Should I Consider Self Storage Being New to Real Estate?

Question

I'm new to real estate, but I've been thinking of investing in self storage. I'm starting to have second thoughts after talking to a realtor. He's saying that it will be really tricky to convince banks to finance something like that for someone who doesn't have experience in managing commercial properties. Do you think he has a valid point and I should look into maybe SFHs/multifamilies first?

Cason Acor · Answer

I mean yes he has a point, but why should that stop you? If self storage is what you want to do, then figure out how to do self storage. Don’t just take the word of one agent. Start talking to lenders and mortgage brokers, share with them your background and goals, and ask them what you need to do to qualify for a loan. You can get an SBA loan for self storage, which means a lot less money down. You can also find partners with self storage experience who can help you on your first deals.

There are definitely ways to make it work.

Paul Moore · Answer

Hi @Nicolai Grebencio.  Another reason to connect with @Scott Meyers is to find business partners. I went to his training 2-1/2 years ago and am still in touch with other investors I met there. I spoke to one yesterday at length, and if you can connect with people like this, they can bring experience, cash, debt financing, and more into your world. Scott has a powerful network of folks that you would do well to know.  Good luck!

Scott Meyers · Answer

Hey Nicolai!

Self Storage investing is a simple yet hard business model.  Simple, because it's basically metal sheds on concrete slabs AND that you're buying it by the gallon and selling it by the shot.  Hard, because a lot of the low-hanging fruit is gone and you're going to have to get off the beaten path and turn over a lot of rocks.

And it can be very easy to get dissuaded by a stranger (or Realtor) telling you you should have done this 4 years ago, or you're unbankable, or you can't do it, or whatever.  Please note that hard work beats brains or talent every time.

I recommend that you learn how to find and source deals, go do it, and the capital will follow.

We've been investing in Self Storage for 15+ years and I've been helping folks new to this business for over a decade. (Thanks for the shoutout @Jay Hinrichs).

Please note that Self Storage investing is NOT a get-rich-quick scheme.  It is taking a proven process (I have one, so does Mike Wagner, Scott Krone, Henry Clark) and working it again & again until you win.  If you truly want to be a Self Storage investor and are relentless and persistent, and stay after it, you will be successful.

Good luck to you!Scott

Adam Lacey · Answer

@Nicolai Grebencio

I would definitely partner with an experienced operator for your first one. My suggestion would be to learn everything you can about the self-storage space and network like crazy. Try to figure out a way you can provide value to an experienced investor and take down a deal with him or her. Definitely very doable.

Best of luck to you.

Henry Clark · Answer

@Nicolai Grebencio

Says you have an IT background.  I'm an ex auditor.  Probably have flowcharted 40 different company's systems.  Payroll, AR, AP, Sales, cost, etc.  I understand Linear or process oriented thinking.  Critical thinking.

If you were ever hesitant about picking a Real Estate investment to get into due to your background, it should not be Self Storage.  There are some nuances, but basically the financing, management, site/location selection, cost, offer price are all Linear and process oriented.  SFH/MFH, you can say the same thing, but there is a lot more to learn, nuances, grey judgment areas, interpersonal skillsets required, hidden issues, etc.  On a level of learning and risk; Storage is a 2 and SFH/MFH is a 10.  Both in getting into the unit and the follow up management.

Your real lucky.

Look on Loopnet self storage Virginia.  There is a "DOG" of a property for sale in Roanoke.  Personally I love the place from what I can see.  Their asking $435,000; you offer $250,000.  Cleaned up this location is worth about $600,000 from a cost standpoint, from a revenue standpoint at 90% occupancy about $1,100,000.  You will probably need to put in about $50,000 into paint, replace some doors, electric, security system, general cleanup.  Lot of clean up, but what makes this property a winner, is it is in a great location relative to customers and geographically; low competition.  Also your entry point is relatively low for Storage and your potential LOSS is relatively low.  SBA loan at 10% down, would be $300,000 x 10% equals $30,000 down.  Low entry point.  Even if the buy in is higher, it still works.

Its not on sparefoot, thus not marketed.

Its in the middle of a Storage desert, in the middle of neighborhoods.

With this location you will learn about 90% of what you need to know about storage.  From there, if you have a greater appetite; Self storage is a cookie cutter business.  Very easy to replicate.  Its actually more of a Financial investment, than a true REI as noted above.

It is better with experience.  You could get a part time job with a storage location helping to cover nights, days or weekends.

I can't attach excel files on Bigger Pockets, but below are some checklists.  Basically a process list.

Way at the bottom for some reason is a cost analysis worksheet.

Storage Startup Checklist 101

Response to Zagreb, Croatia startup

1

Why Do Storage?

2

Why Storage?  Why you?

I’ll do a separate Topic.  Don’t know your financial’s, but you will outstrip your collateralization fast.  Develop a relationship with someone you trust and bring them along for the ride.  Preferably an Apartment developer.  They don’t have to invest in the first project, but you will need them later.  Make sure this a solid relationship, otherwise they will cut you out once your successful.

