Analyzing Self Storage Facility

10 Replies

Looking for guidance on rural Self Storage facility in 185,600 person county. This property is off the beaten path in a historical town of 2,367

Current occupancy is at 92%. Nearest storage facility 12 miles away in another rural town. Besides the due diligence on financials what if anything should I be concerned about?  

I would be worried about finding a management company or even a new manager if the current one leaves. I would also be concerned about an exit strategy. Not sure how long you plan on holding this but not as many buyers look in small towns so it has the possibility of sitting on market for a long time.

On a positive note...im guessing you could raise rents and not have as many move outs because of how far the competition is away from you. 

There seems to be a good niche in small town self storage.  I've purchased a couple of self storage facilities in a town that has a population of 1000 with 160 total self storage doors.  We are often full and sometimes have a waiting list! The nearest city (100,000) is 15 miles away and each small town around us has their own self storage facility.

Both deals were different but here are a few things i would make sure to do.

- Look for ways to increase sales.  Is there room to add more units, add outside storage, sell boxes and locks, Uhaul rental.

- Compare the proforma to actual rent.  Sure they say they are getting $80 for a 10x10 but when you look at the real numbers you see a range of prices from $40-$70.  Make sure to negotiate price down based on that.

- On the purchase contract be sure to write in that the ACH withdrawls should be made by the seller with a check delivered at closing (assuming the draw is on the 1st and you are purchasing on the 1st).  The last facility I bought the sellers decided not to do that even though we had discussed it and it made for a painful first month.

- Both of the facilities I purchased were taking a loss as far as the IRS knew.  This can make it difficult to know what the true expenses are.  Find someone in a nearby area that owns self storage and find out what their actual expense numbers are.  This might be difficult if they see you as a competitor though!

- Make sure it's not in a flood zone

- Our state has sales tax on self storage.  Make sure the sellers aren't including sales tax in their sales numbers and if they are adjust the purchase price down to account for that.

- Factor in any increase to property tax.  If the property taxes are currently based on $100,000 value and you purchase the property for $200,000 your taxes could get doubled.

Let me know if I can answer any specific question and good luck!

James

Thank you Zach, Mike and James for your replies........all good comments and points to consider. Especially appreciate detailed reply from James regarding the sales tax and ACH withdrawals.  

@James Seely

James, what does this mean?

- On the purchase contract be sure to write in that the ACH withdrawls should be made by the seller with a check delivered at closing (assuming the draw is on the 1st and you are purchasing on the 1st). The last facility I bought the sellers decided not to do that even though we had discussed it and it made for a painful first month.

@James Fisher - ACH is the automatic withdrawl of funds that a business can perform on a tenants bank account.  Mostly in my area we collect a monthly check but the facility we were buying had many of their customers on ACH.  The lease the sellers had in place stated that the ACH withdrawl would happen between the 1st and 5th each month but in talking to the sellers they had agreed to pull those ACH funds on the 1st and provide that money at closing (also to happen on the 1st).  They decided not to pull the ACH funds on the 1st but didn't tell us until closing.

So we were expecting a nice check at closing that included the rents for the current month (ACH and otherwise) but received next to nothing.  In the grand scheme of things it was more frustrating that anything, we certainly didn't need the funds to keep our heads above water.  The difficulty was we didn't have much of the customers ACH info and it takes time to setup that info and actually receive the funds.  That can cause confusion with the tenants when they have a pull on the 15th and the 1st of the next month.  On top of all of that the sellers gave us the banking information to setup ACH for the some of the tenants but not for all the tenants.  

Long story short...  Having the sellers collect automatic payments on the 1st when you are also closing on the 1st gives you a month to get all of that ACH info setup and ready to go at the beginning of month 2.

Gloria,

What size is the facility? How many sf/units? How is it currently managed? Is there a managment report available? The physical occupancy is 92% but does that include any friends and family units that are erring discounts or no charge....which leads me to the next question, what is the economic occupancy?

Make sure that you verify with the county how taxes will be assessed after the purchase because sometimes they. An double the next year after you buy it based on the purchase price vs. the current value that they have on the books.

Also, verify that all of the units are rentable.....be sure that none aren't being rented due to roof leaks, etc. how old are the building and what type of material are they made of? How are old are the doors and have they been maintained?

Does every tenant have a rental agreement and how up to date is that agreement?

You may want to consider a n acquisition audit by a professional third party in the industry.

There are many things to look at. You just have to be sure and cover your bases. Attending a trade show or working with professionals in our industry that are involved in self storage every day is the best way not to reinvent the wheel.

Best of luck!

Jeremiah,

Thanks for the contact and I would love to connect. There is one company in particular that I suggest that you connect with due to their vast experience. selfstorage101.com is their website. Talk with Bob and tell him I sent you. 

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