All Forum Posts by: George Fitz

You asked a lot of great questions and others have raised some good points. Here are a few more things to think about:

How many people and what are the demographics in the 3-5 mile radius?

What other revenue streams do they currently have?

Do they charge late fees?

Do they mandate and sell insurance?

Do they charge admin fees?

Do they rent trucks?

Do they sell locks/boxes/moving supplies?

Is the facility fully fenced and does the market require that?

What are the deferred maintenance items?

Look at the competition and see how this property compares physically as well as price and features.

My opinion is that if you're an absentee owner with 200+ units, then you absolutely need a manager in place. There are many things you can automate, so this person may not need to be full time, but there's still loads of work to do- renting, marketing, collections, accounts payable, accounts receivable, maintenance, etc. Again, many of these things can be automated to a certain degree, but there's nothing like boots on the ground. The manager is an extremely important piece of the puzzle, especially so if you are an absentee owner. I notice we live near one another. I'll send you a DM in case you want to chat more.

I don't think it's so much about the state, as it's about the city. I would buy something within a 6-8 hour drive if I were you. Professional management is great, but no one cares about your investment as much as you and you will want to do site visits on a regular basis. If you are doing large capital improvement it is a pain in the butt jumping on a plane to manage those. Not to mention, if you ever decide to self-manage then you need to be within proximity. The southeast has some great small to mid-sized towns that are growing.

@Fred Sams well you definitely know way more about cost seg than I do then! 

Basically, I'm looking at significantly more annual income with this SS property acquisition. I was somewhat familiar with cost seg analysis from looking into it for some apartment properties I own. But I never pulled the trigger before because it didn't quite pencil out. Before I closed on this storage property I did a ton of research on the SS sector and cost seg was one of the things I looked into. It so happens that the scale of this new property and timeframe I'm looking to hold lends itself to doing a cost seg analysis. The study is not cheap, but it should more than pay for itself in the first year. So it was basically a no brainer.

I closed on the property last Spring. I filed an extension for my 2016 return. My cost seg study should be complete in a couple of months and I'll finish up my taxes shortly thereafter. Happy to report back then.

@Fred Sams I'm currently in the midst of having a CostSeg done on a recently purchased self storage property. If you have any questions, feel free to ask and I can try and answer. Someone mentioned that it's a good thing to do for an under-performing property. While this may be true, the better the property performs, the more income you must claim on taxes which can be offset with the accelerated depreciation that a cost seg analysis identifies. So it's definitely a good tool for a well performing property.  

@Christopher Brown I have experience doing exactly what you're doing. I vetted 3 of the regional companies before settling on one and I can give you my experience. However I believe it will be a longer conversation than works on a message board. So feel free to DM me if you want to discuss further. 

I purchased a stabilized (85% occupied) self-storage property last Spring in a rural market that had a cap around 9.5%. That's generally a very high cap rate right now with interest rates the way they are, but because it is in a rural market there is more risk, thus the higher cap. I can't speak to what a cap rate would be on a property still in lease up. Lots of things to think about for you, but if you haven't already, you should start with figuring out the current self-storage saturation in your market. How many square feet of storage currently exist and how may people live within a 3-5 mile radius? Find out the amount of storage per person and compare that to averages around the country, which you can get from SSA and ISS. This should give you an idea if you can get the property leased up and a general idea of how long that will take. Good luck!

Do you have any idea if you can fill it up? Are there any other SS facilities nearby and if so what is the occupancy and what are they charging for similar size units? Are those facilities comparable to your plans for this one in terms of quality, security, etc? The first thing I'd do is try and determine the demand and then get a fairly accurate idea of what I can charge for a unit.

I'd also look at land comps- if it doesn't work out for you then you want to make sure you can resell it at lot value and not lose your shirt.

Otherwise, if you think you can gross $36k/yr at 85%-90% occupied, then you gotta figure expenses. Let's use 35% of gross as a rough number for expenses. That would leave you an NOI of $23,400. That's $156,000 at a 15 cap. Take away $30k for the repairs you need to do and that would be a price of around $126,000, right?

Good luck! 

@Matthew Rembish You can easily go straight to an SBA lender who specializes in self-storage to get these questions answered. Terry @ Live Oak Bank is big in the self-storage arena. Just do a google search and you will find them. I know Celtic Bank in Utah specializes in them as well. I hear that it's important to go to a bank that specializes in SBA because there are many hurdles to get past in the process with the government. I haven't done an SBA loan, but I know they will do a 30 year fixed, albeit at a higher rate than you can get for a shorter term loan with a 20 year amortization. Also, I'm pretty sure an SBA loan can only be used for purchasing, not for a refinance. 

I attended Scott Meyers' self-storage academy. It was great. I highly recommend. Scott is pretty active on BP so he may comment here. Also Inside Self-Storage does a big convention in Vegas that has some excellent educational tracts. I believe they just had the show and I **think** you can get videos of the educational workshops online.

@Shital Thakkar I think you'll have a hard time finding a direct answer to your question, simply because self-storage deals, like most other real estate deals, have so many variables. Expenses, income and return vary greatly depending on the market and the size of the property. 

However, I can give you a recent, real world example as I recently purchased a relatively large self-storage property in a rural market. Year 1 ROI (cash flow + principal pay down) is at 18%. I paid basically full retail for this property with a cap rate of around 9% which is about right for this market and age of the property. The nice thing about this particular property is the scale. It's 580 units with good occupancy numbers. So if I raise the rents by only $5/mo, my ROI will go up to around 21%. If I can get the occupancy up from (current) 82% to 86%, ROI goes up to 26%. And of course this would all raise NOI significantly, which would add around $700,000 of potential value to the property at a 9 cap. So if I pulled this off and sold after 5 years, the rough math would give me an average yearly ROI in the neighborhood of 38% (adding in that forced appreciation). Interest rates are likely to go up and thus so are cap rates, So it might not do that well. This is a long term buy and hold for me anyway. But at least it gives you an idea.