Self Storage- Deal 16, Great Market analysis, thought I was retiring

[Henry Clark]

Had my eye on some land for about 2 years which has been for sale, but have been very hesitant about the economy, us retiring enjoying life/travel, and our personal financial risk tolerance.  This would be about a $3.5mm total cost location.  Around 300 cargo units, 200 regular storage units and about 250 parking spots.  In 3 phases to reduce risk.  Phase 1 would be profitable but not a deal I would do on its own.  Phase 2 where you leverage the land, fence, and interior road/parking costs becomes really profitable, and Phase 3 is wonderful, but not necessary.  Phase 3- I actually don't like large storage locations, since your more exposed to competition.  I would rather build another location.

About 300 of the units would be Cargo Containers, another 200 in traditional buildings, the rest in parking.  Looking at Cargo containers because their prices are far down, about the same as 10 years ago.  Versus traditional has almost doubled in the last 5 years.  Cargo containers also don't get property tax, are easily resold with very little loss in value, can be added as needed.  Basically, the Risk level is very low with them.  Insurance would be under Personal property and not as a Building.  Financing is a little more difficult since Containers are treated as equipment versus Buildings.    We already use cargo containers and have/had around 80 of them and they work great.

Zoned Industrial, although I would need to get a Special Use permit for Self-Storage.  Containers are a lot more difficult since most zoning does not allow them.  But Industrial they are permitted.  Performed a market analysis and demand is definitely there, competition is full, rates are high, competition has no area to expand, zoning and land availability is difficult for any future developments.  On the Market analysis we have an unfair advantage.  We have a location about 15 miles away, and using the Customer Map, we can tell we are pulling from this market, meaning lack of supply.  Although this might impact our location 15 miles away, we have other competition in our area, which they would also be pulling from that market.  In our market 15 miles away, there is double the amount of storage that should be in our market and all of us are full and raising rents.  This explains that.

Potential resale of developed location- Talking with our Self Storage broker, he said as an example, if the location used a cap rate of 7 for regular units, use an 8 for Containers. Potential buyers would pay less. Which is okay. Since Containers get no Property Tax, lower maintenance, and also lower Insurance costs, the NOI- Net Operating Income portion of the Cap rate would be more favorable and offset the lower Cap rate of 8.

Potential Capital Gains:  Phase 1 $700k; Phase 2 $2mm; Phase 3 $3.2mm.  This is if we sold.  Does not include monthly cashflow while we hold.

Start small and Make Your Big Mistakes Early.

A separate post later on risk and why if we are retiring.

[Jay Hinrichs]

Ya no retirement for us old dogs.. its too much fun and you need to do something to keep stimulated in my mind.

Also I have seen many of those type of storage facilites all over the US as I travel to the markets I work in..

Good luck with it.. Much easier than building container homes that's for sure.. one of my good buddies has a container building home bizz he has sunk millions into over the last 7 years or so and is just now making a profit ..  Relaventhomes is the name its in Oregon really nice stuff.. he did an 8 plex but it did not sell and I know its underwater.. but he has the dough for these type  of ventures he wanted to do it for environmental reasons was his first motivation.