All Forum Posts by: Henry Clark

Simple Answer #1:

Your time frame of interest should be your loan payoff or amortization period.  Lets say 20 years.

Self Storage will be a great investment for the next 30 years, at least.  There is really only 1 dynamic that can change that.

Simple Answer #2:

You could go broke in 2 years.

Lets narrow the discussion down just to "you."

What is the nearest town you live in?  I don't know where you live, but that is a great place to invest.

What is your financing mechanism?  SBA 10% down, SBA 20%, conventional 25%, Conv 35%, Conv 40%, owner financed.

How much money or collateral do you have?  Say $50,000;  don't really need to know, this dictates your search/investment process focus.

Size of investment you can do:  With $50,000 at 10% then $500,000 total project; 20% then $250,000.

Are you a financial investor or a entrepreneur business owner?

How much have you invested into learning Self Storage to this point?

There are two business models and two product offerings:

A.  Class A or institutional- 

Business model- 300 units or more, usually Climate Controlled, multi story, on site manager, higher land cost, higher population center, great SEO power, well financed and managed, newer REITS/corporations.  Project size- $2,000,000 and up. 

Product- Climate controlled, generally smaller units to make more $/sqft efficiency, elevator or cart, higher priced.

B.  Other-  

Business model- this is the greatest number of locations, not necessarily units or sq ft in the US, normally less than 300 units, lower land cost, anywhere, family owned, single location owners, lower to nonexistent SEO power, Project size- normally less than $1,000,000; usually underfinanced and managed, older owners. 

Product- managed, unmanaged onsite, security, no security, drive up, lower priced. 

Both of the models can exist within 10 foot of each other.  Both can be successful.  One can be unsuccessful and the other can be successful.  Your serving two totally different price points and products.

There has never been a better time to invest, than the next 10 years.  And I'm not selling you anything.

Start small and Make Your Big Mistakes Early.

@Chris Gossett

Might not have followed the above correctly.

a.  Did you do a down payment on the original loan? Example:  If you did not do a Down payment on the original loan and then turn around and have to do a 25% down, you may not be able to refi and pull cash out, even with appreciation.

b.  You could go for an SBA loan 10% and refi out cash.  But then it is almost impossible to pull cash out in the future with the SBA.  Plus you couldn't use any appreciation as collateral for another deal, unless it was with the SBA.

c.  Interest rate.  We currently are looking a fixed 2.66% on an SBA 20 year amort loan; 10% down.  But the participating bank, is on a 10 year fixed, then switch to a normal 5 year refi, on a 20 year amort.  Texas- we are looking at financing in Texas and the four banks we have talked with are way off.  They wanted 35 to 40% down.  SBA, they wanted 20% down versus 10%.  I can get 25% all day in Iowa and SBA 10%, but the collateralized asset is in Texas, thus looking there first for financing.  

d.  4% versus 2.66%, is worth refinancing, but you are having commercial appraisals at $2,500.  Refinance charges.  Is this without down payment, and then with down payment.  Make sure apples to apples.  I would be happy to pay 4% with no down payment, versus 2.66% with 10% or 20% down; from a Cash preservation standpoint.

e.  Cash flow- 35 storage units at $100/month= $3,500;  Warehouse 3,500 sq ft at $.85/sq ft= $2,975.  I normally use 90% occupancy, your using 100%.  Total monthly rental $6,475/month.  With the apartments, your cash flowing $2,000; this is after the P/I payment?  With the 3 efficiency apartments $500 each, say,  $1,500;  this is using the existing square feet within the building, thus your total Revenue might be $7,500.  What I'm trying to get to is how much money do you want to pull out, versus the Cashflow your getting currently.  How many months to accumulate that much cash.  Might not be worth "Refi" out to get that amount of cash.  You will need to crank the figures to see.

f.  Second lien position- I wouldn't fight the fight with the banks.  They are not going to take that path.  Pay the original owner off, to me would be the only avenue, I would go down; as part of the refi.

g.  1031- if/with a 7% commission.  After holding the property 2 years, with adds.  Don't know that you have enough equity to make it worth the sale.  Also will you get another good cash flow property, like the one you have "in hand"?  As you mentioned, 1031 into the high priced market. With the 1031 you will be on a clock watch, which doesn't make for a good buy.

