All Forum Posts by: Michael Wagner

As someone who invests solely in storage, my biggest piece of advice would be to remember that this industry is a MICRO market industry...so as while the "trends" you mention are worth acknowledging, they can very easily steer you astray.  For example, you say ''Current supply trend for facilities is outpacing consumer demand in most markets"....I'd say that may be true if you tack on "that are big enough for the industry experts and talking heads to study" to the end of the statement.  There are literally THOUSANDS of markets that are under-served.  There are even "pockets' to be found WITHIN the "over-supplied" markets referenced.  While Houston may be grossly over-supplied, there are likely many neighborhoods within that market where one could do quite well.  Another example that you mention is "Vacancy is quite high"....that might feel high if you are comparing it to other assets but the simple truth is that in the storage world we TARGET 87-88% occupancy as the OPTIMAL occupancy.  I get that investors love the idea of 100% occupancy but storage properties are MORE profitable when you put upward pressure on rents to move occupancy downward from 100% to 87%.  The idea is to create the same amount of revenue at 87% with higher rates than at 100% with lower rates.  This decreases operating expenses and management expenses some as its easier and cheaper to handle 87 customers than it is to handle 100 AND it leaves us with product to offer new customers. These are just a couple insights to keep your wheels turning.  Storage truly is the best investment class that I know of and wish you well as you delve into it!

You might find some value in the little blog I post here on BP:

https://www.biggerpockets.com/member-blogs/3915-all-things-self-storage

Mike

 Hi Sharon,

Storage is a GREAT industry!

Along with searching these forums, you can also set up a key word alert for "self storage" so that you get notified every time we discuss it here on BP!  You might also find some value in the little blog I post here on BP:  You can find it here:

https://www.biggerpockets.com/member-blogs/3915-all-things-self-storage

I hope that helps get the wheels turning a bit!

Gratefully In Your Service,

Mike

I'm not from your state but I own self storage in 8 states and have never heard of any such requirement!

Clearly you've done a lot of digging thus far...And I would encourage you to dig deeper. Your sitting at 3 times the national supply average in a market that has experienced rapid growth in that supply as of late. You don't want to be the straw that breaks the camel's back! Especially when there are so many undersupplied markets out there! 

This personally doesn't fit my investment objectives but since your not me, that's not all that meaningful;). For me, the success of this project seems to hinge on things that are beyond your control. And while those things (population growth etc) seem favorable right now, you are exposed to the local and national economy and local market as a whole to be successful. I much prefer to be able to "force" appreciation rather than merely put myself in a position to "ride" appreciation. 

Keep in mind that I am on the outside looking in but it just feels like you might be trying to "force" a deal here.

My best advice would be to secure a True Feasibility study before deciding how to proceed...and yes that will cost you $3-6k but on a Million Dollar project that's a small price to pay!

Sorry I can't be more encouraging here!

@John Culotta, Scott does more development than I do so he might be the better one to answer these questions for you but here is my take.  Yes, LOCATION is still very important in the storage industry.  Perhaps not quite as critical as it used to be given our ability to compensate with a strong internet presence but still important for sure! Visibility is highly beneficial but Accessibility and "strategic location" are also critical considerations! Are you right at a highway exit or midway between? Are you closer to or farther from the customer base?  What is the overall supply/demand?  How full is the competition?  How will your property compare to the competition (aside from the one you mentioned with terrible reviews)?

I don't know that I would personally be "brave enough" even with years of experience to trump the results of a feasibility study unless I had VERY good reason to do so.  Who did your study? Some feasibility studies are worth their weight in gold. Others aren't worth the paper they are printed on. 

2-3 years to fill is a number that you'd use for a market that has existing demand.  If you are truly in a saturated market, you very well could be 3-5 years to fill (if ever...EEEK)....How many new apartments and houses are going up?  How rapidly is the area growing?  

I know I gave you more questions than answers here but these are all of critical importance.

Hi Rachelle,

I was fortunate enough to come out of school with very little debt.  Somewhere in the neighborhood of $30K...which is still sitting there on a a 30 year amortization at 2% interest;)! And I did buy my first investment property within 6 months or so of graduating. Granted it was a small one!

