Looking at purchasing 160 Storage Units.

15 Replies

I am looking at a 160 unit storage unit complex. What should be the cap rate be? I figured 10% What are the occupancy rates should I figure? I used 85% but not sure how much turn over there is in storage units. I currently own apartments and I am a little scared of chasing 160 Rents that range from $70 to $200 a month. Any advice or thoughts would be appreciated. I do believe these units to be in a great location. Not behind a current business or in the middle of nowhere like most.

I am not an expert on this by any means.. there is a fellow in Indy his name escapes me  I think its Ken Myer or something like that.. who is big in this business and he might even have a educational arm to his business.. its probably worth the money to pay to have up front training before you step into this big of investment.

I personally see this as buying a on going business not really the rental business.

my experience with my unit .. is it was only 44 units.. but really nice ones it was not big enough for on site management.. so if I did this again It would have to be big enough to have on site management to show the units and keep people from sleeping in them and hauling all sorts of garbage into them like a hoarder.

Don't do as I say.. but when people didn't pay and went dark .. I just waited a month or so then hauled their stuff to the dump.. 99% of it was discarded junk at least in my units.. I know its not legal.. but I self insure myself in that regard.

some say its recession proof and some say not.. my banker says not.. he says when economy gets tough they just won't spend 200 bucks a month to store their stuff they either up and leave it or move it somewhere else.. so that's two opinions.

my units were quite unique one they were A class and two right across the street from 300 floating homes and all my tenants save a very few had house boats.. so I kind of had a captive audicance and once I got it converted to mainly all houses boats.. I put a condo plat on it and sold of the units.

Not sure any of this helps.. but I like the idea.. I have seen micro storage too  and that's interesting.

I appreciate the advice. I kinda think like your banker, in a recession people would stop paying on a storage unit

@Justin Thiesse   that's just what he said.. and maybe his experience in the deep dark days of 08 here in PDX..  my units were ok in the recession but it was very much an outlier

I think if anything I see competition being something to worry about.. I see these 3 story units popping up in our area and they have all sorts of rent specials.. so I guess I would worry about people leaving for rent specials.. but if you are in an area were new construction of the units is not possible or feasible that could mitigate that risk.

but do talk to an expert..   because that is not me.. I am just sunday morning chatting here.

I believe there will be more storage units built in the area, I keep leaning toward a business sweet condo development. Where there are 6 to 10 units in a row that are 40 wide and 60 deep with a small office and bathroom. There is a lot of demand for these from people in the service industry. Example:
Plumbers, painters, electricians. These would need to be built. These would rent for
$1200 to $1500 a month with long term renters.

@Justin Thiesse   those work very well in the right spot and if you can build them efficiently.

in some areas and I don't know yours.. but some developers went high end on the storage.

kind of like building airplane hangers ( the best rental ever LOL)

they built high end for those that have expesnive car habit want a shop to tinker.. need to park their million dollar motor home.. want to build a man cave away from the house..

you should see what some folks do to their aircraft hangers.. there should be a reality show on that some pretty awesome ones I have been in.. our is just a hanger.. LOL 

I think you should probably check out some stuff from Scott Meyers. He is the expert as far as you self storage questions go from development to sale

I own three smaller self storage properties like what you are talking about and love them. Mine are too small to have on-site management, however I DO have gated access control which allows me to control traffic into the properties. This, coupled with an online portal and rental capability along with utilizing a call center allows me to manage the properties from home for the most part. I have a local guy who also does my lawn care and snow removal that I pay a few bucks a month to sweep out vacated units and meet anyone who wants someone to show them a unit prior to renting (seldom needed).
Your occupancy at 85% is a good measurement for a stable property. Once you hit that number you should be looking at increasing your rates.

Look to see if there is an online presence. Many owners never advertise online or have the ability to rent online. This is where I do the bulk of my business.

@Justin Thiesse

Hi Justin

I would look up @scott meyers education. He has been teaching self storage for years.  I also favor multifamily, but self storage is a terrific niche.  I think a 10 cap is a bit high for the asset class.  I just moved to FLorida, and the fact that we don't have basements make self storage a necessary evil for the average homeowner.

If you have fear, then you are on the right path.  Stepping out of your comfort zone will lead to growth and potentially a new opportunity. If you figured out apartments, I know you can figure out self storage.

Best

Gino

Originally posted by @Gino Barbaro :

@Justin Thiesse

Hi Justin

I would look up @scott meyers education. He has been teaching self storage for years.  I also favor multifamily, but self storage is a terrific niche.  I think a 10 cap is a bit high for the asset class.  I just moved to FLorida, and the fact that we don't have basements make self storage a necessary evil for the average homeowner.

If you have fear, then you are on the right path.  Stepping out of your comfort zone will lead to growth and potentially a new opportunity. If you figured out apartments, I know you can figure out self storage.

Best

Gino

 I'd echo what Gino said.  I had Scott on my podcast and he is really one of the guys to go to on this stuff.

Originally posted by @Gino Barbaro :

@Justin Thiesse

Hi Justin

I would look up @scott meyers education. He has been teaching self storage for years.  I also favor multifamily, but self storage is a terrific niche.  I think a 10 cap is a bit high for the asset class.  I just moved to FLorida, and the fact that we don't have basements make self storage a necessary evil for the average homeowner.

If you have fear, then you are on the right path.  Stepping out of your comfort zone will lead to growth and potentially a new opportunity. If you figured out apartments, I know you can figure out self storage.

