All Forum Posts by: Henry Clark

Example:

We have exactly 2 acres:

40 acres= 1,320 ft x 1,320 ft = 1,742,400/40*2= 87,120 sq ft.  Total Sq ft.

Potential rent at 100%= $2,870 per month.

Is this good or bad?  Run your cost to buy and improve.  Then pull together your annual expenses.

What is your COC, Cap rate, or I use Payback period 8 to 12 years , versus a loan amort of 20 to 25 years.

Also depends on how you are parking.  If your Valet parking, then you can get 50% more spots, but you have to put the labor in.

Recommend you look macro at the deal:

Costs:  Use the below to see if you have any "Missing" costs you need to recognize.

$100,000  land cost

$   20,000 Fence

$  25,000  Automated Gate

$  25,000 Rock surface

$   7,000 Electric

$  7,000 Security

Expenses:

$????????  Property tax

$ ???????  Insurance

$  ??????? Electricity

$  ??????? Monthly management software

$  ???????  Lawn/Snow removal

So I can understand. Why do you want this number?  What do you plan to compare against.

Follow up to @MM on another post.

Here are the major considerations in sizing "Drive up" storage locations. Climate controlled is not part of this conversation, stay away from this, if you are a first time owner/developer.

1. Are you in a major Metro area, or small community? Zoning rules as far as the following requirements.

2. Set back rules- obvious impact. Impacts your rentable ground/units.

3. Storm retention pond required?- This will offset your revenue projections, available units and also cost estimates.

4. Shape of property; - Ranked: Rectangle, square, all others. I'm still learning 1st grade- A triangle 3 acres doesn't come close to a Square in units. Try for Rectangles. You have to give up turnarounds. A rectangle is your most efficient shape.

5. Are hard surfaced roads needed; Concrete or asphalt- Cost of entrances must be offset by units. The shape and layout, you want one road to service two sets of buildings on each side, to lower the road cost per unit.

6. Security- secured gate, security system, fencing, etc.- Your unit revenue and quantity has to be sufficient to offset the "costs" your putting in. If your in small town USA, no security systems- fences, gates, or cameras can be the norm. Example: A $25,000 gate system you need XXX units to offset.

7. Obvious. In drive up storage, you never want to build all of your units at once. I always use the following for my Phase 1; Enough units at 65% economic occupancy to cover all costs (land, fence, security, roads, dirt work, (bank note P/I on 20 year amort), plus Property Tax, Insurance, maintenance, electric, etc. Example: If I bought just enough ground, to assume 90% occupancy gets me to breakeven cashflow, then I would not do the project or that size of property at that land price.

Your Phase 2 will only take a 35% occupancy to get you to cash flow break even. This is the real money and also less exposure.

8. Do you plan to do Uhaul or other outside storage needs.

I generally will never touch a rectangle/square property unless it is at least 2 acres. Just not worth the effort. If I was starting off and wanting to "Learn" the business, I would do a smaller lot.

Any questions or expansions needed, please ask. This is the fun part. Later it is just $12 per hour work.

Seeped in.  They were fairly clean.  Just needed to wash out.

The floor boards were amazing.  I could tell which boards were the original treated Exotic wood ($800) per sheet and which were regular marine plywood.

4 floated for a week, luckily they were packed tightly.  Moved half of them to another town and are renting them.  The rest waiting to fill our regular units in case we want to move these last ones.  Power washed 3 times.

Self Storage investors.  Keep up the effort and put your foot on the gas, right now. Right now is the best time to invest in self storage, I am not a financial advisor, just in the game of Storage.  

There are three investor groups in the Storage business right now:

REITS or large regionals-  I'm from the corporate world as a CPA (largest CPA firm in the world), Controller and CFO ($1bl sales in manufacturing); I can think like them and have lived their world.  REITS are mainly keying on Climate Controlled and "Management on Site" locations.  Because these are large dollar projects and are "managed".  They can't do 25/50/100/200 unit locations and that are self service; doesn't fit their magnitude or profile.  As a fund grows, everyone is looking for the same thing every year.  Last year we grew 25% and our profit margin was X2%.  This year our management and investors are wanting even better; so our target is to grow 30% and have a profit margin of X3%.  This growth and increased profit margin % is not sustainable.  You run out of deals and market after a while.  Also your competition is doing the same thing and you 10? companies aren't communicating (against the law) thus a market will get outstripped very quickly and then your in a price or 3 months free war, which sends profits down.  Point is don't compete with them.  They have bigger finances and better SEO power than you.

