First Self-Storage Deal Under Contract (Muskegon, MI) – Looking for an Underwriting G

Grand Rapids, Michigan
Commercial Real Estate Investing
7moFollow

First Self-Storage Deal Under Contract (Muskegon, MI) – Looking for an Underwriting G

Sharon Israel
Member since 2026 · 4 posts · 1 vote

Hi BiggerPockets Community,

After spending my career in the single-family residential space, I’ve finally stepped into self-storage and just went under contract on a facility in Michigan. While I’m comfortable with residential numbers, I’d love to connect with someone who can help me double-check the underwriting to ensure I’m navigating the transition to commercial correctly.

Here is a quick snapshot of the deal:

  • The Asset: 5 buildings (approx. 23,000 sq ft) sitting on 4.75 acres.
  • The Price: $1.5M.
  • The Terms: 3.5% interest-only seller financing.
  • The Upside: A clear value-add play through rent stabilization and using the excess land.

The 3.5% debt makes this a very compelling entry into the asset class. Still, I want to make sure I’m accurately accounting for the Michigan "uncapping" tax rules and the operational nuances of storage versus residential.

If you have experience in Michigan, I’d love to get your eyes on this. Please reach out if you're open to a quick chat!

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Robert C.
FL · Member since 2013 · 41 posts · 34 votes
7mo

That's a nice little deal.   The price is a little high in my opinion, but offset by low cost seller financing.   What happens after year three is my biggest question.   

Inflation, rent growth, operational efficiency will all improve NOI, but you need to get NOI to ~ $120,000 to $125,000 to refinance. Today you could only get ~ $850,000 today from a bank / credit union. Is three years enough runway to hustle? I don't know, that's the business decision you'll need to make. It kind of feels like the buyer is asking you to pay him for the future, but asking you to do all the work to make the future a reality.

Does the debt require principal payments or is it interest only?   A seven year loan would be ideal in my opinion.  

I like the location, second home areas tend to have higher than average storage demand, especially in cold areas.  Storing water toys is a thing.  

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  • Robert C.
    FL · Member since 2013 · 41 posts · 34 votes
    7mo

    Do you want to post the numbers here?   More helpful if others can see it.

    What's current occupancy?   
    Total units? 
    Unit mix?
    Are there any REITs in the market?  If so, what are their move-in rates?   (Public Storage, Extra Space)

    0Reply
  • Sharon Israel
    OP
    Member since 2026 · 4 posts · 1 vote
    7mo

    Hey Robert,

    Our facility is located in Muskegon, MI. Please find the key numbers and market context below:

    The Financials

    • Total Units: 140
    • Occupancy: 80-82%
    • NOI: $92,000
    • Going-In Cap Rate: 6.1%
    • Financing: 90% Seller Financed (3.5% for years 1-2 | 4.5% for year 3)

    Unit Mix & Pricing

    • 10x10 (48 units): $60
    • 10x15 (37 units): $80
    • 10x20 (29 units): $90
    • 10x24 (15 units): $100
    • 10x30 (11 units): $130

    Market

    • No Public REIT Competition: There are zero public REITs within 20 miles. The nearest ones (NSA/Extra Space) are 30+ miles away.
    • Institutional Validation: The market is already validated by institutional private equity (like Prestige Storage).
    • Immediate Rent Growth: Based on "Store Track," area averages are +17% vs. our rates. Furthermore, weighted average move-in rates at Prestige Storage are +25% vs. us.
    0Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    7mo
    Quote from @Sharon Israel:

    Hi BiggerPockets Community,

    After spending my career in the single-family residential space, I’ve finally stepped into self-storage and just went under contract on a facility in Michigan. While I’m comfortable with residential numbers, I’d love to connect with someone who can help me double-check the underwriting to ensure I’m navigating the transition to commercial correctly.

    Here is a quick snapshot of the deal:

    • The Asset: 5 buildings (approx. 23,000 sq ft) sitting on 4.75 acres.
    • The Price: $1.5M.
    • The Terms: 3.5% interest-only seller financing.
    • The Upside: A clear value-add play through rent stabilization and using the excess land.

