This episode covers best practices for Self Storage Buyer’s getting a Self Storage facility standing still in today’s competitive environment.
In today’s self storage business climate, any listing priced anywhere near a reasonable price doesn’t stay on the market long. If you have run your preliminary analysis as discussed last week and this property appears to meet your business strategy’s benchmark requirements, it is critical that you control that property as fast as you can.
This is the second stage of “Deal Mode.”
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 outline all of the details necessary for a contract. 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 an 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 agree to these main business terms, get the LOI converted into a contract as fast as you can.
In my opinion, it is best practice to have your attorney turn that into a contract. However, I realize that is not always possible. If the Seller or listing agent says they want to generate the contract, that’s OK with me. Sometimes we have our attorney react to a contract.
Now I have gone into a lot of detail about this in the book Creating Wealth Through Self Storage and in 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?
Here is my take on that.
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, I go and look at the property.
I do this because if it is one I like, so will many others. Many of them will have more resources than I do. I look immediately because it shows the Seller and the Agent that I am a serious Buyer, and I will move fast.
Many will only write an 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 then went and looked at one. The property was fine, but I was really concerned about the location. So I never went to contract.
Then a short while later, I saw another one 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 with whom to conduct business?
I now go and look at all properties before I send an LOI.
Best Practice Two
Know your numbers. Know what you can and can’t pay. Trust that if you are going to expand, that your assumptions will work, and the income you have in your Pro-forma will be there. Account for construction time, or vacancy, or discounts, etc. Don’t be over-optimistic, but don’t be so conservative that no sales price will work either.
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.
Try to figure out what is the most you can pay. If it is reasonably close to the list 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 many 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 an uninformed Seller or agent (sometimes both), so 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 making an offer so much below asking price, it 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 me, not only in the upfront negotiations, but all through the deal and after the closing as well.
Find out what their goals are. Why are they selling? What do 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 their goals are and speak to that over the time 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 bought more than one where we were not the highest offer. I think this had a lot to do with it.
In the Seller’s mind, perhaps even subconsciously, they associated boating and having fun in retirement with doing business with us.
And I am going to do everything I can to help them get that, so I can add that facility to our portfolio.
Best Practice Four
Be someone with whom you would choose to do business.
For example, don’t go into a deal knowing you are going to renegotiate after an inspection.
Rarely does that work anyway.
I am not saying I have never negotiated after something turns up in an inspection, I just don’t make that part of my purchase strategy.
If you know you are going to re-pave, re-roof, or something, include that assumption in your original offer.
You would not want to have to deal with that if you were selling.
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.
Just do what you say you are going to do and do it by when you say you will do it.
If the Seller insists 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.
My experience is, being that person makes all the difference in the world. That is the person with whom people want to conduct business.
And if you are someone people want to do business with…guess what…you will do business.
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, and how I approach the due diligence period now is different than how I used to do it.
In other words, I have learned from my mistakes, and I will pass that on in the next episode.
For deeper training and with more detail, handouts and forms, explore the QuickStart Academy.
