Deal 1: Self Storage Facility - Learn with me & offer support

Deal 1: Self Storage Facility - Learn with me & offer support

Member since 2021 · 24 posts · 24 votes

First thing's first, I was laid off from my job and thinking of creative ways to support myself and escape the matrix. I have $400k in accessible cash looking to deploy towards real estate. I made another post and connected with many others who seem pretty helpful. One of those individuals was Henry Clark who specializes in self storage. This post is going to be dedicated to my first deal in trying to acquire or develop my own self storage facility. Join me with questions, comments, and additional support.

Here are the outline steps of what I plan to do.

1. Analyze a few deals. Being able to determine demand in a particular area involves a few factors. From my short amount of research, self storage is a retail service now. Folks want to be close to their belongings, they want it to be easily accessible. Some places calculate based on population and square footage per person. I'm not sure what's correct, I have more questions than answers. But being able to find a land even if there is a competitor nearby and determine vacancies, pricing, unit dimension demand etc is something that I will need help on. Currently Henry mentioned a deal in Palmdale. 4 acres asking $240,000 for vacant land. Zoned for self storage, problem is it is not in front of any main roads but has a private dirt road off an exit road next to the freeway. More on this deal in an additional thread.

2. Build a template: This is something I will need guidance on. There are a lot of steps in any real estate venture. Getting organized is important to understand how to orchestrate different parties to align timing wise so no time or money is wasted when locking down a loan and needing to make payments. 

3. Secure financing: I currently am talking to US Bank, I've heard they have the most favorable construction loans in the market as of right now, but they are asking to see projections in order to continue talking to me. I believe for every 100k in the bank they would loan out 1mm dollars so long as you have a high paying job, up to a few million. Going to need help putting together a financial projection to prove the business model will expect to make x dollars in y time. I'm not sure what kind of loan I could even qualify for. I dont have a business with tax returns. I'm just getting started.

4. Partner with a GC and construction company: Construction company will supply the block and steel. The GC is responsible for mostly everything else, leveling, drainage, electrical, security, doors, concrete/asphalt, gates, office. I need clear and accurate estimates with to ensure we don't go over budget and that I can also say with $1mm I can build x units, which would net me y dollars. Another factor which is slowing my projections to share with the bank in order to get approval for a loan. 

5. Close on a property: This may be one closing which could include the land along with my loan or it could be me purchasing the land/space outright working with a commercial real estate agent. I'm located in the Southern California, Los Angeles area. If you know any commercial real estate agents that have experience in self storage I would love to connect. I am going to need representation.

Join me in sharing your stories of how you started, any advice you would give to someone new starting out. And by sharing any relevant material you think you would be helpful. It could be excel, presentation, docs, connections, or wisdom. Thank you in advance.

7Reply
176 views

Most Popular Reply

Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
3y

I’ll guide you through as needed.  The reason I asked you to do a post is.  I don’t help individuals other than my relatives.  This way other people benefit along with you.  Also don’t trust anything in self storage.  It can all be validated unless you get lazy.  Plus you can get a lot more input from other people on this post.  Anything I say is not financial advice.

See this reply in the discussion

77 Replies

Jump to latestLatest
  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    I’ll guide you through as needed.  The reason I asked you to do a post is.  I don’t help individuals other than my relatives.  This way other people benefit along with you.  Also don’t trust anything in self storage.  It can all be validated unless you get lazy.  Plus you can get a lot more input from other people on this post.  Anything I say is not financial advice.

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    Read posts, watch podcasts, buy books, join Facebook groups, look at consulting groups, join ISS and SSA.

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    Narrow down your search and efforts.   For your benefit and others. 

    1.   How much cash do you have available to invest.   Let’s use $100,000 for discussion and easy math.

    2.  How will you finance and downpayment.  Example commercial loan 25% down, interest rate, 5 year balloon or interest rate adjustment, 20 year term.  Etc


    At $100,000 at 25% you can do a $400,000 deal.   If you do an SBA loan at 10% you can do a $1,000,000 deal.           
    This helps narrow down your focus and efforts.  
    .       
    Financing you will look for a construction loan interest only payment.  That will be converted to a permanent loan.  Make sure to budget your construction interest into your budget.  
    .       
    Let’s use that one piece of info above as an example.  Include interest expense in your budget.   There are 100s of pieces of info.  They will come at you randomly unless you work with a Self storage group.  You need to make a spreadsheet and out this info in categories.  Example Loans.  Under that construction loan, terms, SBA, Commercial.  Even if you don’t plan to use that, put it down as part of your checklist.

