Self Storage- Subdivision as Collateral

14 Replies

We have continued to grow in the last 7 years with our Storage business.  We are now up to 8 locations.  Most are at 100% occupancy.  4 have land to expand, and we will next year.  Focusing on our last locations 7 and 8.  Our last piece of purchased ground should go on line this month, subject to inspections which are almost complete. 

As you grow, you use up either your liquid assets or your Assets that can be collateralized.  You could stop and pay down on your existing Storage locations and build up equity for your collateral.  We have chosen to push forward, and our locations have gotten larger with each addition.  Other funding solutions could be to get partners, hard money lenders or to syndicate.  We have chosen not to go down these routes since we have decided "Enough is Enough" with Self Storage and are winding down our "Growth" mode.  Our son is 20 and not ready for Real Estate Development, so no need to keep growing.

Realize most posts are talking about how do You invest with Zero Cash.  How do I start in real estate.  Is now a bad time to get into Self storage or Real Estate.  Thought I would show you some back end logic for a business reaching its peak investment target/levels.

Based on the need for more funding, we decided to take some of our non-liquid Assets and use as collateral.  We have taken our 80 acres where we live and set up a Subdivision.  More of a country subdivision with lots in the 2 to 21 acre sizes.  This is just road entrances.  We did the numbers and it was a lot riskier if we did a true Subdivision with concrete driveways installed.  Also the lots would have to be 1 acre and smaller to make the math work.

After we laid this out and did the Subdivision work, we were able to use this "increased value" as a subdivision versus farm acres as the collateral for our latest expansion in Self Storage.  Most families would never sell off the ground around their house; and would say let their children deal with that.  We decided to keep 20 acres for our house and sell "now".  Probably the same in your area.  Housing shortage, builders can't keep up with demand, not enough lots are available and Interest rates are low.  Being in Iowa, you wouldn't think it, but we are getting a lot of buyers from out of state.   Decided to sell now.  Can't tell when in the future all of these data points (low interest rates, housing shortage, Builder shortage, Lot shortage, migrating investors, migration from city to country, family RE knowledge) will come together.

The process of subdividing created value from $6,000 farm ground per acre to $50,000 per acre for the 2 acre lots.  This really helped with the appraisal and the banker giving 65% collateral value.  Thus we did not have to come up with Cash on our latest project, using this subdivision as collateral.  

As we sell a "lot", the cash is transferred directly to the Bank, since they have a lien on the property.  We are allowing them 100% of the cash since we are doing Early Depreciation write offs on our new locations, which is helping to offset the Capital Gains on the land sales.  Them getting the 100% versus the 65% collateralization will help relieve our debt burden really fast.  Basically we are taking farm ground that earns about 1% and converting into both high yielding and Value increasing Self Storage.

On part of the land we are exiting a prior 1031 sale/purchase.  We had a separate 48 acre spot we sold and then bought part of the 80 acres about 15 years ago.  Decided to exit into cash, versus doing another 1031 sale/purchase so we can use the funds for a more valuable asset, Self Storage.  Key is to keep your transaction documents on file and document the transaction path for your CPA tax preparer.

4 of the lots have sold in the last 2 months.  We actually don't need to sell all of the lots to cover our last Self Storage funding needs, since the cost versus sales price on the lots is so great.  Not getting into details, but the location is great.  We put "stupid" money price on the lot next to us, since we don't want anyone to buy it.  But you never know.

To increase both the property value even further and to speed up the sales, we are currently building a two acre pond and will do some large boulder landscaping at the entrances on some of the lots.  There is only so much you can do to a bare lot to increase its value,  prior to the house site being determined.  We installed concrete driveway entrances, versus leaving as dirt.  10 to 15 years ago we planted a lot of evergreen and oak trees.  Took these and transplanted them next to the lot property lines, along road ways for sight and sound barriers, and around the lots, where they would not be in the way of the home sites.  Transplanted about 150 trees.  Did not cost that much since we owned the trees and the Tree Spade did not have to travel far.

