All Forum Posts by: Henry Clark

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.

Don't want to leave you hanging.  Lets spend some of that money.

Here's what I recommend you check out.

Highway 231 and 10/25 to Carthage.  I want you to become the Storage King.

Find 1/2 to 1 acre parcels along the highway.  Rent a skid steer for a day $225 and flatten them. Make a row of rock in the back and the front and have a person with a lift truck or winch set them in place.  Put some more rock in front of them for the road.  If you want to get fancy, get some geo grid material and put it under your rock road.  This way you don't need as much rock and you won't get potholes.  Just don't grade it to much.  No electric, no fence, no security camera.  Just a sign with your phone number on it.

Read my post on Storage containers.  Check your County ordinances first.

Your to far out to do a traditional storage location with all the gismos.  Not enough market in one area.  Paint your containers a light color on the sides, they will look great.  Paint the tops with Trailer roof paint silver, to reduce the heat inside.  Always get a kick out of painting Black paint on the roof and then watching it turn Silver.  A give gallon bucket will cover 3   8 x 20 units.  Pour it on the roof and then use a roller to paint.  Do this first before you paint the sides (only exposed sides), so you don't get so many streaks from your kids helping you out.  Anywhere there is rust top or sides, knock and brush it off and put some Rust stabilizer on it, before your paint.

Lets make some money.  8 x 20 container delivered $2,200.  Countryside rent them for $50 per month.  No property tax since they are not attached to the ground.  If you insure them, they are Personal Property and not Building coverage.  Banks probably won't want to finance them, since they are movable.  Add them as you need them.  Always get two to the truck to save on delivery cost.  Tell them which way you want the doors to be facing when they are unloaded.

You buy them for $2,200; you can always sell them for $1,500;  everyone wants one.

Once a week, grab a weed sprayer, weed eater, ham sandwich and a cold drink and hit the road checking on them.  Whatever day or time you want.  You want to set this up self service, see how I do it.  You can't afford to meet people.

Market evaluation:

Type in "Self Storage Gallatin, TN" next to you.  Switch to the Map version.  This is the largest town next to you.  Already a lot of competition.

Castillian Springs itself doesn't have the market for 60 units.  

If your still interested;  ADJUST the numbers based on your info.

Additional Costs:  Rough.

$20,000   Fence for two acres

$25,000   Automated gate

$12,000    Security system and camera, both inside and out

$105,000   35 extra units.  This is middle of the road between you stick frame or get commercial indoor units.

$15,000    Electric work

$??,????     Security door access system.  I personally wouldn't do an indoor storage facility for this small and off the road.  A lot of damage can get done inside.  You have to have a either an automated security gate with internet communication to you and lock down and open up.  Also motion sensors inside the unit tied to the camera units, with notification to your phone.  Not enough units or income to offset the security setup.  If outdoor access storage, then no security or fence is normal away from large metro areas.

Revenue:  Again adjust to your local.

$32,000  60 units at $50 at 90% occupancy

$5,000   Outside storage  15 slots at $30 at 90% occupancy

Expenses:

????????Property tax

???????Insurance

???????Internet/Electric

Will leave the financial analysis to you.  Adjust above figures as needed.

@Chris Horton

Did some further research on the last location above.  Your going to have to move fast on a 1031 which is bad.  Normally I say if you have to make a quick decision, don't do it.  In your case you would take the tax impact and have less to invest.

Follow up notes:

1.  Didn't realize the same people have another location for sale.  Recommend you don't look at it.  Its further out of town and its on the same road or market as you.  If you do offer, only offer 1/3.

2.  This is an aerial google inventory.  You would need to do with boots on the ground.  Took an inventory of locations/units.

268/150/50/150/175/60= 853.  This includes the one we are looking at.

3.  Again rough market is  980 for a town of this size.  Rough count is 853.  Need 127 more units in town.  Of the other 4 large competitors they are all "built out" except for one and its remaining ground is more of a triangle and not as good to build.  The rest would need to buy more ground.  Thus they are not likely to expand.

4.  All the major competitors are South of I44, away from most of the homes.  Both the location above and if you got a location to the north or east, would out position them from the population.

5.  Notice Union Pacific runs through the town near the population side.  Please, Please read my post on "Zoning I-3 right?"  Even if it is not for sale, its for sale.  Look for 2 acres minimum.

6.  Look around the intersection of Highway 62 and 277.

7.  Since you have to move fast; if you were to do the deal, I would put all of your money into the unit for sale.  Due to  1031 time.

8.  With the same commercial bank and SBA, I would then use your first location to collateralize "building" a second location in the above areas.  Do a Construction loan which would need to be a SBA 7 versus 504.  You just don't have time to swing two deals or loans with your 1031 timing.

I know I said we would look at a third location, but with your short 45 day 1031 timing.  Could look at some more, but this looks great.  Don't pay their price though, its okay from a Cost to build standpoint, but they are not generating enough cash flow.  

Recommend you look at other types of investment.  You always want to be able to Walk Away from a deal.  

If you need more info let me know. 

Action items;

1.  Look at all facilities in town.

2.  Tour with realtor the locaiton.

3.  Get zoning map

4.  Get Planned development map

5.  Get zoning rules.

6.  Talk with your banker and start your loan process, even though you don't have a property identified.  Start pulling your documents together.  Mention SBA 7 or 504.

Good luck.

Normally I say "Start small and make your Big Mistakes Early."  In your instance your on a 1031 timeline.  Also you already have the amount of money pre-defined.  Since these are Existing locations, you have less risk versus doing a build out.

@ Seth Eaton

Thanks for the comment.  I'm a food guy.  If you get a chance please have fajitas at Cadillac Bar and Grill and send attach a picture here.  It's been 30 years, but still remember it.

Thanks.

Talk with your tax person about the rehab

Expensing is about consistency in treatment (capitalizing or expensing) and magnitude

Consistency- don’t keep flipping back and forth on your approach year to year

Magnitude-  if $700,000 complex and you do $50,000 repairs, expense. If it’s an addition capitalize.  

Segregation. If a rehab or addition can you segregate the costs down to either smaller amounts or different types of costs?  Example. Paint, rug, toilets, showers. Break them out versus one large project.  Then expense

Write-off. If your replacing your roof see if you can write-off that portion of the preexisting asset or home.  Again, talk with your tax person.  It’s about consistency and documenting your approach.