Self Storage- Deal 11, No Zoning?

Helping a Friend out, several states away, who wants to get into Self Storage. We identified a property for sale on line and did all of the financial analysis, education, and marketing study on line over three calls. The numbers all look great. Profitability, cash flow, debt repayment, down payment, etc. Since it was a Friend, I decided to drive 13 hours and put my feet on the ground and drive the area.

Now my friend had said there was No Zoning in the county, just the city limits. I can easily understand that, but in my head it just didn't register. Who doesn't have zoning. Out of 99 counties in Iowa, ours was the last to establish zoning and codes, thus I had seen it both ways. As I drove into the area, I started noting Storage facilities in various areas, that made no sense. Finally looked at the property we had spent a lot of time analyzing and within 5 minutes said, we decided to take a pass. Beautiful facilities, again numbers worked, but now I realized there is truly No Zoning here. I explained why my Risk assessment of this investment was off the charts. Since anyone, anywhere could build another Storage facility. Normally I am always moaning about zoning, but as I have said before, the harder it is for us to locate a spot, the harder it is for other businesses also. Thus it is a safer investment.

Had to re-group and re-evaluate the way I normally assess and select a new storage location. Now knowing/understanding, we could build anywhere in the county we went through the following approach. Let's look for a great Customer based location, closest to them, at cross roads, two way intersections, road way visibility, etc. Then we took a look at the properties from a Competitor location between the customers to our location. We started noting flood areas, Large tracts of land that would not be split up to use as Self Storage. Who wants or could buy 200 acres, just to get 4 acres for storage. Power lines with large easements crossing the property. Etcetera.

We are chasing down some info for Monday. Subject to that we plan to make an offer on some land. This location will pressure two other existing Storage facilities, since ours will out position theirs. We are perfectly positioned for the customers ease. No land for competitors to buy within a reasonable distance. And, our location is not to big. I explained given the no zoning rule for the county, I would never build a large 300 and up location. I would prefer to build 200 and down, at several locations. Although this is not the best Cost approach, it is definitely the best Risk mitigation approach.

This was a really fun exercise for me. I had to rethink our approaches and come up with new ways to select and protect a new location. As always saw about 3 other locations that once my friend gets established, recommend they build.

Ran into an RV park investment that is not on the market, but they knew we were looking to invest in storage and wanted to discuss with us. My friend was worried they might ask $2mm; but I said they are generating $25,000 per month, with no property tax. So they should talk with them.

Not my area, but we identified a building that didn't fit what we wanted, but would be great for a reception hall which is needed in the area.

Also identified a need for Child care centers, even though that business is not viable right now with Covid. But these will be a great investment for someone looking with value, since they are financially stressed. Owning the building and renting out. Talked with a National broker and he noted within the next two months these will start to go on the market. People are getting tapped out.

But it's about staying in your lane and staying focused. They were amazed at all of the opportunities within a 10 minute drive, that they had never noticed. Their brains got turned on and the wheels started turning.

"Start small and Make Your Big Mistakes Early".

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03/30/2021

We finally decided on a 2.99 acre piece of property and closed on it.

Have the following identified:

a. Building mfg and erector.

b. Roads, plumber and pad contractor

c. Electrician to be identified

d. Sign company

e. Security company

f. Fence company need to decide on.

g. Got liability insurance in place for during construction.

h. Banking decided to use my bank in Iowa, will expand below.

i. He will need to decide upon a company name, Website name, and Storage location name.

Will start office first. And there is a pre-existing building that will be rented out.

Started site development. About 50 scrub oak trees needed to be taken out, so I drove from Iowa down to Texas to help out. This soil is very sandy. We only cut about 2 of the trees down with a chainsaw. Showed my friend hope to use a mini excavator and a skid steer with Grapple hooks to dig the trees out with the tree still attached. The extra weight of the trees just pops the stump and roots out when the fall. If you ever do this, get the narrowest bucket possible for the mini excavator. It will apply more cutting pressure. Don't use the knife hook. The bucket moving dirt out, helps to make the tree to fall.

Got all of the trees knocked down and piled. Most of them burned. He will need to do a second fire to finish them. Cost about $1,500 for the machinery and two days of work. Versus about $20,000 to have hauled off.

We updated our financial numbers since we now had actual quotes for the buildings, concrete pads and road. My friends project is actually going to turn out way better than my projects. Will have a 6.6 year payback; plus the office will be 1,200 sq ft and be his home, saving him about $300,000 to $400,000 for a house; which he does not want.

Banking was real unusual. Talked with 4 different banks in Texas and basically the same story. For conventional they wanted 40% collateral, versus I'm used to 25%. SBA they wanted 20% versus 10%. For a new customer and a construction loan, they actually did not want to do this loan due to the paperwork. They require vendor invoices as you go, which isn't unusual. But they would not pay the vendor until they were done and had signed a lien waiver saying they have paid all of their vendors and employees. That would mean we were basically financing the whole project out of pocket until near completion. Came to an agreement with one bank. They would finance after we were up and running with 6 to 9 months actual data. My bank requires an appraisal, and it will cost $4,500 versus $2,500 up here.