  • Ronald RohdePro Member
    Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
    3y

    Why don't you just buy an existing facility? Can you survive off $40,000 a year? Are you going to get another job?

  • Real Estate Consultant · Denver, CO · Member since 2021 · 661 posts · 389 votes
    3y

    @Eric Don Don't forget to calculate cost segregation into your numbers. The tax and cash-flow benefits are quite significant. You may not have federal or state taxes to pay for a while. As you get closer to realizing your next step, whether that is purchasing a self-storage facility or building one, estimates that you can rely on are free. 

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    Like anything there is a lot to learn.  I wouldn’t do self storage unless you plan to grow.   Kind of like learning Italian for just one trip your whole life.

    So before you go deeper let’s decide whether this for you.  
    You can buy or build.  Normally I recommend to buy.   But storage is at a high premium, so I recommend building.  

    A.  If you’re in an area where a 10x20 is renting for $65 it is not worth building.  Building costs are to high right now. 
    B.  Do you have the cash for the downpayment?  You will also need cash for the rent up phase.  Ask for interest only during construction.   Also during rent up phase either 18 months or until you hit 65% occupancy.   
    C.  If your 10x20 is in the $130 and up range your numbers will work.  If your land is in the $50,000 to $150,000 per acre range.  
    D.  Returns.  Appreciation. If you’re in the ranges above and build a 200 unit facility you will immediately have $1mm appraised equity above cost and your downpayment.

    E.  Returns-  we actually don’t look at returns.  We look at cash flow.  We want a project that we can pay off in 8 to 12 years with a 20 to 25 year term note.  So the combination of returns, cost and downpayment.  Sometimes we will go with a 14 year payoff on phase 1 if there is land to expand.  

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    Before we go further any questions before we dive deeper?

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @Henry Clark:

    I’ll guide you through as needed.  The reason I asked you to do a post is.  I don’t help individuals other than my relatives.  


    I am willing to let you adopt me Henry.... Lol.

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @Henry Clark:

    Before we go further any questions before we dive deeper?


    I would think the first step would be getting familiar with and having comprehension of feasibility study, wouldn't that be a best step 1? 

    Because that will be a required component to attain financing isn't it? And with that, or I should say comprehension of that, one would have some understanding of what to look for in a viable market, viable #'s, the operational requirements, time to launch and lease-up. 

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    @James Hamling

    I enjoy helping answer questions on BP.   Glad to share and sharpens my approach.  For example we stay in a 40 mile radius of our house in Iowa and have way more opportunities in small town USA than I could have even imagined.  Helping other people in different parts of the country I’m amazed at the opportunities in storage.  Far better than where we live.  

    I have helped one of my family out.  $310,000 down.  Sold for a profit of $1.2mm 2 years later starting from construction.  Plus he got his $310k back. Plus the rental income during that time.  He is tickled pink.  They are moving to Italy on an assignment for 5 years and will have a great life with cash plus his pensions. Plans to get back into storage when he comes back. 

    Although I did this for family would never do this as a business.  I would literally charge to much. Say 2% of gross total revenue after they hit breakeven at 65% occupancy.  Forever.  And 10% of sales price if they sold.  Mainly don’t want the phone calls. Family is enough.  Plus although Self Storage is great we are focusing on Teak plantations in Belize now.  

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    @James Hamling   First step when I talk with people is how much money for a downpayment do you have and what is your financing mechanism. This helps sized the deal so we don’t waste time and determine how to enter the market.  Guy from Croatia called me with little money available.  Showed him a non traditional scale up plan that he could work his way into. Also walked him through his market analysis and locations to check.  

    We will get into the details and number crunching.  I tell people to do 5 deal analysis before they even consider investing.  The OP above I have already talked with off line before his post. The LA market we are looking at I have analyzed before for another person. Already know the numbers and market will be great.  But told him I wouldn’t help unless he posted his path so others could follow and take advantage of.  

    Plus he doesn’t know me.  Told him doing on BP other investors can call me out if I steer him wrong.  

    Start small and Make Your Big Mistakes Early.

    Over in Yakima Washington visiting my brother  Can’t wait till this weekend to look at the self storage market and land.  He might buy some land before he goes to Italy.  Love the hunt.

  • Member since 2021 · 24 posts · 24 votes
    3y

    @Henry Clark

    I understand and am beyond grateful for the guidance. I will certainly need the tools and help in order to validate these things to ensure something is a good deal.

    1. How much cash do I have available to invest. I will say 400k max. This means at a 20% down interest only construction loan I'd have to put down 400k for 2mm. This money will exclusively be used for the down payment and the job from my income should cover interest payments. 

