Self Storage- Deal 5

[Henry Clark]

Start Small and make your big mistakes Early.

Deal breakers- market, finance, zoning, footings, road type, water/sewer availability, Storm sewers, Storm retention ponds, over Analyzing, too Greedy. Everything else you can mess up and not get too hammered.

Some of these stories will be ambiguous because they are still "live" items. I am intentionally not telling you all of the details and am obfuscating some of the detail, just telling you the Deal story.

Setup:

A neighbor of mine is the local Real Estate person. His company has 95% of the local market. People think he is greedy because he doesn't list on MLS, but wants both the Buyer/Sales commission. Asked him about that. He said (not exact words), if they are going to come to our town they will. When you split a sales commission with someone from the bigger city, there isn't enough left for a living in our small town. Plus the big town realtor is never going to come show their client the property and thus leaves the work to the local person anyways.

He is a smart guy.  I have gone through his company on all of our real estate transactions.  He actually called me into his office one day, out of the Blue and made me buy a piece of ground; he knew I was balking at buying.  Great decision for me.

He had another word of wisdom for me on another project.  If something isn't selling, just go mow the weeds, stir the dirt up or take the property off the market, then put it back on a few months later.  People are always worried about missing out on a deal and when they see action, they take action.

We identified a town to move into with Storage.  Decided to build first, versus buying.  Found a perfect piece of ground for a great price and on the main access road.

Started tearing down the existing buildings and concrete foundations.  It took me about a week, since I was trying to save some of the boards.  Within that same week, we received two offers from people wanting to sell their Storage locations.  Again, Small town USA, they knew we were going to build Storage facilities.

Deal A:

Older couple needing to get out of business.  This is the oldest storage facility in town.  Came to a price.  Had an agreement.  Out of the blue, they called and said one of their son's wanted to buy it, and was pissed he didn't get a chance.  I'm from the country, and value neighbors ( I have "neighbors" 1,000 miles away) over a business opportunity.  Said, hey no problem; glad to let you keep it in the family.  About 3 months later, they called back and he couldn't get financing; wondered if I still wanted it.  Which I did.  I love having two different price points for product.   At the price of this location, I could maintain the lowest cost product in town.  Won't tell you the rest of the story, but things always come back to you in a small town, good or bad.  This nice sidestep of mine, has helped me again and again, beyond just getting that location.

Deal B:

Person was wanting to move out of town.  Had a price set at $225k and was stuck on it.  Did my numbers, made a fair offer, but they would not take it.  Had to have $225k.  Walked them through my numbers.  Showed them how I got to my offer and that it was fair and a good price.  They wanted $225k.

Interest rates were near 6%. 

We were growing and self financing at the time, so we needed to keep cash around to finance any future projects.

This property along with the one we were building and the one we were buying in Deal A above, would make us the dominant player in the town.

We were willing to pay $190k, but no more.  So I said yes to their $225k.

But terms were $150k now, and $75k in 5 years with no interest.  Equals $225k and they were happy.

We ended up spending more than our price even with NPV.  But we kept more cash around us.  Also we got a lot of bare ground with this location.  Turns out this location, even though  on two back roads, is the main route from the population to the stores along the main highway.  Everyone wants this location.  The following picture is some of that land.  We are getting ready to build next year possibly.  Looked like a few pieces of concrete, but turns out to be an old Rail road loading site.  More work than I thought.  You remember Deal A above?  Believe it or not, that deal is going to help me clean this up.  Again Small town USA.

Deal breakers-  Deal A-  be willing to walk away from a deal, even if it is a good deal.  Probably a better example of this, for most of you is financing.  Lets say you have a good, but smaller deal in front of you.  Walk away from it, if you don't have the collateral or financing to do a larger or more appropriate deal.

Deal breakers- Deal B- I said before don't over analyze.  Sometimes you have to "Re- analyze".  See if there is more value to the project than your apparent price difference.  For me it was keeping more cash around, more expansion land, and I find out later it's the best location in town due to traffic corridors.

Start Small and make your big mistakes Early.