Storage Facility Purchase - 10% LTV Financing Requested

24 Replies

Hi Folks!

I have a few single family rentals (Oregon and Texas) and they're doing great, and I have a large amount of equity in each house. I live in Oregon and am purchasing a storage facility in Texas for $450k, the bank will finance 80%. I'm looking to use cash for 10% and maybe cash for the other 10% as well, or finance the other 10% with my HELOC at 3.99%, or a hard money lender. I'm considering looking for someone to finance that other 10%. If anyone can advise me on who I can reach out to, or if anyone is interested in financing the other 10% let me know. I have the cash, or the HELOC, but want to keep some capital for future purchases so I'm considering having a hard money lender cover 10%. This is a cash flowing business and I'll improve it by cutting expenses and increasing revenue, it's a 9% cap rate, my financial situation is solid and I can come in with the down but am thinking I would prefer a hard money lender. Thanks for any advice, referrals, or whatever you feel like writing in the comments.

-Travis

1.  Do a 10% down with an SBA loan.  Get 20 to 25 year terms with current interest around 2.??%.

2.  I would not use any cash. Have the bank collateralize one of the houses for the 10% ($45k).

3. If there is another Covid government funding, you may get the 6 month free on the SBA side of the P/I.

4.  Find a bank that does Storage or Apartment buildings.

5..  Evaluate any improvements or expansions you want to do now and incorporate them into the loan.  Ask the bank you want a construction loan with interest only to make these happen.  Prior to rolling into the SBA loan.  That way you don't have to foot the repairs or expansions.

6. If you haven't closed yet, talk with your Tax person.  Do an Asset purchase versus buying the business.  Break out the roads, security, lighting, signs, etc.  Possibly do a non compete agreement with the owner.  Basically move as much away from Land and building as possible, so you can get a year one write off.  Carry forward loss if you can't use it this year.

See our Self service youtube on the website below.  Try to get away from an onsite manager.  You will still need someone to help you manage locally.  

Operations:

a.  Insurance- call Ponderosa insurance, part of Uhaul.  They have storage specific coverage.  Unless you already have insurance.  $450k coverage will probably cost around $1,500.  Over insure, its really cheap  $600k coverage will be around $1,700.  You want to cover clean up costs also and lost rent.

b.  Get on Sparefoot for advertising.

c.  If manual move to internet and web based storage software.  We use Web selfstorage with Uhaul for $44.95 per month.  Can see anywhere in the world.  Check out Storedge, I am not recommending them, but one of our local competitors used them, and got ranked real high and fast on Google. They have an SEO part of their business.

d.  Security- get web connection so you can see your operations and get notifications.  Example:  Anyone opens the door with the code, I get a text.  If someone breaks in, I get a phone call.  Have your security person check out Uniview systems.  They have motion sensors which you can dial up or down for size.  They have line sensors if you break a plane.  These events are color coded on the timeline to help you find activity.  Have them tie you in, so you can look at the cameras either on your cell or computer.

e.  Get a battery and surge protector unit for your computer and nvr system.

Good luck, great investment.

Thank you so much Henry! This is great, detailed information! I've been trying to get in touch with SBA but have not received a response, I'll keep trying. I have interviewed three banks and narrowed it down to one if SBA doesn't work out. I see some benefits to SBA, especially if they do that 6 month deal again, but also know it takes some time as well. As far as the other details, some of them I'm on top of and some were good, new information for me. Very helpful as I get things started and transition from my SFR's into storage and possibly apartment development down the road. I appreciate your response, one of the best I've had on this site, thank you again!

Don't talk with SBA.  You will go through a bank that handles SBA loans.  Pick a bank that is mid size.  You would like your loan officer to grow with your business.  If you pick a large National bank, that person will be gone in 2 years.

Good luck.

You mentioned transitioning. I would look in Oregon, near you. If you have plenty of equity built up and are wanting to transition, I would do a 1031 exchange out of SFR into Storage. Otherwise your only leveraging the bank collateral % of the value, say 70% versus 100%. Pick your worst SFR or the one you don't expect to appreciate further and do 1031.


Look on Loopnet self storage as an example.  There are 3 storage locations for sale, they are all priced high, but hey you negotiate.  Personally I would look at the Vale Oregon location and vet it.  a.  Extra land, b.  Largest and 99% occupied, then you control rent rates in town., c.  Buy the other locations out., d.  Increase rent rates

Thanks Henry, I'm transitioning out of Oregon (many reasons). However, I have one high end SFR left in Oregon, 3 blocks from me. My tenants are amazing! If they give notice, I plan on doing a 1031. I'll be discussing their plans in the near future and will determine if a 1031 is coming soon depending on their situation, they've been great! Timing storage with a 1031 may be tough but if I can time it and work something out, that would be fantastic! Since that property does have substantial equity I do plan on using the equity as needed for future storage and multifam when the timing is right.

@Henry Clark I'll be focusing on the areas around Temple, TX and possibly Lake Mary, FL. Kind of in a holding pattern for a bit while I get my first one going, then plan on getting another one when the timing is right. 

@Travis Rogers you got some fantastic advice from @Henry Clark here.  Some of the best replies I’ve seen in BP ever.  

