Self-Storage Conversion: Should I stay or should I go now?

Question

So I've done residential real estate deals and seen some success. I work in construction, have done a lot of my own work and am a Civil Engineer by trade. In my hunt for another rental deal I stumbled upon an old warehouse for only $100,000. In my market, you can't buy any rental that's not in a rough neighborhood for less than approx. $150k. The building is two story with 4000 total sqft. I've always had a wild hair to convert an old building to loft style apartments but after analyzing the area and the necessary construction to convert I don't believe this is a viable option.

HOWEVER, I thought of converting the property to mini self-storage. DISCLAIMER I have no experience in this field at all. I've never even rented a storage unit myself, only been to friends storage units. And I do understand the "stay in your lane" and "shiny object syndrome". However, I do believe it's worth pursuing even if it's just a learning exercise.

So here's some rough numbers I came up with:

$100,000 purchase (Definitely think I can get it cheaper)

4000 sqft space resulting in 3000 sqft usable rental space. (I worked up a layout of common storage unit sizes trying to keep a good mix of units)

At 80% Occupancy I would be looking at roughly $2900 monthly rent.

To convert the property it would take roughly $50,000.

Property is zoned "Other Commercial".

So I would be in the property $150,000 with a monthly rent of $2900.

My biggest struggle right now is how to value the property to calculate Cap rate, etc. I typically utilize the BRRRR model on my residential property and have a very solid understanding of how to value the properties. On a property like this, I would still like to use the BRRRR model and pull my money back out but am unsure on how to value since it's so unique. I've also never dabbled in the commercial sector so I'm curious about the differences in financing as well.

Any help is appreciated!

Henry Clark · Answer

@Kristian Conway

Agree with above, to small to waste your time on storage.  Also the elevator would be the bottle neck.  You would need a whole new system, if you were basing your success on it and it would need to be a service elevator size.

Would recommend you look at the following mix:

Downstairs split into two 1,000 sq ft Contractor rentals.  (electrician, plumber, hvac, landscaping, etc).  We are looking at building these next in one of our storage locations.  They bring in more money per square foot than traditional storage, with less invest up front and ongoing.  If its a warehouse you should already have some bay/garage doors.  Just to rip out any excess material, then power wash.  Maybe a dividing wall and extra walk through door.  See if grandfathered in on sprinkler systems or don't need.  Also depends on outside parking and access.  To get a feel for the interest, you might "list" them on Loopnet or Craigslist and see what interest you get before you buy.  Or talk with a Commercial Real Estate person.

Upstairs- make two or three large loft, retro apartments.  Strip barebones and paint all piping and ceiling black.  Put in three shower/commode/sink/kitchen, etc units.

If this place has character and the right neighborhood.  I would also reach out to the local Micro brewery scene and see if someone is ready for the next size operation.

For $100,000 depending on location, there is a business model there waiting to be found.

Aaron Linden · Answer

@Kristian Conway Great thread. I have a 4 unit around 5000sqft exactly as you described. 3 apartments upstairs and one unfinished downstairs. Currently the downstairs has a carpet guy in it but is way under market rent. I plan to list it to see if any other contractors are interested. Then based on feedback I would consider splitting it into two smaller units. Ill note that the downstairs has a garage door built into it on mine. Perhaps food for thought there if you do decide to buy it and rent to contractors.

For our posterity Ill 2nd @Jon Kelly. My building is also zoned commercial and zoning disallows for self storage here.

Jon Kelly · Answer

@Kristian Conway, I would double check with zoning to make sure you can convert to self-storage, even though it's listed as "Other Commercial." I'm going through a similar process now. I purchased a 3-unit: 2 apartments upstairs and large commercial space downstairs. It was zoned commercial, but only allows a "store." I'm in the process of applying for a variance for change of use to self-storage.

Also, look into other local facilities. See what their average size units and prices are. Reach out to them as a prospective tenant to see if there is a waiting list. That will give you a sense of interest for self-storage.

@Henry Clark provided awesome ideas that you should consider. The great thing about a space like this is the possibilities are endless. Just need to decide on what's best and get started!

Natalie Schanne · Answer

@Kristian Conway - Definitely self shop storage in the nearest 5-10 miles before embarking on this project. I used interior access only storage in a dense center city at like $50/mo for a 10x5x8 tall. It took me hours to unload my small uhaul using the elevator and their free rolling carts and hiring the homeless guys who lived in the climate controlled units. In easier access areas almost everyone can drive up with their uhaul and directly unload into the unit which makes thin one story buildings very popular. Imagine if you’re paying movers $30-60 per hour. A marginally cheaper storage unit with a huge time waste by poor access won’t cut it. Successful Self storage is almost exclusively on or near major roads with available signage. Otherwise why expect you would have greater than 50-70% occupancy unless you marketed heavily to nearby apartments.

Paul Moore · Answer

@Kristian Conway, if you want to get into self-storage, I would take my time and learn the business first. Scott Meyers is your man to teach that to you!  You could learn enough in 3 days to help you make a much better decision.  Feel free to connect directly if you'd like to get my special report on self-storage which will give you a quick start, but it will certainly not be adequate to get you to a decision point.

Henry Clark · Answer

@Kristian Conway

Around here $.85 to $1.00 per sq ft per month.  NNN to be discussed by you.

Look up Kansas City Contractor garages and look at their set ups.

Contractors don't want top road frontage.  They prefer off the grid, but close to the neighborhoods.

Good luck.

Always make an offer if it has value. You said maybe $100,000.  Ask for:

a.  $60,000

b.  $40,000 and then $40,000 no interest in 5 years.

c.  $80,000 if they replace and update the elevator to your specs.  etc.

Zach Quick · Answer

@Kristian Conway That's a really small facility, especially for interior units. How would you provide access and manage it? I think you're going to have a hard time finding buyers at that small of a site, but I could be wrong there.

Ronald Rohde · Answer

I don't know if C class tenants pay a lot for storage. It would concern me.

Kristian Conway · Answer

@Ronald Rohde The area is growing. There's a new apartment complex a few blocks away and they are breaking ground on another nearby. The property has a used car lot on onside, a small apartment building on the other and a duplex in front of it. All the apartments are C class properties and have a lot of C clientele that hang around outside. I'm pretty picky about area so this kinda turned me off of the property.

Ronald Rohde · Answer

is this area growing? What do the neighbors look like?

Self-Storage Conversion: Should I stay or should I go now?

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