All Forum Posts by: Steve Cheslock

@Taylor White

First off I’m in Storage so a bit impartial. But it certainly revolves around your goals. Storage is great. Very low expense ratio (around 35% depending on size), we get no calls for “a broken (fill in the blank), and it’s easily scalable.

Down side are certainly barriers to entry, your entry level purchase is probably going to be more expensive than an entry level purchase in multi. Historically storage is also more difficult to finance with banks, but that’s been changing.

Hello Myriam, 

I personally invest in storage (and only storage).  This is a good strategy but there are few things you'll need to consider first.  

1. Saturation:  This is where you will want to start your analysis.  Self storage is highly granular and specific to individual market factors, but as a quick rule of thumb you will use 7 sf of storage per person in a given radius. If there is 100,000 people in that 1 mile radius, that area can sustain 700,000sf of storage (theoretically).  So you will want to see what the saturation is like in that area, and what bringing on a new supply (your facility) would do to those numbers. 

2. Zoning:  While municipalities are opening up most of the time storage is zoned in "Industrial" or "light Industrial" while these Apartment complexes are "Commercial-multifamily".  If you can find a spot that is zoned for storage that's great and gives a great advantage, but most of the time zoning can be an issue.  

I am looking at a deal and curious if it is legal to wrap seller financing notes.  Theoretical example:

1. I purchase a property using seller financing.  Hypothetically $150K with $25K down and seller carries the $125K note at 6% interest only payments with a 10 year balloon.  

2. 6 months later I sell the property using seller financing.  I sell it for $300K with $50K down and I carry the $250K note at 6% interest only payments with a 5 year balloon.  

In this scenario I'll make $25K on the downpayment, the spread for 5 years and then just pay off the note I have on the property when my buyer pays me at the 5 year balloon.  Is this legal? 

I recognize the downside is my buyer defaults and I have to take the property back, but I am completely ok with this.  The deal is a great deal but I don't have time to do it right now.  In 3-6 months I'll have a lot more time so if the back end buyer defaults anytime after the 6 month mark I'm fine with it.  

I'll consult an attorney but wanted to run it by the BP community to get your feedback.  

Thanks so much.  

@Petro B. 

1. What Mike said. For full disclosure I'm a self storage investor (operator) and focus on the smaller facilities in the tertiary markets.  I'm relatively new to the space and own one facility and working to put a second under contract soon.  Also Mike has helped me out a great deal by being a mentor in this space.  

2. In response to your fear that "the end is near" I would respond by asking you if you think people (Americans specifically) are going to stop buying things?  I think COVID has changed buying patterns and now people are buying more things then ever.  

While your concerns are justified by these statistics, this flood to the market is really just a market correction. I'm going to fudge the numbers a little due to lack of memory, but you will get the point. When the market crashed in '07 for whatever reason banks stop lending for new self storage construction. At that time avg facility occupancy was around 85%. So with lack of funds available from 2007-2016 something like only 250 new facilities per year were added to the supply, while the demand stayed steady. The lack of new supply cause avg occupancy levels to shoot up and somewhere around '15-'16 the industry looked up and avg occupancy was now at 92%, their loan default rate was lower than 5% and CAP rates dropped to record levels. Banks now started to fund this asset class and something like 2500 new facilities were built in 2016 alone. The big boys then started getting involved and it's been like that since. So while those 5 year numbers you mentioned are alarming, it completely leaves out the previous 10 years when there was basically no new supply coming on to the market. All in all I see it just as a market correction and for me personally I don't us 90% occupancy levels in my pro formas. If I'm wrong it's a pleasant surprise and not a poor miscalculation.

I cannot speak on larger syndications and what they are pitching.  Like Mike mentioned chances are good they are playing in the major markets where these alarming statistics could come into play, but this space is so micro.  The space I'm operating in I personally don't worry/fear institutional money competing with me.  My deals are too small for them.  

Originally posted by @Henry Clark:

Still a ways off before we open.  Started interviewing night watchmen.  I think I have a candidate.  Passed the neck strength test.

 Haha... my first dog was a very big Rottie.  Love it.  

@Henry Clark this is such an amazing thread. THANK YOU so much for doing this. I’m finishing up the rehab on my first facility and looking at a new construction build for project #2. This was so helpful.

@Adam Ulm I am definitely not the one to ask on this as I've just started looking at this type is asset class. But from my reading to this point it seems like a "tule of thumb " NOI can be 60-65% of gross and probably gets between 50-52% if you want to hire part time management.

But I’d love to hear more operators input as I’m interested as well.

@Dave Carpenter Perfect.  I'm pretty handy so not worried about the minor necessary daily maintenance stuff and plan to hire out the bigger ticket repairs.  All helpful info, thanks.  

I'm doing some prelim due diligence on a property that has a self service car wash on it. It has 4 washing bays and two vacuum station bays but the current owner closed the business 6 years ago.  I spoke with the equipment/chemicals supplier and they said there is no way to tell how much rehab I'm looking at until I turn on and run the bays.  

1. If we go under contract is it reasonable for me to ask the previous owner to turn everything back on?  (I guess I can always ask and he can say no)

2.  I'll just be honest and ask a pretty elementary question, what steps would need to be taken to run the bays?  Is is as simple as making sure the water is connected then turning on the machines. 

If I can't see the machines work I'm going to assume everything needs to be replaced and this will be reflected in my offer.  If I can then I'll make sure one of the machine technicians is down there so I can get a professional heads up.  

Any thoughts? 

@Dave Carpenter Thanks for this, it's good to know.  Before getting into this business did you have any "mechanical" expertise?  I'm not too uncomfortable with learning what needs to be done and feel it's probably the best way to learn everything about the property.  But my baseline is currently zero.