Scott Lewis is the co-founder and Chief Executive Officer of Spartan Investment Group, LLC (SIG). As the CEO, Scott is responsible for the strategic direction of the company and ensuring it aligns with SIG’s mission to Improve Lives Through Real Estate. In addition to Spartan, Scott is also in the US Army Reserves and a combat Vet. Scott graduated from Michigan State University with degrees in Chemistry and Marketing, from Catholic University with an MS in Management, and from Georgetown University with a Certificate in Project Management.
Scott Lewis focuses heavily on self-storage. He does everything from finding their own deals, funding, and then operating them both from asset management, property management, and also construction management.
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Improving Your Life Through Real Estate with Scott Lewis
Brett:
I’m excited about our next guest. He is on a mission to help you improve your life through real estate investing. In fact, his story starts back in Washington DC, when his partner met his neighbors, and the background in the military created an opportunity to take the fundamentals to the real estate investing world. Please welcome the show with me, Scott Lewis. Scott, how are you doing?
Scott:
I’m doing fantastic, Brett. Thanks for having me.
Brett:
Absolutely. Would you give our listeners a little bit more about your background and your current focus?
Scott:
Yeah, so I’m the CEO of Spartan Investment Group. We focus heavily on self-storage. And we do everything from finding our own deals, funding our own deals, and then operating them both from asset management, property management, and also construction management. And when we have expansion potentials.
Brett:
Excellent. So you’ve got the vertical integration going on. I love that you’re in self-storage. We don’t have a lot of self-storage folks on the show, we should have more because it and I definitely want to dive into that to the show here. Most of us are multifamily senior housing and mobile home parks. So we’ll dive into that. Before we go there, though, would you give our listeners a little bit more about your background as it pertains to growing up, you know, I want you to go back to maybe the earlier days of university, maybe your early days of high school? You know, I believe we’ve all been given certain gifts, Scott, and these gifts are given to us to be a blessing for others. So I’m curious, maybe it’s one of those one or two gifts that you believe you were given? And how does that help how you help and bless people today?
Scott:
Yeah, so I think kind of like shooting back to high school to kind of talk about my why, like, why I’m in real estate today. You know, my summer job in high school, was framing houses. I’ve never worked in a restaurant ever, even to this day, I always preferred to be outside kind of working with my hands. And I really enjoyed the built environment. So that’s kind of really my interest in real estate started in high school. And then I went to college. And I majored in Chemistry and Marketing and then graduated, went into Biotech Sales. So not a lot of real estate there. I did buy a condo in Chicago in 2005, not a good investment, I still have that sound today probably going to lose 20 grand on it 15 years later. So there is still some devastation from ‘09 and ‘08 being brought over on this side of the house. But failure kind of came in did that sales job for about five years. And then I saw some bad things happen at the top of that organization. And I’m kind of big on integrity and loyalty. And there was some pretty like not good stuff. I’ll just kind of leave it at that. And that caused me to kind of start looking around and figuring out like, hey, what am I going to do next? I looked at MBA programs. I got another job for like a month. And I was like, wow, I don’t want to do this. So something I’d always wanted to do is serve my country. So okay, well, I guess I’m going to quit my job, take an 80%, pay, cut, sell everything I own, and go to basic training. And that’s what I did. And then for about four years, I was on active duty and I came out and then worked for the Federal Government for a little while, and then finally started Spartan and it’s kind of gone from there. And you talked about kind of a special skill. I think one of the things that probably other people would say that defines me is my discipline. I’m a pretty disciplined guy. I go to bed about 8:45, 9:00 at night and I get up at 4:30 almost every single day. And I think that’s probably the one thing that really kind of defines me and defines my success.
Brett:
Beautiful. Absolutely love that. And by the way, you can find and learn more about Scott Lewis at spartan-investors.com. In fact, to date, some of the numbers are pretty incredible. $42 million in equity raised, 126 million of assets under management, 10 completed projects over 6,000 plus units. And I love that Scott. So let’s dive right into your strategy and what brought you to I guess really Self Storage? I want to focus on that one, I think, for the most part, talk to us about the unique advantage of self-storage, and why you and your partner Ryan, find it so attractive.
