Hello, and thank you in advance for reading this! I am a dentist, looking to get into self-storage as an owner/operator. I own two dental offices, so I have business experience, but no self storage experience. My goal is to put some work in up front in order to end up with a passive income stream that runs itself with minimal babysitting on my part (bringing in enough money for me to hire people to deal with the inevitable headaches). The following is my general plan, and some assumptions that I have, based on reading other posts/threads. Anyone with self storage knowledge, please let me know your thoughts (feel free to be blunt), and let me know if my assumptions are wrong. Thank you!
I am considering buying a large piece of land (14 acres) adjacent to the highway in Florida (flat land), and building it out in phases. Phase 1 would be 1 acre of storage units, along with boat/RV storage. As those units fill up, I would then build out the next acre, and so on and so on. The asking price for the land is $1.6 million. I have read that single story storage units will have roughly 40% rentable square footage from the total raw square footage (if all 14 acres were built out it would be 244,000 rentable square feet), and that construction costs will run in the $50/sq ft range. I am ballparking that Phase 1 ( the land, to build out 1 acre of self storage, add a large gravel area for RV and boat storage, and fence all of that in) will be around $2.5 million. I would need to finance the bulk of that. I am assuming 20% down payment will be needed, and that the rate for an investment loan will be in the 5 - 6.5% range. I'm sure that there are companies that analyze an area, and let you know whether there is adequate demand for a new self storage facility. Do you all have any recommendations for this type of service? Also, I saw on a different post that Scott Meyers has good workshops for beginners. Do you have any recommendations for which workshops are most beneficial? I looked at his website, and there are quite a few to choose from. Thank you for taking the time to read all of this!
Storage is definitely a great asset class. And as per your request to be blunt;), I'd encourage you to spend some more time dialing in your plan. Financing land at 1.6 Million and building out 15K square feet of storage is going to leave you very much on the wrong side of zero. Generally speaking, new development projects will need to be at least 25K (or more square feet) in order to absorb the cost of land and earth work. With land as valuable as you are looking at, you'd need to be built out far beyond that before you will be profitable.
Additionally, I have to assume that being a dentist keeps you somewhat busy (One of my students is a dentist). And so I wonder if learning TWO (storage AND construction) new very different skill sets simultaneously is the best way to break into the world of residual income? I don't mean to discourage you in any way! But prudence always wins out. With all that said, have you considered buying an existing facility, optimizing it and then expanding. This way you learn storage first, create some of that residual cash flow you are looking for and then tap into the equity windfalls that are created through development/expansion? Just an idea to consider!
As for companies that will vet markets, there are many. I've had good luck with Bob Copper at self storage 101. Scott's 3 day event (there's on in Orlando soon I think) is a good experience as well.
Hope that helps some!
Thank you for the quick response! I really appreciate the feedback. You quickly convinced me that it was not that great of an idea! I would definitely be open to buying an existing facility. I haven't found any listed in my general area on loopnet, and I worry that it would be difficult to manage a facility that wasn't somewhat nearby. Is there another site that is better for finding storage facilities that are for sale? I also worry about buying a lemon/overpaying without realizing it (I learned a few lessons the hard way when I bought my 2 dental practices). That being said, I can certainly see the value in having established cash flow, rather than starting from scratch. You mentioned buying an existing facility, optimizing, and then expanding. I imagine optimizing means getting the vacancy rate as low as possible, and increasing add-ons like tenant insurance? As far as expanding, what if the facility has maximized the available footprint, and there is no adjacent land available? With no room to expand, and CAP rates at 5-6%, that seems like an expensive investment. I'm sorry if I'm asking stupid questions.
I am a fan of self storage as well and have done some research into but do not consider myself an expert.
However one thing I have heard, is that investing in self storage is not as passive as one thinks because it involves running an actual business. It is still a great investment and can generate great returns but those high returns are generated because the owners/operators of those properties are active in the investment.
Just something to think about it.
I'd recommend checking out a storage facility builder and get a good idea on construction costs, at least a ballpark and you'll possibly see that spending $1.6M for the dirt alone may make your project a go or no-go. Check out the calculators at Trachte Cost Calculators and start plugging info in. It also has great info on other cost components you may or may not have thought of. I've been building out my own analysis spreadsheets as well so that I get a good feel for the numbers and how they affect a deal.
I'd also recommend AJ Osborne's podcast "Self Storage Income" to get a good feel for the business in general.
