How to buy self storage in 2020

Question

Hi, I am just getting into real estate at 15 years old and was looking into self storage.How I am doing it at this young is I just find a deal and wholesale it or just get equity from it. The deal does not go in my name but I do profit from it. I get stuck on where to find deals. I call the storage units around my area but I didn't get any luck. I want to try find a different approach for storage and multifamily. Could  any of you guys give me some tips? Thank you!

Erik W. · Answer

Account Closed, "that's where the money is made"..... sure, if you do it right.

Multi-fam real estate is another big topic on this site.  The gurus make it sounds easy: just go buy 300-500 doors with no money and no experience.  Get the funds needed from a syndication, hire out every job, exit in 3 years and get your F.I.R.E. by age 18.  Sounds great, doesn't it?

I would posit this: for every ONE person who makes it, 1000 think about it, 100 actual attempt it, and 99 fail at it.  So....now a key question: why will you be the 1 who makes it and not part of the other 999?

What do you know about real estate investing, finance, and business?  What is your skill set?  What training do you have?  What key insights have you found to bring out hidden value in a property that the market as a whole has missed?  In short, tell me what value do you bring to the table?  Why should you "make the money" when so many others do not?

People are paid based on the value they bring.  So tell me: are you worth $100,000?  More than that?  If yes, Why?   Be specific.  Do not use the word "motivated" or any synonym for that word in your answer.  I know too many broke "motivated" people.

Erik W. · Answer

Hi Account Closed, and welcome to BP.

First, congratulations on thinking already about investing for the future in real estate while most of your peers are worried about Fortnite scores and Cardi B's latest release.

Now... here's the harsh truth.  You're young (I know, big surprise!).  Young people can have all the intelligence and motivation in the world, but they lack two things that most people will require before doing business with you: trust and credibility.

It's not fair, I know.  Some folks who are 50 years old are probably less trustworthy than you are.  But they get benefit of the doubt because they were born 35 years before you.  Such is life.  Deal with it and move on.

So how to overcome....well first let's look at the landscape.

Storage units are typically much more expensive and rare than the typical single family house that is the starting point deal of most real estate investors.  Anything sizable will be at least $300,000 or more.  Unless you have a lot of money saved up or a rich uncle dying to go into business with you, you will have to borrow a LOT of money.

Also, self-storage is commercial real estate.  There are not many banks or credit unions who will loan more than 70% of the current value on commercial real estate, unless you have excellent credit and a track record.  Probably, you have neither.  See the point above about the unfairness of life.  Move on and overcome.

To overcome that, you will probably need one or more business partners to either lend you their credibility, or to invest their available cash.  You might find these people among your family, your friends' families, or acquaintance.  Are you involved in a church or a local organization like Rotary, Lions club, Shriners, etc?  Those folks have money and like to see young people succeed.  Might try there.

Storage units are also RARE.  For every 1 storage unit, there are 200 - 300 single family houses.  I typically call/look at 50 single family houses before buying one.  So, do the math.  How many times will you have to look for a storage facility before buying one?  It won't be 50 * 200, but you get the point.  Most are overpriced and/or the owner don't want to sell.  Why don't they want to sell?  For the same reason you want to buy: they are CASH COWS that require little to no maintenance.  They will want a premium price at which you probably won't make any money for 8 - 10 years unless rents in the area go sky high.  So this is why you are having trouble finding a deal that works: everyone and their mother wants storage units.  You have a ton of competition.  This isn't meant to discourage you: it's meant as a reality check.  Don't be surprised if you hunt for 2-3 years before finding a deal that actually makes sense.  I've been investing in real estate for 15 years, and I just found my first storage facility in February this year.

Have you thought about building a new facility?  That might work better than buying an established one.  Need to know the cost of land, materials, and labor for construction, as well as if an area is already saturated with too much competition.  Careful with this strategy though: it takes 1-2 years to fully lease up a storage facility, during which time you have zero cash flow to pay for all of your expenses and carrying costs.  But if you already own commercial land somewhere, this could be an option.

I think self-storage is a great business, and it is just that: a business.  There is some day-to-day work involved, but it's not too hard.  You can use online software/apps to rent units without being there.  You can take payments via cards in those apps.  You can electronically sign leases.  The physical work part involves cleaning out units after people leave (and leave trash), mowing the grass, maintaining the fence and security cameras if you have them, over-locking unpaid units, conducting auctions to enforce your lien.  Be ready to study up on the law for how that works in your state: it will be different than it is in my state.

So, a few things to think about.  Don't give up, but realize it could take a while to get started.  If you're really itching to get into it, I would start researching other storage facilities in the area to find what market rates are like for various sized units.  That information will be very helpful once you do find the right deal.  Start talking to people and let them know what you're interested in.  The storage facility I bought was previously bought by another person 18 months before I got it, from an older lady who wanted out of the business.  The only reason he found out about it was he was helping mow her lawn.  The best deals are not found on the MLS; they are found thru relationships.  Maybe instead of calling local storage facility owners to ask them to sell....ask them if they need someone to help them mow the yard or haul trash out of units.  Build the relationship with the owner, and you may end up like the guy who sold me my facility.

Good luck!

Erik W. · Answer

Work to build the relationships.  Mow the yard for the self-storage owners, or offer to pick up trash or clean out units.  Once they know you're a hard-worker who understands the business, they might they sell to you when they decide to cash out, and they might also owner finance some or all of it since you're trustworthy and experienced in the day-to-day operations and they know they'll get paid.  I can't say it's a guaranteed way to find a deal, but at least you will gain experience.

Greg W. · Answer

Account Closed Erik’s last post was what I was going to suggest you do, develop a relationship, especially with an older or busy person who needs your help doing whatever. Ask what they need help with, ask if they have other properties, ask if they know of other people with properties and learn as much as you can. Maybe they will sell to you later. Then get educated in something that will help you later on. Help a developer, property manager or broker (maybe commercial)? Go into a field that will help you learn; commercial broker, commercial lender, accounting, financing (banking/lending).

It’s great you are starting now. Keep doing what you are doing but expand it. Storage deals are limited but that doesn’t mean you can’t do other deals, gaining experience and income along the way, until the next storage deal comes along.

Account Closed · Answer

@Greg W.Thank you, Will do

Account Closed · Answer

@Erik W. will do, thank you for all of the valuable information!

Account Closed · Answer

@Erik W. will do, thank you for all of the valuable information!

Account Closed · Answer

@Erik W. Your right I am not worth a 100,000. If I had to do it on my own I would fail completely. My brother does residential and land investing. I guess I should start with small land and residential, but if I was to find a multifamily deal I would only just get a little chunk money from it. The  person I gave it to If they actually bought it I would just watch and learn what they do with it and how they go about it. So I wouldn't actually buy multifamily myself. Maybe I could way later on but you are right about starting out small.

Account Closed · Answer

@Erik W. sorry i posted this twice but the first one was not right. I get the trust part but I am just sending my deals to my brother @Austin Hendrickson.    But anyways I was wondering if I should just go into multifamily and skip storage or just keep trying harder.  I want to go just commercial real estate and not residential because that's where the money is made but what are your thoughts?

Account Closed · Answer

I get the trust part but I am just sending my deals to my brother Austin Hendrickson. You can look him up on biggerpockets but anyways I did get an estimate for building and it was too high. Do you think I should just go into multifamily because I want to go just commercial real estate. Thank you

How to buy self storage in 2020

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