understand real estate. I got into self-storage because I don't understand real estate. And so when I tell people that, looking at it, I'm like, you can buy them, you can get them for cheap, you can improve them because they're all ran so poorly. That means you have huge upside and there's lots of them.

38:56So when you put all these things together, it is by far a superior product for a newbie to get in than any other commercial real estate asset. So what are some basic steps? Somebody's listening to this and they're getting fired up listening to you. What are some just basic steps early on that they can take to move towards that first investment into self-storage? What would you do? So the first thing you need to do is, and funny enough, people are like, if you lost everything, had to start over again, what would you do? The exact same thing you should do. I would go into small markets. I would start out buying small facilities that were just not being ran at all.

39:31All I would do, and this is the model we started out with, it's the exact model I would use again, and it's the exact model you should use. First of all, you should find mom and pops, they're not being ran, hands off, like they just forgot them, two, 300 ,000, maybe a million. And then I buy it and I do this. I make people pay their bills. So I actually make sure that people collect rent. And if they don't, I take them out. I get rid of all the delinquencies, everything else like that. Of course, when I'm making people pay their bills. But then I also, I pick up the phone. So that's number two.

40:02I pick up the phone if somebody calls. And number three, maybe make a website, maybe market a little on Google or in your hometown. Those three things, superior business model to 50 % of all mom and pops out there. If you do that, you can be successful. But here's the thing. Demand is everything in storage. This is where people have to learn. If I'm starting out, I need to really understand why they are successful outside of me. So, all right, you got those things. I can do that. I can clean it up and make sure that people pay, get rid of people that aren't paying. I can do a little advertising maybe, and I can answer the phone.

40:40What are the things that are the most important to me, which are the things that I can't control that will kill me? So our model is we don't expect the market to make us, but we know that it can always kill us. Sermato. And when we look at these assets, you have to remember that self-storage is very sensitive to supply and demand. What I tell people is you can be an idiot and successful in self-storage as long as there's demand, but you can be the smartest guy in the world and fail in self-storage if there's low demand. If you can get that right, you can, and I call this my margin of stupidity.

41:16Meaning when we look at an asset, I have to be an idiot and be able to buy it and be successful. What that means is I have to be able to make mistakes and it still be successful. That has nothing to do with me. That's all market. So what you should be learning about and studying about is, first of all, how to accurately underwrite them so you don't get tricked by an owner or something like that. That's actually the second thing. The first thing is, once again, just demand. You have to understand demand. That is currently what's existing, the facilities in that market, how many are they? Are they full?

41:49Are they getting rate increases? How long have they been full? Then are there any new ones coming on? Have any ones opened up? Because the one thing that will kill you is if you're in a small market and somebody builds one and there's just not enough demand in that market for it. There's nothing you can do then. There's no demand. It's over. If you spend 90 % of your time on demand and 10 % of your time on everything else, I would actually prefer somebody to just go, I found these 10 markets that have these 10 small market step, outrageous demand. I'm not focusing on anything else. And I'm basically just going to go buy it.

42:20I'll underwrite it. I'll figure out operations and everything later. You'll be successful. You had some interesting tips and tricks on how to approach owners, mom and pop operators of self-storage spaces. And that's really the first step is how do you find one of these to acquire in the first place? Mailers or whatever. I think it's a pretty low probability that a mailer is going to work? Very low. And especially as a newbie, you can't compete against the guys that are sending out mailers. They have all these touch points, everything else like that. That's not a game you can compete in. How you need to do it is, and this is exactly how I did it.

42:55So let me give you just a walkthrough of exactly what I did starting out. I'm in Boise, Idaho. That means that we are on the Western front of the Rockies. There is a big loop freeway that goes around the Northern Rockies. It goes Southern Idaho into by Wyoming, Montana, up Northern Idaho, down through the middle of Washington and Oregon and back to Boise. Very simply, I said, all right, I understand these markets because I live here and I understand these people. I know these cities and they're smaller cities. All I'm going to do say, I want cities that have like 10 ,000 to 50 ,000 in population.

