How to Find a self-storage deal that is perfect for you.
During the current self-storage investing boom, getting a deal done in today's market requires an investor to be both savvy and creative. Beyond that though, you’ve got to be aware of your investment objectives, your financial bandwidth, your life situation and your risk-tolerance. Knowing these things about yourself will allow you to define your ideal investing strategy. By taking inventory of the ‘resources’ that you have at your disposal, you can figure out what kind of deal you can actually take down. For example, if you have less financial resources, it doesn’t mean you can’t be in this business, you can. Some of my students had only $20-30K when they started, and now they’re killing it.
The question isn’t if you can or cannot invest with what you have. Instead, it’s about determining what TYPE of deals to pursue based on what you have and what you are trying to achieve. It’s about being realistic and making sure that the resources you have at your disposal align with your end goals. It’s unlikely that you will be able to take down an $8 million property when you only have $20-40K to invest. You’d be better off looking at properties in the $200K to $500K range as your starting point.
Types of self-storage properties.
Generally speaking, there are two types of properties, turn key properties and value add properties. On one end of the spectrum there are turnkey properties and at the other end there are value-add properties. A turnkey property is already up and running. It has, more or less, been optimized and since these properties are already printing money, they are naturally going to come with a higher price tag. Sure, the returns on these turn key properties can be good because it is a well-run facility and the cashflow is going to be there from day one. The growth in equity though, is going to be relatively limited. The previous owner did the work to get them up and running as was the one who experienced the swing in equity. As such, you're not in a position to force appreciation, you're just collecting the cash flow. While this is certainly a viable strategy, it’s not the one that I choose. While with turnkeys, you’re going to have really good, cashflow to begin with, but not a lot of room to grow, whereas with value add properties, you’ll be buying them in negative, but there will be a lot of room to grow and create equity. So yeah, you may be losing money when you first buy a value add property. Our investment strategy involves finding these value add deals, identifying why they’re underperforming, and then figuring out if we can fix it. And if we’re able to fix ‘the problem’, the cashflow can improve considerably. And this to me is where the real value is created. Storage facilities are valued based on their income stream. So, if you can vastly improve the income stream, you're going to get a proportionall increase in the equity.
Other things you're going to have to look at when you're defining your deal is the kind of market you want to operate in and the size of the property that you want to buy. Let’s start with market types. I operate in tertiary markets primarily. These are small rural markets and there are a lot of reasons why I like to be in these markets. For one, it's simple. Analyzing these markets is a lot less convoluted and there's far less gray area because you're not looking at 15 to 20 different competitors in a two to three mile radius. Instead, you're usually looking at 3-4 competitors in a five to seven mile radius. Facility size is also an important consideration. I'm at 10,000 - 15,000 sq. ft. as a buying point and I would only buy that small if it had the potential to add at least another five or ten thousand square feet. I want to get them up to 25,000 - 30,000 square feet by the time I'm done with them. But again, that's just a rule of thumb so take it with a grain of salt. Though we just scratched the surface here, I hope this post gave you some insight that will help you define your ideal storage investment. If you are looking to invest in Self Storage and haven’t already registered, I’d invite you to join us for a FREE Live Training that’s coming up. Click here to claim your FREE 30 Day Trial