Realize everyone doesn't have additional assets to collateralize, but wanted to show you a different path.

Below are some of the actions we have taken.

Lot 5 which is not shown is our house, which isn't for sale.  Did a youtube for each lot noting its special features.  Really helped with people at home due to Covid, online shoppers and from out of state.

Putting Tube or culvert into one of the lots.  Wanted it in place so the potential buyers could visualize the entrance, versus waiting for them to pay.  Had my son dig out and put in culvert.  Can do a lot of work with a skidsteer.

Creek behind our house, between most of the lots.  We are clearing trees and will dam for the pond.  It has eroded about 8 feet since we bought the place.  This actually helps out, since the dirt is drier and we can dig further down, prior to hitting the creek level.  You will note how large the dam is relative to this creek.  Only once, but I have seen it 200 foot wide after about 2 months of rain and then we got 5 inches of rain in an hour.

There is very little "valley" here.  Thus it is a "dug out" pond which is very expensive.  To help reduce the cost, my contractor waited till he had a buyer for the rich top soil.  About 5 miles away there is a Miracle Gro dirt bagging center.  You might be buying some of our dirt.  This is dug extra deep so we could get Clay for the "key" way part of the dam.

The dam is in place.  Still need to put the drain tube in.  A smaller plastic tube is in the creek allowing the water to flow through.  When all of the dirt and pond has been excavated we will tear out the mouth of the tube and plug up.  Allowing the dam to fill.

Supposed to rain tonight.  Worked till about 10 pm getting the grass seed spread.  My son is rolling out and pinning the grass mat with staples.

Just back from his first year in college.  Has three job applications at local stores to work. Until then working on Self Storage.  Hopefully he learns 8 to 5 and no control; versus Self Storage and freedom over his schedule.  Something we are all learning the difference at 30 to 60 years old.

This pond project will help sell the two larger and more expensive lots.  Just called the realtor and increased the price.  Three of the lot sales prices have been increased and will pay for the pond.  Plus I finally get my fishing pond.

Basic decision was to take a non-liquid asset and convert to funding for our Self Storage growth.  Another option if it fit your lifestyle would be to sell your house and make a larger than normal office/home as part of your self storage location.  If we were at our "downsizing" stage, that is what we would do.

Start small and Make Your Big Mistakes Early.

Thanks for sharing Henry, your posts always reflect genuine thoughtfulness and willingness to help others. I'm glad you can also decide when "enough is enough" a lot of my colleagues don't have metrics or just want more for the sake of working more.

Our oldest is 3, I will remember stopping when she is 20, I will have a comfortable industrial portfolio by then from my 2021 standards.

Whats next for you? Beachside? Charity or mentoring?

@Ronald Rohde

Next.  As you well know, you can't turn your brain off, once you get the entrepreneurial bug.  So it is hard to say "Enough".  I get a kick out of some of the posts that ask is the market bad, is this the time, or can't find deals.  Literally, I can't drive around without seeing business deals.  Just have more than enough.

Beachside:

So, what is Next.  We have bought 50 acres in Belize.  Planted 25 acres of teak trees and are rebuilding a three story house.  Living in Iowa, this will be a great match during the winter months, when Belize has it's dry season and is not humid.

If you research Belize, you will see it might not be the best place to invest, since there is very little market to sale in the future.  Although this will be relaxing for us, it still is a business deal for us.  The Teak trees are a 25 year investment and will be sold into India and China, where the primary markets are; not Belize.  The House was an old structure that we are in the process of rebuilding.  Not going to cost that much.  Also we have a beautiful River on the south property line and Iguana Creek on the East property line.  Two bodies of water and the location will make this an appreciating asset and fun for the meantime.  Going down for a Birthday party with one of our new friends there, next week.

Charity:

Already set up the trust.  Small town Fire station, amphitheater, etc.