43:37And then I marked all of those cities along that freeway. Why? Because I could get to them in a day. Then I marked all those cities and I looked at all the cities and I did one piece of research on all the cities. Is it shrinking? Like, is the population losing? Is that city dying? All those cities, I just took off the map. Then that left me with, let's say, 20, 30 other cities. Out of all of those cities, I said, which are the best ones and the worst ones predicated on growth. And then I listed that one through 30 out of the top 10, I then took and I said, all right, here's the top 10. What's every facility in that city.

44:14Then I have 10 and then I have 10 facilities in every city. That's a hundred facilities. Each city out of those top 10 cities, I then took the assets and I said, mom and pop, meaning they're not institutions, they're really not being run well, but they have the best location. So the worst run, but they have the best location because I can't change the location. Then I listed that in every city from one to 10. So now I have a top 10 cities and each city I have a top 10 facilities. I don't know anything else about them. Nothing. Doesn't matter. Nothing at all. From there, I now have something I can drive to in a day.

44:46They're cities I understand. They're small mom and pop facilities, but they have good locations. From there, I went every city. And then I took those facilities and then I started ranking them predicated right on those things. And then I started looking at the demand in the cities, everything else. And I picked the three ones that I wanted to look at out of every single city. I now have 30 facilities in this entire four state, five state region that I'm looking at, that I'm comfortable with. I now have 30 facilities. I now, very easily, you can do that in very quick amount of time. This is literally go onto Google Earth.

45:25So I want you to go onto Google Earth, mark out your path, go to every city, type in the city's growth rates, find that all, then go to Google Earth, type in storage facilities, look which ones pop up, but then look at Google Earth and find the storage facilities. They all look very easy to find. They look like they're either long, they're chicken coops or storage. There's nothing else they can be, right? Very easy to spot. Find the ones that aren't listed, which would immediately make them go to my top, by the way. If they weren't listed on Google and they were in a good location, that's a start.

45:56So then after I did that, I had my 30 facilities. Then I went to find everything I could about those 30 facilities. Who's the owner of everything else like that? Then we would drive and I would go to, and I would try to find out the owner. And then this is what we would say. Then everybody's like, oh, great. So then you call them up and say, hey, can I buy your storage facility? Nope. Oh no, you don't do that. Why? Because they get calls like that. They get mailers, they get emails every single day. And guess what they are trained to do? No. So you have to use language that does not get a reaction that is no, but a reaction that is yes.

46:32So the language that I had to then use was something like this. You are an expert in this industry compared to me because I don't own any. So you are the expert. I don't care if you're running it bad. You have one I don't. I want to learn about this business and your market and how you got into it. Can I take you out to lunch so you can tell me how smart you are? Yeah. I'm happy to go have you pay lunch so I can tell you how smart I am. Then after we start talking, building a relationship, I don't ask them to sell. Still, don't ask them to sell. I then ask them and I say, I'm looking to get into storage.

47:08Do you know anyone that would sell to me in your market? I get two answers. I get one, I may get referrals for other people in the market or two, which is 50 % of the time. You know what? Why don't you buy me? I'm kind of done with this. I'd sell. And I do that with all 30 facilities. And right there, I have an entire pipeline. If they're going to sell, they're going to pick me because I now have relationships with all 30 of those people. So if they ever sell, they're going to come to you. Some of those facilities sold to us three, four years later. Yeah, I love that. It's a really great idea that I'm going to have to implement.

47:42It's very effective. But in two, though, this is what big guys won't do. I won't do that today. Why? I'm too big. It doesn't make any sense. And I'm not going in those markets. So what you're doing is you are getting in a spot where you're artificially driving away competition and demand, and you're putting yourself in a position where your rate of success is going to be a thousand times what the big boys get and can do anyways. And two, those types of owners, they sell like that. Those types of owners sold to us on a handshake sitting in their office. The big guys that come in, they immediately just say no.

