How does this make enough money (self storage investment)

21 Replies

Hey guys Im 16 right now and still doing my research, so don't mind my stupid questions.

So I was looking at a case study and it went like this

the self storage facility is being sold for : $ 485,000 

270 units, 32,000 SF, 80 % occupancy, income for 1 fiscal year is:$ 79,000

the Expenses are :$ 32,000 thus the NOI is $ 47,000 and the mortgage payments annually are $ 23,432, so NOI - 23,432 = $ 23,569/Year Cash flow

But my question is, lets say a person has this as his/her business and its all they have, if they are making only $ 23,568 /year how is that worth their while, it has a decent ROI but i still dont get it, im confused

The average unit is only renting for $30/month in your case study?  The average size is greater than 10x10 so the rents seem way too low to me.  A facility that size should be able to justify an on site manager who would handle the day to day work and that's where the appeal comes in for an investor.  If it can't support an on site manager then it's obviously not going to be a great investment for someone.

Oh that makes sense, I got the case study from here, you can check it out ,its a 40 minute video but skip to the last minute its all on the board

https://www.youtube.com/watch?v=mKe_sQUdKn0

@Shawn Amersi I think you may be looking at this a bit too narrow. A few things to consider, first 80% occupancy seems low, you can easily run promotions to get that to 90%. You also have other revenue streams. Most of them sell locks, packing boxes, tape, rental trucks and other products that their customers buy and use. Third a lot of these places also have extra space for people to pay to park boats, cars, and RVs. Again this is extra revenue.

Need more details with the numbers you provided. You say 270 units at 80% = 216 units. You say annual income is $79000. This only works out to about 30$ per month per unit. That seems rather low. Lots of places charging 40-50-60$ for some units.

Then there is your expenses. Most of these places are just metal buildings with little maintenance needed compared to a house. They don't have plumbing or appliances etc..
If they have nicer climate controlled units then they defiantly don't rent for 30$.

Last many of these places have housing onsite. You have to consider that the owners housing is taken care of as part of your analysis.

@Shawn Amersi That YouTube video doesn't really scratch the surface. Storage units also have the benefit of being able to auction off people's units if they don't pay.

@Brian Faulkner  

 thats one thing I find really attractive about storage units, that there are no evictions and tenants stealing copper from the walls and what not, and he does cover that in the video but you are correct there is so much more to know about it.

@Shawn Amersi There are ways you can stand out in the market as well. My local storage unit allows business to use them for deliveries. They will hold a key for you and if deliveries are made they open and close the units on your behalf and call you.

I've always considered opening one and running a special where we would come pick your stuff up for you. I would have to work out the liability if something got broken in transit... But the logic is if they don't own a truck or were to lazy to use a storage unit until I picked there stuff up... Then they unlikely to move their stuff out on their own.

Last consider exit strategies. If things are going well then big companies like GE buy them out. But if you are not profitable and you need to sell you could lose a lot of money.

@Brian Faulkner  

 So do you think once I am 18, If I went to a bank with a business plan and all I could get a loan, and lets say if it goes south and I had to sell it how bad would it be ? and btw I really appreciate your replies

@Shawn Amersi  That is a much larger topic, involving down payment, a commercial construction loan, zoning, etc... 

As far as if it was going south, let me ask you this. Would you want to buy a failing business that is bleeding money ? 

At 16 I would focus on getting a job at one of these places if you are passionate about owning one. This would allow you to save up money, but more importantly get on the job experience so you have a solid understanding of all the details of the storage business (Leases, local laws, insurance, marketing, running a business, etc). 

I would also focus on your formal education. Maybe a business degree. You have a world of options ahead of you.

Originally posted by @Brian Faulkner :

@Shawn Amersi That is a much larger topic, involving down payment, a commercial construction loan, zoning, etc... 

As far as if it was going south, let me ask you this. Would you want to buy a failing business that is bleeding money ? 

At 16 I would focus on getting a job at one of these places if you are passionate about owning one. This would allow you to save up money, but more importantly get on the job experience so you have a solid understanding of all the details of the storage business (Leases, local laws, insurance, marketing, running a business, etc). 

I would also focus on your formal education. Maybe a business degree. You have a world of options ahead of you.

 Thats wise, thanks

@Shawn Amersi  Man, I wish I was thinking about business like you when I was 16. Good on you for starting so young AND for educating yourself and networking on BP. Stick with it and you will do very well, my friend. Good luck!

I do not think a business degree is necessary.  Sorry to disagree.  And of course, if you WANT to, that's great! But Lots of successful business owners don't have them. And you should def only go to school you can afford.  Don't go into debt over school.   If you go, go through free, discounted, or low-cost.  You do however, need capital for investment.  About 25%. And credit.  Get a credit card, use it and pay it off every month.  And experience.  Not sure what the best experience is, bank is probably a good one(see? I can agree on something!) Or a job where you learn handyman/construction.  Or work for city hall, if you can.  Just ideas.  Work your butt off, kid, you'll do fine.  That's what I did.  And we're doing fine.  

hey, also, stay at home to save money, but when you do move out, try to get an apt where you can be the mnger and get free rent. That would be a great experience, and banks look for landlord experience.

Lots of great advice here. And awesome that you are so smart and already educating yourself and researching investments.

Banks may look at an 18 year old as high risk. Not sure if they would be willing to take that risk. Either way, I like the idea about getting a part time job at one of these companies to learn as much as you can while earning money towards that down payment!

