All Forum Posts by: Michael Wagner

@Ron Karim ,

Couple things jump out to me. First, it seems that there should be plenty of demand within your 3 mile market as there seems to be roughly only 3 sq. ft. per person.....this is very low. What I can't figure out is why with this low supply, are the competitors not more full. With suplly like that, I would imagine all folks at 90% plus. Did this strike you? Do you have any insight into the dynamics at play in your particular market. This to me is the big question.

Even with 80% occupancy at all competing facilities, you could create a lot of value in your property just by getting up to that number. The question becomes what will your improvement cost and what increase in value can you project as a result of them?

Also, consider getting creative with your one full time employee. I have been able to outprice my competition by limiting office hours to 16 hours per week. All other customer needs handled over the phone or by appt. We move 50% of our clients in remotely using email and telephone. Just an idea on how to cut that expense....essentially you pay the manager for the office hours and then either per task after hours or use an incentive program/revenue sharing to facilitate after hours efforts (only if he/she is sophisticated enough to do well in this type of system).

Lastly,

I would recommend figuring out how high you can get occupancy up just by marketing and answering the phone. That way you only do the renovations that add the most to bottom line until revenue is up some and can support the other improvements that will vault you above the other B and C'ers.

Hope some of that helps.

@Ron Karim

Sounds like you might have some potential here. The single biggest question you have to ask yourself is if you can identify the cause of this facilities sub-optimal performance and, if so, can you fix it. IF it truly is management, and you live locally, then that should be an easy fix. That was exactly the case with my facility and it was incredibly easy to go from 55% to 95% just by picking up the phone. Don't count on it being that easy though. Assuming your NOI is an ACTUAL NOI and not a proforma, the asking price seems fair and there appears to be a ton of upside if you can answer and solve the question above.

Biggest thing you didnt mention in your post is competition. How much and how good? Is this facility 55% full because the market is saturated and its the ugliest of the bunch? Or would some lipstick and maintaining the aggressive rental rates allow it to compete? Best way of doing a preliminary search of the competition is to google map all the facilities within 3 miles. You can then use google maps to determine sq. footage available at each facility (count each door and multiple by ten:) to get length and width at each facility. Once you have than you can get rates from online or by calling. Also need to find out occupancy rates at those facilities. This will take a bit more digging. If the findings are positive, it may be a simple management overhaul and that would be awesome.

Lastly, the poor traffic count means you should expect to pay more in advertising. If they are paying 6-8% (industry standard) you might factor in 10% or so to push thier NOI and associated purchase price down. DO the rest of their expenses line up with industry standards?

Hope this gives you something to think about. Always happy to talk SS! Reach out anytime.

Mike

@Account Closed ,

I have not done a conversion myself but I have looked into it and you can convert a single floor open space to storage for $5 per square foot. You will loose approx 20% of the square footage to hallways and common areas etc.

Multiple stories are a bit trickier. If its a traditional building with floors in place and freight elevators, I think the above rule would apply just as well. They also have catwalk systems so that large warehouses with high ceilings can be used. Essentially the second level is constructed around the perimeter of the warehouse creating more storage space. If my memory serves me correctly this type of system costs close to $20 per square foot. Hope that helps a little.

@Account Closed ,

Good question. Please know that my statement is absolutely a generalization and not true in all cases. There are some storage facilities that would be absolute dogs if compared to any solid MF investment. That being said, the income/expense ratios seen in the storage industry run in the 30-40% range vs. 50% or greater in MF. Additionally, rents per square foot are, believe it or not, comparable when comparing the two asset classes. I think a link to my blog should be in the signature line below and there is some basic information there regarding the breakdown of the underlying financials commonly seen in the storage world. Another big advantage that I appreciate in the storage world are the fact that lien laws are far easier and less cotly to enforce than eviction laws. Combine this with the fact that self storage tends to be a bit less intensive regarding the management and its a winning combination.

I second Self-Storage as a VERY worthy vehicle for you to explore before cutting any checks. I have some experience in MF and SS and am actively looking to exit all MF investments to divert the equity to Self-Storage which has proven far more lucrative for me personally.

Congratulations on exploring what I think is one of the best commercial real estate investments on the planet. You will absolutely need 20% down or more if you are to seek commercial financing. Banks will also look at your experience. If you have none in Self Storage, you can play the "IF I succeeded in apt. rentals" card.....Prove your knowledge of the industry by comparing the income/expense ratios of the two (assuming you've had some success in residential rentals) and tell them that if you can make it work with a 50% income/expense ratio, you are confident in your ability to do so at a 35% ratio in the storage world. You've got to prove yourself though. Bring a 20 page business plan to the bank showing your market research and advertising and marketing plans. Go to a bank that has experience in self-storage....Particularly if you are going to do an SBA loan. You don't want to be the person that the bank uses to "trial" SBA loans. YOu want to work with a bank who has that process down. Check out my blog and posts for a general overview of my experiences in Self Storage. You might find something helpful. All the best,

Mike

Daniel,

Is sure sounds like you've discovered all that is good with Storage! Congratulations. Your story is an inspiring one and I love hearing about other's success. If I may provide some unsolicited advise.....might not be a bad idea to shop around for another insurance quote. Obviously your location could be the cause of rates that seem high to me (we get a lot of snow up here in NY but not as many property destroying disasters). Even with that its worth a second look, we currently pay around $2500 annually for our insurance and we now have a total of 25,000 square feet insured (5000 sq. ft. is a pole barn, rest is typical storage).

All the best,

Mike

Up for sale is 13 well maintained units in and around the 19th Ward in Rochester NY. Portfolio consists of 6 houses (2-3 units ea) with units ranging from Studio to 3BR. All separate utilities, C of O's, delivered fully tenanted with HIGH QUALITY management in place and willing to stay on.

Gross rent: $90,760

Vacancy: $4,539

Water/Sewer: $2,160

Property taxes: $17,016

Insurance: $3,000

Management: $9,076

Total Expenses: $31,254

NOI: $54,987

Asking $445,000.

Assuming 20% down with remainder at 7% (sorry but I am not able to hold paper) over 30 years with Closing costs of 5% ($22,500), the annual debt service would be $28,689 which produces annual cash flow of $26,298.

Cash on Cash Return at asking price is 23.6%

Debt Service Coverage Ratio is 1.92

Happy to answer questions!

@Account Closed

Price to build will vary but assuming you have just raw land to build on with no utilities in place you are looking at right around $30-35 per square all in. This would include a small office and non-climate controlled storage units with all the basic ammenities like security, proper signage, etc. If you already had the land excavated and and were talking about the cost of just a simple metal storage unit building, you can do that for right around $18 per square foot. I don't think an architect is necessary at all given that there are plenty of building providers who have turn key buiilding systems that will also creaet a site plan for you if you send them a survey map of your property. I am always happy to discuss storage as it is an area of passion for me. Feel free to reach out.

Mike

PS-Check this out for some helpful basic information on storage:

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

@Greg Gordon 85% occupancy is considered the industry standard for "Stabilization". It is widely accepted that anything below that, given a well run facility with no extenuating circumstances, anything below 85% is an indication that the market is over-saturated. Anything above would indicate that rates are too low at the facility and that demand is outpacing supply. As an active self-storage owner, I can tell you that I shoot for 88-90%. And contrary to popular belief that 100% is always the goal, this is not true. 100% occupancy is actually a bad thing because it means that our rates are too low, our marketing budget is being wasted because we have to send any leads to our competitors and, most importantly, it is a trigger for other investors to move in to your market. Hovering at 88-90 is an industry best practice. Hope that's helpful. Always glad to talk self-storage with folks who are interested.