48:21Brokers that come in, no. A handshake in the office, they'll do. It's a competitive advantage. Absolutely. And so once you've acquired one of these mom and pop storage facilities, what are your next steps? Once you've made the purchase, what are some top two, three items that you do immediately to start pushing rents up or do the value add that you do? First things that we do is we look at what we call the spread. Normally, when we're looking at spreads, we could look at a spread in rates. What we're looking at, the difference between physical and economic occupancy. So these are two different things.

48:56physical occupancy, if I have 100 units and there's somebody in every single unit, that's 100 % full. If I have 100 units and 10 people are gone, that's 90 % full. Now, economic occupancy doesn't work like that. Let's say that you have a physical occupancy that is 90%, but then out of that 90%, let's say for a 10 by 10, you charge$100, for example. But out of those 10 by 10s, the average person is only paying$80. Well, let's say they're very simplistic. Let's say all 100 of those units are 10 by 10s. They're charging$100. But on average, because people didn't get rate increases, they got specials, everything else like that, all of those units on average is$80.

49:41That means if you had all of them full with people, you have 100 % occupancy. but your economic occupancy is 80%. So we got to make sure that our physical occupancy and economic occupancy are the same. That's the first thing. That's a quick hit that can drive and immediately, immediately jump revenue. The second thing we do is, aside from doing any cleanup or fix-ups that we need, if you got to do a door, things like that, I'm not talking about the physical part. We can all see that and that will depend on per facility. The second thing that we then do is make sure we have good communications, emails, phone numbers, and we make sure...

50:20Oh, also, excuse me, I guess first thing we do, we make sure that they're all on leases. That's going to be a problem. Normally, when you buy them, you have to redo the leases. The leases aren't good. And a lot of people don't even have them because this is a mom and pop facility. So you have to get everybody on the right lease. Then from there, we do the economic spread. We get it going. We want to make sure that we have a website. We want to make sure that we're advertising. We have a good sign so people can see us because we want to be driving inbound leads. Anytime you make change, people leave.

50:47We make change to get people to leave. A lot of people are like, oh, I don't want to make any changes because I don't want anyone to leave. We make changes to get people to leave. When you look at that, we want there to be 15 % vacancy because if I don't have 15 % vacancy, I don't have anything to sell. I'm a business. The next thing we're doing is we're looking at insurance, adding in mandatory tenant insurance to protect the tenors, which we get chunk of that. Those are$12 policy. We get 80%, so we get$10 to it. That's a 10 % increase on every single one of those facilities immediately. And you make that mandatory in your facilities?

51:29Yes. They have an out where we can say, if you can provide renter's insurance that covers your storage facility, but that's rare, really rare. Most people say, oh, I have renter's insurance, but it doesn't cover their storage facility. Basically, everybody gets on it. When you look at that, then we just went from our average economic 80 to 100. That's a 20 % increase in gross revenue. Then all we did was add insurance, which is another$10 for every single unit. So now we increased it by 30 % gross revenue. We lost 15 % of occupancy. That 15 % of occupancy that we lost, we've got fees for, and now we're getting new people in.

52:09That means we're getting setup fees, which a setup fee is$25. So if it's$100 a month, right, and you get$25 that first month, we just increased 25 bucks. Churn is profitable. And so all of a sudden, we have a net gross effect of 20 to 40 % in gross revenue. Well, if you look at that on a cap rate that you bought it on, you just doubled your money because that's net. That all goes to net. So it's not a 30 % increase on your net income. It could be a 50 % increase on your net income. And why do you think the current mom and pop owners aren't making these changes themselves? Is it just laziness? Is it just they're just used to doing business as usual?

