Newbie Question on Self Storage ($250,000 to invest)

10 Replies

Hi everyone, I am making some general assumptions here to see if I'm in the ballpark or not. I'd appreciate any help.

  • 1. As mentioned in the title, I have $250,000 to invest. I have a SFH rental, and it appreciates, but doesn't cashflow much. So selling that would be part of this $250,000.
  • 2. I understand that there are potential self storage facilities that can return 20% cash on cash if improvements can be made. And often the improvements to be made are raising rents to market. I understand these facilities can be found in secondary and tertiary markets.
  • 3. I would be aiming for $50,000 net return on this investment (after paying the debt).
  • 4. Some math:
  • - $250,000 should be able to buy a storage facility or facilities valued at $500,000.
  • - 20% cash on cash on $250,000 investment would be my target of $50,000.

Will y'all point out my fallacies? I know this is generic and theoretical situation, but I'm trying to decide if I'm even close to enough to consider it a future option.

I think you're missing a key ingredient: how much time do you have to earn your 20%? Self storage is a business, not just real estate. 

I think you can lever up to even $750k or $800k building, but who is going to do the renovation oversight? plans? permits? bids?

@Christopher Hall

I'll help you.  Two things:

1.  I'm an LSU fan.  For the rest of your life on September 1st you have to wear an LSU cap all day long.  Serious, or I won't help you.  Don't contact me unless you have a picture of you with an LSU hat on.

2.  Once you close, you have to post on Bigger Pockets your actions until the project is done.  Let other people learn from your experience.

A.  You have to be prepared to move fast on what I tell you.  You will own a Self storage location in the next 35 days, relatively close to you.  First person you talk to, is your banker, they need to be able to do a 10% SBA loan.  Tell them you need a construction loan, interest only, to be converted to a SBA loan.  Your only going to put down $90k.  If you don't move in the next 7 to 14 days, this project will be gone.  I'm only going to talk with you on it.  If you want to use this as collateral for future deals, you will need to finance out of the SBA loan later, or put more money down on a conventional loan 5 year term/20 year amort up front.

B.  Value Add, Value Add, Value Add.  Clean facility easy and hard, value add steps.  Do you know how to use a chainsaw, skid steer and mini excavator for another value add option 4.  Get those done, then I will teach you Value Add option 5 on this particular property.

C. Lets shoot for $90k down, $150k gross per year, adjust for your COC calcs, once you throw in expenses, Debt/Interest.

Don't contact me unless your serious.  Don't care if you get covid, have a wedding to go to, have season tickets, have a day job, etc.  You need to do your figures, due diligence and make an offer in the next 7 to 14 days or it will be gone.

Originally posted by @Christopher Hall :

@Lara White Hi!  I lived in Cottondale when I was young.  Was there the other day.  Roll Tide!

@Ronald Rohde Thanks for the input...good questions to think about.  I wouldn't be in a big rush as I have other income.  But yeah, in a year or two, I'd like it to be earning the $50,000 mentioned.

@Henry Clark I'm not interested.

Not

Not just time to hit returns, I also mean time invested in the day to day on the way to $50k net of expenses, debt service, capex, legal/accounting etc. When I transition a warehouse/NNN property, I spend maybe 5-10 hours a week for 2 months.

Hi @Christopher Hall .  As others have mentioned, this is a business. It’s not like buying a cell tower lease that just throws off cash passively. I highly recommend that you go to a weekend event with Scott Meyers and read several books on self storage. Then perhaps join a mentoring group and learn everything you can. If you have a lot of time and a team to dedicate to this, then by all means move forward. If not, you may decide that investing passively is a better route.

I don’t mean to sound snarky, I really want to see you succeed!  I don’t want to see you end up as a mom and pop owner with a facility that is under performing and causes a lot of headache for you.  Feel free to PM me if I can help.

@Ronald Rohde Understood.  And thanks for the input on the time you spend during a transition.  That's very helpful.  If I undertook this, I would have time to spend on it.

@Paul Moore No snarkiness taken.  I appreciate your input.  It is my biggest concern - getting into something I can't or don't care to handle.  I'm in a good position now and don't want to trade a career that is OK for something I don't like.  I will check out some of your suggested resources.  Thanks!

@Christopher Hall

Your basic COC question. $50k on $250k is possible.

The deal above in your backyard is $70k on $90 (before pushing for below list price).  This is only possible when you find value add deals.

Self storage is only an option for you if you prep ahead of time.  Training, do 5 to 10 deal analyses for practice, read a lot on this forum.  Locations are selling real fast and you have to be able to make a decision quickly.

Self storage is not a career, its an investment.  You can have a full time job and handle up to 500 units.  Depending on your down payment and debt structure, the majority of the cashflow should go to the bank.  Thus your asset is appreciating (building equity) every principal payment you make.  You would have to either get several locations or a real big one for the "excess" cash flow to offset your current Career income (depending on your current income level).

Everything above sounds Rosy.  As part of your deal analysis, you need to do a Risk analysis on the location.

@Christopher Hall . I commend you on the steps you are taking.  Please PM me if you’d like an intro to anyone who could assist you.  I’d be happy to get you a copy of my new book on self-storage when it comes out next month (BP Publishing). Happy Investing! 

@Christopher Hall I would suggest doing a little research and find a sponsor with a good track record.  Invest - not all of your 250K - as an LP and use the experience to learn about the asset class while making some $$$.  Then decide if you want to move forward as an operator in the storage space.