STORAGE UNITS: What I Know & Where I Need Help

[Christopher Erwin]

I just started diligencing a 200+ unit storage facility on the Nebraska / Iowa border. It's a fascinating rental model --> some wear & tear advantages since no live-in tenants compared to MFUs, but also some mgmt challenges due to larger client base per sq ft. Documenting my research below to (1) flesh out my thinking and (2) guage any input from you smarties.

WHY APPEALING:

• MINIMAL INFRASTRUCTURE - No toilets to fix, no carpet to tear out.
• SIMPLER EVICTION - Not paying rent? Resolution can occur within 30 days.
• SCALE - Diversified & smoother income stream from larger tenant base.
• STICKINESS - Once stuff is stored, not fun / easy to move it.

UPSIDE POTENTIAL:

• LOW OCCUPANCY - Low variable cost structure means occupancy increases primarily flow straight to bottom line.
• MIS-MANAGEMENT - Mgr only there a few hrs a wk? Bad customer service causing churn or slowing down signups? No marketing acumen? No mgmt sales incentive to drive new sign-ups?
• BAD MARKETING - Storage is not an emotional decision. If you're not listed where clients are looking, you're sh*t out of luck.
• WONKY RATE CARD - Chance to raise legacy rates from existing tenants? Overly-high rates depressing occupancy? Are your units the sizes people need?
• OVERALL DEMAND - Baby Boomer generation is going to increasingly downsize, and they've accumulated lots of stuff. Storage could be a smart LT bet.

WHAT SCARES ME:

• COMPETITION - If many other local operators, means price may be only meaningful differentiator. Price wars are lose-lose.
• NEW BUILDS - If storage demand is strong, & lots of open land avail, could be easy for another co to build new facilities = downward price pressure, customer churn.
• BAD LOCATION - Unattractive demos, remote location will materially limit new sign-ups.
• HIGH # OF TENANTS - Many more tenants per sq ft than a multi family. Need to have a strong systems-based customer service program. The phone will ring...

QUESTIONS I'M ASKING / DILIGENCE I'M DOING:

• Is the current annual rent per sq ft par to market?
• Why is the owner selling? Retirement or re-deploying capital vs unloading undesireable asset.
• What's driving the local economy?
• How many other storage operators are in area?
• Calling up other local operators to research rates, sales pitch, systems, etc.
• How many unit sign-ups in past year? Unsustainable mktg / incentives? Is lots of churn coming?
• Is facility already at steady-state occupancy? How much upside & what's the cost to get it there?
• What are the current processes for tenant sign-ups, payment, collections, turnover prep, etc? Are they manual (resource-intensive) or systems-based (resource lite)? Manual = upside opportunity. Systems = need to ensure proper hand-off.
• Presence of security systems? Vandalism & unit theft are common.
• Who will manage & what's the plan? Do professional for-hire mgmt co's exist?
• What are the "unknown unknowns"?

LINKS & REFERENCES:

• Bigger Pockets podcast #138 w/ Michael Rogers
• Chandler Properties (Michael Rogers' TN Storage facility)
• Self Storage Association (trade association)
• Inside Self Storage (a magazine about...self storage!)
• Bigger Pockets forum post
• Easy Storage Solutions (website & storage unit software)
• Self storage exec ski workshop in Big Sky, MT in December. I did Xmas there in 2016. It's a sign, I should prob go...

[Scott Meyers]

Christopher, 

Great questions, and SOME good answers here....... 

Until you educate yourself on how to underwrite a self-storage facility, you're flying blind.   My suggestion is that rather than piece together the advice (and much of it incorrect) in the multiple posts on this thread, I strongly suggest you get help from a professional.    I have bought and developed over 5,500 units nationwide, and have helped hundreds of people to launch and grow their self storage business including John Lenhart, and what he told you above is correct.   The others, well, not so much....  

If you search for my name on BP, you'll find dozens of posts and blogs here on BP that can provide additional assistance.  But if you're serious about getting into the business, I suggest you get a more formal education on the industry, rather than poking around on BP.   The other sites mentioned above are for vendors - but they won't teach you how to get into the business.   If you google my name and self storage, you'll find our site with a number of free resources to help you begin your journey. 

Christopher, you picked the right asset class, and congrats on your lead.   Now, don't let it slip out of your hands by wasting your time looking for free advice by people with little to no knowledge of the industry.  

If it truly is a deal, someone who can analyze it quickly  will snatch it up before you know it - Self-Storage is the hottest asset class in real estate, and the good ones go quick. 

Good luck

Scott Meyers