What are the Key Components of a Self-Storage Real Estate Contract?

When you are writing a self-storage real estate contract, there are 4 areas of the contract that you need to pay careful attention to. First, the purchase price. There is a delicate balance between not offering too much and not insulting the seller to the point that they won’t even counter. Second, you need to make sure that you have the right amount of earnest money for the amount that you are offering. You also want to make sure that you protect your earnest money by having the right due diligence period. You need to have enough time to research the property enough to know whether or not you should actually buy the property. You need to put the right clauses into the contract to make sure that you know what you are buying.

In order to make the right offer, you need to know a little about your seller. If you don’t know what their situation is, you don’t know if they are motivated enough to negotiate. Some sellers are frustrated and ready to unload the property at any price, others are ready to retire, while others are trying to sell their investment for top dollar. If you don’t know your audience, you won’t know what kind of an offer to make. Each of these sellers will require a different type of offer. For someone who is frustrated, you need to find out what is going wrong with the property and why. Are they having problems because of management or a lack of knowledge or is it a problem with an oversaturated market? If the problem is the seller, then you can make the offer with a significant discount, contingent on due diligence.

If the seller is interested in selling because they want to retire, there is the potential for a seller financing deal. They may be willing to have a monthly income at a higher interest rate than they can get at the bank. Your job is to find out. Finally, for someone who wants top dollar and is unmotivated and unwilling to negotiate, you probably are not the right buyer for them. Unless there is room to expand or create an upside potential, you don’t want to pay top dollar for a property. You want to find properties that have the potential for profit.

When you are putting down earnest money, you want to offer enough that the sellers think you are serious. If you are offering $2 million for a property and you put down $1000 earnest money, they might not accept your offer. You want to make sure that your offer is strong enough that the sellers will want to work with you. In most cases, you can keep your earnest money from becoming non-refundable.

Always, have your offer be contingent on due diligence. You may think that you can do what you want to the property, but the city may have a different opinion. If you are planning on expanding, building, or converting a property, this is especially important. You don’t want to buy a property only to find out that you can’t do what you had planned.

Finally, when you are planning out your closing date, you need to keep in mind that some of your inspections can take months. Your appraisal alone may take one to two months. Your lending will take several months. It is important to talk to your lender before making an offer so that you know how long you need for financing. If you are planning on making changes to the property that need to be approved by the city, then you really need to give yourself some extra time. You don’t want to have to go to the seller to get an extension. If you do have to get an extension, the sellers might be willing to grant one if you are willing to allow some of the earnest money to go hard, become non-refundable.

When you make a low offer on a property, you need to make sure that the rest of your offer is really strong. You don’t want to go in with a low offer, low earnest money, a long closing date, and a million contingencies. The seller usually won’t accept that offer because there isn’t anything in it for them. On the other hand, if you look at it as give and take, you can usually find a way to make a deal happen. For example, if price is the most important to you, then you want to make the other areas stronger for the seller. That doesn’t mean have no contingencies, it just means don’t have a million. If you are more worried about being able to do a long due diligence period, then you may have to offer a little more. Before you make an offer, you have to decide what is most important to you and then structure the offer around your needs and the seller’s needs. As always happy investing.