All Forum Posts by: Henry Clark

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. 

above  "hear" is "here".  Typing quick.

Location 2:  Chichaska, Ok  Loopnet   $1,000,000

Cost to build: Change this based on your local info.

$180,000 6 acres  $30,000 per acre

$560,000  175 "Equivalent 10 x 15/20" units; at $3,200 per constructed

$   5,000   Very little fencing needs a $25,000 auto gate system; another $25,000 fence in back.

$ 10,000 electric

$ 0 No security that I see. Need $15,000 invested, plus internet so you can watch.

$150,000  Concrete roads

$905,000 New construction. Again, change these figures based on your local knowledge.

Revenue Stream: Again verify with real estate agent

$14,875  This location is off the track and old. Assume $85 per unit; 175 unit average

x 12 Months

x 75% Occupancy

$133,000 revenue per year

Expenses:

$ 500 Mow grass

$ 500 Clear snow

$2,000 Electric

$1,000 Other- internet, management software

$40,000   on site manager

$44,000 Total per year.

$89,000 Before Tax or Depreciation or interest

$67,000 After taxes. Rough calc

Lets say these were our numbers. You refine them.

My target is a 20 year amortization bank loan, with an 8 to 12 year payback. Thus we are always in a cash flow position.

Lets say 10 year payback; with $67,000 cash; my offer would be $670,000.

Deal thoughts:

1. Doesn't meet my goal of $670,000 at their asking price of $1,000,000

2. Validate 75% occupancy and average rental rate I used one of their competitors on Sparefoot

3. Check Sparefoot. They don't use it, thus we can get marketing up really quick.  Haven't raised prices in 5 years, more revenue.

4. I would offer them $700,000. Been on the market since April.  If they want more like their $1,000,000 number. Then counter with $600,000 cash and the rest zero interest in 5 years. Make sure your finance company if any is okay. Since your 1031 money isn't enough.  You need to be lining up your banker.  Again look at my post on Broad Finance discussion to pick your banker.  Get your last three tax records copied and any of your loan documents and pay stubs.

5. Realize you need to invest about $40,000 to get up to speed. Auto gate, security. You need this to manage from afar.

6. Its at the edge of town, but on a major thoroughfare.   Easy to find.  Next to the major populations.  From the West side.  Most of the competition will probably be to the east and south along the interstate.  Your closer to the population.

7. I love the property because of the bare ground 4 acres. You can add more storage and RV/Boat storage. This is cheaper since all of the land, fence, gate, etc is already done.

This is bigger and closer to your $250,000 1031 number.  25% of $1,000,000 asking price.  Fits a commercial loan.

Like this one a lot.  Low occupancy, this can be increased quickly using sparefoot.  Good location next to population.  On major thorough fare.  Extra ground.  Population 16,352 = 980 unit market.  They have 175.  Get on Google earth and locate and count other units.  Make a list of all storage in that town.  Go take an inventory of the number and sizes of units.  Also the locations.  So you can look at them strategically on the map.

Your on a 1031 clock.  Jump in a car.  Get with the realtor.  Stop at every storage location in town and check them out.  Tell them your re-doing your house this fall and are planning for storage.  Get rates and check out their operations.

"Don't Make an Offer"

Look thru my posts. Look at the logic. Go see the site with the realtor- get your deal making jitters out of the way.

@Chris Horton

Thanks for the PM.  I'm going to walk you through a couple scenarios so you can get a handle on this.  "Do not" buy any of the ones we discuss it is just for discussion purposes.  We will do this fast since your on the clock.  You have the benefit of everyone hear seeing what I am having you do, so you can get their opinions also.

Step:

1.  Finance- read my broader Finance discussion.  First lets narrow down the price range before we go looking.  Cash in hand $250,000.  SBA loan with 10% collateral means $2,500,000 project.  Commercial loan with 25% collateral means $1,000,000 project.  SBA loans can take a while.  Make sure of your 1031 timelines.  a.  Identify property dates; b. Close timeline; etc.