If you haven’t located a bank that does SBA loans, I’d reach out to Live Oak Bank in Wilmington NC. PM me and I’ll help connect you if needed or just ask for Terry Campbell.  They are one of America’s most aggressive SBA lenders for Self-Storage.  Best of luck!  

@Paul Moore Thank you for the comment! I've watched your videos in the past, and watched one of them today where you mentioned Terry Campbell. Ironically I spoke with him this week. I have it narrowed down to his SBA @90% LTV but with more fees, or a bank that will do 85% LTV, 25 year am., and a 10 year fixed rate which is good as well. Tough decision at this point but it will be one of these two.

Having a storage facility has been a goal of mine for over 20 years, I'm glad that it's finally happening! My goal was to have one, now my goal is to have several including my SFR's. Thanks again, you've got some great points in your videos and @Henry Clark 's advice above is awesome as well! I appreciate you both taking the time to respond! 

Have a great weekend!

@Travis Rogers

Below is a checklist you can use to organize your approach to Self Storage.  Disregard any Croatia comments, I was helping a new investor there.



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.
3 Market/Demand:

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.
7
Zoning See post
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.
9
Site acquisition
10 Financing:
See “Topic”
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
16
Permits
17
Building type
18
Building manufacturer
19
Contractor
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.
25
Fencing situational
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.
28 Marketing:

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
35
Business
36
Renters

Sundry:
Leave to you for local knowledge


Property taxes


Legal system

Thank you @Henry Clark ! Got earnest money in today and should have my first facility in my name before end of year, can't wait! Have a great week! 

Travis Rogers

Woo Hoo

Don’t know if I spelled that correctly

Really becomes a cookie cutter process after you do your first one

Once your settled in. If your interested since your looking at Texas I know of some bare ground in San Antonio to be developed.  My brother and his family weren’t ready to take the passive income path. We don’t do non local storage investments otherwise I would do. 

Congrats

Thanks @Henry Clark ! My goal is to purchase another facility next year once I have this one automated and running smoothly. I have the benefit with this one in Texas to have fantastic friends and family "boots on the ground" that I can trust, have connections, and are amazing, knowledgeable people! San Antonio is a great market! I don't know anyone there so it would be tough to invest in, but I'll keep that in mind. I feel Texas will appreciate. The SFR I purchased in March down there is up 9% in 8 months! I'll take that return any day!

Did you ever finalize this deal? I’m asking because I just came across this post. I’ve purchased a storage business in Texas. My first one. Was wondering if this ever panned out for you? 

@Bryan Brooks I did finalize and it's going well financially, has been a lot of work but getting better every month. Now searching for facility #2, also in Texas. How are things going with your place?

@Travis Rogers things are going great. Facility is now 100% occupied (I only needed to fill 1) and we are off and running. Trying to get as much into an automated system as possible. Rates will go up June 1. Name change on July 1. Then I will be adding about 14 more 12 x 30 units. 


If your near 100%, would recommend the following moves:

1.  Raise rents, you already noted.

2.  New customers, make them all do Autopay only.  Slowly move all of your customers to autopay.

3.  Trouble customers, increase their rents even more, and force them to move to autopay if currently cash.  Basically get rid of them.  This will allow you to scale without investing more time into collections.

4.  Go to all of the local competitors and offer to buy them.  Keep checking with them every 6 months.  This does two things.  It bundles locations, and makes your properties worth more than individually.  Plus you control the rent rates when you start to get to 60 to 70% of the market.

Totally agree with @Henry Clark , great advice! 

When you do raise rents let them know why (taxes went up, utilities increase in price, value adds like website improvements, cameras, etc.) and I also keep my current tenants a few bucks or more below market rates and inform them of this in the rent increase letter so that they know they're getting a better deal than someone coming in new. I've seen other strategies but this has worked well and so far not a single move out due to rent increase of the over 45 increases earlier this year. Increase gradually (do a little bit each month) so that you don't have a large move-out situation and keep tabs on occupancy as they increase, sounds like you have room to raise them, that's great!

Autopay is fantastic, I don't hear from them much at all, passive income at it's finest! I'm going to use Henry's strategy moving forward for new tenants, huge time saver!

I've had 6 arrests since cameras went up, and have removed several tenants (either by having them arrested or giving them notice). As these problems go away, the units still rent and my life gets a lot better not having to deal with them. Sometimes 5%-10% of your tenants take up 80% of your time, getting them to leave can be a gift!

All the best! I keep searching for another but definitely a tough market to find one in right now. 

If you manage it properly you should be in good shape. This property was not properly managed prior, and had no cameras, and is right off Interstate 35, and they left the vacants open which invited the wrong kind of traffic. It's in good shape now fortunately, hopefully no more arrests. It's been a peaceful month for a change

@Travis Rogers Late joining this party. Curious to find out which avenue you took regarding financing and terms? To comment further, finding a great management software makes life easier. I tend to try and follow any self storage discussion @Henry Clark is a part of - the guy has a plethora of knowledge.

@Chris Gossett , I ended up going with a commercial lender (non-SBA) with a 10 year fixed rate, 25 year amortization, and 85% LTV, fantastic deal for me. Took me hours of calling lenders. I may go with an SBA on my next one, goods and bads. Totally agree on the software! I have great software that automates my late emails/texts/fees, payments, move-ins are automated, etc. Makes all the difference for sure. @Henry Clark does have a lot of good points!!