Subject to crunching the numbers, to refi or sale.  Looks like you have a good cash flow deal.  Just sit tight and let it generate cash.

First thing, sounds simple, but there is YOU and there is HIM.  You have to think in those two terms.

YOU:
Why are you doing this?  How much are you getting paid?

Do you have a day job?

How much time does this take?

Lets say you do this for 20 years.  What was the value to you?  Just a paycheck or equity?

Are their other siblings.  Are they/will they be treated the  same as you, even though you are taking care of the business assets?

Age- you want to grow assets and wealth.  He should want to protect and preserve wealth.  Two different objectives.

Him:

See my post on Trusts.

He should talk with a Trust Lawyer. All of the assets should be owned by a Trust. They will answer the LLC/S corp question.

Should separate the business, versus personal bank account.

Bank account, you need access and POD.

Age-  Develop an investment plan and goals.  He normally should not want to be expanding his portfolio if he is retiring. 

Insurance, both business and life if needed.

Legal- power of attorney for business to you.

Cash flow- if at some point he needs extra cash flow, then have him do seller financing to you.  

Stepped up basis- from a tax standpoint, it is best if properties are transferred at the time of his death.

Cargo Containers. Tiny House air bnb rental.  Self service.  Off grid (no water, compost toilet, electric, solar shower).  Or on grid.  Really depends on what your lands recreational value is.  Why would someone come to it, or that area?

Don't stack them tight.  Scatter them around.  Leave as many trees and brush as possible.

Costs:

Come in 8 x 20 ($3,100; $120 for two delivered; $80 set in place); 8 x40 ($3,900)  check local.  Regular height or high Ceiling.  

Road- rock, use skidsteer to prep site.  $????

Paint- $50, not including labor.  Make it fun, each one has a painted picture theme.  Example:  Yogi Bear, Sunflower, Buffalo, etc.

Product:

A.  Off Grid  $$$$$  No beds,  Rent $50/night, minimum 2;  Higher on holidays starting Friday.

B.  On Grid  $$$$$  Electric, A/C or Fan, small fridge.  

In unit Self Service (seal broken):

1.  Hammocks or fold out camp Cots- $10 per night.

2.  Firewood- $20 per package

3.  Water- $5 per gallon

4.  $100 if not swept out.

5.  Renters insurance.

6.  Prepay base rental.

7.  Fire pit and barbecue grill

8.  Fridge- $5 per night,

9.  Anything else people would need for camp out.  Self Service $$$ broken seal.

See my post on Cargo Containers.

Semi/Reefer Parking:

Depends on location, near town.  Lay some rock down and charge $70 per month, example.

@Tanh Truong

Day care buildings.  Industry is stressed and either the business and property will be for sale; or check with the owner of the building with their tenant going out of business.

Re-purpose to MFH depending on size and layout.  By default should be in a good location.  Obviously check zoning.

High end commercial, check on KinderCare locations.

Check both listed and off market.

@Jeff Halverson; everything @Austin Martel said.

Our appraisers have always done a best use section.

Also look up and down on Google earth for similar intersections and land, along your highway.  Look at those businesses and also contact them.  Don't re-invent the wheel.

Also your access will be key in what is possible. Turn in and out.  Crossovers.  Lights.  On/off ramps.  Side road access.

Tried looking you up.  All I saw was Western Michigan.  Used to work and live in Muskegon and Grand Haven.  Best beaches in the world.

Learn everything you can about the person before approaching them.  I personally have always approached the kids first in this particular situation (old person), then approached the person.  Look out on your city/county GIS tax map and get all of that info.  Then google and search out the kids.

I wouldn't bring up a number.  Let them know you will call back in a week.  Let the Kids "sell" the idea to their parent.  Give them the solutions below.