I'm working on purchasing or building my first facility and I've been a sponge for info the last 2 months as there is a lot to soak in.
Luckily I've been doing a lot of networking and I had a great call with a local guy that owns 7 facilities and he also runs a construction company so we're talking about partnering up for my first deal. I've been doing a ton of the leg work to find a location and get properties under contract to do due diligence and I'm also raising the money to fund the deal(s) in addition to bringing my own capital investment.
Good luck to you!
Everything everybody has said is true, "but not for you".
Lets eat this Elephant, one bite at a time. And it is an Elephant.
A. Why are you different? Business experience. Jumped off the cliff into business. Have two locations and you own them. Financially you should be in a good position. Critical thinking skill set. You already have succeeded or failed/learned from 75% of all "business" issues. Your not starting at zero as an investor or business person. You just need to learn Self Storage.
Every person should want to be a Doctor, Dentist, Lawyer, Engineer or Indian Chief. Not really. Because if they stop working, no income comes in. If they want to get more income, they have to hire people and start a business. They have to feed the "Animal". You want Passive Income.
B. I don't know you. My cousin has two Dental practices in Houston. Very wealthy and well to do. He has a problem though, he has to keep feeding the Animal. Wants to retire or back off when he is 60. Luckily his son has joined his practice and is learning. He will reduce his hours and at some point sell or give up his practice to his son.
C. "Don't Answer." What is your game plan? At what age? Have you and your spouse asked, When is enough, enough? How do we get to enjoy our wealth? Etc. Etc. Now is the time to answer those questions and put a game plan and action in place.
D. "Start small and Make Your Big Mistakes Early". If you read most of my posts, I end with that suggestion. Why am I recommending you don't do that? Read A thru C. Existing Experience, Financial position, Age/life cycle, critical thinking skill set.
E. You already recognize there will be a ramp up stage where you personally invest more time in the development. You could start doing SFH/MFH, but it will take you years to learn it and a lot of personal time. Plus half of the Return, is the fun of hunting/landing the property, staying under budget and then getting it rented. You can't invest that much time and would not enjoy it since you have to long term trade off Dental work, which pays more and is comfortable. Doing a large storage location is a one time event over 12 months during the development Phase 1. Phase 2 thru how many, takes very little effort. You already know all of the answers and who is going to do it.
How much are you willing to lose?:
You actually have two questions above. How much time in your life cycle are you willing to lose to reach your passive income level? How much money are your willing to lose?
Life Cycle- how much cash flow do you need to stop being a dentist or to go part time. At some point you sell your practice and work part time so you can invest and enjoy your life style. How many years do you have to develop a passive income plan to hit that number? A large storage location gets you there quicker than almost any other investment. Remember, I'm not selling you anything.
How much are you willing to lose?- First of all, if you don't do something in the next year, you're never doing a Passive investment plan. Your financial life is to easy. Its pre-set, and you know it. Again, I don't know you. Positive- So how much money are you willing to lose, to achieve your life cycle on the timeline you want? $50,000; $100,000; $200,000 etc. Negative- At that number, will your kids still get to go to college? Will you still be able to vacation? Will you still have a profitable Dental practice? Etc, Etc. That is the number you are looking for.
Lets go Barbecue some Elephant:
Before we get started and fire up the grill, lets see if we need to stop. Get the following answers on the 14 acres:
a. Is it zoned correctly?
b. Is it in a flood plain? No point in building if you have to get flood insurance. Go find another piece of ground.
c. What is the storage unit market there? How many people in a 3 and then a 5 mile radius? How many storage units are there?
d. How are you financing? What is your LTV%? SBA 10%; SBA 20%; Conventional 25%; Conventional 40%. You need to know how much cash or collateralization at 65% value you need.
Lets Fire up the Grill:
a. 14 acres- your not going to use all 14 acres.
1. A 14 acre site is as rare as "Anodontia".,
2. Your radius will not support 244,000 sq ft of storage. Even if it could you would have other competition in the market and have the extreme risk of a big REIT coming into your market and devaluing your operation. (High Risk),
3. Size of your location. For a manager you will need at least 300 units, which is about 4 to 5 acres depending on the shape of the land. About 120 units per 2 acres. If doing Boat/RV's, then another 3 to 4 acres.
