Self Storage- New Investor Financing 2
At Bottom- Added both a financial Cost estimate/cash flow/layout worksheet and a Self Storage checklist 101 spreadsheet. If you need on Excel, have to colleague, since I can't send Excel files. Not all of the info shows on this paste.
New investor asked about max house refi to invest in Storage and holding excess cash.
Depends on the numbers and your objectives (do you plan to make another investment or move homes)? Change the numbers as you see fit.
Example A, Refi House:
Storage Build all in, $500,000
Home/land is $600,000
Existing Home loan balance is $150,000
Okay going below PMI to 20% value, thus cash out refi is $600,000 - $150,000= $450,000; 20% of $600,000 is $120,000; thus cash out is $450,000 -$120,000= $330,000 cash out.
Interest rate is 3%. Deductible or not?
Appraisal $2,000
Storage build is $500,000 less cash out $330,000= $170,000 loan for Storage.
Interest rate- 4.5% deductible, non-SBA.
Appraisal- $2,500
Problem 1- You probably didn't recognize, but now you have two loans with two different banks. You now have collateral with two different banks and since banks don't like taking a 2nd position on a loan, you can't use one of the collateral with one of the banks. Point- try to do both financings through the same bank. They will cross collateralize these two loans then. Also check with them on their "Loan Cap Rates" to make sure they can service you into the future.
Problem 2- Going SBA, you will research whether a Home loan versus an SBA loan both interest rates and term lengths are comparable. Point- Both may be close. If a traditional commercial loan the collateral and interest rate will be higher and the loan term will be shorter than a Home or SBA loan. Find out if SBA will allow collateral against a home, or if you have to bring cash.
Problem 3- if you go SBA loan, then the $330,000 you cashed out and applied against this property, will not be usable on your next project unless you use the SBA. Point- SBA has restrictions on what they will invest in. Your Collateral might be tied up and not usable.
Example B, Second mortgage or HELOC:
1st rule of Real Estate investing is to put as little cash into the investment as possible. Leverage Debt. Keep cash (grow to dislike Cash) or collateral back for emergencies, poor planning or new investments.
Everything same as above, except take out a second mortgage or HELOC, for the least amount of money as possible. This will depend on your funding source:
1. SBA 10% collateral- you need either $500,000 x 10%= $50,000 cash or collateral. Point- don't put your home up for SBA collateral, it will get tied up.
2. Conventional commercial loan 25%; $500,000 x 25%= $125,000 cash or collateral.
3. Conventional commercial loan 40%; $500,0000 x 40%= $200,000 cash or collateral.
Action- take out a second mortgage or HELOC with your existing Home loan bank for the minimal equity position of $50,000/$125,000/$200,000. Point- this leaves any remaining collateral in your home/land accessible with a second refi.
Loan steps:
1. Take out a construction loan first with a local bank, even if going to SBA. Ask for interest only until you hit 65% occupancy or 18 months from opening. Do your numbers. 65% should get you to Cash breakeven. Principal and Interest payments also covered. Even at 35 to 40% occupancy you should be able to cover Principal and interest.
2. Convert the construction loan over to a term loan. With SBA or bank.
3. In your term loan, most banks won't go past 5 years. Make sure there is a rider that only allows for X% points of rate increase. Like 1% point up to 2% points for every 5 year adjustment.
4. Loan payoff. You should have structured your Storage deal to pay off in 8 to 12 years. If you financed for 20/25 years, then you will have excess cash coming in. You can spend it, or save/apply it against the loan. Point- see 5 below.
5. What if interest rates increase? They will. I am hesitant to invest above 7%. Will not invest above 9%. If I was doing flips, which we stay in our "lane", I could go 15% APR for 6 months. Point- Don't get caught where your numbers don't work. Try to pay down quick. You can always do a refi, if you need cash for your next deal, or use your first storage equity as collateral for your second. If your paying down ahead, then by year 4 to 8 you should be in a good equity position, even it rates skyrocket.
6. Make sure you are in a good financial and personal position, so the Commercial Banks will refi you at the end of the 5 year term.
"Start small and Make Your Big Mistakes Early."