Offer them a "Solution".  If it fits your objectives.  What I am about to say is not necessarily to your benefit, but to theirs.  Why are you different from the other 30 people who have asked about the house.  You are offering Solutions.

1.  For them, it is best to sell the property after he passes away.  Stepped up basis.  He does not have to pay taxes on the increase in value.  Keep in mind the "VALUE Solution" you are offering them.  Example:  Built for $200,000 back in 1960.  Worth $1,500,000 today.  Your saving them taxes on$1,300,000 of gain.  Depending on their taxes, your offering them about a $260,000 cash savings.

2.  Sure he and they want an exit strategy.  Give them one.

3.  Buy the property and rent to him.

4. Buy the property and he moves.  Or don't know your life or his, you House hack with him.  

5.  Manage the property with an option to buy.  Put some money and a document in place, so you have first right of refusal at a known price.  Maintenance Solution.

6. If he goes to the Rest home in any scenario and he still owns the property.  You manage and rent out, until he passes, if they are waiting for the stepped up basis.  Management Solution.

7.  Seller financing, with a fixed interest percentage, they can't get on the market (Solution).  Say 4 or 5%.  They should not want to go to the stock market with these funds.

If you can put a business plan together, this becomes your business plan.  Identify elderly members who they and their family's need a solution.  This becomes a cookie cutter business model for you.

Why should they pick you to do business with, versus 30 other people that have talked to them?  Offer them a Solution.

Start small and Make Your Big Mistakes Early.

@Ed O.

Thanks for Comments above.  All of that is done.  We are in the Marketing phase.  You can look up Glenwood Iowa, then Journey's End subdivision to get in depth detail.

Thanks.

There is a group doing bimonthly zoom meeting more for developers doing Commercial property.  I'm not on it.  But someone might reference for you, if your interested.  They just started up.

Not included above. You could change the turnarounds from 50 foot to 35 feet. Or the roads from 25 wide to 20 wide. Also buildings could be 40 wide versus 30 wide. We traded off ease of driving versus more units.

Sorry about the spreadsheets not transferring cleanly.

10 days to Close on Land

Helping a friend out purchasing some property and then building storage units on it. Not closed yet, so I won't show you location and Market analysis first. Below is the Layout/Unit analysis, Cost analysis, and then PL and payback analysis. Have 10 days till close.
Our survey has yet to be completed, although we have the dimensions from the prior survey. For a building permit you have to have a recent survey. When we get the survey done, they will be able to lay out the roads and buildings so we can be precise. We are also a little behind in the analysis because we got "stuck" when we went to manually measure the property. The West line which should be 289 feet, kept coming up 200 feet, even though we measured it 4 times with a Roller Wheel and a 300 foot tape. The wood fence was built in the wrong place on the West side, correct on the East side. Survey showed a perfect rectangle, but the fence was at an angle. Always Survey.
Got past that, now we still need to resolve the highway set back. This is in a "Housing Authority" district, not a Subdivision. Their setback says 15 foot all around for Electrical, which is what the county requires, but along the frontage road they require 50 foot, because they thought that is what the county requires. Checked with County and they have no setback rules, other than electrical 15 foot. We have a request in to move the Highway setback from 50 foot to 25 foot so we get more space to build on. Thus we are doing two sets of layouts and financial analysis just on the "Fewest" unit layout.
Dimensions: West 289 feet/North 465 feet/ East 188feet, then curve at entrance of 141 feet/ South 373 feet. The North and South sides are both 465feet except for the "Housing Subdivision)" entrance has a curve on our East and South side. We are at the entrance to a large Housing area. No Zoning in the county. You can build Storage anywhere. Which makes for a dangerous investment.
This property has an existing Steel building, which we will rent out, but we have to build around. Normally we would build in phases, but the site layout, quantity of units and our market analysis, we decided to build the whole location at once.
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50 foot setback on Highway side. 