Best

Gino

Using a 10 Cap is pretty standard on the buy side in Secondary and Tertiary Markets for B properties or lower. If you are looking at "A" properties or properties in Primary markets, you'll find Cap rates in the 6-8 range. Of course, CAP rates don't hold much water when you are looking at under-performing facilities. This is when you have to add back the Value of the "Value add Opportunity" as well as price vs. cost to build etc. I am currently buying a a facility in Florida in a tertiary market at a price that represents a 5 CAP....terrible right? Until you factor in the specific circumtances of the property. Good Condition, under served market, and buying at $19 per square foot.....Projected to be worth double acquisition cost within 12-18 months....The point being that Cap rates are a good place to start but a terrible place to stop your analysis:) Good luck in what I know to be a phenomenal niche!!!!

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@Justin Thiesse I'm coming in on the tail-end of this conversation, but I think I can offer a little guidance.

I would recommend looking at the supply and demand in the market. One way of figuring out supply is to calculate how many sf. of storage per person is available for rent in about a 3 mile radius of your target facility. You can use Google Maps (GM) to measure out 3 miles from your target facility. Then, using Maps, search for "self-storage". GM will show you the facilities. Zoom in to each and use the measuring tool to measure each building of each facility. Use the "birds eye" view to see if building are multiple stories. A 1-story uses 95% of building size, 2-story 85%, and 3-story 75%. Those are ROUGH estimates. This part is time consuming, but it's important.

Now you need to figure out the population within 3 miles of your target facility. This can be done with software which I can't mention here or this post will be flagged as spam (ha). Now divide the sf within the 3-mile radius by the population. This gives you a sf/person number.

Supply and demand equilibrium is generally accepted as 8 feet per person. I know some groups that use 7 feet per person. Union Realtime has calculated it to 5-6 feet per person. I would usually use 8, but that may change based on UR's research. Regardless, 8 sf/person is acceptable to banks and investors.

Here's a simple example: if my population is 100 people within a 3 mile radius, and my storage supply is 800 sf., 800/100 = 8 feet per person. This market is in equilibrium. There won't be much more demand for storage and vacancy will generally hold at a steady state for that market (vacancies won't increase drastically). If the numbers are 600/100 = 6 sf/person, I know there is a shortage of 200 sf. and vacancies should be low in that market. If it's 1000/100 = 10 sf/person, I know there is oversupply and vacancies should be higher.

Lastly, call every facility in that 3-mile radius and ask how much the rent is for a 1 bedroom apartment worth of stuff. They will usually say you need a 10 x 10 unit. If every facility has a lot of 10 x 10s available for rent, you know vacancies are generally high. If every facility's 10 x 10s are full, you know vacancies are low. Tour facilities looking for a unit to rent and count units that don't have locks to get a rough feeling of vacancy rates. Then rent a unit at one of those facilities, even for a couple of months, to see how they handle management, notices, etc. Pick a month and go late on your rent to see how they handle the late notice and auction process. Don't let it go to auction though...You're just doing research.

I hope that helps and isn't confusing. Reach out with any questions, here or on LinkedIn. Good luck!

PS - Scott Meyers is excellent. Sign up for his webinars, and attend a boot camp if you can. Little pricey but worth it if you're going to jump into storage investing.

PPS - I just realized your target facility is small. This means you will likely be actively managing it yourself, or you will have a manager in place that will eat up a large portion of your revenue (payroll expense). That's okay if you need someone to manage for you, but if the facility takes cash I would switch it to credit card and auto-draft only (maybe checks too). I say this because a manager that knows how to run a facility better than you will be tempted to pocket some cash from time-to-time and will know how to hide it from you, so beware. Again, good luck!

Hello Justin!

Good for you on being interested in Self Storage. I, too, was into residential real estate, specifically apartment units 10+ years ago, but then got into Self Storage investing and haven’t looked back. Why? Because the pricing model is very similar to apartments though a bit more profitable, and you do not have the hassle of toilets, tenants, or trash!

Regarding your specific questions and advice, here it is: Past 12 months Financials, then a 3 year rear view look, followed by a current market analysis within a 3 mile radius of Each Facility to determine the supply index and demand factors. Any Growth in these markets? Room to Expand?

And of course, the price must be in line with market cap rates for these smaller facilities. That cap rate depends on a few variables: where is the local market, what is the Class & condition of the facility, exact location within that market, & so forth. A stable occupancy, some say is 80% and others say 90%, so basically 85% is the best figure to use. 

Also, If you have any desire down the road to assign the deal, or do a JV, please message me privately.

@ Jay, John, Tyion, Gino, Jonathan, & Kris - thank you very much for the recommendation & kind words. Yes, my business model is to teach people the business, invest with them, & eventually mastermind. The best way forward is to constantly give value and do so with integrity. I’m honored to read your words.

To your Success,

Scott

@Justin Thiesse a bit late, but some thoughts I had as I read through the thread:

1. I haven't heard of Scott Meyers, but apparently we both need to look in to him!

2. I'd echo what @Kris Bennett said and recommend to base your numbers on the market, not what others in different markets are saying. There is not going to be any one size fits all CAP rate, occupancy rate, supply/demand equilibrium, etc. As Kris said, try to find 1-,3- and 5-mile radius SS unit supply and population numbers, and compare to the widely used national average of 7sq.ft./person as the equilibrium. Under supply favors you, as do infill locations.

3. Don't compare to MF. Different asset classes, different key metrics. Dangerous game to compare the two.

Best of luck, and happy to connect and discuss!

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