Storage Locker Auctions: What’s really behind that door?

Posted by on Aug 23, 2013 in Blog, Featured | 0 comments

A couple weeks ago my friend invited me to go to a storage locker auction that was very close to my house. He used to attend the auctions in North Carolina and even bought 5 or 6 units with some success. I have seen some episodes of the A&E show “Storage Wars” and always thought it might be fun to see what it’s all about. The experience was surprisingly close to the TV show, only with no valuable antiques or rare mannequin phones.

We arrived a few minutes before the auction was supposed to start. My friend registered at the desk and received a bidding number. We then waited, and waited some more. The auctioneer was apparently running late, trying to make it across town from another property the storage company owned. It is typical for the auctioneer to follow a prescribed route and many of the “professionals” follow him (or her) to each location throughout the day. The auctioneers generally take a 25% cut from each winning bid.

While waiting, we mingled with the locals. There was an eclectic mix of other people there: a mother-daughter duo, several guys that looked like they just left a job site, a portly guy in his mid-twenties that could double for Big Hoss from Pawn Stars, and a middle-aged guy that looked like he knew a thing or two about buying junk (don’t ask me what that looks like, you just know). There was also me and my friend, dressed in business attire on a humid, triple-digit day.   Boy, were we sweating…and it wasn’t from the intense bidding wars.

We spoke with an older gentleman that knew the scene very well. He was retired and this seemed like his hobby for the last three years. He told us where he sells his goods after a winning bid and how to make a quick flip. He had buyers that specialized in items such as leather goods, baby clothes and large furniture. He postulated that he would sell his items to resale shops for about 10 percent of the new price and they would mark it up from there. He also told us that if one of three individuals was present, there was no reason to bid because you will lose every time. This sounded reminiscent of Dave (“yep”) Hester from the TV show.

We evetually were taken to the first locker where a large line formed and each person had the opportunity to peer inside with flashlights.  As is custom, no touching or entry is allowed.  The locker was about 10 feet wide and 15 feet deep. You could tell it was from an apartment cleanout. There was big screen TV (the gigantic, worthless kind), an adjustable bed, various furniture pieces, a nice stainless steel smoker/grill,  a bunch of clothes and boxes, and some nice hand tools. The auctioneer quickly opened the bid and after literally about 3 minutes it was sold for $175. Considering all the items in there, my friend and I both saw enough value to make about $125 to $250 of profit. Not bad, but there was a fair amount of work there. You have 48 hours to clean out the locker, which would require a truck and another place to store the items before you managed to sell them. Many people have to lease back their unit which dips into profits. Large items with no value, like the big screen require you to go to a dump or recycling center, which could cost you money as well.

You might think by the way things are done that there are laws or rules that the storage company must follow.  This is not the case.  Many storage comapnies go through the units before they are auctioned and take the good stuff.  That is why most guys like to see the original lock cut off the unit.  If word gets out that a particular storage company is skimming the lockers people will start to stay away.  Some storage companies will also employ another tactic by putting something really valuable into a unit (like a car) and setting a rediculously high reserve on it so it never gets sold.  They will then post pictures of their auctions online showing previous units so people think they might hit the jackpot at this particular lot.

We saw a few more units including one which included a full DJ outfit with many large speakers and some digital mixing boards.  It also included some professional painting equipment. We spotted a few guitar cases, which after the sale, were found to be empty. This unit sold for $1400. There was certainly cause for bidding this type of money, but it was a bit risky. This was the only unit bought by someone other than a man that bought the other five units.

Overall, I thought the winning bids were fair and left a fair amount of “meat on the bone”. Some of the regulars mentioned that when the reality TV shows came on it boosted the going rate of a locker sky high. The interest from the show apparently drove a bunch of would-be buyers out to the auctions and they would naively overpay for their treasure (junk).

So the question is, can you make money doing this? The answer is yes, but like most things it takes work. For one, the job is more like running a moving company than anything else. You need to have trucks, trailers, dollies and muscle. I lack all of those things. Also, I personally hate moving. So moving someone else’s dirty stuff does not intrigue me very much. Additionally, you might get stuck with some toxic chemicals that are costly and annoying to dispose of. However, I do like selling things on Craigslist and the thought of finding some buried treasure has a certain draw to it. So the bottom line is, unless you own a resale shop or like it as a hobby, going to storage auctions is probably not worth it from a financial perspective.