Storage Startup Checklist 101
Response to Zagreb, Croatia startup
1 Why Do Storage?
2
Why Storage? Why you? I’ll do a separate Topic. Don’t know your financial’s, but you will outstrip your collateralization fast. Develop a relationship with someone you trust and bring them along for the ride. Preferably an Apartment developer. They don’t have to invest in the first project, but you will need them later. Make sure this a solid relationship, otherwise they will cut you out once your successful. 3 Market/Demand:
4
Market size See post, if your the “first”, then you don’t care. You have more than enough Market, in a 800,000 Pop city. 5
Outside or climate controlled? Let your search and “deal” decide. Look for both an outside Land acquisition or an old industrial building. If you get a large enough building, finish it out in stages. 6
Market location Seek your higher income areas first. Pick along the A2, A3, A4 corridors first. Stay away from the mountains. Do several small locations, no smaller than 1 hectare. Once you have the experience and Financial support, go for a Climate controlled location in an old neighborhood that is high income or rebuilding itself. 7
Zoning See post 8
Site location Have several searches and deals going at once, most of them won’t pan out for the price you are willing to pay. This way you “can walk away”. This gives you negotiating power. 9
Site acquisition
10 Financing:
See “Topic” 11
Financing-construction Find a banker who knows Apartment building construction 12
Financing- rent up stage Same as above. You want “interest only” and not principal for a portion of the rent up period. 13
Financing- long-term If your going to grow, unless you have significant capital at your disposal, find a future business partner. 14
Business Model I’ll clean up and post one of my spreadsheets later. 15 Construction:
Use local knowledge/availability 16
Permits
17
Building type
18
Building manufacturer
19
Contractor
20 Day to day:
21
Rental Contract Post a “Topic” on this Forum and ask for some copies sent to you. 22
Rental Rates Zagreb’s GDP per capita is $19,132 versus where I live $60,246 metro area of 1mm. Thus if I say a 10 x 20 “Foot, not meter” unit is $120, then yours would be around $40. Making this simplistic. Get on Sparefoot and pick a US city similar to Zagreb and pick out prices for 10 x 20/15/10/5. Then take 1/3 of that for your price in US $, then convert. Recommend you don’t use this as your starting prices; go after a richer neighborhood and charge higher prices. 23
Auction rules Post a “Topic” on this Forum and ask for some copies sent to you. 24
Security system Situational, work with your local security firm. 25
Fencing situational 26
Self Service or manager situational 27
Management software Since the world is internet based, see if you can use one of the Storage management softwares in Zagreb. Do not do this on a spreadsheet or paper. You need to develop a system to grow with. 28 Marketing:
29
Website check ClarkstorageLLC, and others on this forum. Take the best from each and make a template, for a better one. 30
SEO management Since your the only one, you just need Google Map Pins and build up your google ranking under key words. 31
Marketing Software Sparefoot or similar in your market area. If none exist for Storage, seek out Apartment, home, AIRBNB, Craigslist sites. If you have Craigslist, put an add out there with your offering and price. Different sizes and prices. Get feedback. 32
Marketing Something you probably already know. 33
Social Media Something you probably already know. 34 Insurance:
Leave to you for local knowledge 35
Business
36
Renters
Sundry:
Leave to you for local knowledge
Property taxes
Legal system
This is an example, for discussion only.
A. Project Cost estimate from ground up.
B. P/L revenue stream
C. Valuation Buy/Sell
Adjust all of the above to your local market and situation.
A. Self Storage Project Worksheet
Drive up Storage
Notes:
Land $200,000
4 acres at $50,000/acre
Survey $7,000
Site, elevation and building layout
Fence $30,000
Black chainlink
Gate system $25,000
Automated rolling 20ft
Engineer
if needed; $30,000 to $60,000
Dirt work $15,000
Slight roll, no dirt brought on site
Building demo
if needed, $15,000 to $60,000
Electrical- site $7,000
building lighting and office if needed, LED.
Electric poles
if needed; $2,000 per pole. First is free if nearby.
Security $10,000
Storm drains
if needed; $50,000 to $150,000
Water
if needed; $5,000 just plumbing
Water line
?? if an extension could be $10,000 up to $150,000
Fire Hydrant
if needed, $3,000
Sewer
if needed: $5,000 plumbing
Sewer Line
if needed; $10,000 up to ????
Buildings $1,180,800
Phase 1 2 acres
Office
if needed, plain storage unit 20x30; $25,000 insulated.
Office setup
if needed, $5,000- computers, printers, HVAC, frig, cabinets, etc
Footings
if needed. ??????
Roads
Gravel
if needed, ?????
Asphalt
if needed, ?????
Concrete $676,133
6 inch Cubic yards, framed, poured, sawn,
Retention Pond
if needed, part of dirt work cost, less land for buildings
Landscaping $5,000
I like trees and bushes. Less sterile
Road Sign $15,000
For highway 55mph billboard sign
Total $2,170,933
This is an example, for discussion only.
Adjust to local estimates
Green change or fill in.
Combination PL/Cash flow
Intentionally leaving out Depreciation and Taxes
Annual
Notes:
Revenue:
Gross $354,240
@ 90%, after rent up period
Late fees $0
as needed
$354,240
Electricity $2,400
Water $400
Sewer $300
Grass $1,000
snow removal
as needed
manager
as needed, I do self service by phone; do you pay yourself.
maintenance $3,000
Insurance $3,000
Property/Liability
Property Tax $25,000
use local
Loan P/I $120,000
Get your bank to do 20 year amort, adjust based on how much equity you have to put in 10%/15/25/40/etc.
Depreciation
left blank for Cash analysis
Cash out
$155,100
Pre tax
$199,140
Tax
$59,742 as needed, adjust Loan P/I for Depreciation expense
Net cash
$139,398
Payback:
Total Cost:
$2,170,933
Less Equity infusion:
$217,093
10/15/25/40%
Net loan position
$1,953,839
Annual cash flow
$139,398
Payback years:
14.0
Financial Objectives:
Change calc/terminology etc to your objectives. Example: cap rate, etc.
I normally shoot for an 8 to 12 year payback, with a 20 year loan amortization.
This is based on the location/deal on hand. Any improvements in performance on top of that will be gravy.
My 8 to 12 objective will be met once Phase 2 is completed, versus the 14.0 years shown above.
Phase 2 is where you make your real money. I always have phase 1 pay off
the land, fence, Electrical, sewer, grading, etc.
How many phases or units should you build to start?
You can always build more buildings. I always shoot for 65% occupancy covers all initial costs for Phase1.
In this example, I would probably only build the first 15/30/40 buildings.
This is an example, for discussion only.
Layout Phase 1, 2 acres
Assume the 4 acres is square.
Setbacks- front/side/rear
Assume roads are not allowed on this.
Driveways- 25 foot
295
Buildings-15/ 30/40 foot
590
Turnarounds- 50 foot
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Entrance
10
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Gate
10
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