Purchasing a Storage Unit

16 Replies

Attempting to purchase a storage unit this week.  Small town, about 4,000 people, traffic less than 4,600 per day.  Three competitors in the immediate area.  Every place is 90%+ plus filled.  I saw two facilities with 100 units each that had only four at one and nine at the other that were empty. The storage unit for sale is cheaper price than competition, some sizes by 10% and some sizes by 40% cheaper.

The unit for sale is 65+ units, i counted only 4 units that were not filled, two units double locked.  It is that full and the guy doesn't advertise, except sometimes on CL, it doesn't even show up on google maps when searching, not in the phone book either.  He only accepts cash, no website or credit cards.  Building is all steel and was built in 2005.  It still looks brand new and property in general is amazing looking.  To my knowledge it is generating between $2,500 and $3,000 per month.  Local taxes are $2,500 per year.  Setup is similar to competition, no security gates.  Only one of the competitors has an office, this one does not.  Competition are all located on opposite corners of the town and the owner claims there is a good relationship between all of them.

Asking price is $210,000.... $18/sqft, so am I missing something or is the deal of a lifetime?  I know small town rural facilities can be dangerous but like I said, this unit and all competitors are all full... not to mention if I raised rents to be closer to competition but still left them cheaper, that would increase the cap rate even more (14%+)!

Financially, I just happen to have 20% down payment... it will be hard but I can scrape it up.  This unit is not being advertised well at all, I heard about it through word of mouth so I assume I better jump on it while i can.

Updated over 2 years ago

He only accepts cash AND CHECKS.

For a 65 unit self storage for $210k looks pretty good but 

When you said 3k a month equating to 36k a year.. That terrible..

Thats a 17% cap rate with no expenses deducted..

I say you figure out the exact gross income or NOI before proceeding

Definatly get all the expenses, rent roll and income.  I'd knock the occupancy back to 80% at least and use current numbers.  Expense ratio will be higher then normal (small facility) unless you do the managing, snow, grass repairs your self. If his expenses are low he is probably running it all him self.

Yes he manages it all himself.  He does a great job of keeping it looking nice.  He just has a local guy do snow plowing and mowing.  Same guy also comes and empties delinquent units and gets them ready for next person... pays him $20 here, $40 dollars there.  Total expenses appear to be under $6k per year.  He says he is a traveling business man and handles everything off site by phone and email.

@Hai Loc

with expenses being super low, under $6k per year, the cap rate is upwards of 14% net... how is this bad?

Everything is self managed, which I would be doing as well while keeping my 8-5 job.

Yes, Get ALL the Expenses,  regardless of whether you are performing those duties or not.  As an aside, if you want a $9/hour job, then go get one with steady work, but don't do it in your own business - You're an investor, not a day laborer. 

Also, I find that expenses aren't higher, they are typically lower on smaller facilities - approx 25% of Gross Annual Revenues.  then apply a cap rate of approx 9% to derive your value.  

On the surface, it looks like you got a deal here.. 

Keep us posted! 

@Scott Meyers

Thanks that tip on calculating business value Scott!

@Corey Herr Thanks for opening this subject up Corey.  I am in the process of moving out of my house in order to build a new one.  I put half my house in a storage unit and was amazed at how great a business it seems to be! @Scott Meyers do think that all the Mom and Pop Storage businesses are getting eaten up by corporate businesses?  It sure seems that way in my town of Huntsville, Al.  It really seems like a business I'd like to learn more about.  Regards, Carl

Getting $2500-3000 per month on 65 units doesn't add up. Clearly there is room for increased rents but is he really getting $40/unit? That's the cheapest storage I've heard of.
Originally posted by @Corey Herr :

@Hai Loc

with expenses being super low, under $6k per year, the cap rate is upwards of 14% net... how is this bad?

Everything is self managed, which I would be doing as well while keeping my 8-5 job.

 6k a year on expenses? If you self manage it your are basically buying yourself a job. As an investment any buyer will look at the management expense or at least a kiosk. Be my guest for over looking this. 

@Jeremiah Hilliard

Storage is fairly cheap in this part of the country, small rural towns.  Prices range from $25 for 5'X10' to $75 for a 10'X40'.  That is why the 65 unit facility is relatively cheap compared to something similar say in California.  I think there would have to be a price increase under new ownership to closer match the more expensive competition in the area. Current competitors are anywhere from 10-40% more expensive depending on unit size.

@Hai Loc

I'm not trying to over look things on purpose... current owner is a traveling salesman.  He operates through phone and e-mail and occasionally will meet a new tenant on a Saturday.  I plan to operate the business similarly, keeping my standard day job.  People can show up onsite and call the number, I can have forms on site and they can pick a unit an mail me the contract and payment.  That is how it is currently operated.  I would like to potentially implement a website and electronic payment as options. There is a local guy who handles lawn, snow, and unit clean up who has a check mailed to him once work is completed.  After meeting with him tonight for more talk, he mentioned that the going rate to pay a property manager for the part time work this property would require would be around 15% gross income, that would handle tenant related things.

How does he only accept cash, but isn't around to collect it? This story seems to be missing pieces. Not saying it's on your side, but something is off about the whole thing 

It would be very fair to ask for his tax return for this business.

Originally posted by @Jeremiah Hilliard:

How does he only accept cash, but isn't around to collect it? This story seems to be missing pieces. Not saying it's on your side, but something is off about the whole thing 

I miss typed... he accepts cash and CHECKS.  People just mail checks to a PO box.

RED FLAG.

You say that he takes payments by cash only?  

When buying a business, either the income is on the books and the tax returns or it doesn't exist.  And you want to see a transcript from the IRS, not a photocopy of a document that he could have created in Word.

For all you know, half of those units could be filled with his own junk and the other half his his relative's junk.

Trust, but verify.

Charlie MacPherson, Real Estate Agent in MA (#9532146)
781-412-4151
Originally posted by @Carl Randal :

@Corey Herr Thanks for opening this subject up Corey.  I am in the process of moving out of my house in order to build a new one.  I put half my house in a storage unit and was amazed at how great a business it seems to be! @Scott Meyers do think that all the Mom and Pop Storage businesses are getting eaten up by corporate businesses?  It sure seems that way in my town of Huntsville, Al.  It really seems like a business I'd like to learn more about.  Regards, Carl

 Carl, "eaten up" is really a good thing.   We are buying and creating value in existing facilities and selling them off to the big guys.   They usually don't play in our sandbox (smaller facilities) so there are still many opportunities out there.   Then, they raise rents across the market, which raises the tide for all of us, 

Cheers, 

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