Buy Junk!!! But buy Junk that has an Upside Potential!

To really be successful in self-storage, you are going to need partners. Eventually, you are going to need a lot of partners if you want to buy a lot of self-storage properties. You don’t want to keep finding new partners, you want to be able to keep the partners that you are working with and have them send you referrals to new partners. How do you do that? Buy junk!

You want to make sure that they are making so much money with you that they don’t want to go anywhere else. You want to make sure that they are so happy that they don’t even think about investing with someone else. This way, when people ask them how they are doing so well, your name comes up in a good light. How do you do that? Buy Junk.

When you are looking for properties, you are looking for properties that are underperforming. There are properties that are 90% occupied running at peak performance that you can buy at a 6% or 7% cap rate. That is not going to keep your investors happy. However, if you can find properties that are 50% occupied or less that can be turned around, those are the junk you are looking for. If you can find big industrial buildings that can be converted into self-storage, that is the junk you are looking for. These types of properties have a huge upside potential that will give you a lot of profit to split with your equity partners. These pieces of junk will make you the most money and keep your investors happiest.

How do you find these properties? Start marketing to owners of parcels of land that are about 3 to 5 acres. You want to start with the properties that are already zoned for self-storage. Self-storage can be built in a few different zoning codes so find out what they are in your area. This may range from Churches to drive-in movie theaters to big-box retail stores. This is why you start with the lot size that you want that is in the right zoning code.

Some of these properties will be abandoned, which makes for a great potential conversion, others will be running at extremely low returns and others will be asking top dollar. Your job is to sift through all of the potential sellers and determine how to make money on the ones that are interested in selling.

For example, let’s say that a bowling alley calls you back. It has been barely squeaking buy for the last 4 years. They have a huge parking lot, and they are a 4.5 acre property. They are motivated and willing to sell if you can move quickly. You talk to the city and verify that you can do self-storage in this location. This is the kind of junk you want to jump on.

Your next call is from a retail store that is performing beautifully. The owner is ready to retire and wants as much money as possible. They are familiar with the market, and they want a 7% cap rate. This is probably not for you. However, you might as well refer it to someone to make a small finder’s fee rather than saying, I am not interested. You can refer this to your realtor for a marketing fee. This way you make a small fee off the work that you have done.

The next project is huge. It has a wonderful upside potential, but you don’t have enough capital to make it happen. This is a great time to wholesale the project. Get the project under contract and then sell the contract to a bigger, more nimble company. There are a lot of companies out there that are in the market to buy properties. The finder’s fee can be anywhere from $10,000 to $100,000 depending on how good the deal is.

Start looking for junk. If you find the deal, the buyers will come. This is a great business to be in and there are amazing opportunities to be found. As always, happy investing.