Self Storage- Deal 7

[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.

Setup:

1.  We stay within an hour driving radius when looking for properties.  Just makes it easier to service them.

2.  One town we looked at was a perfect fit, our type of town. It was on the 60 minute drive bubble.

3.  Again, when we go to a new town we look at both buying and building at the same time.  Gives us more options to look at and we pick the better deal first.  Prefer to buy first, so we have more control over price and competition.

4.  Met up with a realtor to look at some properties I saw listed on the internet.  Just happened he was one of the two large Storage owners in the town.  

5.  Population was all at the north end of town.  All Storage was at the South end of town.

6.  The main reason they were at the south end of town, was that was where the majority of the appropriate zoned land was.

7.  We were able to find one property zoned correctly.  It had an old derelict building on it.  The property was not quite big enough.  We could make an offer on the ground next to it which was vacant.  Combined the two properties would have been large enough.  What was key about these two properties, they were half way between the population and the existing Storage locations.

8.  Another exciting thing, was both storage owners for some reason had built all 40 wide buildings with no end units.  I.E.  not many 10's or 15's possible, without creating a lot of large size units 25/30's, which don't rent well.

My market analysis said the town was close to full occupancy.

This still looked like a positive build location, even at full occupancy.  Out position the competition.  Offer more product mix.  Build all 30 wide's.  Thus offering 10/15/20 units.

Lets say the existing locations had a total of 500 units.  And "NO" further units were to ever be needed.  We could still make a profit.

Keep in mind you don't need to be 100% occupied.  My normal breakeven is 65% full.

If we built 150 units 10/15/20's; and were closer to the population.  Over the long run if all of the occupants evenly distributed.  Total of 650 units.  Demand 500 / 3= 160 per location, close enough.  Obviously our 150 unit location would be 100% occupied.  The reason this "could" happen is we are closer, smaller and more product mix.  We are good.

Instead lets say the customers were spread Pro-rata.  For us 150/650  X 500=  115 units filled for us.

115/ 150= 77% occupied.  However since we have smaller units with a higher per sqft price, our revenue would be higher than theirs.

Either way, we are above break even.  Making money both from Cash flow and also building equity paying down the buildings.

We have other more positive projects or locations at the time, thus pass on this location.  It is actually a great deal, if we were to contact one of the other two owners and they were to sell to us first.  Again, we would have Price control, between the Purchased location and if we built the smaller location.  This is one where you check back every few years and say hello.

Deal Breaker on this location was it was already at 100% capacity.  

Key Points-  We could still have built there and made a profit.  Just had better options elsewhere.  Can always come back to this town, because most locations are mom/pop owned.  And their kids probably don't live there anymore and there are few potential buyers in a small town.  Also, there is less chance of a REIT coming to small town USA, or for someone else to build there.  Thus the "Grade" of the investment is higher than where there might be stronger competition.

8.