One Self Storage Facility - $1.5 Million in Profits

[Michael Wagner]

Investment Info:

Other commercial investment investment in Syracuse.

Purchase price: $330,000
Cash invested: $40,000
Sale price: $1,800,000

Purchased in 2011. The property sat on 11.5 acres, 5-1/2 or so that were wetlands and unusable. 3 buildings totaling 10,000 square feet; 74 outdoor parking spots. The owner was elderly and the property was neglected. Going in, we took the numbers with a grain of salt. Although the property was capable of generating $131,280 in revenue, she was only collecting $51,000. Expenses were 80% of what was actually being collected, leaving only $20,000 in profit (before any debt service).

What made you interested in investing in this type of deal?

It gave me the opportunity to get out of landlording and into something that generated wealth more efficiently for me.

How did you find this deal and how did you negotiate it?

It was listed and I sought to buy it at or near replacement value. The owner's bank was pushing for a sale (short sale) to avoid taking it back and they were represented by a broker who knew the industry well. As such, I didn't steal the property but paid just about replacement cost ($30ish per square foot).

How did you finance this deal?

$40K of my own money (extraced from my multi-family portfolio)
$60K privately
$250K bank loan

How did you add value to the deal?

Simply put, we answered the phone and serviced out customers the way we would want to be serviced. The first year our NOI came to $47,234 ($30,000 more than at purchase). The second year we did even better with $90,000 more than projected. We added 2 buildings and the projected income then jumped by $50,000. By years 2016 - 2018 the numbers just increased. The revenue was at $220,000 - $225,000 and after expenses our NOI was at approximately $160,000.

What was the outcome?

We sold for $1.8 million, which is 11 times the NOI. This makes for a cap rate of about 9% which is great (though I suspect I could have sold at an 8-8.5 CAP had I held on longer. We owed about $800,000 on the property but selling for $1.8 million will put a million in our pockets before taxes. And I was able to move a vast majority of these sale proceeds into an Opportunity Zone Project that effectively deferred all of the capital gains taxes.