You're about to discover how to build a successful self-storage business in today's market. You'll learn the 3 keys to establishing a profitable self storage operation as well as meet an investor named Dean who has acquired 3 self storage properties over the past two years using these 3 keys. Dean will share with you how he did it and the incredibly valuable lessons he has learned along the way:
Expert Eyes: How to Evaluate Commercial Real Estate Like a Pro
Increase your odds of finding a self-storage deal that works for you and expand your deal flow by focusing on these 3 aspects of a deal:
Focus #1: Deals that Qualify for the Best Loan Options
Look for deals that cash flow enough to qualify for the best loan options. The property doesn’t need to have super high cashflow, but it is possible to qualify for a 10% or 15% down payment using either an SBA loan (Small Business Administration Loan) or a local lender if the deal cash flows enough.
Focus #2: Deals Where Seller Financing is an Option
As I’ve said before, when you have a willing seller and a willing buyer, beautiful things can happen. So, deals where seller financing is an option are optimal. Three techniques for seller financing we use and teach our students are:
These are three ways to leverage not only your way into a self-storage property, but also leveraging your knowledge into building your business.
Focus #3: Deals with Expansion Potential
When building your self-storage business in today’s market, look for opportunities with vacant land or expansion potential where you can add units. By adding climate control units or even just covered RV stalls, you can leverage it into more income, higher NOI and cashflow and increased property value.
Meet Self-Storage Investor Dean Vance
Dean began his journey building his self-storage business in 2019, but the path that lead him there began almost twenty-five years ago when he got his real estate license. His focus was residential, but at the time he had no mentorship. He was trying to do it part-time, however he didn’t last long because he had no clue how to build the business. Instead, he focused on his career running a commercial office furniture dealership as a part owner, for two different groups. Fortunately, during that time he learned a lot of things that are helping him build his self-storage business in today's market.
The Path to Financial Freedom
Fast forward twenty years and Dean started to gravitate back to real estate. He began researching on the internet and looking at content on YouTube, and that's when he discovered Commercial Property Advisors. That was three years ago and in 2019, he decided to make the call and enroll in our Protege Program. Dean tells it this way,
“I'd watched probably every video that you had ever sent out. And it was something about you, Peter, that I liked. There's lots of people out there that want to mentor people in the commercial real estate world, but it was you and your approach and your content that appealed to me. So, I made the call, probably about this time in 2019, and Holly and I, we signed up, and six months later, there was an opportunity that came about with my company where I could exit the business and get out all my equity and pursue this full time.”
Dean seized the opportunity and took a leap of faith transitioning full time into commercial real estate. Unbeknownst to him, we were about to enter the world of COVID, and things were about to get a little hairy. Now here we are today, and he has three awesome deals under his belt and a few more in the hopper!
Self-Storage Deal #1: Distressed with Expansion Potential
Property: 9,100 square feet, 52 units. The property was distressed and the seller motivated.
She was a school teacher who had taken her lifelong investments and invested them into the property. She had basically allowed the deferred maintenance to overtake property itself. To give you an idea of what condition the property was in, during one of his inspections, Dean encountered two racoons walking along a desk in the office space. It was a jungle, with overgrown vegetation growing into some of the units.
Purchase Price: The asking price was $495,000. At the time it was roughly 20% occupied, so it wasn't generating much income at all. Dean was able to negotiate the purchase price down to $274,000.
Financing: Dean used a creative financing technique called Seller Carry First Mortgage. The seller still had a note on the property, so Dean put down a sizable down payment and she financed the remainder at 4.5% interest. So, the seller is holding the mortgage for him and then in three years Dean must pay her off.
Stabilizing the Property: Dean put a lot of sweat equity into the property to get it stabilized, with around $20,000 in repairs. He was skeptical of how quickly he could get the property turned around. But once he got the property cleaned up and the space usable, they were able to get tenants in very quickly. They also implemented software that specializes in storage to help automate the rental process. As of today, they have every unit rented, except for one and the facility has an after repair value of $475-500,000.
Monthly Cashflow: They are currently cash flowing around $3,000. Dean plans to convert office space into storage, adding nine or ten climate controlled units. Once everything is stabilized and expanded, they have the potential to add another $2,000 in cash flow per month.
Exit Strategy: Dean’s goal is to stabilize his income, maximize the property’s potential and income and then in year three he will put long term financing on the property, pay off the seller's first mortgage, and then he will pull money out to reimburse himself for his down payment and the renovation costs. Then he's going to hold it long term.
Self-Storage Deal #2: Turn Key with Expansion Potential
Property: 15,000 square feet, 115 units. The property was stable and the seller motivated.
Dean began working on this deal back in the summer. The seller had a total of four storage facilities and this property was the outlier of the four. His motivation for selling was to restrict his territory to a narrower geographic area.
Purchase Price: $995,000 and it was 80-87% occupied. During negotiations and due diligence, the property went to 100% occupancy. Some of that was because Dean’s other property was full, and he was referring customers who would call him looking for space.
Financing: For this self-storage deal, Dean used a conventional loan with a local community bank. The catch with this property was that all the seller’s rental agreements and transactions were handwritten on small note cards. Dean knew this would present a problem with financing, so they put together rent rolls electronically and presented a nice package to two local lenders and SBA. In the end, they decided to go with one of the local banks which offered a 85% loan to value with a great interest rate over a 25 year amortization.