Scott:
So we like storage, because, well, one, I hate people. I don’t want anything to do with multifamily. I don’t want anything to do with anything residential, for a couple of reasons. One, it’s just you know, when you’re dealing with any homesteads, there’s a lot of government hands in that cookie jar. And I, for one, don’t like the government telling me what to do with my investments. And then to kind of tying into that, I believe in contracts. And if I uphold my end of the bargain, I want my customers or tenants to uphold their end of the bargain. And if they don’t, I want the opportunity to sever that contract and recover my asset. In the multifamily space, unfortunately, as a lot of multifamily operators have seen in the last 12 months, that’s not going to be the case, because the government will step in and control your operation. And the government really doesn’t care if you go bankrupt or not. So they’re going to protect the individual for storage, you know, how many individuals got protected? None, zero. They don’t really care about grandma’s old rocking chair and their stuff. So with storage, a little bit more freedom to kind of operate within the values that we want it to operate within. And quite frankly, we just didn’t want to be a part of like, an area that was growing very rapidly. Multifamily has great returns. And it’s a really solid asset and such. It’s been in vogue recently, and everybody has been jumping into it. And when we go to the conference, everybody was talking about multifamily. So we kind of decided to carve out our own little niche and go with self-storage. We had some experience with it with my cousin building it kind of as I was growing up and just seems like a pretty easy thing like a concrete box that people put their stuff in. It’s pretty simple from the concept. Not so much from an operational standpoint, it’s definitely probably a little bit more operationally intensive than multifamily. Because it’s an active business. It’s not it does have a real estate component to it. But there’s also a very active business to it as well.
Brett:
Yeah, very well said. And we’ll dive into the operational part of here in a minute and you guys efficiency and how efficiencies that you’ve created with your systems. But I can’t help but comment on the fact that Yeah, it sounds like you found the freedom to invest in commercial real estate without all the government headaches or the big, you know, big, big hand jumping in and telling you what you can and can’t do. Is that a fair summary?
Scott:
It is? Yeah, we know. I mean, there are some of the states that New York, California are kind of taken eyes at it, but we specifically stay away from both of those states.
Brett:
So yeah, yeah, I’m on the front lines of California. So a lot of my listeners feel your pain and are a part of that right now. So let’s dive right into deals that you’re finding and what that looks like to work with you from a high net worth individuals standpoint, accredited investor, I presume, let’s walk through where you’re finding it or where you’re developing it. And what that’s looking like right now.
Scott:
So I mean, we look in a lot of different markets, there’s no one particular market that we look at, we look at about 31 different states about 153, different core-based statistical areas within there. You know, our deals are usually value add deals. So there’s a little bit of fear on them in some way, whether it’s operational upside or an expansion potential with some lease-up. And that’s kind of what we’re really looking for.
Brett:
Excellent. What’s the best secret to finding quality value add Self Storage opportunities.
Scott:
So we have a lot of proprietary methods that I’m not willing to kind of divulge out there. But I think if you kind of get yourself out there and you become an operator, that folks know and trust that the deals will find you.
Brett:
Excellent. Fair enough, I’m saying way on our site to have the Deferred Sales Trust, which is proprietary and protected. So we’ll share the secrets after the end of the NDA. So you’re doing a deal with us. So appreciate that. Maybe where are you finding some deals? Right? Where do you talk about new geographical trends or folks, you know, especially moving out of California to different parts, as you know, a lot of my friends going to tend to see, Texas, you know, they have Florida people fleeing New York to go to Florida. You know, I think Denver’s pretty solid as well. Can you talk to us a little bit about what you’re seeing and how that affects Self Storage investing?
Scott:
So it’s really hard. My answer is going to be kind of not great for you because storage is such a local business. It’s really hard to talk about it from a macro scale. Because in our world, it’s one three and five-mile rings based on population centers in demand, so you can find an amazing deal. In North Dakota, Florida, Texas, like Nevada, California, if you’re willing to operate within the constraints of the California business environment, it’s actually a great market. Because of those, like really high barriers to entry. So it’s one of those things, there’s no magic bullet as far as like what market because I, you know, Denver is considered macro ally overbuilt in a really saturated market. But micro, I guarantee there are corners of Denver, they could probably still use storage, we, in fact, there was public storage being built at an intersection that I drive by on a monthly basis. They just built it. So if the public is building, there must be demand. So it’s really hard to kind of segment that down.
Improving Your Life Through Real Estate: “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” – Warren Buffet
Brett:
No, fair enough. And where are you buying versus building a ground up? Is it a mixture of both?
Scott:
A mixture of both. So we try to limit how much raw land development we do just because there’s a lot of exposure with that, with going through the various permitting process, whether it’s matter, right, or some sort of conditional or special use permit. So we try to do one to two at a time until we break ground, and then we move on to the next kind of entitlement phase, just a risk mitigation strategy.
