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Are you investing in self storage?
I'm surprised there's not a category for self storage. In my opinion, it's as lucrative as mobile home parks and easier to come by.
I would love to connect with others that are investing in self storage facilities.
@Nathan Gesner I would also be very interested in contacting others interested in self-storage.
#5 Medium-Term Rentals Contributor
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- Youngstown, OH
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#5 Medium-Term Rentals Contributor
- Investor
- Youngstown, OH
We looked at a business once several years ago. I don't recall why we didn't move forward; I think the operator wanted more than we deemed it was worth. The idea hasn't left my mind, but I haven't acted on it.
Hi @Nathan Gesner, @Griffin Schermer, @Nicole Heasley Beitenman, and @Bryan Mitchell. Great question. I am investing in self-storage with a growing group of passive investors. I am not an operator and never plan to be one.
After doing residential real estate for years, I broke into commercial as a partner in a multifamily development in North Dakota a decade ago. Then I ended up writing a book on multifamily investing, and told my wife I was in apartments for life (she was tired of all the restarts over the years!).
After years of banging my head against a wall looking for profitable multifamily deals, I concluded the space was significantly overheated and I branched out into self-storage and mobile home parks. I have been extremely happy that I did.
We have profited from 6 asset sales since September (under 5 months). We have been happily surprised at the upside available from paying a full, fair price to a mom-and-pop seller, upgrading, increasing revenues, and selling to a higher level buyer (like an institutional player). I'd love to hear from others about their experiences.
Thanks for sharing, @Paul Moore! I have always been interested in self storage (no toilets, low turnover) but never investigated it fully. An investment group bought a property with 200 units on it and hired me to manage them. I jumped at the opportunity to learn the business and it has been amazingly simple. There were struggles cleaning up books, bumping up rents, chasing down tenants, building processes, etc. It's only been one year and it's running so smoothly that I decided to try and jump in myself.
I cold-called storage facilities in my area and found one interested in selling. Long story short, it's been poorly managed for the last five years. Out of 157 units, they currently have almost 70 vacant despite high demand. The property also has three residential rentals that are 30% below market. I made an offer based on 2020 performance and they accepted it! I anticipate turning it around in under a year and easily doubling the value by 2022. I'm buying this property at the price of two single-family homes but it should net more than six single-family homes. That's hard to beat!
@Nathan Gesner & @Paul Moore - thank you both for sharing your experiences in self storage. I've recently been turned on to the space after having difficulties finding multifamily properties that will cash flow in my area (to @Paul Moore point about the market being overheated).
How did you go about finding and evaluating storage opportunities? The framework for residential is fairly clean cut but I'm new to the commercial landscape. Any books, podcasts, thought leaders, in the space you would recommend I checkout?
I found it by calling storage facilities and asking if they were interested in selling. That's it. No magic formula, no special script. I haven't read any books or even online blogs. I do have the benefit of experience in real estate, own 30 rentals, and manage 200 storage units so I know the business fairly well and am confident in my ability to figure things out on my own.
@Nathan G. If you set your keywords to storage there are a handful of us that have been here for awhile haha. Glad you jumped in and enjoyed it thus far.
I'm hoping to buy a facility soon also. I've done some marketing and networking for deals. Have a few appointments coming up with potential. I'd also like to connect with anyone that is getting into or already into storage.
Congrats on your deal Nathan. Sounds like a lot of upside in that deal.
I'd love to pick up one in my area! Seems like more up side than dealing with tenants. And I need 1 unit to store all my extra flooring, tile, wood, etc...
@Nathan G.
Congrats on the deal! Would you mind sharing how you evaluate (i.e. formula) whether a storage unit is a good deal? For example is the cashflow something like: rents - debt service - utilities - insurance - trash - security system, etc? Can these be self managed easily?
I am a newbie investor and have been looking into storage units and would love to invest in them one day. I love the idea of less maintenance and hopefully less tenant drama. Do you have any advice where to get started? I have gotten as far as looking up storage units on loop net and comparing cap rate.
@CJ M.
