Absolute Newbie Considering Self Storage as First Deal

[Tony S.]

Hi Everyone,

I've read through most of the threads I could find on self-storage and have seen a lot of good input from various sources. I am particularly interested in what Rich Weese and Michael Wagner have had to say in some of the threads I've read. Basically, as the subject line said, I have been watching real estate investing from the sidelines for a while, but have yet to pull the trigger on a property. I have found one that I think could be a winner, but I want to see if there is anything I'm completely missing and maybe gather some good questions I should take to the seller before jumping in.

The basics are that it is a 247 unit business, split between two locations. It is bank owned and currently on the market for just over $500K. With the current NOI, the cap rate is 10.6%, but that is at only 45% occupancy. The low occupancy is due to various factors, not least of which being that the bank doesn't want to spend money on it. It needs probably $30-50,000 invested in it to replace fences, gates, add cameras, etc. Competitors in the area are seeing over 85% average occupancy, which, if I could match, would give the property over a 19% cap rate.

One thing I've read that makes sense is that this is a business rather than purely a rental property, I understand that part of it and am willing to take that on, as I think there is significant upside to be had here. However, I absolutely recognize my lack of experience and my emotional response to what I see as great numbers, so I'd love to hear from anyone who knows about this sort of thing. What should I be wary of, what questions should I take to the seller, what type of financing would be best for this kind of deal? I have read that SBA loans are available, but it seems that commercial real estate ones would be too. It seems like there may be pros and cons of each. Do any of the pros have recommendations either way? Basically, I just don't want to rush into a bad decision, if there are red flags that those more experienced than me are seeing.

I appreciate everyone's time and input.

Regards,
Tony