Best way to locate Self-Storage deals
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Specialist · Victor, NY · Member since 2013 · 823 posts · 844 votes
9yOriginally posted by @Jay Hinrichs:
try coastar .. along with there are probably self storage associations.
I have owned self storage.... its not really real estate its a business. \
the one I had I condo converted and sold each unit.. that turned out to be profitable.. took back notes so I did not have to manage the individual units and still enjoyed cash flow
While I agree that SS is a business....I have to disagree that Self Storage is a business rather than real estate. Its both, but so is any other real estate investment---if done right--NNN might be the closest thing to an exception to this rule. Having come from multi-family (albeit on a small scale- 31 units) I can say beyond a shadow of a doubt that my storage investments (also a proportionally small scale -460 units covering 50,000 sq. ft.) require FAR less of my personal bandwidth than my MF did/does (still have 14 units and dwindling!). And SS makes me far more money that my MF investments. Just like any other RE investment, self storage involves renting space at a rate that exceeds your cost to do so.
As for the Original Poster's question, www.selfstorages.com, loopnet, brokerage specific sites like Marcus and Milichap and Argus, www.investmentrealestatellc.com if you are looking in the mid-atlantic or northeast, and craigslist are all sites that might be useful to you.
Looking at off market property: For a first property, I would recommend using the magic of google to locate all storage facilities that meet your criteria within a 60 mile radius of where you live. Then use property tax records to locate owner and mail to them regularly. Make a habit of visiting any that you happen by. You can also call the facilities but its sometimes tough to get to the owner (unless you are calling small facilities).
Storage is a hot market and has been for some time. And it appears it will be for the foreseeable future. Most owners (myself included) are willing to sell but only at prices that are higher than what the "market" could bear. Simply put, SS facilities are "worth" more to people who already own them because they know better than anyone else how profitable they can be and how tough it can be to find a place to re-deploy any gains at a comparable rate. Because of this, you need to know that self storage is a long game when it comes to sourcing off market deals. I looked for 3 years before I closed my first one which was ultimately found on loopnet-second deal was off market...walked into the place and got owners info....chased him for 18 months....and the rest is history). I have been helping a friend do the same for almost 2 years and we are still on the wrong side of the search. Being flexible (considering warehouse conversions, facilities that are "too" small but with room to expand, etc) will increase the supply available to you.
62 Replies
- 9yJon Q.Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votesOP
Originally posted by @Michael Wagner:
Originally posted by @Jon Q.:
Originally posted by @Michael Wagner:
Originally posted by @Jay Hinrichs:
@Michael Wagner I also recommend if one is to get into the business you need to have facilities that you can afford to have on site management.
That is certainly true for someone who is not able to or does not want to handle the day to day operation. But making such a recommendation does require that we first know of one's motivation. As a hypothetical example, If someone is trying to replace a $100,000 per year income that they currently earn working 60 hours a week....they might do very well with a smaller facility (say 20-30K sq. ft)....They could Net darn close to the $100K in income working just 15-20 office hours per week. It always circles back to one's goals for investing.
My first facility could not support on site management (except for my free labor) when I bought it. It was only 10K sq. ft. and was losing $2,000 per month when I took it over. It now does much better and is at 30K sq. ft. with 15K more in the future and is large enough to justify onsite management but in the form of a part time manager who puts in 16 hours per week plus appointments. My second facility is under 20K sq. ft. and doesnt really justify on site management. I manage it from my cell phone as it is close to home and that works well for us as the first facility made me unemployable:) The 20,000 sq. ft. facility takes about 5 hours per week of my time and it hums along pretty good.
Micheal,
How many units was each of these deals you referenced? Would you recommend a minimum size to get started?
In general, what per unit minimum would you need to support an onsite manager?
In regard to debt financing, does SS differ from MF at all? If so, how do?
Thanks!
My first deal was roughly 80 storage units plus 70 outdoor parking spots. Only generated$50K in gross revenue when we started but it was only half full and had potential for $100K as it sat. We've since increased to 170 typical units, 10 covered RV spots with electric and 70 outdoor spots. Out next 15,000 sq. ft. will add another 100 units or so but will cannibalize the outdoor storage as we are out of space.
Our second facility was 117 units when we bought in 2014. It is now 200 plus 18 outdoor spots. We will replace the outdoor spots with 25 traditional spots this summer if all goes to plan.
The ability to sustain an onsite manager comes down to finances. Every market is different so a per unit minimum isnt all that meaningful. A really expensive (per unit facility) with only 20 garages @ $400 per month might not support a manager in a large market. But a run of the mill tertiary market facility with 250 units going for $80 on average will easily support a part time manager plus an after hours call center if needed. With that, its better to look at the facility as a whole as opposed to "per unit" calculations. Unit mix can also have dramatic effects on per unit calculations as well as type of management required. 5' x 5' units will get more per square foot but will turnover much more frequently than a 10' x 40' unit will and will therefore require more "management.
As for financing, I think you will find it similar to MF except that up until recently (say 5-10 years ago) it was harde to find lenders with experience in the sector. Now that the SBA is willing to loan on SS, you will find many more options. Typically, 20% down is pretty easy to come by. Once a relationship with a bank is developed, 10% down is also doable. Rates in my area have been around 5% or so in the $250K to $1M range.
Thanks Michael! Great information.
Do it's seems like you're targeting deals with high vacancy and extra land that you can fill and develop additional units? Building 83 extra units is quite a big development. Is it common that self storage parcels include that much open land?
Also, when looking at rental housing, I completely avoid moderate and high crime areas. With regard to SS will you consider deals in high crime areas? I'm sure population, is likely a number one consideration, but how does crime rate factor into your market research when selecting an area to invest in. FYI: I will be targeting markets that I do not live in, so I'll have to acquire a deal that has potential for me to hire an onsite manage.
- 9yJon Q.Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votesOP
Originally posted by @Jay Hinrichs:
@Michael Wagner agreed if its your only gig that makes sense.
mine was part of many different real estate deal I had going on including a fairly large HML company at the time with 14 employees lending in 12 states.. so mine was 7k sq ft of commreical with 44 units below.. nice stuff all sheet rocked and power with electric garage openers 10X 20's and 3 triples.
and it was across town for us.. so it was hard to manage.. no one wanted to drive an hour for an appointment to show a unit. and I certianly had no time to do it.
that is when I came up with the idea to condo plat it... as all our tenants owned floating homes across the street.. so my thought was if they also owned preminate storage their floating home would be worth more money.. I paid 10k a unit when I bought it.. the 7k sq ft of office was basically free.
I sold each unit for 30 to 35k and the triples for 75k each.. so it was a nice play cash on cash it only took about 6 months and 50k to condo ize it. this is in portland Oregon.. right off of the columbia river
Jay,
Interesting... Can you clarify/provide greater detail on what you did?
You owned floating homes? By floating homes do you mean mobile homes aka a trailor park?
