General ROI on storage units

[Taylor White]

Looking to get a general consensus on ROI for building new storage units. Looking at the prefab kits, 100-120 units.

Understanding that it this is different the state by state, but interested to hear the pros and cons for people that own both multi families and storage units. What are/were your biggest hurdles with storage units so far? And do you find they are more income producing than smaller multi family units (under 4 units)? Which do you prefer managing? Which do you find have less maintenance?

[Henry Clark]

@Taylor White

My family did a Trailer park for about 10 years.  We are now in Self Storage.

Short answer Self Storage is better on all metrics you noted above.  As mentioned by Steve Cheslock, higher barrier to entry, both dollars and zoning.

Long answer, can't answer you:

ROI, is relative to how you bought in, Self Storage or MFH. Are you talking the same market for both.

Vermont is too wide a spread of Economics.  Are you talking Manchester, Concord, Portsmouth; basically the Boston market.  Or Middlebury, Lincoln, Hanover.  Both Self Storage and MFH are very location specific on both their Land/Unit and Rental price.

Realize the same can be said for MFH (BRRR), but on your 100-120 unit location (2 acres) you have both the Development gain of $100,000 to $200,000 just building the location and getting operational. Plus the ongoing returns. Other than Land price, it would cost the same to build in no matter what town your in, expensive (Portsmouth) or inexpensive (Hanover). If you buy in at the correct price, your return will be greater in Portsmouth or Manchester. Your rent will be double. Even if your land price is double, your return will be higher since the building/fence/security/electrical/etc will be the same.

The really big swings in building a Storage location are: Footings required, Concrete/Asphalt roads or rock, Sewer/water required for bathroom, fire hydrant required, storm retention pond or drainage, etc. These will impact your ROI comparison.

On your ROI calculation, Self Storage-

Building maintenance- zero;

Snow/road/grass maintenance; 

Property Tax/Insurance ($2,000/yr)/electric lights/Interest Expense

Management fee- we do it ourselves, but for comparable charge something.  We spend about 25 hours per week on 800 units, including grass cutting/snow removal/weeds/customer calls- self service.

Advertising- we don't do any, but use Sparefoot (about .5% overall).

Depreciation/Taxes- leave to you.  We do early depreciation and shoot for negative returns the first 1.5 years depending on year one write offs.

We don't think about ROI. Our objective is a location with an 8 to 12 year payback (payoff-including debt/interest); on a 20 to 25 year term loan. We look at cash flow. Buy or develop, and hold. Plus market appreciation (which actually occurs immediately upon opening) on the backside.