Seeking advice on my first self storage property...

[Mark Roberts]

I've been kicking around the idea of investing in self storage for a while now and want to pull the trigger on getting my first property.  Over the weekend I sent an offer over for a property that I feel has potential and I'm expecting to get a counter offer tomorrow.  I wanted to put it out to see what kind of insight some of you all might have on the deal.  

1. 36 unit facility (35 are 10x20 and 1-9x6). Current rent appear to be a promotional price of $99 / month / unit with past rents of $130.  Looking on SpareFoot it seems $130 is about market price for a 10x20. 

2. Monthly rental income reports form the seller dated 3/15-2/16.  Show on average 13 units rented for rental income of around $1800 / month.  There did appear to be a steady decline in the rental income over the 1 year period.     

3.  For my analysis I've used the below estimated cost for expenses.

Property Management Fees	250.00
Repairs and Maintenance	25.00
Real Estate Taxes	273.33
Rental Property Insurance	150.00
Homeowners/Property Association Fees
Replacement Reserve	50.00
Utilities	-
- Water and Sewer	-
- Gas and Electricity	100.00
- Garbage	100.00
- Cable, Phone, Internet	73.00
Pest Control	-
Accounting and Legal

4.  Loan - I'm working with some local lenders to see what options I have as far as rates & terms since I have no commercial experience.  In my spreadsheet I used 20% down, 5% interest, 25 years.

5. Original offer was $140K and per the seller's agent they plan to counter at $160K.  

6. Other factors that might change the deal...

- The property is a 5 hour drive from me.  There is no leasing office on site.  Currently they facility has internet access with a sitelink computer system and a digigate access control.  Hope is I can field the day to day phone calls and hire someone local to tend to the property as needed to add/remove locks, sweep units, etc.  Local mgmt has been estimated in the property management line item above.  (I have no personal experience with Sitelink or Digigate... Possible?  or Crazy?)

- I don't know how to get statistics on the market being saturated or underserved by storage facilities (probably my biggest concern).  Any direction / input on this would be greatly appreciated!

- Marketing - I've not budgeted for marketing and have no experience marketing a storage facility.  Currently occupancy is low but hopes to turn that around make the deal sweet in my opinion. 

Thanks in advance for any input!   

[Jonathan Towell]

@Mark Roberts

We bought a self storage facility last year. It was at 30% occupancy when we purchased it. Now it is 98% full and appraised for double what we paid for it. That is just one facility, so I'm certainly no expert. But, as we evaluate more storage deals, we look for a few things:

1. We try to buy at no less than an 8% cap rate based on actual T12.

2. We look for a property with rents that are below market. We try to find out why they are below market and if the reason is something we can cure. Is the location bad? Is their deferred maintenance? Is the signage clear and obvious from a busy road? Is the marketing wrong? No website? No recurring credit card? No presence on Sparefoot? Is the leasing manager bad at customer service? Is it too hard to lease?

We look for deals where we can fix the marketing. If we can fix the marketing, we can raise the rents to market levels. And if we can do all that after having purchased at a reasonable cap rate, then we've just added value to the project.

I'd have to spend a little more time looking at the specifics of your deal to evaluate the financial side. The real question is your confidence in your marketing ability. If you can put together a plan to market the property well, in spite of your distance from it, then it may be a good deal. But, if you can't do awesome marketing, then it doesn't matter how much of a deal you get because you won't fill it up.

I hope that helps. If you are interested direct message me and I will send you a link to an article published in the Texas Self Storage Association magazine about the turnaround we did on that storage facility.

I wish you the best!