Also, did you condo the self storage legally attaching a self storage unit to each mobile home then sell the whole project? If so, I had no idea you can condo/legally attach two separate properties like that? What am I missing?
- 9yJon Q.Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votesOP
Originally posted by @Saberian Younger:
Thanks. I already found that, but not much there.
- Specialist · Victor, NY · Member since 2013 · 823 posts · 844 votes9y
Originally posted by @Jon Q.:
Originally posted by @Michael Wagner:
Originally posted by @Jon Q.:
Originally posted by @Michael Wagner:
Originally posted by @Jay Hinrichs:
@Michael Wagner I also recommend if one is to get into the business you need to have facilities that you can afford to have on site management.
That is certainly true for someone who is not able to or does not want to handle the day to day operation. But making such a recommendation does require that we first know of one's motivation. As a hypothetical example, If someone is trying to replace a $100,000 per year income that they currently earn working 60 hours a week....they might do very well with a smaller facility (say 20-30K sq. ft)....They could Net darn close to the $100K in income working just 15-20 office hours per week. It always circles back to one's goals for investing.
My first facility could not support on site management (except for my free labor) when I bought it. It was only 10K sq. ft. and was losing $2,000 per month when I took it over. It now does much better and is at 30K sq. ft. with 15K more in the future and is large enough to justify onsite management but in the form of a part time manager who puts in 16 hours per week plus appointments. My second facility is under 20K sq. ft. and doesnt really justify on site management. I manage it from my cell phone as it is close to home and that works well for us as the first facility made me unemployable:) The 20,000 sq. ft. facility takes about 5 hours per week of my time and it hums along pretty good.
Micheal,
How many units was each of these deals you referenced? Would you recommend a minimum size to get started?
In general, what per unit minimum would you need to support an onsite manager?
In regard to debt financing, does SS differ from MF at all? If so, how do?
Thanks!
My first deal was roughly 80 storage units plus 70 outdoor parking spots. Only generated$50K in gross revenue when we started but it was only half full and had potential for $100K as it sat. We've since increased to 170 typical units, 10 covered RV spots with electric and 70 outdoor spots. Out next 15,000 sq. ft. will add another 100 units or so but will cannibalize the outdoor storage as we are out of space.
Our second facility was 117 units when we bought in 2014. It is now 200 plus 18 outdoor spots. We will replace the outdoor spots with 25 traditional spots this summer if all goes to plan.
The ability to sustain an onsite manager comes down to finances. Every market is different so a per unit minimum isnt all that meaningful. A really expensive (per unit facility) with only 20 garages @ $400 per month might not support a manager in a large market. But a run of the mill tertiary market facility with 250 units going for $80 on average will easily support a part time manager plus an after hours call center if needed. With that, its better to look at the facility as a whole as opposed to "per unit" calculations. Unit mix can also have dramatic effects on per unit calculations as well as type of management required. 5' x 5' units will get more per square foot but will turnover much more frequently than a 10' x 40' unit will and will therefore require more "management.
As for financing, I think you will find it similar to MF except that up until recently (say 5-10 years ago) it was harde to find lenders with experience in the sector. Now that the SBA is willing to loan on SS, you will find many more options. Typically, 20% down is pretty easy to come by. Once a relationship with a bank is developed, 10% down is also doable. Rates in my area have been around 5% or so in the $250K to $1M range.
Thanks Michael! Great information.
Do it's seems like you're targeting deals with high vacancy and extra land that you can fill and develop additional units? Building 83 extra units is quite a big development. Is it common that self storage parcels include that much open land?
Also, when looking at rental housing, I completely avoid moderate and high crime areas. With regard to SS will you consider deals in high crime areas? I'm sure population, is likely a number one consideration, but how does crime rate factor into your market research when selecting an area to invest in. FYI: I will be targeting markets that I do not live in, so I'll have to acquire a deal that has potential for me to hire an onsite manage.
You are exactly right. I look to create equity explosions by finding under-performing facilities with land to develop. To me, its the best of both worlds (buy existing for cash flow vs. develop from ground up for greatest equity gains) You get cash flow from day one to offset some or all of your operating costs (rather than feeding the alligator for 1-2 years with new development) and you still have the Value add opportunity that comes with an operational overhaul and subsequent expansion.
I personally only invest in low crime areas. Around here, that puts me in suburbia (and even more preferable is rural small towns because of ease of development as compared to affluent suburbs). I find that the management headaches are less just as they are for MF in these areas. That being said, the legal recourse storage operators have are hugely favorable as compared to MF. Lien laws allow storage owners to recoup most or all of the lost rent associated with non-payment if done expeditiously. As such, I personally would probably accept a slightly less desirable nighborhood to invest in storage than I would MF.
Yes population and existing competition are two of the biggest considerations.
- 9yJon Q.Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votesOP
Originally posted by @Michael Wagner:
Originally posted by @Jon Q.:
Originally posted by @Michael Wagner:
Originally posted by @Jay Hinrichs:
@Michael Wagner I also recommend if one is to get into the business you need to have facilities that you can afford to have on site management.
That is certainly true for someone who is not able to or does not want to handle the day to day operation. But making such a recommendation does require that we first know of one's motivation. As a hypothetical example, If someone is trying to replace a $100,000 per year income that they currently earn working 60 hours a week....they might do very well with a smaller facility (say 20-30K sq. ft)....They could Net darn close to the $100K in income working just 15-20 office hours per week. It always circles back to one's goals for investing.
My first facility could not support on site management (except for my free labor) when I bought it. It was only 10K sq. ft. and was losing $2,000 per month when I took it over. It now does much better and is at 30K sq. ft. with 15K more in the future and is large enough to justify onsite management but in the form of a part time manager who puts in 16 hours per week plus appointments. My second facility is under 20K sq. ft. and doesnt really justify on site management. I manage it from my cell phone as it is close to home and that works well for us as the first facility made me unemployable:) The 20,000 sq. ft. facility takes about 5 hours per week of my time and it hums along pretty good.
Micheal,
How many units was each of these deals you referenced? Would you recommend a minimum size to get started?
In general, what per unit minimum would you need to support an onsite manager?
In regard to debt financing, does SS differ from MF at all? If so, how do?
Thanks!
My first deal was roughly 80 storage units plus 70 outdoor parking spots. Only generated$50K in gross revenue when we started but it was only half full and had potential for $100K as it sat. We've since increased to 170 typical units, 10 covered RV spots with electric and 70 outdoor spots. Out next 15,000 sq. ft. will add another 100 units or so but will cannibalize the outdoor storage as we are out of space.
Our second facility was 117 units when we bought in 2014. It is now 200 plus 18 outdoor spots. We will replace the outdoor spots with 25 traditional spots this summer if all goes to plan.