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Startup Stories – MotoSmart: Part 3

Posted by on Aug 2, 2013 in Blog, Featured, Startup Stories | 0 comments

This is Part 3 of a three-part series where Lincoln tells his story about starting MotoSmart.  Please also see Part 1 and Part 2.

The inventory, photo, and shipping processes were the biggest things to set up, but I continue to make and tweak new processes as I go. I made 5 large engine leakdown tables for tearing engines down and letting the oil collect in the middle, draining into a bin below. I am continually figuring out new tricks to take engines apart, and adding specialty tools to my collection. Finding just the right tables and carts, spacing the aisles right, getting the right computers and barcode equipment, making checklists for employees to remember key tasks – the tasks go on and on. It all take time and thought to get it right.

Now after running the business for nearly 4 years, I have been through a lot. The business has been the best learning experience I’ve had. I have also had countless frustrations, scary financial moments, all-nighters and long weeks, but somehow everything always works out in the end. If it doesn’t work out, it’s not the end. We are close to finishing the inventory work for the rest of the parts in the warehouse, a task that has taken much longer than I anticipated largely due to limited funds to hire employees. Once the rest of these parts are online, sales should improve significantly and things won’t be as stressful.

For some reason, I always want to tackle bigger and better challenges. This business has been a huge one, but now I’ve chosen to get an MBA with a focus on operations management, and then work for a manufacturing company with significantly larger-scale operations than what I’m used to here. I would love to end up at a company like Honda, Polaris, Yamaha, Ford, or anyone else that manufactures things I’m interested in. I’ll keep running my business remotely while I’m in school, having an employee come every day and ship (the heavy work is largely done now). For the right price, the business is also for sale – but whether I sell it or not things should work out fine. After MBA school and some time at larger companies, who knows where I’ll go from there – I may stay in the corporate world for a while, or my inner entrepreneur may start itching again after a few years… time will tell.

Key Things I’ve Learned:

  • Cash flow is tough – be extremely aware of the money you’ll need to start and maintain your business.
  • Don’t be afraid to jump in and create systems and processes to meet your needs – it allows you to control the quality of your product well, and set you apart from competitors. Just don’t reinvent the wheel – only make a custom system or process when there is no viable alternative already available.
  • Hire good people that you immediately trust and show quality work through their resume and application. If you don’t sense that trust or see the quality of work from the beginning, it’s unlikely that it will develop later on (usually it just gets worse). If someone doesn’t check important things like their resume and email correspondence for grammar and spelling errors, they will usually write even worse on the job – especially if there is no spell check in your system.
  • Hire people that WANT the job most – even if they initially lack all of the required skills, they will work the hardest to prove themselves and learn.
  • Do whatever it takes to keep overhead costs low – once they are as low as possible, use your time efficiently so you are maximizing those overhead costs (have as many employees and processes as you can possibly manage at a time). My biggest regret is not finding a way to get more funding and hire more employees sooner. I could have finished inventorying all of the parts a couple years earlier, and saved many thousands in overhead costs as well as years of my own time. Hindsight is 20/20.
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Startup Stories – MotoSmart: Part 2

Posted by on Jul 26, 2013 in Blog, Featured, Startup Stories | 0 comments

Please see the first installment of Lincoln Spencer’s article, MotoSmart: Part 1

I learned the hard way that the main challenge for startup companies is usually funding/cash flow. The motorcycle parts I had initially purchased were a significant startup cost, but the ongoing operating costs were significantly higher than I thought. As it turns out, it is very hard to predict all of the little expenses that come up from day to day. Things like general liability insurance, worker’s compensation insurance, utilities, and shop supplies may seem insignificant, but can quickly rack up significant costs.

Around the time I was starting the business, a wise investor gave me some great advice: double your projected expenses, and cut your projected sales in half. Can you still show a profit after that? If so, you probably have a solid business model. If not, you might want to go back to the drawing board. I thought my projections were reasonably accurate, and didn’t take his advice all that seriously at the time. Later on, it turns out he was surprisingly accurate! While I’ve been able to get by, it hasn’t been easy and the reality of my sales and expense numbers hasn’t been as ideal as I had projected.

