Self Storage- Deal 23 $1.zmm, $1.umm, $900k final offer?

Question

It’s amazing the number of great deals on the market. We stay within 40 miles of our house and are in the retirement side of investing, so not a deal for us.

My brother is planning to move back from Italy so he has started checking deals out.

He asked me to look at a deal. Did a Quick Look. Didn’t like it from a few standpoints. Clean property though.

I always tell people if they spent the time researching a property and it is good just doesn’t work out at their number to make an offer.

He made an offer at $900k and the realtor said write it up. So he called me and said what do I do?

Would need boots on the ground to understand the market better.

I explained if the market worked out then. Build a managers house on it. Like he did at his last location. 1,400 sqft, metal building, spray foam insulated, tile floors, granite countertops, 2/1, large open plan kitchen/living room, porch/jacuzzi. Write off all expenses- property tax, insurance, internet, electric, even the water hose.

But his wife wants the big house. Not ready to downsize.

$200k revenue, not income. The numbers are great if you live there. Told him to talk with our sister and brother in law who are ready to sell their $900k home.

Got to love relatives.

If the deal mechanics work, you have done your homework, but the price is wrong. Always make an offer at your number.

Henry Clark · Answer

Great breakfast tacos.

Henry Clark · Answer

Shout out to San Diego. Visiting our son in the Navy. Walked across to the Lafayette Club for breakfast. Very eclectic. Had dinner at the Pomegranate a great Russian restaurant. Really great food and sights. My son's housing is $2,800 per month in a new apartment complex. Numbers didn't work to have him invest in a $1.2mm SFH.

Anyone in the area want to talk Self Storage glad to meet while we are here.

Henry Clark · Answer

He didn’t have REP status so I told him to hold his first that he sold till 13 months for capital gain. Plus he did a portion in a 5 year payout since he was going overseas and didn’t plan to re-invest right away.

Some other cost seg items not noted above are driveways, signage, doors, and landscaping. Plus cargo containers.

Since we have REP status we have had 3 different years with zero taxes due to cost segregation.

Self storage is a great asset for Cost seg.

Kamila Kowalska · Answer

Great thread, Henry. One thing for your brother as he runs numbers on storage: it tends to be one of the more cost-seg-friendly asset types. A lot of the value sits in site improvements like paving, fencing, gates, lighting, cameras and drainage. Those are generally 15-year property and eligible for bonus depreciation, which can meaningfully change year-one after-tax returns on a $900k purchase.

Two things to watch. First, land is often a larger share of the price on storage, so the land/building/improvements allocation matters. Second, if he builds the manager's house and lives in it, his CPA should look at how that portion is treated, since a residence he lives in is handled differently from the business assets. (I work in cost segregation, so I notice these things.) Always make an offer at your number, agreed!

Mark Updegraff · Answer

“Make the offer at your number” is something more investors should get comfortable with.

We spend so much time trying to figure out what a seller will accept that it’s easy to forget the more important question: what can I pay and still own a good investment?

Especially with self-storage, $200K of revenue by itself doesn’t tell me much. I want to know stabilized NOI, occupancy, actual achieved rents versus street rents, taxes after sale, deferred CapEx and how much management is really required.

If those numbers say $900K, I’d rather put $900K on paper and let them say no than slowly talk myself up to a price where the investment only works if everything goes right.

Sometimes the best deal you make is the offer that doesn’t get accepted.

Henry Clark · Answer

The revenue statement is a size discussion. See the not income point. He has already lived at a location before. And run thru his tax accountant on the expenses. It’s the Cherry on top, not the underlying deal.

James Mc Ree · Answer

Just from reading what you wrote, it seems you and your brother are not yet fully informed and bought into the investment. It also appears it might not be wife compatible. Your brother and wife should discuss whether it fits their future plans. Happy wife - happy life!

Kasing Ng · Answer

Hi Henry, treating 200k in gross revenue as earnings misses how self-storage is valued. Valuation relies on net operating income and expense ratios, not top line receipts. Writing off an on-site residence also requires meeting specific tax rules rather than treating household bills as business expenses. Keeping the baseline focused on net yield protects the deal from lifestyle assumptions.

Self Storage- Deal 23 $1.zmm, $1.umm, $900k final offer?

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