Lets talk about Self-Storage
As someone who has never invested in real estate, self-storage seems like a great way to break into real estate investing. What are your thoughts on this? From sourcing/analyzing deals to financing to cash flow. Is self-storage as great an opportunity as it seems or are there pitfalls to be weary of? I'd love for you to share your experiences so I can gather some real world advice. Thanks!
Hi! We prefer self-storage over residential rentals by far, but we are in California and the laws are 100% in the tenant's favor. We've owned the storage facilities for decades, so I am no help with your other questions.
Best to you!
Self-storage is a great asset class with many benefits. If you operate them well, they can produce a great return and hedge against inflation. Like any other asset class, I'd recommend building a strong base of knowledge before jumping in. Feel free to shoot me a message if you'd like to get on a call.
There is definitely opportunity, but like you said there are pitfalls to be aware of. It's relatively easy to add new square footage to a facility and expand, which is great. Unfortunately, that means your competitors can do the same and flood the market. Being aware of that fact is important! In addition to much more.
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Self storage is a lot more of a business than "passive" long term real estate. Are you prepared to handle that part of operations? Staffing? Marketing?
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@Frank Granata definitely say jump in, but could you add your World view perspective?
See you work with a Mortgage company, thus your aware of the markets and financing.
How is your area of the market doing? Increase or decrease in loans?
What are your magic risk numbers where you invest or stop investing? Interest rate 5%, 7%, 9%, 11%. More than the number, what are your considerations?
As far as pitfalls for storage:
a. Make sure your cashflow covers all of your costs and P/I by about 30% if this is an existing facility.
b. Don't build your first time out. Although your best profit is on a build out today.
c. Verify your zoning.
d. Verify your expenses. Even though someone gives you a P/L. Re-do and validate all of the numbers. Insurance, Property Tax, Electric, Snow removal/lawn, your labor or management costs, etc.
e. Income side- validate the past due or receivable accounts. Anyone older than 1 month is not true revenue or a tenant. See how many units are tied to the current owner. Will they leave when they leave.
f. Ask the neighborhood on any weather issues, flooding, snow access, etc.
g. Do you want to buy the business or just the assets. If buying the business, make sure the contract includes all items. Name, website, bank account, security codes or passwords, storage management software access/control, etc.
Start small and Make Your Big Mistakes Early.
Quote from @Michael Margarella:
Self-storage is a great asset class with many benefits. If you operate them well, they can produce a great return and hedge against inflation. Like any other asset class, I'd recommend building a strong base of knowledge before jumping in. Feel free to shoot me a message if you'd like to get on a call.
Looking to purchase a business. Self-storage is a business I have an interest in looking into. What resources would you recommend for more information on finding storage complexes for sale, financing, brokers, etc.
Thank you!
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Quote from @Miguel Reyes:Most big brokerages have a SS division, just start there. Figure out your target elevator pitch and tell everyone you know thats what you're buying. Youll get off market deals soon enough.
Quote from @Michael Margarella:
Self-storage is a great asset class with many benefits. If you operate them well, they can produce a great return and hedge against inflation. Like any other asset class, I'd recommend building a strong base of knowledge before jumping in. Feel free to shoot me a message if you'd like to get on a call.
Looking to purchase a business. Self-storage is a business I have an interest in looking into. What resources would you recommend for more information on finding storage complexes for sale, financing, brokers, etc.
Thank you!
My apologies for the continuously rookie questions but I'm curious. When you say big brokerages are there some you would recommend or just google large commercial real estate brokerages? When it comes to financing of these deals do you just go through local lenders?
Thank you for all the help and wisdom
Quote from @Miguel Reyes:Storage financing is fairly accessible, partially because it was one of the best performing assets during the Great Recession. There are, of course, institutional lenders, and even an SBA lending program that offers up to 90% LTV. For smaller deals (below $1M), your best bet is likely going to be local banks and credit unions.
My apologies for the continuously rookie questions but I'm curious. When you say big brokerages are there some you would recommend or just google large commercial real estate brokerages? When it comes to financing of these deals do you just go through local lenders?
Thank you for all the help and wisdom
Hi @Frank Granata. If I was starting over in real estate, I would get into commercial real estate as soon as I could and I would certainly consider self storage as one asset class. Like @Ronald Rohde mentioned above there are not little boxes that spit out cash, this is an actively managed retail business as well as a real estate investment. Feel free to reach out to me and I can send you a free report on self storage. Or you can buy my book published by BiggerPockets last fall: Storing Up Profits. Happy investing!
