You Make Your Money When You Buy a Self-Storage Property!

Sounds simple right. It isn’t. There are a lot of factors that need to be taken into consideration when you are determining your purchase price. You need to keep in mind what your exit strategy is going to be. Are you planning on buying self-storage properties with investors who expect you to sell it for a profit in a short period of time? What is the current cash flow and occupancy rate? How is the current market? What is the current condition of the property?

Ideally, you want to find a self-storage facility where you can double the purchase price of the property in a 3 to 5 year period of time. If you pay top dollar, or more than the property is currently worth, it will be nearly impossible to do this. Hopefully, you have found a group of investors to back you. These investors are in it for the money. If you are unable to find properties that can be improved and then sold for a profit, they are not going to want to continue to invest with you. You must buy at the right price.

When you are determining your purchase price, you also need to figure in the cost of renovations. If it is going to take $200,000 to get the self-storage facility in the shape that it needs to be in to bring in tenants, then you need to be able to increase the value by an additional $400,000. You need to be able to recoup your expenses plus a profit too.

How do you find properties that you can buy on the low end, and sell on the high end? One way is to find self-storage facilities that have been poorly managed, so they have a terrible occupancy rate. The purchase price is usually based on cashflow. If there are no tenants, there is no cashflow. This will help with getting the purchase price down.

When you are looking at self-storage properties that have a terrible occupancy level, you need to verify why they have a low occupancy rate. What are the current market conditions? Is the market oversaturated? If the market is oversaturated, then you are going to have a hard time getting your occupancy levels any higher. However, if the market is balanced or even under supplied, then you know it is a management problem. Next, how much competition is within 3 miles. What are their occupancy rates? If they are also low, then it might be a location problem.

Once you have verified that the market isn’t the problem, you need to look at what is wrong with the property. What is the condition of the property? Is it easy to get in and out of? Does it look like the doors are falling off of the units? Are the security fences falling down? Potential tenants want to know that their belongings are safe. If the property looks run down or insecure, they are likely to go somewhere else. Are the problems fixable? If they are fixable, what is the price tag associated with fixing them?

Access is important. If your renters cannot get to their belongings easily, they are going to go somewhere else. Most of the time the renters are driving a large vehicle. They may have borrowed a truck and trailer from a neighbor. If they can’t easily get in and out of your facility, they are going to find one where they can. If your facility has bad access, what do you need to do to make it so that there is good access? What is that going to cost? You need to know these numbers because they will figure into your purchase price.

Once you know the costs associated with fixing up the self-storage facility and what your upside potential is for that property, then you can make a better offer. Remember that you are trying to double your money on the property over a three to five year period of time. While you can’t always predict what the future holds, you can make safe assumptions. Self-storage rents will continue to go up. This means that your cash flow will continue to improve, and your property value will increase.

Take the time to find great opportunities. They are out there. You just have to hunt for them. There are a lot of properties out there that are selling for top dollar. There isn’t as good a margin for profit on these properties. Find the hidden gems. As always, happy investing.