4. Again depending on the shape, size, entrances, and visibility of the land, recommend you immediately Subdivide and sell portions. If possible you keep a large frontage and then the entire back section of the property. Sell off the road frontages, that can use the visibility. Basically you want an L shaped property, with the toe being your access to the highway and the storage.
b. Lets build:
1. Do in phases, let the shape of the land and the driveways determine how you will build. But plan on building out as you need them. Can run the numbers, but at a minimum you will need to build at least 300 units to support a manager (part time, weekends you cover for now, to learn). 24 hour phone service(part timer and you).
2. Big cost issues. Find out if you need water or sewer access. Road type, concrete or rock. Don't do asphalt in Florida. Storm ponds or drainage. You have to build for run off, can't have flat drives in your area, especially for the long driveways you would have on a 14 acre site.
1. Lets start with 4 acres of land. @$100,000 /acre= $400,000; yes, you need to finance the rest of the land.
2. 330 units at $3,200 erected= $1,056,000; Steel is increasing 25% now.
3. Concrete driveways- $400,000
4. Fence/automated gate- $60,000
5. Electric- $50,000
6. Security- $60,000
7. Office- $35,000 with furnishings
8. Engineering- $50,000
9. Dirt work- really depends. You said flat, so go with $30,000
10. Is Electric/water/sewer/fire service available? If not add $20,000 up to $250,000 more.
11. Talk with you Finance outlet and see what their LTV% is and if you have enough Collateral.
What happens if you get Barbecued?:
Land- $1,500,000; if you sell as is, you will pay 7% commission plus holding costs (interest/property tax) for 1 year. Estimate- $190,000; you lose.
You build out the 4 acres and 330 units. Lets say you have $2,300,000 into it. Your market should be good, otherwise you shouldn't have built in the first place. Then it becomes a question of when you sell. At 30%/50%/70%/90% occupancy. This may sound strange, but that's the market. The day you complete the location, it should be worth about $2,500,000 to $2,700,000 before you rent to one customer. When you get to 90% occupancy, it should be worth about $3,000,000 depending on your rent levels, possibly more. If your in a good market, you should be at 90% in 2 years. Estimate- $0 you lose. It all depends on your analysis of the market at the beginning. Read my post, "Will they come?"
There is nothing in self storage that can't be vetted.
1. Take the above and build an outline or get my Checklist 101 post. Challenge the largest numbers or unknowns first and work your way down.
2. Sign up and go to seminars or classes as soon as possible.
3. Start valuing and analyzing storage properties. Even ones you will not buy. If you don't get this one, buy or build another one. But keep doing the math.
"Don't Start Small and make your big mistakes early." Jump in. You are one of the few people I will tell this, and I don't know you.
Use these templates to digest the deal.
|Storage Startup Checklist 101|
|Response to Zagreb, Croatia startup|
|1||Why Do Storage?|
|2||Why Storage? Why you?||I’ll do a separate Topic. Don’t know your financial’s, but you will outstrip your collateralization fast. Develop a relationship with someone you trust and bring them along for the ride. Preferably an Apartment developer. They don’t have to invest in the first project, but you will need them later. Make sure this a solid relationship, otherwise they will cut you out once your successful.|
|4||Market size||See post, if your the “first”, then you don’t care. You have more than enough Market, in a 800,000 Pop city.|
|5||Outside or climate controlled?||Let your search and “deal” decide. Look for both an outside Land acquisition or an old industrial building. If you get a large enough building, finish it out in stages.|
|6||Market location||Seek your higher income areas first. Pick along the A2, A3, A4 corridors first. Stay away from the mountains. Do several small locations, no smaller than 1 hectare. Once you have the experience and Financial support, go for a Climate controlled location in an old neighborhood that is high income or rebuilding itself.|
|8||Site location||Have several searches and deals going at once, most of them won’t pan out for the price you are willing to pay. This way you “can walk away”. This gives you negotiating power.|
|11||Financing-construction||Find a banker who knows Apartment building construction|
|12||Financing- rent up stage||Same as above. You want “interest only” and not principal for a portion of the rent up period.|
|13||Financing- long-term||If your going to grow, unless you have significant capital at your disposal, find a future business partner.|
|14||Business Model||I’ll clean up and post one of my spreadsheets later.|