Monthly cashflow: Cash flowing $7,000 from day one.
Expansion Potential: This self-storage property has the potential to add 19 or 20 10x15 climate controlled units. And he can charge a monthly fee of $150 per unit, which is $3000 a month. That is an increased cashflow of $36 000 per year. At a market cap rate of eight, he will add $460,000 in equity and forced appreciation to the property when this expansion project is done. And it'll cost him a fraction of that upside to complete.
Deal #3: Warehouse Master Lease Agreement Opportunity
This deal came about through relationships. The husband of one of the owners of this property, was someone Dean had known for many years working together through a nonprofit organization. He found out about the property and that the family might be interested in selling through another relationship. So, Dean approached them about a year ago. Then a couple of weeks ago, he received a telephone call out of the blue and they said, "We're ready to talk and we're coming to you first."
Property: 119,000 square foot warehouse facility, adjacent to one of Dean’s other properties.
The father recently passed away and the family inherited it but they are nearing retirement and have other interest and are wanting to sell. Another motivating factor for them is that they are losing their largest tenant.
Purchase Price: $2.5 million
Financing: Dean knew early on that this property would be a prime candidate for the master lease agreement. Because the sellers are losing their largest tenant and there is 32,000 square feet of vacancy, the numbers won’t support a purchase price of $2.5 million. In addition to losing this one tenant, there is an additional 30,000 square feet of vacancy . So, there's no way that this property will qualify for a commercial loan.
Master Lease Agreement
This is the perfect opportunity to use a creative financing technique like the master lease agreement. Again, when you have a willing seller and a willing buyer, you can create an awesome deal. After inspecting the facility, Dean presented the master lease agreement. The terms are 10% down ($250,000 down payment) at 5% interest for three years. They are still in negotiations and their attorneys need to meet, but they have an agreement in principle.
Upside Potential: Dean will be losing his largest tenant, but he already has a tenant in mind to fill it and he has a $34,000/month upside in rent if they utilize the 30,000 square feet of vacant space. Also, the rents are under market value right now so there’s upside potential there as well. The potential for forced appreciation is mind blowing!
Exit Strategy: For this property, the first goal is to fill the space of the largest tenant. Then Dean will focus on raising the rents, utilizing the additional 30,000 square feet and stabilizing the NOI. Once the warehouse is stabilized he will take it to the bank, take out the $250 000 down payment and hold long term.
Dean’s Long-term Goals
Dean will continue to build his self-storage business portfolio. He is currently working on two more deals; a 139-unit storage facility and a 26, 000 square foot warehouse. His strategy is long term holds, cash out, refinance, and forcing equity in all their properties. In the future he would like to begin building relationships with other investors for syndication opportunities and pursue multifamily.
Faith in Action
Dean and his wife Holly are a real-world example of faith in action. They joined our program, took the leap of faith exiting the corporate world, working hard and not looking back. Dean's motivation was his two powerful “whys”:
Corporate Burnout: Dean spent 20 years in an industry that was unforgiving and difficult. It took a toll on him, his health, and his family. And now, he has an opportunity to live differently. Can you relate to that?
The Desire to Build His Own Wealth: Dean spent his work life building other people's businesses, making other people rich. Now it's his turn. His goal was to strike out on his own and build something from the ground up. And that's what they’re working towards right now. In his interview, Dean said that he couldn’t have done it without mentorship,
“I knew that, when I left my career, that I couldn't afford to make any mistakes. And I knew that I had to bring a mentor into my life, and I'm certainly glad that I found you.”
3 Keys to Building a Self-Storage Business in Today’s Market
Key #1: Honor Relationships
Dean says it’s a part of his DNA is to help people. He is all about relationships; taking care of people, honoring his word, and working hard to serve others. This is a relationship-based business, and Dean is doing exactly that. And look at the fruits of it. He is dealing with everyday people, a lot of whom are going through a crisis or major change, which is why they're looking for storage. So, it's an opportunity to help people. It’s also a competitive market and building that quick rapport with folks is important to get people in the door.
Key #2: "You Got to Buy it Right"
This is great advice from Dean. You need to know the business of commercial real estate, and that is what Commercial Property Advisors is about. The numbers need to work, and you don't want to overpay for a property. And when the numbers do work, when you do find that opportunity, you need to jump on it quickly.
Key #3: Automate Your Self-Storage Business
Dean uses the same software that we recommend to all our students that invest in self-storage. It’s called EZStorage, and it's a software that does your marketing, sends out late notices, does full accounting and reporting, enables you to sign up tenants, collect rent, open the gate for them or lock them out, and all right on your keyboard. Everything is done online when using this software.
Tools for Building a Self-Storage Business in Today's Market
Dean has journeyed from the corporate world and burn out, to taking the leap of faith of jumping into commercial real estate and hiring us to help along the way. There's no going back now, only forward. He is successfully using all the tools for building a self-storage business in todays market:
- Dean knows how to evaluate commercial real estate like a profession. All three of his deals either qualified for the best loan options or seller financing techniques and had expansion potential.
- He is committed to his geographical location and utilizing established relationships.
- Dean is sticking with it and his wife Holly has been influential in encouraging him to keep going. He put in the work, and now he has three awesome deals in just a couple years.