52:52They don't do it. You got to remember here in self-storage, a lot of people don't understand this because all the other asset classes are so sophisticated compared to self-storage. But up until 2008, nobody wanted storage. It was a dirty asset. When we were buying storage, people wanted to know why. They called us slumlords. Why are you buying junkyards? We were buying them at 10 caps. When people built storage facilities, they were built to tear down to build something else. These were simply landholds that they wanted to get income off of why they held land. The vast majority of people that is owned for 80 % of the entire lifespan of this asset class did not look at it like we look at it today.

53:39There was no tech. There was no business operations. There was no branding. I still find storage facilities where their marketing is through the yellow pages and they spend$15 ,000 a year on it. I mean, they could spend 15 % of their entire gross revenue for yellow pages, which they get no leads from. That's the reality of self-storage. They built it 20, 30 years ago. They're operating the same way. And two, by the way, most of these people, they don't want to operate it. The reason they were in storage was because they don't want to do anything. If I'm in an apartment building, somebody's going to call me.

54:13I'm going to have problems. I'm going to have issues. If I build a storage facility, people rent it. I don't really care. I never raise rents because I don't want to deal with it. I never do any of these things. I was literally have it. I built it for nothing. They're like, I built it for$15 a square foot. Today, it costs$100 a square foot to build. it's all profit. I don't do anything. So anytime I want to do something, it takes away from my profits. So I don't. That's the majority of storage facilities out there in small markets. Let's take a quick break and hear from today's sponsors. Hey, it's Sean O'Malley, just popping in with a quick message.

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57:55That's theinvestorspodcast.com slash TIP-finance. All right, back to the show. I wanted to ask you about building ground up versus buying a mom and pop. I've got an uncle that has been in self-storage since... He probably built his first one in the late 80s, early 90s. He's been in self-storage a long time. And I just always looked at his lifestyle and he had freedom. I always thought it was a really wise, intelligent move that he did getting into self-storage. But I asked him this summer, this past summer, if he had his druthers, would he build a ground up unit or would he buy mom and pops and do exactly what you were doing in terms of increasing the efficiencies and increasing the value?

58:39And he said he would do the ground up building. What are your thoughts on that? Do you lean one way or the other? I do both. Now, here's what you have to realize. Development is riskier. It is. And the reason why is you remember what I was first talking about. Demand is really the only thing that matters. Demand, you can suck at doing this. And hence why mom and pops have been very profitable just because there was demand. Because banks wouldn't loan. We couldn't get banks to loan prior to 2008 on this asset. Nobody wanted it, right? When 2008 hit, you have to realize that the average debt to income or debt to equity on these things was like 30%.

59:19It was the lowest leveraged asset of any asset class because banks wouldn't give money to it. When we look at when you building versus buying, well, if I bought and I can see today what the demand is. Now, if I go into a market and I build and I put 200 units into that market, I have to know or believe that there will be 200 people that will want to rent. Now, a lot of people say, oh yeah, that's easy, right? Of course, there's going to be 200 more people. Now, in big markets, maybe. In smaller markets, no, because you're talking about 10 % or less of the population uses self-storage. So you need to really know what that market wants.

1:00:07The other problem is people build the wrong products. So storage facilities will go, they'll put 300 units out. But the problem is, what did they build? They just built 10 by 10, 5 by whatever the architect basically said or what somebody told them to do. They have no idea what they're even doing. And then all of a sudden they find out 25 % of their units have very little demand. So they built the wrong type. They built the wrong product. So generally speaking, you need to understand the market way better. You need to be able to analyze trends. You need to know what people are buying. We're very good at that now.

1:00:35So we're very comfortable with building because building costs today, I would say if you're dealing in small markets, which most newbies will be, right? Because that's entry point, everything else. You're buying it below replacement costs. So then if you want to go into that market and build, you are building higher than you could buy at. Now, when you get into markets like Phoenix, so like I'm building in Phoenix, I'm building in other markets, it's inverse. I'm building for 150 bucks a square foot, but they sell for 200. When you look at that, that makes more sense. But newbies starting out, it's not that you can't, and this is how you do it so you don't make mistakes.

