Self Storage Acquisition Options

[thechosen1]

Have a nice off market deal on some self storage. 180 units. I’m doing my due diligence but afraid I don’t have the funds to close. Looking at SBA potentially. Anyone have advice on acquiring something like this when you have little money to put down ?

I think I could refi my home and use that for the SBA down payment, but curious what others say.

The property is mostly vacant - currently grossing $6,000 per month but could be doing three times that since it’s mostly empty. My goal would be to turn it around and then sell it for a cap rate after buying it based on price / ft and comps.

They want $1.3M but I’m looking into comparable properties first. 10% down would be low six figures unless I can find justification for a much lower offer (seems possible since seller is motivated and in a bind)

@SteveO @Envision

 

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[ljean]

Whats the price per SF?

 

[thechosen1]

Whats the price per SF?

It's 33,080 total SF.

So with their ask it would be only $39 (roughly) per SF. Actually sounds pretty cheap.

I know the current owner is replacing a roof right now though and there is some other deferred maintenance. Trying to get more info on that from my broker friend.

Real key for me is the financing - I don't have $1.3 million lying around.

edit: Oh, it also has a weird mix of units.

 

[ljean]

In my market they go for 40-60/sf. How old is it? Why is it so vacant?

 

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[SteveO]

Agree with @ljean . Do you know what other storage units in the area are occupied at?

You mentioned deferred maintenance. Since this will likely be taking most of your cash, you may want to look at doing work yourself. Are you inclined for that type of work?

Financing is another question as you know. Check with sba as you discussed. Also check with lenders and inquire about the seller's willingness to carry part of the note. I managed 10 - 15 percent down a few times that way. Was also able to get money for deferred maintenance through negotiations. Lenders need to be part of those discussions also.

 

[thechosen1]

In my market they go for 40-60/sf. How old is it? Why is it so vacant?

Built in 1970 with major additions (new buildings) in the early 2000's. The land is fully built on, there is no more space to build. The vacancy is supposedly due to poor management - the current owner only bought it 6 months ago and it is about to go into foreclosure - they are having problems. The previous owner had it for 11+ years.

 

[ljean]

What was it bought for 6 months ago?

 

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[MJ DeMarco]

@tpuffer owns storage units, also @AroundTheWorld has had extensive experience here. Perhaps they can chime in.

The owner only having it for 6 months is unusual and strikes me as concerning. Perhaps there are some big issues beneath the surface. Best case, the new owner was a horrible owner and marketer. Any word on what kind of financing is in place and if it is assumable?

 

[thechosen1]

Agree with @ljean . Do you know what other storage units in the area are occupied at?

You mentioned deferred maintenance. Since this will likely be taking most of your cash, you may want to look at doing work yourself. Are you inclined for that type of work?

Financing is another question as you know. Check with sba as you discussed. Also check with lenders and inquire about the seller's willingness to carry part of the note. I managed 10 - 15 percent down a few times that way. Was also able to get money for deferred maintenance through negotiations. Lenders need to be part of those discussions also.

I don't know what the other units are occupied at, but have rough ideas on the rates they charge if that's what you mean.

What's a little weird is that the broker/agent who brought me this deal is actually an owner of a few storage places nearby but doesn't want this one because it's a bit more bare bones and they spend more on their properties (theirs are fancier).

I am fine with this type of work, but I have no time in the day to do it myself (in an office all day, elsewhere). On house remodels I would do work myself in the evenings and on weekends while home. The scope of this may be too large for that.

I can reach out to lenders and start getting options.

 

[BD64]

Have you considered seller finance?

If he is willing to give you terms then you can give him his price. Ofc in this scenario you may not be playing with a bank in the case of a downpayment unless he is willing to take the second position. Not entirely sure what it looks like for storage + SBA but maybe some non-qualified or private money lenders can help fill this gap.

^^edit: ignore this suggestion. didn't consider sellers position when writing the post.

 

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[thechosen1]

Have you considered seller finance?

If he is willing to give you terms then you can give him his price. Ofc in this scenario you may not be playing with a bank in the case of a downpayment unless he is willing to take the second position. Not entirely sure what it looks like for storage + SBA but maybe some non-qualified or private money lenders can help fill this gap.

Yes but I haven't asked. I will mention. I doubt he is in a situation where he can offer it since he is nearing foreclosure.

 

[thechosen1]

@tpuffer owns storage units, also @AroundTheWorld has had extensive experience here. Perhaps they can chime in.

