First self storage deal?

Question

I called a FSBO house in my neighborhood and started talking to this lovely 73 year old lady. As we continued to have our conversation she stated that she also had a 300+ storage unit complex with retail on the same property. Long story short I'm I terested in purchasing the storage unit complex and not the house now. I had a 2+ hour meeting with them on Monday and did gather some info about the facility.

I was listening to a podcast yesterday storage units and they said make sure you know your traffic count, is there a formula you use once you know this #?

This facility is located in an "A" area on the main vain of the community.

There are other storage facilities within 1/2 mile of this one.

They are 98% with a 85% collected rent (havent verified but this is what the owner said)

There are 10 retail shops on the facility aswell and 9 are rented.

I compared rents of near by facilities and feel strongly that I could raise the rent $5/unit. Every size unit.

What other key factors should.i be looking at?

Thanks for your help.

Joseph Borges · Answer

@Zach Quick

Yes, we had a two plus hour meeting and I strongly feel like they know I'm serious about this project and a possible buyer. I also feel like they want to assist me any way they can to purchase this property if I decide I want to follow through and purchase this deal.

Zach Quick · Answer

@Joseph Borges Yes. What asset management experience do you have? As in, do they trust you to be a potential buyer?

Sam Shueh · Answer

Suggest you provide your financial references and pre-loan approval asking to review their last 3 year financials. If into contract ask them to perhaps become your employee for 3+ months until you can handle it.

It is really all about the prices and potential into a future development.

Good luck,

Sam Shueh

Justin Frank · Answer

@Joseph Borges

Automation is a great value add for you and your customers. If this is an “A” class area I will assume that most buildings or new storage in the area are nice and modern. By adding security, and automation you will be bringing your building up to par with the surrounding so you won’t look outdated. Not all of your current tenants will appreciate this. Some folks just like paying cash and walking in to rent units. Depending on the demographics I think most of the community will appreciate a working website, payment and rental  automation. Depending on what rents are now and compared to other facilities in the area this will allow you to bump rents a bit but with a pocket friendly cost to you.

Justin Frank · Answer

@Joseph Borges

Why don’t you purchase it all? If you can afford to pursue a 300+ unit storage facility you may as well snag up the SFR that you originally called about as well. As far as traffic count goes you will probably get many different answers on this. Some readings say 25,000cpd or more is ideal. If the facility is currently successful and you are able to operate the facility to the same level or better than the past owners then what would your concern with traffic count specifically be? I would dig into the past operations/financials of facility and then evaluate how the facility is currently being operated (how are they collecting rent, how are they renting units, security cameras, security/auto gates, building condition, types of doors and locks ect....) and determine if there is any value that you can add or would this be a turnkey purchase? What is job and population growth in the area? What is your competition like? Are there any new facilities in the works for your area? There are lots of factors to consider when purchasing storage and commercial retail and from the sounds of the parcel it would be a very expensive purchase so make sure your due diligence is deep and thorough. I could write for days on this but feel like i am rambling and will get off in the weeds. Bottom line is it sounds like a good property that I would want to buy 😀

Scott Meyers · Answer

There's a lot of great advice being given and yes, it absolutely comes down to the value-add for you.  We've done that successfully in a number of similar scenarios and the results have always been impressive.  I'd make sure you were crystal clear on the financials - ACCURATE ones, including rent rolls (we've seen incredible disparity in rent rolls in facility after facility) - and if the opportunity exists for seller financing, that is a fantastic way to sweeten the deal for you.  It sounds like there is a definite need to update the facility, and those changes easily justify rent increases, so keep that in mind on a pro-forma, but don't let optimism cloud judgement.

Joseph Borges · Answer

@Zach Quick

That was my thought process going into the meeting. They have owned it for 40 years and have a limited partnership. (They own 60%) they took a $1m loan out 2 year ago to do another project. They buy/sell notes on real estate and do used car loans still. They aren't against it owner finance but want a substantial amount of money down they think. They are thinking about different options they are open to do aswell.

This is one option I thought of:

Get bank financing in place and have the current owner finance the down payment.

I have never done a deal like this before so im wondering if they the owners were open to that if it would be feasible to get done at closing.

I think I would need $50-$75k to do updating and getting everything up to par.

Zach Quick · Answer

@Joseph Borges Good for you. Do they own it outright? Great opportunity to approach seller financing.

Joseph Borges · Answer

@Sam Shueh

I did have that in my notes to "hire" them as a consultant for 6 months after the closing.

Joseph Borges · Answer

They look secure to me. Should I check for police reports filed about break ins on the facility?

First self storage deal?

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