The ability to sustain an onsite manager comes down to finances. Every market is different so a per unit minimum isnt all that meaningful. A really expensive (per unit facility) with only 20 garages @ $400 per month might not support a manager in a large market. But a run of the mill tertiary market facility with 250 units going for $80 on average will easily support a part time manager plus an after hours call center if needed. With that, its better to look at the facility as a whole as opposed to "per unit" calculations. Unit mix can also have dramatic effects on per unit calculations as well as type of management required. 5' x 5' units will get more per square foot but will turnover much more frequently than a 10' x 40' unit will and will therefore require more "management.
As for financing, I think you will find it similar to MF except that up until recently (say 5-10 years ago) it was harde to find lenders with experience in the sector. Now that the SBA is willing to loan on SS, you will find many more options. Typically, 20% down is pretty easy to come by. Once a relationship with a bank is developed, 10% down is also doable. Rates in my area have been around 5% or so in the $250K to $1M range.
If you focus on square footage, not all square footage is buildable or usable and also some will have higher percentages of wasted common space, making comparing projects more difficult. I guess this is part of your due diligence. Are there standard building codes in each county for SS or do you get someone from the city to look at the deal before closing to get a sense of how much you can further develope? I'm sure you can tell by my questions, but I have no experience in development.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Jon,
floating homes as you see in Sausalito.. now think were they need to store their stuff.. most all have storage units some where.
Mine facility was just off of Marine drive in Portland across the Levi from the river and about 200 floating homes. 95% of my tenants were floating home owners..
I put a condo plat on my storage facility .. which kind of surprised me it was quite easy.. just needed extensive surveying etc.. but no different than you see developers putting a condo plat on an office or industrial park to sell to end users who want to own not rent.
So each person that bought the storage facility if they paid cash they owned it of couse free and clear just subject to the HOA's to maintain it all.
these were not contingious and the floating homes are on leased morage space at least I think its leased
Idea was hey buy my floating home and get a deed storage unit.. or for those that live there .. they now had a storage facility with a locked in debt load that owned.. they could then customize them etc etc.
- Specialist · Victor, NY · Member since 2013 · 823 posts · 844 votes9y
Originally posted by @Jon Q.:
Originally posted by @Michael Wagner:
Originally posted by @Jon Q.:
Originally posted by @Michael Wagner:
Originally posted by @Jay Hinrichs:
@Michael Wagner I also recommend if one is to get into the business you need to have facilities that you can afford to have on site management.
That is certainly true for someone who is not able to or does not want to handle the day to day operation. But making such a recommendation does require that we first know of one's motivation. As a hypothetical example, If someone is trying to replace a $100,000 per year income that they currently earn working 60 hours a week....they might do very well with a smaller facility (say 20-30K sq. ft)....They could Net darn close to the $100K in income working just 15-20 office hours per week. It always circles back to one's goals for investing.
My first facility could not support on site management (except for my free labor) when I bought it. It was only 10K sq. ft. and was losing $2,000 per month when I took it over. It now does much better and is at 30K sq. ft. with 15K more in the future and is large enough to justify onsite management but in the form of a part time manager who puts in 16 hours per week plus appointments. My second facility is under 20K sq. ft. and doesnt really justify on site management. I manage it from my cell phone as it is close to home and that works well for us as the first facility made me unemployable:) The 20,000 sq. ft. facility takes about 5 hours per week of my time and it hums along pretty good.
Micheal,
How many units was each of these deals you referenced? Would you recommend a minimum size to get started?
In general, what per unit minimum would you need to support an onsite manager?
In regard to debt financing, does SS differ from MF at all? If so, how do?
Thanks!
My first deal was roughly 80 storage units plus 70 outdoor parking spots. Only generated$50K in gross revenue when we started but it was only half full and had potential for $100K as it sat. We've since increased to 170 typical units, 10 covered RV spots with electric and 70 outdoor spots. Out next 15,000 sq. ft. will add another 100 units or so but will cannibalize the outdoor storage as we are out of space.
Our second facility was 117 units when we bought in 2014. It is now 200 plus 18 outdoor spots. We will replace the outdoor spots with 25 traditional spots this summer if all goes to plan.
The ability to sustain an onsite manager comes down to finances. Every market is different so a per unit minimum isnt all that meaningful. A really expensive (per unit facility) with only 20 garages @ $400 per month might not support a manager in a large market. But a run of the mill tertiary market facility with 250 units going for $80 on average will easily support a part time manager plus an after hours call center if needed. With that, its better to look at the facility as a whole as opposed to "per unit" calculations. Unit mix can also have dramatic effects on per unit calculations as well as type of management required. 5' x 5' units will get more per square foot but will turnover much more frequently than a 10' x 40' unit will and will therefore require more "management.
As for financing, I think you will find it similar to MF except that up until recently (say 5-10 years ago) it was harde to find lenders with experience in the sector. Now that the SBA is willing to loan on SS, you will find many more options. Typically, 20% down is pretty easy to come by. Once a relationship with a bank is developed, 10% down is also doable. Rates in my area have been around 5% or so in the $250K to $1M range.
If you focus on square footage, not all square footage is buildable or usable and also some will have higher percentages of wasted common space, making comparing projects more difficult. I guess this is part of your due diligence. Are there standard building codes in each county for SS or do you get someone from the city to look at the deal before closing to get a sense of how much you can further develope? I'm sure you can tell by my questions, but I have no experience in development.
Any offering will list rentable square feet....that is the number you use to make apples to apples comparisons! If you are looking at a conversion project, the general rulo of thumb is that 20% of a clear span building space will be lost to hallways and common areas.
Some properties will be sold with approvals in place. Others the attached land is zoned storage so as long as the you can meet planning board requirements, there shouldnt be too much challenge but I do recommend getting with the enforcement officer as well as in front of the planning board for what is often known as an "informal review" to see what kind of appetite they have for your development. An hour spent in that meeting will let you know if you should expect any major obstacles to further development.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Michael Wagner in our area its mandatory to have Pre app meetings prior to any development
they cost about 1k to do . they will get all the department heads in to talk about potential pit falls etc etc.. its really quite good ... you don't blow a ton of time and money on something that simply won't work
- Specialist · Victor, NY · Member since 2013 · 823 posts · 844 votes9y
Originally posted by @Jay Hinrichs:
@Michael Wagner in our area its mandatory to have Pre app meetings prior to any development
they cost about 1k to do . they will get all the department heads in to talk about potential pit falls etc etc.. its really quite good ... you don't blow a ton of time and money on something that simply won't work
That seems like a good thing....just done a lot more informally here and without the cost....one of the perks of smalltown USA I guess! Both options sure beat paying $5-10K (or way more) on drawings that never get used.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Michael Wagner yeah we have to pay for staffs time you can get cursorary answers at the counter but these meetings are put on the record and you can rely on them to then go spend the thousands or hundreds of thousands in engineering plans etc
- Investor · Austin, TX · Member since 2014 · 83 posts · 39 votes9yJon S. https://www.ten-x.com/commercial/? Maybe?
