Self storage as a 1031 option

6 Replies

Hi all,

As much as I like to proceed with caution and take my time, I'm coming up on a potential 1031 where I may not have that luxury.  

My target replacement of a multi-tenant flex/warehouse industrial property in the sub $1mm price range is proving to be very difficult to find (in the right market that is) so I'm also considering SS, which I've researched at basic levels over the past few months.  

Wondering if there are any recommendations for a crash course approach to maybe put me on track for finding the right SS option.  To clarify, I'd be an absentee owner and would utilize 3rd party management but really need to be cautious with all decisions.

I'd appreciate any thoughts or suggestions.

I can give you a crash course in SS.  But there are three questions:

1.  What is the "right SS option"?

2.  Why are you selling the one asset class for another?

3.  Other than avoiding taxes with the 1031.  What are your objectives both financial and otherwise?  More passive, move out of California, diversify geographically more, etc.

Originally posted by @Henry Clark :

I can give you a crash course in SS.  But there are three questions:

1.  What is the "right SS option"?

2.  Why are you selling the one asset class for another?

3.  Other than avoiding taxes with the 1031.  What are your objectives both financial and otherwise?  More passive, move out of California, diversify geographically more, etc.

Good morning Henry and thanks for responding.

Here are my answers and for sake of efficiency, I'll try to keep them short unless further elaboration is helpful.

1) The right SS option is one that will continue performing at the inflation/CPI adjusted income level that I buy it at and is not at risk of devaluing due to area specific real estate prices (ie: I want to avoid areas/operations with falling demand/population).  Income is currently more of a priority but of course, appreciation potential would be icing on the cake.  

2) My wife and I currently own low rent residential property and though they have appreciated, Covid exposed us to a lot we had not experienced/expected.  I see this as an opportunity to move away from higher maintenance residential to lower maintenance commercial (not office/retail) without losing income and from what I gather to be probable with SS, hopefully gaining some income.

3) My only objective for using a 1031 is to be able to keep equity invested otherwise, I'm finding it to be a stressful and difficult path to completion.  "Luckily", I'm already familiar with long distance/absentee ownership so combined with out of reach CA prices, I'm willing to look at different markets.  I hope I've answered the rest of what applies to this question in my response above.

Let me know if I can provide other details.


 

@Payman A.

1. Above. 

a.  Inflation/CPI adjustments is easy to maintain, you just raise the prices.  Its that simple., Also buy in a low ratio Storage unit availability to population demand area.;

 b.  Devaluation is part of "a" just raising the prices.  Your looking for a location that is charging below market or has not raised prices in several years and is at least 85% full.;  

c.  Falling demand or population, is only a minor concern.  You can evaluate that at selection time. Should not change during your investment horizon, unless you picked a one trick pony town.  Your greatest change in competition is if someone builds beyond demand or in your area.  Evaluate that in several ways.  A.  Units versus population demand. (If town can take 2,000 units and there are only 1,300.)  , B.  Location of storage units (If most units are on the South side of town and most people are on the North, safe), available zoned ground at reasonable prices and size (2 acres or more), C.  Don't play in the "A" market.  Do C and D in towns less than 30,000 people.

2.  Above.

a.  Call up Sparefoot or Webselfstorage or other software groups.  Ask to discuss their call center programs and reservation taking systems.  I actually don't recommend this, especially for a new investor.  You don't get the first hand pulse of the operation and changes that need to be made.  Once you have learned, then maybe.

b.  See our website youtube on SelfService.

c.  Talk with a local realtor to handle, calls, maintenance resetting units, security, payment management.

3.  Above

a.  Pick some states.  Google Loopnet self storage for sale.  Look at these deals.  Then look for the National brokers who are handling these deals.

b.  Call the national brokers and tell them the type, size, $, location, etc of the property you are looking for.  More importantly tell them you want to do a 1031 and have a timeframe of xx months.

c.  Get your financing lined up.  Out of state will be harder, since you don't have a relationship.  Talk with the brokers above.  Decide what type of 1031 you want to do.  Decide which of the following you have the most control over.  Buying a For Sale storage location.  Selling your properties.  Use this to determine which type of 1031 you want to do.  Ask the 1031 executor you plan to use for their advice.  

Crash course on Self Storage:

a.  Reach out to the folks on this forum and google for training camps for Self storage.

b.  Go visit a location near you and discuss with them.

c.  Go analyze a location for sale near you.

d.  Read my post on: Self storage- checklist 101; Self storage- will they come or market analysis.

e.  Binge read all of my posts starting with "Self Storage".

You will get information overload doing all 5 of the above.  But as you do them, you will start to absorb more of the info.  Recommend you do B thru E first, then go to A, camp.  You will be at a higher level of learning then, and absorb more.

NOT ME.  I would reach out to some of the Training courses and ask if they provide consulting services.  Even at $10,000 or $20,000 you will be both at ease more and make better buying decisions.  This does not give you a pass on doing A thru E above.

You should be owning a self storage location in the next 45 days.  Good luck and hope you get the results you want.

@Henry Clark

Wow, thank you Henry!

I'm eager to start going through this though hope I can make effective progress as I coordinate for a possible sale/1031.

I'll keep you posted and hope to soon be in the SS game.

Best,

Payman