3

Market/Demand:

4

Market size

See post, if your the “first”, then you don’t care.  You have more than enough Market, in a 800,000 Pop city.

5

Outside or climate controlled?

Let your search and “deal” decide.  Look for both an outside Land acquisition or an old industrial building.  If you get a large enough building, finish it out in stages.

6

Market location

Seek your higher income areas first.  Pick along the A2, A3, A4 corridors first.  Stay away from the mountains. Do several small locations, no smaller than 1 hectare.  Once you have the experience and Financial support, go for a Climate controlled location in an old neighborhood that is high income or rebuilding itself.

7

Zoning

See post

8

Site location

Have several searches and deals going at once, most of them won’t pan out for the price you are willing to pay.  This way you “can walk away”.  This gives you negotiating power.

9

Site acquisition

10

Financing:

See “Topic”

11

Financing-construction

Find a banker who knows Apartment building construction

12

Financing- rent up stage

Same as above.  You want “interest only” and not principal for a portion of the rent up period.

13

Financing- long-term

If your going to grow, unless you have significant capital at your disposal, find a future business partner.

14

Business Model

I’ll clean up and post one of my spreadsheets later.

15

Construction:

Use local knowledge/availability

16

Permits

17

Building type

18

Building manufacturer

19

Contractor

20

Day to day:

21

Rental Contract

Post a “Topic” on this Forum and ask for some copies sent to you.

22

Rental Rates

Zagreb’s GDP per capita is $19,132 versus where I live $60,246 metro area of 1mm.  Thus if I say a 10 x 20 “Foot, not meter” unit is $120, then yours would be around $40.  Making this simplistic.  Get on Sparefoot and pick a US city similar to Zagreb and pick out prices for 10 x 20/15/10/5.  Then take 1/3 of that for your price in US $, then convert.  Recommend you don’t use this as your starting prices; go after a richer neighborhood and charge higher prices.

23

Auction rules

Post a “Topic” on this Forum and ask for some copies sent to you.

24

Security system

Situational, work with your local security firm.

25

Fencing

situational

26

Self Service or manager

situational

27

Management software

Since the world is internet based, see if you can use one of the Storage management softwares in Zagreb.  Do not do this on a spreadsheet or paper.  You need to develop a system to grow with.

28

Marketing:

29

Website

check ClarkstorageLLC, and others on this forum.  Take the best from each and make a template, for a better one.

30

SEO management

Since your the only one, you just need Google Map Pins and build up your google ranking under key words.

31

Marketing Software

Sparefoot or similar in your market area.  If none exist for Storage, seek out Apartment, home,  AIRBNB, Craigslist sites.  If you have Craigslist, put an add out there with your offering and price.  Different sizes and prices. Get feedback.

32

Marketing

Something you probably already know.

33

Social Media

Something you probably already know.

34

Insurance:

Leave to you for local knowledge

35

Business

36

Renters

Sundry:

Leave to you for local knowledge

Property taxes

Legal system

This is an example, for discussion only.

A.  Project Cost estimate from ground up.

B.  P/L revenue stream

C.  Valuation Buy/Sell

Adjust all of the above to your local market and situation.

A.  Self Storage Project  Worksheet

Drive up Storage

Notes:

Land

$200,000

4 acres at $50,000/acre

Survey

$7,000

Site, elevation and building layout

Fence

$30,000

Black chainlink

Gate system

$25,000

Automated rolling 20ft

Engineer

if needed; $30,000 to $60,000

Dirt work

$15,000

Slight roll, no dirt brought on site

Building demo

if needed, $15,000 to $60,000

Electrical- site

$7,000

building lighting and office if needed, LED.

Electric poles

if needed; $2,000 per pole.  First is free if nearby.

Security

$10,000

Storm drains

if needed; $50,000 to $150,000

Water

if needed; $5,000 just plumbing

Water line

?? if an extension could be $10,000 up to $150,000

Fire Hydrant

if needed, $3,000

Sewer

if needed: $5,000 plumbing

Sewer Line

if needed; $10,000 up to ????

Buildings

$1,180,800

Phase 1      2 acres

Office

if needed, plain storage unit 20x30; $25,000 insulated.

Office setup

if needed, $5,000- computers, printers, HVAC, frig, cabinets, etc

Footings

if needed.  ??????

Roads

Gravel

if needed, ?????

Asphalt

if needed, ?????

Concrete

$676,133

6 inch Cubic yards, framed, poured, sawn,

Retention Pond

if needed, part of dirt work cost, less land for buildings

Landscaping

$5,000

I like trees and bushes.  Less sterile

Road Sign

$15,000

For highway 55mph billboard sign

Total

$2,170,933

This is an example, for discussion only.

A.  Project Cost estimate from ground up.

B.  P/L revenue stream

C.  Valuation Buy/Sell

Adjust all of the above to your local market and situation.

