3 Due Diligence Items You Don’t Want to Miss!

There are a lot of due diligence items that you need to check when you are buying a self-storage facility. Any good mentor can review that list with you. However, there are a few items that stand out that you want to make sure you know inside and out. There are a few reasons for this. Your investors are going to ask you about these items, and if you are getting a loan, your lenders are going to ask about these items. Your success is going to be based on the results of these. You want to make sure that you do a thorough job during your due diligence period. You don’t want to buy a property only to find out in 5 months that it is a dud.

One of the most critical components to your property being successful is the numbers. You need to make sure that your numbers are accurate and that they reflect what is currently going on in the market. You don’t want a pro forma that is based on rent projections one year down the road. This is nice to know to give you a feeling of whether or not there is upside potential to the property. However, it doesn’t let you know if the property cash flows now. What if your plans change and you suddenly have to sell today? If you are underwater in the property, you will lose money. Always buy based on today’s actual numbers.

Now, you need to trust, but you also need to verify those numbers. You need to see rent rolls. They need to support what the property owner has said the property brings in each month. You need to make sure that they are legitimate renters who intend to stay. Not Aunt Mary and Grandma Smith. You also need to look at the expenses with a magnifying glass. Do these expenses seem realistic, or do they look like they may have shaved off as many items as possible? You have to be able to maintain the property if you want to keep quality tenants. You can’t do that without a working budget. Create your own expense list. How do they compare?

The second item that you need to verify is your feasibility study. This report is going to be huge. It may end up being hundreds of pages, depending on your property. However, there is a summary in the beginning that will review the basics. That feasibility study is important. It is a non-biased opinion of the property and how well it is performing. It will tell you everything you wanted to know, and maybe a little more. Don’t ignore this. Don’t think that you know better. They are not emotionally involved, and like it or not, you might be.

This study is going to help you convince your lenders to work with you. It is going to help your investors feel like you have found a good property. If you don’t know how to read one, ask your mentor or coach to help you.

Finally, make sure that you know what you are doing for your financing. Are you bringing in investors? If so, are they short term or long term investors? How quickly do they expect you to sell the property? Are you getting more traditional financing? If so, what are the terms of the loan? Will your property still cash flow? Do the terms work? You don’t want to be put in a position where you are going to lose the property.

This is a great time to be in self-storage. Look for the great opportunities that are out there. Do your due diligence and make sure that your property is a good way to invest. As always happy inv investing.