All Forum Posts by: Henry Clark

Traveling so I'll do a rough call on the road. At the end remember it's about the three additional investment steps that bring you abnormal cash flow. I wouldn't try to compare a Storage facility initial investment versus a BRRR and flip

Going to do a 1mm metro area type of investment versus a population of 5,000 to 30,000. Due to the rampant REIT and large regional/local builders your grade of investment can degrade very quickly in a large city if you have not selected a location with little chance of competition coming in.

Cash in:

SBA loan 10% down$250,000 on $2,500,000; loan of $2,250,000. Use 20 year term 5% over life.  

 Annual cash outlay:

Calc P/I annual or how you do versus 20 years compared to the down payment lump sum

Property tax  $50,000

Insurance $10,000

Electric  $12,000

No manager $0 or use $50,000

Maintenance   Grass snow etc  $20,000

Depreciation disregard

Income tax leave to you, leave out or put in.  If your building this or do cost segregation assume immediate writeoff of $700,000 for taxes if you do them.

Cash inflows:

Rent  430 units at $100 average at 90% occupancy, annual, past rent up phase.  $464,000 annual  if you want to get more precise with rent up period assume 30% first spring: 20% fall; 30% second spring; 10% second fall

Disregard all fees for now.  Just doing a rough calc for you

Traveling  please run the numbers and let us know how you calculated   

This includes a phase 2 which I included up front  

You won’t be able to do items 2 and 3 above for further value generation.

For my benefit what type of investments are you comparing against a storage location.  And how much time investment on your part from an ongoing standpoint.  Also how much are you looking for a BRR killer deal?   Storage is really boring once setup.  If everything is done right all your work is done for 20 years.   You just have to manage.  Very little entrepreneurship  after initial investment  

Long shot.  See if Farmer Mac operates in your area.  Do a farm loan.  Check the restrictions first.

Also check with Farm Credit.

You guys must find this boring.  Only one vote thus far. 

Anyone can buy a storage location, thought folks might want to see all of the nitty gritty.  Will this project get done based on the cost estimate, will it fill up?, what will Mother nature throw at us?,  etc.

Several items moving forward, slower than I would like, but actually nice, giving me a chance to take it in and make adjustments.

1. Layouts- finalized revised layouts with Engineer. He will take through the city to get build permits. Key issue was to take out "stepped" buildings at the entrance. The "footings" cost more than its worth to build from a profit standpoint.  Should start concrete pads for buildings in 2 weeks.

2. Retaining wall started. This gives us more buildable surface. Added on 20 foot to the buildings in the middle.
- These pictures will show the bottom footing space dug out. -The bottom block is about a foot down in the dirt, to keep the dirt behind the wall from pushing the footing out.
- They put pea gravel or rock chips in the bottom of the trench. This is easier to level, when lining up the blocks and making sure they are level.
- As they go up, they put gravel behind the block a foot, then behind that dirt. Then a small compactor comes behind it.
- Next is the Dead man or Geo Grid. This goes on top of one block then a block is put on top of it. Then the mesh is pushed back, and gravel and dirt are put on top of it. This ties the wall back into the hill, so the blocks don't get pushed out.
- Next will be a drainage tube to take water away from the wall. I'm gone for the next day, so it will probably be in place and no pictures.
- Setting the first course is the hard work. Then they will fly laying blocks and packing the backfill.

3. Construction Entrance
- moved rock from last years build site to this one, today.
- spread out rock for parking vehicles on if it is wet.
- put "Clean Rock" at the front entrance. City requires this, so any dirt and mud gets cleaned off of the tires.
- This is 3 Inch "Clean Rock". Actually recycled concrete. 3 inch because it is sorted. "Clean" because the "Fines" or smaller particles when you crush the rock down to size is not included. "Clean" rock is better for making the Initial base. Smaller rock tends to get pushed into the ground and disappear. This is a rough road, which is good for cleaning tires. If we wanted a nice road, on top of the 3 inch after it has been pushed into the ground, we would put 1 Inch rock with the "Fines". This makes for more of a flat easy riding surface. This rock entrance will stay in place until the project is done. This is so the heavy concrete trucks don't drive on our brand new roads as we pour them. They would bust them.

4. Gas Line
- This location has been "Located" for utilities twice, with no gas line.
- For some reason the Gas company came out and they found part of their line to the apartments behind us runs through where we are building. The pipe is plastic, thus their metal detectors didn't catch, plus I think the Apartment complex told them it was there.
- They don't have an easement. Again, both the Apartment and the ground we bought used to be owned by the same people, so they didn't keep things clean. They will have to move the line over.
- They found part of the line by using a power water gun to dig. The white flags are where I "Water Witched" and marked the rest of the way to their gas pipeline.

My friend Noelle on Covid Lockdown.  Him and his wife do snorkel trips on San Pedro, Ambergris Caye.  Not making any money right now.  Went out to spearfish for dinner.  He has it "scored" ready to cook.  Think they will do over a camp fire.

When analyzing these smaller towns and B/C locations your obviously looking for a “financial” deal but look beyond that.

1. Look for land to expand.  Phase 2 always makes more money than phase 1.

2. Try to get to 60 to 70% of the market  Then you can do the $10 per unit increase.  This will get you more cash flow and profit than the “financial” deal

3.  If you accumulate enough of these properties they become more valuable as a group than individually in total. A future owner would rather buy a package than one single small location.  More effective on your management cost  

Since we manage ourself we only look in markets within 40 miles. 

