All Forum Posts by: Henry Clark

Start Small and make your big mistakes Early.

Deal breakers- market, finance, zoning, footings, road type, water/sewer availability, Storm sewers, Storm retention ponds, over Analyzing, too Greedy. Everything else you can mess up and not get too hammered.

Setup:

1.  We stay within an hour driving radius when looking for properties.  Just makes it easier to service them.

2.  One town we looked at was a perfect fit, our type of town. It was on the 60 minute drive bubble.

3.  Again, when we go to a new town we look at both buying and building at the same time.  Gives us more options to look at and we pick the better deal first.  Prefer to buy first, so we have more control over price and competition.

4.  Met up with a realtor to look at some properties I saw listed on the internet.  Just happened he was one of the two large Storage owners in the town.  

5.  Population was all at the north end of town.  All Storage was at the South end of town.

6.  The main reason they were at the south end of town, was that was where the majority of the appropriate zoned land was.

7.  We were able to find one property zoned correctly.  It had an old derelict building on it.  The property was not quite big enough.  We could make an offer on the ground next to it which was vacant.  Combined the two properties would have been large enough.  What was key about these two properties, they were half way between the population and the existing Storage locations.

8.  Another exciting thing, was both storage owners for some reason had built all 40 wide buildings with no end units.  I.E.  not many 10's or 15's possible, without creating a lot of large size units 25/30's, which don't rent well.

My market analysis said the town was close to full occupancy.

This still looked like a positive build location, even at full occupancy.  Out position the competition.  Offer more product mix.  Build all 30 wide's.  Thus offering 10/15/20 units.

Lets say the existing locations had a total of 500 units.  And "NO" further units were to ever be needed.  We could still make a profit.

Keep in mind you don't need to be 100% occupied.  My normal breakeven is 65% full.

If we built 150 units 10/15/20's; and were closer to the population.  Over the long run if all of the occupants evenly distributed.  Total of 650 units.  Demand 500 / 3= 160 per location, close enough.  Obviously our 150 unit location would be 100% occupied.  The reason this "could" happen is we are closer, smaller and more product mix.  We are good.

Instead lets say the customers were spread Pro-rata.  For us 150/650  X 500=  115 units filled for us.

115/ 150= 77% occupied.  However since we have smaller units with a higher per sqft price, our revenue would be higher than theirs.

Either way, we are above break even.  Making money both from Cash flow and also building equity paying down the buildings.

We have other more positive projects or locations at the time, thus pass on this location.  It is actually a great deal, if we were to contact one of the other two owners and they were to sell to us first.  Again, we would have Price control, between the Purchased location and if we built the smaller location.  This is one where you check back every few years and say hello.

Deal Breaker on this location was it was already at 100% capacity.  

Key Points-  We could still have built there and made a profit.  Just had better options elsewhere.  Can always come back to this town, because most locations are mom/pop owned.  And their kids probably don't live there anymore and there are few potential buyers in a small town.  Also, there is less chance of a REIT coming to small town USA, or for someone else to build there.  Thus the "Grade" of the investment is higher than where there might be stronger competition.

8.  

Start Small and make your big mistakes Early.

Deal breakers- market, finance, zoning, footings, road type, water/sewer availability, Storm sewers, Storm retention ponds, over Analyzing, too Greedy. Everything else you can mess up and not get too hammered.

I almost wanted to give up on this deal.

Setup:

A.  Town I used to work in.  Right size, right distance, right community.

B.  I always like to approach a new town by doing both a "Buy" and a "Build" search at the same time.  See the Broad discussion on Financing Discussion I posted. I like to "Buy" because it takes out some competition and leads me further towards "Price" control.  I like "Build" because most small town storage locations are built there for the owners convenience versus the customers.  Thus I can out position them to the customers.  Also the harder it is for me to find a piece of ground (right size, right price, right zoning, right location) the harder it is for competition to come in.  Our investment is safer from "Stupid" money.

