Self Storage Industry

[AroundTheWorld]

Is Self Storage Recession Proof?​

We are living in uncertain times. 'Recession' is on the lips of our financial professionals, media, economists and politicians. A recent poll shows that more Americans are uncertain about the economic future. Investors are thinking about what to do with their money during a recession. Could a Self Storage Business be the answer?

According to a recent article in the San Antonio Business Journal, the Self Storage Industry is touting itself as a recession proof or recession resistant industry. Why? There are a number of factors:

• As people cut back or get foreclosed upon, they are moving into smaller homes. However, they are reluctant to get rid of all that stuff, so they will get a storage unit.
• Businesses that are downsizing or going out of business need a place to store the inventory they have been unable to unload. Self Storage provides an answer for them until they are able to find another answer.
• Recession can mean a time of transition for many families. Perhaps they need to relocate in order to find a new job. A move often includes the use of a Self Storage Facility.

The other side of the argument is that as disposible income shrinks, people will choose not to use a self storage unit. I certainly see merit in this. I'm sure that some people will choose to move out of a self storage unit as the money dries up. Even as the desposible income dries up, I find that people are very emotionally attached to all that stuff, and are unlikely to let it go.

 

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[Luke12321]

Very interesting. Never thought about people moving in smaller places but I know for a fact that people do not like to let things go. You might be a redneck if jokes aside, people are willing to spend on self-storage units to hold on to certain personal items.

I am very interested in the industry and I hope to be a owner one day.

 

[hakrjak]

From talking to some of my banker buddies, I hear that self storage are among the easiest investment properties to get financing for -- because they say they know you'll make money doing it.

Every self-storage complex I've ever looked at buying though, has showed negative cashflow.

What's up with that?

Is it cheaper to just build em than buy them or what?!

- Hakrjak

 

[AroundTheWorld]

That makes me laugh.

Ya, it can be expensive to buy an existing facility.... owners often 'overprice' because they don't 'really' want to sell. There is plenty of money in keeping it and it is such a low maintenance/low headache property (relatively speaking). We just listed a property with an exchangor. We told him we are firm on the price. Won't budge a bit.

Developing a self storage business is a whole different story.

Here is an example of recent facility:


Second Year: Cashflow: $17,000 Equity: $551,000

Fourth Year: Cashflow: $51,000 Equity: $1,250,000

Fifth Year: Cashflow: $85,000 Equity: $1,950,000


Equity is based on a 7.5 CAP.
Cashflow is after taking care of debt service.
Property was started with very little down
The increase in cashflow is due to expanding the facility
New Loans allow for development without any additional out of pocket expense.


There are a lot of different paths to take......

Develop one and hold
Develop one per year for 5 years. Sell all but one. Own free and clear (and then some)
Develop one per year for 5 years. Sell. Move equity to true mail box money.
Develop and sell. Rinse. Repeat.

 

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[AroundTheWorld]

A list.

• No leaky toilets
• No Broken Pipes
• Low Overhead
• Tools to Automate your business
• A growth Industry
• Lower maintenance requirements (no appliances to fix or carpets to replace)
• Easy 'eviction' process
• Easy to add significant value
• Low per square foot construction cost
• High per square foot rental revenue

Ah. It is music to my ears.

 

[CarrieW]

it sounds like an awesome setup for an investment.

this is one of the types of investment I will be considering once I get to that point in the plan.


so far my list of investments/businesses to look into
1. laundromats
2. self storage


any other types of businesses that have these or simular qualities?

 

[andviv]

ATW, all of these arguments should make it even easier for you to raise money from investors to grow your business even more if you want to.
I saw people's faces during your presentation at the B&P get together and it is one of my favorites videos to watch (I know, I know, unfair, as I have access to the videos and the others don't, but we are working on that ). What you guys have done is truly amazing.

 

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[AroundTheWorld]

so far my list of investments/businesses to look into
1. laundromats
2. self storage

any other types of businesses that have these or simular qualities?

laundromat seems like too much work to me...

People talk about car washes in the same category too.

Andviv - - great point! They do make a pretty darn good investment!

I can't wait to see the video's.

 

[hakrjak]

Hmmmm, you did that with very little down huh? Intriguing indeed....

I have about $50k I'll need to dump into an investment by the end of summer -- Would that be enough to get into the game you think, or I need more?

- Hakrjak

 

[AroundTheWorld]

Depends upon price of land per acre in your area - - -

but ya. 50K can do it in some areas.


Self Storage takes the leverage of the cap rate....
And makes it accessible to the "little guy"
You can start on a small scale
And then grow it and grow it into a huge facility.

It all comes back to the cap rate.

Increase your income by 10,000
and
You have increased the value of your property by about $140,000.

Now, THAT is leverage!!

 

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[MrPink]

50K is enough from the ground up or to buy an existing place?

I do not have a good grasp of the numbers involved in this industry. I am guessing that you (ATW) showed real world examples at the B&P?

Mr. Pink

 

[hakrjak]

Sounds like anything else If you've got $100k+ to put into something, you can make good money.

I just can't believe the cost of construction is so high for these self storage places. They are basically steel buildings most of the time, on a concrete slab with no water lines to run, etc... Just electrical (And basic...) -- so they should be dirt cheap to build. I would think you could build ine for $100k, but then I get all of these quotes in the $500k range and my head starts spinning.

It makes me want to start my own construction company Hmmm.....

Just left a message with an architect while I was writing this to see what plans would cost me to get drawn up.

Any pointers ATW? (i.e. have the parcel in mind first....?)

- Hakrjak

 

[AroundTheWorld]

The steel frame pre fab building are very expensive to build...

and not necessary.

