Episode 255: How to Avoid the Mistakes That Cost Investors Millions

Announcer (00:03)
This is the Self Storage Podcast with the original self storage expert, Scott Myers.

Joe Downs (00:13)
Picture this. You are one day away from closing on a self storage facility. Your due diligence period is about to expire. You are already planning what you will do with the cash flow, and then your attorney calls and says the three words, “We found something.”

This actually happened to me the other day on a deal we are calling the Storage Attic. What did we find? The property I was about to buy is four feet underwater in a flood zone. Not the two feet the 87 year old seller told me, four feet.

My insurance was about to go from $12,000 a year to $81,000 a year. And I had hours, actually I think it was more like minutes, before my due diligence expired and I would be locked into this disaster if I bought it, or kissing goodbye to my earnest money deposit if I walked away.

Welcome to the Self Storage Podcast.

Joe Downs (01:06)
I am Joe Downs, CEO of the Belrose Group. Over the last five years, I have bought 20 storage facilities worth $52 million. I have another couple under contract. I am developing two ground up facilities at $13 million each.

And I can tell you without hesitation, I would have lost millions by now if it were not for the guy joining me today. Jason Mandel is a real estate attorney with RCCB Law. He has been my attorney for every single one of those 20 deals over the last five years, and he has now saved several of my students from career ending mistakes.

He is the kind of guy that makes you realize maybe we should appreciate attorneys. Today, we are going to walk through a couple of real deals that I have experienced and my students have experienced, including that flood zone nightmare where the difference between making millions and losing millions came down to actually reading the documents and knowing what to look for.

Joe Downs (01:55)
Jason, welcome to the show. Let’s start with the Storage Attic deal because I still cannot believe how close we came to that disaster.

Let me set the stage. You and I have worked together for six or seven years now, and this deal might have been the scariest close call we have had.

We had a property that looked perfect on paper. An 87 year old seller reassured us that he had lived there for 87 years and it had never flooded. He claimed it was maybe two feet below the flood level, no big deal.

Our initial due diligence, Phase One environmental, and insurance policy review did not flag it. The FEMA maps may have changed in June of 2025, but not everything was updated yet.

You actually had to Google it and look through newspaper announcements, if I remember correctly. But the survey came in literally a day before our due diligence expired. Walk the listener through what happened next.

Jason Mandel (03:12)
Hi Joe. Great to be on the podcast. Thanks for having me. This was definitely scary. I think we first met and started working together right in the throes of the pandemic, which was a different kind of scary time.

The timing of title searches and surveys really depends on the locality. It varies place to place. Something that takes two weeks in one area can take four or five weeks in another.

From a surveyor perspective, it often comes down to backlog and how many surveyors are available in the area. In this case, it took several weeks longer than usual to get the title commitment.

You usually want the ALTA survey in hand once the title commitment is issued, because the surveyor needs it to plot certain things. The delay in the title commitment led to a delay in the survey, which brought us right up to the end of the due diligence period.

We were not able to identify the flood zone issue until just before the end of due diligence. We did not have a lot of time, but we were grateful we caught it two days before rather than two days after.

Joe Downs (04:41)
I want to jump in there because you just hit on something that really resonates. I am doing a Storage 100 series on YouTube, and I literally just covered timelines.

Even when you order things immediately, surveys, appraisals, inspections, they can still take time depending on the area and availability. This came in right at the last moment even though we ordered everything right away.

Jason Mandel (05:34)
Exactly. There are things we can control, and things we rely on third parties for. In this case, we relied on the title company before going to the surveyor, and things just took longer.

Joe Downs (05:56)
Fortunately unfortunate is how I describe it. If this had not been updated, or if the survey came in one day later, we would have been locked into a disaster.

What are the legal implications if we had not caught this in time?

Jason Mandel (06:45)
We actually had a backup plan. Typically, once your due diligence period expires, your deposit becomes non refundable.

However, in your agreement, we also negotiated a title and survey objection period. That gives additional termination rights if issues arise during review of title or survey.

Because we did not know about the flood issue until the survey came in, we could have argued that we were within that objection period. That would have bought us a few extra days and potentially allowed us to recover the deposit.

Joe Downs (08:31)
That is exactly why I say you are the kind of attorney that makes me appreciate attorneys. You had a backup plan.

This leads into a situation with one of our students where the seller demanded the use of a standard broker form. That backup plan would not have fit into that form, would it?

Jason Mandel (09:47)
That is fair to say. Standard broker forms are usually drafted by state Realtor associations and are not particularly protective of buyers.

They often prioritize the broker’s commission before the interests of the buyer or seller. While they may address some issues, they do not do so in a detailed or customized way.

Joe Downs (10:51)
Let’s talk about the student deal with Gretchen. The seller was adamant about using an outdated standard form. What issues did you encounter?

Jason Mandel (12:08)
That form dated back to 1986. It did not address critical issues at all.

The biggest issue was that the property required a subdivision. The agreement did not even mention the word subdivision.

From a buyer perspective, we need to define boundaries, access, setbacks, timelines, approval processes, and what happens if approvals take longer than expected. None of that was addressed.

Trying to modify that form would have been more expensive and less effective than drafting a proper agreement from scratch.

Joe Downs (14:36)
Here is my PSA. We fall in love with deals, and we fall in love with saving money upfront. That is a dangerous combination.

Trying to save a dollar upfront often costs far more later. Especially when your attorney is telling you that it will.

Jason Mandel (16:36)
I completely agree. Much of what we do is preventative. We address issues that we hope never happen, but if they do, you are protected.

Sometimes those issues do not surface until long after closing, and that is where good legal work really matters.

Joe Downs (17:45)
I look at legal fees as attorney insurance. We buy insurance hoping we never use it. Legal protection works the same way.

We have closed 20 deals together, but we have walked away from many more. Walking away is often the real success.

Jason Mandel (21:26)
Protecting your downside is critical. Sometimes trying too hard to make a deal work is a sign that you should not.

Joe Downs (23:59)
In this case, the flood issue created nearly a million dollar value delta. That would have crushed the deal.

That is why we need partners who watch our downside, not just upside.

Jason Mandel (25:56)
Another example involved zoning. The property was legal nonconforming only for the current owner. Once sold, it became nonconforming.

That meant the buyer could own a property that was no longer properly zoned for its use.

Joe Downs (28:12)
And your team caught it.

Jason Mandel (28:20)
Yes. We negotiated concessions and indemnities from the seller and engaged a local land use attorney who knew the municipality and process. We created a plan to address the issue post closing.

Joe Downs (30:03)
This is why you cannot use just any attorney. You need a specialized real estate attorney, and sometimes even hyper local expertise.

Jason Mandel (31:58)
And I will say this. Deals are not easier when the other side has no attorney. They are harder. It is better when both sides understand the issues.

Joe Downs (32:35)
Absolutely. We want attorneys talking to attorneys. That is how deals move forward.

Joe Downs (33:38)
My top takeaways are simple. Hire a real estate attorney. Ask questions early and often. Explain your plans.

Choose your own title and survey companies. Build in enough time. Even then, things can come down to the wire.

Joe Downs (34:23)
Jason, how can people get in touch with you?

Jason Mandel (34:26)
I am based in Philadelphia. My firm is Royer Cooper Cohen and Bronfeld. My email is jmandel@rccblaw.com.

Joe Downs (34:49)
Well worth every dollar. Every deal has landmines. The question is whether you find them during due diligence or after you own the property.

Thanks for listening. We will see you next week.

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