C.  Buy-  Fellow had a 90 unit location, House, and a metal building.  Wanted $1mm.  Great location on the main drive from one end of the town.  Right on the road.  90 units I could see around $350k.  Had a little extra land for maybe 40 more units. House around $225k, but I wanted no part of an old house.  Metal Building maybe $60k, he wanted to keep renting, he was running some sort of part time cigarette or E Cig business out of.  On that end of town, all of the correctly zoned properties for storage were already filled, so no future competition from that end.  I just couldn't figure a way to get close to his number and also not buy the House.  He was stuck on the $1mm because he was a contractor and had bills to pay.  Which means nothing to me.  Took a pass since we were not even close.

D.  Build- When I used to work here, I drove past a piece of land and had known it for 20 years.  Looked up on the local GIS map and found out it was owned by the Railroad.  I thought someone else owned it, because they always had some pet animals on it.

1.  3 Acres, triangle shape.

2.  Next to railroad

3.  Between the major street and the two largest employers

4.  Slight roll to the property.

5.  Prior to the Survey, I was able to gauge the property based on the GIS property line map, compared to the housed across the street.  Figure out how many units we could build.

6.  Had a large dirt pile on it and someone had dug some dirt from the entrance, leveling the entrance.

7.  50% of all the storage for the town was in a location 4 miles out of town on a highway all by itself.  I could out position them, by being in town.

Talked with the Railroad.  The property was for sale (see my Discussion on "Zoning- I 3 right?".  It was zoned residential, but the Railroad due to potential future lawsuits, required a covenant that no human habitation (housing, daycare, schools, etc) could be built on it.  Across the road was industrial.  On our side was all residential.  Made an offer subject to re-zoning.

Started the re-zoning process.  Had to tell the city this partial was adjacent to Industrial thus it was not "Spot" zoning.  Would never be used for any residential purpose per the covenants, thus their zoning would not work.  Also instead of $0 per year in property taxes (railroads don't pay property taxes); I would be paying about $7,000.

Two people kept showing up at the zoning meetings against my project.  One was a neighbor who lived across the road and had 4 rental houses there.  The other I found out was the local dirt contractor, whose dirt was the pile.

The dirt contractor tried to go behind me and make a deal with the Railroad to buy the land.  He owns the property next to it.  I wanted to know how a professional dirt contractor didn't know he didn't own the land.  You can see it on the GIS map.  His tax record said 6 acres, not 9.  Again, he's a dirt guy and can "see" acres.  I can.

Now things start to unravel.

I come down on a Saturday to spray weeds and find 3 dump trucks and an excavator hauling and digging dirt off the property, which I have an outstanding offer on, subject to zoning.

I blocked the drive access.  Ask him what is he doing.  He says he is taking his dirt.  I had bought "as is".  Call the cops to stop him.  He has a letter from the railroad saying he can take "his" dirt.  I have a letter showing I have an offer on the land.  The officer says he can't do anything about it, since it is a legal matter.

The Railroad person is unavailable on a Saturday.  I proceed to call and message every number and email, I can find at their corporate office.  The dirt guy keeps hauling dirt off thru Sunday.

The railroad guy gets in Monday and is floored by all of the corporate offices at some pretty high levels that have reached out to them with my 800 pound gorilla story of them.  Does not even apologize.  His boss wants to know how much dirt was taken that was potentially mine.  I asked, if the Dirt guy didn't even know what was his property, how could you trust him to know what "his" dirt was.  I could tell he took about 6 extra feet of dirt off, because he wanted the "black" soil which is worth more than just fill dirt.

I said he took about 100 extra loads, at $100 each and thus they were going to reduce the price by $10,000.    I said no, you have to haul dirt back, compact back it and delay my project.  They said take it or leave it.  So I took it.

Deal closes.  I then do my survey.  Find out the GIS map, is off by about 30 feet unfavorable to me, on the fat side of the Triangle shaped property.  Entrance is at the tip of the triangle. My 150 unit project, just went down to 110 units.  Self Storage and Triangle shaped properties don't go together.

We filled up in 6 months.  Built another smaller building and it filled up in 2 months this covid year.

Did not turn out as profitable as I wanted, but the market was good.