The owner only having it for 6 months is unusual and strikes me as concerning. Perhaps there are some big issues beneath the surface. Best case, the new owner was a horrible owner and marketer. Any word on what kind of financing is in place and if it is assumable?

"Current owner has crap financing because he bought it from the lender who held it after previous owner went through foreclosure."

Uh-oh. So there have been multiple people struggle with this property. I am hoping it's a matter of management and marketing, but this seems odd.

 

[BD64]

Yes but I haven't asked. I will mention. I doubt he is in a situation where he can offer it since he is nearing foreclosure.

Ah right, you also mentioned he bought the property recently. He's probably not able to seller finance. Does subject to work in storage maybe? I'd imagine it does.

 

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[biophase]

"Current owner has crap financing because he bought it from the lender who held it after previous owner went through foreclosure."

Uh-oh. So there have been multiple people struggle with this property. I am hoping it's a matter of management and marketing, but this seems odd.

Sounds like you can pick it up for cheaper from the bank later. Without knowing what the land value is around there $1.3M for $72k gross revenue seems really high and doesn’t come close to paying the bills.

How would you even afford to pay a loan and expenses the first 1-6 months if you have no money?

 

[thechosen1]

Sounds like you can pick it up for cheaper from the bank later. Without knowing what the land value is around there $1.3M for $72k gross revenue seems really high and doesn’t come close to paying the bills.

How would you even afford to pay a loan and expenses the first 1-6 months if you have no money?

I have money, lol, just not the full amount. I can get the loan, it will just be a large loan and I will be pretty leveraged - my stocks and home equity together would be enough for the down payment, and I can always get a private loan or bring someone else on board.

Anyway, the whole point of the deal is that it's almost empty right now, the $72k can be basically ignored. Fully rented it should bring in far more.

Waiting for them to fail is an interesting idea, thanks for that. -- oh, but it will get lots more eyeballs when that happens.

 

[Envision]

Main thing I would look at is the following:

Current population
Incoming competitors (Reference Radius Plus)
Low rent and vacancy is a plus not a con you just need to know how to increase and value add.
Financing contact Live Oak Bank for a SBA 504 they work with storage.

The issue you're going to have is you have no operational experience. The SBA is going to say what do you know and the reality is there is nothing to back it.

Find a partner, your size is too small to have on staff management and if you're rents are under .7 a square foot you're going to struggle to actually turn that facility into a profit generating machine.

Sweet spot for storage with management on site is 300 units minimum. However, this could be an absentee complex that you could use as a stepping stone.

What state is the facility located in?

 

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[thechosen1]

Main thing I would look at is the following:

Current population
Incoming competitors (Reference Radius Plus)
Low rent and vacancy is a plus not a con you just need to know how to increase and value add.
Financing contact Live Oak Bank for a SBA 504 they work with storage.

The issue you're going to have is you have no operational experience. The SBA is going to say what do you know and the reality is there is nothing to back it.

Find a partner, your size is too small to have on staff management and if you're rents are under .7 a square foot you're going to struggle to actually turn that facility into a profit generating machine.

Sweet spot for storage with management on site is 300 units minimum. However, this could be an absentee complex that you could use as a stepping stone.

What state is the facility located in?

Thank you so much for the response. Between your comment and talking with @SteveO , I've cobbled together a much better understanding and a few ideas.

They actually have an office now, which is probably wasted space. Absentee is the idea, but I'm mostly interested in doing it as a turnaround. I would be all hands-on-deck personally during the turnaround.

It's in Texas, near Houston.

 

[Envision]

Thank you so much for the response. Between your comment and talking with @SteveO , I've cobbled together a much better understanding and a few ideas.

It's in Texas, near Houston.

Go listen to Self Storage Income podcast and buy Aj Osborne's book. It'll cover everything you're asking about and more.

 

[biophase]

I have money, lol, just not the full amount.

my stocks and home equity together would be enough for the down payment, and I can always get a private loan or bring someone else on board.

Anyway, the whole point of the deal is that it's almost empty right now, the $72k can be basically ignored. Fully rented it should bring in far more.

You need money for the down payment and you also need money for operations. I mean let's say they want 10% down, so you somehow borrow $130k and then get a $1.17M loan. Your expenses are going to be around $4000-$5000 a month I'm guessing. You won't instantly go from $6000/mo to full capacity so you'll need some operating capital for a few months. That's the money I'm talking about. Else you might fall behind and default in 3 months just like the current seller.

