Managing Self-Storage Owners’ Expectations

One of the hardest things to overcome when you are buying a property or any kind, especially self-storage, is the sellers’ expectations. They may believe that their property is more valuable than it is. Actually, they all do. Every seller wants to walk away with enough money to buy a newer, nicer property, and pay off the house, and go on a vacation, and have money in the bank to retire on. Why they all think that their run down, used property is nicer than the brand new, beautiful, fully occupied, self-storage facility down the road is a mystery.

Your job as an investor is to help them understand that they cannot get more than the property is worth according to the market value. Sometimes, you cannot overcome that hurdle alone. Sometimes, you must have the help of an outside source. Whether you decide to try to get them to order an appraisal and then negotiate from there or you bring in an agent is up to you. However, having an agent on your team who can help the sellers understand why they are overpriced is a huge asset.

Sellers trust agents. Especially real estate agents whose names that they see around town. They know that these people are established in the community and that they have experience, and they are more likely to trust what they have to say. You are just an investor who wants to take advantage of them. At least that is the stigma. By bringing in an experienced agent, you can overcome the stigma.

The agent will explain to the sellers what the current market conditions are for self-storage facilities. Some areas are currently oversaturated. Other areas are still thriving. The agent will review how value is determined. They will review the CAP rate with the sellers and what the current market can bear. This way if the seller thinks that their property is worth $2.4M and the agent thinks that the as-is value is only worth $1.5M and you want to offer $1.3M because of the upside potential, your numbers don’t seem as far off.

The agent will tell them that at the price they want the CAP rate will be too low to attract interest from buyers. So, in order to get interested buyers, they will have to increase the net operating income, reduce the price, or wait for the market to catch up to their expectations. Then the agent can go over what the last 5 self-storage sales were and what the CAP rate was on those properties. This way the seller can see the proof to back up what the agent is showing them. The agent can also explain the difference in the condition of those properties vs the condition of this property. Deferred maintenance can reduce the value of a property.

The agent will also explain how financing works and what banks want to see in a property. They can explain debt coverage ratios, appraisals, down payment requirements, etc. Sellers believe that people will pay cash for the property, but the agent is able to explain that cash is king. People who have cash are either going to buy properties at a discount or stretch that cash as far as possible to maximize their return.

If they are unwilling to negotiate and come down on their price to meet the market after talking with the agent, it is unlikely that they will be open to a realistic offer on the property.

Don’t be afraid to involve a Realtor if you have an unrealistic seller. You already know that they are unwilling to accept your offer, by involving an agent, there is a chance that they will recognize that your offer wasn’t as unrealistic as they had originally thought. Make sure that you have experienced negotiators as agents on your power team so that you can get as many properties as possible. As always, happy investing.