Spreadsheet did not copy the columns to proper spacing. Distances across will be 50/40/25/30/25/30/25/40/24. The 40/30/30/40 are the building widths. With this layout, we did not get our Office as a standalone building. Will have to figure out. This results in 196 units. 196 units will the units we use for the financial analysis.

			New Location Layout
			50 foot setback on Highway side
			West
Highway side										15 electrical
						Short				Short				289
50	40	25	30	25	30	25	40	0	0	24				289
	50								50
	bldg		bldg		bldg		bldg		no bldg
	2 sides		2 sides		2 sides		2 sides
					200		200
											Units Possible:
	270		310						0		54	62	40	40	0
	50														196
									No Office						Units
					Existing building										Possible
								Entrance
								50 ft in
	370								50
	373		East
		100						188
									100
									464

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25 foot setback on Highway side. 

Spreadsheet did not copy the columns to proper spacing. Distances across will be 25/30/25/30/25/30/25/30/15. The 30/30/30/30/30 are the building widths. With this layout, we do get our Office as a standalone building. This results in 260 units. Did not do the Financial analysis since the previous model turned out satisfactory. More units will only make it better.

			New Locaiton Layout
			25 Foot setback allowed on South
			West
Highway side
										Short				289
25	30	25	30	25	30	25	30	25	30	15				290
	50								50
	bldg		bldg		bldg		bldg		bldg
	2 sides		2 sides		2 sides		2 sides		2 sides
					200		200
											Units possible:
	270		310						320		54	62	40	40	64
	50														260
									Office						Units
					Existing building				30 by 30						Possible
									40		40 is office and 10 ft space
											between storage bldg and office
								Entrance
								50 ft in
	370								50
	373		East
		100						188
									460
									464

************************************************** ************************************************** *******

Cost Analysis on 196 Units with 50 foot set back along Highway.

Rough cost comes in at $1,200,000. This includes the pre-existing building, which is about $100,000 3,200 sq ft. Soft numbers are the Office cost. To make into a living space. Fence we don't have a quote on yet. Not included is a lot of sweat equity taking out about 30 oak trees. Luckily sandy soil.

This is an example, for discussion only.
A. Project Cost estimate from ground up.
B. P/L revenue stream
C. Valuation Buy/Sell
Adjust all of the above to your local market and situation.
	A. Self Storage Project Worksheet
	Drive up Storage
			Notes:
Land	$310,000		3 acres
Survey	$3,000		Site, elevation and building layout
Fence	$20,000		Black rectangle
Gate system	$30,000		Automated rolling 20ft
Engineer	$		if needed; $30,000 to $60,000
Dirt work	$10,000		Slight roll, no dirt brought on site
Building demo	$		if needed, $15,000 to $60,000
Electrical- site	$20,000		building lighting and office if needed, LED.
Electric poles	$		if needed; $2,000 per pole. First is free if nearby.
Security	$20,000
Storm drains	$		if needed; $50,000 to $150,000
Water	$5,000		if needed; $5,000 just plumbing
Water line	$		?? if an extension could be $10,000 up to $150,000
Fire Hydrant	$		if needed, $3,000
Sewer	$1,000		if needed: $5,000 plumbing
Sewer Line	$		if needed; $10,000 up to ????
Buildings	$627,200		Phase 1					196	3200	cost per unit
Office	$50,000		if needed, plain storage unit 20x30; $25,000 insulated.
Office setup	$5,000		if needed, $5,000- computers, printers, HVAC, frig, cabinets, etc
Footings	$		if needed. ??????
Roads
Gravel	$		if needed, ?????
Asphalt	$80,000		rolled chip seal
Concrete	$3,000		6 inch Cubic yards, framed, poured, sawn,
Retention Pond	$		if needed, part of dirt work cost, less land for buildings
Landscaping	$		I like trees and bushes. Less sterile
Road Sign	$15,000		For highway 55mph billboard sign
Total	$1,199,200

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P/L and Payback Analysis:

This is based on the 196 units and a 50 foot setback on the Highway side. If we get the approval to just do a 25 foot setback, the units will increase to 260 units and we get the live in Office building.

