Creating Your Business Model

When you are looking at properties, you need to know what you want. If you don’t know what you are looking for, how will you know when you have found it? The first thing that you want to do as a self-storage investor is determine what size self-storage facility you want to buy. Are you looking for large sprawling complexes or tiny little properties? If you don’t know, how will you focus your marketing? We recommend three to four acre parcels. We suggest properties that have buildings already on them. Now, these don’t necessarily have to be self-storage facilities. There are a lot of different buildings that can be converted into self-storage. You can also look at vacant land. This gives you three types of sellers to start marketing to.

The reason that we like to have buildings already on the property is because of the lenders. The lenders want to see income. If the property has no income and no history of income, then it is hard to show them what the property might make in the future. Banks prefer proven income over a pro forma. This is especially true if you are brand new in the industry. They don’t want to lend you money if you can’t show that you have a track record of making money in the self-storage industry developing projects. Now this doesn’t make new construction impossible, it just makes it much more difficult.

As you are looking for potential properties, don’t forget to look at the upside potential of a property. For example, a seller may have a large parking lot or be surrounded by undeveloped land. Either way, there is a possibility of being able to expand what you already have. In these situations, you are able to buy the property for what it is currently worth knowing that you are going to be able to increase your net operating income and the value of the property.

You also need to determine how long you are going to hold these properties for. Self-storage is an amazing long term investment. When you are getting started and working with investors, you may find that you have to keep the properties for shorter periods of time. For example, you may have investors that are only willing to invest for 3 years. This means that you have 3 years to take the current property and make it better. Then at the end of the three years, you can sell the property and cash out your investors. Some of your investors will leave while others will want to reinvest with you again.

However, there will be properties that you want to keep. You may have a different exit strategy for your investors on these properties. You may cash them out with a refinanced loan, you may find a way to buy them out. You may have many different options that involve keeping the property and starting to build up your self-storage real estate empire.

The best way to make money in self-storage is to find the hottest markets with the hottest growth and then target those markets. This way you are in the thick of things. You are building your upside potential fast, and you have a long line of buyers waiting when you are done with your project. Another great place to invest in self-storage is in communities that are undersaturated. These people need more self-storage, and you can help them. These are the two markets that are best to focus on.

Make sure that you are looking for the opportunities first. Look for a building that has a low cost per square foot and see if you are able to convert it into self-storage. There are a lot of large, abandoned retail stores that are zoned for self-storage. These make great self-storage facilities. There are also bowling alleys, churches and skating rinks that are looking for new life. Find a property on three to four acres and see if you can use it as self-storage. This is a good way to get into self-storage at a lower cost and faster than vacant land.

Start doing your target marketing. Start looking for areas of the country that will support self-storage and then start building your business model. What is your minimum lot size? What is your minimum square footage? What is your initial exit strategy, and will that change over time? This is your business; you are the only one that can decide what it is going to look like. Start putting the parameters on what you want to build. As always, happy investing.