4 Things to Consider Before Making an Offer on a Self-Storage Property

When you are looking at a property, there are a few things that you want to check immediately. If the property doesn’t meet your criteria on these four things, then you may want to pass on the property. However, if the self-storage property looks good in these four areas, then you should consider putting in an offer contingent on due diligence. You don’t want to wait too long to do research on a property that is a great opportunity because someone else might snatch it out from under you. If a property has potential, get it under contract with a due diligence clause and then begin doing more extensive research.

Location, location, location.

This statement is true in residential real estate, and it is true in self-storage. How easy is this property to access? How well can people see it from the main roads? Is it close to where people live or do they have to drive past several other self-storage properties before they get to this one? You want to make sure that your self-storage facility is in the go-to location. If it isn’t then you need to really evaluate if you still want to make an offer.

What are the demographics within a 3 mile radius?

Demographics are also really important when you are evaluating a self-storage property. You don’t want to invest in a property that is in an oversaturated market or a city that is slowly becoming a ghost town. Do your research so that you know if you are in an area that is decreasing in population or if it is continuing to grow. You can easily access the information that you need on a city’s home page or on the internet. Find out if the city is growing and how many people live there. Find out what income level lives near your self-storage property. Can they afford self-storage? How big are the houses? Do they need self-storage?

Supply Index

You also need to know what the equilibrium is for that area. This number can change from area to area but on average the national Supply Index range is 7-8 sq ft of self-storage per person unless you are in a rural area. I will be addressing rural area self-storage in an upcoming blog post. If you are in a typical area and it has 14-15 sq ft of self-storage per person, you might want to reconsider making an offer. This means that the market is oversaturated. On the other hand, if the supply index average is down around 4 sq ft per person, then you might want to make an offer and do more research during your due diligence period because this means that the market is currently undersupplied.

Return on Investment vs Upside Potential

The ROI is important when you are evaluating a property, but the potential of a property is just as important. When you are looking at a profit and loss statement you need to evaluate what changes you are going to be implementing and how those changes will affect your profit and loss statement. While the market is very unpredictable, there are some things that you can accurately predict.

You know what the current saturation level is for that area. It is probably not going to change drastically in the next few months. Can you increase the occupancy levels for this property? You know what rents are for that area, they are also going to stay fairly steady. How are the rents on this property compared to the market? Can you raise them to increase cashflow?

You need to evaluate what the current owner is doing that you can do differently to increase your occupancy levels or streamline your costs. If they are already doing everything that you would do, then your future projections won’t change.

However, if you see things that you know you can do better, you may have found a property with an upside potential. This is one of those times when you want to get your offer in quickly and then do more due diligence. 

If you find a great self-storage opportunity, don’t be afraid to get it under contract as long as you have a due diligence contingency so that you can do more research. As always, happy Investing.