    The 3.5% debt makes this a very compelling entry into the asset class. Still, I want to make sure I’m accurately accounting for the Michigan "uncapping" tax rules and the operational nuances of storage versus residential.

    If you have experience in Michigan, I’d love to get your eyes on this. Please reach out if you're open to a quick chat!


     You might be able to file a "Claim of Interest" to protect your position and buy time before uncapping the taxes. Please check with a qualified tax professional!!!

    [email protected]248-209-6824
    Logical Property Management4.9459 Reviews
    WebsiteView Page
    0Reply
  • Robert C.
    FL · Member since 2013 · 41 posts · 34 votes
    7mo

    That's a nice little deal.   The price is a little high in my opinion, but offset by low cost seller financing.   What happens after year three is my biggest question.   

    Inflation, rent growth, operational efficiency will all improve NOI, but you need to get NOI to ~ $120,000 to $125,000 to refinance. Today you could only get ~ $850,000 today from a bank / credit union. Is three years enough runway to hustle? I don't know, that's the business decision you'll need to make. It kind of feels like the buyer is asking you to pay him for the future, but asking you to do all the work to make the future a reality.

    Does the debt require principal payments or is it interest only?   A seven year loan would be ideal in my opinion.  

    I like the location, second home areas tend to have higher than average storage demand, especially in cold areas.  Storing water toys is a thing.  

    1Reply
  • Sharon Israel
    OP
    Member since 2026 · 4 posts · 1 vote
    7mo

    Thank you Robert, seems like we are on the same page.

    We actually decided to let this one go. During due diligence, the seller was being really cagey about sharing bank statements, which is always a red flag for me. Once we dug deeper, we realized the NOI was closer to $74k rather than the $90k being pitched, and the market cap rate is sitting more in the 8.5% range.

    Between the lack of transparency and the fact that I’d be paying for 'future' value that isn't there yet, it just didn't make sense. Appreciate the gut check on the numbers.

    On to the next one!

    1Reply
  • Robert C.
    FL · Member since 2013 · 41 posts · 34 votes
    7mo

    Thanks for letting us know the outcome. That initial NOI quote always seems to be the best-case ceiling.

    One of my first large real estate clients made a career out of paying people an "ego price" with seller financing.   The method usually works provided you have a stable asset class and a long enough runway.  In his case, it was close proximity, smaller footprint student housing (sub 12 units) next to a top tier state university.  

    1Reply
  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    7mo

    OP.  If the door is still open, I would revisit this deal and make an offer.  As long as the DD is clean and the market study is fine, I always like to make an offer, with "MY" number.

    We do self-Storage in Iowa.  Lived in Grand Haven and worked in Muskegon many years ago.

    1.  Depend on Market analysis.  A lot of storage there.  Depends on where your location is.  And the physical condition.

    2. Prices. The prices you quoted above are market rate, except the larger sizes which are below. So would not expect a big NOI bump raising prices.

    3. Their NOI and your NOI may be different. Look at their P/L and your proposed P/L and how you plan to operate.

    4.  Do you live in the area and plan to manage?  If you live in the area and your Lifestyle fits.  Build a manager's house for around $60,000.  Sell your house.  Deduct all expenses.  Or rent out to someone for $1,000 per month and get a live in watchperson.

    5. 4.75 acres. Depends on land configuration and layout. The existing facility should only take up 2 acres. We have a rectangular 4 acre site. Storage units on one side we have 230. The other side we added parking and new Cargo container storage 8x20. You have plenty of profitable cheap expansion area. Lots of NOI upside, with low investment. Check zoning.

    Subject to above:

    A.  Since you don't have experience in Self Storage, will be hard at this juncture to get a commercial loan without experience.  Unless you have a local bank relationship.  Thus, this self-finance is a good deal.

    B.  Your downpayment would be around 25% on a commercial loan, thus this is a good deal.  Will be easy for you to refi at the end of this loan.

    C.  The interest rate is obviously good.  But not because of the rate itself.  Assume an 7.5% commercial rate.  But this person gives you 4%.  On say $900,000 that is $28,000 savings per years, using 10% down.  Over say 3 years that is $84,000 which helps make the initial price point more compatible.

