Tuesday, February 28, 2017

Investing in Self Storage

Buying a self storage business


Self storage started to become popular in the 1990s and has grown substantially through the 2000s because it's a cash-cow.

Today, there seems to be self-storage everywhere, and 1 in 10 households rent a unit.  However, I don't buy the idea that the market is flooded!  Typically, people only want to drive five miles at most to get to their storage unit, so it would be pretty hard to flood the market.  I personally have self storage in a few very small towns in South Carolina.  I stay 97% full.  I even have competition less than 5 miles away.

You should have a self storage business visible to traffic, but you can probably get away with a hidden property as long as you come up under Google's business listings for your town.  You must make sure when someone Googles "self storage in your location" that your business listing shows up at the top of the page.  You will get a lot of calls just off of Google.  Sign your business up at Google My Business.

What I love so much about the self storage businesses is that there are no tenants and no toilets.  It's as passive as passive income can get.  You don't have tenants calling you about broken heaters and leaks.  All you have to do is take the money and hand them a key.

Self storage is also recession proof!  In a down economy, people need a space to put their stuff while downsizing.  In a boom economy, people need a space to put all their stuff they've bought.

If a renter moves out in the middle of the night, big whoop... I lost $40 to $120 and I can rent it to someone else tomorrow. That's a lot easier than losing a tenant renting one of my apartments! That could mean repainting, replacing the carpet or making repairs before I can rent the apartment out again.  The turnaround is almost immediate for self storage if you're visible and marketing your business.

Within the renter's contract, it will explain that you, as owner, hold a lien against their property.  If they fail to pay their rent, you will place a lock on their unit and their items will be auctioned off.  It's a much cleaner and shorter eviction process than you find in multi-family.  Plus, many times the auction will recoup your owed money.

You can find self storage business on CRE websites like Loopnet.com, commercialsearch.com, cityfeet.com, etc.  You can also find listings on business broker websites like bizbuysell.com, bizquest.com, businessbroker.net, etc.  Another way to find opportunities is to simply drive around your area and find storage businesses that you'd like to purchase.  Then, send a letter to the owners asking if they're interested in selling.

The self storage business is especially appealing to retirees because it's so labor-passive.  That's good news because when these retirees are ready to sell, they are more likely to offer you owner financing.  They probably don't need all of the money at once and wouldn't mind making some interest; plus, it offers them a tax break.

Before buying a self storage business, make sure the units are mostly full.  85% occupancy rate or higher is ideal.  A low occupancy rate is a red flag.  Cap rates within cities are around 5-6%.  Out in more rural counties, they can be 7% or more.  If you're purchasing a large facility that will require management or employees, the operating expenses should be calculated between 20-40% of effective gross income.

Start making great passive money without all of the headaches that other CRE brings.  It's been my best source of income, and I'm always looking for more!

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