- Investor · Winston Salem, NC · Member since 2016 · 60 posts · 18 votes9y
@Jon Q. - I am also working on a first time SS acquisition (as part of a 1031 out of SFR). I am also just getting into SS as an asset class and I think the short answer to your question in my experience is that there is no one source that aggregates SS listings. I found that to be very frustrating as I worked through my search for a deal.
I have a deal in contract right now (50k sf / 300 units) and it took awhile to find anything that worked. I initially was looking for something local through loopnet that I could manage myself alongside my regular (non REI) job. But couldn't find any deals in my local market that made sense. So I expanded my search by contacting brokers who had listings (loopnet, argus, and marcus & millichap) and just telling them what I was looking for and seeing what they had. I finally found a broker I liked working with - Michael Morrison at Midcoast Properties - and we worked together for about 4 months looking at deals across much of the southeast US - he brought me deals to look at as they came to market and I continued to look on my own as well and passed these deals I saw on to him and he contacted the listing brokers on my behalf. By that point I had made the decision to focus on properties that were big enough to justify third-party management, which generally seemed to be about the 40k sf threshold, though some regional companies seem willing to take on smaller properties.
My experience across all the deals I looked at was that most sellers were looking for premiums above what I expected to pay based on market caps. Generally that took the form of facilities that were valuing themselves on proformas that required real value add - whether in the form of management or capital expenditures. I was seeing very little realistic discounting of properties to reflect their current economic performance. Our valuations based on current NOIs were consistently 15-20% less than ask, and our offers got counters that were just marginally less than the original ask. The SS market, as @Michael Wagner suggests, certainly seems to be humming along.
My takeaway from the deals I looked at (mostly in the $2-$5m range) was that I had to be willing to pay a premium above what I thought the properties were currently worth that I could swallow based on the upside we thought we could coax out of it. And we finally found a couple of deals that I was comfortable with. Within my 1031 timeframe, I had to decide whether buying into a deal with a premium was worth it to get my tax deferral, and at the end of the day we found a deal that worked.
As for financing, I'm still working through that. I talked with some big banks directly, some brokers with CMBS and life insurance lenders, and local banks near the property. It seems to me the local banks will be far and away the most competitive option. The bank that currently holds the note on the property wants to keep it and I expect that is where we will end up. They want 20% and will offer a fixed, 25yr term.
Happy to talk more about my experience if you want to contact me...
- 9yJon Q.Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votesOP
Originally posted by @Jay Hinrichs:
Jon,
floating homes as you see in Sausalito.. now think were they need to store their stuff.. most all have storage units some where.
Mine facility was just off of Marine drive in Portland across the Levi from the river and about 200 floating homes. 95% of my tenants were floating home owners..
I put a condo plat on my storage facility .. which kind of surprised me it was quite easy.. just needed extensive surveying etc.. but no different than you see developers putting a condo plat on an office or industrial park to sell to end users who want to own not rent.
So each person that bought the storage facility if they paid cash they owned it of couse free and clear just subject to the HOA's to maintain it all.
these were not contingious and the floating homes are on leased morage space at least I think its leased
Idea was hey buy my floating home and get a deed storage unit.. or for those that live there .. they now had a storage facility with a locked in debt load that owned.. they could then customize them etc etc.
Wow! Very cool. Yes, I had no idea you can condo self-storage. So you owned all the floating homes and the self-storage facility OR did you partner up with the owner who was selling the floating homes to setup condo and split profits?
Do you still have to have involvement at all with the HOA or the owners setup and manage that? How close in proximity were the storage units to the floating homes? Must have been very close for this to work out...
Overall, sounds like a great idea. It seems like extra storage would be so much in demand for this floating home owners that floating home developers should develop self-storage as part of the development initially.
- 9yJon Q.Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votesOP
Originally posted by @Michael Wagner:
Originally posted by @Jon Q.:
Originally posted by @Michael Wagner:
Originally posted by @Jon Q.:
Originally posted by @Michael Wagner:
Originally posted by @Jay Hinrichs:
@Michael Wagner I also recommend if one is to get into the business you need to have facilities that you can afford to have on site management.
That is certainly true for someone who is not able to or does not want to handle the day to day operation. But making such a recommendation does require that we first know of one's motivation. As a hypothetical example, If someone is trying to replace a $100,000 per year income that they currently earn working 60 hours a week....they might do very well with a smaller facility (say 20-30K sq. ft)....They could Net darn close to the $100K in income working just 15-20 office hours per week. It always circles back to one's goals for investing.
My first facility could not support on site management (except for my free labor) when I bought it. It was only 10K sq. ft. and was losing $2,000 per month when I took it over. It now does much better and is at 30K sq. ft. with 15K more in the future and is large enough to justify onsite management but in the form of a part time manager who puts in 16 hours per week plus appointments. My second facility is under 20K sq. ft. and doesnt really justify on site management. I manage it from my cell phone as it is close to home and that works well for us as the first facility made me unemployable:) The 20,000 sq. ft. facility takes about 5 hours per week of my time and it hums along pretty good.
Micheal,
How many units was each of these deals you referenced? Would you recommend a minimum size to get started?
In general, what per unit minimum would you need to support an onsite manager?
In regard to debt financing, does SS differ from MF at all? If so, how do?
Thanks!
My first deal was roughly 80 storage units plus 70 outdoor parking spots. Only generated$50K in gross revenue when we started but it was only half full and had potential for $100K as it sat. We've since increased to 170 typical units, 10 covered RV spots with electric and 70 outdoor spots. Out next 15,000 sq. ft. will add another 100 units or so but will cannibalize the outdoor storage as we are out of space.
Our second facility was 117 units when we bought in 2014. It is now 200 plus 18 outdoor spots. We will replace the outdoor spots with 25 traditional spots this summer if all goes to plan.
The ability to sustain an onsite manager comes down to finances. Every market is different so a per unit minimum isnt all that meaningful. A really expensive (per unit facility) with only 20 garages @ $400 per month might not support a manager in a large market. But a run of the mill tertiary market facility with 250 units going for $80 on average will easily support a part time manager plus an after hours call center if needed. With that, its better to look at the facility as a whole as opposed to "per unit" calculations. Unit mix can also have dramatic effects on per unit calculations as well as type of management required. 5' x 5' units will get more per square foot but will turnover much more frequently than a 10' x 40' unit will and will therefore require more "management.
As for financing, I think you will find it similar to MF except that up until recently (say 5-10 years ago) it was harde to find lenders with experience in the sector. Now that the SBA is willing to loan on SS, you will find many more options. Typically, 20% down is pretty easy to come by. Once a relationship with a bank is developed, 10% down is also doable. Rates in my area have been around 5% or so in the $250K to $1M range.
Thanks Michael! Great information.
Do it's seems like you're targeting deals with high vacancy and extra land that you can fill and develop additional units? Building 83 extra units is quite a big development. Is it common that self storage parcels include that much open land?
