How to Find Your First Self Storage Deal
Finding deals is probably the single most important step in the whole self storage investing process. And that makes a good bit of sense considering that nothing that you want to achieve as an investor can happen unless you start investing...and you can't start investing without a deal! You are going to have to look at a lot of properties before you find one that is worthy of your investment energies. I can't say exactly how many that will be but I hope what follows will help make sure that none of the time you spend is time wasted. You need to be smart in the way that you look for deals. You don't want to spend a whole bunch of time analyzing every deal on the market or every unlisted property that you run across. There's just too many out there to go about it that way. Instead, you would be wise to spend some time defining the criteria that you will use to judge if a deal is worth looking at.
First, you want to define a geographic footprint. Initially, I recommend that you start looking locally, then broaden your search as needed. Remote operation is totally doable but adds complexity that should best be reserved for after you have more experience if possible. Beyond that, starting close to home offers you a "cheaper educaton". You can learn a lot sitting behind your desk staring at your computer but at some point you are going to find a deal worthy of a deeper dive and the closer it is to home, the cheaper it will be do visit the property and do that deeper dive.
Another important consideration is whether you want to deal in primary, secondary, or tertiary markets. In case you aren't familiar with these terms, primary markets are large metropolitan areas where properties often sell at very low cap rates. Secondary markets are the smaller cities or suburban areas surrounding a city. A tertiary market is an even smaller market located in a rural area. Though it might sound counter intuitive, I personally prefer to stick to secondary and, more often, tertiary markets. Facilities within the secondary and tertiary markets are not only more affordable than those in primary markets but the “Value Add” opportunities that I find most exciting are far more prevalent in secondary and tertiary markets. I see no reason to go head to head with the big operators when there are so many opportunities available in areas that they would not even consider competing in.
Taking into consideration what you learned in the last post, "3 Ways to invest in Storage", you will want to decide on the type of facility you are looking for (Value Add vs. Turn Key, Conversion, Development, etc). There's no hiding which of these is my favored strategy but that's not to say that I don't keep my eyes peeled for opportunities that fall into the other categories. While my bread and butter is taking under performing facilities and implementing a comprehensive operational overhaul to create fast equity, I am always open to considering Conversion opportunities (as mentioned, I'm doing a large one as I draft this) and, to a lesser extent, development. I suggest you do the same. Of course you also want to narrow your search to include only facilities that are within the price range that you are comfortable working within.
Once you know what you are looking for, you are ready to go out and find it. I use a multi-faceted approach to ensure that I find the best deals available and I recommend that you do the same. Start online looking at all the listed facilities within your geographic footprint. Believe it or not, two of my first three facilities were listed and they were KILLER deals. I bought one of them for $330K and sold it for $1.8 Million just 6 years later. I bought the other one for $465K and it was Valued at over $1.3 Million Dollars within 13 months! The point is that you should NEVER believe anyone that tells you there's no deals to be found listed. The best places to look are listed below:
Although there are plenty of deals to be found within the listed properties, they can be tough to come by especially when Storage is trending the way it is right now. We are in a Seller's market right now and as such, the Listed Deals are fewer and farther between than they have been in the past. As such, limiting your search to just the listed properties is not advisable. I will talk about some more advanced strategies for finding off market storage deals next week.
I hope you are finding some value in my storage musings and would love it if you'd post comments or questions below. And please be sure to subscribe below so you don't miss out when the next post goes live!