How to Purchase Underperforming Self Storage Facility

Question

I have recently found a self storage facility that the owners are considering selling. It's 24 units - 16 10x10, and 8 5x10 on 2 acres of land in a good location. After speaking to the sellers, I've found that the facility is only about 65-70% occupied, bringing in $750/month.They've expressed an interest in offering owner financing for $55,000 with $15,000 down and at 6.5% interest over 15 years. Taxes are $2,200 per year and Insurance will run $350 per year. My partner is going to handle the lawn care and snow removal and I will handle the Marketing and Property Management. So, I'm interested because it's a good location and we have plenty of room to expand down the road. We have some access to private funds and I'm thinking of offering them $48,000 all cash, or a MLO with a 2 year option for their price of $55,000 so we could get in cheap and get the rents up where they need to be. What would you do?

Scott Meyers · Answer

See what I mean Craig..... Management - underwriting requires you to run a 5% line item expense - that's for MANAGEMENT, Payroll is a different line item, and that is what you pay the person to be in the office and lease units. For a site this size, yes, someone will have to have a cell phone on their hip - the facility can't afford, nor does it need someone behind the counter full time. Many of our facilities in the past have been managed with a kiosk, and now, we are relying less on those, and creating a responsive website that allows for rentals via smart phone. Way too much here, but if you search around BP, and online, you'll see that I also run a Self Storage Education business with tons of resources and live training events when you're ready. Cheers,

Ralph C. · Answer

@craigmorrow i learned all about the self storage industry from the ground up, (back in 2004) including the development process. I was super fortunate to be connected to an investor developer who actually built his own and I was able to be a part of the show.So from what I see Here and considering the numbers involved, this location would need to be managed by you initially considering the cash flow. I do not see where it can pay for the salary of an on-site person to handle the customers. It's a slow cash generator and this one looks like it would need time, also have you checked the competition? I am not sure if I missed it but hopefully there's room here considering the households and commercial businesses around that you can possibly capture.Let me know if I can further assist, I'm looking for partners in a new jv in ss.

Craig Garrow · Answer

Scott Meyers Agreed! I've seen most of your YouTube videos and read a lot of your material on various investment forums. I greatly respect and appreciate your time and input! I've got most of the systems and processes from my Property Management business that I think I can apply toward a smaller storage site like this, so I agree that there's no need for an on-site employee for quite some time, although I will account for a Management company for future resale.

Mike Nelson · Answer

Do you know what the value of the land itself is? At this location, is there a potential for increase of decrease in land value? Also, if it actually makes sense to add units in the future, it would be helpful to know construction costs and return on investment.

Craig Garrow · Answer

Andrew Jones The current owner just has a sign and they call him directly. I can only assume he or his wife meet them to sign an agreement and collect rent.

Andrew Jones · Answer

All the self storage places around me have a full-time person working there. How do you operate a self-storage place without someone at the counter? A 24 unit facility can't generate enough cash to justify a full time employee. Is there a computer terminal or something? How does the current operator handle new people coming in and leasing a unit?

Wayne Brooks · Answer

Yes, PM usually get 10%.....for residential units, where that would be $75-150/mo for One apartment unit. Can't imagine handling payments, collections, showings, etc. for 20 units, for $75/mo.

Craig Garrow · Answer

Wayne Brooks Admittedly, I'm not familiar with what a PM would charge to manage the deal. I do residential and normally get 10%. As far as the maintenance, my partner has a maintenance company so we are just estimating on a per visit basis.

Wayne Brooks · Answer

So for $75/mo for management/marketing......forget about marketing, for $75/mo you can have someone handle leasing, showing units to new tenants,etc.?

Craig Garrow · Answer

Ralph C. Thank you for the reply! I think that is an avenue we are considering for down the road once we expand the storage end. I like the idea of selling locks and boxes, etc!