Deal Breakers-  I'll have to add  to the list above.  Until you own it, you don't own it.  Until you survey it, you don't "know" the acres.  And back to First Grade, I now love Rectangles and Squares; far more than triangles and circles.

@Wyatt

Once you start down the Entrepreneur path, your mind just keeps buzzing along.  Going down the same road, one person sees nothing and the other person sees opportunity.

Looked at your two background.  I have a product idea, @ Wyatt you have the market.  Would like your input.  My storage facilities are two flimsy for this idea, plus I don't have a market at this price point.

"Survivalists/Preppers/Valuable assets" is the market.  This might be a concept you have never broached.

"Need"- Store provisions or protect valuable assets.  Peace of Mind.

"Market"  @Wyatt in Orange County,   Your Wild West comment, tweaked a thought.  I'm sure its hard to add on to your house a cellar or basement.  It would be hard to get out of the city fast, just be stuck on a freeway out of gas.  Hard to have chickens and a garden (food) that no one knows about.  Plus these customers would have a nice house which would be a target, thus they would need to have another stocking point or storage facility.  "Sotheby's" background.  Where do people in a hurry, store a $50,000 painting, $20,000 oriental rug, $15,000 vase, etc.?  They can't take this stuff with them.

"Product" @ Seth with your concrete background you might have input.  Requirements, 10 x 20 bunker, "solid" door, water and humidity dry, temperature moderate or controlled.   Concrete is the easy part.  2 x 2 spacing with 1/2 inch rod; 6 inches thick walls/sides; vapor barrier as needed.   The hard part is the door, that says "no way" your getting in for the normal person.  Controlling humidity.  Temperature should be easy to maintain since it would not be exposed.  Either in ground or in a building.

Business model:  a.  Cost ??, b.  Price example $3,000 per month, c.  Demand- Either how many rich people $5mm liquid assets, or how many exotic Car motels (similar customer base) are there in the area?

I have all I want on my plate, but didn't want the idea to fall through the cracks.  @Wyatt, let me know if the idea has any legs to it.  There are already products out there concrete bunker for survivalists, but these are for burying in their back yards or properties.  That potential will rarely exist in a large metro area.

@ Seth 

Location:

1- 50; plus 20 parking  Town 1

2- 110; plus 100 parking  Town 1

3- 110  Town 2

4- 60  Town 3

5- 100   Town 3

6- 70   Town 3

7- Phase 1- 230; Phase 2 drawings- 200; Phase 3 drawing- 200;  Planning to switch gears on Phase 3 and do Contractor incubator/garage buildings.  Example: 10 x 20 unit storage= $130 or $.65 per sqft;  25 x 40 contractor= $1,000 or $1 per sqft. Town 4

8-Under construction 330.  Basic dirt work done.  Need to do retaining walls, sewer, storm drains, electric/water.  Hopefully build office and about 100 units worth this fall.  Want to let the ground settle and compact some more for the other units/buildings.  Town 4

The key is we operate self service over one phone.  See Youtube on website.  The above model doesn't work if you have to meet people or have a manager.  Also in Town 4 we are going totally Auto pay Credit Card/Bank account.  This is to reduce the work load even further as we take on more sites/units.  This is both an efficiency improvement, but also is like a credit check; reduces our past due/lien/auction workload.  Security wise, we can see all of our units cameras that have internet, any time on our phones.  The good thing about Town 1/2/3; we are one purchase away from being 60 to 70% of the market, then if we choose, we can do Deal 4, I believe and raise rents.

Thanks @ Wyatt for comments.  Just wanted to share the fun.

Start Small and make your big mistakes Early.

Deal breakers- market, finance, zoning, footings, road type, water/sewer availability, Storm sewers, Storm retention ponds, over Analyzing, too Greedy. Everything else you can mess up and not get too hammered.

Some of these stories will be ambiguous because they are still "live" items. I am intentionally not telling you all of the details and am obfuscating some of the detail, just telling you the Deal story.

