It has gotten to the point that I almost don’t pay attention to listed self-storage properties anymore. Not quite, but I notice when specific companies’ listings show up in my inbox, I delete them automatically because I know they will be so overpriced for our goals, they are not even worth looking at.
Do you do that as well?
But the reality is that trying to find off-market listings is hard as well today. As a storage owner, I get on average 10 texts a week, lots of letters a month, and perhaps one to two calls every week or so about selling my facility. Some inquiries even come for properties I sold years ago (not sure what lists out there show us as owners).
The reality is, for the most part, the way most of us try to connect with and buy off-market properties doesn’t work very well. The people who are successful, I have seen, take a long time to establish relationships and trust. This usually means face-to-face contact over months, or even years.
But what if there was a faster way?
The challenge we have as buyers is we don’t want to put an offer in without knowing the income, expenses, and occupancy rate. Often owners don’t know this, or they don’t know it off the top of their head, and us just throwing an offer out there quickly, we tend to be low. As an owner myself, when someone tells me they can pay more than the market or I am going to save a commission, I think… “yeah, right.”
It has gotten to the point that we, as people searching to buy off-market deals, sound like and act like used car salespeople or politicians, both of whom have extremely low ratings in the average public’s mind.
No owner is going to give me, after a call or two, their P&L, balance sheet, and operating statements. I have written in the past that asking for a random daily close from their operating system is a non-intrusive way to get a lot of information, but even that today seems beyond the reach of many owners. Many we contact don’t even have an operating system.
By the way, if you can get a daily close, great. I have crafted many offers just off that one document.
So I have been thinking about a different approach that would (1) separate us from the rest of the hundreds looking for storage deals and (2) quickly see if we actually have a potential seller.
I have some suggestions.
What if you could give a verbal offer on your first call?
The Steps:
Step One:
Do a little research before you call. Let’s say you are calling on a small 20,000-square-foot facility. You went to your subscription service like Radius+ and the facility wasn’t in their database because it is most likely too small. Or it is there and there is no real information because there is no website.
Go to Google Earth or Google Maps and look at an aerial. Try to estimate the size. Many of these tools have a way to measure the buildings. Get as close as you can.
Also look up the average rental rates in the market or trade area in which the property is located. Also look to see if the area appears to be oversupplied, undersupplied, or at equilibrium (the square-feet-per-capita number). If you think the area is safe, or close to safe, move on with the process.
So when you make the call, you know (1) how big, or about how big, the facility is, (2) what the average rates in the area are, and (3) whether the area appears to be oversupplied, undersupplied, or at equilibrium.
None of the assumptions you have going into the call are exact or even correct, but after about five minutes of work, you will have made some “reasonable” assumptions. In other words, enough to make a call.
Step Two:
Call the facility or the owner (if you can find that number separately). Or better yet, go by if you can. Talk to owners, not managers, if possible.
I would say something like “I am looking for storage in your area and your project looks like it is just what we are wanting. HAVE YOU THOUGHT ABOUT SELLING, OR IF YOU GOT A GOOD PRICE TODAY WOULD YOU CONSIDER SELLING?”
If they say yes… great, move on to the next step. If they say no, as most will, ask if they are interested in getting an offer today on this call.
If they say “OK” or “Yes” or even, “I am not sure…” tell them you just need one piece of information and you can give them an offer today on this call, and if it is something they would consider, you will get it to them in the form of a Letter of Intent or a contract today.
Ask them if they want to know what the one piece of information is.
If they say “yes,” then just ask, “What was your gross income last year or, if you don’t know that off the top of your head, what was it last month?”
Then just shut up… no matter how long the silence is. There is a thing called a “sacred silence,” and I think this is one of those times. Let them move through any mental spaces they need to in order to reveal that number to you.
If they say “I don’t know” or “I can’t remember,” just ask them to give you an “educated guess.” All of this information will be verified after a contract is accepted. Most people know this number. They may not know their occupancy or their expenses, but most know how much money the project generated last month.
Step Three:
Then have a calculator or spreadsheet open and ready to go. I would create a template based on either (1) your average numbers, or (2) if you are using this method to get your first deal, use industry averages. Here are the steps I would go through.
If they say “I think we made $25,000 last month” and they have a small 20,000-square-foot facility, and the rest of the area appears to be full or not giving a lot of discounts, I would make the following assumptions:
- I will most likely have an automated facility and operating expenses would run about 33%.
- If it is a larger facility and I am going to have a manager there, I would use 40% or so for operating expenses.
- If it is a 100% multi-story climate-controlled project (large), I would use close to 45% for operating expenses.
- I would assume 85% or 88% stabilized occupancy. Even if they are not currently there, I am going to assume I will be within a year or so or I won’t close.
Here is the math I would use on a small project of 20,000 or so square feet.
- $25,000 × 12 = $300,000
- 33% operating expenses = $99,000
- Net Operating Income (NOI): $201,000
- A 7% or 7.5% CAP Rate:
- @ $201,000 divided by .075 = $2,680,000
Step Four:
I would say something like “It looks like I could pay about $2,680,000! If you think that is reasonable or close to what you want, I can get an offer to you today.”
Then shut up (remember the sacred silence).
The goal is not to lock down the final price. The goal is to see if they are a serious seller. $2.6 to $2.8 is a serious offer for a project generating $25,000 per month.
If they say it is too low… “I most likely can pay more, but it would depend on the condition and locking down some actual numbers. Also, I can pay more depending on terms like owner financing, if extra land is included, or you holding a note for a small part of the sales price, reducing the cash we have to put in as a down payment. There are a lot of options if you want to sell.”
I really think this flushes out real potential sellers. If nothing happens from the offer, ask if you can put them on your mailing list to keep them updated on the market and stay in touch so when they are ready to sell, they will at least consider you. Then go into long-term relationship development.
But I truly think if someone had approached me this way, I would have at least considered their offer. It would certainly have them stand out from all the other buyers.
Good luck, and the goal is to be different from the rest. My wife tells me I am all the time.
