Houston Investors! Why is this Self-Storage Facility still on the market?

Question

246 UNIT - STORE 4 CHEAP

6400 Eastex Freeway

Houston, TX 77026

It is currently listed by M&M. I understand that the expressway separates the facility from the traffic flow right in front of it, but it gets a lot of exposure and there is residential all around it.

For $425,000 I am looking into this. I hear great things about the Houston Market. It has a ton of units, an easy to navigate layout, and has value-add opportunities.

Please tell me why I should NOT look into this...please be as critical as possible.

Bill Gulley · Answer

Well, that's not hard. Do you follow generally accepted accounting principles, do you allocate expenses to properties owned. Don't you have real estate taxes in Texas? Do they not tax empty units? Do you have insurance? Do they reduce your premiums based on the vacancies? I guess if it's vacant the roof can't be damaged and leak, maintenance only applies to leased units because the rollers on a door won't break if the unit is vacant. Do you just advertise the business based on the units rented? I suppose you rent to the first person who wants to rent a unit, so your office overhead and due diligence in processing applications is always allocated to the rented unit. How about that electric bill, those security lights, do they only shine on leased units or is the cost spread over the entire project? Why have a nice big sign out in front, anyone who has a leased unit probably knows where their unit is, it might help to advertise the vacant units.....are those commercial signs free? Do you just maintain the driveway in front of leased units? I could go on....

Really, prove you wrong? Come on... :)

Really, prove you wrong?  Come on...  :)

Daniel Miller · Answer

Bill Gulley  Hahaha I dont know man. I do not have a lot of experience and I am kind of a control freak. I need to purchase stuff in my backyard first before I go across the country.

I have never heard of rents being below $400...I do not see it in my area. I was really surprised to see that in Houston.

Probably going to pass on this one. If someone else wants to go after it, by all means. Ill be a 10% silent equity partner in the deal.

Daniel Miller · Answer

Bill Gulley

Ok, I can only provide my own experience to answer your questions.

Yes, there are RE taxes. They are $12,000 for this facility in Texas (seems outrageous). Obviously those have no bearing if one person or 246 persons are occupying units within the Storage Facility. That was approximately 1/3 of the operating expenses I mentioned earlier.

Insurance on this property is $2,500 annually. (Directly from the executive summary on M&M's listing). This was also included in the $40,000.

I expressed above that typical maintenance would still be applied to all units (sweeping roofs, blowing off exteriors, manicuring the lawns). It does not make a whole lot of sense to only mow the lawn in front of rented units, or to only clean parts of the roof where persons occupying space are located.

Advertising is part of the budget as well. It should not be more than $200/month. Advertising is a monthly expense, no matter what the vacancy rate. You want to keep your business fresh in potential customer's minds.

The security lights would obviously stay on. The utilities would actually decrease. Many people abuse faucets (washing cars, boats, etc.,) and there would not be as many persons utilizing the utilities.

THE WHOLE POINT of examining this property was to show that even if it was purchased at 50% occupancy it makes sense to sit on it until (maybe) the area's population increases and thus one can reap big rewards.

I have done some more research about the 77026 area code and I read that the average rent was $359. This did not excite me whatsoever so my search will probably conclude. BUT, there are many less expenses associated with unoccupied storage units compared to any other commercial investment.

Daniel Miller · Answer

I could. I have some money to spend right now. I just know nothing about Houston...or Texas for that matter. What is the Replacement Value of the Storage Facility? I am not an appraiser but there is no chance you can buy the property and assemble 20,000 square feet of building with 266 separate entrances for $425,000. I can probably talk Dad into placing an offer at $200,000.

First I want to address the persons who made the point about scheduled income expenses. When a storage unit is not occupied, what expenses can one think of? There are virtually none. The lawn service will tend to landscaping matters,  the buildings will be sprayed for termites and the roofs will be maintained. Other than that (which covers all units) there are no specific expenses for units that are not being leased. Utilities will be used less. Only 50% of persons will be accessing the water.

They are block buildings with garage doors. There is no maintenance required on units that are not leased.

@Nick K. I like your friend's reasoning. It makes a lot of sense. The SS facility we own is in a fringe part of town. I get some people that pay me in cash and complain about the rates. I get other people who pay me through Auto-Bill Pay and I never hear or see from them.

Bill Gulley Bill, please prove me wrong. What expenses are there going to be for units that are not leased. The management company usually gets first month's rent and 10% of gross rents monthly. Their fees will be much lower. Maybe I am missing something, but I do run a SS facility and have ran it for the past 15 months. I cannot think of any expenses that accrued due to our units being vacant.

Account Closed No, they are paying for management. The cool thing about this facility is that there is an onsite management house. This saves you approximately $10-$12,000 annually. If you can get someone responsible, clean-cut, punctual and honest to move in there it will be well worth the money.

I have a feeling that they are currently advertising poorly, the management team they have in place is doing an unsatisfactory job, and the management personnel living on-site is unfriendly and unaccommodating. I have seen it before.

Tina Herman · Answer

Belinda,

Will you please send me the financials on these self storage properties?  Many thanks,  Tina

Belinda Lopez · Answer

Just looked this one up and yeah, its' not the best area of town and not much redevelopment heading that way either.  If you really want to learn about Self Storage investing, I highly recommend Scott Meyers bootcamps and courses.  It's a great niche area but you are running a business.  The market is definitely growing in this niche.

I have two smaller facilities for sale in the county south of Houston.  I can send you the Pro Forma we did on those so you can see how I analyzed them.  According to 'experts' 75% is the industry standard for occupancy so even though my facilities are at 95% right now, if you account for move-ins/outs it works out to about 75% annually.

Frank Wu · Answer

NOI listed as $37,953 on Loopnet.  The Pro Forma numbers are almost always hype.  I'd definitely verify all the numbers.

Daniel Miller · Answer

I understand. City-Date had the AVG rents at $359...if the average is $359 there are definitely some below $300. There was no square foot basis given. Maybe apartments are smaller in this part of Houston? Idk that seems like a jump...its prolly just a very poor area.

There is an area like that near me...there are zero two story buildings. No development. Has not seen a crane or bulldozer in centuries. But the rents are still approximately $450-500 for a 1bd.

Bill Gulley · Answer

Better look at rents on a sq ft basis, being at $400 doesn't relate since we don't know how big they are. It's about a buck a foot a month or $12.00 annually around here, older units can be much cheaper as well as those in the sticks around the lake areas. Go with the market. :)

Bill Gulley · Answer

Yes, just add the security and police calls in that area to your due diligence list.

Like I said originally, if it's been on the market for a long time, it's probably overpriced.

And yes, occupied anything costs more than unoccupied, but that's not saying unoccupied doesn't consume assets, time, money and management.

Sounds like you're on to it here...... good luck, let us know when you close the deal! :)

Houston Investors! Why is this Self-Storage Facility still on the market?

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