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...

[Laura Kusto]

Hi Chris - looks like an interesting opportunity! Just chiming in because I happen to live in Big Sky, MT and saw your last note about the self storage/ski workshop here in January 2018. Drop me a note if you need any local insight into that - I have many friends who work at the resort. (And yes, you should go - it's lovely here! ) Aside from that, no experience to add as far as storage units are concerned.

[Collin Schwartz]

@Christopher Erwin I am just interested to tag along for the conversation. I like your SWOT analysis approach in dissecting the storage facility. Best of luck!

[Account Closed]

I'm new to storage units in a sense that my husband and I have just started looking into for our real estate investment. We are newbies by every sense of the word but not new to real estate (SFH). It appears you have thought about every aspect regarding this opportunity. I'd like to follow this thread to see what comes of it. Very interesting indeed! Best of Luck!

[Paul B.]

@Christopher Erwin Looks like you've thought through your list of known's and unknown's.  

I live near the Omaha/Iowa border.  Let me know if I can answer any questions about the area, etc.

[Jason Chen]

I know nothing about the storage business, but this sounds exciting

[Cody Campbell]

@Christopher Erwin

Storage is a unique niche, in an up market people buy stuff and need to store their "stuff", in a down market people downsize and need to store their "stuff"

Things you need to always know about storage

-there will always be competition and you need to check up on competitors in the area to keep your rates competitive. 

-If you have a vacancy of 90-95% this is the time to raise rent 2-5 bucks per unit. 

-Drive-by and Web presence is your 2 major ways of advertising.

-Depending on the make up of the facility you can run the entire thing without a manager if you have the proper systems in place. 

-Collections for late fees isn't too bad, some systems are automatic with emails an text, but a phone call is sometimes the most effective. If they don't pay, you start the lien process an auction off the unit, this is how to move their stuff without you actually moving their stuff. 

if you'd like, send me the numbers and I'll take a look at them. I can really give you some insight with numbers in hand.

Cody

[Christopher Erwin]

My investor buddy emailed me the below additional notes on storage facility investing & mgmt. Adding to this thread:

---

1. Different markets have different rules of thumb for the "storage sf per capita" metric. I believe the national average is 6-8 sf/per person in the market. That varies for individual markets though and the specific things to pay attention are: (a) in home storage [do homes typically have basements?]; (b) number of renter households [renters use fewer storage sf, even though that's a bit counter-intuitive]

2. Extend your lease-up schedule and lease at lower rents. Push rent increases starting at 6 months. People rarely move, particularly if you are pushing from below your competitors to approximately the same.

3. Large units can double for small offices for sole proprietors, particularly when temperature controlled. Make sure you have outlets and good wifi, and you'll be able to charge a premium for units 10x15 and up units.

4. Marketing is key. Particularly if you aren't attached to a national brand. Also signage along roads - storage is a bit of an impulse decision in addition to being unemotional. People get fed up with their crap and their spouse won't let them throw it out, so they go driving to the nearest storage facility that they've seen when they were out the week before.

5. Don't discount the value of surface parking space. Unused space can be rented for truck or rv storage with limited infrastructure spend.

6. There are professional management companies, but I don't know if they're economical for a small facility. 

[Taylor Witt]

Cody, you had mentioned you can run these facilities without a manager. How do people do this? Are there still not move outs and cleaning to be done? Also, isn't reconciling units imperative?

What systems do people put in place to fully automate their facilities? I know Software is incorporated and kiosks can be used, but how else is a nearly hands off approach achieved?

[Sid Smith]

Christopher, Many years ago I worked for an access control manufacturer that built access control and tenant management software. I had the opportunity to travel to most of the Self Storage Trade Shows across the nation.

I do know from experience that Self Storage operators do quite well. It is a low maintenance business. Most of the operators that I met were alway trying to expand and build more.

I hope that helps.

[George Fitz]

You asked a lot of great questions and others have raised some good points. Here are a few more things to think about:

How many people and what are the demographics in the 3-5 mile radius?

What other revenue streams do they currently have?

Do they charge late fees?

Do they mandate and sell insurance?

Do they charge admin fees?

Do they rent trucks?

Do they sell locks/boxes/moving supplies?

Is the facility fully fenced and does the market require that?

What are the deferred maintenance items?

Look at the competition and see how this property compares physically as well as price and features.

My opinion is that if you're an absentee owner with 200+ units, then you absolutely need a manager in place. There are many things you can automate, so this person may not need to be full time, but there's still loads of work to do- renting, marketing, collections, accounts payable, accounts receivable, maintenance, etc. Again, many of these things can be automated to a certain degree, but there's nothing like boots on the ground. The manager is an extremely important piece of the puzzle, especially so if you are an absentee owner. I notice we live near one another. I'll send you a DM in case you want to chat more.

[Ray Lai]

@Christopher Erwin

Great analysis. Where are the numbers though??? A lot of the cons can be seen as advantages for a turnaround play if you have the expertise to do so. What's your plan to deal train and put into place effective management or will you be the on-site manager?