Also, when looking at rental housing, I completely avoid moderate and high crime areas. With regard to SS will you consider deals in high crime areas? I'm sure population, is likely a number one consideration, but how does crime rate factor into your market research when selecting an area to invest in. FYI: I will be targeting markets that I do not live in, so I'll have to acquire a deal that has potential for me to hire an onsite manage.
You are exactly right. I look to create equity explosions by finding under-performing facilities with land to develop. To me, its the best of both worlds (buy existing for cash flow vs. develop from ground up for greatest equity gains) You get cash flow from day one to offset some or all of your operating costs (rather than feeding the alligator for 1-2 years with new development) and you still have the Value add opportunity that comes with an operational overhaul and subsequent expansion.
I personally only invest in low crime areas. Around here, that puts me in suburbia (and even more preferable is rural small towns because of ease of development as compared to affluent suburbs). I find that the management headaches are less just as they are for MF in these areas. That being said, the legal recourse storage operators have are hugely favorable as compared to MF. Lien laws allow storage owners to recoup most or all of the lost rent associated with non-payment if done expeditiously. As such, I personally would probably accept a slightly less desirable nighborhood to invest in storage than I would MF.
Yes population and existing competition are two of the biggest considerations.
Yes, this all makes sense. A good low-risk/strong upside strategy.
What's the minimum in regard to drive-by traffic you want to see when evaluating a deal?
I've had other SS experts recommend a minimum of 25,000 cars daily, otherwise pass. Would you agree?
Also, when conducting due diligence, is there anything that sellers often try to conceal that I should be on the lookout for?
Thanks again.jon.
- 9yJon Q.Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votesOP
Originally posted by @Christopher Brown:
@Jon Q. - I am also working on a first time SS acquisition (as part of a 1031 out of SFR). I am also just getting into SS as an asset class and I think the short answer to your question in my experience is that there is no one source that aggregates SS listings. I found that to be very frustrating as I worked through my search for a deal.
I have a deal in contract right now (50k sf / 300 units) and it took awhile to find anything that worked. I initially was looking for something local through loopnet that I could manage myself alongside my regular (non REI) job. But couldn't find any deals in my local market that made sense. So I expanded my search by contacting brokers who had listings (loopnet, argus, and marcus & millichap) and just telling them what I was looking for and seeing what they had. I finally found a broker I liked working with - Michael Morrison at Midcoast Properties - and we worked together for about 4 months looking at deals across much of the southeast US - he brought me deals to look at as they came to market and I continued to look on my own as well and passed these deals I saw on to him and he contacted the listing brokers on my behalf. By that point I had made the decision to focus on properties that were big enough to justify third-party management, which generally seemed to be about the 40k sf threshold, though some regional companies seem willing to take on smaller properties.
My experience across all the deals I looked at was that most sellers were looking for premiums above what I expected to pay based on market caps. Generally that took the form of facilities that were valuing themselves on proformas that required real value add - whether in the form of management or capital expenditures. I was seeing very little realistic discounting of properties to reflect their current economic performance. Our valuations based on current NOIs were consistently 15-20% less than ask, and our offers got counters that were just marginally less than the original ask. The SS market, as @Michael Wagner suggests, certainly seems to be humming along.
My takeaway from the deals I looked at (mostly in the $2-$5m range) was that I had to be willing to pay a premium above what I thought the properties were currently worth that I could swallow based on the upside we thought we could coax out of it. And we finally found a couple of deals that I was comfortable with. Within my 1031 timeframe, I had to decide whether buying into a deal with a premium was worth it to get my tax deferral, and at the end of the day we found a deal that worked.
As for financing, I'm still working through that. I talked with some big banks directly, some brokers with CMBS and life insurance lenders, and local banks near the property. It seems to me the local banks will be far and away the most competitive option. The bank that currently holds the note on the property wants to keep it and I expect that is where we will end up. They want 20% and will offer a fixed, 25yr term.
Happy to talk more about my experience if you want to contact me...
Chris,
Thanks for the info and describing your experience thus far. Much appreciated!
Where and what are you teaching up in Winston Salem?
I've spent some time in Winston-Salem. I've done some investing in Charlotte and my securities attorney is in Winston Salem.
So, are you paying Michael as a buyer broker? I'd like to avoid using a buyer broker...
Yes, the financing terms you mention aren't bad.
In regard to the 1031 exchange, is SFR and SS considered "like-kind"?
In regard to locating a deal that needs work and can negotiate a discount on...I will never pay more than I believe a property is worth. I would rather keep looking. Based on my experience, patience is usually rewarded.
If you're looking to raise equity in your deals, feel free to contact me. I run many online and off-line investor groups, so I've got plenty of investors with capital.
I may be open to a JV if the deal is attractive and large enough. I'm a fairly conservative investor and I only acquire properties in select markets (I do significant market research) that need work and that I can acquire at a discount.
With regard to SS, I will be seeking to execute a strategy similar to Michael's as he describes it above.
- Investor · Winston Salem, NC · Member since 2016 · 60 posts · 18 votes9y
I teach in the English department at Wake. Enjoying our first snow here in NC!
- I'm not paying a buyer's broker fee - my understanding is that for most SS deals under a certain amount, say mid-six figures, the seller's broker is going to split their fee.
- I've found the local lenders to be between 500 and 750 basis points underneath the institutional lenders so far. The rates have obviously moved a lot over the last eight weeks, so who knows where we'll end up.
- Basically any real property held for business or investment purposes counts as like-kind for 1031 purposes, and while it can get complicated at the margins, real estate for real estate is almost always considered like-kind.
- I think in SS "value" is in a lot of ways in the eye of the beholder. If the seller and I both know that I can turn a $2m property into a $2.5m property in two years with better management, what's it worth right now? That was how most of the conversations we had with sellers brokers went. Particularly with lease-up deals on new development, where we couldn't get anybody to move off their Year 3 stabilized projections. And so we passed on all of those. We finally found what we think are a couple of under-managed (read, non-professionally managed) properties in tertiary markets that have upside: under-occupied, no tenant insurance, no UHaul, no web presence, etc. So while demographics and competition are obviously the threshold considerations, as @Michael Wagner suggests, the management/expansion upside is where the deals are. I'd also suggest to you that because an increasing amount of SS customers come from the web, don't overvalue the vehicle counts. Obviously location and visibility matter, but they don't seem to be the final determinants in the way they were once understood to be.
- And 100,000+ population counts are 5-6 CAP markets in SS these days and those properties are priced accordingly. The institutional money gobbles those properties up - SS REITs are huge players in the A markets. SS is still interesting in that there are so many mom and pop players, but that's less and less the case in the big markets.
- I'd love to stay in touch about the deals I'm working on now; I'll shoot you a direct message and we can talk more.
Good luck!
