In today’s self storage business climate, reasonably priced deals don’t stay on the market long. If it is a facility your are interested in, it is critical that you control that property as fast as you can.
“Deal Mode”
This is the second stage of “Deal Mode” as I discussed in last week’s episode.
This usually requires, writing an LOI (Letter of Intent) and then a contract.
I like this method better than just writing a contract because it allows you to negotiate the business terms of a deal with the Seller without having to get in all the details that a contract deals with. Often those details can upset the Seller, and I don’t want to do that at this stage.
It is the business terms that are the most important to the Seller and you anyway, so start there.
I think a LOI should include price, terms (i.e. financing, owner finance, etc.), length of due diligence, contingencies and any other important deal points.
Once you and the Seller are in agreement to these main business terms, get the LOI converted into a contract as fast as you can. It is best practice to have your attorney turn that into a contract, but I realize that is not always possible. Sometimes you just have your attorney react to a contract generated by the Seller or the Seller’s agent.
Now I have gone into a lot of detail about this in the book Creating Wealth Through Self Storage, and in the the classes I offer in the Self Storage Quick Start Academy, so I am not going to duplicate that information here.
This Episode answers the question, what are best practices in today’s self storage market to use when trying to buy (i.e. control) a self storage facility.
Best Practices
Best Practice One
As I mentioned in the last episode, after I do a fast Preliminary Analysis of the area and the facility, if it looks promising I quickly, I mean as fast as I can, go and look at the property.
I do this because if the project is one I like, so will many others. Many of them will have more resources than I do. I go look because it shows the Seller and the Agent that I am a serious Buyer, and I will move fast.
Many will just write a LOI, then if they can control it, they go and look at it.
I did that for years.
What changed me was when I did that and they went and looked at one. The property was fine but I was real concerned abut the location. So I never went to contract.
Then a short while later I saw another storage facility I liked and the same agent had it listed.
Now what do you think the chances are that that agent would tell that Seller I am someone they should do business with.
I now go and look at all properties I think I will write and LOI on.
Best Practice Two
Know your numbers.
Know what you can and can’t pay.
Trust that if you are going to expand and add more self storage units, that your assumptions will work and the income you have in your Pro-Forma will be happen.
Account for construction time, or vacancy, or discounts, etc.
Don’t be over optimistic, but don’t be so conservative that virtually no sales price will work either.
I have seen many people do this thinking they are being safe.
In your first analysis, try to be realistic. You will be able to verify most of your assumptions during the due diligence period. So trust your numbers.
Figure out what is the most you can pay. If is is reasonably close to the asking price, don’t necessarily offer the top amount, but don’t bottom feed either. Don’t offer a price so low it throws you out of the running.
In today’s market, most good agents, and if you are dealing with the same agents over and over again, they are most likely good agents, know how to shape Seller expectations. They usually tell a Seller to expect between 93% to 95% in a first offer.
If the listing is priced right, anything much below that probably won’t get much of a response.
I have seen may get full price offers or more.
Now if the listing is grossly overpriced, you probably are not going to buy it anyway because you are dealing with a uninformed Seller or agent (sometimes both), so just pass on it.
So figure out the most you can pay, and offer near that.
If the deal works and you think you can get the return you need, don’t lose it by throwing an offer so much below it.
You will not be considered. Those days are over now. They may come back, but I doubt it.
Best Practice Three
Try to meet and get to know the Seller.
This isn’t always possible, but if you can, meet them.
I can not tell you how many times that has made the difference for myself and people I work with, not only in the upfront negotiations, but all through the deal and after the closing as well.
Find out what their goals are. Why they are selling. What they want to get out of the sale.
Then help them get it.
I have talked about this a lot in other episodes and in the book Creating Wealth Through Self Storage, but in the Seller’s mind, if they associate you with their achieving their goals, you will buy the facility.
I find out where goals and speak to that overtime we communicate.
Hint-Their goals are never the money. It is what they think the money will get them.
Find out that, then help them get it.
You help them get that, they will help you get what you want, their storage facility.
We have one under contract now and we got it standing still for less than others offered. I think this had a lot to do with it.
In the Seller’s mind, perhaps even subconsciously, they associated getting to be on the water and having fun in retirement with doing business with me.
And I am going to do everything I can to help them get that, so we can add that facility to our portfolio.
Best Practice Four
Be someone you would want to do business with.
For example, don’t go into a deal knowing you are going to re-negotiate after an inspection.
Rarely does that work anyway…and it is sleazy.
If you know you are going to re-pave or something, put that assumption in your original offer.
I am not going to say we have never had to ask for a price reduction to close after the due diligence, but it has been rare.
You would not want to have to deal with that if you were selling, would you?
I know there are a lot of books and “The Art of The Deal” kind of mentality in approaching negotiations.
However, in today’s market, where there are a lot of people who will step up and take your place, I think you are just shooting yourself in the foot by being that way.
The self storage world is not that big. You are going to deal with the same people a lot over your career, especially when buying. You don’t want to get a bad reputation.
Just do what you say you are going to do and do it by when.
If the Seller insist on a 30 day or 45 day due diligence, and I think there is a chance I am not going to be ready by then (which is often the case today because lenders, appraisers, people doing inspections etc. are so busy), I tell them that.
I will accept their shorter time period, but negotiate a right to extend it. I may have to pay for that right, but I put it in the original deal, I don’t just think I will deal later with it because they will not want to lose the deal.
If you are like that they probably will want to lose the deal rather than deal with you.
I would.
Treat people like you would want to be treated. Do what you say you are going to do by when you say you will do it. If you realize you wont be able to do that, communicate that fact as soon as you realize it.
My experience is, being that person makes all the difference in the world. That is who people want to do business with.
And if you are someone people want to do business with…guess what…you will do business.
Due Diligence Period
In the next episode we will discuss what I think are some best practices today in going through a due diligence period on a self storage facility you have under contract.
My approach to this has evolved over time, and how I approach the due diligence period now is different than how I used to.
In other words, I have learned from my mistakes and I will pass that onto you in the next episode.
For deeper training and with more detail, hand-on training, and the forms we use, explore the QuickStart Academy.