Now, back to the story. I had made the initial purchase of motorcycle parts with money scraped together from my savings and borrowed from family. There was little time to waste, because warehouse rent was not cheap and I had little spare cash to survive on. The parts were jammed in a warehouse too small to adequately operate in, so I rented a larger warehouse around the corner that would provide enough space to shuffle parts around while they are being inventoried as well as leave some room for future growth.

The second warehouse needed some work before I moved the parts in, including cleaning and sealing the floors, painting the walls, wiring new electrical outlets, among other tasks. As much as I wanted to hurry and start selling parts, I knew it would be much easier to get the warehouse in proper shape now while it was empty. After many long weeks and all-nighters, things were coming together. I hired a few temporary guys to help move the mountain of motorcycle parts from one warehouse to the other. The move came together well, but I quickly realized how hard it is to find good workers, train them for the task, keep them busy, and maintain the quality of work I wanted.

After everything was settled in the new warehouse, it was a huge relief to quit paying rent on the old warehouse. One lease payment was hefty enough! My next challenge was creating a system to accurately inventory, photograph, and ship each part in the warehouse. I figured it was worth getting this right and spending some time developing a great process, rather than jumping in haphazardly and doing poor work that may need to be re-done.

I looked into different inventory systems, and there wasn’t anything available that would meet all of my specific needs for running a motorcycle parts business. Not only that, but many inventory systems cost thousands of dollars and some even require steep monthly recurring payments. All for a system that doesn’t do exactly what I want it to? No thanks. I put my Excel skills to the test, and decided to develop a very complex Excel spreadsheet with all sorts of functions and VBA macros to help me export parts to automate eBay listings, create QuickBooks sales entries, make pricing decisions, look up fitment and manufacturer part number information, and much more. My spreadsheet keeps growing and growing, and it’s now over 50MB and running fairly slow (whenever Excel needs to recalculate cells it can take a minute or more). The spreadsheet system isn’t perfect, but it is super customizable, fast to set up, and cheap. For now, it’s getting the job done.

Industrial-sized photo booths weren’t any easier to find, so I made my own once again. I built it out of pallet racking pieces I had around, bought photography flashes and softboxes, a few Canon cameras (two of the S5IS models for mounting on a tripod and at the top of the booth pointing down, and a G9 for handheld detailed shots). The S5IS is remotely controllable with software, and also remotely zoomable, something you can’t do with DSLRs. It works great for shooting the tops of parts rather than standing on a ladder. I set up two computers, one for the top camera and one for the front camera on a tripod. Those two are great because you can really dial in the lighting. They also save the pictures right over to the computer as you’re shooting them, so you can immediately organize the pictures in a folder for each part and delete the bad ones. I got an Eye-Fi memory card for the handheld G9 camera, and it also syncs pictures over to the computers (but wirelessly). The photo booth has been something that really sets my listings apart from everyone else on eBay – the difference in picture quality is huge.

For shipping, I found a great program called ShipWorks that has made my life much easier. It automatically conects to eBay and downloads orders that are ready to ship, eliminating the need for employees to get into your eBay account. The software is very customizable, and by tweaking the XSLT templates I’ve created pick lists, packing slips, and tracking emails that all contain the exact information I want. My employees use the software to compare USPS and FedEx rates, and ship with the cheaper option. UPS, OnTrac, and other carriers as well have a ton of shopping cart sites that are also supported, although I’m not using them. FedEx gave me better discounts than UPS, so FedEx it is!

Stay tuned for the third and final installment…

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Flipping Houses Part 2: Renovation Realities

Posted by on Jul 12, 2013 in Blog, Featured, Real Estate | 0 comments

Please see Part 1 of this series.

Once our bid was accepted by the auctioneers we would sign over our cashier’e check and immediately spring into action. We first would call our insurance agent and insure the property. Next, we would call a locksmith to open the house and change the locks. I was fortunate to only deal with empty houses. However, my partner once purchased a home and found it occupied. To make things worse the spouse who answered the door did not even know it was being auctioned off and was caught totally off guard. It was sad, but in that situation you offer them some money to both protect the property and move out as soon as possible.

