First self storage unit facility investment - Good deal or not?
I am new to self storage investment and educating myself about self-storage investment. I found a property that interests me. Not sure if this is a good deal or not.
It has 30 units and 2021 NOI of 37K. The list price is ~570K. The cap rate is about 6.5%.
I thought this is a small enough property that I can run and learn. I have full time job but can work remotely. Since the storage operation may not need my full attention all the time, I am thinking about staying at the self storage facility and work for my full time job, and handle a bit of storage operation as well. Is this doable? I would appreciate any feedback.
What's the potential upside? Is there any room to raise rates and gross income? Any space to add new units? Improve operations?
The Storage Rebellion is the best place to learn about storage, IMO. Lots of other investors have started in storage the same way you are, and there are a ton of case studies amongst that group.
To finance, the property will have to debt service itself to qualify with most lenders. The second piece of that is as @Taylor L. pointed out, how are you going to improve your profits? Keep in mind, the way a lender looks at the deal and an investor don't always align. The lender is more concerned about what is there now and what can be sold should you default, so they can recoup their costs. They are not so interested in what the property "can become". Many investors I work with who do Self Storage usually look for places that have high expenses and low rents. The numbers have to work for financing but if they find a deal that works for them by their metrics, then they can get in and improve to boost their returns. Many hold them for a few years then sell them off once they tap out the operations and rents.
Cheers!
Quote from @Taylor L.:There is no space to add new units but there is chance to improve operations. The current owner is not doing any marketing. I cannot search this on storage search websites.
What's the potential upside? Is there any room to raise rates and gross income? Any space to add new units? Improve operations?
The Storage Rebellion is the best place to learn about storage, IMO. Lots of other investors have started in storage the same way you are, and there are a ton of case studies amongst that group.
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I think it sounds like an ok first deal. Especially if you're able to be present during the day. You'll learn a ton.
Whats the current occupancy? If your market research (check sparefoot) says rents can go up, you'll make money from increasing rents and occupancy.
I'd push on the price, are you getting debt or not?
@Jason Sung why did you start looking if you don't know what a good deal is? Run it through a REI calculator and see if it meets your minimum criteria.
30 units is small for self storage. There's not enough activity for you to work there full time. How much of the $37k NOI are you going to pay yourself? Is that enough to make it your full time job?
$37k NOI and 6.5% cap seems like a good option and it gets you in the game.
Quote from @Jon Kelly:
@Jason Sung why did you start looking if you don't know what a good deal is? Run it through a REI calculator and see if it meets your minimum criteria.
30 units is small for self storage. There's not enough activity for you to work there full time. How much of the $37k NOI are you going to pay yourself? Is that enough to make it your full time job?
$37k NOI and 6.5% cap seems like a good option and it gets you in the game.
@Jon Kelly Thanks for the comment. I work in IT and work remotely. What I meant was to keep working IT remotely (at self storage office), while running the storage unit by myself since the number of unit is small.
Quote from @Ronald Rohde:
I think it sounds like an ok first deal. Especially if you're able to be present during the day. You'll learn a ton.
Whats the current occupancy? If your market research (check sparefoot) says rents can go up, you'll make money from increasing rents and occupancy.
I'd push on the price, are you getting debt or not?
@Ronald Rohde Thanks for your comment. I am considering SBA loan with 15% down. Current occupancy is below 50% but the NOI for the cap rate calculation is from last year.
Quote from @Jason Sung:Why is occupancy so low?
Quote from @Ronald Rohde:
I think it sounds like an ok first deal. Especially if you're able to be present during the day. You'll learn a ton.
Whats the current occupancy? If your market research (check sparefoot) says rents can go up, you'll make money from increasing rents and occupancy.
I'd push on the price, are you getting debt or not?
@Ronald Rohde Thanks for your comment. I am considering SBA loan with 15% down. Current occupancy is below 50% but the NOI for the cap rate calculation is from last year.
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Quote from @Zach Quick:
Quote from @Jason Sung:Why is occupancy so low?
Quote from @Ronald Rohde:
I think it sounds like an ok first deal. Especially if you're able to be present during the day. You'll learn a ton.
Whats the current occupancy? If your market research (check sparefoot) says rents can go up, you'll make money from increasing rents and occupancy.
I'd push on the price, are you getting debt or not?
@Ronald Rohde Thanks for your comment. I am considering SBA loan with 15% down. Current occupancy is below 50% but the NOI for the cap rate calculation is from last year.
Yeah, I wouldn't pay 6.5% cap for 50% occupancy!
Hi @Jason Sung. You got some good feedback above. This might be a good opportunity…or it might not. It’s pretty hard to tell. Feel free to PM and I will introduce you to my friend Andrew Leedom, or you can look him up yourself on BP. I think he would be glad to speak with you about his experience buying small self-storage and I think that would be a helpful conversation. You might want to consider automating the facility if it’s not already done. And here is a novel thought…I know one guy who added a second storage to all of his units which was accessible because they were built on a hillside :) I doubt if that is the case in your situation but keep your mind open to possibilities for expansion. Good luck!