- 9yJon Q.Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votesOP
Originally posted by @Christopher Brown:
I teach in the English department at Wake. Enjoying our first snow here in NC!
- I'm not paying a buyer's broker fee - my understanding is that for most SS deals under a certain amount, say mid-six figures, the seller's broker is going to split their fee.
- I've found the local lenders to be between 500 and 750 basis points underneath the institutional lenders so far. The rates have obviously moved a lot over the last eight weeks, so who knows where we'll end up.
- Basically any real property held for business or investment purposes counts as like-kind for 1031 purposes, and while it can get complicated at the margins, real estate for real estate is almost always considered like-kind.
- I think in SS "value" is in a lot of ways in the eye of the beholder. If the seller and I both know that I can turn a $2m property into a $2.5m property in two years with better management, what's it worth right now? That was how most of the conversations we had with sellers brokers went. Particularly with lease-up deals on new development, where we couldn't get anybody to move off their Year 3 stabilized projections. And so we passed on all of those. We finally found what we think are a couple of under-managed (read, non-professionally managed) properties in tertiary markets that have upside: under-occupied, no tenant insurance, no UHaul, no web presence, etc. So while demographics and competition are obviously the threshold considerations, as @Michael Wagner suggests, the management/expansion upside is where the deals are. I'd also suggest to you that because an increasing amount of SS customers come from the web, don't overvalue the vehicle counts. Obviously location and visibility matter, but they don't seem to be the final determinants in the way they were once understood to be.
- And 100,000+ population counts are 5-6 CAP markets in SS these days and those properties are priced accordingly. The institutional money gobbles those properties up - SS REITs are huge players in the A markets. SS is still interesting in that there are so many mom and pop players, but that's less and less the case in the big markets.
- I'd love to stay in touch about the deals I'm working on now; I'll shoot you a direct message and we can talk more.
Good luck!
A very good institution! Do they have a campus in Winston or are you commuting into Charlotte?
Stay warm...It's not like NYC, the NC cities don't really know yet how to handle the snow. Last year, it took forever to have the roads plowed...My had to ski into work!
If that's the case with SS, with your permission, I may just have to contact your broker...
Do you have experience managing investments out of state? Can you provide me a brief investment history? Feel free to take this offline and we can talk via message.
I'm pretty sure I don't agree with your comments in regard to traffic count. As is the case with multifamily, although people are increasingly tech savvy, I think a substantial % of customers (prospective tenants or self-storage customers) come from drive-by traffic. And if this is true, which I believe it is, it makes it particularly important for your apartment or SS facility to have professional and attractive curb appeal with big signage.
I've driven probably 100+ deals in Dallas / Ft. Worth...most of the deals I've walked that were poorly managed often where not effectively leveraging their location and drive-by traffic / didn't have professional signage.
I think the second major source of customers is REFERRALS from existing customers... This is also a cheap source of customers. And if your facility is well-run and you setup a referral discount program, it'll be likely your best source of customers.
After drive by traffic and referrals, all other sources of business are more costly and involved spending $ on marketing...
- 9yJon Q.Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votesOP
Originally posted by @Saberian Younger:
Jon S. https://www.ten-x.com/commercial/? Maybe?
Thanks, but unfortunately little to no SS deals on there.
- 9yJon Q.Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votesOP
Have you investing in SS outside of the market in which you live?
What's your target price per square foot when you're evaluating deals OR does this and the storage rates differ so much in each market that you focus more on cap rate, cash-on-cash and IRR over a specific hold period?
- Real Estate Agent · Cottage Grove, WI · Member since 2017 · 14 posts · 4 votes9y
I built a small SS facility (75 unit) partially due to the fact in my market you can build them for around a 14 cap or buy them at 9 cap. Mostly because I got lucky and found an odd shaped commercial lot across from a trailer park. I have some smaller MF and my SS is way esier to manage. I had a local website company build me a site for around 10k to handle customers renting the units online so I don't meet my customers and they get setup on a monthly auto billing. I stop out when customers end their lease online to check the unit and release it back the available unit "pool." The trouble is that I am having now is finding more land to build on. Local municipalities hate SS facilities so it's a fight to get the required zoning/ conditional use permits. I am young don't have a lot of money so therefore I have no pull in our local government. I am trying to figure out a good way to investigate near by markets with out spending all the time driving around and counting locks. I'm a new realtor and I finding out most good deals are not on the multiple list for suckers MLS. Maybe that last statement was a bit harsh but that's the way I see it. Who would sell a gold mine ? Thanks for all the good info on this thread.
- 9yJon Q.Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votesOP
Originally posted by @Christopher Brown:
I teach in the English department at Wake. Enjoying our first snow here in NC!
- I'm not paying a buyer's broker fee - my understanding is that for most SS deals under a certain amount, say mid-six figures, the seller's broker is going to split their fee.
- I've found the local lenders to be between 500 and 750 basis points underneath the institutional lenders so far. The rates have obviously moved a lot over the last eight weeks, so who knows where we'll end up.
- Basically any real property held for business or investment purposes counts as like-kind for 1031 purposes, and while it can get complicated at the margins, real estate for real estate is almost always considered like-kind.
- I think in SS "value" is in a lot of ways in the eye of the beholder. If the seller and I both know that I can turn a $2m property into a $2.5m property in two years with better management, what's it worth right now? That was how most of the conversations we had with sellers brokers went. Particularly with lease-up deals on new development, where we couldn't get anybody to move off their Year 3 stabilized projections. And so we passed on all of those. We finally found what we think are a couple of under-managed (read, non-professionally managed) properties in tertiary markets that have upside: under-occupied, no tenant insurance, no UHaul, no web presence, etc. So while demographics and competition are obviously the threshold considerations, as @Michael Wagner suggests, the management/expansion upside is where the deals are. I'd also suggest to you that because an increasing amount of SS customers come from the web, don't overvalue the vehicle counts. Obviously location and visibility matter, but they don't seem to be the final determinants in the way they were once understood to be.
- And 100,000+ population counts are 5-6 CAP markets in SS these days and those properties are priced accordingly. The institutional money gobbles those properties up - SS REITs are huge players in the A markets. SS is still interesting in that there are so many mom and pop players, but that's less and less the case in the big markets.
- I'd love to stay in touch about the deals I'm working on now; I'll shoot you a direct message and we can talk more.
Good luck!
Chris,
Here's some info I wanted to share as I think others on here will benefit from the info.
This is the checklist I use for SS deals...
1. 100 units and up. 2. $50,000 median household income. 3. 50,000 population within 3 miles of the facility. 4. Traffic count past facility of 25,000+ cars per day. 5. Not greater than 6 square feet of storage space per person in the market. 6. Rental rates of around $1 per square foot on existing storage. 7. Buy in distress, if you can. 8. High barrier to entry. Here are the reason's for each item on the checklist:
1. There are some major fixed costs in a self-storage facility, the largest of which is the manager. You have to have enough units to support the necessary staff to run the complex. You cannot run a self-storage facility from a kiosk, contrary to what some folks may suggest. And you cannot run it without any form of management. That’s why small complexes in rural markets are always on the market for sale.