Current Small Location Owners-  I'm ad libbing.  Someone somewhere has a study.  Most existing owners are baby boomers who will start to age out of the market and although Storage is easy, they will want to drop managing this.  Kids have moved 5 states away and the business is to boring, not big enough to sustain their life style and they have their own careers.  Locals don't understand this business, high dollar entry, and you have to be an entrepreneur to do a business.  Most locals are not this.   Someone needs to buy these companies.  Also they have not grown and the market needs more storage.

You:  A.  Entrepreneur; B.  Financing savvy; C. Don't mind Boring ($$$$$).

Financial plays for you:

Pick a driving radius around you and make this your base of operation.  I live in the country and have barely touched my market in a 40 mile radius and I'm am totally happy and saturated with this investment type.

A.  Preferably buy an existing location-  Reduces mistakes.  Reduces unknow cash flow timing, during rent up phase.  "Will they come?" is already answered.  Gets more pricing control of the market, one less competitor.

B. Build a location.  Out position the existing competition.  They built for their convenience and not the customers.  Fill extra market demand.

C.  Within that same town Build or Buy up to 60/70%; then you can manage the market pricing.  Increase $10 per unit.  Doesn't sound like much but both your profit margin and Cash flow just skyrocketed.

D.  Combine several towns and locations together.  Now you have an investment big enough to attract larger investors than just the local investors.  They will pay you additional premium because you have packaged the deal for them, something they literally don't have the time or inclination to do.

E.  Keep the properties and get your Kids or a manager to manage.  The Cash Flow after paid off is "Phenomenal".

Profits-  You did the base deal.  You did the price increase.  You did the package deal.  On the same property you made profit three different ways.  The last two without putting any money into the deals.

Timing:  What's the rush?  Your lucky, I'm happy and satisfied, moving on to other investments and life styles.  Forget me, there are other people just as ambitious and driven as me out there.  As I have helped forum users out here and in Europe, I have come to know there is a huge amount of investment potential out there.  This could be Franchised and a $2 to $3billion (products you can't conceptualize) could be done.  Baby Boomers are ready to sell, they just don't know it.  Just like the Large REITS will outgrow their market, this smaller market will also consolidate rapidly.  Keep in mind $1mm can be a $10mm investment.  $10mm can be a $100mm investment with leverage.  With a Franchise format, $1mm investment could be a $1billion platform.

Why Now?:  As I have stated before it takes three things to get wealthy and they aren't (hard work and being smart).

A.  Financing-  interest rates are at Once in a Life time lows.

B.  An idea or product- Small to mid level self storage is primed for consolidation.  At one time there were over 10,000 coffin makers in the US. Today there is only one.

C.  Entrepreneurship- jump off that 8 to 5 cliff; that is so secure and comfortable.  10 years from now you can be Broke, or you can be worth $10mm and not working at age xx?.  10 years from now you didn't make a decision, and you have a great job and are worth $500,000 and will work till your 65, in a shrinking and more competitive corporate world.  Bank amort for 20 to 25 year term; Deal use an 8 to 12 year payback; or what ever are your personal metrics and goals.

Without getting into the details in about 1 1/2 years, I won't be on this forum.  The only reason I'm ever on these forums is because I am waiting for the next phase of a project to start up.  I do enjoy helping some of you, but in no way would enjoy making a business of helping masses of people.

@Scott Meyers; @Scott Krone

There are folks who have the knowledge and have systematized their training approaches that can handle masses of investors and that is part of their business model.  Keep in mind, I have made $10,000 up to $130,000 mistakes on some of my projects.  Get someone to help you on yours.  Me, I have to get back to enjoying myself.  Have a load of Pineapple pups in, and decide with my Caretaker family in Belize where and how to plant them.  Planting them today, see below. Mangoes ready in a month.  Apple bananas ready in March.  This is you in 10 years.  Grab your success picture in your head and hang on to it for 10 years.