Brett:
Sure. Let’s shift a little bit, the title of our podcast is Capital Gains Tax Solutions. So I’m curious what’s the biggest frustration you, client, and partner have when it comes to capital gains tax reform options or lack thereof?
Scott:
So I think that’s one of the good things for passive investors is self-storage. When you do a cost segment segmentation study on self-storage, almost everything is depreciable. So what we’ve seen kind of on average, is about 20% to 25% of the purchase price, generally comes through in a cost segregation study that we can then through the tax laws do accelerated depreciation, and we normally do it over two years for the accelerated and bonus depreciation that we get through storage. So it’s actually a very good asset class for deferring capital gains. If you’re a professional investor, if you’re not considered a real estate, of course, you’re limited on how much losses that you can take. But that’s one of the huge things to our investor class is the amount of capital or depreciation that they can offset against other investment income or their active income.
Brett:
Excellent. And then from there, when you go to sell, what’s the plan when you exit these? Have you taken any deals full cycle yet, or in most of these long-term holds.
Scott:
So what we’ve done, one of our key disposition strategies is to recapitalize the asset. So when we buy it as kind of a value add play, the returns that we offer, are in the value add return spectrum, but when we’re done with it, it’s more of a core plus asset. So the return spectrum by the market is a little bit lower. So what we normally do is a recap on with a new financing structure, and all of our current investors have the opportunity to stay in just in the new structure. So that’s generally how that’s our preferred course of action, we do have one right now that we are going to end up probably selling. And we haven’t developed a strategy because it’ll be a capital gain, kind of issue, because we have not put it into service as a rental property. So it’s going to be considered inventory and subject to some other tax stuff.
Brett:
So we might have a solution for you called a Deferred Sales Trust and knew my page didn’t take a peek at that. So interesting on the recap part. So you’re saying is are you like refinancing and then paying out investors? And because it’s a refinance, it’s therefore not taxable. Is that a fair summary?
Scott:
No, there are definitely some tax implications we’ve really had, because of the way that we structure our deals, we don’t do a fund. So we have individual investors coming in and out. So from some of the more complex strategies, we’ve not investigated, because, quite frankly, it’s one of those things that we are trying to kind of grow and those complex strategies, they just require, like threading the needle on there. And instead of like at scale, with investors coming in and out of deals with everybody having kind of their own tax consequences, it’s been very difficult to try to leverage those strategies that an individual could use versus a group of individuals that don’t necessarily have the same objectives at the end of the day.
Brett:
Yeah. 100% exactly right. And then the same thing with the deferred sales trust, you gotta be a million-dollar minimum, right? And typically, there’s a million-dollar gain. And so we’ve structured deals where the GPS just do it and then the other LPs are just gonna pay their tax because it just doesn’t work for everybody on everything. But the key is to have multiple strategies, right? Cost segregation, buying new deals, right, potentially using a 1031 exchange, potentially doing a Delaware Statutory Trust, maybe doing an opportunity zone. And clarifying those options. You can learn more at capitalgainsaxsolutions.com if you want to learn more about that. That being said, Scott, for clients who are just getting to know you for the first time, what are some questions they should be asking, either you or other commercial real estate operators that they are not?
Scott:
Great question. I actually, I’ve given a presentation on this multiple times, because I think it’s one of the things that, you know, new investors, they can author often get enamored with the financials and the numbers, and they chase returns, and they’re like, oh my God, this is an amazing deal. That stuff matters. However, it is not your primary concern. As a passive investor, your number one concern, and the time that you should spend the most due diligence on is the operator, the team that is going to be operating that, and I specifically use operating because there’s a lot of folks out there that are raising money for other people right now. As an investor, that’s probably one of the first things that you need to understand is who you’re actually giving your money to, are you giving your money directly to the operator? Or are you giving your money to a syndicator, that is just putting together the money and giving it to the operator. On either one is okay, you just have to understand the due diligence that’s required of each one of those courses of action. So in either one, it’s the operator that you really need to be doing a lot of due diligence on and digging into kind of their team, their experience, their track record, understanding their decision making. And for that, I’ll kind of caveat that though. There’s a book out there by Annie Duke called Thinking in Bets. And she talks about decision-making having two components – luck and skill. So sometimes you have a really skilled decision that just doesn’t quite go your way because I don’t know a pandemic. But it was still a good decision and a skillful decision, it just the operating environment changed on you where you couldn’t control it. And then on the flip side, here, in real estate over the last, like 10 years, there’s a lot of people making really bad decisions, lacking skill and processes, but they’re getting lucky because of cap rate compression, those are the ones you have to be careful of because you can’t replicate those in a systematic way. So I would say that’s kind of, you know, your top things to look for. And when you look for experience, be careful with the gray hair syndrome. A lot of people see like somebody that’s, I’ll call it gray hair because I’m just hating on gray hairs because I’m jealous, got no hair. But uh, you know, just because you have gray hair, and you have lots of experience, you know, doing something really poorly for 30 years, might not be as good as doing something really well for two or three. So just understand that make sure that experience is good and relevant to what they’re trying to do.