2. To pay for storage — $100 per month or more — the customer has to have discretionary spending ability. If they are struggling to cover their rent or mortgage, they are not going to have the desire or ability to add to their already struggling finances. In addition, in order to have the need for storage, they will have to have excess belongings. Generally, only people with higher incomes can amass enough material items to need to store them.
3. The myth that you can build a self-storage facility in the middle of nowhere and fill it up needs to be exposed. Self-storage relies on people – people who need to store stuff. In the absence of population, you have no demand. You cannot build or buy a self-storage facility in a small town of 5,000 people and be successful – at least not successful enough to make any money with it. Population density is key.
4. The majority of self-storage customers find their storage facility from driving by it. It is, in many ways, a point of purchase decision. Few people put a scientific study on where to store their stuff. They look at convenience, and often just pull in to the first one they pass near their home or business. As a result, it is also a myth that you can have a successful self-storage facility that is hidden from view, or stuck on a two-lane street with no traffic.
5. A market of 100,000 population should not have more than 600,000 square feet of space available. If it does, the area is over-built. The best markets have ratios far less than 6. Remember that the density of the market has a lot to do with this. In areas with far denser housing, there is less available land for self-storage facilities, and a greater population to support it. San Francisco, which is extremely dense, is a great self-storage market, where as Stockton, California, always suffers from vacancy.
6. A healthy self-storage market will have a rental rate of around $1 per square foot. This is the number that maximizes the economics of the facility. When you encounter rates significantly under $1, it not only implies that the supply/demand is out of whack, but that you are not going to be able to generate sufficient returns to make the facility a winner.
7. You may have noticed that there is a huge supply of self-storage units in almost every major city in the U.S. – and most midsize markets as well. It is extremely important that you select a market that allows virtually no further construction of self-storage facilities. Otherwise, you may find that the occupancy can never rise above a certain level since there is always more supply being brought on the market.
8. These barriers to entry can include no correctly zoned property, or a high price per square foot for suitably zoned land, that makes building a new facility uneconomic.
Here's a post by Steve Hajewski with Trachte Building Systems, who's a big SS investor:
"I would suggest to attend the Inside Self Storage World Expo in the spring to see all the major vendors in one room. I would agree that for most sites management software is essential, and with the low cost of cameras these should be a standard item on every new site.
Automated kiosks (only one vendor for this, product is called INSOMNIAC) and call centers can help with management duties, but you or an employee will need to visit the site frequently to keep it neat and clean as well as scan for potential problems. I do believe it's a lot easier to manage one that is close to you, but the best available location isn't always where you want it to be. Observing how other local sites are managed will show you the minimum level of service you can offer - I believe that it's a good strategy to build a site nicer than what currently exists in the market with better service, and charge a premium price for it. Rehabbing an existing site to make it premium can be a great opportunity.
Once built, your mortgage and property taxes are your major expenses. Insurance, credit card processing, and utilities are others but are minor compared to the first two. Utilities are a bigger issue for sites with heated/cooled units. If you have an employee, payroll may be your largest expense.
Major maintenance items to watch for on older sites are roofs, especially screw down roofs with failing rubber washer screws that fail (steel roofs are maybe a 30 to 40 year product), driveways at the end of their lives, doors and door springs (the older ones were more prone to rust if not maintained, newer ones tend to be better lubricated or coated). Gates and keypads are a mechanical item that can be a source or headaches for some sites.
If you find a site for sale, try to figure out why. Most sites have a design flaw or something that is a headache. Watch out for drainage problems. of everything that could be wrong, this is a huge problem. " - 9yJon Q.Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votesOP
Originally posted by @Ryan Wessel:
I built a small SS facility (75 unit) partially due to the fact in my market you can build them for around a 14 cap or buy them at 9 cap. Mostly because I got lucky and found an odd shaped commercial lot across from a trailer park. I have some smaller MF and my SS is way esier to manage. I had a local website company build me a site for around 10k to handle customers renting the units online so I don't meet my customers and they get setup on a monthly auto billing. I stop out when customers end their lease online to check the unit and release it back the available unit "pool." The trouble is that I am having now is finding more land to build on. Local municipalities hate SS facilities so it's a fight to get the required zoning/ conditional use permits. I am young don't have a lot of money so therefore I have no pull in our local government. I am trying to figure out a good way to investigate near by markets with out spending all the time driving around and counting locks. I'm a new realtor and I finding out most good deals are not on the multiple list for suckers MLS. Maybe that last statement was a bit harsh but that's the way I see it. Who would sell a gold mine ? Thanks for all the good info on this thread.
Yes, the best deals are not actively listed because they're easy to sell and are sold without being listed with brokers.
BEST DEALS
|
1. Sold to good old boys (local investors who know the owner)....if no one's interest -->2
2. Broker buys it himself. If broker not interested --> 3/4/5 depending on the quality of deal
3. Broker tries to sell to his close personal contacts, friends/family.
4. Broker best clients who can close quick
5. Broker lists, actively markets and seeks to sell it to a bigger idiot...you! (ACTIVELY LISTED)
|
WORST DEALS
If the deal gets to step 5 without being sold, yes, it's usually a crappy deal...so I think you're often, but not always right about that.
However, sometimes sellers DO sell a gold mine... this is because...some sellers sell because they have to for other reasons not concerning the property (ie. "desperate sellers"). Examples: sell because the owner just died and those inhereting don't want to hassle with the property, sell because need $ for other reasons, etc...
Other sellers sell because they lack the creativity or know how to property fix a problem concerning the property. If you do, you should buy it, address it, increase it's value and generate stronger returns. May the most creative, most resourceful, and hardest working investor win!
- Specialist · Victor, NY · Member since 2013 · 823 posts · 844 votes9y
Originally posted by @Jon Q.:
Have you investing in SS outside of the market in which you live?
What's your target price per square foot when you're evaluating deals OR does this and the storage rates differ so much in each market that you focus more on cap rate, cash-on-cash and IRR over a specific hold period?
I'm a local guy. Both facilities are within 60 miles of my house....I look to be all in under $30 per square foot as a general rule but that is not a driving number for me. Its all about the income. I base my purchases on cap rate and then cross check cost against price to build of $30-35 per square foot plus holding costs.
- Specialist · Victor, NY · Member since 2013 · 823 posts · 844 votes9y
Originally posted by @Jon Q.:
Originally posted by @Christopher Brown:
I teach in the English department at Wake. Enjoying our first snow here in NC!
- I'm not paying a buyer's broker fee - my understanding is that for most SS deals under a certain amount, say mid-six figures, the seller's broker is going to split their fee.
- I've found the local lenders to be between 500 and 750 basis points underneath the institutional lenders so far. The rates have obviously moved a lot over the last eight weeks, so who knows where we'll end up.
