I have said this in the past few weeks, and I am going to say it one more time. Now is the time to get off the sidelines and figure out how to get into self storage if this has been a goal for you.
I am creating this episode right now primarily because of the training I have the on May 15 & 16 (link here to register for that event) , but I would be writing or saying this this anyway.
If the economy is in a stall or slow down, and believe me, we are due, self storage is the asset class to be in.
Self Storage Opportunities Look Different Than Many People Think
One of the problems people have is trying to figure out how to get in today.
They look at deals, the deals are overpriced, and the numbers don’t work. After looking at twenty or so deals and nothing makes sense, they move on.
I get it.
I have had the same frustration… until I figured out a way to make some of the overpriced listings work.
But it is different than many people think they should look, especially people coming from the housing sector of real state investing.
There are a lot of differences.
First of all, in most cases, not all, but most, there are no distressed self storage facilities. If, for some reason, there are, odds are, I don’t want them.
Self storage is still the lowest foreclosed on asset class there is. There just isn’t much distressed storage out there. If it is, most likely, it is a fundamental reason, such as overbuilt submarkets, and there is no solution I can create to solve it.
The way we are getting in self storage is to “create” our opportunities. Let me show you.
Here is an example of a typical project once I enter the unit mix, a realistic stabilized occupancy rate, and our anticipated expenses.
This is a real deal on the market as I write this.
I am sure you have seen a deal like this if you have been looking (or worse in many cases). We figure out the gross potential income, enter our expenses and loan, assume a 3% income increase and 2.5% expense increase… and presto…. a very boring deal.
As small investors we would never do this deal, would we?
Well, this deal and some expansion land. Actually, there was parking on it.
What would it look like if we took the parking away and put up more self storage?
We glanced into the submarket, and there does appear to be demand for more self storage, especially climate-controlled space. Of course, we would verify this with an independent feasibility report during the due diligence, but let’s assume the demand is there like it appears to be.
The same facility, the same initial offering price, but we have transformed a potential 5.63% cash-on-cash return in year five, for example, to a 14.86% return in year five.
More importantly, we have taken a project with a $170,926 NOI (net operating income) and turned it into a project with an approximately $400,000 NOI once the new space is leased up and stabilized.
At that point of the expansion being leased up and stabilized, we are getting close to a 155% cash-on-cash return and we have created about $1.4 million of equity.
(I took year five NOI and applied a 7% CAP rate to it to get a value of $5,759,957, and between acquisition and expansion, we would have $4,358,700 in the deal).
Same project, same acquisition price to Seller. One way works one doesn’t.
Now I know, this would not work for everyone because they want to own a different kind of project, some larger some smaller depending on their business strategy.
But here is an example of what people are going to learn in the Boot Camp training.
This type of deal isn’t going to make someone rich and financially independent, but if someone did two to four deals like this, it sure would over the next five to ten years.
Self storage will perform better than any other asset class in an economic downturn. I feel this way because the downturn itself creates demand for the project.
If you ever wanted to figure out a way to get in self storage, now is the time.
You can attend the boot camp, or if you don’t, use this time to devise a strategy then execute it so that this year you’re in.
I think (I can’t guarantee) it will make a big difference for you as it did for myself and my family.
