Negotiation is the Key to Self-Storage Success!

Every day you negotiate. You negotiate on every aspect of your life. Self-storage is no different. You are going to have to be good at negotiating if you want to be the one who ultimately comes out as the winner in a self-storage transaction.

It is very unlikely that you will be the only person who is bidding on a self-storage facility. There will be times when you find a property where the seller didn’t know that they wanted to sell and so you are the only bidder. However, in most cases, plan on being in a multiple offer situation. This means that you must be able to find a way to get the sellers to choose your offer instead of one of the others.

The first step in negotiation is building that relationship. Ask them about the property. Get them talking. Listen. How big is the lot? Remember that 3 to 5 acres is ideal. How many square feet? Remember that 50,000 is your minimum. How many units? How are those units spread out in sizes? What is the parking lot/driveway area made out of? Is it gravel or cement or asphalt? When was the last time they did maintenance on the property? What are the financials on the property? Can you get a copy?

Now you are going to ask them the only question that really matters. Ask them why they are selling. If they won’t tell you, that is information too. If they are selling because of a transition in their lives, then make sure that you understand what the timelines are for that transition. If they are going through a divorce, when do they want to close the facility? If they are selling because they want to retire, is there a rush to get things done? Once you know the why, then you can cater the entire offer to that why. If they won’t tell you why they are selling, ask them to tell you about the property. Ask them to tell you why you should buy it.

The next step in the negotiation process is to get the financials. You cannot make a good offer without seeing the financials. They may tell you that the property brings in $659,000 net operating income but you need to see how the property is doing that. The seller may not have deducted enough in expenses. Make sure that the financials are up to date. You want to know what is going on right now, today, not a year ago. Look at the last 3 months. Are things trending down? If so, why?

Always ask how many offers there are on the property. You need to know how much competition there is. If there are 10 other offers, you may decide to go in with your highest and best offer. If there are no other offers, you may go in a little lower knowing that you have room to negotiate.

Find out if there have been any offers that they have rejected. This way you don’t make an offer that has already been rejected. This will save you and the seller time. If possible, find out why they rejected the offer. This could help you with the why. It definitely gives you a starting point for writing your offer.

Ask if there have been offers in the past that have not been able to close. If they were unable to close, ask why. You don’t want to spend time on a property that has a problem that may cause you to reject it during your due diligence. If they are hesitant to let you know, remind them that you will be doing the same due diligence and going through the same financials that the last potential buyers did. If the last buyer couldn’t get a loan on the property because of the property, then you know your offer must be cash. Any information you can get up front saves you time and helps you negotiate better.

When the circumstances permit, present your offer in person. You don’t want to be a faceless piece of paper. If you can’t present in person, ask if you can hit the highlights on the phone with them in case, they have any questions. Every time you present an offer, point out that there are going to be areas in the contract where they can win and areas where they may have to negotiate a little. The main areas that you want to bring up are time, conditions, financing, and price. If they are in a hurry, remind them that you are willing to focus everything on getting this done quickly. Then go over how slow commercial transactions normally take. Show them why you are faster, and nimbler than the other offers. Remind them that most other investors can’t close quickly, they need months just for the financing.

Review the different types of financing. If they are insisting on top dollar for the property, review with them how lenders look at properties and how they finance them. Show them why a lender is going to appraise the property for a certain amount. Explain that no one is going to be able to get a loan for more than anyone else, it all boils down to cash. Now point out why they want to work with you and your team. If they are still stuck on their price, and there is enough upside potential, see if the seller will seller finance the transaction. Continue to do this with each area until they believe that you are their best and only option.

Your main job as an investor is to create relationships. You need to be able to show the seller why they want to work with you over everyone else. Once you get good at this, you will be able to start closing on more and more transactions. Don’t assume that you will be perfect the first few times. Keep trying and as always, happy investing.