I’m also interested in this question
Originally posted by @Heath M.:I'd love to pick up one in my area! Seems like more up side than dealing with tenants. And I need 1 unit to store all my extra flooring, tile, wood, etc...
LOL! I was thinking the same thing! I currently rent a storage unit for $80 a month to store supplies for my property management company. By owning a storage facility, I can rent from myself!
Originally posted by @CJ M.:Congrats on the deal! Would you mind sharing how you evaluate (i.e. formula) whether a storage unit is a good deal? For example is the cashflow something like: rents - debt service - utilities - insurance - trash - security system, etc? Can these be self managed easily?
The short answer is that I took the 2020 net profits and divided that by the cap rate. That gave me a valuation of $550,000. However, I know the current owner paid $450,000 six years ago and that it appraised for $650,000 two years ago. I also know what other storage facilities have listed for in the last couple years. I threw out an offer of $550,000 with the expectation that they would counter back at $600,000 to $650,000. Instead, they were desperate to unload the property and accepted my offer.
I manage 200 storage units and know the market well enough to understand what the net income should be if properly managed. Based on conservative estimates, I anticipate the property will be worth double what I offered and will net at least 2x current net.
@Nathan Gesner did you pay cash on the deal or finance it? If financing took place what was the down payment? I looked at a storage facility at one time and was told 65% down would be required.
@Nathan G.
I invest in smaller Mom/Pop storage facilities in tertiary markets throughout the Southeast. Currently own/mange a small facility in South Carolina with another under contact in GA. It’s a great business.
Originally posted by @Bryan Mitchell:@Steve Cheslock, what do you consider “small”?
I look at facilities between 12,500-40,000 sqft.
Originally posted by @Steve Cheslock:I invest in smaller Mom/Pop storage facilities in tertiary markets throughout the Southeast. Currently own/mange a small facility in South Carolina with another under contact in GA. It’s a great business.
The facility I'm purchasing is about 17,000 sq.ft. What's the reason behind facilities of that size? Less competition? Easier to manage?
@Nathan G.
Good question.
12,500sf: I have found that that is the min number of square footage where you can automate a facility and still achieve close to maximum efficiency with expense ratio. If properly managed expenses should take up 35% of gross. Anything under 12.5k sqft I’ve found that the fixed costs are too much to achieve that 35%.
40,000sf: This is just a personal rule of thumb where currently I’m trying to stay away from the spaces where the institutional players are operating (if I can). I’ve found that usually 40,000 is their minimum investment. I plan on going to bigger facilities over time but right now I know I’m not currently capable of competing with them as effectively as I would like to because of experience level and capital. Like anything you start small and grow.
Hope this helps.
Originally posted by @Steve Cheslock:12,500sf: I have found that that is the min number of square footage where you can automate a facility and still achieve close to maximum efficiency with expense ratio. If properly managed expenses should take up 35% of gross. Anything under 12.5k sqft I’ve found that the fixed costs are too much to achieve that 35%.
40,000sf: This is just a personal rule of thumb where currently I’m trying to stay away from the spaces where the institutional players are operating (if I can). I’ve found that usually 40,000 is their minimum investment. I plan on going to bigger facilities over time but right now I know I’m not currently capable of competing with them as effectively as I would like to because of experience level and capital. Like anything you start small and grow.
Good information. Thanks!
Totally agree with @Paul Moore and I think Self Storage and Mobile Homes don't get the same attention as Apartments because people, in general, don't really understand the asset classes, unlike apartments everyone gets the concept rather quickly.
@Nathan G. I've seen the self storage bubble pop about 3x in the last 15 years. Makes me nervous as hell.
Originally posted by @Account Closed:@Nathan G. I've seen the self storage bubble pop about 3x in the last 15 years. Makes me nervous as hell.
What do you mean by "bubble" popping? Major vacancies and loss of income? Drop in property value?
I know people that have owned storage units for over 20 years and they tell me vacancy rates go up and down but it's generally pretty steady. The guy I currently manage for has never been below 90% occupancy rate and is typically above 95% occupancy.