Quote from @Jenny Bayon:
Hi! We prefer self-storage over residential rentals by far, but we are in California and the laws are 100% in the tenant's favor. We've owned the storage facilities for decades, so I am no help with your other questions.
Best to you!
Thanks! @Jenny Bayon - Do you have a system for analyzing cash flow to see if it's a good deal or not? I understand the current owner will provide P&L's but do you estimate the loan payment and taxes just like you would on a conventional mortgage?
Quote from @Taylor L.:
There is definitely opportunity, but like you said there are pitfalls to be aware of. It's relatively easy to add new square footage to a facility and expand, which is great. Unfortunately, that means your competitors can do the same and flood the market. Being aware of that fact is important! In addition to much more.
Thanks @Taylor L.! That's an interesting point you make. It sounds like bigger might not always be better depending on the market and how efficiently the facility is run.
Quote from @Henry Clark:
@Frank Granata definitely say jump in, but could you add your World view perspective?
See you work with a Mortgage company, thus your aware of the markets and financing.
How is your area of the market doing? Increase or decrease in loans?
What are your magic risk numbers where you invest or stop investing? Interest rate 5%, 7%, 9%, 11%. More than the number, what are your considerations?
As far as pitfalls for storage:
a. Make sure your cashflow covers all of your costs and P/I by about 30% if this is an existing facility.
b. Don't build your first time out. Although your best profit is on a build out today.
c. Verify your zoning.
d. Verify your expenses. Even though someone gives you a P/L. Re-do and validate all of the numbers. Insurance, Property Tax, Electric, Snow removal/lawn, your labor or management costs, etc.
e. Income side- validate the past due or receivable accounts. Anyone older than 1 month is not true revenue or a tenant. See how many units are tied to the current owner. Will they leave when they leave.
f. Ask the neighborhood on any weather issues, flooding, snow access, etc.
g. Do you want to buy the business or just the assets. If buying the business, make sure the contract includes all items. Name, website, bank account, security codes or passwords, storage management software access/control, etc.
Start small and Make Your Big Mistakes Early.
@Henry Clark Thanks for the great response! Residential purchases are definitely a little slower right now due to rates but inventory has been low for a while now. The last point you make is intriguing and definitely a question I've had regarding self storage. I would like to own the business and the asset. I didn't even realize in self storage you had the option to strictly own the asset. I always assumed whoever owned the units also owned the business that is running them.
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Whoever owns the business also owns the units. My point is if you buy a location just buy the assets. Your first location you might not care. But your second location you probably won’t want the name, management software, and any potential liabilities that go with it.
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Quote from @Miguel Reyes:CBRE, JLL, Mathews, Newmark, Stream
My apologies for the continuously rookie questions but I'm curious. When you say big brokerages are there some you would recommend or just google large commercial real estate brokerages? When it comes to financing of these deals do you just go through local lenders?
Thank you for all the help and wisdom
For deals sub $3m, go with a local bank you hold deposits with. I posted a video about questions to find a lender...
Quote from @Frank Granata:
Quote from @Jenny Bayon:
Hi! We prefer self-storage over residential rentals by far, but we are in California and the laws are 100% in the tenant's favor. We've owned the storage facilities for decades, so I am no help with your other questions.
Best to you!
Thanks! @Jenny Bayon - Do you have a system for analyzing cash flow to see if it's a good deal or not? I understand the current owner will provide P&L's but do you estimate the loan payment and taxes just like you would on a conventional mortgage?
Hi Frank! Hopefully you farther (further?) down the road in your quest for self-storage investing! I'm sorry it's taken me so long to respond. My father-in-law built his first facility in the 70's to store boats that he made & sold to customers and then bought another self-storage facility in 1978 that he expanded. He likes to make 10% on his investments, which is a very high standard I think. My hubby are the property managers now and are upgrading everything and trying to bring up occupancy levels. :)
Cheers!
Quote from @Henry Clark:And sometimes the seller won’t even care if you want the business!
Whoever owns the business also owns the units. My point is if you buy a location just buy the assets. Your first location you might not care. But your second location you probably won’t want the name, management software, and any potential liabilities that go with it.