Mentoring:

My Belizean Contractor, we have learned to "trust" each other.  Teaching and helping him to become "Rich" in Belizean standards.  Even in 1 1/2 years, he is very happy and he can "see" the Big Picture for him now.  He is twice as "Wealthy" as he was when we met and more importantly he understands most of the future "path" he needs to take.

Enjoyment:

See the Papaya picture at the bottom.  That is "our" papaya planted a while ago.  Eating our own fruit, is a big kick.  200 pineapples in another 12 months.  200 Coconut trees producing in another 5 years.  Hopefully one doesn't hit me in the head.  Another 150 fruit trees planted.


First dry day in a week.  They started trucking some dirt out and also digging further on the pond.  We also did some work ourselves on Fish structure.  The grass has really jumped out in the last 8 days since planted.

Took our old Cattle Trailer which is really rusted and laid on its side.  This will provide Fish structure.

The orange pipes you see are the tubes from Fiberoptics.  Cemented into the ground while we can access the pond bottom.  This also will provide fish habitat.

The grass has really sprouted in the last 8 days.  Warmer temperatures, but slight rain or drizzles every day, made it sprout.

Won't bet the actual drainage tube for about 4 weeks, to install the permanent water outlet.

The first picture shows two islands with concrete around the sides.  This will help with erosion and also provide habitat.

The water in the last picture is really clean.  Most of this water comes from springs.  It will be dirtiest this time of year as the crop ground is bare and soil erosion can occur.

The first picture you see a truck going up the hill.  This lot just sold.  Raised it by $20,000 to help pay part of the pond construction.

As we are closing on these lots, having 100% of the funds sent directly to the bank, to pay down Self storage loans.  Closing on one more lot tonight at 8PM with realtor.  Signing papers since we will be out of town.

That's an excellent idea on planting teak trees for future sale. 

May I ask how much it cost to plant all those teak trees?

I have been looking into buying land in Central America for retirement but wouldn't be for another 15 years. My wife and I love tropical fruits and hope we can plant durian, jackfruits, and longan just for personal consumption.

the biggest profits I have ever seen are farmers selling out to developers..  out here in the left coast were developement ground kind of starts at 200k and acre and goes to 600k an acre plus.. you can imagine the farmer who bought 50 years ago for nothing selling there 30 acres for 5 to 10k million or more..  we bought one for 7.2 million that the family owned for ever.. they just paid their cap gains.

I would think but of course you probably have this figured but if your creating lots for inventory and selling to the public thats Ordinary income not cap gains  .. but as U point out if your in the business your depreciation will help substantially. Its pretty common to pay the bank down 100% of proceeds so you end up with the last lots free and clear ..  

Looks like some great projects..  I would be all over farm land for 6k an acre that can be turned into development ground without going through 3 to 5 years of land use and public hearings and rezones etc..

Being Northwest based and a Logger in my day I am all about your tree play.. good job..

Lots have really sold in the last 2 months.  Lots 7/8/9 and 10 are now closed.  See picture below.

Unusual items. 

Lot 10 just left for Okinawa for a 4 year military assignment.  They just loved the lot and wanted it to come back to.  

Lot 9 also bought their lot, but with material costs up, are waiting a year or two to build.

Lots 4/6/7 raised the price $20,000 each to help pay for the pond, plus they became more desirable with the pond.  The pond should help with a higher price or to sell quicker.  See the second picture below and think of a pond in the valley surrounded to the west with trees and the pasture as a back ground. Will be end of June before it is finished.  Moving dirt out as they sell it.  Should end up costing around $30,000.  This is a "dug out" pound and more expensive, than just a dam across a valley. 

Now that Lot 7 is sold, finishing up the shared drive for 6 and 7.  7 is using the old driveway for now. The white pvc pipe is the property marker and the center of the shared drive.  Just need to spread some crushed limestone over the dirt to start using.