2.  Will they come?  Read my marketing post.  I'll give you the magic answer; But do not trust me.  You do what I note in the post and validate the next factor.  "6 units per 100 people".  When we look at some of these locations or towns, get the population example:  10,000 people / 100= 100 x 6= 600 unit market.  I developed this factor and have used it on all of our location decisions.  Key is are your people the same as my people?  Divorce, death, fire, flood, tornador, redo basements, parent die?  Same life events.  Same need for storage.

3.  Read my post "Storage Startup checklist 101".  Make this your own task list.  Use this to identify any hiccups.  Example:  Do you need a Storm retention pond.  Fire sprinkler.  Bathroom.  Etc.

Read the above and ask me questions.

Lets start.

There is a storage location near you in Tulsa for sale.  Lets develop an offer price, based on cost to build and then Revenue stream.  You need to decide what type of return you are looking for.  This will determine the price you are willing to pay.

Loopnet- Tulsa Asking $187,500

Cost to build:  Change this based on your local info.

$   50,000       2 acres

$115,000       36 "Equivalent 10 x 15/20" units; at $3,200 per constructed

$  25,000        2 acres fence with swing gates, not a $25,000 gate system

$           0        No electric set up that I see, just nightlights.  Need $10,000 invested.

$           0        No security that I see.  Need $10,000 invested, plus internet so you can watch.

$           0         Need rock for road $5,000

 $190,000         New construction.  Again, change these figures based on your local knowledge.

Revenue Stream:  Again verify with real estate agent

$ 2,160        This location is off the track and old.  Assume $60 per unit; 36 unit average

x      12        Months

x  90%          Occupancy

$23,000        revenue per year

Expenses:

$   500        Mow grass

$   500        Clear snow

$1,000         Electric

$1,000         Other- internet, management software

$3,000         Total per year.

$20,000       Before Tax or Depreciation or interest

$15,000     After taxes.  Rough calc

Lets say these were our numbers. You refine them.

My target is a 20 year amortization bank loan, with an 8 to 12 year payback.  Thus we are always in a cash flow position.

Lets say 10 year payback;  with $15,000 cash;  my offer would be $150,000.

Deal thoughts:

1.  Doesn't meet my goal of $150,000 at their asking price of $187,500

2.  Validate 90% occupancy and average rental rate

3.  Check Sparefoot.  They don't use it, thus we can get marketing up really quick.

4.  I would offer them $150,000.  If they want more like their $187,500 number.  Then counter with $120,000 cash and the rest zero interest in 5 years.  Make sure your finance company if any is okay.  If your 1031 money wasn't enough.

5.  Realize you need to invest about $50,000 to get up to speed.  Auto gate, electric, security, road.  You need this to manage from afar.

6.  I don't like this property because it is off the beaten path.  Away from the major populations. 

7.  I love the property because of the bare ground.  You can add more storage and RV/Boat storage.  This is cheaper since all of the land, fence, gate, etc is already done.

If I lived in the same town, I would make an offer of $125,000 and then walk away.

Look thru my posts.  Look at the logic.  Go see the site with the realtor- get your deal making jitters out of the way.  

"DON'T make an Offer".

If you could describe the property in more detail.  

To answer your question in general, how task specific is the building?   These can be pro and con:

Truck docks, bump docks

Overhead cranes

Ventilation

Zoning rules allowances

Electric setup

Paint booths

Parking outside

Storage outside

New building- disregard.  Asbestos, soil contamination, lead paint, other epa

Floor load, what uses can it handle.  If it’s new look for cracks

Roof????

Something is wrong. 

Don’t think you have Self Storage insurance.  Auction,sales, lockout coverage is standard coverage in specific Self Storage policies  Call Ponderosa Insurance.  Sorry BP won’t let me put phone number. All they do is Self Storage policies.  Also you need to offer your customers insurance.   This is more step you don’t get sued, since you offered them an insurance product.  Should be part of your rental contract.  They either buy or decline.  Check with your Self storage software company.  They usually offer insurance so it is integrated with the software system.  Otherwise you have to maintain another management system, which you and your customers don’t want to do.