    Subject to DD and Market study here is what I would offer:

    1.  $900,000;  Owner finance 4% for 3 years, then 6% for 2 more years. Interest only payments.  Principal to be fully paid at end of term.  This will significantly help with your cash flow. If he says no to this Principal payment, then do the initial 10%, the another 10% at end of year 3, then the remainder at end of year 5.  Juggle with him.  Will help him with his capital gains tax in one year.

    2.  Put in a noncompete agreement of $200,000 of the $900,000.  Owner won't like this since Personal income and not capital gains.   Talk with your Tax accountant.  You should be able to expense this in year one.  "If" you can use this and have REP status.  This will help on your Upcapping concerns to a degree in Michigan.

    3.  Also do an Asset purchase and not a Business purchase.  Make sure you include the Google Map Pin.  Get him to make an inventory of the assets.  This will help with Year one depreciation write-offs.  Roads, fences, electric/lighting, security systems, signage, doors if he can estimate, etc. then building and land costs.  Again only if you have REP status and can use the Year one depreciation write-offs.  Discuss with your Tax accountant if they understand cost segregation.

    4.  If you are interested in getting out of housing.  Try to do a 1031.  Put in the contract the owner will assist. Talk with a 1031 Qualified Intermediary first.  

    After the deal, the sweet spot:

    5.  Look at RV/Boat parking.  You're in a great rec area.  RV./Boat parking is a 30 mile radius, no the 1-3 mile Storage market.  Rates for a 40 foot spot in your area $40 per month.  Depending on land and internal road layout on 2 to 2.75 acres you should have about 80 spots or $3,200 per month at 100%.  

    6.  On this bare ground, I would also look at Conex or Cargo container storage.  Check zoning.  1 Trip or new containers are at an all time low.  I'm in Iowa in the middle of the country not near any ports and can get an 8x20 new container for $2,300.  You are closer to ports and should be able to get for that price.  This is 160 sq ft versus your 10 x 15 150 sqft.  Rent these out for cheap.  Like $60.  Look at my posting on using containers.  No property tax since they are not attached to the ground.  No maintenance.  Better for dust and bugs.  Will cost you another say $300 to prep ground and get delivered and set in place.  So, $2,600.  At $60 per month.  NO property taxes.  Do you know of any investments that good?  Plus, you can add them as you need them.  Low initial risk.

    Although 5 and 6 are lower rental rates.  You have less initial investment, less competition, less property tax and insurance.  Which one of the above do you build the most.  Put parking on one side and the containers on the other.  Then grow based on the market demand.

    0Reply
  • Sharon Israel
    OP
    Member since 2026 · 4 posts · 1 vote
    7mo

    Henry,

    Really appreciate the detailed breakdown. Your point on making offers with your own number resonates with me; that is exactly how I operate. I put my number out there on every deal, and every once in a while, one sticks (Which was the case on this one).

    On the first deal, we ended up walking. The expenses on the P&L just did not add up when we looked at them against reality, and when we asked the seller to back it up with bank statements, they refused. That was enough for us to move on.

    Your points on the containers and RV boat parking are really interesting. The math on containers is hard to argue with: low investment, no property tax, no maintenance and you can scale as demand grows. On the first deal with 4.75 acres there was clearly room to run with that. On this new one it is a tighter story on expansion, but still worth exploring what we have to work with.

    Speaking of deals, we just got a second Michigan storage place under contract. Big Rapids. 725 S 3rd Ave, 60 units, $600K. Current NOI is $48,364 so we are buying at an 8.06% cap on actual numbers. Occupancy is sitting around 90% and this is not a heavy value add play. The upside is pretty straightforward. One unused unit that should bring $1,000 a month, an office currently renting at $750 where there may be room to push the rent up, 6 units not yet in inventory that could be added, and some room to bump overall prices across the facility. Being a college town with Ferris State right there does not hurt either.

    Two things I am watching closely. Electric is up 141% and gas up 95% year over year. That needs a real answer before we close.

    This one is not seller financing, so we are putting together our capital stack. We would love to have someone experienced walk in with us on this, as a guarantor and a partner who wants to get a look inside how one of these deals works from the ground up. Happy to share all the details if you find this interesting.

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