We reviewed each home and tried to spend money where it is most visible. We did not want to spend money on roofs, energy efficient windows or garage doors.  Those items do not excite the buyers as much as bathrooms and kitchens. We then have our construction team come in to bid the renovations. The bulk of our budget was spend on drywall, paint, bathrooms, kitchens, lighting and carpet. Curb appeal is important, so the final touch was a front yard landscape overhaul.

There are several things about flipping that many people may not know about.  First time flippers need to consider hidden costs like utility reconnection fees and homeowners association dues in the rears. Additionally, local CC&R’s in certain neighborhoods need to give approval for exterior paint colors and front yard enhancements.  This can take valuable time.

We would try to be back on the market in 30 to 60 days. The houses looked great after the makeover and were well received in the market place. We often had multiple offers and had to weigh the positives and negatives of each offer–more money for a slower, riskier close or an all-cash offer to get your money out quick.

We were fortunate not to run into any major surprises. We supervised all the work and did some work our selves. we would profit about $30,000 per home after all expenses, but we felt we earned every penny. The whole process would take about 120 days from courthouse to cash in hand.

Keys To Success

  • Flipping houses is not a recipe to become an instant millionaire
  • Do your homework first and don’t jump in too fast
  • The business takes a lot of capital, banks don’t want to finance these deals anymore
  • It’s harder than it looks, but it is still possible
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Flipping Houses Part 1: Circus on the Courthouse Steps

Posted by on Jun 28, 2013 in Blog, Featured, Real Estate | 0 comments

“Dominate your real estate market”

“No Money Down”

“No Experience”

“Flip your way to wealth and security”

Business #12 was an experiment in following the news and the hype.  The collapse of the housing market made waves across the world.  Several TV shows popped up showing people scooping up cheap real estate for next to nothing.  With foreclosures all around, the business of buying, fixing, and selling homes for a big profit seemed possible. We thought it was a good fit because many of my companies did residential work like electrical, HVAC and gutters.  I could give these businesses more volume and save money on hiring outside subcontractors.  We also thought our wives could help us with the interior decor like fixtures, paint, kitchens and carpets.  So, we tried it.

We started by creating an LLC and funding it with enough money to buy our first house.  Then we pursued our real estate licenses in order to save the commissions when we sold the homes.  It is not hard to get your real estate license, you just need to buckle down and study for the test.  There was some useful information, but it was mainly a “cram and exam” process.  We signed up under a broker in southern California that would allow us the freedom to do our deals the way we wanted.  The broker charged a fixed fee (very reasonable) per transaction for assisting with the paper work and providing errors and omissions insurance.  It was a great deal and his office was very helpful.

We started by tracking foreclosures in neighborhoods we knew well.  We tried to purchase foreclosures from the banks, but found most of them were very hard to work with and they did not price their homes properly.  We then went to the court house steps and find out what buying homes at auction was like.  For those that don’t know, the courthouse steps is where daily auctions are held to quickly sell foreclosed properties.  There did not seem to be a rhyme or reason why some houses found there way to the court house steps.  It seemed like the banks had foreclosure reduction quotas and if they could not sell enough houses the traditional way, they would auction off some of their inventory.

Everyday we would do drive-by reviews of the houses coming to auction.  The rule of law is you should not trespass or cause damage to the home as you inspect it.  We mostly looked for cosmetic fixes: carpets, paint and some drywall issues.  We did not want major structural problems or serious plumbing or electrical work.  Sometimes we would come across other bidders doing inspections in a very aggressive way.  If the house was empty they would break in to get a close look.

The experience on the courthouse steps was a trip.  When we showed up there was a whole cast of characters.  There was the gangster, baggy pants, cap turned on 45 degrees, Bruce Lee, Danny boy (doing an Irish gig), Lindsey Lohan and Charlie Sheen look-alikes complete with his tiger blood.  Here is the deal: all of them were packing a million dollars in cashier’s checks.  All of them had a neighborhood they were after and they were very protective against outsiders.  When newcomers arrived they would often start telling horror stories to deter would-be buyers.  They would say things like “Do you remember when that guy won the bid on a house only to find out it burned down the day before?” Or, “I just saw someone that bid over $100,000 on a 3rd mortgage thinking it was for the first mortgage!” Admittedly, it was a little intimidating.  The dishonesty of the bidders carried to the auctions.  We saw obvious bid-fixing, secret deals and signal calling from the McDonald’s across the street.  Over time, the authorities began catch on to these illegal activities and people across the country began to be charged with fraud.

