Self Storage- sale a location?

[Henry Clark]

Some larger Teak plantations came up for sale down in Belize.  Pretty well has to be a cash deal.   US banks won’t lend down there since they can’t attach to the asset and they don’t know the market.  Banks down there are running about 50% down and teen interest rates.  

Decided to look at selling 3 self storage locations in one of our towns.  We had sold one large location 2 years ago but haven’t thought of since.  

Used the same broker to do a valuation estimate that we had sold thru before.  Was lower than I thought but they added management cost where we self manage.  Increased property taxes based on the sale price so understood and agreed with their valuation.  Used a 7% cap rate.  

Decided not to sale even though we would have received a large profit but comparing it to new construction cost it was not worth it for this “C” market.

We would have exchanged a good cash flowing asset with a tremendous value appreciation asset.  At this moment prefer the great cashflow versus huge valuation play.  

Putting that decision aside decided to use the sale information and figure out how to increase the value at this town.  

A.  Rate increase with no cost impact.  $10 per unit per month = say $25,000 pretax. At 7% cap rate= $357,000 value increase.  But we might lose customers?  We are at 100% occupancy.  The town 20 miles away is full and the towns 40 miles away where we are at are also full.  

Note if your scaling in Self storage don’t just buy and build anywhere.  Try to connect your locations so you can control pricing.

B.  Add traditional units.  This is a “C” market and the return in new buildings doesn’t justify the return.  Buildings are about 80% higher than 2 years ago. 

Note- if your 10x20 rental rate is $90 or lower the return isn’t worth the risk based on the higher building costs. 

C.  Add more 20 foot cargo containers.  1 trip containers are $3,200 plus another $200 for delivery and setting.  Used cargo worthy containers are shifting around.   About a month ago $1,900; now $2,700.  Not worth buying the used ones.  Payback would be about 4 1/2 years on the 1 trip containers.  Which is about the best investment we have going other than doing new self storage developments in “A” markets.  

Note- in our market containers can be resold for purchase cost.  You can add them as needed.  Don't have to build a whole row like traditional buildings.  Low risk high reward.  Main issue is zoning.

D.  Buy competition.  Depends on if the price was right which probably wouldn’t  be.  But if we bought them we would control 85% of the market and could raise the price another $10 to $20 per unit on their and our units.  

Note- competition is young and in a growing mode.  Would prefer older owners.  Why we like doing several towns so we don’t have to make a deal. 

Other options-  Syndication of the Teak plantation.   But we don’t do partners and this is a 10 to 15 year play with annual costs and no return until the end.  Doesn’t fit the buy box for most investors.  Plus like Warren xxxxx says, if you don’t understand it, don’t invest in it.  

Action- getting delivery cost quotes for this location for the 1 trip containers.  Don't get to scratch the itch on this larger Teak opportunity.  

Note-  important to know when to walk away from a deal.  

I’ll need to go sit on one of our deer stands and see if I can dream up another angle on the Teak trees.  Maybe a Forestry management program like the 100 acres we manage.