Self Storage Investing for Beginners

Self Storage Investing can be a great way to obtain tremendous cashflow without the headaches of tenants or toilets. You’re about to discover why investing in self storage facilities can be so profitable, how to find good deals, the 3 main types of self storage properties, the 2 ways these deals are structured, how to find funding for these properties, the 2 most common myths and perhaps most importantly, what to watch out for. At the end, you’ll walk through the numbers on a real life self storage deal. Enjoy self storage investing for beginners!

 

Self Storage Investing for Beginners PodCast

Here is a summary of what you learned in the video above:

Self-Storage Investing for Beginners

Why Invest in Self Storage Facilities: (1:28)

• Whether the economy is good or bad, people will always need storage
• 1 out of every 10 people in the US use self-storage
• There are 50,000 self-storage facilities in the US
• The self-storage business is a 220 Billion dollar industry
• 80% are owned by mom and pop operators
• Provides cash-flow
• The average stay in a self-storage facility is 1-3 years
• Lower turnover costs
• No toilets, no trash, no tenants

Finding Self Storage Deals (6:45)

Internet:

• Loopnet.com
• Costar.com
• Selfstorages.com
• Bizbuysell.com
• Selfstoragebrokersofamerica.com

Broker Community:

• Build and nurture relationships with agents that receive storage unit listings
• Focus on commercial real estate brokers with a niche for self-storage facilities

Direct-Mail Campaign (Direct to owner):

• Write a letter to the owners of the self-storage facilities
• Expect a 2-4% response rate to these letters

3 Main Types of Self Storage Facilities: (10:05)

• Class A: 2000 or newer builds, in ideal neighborhoods
• Class B: Built in 80s or 90s, owned by mom and pop operators, with stable numbers
• Class C: Much older builds, more maintenance issues, often in poor neighborhoods, risky

2 Main Type of Deals Scenarios: (13:41)

Turnkey (stabile) Deals:

• Class A and B Deals
• You buy, own, and cash flow
• Easier to get financing
• Good location

Turnaround Deal

• Distressed deal
• Poor or no management
• Poor location
• Needs to be turned around

Things to Look For: (15:15)

Size:

• You must know the size of the self-storage facility
• You need 30-40,000 square feet to be able to afford a fulltime manager
• If self-managing you can start smaller, just know your numbers

Unit Mix:

• Have a Mixture of sizes of storage units
• Need variation to offer customer base

Location:

• 90% of your customer base will be within 1-5 mile radius of the storage unit
• Do research on the radius area to make sure there is potential
• Is there area growing or shrinking?
• Is the city expanding in the area or away from the area?
• Know your competition

Traffic count:

• How many vehicles drive by the facility every day?

Signage and Visibility:

• Understand local laws on signage allowances
• An area that is easily accessible

Management:

• Is property managed by the owner or a management company?
• Are you going to self-manage or hire someone?

Drainage:

• Poor drainage will cause issues
• When you do due diligence the Property inspector will help find potential issues

How to Fund Your Self-Storage Deal: (21:17)

Bank requires 3 things for any income producing commercial real estate loans:

• Property’s income and expenses and what is leftover
• Property’s condition and location
• Borrower’s credit and financial situation

Sources of Money to Finance Your Self-Storage Facility:

• Local regional banks
• Credit Unions
• SBA (Small Business Association)
• The 7A Loan Program and 504 Lending Program are specifically for storage units
• Private Investors
• Seller Financing

2 Biggest Myths of Self Storage: (26:35)

Myth 1: It’s a hands-off passive income business

• In any commercial real estate business that is income producing you need the 4 M’s to be successful
• Systems on handling the Money, the Marketing, the Management, and the Maintenance.
• If one falls down they all can fall down
• The better you are at managing your business the more money you will make

Myth 2: It’s a quick turnaround business

• Renovations take a long period of time to get stabilized
• Takes the 4 M’s to succeed

Let’s Analyze a Deal: (30:00)

• Deal was found on Loopnet.com
• In a small town in Georgia, 270 units spread out in 32,000 sq foot on 3.5 aces
• Asking price of $485,000
• 80% occupied, 20 years old, gated, and brought in $79,000 last year

Is this a good deal?

You need the annual income, the annual expenses, and to know the debt services (mortgage payments a year)

• Income: $79,000 a year
• Expenses: Self-storage rule of thumb: 40% of income so $32,000 a year
• Income-Expense=NOI (Net Operating Income)=$47,000
• NOI-Debt services (Mortgage) =cash flow/money in your pocket
• Down payment is 25% of purchase price=$121,750
• Asking Price $485,000-down payment (121,750)= $363,750
• Mortgage rate is 5% 30 years
• Mortgage payments= $1953.69 a month
• Annual Payment is Mortgage Payment ($1953.69 x 12)= $23,432 = Debt Service
• NOI ($47,000) – Debt Service ($23,432)= Cash Flow of $23,568 a year
• Cash and cash return is Annual Cash Flow ($23,568) divided by down payment ($121,750)=19%
  Passes!!!