 

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[thechosen1]

You need money for the down payment and you also need money for operations. I mean let's say they want 10% down, so you somehow borrow $130k and then get a $1.17M loan. Your expenses are going to be around $4000-$5000 a month I'm guessing. You won't instantly go from $6000/mo to full capacity so you'll need some operating capital for a few months. That's the money I'm talking about. Else you might fall behind and default in 3 months just like the current seller.

I have more than I alluded to. I should be fine coming up with money, just looking for ways to keep more of it in cash precisely for what you’re describing.

 

[thechosen1]

Compared rates among other properties in the same town, and wow, this place's rates are on average 80% higher, even though they are apparently struggling and mostly vacant! Simply lowering the rents (seems counter-intuitive) could make this place perform far better.

Basically, market is about $1 per square feet per month and this place is asking about $1.8-2...

Edit: those were the move in prices online. I just got their rent rolls and turns out current tenants are all paying deeply discounted rates. So I need to raise rates on existing tenants and lower the ask for new tenants

 

[biophase]

Compared rates among other properties in the same town, and wow, this place's rates are on average 80% higher, even though they are apparently struggling and mostly vacant! Simply lowering the rents (seems counter-intuitive) could make this place perform far better.

Basically, market is about $1 per square feet per month and this place is asking about $1.8-2...

You may like this podcast.

Ep 295 Nick Huber - Sweat Equity — Built to Sell Radio — Overcast

overcast.fm

 

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[thechosen1]

You may like this podcast.

Ep 295 Nick Huber - Sweat Equity — Built to Sell Radio — Overcast

overcast.fm

Ooh I'll give it a listen. I love that guy's stuff, remember reading some back when I was on reddit years ago. Thank you!!

 

[Kak]

@tpuffer

 

[BizyDad]

I have a client who specializes in self storage financing. I'd be happy to do an intro if you want to chat with an expert. PM me your email.

 

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[Ronak]

What's your best case scenario on this?

This is a "go all in" deal. Do the expected returns justify it? In other words, are you willing to lose it all, including your home, for this?

What's your potential opportunity cost of that six figures? And more importantly, your time, credit, and sanity? This is not a passive investment.

Also look into nearby new supply that might be coming up as potential competition. Houston has a lower barrier to entry (zoning restrictions) compared to other markets.

If you fill everything up, that's 216k gross.

But your strategy involves cutting rents. So let's say, at market rate, you're down to 110k. Or we can be generous at 160k.

Expenses? For arguments sake, let's take @biophase estimate of 5k/mo. Then you have holding costs. Another 6k/mo, best case?

I could be totally off mark, but I'm experiencing 2nd hand anxiety just thinking about it.

 

[thechosen1]

What's your best case scenario on this?

This is a "go all in" deal. Do the expected returns justify it? In other words, are you willing to lose it all, including your home, for this?

What's your potential opportunity cost of that six figures? And more importantly, your time, credit, and sanity? This is not a passive investment.

Also look into nearby new supply that might be coming up as potential competition. Houston has a lower barrier to entry (zoning restrictions) compared to other markets.

If you fill everything up, that's 216k gross.

But your strategy involves cutting rents. So let's say, at market rate, you're down to 110k. Or we can be generous at 160k.

Expenses? For arguments sake, let's take @biophase estimate of 5k/mo. Then you have holding costs. Another 6k/mo, best case?

I could be totally off mark, but I'm experiencing 2nd hand anxiety just thinking about it.

I just got the seller’s pro forma last night and all the numbers are different. I’ll analyze it, and I’m not going to buy it if I find it won’t make sense.

But yeah looks like those “high rents” are just what you can see on Google, their actual rent roll shows everyone paying a steeply discounted rate. So "cutting rents" actually won't be it - the current rents need to be about doubled, and the weird management company they have now needs to be fired. Anyway, I’m going to figure it out.

And if I don’t like it, I’ll walk. Not hard for me to do

 

[jerrywil]

Did anyone have any experience with Security Public Storage? It has been on the market for many years, but it would be great to find out other people's experiences.

Many times. No complaints! If you still have your doubts , you can find a lot of reviews about them here - https://www.pissedconsumer.com/security-public-stоrage/RT-F.html, but keep in mind that happy customers usually don't write the reviews, only the ones who are not satisfied do that .

 

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