“Begin With The End In Mind.”
Even my 10-year-old Grandson has learned this because his school teaches the Seven Habits of Highly Successful People by Steven Covey.
“Beginning with the end in mind” is Habit #2 of Steven Covey’s book. It is also a very important part of your self storage business.
When I start working with someone new that wants to get into the self storage business, this is one of the first things we do.
It’s part of designing your Business Strategy.
Why?
For a number of reasons:
- It is a lot easier to get into things than get out of them.
- Have you ever been in a partnership that didn’t work?
- Most importantly, this informs your decision-making process all along the way.
If you are creating a project to hand off to the next generation (assuming they want it), this will determine the decisions like:
- Will you spend the money to resurface the project or not?
- Do you want to expand the project?
- How much debt will you put on the project?
- What condition will you keep the facility in?
All of these decisions and more come into account as you make decisions that will affect the next generation of ownership.
Our exit strategy has always been to sell to a larger institutional buyer or REIT.
This informs us on every decision along the way:
- How large to make it?
- What to sell in the retail part of the business?
- How large should the office or retail area be?
What is your exit strategy?
There are a number of good strategies. The traditional ones in real estate are:
- Wholesale Out – An example is to buy land, entitle it and sell to another self storage developer, or build a project then sell it before lease up. These are usually sold to another investor.
- Flip – Build, lease-up and then sell on the income stream. This is an example of a self storage flip.
- Buy and Hold – This is usually our strategy. Enjoy the cash flow. Our twist is that we design to REIT specs as much as possible for the exit.
- Seller Financing – Good for smaller projects especially where big institutional buyers are not going to go. After you are done running the business, sell it and continue to get a steady income off what you have already created.
Your exit strategy will give you a plan of action during your holding period. It is also very critical that if you are in a partnership that everyone is aligned with the exit strategy.
How do you determine your exit strategy?
You start with:
- Why are you getting in the self storage business?
- What is your experience?
- How long do you intend to hold?
- How much money are you working with?
- Do you have partners or investors?
- What are the current market conditions?
- Where are you in the real estate economic cycle?
All of these questions can or should impact your decision-making process as you design your exit strategy.
Smart Real Estate
Earlier in my career, I would get into any real estate deal I could.
I had no clear picture of why other than I could get in or I could get in cheaply.
The reality is very few of those made me much money and in many of them, I lost money.
I learned my lesson. Now I invest in real estate I know something about, I am passionate about, and I have a clear plan for.
I know that my plan or exit strategy will not happen exactly as I may have it pictured in my mind, but that is okay.
Having a plan puts you, your project and all your decisions pointing in a predetermined direction: how to exit the investment with a profit.
And that is the whole reason for investing.
Not matter if it’s profit for your retirement, your children or your grandchildren, by having an exit strategy you will be one of the few smart real estate investors in the marketplace.
If you “Begin With The End In Mind” as you create and grow your self storage business, you will be creating True Wealth in this fantastic industry.
