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
Originally posted by @Michael Wagner:
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.
Michael,
Based on your experience,what size facilities are beneath institutional investor radar? Less than 50,000 sq ft?
Originally posted by @Scott Meyers:
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.
Yes, Scott this makes a lot of sense. Those investors producing the best returns also generally put in the most work to create value. They are very active. Contrary to popular opinion, real estate is not and never meant to be a passive investment.
So, what's your program?
Do you do regular mailers in markets you're targeting?
What % responses do you typically get?
P.S. I've got that self-storage investor meeting on 1/23 that I messaged you about.
Any chance you'll be able to call in? Feel free to message me.
Thanks!
- 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 @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.
Michael,
Based on your experience,what size facilities are beneath institutional investor radar? Less than 50,000 sq ft?
Of course I will use the age old addage...."depends on the market"....that being said, my area of western NY probably represents the smaller markets that Institutional Investors would look at and I spoke with someone just today that represents a buyer. He indicated that 40,000 is their threshold but that can be achieved by a portfolio of small facilities clustered together geographically.
Originally posted by @Michael Wagner:
Originally posted by @Jon Q.:
Originally posted by @Michael Wagner:
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.
Michael,
Based on your experience,what size facilities are beneath institutional investor radar? Less than 50,000 sq ft?
Of course I will use the age old addage...."depends on the market"....that being said, my area of western NY probably represents the smaller markets that Institutional Investors would look at and I spoke with someone just today that represents a buyer. He indicated that 40,000 is their threshold but that can be achieved by a portfolio of small facilities clustered together geographically.
So, if you're trying to avoid competition, the smaller guys are likely focused on 10-40K sq ft...also seeking to acquire multiple in close proximity. That's often I think not easy to achieve...so they're stuck self-managing.
Originally posted by @Michael Wagner:
Originally posted by @Jon Q.:
Originally posted by @Michael Wagner:
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.
Michael,
Based on your experience,what size facilities are beneath institutional investor radar? Less than 50,000 sq ft?
Of course I will use the age old addage...."depends on the market"....that being said, my area of western NY probably represents the smaller markets that Institutional Investors would look at and I spoke with someone just today that represents a buyer. He indicated that 40,000 is their threshold but that can be achieved by a portfolio of small facilities clustered together geographically.
Is there a rule of thumb of how much per sq ft a facility should be generating? I'm looking at a deal know where total expenses are 50% of potential income. That seems high. Is it? For MF, I'd like to see expenses at about 30% of potential income.
- 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 @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.
Michael,
Based on your experience,what size facilities are beneath institutional investor radar? Less than 50,000 sq ft?
Of course I will use the age old addage...."depends on the market"....that being said, my area of western NY probably represents the smaller markets that Institutional Investors would look at and I spoke with someone just today that represents a buyer. He indicated that 40,000 is their threshold but that can be achieved by a portfolio of small facilities clustered together geographically.
Is there a rule of thumb of how much per sq ft a facility should be generating? I'm looking at a deal know where total expenses are 50% of potential income. That seems high. Is it? For MF, I'd like to see expenses at about 30% of potential income.
The rent generated per sq. ft. will be market specific. Industry standard for expenses in SS is 30-35%.
- 9yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
@Christopher Brown, we felt your pain through that ID period. but kudos to you for sticking to your investing metric and expanding the search to find what you needed.
I know it's an aside in this conversation but @Jay Hinrichs, can be just a font of historical trivia. They call the floating houses in Sausalito "arks". I actually stayed on the Ark Julie Marlowe years ago. Awesome experience. There's several communities of these floating homes in many coastal places. Another favorite is at Sunset Marina in in Key West. Many times these have been condoed so that they are actually real estate and can be eligible for 1031 treatment. As a matter of face the boat sliips at Sunset Marina are deeded boat slips called dockminiums. The slip itself is legally considered to be real estate and can be 1031d for any other type of investment real estate - not the boat in it but the slip itself.
So consider the impact of what you might do if you condo'd your self storage bays. At any time you could sell one here or there and 1031 into something else - as long as it was not a deliberate strategy of build to sell.
The 1031 Investor5137 Reviews - Note Investor · Austin, TX · Member since 2012 · 602 posts · 357 votes9y
Here is a marketing strategy that has worked for us for some time now. I've joined the memberships of the self storage members in particular states that I want to own them or that are popular. Usually this involves getting a list of their members. Twice a month, I send an email out to these lists looking for people who want to sell or get out of the self storage business. I will send this email out on the 1st and the 15th (and the 3rd and the 18th a second time to those that didn't open the email the first time) and usually, once a month, I will get 1-2 leads of owner operators who want to get out of the business. If I can negotiate with the seller to take over the debt or terms for a master lease or subject to deal, great! Otherwise, if they are behind, I approach the bank to buy the debt and several times I've gotten the bank to re-finance the debt to me at better terms. This usually gives me a quick upside in profits and I can either hold the asset or move it to someone else for a nice profit. Often times, these are smaller self storage units, non climate controlled, but they still make great deals. I don't use Loopnet or anything that is listed because its often dead wood of a deal. I will use Loopnet to find properties, and then find out who the lender is and then contact the banks to buy the debt.
Another way of finding these deals is using Laneguide to track down self storage lenders and Scotsman guide on the commercial side to find lenders making loans on self storage units. Often times they will have defaulted debt on units that I can purchase and take over the asset.
- Real Estate investor professional · Suwanee, GA · Member since 2016 · 233 posts · 81 votes9y
Originally posted by @Scott Carson:
Here is a marketing strategy that has worked for us for some time now. I've joined the memberships of the self storage members in particular states that I want to own them or that are popular. Usually this involves getting a list of their members. Twice a month, I send an email out to these lists looking for people who want to sell or get out of the self storage business. I will send this email out on the 1st and the 15th (and the 3rd and the 18th a second time to those that didn't open the email the first time) and usually, once a month, I will get 1-2 leads of owner operators who want to get out of the business. If I can negotiate with the seller to take over the debt or terms for a master lease or subject to deal, great! Otherwise, if they are behind, I approach the bank to buy the debt and several times I've gotten the bank to re-finance the debt to me at better terms. This usually gives me a quick upside in profits and I can either hold the asset or move it to someone else for a nice profit. Often times, these are smaller self storage units, non climate controlled, but they still make great deals. I don't use Loopnet or anything that is listed because its often dead wood of a deal. I will use Loopnet to find properties, and then find out who the lender is and then contact the banks to buy the debt.
Another way of finding these deals is using Laneguide to track down self storage lenders and Scotsman guide on the commercial side to find lenders making loans on self storage units. Often times they will have defaulted debt on units that I can purchase and take over the asset.
I think you employ a good strategy.
- Note Investor · Austin, TX · Member since 2012 · 602 posts · 357 votes9y
Thanks....the proof is in the pudding! Its amazing what happens when you market!
- Investor · California (SF & Santa Barbara) · Member since 2021 · 2 posts · 0 votes5y
@Jon Q. just ran through this post and appreciate all the info (even 4 years later!).
Can you tell me where you find the metrics that you referred to re a good deal? Specifically, $50k+ median income, 50k population w/in 3 mile radius, 25k daily traffic count, < 6 sq ft of existing storage per person in the market, rental rates of around $1 per foot.
Would also be interested in hearing any stories/advice from the past 4 years!
Thanks.
Scott
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