Brett:
Yes. So well said and so much wisdom there. And you say Andy Duke you said?
Scott:
Annie, female, she was a psychologist turned poker player. Annie Duke.
Brett:
Duke, like the university?
Scott:
Yep.
Brett:
Okay, I will check that out – Thinking in Bets. I also want to touch on you, you’re absolutely right, because everyone can have a business plan or like Mike Tyson says, everyone has a plan. So they get hit in the face. Right? Now all of a sudden, you’re going to have they been through this, you know, challenge this adversity? How do they execute last time? Right? What’s their track record? And that’s with anything in life, whether it be you getting an ACL reconstruction, I had two knees done, you know, play basketball in college, whether you’re in the military, like Scott and imagine that obviously applies on and you got to make sure that the team is going to execute given the challenges that are coming up. And experience doesn’t necessarily mean performance, right. Just because you have a long-term experience doesn’t mean you’ve actually had any long-term performance. Is that a fair summary Scott?
Scott:
It is and I would also the one other thing I will say about experience pay attention to tangential experience just because somebody didn’t invest in a way to know nine you know because I wasn’t investing in ‘08, ‘09 but you know what I did do, I did lead troops in combat. So I know a thing or two about being in a bad situation and getting myself out of it. And some of the skill sets that are the leadership and decision making skillsets for any tough situation whether it’s you know, a market shift on you in real estate or like bullets flying at you from the enemy, the skill that you have in staying calm and assessing your operating environment and making a good solid decision based on like factual information in a tough environment and not allowing emotions to take over. So just because you didn’t live just because an operator didn’t live through the last downturn doesn’t mean that they don’t have some tangential experience that can make them really good on the investing game from a decision-making component. Because that’s ultimately what it’s about is how well you make decisions. Given a current operating environment.
Brett:
Yeah, so much wisdom there, Scott. And by the way, can learn more about Scott Lewis at spartan-investors.com. With that being said, Scott, are you ready for the lightning round?
Scott:
Let’s do it.
Brett:
All right, knowing what you know now, if you could go back to your 25-year-old self, what’s the one Golden Nugget you make sure you would tell yourself to do?
Scott:
Listen to audiobooks because podcasts weren’t around when I was my 25-year-old self. I was driving in the car as a regional sales manager for hours and hours and hours. And I didn’t listen to audiobooks like a huge mistake, huge mistake.
Brett:
Excellent. What is some of the best leadership advice you have ever received?
Scott:
So it’s not about you, it’s about your team. When I was a company commander in the military, it’s about 160 soldiers. My brigade commander, which is two levels up above me says I don’t care what you do, I’m going to look at your company. And if they’re eight up, so are you. So really focus on your team. And if they’re doing well, everybody will think you’re doing well even if you’re not
Brett:
So much wisdom there. What’s the one book you’ve recommended or gifted the most in the past year.
Scott:
So for new folks starting out, as far as like, if they want to kind of build their enterprise or folks that are trying to leave their W two job and become a real estate investor, I highly, I highly encourage you to read the E-myth Revisited. I think that’s a fantastic book to truly understand what entrepreneurship will be like when you actually get out there and do it. And then just kind of a general book that I really like. It’s a military book, but it’s by Jocko Willing called Extreme Ownership. That’s a great book just kind of across the board for accountability, which I think is huge.
Brett:
Absolutely. Second that I read that book at least twice. Now I got to read it again. It’s, it’s one of a kind. What’s the biggest challenge you’re facing right now, Scott?
Scott:
So honestly, like, we’re in buy mode. So we are growing our team. So we are hiring, like crazy. So if there’s anybody that’s interested in positions, check us out. And then the same thing we’re trying to buy, we want to place $150 million this year, into the storage space, which that’s quite a lot for our space with our average deal size of 5 or 6 million bucks. So anybody that’s got deals, bring them to us. So those are the kind of people in deals that’s probably kind of across the board for all your guests.