You cannot insure customer goods, since you have no ownership interest. Either I’m hearing you wrong or you need a new property manager who does self Storage.

Call Ponderosa and talk with them.

Make sure you over insure to cover clean up cost.  Also make sure your personal property has enough coverage at your site   

Good luck  

@John West

Recommend you clean up park and tenants first, before financing concerns. Or trying to bring in more units.  

Reach out to your mobile home broker in Maine.  They do “in park”,but tell them your looking for trailers to move in.  I would also ask them to visit and do an “audit/recommendation” list to improve your site.  They already know what sells (refi).  

Talk with your trailer dealer.  Ask if possible to do personal guarantee on mobile home purchases subject to contractual ties to them using the park.  Check on insurance coverage for owner damage to the units. Also ask them for repo units.  Get financing from them, interest only or zero down financing.

Check on section 8 renters from your local veterans support group.  Tie electric and service fees into the rental price.  This way you get their full funding.  Do multiple renters per unit.  Try for $1,500 per unit.

My mom wanted a trailer park.  15 units.  My brother and I were digging water and sewer lines all summer.  Then we had to build/pour concrete parking.  Then we built wood porches.    I hate trailer parks.  

@Bjorik Mutize

Correct.  Have all of the investments I can handle within a 40 mile radius.  Actually building our last storage location.   Starting another type of investment  

Love Minneapolis.  Lots of potential there.  

I’ll summarize at the end. Any comment I make has been said by other people, but I believe it

Revenue generation in whatever form is not the issue. 

I got tired of fighting the fight about 6 years ago and took care of just my son’s education.  Ten year old data. The US is number one in spending for education. We ranked 19/23/23 language/math/science in the world. Luckily there are about 220 countries.  Unfortunately there are only about 40 industrialized nations. Same issue on medical.  Key is money is not the issue.  How many of you make an investment without a target?  We are missing a measurable metric for education.  Most nations have nationalized systems.  We run on local school boards.  They know nothing about improving an organization or education.  This is not a generalization.  Education is the key.  All societies that want to keep their population or a portion subservient keep them uneducated.

Three rules of wealth (not money) are graduate high school, don’t marry or have a baby before your 21.  Social engineering.

Three rules of wealth (money) are

Have a product or idea

Funding

Entrepreneurship-  jump off the cliff

Maintenance of wealth:

Product or idea innovation

Spend on wealth generation and not pleasure

Maintain entrepreneurship or management of assets

You know the saying. Wealth or companies don’t last longer than the third generation.  The cash will come back to the community

My family has already hit our “number” and we’re fine.   The story is really my Uncle Mark (Man Riku).

I only see him about every 15 years.  He always starts to smile and laugh every time he sees me.  It brings back great and bad memories of their journey.  Imagine a husband and wife with three kids who can’t speak any English.  Their possession $300 and 5 bags or clothes.  Now 40 years later imagine them worth around $xx,xxx,xxx.   

Summary:

Unless you go into politics.  Toss a pebble into the pond and see what happens to the ripples 40 years later.  

My point.   Don’t worry about taxes they will come and go.  Take care of your family and help one person around you on the items above. 

As far as California stop moving to Colorado and Texas.   Looking for investment properties in other states.   The best time to make wealth is when there is turmoil.  Running out of water.  Annual fires. Smog. Social turmoil.  High property costs.  High taxation. Make money off these issues.   Example:  Buy waste ground and make trillions of gallons of fresh water.  What’s that worth in California?  Annual fires, ask the reservation Indians to cure the issue.  What’s that worth?  

If a family who couldn’t speak English and only had $300 could do it......

From a conversation I had with an individual looking to get into storage. Specifically RV/Boat storage.

Recommend you check out Loopnet ????????? Storage. Look at the RV/Boat facility for sale $945,000 in ???????????? where your at.
There is the 5 acre lot and then first right of refusal on another two acres. If you have already looked at it, lets look at it again with a different view.

If you have already analyzed this property what were your figures and what did you come up with? If you haven't analyzed lets do a cost build up.


