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

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

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

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.

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Masoud ArouniPro Member
Investor · Pleasanton, CA · Member since 2026 · 119 posts · 52 votes
3mo

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.

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  • Masoud ArouniPro Member
    Investor · Pleasanton, CA · Member since 2026 · 119 posts · 52 votes
    3mo

    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.

    1Reply
  • Ed O.
    Investor · Statewide, MO · Member since 2011 · 814 posts · 425 votes
    3mo

    Thanks for the post. Good stuff here. I like the cost seg play. Done it a bunch in residential re but not a project like this. 

    I have one thing to add: why so high on cost of capital? 

    It seems like you are very established in this space and I would think banks would respect that and price accordingly.  

    last month we closed transactions at 6.0, 6.5 and 6.75. No deals were the same and we tried to leverage the strengths of the lenders with our needs. I'd be surprised if tou can't find a bank to finance it at 6.0. My best experiences have been repeatedly with small banks and credit unions..large regional and national banks don't care about operators like us and could care less if they get our loans. Local banks and credit unions are quite the opposite. 

    Last, the bank where you have your deposits should want to take care of you for a loan like this.  If not, i would encourage you to consider other small, local banks. 

    Best of luck with this

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    • Henry ClarkPro Member
      OP
      Developer · Member since 2020 · 4k+ posts · 4k+ votes
      3mo
      Quote from @Ed O.:

      Thanks for the post. Good stuff here. I like the cost seg play. Done it a bunch in residential re but not a project like this. 

      I have one thing to add: why so high on cost of capital? 

      It seems like you are very established in this space and I would think banks would respect that and price accordingly.  

      last month we closed transactions at 6.0, 6.5 and 6.75. No deals were the same and we tried to leverage the strengths of the lenders with our needs. I'd be surprised if tou can't find a bank to finance it at 6.0. My best experiences have been repeatedly with small banks and credit unions..large regional and national banks don't care about operators like us and could care less if they get our loans. Local banks and credit unions are quite the opposite. 

      Last, the bank where you have your deposits should want to take care of you for a loan like this.  If not, i would encourage you to consider other small, local banks. 

      Best of luck with this


       Have 3 local banks who we have done Self Storage deals with.  Actually, two are Family and Friend relationships.  They have all said 6.5% is doable, due to our history with them, our proven successes and asset portfolio.  Plus, they love this asset class.

      I'm using 7.5% both from an Interest and a Cap rate standpoint more from a personal outlook standpoint.  I see inflation and Interest rates going up.  This loan might take 6-9 months to finalize, and I am very hesitant about where the interest rate ends up at that point.  The same questions and concerns still apply even if I use interest rate at 6.5%.  Actually, I would love Interest rates and inflation to go up (after we acquire more assets).

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

    Talked with our tax accountant on the items above

    Noncompete agreement or a Business portion could not be treated as 1 year writeoff.  Would be amortized over long period.  Not very useful.       

    Consulting fee paid over 5 years would fly.   Paid as a lump sum in one year wouldn’t.

    Side loan where seller doesn’t give us funds and we pay back later.  Will fly.   But would need to be reported as a Gift.  No tax impact.  But would go against our lifetime tax free limit.

    Cost seg justification. Using our contractor quotes for valuation.  Probably wouldn’t meet IRS expectations.  But if audited the IRS would just shuffle between age categories any difference. So wouldn’t get penalized.  Just might need to pay a little more tax.  Example.  If my contractor quoted roads at $700,000.   But an engineered estimate was $650,000 from an IRS approach.  IRS might move $50,000 to say the building cost which couldn’t be written off in one year.  Not a 100% error or tax adjustment.  

    Did not go thru with this deal.  Doing due diligence ran into a Legal issue and did not make an offer.  

    Just keep turning stones over, looking for gold.  

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

    Self-Storage roll up doors.  Left off.  He said he had seen some people deduct as year 1 write-off but could be pushing the issue.  Google search (has to be true) says Self Storage doors could be written off.  A normal self-storage unit 10 wide by 15 or 20 deep runs $4,100 fully erected.  Just the roll up door and installation run about $1,000.  On our last Self Storage development of 229 units that would be $229,000 we "did not" treat as year one.

    I did not specifically ask about signage, sidewalks, landscaping, external lighting, security, fence etc., since I already know we can write-off.

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  • Nyron Isaac
    Member since 2024 · 144 posts · 27 votes
    2mo

    This is a premier masterclass in distressed commercial restructuring. Your analysis of the $300,000 valuation gap is spot on—you must never pay a seller today for the value and effort you have to create tomorrow.

    To close this gap while protecting your capital, focus heavily on the Consulting Fee and Asset Allocation angles, but watch out for the Section 197 traps. Allocating money to a Non-Compete or Business Goodwill is fantastic for keeping your local property tax assessments suppressed, but the IRS forces you to amortize those intangibles over 15 years straight-line—meaning you cannot capture them as a Year-1 write-off. To get that immediate tax shield, you must push that allocation into Form 8594 as physical 5-year and 15-year property (doors, fencing, driveways).

    Regarding your contractor quotes: to make them survive an IRS audit without a formal Cost Segregation study, you cannot just use a replacement cost quote. The seller must formally co-sign IRS Form 8594 allocating those exact itemized values at closing. Skip the slow traditional banks for the acquisition. Lock this down using a Commercial Non-QM Construction Bridge Loan under your LLC. A specialized private platform can fund 90% of the purchase and 100% of your immediate CapEx needs based on the asset's future ARV, allowing you to bypass personal DTI checks, hit your Tuesday offer deadline, and cleanly roll into a permanent SBA loan once your $1M value-add play is stabilized.

    1Reply
  • Jeffrey Abraham
    Lender · United States · Member since 2020 · 177 posts · 26 votes
    2mo
    Executive Summary – Self-Storage 

    Acquisition Overview

    • Seller Asking Price: Approximately $2.X million
    • Our Valuation: Approximately $2.X million (roughly $300,000 below asking)
    • Structure: Asset Purchase (preferred) rather than Business Purchase
    • Reason: We already operate through an established company and prefer to acquire only the real estate and related assets.

    Initial Financial Analysis

    The first step was a traditional investment analysis using a capitalization rate of approximately 7.5%, reflecting today's lending environment where borrowing costs are expected to range between 6.5% and 7.5% by closing.

    Based on current income and projected financing costs:

    • The investment supports a purchase price approximately $300,000 below the seller's asking price.
    • Paying full asking price would immediately eliminate approximately $300,000 of investment value in a cash acquisition.

    To validate this conclusion, I also completed a replacement cost analysis, estimating what it would cost to build the same facility today. That analysis independently supported essentially the same valuation.

    Hidden Value Opportunity

    The exciting aspect of this acquisition is not the current income—it's the upside.

    Several operational improvements and value-add opportunities appear capable of increasing the property's value by approximately $1 million within 12–24 months with relatively modest capital improvements and operational enhancements.

    Importantly, that additional value would be created by the buyer's efforts—not reflected in today's purchase price.

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