|15||Construction:||Use local knowledge/availability|
|20||Day to day:|
|21||Rental Contract||Post a “Topic” on this Forum and ask for some copies sent to you.|
|22||Rental Rates||Zagreb’s GDP per capita is $19,132 versus where I live $60,246 metro area of 1mm. Thus if I say a 10 x 20 “Foot, not meter” unit is $120, then yours would be around $40. Making this simplistic. Get on Sparefoot and pick a US city similar to Zagreb and pick out prices for 10 x 20/15/10/5. Then take 1/3 of that for your price in US $, then convert. Recommend you don’t use this as your starting prices; go after a richer neighborhood and charge higher prices.|
|23||Auction rules||Post a “Topic” on this Forum and ask for some copies sent to you.|
|24||Security system||Situational, work with your local security firm.|
|26||Self Service or manager||situational|
|27||Management software||Since the world is internet based, see if you can use one of the Storage management softwares in Zagreb. Do not do this on a spreadsheet or paper. You need to develop a system to grow with.|
|29||Website||check ClarkstorageLLC, and others on this forum. Take the best from each and make a template, for a better one.|
|30||SEO management||Since your the only one, you just need Google Map Pins and build up your google ranking under key words.|
|31||Marketing Software||Sparefoot or similar in your market area. If none exist for Storage, seek out Apartment, home, AIRBNB, Craigslist sites. If you have Craigslist, put an add out there with your offering and price. Different sizes and prices. Get feedback.|
|32||Marketing||Something you probably already know.|
|33||Social Media||Something you probably already know.|
|34||Insurance:||Leave to you for local knowledge|
|Sundry:||Leave to you for local knowledge|
|This is an example, for discussion only.|
|Adjust to local estimates|
|Green change or fill in.|
|Combination PL/Cash flow|
|Intentionally leaving out Depreciation and Taxes|
|Gross||$354,240||@ 90%, after rent up period|
|Late fees||$0||as needed|
|snow removal||as needed|
|manager||as needed, I do self service by phone; do you pay yourself.|
|Property Tax||$25,000||use local|
|Loan P/I||$120,000||Get your bank to do 20 year amort, adjust based on how much equity you have to put in 10%/15/25/40/etc.|
|Depreciation||left blank for Cash analysis|
|Tax||$59,742||as needed, adjust Loan P/I for Depreciation expense|
|Less Equity infusion:||$217,093||10/15/25/40%|
|Net loan position||$1,953,839|
|Annual cash flow||$139,398|
|Change calc/terminology etc to your objectives. Example: cap rate, etc.|
|I normally shoot for an 8 to 12 year payback, with a 20 year loan amortization.|
|This is based on the location/deal on hand. Any improvements in performance on top of that will be gravy.|
|My 8 to 12 objective will be met once Phase 2 is completed, versus the 14.0 years shown above.|
|Phase 2 is where you make your real money. I always have phase 1 pay off|
|the land, fence, Electrical, sewer, grading, etc.|
|How many phases or units should you build to start?|
|You can always build more buildings. I always shoot for 65% occupancy covers all initial costs for Phase1.|
|In this example, I would probably only build the first 15/30/40 buildings.|
|This is an example, for discussion only.|
|A. Project Cost estimate from ground up.|
|B. P/L revenue stream|
|C. Valuation Buy/Sell|
|Adjust all of the above to your local market and situation.|
|A. Self Storage Project Worksheet|
|Drive up Storage|
|Land||$200,000||4 acres at $50,000/acre|
|Survey||$7,000||Site, elevation and building layout|
|Gate system||$25,000||Automated rolling 20ft|
|Engineer||if needed; $30,000 to $60,000|
|Dirt work||$15,000||Slight roll, no dirt brought on site|
|Building demo||if needed, $15,000 to $60,000|
|Electrical- site||$7,000||building lighting and office if needed, LED.|
|Electric poles||if needed; $2,000 per pole. First is free if nearby.|
|Storm drains||if needed; $50,000 to $150,000|
|Water||if needed; $5,000 just plumbing|
|Water line||?? if an extension could be $10,000 up to $150,000|
|Fire Hydrant||if needed, $3,000|
|Sewer||if needed: $5,000 plumbing|
|Sewer Line||if needed; $10,000 up to ????|
|Buildings||$1,180,800||Phase 1 2 acres|
|Office||if needed, plain storage unit 20x30; $25,000 insulated.|
|Office setup||if needed, $5,000- computers, printers, HVAC, frig, cabinets, etc|
|Footings||if needed. ??????|
|Gravel||if needed, ?????|
|Asphalt||if needed, ?????|
|Concrete||$676,133||6 inch Cubic yards, framed, poured, sawn,|
|Retention Pond||if needed, part of dirt work cost, less land for buildings|
|Landscaping||$5,000||I like trees and bushes. Less sterile|
|Road Sign||$15,000||For highway 55mph billboard sign|
During construction and rent up require an Interest only loan. No principal. Request either rent up to 65% occupancy or 18 months before switching to principal and interest.