A.  Self Storage Project  Worksheet

Drive up Storage

Notes:

Land

$200,000

4 acres at $50,000/acre

Survey

$7,000

Site, elevation and building layout

Fence

$30,000

Black chainlink

Gate system

$25,000

Automated rolling 20ft

Engineer

if needed; $30,000 to $60,000

Dirt work

$15,000

Slight roll, no dirt brought on site

Building demo

if needed, $15,000 to $60,000

Electrical- site

$7,000

building lighting and office if needed, LED.

Electric poles

if needed; $2,000 per pole.  First is free if nearby.

Security

$10,000

Storm drains

if needed; $50,000 to $150,000

Water

if needed; $5,000 just plumbing

Water line

?? if an extension could be $10,000 up to $150,000

Fire Hydrant

if needed, $3,000

Sewer

if needed: $5,000 plumbing

Sewer Line

if needed; $10,000 up to ????

Buildings

$1,180,800

Phase 1      2 acres

Office

if needed, plain storage unit 20x30; $25,000 insulated.

Office setup

if needed, $5,000- computers, printers, HVAC, frig, cabinets, etc

Footings

if needed.  ??????

Roads

Gravel

if needed, ?????

Asphalt

if needed, ?????

Concrete

$676,133

6 inch Cubic yards, framed, poured, sawn,

Retention Pond

if needed, part of dirt work cost, less land for buildings

Landscaping

$5,000

I like trees and bushes.  Less sterile

Road Sign

$15,000

For highway 55mph billboard sign

Total

$2,170,933

Nicolai Grebencio · Answer

@Adam Lacey i think partnering with someone more experienced will be my next move. i've run a business before, i know operations and processes, and i think where i can bring the most value is in technology.

Hai Loc · Answer

@Nicolai Grebencio

I answered this question years ago and I advised no for your first investment. Its not just property there is a business element..  if you never ran a business before or don't know how to underwrite or evaluate an income statement. It will be tough sledding without a mentor..

I took Scott Meyers training years ago and that might be a place to start..

He recommends you purchase a site that is large enough to have a fulltime worker..  if its too small you need too much micro management

Paul Balyoz · Answer

Self-storage is a business, more than real estate (it's kind of both - but the real money comes from the self-storage business side).

As a business, to make real good money you'll need to develop a system to operate it efficiently. Maybe this first self-storage business is how you can learn to do that. Or maybe you should go and work as the manager/employee at a self-storage for 6 months to see what is involved in the operations of the place.

Basically you want to have a solid system - a set of processes - that the employee(s) follow, to do everything that needs doing. Dealing with every kind of situation that comes up. Ordering supplies before they're needed, in the right quantities that you can store. How to answer every customer question. How to deal with people who stop paying for their storage units full of stuff (hint: auctions - following the law related to such). If you've played the Cashflow 101 board game, this is the "automated business" idea - you have developed and implemented a set of instructions for your employees, and oversee everything to make sure it's working as planned, over time. If employees leave, you hire and train new employees. Over time you can develop a system and a plan for nearly every situation that comes up.

Once you've developed a system like that, why stop at 1? You can buy lots of self-storage properties that are being mis-managed, retrain (or rehire) the staff, and make it highly profitable again. I know there are people who do this on a regular basis. The Bigger Pockets podcast had an episode where they interviewed a gentleman who does exclusively this, I remember it from a couple years ago.

You can also build new self-storage units on the edge of town, in the direction of growth. That's obviously a good thing, because the land is cheap, and becomes more valuable over time - in 10-20 years it will be in the heart of the city, and you can sell the land for WAY more than you bought it for. You could think of it as "cashflowing a plot of land until it's way more valuable."

Good luck.

Jay Hinrichs · Answer

I dont see self storage as real estate per se its a business. that just happens to run out of a real estate location you own and operate not different than buying your own body shop or fitness center and owning the building.. And experience for lending will most certainly come into play .  you may want to start with a smaller rural type property that the owner will finance or you pay cash for and work your way up.

But it is a business .. its not like owning rentals that folks live in .. although when you own storage you will find folks trying to live in your units. I had one guy do that to me.

Cason Acor · Answer

@Nicolai Grebencio definitely start networking with commercial lenders and mortgage brokers. Whether you do self storage or not, they'll be connections that can make or break deals for you in the future. They'll also be able to help you with any other product types you may want to invest in. Set some meetings with a few in your market, and give them the layout of your current financial situation. Most will be able to tell you pretty quick what your lending options are. That information will be the foundation that you need in order to make informed decisions about which deals to pursue. They can also tell you what you need to do to make yourself a more attractive borrower. Investing with experienced partners will be the biggest one out of the gate.

Don't just talk to one lender or mortgage broker either. Talk to like 5+. Not only will that give you multiple opinions on your situation, but you'll also generate relationships you'll need to get lending on future deals. The more connections you have, the better lending terms you can get because you can get quotes from multiple sources. They also might be able to put you in touch with other clients of theirs that can invest with you.

Should I Consider Self Storage Being New to Real Estate?

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