1:01:12So actually, if you want to do it, you can't find somebody to buy and you believe there's demand and everything. Here's how you do it so that you don't get caught with demand that you might not be able to measure. What you do is you build it building by building. Every single building, let's say that those buildings have 20 units, 10 on each side. The first building I build, I'm going to build one side with 10 by 10s and maybe the other side with 10 by 20s. All I got to do is fill up 20 units. And if I can fill up 20 units and if I have wait lines, then I can see, oh, wow, a lot of people want 10 by 20s, not 10 by 10s.

1:01:42next building I built 10 by 20s, five by fives. And so you build as you go along. And then the moment you build something, if there's no demand, you're like, oh, wait, we built 10 units, but three of them were not filling up. Well, instead of building a hundred units and having 30 that aren't full, you only have three. So that's how you build when you're a newbie and in small markets and don't get in trouble. That makes a lot of sense. You also do conversions of... Yes. Bankrupt super K-marts, office buildings, we buy them and turn them into storage facilities. Yeah. And do you like those as well?

1:02:19I love them, but they're that next level. You have development here, conversions are a whole another level. The reason being is when it's development, let's say I pick a market that I want to be in. I can go find the best spot and buy the land and build. When it's a conversion, I don't get that ability to. Plus, I have to pay for the buildings and the land. My entry cost is big. So a lot of people, even though they say, oh, conversions because I can get this cheap building or whatnot, actually end up being way more expensive than if they would have built from the ground up. Because you buy the building, you have to pay for all of it.

1:02:53But then too, I got to replace HVAC systems. I got to replace walls, everything else like that. So all of a sudden you're into this thing and you haven't even started putting storage units in and you're like, holy cow, right? So you got to be very, very careful with it. But you can get access to opportunity and locations that you can't get development because there's nowhere to develop. That's why I love it. But if there's no land to develop on, that's why you're buying it to get access. That normally means you're paying a hefty price. So you've got to be very, very careful. I've got a ton of questions I haven't even got to here.

1:03:25We're running out of time here. But I wanted to ask you, I read a distinction. Actually, it was a podcast and I heard you make the distinction between being rich and being wealthy that I thought was really interesting. It's something that I'd not heard before. Can you talk about that and what you mean by that? Yes. When I was selling insurance, I realized something very quickly that there was a difference between me when I was doing really good, making six figures, right? Plus then somebody else that was making less than I was. And that was that they were better off. And what it was, was they didn't have to work and they still made money.

1:04:04And I realized, oh, you can be rich, but not financially free. You can be rich and still have a living paycheck to paycheck. You can be rich and have a horrible time. And rich people spend their money. It's taxed high. They spend it. They lose it all. And they're on a treadmill. It's just a faster treadmill. Being wealthy means you don't have to work for money. Your money works for you. and that that is the difference. And that's what I wanted to achieve. I wanted to be wealthy, meaning I didn't need to work and I could compound my money without my effort. That's being wealthy. And that's a big difference.

1:04:40That's a very, very big difference. And so I started to apply all my effort to become wealthy, not rich, where prior I was working really hard in sales and things like that working nonstop to make a lot of money. And I had to change my mindset. That's a hard shift because when I made that shift, I actually lost earning potential on my rich side because I had to start spending the owner. But it eventually not only met, but surpassed. Why? Because you can compound when your money's not tied to your time. When your money is tied to your time, you are capped. There is only a certain amount. You have to get away from that if you want to become wealthy and financially free.

1:05:23And wouldn't you say you've got to do it intelligently? I mean, it helps to have a W-2 job to segue to the wealthy status, right? 100%. People crap on W-2s all the time. And I do not understand that. I'm like, that makes no sense at all. First of all, what? You don't get a W-2 and you think you know about business? You get out of business school and you're like, W-2 suck. You don't know anything, right? It doesn't matter how many books you read. A W-2 gets you access into the real world, really doing jobs, really seeing P &L's expenditures, really knowing what happens in operations within a business and how to execute it.

