Self-Storage. Help me analyze this deal/strategy!

[Tyler Hardy]

First off, I'd like to say that this is my first dealings in an investment property and yes, I know starting off with a plan of this scale is a little out of the norm. That being said, I'd like to see what you professionals think of my plan and the way I'm going about it. 

I've been putting things in place to develop a storage facility in my area (Pike County GA, i.e. Zebulon) focusing on boat, RV, and general parking storage. I've priced out the paving, fencing, buildings, grading, ect. that would be involved but I've not identified the specific land lot for this. I have a short list including the perfect site but I'm putting a plan in place to do things more methodically. 

My plan is this. There is a small self storage property in the same area as my intended park that is off market, but the owner is ready to sell (it was brought to me by a local broker). This property is a 2 acre lot with only 40, 10x10 units on the site. Nothing else is developed. It's at "full occupancy, and has been for years" as far as the broker is being told, which means this guy is not charging what he should and doesn't have any intention on raising rates. My plan is to purchase this property at around $165-$180k (he's asking $225k) and immediately raise rates and add 1 acre of parking. I've not been told his current rates since I'm not under contract yet (and yes, I called the number on the sign many times but he doesn't answer AT ALL). In adding parking, which is a major need in my area, and raising rates to the local average I should be able to double the NOI within a few months based on my numbers. I've already got a few people that have said they need a spot as soon as I get it available. Then I'm planning on using that increased profitability as leverage/collateral on my larger development. Which would be a 150-170 space parking storage with paved and unpaved, cover and uncovered parking. I'm targeting a mixed market clientele including RV's, boats, cars, and even local companies that I've spoken with just needing a place to park trailers which should give an income diversity throughout the year. Not just a full park in the fall and winter, and an empty park during the spring and summer that many boat and RV lots seem to have an issue with.

My thoughts are that starting small would give me a good test of the local market climate, using a smaller initial capitol investment as a stepping point to a larger amount of capitol (i.e. using the increased equity of the small property as leverage towards the larger park), and also more of the experience I would need to understand the industry as a whole. 

I'd love to hear your thoughts on this. Do you think funding would be an issue on any part of this? Are my thoughts correct on using the small park as leverage? Am I missing something? I've spoken with countless people in the industry in my area, as well as on this forum about this and they all agree that the large park is a great idea. But it's my method of funding it through the small property that I'd like some opinion on. Please don't hold back!

[Henry Clark]

Please take the following logic and adjust to the land and your market.

Is land square, rectangle, or odd shaped.  Are the existing buildings put off to the side or in the middle of the property?

Lets say you have a rectangle and the existing units are to the side, allowing full use of the remaining property.

Option 1:  2 acres, you should be able to put about 120 storage units on it.  You have 40.  Thus another 80 at $4,000 per unit at current market erected prices.

80 units at $320,000.  Add in road, excavation, electric, security, etc.

80 units revenue at say $80.  $6,400 per month at 90%= $69,000  annual.

Option 2:  Add about 1 acre of parking.  Lets say rock surface.  About $15,000 grading and rock.  Assign some land cost to this.

Say 30 to 40 foot units, then about 50 parking spots at say $45 average.  At 70% average occupancy.  $19,000 annually.

Update the figures to your market and situation.  You will find there is a great demand for parking, but it doesn't pay very well; unless you find some very cheap ground that already has rock or concrete paving on it.  Also check your zoning first, to see if they allow dirt or rock surfaces.

You will also find that RV's are the worst when it comes to break in and theft.  So have a good security system set up.  Offer them a wireless alarm system such as Asset Angel.  I just purchased one and am about to try out.