Setup:

A neighbor of mine is the local Real Estate person. His company has 95% of the local market. People think he is greedy because he doesn't list on MLS, but wants both the Buyer/Sales commission. Asked him about that. He said (not exact words), if they are going to come to our town they will. When you split a sales commission with someone from the bigger city, there isn't enough left for a living in our small town. Plus the big town realtor is never going to come show their client the property and thus leaves the work to the local person anyways.

He is a smart guy.  I have gone through his company on all of our real estate transactions.  He actually called me into his office one day, out of the Blue and made me buy a piece of ground; he knew I was balking at buying.  Great decision for me.

He had another word of wisdom for me on another project.  If something isn't selling, just go mow the weeds, stir the dirt up or take the property off the market, then put it back on a few months later.  People are always worried about missing out on a deal and when they see action, they take action.

We identified a town to move into with Storage.  Decided to build first, versus buying.  Found a perfect piece of ground for a great price and on the main access road.

Started tearing down the existing buildings and concrete foundations.  It took me about a week, since I was trying to save some of the boards.  Within that same week, we received two offers from people wanting to sell their Storage locations.  Again, Small town USA, they knew we were going to build Storage facilities.

Deal A:

Older couple needing to get out of business.  This is the oldest storage facility in town.  Came to a price.  Had an agreement.  Out of the blue, they called and said one of their son's wanted to buy it, and was pissed he didn't get a chance.  I'm from the country, and value neighbors ( I have "neighbors" 1,000 miles away) over a business opportunity.  Said, hey no problem; glad to let you keep it in the family.  About 3 months later, they called back and he couldn't get financing; wondered if I still wanted it.  Which I did.  I love having two different price points for product.   At the price of this location, I could maintain the lowest cost product in town.  Won't tell you the rest of the story, but things always come back to you in a small town, good or bad.  This nice sidestep of mine, has helped me again and again, beyond just getting that location.

Deal B:

Person was wanting to move out of town.  Had a price set at $225k and was stuck on it.  Did my numbers, made a fair offer, but they would not take it.  Had to have $225k.  Walked them through my numbers.  Showed them how I got to my offer and that it was fair and a good price.  They wanted $225k.

Interest rates were near 6%. 

We were growing and self financing at the time, so we needed to keep cash around to finance any future projects.

This property along with the one we were building and the one we were buying in Deal A above, would make us the dominant player in the town.

We were willing to pay $190k, but no more.  So I said yes to their $225k.

But terms were $150k now, and $75k in 5 years with no interest.  Equals $225k and they were happy.

We ended up spending more than our price even with NPV.  But we kept more cash around us.  Also we got a lot of bare ground with this location.  Turns out this location, even though  on two back roads, is the main route from the population to the stores along the main highway.  Everyone wants this location.  The following picture is some of that land.  We are getting ready to build next year possibly.  Looked like a few pieces of concrete, but turns out to be an old Rail road loading site.  More work than I thought.  You remember Deal A above?  Believe it or not, that deal is going to help me clean this up.  Again Small town USA.

Deal breakers-  Deal A-  be willing to walk away from a deal, even if it is a good deal.  Probably a better example of this, for most of you is financing.  Lets say you have a good, but smaller deal in front of you.  Walk away from it, if you don't have the collateral or financing to do a larger or more appropriate deal.

Deal breakers- Deal B- I said before don't over analyze.  Sometimes you have to "Re- analyze".  See if there is more value to the project than your apparent price difference.  For me it was keeping more cash around, more expansion land, and I find out later it's the best location in town due to traffic corridors.

Start Small and make your big mistakes Early.

Start Small and make your big mistakes Early.

Deal breakers- market, finance, zoning, footings, road type, water/sewer availability, Storm sewers, Storm retention ponds. Everything else you can mess up and not get too hammered.

Some of these stories will be ambiguous because they are still "live" items. I am intentionally not telling you all of the details and am obfuscating some of the detail, just telling you the Deal story.

I had just started in Self Storage and had two locations.  About 70 units total.  We have since grown to 200 units in this local, not counting parking.  A neighboring location 220 units came up for sale for $1.1mm.  Just about 3 miles from me.  