1:06:01So first of all, W-2s are the best training ground for your success ever. Second, you are paid higher for your time than you are in any other way. What does that mean? When you're first starting out, I pay a premium for somebody that works here for their time to do the thing. So they're better off doing that thing for me than they are on their own. That's why employment works so well. They work for me to pay it. That means I am overpaid. People hate to hear that because they're like, I'm not overpaid. I'm underpaid. Wait until automation comes in. Let's hear you say that. You're overpaid. and all businesses are trying to do is figure out how to do your job cheaper, meaning without you, because that is the most expensive piece.

1:06:47Because of that, that gives you capital, that gives you track record for banks, lenders, that gives you experience, that gives you access to pay your bills, to do all those things. If you don't have those things, you're going to fail very, very quickly. It's a big myth to think having a W-2 either stops you, halts you, holds you back. It is the best gift that you can get to build your future. You should be grateful for it. You should work for the right reasons, not the wrong reasons, right? And then you should work on building a plan on how to utilize that to move you to the next step in life.

1:07:25I'm a big, big believer in this. I'm a really big believer in this. I think that W-2s get a bad rap, and the only people that give W-2s a bad rap to me don't really understand entrepreneurship. They don't understand big business. They maybe haven't been through the cycles. It's really easy to give W-2s a bad rap when the market's going straight up and you bought Bitcoin or something and think you're a genius. But the first time it goes down, then you got to go get a job. And guess what? Now you have no experience. You're going to get a crappy job. And I think, yeah, you want to work out of a job because you don't want your money tied to your time.

1:07:57That's all you're trying to change is the functionality of time to money. That's what you're trying to change. Everything else though with a job is great. And the better you can put yourself in a position within an organization to learn, understand it's better than any MBA you could ever get. Work hard, learn, and transfer those skills out. Then when it's right, you can lead. Why? Because you are the biggest factor in your failure. You are the number one thing that will get in the way of you being successful. The number one reason is because you take a lot of money to live and you got to take that from your business.

1:08:31So if you can build a business while somebody else is paying you to live or build investments while somebody else is paying you to live, your success rate will go way up. Why? Because$50 ,000 a year,$60 ,000 a year that you have to pull out to live on, try to build up a business. How long can you live? Three, four months without an income? Try to build a business in three, four months that pays you$60 ,000 a year, 50, 40,$30 ,000 a year. You're going to fail, right? Unless you have big investors, unless you have things like that, which that's all great. That's fine. But this idea of just, I'm going to quit and leave or my W-2 doesn't do anything.

1:09:02I'm very against that. Use it. And the more people that do, the more success we'll have. Yeah, that's a great place to kind of wrap things up. AJ, I really appreciate your insight today. I loved hearing your story and I really thank you for sharing it. Incredible what you've been through and what you've been able to accomplish through some really tough times. Just for our listeners that want to learn more about you, learn more about your book, talk to us about the way to maybe get in touch with you. The book Growing Wealth in Self-Storage by AJ Osborne, you can just go find that on Amazon. Now, Self-Storage Income is our podcast.

1:09:36We have the number one selling book in the industry, the largest podcast in the industry. So you can learn everything. We are completely transparent. We give away all our information every single week. You can find more about me, AJ Osborne, on Instagram, selfstorageincome.com. And there you have links to my firm, Cedar Creek Capital, and our investment firm, things like that. So pretty easy to find Google, AJ Self Storage, and you're going to get too much. I apologize. Great stuff though. Really great stuff. I didn't get to half my questions here today. So maybe we'll have to do a round two, but I really do appreciate your time, AJ.

1:10:08Thank you. Appreciate it. Okay, folks, that's all I had for today's episode. I hope you enjoyed the show and I'll see you back here real soon. Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires, by the Investors Podcast Network. Every Wednesday, we teach you about Bitcoin and every Saturday, we study billionaires and the financial markets. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by the Investors Podcast Network.

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