Self-Storage- Deal 18, Numbers don't work, Let's make a deal, Cost Seg,

[Henry Clark]

Got a call yesterday (Saturday) out of the blue.  Had a common contact who knew me.  They had a Self-Storage property for sale.  Won't go into the details, since it's not closed and I have to come back by Tuesday with a response/offer.  Here are some of the angles I am working thru, so you can follow a Deal analysis progression along and/or make some comments and input.  Plan to do an Asset purchase and not a Business purchase since we already have a standing company.

1.  Did the Deal analysis Saturday after I toured the facility.    They want $2.Zmm and the deal makes financial sense at $2.Kmm.  $300k difference.  At their price we lose the $300k in value in a straight up Cash deal.  Used a cap rate of 7.5 since our interest rate at the "moment" will be around 6.5 to 7.0%.  Possibly 7.5% by the time we lock in.  Need to do some capex before moving to a final loan.

2.  Also did a Cost to build estimate, which reconfirmed the $2.Kmm price above.

3.  There are many value Adds to this property that will increase the value another $1mm in 1 to 2 years with little effort.  But that would be our effort and not theirs.

4.  Finance/Tax folks.  Could do a Non-Compete agreement of say $500,000.  Looking to do year 1 write-off.  Plus keep property tax values down.  All of these are subject to them agreeing.  The $500k figure I use throughout this discussion, the benefits bring the $300k valuation difference down, but not to zero impact.

5.  Finance/Tax folks- Could do a Consulting fee.  Say $100,000 per year for 5 years.  Less cash up front.  Write off as expense.  Plus keep property tax values down.

6.  Finance/Tax folks- could do a purchase with a $500k side loan, not part of the sale.  Personal Guarantee on our part.  They would give us no cash, and we would pay them back in 5 years lump sum.  Preferable no Interest or low 5% interest.  Lower cash input.  Keep property value down for tax purposes.  Don't know if this would create any Gift Tax scenarios.

7.  Cost Seg folks- on a different deal analysis, realized the driveways cost almost as much as the self-storage buildings.  So, a lot can be written off year 1.   Normally we Develop our own locations, and I have the Bills isolated so we don't have to do a Cost Segregation study.  We have a great relationship with all of our Contractors and can get quotes on all of this existing structure.  Will single detailed quotes suffice for Cost Seg Year 1 tax write off?  Can also get quotes for the electrical, signage, fence, security systems, ets for year 1 writeoff.

8.  Cost Seg Folks- Although I said we don't want to buy the business.  We could make an offer with separate line items for the assets and another separate line item for the "Business".  Would this "Business" portion meet Cost Seg and Year 1 write-off?

9. Finance. We will probably go with a Construction loan with 10% down. While we do some Capex and work on doing an SBA loan. Will check with our Banker.

We will approach our Tax Accountant with these same questions.  But your input and ability to follow along is appreciated.

Any other deal angles or approaches you, see????  Thanks.

The more you're in the game, the more deals come your way.  We are retired and not actively looking and Deals still keep flowing from our past activity and current presence.

Start small and Make Your Big Mistakes Early.

[Masoud Arouni]

Henry — the 300k gap is the whole game here and your instinct to close it through deal structure rather than chasing the price down is the right move. Most buyers just counter at their number and walk away when the seller doesn't budge — you're thinking about it the right way.

The value-add angle is where I'd focus on the Tuesday response. If the 1M upside is genuinely achievable in 1-2 years with your own effort, that reframes the conversation entirely — you're not paying 2.2M for what it is today, you're paying 2.2M for what you can make it. The seller doesn't get credit for your work.

On Cost Seg — definitely a question for your tax folks, but the driveway observation is sharp. Infrastructure components are often the most overlooked accelerated depreciation opportunity in storage deals.

What's current economic occupancy versus market rate occupancy? That gap usually tells you how much of the value-add is already in the numbers versus still on the table.