Self Storage- Cash Management

Well its supposed to get up to 100 degrees today. Decided to move and store our Bollards that were delivered yesterday. 7 foot long, 6 inches diameter, oil drill stem, $40 each. The ones below are for a future project the rest are at out CB- RR location for our upcoming new buildings. Bought about 100 in total. They are hard to find.

Thought I would take a break and write a post, I thought about 2 days ago. Had a guy I have been helping say he got beat out on an offer by a cash buyer. My wife said we have $17,000 in that location account and have to pay the ½ property tax $19,000. Couldn’t think why the above two are issues. Lack of communication and understanding on my part. You will see below.

Today is September 11th. Thanks for everyone. September 11th for me was a surreal day.

That week was one of the happiest in my life. We just got back from South Korea with our adopted son. Was at work and went to the TV to see what was happening. Saw a “speck” falling down along side the towers. Realized it was a person jumping to their death. It wasn’t TV, I could feel the person dying. Went out to mow hay in a field that afternoon. Was like I was 200 years back, so peaceful. No planes or plume trails. No car noise on the highway 2 miles away. No noise, could picture Indians walking across the field. Went on the back porch later that day to drink a tea. Saw 3 Boeing's racing off in a close row, with two fighters alongside. It was the president heading back to Washington. All I could do was yell at him, to get his butt back to Washington.

Well lets dissect Cash management:

1. Purchase- SBA 10%; Seller financing- part now, part 5 years from now, no interest; Conventional- interest only Construction period. Save as much Cash outlay as possible at the time of purchase or development.

How did my acquaintance above, get beat out by a “Cash” buyer? I don’t understand this, because we are all cash buyers. If your making an offer with Seller financing, make sure your offer is only good for 3 days or less. That way if Seller financing doesn’t work, they have to reject your offer. Then you need to come with 100% financing or “Cash” purchase. You need to be pre-approved or have a 30 day due diligence period to cover your loan approval period.

2. Occupancy Ramp up- “Interest only” during occupancy ramp up. Make it in terms of Months or Occupancy %. We use 18 months and/or 65% occupancy. This will cover Principal/Interest and all expenses in Phase 1. Phase 2 usually only requires about a 35 to 45% occupancy to cover new building needs. If you have an operational Facility then you should be positively cash flowing already.

Value Add costs. Make sure your bank understands you will be coming back to them for additional loan capacity. Your banker would prefer to know this ahead of time, so they can write it into the original loan document, versus create a new loan.

3. Ongoing- no issue. As long as you did your numbers and now hit your targets, your in positive cash flow. The key is to not treat “Storage” cash, as a piggy bank for your other cash needs.

4. Large lump payments- Your largest lump payments will be Property Taxes, Insurance and Income taxes. Above, I didn’t get why our $19,000 property tax bill and our $17,000 cash on hand position were an issue. You don’t have to pay the property tax when it is due. This location is running $12,000 per month at this stage. Also when we get cash positive, I always pay the two payments off up front. That way there is no forgotten cash need in the future. Again, you should be positively cash flowing and not need to hold cash. Use the Cash you have to take away future bumps. Or pay more down on your loan.

5. Operational- Bank Account, one solely for the Self Storage location. Don’t mix with your personal or other business. Credit Card- one just for Self storage. Provides better tracking versus just paying with cash, when you don’t have your check book with you.

6. Cost Segregation- Depending on the size of your location always do a cost segregation study. If your developing, make sure your Road bills are segregated from your building pads or dirt work. Example: On a $1.5mm deal. Say $300,000 concrete roads, $50,000 Electrician, $50,000 Security, $5,000 landscaping, $60,000 Fence, $10,000 Office equipment, etc. This is 15 year life or less assets. These can be either written off in year one, or over the first 5 years. I prefer to write these off in year one, while you are short on cash. Hopefully don’t pay (cash) any taxes for the first 1 or 2 years (Loss carry forward).

Fix/Flip- don’t do Cost segregation since you will need to do depreciation recapture.

7. Auto pay only- credit/debit card or bank account ACH. Our two latest/largest facilities we moved to Auto pay. This is more of a reduction in management time versus a Cash decision. At our other locations, we have started moving all new customers to Auto pay. The reason this is a “Cash” discussion is it improves your Cash Cycle. No more payment is in the mail. You get to “lock out” quicker. Which means more “good” stuff is left in the unit, which means they are more likely to pay.

Prefer Credit/Debit card since this is an immediate notification. Bank ACH may be a week after your system charged before you know insufficient funds.

8. Unit Auctions- Only accept cash or money orders 3 days before the auction. If they pay with a credit card or a check one day before the auction, they can cancel after they get their valuables out.

9. Cash “Control”- if your not managing your facility you need a weekly cash/rent/bank reconciliation report and every few months take a Rental unit audit and Rent price audit. This becomes less of an issue when you move to Auto pay. You still need to do the above audits.

10. Contractors- Always pay the "next" day after you get the bill. They are your team. I can call at 7 pm on a Sunday and they are happy to talk with me.

Start small and make your BIG Mistakes Early.