Unlocking the Mysteries of Financing in Self-Storage Part 1!

Now that you have found a great property and you are looking for a great lender or have found a great lender, lets talk about some of the financing options that are available in the commercial world. There are a lot of options out there. You don’t need to be an expert on all of them, but you need someone who is an expert on your team. Make sure that your lender is experienced enough to know the types of loans that are going to be best for you. Experienced lenders are more likely to know how to put your package together and how to present your package in a way that will get it accepted.

The first type of money that is available is private equity. This is money that you borrow from a person rather than an institution. It can range from your best friend to a business partner’s funds. This money can come from anyone who is interested in investing in your project. You can borrow the entire amount from them, or you can borrow the down payment to get the loan.

You will need to set up terms with them, so they know how they are getting repaid. When you are receiving private loans, the terms vary drastically. They all depend on your investors. All investors want to receive a return on their investment. Some want it annually; some want it at the end of the project because they don’t want monthly cashflow. However, if you are working with Grandma, she may need the monthly supplemental income.

Most of the time your partners know what they want before they enter the project. Often, that involves a defined exit strategy. They are usually interested in being in the project for three to five years and then they want their money back so they can go on to the next project. The most important thing to remember with private money is that everything is negotiable. However, the golden rule applies. He who has the gold makes the rules.

Another type of partner that you may bring into the transaction is someone with experience. If you are just getting started, the lenders may require that you have someone on the team with more experience than you. This makes them more comfortable giving you the money for the rest of the project.

In the next article, we will discuss the different types of loans that work well with self-storage. As always, happy investing.