This is an example, for discussion only.
Adjust to local estimates
				Green change or fill in.
		Combination PL/Cash flow
		Intentionally leaving out Depreciation and Taxes
	Annual		Notes:
Revenue:
Gross	$148,176	196	@ 90%, after rent up period
Contractor	$21,600		Bldg rental at 90%; $2,000 per month
Late fees	$0		as needed
		$169,776
Electricity	$2,400
Water	$1,000
Sewer	$1,000
Grass	$0
snow removal	$0		as needed
manager	$0		as needed, I do self service by phone; do you pay yourself.
maintenance	$3,000
Insurance	$4,000		Property/Liability
Property Tax	$40,000		use local
Loan P/I	$75,000		Bank do 20 year amort, adjust based LTV 10%/15/25/40/etc.			$1,069,200	Use $130,000 downpayment
Depreciation			left blank for Cash analysis			20	loan amort period
						53460	Principal/yr
Cash pymts		$126,400				0.03	Int rate
						$32,076	Annual interest
Pre tax		$43,376				$85,536
Tax		$13,013	as needed, adjust Loan P/I for Depreciation expense			75000	Use for Amort figure
Net cash		$30,363	Less P/I and income taxes
		Payback:
Total Cost:		$1,199,200
Less Equity infusion:		$119,920		10/15/25/40%
Net loan position		$1,079,280
Annual cash flow		$105,363
Payback years:		10.2
Financial Objectives:
Change calc/terminology etc to your objectives. Example: cap rate, COC, etc.
I normally shoot for an 8 to 12 year payback, with a 20 year loan amortization.
This is based on the location/deal on hand. Any improvements in performance on top of that will be gravy.
Phase 2 is where you make your real money. I always have phase 1 pay off
the land, fence, Electrical, sewer, grading, etc.; here we are building out the entire project.
How many phases or units should you build to start?
You can always build more buildings. I always shoot for 65% occupancy covers all initial costs for Phase1.
In this example, we are building the full location out. Due to financing and market assessment.

************************
  

Financial Objectives:       

Change calc/terminology etc to your objectives. Example: cap rate, COC, etc.        I normally shoot for an 8 to 12 year payback, with a 20 year loan amortization.        This is based on the location/deal on hand. Any improvements in performance on top of that will be gravy.        Phase 2 is where you make your real money. I always have phase 1 pay off        the land, fence, Electrical, sewer, grading, etc.; here we are building out the entire project.        How many phases or units should you build to start?        You can always build more buildings. I always shoot for 65% occupancy covers all initial costs for Phase1.        In this example, we are building the full location out. Due to financing and market assessment.       
************************************************** ************

LAST things to check on:

A. Survey and then layout of buildings/roads. B. Approval on 25 or 50 foot highway setback. C. Since the North Fence was in the wrong location, we have to check with the North neighbors and explain. Then make sure there is nothing in our property line from their house such as Septic tanks or drain fields.
************************************************** ****

Summary:

Again, since this is not closed, not walking you through the property search, marketing analysis or Deal structure until closed.
Our target level is a Payback of 8 to 12 years. This hits 10.2 years with the fewer units. We are achieving some other targets, making this a sweeter deal, but won't go into them until later.
Other metrics. $30,000 additional cash flow above P/I. This comes from seeking an 8 to 12 year payback, but a loan on 20 year amortization. This extra cash can be used to pay off earlier, cover any marketing short falls, Cost over runs, or Competitor pricing issues.
Cash on Cash: We will put down $120,000. Cost basis of project will be a $1,200,000 project. Pays for itself, plus additional $30,000 cash stream. Cash stream NPV of $105,000 including Principal/Interest, for 30 years, using 5% IRR= $1,614,000 as of start. Thus $414,000/$120,000= 345% before tax impact. If sold.
Sounds great, logic is good. But we haven't rented a unit yet. That's why I am always happiest when we hit our 65% occupancy breakeven.

Start small and Make Your Big Mistakes Early.