We stayed focused and did buy some homes, but it was no slam dunk.  In the next article we will cover the fix and flip side of the story.

Keys To Success

The everyday players have deep pockets

They regulars are educated on values, liens, judgments, and loans

Know your costs to purchase, fix, and flip.

Come ready to play and when your houses come up,  jump on them

Operate with a strategy, i.e. resales, rentals, lease to own

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Startup Stories – MotoSmart: Part 1

Posted by on Jun 21, 2013 in Blog, Featured | 0 comments

Lincoln Spencer and I met during a summer internship at the Wal-Mart headquarters in Bentonville, AR.  We both attended BYU, but had no previous contact before becoming roomates.  Our mutual interests in motorcycles, computers, and the co-eds at the University of Arkansas made us instant buddies.  He is incredibly driven and will be starting an MBA at the University of Michigan in the Fall of 2013.  Here is the story of Motosmart.com, in his own words:

Some think that owning your own business is living the American dream. For me, the reality has not always been so dreamy – but without a doubt it has been the experience of a lifetime.

At the age of thirteen, my passion for entrepreneurship became quickly apparent as I started buying and selling dozens of motorcycles. After turning my first beat-up $10 Honda into a great running $300 machine, I was hooked. My older brother helped me learn the basics of carburetors and engines, and plenty of library books filled in the rest of the details. I got my second bike for $100, and sold it for $450 after minor repairs. Business was good!

After a few years of this, my mom worried that I wouldn’t go to college because I was doing so well on my own. I reassured her that I would go, and both of us were surprised when I decided to get a bachelor’s and master’s degree in Information Systems. I loved the idea of combining my passion for business with a more technical background in computers. The motorcycle sales continued all the way through graduation, and at that point, I estimate I had bought and sold over 100 motorcycles.

I felt I should try getting a “real job” like the rest of my classmates, even though it was obvious I was an entrepreneur at heart. After a couple years working as an IT consultant and auditor, I felt I had gotten my fill of “real jobs” for the time being and wanted to start a business I had been thinking about since high school.

The business need I had seen in high school was to sell discontinued, used motorcycle parts in a more efficient manner than what was currently available. I had spent countless hours as a teenager looking for parts for old bikes, usually driving across town to the single local salvage yard only to come back empty-handed. The parts I needed had usually already been removed from the bike by someone else, or were damaged by the elements from sitting outside. Rather than follow the traditional junkyard approach with rows of bikes rusting into the ground, I wanted to store everything indoors, barcoded and shelved so each part could be listed online and easily found by customers around the world.

I knew there was demand for these hard-to-find, older parts, but I didn’t yet know how profitable the business would be. I started by making my own estimates and doing research online, but quickly realized that there was little data available about this niche market and I had to find much of the details out on my own. I figured a good place to start would be talking with motorcycle salvage yards, especially any that were for sale as the owners would be more willing to tell about the details of the business.

I found a salvage business for sale in Colorado, which was a complete mess and a great example of what not to do. Less than 1/4 of the parts were labeled with the model of bike they were removed from, and the parts were laying outside being damaged by the elements. The thought of taking over a business like that made my stomach turn, since it was such a mess and went against my ideals of organization and efficiency.

Shortly thereafter, I came across a warehouse full of parts for sale in Utah. I flew from Colorado directly there to take a look – and it turned out to be a gold mine (especially in stark comparison to the mess I saw in Colorado). Every part in the warehouse was labeled with the model information, and the parts were in good shape since they were out of the elements. I negotiated a great price on the lot, and before I knew it I had jumped into a completely new life and series of challenges.

I quit my consulting job within the next few weeks, and moved to Utah to start getting the thousands of parts inventoried, photographed, and listed online as quickly as possible to start generating some cash flow.

Stay tuned for the next installment of Lincoln’s incredible story.

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