- Basically any real property held for business or investment purposes counts as like-kind for 1031 purposes, and while it can get complicated at the margins, real estate for real estate is almost always considered like-kind.
- I think in SS "value" is in a lot of ways in the eye of the beholder. If the seller and I both know that I can turn a $2m property into a $2.5m property in two years with better management, what's it worth right now? That was how most of the conversations we had with sellers brokers went. Particularly with lease-up deals on new development, where we couldn't get anybody to move off their Year 3 stabilized projections. And so we passed on all of those. We finally found what we think are a couple of under-managed (read, non-professionally managed) properties in tertiary markets that have upside: under-occupied, no tenant insurance, no UHaul, no web presence, etc. So while demographics and competition are obviously the threshold considerations, as @Michael Wagner suggests, the management/expansion upside is where the deals are. I'd also suggest to you that because an increasing amount of SS customers come from the web, don't overvalue the vehicle counts. Obviously location and visibility matter, but they don't seem to be the final determinants in the way they were once understood to be.
- And 100,000+ population counts are 5-6 CAP markets in SS these days and those properties are priced accordingly. The institutional money gobbles those properties up - SS REITs are huge players in the A markets. SS is still interesting in that there are so many mom and pop players, but that's less and less the case in the big markets.
- I'd love to stay in touch about the deals I'm working on now; I'll shoot you a direct message and we can talk more.
Good luck!
Chris,
Here's some info I wanted to share as I think others on here will benefit from the info.
This is the checklist I use for SS deals...
1. 100 units and up. 2. $50,000 median household income. 3. 50,000 population within 3 miles of the facility. 4. Traffic count past facility of 25,000+ cars per day. 5. Not greater than 6 square feet of storage space per person in the market. 6. Rental rates of around $1 per square foot on existing storage. 7. Buy in distress, if you can. 8. High barrier to entry. Here are the reason's for each item on the checklist:
1. There are some major fixed costs in a self-storage facility, the largest of which is the manager. You have to have enough units to support the necessary staff to run the complex. You cannot run a self-storage facility from a kiosk, contrary to what some folks may suggest. And you cannot run it without any form of management. That’s why small complexes in rural markets are always on the market for sale.
2. To pay for storage — $100 per month or more — the customer has to have discretionary spending ability. If they are struggling to cover their rent or mortgage, they are not going to have the desire or ability to add to their already struggling finances. In addition, in order to have the need for storage, they will have to have excess belongings. Generally, only people with higher incomes can amass enough material items to need to store them.
3. The myth that you can build a self-storage facility in the middle of nowhere and fill it up needs to be exposed. Self-storage relies on people – people who need to store stuff. In the absence of population, you have no demand. You cannot build or buy a self-storage facility in a small town of 5,000 people and be successful – at least not successful enough to make any money with it. Population density is key.
4. The majority of self-storage customers find their storage facility from driving by it. It is, in many ways, a point of purchase decision. Few people put a scientific study on where to store their stuff. They look at convenience, and often just pull in to the first one they pass near their home or business. As a result, it is also a myth that you can have a successful self-storage facility that is hidden from view, or stuck on a two-lane street with no traffic.
5. A market of 100,000 population should not have more than 600,000 square feet of space available. If it does, the area is over-built. The best markets have ratios far less than 6. Remember that the density of the market has a lot to do with this. In areas with far denser housing, there is less available land for self-storage facilities, and a greater population to support it. San Francisco, which is extremely dense, is a great self-storage market, where as Stockton, California, always suffers from vacancy.
6. A healthy self-storage market will have a rental rate of around $1 per square foot. This is the number that maximizes the economics of the facility. When you encounter rates significantly under $1, it not only implies that the supply/demand is out of whack, but that you are not going to be able to generate sufficient returns to make the facility a winner.
7. You may have noticed that there is a huge supply of self-storage units in almost every major city in the U.S. – and most midsize markets as well. It is extremely important that you select a market that allows virtually no further construction of self-storage facilities. Otherwise, you may find that the occupancy can never rise above a certain level since there is always more supply being brought on the market.
8. These barriers to entry can include no correctly zoned property, or a high price per square foot for suitably zoned land, that makes building a new facility uneconomic.
Here's a post by Steve Hajewski with Trachte Building Systems, who's a big SS investor:
"I would suggest to attend the Inside Self Storage World Expo in the spring to see all the major vendors in one room. I would agree that for most sites management software is essential, and with the low cost of cameras these should be a standard item on every new site.
Automated kiosks (only one vendor for this, product is called INSOMNIAC) and call centers can help with management duties, but you or an employee will need to visit the site frequently to keep it neat and clean as well as scan for potential problems. I do believe it's a lot easier to manage one that is close to you, but the best available location isn't always where you want it to be. Observing how other local sites are managed will show you the minimum level of service you can offer - I believe that it's a good strategy to build a site nicer than what currently exists in the market with better service, and charge a premium price for it. Rehabbing an existing site to make it premium can be a great opportunity.
Once built, your mortgage and property taxes are your major expenses. Insurance, credit card processing, and utilities are others but are minor compared to the first two. Utilities are a bigger issue for sites with heated/cooled units. If you have an employee, payroll may be your largest expense.
Major maintenance items to watch for on older sites are roofs, especially screw down roofs with failing rubber washer screws that fail (steel roofs are maybe a 30 to 40 year product), driveways at the end of their lives, doors and door springs (the older ones were more prone to rust if not maintained, newer ones tend to be better lubricated or coated). Gates and keypads are a mechanical item that can be a source or headaches for some sites.
If you find a site for sale, try to figure out why. Most sites have a design flaw or something that is a headache. Watch out for drainage problems. of everything that could be wrong, this is a huge problem. "This is some good criteria to judge a facility against but I would caution against adopting them as hard and fast rules. This is the kind of criteria that REITs use to find facilities. If you are only looking at what the big guys are looking at you are stepping over a lot of big dollars! The more criteria above you can find in a facility the better but by no means should you reject facilities that fail to meet one or even some of the criteria! Just my two cents. There's Millions to be made in facilities that might only tick one or two of these criteria off the list.
- Investor · Fishers, IN · Member since 2012 · 520 posts · 499 votes9y
Jon S.
Jon S.
Jon,
Although we HAVE purchased facilities from Brokers, Our goal is to beat them to the deal, and purchase directly from the seller. It takes more effort, but the payoff is well worth it.
We simply market to the sellers the same way a broker would, but with the intention of buying the facility, rather than listing it.
By the way, These are also the better deals - as the brokers like to list the "squeaky clean" deals that are turnkey, and that will fly through underwriting with a bank for a quick close, and therefore quick commissions.
The value add deals - the ones that won't support a loan - THAT'S WHERE TO GOLD IS! But Creating Passive Income in real estate takes work, a fact that most people won't talk about on a forum such as this.
Good Luck.
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