    US Bank mentioned to me they may be willing to do an SBA loan between 1-2mm depending on how much I can put down, but I wouldn't know the advantages of either loan strategy. 

    2. Time for me to create a spreadsheet then! I'm assuming this spreadsheet will act as my template which will include a checklist and different categories e.g. loans. Get all the info from the bank about the terms of the loan, construction vs SBA, vs commercial so I can compare side by side. Got it.

    3. Do I have any questions: Of course!

    a. A lot of people say follow your passion, I wouldn't exactly say self storage is something i'm passionate about. My goal is trying to attain financial freedom in a low maintenance business where much of it can be completely automated freeing up my time to do other things I may enjoy more. Self Storage is my vehicle for me to achieve this. Is that fair for me to be motivated enough to want to continue down this journey? I think so. So long as this at some point can become a very passive part of my life.

    b. There will come moments where I will need you to explain how you are calculating the things you are calculating, you may just know this from experience, but for me to try and convince a bank that these are realistic numbers without having prior experience myself, I imagine I need to be able to explain the math so they feel comfortable loaning me money.

    c. How long does it take to build a 200 unit facility? Maybe it depends, but I'm guessing 6-9 months?

    d. to @James Hamling's point. How do I hunt? How can I run a feasibility study to evaluate demand? Quartz Hill (the neighboring city of palmdale) is not a growing community, where as some place like Riverside Ca, is where prices are still way cheaper for greater LA area.

    @Ronald Rohde, in southern california it is difficult to find a facility within a budget I can afford, although this is something I am open to. Yes I am going to get another job.

    @Bonnie Griffin Kaake Yes! This seems like a very important component as well. I've never done this before but understand how it works in other real estate ventures such as LTR. Something I will keep in mind for the future.

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y

    @Henry Clark your a wealth-spring of knowledge and I hope others truly comprehend the gift of such being shared by such a veteran of the biz. 

    Curious your thought's Henry about Regency https://ministorageoutlet.com/ 

    I have played around the edges of self-storage for a few years now. I dove down the rabbit hole a fair-bit, getting into details of feasibility studies with a couple consultants. I nearly pulled the trigger on a site when I was just dipping toes, finance was selling me on it and end of day I held back because of a localized operator who has been in a wild expansion phase of things, opening 3-4 sites per year. I was hesitant of a decent market location staying decent, as I would be working to create market share and he is scaling. 

    I was looking at mainly ~5acre sites, and multi-phase development plan, generally 4 phase. Splitting unit build to pace as tenancy in-fills. I think many under estimate just how many units a 4,5,7 acre site can contain, it's a heck of a lot of units to fill. 

    Any thoughts on those items? Especially pressing one's way into a market with a dominant existing force rapidly expanding. 

    Curious to know your metrics for gauging market demand in s.s. unit count per resident/household compilation. 

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    @don

    Follow your passion?  Do you like to paint, gamer, surf all over the world, big game fisherman, hike Europe, collect comic books?  Whatever your passion is, that is what Self storage represents.  As my young son said it is boring.  Currently he is in the Navy overseas.  He has $100,000 from his portion of our last deal.  When we do the next deal he will probably get about $500,000 of very boring equity.  
    Below is a bag of Ramon nuts.  We will plant them and mix them in with our teak seedlings on our plantation.  Each tree grows huge, supplies about 400 pounds of nuts each year, great animal food, makes great lumber.  That type of thing is a passion of mine.  Behind the scenes that is self storage money  

    The only exciting thing about storage is the hunt for the deal.  The rest is all systems. 

    Passive:

    Right now we are traveling in Washington state.  On this phone managing 7 locations in Iowa and Nebraska.  My brother set his up through both online and a call center.  He gets about 5 calls a month out of the blue.

    Hold on to as much money as possible.  

    You’re young and ready to get going.  I’m going to take you through a boring systems driven process.  We have to develop a checklist template. Build cost template.  Revenue and PL template.   Decide on finance approaches.  Establish a team and relationships.  Then go deal hunting.  You might say just give me the templates.  That’s to easy. I want you to build them and own them.

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    @James Hamling

    I consider Self storage to be a war played out in a town or market area.  Even if a town is saturated (no more units will ever be needed) I will still build there.  I prefer to pick a town where more units are needed.

