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!
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:
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!!!
Great video and presentation of information! Just what I needed to get going on pursuing a self-storage business. Looking forward to more videos. Thanks, Peter!
Such a great and interesting post. Thanks for your information and video about investing in self storage. I didn’t know that one out of every ten Americans uses a self storage unit. You make a great point about how location is especially important if you want to invest in or start a self storage business. Keep on blogging!
Thanks Peter! Your efforts to educate in the commercial real estate space are greatly appreciated! Your education is opening my eyes to opportunities that I wasn’t trained to see. Hoping to put your teachings to work in the near future.
This is great! I personally need more anaylizing deal videos. More and more anaylizing dealing with the numbers. Quick question at 19 percent cash on cash return how long will it take me to get that downpayment back?
About 5 years
Thanks again for encourage to learn more commercial Properties. Anfd Get more ideas to star and do more deals. Everything we do is because we needed. Thanks again for all, Best Regards Blessings. Always Delma Robalino.
I truly enjoy your webinars. I fine them informative and educational. I have no clue how to proceed in the Commercial Real Estate arena, with no money. However, I do believe anything and everything is possible.
Cool post! I really did learn a lot from watching that video. I really agree with you when you said that, ” Whether the economy is good or bad, people will always need storage.” This is so true because everyone has things they don’t use but don’t want to throw away in their homes. I use a self storage and it makes everything in my house a lot more organized because I can keep everything in order with my self-storage.
My wife and I are about to move and have all of our stuff packed and ready to go. We realized that we have a lot more stuff than what we need, so we are thinking about getting a storage unit. This helped us understand what we should know about getting a self storage unit, and I hope that we can find one before next week.
Thanks for your information and video about investing in self storage. I didn’t know that one out of every ten Americans uses a self storage unit. You make a great point about how location is especially important if you want to invest in or start a self storage business. I bet having a self storage unit that is close by with easy access is a major selling point for individuals looking for storage solutions.
I definitely had no idea that there are 50,000 self-storage facilities in the US. I also had no idea that every one in ten Americans had a self-storage unit. However, I definitely think that is a good thing to hear. This type of storage is a really great way to get your stuff out of your home and into somewhere else for safe keeping.
Thanks for your article about how to invest in storage units. You make a great point about how most of your customers will be within a five mile radius of your storage unit facility. This can be an essential aspect for deciding if a location can be a wise investment based on current or future development plans. I’ll keep this information in mind should an investment opportunity arise.
Peter, how do I find private investors?
This is definitely timely for me. I know my father recently has been talking about buying a self storage facility. I’ll definitely send him this.
Peters Harris,
Once again’ thank you for your expertise in the commercial venture of profitable investing. I value your knowledge and skills highly. I will continue to trust your understanding of the commercial investment strategy.
Continue Success.