You can build a very solid stick frame for a much better price.

 

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[hakrjak]

How about Cinderblock walls? The self storage I use has those, and they look like they will last another 500 years Aren't they supposed to be pretty cheap to use?

- Hakrjak

 

[MrPink]

Hakrjak,

You seem like you maybe getting ready to pull the trigger. Where are you learning about the storage industry until ATW book comes out? or are you just going to learn as you go?

Mr. Pink

 

[hakrjak]

Ha -- I'm always ready to pull the trigger on something. I've constantly got 10 irons in the fire. Right now it's Laundromat, Denver SFR's, Colorado Springs SFR's, and now Self Storage. We'll see if any of them pan out (Oh and I'm finishing up on a flip house too)

There are some other good books on amazon currently, but after speaking with an architect friend yesterday -- He has done several of these deals, and he was able to answer a lot of my questions. He said I really should have the piece of land picked out first so he knows what he is working with, and can give me a best case scenario for # of units we can fit, etc... Then he will work with the town building planner, etc on my behalf to get the plans approved and we can go from there.

The question I have though is -- Can you buy commercial property contingent on your building plans being approved, etc? I'll bet you can. Hmmmmm....

Cheers,

- Hakrjak

 

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[Jito]

The question I have though is -- Can you buy commercial property contingent on your building plans being approved

You could probably work out an option to purchase.....

 

[I85]

Another thing to think about is outdoor storage. Most places here are making $3k+/month on their outdoor storage alone(cars/rvs/etc).

 

[AroundTheWorld]

Stop the Presses​

Before you do ANYTHING.

Take a look at supply and demand.

Your project is doomed to a painfully slow start if the area you are looking in has too much supply for the demand.

 

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[ocean]

Stop the Presses​

Before you do ANYTHING.

Take a look at supply and demand.

Your project is doomed to a painfully slow start if the area you are looking in has too much supply for the demand.

Any techniques for assessing your market? I have a partner that is looking for a project of this speed/type.

 

[Redshft]

This is a market I have thought about before.

I don't know how much it costs to build a storage unit. But, I have a friend who was able to buy two old tractor trailer trailers, whatever you want to call them, for $1700. I was thinking one day, about the possibility of finding about 15-20 of them. Say someone has 20 to get rid of and they will take $30K. Go out, buy a 1-1.5 acre plot for whatever. In this case we will say $40K. Add a few grand more for grading and a concrete pad(not necessary).

So about an $85K investment gets you a self storage business started. In my area, a 20x10 goes for about $110/month. At that rate for 20 units, you'll break even in just over 3 years. You could possibly rent out for $200/month.

Maybe there is something I'm not thinking about, but that sounds like a deal to me.

 

[hakrjak]

Haha, well the business sure would be scaleable and cheap... but it would also be pretty shady and might not attract the customers in droves like you want. Who's going to want to go out to a vacant field with no cement or asphalt, and crawl around the dirt to get into the back of a retired 18 wheeler to get their stuff? Just my 2 cents. (Oh, and those trailers will sink into the mud if they're not parked on a concrete surface of some kind!)

Re: Assessing your market -- I have questions about that too... How do you know when a market is saturated? Seems like their is a self storage place on every corner in my town...

- Hakrjak

 

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[CarrieW]

Id call and ask about storage units. see whats available, if they are all full everywhere then Id guess its not saturated yet.

There are several ss places around me and you cant ever get one when you need it. they are always full or only have the smallest sized units.


about the trailers. when i worked at walmart we had 10 trailers outback that we used for overflow layaways. they get very very hot inside and are not suitable for alot of storage. There is no insulation or electric. it would be a dark damp mess.(Ive seen it lol)
You couldnt store electronics or clothes or candles. I am sure theres other items that would be damaged in that type of storage also.

we used ours to store bikes, toys and some boxes. the layaways were only for 90days, by the time we unloaded the abandonded stuff alot of stuff was damaged.

Most ss places offer climate controlled units. necessary for things like electronics, fish tanks and collectables. Not everything can just be stored anywhere and be ok.

 

[AroundTheWorld]

Look at:

Occupancy at nearby facilities
Growth rate of nearby facilities
Population trends in area
New Subdivisions?

Look at the entire town / but specifically at the 5 miles near your proposed location.

 

[Eric]

I assume they do better in lower class neighborhoods?

 

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[Jill]

I assume they do better in lower class neighborhoods?

Why do you assume that?

 

[Luke12321]

I would look for growing populations, where apartment complex has been built recently...that sort of thing. I would not necessary say lower level income neighboorhoods would be best. I would think all level of income's would need extra storage space from time to time...

 

[Eric]

Why do you assume that?

I've just noticed more storage units in seedy neighborhoods than in affluent ones. Maybe that graffiti makes them stand out more?

 

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[REI]

Friday, April 11, 2008


Williams enters self-storage biz


Atlanta Business Chronicle - by Lisa R. Schoolcraft Staff writer


Self-storage no longer looks like a tin roof shack. Upscale self-storage facilities, swanky enough to store vintage wine, are cropping up around metro Atlanta, many looking like office or bank buildings.

http://www.bizjournals.com/atlanta/stories/2008/04/14/story10.html?b=1208145600^1618348

 

[CarrieW]

that was a great article! rep +

I agree with the outside storage issue. even in neighborhoods where there isnt an assosiation there can be issues with storage for boats and trailers. Where my mom lives in pa when it snows you have to have everything off the street for plowing or you get fined. she cant get it in her yard and theres never anywhere open for storage thats not just park and go.

I imagine its the same in other areas. great idea for an add on to a ss facility!