    We use a ratio of 6 units per 100 people.   The town we live in has 11 per 100 and is the greatest I have found.   Still want to build more there.  We are building more there.  To understand the dynamics call me near a computer and we will look at a market and over the phone I can show you the strategies.  
    .    
    Failure. As you know in REI most people never invest not due to the potential rewards but due to potential failure. You can fail in Self storage and still win. Any of our locations phase 1 if we only got to 65% occupancy we failed. But we are making money. Paying off principal. Building equity. We can switch gears in Phase 2 with a different storage product and model.
    .          
    Start small and make your big mistakes early.   Once you understand the formula and how to go to war.  Then you scale.  The OP is in LA.  Just a small location is $5mm and most are around $15mm.  He can’t do what they are doing.  Giving him an alternative approach to attacking that market.  Google Bill, Wyoming.   I would do self storage there.  Just a different model.  I recommend doing 2 acre lots up to maybe 5 acres.  We have an 8 acre lot and we will never ever fill it with self storage units even if the market could take it.  Matter of risk reward.  With that said if the person you are talking about is build several 5 acre sites, I would say kiss him and thank him.  Than build near him.  What?  Again it’s about war strategy.  I’ll take the OP through that.  The site I asked him to look at is a strategic location.  

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    @James Hamling

    Couldn’t remember all the items while posting. A highly competitive market is great.  If you see one of my posts where I talk about a wagon wheel strategy around major cities or a step approach in BCD markets you will see how to use large competitors to your advantage and how to do double and triple value add plays on the same location.  

  • Member since 2021 · 24 posts · 24 votes
    3y

    @Henry Clark

    Then we are thinking along the same lines. That's great to hear Indeed I am ready to get going, I have no issues with doing the work, but are you suggesting that my learning come from outside sources such as podcasts/youtube, books etc in order to build these templates? I hope you are enjoying your travels, let me know if we need to pick this up at a later time. 

    @James Hamling You are another well of knowledge within this community and deeply appreciate your shared thoughts on my other post as well for advice on how to get started within Real Estate. Both you and Henry provided very in depth responses that I know took time and effort to compose. If I didn't make that known earlier, I want you to know that here.

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    @Eric Don

    Start your checklist first.   Look at a picture of a storage location.  Then look at an online site.  Break those down into components.  Just like an outline for a story or speech you plan to do.

    Land

    Buildings

    Fence

    Roads

    Signs

    Security

    Lighting electric

    Parking

    finance      
    insurance

    Legal contracts

    Customer service

    Operations

    Software

    Marketing

    Operation hours

    Income Taxes

    Property taxes

    Keep adding to the list then post in here and let us look at.  

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    @Eric Don

    Being Friday before we go to happy hour at a vineyard.  Now that you have the above template start to put sub categories under each.  Land for example

    Zoning

    Storm pond

    Storm

    Sewer

    Soil compaction

    Grading clearing

    EPA

    Fire hydrants

    Sewer

    Electric service

    Do the same thing for the other categories.  As you read posts, podcasts, books, seminars etc.  keep adding to this list. This is a method for you to categorize the disjointed info you get. 

    Who is from Washington?  Name a wine I should try tonight. Doesn’t matter what type.  If it is a bad selection I will let you know.

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    No one in Washington made a recommendation on wine.  Great rack of lamb and pork chops.  In Yakima at Yakima Steak Company.  My brother got a listing we are going to look at after dinner.  Since we are talking about it, will see if I can write it off.  

  • Member since 2021 · 24 posts · 24 votes
    3y

    @Henry Clark

    On it. Will post this weekend. 

    Boy that looks good, someone said Washington may have good cab's, Sryahs rieslings or Chardonnays. Here are some brands a wine enthusiast frient I know mentioned. 

    Quilceda Creek, Cayuse Vineyards, Leonetti Cellar, and Woodward Canyon.

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    Will try those wines. Heading to Leavenworth, Washington to take in the German Town atmosphere. Can’t wait for the creamy sauerkraut and the Rem-laden.  

    As your building your checklist we will start to build your team and cost estimates.

    A.  Keep the team info on the checklist page to the right of each line item.   For example next to fence and gate out American Fence company.   Call them for a quote.  Have to check with zoning.   Tell them you want 6 1/2 foot black security chain fence with no bar wire at the top.  Tell them you want a 20 foot gate opening with a cantilever gate.  Push button gate access on both sides.  Don’t get the pin hole camera.  Will use a different camera. Find my post on fence and gates.  Vote for it so I know you read it.

