Real Estate Agent · Portland, OR · Member since 2015 · 70 posts · 24 votes
So, I'm 20 years old and I live in Portland. I'm very intrigued by storage units and would really like to invest in them at some point. Especially since so many people are moving to Portland each year. But I feel like my math must be wrong... Or so many people would be buying up storage units, and building them, etc... so I'm curious how much income can a storage unit company pull in. Especially in a place like Portland where an average storage unit is $175 per, some $275, and the lowest i've found being 120 for a very very small one. If this is true, I was talking to a manager at one and they had 750 units. And they managed to pack them in, in about 2.5 acres. At an average of 175 per unit, give or take, that's a Net Income of $131,250.00 per month, thats $1,575,000.00 net income per year..... now even if i'm 31k off per month, that's 1.2 a year... am I missing something? And she said they are completely full and havent had any issues filling them ever... I feel like even after taxes and bills, and stupid tenants causing issues you should still have a net profit of like 600k a year?
Your math looks good, but it's only 1/3 done. You havent figured in the price of the property/mortgage (or land + construction), taxes, insurance, utilities, marketing, security, and staffing. You guesstimate 'taxes and bills' at 600k a year, i would doubt that the storage industry has a 50% profit margin, very few companies in the world do. Run the rest of the numbers, i'd be curious how they look!
Your math looks good, but it's only 1/3 done. You havent figured in the price of the property/mortgage (or land + construction), taxes, insurance, utilities, marketing, security, and staffing. You guesstimate 'taxes and bills' at 600k a year, i would doubt that the storage industry has a 50% profit margin, very few companies in the world do. Run the rest of the numbers, i'd be curious how they look!
So, I'm 20 years old and I live in Portland. I'm very intrigued by storage units and would really like to invest in them at some point. Especially since so many people are moving to Portland each year. But I feel like my math must be wrong... Or so many people would be buying up storage units, and building them, etc... so I'm curious how much income can a storage unit company pull in. Especially in a place like Portland where an average storage unit is $175 per, some $275, and the lowest i've found being 120 for a very very small one. If this is true, I was talking to a manager at one and they had 750 units. And they managed to pack them in, in about 2.5 acres. At an average of 175 per unit, give or take, that's a Net Income of $131,250.00 per month, thats $1,575,000.00 net income per year..... now even if i'm 31k off per month, that's 1.2 a year... am I missing something? And she said they are completely full and havent had any issues filling them ever... I feel like even after taxes and bills, and stupid tenants causing issues you should still have a net profit of like 600k a year?
Storage is AWESOME...I don't know anything about your market but I can tell you that as a general rule, Storage Facilities operate with a 30-35% operating expense. That means, if the Gross income of a facility is 1.2 Million, you are going to spend about $400,000 on day to day expenses. That will leave $800,000 to cover debt service and whatever is left after that would be your profit. Please keep in mind that these are hypothetical numbers based on industry standards. Anyways, if we assume a market cap rate of 10%...that NOI of $800,000 means the facility should be valued at $8 Million. Lets further assume that you bought such as facility with 25% down. A mortgage on $600,000 at 5.25% over 20 years would cost roughly $485,000 annually. SO, your $2,000,000 down payment yields you $315,000 in cash flow. Taking that alone, you have a very healthy cash on cash return. Factor in your principle pay down and the returns are even better. Conceptually you have discovered that Storage has STRONG underlying financials! Feel free to check out my blog here on BP for a few posts that might offer a bit more insight.
Shane I've been thinking the same thing. update us along the way and let us know how it goes. by the way I commend you for getting started at age 20. a lot of kids your age haven't even figured out what their major is.
Good to see another 20 y/o investor! My day job is a commercial real estate analyst for a company called Investment Real Estate, LLC. Despite the name, we do only self storage -- we broker, consult on, and own self storage facilities. All that to say, I've learned a few things that could shed light on your questions.
Self storage is wildly profitable, but there are a few caveats. First is that a facility is considered "full" at 85%. In most real estate that would be unacceptably low, but in self storage it's pretty good. We find a lot of places that have much lower occupancy rates and still do alright for themselves, but we try to get ours up to 90% in order to maximize our capitalized price on the property. The second caveat is that self storage is management intensive. You don't have to deal with very many maintenance issues (no plumbing or hvac,) but you are constantly marketing. The average tenant stays 3-4 months and lives within 2 miles of the property -- so marketing is a constant cycle. My third caveat is that the industry is dominated by amateur mom and pop places -- so there's a lot of upside with many properties, but I also suspect that it's harder to run a self storage facility than it looks.
Self storage is really an interesting market to be in at this point. It's pretty new, but exposure in the last few years has dramatically increased the demand for it. With that demand, big REITs like Public Storage and Uncle Bob's are moving in. That being said, there's a lot of room for smaller investors to buy properties. Right now I'm saving up 100k in commissions and income in order to buy a self storage facility -- I'll have an in on finding a good deal and I'll have the economy of scale that comes with buying a property. If you have any further questions, please post them here. I've been thinking about starting to write blog posts so that I can find potential equity investors, so this is good practice.
@Shane Short, it looks like you've received some good tips above. The only thing I'd add is to make sure you are evaluating rents on a per square foot basis instead of average rental of the whole thing. Otherwise this can skew your numbers when comparing properties, since there will almost always be a different unit mix at each location. I'm just gathering this from your post, so you may already be doing this.
Be sure to research the issue where a tenant walks away from payments and the steps you must take to clear the unit and make it available for a new tenant.
It will be similar to the Abandoned Property Regs for your State and much will need to be auctioned off, proceeds remitted to the State. There is a high percentage of move-outs that take this path and that's all extra time, effort and extra expense.
I agree with what was said above by Howard, Isaac, and Michael. The one thing I would add is that while you are researching the asset class, be certain that you get the proper education and align yourself with individuals that are SUCCESSFUL in the Self Storage Business, and discard the advice from others who do not have experience in this incredible sector of Commercial Real Estate.
Check out my other posts here on BP, or reach out via private messge if I can point you in the right direction.