help needed on self storage analysis

[Ashley Zhang]

Hi guys, I would like to know how much should I offer to this SS deal, or should I even offer? While I am looking for my first SS store facility, I found this mini SS, located in the best part of town in which property price was the highest in the entire county. Just give you a general idea, 1 acre vacant land is sold for 150k. It was split into two parcels, walking distance between them. Total 92 doors, size 10x10, 10x12, 10x15 ish. It's a mini self storage facility and there is no climate control or any advance technology whatsoever, not even a secure fence and gate . Except indoor units, there are some outdoor space to park RV and boat. One parcel with the outdoor space is 1.24 Acre, and the other parcel contains mini indoor units is 0.35 acre. The gross income/NOI was $70k/48.5k for 2016, $71k/50k for 2017, $74k/48k for 2018, and $88.5k/66.9 for 2019. the market cap rate currently is 7-9. The owner is asking for $850k for both. I did a quick calculstion, even if I use the best year, 2019, cap rate 8, I only get market value of 530k ish, let along the prior years didn't do as good as 2019. obviously, either there was some changes made in 2019 that made the income increased dramatically, or he just want to sell the facility and made the number looks better on paper. Anyway, I am still interested in buying it, but i definitely cannot pay the asking price. I have very limit funding, I don't have 20% down funding, probably 10%, I am thinking asking owner to carry 10% and borrow the rest from bank. The owner mentioned that he wants more equity out of this property, which means he probably wouldn't want to carry 90%, especially if I am planning cut 1/3 asking price down. please shed some light, apprecia any honest opinions/advices!

[Henry Clark]

Recommend you work your search, backwards. Read my post on "Broad Discussion on Funding".

Determine how much collateral or cash you have to put in.

Then decide upon your financing method and its collateral requirements.

Example:

You have $50,000.

Traditional bank requires 40% collateral, thus your largest deal can be $50,000/.4= $125,000.

SBA 10%; then $50,000/.1= $500,000

Use this to narrow down your property search parameters.  No point in looking at anything above $500,000 in the above scenario.  

Also define your deal parameters:  I use a 8 to 12 year payback; with a 20 year amortization loan term.  This way I am cash flowing and also if I missed something or competition moves in, I have some cushion.

Have you done a market study?  What town is this in?  If you need to you can PM me.  Dial up Sparefoot with the town or zip code if a large city.  Switch to the map mode, with all unit sizes.  Keep flipping back and forth with select unit sizes.  See if your in a high competition area, or if you have a hole in the market.  Why didn't the current owner build on the land? etc.

Even if you pass on this property, I would go through the motions to both buy this one and also build in the same area.  This will help you analyze your next opportunities faster and with less misses.