For me, the bigger consideration is the time, not the money.  Though the money is certainly important, its only real power is to "buy" you more free time. With that, walking down a path for 6 years (my decision to do the school thing) "in hopes" that I liked doing what I signed up for was a big risk to take.  I will say I enjoyed treating patients but the whole rat race/cog in the wheel thing really rubbed me wrong.  Truth be told, I only went to college to get a good job because "they" said that's what you're supposed to do. I don't have regrets per se as I believe all things happen for a reason but it was most definitely an inefficient decade of my life;)

So there's two things here, "Is your husband doing the Chiropractor thing because its a passion of his and he is WANTS to invest 5 years into his education because he KNOWS he will LOVE it.....or is it a "should" do because it seems practical? This isn't a "which is better, REI investing of Chiropractic Practice?", either choice is perfectly right as long as you guys have done the soul searching to drill down to the true motivations. My line of questioning here is instead meant to make sure there's no "fear disguised as practicality" underneath the Schooling decision.

Assuming the schooling is the right choice for you guys, does it have to be an all or none decision?  Can you take out some loans to pay for half and pay half cash for school?  I don't know enough about your whole situation but my guess is that you'll have a LOT easier time getting student loan debt right now than you will getting a mortgage to buy your first investment property (assuming there won't be much w2 income to qualify you for a loan while your husband is in school). And of course there are plenty of ways to invest without taking out loans (or paying for cash for that matter). I see a viable compromise where you allocate X amount to first year of school and X amount to first investment...then decide where the rest of the liquid funds go based on how things play out over time. 

Just some things to think about!  And because you asked, I'll shoot you a message with some links to a bunch of free storage content that I post online. 

Deciding if you should spend the money on REI or School is one only you can make. All I can do is share my experience. I graduated HS in 2000 and went to 6 years of college to get 3 degrees. Ultimately I spent $250K on College to emerge with a Doctoral Degree in Physical Therapy. I practiced for about 6 months before buying my first property. I started in small multi-family just as you are considering...it wasn't until I switched to self storage that I was finally able to quit my day job as a therapist and become a full time investor. So I was in school for 6 years to practice for just about 4.5 years:) I made about as much working in 4.5 years as I spent over the 6 in school so after ten plus years of HARD work, I was at the point of BREAK EVEN.

Compare that to the good fortune I've had in self storage, and there's really no comparison.  My biggest question for you is why  "start in small multi-family" if what you really want to do is invest in self storage.  I'm not a big fan of "so that's"....meaning if you are only doing multi-family because you think you need to so that you can qualify to do the storage thing, I would enthusiastically tell you that isn't true. If I could do it all over again I would skip all the heartache and hassles of multi-family (though I did learn a lot) and start right in on storage which, in my opinion is a far better asset class!

Not sure I really answered your questions but thought hearing another guys experience might somehow be of benefit.

Great post and very valid points. This is in fact one of the driving forces behind my decision to focus on secondary and, more often, tertiary markets where the REITs don't play. Plus the market analysis in these small markets is a whole lot quicker and easier. Of course this brings with it the need to emphasize "forced" appreciation as we can't count on the economy at large to drive appreciation for us like so many of the larger operators can.

Your friend is accurate regarding the typical approach to valuing self storage facilities based on their income...however, the kind of multiples (Found by applying a CAP rate) he mentions generally apply to larger properties. On a small one like this, I would not want to bank of selling for anything more than a 10 CAP. As such, multiplying your NOI x 10 will get you a ballpark number. The challenge becomes predicting CAP rates into the future. It is also possible that CAP rates for a property like this in a small market would rise to 11 for example and then your NOI based Value would be NINE times NOI....

All that said, I try to buy properties that are big enough (or otherwise fit my Vision) that I would be willing to own them for the Cash flow should I not be able to sell it.  From all you have shared, I don't see how you could get hurt on this one.  And I think after you've run it, you will see that larger properties offer an economy of scale that you will require of future deals.  Seems like a great one to cut your teeth on!  

yes, the potential for rate increases is something to look at for sure.  But that will, of course depend on the market!  What are the competitors charging?  Also, what is the square footage of this place? And what is the supply/demand in the market?