@Luu Nathaniel

Each country has its pluses and minuses.  Start vacationing there now, to learn the potential areas.  Each trip out, schedule visits with Realtors.  Never ever buy.  Once you have picked a country and location, start developing relationships with locals and let them know you want to buy.  Properties are always way cheaper if you are not in a hurry (1 to 3 years) and also buy someone else dream and change it to fit your desires.  There is not a large resale market for the country type settings you mention and I am interested in.  Don't plan to make money when you sell, make it when you buy.  The Teak for example will not be sold in country which is poor, but exported to India and China.

Teak costs about $USD 2.00 for the plant and to plant.  You also have to clear the land and prep.  Then maintain.  Its a a 25 to 35 year investment.

We placed concrete riprap at the head of the stream coming into the pond.  This has no "Rebar" or metal.  So no one gets hurt.  The blue paint on the right notes the height of the pond outlet at the other end.  This means there will be some water backup above stream of the concrete, which is great.  This will slow the water down and allow silt to fall out before it gets to the pond.  

The second picture is just below the first picture.  This will be a shallower area around 5 to 7 feet.  We are putting the left over stumps and trees here.  Putting a little dirt on top to keep them from moving.  This will be good smaller fish habitat.

They are about 1/3 of the way through with dirt movement.  Still planning around the end of June/July to fill pond.

@Jay Hinrichs

On the teak.  There are several older plantings in Belize, that were planted, but not managed.  10 to 20 years old.  I was asked to help manage a property but said I wouldn't do it for "pay", but a 40% ownership interest, if we took it through "processed" lumber and not standing timber.

Most people don't "Thin" thinking they can plant and forget and they will get more "Wood" and I tell them they will, but they want more "Lumber".  Explain 10 small trees don't make as much lumber as 1 nice tree, if they had thinned.

This person is thinking about selling standing Timber; but I have tried to explain if the trees are managed right, I can log onsite, sawmill on site, then haul out lumber to kiln dry, then planing and grading.  Market into India and China.  It will be worth around 250% to 400% more than as standing timber, and I can get the equipment to do on site easily.

Do you have any reference data showing the value add, as a log goes through processing?  Standing, logged, sawed, kiln dried, planed and graded.  Will be sold as Random length.

Thanks.

Have 5 lots left to sale.  Although we put in concrete driveway entrance pads, decided to complete the driveways into the properties, to help people visualize the property better.

Below is one of the entrances we put in place earlier last year.

Now we have filled in with further dirt and rocked the roads.  Also decided to put some boulders for shoulder support and for aesthetics.  Put some at the entrances to set it off.  Boys still have to move the small rocks into the sides.  This is a shared drive for two lots.  Did put an extra turn out, in case they want to build a shed there.

The next lot entrance shot, is for a single access entrance.  Decided to put a left and right turn in.  Again so they can do a house and/or a shed.  Because there are existing trees, trying to work them into the entrances and landscapes.

Kind of neat.  Two new storage customers moving in, while I'm writing this.       


This last lot entrance is also a shared entrance.  Lot 7 has sold, we hiked the price $20,000 since were adding the pond.  Lot 6 is still available, so we filled and graded so they could drive on the actual entrance.  We are using Crushed Recycled concrete.  1 inch with the fines.  Actually don't like this.  Normally use bigger "Clean" rock for a base.  As the ground gets wet and you drive over it, it mashes into the ground forming a base.  But my local guy has a lot of this crushed concrete and it is only a 2 miles away so decided to use this.

On the dam, we put 4 dump truck loads of broken concrete as rip rap where the dam water outlet and spillway will hit.  This is to prevent erosion.  It does not have "rebar" in it, which is not allowed by our DNR group.

Lot 6 we are spicing up.  Did the entrance noted above.  Then it has a great view down the lake and is one of more expensive lots.  One of our local store's had excess landscaping rock in front.  Decided to buy some of these limestone blocks.  They are normally used to make retaining walls, But we made into a sitting area with fire pit (tractor rim).  Simple thought.  The stones are rough, but kind of elegant.  Put Engineering fabric underneath so no weeds or dirt, mixing with the Pea gravel on top, which we need to finish spreading.