    B.  Copy the categories over to the second page for our cost estimates.  

    Land use the cost for the one we noted

    Gate use $25,000

    Electric for buildings $30,000

    Security $30,000

    Signs $5,000

    Billboard $15,000

    Roads check with zoning. For now do concrete $250,000 every 600 feet.  Use 25 foot wide drives   7 inch concrete with no reinforcement.  Check with zoning.  Will figure feet out on the revenue worksheet.   Use 50 foot turn around on the ends. Read my post on roads  


    C.  Make a third page for revenue estimates.  Put down sizes 10/15/20.  Get on sparefoot for that town.  Select on the left side drive up access and then each size at a time. Pick the price near the lower end for this exercise.   Your banker will appreciate the conservatism in your estimates

  • Member since 2021 · 24 posts · 24 votes
    3y
    1. @Henry Clark 
    2. Here's the first crack at it. There are items on this list I may not need for example CRM software. When I called a construction company who specializes in making self storage facilities, they asked about how I would want to do fencing. How you can design the facility to use the block walls as part of the storage units if the units were built along the property line. Perhaps may be more expensive in total to build the whole fencing with this material, but more secure, less risk of crime, fireproof, and provides the idea the upmost safe space for clients to keep their belongings. Lmk your thoughts they quoted between $15-$18 sq ft.
    3. Land
      • Zoning
      • Storm pond
      • Sewer
      • Soil compaction
      • Grading and clearing
      • EPA regulations
      • Fire hydrants
      • Electric service
      • Flood zone
    4. Buildings
      • Construction
      • Maintenance
      • Building code compliance
      • Size and number of units
      • Climate control?
    5. Fence
      • Construction
      • Maintenance
      • Height
      • Security measures (gates, cameras, etc.)
    6. Roads
      • Construction
      • Maintenance
      • Accessibility
    7. Signs
      • Billboards
      • Branding
      • Compliance with local regulations
    8. Security
      • CCTV cameras
      • Alarm systems
      • Access control (keypads, locks, etc.)
      • On-site security personnel?
    9. Lighting and Electric
      • Indoor and outdoor lighting
      • Electric code compliance
      • Maintenance
      • Power backup
    10. Parking (do i need parking)
      • Number of spaces
      • ADA compliance
      • Maintenance
      • Security
    11. Finance & Loans
      • Budget
      • Construction Loan
      • SBA Loan
      • Cash flow projections
      • Financial reporting
    12. Insurance
      • Property insurance
      • Liability insurance
      • Business interruption insurance?
    13. Legal and Contracts
      • Lease agreements
      • Vendor contracts
      • Employment contracts
      • Local and state regulations?
    14. Customer Service
      • Staff training
      • Complaint handling
      • Customer satisfaction surveys
    15. Operations
      • Staffing
      • Inventory management
      • Maintenance schedules
      • Hours of operation
    16. Software
      • Property management software
      • Security software
      • Customer relationship management (CRM) software ?
      • Bookkeeping software
    17. Marketing
      • Website
      • Social media
      • Local advertising
      • SEO/SEM
    18. Operation Hours
      • Staff hours
      • Access hours for customers
      • Holiday hours
    19. Income Taxes
      • Federal taxes
      • State taxes
      • Quarterly estimates
      • Deductions
    20. Property Taxes
      • Local property tax rates
      • Assessment schedules
      • Appeals process?
  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    Keep you moving. $5k for landscaping.  $25,000 for leveling. Find out where the water, sewer, and electric are.   Are they at the front of the property?  If not in front of the property use these ratios until you get quotes.  $150k for 800 feet for water main.  You will need an estimate on sewer and electric.   First ask if you need to provide a public bathroom. 

    Normally in the city you are required to put sewer and water all along your road frontage.  Say the water main and sewer are 600 feet away from the corner of your property.  Your property frontage is 500 feet.   You want your office at the closest corner say 50 foot into your frontage. The city should have to pay the first 600 feet to get to you.  Then you must pay and install your entire 500 feet.  Not just the 50 foot you need.

    Check with your planning group and fire department.  They normally require all of the property to be reached by a fire hose.  300 feet as the hose lays.  Not in a straight line.  Estimate $3,000 per hydrant.  But also the water mainline needed.  

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    Your list looks great.  Keep adding to it.  On the right side make a column for contacts, phone, email

    Take this list and copy to your cost build sheet.  To the right start to add the cost info.  

    There are many Selfstorage management softwares.  For now use UHaul WebSelfstorage.  Costs $44.95 per month.  Web based.  Whether in Belize, home or Cour de Lane Idaho it works.  Use both their customer insurance since it is integrated with their software.  Also their Property and liability  insurance. On your PL tab use the $44.95 for 12 months.   Estimate $2,000 premium per year in $1mm cost.

Join the conversationCreate a free account to reply, vote on answers and follow this thread.