Life insurance- Do a 5 year term $4,000,000 policy on yourself. During the development stage is the time your family is most at risk. A partially completed business is not worth much. Cancel when you are past the last phase. Won't cost that much.
Wow! Thank you for the detailed response/advice. That was incredibly informative. It will take me some time to read over your posts a few more times to digest all of that information. It is also clear that I need to learn more before jumping in. One thing that jumped out at me, was that you said at 0% occupancy (right after being built, and before signing the first tenant), that the project could be sold for $2.5 - $2.7 million. But at 90% occupancy it only jumped up to $3 million. I would have thought that a 90% occupancy site would sell for multiples of a 0% occupancy site. Thank you again for taking the time to share your knowledge.
@Daniel Eley . WOW! You are quite blessed by the detailed responses you've received. Seriously, this is one of the most helpful forums I have seen.
A quick, blunt thought... I am finalizing a book on self-storage (BP Publishing). And if I was a dentist, making good money, I would not take this on at all. I would spend a lot of time finding a great syndicator to do the heavy lifting, take down the debt, and create the magic. You stay focused on what you do best and enjoy the cash flow, appreciation, and tax benefits. Yes, you miss out on the thrill of the hunt. But you gain peace of mind, your life, your time, your family, etc. I have spoken with countless people in your shoes before forming this opinion.
Self-storage is an easy business...if you want a mediocre facility. And a hard business... done right.
All that said, Scott Meyers has a great immersion program if you want to give this a shot. And as was said earlier, I would do an existing facility if you really want to jump in. Automate it if possible.
If you choose to find a great syndicator to invest with, check out the BP Brian Burke book on evaluating syndicators.
On the valuation note above. I have to apologize. I'm a retired CPA, Controller and CFO who doesn't get his math right all of the time. For example: I won't invest in a project unless $1 plus $1 = $3. Ha Ha.
Self Storage is red hot now. 1 plus 1 = $3.
Also the value of all 14 acres, just the ground increased once you put a business on it. Plus you chopped it up to subdivide. Our latest 8 acre site we paid $25,000 per acre and appraised for a little above that. Now appraised $100,000 per acre two years later just because we developed part of it.
A 10x10 unit should rent for about the same as a 10x15; "IF" it has a concrete road in front of it.
RV storage rental of 10 x 40 at $300= $.75/sqft; is worth less than a 10 x 20 at $130= $.65/sqft. I will let you ponder that one.
Keep doing the math and research on deals. Vet this one out. Answer all of the questions on this property I mentioned. Pick 10 other properties and keep doing the math. Go to the classes or seminars.
I also feel blessed by the great responses! I have not looked into syndication, but I will. I am open to any investments that bring passive income. I am interested in self storage because 1) it seems like a fun project, 2) most of the work seems to be on the front end, building and setting up the right systems for success - then a manager can keep it running, 3) the returns seem to be very good. Thank you for the advice! I will look into syndication as well.
It sounds like you've had a lot of jobs over the years. I'm glad to know that self storage was worth switching over to. I've tried pondering why RV storage that brings in $0.75/sq ft would be worth less than traditional storage that brings in $0.65/sq ft, but I've come up empty. Does RV storage cost more in maintenance or carrying costs (electric hookups, washing station), resulting in lower net income per sq ft?
Land costs here are quite high. $100,000 per acre is actually pretty reasonable for commercial property in my area. Most of the larger pieces of property in my area are $200,000 - $1,400,000 per acre depending on their location. There happens to be a 7 acre parcel right next to the 14 acre parcel I originally wrote about (asking $770,000). I will go through the vetting progression, but I will keep looking for other opportunities as well. My concern with this property is that it is not directly against the highway (less visibility), and there isn't much residential built out in the area yet. All of the residential is on the other side of the highway, but things are expanding towards this property. In the next 10-15 years the area around this property should be mostly developed. Even now, though, it is less than 15 minute drive from thousands of homes.
What part of Florida are you from?
I'm in Brevard County. The East coast of Florida - directly East of Orlando.