[Mark Byrge]

I am in a very similar situation. I found a 114 unit facility that is 26% rented and 2 hours from my home. I've found a couple different options to practically fully automate the facility and have the ability to do leases and rental setup online.
There is also a self storage expo in Vegas the first full week of September that will have most vendors there that you can see all the technology out there. I'm headed there prior to closing on mine.

Check out:
6Storage
STORedge

The first one looks intriguing due to low costs and full website hosting.

Good luck!

[Jeremiah T.]

@Mark Byrge, I'm having trouble finding facilities for sale north of 100 units around here.

[Cody Campbell]

@Taylor Witt

We have a facility of 180 units and we are now adding another 40 units. 

How to automate:

-Gate access with internet so you can control from your phone

-Camera system for security again with internet you can access and control from your phone

-Web presence with website that allows for direct booking of unit on the website

-Call service that can field phone calls and rent units via phone

-You need a part-time employee (we used a college kid) that will go through every week. They sweep out any units that have moved, lock out any unpaid units, and basic up keep of the property. 

-Auctions can be done online or you just do them every 3-6 months. 

These are the primary things we use to automate our facilities. I live 4+ hours away from this facility and we rarely have to go out there.

[John Lenhart]

  @christopher erwin    We have 3 facilities in ohio and are underwriting a fourth right now. They each have their own unique operating characteristics and turning each around presented different challenges. I am happy to connect with you to give you specific insight if you like.

Here are a few key things I would focus on when looking at your facility. 

1) what are the town demographics? How many people in a 3-5 mile radius and what is the avg income I. The area. For example, one of our facilities is in a pretty affluent area and we have one In a lower income area. They operate very differently. The affluent area has much higher rents and much lower delinquency and less cash payments (making remote management easier). The other facility is going to run a higher delinquency rate and relies on a lot of cash payers. It has more auctions and a bit more heavy lifting

2) know your states lien laws. In Ohio for example, you can conduct an auction by sending out a first class later to the delinquent tenant and advertising on your website. Auction fees are very affordable. In California, fhe process is a lot more time consuming and expensive. Each state has their own lien rules so make sure you know the process well

3) is your competition in the area small independent operators or REITS? If your closest competitor is a REIT, that is a good thing. It shows they believe in the market and can make a good return there plus, they set the market rates. It lets you bump your rents to slightly below their rents and that becomes the market rent. Look at the per sq ft rate of the occupied u it in your facility and what the immediate market is and you can see how much you can realistic push rents

4) make sure you get a cloud based property management system which allows for online rentals and mobile phone access.  The easier people can rent and pay their bill, the easier it will be to collect. 

5) how is the facility constructed? What size is it? Steel frame and aluminum or cinder block construction is preferred. Stay away from wood frame construction. They trade much lower and you run the risk of termites or bugs getting in the way. 

6) what are your opportunities for ancillary income. All of our facilities sell locks. Some run trucks which helps justify the onsight manager pay. One of our places has a robust box sale business while others do not. Location determines this.

If you are looking into specific questions such as cap rates and operational issues I am happy to speak to and give you any insight you may want. Please PM me and we can tal

[Christopher Erwin]

@Laura Kusto Thanks for the offer Laura, much appreciated

@Collin Schwartz Yeah, I'm a former I-Banker and MBA, so I love my SWOTs ;)

@Account Closed Awesome John, much appreciated. Looking forward to connecting

[Christopher Erwin]

@Chris Rodriguez Check this thread out

[Account Closed]

There is so much information here. Thank you all for sharing. Has anyone ever heard of Scott Meyers? He has some training on storage units. Anyone been to any of his meetings or joined his team?

[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

[John Lenhart]

@Account Closed - I have been to some of Scott's events. He does a very good job working with people at all levels of investing and he is an expert on the changes in the marketplace. If you are looking to start out, I would recommend his training academy for beginners. There is a ton of good information there and he also offers you the tool kit to get your investing off the ground.

[Taylor Witt]

I'm heading to Scotts training in a couple weeks out in Indianapolis. Really excited to see what comes of the training! His information I have already purchased has been valuable. I'll write with my review once I return.

[Mark Byrge]

I just signed up for the January academy in Orlando as well.

[Christopher Erwin]

@Scott Meyers Thanks for your note here Scott. I'll make sure to check out your website and online resources, definitely want to read and absorb as much as possible during my learning process, as my investor group is definitely new to the space. I see lots of opportunity, particularly in the deal I'm assessing, but of course want to be prudent before diving in. I prioritize education before all else, as there will always be opportunity...patience is a strong virtue in RE ;)

[Terry Campbell]

There are several references on this thread about the upcoming Self-Storage Academy event in Orlando that Scott Meyers and team presents. I have been to many of these and I speak at virtually each one about financing, particularly SBA financing, and I must say that the presentations and presenters at these events are very insightful and give you a LOT of info on what to look for, how to underwrite a deal and how to buy a self-storage facility. To a lender, spending your time and resources to attend this event helps give you more credibility and makes you a better candidate with the training and the many years of experience that you will have access to from this course. I hope that I will see you there this week in Orlando!