None of these.  We had 50 at one time here and they were 100% rented.  Then a flood last year.  We moved 20 to another town and they are being rented.  We held these off the market while we rent out regular storage units on the other side.  Washed and power washed three times.  They are ready to rent and no worse for the wear.  There was actually 2 foot of water over them for 30 days, until the water was pumped out.

People actually prefer these to storage containers, as long as they know how to open and close.  They are harder than a roll down door to operate.

@Falgun Chokshi

Concerns already noted above, I will add.

a.  Check on zoning, certificate of occupancy, etc.  Are you grandfathered in, if incorrect zoning.  Usually small places like this occurred before zoning rules were set.

b.  Property tax cost

c.  Insurance costs and coverage used

d.  10x19 is a basic 10 x 20 storage unit.  Pull up Sparefoot and put in that zip code.  See what similar 10 x 20's run.  $250 sounds high, but you might be in an expensive metro area.  Do the same for parking outdoors on Sparefoot at those same locations if they have it.

e.  Next year I'm building Contractor Garages or Incubator buildings on one of our sites.  20 x 40 up to 30 x 50.  Market is $.85 up to $1.00 per sq foot.  Yours should be higher since they are smaller units.  Bigger Sqft is lower generally.

f.  If they are doing any work what so ever, they need to annually give you an "Additional Insured" rider from their insurance policy.

g.  As mentioned above, vet each renter.  These contractors are "in between" starting and succeeding.  They will be the first to go in a downturn.  Most of these smaller contractors will have their backlogs shrinking.  Luckily your units are on the smaller size for this type of contractor and the rent is not something they can't carry, if the choice is to get rid of their equipment or have no where to store it.  Key is to lock them out within a week if they miss their payment.  This is where your contract you want to be a "storage" facility and not an operation facility.  Storage you can legally go through the storage process and have them out in about 8 weeks.  If your renting them a production facility, then its like renting an apartment and getting someone out.

The deal:

Storage insurance for you should run less than $1,000 per year.

Electricity close to zero.

Property tax equals- ???????

Repairs- you noted minimal.

Rough $39,600 per year less expenses above.

Just for kicks say net is $35,000 before depr or taxes.

$329,000/$35,000= 9.4 year payback, subject to depr/taxes.

Its okay.  I shoot for 8 to 12 year payback.  Depends if there is extra ground to build on.

If you can get an SBA loan at 3% for 20 to 25 years with 10% to 15% cash injection or collateral; Traditional loan 25% to 40% collateral, but 5 year note renewals.  Should be a good cash flow property.

Options:

A.  I would push back with a lower offer say $280,000 (check out GIS map and see what it sold for before, if it did).  With income taxes out of cash flow, would prefer a lower price.

B.  If they have to have their $329,000 tell them its above your price range.  Could they do $225,000 now; and the rest ($104,000) due in 5 years with no interest.  Talk with your bank first if they will allow having the previous owners in the first position.  See how long it has been listed.

C.  Talk with your tax accountant.  Have the sale be an asset sale.  Have the property broke out into Road ($80,000), electrical ($10,000), no security, building.  Ask the impact for you asking for a "NonCompete Agreement" split out ($50,000) on the price, if the sellers will accept this.   Trying to get you as much up front write offs as possible so you take a loss the first year, to reduce income taxes and increase cash flow up front.

Definitely has the potential for a solid investment.

@Peter Lee

$7.95 per month on $1,000 coverage.  We make about $2 on it.

Its not about your income.  Its not about your customers being insured.

Its about you not getting sued for theft or damage.

You have no insurable interest in the customers goods, thus you can't insure and collect.

By offering your customers insurance, you take away one of their avenues to come back at you.  "You offered them insurance".  If they have a claim, it is very hard for them to say "they" didn't insure and it is your fault.

Have on your contract they are signing off, they don't want insurance.  It needs to be part of the contract.

Also make sure the insurance is part of your Management software and not an independent coverage.  If independent then two software/data systems have to be maintained and they won't talk with each other.  Creates more work that will never be kept right between the two systems for payment management and history research.

Good luck.

@Peter Lee

Check out our self service procedures.