Building credit is a great option too but will require (your) discipline. Once you get the abovementioned part time job, maybe take over one of your family's utility payments into your name and become responsible for paying it. Once you turn 18 (not sure what the rules are) you can also get a credit card that you use for specified expenses and pay off every month in full to build up your credit score.

You sound smart and you are analytical. Remember, whatever you decide to do, knowledge is power. Other people want to make money too, what separates you is how much research you do, what facts you have, how you analyze a deal, etc. Be prepared to work harder (and smarter) than the other guy/gal, and I would predict that you'll be just fine. 

One the business degree advice above - I like that I have my degree in my pocket but its up to you. I agree, never go into debt for an education. It's almost never worth it.

Congrats for not just driving by real estate aimlessly at 16!! Stick around and by the time youre legal youll know more than most people in their 30's about real estate.

As to your question...youre getting lots of good advice but the thing about real estate is that there is so much of out there! Don't buy just one deal, buy as many as you profitably manage!

Tons of great advice mentioned. Work hard the next couple of years in areas where you want to progress in.

I will never say that education is bad. However, at the rate of formal education is going and the rate a lot of students are racking up debt is ridiculous!! Hands on education is IMO some of the best you can get and if you start now with networking with those that do what you want to do and learn/work  from/for them you will be miles ahead. 

As mentioned above maybe you could potential work for a storage facility you would potentially like to own. You learn the ins and outs plus if you are on good terms with the owner , maybe in a few years the owner would consider selling it to you on terms. Just don't get the wagon before the horse. 

Take your time and build relationships.  You build relationships and a great network of like minded individuals and you will excel very fast. 

Make goals and work them back to fill in the blanks. Enjoy the ride :)

Originally posted by @Shawn Amersi :

Hey guys Im 16 right now and still doing my research, so don't mind my stupid questions.

So I was looking at a case study and it went like this

the self storage facility is being sold for : $ 485,000 

270 units, 32,000 SF, 80 % occupancy, income for 1 fiscal year is:$ 79,000

the Expenses are :$ 32,000 thus the NOI is $ 47,000 and the mortgage payments annually are $ 23,432, so NOI - 23,432 = $ 23,569/Year Cash flow

But my question is, lets say a person has this as his/her business and its all they have, if they are making only $ 23,568 /year how is that worth their while, it has a decent ROI but i still dont get it, im confused

 HI Shawn,

To answer your question, yes it would be hard to live on this investment as it currently operates as a sole source of income.  That being said, I agree with many others that there may be a value add opportunity.  I didn't watch the video but it is quite possible that you could increase curb appeal, improve customer service, max out occupancy and then raise rates.  All depends on the market of course.  With that, you also want to consider time spent. While 24K may not seem like enough to live on, if it only takes 5 hours per week to run it, then you will have plenty of time left over to create additional income and wealth.

Could the 79K be net of management?  There are other income streams that may be offsetting some management costs, so they end up with $30/unit per month.

An alternative explanation is rates are so low and advertising expenses and taxes(if not included in the mortgage) are so high that it is only getting that per unit without factoring in management.

Hi Aaron,

As a Seasoned Self Storage Professional, let's not try to "GUESS" about the NOI as others have attempted to do here. Let's just assume that the NOI and Cash flow are correct, and answer your question.

The seller may own this as a passive investment, and may have a full time job - and this is his or her "walking around Money".  OR, perhaps, the seller owns 5 of these or 10, and makes $20,000 per year per property.

I'm biased, but I have owned around 100 single family rentals, 400 apartments, and office buildings, warehouses, etc - and I sold it all to invest in Only Self Storage.   

And I've taught hundreds of others to do the same.  So the question is - which asset class interests you, and what avenue should you take.  Only you can answer that with more education, and spending more time on this site, and with other mentors. 

If you want to know more about Self Storage - there's a pretty extensive 6 part mini course for free at www.selfstorageinvesting.com. 

Keep after it my friend, and by the way, if the #'s are true, that's a decent cap rate, and a darn good cash on cash return on that specific property - maybe you would want to find a partner to invest with you. 

To your success, 

Scott Meyers

The Self Storage Guy 

@Scott Meyers Wow, that's amazing, I was into single family home investing, as in I liked the premise of it, however considering the fact when you lose one tenant, its significant, there's so much hassle, and maintenance, plus in the matter of evictions tenants steal wiring from your wall, and ruin everything, in self storage you have the ability to seize and auction off the unit, and its re rentable again. From my amateur analysis, Ive also found that ROI is significantly highier with self storage than in comparison to single family. So logically its more appealing to me, and also I have a question, what do you think of getting a bill board on your self storage property if you have a decent location, to rent ad space.

Shawn, 

Yes, the ROI is SIGNIFICANTLY higher once you move from single family into commercial, and especially when moving into Self Storage. And as for Billboards, yes, we receive anywhere from $3,000, to $20,000 per year for our billboards, depending upon traffic count. They sign 10 year leases with 3% escalation clauses each year. COmbine that with cell towers, truck rentals, business centers, propane, locks and moving supplies and over 20 other add-on profit centers - you can see why this is the best asset class for forcing the appreciation and value. with a single family home - your value is capped by the highest value of other homes in the neighborhood - no matter what you do.

Happy Investing! 

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