Under-contract on 100% occupied Self storage, bank wont finance

[D'vorah Nadel]

I have been looking to add self storage to our rental portfolio for a while. I was able to go under contract on a 1 acre (plenty of room to add more) 25 unit mom and pop self storage facility. They are severely under priced and their financials are horrible. I have been working on financing it and both my traditional commercial lender and SBA 7a lender do not think they can feasible finance it. Any advice on a lender who could offer a loan option for a situation like this? 

[Henry Clark]

Don’t trust me.  You don’t know me.   You need to own your numbers.

You need to recreate financials then talk with banker

Approach this from both a cost and a PL standpoint.   Adjust the following figures as needed. 
.  
Cost approach.   
Land. 1 acre.  $50,000.    
Buildings.  25 at $4,000= $100,000.  
Fence.  $15,000.  
Electric.  $7,000.  
Security system. $12,000.  
Automated gate.  $25,000.  
Signage. $2,000.   
Website.   $3,000.   
etc etc. Delete the above if they don’t exist.  Add if you plan to do.   

Let’s say around your $225,000 asking price.  We didn’t include land prep, water, sewer, electric hookup.  

Now let’s look at it from a profit standpoint with you operating

Revenue. 25 units at $100 at 90% occupancy. $27,000.    
Property tax.  $3,000.   
Insurance.  $1,500.       

Electric.  $1,000.   
Advertising.  $1,000.   
Maintenance mowing.  $1,500.   
etc.  

Let’s say $10,000 expenses.  

Net op income.  $17,000.   
Before depreciation and income tax. 

We wouldn’t do this deal.  To small.  Not enough profit.    

You might do this deal.  This is the size to start with.  If you screw up the $$$$ impact won’t take you out of the game.   You need to develop your management systems. Easier in a smaller scale. Depending on setbacks and shape of property you might add 40 additional smaller units.  That would make this a good investment then. Only do this if you plan to continue to grow in Selfstorage.  Would not do it as a one off investment.    

Find a lender who does Selfstorage or apartment complexes.  Show them phase one and then phase 2 financial plan.   Do you have the 25% to 40% downpayment?

Ask for a construction loan interest only for 12 months. Do the repairs and adds you want to do.  

Don’t do an SBA loan.  Takes too long and not worth the headache for this project.  After you do phase 2 you might look at doing a SBA refi loan.     

If you’re going to do the deal you need to learn Selfstorage as fast as possible.     

Start small and Make Your Big Mistakes Early.