Setup:

a.  Visited with them.

b.  Went through the financials and management reports. 

c.  Clean operation.  No room for expansion, totally built out.

d.  Location was on the opposite end of town, near higher income neighborhoods.

e.  If we had bought this, we would have had the three primary road ways covered.

f.  Would have had about 70% of the market covered with room to grow at our existing facilities.  If we are out in one place, we would send them to the other.

g.  At the time $1.1mm was a bigger number than I had worked with.  Only had about 2 years in the business.  Wanted a "Great" deal for around $850k.  Did not make them an offer.  Wanted to wait 6 months, to let it stay on the market and soften their expectations.

Was visiting with someone about 6 months later and they said that location had sold for $875k.  Whatever the emoji is for a sad face, put here.

Deal breakers- don't get too greedy, when there is a deal on the table make an offer so they know to come back to you.  Although this didn't happen I will add to Deal Breakers- Don't get too greedy and also don't Over Analyze.

Following forums like this, you will see the comments, not a good time to get into the market,  there are no great deals, why can't I find a situation like that?, etc.  I will ask you from the scenario above "did you see" the great deal, that I missed?  Do you see the great deal that is within 60 miles of you?  I can see it now, because I'm looking backwards, and can see more business angles.

Setup:

1.  In a small town.  To small for REITS.  Secures your investment.

2.  About 18 miles from the next Storage market.

3.  All storage  locations are full at about 98% occupancy.

4.  The above deal was good at $1.1mm; it was great at $875k.

5.  Lets make the above deal better.  Buy at either $1.1mm or $875k.  Unit Size 20/15/10;   Unit price $65/$55/$45 (small town USA);  We will use the $55 as the average price.

Do an across  the board price increase of $10.  $10/$55= 18% profit improvement, with no cost impact.  Your business just became 18% more profitable/valuable based on one decision.

Wrong-  Lets say you have an all in operating cost, including depreciation of 40%.  Thus on a $55 unit, your profit is $33 or 60%.  Now add $10 to the revenue end with no added cost impact (keep it simple without tax discussion).    $65 (55 + 10)unit less $22 cost= $43 or 78% profit increase over the original base of $55.  Or 66% over the new base of $65.

Lets make the above Wonderful scenario even better (1).  Sorry I'm greedy and didnt see how good the deal was at the time.  That's why I missed this deal.

Don't buy the business.

Buy the assets. 

Talk with your tax person.  

When you go to buy the assets ask your tax person the implications of segregating the following contract items. Get them to explain the tax implications and immediate write off potential of each item.  Also potential for challenging Property taxes.

1.  Of the $1.1mm slice out $300,000 value as a noncompete agreement.

2.  Electrical/lighting   $10,000

3.  Security   $10,000

4.  Roads  $200,000

5.  Land  $100,000

6.  Fence/Signs/etc.  $50,000

7.  Building  $430,000

I will re-iterate.  Talk with your Tax professional.

Lets make the above Wonderful scenario even better (2).
Lets use a simple example.  I'll give you a choice of buying two bonds.

a.  12% return with Aaa rating (highest)

b.  12% return with C rating (lowest)

Which one do you buy, if these are your two options?  Now this is a simple exercise because it is simplified. 

Now lets use this on evaluating Storage locations.  Exact same facility, exact same everything.  Would you rather be within 3 miles of 4 National and 3 Regional Storage companies in an overbuilt climate.  Or be where there are none, and there never will be?

I'm not saying in the middle of Wyoming, but within 60 miles of you, the above climate and environment exists for you.  Don't let anyone say, there not a great deal out there for you.  You might ask why I am doing all of these Discussions and noting all of this.  I'm not looking for any benefit.  I've found my next great investment and lifestyle.  Don't plan to build or buy anymore storage locations.  And you won't be a competitor of mine.  When we build our last Phase in 2 years, I will start to forget all of this and start concentrating on our next investment segment.

Good luck.  Go get rich.

And; Start Small and make your Big Mistakes early.