With the good always comes the bad.

The downstream neighbor filed a "Flood Plain" complaint.  Not a big issue, since dams always help floods.  Also I have seen the worst flood we had and it would go over this dam, and still be about 50 feet away from their house.

Another concern might be if we use up all of the water from the stream which won't happen.  All water will continue to go downstream except whatever evaporates from a 2 acre pond in a day.  Stream has about 2,500 gallons per minute flow.  We might lose 20,000 gallons per day in evaporation on this 2 acre pond, not offsetting for evaporation from the stream itself.

We previously checked with the County conservation group and the State DNR group and no permit was needed due to the relative small size.  Based on the onsite visit, the DNR person said anything over an acre is considered a construction site and we need to do a SWPPP permit and plan for Soil silt and erosion.  Have done this before on our latest Storage facility, so not a big deal.  Next task after this post, is to document an erosion plan.  Keep a log of action steps.

Met with Dirt contractor on pond and DNR rep this morning.  Verbally and visually walked thru the plans below.  They had recommended a "Riser" on the 24inch drain pipe.  The contractor put it in, and then the water backed up and flooded the lower areas of the dig.  Convinced both the DNR and contractor to take this out.  We already had sufficient erosion/silt plans in place.

Waiting on Newspaper to send me affidavit I posted a public Storm Drain notice.  Then I can apply for my Storm Drain permit.  Ha Ha, they sent me their bank check list versus my affidavit, they ran my legal notice.  That's part of "developing".  Hopefully get tomorrow, then I can file online for the Storm drain permit.

Below is the Storm drain actions steps I plan or have done to date:



Erosion Plan- Journeys End Subdivision for Pond and Dirt excavation













06/17/21 Henry Clark
















Ditch water flow

























Ingrum Avenue






















































































Stream










Stream


















House lots

House lots

House lots

















































































































































East












































06/2021






North












South





Terrace to take water away from pond

























































Disturbed area including pond, roughly 4 acres









































































Pond, roughly 2 acres



































































































































































Stream flows north.






























West














































































































































































Dirt excavation area.




























Pond area





























Dam, seeded same day built and with grass mat. Had grass growing in 5 days. About 5 inches tall now, on face of dam and spill way.




























Left 2 foot of dirt ridge along stream to prevent silt coming into stream. Also put up silt fence.



























Erosion plan:













1. Dam/spillway seeded to grass, about 5 inches tall now. Approximate date: 05/15/2021













2. 4 dump truck loads of recycled concrete placed on down stream side of dam. 05/20/2021













3. The stream which is a tributary into Keg Creek is along the Western edge of the pond area. We did not disturb its flow or its banks.













Thus we have about 2 foot of bank to keep silt out of stream. Also put in a silt fence on the West and South sides.













Note this stream was eroded about 10 to 12 feet into the ground. That is how we are able to excavate deep, but still not be below the lip of the stream.













Silt fence 06/15/2021













4. Excavated dirt is being stockpiled into mounds while waiting for transport. This reduces runoff.













5. Water does not run into this area from either the North or South, since there are two smaller streams that catch that water.













6. Ingrum Avenue to the east, on the east side of the road ditch flows north and south and not West into the pond area. Thus water into the disturbance area













only comes from the 4 acres disturbed and about another 4 acres of the adjoining lots.













7. On the east side of the disturbed, will put a terrace to reduce water coming into the area from the grass lots above. 06/23/2021













8. Talked with district DNR biologist Atlantic, and have planted some plants and will plant further plants along pond bank for soil erosion. 05/20/2021













9. Grass seed all mounded dirt and pond sides. July, 2021.













10. Islands, put concrete chunks around tops, to reduce wave action erosion of the island. Will also plant cattails to retains soil.











Well the excel file layout and color coding didn't come through.  But you can look at action items 1 thru 10 at the bottom and see the action steps proposed and taken.

I will have to monitor these weekly.  When done, I have to contact the Iowa DNR and let them know complete so they can sign off.