Brett:
Yeah, well said, I think capital is easy right now, finding quality deals that make sense is the hard part. And so and then, of course, finding the quality operation of experience like yourself is also you want to make sure you have all three of those. Number one negotiating strategy or wisdom.
Scott:
So two, one thought one tip, so my one thought two ears, one mouth, listen more than you talk. For a couple of reasons. One, you’ll understand the other side’s point more. And then also, you’ll seem a lot more interesting. The more you talk, the less interesting you are to other people. And then a trick.
Brett:
What do you mean?
Scott:
So and then a trick, if you are in a negotiation, and you’re the type of person that likes to talk, take your tongue and shove it in the top of your mouth and the front of your teeth. You cannot talk with your like a tongue out there. So it’s a way it was a sales guy tip when I was in the early 20s that I use till today, and it stops you from talking.
Brett:
Beautiful, so much wisdom there. Love it. What are you curious about right now?
Scott:
Psychology. So kind of in my role as the CEO, I honestly, don’t even read real estate books anymore. Because as my team is growing, we’re at 35. Now we’ll probably be at 40. By the end of May. My role as the CEO really now is to get this team to perform as best as it can. And to do that you have to understand human beings more than anything else. So that’s kind of where I’m really reading a lot on his team development psychology. So I’m super curious about that. And so much so that I’m going to self teach my kind of self to almost have a degree in psychology because I want to understand it that much.
Brett:
It’s beautiful. Yeah, by the way, ideal team player Patrick Lencioni. In any of his other books are absolutely amazing for all of that. Last question, Scott. After all your success in the military, thank you for your service, after building your real estate team to you know, 30 plus employees, all of the deals you’ve done. How do you stay centered in your values and how do you stay encouraged to reach for higher goals?
Scott:
So it may sound a cliche, but this is really why I do it. It’s not about me, there’s a term out there servant leadership that I think gets played up in the press a little bit. But, you know, the main reason I started sparring was not that I wanted to make a lot of money or not, because I’m an entrepreneur, I’m really not. The main reason I wanted to start sparring is that I hated everywhere else I worked. And I wanted to create an environment where my team could grow personally and professionally, like every day of their lives. So there’s no end to that. So there’s not like, I’m going to achieve some sort of metric because as the company grows, there will be new challenges that I need to meet, in order to keep living that vision of mine to have the organization that allows people to come in and truly thrive in their life. It kind of comes from the military, it’s kind of a whole life type. The ideology that I mean, work is a huge part of everybody’s life, and they should be able to grow not only professionally but also their personal goals as well.
Brett:
Beautiful that sums up the name of the show Improving Your Life Through Real Estate with Scott Lewis. Scott, I want to thank you for being on the show. For our listeners who want to get in touch, what is the best place for them to find you?
Scott:
Shoot over to the website. Anybody that’s interested in investing, there’s an Invest Now button over there. Anybody that’s interested in engaging the team, I can be reached at scott@spartan- investors.com
Brett:
Excellent. That’s spartan-investors.com. Scott, thank you for being on the show, and also want to thank our listeners for listening to another episode of the Capital Gains Tax Solutions Podcast. As always, we believe most high net worth individuals and those who help them struggle with clarifying their capital gains tax deferral options, not having a clear plan is the enemy, and using a proven tax deferral strategy to exit your business or real estate or other highly appreciated assets such as the deferred sales trust is the best way for you to grow your wealth or getting with someone like Scott and investing in self-storage facilities, operators that have a proven track record, reach out to Scott Lewis today, and we so appreciate everybody you can go to capitalgainstaxsolutions.com, by the way, to learn about the deferred sales trust. And until next time, go make it a great day. Thanks, everybody. Bye
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About Scott Lewis
Scott Lewis is the co-founder and Chief Executive Officer of Spartan Investment Group, LLC (SIG). To date, SIG operates over 5500 storage units, 200 RV pads, has completed $11M in development projects, has $115M more underway, and raised over $42M in private equity. As the CEO, Scott is responsible for the strategic direction of the company and ensuring it aligns with SIG’s mission to Improve Lives Through Real Estate. In addition to Spartan, Scott is also in the US Army Reserves and a combat Vet. Scott graduated from Michigan State University with degrees in Chemistry and Marketing, from Catholic University with an MS in Management, and from Georgetown University with a Certificate in Project Management.
In his free time, Scott enjoys spending time with his wife, Lindsay, mountain biking, skiing, and chasing their Jack Russell Terriers around the yard.
