Self Storage- 2% rule????!!!!

[Henry Clark]

Keep hearing about the 1% rule in housing which we don’t do.  But we just completed a 2nd phase at one of our locations and it hits the 2% rule.   I made that up.

We rent for $65.   All in cost on this second phase addition is around $3,200 to $3,400.  The second phase of drive up storage is always the highest profit and least risk.  

[Henry Clark]

Quote from @Michael K Gallagher:

@Henry Clark thanks for sharing!  what is the market this was in, and what metrics did you look at to know that it was worth it or the right time to expand?  thinking specifically what were you seeing with demand to know it was time to add units?

 @Michael K Gallagher

I wrote a post “Will they come?” that goes in detail.    

My background is as a Controller and CFO, a math guy, so I have to know.  Not just a guess.

Steps:

1.  There is no “Timing” just market demand.   Either need more or doesn’t.  I use a rule of 1 unit for every 6 people, not households.  Don’t trust anything I say.   Everything in Self Storage can be validated.  Even my 1 for 6 rule.  

2.  Population in a 1 to 3 mile radius.  You can find by googling.  If 10,000 people then 600 units are needed.   Size 10/15/20 doesn’t matter.  Climate controlled or not, kind of doesn’t matter.  I’ll explain later.

3.  Competition you can google.   Then either count units using google earth view or drive around and count.  You can actually tell sizes also. 

2 tells you the market size.  3 tells you the competition.  Now let’s “Gamble”, I’m an Accountant so I don’t like to gamble in business so let’s improve the odds in our favor.

Pick 4 areas and do the above study:

1.  Market 1,000,  competition 1,200

2.  800/500

3.  2,000/1,300

4.  1,500/800

I would look at markets 3 and 4 first, then 2.  
Next comes zoning, location, availability and price.  Don’t get hung up on one location.  Make an offer, if it doesn’t work make an offer on another location.  Come back a year or two later and keep checking on the locations you couldn’t close a deal.  

Dont buy.  Premiums are to high today.  Unless they have expansion room.   Or if you surround them with other locations and you can dictate higher rental rates later after buying.  

Location 1 above.  I actually know a situation like that, that I would love to build.  All competition is to the south.   All customers are to the North.  For some reason they primarily built 20 foot units.  I would build more 10/15 size units.   Close to the customers.  

Where in the U.S.?  Could anywhere.  But building cost is almost double in the last 5 years.  I would pick a market where 10x20 units rent for $130 per month or higher.  Drive up, non climate control.  I’ve talked with many people on BP.   There are still tons of markets that need storage.  Understand Self storage is driven by life change.   Death, divorce, move, fire, construction, etc.   All people and all markets are driven by the same factors. 

Conexes or cargo containers are a little different since their cost is lower and no property tax.   So they work in lower price markets.  Plus your risk adjusted return is better since you can buy and sell them as needed.  Versus a building.  

Do the steps in my post near you.  You can give me a call and I can look at the market on line and let you know what I see.  We only do business in a 40 mile radius, so we have no interest elsewhere.  

Scaling- your only issue is financial.  I’m in Belize right now and in Croatia in 2 weeks.  This phone no matter where I’m at manages all of our locations.  I could use a Call center but I like staying on top of our Occupancy.  

Why?-  if you build at least a 200 unit location in a market with 10x20s renting for $130 or higher.   Day one with no tenants you have $1mm equity appraised above cost built in.  Or you hold and do Cash Flow plus your equity increases as your occupancy increases.