Building my first small self storage...Is this stupid?

Question

I'll try to keep this short, but it's a lot to explain. So I have 10 acres with my house in the country in Texas. Appraised at 83,000 two weeks ago.  I owe 37,000. I can pull out around 25,000 in equity on a refi. We are way out in the country, just some small farms, and a school, a few hundred houses spread out though over the surrounding miles. 2 miles down the road beside the highway is a 20 unit self storage, that has been there for many many years.  Its always full, never had a vacancy, and when I call the past 2 years, they tell me I can be put on the list, but have no idea when it could be.

So I decided to stake off an acre, and refi my property and build a 20 unit strip. $45 per 10x10, same as down the road. Talked to many builders and found a guy with great reviews and history, 34,000 turnkey. Leaving me an easy 9,000 to pay for on my own that the equity didn't cover. This seems great.  Now the problems start arising..

In Texas I find you can't pull equity out of a refi while you have an ag exemption.  I must cancel my ag exemption, and pay the full tax, AND 5 years of back taxes.  Thats 3,250.  I don't like this idea, so I decide to only take out the refi on the house and one acre and no equity removed, leaving me with 9 acres cleared in my name. Then just finance the entire build on it's own acre. Nope, can't do that, in Texas under some homestead law they are not allowed to finance something being built on your property even if it is surveyed off as its own piece of property (I have no idea why, I had it explained to me a hundred times and it doesn't make sense, it is completely its own acre, but still not legal somehow). I'm almost left with no option other than to take my refi on the whole 10 acres, get my 25,000 equity, cancel my ag exemptions, and just build the stupid things. My property payment goes from 505 to 655, not too big of an increase to make up for. Then instead of using my own savings to make up the 9,000 short, I considered taking out a loan on my work trailer (its worth way more than 9,000). The payment for that loan would be 400.

So basically, if the units are at full capacity, it should have the loan done in a matter of months. After that, (at full capacity) they would make 800 after insurance, ect. Subtract the 150 a month from my mortgage increase, and it's still 650 a month coming in.   Part of me says "hey, thats extra income, screw it, let's sign this and go on to the next adventure", but the other part of me feels like there could be something much less stupid than cancelling a huge ag exemption and taking out 64,000 just to have a strip of units that barely even make the payment for the truck I drive.  Is this a good place to start?  Is money, money? Or am I stirring to much trouble to bother with something so simple for a first investment idea?

Greg H. · Answer

Maybe you missed what I stated earlier.  You cannot just deed yourself an acre out of the parcel that you have a mortgage on.  You pledged the entire parcel as collateral for your loan, therefore must obtain a partial release from your mortgage company

Obtaining a partial release if difficult at best especially if you have a government back mortgage as there is no incentive for them to do so

Account Closed · Answer

Have you considered purchasing shipping containers instead of building units? If the area you live in is arid enough, they would last a long time. Toss a cheap slanted roof on them, put them on a gravel bed, and maintain them properly, and I imagine they would last as long as the units you're planning on building.

In addition, in many places they're  considered as "commercial vehicles" rather than permanent structures, in which case it wouldn't raise your tax rate or void your ag exemption to park a few of them on your property and rent them out. The other advantage may be that you would have units of a different dimension than your competitors, possibly filling a niche that isn't being served in your area (just spitballing).

Casey Randall Lenz · Answer

Greg, yea the original way I went towards this is what your referring to, and will not work because of the mortgage on the entire property, as you stated. Thats why I paused and thinking to refinance only the 37,000 I have left owed, and only on the house and one or two acres, instead of pulling all the equity out (64,000) on all of the 10 acres. If I refinance the 37,000 to only include my house and one or two acres, then the other 8 or 9 acres will be cleared and not under mortgage anymore. Hopefully then I would be able to just sign it over into a commercial business property or maybe into my business name, (?) whatever makes it cut ties with my homestead property and separates it.

Clifton, yea I would like to talk to the guy, although it would probably have to include his house since he built them in his front lawn.  haha  But hey, thats just more rental property, I'm planning on bringing it up to him for sure.

Clifton Kaderli · Answer

The containers, depending on how you place them, will stay personal property and not incur additional real estate taxes.

Tread wisely on the ag exemption. This is worth keeping.

Thought about buying the older person's storage business? You say he is around 70? He may not have a plan of succession for his family. He may seller finance it to you. You could use it to expand into yours. You mentioned that he has a wait list. This is worth money. Offer to acquire it or pay referral...

Storage is a fairly stable business. Shop the money, especially if you are going to build. You should find it.

Is your land too small of a parcel to subdivide one commercial piece away from the ag/homestead piece. You may want to refinance your ag/homestead and carve out a commercial piece.

Happy hunting.

Casey Randall Lenz · Answer

Yea the containers are also normally sealed, from what I have heard, reducing pests inside the units. And I would think one could also put metal siding on the containers to decorate it up.

To be honest, I don't know what I'm getting into.  But I have learned a lot this way.  Study some, ask questions, and then just throw yourself into it, and learn as you go. I started a business and a few other idea this way, and although it sucks at the start, trying to keep up with a running business your new to, you learn quickly and more than you ever would from a book ;)  Yea i'm already running into issues at the bank, mainly with the Texas Homestead Law they keep telling me about, and having a building financed on your home property, but i'll see what they say if I have a paid off acre to itself.  They may still shoot it down, but i'll go ahead and ask anyways   haha

Brian Ploszay · Answer

The self storage structures, especially in semi-rural areas, are fairly simple structures.  Security concerns are far less as well.   You'll have to have some basic knowledge on how to run this operation.  Including contracts, policies, pricing, legality on removing abandoned items, etc..

This venture will take time running it.  Make sure you know the time commitment you are getting into.

Refinancing this will be much different than a loan from a house.  You will have to go to a local bank who will do a commercial loan.  They probably are not interested in it, until it is fully leased and stabilized.

Casey Randall Lenz · Answer

Definitely going to talk to some more people on monday about the laws and see what kinds of ideas they have.  I thought about the containers at first, but they look kind of ugly compared to a nice shop-looking stretch.  I may end up on that route though anyway. I never thought about it after the ag exemption issue, that's a great point. And they are removable if I wanted out of it, and are bigger than 10x10 for the same price.

I'm hoping to finance the acre the house is on since I have so much equity, which would release all 9 or maybe 8 acres anyways.So if I went that route, I could just sign over the acre myself to my business name I think..?

Haha, I doubt the guy will move, he's been there so long farming, but next time I see him I might bring up the idea and see what he says   lol.

So it seems my options are talk to some people monday about getting around the issues, possibly signing an acre over to my business name after releasing the main acreage, and if nothing else, possibly go with some containers. I'm not really wanting to stick with the path i'm on at the moment, taking out huge mortgage for something so simple.  I may also check with the container sales place this evening and see what they are pricing at.

Greg H. · Answer

@Casey Randall Lenz

You are going to have some issues selling an acre of land to yourself. When you have a mortgage on your property you will have to obtain a partial release from your lender. If you have a government back loan such as FHA,Va or fnma this can be a real pain .  Keep in mind who you think is your mortgage company is most likely just servicing the loan. Their customer service is just not set up to handle such requests.

Until you are able to obtain the release, no lender is going to loan you money for a business on homesteaded property .

Building my first small self storage...Is this stupid?

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