Excel sheets not allowed to be attached. Just contact me.

Cost approach: Take my project cost estimation and update the data based on your local info: Example;
$250,000 5 acres level ground $50,000/acre
$ 60,000 5 acres rock fill $12,000 per acre, levelled
$ 40,000 5 acres fence
$ 25,000 Automated gate
$ 10,000 Saw something about electric fence
$ 30,000 55 LED lights and lighting; w/ poles
$ 30,000 Security system
$ 25,000 Office/bathroom/storage
$ 10,000 Misc equipment
$480,000 Rough dirty estimate

Revenue side:
30 ft space is $50 with prepaid 6 month lease required. Use this as the average with 235 spaces at 90% occupancy:
235 x $50 x 12 x .9= $126,900; validate against last 3 years, also current contracts. Challenge the rent rates with other places in the area.

Expenses:
Electric- LED, $1,500 per month est.
Property Tax- should be low since no structures $4,000/yr
Insurance- should be low since no structures $4,000/yr
Mowing/spraying/maint- you, zero.
Rock- $2,000 replacement per year

Expense estimate: $28,000

Revenue before income tax= Call it $100,000

Finance example:
SBA 20 year term
10% down= $95,000
Interest rate 3%; 20 years; $850,000
Do loan amort calc

Actually partner bank will do half of the above loan, with loan amort on 20 year with 10 year adjustment, then 5 year intervals.


Lets say $55,000 P/I per year for 20 years. Interest on the participating bank will probably go up at year 10.


Again all of these are quick numbers you need to validate:
A. You have $100,000 cash flow before taxes; with $55,000 P/I per year.
B. Your asset is basically non-depreciable, thus it keeps its physical value.
C. Revenue is 6 month leases paid up front.

Deal Points:
1. Do a Stupid Money test. Look at zoning in the general area and see how likely someone else could build this same property and take your business.
2. Talk with your Accountant. See if you can do an Asset purchase versus a business purchase. Break out all of the depreciable assets so you can do an early write off to get the tax advantage. Have the deal weigh higher towards the depreciable assets and away from the land.
3. Ask the owner that part of the price is a 5 year "Non Compete" agreement. Again talk with your accountant on how this can be written off and to quantify.
4. Check on flooding; ask the county emergency mgt and neighbors.
5. Go through all of the items on my 101 Checklist.
6. Again this is quick and dirty. There is a big gap between Cost and revenue. Validate this. If true, again do the Stupid money test, potentially you could build for cheaper.
7. Even if you can build, rent up phase for RV/Boat/vehicles is slower than Storage units, especially with existing competition. It might be worth $100,000 cash per year to pay for an existing revenue stream.
8. Don't get too greedy. If the Cash flow works, even if the cost build is a lot lower take it. Explain it to the person the price is high relative to the cost to build, and ask for $300,000 no interest payment in 5 years on the balance. See if this is allowed with the bank or SBA before you ask for.
9. See what the two acre sales lot is going for. Possibly put Storage on it. Because of your existing Boat and RV storage; see if the city/county will allow you to do Cargo Containers. These are cheaper, no property tax, and can be written off quickly for tax advantage. Recommend you stay away from traditional storage, there is a lot of competition in the area, unless your physical area has little.
10. See if zoned for storage units, both properties.
11. The two acres says something about sales. Don't buy that business if you want to be hands off; just the asset.
12. Negotiate for the name and web. This should help on google.
13. Don't see them on Sparefoot. The extra % occupancy will be pure profit. I would actually go with higher rates on Sparefoot than your street rate.


This is probably a faster deal than you would like to do. Deals die on the vine. See how long this has been listed on Loopnet. Probably the sales price is a little high compared to building it. Make them happy and yourselves, with the no interest loan facet. They aren't going to earn that much out in the market with the money now anyways.

Start small and make your Big Mistakes early.

Don't know why I did this one first, my brother and sister in law wanted me to check their area out.

What town are you in?  That will give me a reference point for my response.  My area of investment is Self Storage.

SBA 10% loan $250k = $2,500,000 property.  This gives you a lot of options.