You guys are so lucky based on the weather.  Yesterday, it got to hot to do landscaping so I came and banged out some of these.  Today it started raining, we were re-laying out our latest location, with most of the dirt work done.  Had the contractor put flags on the corners of the buildings. Going to add more units to each building where possible.  Take out some units to make the busy corners easier.  Hopefully go from 330 to about 360 units.  Might switch to some 12 versus 10 wide; and instead of 8 tall to 10 tall; to add some mix variety.  We built one of these at one of our locations last November and it is almost rented out now.  More car and boat type people, with normal storage needs also.  Doesn't bring as much money per sq ft, but helps with Occupancy and competition.

@ Zach See PM.

Glad your enjoying them.  Educational for some, confirmation for others, entertainment for others, and reminder to myself of why did I do that?

If your starting from the very beginning recommend you join habitat for humanity.  Get some hands on experience and start to develop a base of knowledge.  If your past that disregard. 

I’ll take a shot.  Commercial is not my area so comments are general

Revenue side:

A. How long are leases and what are your annual rate increases

B. With covid are their businesses stable

C. Not understanding   Is this 3200 on both floors?  Rent seems low if so. Don’t know your market but at $550k I would expect higher rent.  For their businesses are you comparable or will they seek lower rates

D  Cash flow  Back out you P/I payments

E  Include income tax affect on cash

F Leases NNN or do you cover any costs?

Costs:

A   Your property tax and insurance seem extremely low.   I’d expect annual $10,000 at least on property tax.  $5,000 on insurance.   Disconnect somewhere.  Don’t know where you are at

B  can’t tell what $260 per month represents

C  Did you check the building out or have a service   Don’t trust just renovated   

D  That old   Has asbestos or lead paint or pipes been cleaned up?

E How’s your parking, sidewalk and street look? Any maintenance coming up

Overall too many questions.   Again could be disconnect on my part   With this many questions I would be hesitant to move forward

Tighten up your cash flow estimates. Have a feeling when you do that your financial outlook or return won’t be that great   

Is there a side play or interest to this property that is not evident?

Example are you going to live in the upstairs and aren’t charging yourself rent in the estimates of returns?  

Good luck   Recommend you find someone local to go through this with you.   

Start Small and make your big mistakes Early.

Deal breakers- market, finance, zoning, footings, road type, water/sewer availability, Storm sewers, Storm retention ponds. Everything else you can mess up and not get to hammered.

Some of these stories will be ambiguous because they are still "live" items. I am intentionally not telling you all of the details and am obfuscating some of the detail, just telling you the Deal story.

Was out on Loopnet, and saw a property I recognized from a year ago.  Called the broker and asked what was up:

Setup:

a.  $3.9mm deal.

b.  Combination storage, and concrete vehicle ground storage not constructed yet.

c.  Great location and large metro area.

d.  Property has been listed for about x years.

e.  Occupancy 40%

f.  Marketing actions needed, no market issues.

I actually like this type of listing.  Its been on the market for a while, so the owners either have gotten low ball offers or no offers, so they should be more receptive.

Ran my numbers and came up with about $2.5mm.  Only way I could get to their $3.9mm number was 90% occupancy and the Vehicle storage, was not only built (concrete), but also 100% full.

What's up?

Again, the person is a "Developer" and not a "Storage" investor.    They had decided to list it upon build out.  Hopefully as it fills, the value will rise to their asking price.

While out on Google earth looking the area over, noticed another storage location next exit down.  We are done building and acquiring so I did not research it.  But this is what a "Cherry" location looks like to me.  Older location, great location, Storage buildings up front and a lot of acres in back being used for vehicle storage.  If I walked thru their door and met an 80 year old, I would fall down and beg them to sale.  Send them xmas cards and birthday cakes, just so they remembered me when they got ready to sale.  Would ask their price which would be based on the back being Vehicle storage and pay them "extra". 

All of the work is done.  Just move out the Vehicles and build more buildings.

Deal breakers- market, footings, road type, Storm sewers, Storm retention ponds.  Have to check them out.

Time to go clean up for Billy McGuigan concert tonight.  Been looking forward to it from last year.  Don't know about the heat today and the whole Covid, distancing thing.  We do "Self Service" storage, so we almost never meet our customers, so personal contact has not been an issue.