With that said we approach the owners directly. There are roughly 40 storage facilities within that realm that are B/C facilities and that are mom/pop.  Most of these people will be in their late 60’s or older.  Subject to age, health and kids not wanting the business a good percentage of these will be for sale.  At the same time we are building.  All of the facilities we have purchased or passed on the owners came to us.  Two purchased.  Three passed on.   

Because it takes us a year to build a location or to digest an acquisition we really haven’t tapped our market. Or pushed contacting people.  

See our post on “will they come”.  We rate the different cities and decide which is the best to invest in based on potential market and unit inventory.

This is truly the best time to ever get into storage.  Baby boomers will be leaving the market.  They are not interested in expanding this territory is left open to grow into.  Don’t compete with “A” properties, REITS and climate controlled.  Both their financing and SEO power are better than you can ever be. 

Texas is joint assets.  50/50 split unless there was a prenup.

Even if she never contributed a dollar to the marital assets  

Simple question to him.  Was there a prenup.   If not, you need to walk away.   Unless you get her signature which you won’t,  you can’t take title to the assets whether gifted to you or purchased without her signature.  

@John, my attachment was not allowable.  Please look over in BP youtubes for a copy of our Self Service rental process.  Thanks.  If you can't find it, just PM me.

Was on another post and the question was asked, "What is a good COC for B and C self storage."  The following discussion relates just to drive up B/C self storage locations.  More than 80% of these are owned by Mom/Pop.

Realized, I didn't have a clue, since I don't use COC or cap rate to evaluate my deals. So I thought lets educate myself, so sorry for the basics. Keeping the examples, simple.

COC- Cash on Cash ratio:

Formula- Annual Cash flow divided by original Cash investment.  Pre-tax.

Example: (Cash flow= NOI $60,000 less debt payment $50,000= $10,000) / (Original cash investment (example:$100,000 infusion with a $900,000 loan))= 10%.

Note:  Net "Operating" income does not include depreciation.

Cap Rate:

Formula- Net Operating Income divided by current market value

Example- using the example above: NOI $60,000 divided by $1,000,000= 6%.

Note: NOI does not include depreciation and does not exclude debt payments.

Whatever I am about to say, the above two metrics are the best to use, since they are common metrics and definitions used in the Real Estate world.

We use the "comparison" of Pay back in years versus Loan Amortization period.

Our target for Pay back is 8 to 12 years.  Our Loan Amortization we want is 20 to 25 years.

Our primary focus is on cash flow first; Returns are an inherent part of the Payback calculation.

Remember the discussion started off with a metric to evaluate B/C self Storage properties.  I'm going to avoid picking a winner.  Just use what suits you best.  The key point relative to all three of the approaches, as they relate to Self Storage, especially B/C locations are use them as a starting point, but for Self Storage do a look beyond the numbers.  Disregard which ratio of the above you use:

A.  Is extra land available or is parking rentals included?  The next units you build on this property, subject to the market need, greatly swing all three ratios.  Our first Phase is always built around a 65% occupancy level that pays for everything.  All Land, All fence, All engineering, P/I, insurance, property tax, electric,etc.  The next phase only takes a 35 to 45% occupancy for Cash breakeven (includes P/I).

B.  Increase your rent $10 per unit. Doesn't sound like much but your NOI goes through the roof. Evaluate your market to see the potential. Example: Using your metric, two potential properties have a "ratio" of 8%. All things being equal "financially" which one is worth more? The one in the underserved market.  You can raise the price $10 per unit with Occupancy staying the same.  $10 per unit on a $60 10 x20 is 16% gain.  $10 on say the same unit but NOI, lets say NOI $25 is 40% gain.

C.  Market strength.  Again both have the same "ratio" of 8%.  All things being equal "financially" which one is worth more? Market A "needs" 2,000 units; has 1,500 units with a shortage of 500 units.  Market B "needs" 4,000 units; has 4,100 units with an oversupply of (100) units.  The "quality" of your "A" investment is better than your "B" investment, all things being financially equal.

D.  Occupancy level. If the occupancy level is low, the sellers will think in terms of Cost to build, versus revenue stream/NOI. This will have a "Poor" ratio due to the low revenue/cash stream. Gets back to "C" above. Which market A/B are you in. Emphasizing their Net operating Income which will be low. They will be stuck on their price at Cost to build. If your in market "B" above, walk away. Its not worth working with them on the price. If your in market "A" above, work with them. Possibly get them to do zero interest finance for a portion of the investment for 5 years balloon.

The question was on B/C self storage properties, which are primarily owned by Mom/Pop.  A.  Extra land and parking is valued at that "use" value and not with a what if, built out., B.  They don't raise prices as fast as REITS or regional firms, if at all.,  C.  They don't care about "Market", "theirs" is the only property in town.  Their Sales Price is not based on any of the discussions above.  They don't think that way and most will not go through a broker.

Look beyond the ratio's, especially for B/C Mom/Pop self storage.

Start small and make your Big mistakes early.

@ John.

Here is how we do our rentals as another variation for you.  Key is to have someone sweep out after someone moves out and then set a new contract and lock, with a zip tie.